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Landlords prosper but housing allowance changes pose problems

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17th Feb 12 8:27 am

London’s landlords prospered as rental rates and yields went up in January, but those who let property to people on housing benefits could be in for a more challenging 2012.

The average monthly rental rate for a property in London went up by 0.8 per cent to hit £1,032 in January, a rise of 6.3 per cent on last year’s figures, according to LSL Property Services’ Buy-to-Let Index.

Rental rates in the capital are well ahead of the national average, with the average property now costing £712 to rent per month in England and Wales. This figure has gone up by 0.1 per cent on the previous month – the first monthly increase in January on record – while rents are 4.3 per cent ahead for the year.

Landlords in London will also be pleased to see rental yield rise by 5.1 per cent in January, while it is now 4.9 per cent ahead year-on-year. Rental yield is the amount of income an owner receives per year expressed as a percentage of the property’s value.

National Landlords Association representative for London Richard Blanco said: “What we are finding is because people are struggling to get finance to buy, they are renting and the rental market is benefiting. Rents are either holding up well or seeing reasonable rises. That’s true across London, my properties are in south east and east London and I have seen increases.”

However, Blanco said changes to the Local Housing Allowance rules could cause problems for landlords who rent properties to families on benefits. One landlord in Camden who has a number of two-bedroom properties used to charge £340 a week, but must now consider dropping his price to £290, the new cap for houses of this size.

Blanco said landlords will have to think carefully before deciding whether to drop their rates or end tenancy agreements in the hope of finding new tenants.

“It is tricky because the rental market is quite buoyant, so they could end the tenancy and get in a young professional or a working family who are not on benefits. But their properties may not be in an area which attracts that sort of tenant, so in many cases landlords may have to cut their rents.”

Landlords have also been helped by access to mortgages improving, although Blanco said they had been in a “terrible position” previously.

“BM Solutions and The Mortgage Works were in a dominant position but now a lot of lenders have come back into the fray. Small building societies and new lenders who had left the market have come back and that is fantastic.

“What they are realising is that buy-to-let lending is not necessarily higher risk than residential lending and in some cases it is lower risk.”

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