Seek the truth when buying to let
The boundaries of reality are being pushed by agents and developers in some off-plan apartment sales, says Jonathan Morgan.
Over the past 20 years, as the Leeds city centre residential market has grown beyond all recognition, off-plan selling has had a significant part to play in enabling large and, sometimes, risky developments to get off the ground.
By offering early buyers clearly discounted prices, an entire generation of pioneering property developers were able to underwrite their risk and push the button on thousands of new apartments which are, to this day, the backbone of the private rental sector in Leeds city centre, providing much needed housing for the engine room of our economy, the key-worker community.
Off-plan selling has come and gone in the context of market conditions defined by rising build costs, a scarcity of speculative development finance and a surge in institutional build-to-rent fund activity.
Residential property investment is now a wellestablished, well-resourced and generally transparent undertaking founded on the principles of a balanced approach to long term wealth planning, the availability of consumer-friendly mortgage products, the emergence of an entire expert and advisory industry and the continued regulation of the lettings industry.
Inevitably, as with any asset class, models have emerged which have less to do with long term viability and more to do with sometimes flimsy propositions and eye-watering estate agency fee structures which knock the usual 1-1.5 per cent commission into a cocked hat. With such incentives on offer in the context of a largely unregulated sector, it is not unusual to see the boundaries of the truth pushed to the very limits.
Whilst such “enthusiasm” is a potential threat to prudent residential investment, particularly amongst distant or inexperienced investors, it is easily countered through a few simple measures. Here they are:
*Never buy a property without doing proper independent research on price, rental value, likely demand and the immediate geography of your proposed investment. Sleek marketing, highly professional computer generated images and a “relaxed” view of reality can be a dangerous force in the murky world of faceless, long-range off-plan sales.
*If it’s feasible, visit the site, walk the area and judge for yourself. Whilst you are there, call into a few agents and ask them if they’ve heard of the development you’re interested in, what they think of it, whether the price sounds right and what the future rental might be. If you aren’t able to visit the site, jump on to the internet, find a few local agents and call them.
And if all else fails, grab a glass of wine and while away a few hours on Rightmove checking out values and rents- desk-top research has never been so easy.
The future for buy-to-let looks bright with the cost of money likely to remain low for some time. The Bank of England has again signalled the likelihood of negative interest rates.
There is also a distinct possibility that competition for market share amongst specialist lenders will increase as we emerge from the grip of the pandemic, pointing to better value for borrowers.
Residential property has performed beyond all expectations in the most trying of conditions over the last year or so and with economic recovery expected to accelerate as the vaccine is rolled out, demand for quality accommodation from a wide range of tenants will grow.
Leeds City Centre has had a dramatic recovery from it’s completely unfounded reputation as the empty flats capital of the North in the early 2000’s. Occupancy levels have remained at over 95 per cent and in the portfolio we managed at Morgans for over 20 years, we maintained over 99 per cent occupancy from 2007 onwards.
The effective shut-down of the city centre economy through Covid has had a well-documented impact on void levels which have crept up from between 0.5 and one per cent to give to eight per cent as a direct consequence of the first lockdown, which put a stop to new lettings in that time.
Rental inquiries have grown since last summer and take up is above expectation. We expect void levels to return to the norm at the end of the first quarter.
Leeds’ historic economic diversity and resilience has been well-researched and reported and the city is expected to emerge in good shape from the dual challenges of Brexit and Covid.
In such conditions and with the right advice and research, prudent residential investment is easily accessible and can be de-risked even further by buying a property which has a tenant in place and a demonstrable record of income and expenditure
For those in search of greater potential returns, there are some apartments for sale, which are currently unmortgageable due to cladding issues but the risks attached are considerable.
■ Jonathan Morgan is the founder of Morgans, now Linley and Simpson with Morgans.
The future of buy to let looks bright with the cost of borrowing likely to remain low.