Why the reluctance? New landlords and the 2011 market

The end of 2010 witnessed a resurgence of the so-called 'accidental landlord', as more homeowners chose to rent out their properties.

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This increase in owners struggling to sell in a sluggish market was identified by the Association of Residential Landlords (ARLA) in October last year - the return of a dynamic which was first observed in the wake of the financial crisis which hit in summer 2008.

And while the proportion of ARLA registered letting agents reporting a rise in the numbers was a long way from the peak witnessed in early 2009, the association reported a marked increase between Q2 and Q3 last year.

The background to the issue is a housing market which isn't seeing properties attracting the kind of prices that their owners are looking for. The latest house price index by Rightmove.co.uk revealed that sellers in December cut their prices by 3% - an average of almost £7,000.

This move follows a 3.2% cut in November, and means that sellers have now cut their prices in five of the last six months.

According to the site, 2011 is primed for sellers needing to cut their asking prices further, with Rightmove predicting that the national average will fall by up to 5%. It is suggesting that it is set to be a good year for landlords - and a bad one for those who need to sell.

However, while more people are turning to letting out their homes - either because they can't sell, or refuse to accept the offers - it seems that there is still room for far more.

A shortage of rental property which persisted in 2010 is to continue through 2011, "with demand far exceeding supply", according to ARLA. It is predicting that tenants will increasingly have to make do with properties which are not a 'best fit' for them - especially as increasing numbers of family homes come on to the rental market due to the owners struggling to sell.

ARLA operations director Ian Potter acknowledged the increase in reluctant landlords, but added that the new rental properties coming on to the market were "nowhere near enough to cater for the demand out there".

Yields and voids

And it seems that an increase in accidental landlords is not having a negative impact on property rental prices. According to the latest rental index from Findaproperty.com, average rents were on the up towards the end of 2010.

The same research also highlighted that the falling level of rental stock is causing rental yields to increase - up from 4.57% in Q2, to 4.69% in Q3.

The rental yield is the net income the property brings in - in other words, the rent minus overheads such as maintenance - divided by the cost of buying it initially. A typical yield is around 5%, though this figure can be rather higher - or lower - relatively speaking, depending on where you have invested, and the type of property.

And there is another indication of the rental market's vibrancy at the moment. Voids - the length of time that a property remains empty, and therefore not earning money, between tenants - hit an eight-year low in September last year.

The average had fallen to 3.2 weeks - down from 3.6 - in Q2 2010. And this fell to an average of just 2.9 weeks in the South East.

Not without its risks

Of course, there are a number of things to take stock of before committing to becoming a landlord - accidental or otherwise.

One problem which ARLA is highlighting is an increase in tenants who are struggling to make rental payments. It suggests that job losses and pay cuts could be behind a Q4 rise - the first for 18 months - in members reporting an increase in tenants with payment issues.

Potter said: "Letting a property can be full of potential hazards, especially for inexperienced landlords - from material issues, such as a tenant mistreating a property, to financial problems, such as a landlord's inability to meet mortgage payments."

Tips for reluctant landlords

Even with rental property in continuing short supply, letting out your home isn't as simple as placing an advert and leaving in time for your tenant to move in.

• First things first - make sure you have permission to let from your mortgage provider - or leaseholder, if on a long lease - and decide whether you are going to use an agent.
• Spruce up - While you may not need to carry out DIY, it may be a good idea to give your property a lick of paint - tenants may be encouraged to treat your property better if it is in good order. Meanwhile, decide whether to let it furnished or unfurnished. In addition, take photographs with dates to show the condition of the property prior to anyone moving in - they may come in handy in the case of a dispute.
• Think safety - a gas safety check needs to be carried out every 12 months, and a copy given to the tenant. Meanwhile, furnishings should carry fire safety labels, and it is a good idea to provide a carbon monoxide alarm. In addition, you are going to need an Energy Performance Certificate to prove how energy-efficient the property is - and potentially how attractive it is to tenants.
• Choose carefully - Check references from applicants, and don't necessarily take the first ones that come along - taking on a tenant is a commitment. Also, make sure you take a deposit - to be put into a tenancy deposit scheme - and if possible, get a tenant to nominate a guarantor who will pay the rent if they become unable to do so.
• Written agreement - Make sure you use one. The standard is an assured shorthold tenancy agreement, which typically runs for six months. It should ideally be witnessed, in addition to being signed. If anything goes wrong, you will want to take the initiative. Write as soon as possible to a tenant if they fall behind in their rent, and consider starting eviction proceedings - this may encourage them to pay up.