UK Property Investment Blog

Bank of Scotland, Northern Rock and Royal Bank of Scotland are all beginning to re-enter the buy to let market which can only be a good thing for buy to let investors!

Alongside Birmingham Midshires, who are getting offers out as quickly as ever and the Mortgage Works and C & G this will offer a very good range of lenders.

An interesting point from David Smith in the Sunday Times at the weekend, who stated that actual lending by many lenders was still quite constrained last year – with the average first time buyer earning an average of £35,600 in summer 2007 and the average salary of a mover being £45,600 compared with less than £25,000 for the population as a whole.

So the median loan-income ratio for first time buyers was less than 3.4 and for movers just over 3 which supports average prices of £180-200,000.

Clearly still people on the average salary of say £25,000 would struggle to get finance while prices were this high, and it would be irresponsible for lenders to lend at this level.

The days of 125% mortgages are clearly, quite rightly gone, but it does look as if with some tightening up across the board the lenders will be back lending confidently again. The key for them is making sure values are sensible, and most importantly the debt serviceability is realistic ie on buy to lets at least a rental coverage of 125% (we normally go for at least 150%) and for owner occupiers probably looking at no more than 3.5-4 times annual earnings.

All in all though, good news for buy to let investors with more of the big players coming back on to the market and looking to lend again!

In a survey conducted by Paragon Mortgages nearly 33% of landlords never run a background check on their tenants – a check that could prove to be the pivotal difference between finding a quality tenant and a bad one.

Traditionally a landlord would be expected to perform a series of credit/ background checks to ensure that their tenants can afford their rental property. For example the following precautions:

Identity verification
Employment status
Credit/financial history
References

Yet as this report by Paragon proves a startling number of investors choose to not perform this search.

Continuing in their survey Paragon found of the 1,000 investors questioned that nearly 14% of them – at some point in their career – had been forced to evict a tenant due to them falling into arrears.

This figure is further confirmed by the National Landlords Association. In their annual company review they reported that 75% of their calls were from property investors asking for advice on rental arrears.

What can investors do to prevent this?

In light of the current financial climate, the surest way to secure your rental property and your monthly cashflow is to make your tenant fill out a Tenant Application Form.

By utilising this simple form you can acquire the following details about your tenant: their property details; employment status; previous/current landlords references and their bank details.

One of the key elements to attaining a successful property portfolio is ensuring that you offer your rental properties only the best in quality tenants.

Yet in a recent survey by LPS, of the 10,000 investors they surveyed, LPS discovered that 42% of them had received fake references from tenants aged 29 and below.

With at least another 50% having received a fake reference at least once during their career.

Yet this statistic is only a sample of the numerous deceptions investors have encountered from their potential tenants.

Continuing in their report, LPS noted that investors had also experienced similar instances from other age groups; some of which you may find surprising:

Aged 50 and above: 43% offered fake references
Aged 60 and above; 21% offered fake references

Without proper measures in place, the above figures could prove to have a detrimental affect upon the size of your passive income, by removing a vital part of any property investment strategy: a paying tenant.

So what do you do?

The only sure way to guarantee that your tenants are sending real credible references is to request these references yourself. Plus during this time it is essential that you have access to resources that will enable you to check out the validity of your tenant.

The key areas you will need to establish are:

1. Their credit history
2. Current/previous employment
3. Current/previous landlord references
4. P roof of income.

And in terms of external character references, LPS have proven that given the opportunity tenants will opt to send fake references in order to acquire a tenancy agreement.
So, are you building your property portofolio?