Stagnation in the property market is creating a new breed of “limbo landlords” – people who can’t sell their own home and so are choosing to rent a better house on the next rung of the property ladder. Rightmove, the online estate agency, reports that as a result the supply of houses for sale has declined for the fifth month in a row.
So what are the mortgage options if you need to rent out your existing home?
Melanie Bien, Director of Communications at Private Finance, the mortgage consultant, says “limbo landlords” can ask their lender to stay on their current deal, known as a “consent to let”.
This is by far the most cost-effective option and suitable if you are only planning to rent out your home for six or 12 months.
“Another option is to switch to a buy to let mortgage, since the affordability of the mortgage depends on the rental income you can generate from letting out the house, rather than your own income,” she says.
A buy to let mortgage will typically be a couple of percentage points higher than the average mortgage (best buy rates on ordinary mortgages range from 2.75% to 4% while buy to let loans are charged at around 5.1% to 6.6%). “You will need to be able to put at least 25% equity into the property,” says Ms Bien.
With big rent rises of 8% (on top of 11.5% last year) predicted for this year in London, becoming a limbo landlord could make good financial sense for someone living in the Capital. Melanie Bien says that there is “very high demand” for rental properties in University towns which is leading to rising yields, and that first time buyers are still struggling to get on the property ladder and so are forced to rent rather than buy.
Lettings and evictions specialists Legal 4 Landlords warns landlords to be vigilant about leaving their homes empty. Sim Sekhon, director at Legal 4 Landlords, said: “We’ve seen a 30 per cent increase in tenant eviction notices in cases involving squatters. People have become wise to squatter’s rights and it’s becoming a big issue.”
Film director Guy Ritchie became a victim of squatting after his £6m London mansion was entered by squatters.”
A list of vacant properties, freely available from government websites, has led to organised squatting groups publishing detailed maps of empty homes throughout the country, so it makes sense to find tenants for the short to medium term.