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UK Buy-to-Let Needs New Landlords

UK Buy-to-Let Needs New Landlords

The demand for rental property in the UK is such that many experts are predicting that as many as 1 in 5 households will be living in rental property as tenants by 2016.

In order for this estimate to be accurate there will need to be an additional 1.1 Million more rental properties made available in the UK private rented sector.

Experienced property investors are expanding their rental property portfolios and the demand for rental property is so strong that many new property investors are being encouraged purchase property for longer term rental yields and become landlords.

UK PRS landlords are reported to control as many as 4.8 Million PRS rental properties throughout the UK, up from the reported 2.5 Million in 2002.

PRS rental properties in London account for 27% of all residential properties while social renting now accounts for just 24%.

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A commercial radio advert which suggested that people would be better off putting their money into property rather than keeping it in the bank has sparked a furore and landed an estate agent in trouble with the authorities.

The radio advert, approved by the Commercial Radio Companies Association prior to broadcast, was pulled following complaints.

Three complaints to the Advertising Standards Authority, (ASA), claimed that the advert was misleading because it did not make it clear that there were risks associated with investments. Two of the complainants believed the advert misleadingly presented buy-to-let as a low-risk investment.

Two of the complainants also challenged whether the advertiser was regulated by the Financial Services Authority (FSA) and, if not, whether the ad was suitable to be broadcast on radio.

The company responsible for the advert, Aldermartin Baines & Cuthbert (ABC), told the ASA that they offered many properties that reflected yields of between 7% and 12% but had been guided to suggest a 5% yield, which was very conservative and definitely deliverable. They claimed that they had also been very careful to ensure the ad spoke in very general terms and did not guarantee any return or yield. ABC also said that accountants and financial advisers had contacted them and commended them on the advert.

The company did not accept that the ad misleadingly presented Buy-To-Let as a low risk investment. They said that whilst the radio ad did not mention ‘low risk’, it focused on the issues of inflation eroding the value of money, either on deposit or as the debt of a mortgage, and that if a deal was considered risky, banks would not lend on it particularly in the current economic climate.

The Commercial Radio Companies Association said they were happy with the content of the advert as, in their view, it had been carefully worded so as not to misleadingly imply that investing in a buy-to-let property was low risk or risk-free.

They said the advert was for buy-to-let property promoted as a buy-to-let ‘investment’. They understood that buy-to-let property was outside the FSA’s remit because it was an ‘investment’ not felt to be in need of FSA regulation. They did not feel that banning such adverts from radio would be fair or proportionate.

The ASA considered the advert misleadingly presented buy-to-let investment as low risk and did not make clear the potential risks associated with such an investment. It stated that the risks involved were not limited to tenants not paying their rent and felt that the overall impression was that the advert presented buy-to-let investment as an alternative, or a preferable option, to saving.

The ASA noted that buy-to-let property was not regulated by the FSA and considered the advert to be promoting an investment and despite the CRCA’s comments, it upheld the public’s complaints and subsequently banned the broadcast of the radio advert .

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