Spring Property Survey: Landlords get wise to a gap in the market: Putting your savings to work by buying property can be more attractive than deposit accounts, writes David Lawson

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The Independent Online
THERE seemed to be a mistake in the auction details. The beaming couple, still shaking with excitement at winning the bidding battle for a modest suburban house, appeared to have bought their own home.

The flustered clerk quickly realised, however, that the address of the purchase was slightly different from that of the buyers. He was seeing the birth of a new landlord.

'There is at least one buyer taking a nearby property, often in the same street, in almost every sale we hold,' said Alan Collett of the auctioneer Allsop& Co. 'Usually this indicates they are ordinary home owners buying another property to rent out.'

They will have passed the For Sale sign often, commenting that it would be a nice place to live - if they were not perfectly happy with their own home. Then one day - perhaps on the morning savings rates were slashed - an idea strikes. Why not switch their money into property?

A few years ago the thought would have died at birth. Hardly anyone except students and a few transitory business people rented from private landlords. Getting a reasonable profit - or a foot back in the door when you wanted the house back - were also a constant worry because of laws which seemed to favour tenants over landlords.

Today, however, renting is fashionable again. The number of private tenants rose by more than 200,000 to 2.2m between 1988 and 1992 - the first increase this century. Many of those are between homes. They may have had to move for work or personal reasons but cannot buy a new home because the existing one will not sell.

That number is gradually falling again as the market recovers but Mr Collett believes renting will not fade back to obscurity, and the private landlord will be dragged back from the brink of extinction.

New kinds of tenancy introduced in 1988 give them a better chance of profitable rents and the assurance that they can reclaim the property when needed. Just as important, however, is the fact that people will be more inclined to rent because prices are unlikely to rise as fast or far as in the past

'This will erode the fear that you must buy at any cost today because you might not be able to afford it tomorrow,' he says. There will be a ready supply of tenants you can trust with your property.

The flip side of low inflation is rock-bottom returns for savers. This fear of falling returns stirred Brian and Pam Johnson into action. They looked at PEPs ('too expensive') and unit trusts ('too risky') before spending pounds 60,000 on a modest west London terraced house.

'As a freelance, I have very little in the way of pension or insurance cover, so this is our nest-egg for old age,' says Brian.

Mr Collett says an average pounds 30,000 flat should earn around 7 per cent after tax and expenses - is far more attractive than most deposit accounts. Brian and Pam have not budgeted to make such profits, however, merely aiming to cover costs. But as rents rise, so will their income.

As property values recover, the value of their investment will also rise. That may reduce tenant demand as people are enticed back into buying, but it shows that new landlords such as the Johnsons appear set to win, whichever way the economic winds blow. In other words if prices remain stable in the Nineties, there will be a steady flow of renters; if they rise, the property can be sold at a profit.

Running costs can be set against income from rents. 'But keep an eye on acquisition expenses like legal and survey fees, as you cannot write them off.'

Do not skimp on the survey, however, or the place might fall down as soon as the first tenant walks in. And remember that such inspections are not foolproof. They do not cover wiring and plumbing - which the Johnsons found to their cost, after having to fork out pounds 300 to repair the central heating and the same again for an electrician.

Even then, an agent will cream off at least 10 per cent. 'You can look after the property yourselves but we prefer time to ourselves - and holidays - rather than being on call for repairs and emergencies,' says Brian.

Take care choosing an agent. Many jumped on the bandwagon when renting took off and have neither the skill nor manpower to do the job. It is worth searching for one that belongs to the Association of Residential Letting Agents, which imposes a code of conduct on members.

It is worth consulting one before buying, as they can advise on what to choose, how to prepare a property and which rules and regulations apply. The Johnsons, for instance, went for a suburban family, happy with a self-decorated home and modest furnishings from second-hand shops.

Company lets are more lucrative but demand smarter addresses and plusher property. In central London, for instance, the best property is always within 10 minutes of a Tube, according to a brief guide by Plaza Estates, the award-winning agency.

Rosalind Florence of Glentree Estates has also written a concise manual that could prove invaluable to potential new landlords, covering everything from choosing the colour of the walls to enforcing service charges.

Contacts: Glentree - 081-209 1144; Plaza Estates 071-724 3100.