The opportunities for accidental investors

Its official: renting is cheaper than buying. This news may not come as a huge surprise to some, not least with so many people choosing to rent rather than buy property precisely because of the soaring cost of buying a house in recent years.

Yet the implications of this are significant. Writing in the Guardian, Steve Wilcox, professor of housing policy at York University, noted the recent research by Hometrack which detailed the nature of the widening cost gap.

From these figures, Professor Wilson noted that in London, where the rent-to-income ratio was the highest in Britain at 25.5 per cent of household earnings, the cost of renting was still only 68 per cent of buying property. The figure is even less in other regions, the lowest figure being 61 per cent in the east midlands.

As a result, the professor said, there was a “positive side” to the housing situation as the provision of rental housing grows and stated that buy-to-let, far from being to blame for the housing crisis as some suggest, may be “just as much a part of the solution” as part of the problem.

This being the case, a question may be posed for an individual who acquires an additional property other than by buying it. Such instances would include inheritance or marriage, where a property owner would suddenly have two properties.

Should someone in such a situation sell or let? Of course, the former is always an option if there is a need to raise a large sum of money, but letting is an option frequently taken up, landlord website Property Hawk has pointed out.

The website’s editor, Chris Horne, stated that around a quarter of people in the buy-to-let market were “accidental landlords”, people he described thus because they “haven’t actually set out as such to become a buy to let investor, but through circumstances have ended up with a property and decided to keep it rather than selling it.”

Certainly there are many people with small portfolios. Figures published by the Association of Residential Letting Agents last month show that 41 per cent of landlords have no more than two properties for rent. These people, particularly the accidental landlords, have certain advantages, according to Mr Horne.

Firstly, he noted, they usually have little or no mortgage on the second property, which means they are “not at risk” of losing an investment due to the credit crunch, while the type of property, often a house rather than a flat, could be an advantage.

“What we’ve seen recently is that, with a lot of speculative development and investment going into flats, there’s actually an oversupply in a lot of areas, whereas you tend to find that there can be an undersupply of houses,” he explained.

With such landlords thus often able to provide a different and in-demand form of accommodation, the accidental landlord may not just be in a position to cash in and enjoy their lucky “accident”; they may also offer new accommodation choices for those looking to rent. As such, they are a significant part of the buy-to-let industry and their presence in it helps serve the ever-growing demand for rental accommodation. As Professor Wilson put it: “It may have become more difficult to buy – but it has also become easier and cheaper to rent.”