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A lot has been written about the travails of the UK property market. But the private rental sector has received less attention despite the difficulties faced by many buy-to-let landlords over the past two years.
Many of those who have entered buy-to-let or been tempted to move their homes on to the rental market can struggle to secure a tenant. But there is a potential safety net for landlords called guaranteed rental schemes. Under this arrangement, the landlord signs over the property to a letting agent for a specified period of time in return for a guaranteed monthly income.
It is then up to the agent to let the property and any profits they make after what they have paid to the landlord are theirs to keep. But although these schemes provide peace of mind, it's unlikely that you will be getting the property's full earning potential.
Guaranteed rental schemes usually pay a fixed rental income to landlords for a fixed term, regardless of whether or not the property is occupied.
The income the landlord receives will be less than the rent the property could potentially achieve on the open market as they are paying the scheme provider to take on the risk of not being able to fill the property.
Although someone else is filling the property, you can't hand over all the responsibility and will still have some obligations as a landlord. It is up to you to ensure the property complies with all landlord health and safety regulations, and if the property is leasehold, you also have to pay the ground rents and any service charges. However, the provider of the scheme will usually cover the costs of maintenance on the property. But the normal agent's fee as well as maintenance costs and the insurance premium for the guarantee will all be factored into the amount of the guaranteed monthly income, so even though you aren't paying up front, the money is probably still coming out of your pocket through a lower guaranteed pay-out.
The length of the term of these schemes can vary from 12 months to as long as seven years. We are pleased to be able to offer such long contracts at DELAMOVE LTD.
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rental schemes
Guaranteed rental schemes have traditionally been offered by new-build developers looking for another way to market their properties. However, recently there has been an increase in uptake of these schemes by "accidental landlords". Homeowners who are frustrated at not being able to sell are moving into the rental market. As a result, rents have been pushed down and it's been much more of a challenge to get a good tenant, so guaranteed rental income begins to look a lot more attractive.
Nevertheless, a steady fixed income in tough times sounds good. Indeed, Ian Potter, operations manager for the Association of Residential Letting Agents (ARLA), says: "There's nothing wrong with guaranteed rental schemes, especially if a landlord is convinced the market is not there for his type of property. However, if a landlord was to work out the rent that he would achieve against being prepared to put the property on the open market, the chances are that he will find that he is receiving less in income." landlords signing up to guaranteed rental schemes can expect to be paid 10 to 20 per cent less than they could achieve in the open market. If landlords are trying to maximise the income they can make from the property, they are better off letting the property themselves.What it comes down to is whether or not the guaranteed income is enough for the landlord.