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Landlords should exercise caution as more and more tenants become unemployed and more and more tenants come to landlords as unemployed – landlords must protect themselves from any rentals shortfalls before it's too late.

Smartlandlord.co.uk has found that 7.8% of new tenants referenced in May 2009 were classified as unemployed, with a further 7.7% self-employed people. Although they may still have the ability to cover their rent each month, they will have a bigger chance of missing rent payments.

But things are not all bad for landlords in the UK – the downward pressure on rents has eased due to a combination of market conditions and seasonality. Also, this is peak time for graduates with guaranteed jobs to start looking for accommodation – typically in rented homes – and a busy time for people moving home generally. This usually means that the tenant has the upper had in rent negotiations but Smartlandlord says the balance is now shifting in landlords’ favour.

The website also says conditions in the house sales market are improving, and some reluctant landlords that have been flooding the market are starting to sell their properties. And with many prospective first-time buyers still penalised by restrictive mortgage criteria and the next generation of young professionals
coming through, demand for rented homes is threatening to outweigh supply for the first time in months. It also says that with house prices looking to have bottomed out, many landlords who can raise the finance are looking to expand their portfolios.

Keshav Thukaram, managing director of Smartlandlord.co.uk says: "Even very experienced landlords need to exercise caution in the current environment. This is the perfect time to snap up bargain properties that over the long term will yield great returns, but landlords need to think about factors that could affect their medium term cash flow and do everything they can to protect themselves.

Thukaram says this starts by choosing the right area to invest in: he says areas of previous high tenant demand could have been affected by the downturn, so landlords shouldn't just assume. Landlords need to research how local economies have been affected by the recession before they invest in properties in an area. For instance, landlords that previously relied on corporate lets may find that they struggle. One area that is booming is student lets, with people turning to education as unemployment rises.

He adds: "Research into the right area and the right property has never been more crucial. And in the current environment, most landlords would be wise to take out insurance against loss of rental income, particularly if their properties are in areas of high unemployment."

SOURCE: Smartlandlord.co.uk, 16/06/09

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