Why is buy to let finance problematic for so many landlords?

All landlords and agents in Scotland will now have to protect a tenant's deposit money.

Andy Young, NLA Mortgages expert, analyses recent data from the NLA which suggests landlords are having difficulty accessing finance.

A third of landlords want to expand

NLA research has revealed that a significant amount of landlords are being hampered in their efforts to expand due to difficulties accessing finance. The stats suggest over two thirds (67 per cent) of landlords rely on a buy to let mortgage to fund their portfolio, with 31 per cent declaring their interest in looking for additional buy to let lending or re-mortgaging.

This equates to approximately 300,000 landlords that want to expand their portfolio: good news for the housing sector as it is vital in meeting the ever increasing demand for housing. By providing more housing, it will give renters access to a larger variety of properties which can help to keep the cost of renting down.

Why are landlords struggling to obtain finance?

So why are lenders increasingly becoming too conservative with their criteria? The financial crisis has a lot to answer for how lending is handled now. More regulation has been introduced as a way to avoid another financial catastrophe from happening. For lenders to ensure that they are following the responsible lending rules, which were set out by the FCA in the mortgage market review, some may have gone over the top and issued a blanket set of criteria which everyone needs to meet regardless of their individual circumstances. This means that if you don’t tick all the boxes you could be denied finance. It is therefore not hard to see why 56% of landlords think that current buy to let lending criteria is too conservative.

So with lenders trying to cover themselves as well as their customers to ensure that people are less likely to get into financial difficulty it is becoming increasingly harder for landlords to get the necessary lending in order to expand. Landlord A shows the frustration many are feeling:

Landlord A

“Mortgage lenders are becoming increasingly difficult to work with. The requirement to produce further information on income is causing delays and becoming problematic…if your income does not fit their box on criteria they say no, which wastes time and slows the process.”

The landlords that were surveyed declared their frustrations at lenders for not considering their personal situation, with six in ten feeling that their situation had not been taken into account. From a lender’s perspective it is important to consider what the risk involved is, especially when regulation dictates responsible lending, but there also needs to be a sensible balance.

Here Landlord B points to what others are thinking:

Landlord B

“Mortgage lenders should consider each borrower on their own merits, and not impose a blanket ban on lending to individuals earning less than £25,000, regardless of their personal circumstances.  Someone who is lucky enough to have no outgoings, servicing a mortgage with personal income of £25,000 a year is more than adequate.”

There are two ways a landlord can obtain a buy-to-let mortgage, either by going direct to a lender or by using the services of a broker, and the NLA believes it is vital that landlords have access to a wide range of products in order to find the one most appropriate solution for them.

Find a mortgage that suits your circumstances

If you’re a landlord faced with this scenario then you’ll be pleased to know the NLA is one step ahead.  NLA Mortgages was set up with the understanding that landlords need access to a range of products that meet their specific individual circumstances and to provide a solution that’s simple, fast and adaptive to your needs.

We provide a free online search facility which sources from over 600 mortgage products and schemes that are not available in the general marketplace and provide access to buy to let mortgage specialists via a dedicated Helpline.

Don’t just take it from us either; landlords have submitted in excess of £56 million of buy to let mortgage applications to NLA Mortgages this year alone.

For more information on what the NLA can offer get in touch at www.landlords.org.uk/servicesnla-mortgages or call us on 029 2069 5555.

TOP TIPS: How to avoid weather related problems this winter

radiator

The Scottish Government launched the Ready for Winter? Campaign on Tuesday 21 October, which aims to encourage people to ‘think ahead’.  They provide some useful hits and tips for people in Scotland to ensure they have taken appropriate precautions this winter. 

With that in mind the NLA has selected some useful hints and tips which any landlord can benefit from, ensuring tenants stay warm and landlords avoid any unnecessary problems. 

For more useful hints and tips from the Read for Winter Campaign search for #ReadyWinter14 on twitter or have a look at their twitter page @readyscotland. 

Top tips to help landlords through the winter

 1)     Information packs 

Doing a few small things now could save a lot of trouble later. Preparing an information pack for your tenants detailing where things are located and what to do when it gets colder can help avoid any bigger issues such as burst pipes or higher energy bills. The NLA’s tenant information pack contains all the key things your tenants need to know. 

2)     Energy efficient homes

The minimum energy efficiency standard for all rented properties to reach an EPC rating of E or above will apply to all new tenancies from 1 April 2018. It is therefore best practice to get your properties up to standard as soon as possible. Things such as loft and floor insulation as well as filling wall cavities and draft proofing can help towards meeting the standards. Having an energy efficient home will not only help save on energy bills but also help towards problems such as mould.  You can contact your local council to see what help is available.

The NLA is currently developing a more comprehensive service, which will launch in the near future. We will inform all members once the service becomes available, so you can benefit from the services and make your homes more energy efficient.

3)     Looking after your pipes this winter

Having a burst pipe is an unnecessary cost which can be avoided providing preventative measures have been put in place. It is therefore a good idea to think about the various areas where a problem might occur. If for example your property is vacant over the winter months make sure you turn off the water supply and drain the system.  It is also worth considering fitting an automatic stop valve as it can reduce damage from a burst internal pipe. Water tanks should be fitted with an insulation jacket and pipes should have adequate insulation, at least 19mm thick. Finally repair any leaks or drips as soon as you discover them. 

For more information see:

4)     Flooding

If you are worried that your property might be at risk of flooding then make sure you have adequate insurance against flooding and it is also worth considering flood protection products that can be fitted to your property in case of a flood. Make sure your tenants familiarise themselves with how to shut-off gas, electricity, oil-fired heating and water supplies, even in the dark. This information should also go in an information pack for your tenants so that they have something to refer to and refresh their memories if need be. The information pack can also detail how to use the flood protection products. It is also a good idea to keep a list of useful contact numbers, including your area’s Floodline quick dial code.

For more information see:

TOP TIPS: The importance of tenant checks

approved_stampHave you found yourself with a nightmare tenant? Welcomed new tenants into your well maintained property only to find it destroyed by the end of the tenancy? Found yourself in a situation where your tenant just stopped paying the rent soon after moving in? If you have, then ask yourself did you do a thorough tenant check before signing the AST? 

It is best practice to carry out a thorough check on prospective tenants; especially now with the new requirements for landlords to carry out immigration checks coming (see here), as it means risking a £3000 fine otherwise. 

Tenant checks will highlight any abnormalities that should set alarm bells ringing. To make sure you don’t risk losing out, be it due to rent arrears or property damage, here are some top tips from the NLA on best practice when checking potential tenants:

1) Contact details

For starters you must make sure you have the personal and the next of kin contact details. Also asking for previous addresses for the past three years can help provide a picture of where and how long they have been at a previous property.

2) Confirming their identity

It is important to check people’s identity to make sure you don’t risk renting your property to criminals, fraudster or vandals, and especially to make sure you comply with the impending Immigration Act requirements.

3) Carrying out a credit check

If credit checks aren’t carried out you may be risking financial complications. By carrying out a credit check you will be able to find out if there are any CCJs against the tenant or if they are in receipt of housing allowances.

If you want to do a credit report, the prospective tenant must also sign to confirm that they understand a credit search will be done.

4) Written verification of employment/income

To make sure that the tenant is able to cover the rent it is important to check employment status and income.

5) Obtaining references from their previous landlords and employers

Referencing can help ascertain what sort of tenant you may be taking on, but bear in mind if you want to contact referees you must seek the tenant’s written consent in advance. 

There are a number of tenant referencing products that offer these services, such as NLA tenant check. www.nlatenantcheck.org.uk 

Renting out property is a business and it should be treated as such. As a landlord you need to make sure you put your investment first and don’t take the risk.

Protect yourself from risk 

Court fees going up

Carolyn Uphill a landlord and Chairman of the NLA on making sure you have the right insurance cover and the perils of not doing your research.
 

During my time as a landlord and as Chairman of the NLA I have come across many landlords who thought they had appropriate insurance cover but unfortunately found out the hard way that they in fact needed specialist landlord insurance. Landlords should treat their investment as a business, and as with all business operations there are rules and regulations, with stiff penalties for getting things wrong. Essential are things like making sure they have the right paperwork, establishing good relationships with their tenants and providing the necessary services for a comfortable tenancy. But what about all the other risks you face as a landlord?

One thing is for sure; standard building insurance will not do

Whatever size the portfolio, a landlord needs to make sure they are protected. I have lost count of the number of conversations in which a landlord has said they thought that their standard house building insurance policy ‘would do’. Sadly that is far from the case. Without notifying your insurer that you have let the property out, your insurance may not be valid at all and it will not cover you for the things which as a landlord you may be liable for.

Do you have the appropriate cover?

Loss of Rent
Did you know only 23 per cent of landlords have loss of rent cover? That’s nearly three in four landlords who underestimate the significance of specialised landlord insurance. If, for example, your property burns down, not only do you need to rebuild it, but you may also need to re-house your tenant, at your cost. Of course, this is not an everyday occurrence but it will prove to be a very difficult and costly situation if you don’t have the right cover in place. There will still be outgoings, such as the mortgage, which needs to be paid whilst the property is being rebuilt and without a specialised loss of rent cover, there will be no income to help mitigate these payments.

Public Liability
Public liability cover is another area of protection which landlords mustn’t overlook. Only a specialist landlord insurance policy will provide you with this cover and that’s why you need to ensure you have the right policy for the business you’re in.

Rent Protect
All businesses come across potential bad debts during their lifetime and these costs must be accounted for, otherwise it could destroy a business. It is no different for landlords; these debts are more commonly known as ‘rent arrears’ and are critical for those of you who may have a mortgage to pay, which is why investing in a ‘Rent Protect’ policy is a must.

You never know what might go wrong and all these eventualities can be insured against. With our business heads on we need to calculate the risk to us, the damage they would do to our finances and consider investing in an appropriate policy.

Where to look

The NLA exists to support the private sector landlord and one of the ways we do this is to offer specialist products and services that can be trusted to suit the needs of the landlord and you will find details of these on our web site at www.landlords.org.uk/services 

There are lots of other risks to consider, financial and political, and we can’t protect ourselves from all of them but we must wise up to those which are foreseeable and controllable if we want to reap the rewards of our investment.

Safety first

Richard Price, Director of Operations, NLA supports the Gas and Fire Door safety awareness week campaigns and would like to help spread the word of gas and fire safety.

Both the gas and the fire door safety week campaigns are upon us. It is a great time to promote the importance of providing a safe environment for tenants and the importance of safety in private rented accommodation cannot be under-stated.

Landlords must take their responsibility and duty of care to tenants seriously in order to avoid preventable injuries and fatalities caused by fire or gas in the home.

It is important to be aware of what you are legally required to do as well as what is expected of you.

Can you smell something?

When it comes to gas safety it is important that annual inspections of all gas appliances, including boilers, gas cookers, gas fires, pipework and flues are carried out only by a Gas Safe registered engineer.

The legal requirements around the installation of Carbon Monoxide alarms differ in different countries of the UK, but the NLA advice is simple: fit audible alarms in any property that has a gas supply. Suitable alarms can be found in the NLA online shop. Remember, you cannot smell or see Carbon Monoxide, it is known as “the silent killer”

Gas Safe Register has compiled a top tips list to stay gas safe, as well as an introduction video which covers the basics.

The NLA has also put together an informative video on gas safety and your responsibilities which we recommend all landlords watch.

Put wood in hole

When it comes to fire safety it is important that the residence has been assessed for potential risk. In keeping with the risk-based approach of the Housing Act 2004 and the Regulatory Reform (Fire Safety) Order 2005, landlords should (and for certain properties must) carry out or arrange for a fire risk assessment in order to identify what fire hazards exist, what the risks to occupants and visitors are, and the appropriate action to take to mitigate and control the risk of fire in their properties.

The NLA strongly recommends that all residential properties are fitted with fire detection and alarm systems and that an adequate means of escape is established in case of fire. Again specific requirements differ in different countries of the United Kingdom.

Wherever fire doors are required, we recommend that good quality certificated fire doors are fitted in order to keep a fire adequately contained and to minimise the risk to tenants and damage to the property.

We also recommend that landlords make their tenants aware of the importance of not obstructing or propping open fire doors for their own safety, especially in communal areas.

Our video informs landlords how to carry out a fire risk assessment and is essential viewing for landlords of all residential properties. If a landlord has larger HMOs this additional video will cover what to do.

Knowledge is power

The NLA library has a wealth of information which can guide anyone who isn’t sure what they need to do. The online library on the NLA website offers guidance to support landlords through the process.

Other useful resources:

NLA Library – Gas safety information

NLA Library – Fire safety information

Fire Door Safety Week

Gas Safety Week

NLA Property Insurance

How effectively do you manage your rental income?

Incoming Chairman Carolyn Uphill

“With proper planning and financial protection in place many could turn a failing business into a success and we’re urging landlords to explore the range of support the NLA can offer to help run a successful and profitable business”. – Carolyn Uphill, Chairman, NLA

Carolyn Uphill, NLA Chairman discusses the importance of planning and financial protection

Having looked at our recent research it is quite worrying that more than a quarter (27pc) of landlords who let out a single property break even or run at a loss, but with some good financial management and appropriate safety nets in place this can be avoided.

There are various reasons why a person becomes a landlord, from it being an investment opportunity to it being more beneficial financially to let a property than to sell. However if they are barely breaking even or are actually running at a loss landlords should step back and reassess how they are managing their business. It should be stressed that taking a professional approach to letting property and using all available help can make a huge difference.

Managing your portfolio

Keeping an eye on the outgoings as well as the income can be very useful in pinpointing any shortcomings. One of the many services that the NLA offers is our online rent management solution, Rent Manager. Like all of the NLA’s services, Rent Manager is designed by landlords, and aims to make the task of rent management much easier, saving you both time and money, no matter the size of your portfolio.

Using Rent Manger, which is free to full NLA members, allows you to:

  • Set-up different tenancies for all tenant and property types e.g. HMOs, student lets, LHA tenancies, full property lets etc.
  • Create rent schedules for tenants in properties/rooms
  • Enter and keep track of full and partial rent payments
  • Receive rent arrears alerts
  • Record all tenant communications

To see how the software can benefit you, watch a demo here www.nlarentmanager.org.uk/demos.html or for more information about Rent Manager visit www.landlords.org.uk/services/nla-rent-manager

Safety nets

After having put in place a rent schedule it will be much easier to act quickly and address any issues such as arrears. Leaving arrears for even a month or two without addressing it could come back and bite you as debt could potentially mount up to an unmanageable level leaving you out of pocket and with an even more difficult task of rectifying the problem without any further costs. We recommend that all landlords should budget for 10 months’ rent in a year in order to cover any periods of voids or arrears.

A tenant who can’t, or won’t, pay the rent is every landlord’s worst nightmare. Even when including a two month buffer in your budget, a landlord could still be faced with arrears, which is all the more concerning if the profit from the rental income is relied on for mortgage repayments. This is where a service such as the NLA’s Rent Protect could prove invaluable as it protects you if a tenant fails to pay the rent.

Rent Protect covers landlords for up to £2500 per month in unpaid rental income and it covers legal costs to help you in the recovery of unpaid rent.

This gives you peace of mind that you won’t lose out if your tenant can no longer pay the rent and will give you the time to consider your options.

For more information about Rent Protect visit http://www.landlords.org.uk/services/nla-rent-protect

Local council websites and the chamber of secrets

Rebecca Lambert Neu, on her brief time temping in the NLA’s Policy Office…

Who knew local council websites could be so frustrating? After spending a day and a half with the Policy Team at the NLA I could happily testify in a court of law to this fact.

I arrived at the NLA with a clear task: I had two days to compile a list of the Housing in Multiple Occupancies (HMO) licensing fees set by the various local councils across England. This was essentially googling every council in England’s mandatory licensing fee and putting it into a spreadsheet, which sounds pretty straight forward, no?

However, at least a third of the 300 plus council websites I had to look at did not have the licensing fee listed at all, or it was deeply entrenched into the site and listed with all other types of council fees. Now I’d like to think I’m not particularly stupid, and as a 16 year old I have grown up with the internet and generally can find my way around websites with relative ease. But after the 5th council website I got to where I could not find any relevant information about HMO licensing fees, I began to despair for those who were less technically minded than me, or those who didn’t know specifically what they were looking for and would be forever ensnared in their local council’s website.

So after my adventures online, I resorted to phoning councils themselves. This managed to take just as long as searching through the websites and in fact some councils seem to do as much of an extraordinary job at hiding their contact details as they do with hiding other important information. Once you find the number, the normal call-queue wait to be spoken to by a real person ensues. Apparently, very few general enquiry workers have actually heard of HMOs, and even fewer know which department to put me through to when I explain it. The average call was about six minutes, transferred through various departments and explaining again each time what a HMO was.

Why on earth would councils have such impossible websites?! Surely it’s in everyone’s best interest for information to be listed clearly?

So I issue a big thank you to England’s councils and highlight this as a prime example of just how vital good e-communication is in today’s world. As for the council phone call void, I don’t have a solution, merely a request for no pan flute music on holding lines any more.