Labour Party housing policy is flawed

Richard Blanco, NLA London Rep distills Labour’s private renting reforms.

Richard Blanco, London Representative for the National Landlords Association (NLA)

Richard Blanco, London Representative for the National Landlords Association (NLA)

Labour leader Ed Milliband announced a change in Labour Party policy today in a London Borough where I rent two properties, Redbridge.  The proposals turn previous policy musings into concrete manifesto ideas, most notably the idea for a National Register of landlords in England.  I was sad to hear Ed speak in favour of local authority licensing schemes, now championed by many labour authorities, however his reference to them as registers shows he fails to understand the complexities of this area of policy.

After extolling the virtues of five year tenancy agreements in their PRS policy review in December 2012, the Labour leader has settled on the idea of a default three year AST which will probably mirror arrangements in Northern Ireland where initial agreements last six months, past which you’re tied down to a further 29 months .  Other proposals include indexation of rents and rent capping, and a ban on letting agent charges.

Labour’s vision

It was the lengthening of ASTs and rent controls which grabbed the headlines.  Ed Milliband argues that one million families and two million children in the PRS deserve more security of tenure.  Of course what landlords really want is for their tenants to stay as long as possible, and we already know the average tenancy is two and a half years anyway.  Four out of five tenants say they are happy with the length of their tenancy and most tenancies are ended by the tenant not the landlord. So where’s the need to change the current system?

Well, Labour and Shelter argue that landlords hike rents and evict tenants with section 21 notices if they object to rent rises.  This is why they want to control rents by pegging them to an index once a market rent is agreed at the start of the tenancy.

Have you ever forced your tenants out for a higher rent?  Most of my tenants stay for 2 to 3 years, I review the rent biannually and if I increase it I do so modestly.  The Evening Standard  responded in its leader column by arguing “in the present environment , with rents soaring in London, the move is likely to win popular support.” But despite rents rising  by 7% in 2012 in London, they rose by only 2% in 2013 and estate agent Chesterton Humberts reported last week that rental yields have declined in 9 out of 10 cities with large private rented sectors like London, Sheffield  and Manchester.  Soaring rents is old news, but the hyperbole continues to be used to create policy.

The impact

Longer default tenancies

What impact might longer ASTs have on the housing market?  For landlords like me who are in business for the long haul, it could be quite positive, unless I get a tenant that doesn’t work out.  Then we would be stuck in an inharmonious relationship for 3 years.  Certainly landlords would want to carry out very rigorous checks and I suspect that we might see the return of licenses to try and get around these market averse rules.  Two thirds of PRS homes are let by landlords with just one or two properties, often because they move for work temporarily or go to live abroad.  Will they want to commit to three years?

I fear we will see a huge increase in empty properties. I have seen it in cities like Madrid when minimum contracts were five years.   Most of our buy to let mortgage terms stipulate that contracts must be no longer than 12 months, so will Labour change all of these contracts too?  Institutions that were considering moving into residential letting will surely think twice now and many landlords will be put off from buying more properties, leading to a reduction of the PRS.  Labour are planning 200,000 new homes, which is fantastic, but will they manage to deliver this?  We know that in London developers deliberately drip feed new supply so as not to suppress prices.

Rent caps and indexation

On to the issue of rent caps. The housing market is cyclical; andrents rise and they fall depending on demand and supply in particular areas.  Currently the majority of rent increases are levied between new tenancies, not on those in situ. But with indexed rises, it encourages a culture of rent increases every year regardless of what is going on in the market.   The reality is that over the long term, rents rises are lower than the CPI measure of inflation, so rents actually fall anyway.  My policy to reward good tenants by keeping the rent the same will actually be disallowed.  Landlords will be incentivised to move tenants on after three years to get back to a market rent and we will see the return of the sitting tenant, with landlords reluctant to invest in their properties.  One landlord told me today that he has asked his lettings manager to make sure all rents are increased to market rent before the changes come in, assuming Labour or the Lib Dems come to power.

Banning fees

And while I’m on the subject of lettings agents, 81% of tenants say that their agent was upfront and transparent about fees they charge.  But if agents cannot charge fees then they are likely to increase their charges to landlords and that could put upward pressure on rents.

National register

A compulsory register will lead to the collection of data on 9 million properties in the UK.  Surely intelligence led enforcement by local authority staff getting out of their offices and finding criminal landlords would be so much more cost effective.

This announcement by Labour, albeit panned by most property experts, is very worrying.  Lenders, institutional investors and landlords across the UK will be thinking hard about their future and making contingency plans.  The Labour Party has been fed policy by Shelter and adopted it with little thought for the consequences.  Shelter does excellent work supporting tenants who have difficulties in the social and private sectors, but all they hear are the problems.  Nobody ever calls their advice line to tell them how fabulous their landlord is.

For a major political party to create policy based on the negative minority is an affront to the many hard working landlords I know who pride themselves on running innovative businesses and creating excellent homes for their tenants.  We need our policy makers to create policy that builds on good practice through accreditation and landlord engagement and working out why local authorities are failing to bring bad landlords to book using their existing powers.

This feels like short termist, populist policy and we need long term solutions.  The 1.4 million UK landlords and our 9 million households deserve a more balanced, intelligent and responsible approach to long term housing challenges.

Court fees go up!

Court fees going up

Court fees going up

Using the courts as a landlord is something we all hope not to have to do. However, the reality is that it is often called upon as a last resort for landlords looking to regain possession of their property after a spout of rent arrears or non-payment. It’s difficult to budget these costs into a business plan as they are often unpredictable. This is why we always encourage landlords to budget to receive 10 months out of every 12 months’ rent.

But new court fee rises could mean that landlords need to set even more money aside for those worst case scenarios. Court fees are going up from the 22nd April 2014. And they’re going up significantly from £175 for a standard eviction to £280. There will be increases on a range of fees including money claims fees and various others.

Here’s what Alan Jakeway, NLA Advice Line Manager, says about the changes:

“These price rises significantly increase the costs for landlords. Ending a tenancy and regaining possession of a property is already an expensive measure for landlords and this is going to put more strain on their balance sheets.

I would anticipate that any landlords considering taking proceedings will rush to complete the paperwork before the 22nd April to avoid the price hike.”

And here is the table of increases likely to affect landlords:

Function New fee £ Old fee £
N5B 280 175
N5/N119 280 175
PCOL 250 100
MONEY CLAIMS (N1)    
Up to £300 35 35
£300+ to £500 50 50
£500+ to £1000 70 70
£1000+ to £1500 80 80
£1500+ to £3000 95 115
£3000+ to £5000 120 205
£5000+ to £15000 245 455
MONEY CLAIMS ONLINE    
Up to £300 25 25
£300+ to £500 35 35
£500+ to £1000 60 60
£1000+ to £1500 70 70
£1500+ to £3000 80 105
£3000+ to £5000 100 185
£5000+ to £15000 210 410
Application for a Warrant for Possession 110 110

 

Get your yield right

Every so often it’s helpful to get a picture of how you’re doing in the profit stakes so we thought we’d give you a helping hand. The NLA has created a series of yield calculators to give you a rough idea of the financial status of your property investment.

We begin with the gross yield. This is the income generated by the investment, before expenses are deducted, divided by the value of the investment. Our gross yield calculator should help you identify the yield of your investment before any outgoings such as tax and insurance.

Then there’s the net yield. This helps you calculate the rate of return on an investment after subtracting all expenses, including stamp duty and taxes. Our net yield calculator should help you get a picture of how your books are balanced.

 

 

 

 

 

 

 

 

And finally, you’ll need to calculate your yield on actual investment to date. This compares your income against ALL costs incurred by the investment, including the deposit and any capital repayments. This gives you an idea of how the investment has performed since purchase.

 

 

 

 

 

 

 

 

 

To find out how your investments are performing, give the NLA’s yield calculators a go. But remember, they should be used as a general guides and should in no way be relied upon as business planning tools. The information provided is indicative of a basic approach to yield calculation, which may be useful to landlords interested in appraising their performance, but should not be used as a basis for decision making. They are also subject to user error and are reliant on the accuracy of data input.  The NLA Accepts no liability for the information provided by this facility, or for the consequences of any actions taken on the basis of the information provided.

 

The NLA and the ‘Improving Evictions’ working group

Whilst ending a tenancy is always a last resort, there are occasions when a landlord will need to regain possession of their property, perhaps due to long term rent arrears or anti-social behaviour.

Ending a tenancy should always be a landlord’s last resort.

Whilst ending a tenancy is always a last resort, there are occasions when a landlord will need to regain possession of their property, perhaps due to long term rent arrears or anti-social behaviour.

The NLA is currently working with the Department for Communities and Local Government (DCLG) to help improve the process for ending tenancies smoothly and effectively, with the least possible disruption to both landlord and tenant.

As part of our work with DCLG’s ‘Improving Evictions’ working group, we want to make sure government has a real idea of landlords’ experience of the possession process. This will allow us to identify potential problems and in turn, give DCLG ammunition to encourage the Ministry of Justice to address the pitfalls and failings with the system.

To help us get a better idea of your interaction with the eviction process, please take 5 minutes to complete this short survey. Your experience and opinion will be fed directly to those responsible for government policy and will help us to lobby for an improved process.

Thank you in advance for your time completing the survey.

 

 

Landlords are not border guards

I’m sure many were amused by the irony when Immigration Minister Mark Harper resigned after he discovered he had failed to check accurately the immigration status of his cleaner whom he had employed for several years.

Mr Harper was the minister guiding the new Immigration Bill through Parliament. One also assumes that, as a member of the government, he had first rate Home Office advice instantly available to him.

If he cannot get the facts right in checking somebody’s immigration status, what chance do landlords have, not to mention GPs and a host of others who will be required to take on this task if the Bill becomes law in its current form?

It’s quite likely that Mr Harper will avoid being fined for his shortcomings. Landlords, however, face a £3,000 fine if they fail to verify the immigration status of a tenant; that’s £3,000 for every individual tenant as distinct from every letting.

Checking immigration status is not a straightforward box ticking exercise. Legal advisers require specialist legal training and need to pass examinations before they can give immigration advice. The guidance already given to employers to enable them to do so runs to 89 pages and the list of acceptable documents provided by the former UK Border Agency in May 2013 runs to a dozen pages. The government is promising a Code of Practice for landlords. How many pages will that be?

Difficulties will arise where an existing or prospective tenant has an outstanding application mired in the Home Office’s bureaucracy or hopelessly inadequate IT system. Some people will have a right to remain in the UK but the appropriate documentation is somewhere ‘in the system’. We know from press reports that the Home Office’s casework backlog runs to more than half a million!.

How on earth will they be able to cope with a whole new wave of clarification requests from landlords?

There is a very real danger that landlords will just decide that the hassle is too much and so they will avoid renting to anyone who might be a migrant or a refugee. Even the Government admits that its proposed legislation “might provoke landlords to discriminate against people who they perceive to be foreign rather than conduct proper checks.” And what of good tenants who have rented your property for years without problems and who you will now be required to check up on?

The ‘landlord’ provisions are only one aspect of a huge Bill that aims to ‘create a hostile environment’ for some migrants. It risks turning ordinary citizens into ‘border guards’ and will damage race relations and social cohesion. This is why a campaign called the Movement Against Xenophobia (MAX) has been launched.

What can be done? You may like to sign a petition https://you.38degrees.org.uk/petitions/reject-government-inspired-xenophobia calling on the House of Lords to amend damaging clauses in the Bill, and you may want to tell your MP to support those amendments when they come back to the Commons. But act soon as time is running out!

This blog has been provided by Phil Cooper, Hammersmith and Fulham Refugee Forum on behalf of MAX.

Rent ‘good value for money’, say tenants

Good value say tenants

Good value, say tenants

The majority of tenants say their rent provides good value for money, according to the National Landlords Association’s latest research findings.

More than seven in 10 tenants (73 per cent) rated their rent as ‘good’ or ‘very good’ when asked their opinion on whether it represented value for money. One in five (20 per cent) perceived their rent as ‘poor’ value, while just three per cent rated it as ‘very poor’.

The findings also show that the majority of landlords haven’t increased rents in the last 12 months, with three quarters of tenants reporting they’re paying the same rent (72 per cent) or a lesser amount (3 per cent) compared with a year ago.

In total, 85 per cent of tenants said they were happy with the length of their most recent tenancy agreement and four in five (79 per cent) said that their tenancy was either renewed or continued on to a rolling Statutory Periodic Tenancy (SPT) at the end of the previous fixed term period.

When it comes to the end of the tenancy, fewer than two per cent of tenants said their landlord ended their last tenancy (1 per cent) or felt they were forced to move out because of increases to their rent (0.6 per cent). Three per cent of tenants said they decided to move on or end their last tenancy of their own accord.

Carolyn Uphill, Chairman of the National Landlords Association, said:

“It’s pleasing to see that so many tenants perceive their rent as good value because landlords face a lot of unjustified criticism for the rising costs of living.

“The NLA has long argued that rent levels in the UK are a consequence of a market economy, with the determining factor at present being a chronic undersupply of affordable housing, compounded by lethargic efforts on the part of Government to foster more construction.

“On the whole the findings are encouraging for tenants: they demonstrate that rents on private lets over the past year have remained fairly stable and show that, in reality, very few feel pressured to move out or actually have their tenancy terminated by their landlord – a common misconception.

“However, most important of all the findings suggest that the majority of landlords are in the business of providing good quality, affordable homes and are making sustainable tenancies a mainstay of most tenants’ rental experience”.

Is your rent good value for money? What do your tenants think?

Arrears? Save your tears

With 37 per cent of landlords experiencing rent arrears in the last 12 months, it is a very real risk to landlords.

With 37 per cent of landlords experiencing rent arrears in the last 12 months, it is a very real risk to landlords.

Does the thought of rent arrears make your stomach churn?

With 37 per cent of landlords experiencing rent arrears in the last 12 months, it is a very real risk to landlords. And unlike any other type of service provider, landlords are providing homes and are unable to terminate a contract with their tenant immediately in the event of non-payment. But don’t despair, there are a number of precautions that can minimise the impact of rent arrears on a landlord’s ability to meet their mortgage payments.

Firstly, build a buffer into your business plan
We suggest a business plan based on 10 months rather than 12 months’ rent.  This allows you to cover the majority of unexpected costs.

Prevention starts before you grant a tenancy
It’s essential to vet a potential tenant to check they are in a position to meet their rental payments and have a good track record with previous landlords. It’s possible to do this yourself by requesting proof of income, an employer’s reference and a previous landlord’s reference or alternatively, you could employ a professional tenant checking service to carry out checks. There are a variety of services on the market. The NLA offers a basic tenant check and a more detailed search available at a 15 per cent discount to NLA Members.

Next think about insurance cover
Landlord insurance offers additional cover to your average home insurance policy. It covers risks such as public liability and accidental damage, loss of rent and alternative accommodation cover. And rent guarantee insurance provides protection in the event that the tenant doesn’t pay the rent.

Consider a guarantor
This is a good idea if you are uncertain about the tenants’ ability to meet their rental payments – likely to be the case with tenant groups including students and those who have poor credit scores. A guarantor can be a friend or relative of the tenant who agrees to meet the rental payments if the tenant fails to do so. Ideally, the guarantor should be a UK based homeowner and you’d be wise to carry out background checks on the proposed guarantor before providing the guarantor agreement. When you’re happy, be sure to issue a guarantor agreement, available to download from the NLA website, allowing plenty of time for the guarantor to read and understand what is required of them.

Once you’ve made efforts to try to prevent arrears, you’ll still need to keep a look out for signs. After all, everyone’s circumstances can change.

Try to keep in regular contact with your tenants so that they have the opportunity to tell you about any changes such as loss of income. This allows you to discuss their future housing plans. Also, be sure to monitor receipt of rent so that you can act quickly if payment is not received.

To learn more about how you can protect yourself from the risk of rent arrears and how you can help your tenants, download the NLA’s landlord guide to rent arrears and the tenant guide to rent arrears.