Tag Archives: buy-to-let

Housing market recovery

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

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

Guest blog by NLA London Representative Richard Blanco.

If you’ve spent any time in auction rooms recently or spoke to local agents, you’ll know that the market is becoming quite lively. 

There are a number of hot spots in London, where pent up demand is being frustrated by lack of supply. It has become a vendor’s market and as more people are encouraged to sell, we are likely to see a further increase in activity in the near future.  Don’t just take my word for it; last week’s round of statistics provides compelling evidence.  Buy-to-let lending in July 2013 peaked at £5bn, which is the highest level since 2008.  According to the Council of Mortgage Lenders (CML), 40,000 buy-to-let mortgages and re-mortgages were completed between April and June 2013, up 19% on the previous quarter.  It’s not just the buy-to-let sector that is buoyant; the surveyor e.surv says that July 2013 was the strongest month for house purchases since 2007 with mortgage approvals in July 2013 up 21% compared to July 2012.  Interestingly there was a surge in purchases by buyers with small deposits of less that 15% – typically first time buyers.  Approvals for this group were up by 56% compared with the same month last year and a significant proportion of these were in the North of England which could point to a recovery not just in the wealthier south, but across the UK. The CML also reports that arrears have fallen and repossessions are down from 8,000 last quarter to 7,700 this quarter.

Concerns about the market softening in central London seem to be in retreat.  This is important because market gains here often ripple out into the rest of London and the south east, stoking activity across the UK.  According to Savills, the average price of a prime central London property, typically in Belgravia, has topped £3.2m, up by £500,000 this year. Domestic buyers have increased from 30% to 40% and the agent says that many are looking in near prime areas such as Fulham, Richmond, Wandsworth, Battersea and Wimbledon where they can get better value. 

 In an interview for The Times, Richard Sexton , Director of e.surv says that there is renewed confidence in the market and that mortgage applicants are finding it easier to secure loans, even at higher loans to value.  He cautions that weak annual wage growth – at about 1% – and high inflation with RPI at 3.1% still present a barrier for first time buyers.

The big question is how sustainable is this recovery?  There are three factors that could be creating a false sense of well-being.  Firstly, Funding for Lending has helped to nudge lenders into reducing rates and increased lending volumes, whilst Help to Buy has allowed first time buyers to acquire 75% loan to value mortgages for new build properties with up to 20% help from the government.   Thirdly, the Bank of England’s announcement last week that it will keep base rate at 0.5% until unemployment falls below 7% may also create enough certainty for nervous buyers to take a punt.

According to developer, Bellway, Help To Buy is not creating a bubble because valuers are being prudent and the scheme has increased their sales by a notable but not excessive 25%.  The real test will come when the second phase of Help To Buy allows all buyers to obtain 75% loan to value mortgages with just a 5% deposit and a 20% guarantee from the government.  According to the Director General of the CML, Paul Smee, who spoke recently at the NLA London Regional Seminar which I chair, the scheme will last three years and it is inevitable there will be a downturn in demand when it ends. 

It’s difficult to know whether to rejoice at the headlines of a return to 2007 prices and activity or to reach for the anxiety pills.  How should we as landlords and developers be responding?  Looking on the bright side, price rises increase our equity and a loosening of mortgage finance allows us to remortgage, release equity and develop our businesses.  But then the property that we add to our portfolio is going to cost more and we’re going to be competing with more owner occupiers.  This makes the chance of purchasing a bargain less likely.  A vendor’s market also means haggling with agents, who can be as cheeky and economical with the truth as the market will allow.  Busy auction rooms mean we are pitted against the competition and bid to the highest price, with little prospect of a good deal. 

My instinct is that it is important to keep buying at the beginning of a cyclical upturn; the challenge is to spot when the market is going to peak.  In the last cycle there were about 12 years form trough to peak, so the next downturn should begin around 2025, shouldn’t it?

 

Rent Arrears: In the ‘normal course of business’ or ‘way too high’?


Carolyn Uphill, NLA Director and Local Representative for Manchester, questions whether any other business would accept their customers failing to pay.

All businesses have bad debts and Buy to Let is, after all, a business. Albeit one the Government doesn’t truly recognises through the tax system. A ‘normal’ allowance for this is in the region of 5% of turnover but rent arrears are running at more than twice that figure.

According to one set of figures recently published 10.7% of all UK rent was either unpaid or late by the end of August. This is an increase from the July figure for unpaid or late rent, which stood at 9%. Another source found that tenant finances took a “turn for the worse” in October with 10.1% of all rent late or unpaid at the end of the month, compared to 8.6% by the end of September (LSL Buy-to-Let Index Oct 2011).

Which ever way you look at it, this is still a huge slice of income to write-off. As rents rise, benefits reduce, and unemployment grows things may only get worse. So is Buy to Let a viable business?

For the answer we need to look back to the business model. All businesses need to factor in the possibility of bad debts but take every possible step to avoid them.

Just as a business takes up trade references you should not let anyone into your property without fully referencing them and establishing that the property is affordable to them within their income bracket.

Never let a debt accumulate. Rent is in arrears the day after it is due; so monitor your payment receipts and contact the tenant as soon as a payment is overdue.

Whilst landlords must never harass a tenant it is always the case, just as in business, that he who ‘shouts loudest’ is more likely to be paid. So be firm but polite, enquire if there is a problem, offer to discuss and/or help with this as appropriate, perhaps they have changed job and have a different pay-day, and try to agree a definite date by which matters will be resolved.

Good communications, built right from the start of the relationship with your tenant, may help to resolve any problem which arises.

Taking the matter to court should always be a last resort. This will take time, indeed the closure of some county courts will make this slow process take even longer, and involve the landlord in extra costs whilst rent remains unpaid.

Statistics also show that an increasing number of tenants are raising a defence, at the last minute, which delays a possession order. Just as a business must get their paperwork right and provide no grounds for a counterclaim when seeking payment on a contract, landlords must make sure that they have met their maintenance and repair obligations towards the tenant.

Rent arrears will continue to be a problem but the wise landlord will take a very businesslike approach to his selection of tenants, and his relationship with them throughout the tenancy, to maximise the possibility of being paid on time and in full for the service he is providing.

 

The property scandal’s other dimension…

On a night when it would be very easy for the NLA to bury its head in the sand and try to pretend that there were not problems in the private-rented sector, it is even more important for those responsible providers of accommodation to recognise our role in finding solutions.

Professional trade bodies, like the NLA, spend a lot of time talking about the need for local authorities and other enforcement bodies to be more proactive in their approach to tackling the very worst offenders.

These criminal operators all too often get away with the provision of poor quality and often dangerous housing by  targeting those households with limited access to alternative accommodation. These households, often made up of vulnerable individuals, sometimes don’t know how to access better property,  but far too often there simply isn’t enough available.

The obvious fact is that demand for good quality, good value, accommodation has not kept pace with supply.

One of the outcomes of this situation, the one which gets all of the media attention, is that rents rise. In certain areas of the country this is true, no-body can deny that in certain parts of London and the South East rent levels have followed a striking upward path.

However, for many other less glamorous areas of the country (usually those less popular with journalists) the result has been a lack of good housing providers, the responsible landlords able to compete with the rogues and demonstrate what private rented property should look like in twenty-first century Britain.

Today’s estimates project a need for more than 3 million new homes by 2020. At todays rates fewer than 150,000 are being completed annually.

Unless these figures changes drastically we will not build our way out of this situation any time soon, meaning that we have to look at how we put the stock we have to better use.

As the campaign on Channel 4 tonight has shown, a good start would be to get empty homes back into use. According to the Empty Homes Agency thee are around 350,000  (AKA 3 years of new building) long-term empty properties in England at the moment.

However;

At an even more basic level, more good quality homes can be created simply by allowing decent landlords to provide them. Throughout the country dozens of local authorities are currently using planning rules to prevent landlords offering new affordable homes (Article Four Directions). Likewise many councils are designating new areas of landlord licensing.

These authorities are doing this, for the most part, for all the right reasons. They want to ‘improve’ their locality. Unfortunately what these schemes actually do, when used too liberally, is prevent the law abiding from challenging and competing with the rogues.

The responsible landlord, who invests in his or her properties, takes note of restrictions on shared housing or chooses to move elsewhere because of the cost of compliance makes business unviable. The criminal operator, working under the radar, takes no notice and quickly becomes the only option for those in the most need.

Today’s campaign is called  ‘The Great British Property Scandal’ and much of what has been highlighted is truly scandalous. But some of the ‘solutions’ can prove just as harmful when they’re not thought through.

There are real ways that we can all help improve matters – with some common sense and a little more co-operation.

Above all we must make sure there is always an alternative to renting from a rogue landlord.

Mortgage matters…

Paul Rockett, Managing Director of NLA Mortgages, gives advice on choosing the right buy-to-let mortgage.

The buy-to-let mortgage market has improved significantly during 2011 with an increase in the number of lenders and products available to landlords. In fact, the number of products available via NLA Mortgages has increased by almost 25% since the beginning of April this year. This is great news for those of you looking to expand your portfolios as there is now a wider choice and some excellent deals on offer.

However, with the increase in the number of products available it can be quite challenging to find the right deal to meet your individual requirements, and each buy-to-let lender has different criteria which may or may not be suitable to your needs.

In order to help narrow down your search, there are a number of important questions to answer, for example:

• Are you purchasing or remortgaging the buy-to-let property?
• What is the value of the property you are purchasing/remortgaging?
• How much would you like to borrow and what is your deposit?
• What is the expected rental income for the property?
• What type of property is it e.g. house, flat?
• Are you already a landlord with existing buy-to-let properties?
• Would you like a fixed or variable rate mortgage?

The answers to these questions will help to determine which lenders and products are available to you. For example, only certain lenders will lend over 75% loan-to-value or to landlords with larger property portfolios.

The good news is that with more lenders in the buy-to-let market, products are becoming more competitive and the average tracker and fixed rate have decreased over the last year. This means that buy-to-let finance can be more affordable, and with increased tenant demand and rents, now could be a good time to invest.

If you are thinking of arranging a buy-to-let mortgage, NLA Mortgages could be a good place to start. It provides you with a free online buy-to-let mortgage finder, enabling you to search an extensive range of buy-to-let mortgages from the whole market, including some products that are not available in the general marketplace.

You can enter your own specific loan requirements and other search criteria to find a product to suit your needs. You can also sort the search results by lender, initial rate, product type, loan-to-value etc according to what is important to you. Once you have found a suitable mortgage you can either apply online or if you would like to discuss your options, our team of buy-to-let mortgage experts is available to help you.

It’s important you choose the right mortgage for your needs.

Visit the www.nlamortgages.co.uk or telephone 029 2069 5555.

Accredit where credit is due

Lee Cecil, NLA National Representative for Wales, talks about the benefits of becoming an accredited landlord.

I have been a landlord in Wales for many years, and during my time I have come across many professional landlords. They treat their tenants well and pride themselves on responding to any issue quickly and efficiently. However, there is no real way for a landlord to clearly demonstrate this apart from saying it.

This is why I support and publicise wherever possible landlord accreditation. I believe we need this as a means of demonstrating responsibility and an ability to drive standards without burdensome state intervention.

Those of you familiar with the housing market in Wales are probably already aware of the Landlord Accreditation Wales (LAW). This requires you to initially complete a full-day training course and then continue your professional development at events (at your own expense) in order to maintain your accredited status.

The NLA scheme is similar but accreditation is free to NLA members who are able to utilise our Landlord Library to complete the course online if you prefer. Your Continued Professional Development is also free either on the Library or by attending the NLA Branch meetings that my NLA colleagues and I run all across Wales and the rest of theUK.

NLA Accreditation is officially recognised by LAW (as well as a number of other local and regional schemes throughout the UK). This means that any landlord who has completed the LAW course can automatically passport onto the NLA scheme and vice versa. Therefore, an NLA member does not have to pay anything to become an accredited landlord inWales.

As the NLA National Representative for Wales, I regularly meet with officials and Minister’s at the Welsh Assembly Government (WG). Here, the status of “Accredited Landlord” and the influence that it can exert is very important. The more accredited landlords we get, the better our bargaining position will be when representing the professional private rented sector.

If we can demonstrate that landlords are increasing their professionalism independently, we are in a much stronger position to argue that WG and the Government in Westminster does not need to do it for us. We might also be able to ask the big mortgage lenders for better Buy-to-Let deals for accredited landlords which could save landlords £1,000s in mortgage payments.

Becoming accredited is not just a status symbol. It also helps the most important thing for every landlord – your bottom line. For example, there are modules on the Landlord Library that explain tax issues and the whole scheme is built on you as an individual and the business of being a landlord. By learning from the experts, you could find ways of reducing your expenditure while increasing your income!

If that were not a good enough reason to become accredited, accredited landlords may also qualify for discounts from Local Authorities. For example, in Cardiff, accredited landlords get a £100 discount on Additional Licenses and in Swansea landlords get a £75 discount per property. This means that by becoming accredited you could save £100s in license fees – it really is a no-brainer as far as I am concerned.

Like LAW, the NLA also offers a one-day attendance course to become accredited. The next Foundation Course in Cardiff is taking place on 21 October 2011 NLA members can attend for the discounted price of only £85.

For a list of alternative courses across the UK visit the NLA website.

Getting off to a good start!

Julie Woolfenden, NLA Local Representative for Shropshire and North Wales, explains how to set up the perfect tenancy; the property, the law, the rent and the little perks!

Renting is becoming the preferred choice of tenure for more and more people. Even Prince William and Catherine, Duchess of Cambridge, having tied the knot in a spectacular ceremony at Westminster Abbey are now renting a cottage on Anglesey where William is serving 3 years as a Search and Rescue Helicopter Pilot at RAF Valley.

However, Royal or not, there are still certain things that a Landlord/Tenant relationship needs for the successful creation of a new tenancy.

During my years as a landlord renting properties to families, I have developed a set of procedures for starting a tenancy – from when my new prospective tenant(s) first views the house to the day when (s)he finally moves in and I hand over the keys.

Firstly, the property needs to be ready; everything spick and span and in full working order together with the Gas Safety Certificate, the EPC to hand and a robust inventory.

If the prospective tenant views and is interested in my property I give them the EPC and an explanation of what it is, as in my experience, tenants rarely know about them.

We then discuss:-

a)      The rent – Working tenant versus benefit tenant and how / when the rent will be paid.

b)      Deposit – A quick explanation about protecting it.

c)       References – Absolutely vital and if a Guarantor is involved they need to be credit referenced as well.

If everything is OK, I issue the tenancy agreement (in duplicate) usually a few days in advance of the agreed start date of the tenancy, giving the tenant an opportunity to read it. If they are claiming benefits the Housing Benefit Office will need a copy prior to the beginning of the tenancy.

As for paperwork when the tenant moves in: Two signed copies of the tenancy agreement, key receipts, utility meter readings, receipts for the Gas Certificate and EPC and the signed inventory. To safeguard myself and supplement the inventory I usually take an audio video, with the tenant in shot, showing the house and the garden. I make two CD copies – the tenant keeps one and signs for it. The tenant also has one copy of all the paperwork and I keep the other.

I also demonstrate how things work; especially the heating and hot water. I tell them where the cold water stop cock is and leave instruction manuals for all appliances. Other useful information I pass on to my tenants is when bin day is and if the electricity / gas is on a card meter where they can go to get the card topped up.

Finally, a card welcoming them to their new home (or even a bottle of wine) is a nice gesture and I find tenants really appreciate it.

I give the tenant my contact details and explain the deposit will be protected and that I will let them have all the relevant paperwork shortly.

About a week into their tenancy I give them a quick ring just to check they are settling in OK.

www.landlords.org.uk

Time these rogues were dispatched once and for all

Channel Four’s long running ‘Dispatches’ programme took an in-depth look at a subject very close to the NLA’s heart this week, the private-rented sector.

Entitled ‘Landlords from Hell’ and presented by veteran journalist Jon Snow, the programme sought to expose the sorry state of the private-rented sector and the shocking actions of those operating below the water-line at the murky bottom of the PRS.

The two cases highlighted were indeed shocking examples of how poorly one human being can treat his fellows in the name of business.  The two individuals showed no respect for their responsibilities as landlords and displayed utter contempt for their unfortunate tenants –seemingly without facing any considerable sanctions in return.

Above all these people showed that they do not deserve to be described as landlords.

The term ‘landlord’ may not necessarily conjure up an image of noble ideals for the majority, but so far as we are concerned it does mean something.

Being a landlord means that you have agreed to:

  • provide your tenants with a home in exchange for regular rental payments,
  • repair and maintain your tenant’s home for the duration of their tenancy,
  • to allow your tenants to live in a property free from harassment,
  • forfeit possession of a property until such time that a tenancy legally  ends,
  • show your tenants the same degree of respect that you expect to receive.

These ‘landlords from hell’ appeared to display none of the above, choosing instead, to flout the law.

In any other walk of life these people would be considered criminals and dealt with appropriately. The private-rented sector should be no different, the continued existence of these criminal rogue operators makes us all look bad.

There is no defence for these offenders, but it does beg the question; Why so few prosecutions?

There will, no doubt, be much debate following this programme about the need for more regulation of the PRS. However, is more the right response? This is not a new problem, and successive governments have introduced legislation, extended local powers, and modified the various standards regimes.

The problem is that regulation only works when it is implemented and enforced appropriately. The NLA works with such organisations to give guidance on this.

Far from being powerless, enforcement agencies have quite an arsenal at their disposal to target rogue, criminal landlords for example:

  • Environmental health officers are able to serve prohibition or improvement notices in respect of poorly maintained, or dangerous property under the Housing Health and Safety Rating System (HHSRS) requiring emergency repairs or even closing down sufficiently poor properties.  In severe cases emergency repairs can even be carried out without the landlord’s involvement (although at his expense).
  • HHSRS allows agencies to inspect any property – regardless of tenure – allowing them to identify those landlords known to operate below the radar.
  • A local housing authority may use a management order to take control of the management of a poorly managed property, either temporarily or permanently, in circumstances where a landlord has neglected his responsibilities.
  •  Landlords who fail to appropriately license their properties can also be fined up to £20,000 and find themselves subject to a rent repayment order of many thousands more.

Not to mention the many criminal sanctions which a landlord may face if there is any allegation of harassment or illegal eviction, up to and including a custodial sentence.

The real discussion must surely be about why there is such limited enforcement of these existing powers and why instead there is an ongoing clamour for more licensing and arbitrary restrictions of accommodation when demand has never been higher.

No doubt the answer lies in funding.

We all know that enforcement against the bad guys is more expensive than blanket restrictions, but surely it would make sense for everyone if local authorities were able to used the extensive powers they already have to make an example of the very worst criminals masquerading as landlords, abusing their position, their tenants, and devaluing the term ‘landlord’.

www.landlords.org.uk

If at first you don’t succeed – try, try, try again…

It is often said that lobbying the Treasury prior to Budget day is like trying to change direction in an oil tanker.

It’s possible, but you need to start well in advance and be prepared for it to take a long time.

Well it has certainly taken a long time, but in his Budget Statement for 2011 Chancellor George Osborne announced a change which the NLA has been asking for year after year.

By means of an easily missed comment about half way into his address – or 70 pages into the infamous ‘Red Book’ for the literary minded – Mr Osborne announced that in the future landlords or investors making bulk property purchases (i.e. buying a portfolio) will be able to choose to pay Stamp Duty Land Tax (SDLT) on the average property value rather than the aggregate portfolio price. Provided that the relevant rate is at least one percent.

This is a major step in the right direction by Treasury, and a very welcome one from a landlord’s perspective.

Put into context, this represents significant potential savings for investor landlords.

For Example:

A landlord buying five properties valued at £200,000 each would currently face a tax bill of five percent i.e. £50,000.

Being able to choose to pay SDLT in relation to the average property value means that the one percent rate applies, and therefore the final bill is reduced to £10,000.

This is obviously good news for landlords, but it is also good news for the housing industry as it will reduce barriers to entry for new and existing investors.

It is also good for the PRS in general as thanks to reduced entry costs more cash is potentially available for investment in refurbishment, renovation and raising standards across the board.

However, there is still a great deal to do in respect of SDLT as the system still distorts property valuations and we hope that this is only the first step towards the ultimate goal of wholesale reform of the system.
For more information about the budget and the NLA’s suggestions for reform please visit the NLA website at:
http://www.landlords.org.uk/news-campaigns/news/budget-2011-first-impressions

What do you call an optimistic landlord?

Some might say ‘delusional’

Others would prefer ‘visionary’

I’ll leave you to decide

But as incongruous as it may sound, according to the NLA’s Landlord Optimism Index, private residential landlords are more hopeful about their prospects now than at any point since the start of the credit crunch.

As always, context is crucial and it should be noted that confidence remains 14 points below the 2007 high point. However, net landlord optimism is up an impressive 20 points from its lowest point two years ago.

So, what have landlords got to be so positive about?

It would be misleading for the NLA to make out that the future is entirely rosy for landlords, there are significant cuts on the way in respect of housing benefit budgets. LHA rates for much of the country are to be cut, and caps imposed on the most expensive areas.

A great number of local authorities are also working on ways to limit the growth of the shared housing market – as described in earlier blog posts.

But….

Maybe there are also reasons for this emerging optimism:

- Bank of England interest rates have been at the historically low rate of 0.5 percent since March 2009.
- Property prices remain suppressed, facilitating affordable deals
- Tenant demand remains high – and continues to outstrip supply in much of the country
- Slowly but surely buy-to-let lenders are coming back to the market with improved deals

So does this mean 2011 is destined to be a great year for the PRS or are the next 12 months going to be defined by cuts, arrears and hardship for landlords in the UK?

Neither may true – or both for that matter.

The one thing that we can say for certain is that there remains no-such thing as a ‘typical landlord’.

But given the lack of a typical tenant, maybe that’s no bad thing.

Landlords to be dealt a fair hand?

David Cox, NLA Policy Officer

Landlords could be forgiven for letting out a collective groan when, minister Chris Huhne MP, announced the Government are to push ahead with new measures to encourage greater energy efficiency in the private-rented sector.

But unlike some earlier initiatives, the ‘Green Deal’, is a scheme designed to provide up-front funding for energy efficiency improvements including loft, cavity and solid wall insulation, floor insulation, draught-proofing and water pipe lagging.

Traditionally landlords have proved difficult to target with energy efficiency measures as the arrangement is typically one-sided – i.e. the landlord pays and the tenant benefits; what is known by the technically minded as the split incentive.

However, this scheme looks different:

1. There will be no capital outlay for landlords. The Green Deal financing will be paid back through the utility bills. Therefore, whoever pays the utility bills, pays back the loan.
2. The ‘Golden Rule’ of the Green Deal is that the combined cost of both the utility bills and the loan must be lower than if nothing had been done – so after the measures are installed tenants will be financially better off as they are paying less in utility bills; and warmer.
3. A warm tenant is a happy tenant, and happy tenants are likely to stay or longer; which reduces void periods and the need to re-market.
4. European legislation will shortly require landlords and letting agents to put energy efficiency ratings on all property adverts. A property with a higher EPC rating should be more attractive to tenants and so using the Green Deal and installing the improvements will make it easier to let.
5. Most importantly, these measures will protect the fabric of properties. Energy efficiency improvements reduce damp, mould, condensation and damage from frozen water pipes – so reducing long-term maintenance costs.

However, the devil may yet be in the detail. As with all new legislation, the Green Deal is a carrot to encourage landlords to embrace the energy efficiency agenda. Of course, where there is a carrot there is always a stick and the Green Deal is no exception. If landlords do not take up the Green Deal, from 2015 tenants will be able to demand ‘reasonable’ energy efficiency adjustments.

The NLA has received assurances that a property’s character will be considered in relation to any required works and the ‘Golden Rule’ will remain in force ensuring that the landlord will not be expected to pay any upfront costs.

But if a landlord fails to make requested adjustments – which are practical and covered by the scheme – local authorities may be able to fine them and insist the properties are insulated.

This gives landlords a five year window to insulate their properties free of charge. It is the private-rented sector’s opportunity to prove its social conscience by tackling climate change, that it’s a tenure offering high quality accommodation – once and for all dispelling the myth that landlords don’t care about their tenants. (Not to mention an opportunity to make some otherwise costly improvements).

There may be no such thing as a free lunch – but the NLA would advise landlords to at least take a look at the menu before making up their minds.