Rent Risk Resolve – Part four: Rent control

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Past attempts

For many years, rent control was considered an out-dated practice from a bygone age, with a history of failure and complications around the world.

In the UK specifically, the various Acts which introduced rent control in the private-rented sector had a dramatic effect on the proportion of households renting from a private landlord. As the chart below illustrates, the sector shrank dramatically after the introduction of controls in the Rent and Mortgage Interest Restrictions Act 1939, and continued to decline as the legislation was tightened through the 1950s, 60s and 70s.   It was not until the reforms of the 1980s that the private-rented sector turned the corner.

Even so, the initial pace of change was slow.  The modern rented sector only really developed after the enactment of the Housing Act 1996 when the Assured Shorthold Tenancy became the default tenancy and lenders felt secure enough to expand mainstream lending to individuals.

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Political agenda

Yet, despite the wealth of evidence to suggest that statutory price capping does far more harm than good to the supply and quality of rentals, it is back on the agenda for some politicians.

The appeal of price controls to politicians is simple. It is a basic concept, easy to understand and able to appeal to a certain group of voters with whom it is often difficult to engage. Unfortunately, while the concept is simple, the practical and economic consequences are incredibly complicated and difficult to model.

The impact

Those proposing rent control tend not to consider its impact on the wider society. The use of rent ceilings has been shown, time and time again, to reduce the quality and quantity of property available to rent legitimately, while fuelling the growth of a black market. It wasn’t difficult to find somewhere to rent in the 1980s, but few renters were ever offered a full tenancy, with all the protections that entailed.  For good or ill, many properties were let on a “licence to occupy”.

Were a future government to introduce such a policy after the May General Election, the impact would undoubtedly be a reduction in the the number of properties available to rent and the exit from the market of a large number of responsible landlords who simply are not prepared to deal with inevitable reduced income or the higher costs that will follow as service providers, such as mortgage lenders and insurance providers, seek to off-set their risk.

Rents will be held down as politicians – looking to gain votes – will be unwilling to face the wrath of five million private renters. As the cost of renting to the consumer sinks below the natural market rate, artificially kept below the level needed to ensure that the landlord can maintain it properly, and inevitably squeezing profitability out of the equation, people will vote with their feet. Investment will move away towards other markets and assets better able to provide a reasonable return.

Shortage of housing

The impact of this will be felt more widely than simply by those who rent or let. The issue we face in many parts of the country is a shortage of all types of property for people to live in. Rent control will not increase the number of properties; indeed, it will have the opposite effect, driving investment away from these areas and further reinforcing the divide between high and low demand areas, as developers will no longer be able to cover the risk of new projects by selling off-plan to landlords keen to invest in residential property. Unless there is an increase in first-time buyers willing, and – perhaps more crucially – able to buy to compensate, housing development will fall away, further restricting supply and making it even more difficult for those seeking housing, both to rent and to buy.

The policy of rent control has failed whenever it has been introduced; the re-introduction of rent control in the UK will fail and will cause more damage to the housing sector, and to those that need to be housed.

Be heard

If you’re concerned about the impact this could have on you, enter your question via the survey. The NLA is holding a hustings event, on Monday 2 March, where there will be an opportunity to question policy leaders from all parties. The most popular questions, collected from our survey, will be presented at the event.

Rent Risk Resolve – Part three: Have you got the licensing lowdown in your area?

Local Authority Officer - Gavin Dick

Local Authority Officer – Gavin Dick

Over the past few years there’s been sharp rise in the number of local councils that have chosen to introduce landlord licensing schemes throughout England and Wales. Often these schemes increase business costs for landlords and place unnecessary burdens on the majority of compliant landlords, without rooting out the bad. Below, Gavin Dick, the National Landlord Association’s (NLA) Local Authority Policy Officer,  outlines why we’ve seen a rise in the number of new schemes and highlights a new interactive tool that will help landlords to keep on top of it all.

Local councils and general consent 

Since 2010, local councils in England and Wales have been granted  ‘general consent’ when introducing new licensing schemes  for private rented housing. This removes the requirement for central government to ratify the scheme before it’s rolled out. Before then, all new schemes had to be verified and approved by central government. 

The introduction of general consent in 2010 presented a huge risk for landlords and the wider community, as it still does. It allows councils to introduce a scheme without any checks and balances and means that the driving force behind a new scheme could be political, rather than an evidence based approach. 

In fact, the law says that new licensing schemes can only be set up by councils in areas which have an anti-social behaviour problem, which can be directly linked to the poor property management of private rented housing in the area, or low demand. However, many councils often struggle to justify the need for new schemes, and present a flimsy or non-existent evidence base to ‘prove’ a direct correlation between particular issues and the PRS.

The NLA actively engages with local councils across England and Wales and works hard to resist or positively influence new schemes but we can’t always prevent councils from going ahead. The recent high profile judicial review of Enfield Borough Council’s (EBC) proposed new scheme is a good example. The judicial review refused the new scheme on the basis that EBC hadn’t fully consulted in neighbouring boroughs, not on whether EBC were within their rights to set it up. This particular example means that, in all likelihood, nothing could technically prevent EBC launching a new scheme, so long as they do a better job at consulting on any future proposal.

Either way, licensing presents a great concern for landlords as it’s led to a disjointed framework across England and Wales and a system that’s confusing and costly for them and their tenants.

A new licensing tool for landlords 

It’s important to be aware of local licensing laws as they can present a significant upfront business cost and can be even costlier if you unwittingly fail to comply. That’s why we’ve decided to create a new interactive tool to help landlords keep on top of the situation and give them the licensing lowdown in their specific region. The new tool/map provides you with:

  • An outline all of the existing landlord licensing schemes in England and Wales
  • Details about the fees payable for any mandatory, additional or selective schemes in your region
  • Information about where proposals for new schemes are currently under consideration
  • A list of the NLA’s local representatives who are active in your area and pivotal in engaging with local councils

The NLA is both the largest landlord association in the UK and the only association with a regional network of dedicated representatives that act on behalf of local landlords.

Are you aware of all the risks involved in letting property? 

This is just the latest part of our campaign: Rent, Risk, Resolve, which looks to help landlords to mitigate against some of the major risks involved with letting property. During the campaign we’ve already focussed on the risk and potential impact of rent arrears and rising interest rates to the success of your lettings business. Now we’re looking at the risks and associated costs of complying with unnecessary local licensing schemes.

The final part of our campaign, which launches later this month, will look at probably the most damaging risk to the PRS of them all: rent controls. It will explore the likelihood and potential impact of rent controls being introduced and what you can do to lobby your local MP about the issue. So make sure to keep any eye on the NLA’s website and blog for more in formation in the near future.

In the meantime, check out our interactive map and make sure you’ve got the licensing lowdown in your area: www.landlords.org.uk/rentriskresolve/licensing-in-your-area

Rent Risk Resolve – Part two: Are you worried about rising interest rates?

money_houseBuy-to-let (BTL) is a great form of investment which can yield some good returns and is relatively low risk compared to other forms of investment.  Nonetheless there is still risk involved and it is important that that is considered.

Running a lettings business is a long term project, not least because the typical mortgage is lent for 25 years.  This means that you need to give some consideration towards movements in interest rates over that time.

Interest rates may have been at an all-time low for the past five years, but that will not last forever. Recently there has been a lot of talk about when the rates will rise: the consensus is that there will be rises when the economy is stronger, but the question remains as to how strong? But whether this year or later on, in reality interest rates will only go in one direction – up.

When interest rates do eventually rise, any landlord with a mortgage will have to make sure that they are able to cope with the rise. 72% of landlords have interest-only BTL mortgages. Our findings suggest that a third (32 per cent) of landlords worry about their ability to meet mortgage repayments if interest rates were to increase.

A helpful guide

As part of the NLA’s Rent Risk Resolve campaign the NLA has created a guide to help you mitigate the risks associated with interest rate rises by creating a contingency plan so that you know what to expect and are prepared to deal with the consequences.

The increases, when they come, are expected to be incremental, probably in 0.5% steps, and are predicted to rise to between 2.5% and 3% by 2017. It is advisable for you to prepare for this by knowing what effects rising interest rates can have on you and what action you can take if need be.

How will it affect you?

The most obvious effect will be higher repayments. Most BTL mortgages have a ‘product interest rate’ which is based on the Bank of England base rate. Therefore you will need to ask yourself if you are able to afford to pay higher rates. Interest rate rises will also affect a lender’s consideration in approving a remortgage or the purchase of a new property.

The worst case scenario would mean falling into arrears and ultimately repossession. This would not only affect you, but also your tenants. You will therefore need to address the issue as soon as you feel you might have difficulties meeting the repayments.

How can you prepare?

There are a variety of options to consider when dealing with higher repayment costs. First of all you could look into paying off your mortgage early or, if you are not tied in, consider switching to a better deal. There has certainly been a growing demand for 5 year fixed rates and NLA Mortgages currently has over 100 such products available from over 10 different lenders, so there is a fairly wide choice.

Another option could be to increase the rent, although this may not be the best way to go, as there is the risk of pushing out good tenants.

If you don’t think there will be much benefit from keeping the property, then perhaps disposal of the property might be the best option.

Of course there is also budgeting. If you have budgeted for the eventuality, the stress and burden of an increased interest rate is going to be more manageable. One way to do this is to save some of the profits.  Budget for savings in your initial business plan makes sense not only because it helps with unforeseen costs, over and above routine maintenance and repairs, but can also help smooth out the cost of the higher rates.

Understanding interest rates, how they are set and the impact that they can have on your repayments is essential. NLA Landlords Guide to Interest Rates outlines the important areas which should be looked and how you can prepare yourself.  The NLA would strongly advise any landlord with a mortgage to download the guide for some useful advice on how best to prepare for the inevitable interest rate rise.

Top tips for energy budget-conscious landlords and renters

coins_closeRecent research from Ofgem, the energy regulator, found that three-quarters of bill-paying tenants have never switched electricity or gas supplier in order to get a better deal. One in five tenants aren’t even aware that it is possible to switch provider despite the fact they could save up to £200 and renters are only half as likely to switch compared to homeowners.

Good landlords may want to encourage tenants to shop around for the best deal, and remind tenants to consider the total cost of living in a property, including the bills, rather than just the rent alone.

The Be An Energy Shopper Campaign has recently highlighted the rights of tenants to switch energy suppliers if they are responsible for paying their energy bills directly.  You can find out the facts here: (www.goenergyshopping.co.uk/en-gb/tenants)

Some rental contracts can stipulate that tenants inform the landlord before switching energy supplier, but the point to remember is that where a tenant is directly responsible for paying the energy bill they have the right to choose their own energy supplier. Even if there is a clause in the tenancy agreement that says tenants can’t switch suppliers, if the tenant is responsible for the bills in the property then they should be free to decide which suppliers to use.

With good communications between landlord and tenant, the landlord will be kept informed of any change and the tenant will return the account to the original supplier at the end of their tenancy.

www.goenergyshopping.co.uk provides all the information required to help people be an energy shopper and, if your tenants aren’t online, there is a printable “easy guide” which you can give new tenants.

Of course, there are some landlords who offer their properties for rent inclusive of bills and, in this case, the tenant will not be able to switch, because it’s the landlord who has the contract with the energy company, not the tenant.

If this applies to you, it’s not just tenants who can shop around for a better deal on gas and electricity.  As a landlord with your own energy bills to think about, you should also shop around for the best deal

TOP TIPS FOR BUDGET-CONSCIOUS LANDLORDS AND RENTERS

  • Ask your tenant to take meter readings when they move in and out of rented accommodation and send them to the energy supplier
  • Highlight any supplier tie-ins upfront to your tenant,
  • Ensure your tenants know if the contract obliges them to let you know if they intend to switch supplier
  • Remember: if the tenant is responsible for paying the gas and electricity bill, they are entitled to switch at any time, and you can’t unreasonably prevent them from doing so.

It’s never been easier to be an energy shopper so visit goenergyshopping.co.uk and you could save up to £200!

This content has been provided by Ofgem

Possession – A landlord’s right

houses_terracedThere are approximately 4 million homes rented privately in England and it is predicted that the private-rented sector will reach 20% of total households by 2016. It is therefore not a big surprise that things sometimes go wrong and a landlord will need to seek possession of their property or recover lost earnings.

In the event that a landlord has repossessed their property for whatever reason landlords should make sure that they do it by the book and according to the law. There are a number of reasons for terminations to be aware of.

1) Major renovation

Properties do get worn over the years or a property could be hit by weather damage, subsidence or a number of other unfortunate problems and sometimes the only way to make sure that the property is fit for purpose is to do major repairs which means the property may need to be empty.

2) Selling the property

You have the right to sell the property when the time comes to do so. 

3) Arrears

If you experience arrears you must make sure that you deal with the situation quickly, otherwise it could spiral out of control leaving you out of pocket.

4) Abandonment

Abandonment is a difficult situation, and thankfully doesn’t happen very often, but when it you must make sure that the property has definitely been abandoned before entering and re-letting the property.

5) Bad tenants relations

Another unfortunate situation is when relationships between tenant and landlord break down. This can leave you in a very difficult situation and if you don’t deal with it quickly and professionally you could lose out on a lot of rent as well as upsetting neighbours.

What to do

Regaining possession of your property can be costly, aside from losing rent there are also the costs associated with getting the property back, from court costs to legal advice.

You have a few options available to you should you need to gain possession of your property. There is the Section 8 notice, this is not an ideal route as it is both costly and time consuming and in cases such as arrears where a tenant need to be two months behind, if some of the rent is then paid during the process of seeking a court order you will have to wait and start again.

The more common option is a Section 21 notice. This will need to be served with two month’s notice either leading up to the end of the AST or after the AST has run out. You must also ensure that you have followed the law and protected the deposit properly.

NLA options

This is just a snap shot of what can happen and what you can do. The NLA is constantly looking for ways to make things simpler and easier for you. The NLA has therefore launched two new services. The services have been set up to help landlords who have the unfortunate duty of repossession.

The first aims to help landlords regain possession of their property while the other looks to recover lost rent.

  • NLA Property Repossession: a service for landlords looking to legally evict their tenants and repossess their property.
  • NLA Rent Recovery: a service to help landlords recover any losses in rent from past or existing tenants.

Both services will be hosted on one website: www.nlarepossessionandrecovery.org.uk.

Key benefits:

  • Fully automated online ordering system for property repossession and rent recovery.
  • Online case management system to track all cases/orders.
  • Free Support Line.
  • Fixed price solutions, no additional costs.
  • Accelerated eviction times through High Court Sheriffs.
  • Discounted prices for NLA Full Members.

The service provides FREE property repossession and rent recovery advice for registered users.  The telephone number is 0845 030 5175 should you require it.

NLA launches new campaign: Rent Risk Resolve – Part one: rent arrears

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As the UK’s leading representative body for landlords, it is important that we confront the issues that are important to our members. Our latest campaign seeks to raise awareness of the potential risks involved for landlords when running a letting business.

Rent Risk Resolve aims to highlight four of the biggest risks facing landlords and help you to minimise the impact on your lettings business:

  1. Rent arrears
  2. Rising interest rates
  3. Local landlord licensing and regulation
  4. The introduction of rent controls

As part of the campaign, we’ve created new guides to highlight the importance of taking a best practice approach to help ensure happy, healthy tenancies for everyone involved. Adopting best practice at every stage of the letting cycle will reduce the likelihood of issues occurring. 

Rent arrears

Our campaign kicks off with a look at rent arrears.  Rent arrears are a real concern for many landlords across the UK. Our research shows a third of landlords (32 per cent) say they have experienced rent arrears in the last 12 months.

On average a typical landlord with rent arrears has two tenants in arrears, and faces £1,649 of outstanding rent, so the potential impact can be devastating on both the business and personal life. It can seriously impact your ability to pay the mortgage and if left unchecked can spiral out of control causing a great deal of stress. Remember, only a court may end a tenancy agreement on the basis of non-payment of rent and even then, vacant possession is only guaranteed following two months of accrued debt and the grant of a warrant for possession.

So what can you do? Prevention is the first step to coping with rent arrears. It is very difficult to predict whether a tenant will get into arrears, but there are a number of common-sense steps that can reduce the risk of encountering arrears or at least make it easier to spot the danger signs early on.

Prevention

The best way to mitigate the risk of rent arrears is to factor the potential cost into your planning as early as possible. A good rule of thumb is to plan for 10 out of 12 month rent to allow for a sufficient margin for the majority of unexpected costs or moderate non-payment.

Doing a thorough tenant check can mean the difference between being stuck in a nightmare situation where your investment is costing you money and a successful happy tenancy for everyone.

There are also a wide variety of landlord insurance products on the market, to help reduce your financial exposure to non-payment of rent. Another option may be to consider insisting upon a guarantor; i.e. a third party who agrees to cover any non-payment on behalf of your tenant. It is also essential to ensure that you are sufficiently covered at the end of the initial fixed term, as some guarantor agreements can be ambiguous about continued liability.

A strong working relationship is important at every stage of the landlord tenant relationship, but is absolutely essential if problems are beginning to surface. 

Action

Monitor receipt carefully, and as soon as a rent payment is late, speak with your tenant. Depending on the reason for the late or non-payment, it may be possible or advisable to negotiate a repayment plan, which brings the arrears back under control. If the problem looks likely to become long-term you may wish to discuss whether your tenant wishes to continue with the tenancy.

If the worst has happened then you will be reliant on the courts to grant possession and potentially make a financial award to help you recoup some of your losses. It is important to ensure that you observe proper process at all times and avoid mistakes when it comes to court action.

You must be very careful not to pressurise tenants into agreeing to end a tenancy, as this could be perceived as harassment and or illegal eviction, both of which carry criminal sanctions.

For a more in-depth look at the issue of rent arrears download: A landlord’s guide to rent arrears. It enables landlords to spot potential arrears early and provides strategies to put in place to mitigate the impact. To find out more about the campaign, or to download the free guide, visit www.landlords.org.uk/rentriskresolve

Stay safe this festive season – don’t let fire ruin your Christmas

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While fire safety is important all year round, the festive period can increase the chances of fire due to a number of factors such the use of candles, Christmas lights and heaters. While they are great for creating the perfect festive atmosphere they do carry some risk.

Many will also be sitting back and relaxing, perhaps with a tipple or two, over the holidays but the fact is the risk of accidents is greater after drinking alcohol, so make sure you take the necessary precautions to ensure an accident free Christmas period.

According to research carried out by Lloyds TSB, fire damage increases by more than two thirds over Christmas. So to raise awareness of the extra hazards that are present around Christmas and to ensure you avoid any devastating effects, here are a few tips which you can share with your tenants to help guarantee a happy and healthy Christmas.

Always ensure that you have a working smoke alarm

  • Test your smoke alarm on a weekly basis, don’t neglect to do this over the busy festive season.
  • Never remove the batteries from your smoke alarm, even if you have new toys waiting to be charged. Many rental contracts will state that you should not remove the batteries from safety alarms and some contracts even state that bonds will not be returned if batteries are removed.

Secure decorative lights to ensure electrical safety

Fairy lights and Christmas tree lights don’t get used very often, so you should make sure they are in good working order before using them:

  • Renew old Christmas lights as newer lights meet much higher safety standards. Remember to check older lights for damages and check they have the correct fuse in place as well as replace any bulbs that blow. You want to avoid Christmas tree fires at all cost.
  • Don’t let the bulbs touch anything that can burn easily, like paper or fabrics and other Christmas tree decorations.
  • Always turn Christmas tree lights off when you leave the property and for at least half an hour before going to bed. And to save electricity, remove the plug from the socket too.
  • Be sure to keep trailing cables and wires tucked away neatly – knots in wires can cause surges in power and could cause items such as Christmas lights to fuse.
  • Never overload electrical sockets.

Avoid fire hazards

  • You should also take care to keep ribbons, festive decorations made of tissue paper or cardboard, and greetings cards away from heaters, lights, fireplaces and candles.
  • Never leave a candle unattended for long periods of time.
  • Never leave cooking unattended and try to avoid cooking while drunk.
  • If you are planning to have fireworks as part of your celebrations, always plan ahead and ensure the display is a fair distance from the property.
  • Plan an escape route and make sure your guests know too.

For more advice and guidance on health and safety, you’ll find chapters on fire safety, gas, electricity, furniture and personal safety in the NLA’s online library.