National Landlords Association

Encouraging renting


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Rumour Has It….

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“The storm clouds are clearly gathering in the world economy and that has a consequence for lots of countries including Britain.”

George Osborne’s sober assessment of the progress being made in his mission to balance the nation’s books – an assessment that gives us an uneasy heads-up about what to expect in his Budget on 16th March.

Rumours abound at this stage of the political cycle, with fanciful and contradicting reports, from sources anonymous and vague, about the Chancellor’s Budget announcements.

However, one thing is certain: the Chancellor will continue the rhetoric of the Government supporting everyday workers with ambitions to advance in life. What this will translate to in policy terms is, as ever, anyone’s guess. So let’s join in on the guessing!

Housing and Homes

According to “Whitehall sources” (I told you they were anonymous and vague!), one of the main planks of the Chancellor’s Budget will be an initiative to ‘eradicate homelessness’.

Now, on the surface of it this sounds okay. Obviously the devil will be in the detail of any initiative, and one hopes that private landlords are not punished further for simply existing.

If the Chancellor does want to utilise the PRS for this initiative, we would encourage him to look at Crisis’ new campaign calling on the Government to fund security deposits for the homeless accessing the PRS. Our head of Policy, Chris Norris, recently wrote a blog about the whole thing!

Pensions

There has been much speculation about Osborne’s plan for pensions – someone has to pay for his “long-term economic plan” and perhaps this time he was going to raid pension pots. Talks of a “Pensions ISA” or a flat rate of tax relief on pension contributions were widely circulated.

However, after much opposition from his backbenchers, as well as a Pensions Minister, the Chancellor confirmed on Sunday that he will not go ahead with reform, and that there would be no changes in pension tax relief in the Budget.

Good news for some! But that still leaves the problem of finding the money to pay for his deficit reduction commitments…

Tax Tax Tax

With landlords across the country still reeling from the double tax bomb we received last year, all ears will be listening intently, yet sheepishly, to the Chancellor next week.

There have been rumours that landlords are not yet out of Osborne’s crosshairs as he could introduce more charges to deter landlords buying homes, or limit tax breaks further in his crusade for home ownership.

What could be of (limited) help to landlords, however, is cutting of the top rate of tax to 40p, and increasing the threshold at which the higher rate of income tax is paid. This would also need to be paid for however, and it seems the most plausible possibility is an increase in fuel duty.

In other tax news, there has been much opposition to plans announced at last year’s Autumn Statement to introduce quarterly tax returns – plans that would affect landlords earning over £10,000 a year. With the Federation of Small Businesses and the British Chambers of Commerce chastising the Government for this change, a watering down of proposals could be on the books.

Overall, the best case scenario for landlords is for Osborne to see the error of his ways and completely u-turn on last year’s attacks on landlords. However this is also the least likely scenario – the Treasury has been unreceptive to the reality of these policies for the last few months so we are not holding our breath for them to suddenly come to their sense.

Whatever happens on the 16th we will be right here to let you know how it affects you and your business, and will continue to lobby the Government for a fair environment for the PRS to thrive.

 

 


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An Inconvenient Truth – helping the facts speak for themselves

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Matt Oliver, NLA Public Affairs Officer, on perception & reality

I have been working at the NLA for nearly two years now and many of my friends and family still don’t really know what I do for a living.  Why?  Because I deflect when people ask and change topic.  People’s view of the PRS are often based on selective statistics and a one sided media narrative that assumes all landlords are greedy property barons raking it in off the backs of poor tenants, who can’t do anything about it.

Most of the time I don’t have the strength to put them right.  When I do, I either see their eyes glaze over as they lose interest or the conversation is ended angrily as they are disgusted by my evil capitalist view of the world and how dare I object to…(insert name of left wing newspaper or respected ‘charity’ here).  In short, they have swallowed the spoon fed lines from these various groups hook line and sinker.  So I bite my tongue.

However, recently released figures – that I am sure will not garner much media attention – reveal a much brighter reality of the PRS than is normally portrayed.[1]  The English Housing Survey 2014-15 Headline Report highlight an Inconvenient Truth for the anti-PRS bandwagon.

Tenure – On-going calls for the implementation of mandatory 3 year tenancies can be seen as the ideological pursuit that they are, with the current average tenancy length now hitting almost 4 years, without resort to unnecessary regulations.

Rents – It also shows that, outside the anomaly that is London, “private rents remained stable” (who knew people would want to live in or near the fifth largest metropolitan economy in the world).

Evictions – The unfortunately prevalent view that private landlords are continuously evicting vulnerable tenants can also be seen as hogwash, as these stats show that around two-thirds of repossession claims come from the social sector!

Standards – Standards are continuing to improve across the board with the percentage of ‘non-decent’ properties in the PRS falling again, (see below graph).

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Please note: purple line indicates housing association properties

This is good news, especially as the Decent Homes Standard[2] was never designed to apply to the PRS.  Over a third of PRS property were built before 1919, compared to only 6.7% of social rented property, leaving the sector with unique challenges to overcome, especially with the recent abolition of Government backing for the Green Deal and of tax incentives such as LESA.

Whilst 28.6% is still too high, landlords should be commended for the improvements made over the last decade and there is no evidence to suggest that the proportion of non-decent properties won’t continue to fall.

Overcrowding – Down to 5.1% in the PRS compared to 6.4% in social housing.  The horror stories you see on TV are invariably criminal landlords often housing illegal workers as part of a larger illicit enterprise.

Energy Efficiency – Energy efficiency in the PRS is improving, with properties in the F&G efficiency bands down from 10.6% in 2013-14, to 7.5%. The average SAP rating for PRS properties is also up to 59.7, now on par with owner-occupied properties.

But we are not complacent…

This is of course not to say that more cannot be done. The best way to speed up improvements in the sector will not be through more regulations and the demonisation of landlords, but through incentives.

As mentioned in a previous blog, if landlords were treated like practically every other business and allowed to reinvest their profits without getting whacked with a massive tax bill, the rate of improvement would increase. So there are simple, workable solutions available that will not smother the sector in red tape and further pile on the costs to landlords.

As with any other business if you increase the cost of doing business then it simply gets passed down to the consumer or in this case to tenants. With 19% of households now living in the PRS, that would not be welcome news to millions of tenants and their bank accounts.

There are problems in the PRS, but the vast majority of the sector is professional and business-like. For too long it has been tarnished by criminals who use it to make a quick buck at the expense of vulnerable tenants, knowing local councils are under-resourced and ill-equipped to prosecute them.

It is often said the facts speak for themselves.  However, it’s clear that in this case they may need a little help cutting through the urban myths created by some vested interests, campaign groups and the media, who don’t let the facts get in the way of a good story.

That’s what we’re here for I guess.

[1] To be clear these aren’t numbers from a vested interest group, but are from The English Housing Survey, which is the national Statistician that Shelter describes as “a unique dataset that must be protected.”

[2] The Decent Homes Standard is a programme aimed at improving council and housing association homes to bring them all up to a minimum standard.


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Cymru yn croesawu landlordiaid preifat

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(Photo by Matthew Horwood)

With a little luck, and a great deal of thanks to an online translator, that should mean Wales welcomes private landlords.

Whether you believe this I suspect will depend upon your attitude and exposure to the Private Rented Sector (PRS) in Wales. Either way, the National Assembly of Wales definitely welcomed the National Landlords Association (NLA) and its members to debate the PRS on the 24th of February, ahead of the election in May.

Our thanks must go to Conservative shadow housing minister Mark Isherwood AM for arranging for the NLA to take over two of the Assembly’s committee rooms for the evening, and also for representing the opposition in an enlightening hustings event.

In addition to Mr Isherwood we were fortunate to be joined by Mike Hedges AM of Welsh Labour, Peter Black AM, the Liberal Democrat spokesman for housing in the Welsh Assembly, James Radcliffe the Plaid Cymru candidate for Bridgend and Anthony Slaughter, the deputy leader of the Welsh Green Party.

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Right to Left: Mark Isherwood (AM), Peter Black (AM), Richard Lambert (NLA), James Radcliffe, Andy Slaughter, Mike Hedges (AM).

Each party representative gave a comprehensive introduction to their party’s policies affecting the private rented sector in Wales, followed by a lively Q&A session with the landlords in attendance. Unsurprisingly, this led to some disagreement and the politicians undoubtedly left with a much greater awareness of the concerns of the landlord community.

Throughout a varied and at times very detailed hustings session, chaired by the NLA’s own Richard Lambert, the main topics of discussion ranged from the impact of the Welsh Government’s reforms to the impending introduction of HMO planning restrictions and even found consensus on the matter of leasehold reform.

Responding to questions from the floor, all of the invited panelists agreed that a priority for the next Assembly must be leasehold reform to ensure that landlords and residents receive fairer, better value and more transparent treatment by block managers. As leasehold properties become more prevalent in Welsh towns and cities, it seems that the next few years could witness a Wales-specific process of long-lease reform.

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However, there was no such agreement when the questioning turned to permitted development rights for small HMOs, with the parties disagreeing on the most appropriate definition for a ‘small’ unit of shared housing. Mr Hedges, on behalf of the Welsh Government which has recently announced that landlords will need to seek permission to convert ‘family’ housing to the new C4 use class, sought to defend the changes. Mr Isherwood proposed the use of planning restrictions to deal with identified ‘hotspots’ in a similar fashion to the way the policy applies in England, but not nationwide. On the other hand, both James Radcliffe and Anthony Slaughter agreed that planning changes may be justified but that the threshold of three individuals across two or more households was too low and advocated allowing larger households to remain below the cut-off.

Throughout all of the debate, the impact of the ongoing PRS reforms introduced by the current government steered questions back to the belief of many landlords in attendance that, despite the burdens imposed, there would be little benefit for those working and living in the PRS, especially given the reluctance of enforcement bodies to use the powers available to them to crack down on the poor behaviour of bad landlords and tenants alike.

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Lee Cecil (NLA)

NLA representative for Wales, Lee Cecil, took the opportunity to call on all parties to back proposals for a PRS-specific advisory panel to help steer future policy decisions – a suggestion that was largely welcomed by the panel and will be followed up after the election is out of the way.

Bringing the meeting to a close the panel was asked to elaborate on any plans their respective parties may have for using existing and planned tax raising powers in respect of landlords in Wales. In response, no party currently has any plans to raise or low landlord taxes – although both Plaid and the Greens have long-standing plans to reduce the rate of VAT on refurbishment to 5 per cent if given the opportunity.

That being said, no party definitively rules out changes to taxation or took the opportunity to announce plans to undue the harm wrought by the Chancellor in Westminster.

No party has yet published its manifesto for Wales, but we will return to the topic when more details are made available.


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Budgeting for Disaster

It’s that time again.

The dust has hardly settled from the Autumn Statement, yet we are less than a month from George Osborne dusting off his red box and delivering Budget 2016.

Recap

In case a reminder is necessary, last year the Chancellor announced a number of massive blows to the private rented sector (PRS), the most significant of which were the ‘restriction’ of mortgage interest relief from next year, and a higher rate of SDLT for additional properties from April.

The policies, attacking stock and flow respectively, are set to have major impact on the PRS as our recent quarterly survey has shown – Landlord confidence has collapsed to an all-time low. To add a little context, this means that confidence is lower than during the financial crash of the last decade, and of any point during the ensuing crunch.

We estimate that 500,000 properties are likely to be sold off by landlords in the next year due to Osborne’s recent changes (if landlords follow through with their stated intentions), with the possibility of another 100,000 sold off each year while the changes bed in.

Our concerns were echoed by the Treasury Select Committee that recently published a report on the Autumn Statement.

What next?

Frankly, at this point we don’t know. The contents of the Chancellor’s Budget statement are perhaps the most carefully guarded of any government announcement, with leaks controlled very much by those at the top.

March 16th will see George Osborne deliver his 2016 Budget, and while we wait to find out if any more attacks are coming our way, we have been very vocal in setting out our proposals for changes to the PRS that he should make.

The basis for our pitch is simple: rationalise the tax system for landlords and actually treat their businesses as businesses.

Landlords provide a service by way of business and current tax arrangements, especially the recent policy changes, completely misunderstand this position. The Treasury and HMRC have long had a confused view of landlords and, as a result, the sector has suffered a disparaging lack of consistency for many years.

With the PRS playing such an important part in the UK’s housing mix it is important, now more than ever, for the Chancellor to finally recognise landlords’ businesses as such and tax them accordingly.

Capital Gains Tax (CGT)

Landlords can face a significant CGT bill whenever they sell part of their portfolio which has appreciated in value. Upon disposal of many business assets, businesses are able to claim ‘roll-over’ relief against CGT provided that the gain is reinvested in the business.

However, residential property investments are not treated as business assets, meaning landlords do not have the same access to this ‘roll-over’ relief. This reduces the flexibility of the PRS and reduces the ability of landlords to adapt to changing markets, recover from potentially poor investments, invest in improving their properties and provide housing where it is most needed.

The NLA is therefore lobbying for a change in policy so that landlords can sell property and reinvest the funds without being presented with a significant CGT bill.

In addition, we are also discussing various means of tapering CGT liability for landlords in order to recognise the value of their management of an asset for a prolonged period, and to provide a genuine distinction from property speculators.

Barriers to incorporation

Until recently, a large proportion of portfolio landlords have chosen not to incorporate their businesses – mostly for good reason. However, the policy announcements by the Chancellor have prompted some movement on this. In our latest quarterly member survey, 4 in 10 landlords are either currently moving, or at least considering moving their buy-to-let portfolios to a limited company.

However, as residential properties are not classed as business assets, landlords can face a hefty CGT and Stamp Duty Land Tax bill when transferring property to their new limited company. The NLA believes that HMRC should have a clear and consistent policy in place for landlords incorporating, and remove the financial barriers in doing so by treating their residential properties as business assets.

The incorporation of a larger volume of lettings businesses would be beneficial for the Government as well as landlords, as it would aid in their objective of improving the professionalism and visibility of private landlords, as well as fuelling the growth of small businesses.

Council Tax

For the majority of residential let property, the Council Tax liability falls to the tenant. However, in regard to Houses in Multiple Occupation (HMO) landlords are liable and Council Tax can become a significant issue.

Depending on a number of conditions, local authorities and the Valuations Office Agency (VOA) can differ in how they regard HMOs which means that HMOs may be deemed either as a single dwelling or a number of separate units.

Furthermore, the discounts and exemptions available to landlords during periods of refurbishment or between tenancies can vary significantly. This can complicate the matter of liability for landlords and lead to an inconsistent cost base between localities.

The NLA is lobbying Treasury, along with HMRC and the VOA, to examine this issue and provide guidance to local authorities requiring them to take a consistent approach in the way they administer this tax.

The NLA is talking to Treasury on these and a number of other issues ahead of the Budget and will post more details here during the run up to 16 March.


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Don’t Shoot the Messenger

We received a wide range of coverage when we reported at the beginning of February that landlord confidence was now worse than during the financial crash.

We also received quite a lot of interest, questions, comments and, in some cases, criticism about the forecast that some 500k properties would be sold over the next year or so, and that the PRS would shrink by up to 135k properties in real terms by 2021.

It is difficult to forecast what any market will do – witness the track-record of economists since the dawn of time – especially one as complex as the PRS.  As such, every prediction should be taken with a pinch of salt, but in order to explain why we believe our assessment is robust enough for public consumption, perhaps an insight into our methodology would be useful.

However, before we do the boring science bit we’ll confront some of the criticism upfront. A few are below:

Did we really expect our figures will change the Chancellors mind on this issue? Nope.

Did we expect sympathy from the media or wider public? No, but we did want to communicate that those tenants who are unable to buy, and who genuinely need to rent, will be the worst affected by the Chancellor’s decisions, despite him dressing up the changes as a good thing for tenants and first-time buyers.

Do we think landlords will follow through with their intentions? Some will. The rest? We don’t know. We have been very clear to caveat that.

Now to the science bit…

Predictions are only as strong as the foundations upon which they are built, so we start with the best data we can find. This means that we select our source material very carefully. In the case of ‘landlord confidence’ this is pretty straightforward.

For almost a decade we have surveyed landlords about their expectations in relation to various measures: capital gains, yields, the UK financial market, the UK PRS and their own business. Each respondent can rate the prospects of each metric on a scale of ‘very poor’ to ‘very good’.

We use this to calculate ‘optimism’ by subtracting those who rate prospects for their own business as ‘poor’ or ‘very poor’ from those who rate it as ‘good’ or ‘very good’.

I.e.

Optimism = (Very Good + Good) – (Poor + Very Poor).

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Over the years this has given us the following, very illustrative, trend line, which shows confidence almost ten points lower than at the depths of the crash

The more controversial calculation, according to some commentators, seems to have been our assessment that around 500,000 units of rented accommodation will be sold in the near future.

It should be noted that this is an assessment based on what our members and landlords more generally tell us they plan to do, which is not always a straightforward and reliable indication of the actions individuals will actually carry out. However, the response appears consistent across multiple waves of data collection and we have attempted to use as conservative and robust a set of data and assumptions as possible.

It is not as immediately apparent as the optimism metric, but we are confident in the numbers and method used to generate our forecast, which I will try to elaborate on below.

So here goes……

We started with a forecast based on the Government’s own ‘UK Household Projections’ 1961-2037.

We supplemented that with information from the DCLG Private Landlords Survey concerning the typical number of properties owned by landlords, and the way in which they form their portfolios, in order to construct a reasonably robust picture of the sector and growth trends.

Next up we surveyed our members (twice) about their reaction to the Chancellor’s Budget and other announcements as part of two regular quarterly panel surveys. This allowed us to understand landlords’ stated intentions, and gave us the ability to cross-cut those responses with other information collected about the same (anonymous) individuals and companies.

As such we were able to draw out data about different types of landlord and what they state as their future intentions. For example, we were able to ascertain the likelihood of large portfolio landlords to sell relative to smaller landlords, or new market entrants.

This gave us a great deal of useful information such as that represented below.

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Once we extracted these cross tables we were able to apply the ‘typical’ set of intentions to the model of the sector constructed from accepted government data, and predict the number of transactions landlords say they are likely to enter into.

Erring on the side of caution we set out to produce a ‘conservative’ set of figures. Consequently, at every step we chose to use data at the lower end of the spectrum stated by landlords and assumed that all portfolios were likely to exist at the smaller end of the ranges, e.g. landlords who told us they would sell ‘some’ properties would be assumed to only sell one property in the majority of cases.  Likewise, landlords with a portfolio of more than 20 properties were assumed to own ‘only’ 20 properties, when in reality the number may be many more.

This led us to the forecast that around 500,000 properties will be sold by landlords – had we made more liberal assumptions the figure could have been much higher.

More caveats…

As you can see from the method above we actually understated the figures – for fear of being labelled as sensationalist – so the situation could be a lot worse if landlords actually sell in the numbers they say they will.

And that is perhaps the biggest caveat of all. We won’t know whether landlords will follow through with their intentions to sell, and these figures simply represent the current sentiment that exists. It doesn’t mean it’s what they will do, or what will actually happen.

How our story is reported is out of our control but we have a duty, as the largest representative body for landlords in the UK, to reflect landlords’ sentiment and to say it precisely how it is.


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Find out where the best Rental Yields are in London

This is a guest blog from Portico.

Portico has looked at the history of buy-to-let hotspots over the past few years, the current buy-to-let hotspots in London and an incredible amount of data, so we are able to tell you exactly which areas will give you the best return on your investment.

Property prices rise, yields fall

Over the past five years we’ve seen London house prices rise at a spectacular rate, powered by both overseas investment and record low interest rates. But with property prices at an all-time high, there are very few areas where you’ll find a great rental yield. Your investment may well be going up in value each month, but can you afford to stay in the buy-to-let business if the rent doesn’t cover your costs?

Portico has created an innovative rental yield map which can find the best rental yields in London at the click of a mouse. It enables landlords and investors to look at the granular data within each borough, to determine where the hotspots are in the borough itself.

How does it work?

Portico analyses property prices and data from several hundred estate agents in London, daily. They then combine the results with data collected over the past three months and compare it against their own internal company data, so that they have enough information to be able to make statistically reliable assessments.

This new and innovative calculator allows landlords to target their investment at postcode or street level. It’s now more important than ever that landlords do their research, and invest cleverly and with an open mind.

Portico Estate Agents have branches in Acton, Battersea, Bloomsbury, Camden, Clapham, Dulwich, Fulham, Hammersmith, Highbury, Islington and West Hampstead.

Find out more here.

 


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Time to Check Compliance

Russell Brittain, Electrical & Lighting Buyer at Toolstation, the trade and DIY supplier, discusses the Smoke and Carbon Monoxide Alarm Legislation

From 1 October 2015, private sector landlords have been required to install a smoke alarm on every storey of their properties and a carbon monoxide (CO) alarm in any room that contains a solid fuel burning appliance, such as a coal fire or a wood burning stove.  The government also issued guidance notes to encourage landlords to install CO alarms in rooms where there are gas appliances as an additional precaution.

With landlords now legally required to install CO and smoke alarms, there remains confusion among the general public about their use. A recent study conducted by Toolstation on the attitudes towards CO and smoke alarms has revealed that 25% of homeowners in Britain are unsure about whether they should fit CO alarms and worryingly 17% don’t think they are necessary at all.

So, almost six months on, it’s worth looking again at some of the ‘ins and outs’ of the legislation and checking you are fully compliant, especially when it comes to any new tenancies you may be securing this year.

For every new tenancy landlords must check that all the required alarms are in working order on the first day of the tenancy – this can be done and recorded as part of the inventory. The guidance from the government says that tenants should be advised to test alarms on a monthly basis for their own safety and get in touch with their landlord if there are any problems.

If you are replacing or installing alarms for new tenancies there are a huge range of smoke and carbon monoxide alarms available, both battery and mains powered. The government leaves it up to landlords to make an informed decision, choosing the best products for their properties and tenants.

Like many products, these alarms have become much more sophisticated over the last few years with all those stocked by Toolstation performing to the required standards. Whilst some also feature smart technology such as thermally enhanced optical technology, LED displays showing both CO levels and room temperature and even wireless interlink technology that can remotely locate, test or silence alarms. Also many of our CO alarms feature self-diagnostic fault and end of life alarms, so landlords and tenants alike can feel secure.

Both smoke and CO alarms have British Standards which are marked at Toolstation with the British Standard logo and all alarms come complete with the manufacturers’ comprehensive installation instructions. Generally, smoke alarms should be fixed to a ceiling in a circulation space like a hall or a landing and carbon monoxide alarms should be positioned at head height on a wall or a shelf, no more than three metres away from the potential source.

One thing to remember – heat detectors are not a substitute for smoke alarms – the Regulations are quite clear on this point, specifying smoke alarms. However, for ultimate peace of mind, landlords can install heat alarms in addition to CO and smoke detectors. The heat sensors react to large flames and so are particularly useful in the kitchen, where over 50% of accidental house fires start.

Toolstation offers a wide range of smoke and CO alarms at very competitive prices. For further information and to see the latest range of smoke and CO alarms, visit your local Toolstation branch or www.toolstation.com

 

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