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Editorial:
The ongoing recession and the squeeze on mortgage lending are producing something of a bonanza for cash-rich landlords – those able to secure low interest mortgages with a good deposit.
If you’re careful you can pick-up good properties at bargain basement prices, whilst being virtually guaranteed a solid income stream.
With rentals in high demand in most areas and social landlords and local authorities strapped for cash, landlords continue to be the main source of growth for housing provision in the UK.
The Private Rented Sector (PRS) has grown steadily from a low point of 6 to7% of UK residential housing stock by value in the 1990s to around 19% today, and this proportion is expected to be well over 20% by 2020.
Landlords have been pilloried by some recently as contributing to the present housing market troubles, but the facts are landlords, unlike the traditional social housing providers, have “come up with the housing goods”. They have now been emboldened by a secure income, with the prospect of long-term capital appreciation as a potential bonus, in a period when alternative cash investment yields are extremely low – non-existent if inflation and taxation is taken into account.
Contributing to the growth of the sector has been a large cohort of “accidental” or “reluctant” landlords, unable to sell their homes, some of whom have since come to realise the benefits of being a landlord investor and going on to build up a buy-to-let portfolio.
The downside risk is that during a recession the guaranteed income can come to an abrupt end if tenants either can’t or won’t pay the rent.
Good landlord self-management or using a good professional agent is crucial, and this is where many newbies fall down: anyone can let out a property but maintaining that crucial cash-flow and staying on the right side of the law takes experience and professionalism as a landlord or agent.
High demand, low supply and the inevitable rent increases are now resulting in louder and louder cries from some quarters for government to control rents and increase security of tenure.
There is a real danger of going back to the Rent Act era troubles. It beggars belief that a half century of proof that rent controls long-term work against tenants would be overturned in an instant by some well meaning but misguided MPs.
These measures would inevitably drive many landlords out of the market, many would run their properties down by neglecting repairs, as returns become uneconomic, and the end result would be even more housing shortages.
e-mail your comments to: editor@landlordzone.co.uk
Tom Entwistle, January 2012
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The majority of the inventories presented to deposit scheme adjudicators are not worth the paper they are written on, leading to landlords losing deposit cases, says the Association of Independent Inventory Clerks (AIIC).
Many landlords and agents are failing to present at court thorough and fully detailed inventories, copies of which have been given to the tenant at check-in and check-out. It is imperative that tenants sign their acceptance of the contents of the check-in within 7 days of the move in, and this signed copy should be retained by either the landlord or letting agent.
An unsigned inventory is still acceptable by deposit scheme adjudicators, if it is dated and proof is available that the document has been given to the tenant at time of check in. Tenant deposit schemes recommend that an inventory is compiled by a suitably qualified professional inventory clerk although landlord’s inventories, if they contain sufficient detail, will still be accepted.
Other useful evidence to use in any end of tenancy dispute are contractors invoices for services like professional cleaning of the property, carpets, windows, oven etc or for gardening. Also needed as evidence are receipts for any items purchased specifically for this tenancy.
Pat Barber, Chair of the AIIC, said: “It is so important for landlords to ensure they have all the right paperwork to present to adjudicators. Time and again we see landlords losing disputes because they fail to provide the right evidence to show that a tenant has damaged the property. It should always be remembered that the deposit is the tenant’s property until a landlord can prove justification for any deductions.
“It is vital that there is a thorough and detailed inventory which will enable both parties to be treated fairly and reasonably. The inventory documentation serves a number of vital functions, especially if professionally compiled – including providing a catalogue of the let property, an unbiased record of it condition and any items included in the tenancy. It also forms part of the legally binding contract that is set out in the tenancy agreement between the tenant and the landlord.
“Therefore it is vital to have a carefully prepared inventory at check-in, which can be then used at check-out, to enable an accurate comparison of the property’s condition. Without this documentation, landlords and agents could end up significantly out of pocket. The good news is that if landlords and agents have all the right evidence in place, their chances of winning a dispute is greatly improved.”
According to the AIIC, many inventories are more often than not, completely inadequate, mainly because:
- Landlords and letting agents make the mistake in thinking that inventories can be heavily comprised of photography and video. Completely photographic or filmed inventories without a complete written accompanying report are almost useless. If photography or film has been used in your inventory, make sure it is detailed enough and dated. Include photographs of the garden; interior of the shed or garage; inside of the oven; and keys handed over to tenants – these are the main areas of problems that occur and are often down to misinterpretation at the end of a tenancy.
- Remember, you don’t need photos of every single corner of the property, these are frankly a waste of time and effort (and would be impossible to do) – stick to the important things. Films and photographs alone will be of little use in a dispute when an adjudicator is trying to find hard evidence of a particular area. You can bet the problem in question just won’t be something you have photographed in the first place!
- Many landlords and agents do not carry out a thorough and full check-in and check-out of the property at which the tenant was present. Landlords and agents who don’t have this available when they go to court, have little chance of winning the case.
- Often, no correspondence with the tenant is documented and no receipts are kept for the deductions on the deposit eg cleaning and repairs.
The AIIC is a not for profit membership organisation and is committed to excellence and professionalism in the property inventory process. The AIIC works hard to ensure that all landlords, tenants and letting agents understand the importance and benefits of professionally completed property inventories.
Some 55% of homeowners expect house prices to rise in the first half of 2012, research by Zoopla revealed.
British homeowners predicted house price growth would be 2.2% over the next six months, down from 2.7% predicted over the past three months.
In October, 59% of homeowners surveyed by Zoopla said they expected house prices to rise over the following quarter.
Figures from Halifax’s December House Price Index revealed that house prices dropped 0.1% in the three months to December.
Only 24% of homeowners said they expect the value of their own property to fall over the coming six months whilst 29% expect house prices in their area to fall.
London homeowners were more optimistic about the housing market with 72% of Londoners expecting average values in the capital to rise over the next six months, up from 68% last quarter.
Owners in the capital now predict property prices to grow by 4.7% over the first half of 2012.
Nearly half, 48%, felt the key sign that the property market is improving would be when mortgage availability improves.
However only 11% of the homeowners surveyed by Zoopla said they felt it was now easier to get a mortgage than it was three months ago.
Nicholas Leeming, director at Zoopla, said: “There is a lot of general economic uncertainty at the moment which is taking its toll on homeowner confidence.
“Until there is some good news on the overall economy, homeowners will continue to be cautious with their optimism for the property market.
“Londoners, however, are living in a market detached from the rest of the UK. Many overseas buyers continue to pile into London property to take shelter from economic or political storm clouds elsewhere which is helping to boost prices and confidence in the capital.”
Yuan Phoon, 11 January, 2012 – www.mortgageintroducer.com
Landlords Set To Win Big In 2012 According To Expert Landlord James Davis
2012 offers a wealth of opportunity for the UK Buy-to-Let market according to James Davis, residential landlord for over 12 years and CEO of self-service lettings agency, UPAD. With rents rising across England and Wales by 3.5% (Jan – Nov 2011) according to the LSL Buy-to-Let Index, James explains why savvy landlords are gearing up to take advantage of this year’s lucrative opportunities.
Rents will continue to rise
“We believe there will be a modest 2 – 5% increase in rents outside of London, while in London rents will hike up by around 5 – 10%, propelled by events such as the London Olympic Games. Indeed, there will almost certainly be a ‘renter swell’ and we will soon forget the meaning of a ‘first time buyer’.
Farewell to the First Time Buyer
“There are a number of things we predict to arise in the UK Buy-to-Let market in 2012 namely that we will see first time buyers struggling to get on the ladder even with a deposit as banks will require an ‘uber’ credit rating, despite lending at 6%+.
“In addition, we also estimate that interest rates will stay at around 0.5% then fall lower by Q3 while the not unlikely collapse of the EU in Q2 will force banks to shut up shop as they won’t have cash reserves to lend.
“However on the flip side, most landlords do have cash reserves, pensions, savings and equity in the homes they have access to and falling house prices next year will mean that those with cash will be able to snap up good deals from distressed sellers.”
It won’t all be plain sailing for landlords
“We forecast a number of issues that are likely to affect landlords this year including tenants potentially defaulting on their rents as costs of living rise. Rents are likely to be paid in arrears particularly from Housing Benefit Tenants.
“There will also be rising finance from banks that will create a tougher operating environment for landlords as well as tougher choices when choosing tenants.”
How will tenants fare in 2012?
“One off the biggest issues here will of course be rising rents and lack of housing stock. With no salary rises on the table for 2012 and higher living costs, tenants will have to start to downgrade. We may see a large number of people in London having to move out of zone 2 to more affordable areas.
“Additionally, having to supplement their housing benefit contributions as of January 2012, we are likely to see the real effects of the Government capping coming into play for these tenants. While this will create real problems for those who will no longer be able to afford to rent in London, there will be options to move to cheaper areas in the UK. Several London Boroughs have done deals with cheaper areas across the UK such as Swansea, to house their social tenants.
“While there will be increases in credit checking given issues in the economy, a general ‘nervousness’ will be felt by landlords who will require additional comfort while tenants will also need to pay higher deposits with rent payable up front becoming common place.”
2012: The year of online lettings
“This sector has grown five fold in last 18 months and we estimate that online lettings will double by the end of 2012. Indeed, UPAD has experienced a boom in online lettings thanks to resurgence in the UK rental market. Over the last 18 months alone we have seen a huge increase in the number of rental properties listed through online agents from around 500 in April 2010 to 2,600 in October 2011.
“Meanwhile, awareness for online lettings will continue to grow among landlords as they realise that there is a better way to self-manage, replace classifieds and save money on agent commissions and ongoing management costs.
“As recognised suppliers of the National Landlords Association and licensed member of the Association of Residential Lettings Agents, UPAD in 2012, will continue to revolutionize the world of lettings, extolling the virtues of self-service online letting from as little as £99 + VAT.”
For more 2012 predictions from the online lettings experts UPAD, please contact the team on 0333 240 1220 or visit www.upad.co.uk
Paul Shamplina, founder of Landlord Action, a company specialising in tenant eviction, comments on the latest Government proposal to make sub-letting council houses a criminal offence, with offenders facing up to two years in prison.
Paul comments, “This is an extremely positive step in combating long term abuse of the social housing system. There have been a growing number of tenants acting as landlords by sub-letting their council properties for their own financial gain and this is to the detriment of thousands of other vulnerable people. In the past, we have experienced “landlords” seeking our assistance to evict their tenant, only to find out that the property is not in fact theirs and the end tenant is not actually aware the property is being illegally sub-let.
There is a severe shortage of social housing in this country but if enforcement is carried out as a result of this law change, then hopefully this will go some way to freeing up council properties for those who are truly in need. Of course, councils being made aware of such cases and having the ability to throw resources at the investigation process in order to enforce this law will be key to combating the issue.
Hopefully, imprisonment of up to two years as well as a hefty fine will act as a deterrent to those greedy “wannabe landlords” who continue to flout the system.”
Yet again it seems Brussels could have the last say as it introduces plans (Directive on Credit Agreements Relating to Residential Property CARRP) to regulate buy-to-let mortgages, which hitherto have not been regulated in the UK.
Housing experts fear this intervention could result in the inability of landlords to source new or even renew buy-to-let mortgages as they would no longer be able to include rental income in their calculations. Obtaining or renewing a mortgage would in future be reliant solely on personal income.
The Building Societies Association (BSA) thinks the move would severely restrict mortgage availability and force landlords to sell, reducing the stock of private rented accommodation and causing house prices to fall.
Following a Treasury study undertaken two years ago the UK government then decided that no further intervention in the housing market was justified, but despite this the EU proposal would mean BTL will be regulated in the same way as residential mortgages for owner occupation.
This would bring Britain into line with European practice and force lenders to assess BTL in the same way as mortgage applications by owner occupiers on their prime residence; that is, the main criterion would be the borrower’s personal earnings.
A spokesperson for mortgage policy at the BSA, has said: “If rental income is excluded from consideration when underwriting BTL then the availability of new borrowing could cease fairly rapidly. In addition, those with existing BTL loans may well be unable to refinance.”
Concerns have been raised by several other property related organisations including the Council of Mortgage Lenders (CML) who say “A single rulebook for mortgage lending is inappropriate given the diverse markets, cultures and regulatory frameworks across the EU.
If you are concerned about this voice your opinion here: save the buy-to-let mortgage e-petition
Update:
The FSA, it seems, has now has revised its former proposals to overhaul the mortgage market and proposes made its rules less prescriptive, after strong lobbying from consumer and industry groups.
Following a two-year consultation, the Financial Services Authority has published what it calls “common sense proposals” aimed at preventing a return to risky lending.
The financial regulator remains firm on it’s view that all borrowers will have to prove their income, effectively banning “self-certification” loans, which have allowed 1m borrowers to take mortgages without proving their income.
Much tougher affordability tests will be brought in to make sure banks lend money only to people who can afford to pay it back. This will included assessing the impact of interest rate rises over a five-year time period. not allowing affordability to be “stretched” by taking out interest-only loans. Interest only represented a third of all mortgage sales at the peak of the market, but now lenders will need evidence of how the capital will be repaid. Most current interest only borrowers have no declared repayment scheme.
