Buy-to-Let investing continues its long march following a bit of a dip after the “credit crunch” in 2007/8.
There were some sorry tales at the time, particularly with some new-build investments in over-supplied city centres, often losing 50% of their value, but with a long-term view, even mistakes like these can be overcome.
Research by specialist buy-to-let lender Paragon Mortgages shows continued growth in both tenant demand for rentals and landlord demand for new mortgages, with, as Paragon says, 43% of landlords believing demand is either “growing or booming”. Paragon expect growth to continue over the next 12 months, with more than half of landlords (51%) believing they will continue to see a rise in tenant demand, and landlord demand for new mortgages to remain “stable or growing”.
So, with a continuing shortage of housing stock driving prices higher, tough affordability constraints for would-be buyers, and severe financial pressures in the social rented sector, it is almost inevitable that rental demand in the private rented sector will increase for some time to come.
The government’s initiatives with help-to-buy and build-to-rent are meant to address these housing issues, and they are starting to have an impact, but these measures will likely be a drop in the ocean if you take the big picture. Government still sees the importance of landlords continuing to grow the supply of rented property in order to maintain a demand-supply balance. This will help to avoid unsustainable rent increases with louder and louder cries for rent controls. It’s therefore so important to maintain a healthy and competitive buy-to-let market, but landlords should also temper their enthusiasm in the face of cold hard facts.
The article in this issue by John Kingham – Market Valuation and Forecast – UK Housing – June 2015 – gives a financial analyst’s view of the property market, based on his analysis of long-term statistics. John, a stock market analyst who publishes his work at ukvalueinvestor.com – has done some number crunching for us in the article.
By taking house prices over a long period of time and comparing them to average earning and average homebuyer earnings (PE Ratios), John concludes that house prices today are expensive. Importantly though, he thinks any change will be slow and that as wages increase with the improving economy will likely redress the balance over time.
Michael Lever’s article also has something to say about market timing with mainly commercial property investments: The Smart Money
With the residential rental market “hot” as ever in London, it’s perhaps not surprising, but rather worrying that scams involving sub-letting, and impersonating landlords to take multiple deposits from unsuspecting would-be tenants, is a growing problem. See the articles: London tenant jailed for sub-letting scam and Yet another London Rent Scam
What is also of concern for landlords is that the government, seemingly in its haste to show its “green” credentials, in the so called “sharing economy” stakes, is suggesting that all clauses preventing sub-letting in residential agreements should be removed.
I don’t know about you but I would be horrified to think that tenants of mine would be able to sub-let to almost anyone they liked, with the prospect of being faced with going through the long winded civil process of removing a “tenant” which is not even of my making. All very well for civil servants, with no experience of business, to dream up fashionable schemes which make them sound trendy, but the hard cold reality is, someone else suffers the consequences. See the article here: Is the Sharing Economy a threat to Landlords?
An interesting story we covered this month is one about Karen Danczuk, the rather controversial wife of Simon Danczuk the Rochdale MP. The story highlights the common misunderstanding that small-scale commercial tenants often have of commercial leases.
It would seem that Mrs Danczuk, a Rochdale Councillor at the time, tied into a 5 year commercial lease of a town centre shop, thought she could simply install a new tenant herself and walk away.
Quite rightly, the landlord was appalled at her behaviour and took her to court for around £2,000 of outstanding rent. Despite the ruling, court costs and a CCJ, Mrs Danczuk was still protesting and saying she would seek further legal advice. Strange that someone with the capacity to become a councillor cannot fathom her liabilities under a commercial lease? See the story here: Landlord obtains CCJ against Karen Danczuk
Following landlords’ relief after the election that rent controls and compulsory long-term tenancies are very unlikely to be introduced under the current regime, this relief must be tempered by the fact that much stricter regulation of the PRS is inevitable.
New rules being introduced which landlords and agents need to be aware of, understand their implications, and the measures they need to take: legionella risk assessments, the national roll-out of immigration checks and the roll-out of Universal Credit.
Add to this the “retaliatory eviction” rules coming in October, the energy efficiency regulations which start from next year to 2018, and the coming overhaul and extension to smaller multi-occupied properties of the HMO regulations. Some landlords, if they have not already, may be caught up in the extension by some local councils of selective licensing schemes.
There is uncertainty and speculation still about exactly what will constitute an HMO requiring mandatory licensing in the future, but it is thought a change is on the cards to bring in smaller properties to the regime following an announcement by David Cameron immediately after the election.
Currently a [licenceable] HMO is a multi-occupied residential house of three or more stories, occupied by five or more people from two or more households. Failure to licence and follow the strict management guidelines required of an HMO meeting these criteria can result in a £20,000 fine.
See the full story here: Landlord mandatory licensing to be extended
Finally, government ministers are looking at new measures which would force all housing benefit claimants to contribute something towards their rent. Many tenants currently claiming housing benefit get paid the full amount of their rent but the Chancellor has to save £12bn from the welfare bill and housing benefit is likely to be a key target.
Some buy-to-let landlords will undoubtedly face difficulties over this as the government’s benefit cuts threaten rental income in the most expensive parts of the country. Large parts of London and the south coast in particular will be hit hard by the £23,000 or even £20,000 per year cap on benefit payments, which the government is now committed to introducing in this session of parliament.
See the full story here: All housing benefit tenants to pay “some” rent
You can see from all of this that landlords and agents will be very busy over the next year or two.
Tom Entwistle©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law, always seek professional advice.