BY
INDUSTRY
EXPERTS
COVERING
ALL
ASPECTS
OF
BUY-TO-LET
DECEMBER 2015
WRITTEN
LANDLORD | PROPERTY | INVESTMENT
- Tom Entwistle TAxINg ChANgES foR lANDloRDS: whERE Do wE go fRoM hERE? - Tom Entwistle
- Christine Schulz TAx RElIEf oN fINANCINg CoSTS: how wIll IT AffECT YoUR PoCKET? - Simon Crookston
Cox YoUR goAlS foR ThE NEw- Steve YEAR: how wAS YoUR 2015? - Simon Zutshi
NEW YEARS REGULATIONS:
how wIll ThEY IMPACT YoU?
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wElCoME To ThE DECEMBER ISSUE of lANDloRD INvESToR! Landlord Investor magazine has had a fantastic year and we hope that you have had one too.
Editorial Editor
Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors Andrew Ellinas Beverley Meliniotis easyProperty Julie Herbert Martin Wilkinson Paul Shamplina Sandfords Simon Crookston Simon Earles Simon Zutshi Sussanne Chambers The Property Ombudsman Tom Entwistle Wayne Trevail
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Not only did this year see us celebrate our first birthday, it also saw the magazine grow from strength to strength keeping our readers up to date with the latest legislation and news from the property sector. As a result of our success, our application was approved to join the ABC (Audit Bureau of Circulation), an independent industry body that audits the circulation figures for a range of media.
CoNTENTS Industry Update Tax Advice Industry Spotlight Investment Opportunities Investment Lettings & Management Legal
06 16 20 22 24 32 38
In this issue we are taking a look at the New Year and what the changes in the latest tax regulations mean for landlords. Tom Entwistle from LandlordZONE is exploring these changes and examining what the next steps potentially are for landlords across the U.K. Also looking at tax changes within this issue is Simon Crookston from Crowe Clark Whitehill, who tells us that the response from landlords has yet to be seen from George Osborne's summer budget announcement. This is always the best time to reflect on what you have achieved as well as looking forward to what you wish to accomplish in the New Year. Reflecting on this is Simon Zutshi from property investors network who has fi ve top tips for landlords and investors to help achieve their goals in 2016. 2015 has been a great year and the LIS team are looking forward to making 2016 a huge success. The Landlord Investment Show and Landlord Investor magazine would like to wish you all a very Happy Christmas and a prosperous New Year.
Tracey Hanbury | Editor Landlord Investor
Tracey Hanbury
lANDloRD INvESToR December 2015
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lANDloRD INvESToR
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6
INDUSTRY UPDATE
Taxing Changes for Landlords Tom Entwistle - LandlordZONE The recent tax changes for landlords, introduced in the Summer Budget by the Chancellor of the Exchequer, have taken the buy-to-let industry - landlords and mortgage lenders alike by surprise and by storm.
After a Conservative victory at the May general election pretty well everyone in the industry expected a supportive Budget for landlords. Given the dire need in Britain for more rental accommodation, and the desire to keep rent levels down, few expected this change of tack. News travels slowly in the landlord community; with the diverse and small-scale nature of the private rented sector (PRS), news of these changes has yet to percolate. When it does, when the annual self-assessments drop through the letter boxes, many will
December 2015
LANDLORD INVESTOR
be stopped in their tracks. Of those that are aware, and the various campaigns they have launched against it, it is thought all this will be unlikely to influence the Treasury when it comes to implementing these changes. This article looks at the likely impact of these proposed changes: why they have come about; what they mean for landlords; how UK property taxes compare internationally; what the future holds and what landlords must do now. Mr Osborne it seems it prepared to incur the wrath of private landlords, perhaps to demonstrate his political commitment to promoting home ownership, and to further an agenda of “professionalisation” or “Tescoisation” of the industry – a move to attract large scale institutional investment to building and managing rentals?
7
FTB HOUSE PRICE TO EARNINGS 10.0 9.0
London
8.0 HP / Earnings Ratio
6.0
North
5.0 4.0
UK
3.0 2.0 1.0 1987 Q2 1988 Q3 1989 Q4 1991 Q1 1992 Q2 1993 Q3 1994 Q4 1996 Q1 1997 Q2 1998 Q3 1999 Q4 2001 Q1 2002 Q2 2003 Q3 2004 Q4 2006 Q1 2007 Q2 2008 Q3 2009 Q4 2011 Q1 2012 Q2 2013 Q3
0.0
Tory housing policy, though far from misguided, with this latest move somewhat flies in the face of the reality of the housing market today: asset prices, housing prices in particular, not just here in the UK, but throughout the Western world, have risen to such an extent that renting is the only option for many people. Fiscal policy following the greatest recession in living memory has exacerbated asset price inflation. Perhaps this was unavoidable, caused by the “lifesaving” ultra-low interest rates and quantitative easing. So with house price to wages ratios (ranging from around 12 in London to 6 in the North east - longrun average (1983-1999) is 3.64), at present levels it’s hard to see when this situation will charge, even with the impact of the various help-to-buy and build-torent schemes. Given the huge scale of the UK’s rental market – nearly 20% of all households - the impact of these schemes must be relatively small sort-term.
So why penalise hundreds of thousands of landlords when it could lead to increased rents and selling-up, more scarcity and ever higher rents? It will almost certainly make life harder for tenants. The measures introduced by Mr Osbourne will likely be the biggest tax change to hit property investors since investment income surcharge was introduced under Harold Wilson’s Labour Government in the 1970s. It also breaks one of the fundamental principles of taxation universally upheld in Western countries: that business loan interest is always offset against profits, and any losses carried forward. In fact some countries go even further: Australia and others allow rental losses to be offset against other forms of income, and they allow for depreciation of investment properties, landlord perks unheard of in Britain. The government’s reduction of mortgage interest tax relief on buy to let properties is a major factor for 50 per cent of landlords considering selling up. That’s according to a recent survey carried out on behalf of Your Move and Reeds Rains, with 1,200 landlord respondents. The survey shows that many landlords think that letting out a property will become far less profitable when the reforms begin to come into force from April 2017 – it reveals that around nine per cent think it’s a good time to sell up, with the tax reforms influencing their decision more than any other factor. Your Move and Reeds Rains think this will lead to “a loss of enthusiasm… dampening the optimism of the 31 per cent of landlords who nonetheless think now is a good time to buy rental properties”. The feeling among many is reflected in the survey result that 44 per cent of landlords believe investing in buy-to-let is more complicated than it was six months ago due to more rigorous regulation and the so-called “Right-to-Rent” immigration checks. Around 20% of landlords admitted to being daunted by the letting task, and confused by recent regulation changes, to the point they now feel unequipped to let out their houses without professional support.
LANDLORD INVESTOR December 2015
INDUSTRY UPDATE
7.0
Why Target Private Landlords?
8
Buy-to-let (right-hand-scale) Owner-occupiers (right-hand-scale
INDUSTRY UPDATE
20
Buy-to-let share (left-hand-scale)
Percent of stock
£ trillions
1.4 1.2
15
1.0 0.8
10 0.6 0.4
5
0.2 0
2000
02
04
06
08
10
12
14
0.0
Sources: Bank of England, Council of Mortgage Lenders and Bank calculations
Fears in the Treasury and the Bank of England In Britain the growth of buy-to-let has been such a phenomenal success that it is the perception of the Bank, it would seem, that it’s in danger of running away with itself. This is an unregulated section of the mortgage market, with buy-to-let lending now approaching 20% of all mortgages. So, with gross lending on all mortgages totalling around £16 billion a month, plus lenders falling over themselves to offer record low rates, the Bank of England and the Treasury are understandably getting concerned. Buy-to-Let Lending accounts for most of the growth in UK mortgage lending since 2008 As late as September this year there was no sign of the buy-to-let trend abating. The Council of Mortgage Lenders says: “Gross buy-to-let lending increased substantially in September and in the third quarter, up by volume and by value in comparison to the previous time period and the same time last year.” July 2015 saw banks and building societies lend £1.6bn to landlords, up 33pc on the same month of 2014, according to the CML. By contrast first-time buyers borrowed £4.6bn in the same month, up 7pc on the year. And home owners moving to a new property took out a further £7.6bn in home loans, up 10pc on the year. This rush to grab buy-to-let mortgagees, it is argued, is pushing-up house prices, as there is a shortage of suitable properties on the market. Buy-to-let landlords and first time buyers tend to target the same types of properties.
December 2015
LANDLORD INVESTOR
A victim of its own success then, buy-to-let lending has now come to the attention of the Bank and the Treasury as an existential risk to the financial system, should there be another downturn, hence the need, in their eyes, to cool buy-to-let. The new mortgage lending restrictions and tax changes are obviously designed to do just that. “The actions of buy-to-let investors affect the broader housing and mortgage markets as individuals compete to buy the same pool of properties. Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness,” says the Bank of England
What are the Tax Changes? The nub of the tax change is the removal of landlords’ ability to deduct mortgage interest from their rental income and thereby reduce their taxable profits. This will mean that although they have to pay interest to their mortgage lender, this is no longer seen as a tax deductible expense. Commercial property and holiday let investments are not affected by this.
9
Is it Fair?
A crumb of comfort is that the new tax rules in the Finance Bill, if approved by Parliament, will be introduced on a sliding scale over 4 years, ending in 2020/21. By then, mortgage interest relief will be removed altogether, but a tax credit equal to the basic rate of tax will be applied – currently 20%. This will mean that basic rate tax payers should not be affected by the changes unless the “extra” income from their rental property pushes them into the high rate tax band. Their notional income has increased due to the removal of mortgage interest relief, which could then adversely affect those claiming child benefit, and some others with special pension and savings arrangements. High rate taxpayers will be most affected, and in particular those with high gearing on their rental property portfolio will suffer from this change. As a rough guide, when the new rules are fully applied as from April 2020, a higher-rate taxpayer landlord with mortgage interest payments at around 75pc of the rent, after all other claimable expenses are deducted, will find their tax bill will just about equal any profit earned.
When George Osborne announced the change he stated in his Budget speech that the aim was to “level the playing field” between landlords and first-time buyers. It is questionable whether this controversial measure will achieve this aim, but what is very clear is that property investors in Britain are taxed more harshly than those abroad. Most foreign countries give landlords generous tax allowances to encourage investment: not only do they deduct mortgage interest costs from profits in full, they often also set any rental losses against other income, give generous capital gains tax discounts up to 100%, and allow depreciation claims year-byyear on rental properties. A study by the London School of Economics, carried out in 2011, compared the tax relief regimes for landlords in other countries. It concluded then, well before the Chancellor’s proposals for British landlords, that on average Britain’s tax incentives for landlords fell well behind those taken for granted in other countries. Even the government’s own research in a DCLG report: “Promoting investment in private rented housing supply: International policy comparisons 2010” concluded that: “the large private rented sector countries all offer taxation advantages, especially to individual investors, which are more favourable than those available in England”. According to a recent Daily Telegraph article, Kath Scanlon, research fellow at LSE London and co-author of a 2011 report, “Towards a sustainable private rented sector: The lessons from other countries”, said that the new buy-to-let tax “puts the UK out of step with how other countries are approaching the sector”. It is axiomatic that those with buy-to-let mortgages on one or more properties have made a conscious decision that they are in the “business” of being a landlord. Those with no mortgage are more likely to have been landlords of an historical or more casual nature, letting their own property whilst working away or just relocating, or those who inherited a property. The landlords most likely to down-scale or leave the private rented sector (PRS) altogether are those at the more professional and responsible end of the landlord spectrum. These are the people providing much needed accommodation of a safe and high standard, just the ones who you would want to encourage not to leave. LANDLORD INVESTOR December 2015
INDUSTRY UPDATE
A person or couple’s total income: employment, savings interest, dividend income and rent are all added together as taxable income. The “extra” taxable rental income due to this change can easily push landlords into a higher tax band. It will lead to the perverse outcome that some, mainly those high rate tax payers with high mortgage gearing, may pay tax on rental income even when their buy-to-let business makes a loss.
10
Can Landlords Minimise the Impact of the Tax Changes? INDUSTRY UPDATE
Thinking about investing in rental property abroad? This is one consideration for some, but unfortunately, for individual residents in Britain, investing in a country with more favourable tax treatment won’t benefit them, as UK residents pay tax under the UK tax regime.
How do we Compare Internationally? In the United States landlords deduct mortgage interest from their rental income, as well as offsetting a small amount for depreciation on their rental property every year. US property investors can offset losses from their rental business up to $25,000 (£16,460) against their other income. Capital Gains Tax reduces with the length of ownership, and in most cases CGT can be avoided altogether if the property sale proceeds are reinvested into another rental property. In Germany and France the situation is similar. In Germany no capital gains tax is payable if a property is owned for more than 10 years and in France it’s 15 years. Germany and to some extent France have more stringent tenant friendly tenancies than England, with rent stabilisation (controls) in some locations and longer-term tenancies. Germany in particular is often seen as a model example of a tenant-friendly system. But this is by no means at the expense of higher landlords’ tax bills. Landlords in Germany can deduct 100% mortgage interest from their property income as well as deducting rental losses against other income and claim depreciation costs. French landlords can deducted up to €10,700 (£7,550) from other income. In most other European countries similar tax regimes are in place and most have lower rates of capital gains tax to encourage long-term investment. In Australia 100% mortgage interest relief is allowed and rental losses can be offset against other income, known there as “negative gearing”. Depreciation is allowable for rental / investment properties built post 1979. Capital gains tax is reduced by 50% after one year’s ownership. New Zealand has similar rules to Australia, except that there is no capital gains tax at all.
December 2015
LANDLORD INVESTOR
Pay down mortgage debt, and remember there are four years or more before the full impact of the new tax regime will be felt, plus in that time the Chancellor has promised to increase some tax allowances considerably. So paying off mortgages by introducing more cash or selling off some properties is a possible option. It must be borne in mind though, property sales may trigger capital gain tax liability and transaction costs, so multiple property sales should be phased over a number of tax years. For couples, it usually pays to have properties in joint names, especially for CGT purposes, thus combining annual CGT allowances of £11,200 each. So if that’s not the case already, transfers could be arranged over the coming months and years. Another option is to consider incorporation: transferring properties into a limited company or limited companies per property. This is a complex area so expert professional tax planning advice should be sought. Consideration should be given to the fact that CGT and stamp duty will be triggered on the sale of existing property to a company, so this method may strongly favour new investments for those serious about building-up new buy-to-let portfolios. Company investments raise problems in another way. Most mortgage lenders are wary about lending to a corporate entity as opposed to an individual. One option here is that the buy-to-let mortgage is secured on the property within a company ownership, with the directors giving personal guarantees. The good news is that some mortgage lenders are anticipating a growth in demand for this type of borrower, gearing themselves up to lend company owned buy-to-lets at competitive rates in the future.
11
What of the future?
According to research carried out by property agents and consultants Jones Lang LaSalle (JLL) 65% of rental properties are owned outright, rather than being reliant on a buy-to-let mortgage. This means that the Budget changes make no difference to these people at all.
Going forward, with a UK population growing at the fastest rate in Europe, another 10m population expected over 25 years, London destined to become the largest city in Europe, and a housing under-supply situation which will remain for the foreseeable future, renting is here to stay and will continue growing.
JLL say: “there is unlikely to be any meaningful sell-off of private landlord rental property over the next few years, especially as we see both prices and rents rising steadily. However, there may be slightly less exuberant enthusiasm from new investors, which may have a longer-term impact on rental supply”.
Savills 5-year forecast for UK residential property sees a combination of increasing interest rates and a capping of the tax relief on interest payments, reducing the profitability of mortgaged buy-to-let investments in the future.
For those who find themselves in difficulties, perhaps with higher outstanding debt on a largish portfolio, then they have around 4 years in which to consider their position and plan to make changes.
This will have a significant impact on those aggressive portfolio-building investors who have accumulated large portfolios, though future investments through companies could be their saviour.
Increasing rents is perhaps one of those unintended consequences that the Chancellor would want to avoid, but looks like being an inevitable consequence of these changes. Selling off some properties to pay down debt on others may work for some, but capital gains tax and transaction costs may militate against it.
Savills say: “Over five years we expect the cash surplus on the average buy-to-let investment to fall from over £2,500 to under £950. This will cause some highly geared buy-to-let investors to rationalise their portfolios and limit the ability of a larger number of others to expand, which is likely to maintain upward pressure on private sector rents.” But Savills research shows that demand for renting is set to soar with each new generation while home ownership will continue to plunge. “Fewer than half of those born in 1990 will own their own home by age 40”. Despite obstacles presented by higher taxation, tougher regulation, and eventually higher interest rates, property investments, in my view, will still make reasonable returns compared with other alternatives. With a backdrop of growing demand and capital appreciation - house prices are projected to rise by 21.5% in central London and by 18.2% in outer London over five years – buy-to-let will still present good opportunities for those landlords willing to do their homework, develop the right financial and management strategies and invest in the right locations. ⌂
LANDLORD INVESTOR December 2015
INDUSTRY UPDATE
Will it Trigger a Sell-off?
12
INDUSTRY UPDATE
Mark McLaren appointed to The Property Ombudsman The Property Ombudsman The Property Ombudsman (TPO) is pleased to announce the appointment of Mark McLaren to the TPO Council. He joins following nine years with Which?, the largest consumer body in the UK.
The role of the TPO Council is to ensure the Ombudsman's independence, set the Ombudsman's Terms of Reference and approve the budget. Part of Mark’s role also includes working on the Disciplinary and Standards Committee (DSC) to help deal with the small number of member agents who breach the scheme’s CTSI-approved Codes of Practice and/ or fail to meet their obligations as TPO members. Mark’s previous role for Which? Consumers Association (2006 – October 2015) saw him directly involved in the work that led to both estate agents (in 2008) and letting agents (in 2014) being required to join an independent redress scheme. Mark is now a freelance Policy and Public Affairs Consultant, which follows many years in the public sector with roles including Public Affairs Advisor at Age UK,
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LANDLORD INVESTOR
where he is now a pension fund trustee, and working in the House of Lords for a group of crossbench peers. Commenting on his appointment, Mark says: “Given my past experience and involvement with the legislation that made it a legal requirement for estate agents and letting agents to belong to a redress scheme, I am truly delighted to join the TPO Council and be a part of the largest redress scheme in the property sector. I’m really looking forward to using my knowledge of the industry in my new role, and working with the rest of the Council to continue the TPO’s success.” Mark’s appointment as an independent TPO Council Member officially came into effect on 1st November 2015 and he will be welcomed at his first Council meeting on the 21st January. Mark will be taking over from Noel Hunter who has stood down from his role as Vice Chairman of the TPO Council.
13
INDUSTRY UPDATE
Noel, who was awarded an OBE in 2002 for services to Trading Standards and consumer affairs, has recently been elected Chair for Myton Hospice, a charity that provides special care to local people and their families in Warwickshire who are living with a terminal illness. Noel is now looking forward to taking on the responsibility of the organisation. He says: “I felt very proud and privileged to be voted in as Chair of the charity, it has touched the lives of so many people including my own.” Talking about his time on the Council, Noel says: “TPO is a hugely important organisation underpinning the integrity and credibility of the sales and lettings market. It undoubtedly contributes enormously to consumer confidence and it has been a privilege to play a part. I wish it continued success in the future.” Noel was formerly a Director of Warwickshire County Council with a countywide responsibility for a number of customer-facing services including Trading Standards and libraries. Following this he became the Chairman of the Consumer Code for Home Builders at the same time as serving on the TPO Council. ⌂
LANDLORD INVESTOR December 2015
14
INDUSTRY UPDATE
Autumn Statement is "a double edged sword"
Andrew Ellinas - Sandfords
Following the chancellor's big announcement on housing which saw him confirm that he's doubling the housing budget to £2bn a year to deliver 400,000 affordable new homes by 2020 Andrew Ellinas, Director of Sandfords, a Central and North West London agent, says; “the planned increase in starter homes for first time buyers will energise the whole of the housing market.”
December 2015
LANDLORD INVESTOR
He continues: “Increasing affordable housing, particularly in the capital with the launch of a London Help to Buy scheme, will be “good news” for the industry. The positivity of helping more first time buyers to finally get onto the property ladder in London will ricochet into all sectors of the market, and all regions. However, George Osborne has produced a double edged sword with this Autumn Statement because of his new rates of stamp duty coming into play in April 2016. Introducing a 3% stamp duty penalty on buy-to-let properties and second homes will be very detrimental to the whole of the market and will in fact deter investment, and over time deplete available rental stock. Although we await full details on this, for London in particular, considering it’s one of the worlds investment ‘safe havens’, this is an unfair taxation for Mr Osborne to put in place and will come as another blow for buy-to-let landlords.” ⌂
WRITTEN
BY
INDUSTRY
EXPERTS
COVERING
ALL
ASPECTS
OF
BUY-TO-LET
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TAX ADVICE
restriction of tax relief on financing costs: How will it affect your pocket?
Simon Crookston Crowe Clark Whitehill LLP There are an estimated two million buy-to-let landlords in the UK, with 22% of households now renting from private landlords. It is suggested by the governments own figures that this will rise to one in three properties being owned by private landlords by 2032.
The reasons to enter the buy-to-let market have included historically low interest rates, poor investment returns elsewhere, a widespread Leveling the playing field mistrust of pensions and tax relief. In combination with interest-only mortgages, many landlords hoped that tenants would effectively pay for borrowing costs and repairs and the landlord would be able to realise a capital gain in the medium term. Private landlords have also profited in recent years from rising rents which has been driven by a shortage of accommodation, especially around large towns and cities and by many young and first time buyers inability to be able to get a mortgage. Consequently, with rising house prices many are finding they are locked out of the property market and see home ownership as only a dream.
December 2015
LANDLORD INVESTOR
The government is intent on ‘leveling the playing field for homebuyers and investors’ according to George Osborne in his Summer Budget and to ensure that the tax systems does not support landlords over and above ordinary homeowners, by allowing landlords to obtain full tax relief for their ‘dwelling-related’ financing costs. The definition of ‘dwelling related’ refers to any borrowing costs of a business carried on to generate profits from dwelling houses. It extends to include not only mortgage interest on the buy-to-let property but will also catches interest on loans to buy furnishings. Fees incurred when taking out or repaying mortgages are also within the new rules as are other loans (for example, car loans) taken out in relation to the dwelling-related business.
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What are the changes?
Year
Interest Deduction
Tax Reducer
2017/18
75%
25%
2018/19
50%
50%
2019/20
25%
75%
2020/21
0%
100%
(against rental income)
Some highly-geared landlords are going to be significantly affected by these changes which, from my conversations with investors, many don’t seem to have appreciated. An example is given below to show the impact from 2016/17 to 2020/2021 for a property investor with gross rental income of £50,000 and interest costs of £20,000 per annum.
TAX ADVICE
Following George Osborne’s Summer Budget announcement, the current tax relief is being curtailed from its present marginal-relief basis towards basic-rate relief only. This will happen in stages commencing 2017/18 and the target of 20% will be in place for 2020/21. The table below shows how this will work in practice.
All higher-rate individual landlords who own buy to let residential properties on which there are ‘dwelling-related’ financing costs will pay more tax. Some current basic-rate taxpayers will also be hit, because the change will push them into a higher tax rate bracket. The below example, albeit extreme, compares the position between 2016/17 and 2020/21 (assuming the same tax rates apply in both years), for a property investor currently paying tax at the basic-rate who has gross rental income of £250,000 and interest costs of £170,000 per annum. Please see table below
2016/17
2017/18
2018/19
2019/20
2020/21
Gross Rental Income
50,000
50,000
50,000
50,000
50,000
Non-Finance Costs
10,000
10,000
10,000
10,000
10,000
Finance Costs Allowable
20,000
15,000
10,000
5,000
0
Rental Profit
20,000
25,000
30,000
35,000
40,000
Tax at 40%
8,000
10,000
12,000
14,000
16,000
Less Tax Reducer: 2017/18 (20% x 25% x 20,000)
(1,000)
2018/19 (20% x 50% x 20,000)
(2,000)
2019/20 (20% x 75% x 20,000)
(3,000)
2020/21 (20% x 50% x 20,000)
(4,000)
Net Tax Liability
8,000
9,000
10,000
11,000
12,000
Rental Profit Net of Interest Cost
20,000
20,000
20,000
20,000
20,000
Effective Tax Rate
40%
45%
50%
55%
60%
LANDLORD INVESTOR December 2015
TAX ADVICE
18
2016/17
2020/21
Gross Rental Income
250,000
250,000
Non-finance costs
50,000
50,000
Finance Costs Allowable
170,000
0
Rental Profit
30,000
200,000
Profit After Personal Allowances
19,000
200,000
Tax Before 'Tax Reducer'
3,800
76,100
0
34,000
Net Tax Liability
3,800
42,100
Rental Profit Net of Interest Costs
30,000
30,000
Effective Tax Rate
12.7%
140%
Less Tax Reducer: 2020/21
(20% x 100% x 170,000)
As one can see, owing to the way the proposed tax calculation moves the finance cost deduction from being an interest deduction against ‘rental profits’ to a ‘tax reducer’ this property investor has moved from being a basic-rate tax payer (with £3,800 of tax due in 2016/17) to being an additional-rate tax payer (with £42,100 of tax due in 2020/21). This represents a staggering effective tax rate in 2020/21 of 140% on £30,000 of rental profits net of interest costs. The investors who will be worst affected are therefore going to be those that are highly leveraged, regularly remortgage to take advantage of capital growth or potentially those that have recently bought with large mortgages.
Response from landlords The response from landlords has yet to be seen, but many are seriously concerned about how the capping will affect their pocket as evidenced by an online petition (https://petition.parliament.uk/petitions/104880) which is seeking a reversal of the tax relief restriction on individual landlords and had over 42,500 signatures at the time of writing this article. Those who manage larger portfolios on a business basis might look to incorporation as a more efficient means of operating in this sector but there are potential pitfalls for the unwary, particularly in relation to capital gains tax and stamp duty land tax and such a major step should only be taken under advice. December 2015
LANDLORD INVESTOR
Capital Gains Tax (CGT) The transferring of properties from an individual buy-to-let investor to a connected limited company will generally lead to a deemed disposal of the properties at their current market value and a CGT charge arises accordingly. ‘Incorporation relief’ is potentially available if the whole business is transferred in exchange for shares, although as tax case law indicates this will only apply if the ‘business’ is actively managed. There are also a number of conditions that must be considered if you are seeking to rely on this relief.
Stamp Duty Land Tax (SDLT) SDLT will typically arise based on the market value of the properties at the time of the transfer to the limited company. Reliefs may be available, especially if the property business has been operated as a partnership, although consideration of the specific facts will be required.
Final comments The new restriction on tax relief for finance costs is undoubtedly going to change the investment landscape over the next few years. Some existing investors are potentially now incentivised to sell and perhaps fewer will buy. Buy to let as an industry may well be weaker as a result and one wonders what future surprises are in store. Although, what is clear, is that investors need to proactively review the impact on their pocket at the earliest opportunity to be able to stay ahead of the game. If you would like to discuss any of the issues raised or would like any further information, please contact Simon on 01622 767676 or simon.crookston@ crowecw.co.uk ⌂
Secured loans
Residential mortgages
Nick Jones
Tracey Bailey
Bridging finance
All together now.
Buy-to-let and commercial mortgages Irene Thomas
Chris Baguley
If you liked us as Auction Finance, you’re going to love us as Together. As a group, we’ve been lending for over 40 years and we’re able to help with bridging finance, residential mortgages, secured loans, commercial and buy-to-let mortgages. There’s a new name and still the same expert knowledge available in person at auctions up and down the country. Good property doesn’t hang around, so neither will we when it comes to securing your funding. People, not computers make our lending decisions. It’s just common sense.
For fast, flexible auction finance call the auction team on 0161 933 7155 For other products visit togethermoney.com For professional use only. Together is a trading style of Auction Finance Limited. Auction Finance Limited is registered in England and Wales Company Registration Number 04949929. Registered office address: Lake View, Lakeside, Cheadle, Cheshire SK8 3GW.
Auction finance Scott Hendry
20
INDUSTRY SPOTLIGHT
Time to make plans Sussanne Chambers
Managing Director and Founder of HomeXperts
At this time of year, many landlords sit back and evaluate how their rental portfolio has performed during the year with the average rent for tenancies nationally increasing by 9.7%, according to the HomeLet Rental Index October 2015.
For many landlords they'll be thinking of ways to increase their portfolio through refinance or looking for diversification. For those landlords planning to increase their portfolios, buy to let mortgages are in abundance with 8.7%, more mortgages agreed in quarter 3, 2015, than in the same period last year according to the Council of Mortgage Lending (CML). Diversification may take another route with you considering different types of properties to add to your portfolios, such as student properties or HMOs. These can deliver increased yields to landlords willing to go into this slightly more complicated area of the market.
December 2015
LANDLORD INVESTOR
October Training Academy at HomeXperts’ Central Support Office
Another route for diversification could be opening your own lettings and estate agency and whilst for some this may seem complicated due to the increased legislation, particularly around the lettings market, there are easy routes to market available through franchising. Whilst new businesses see a spectacular level of failure, with 80% of all new business failing within the first three years according to the Confederation of British Industry (CBI), the reverse is true for franchise businesses. According to the NatWest Franchise Survey 2013, 92% of franchise businesses were successful and profitable after three years.
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This new breed of innovative property franchise is perfect for the aspiring landlord who recognises the benefit of passive income and wants to diversify to generate passive incomes from other sources. Working from home with minimal overheads, a HomeXperts franchise can sit alongside your rental portfolio, complementing the work you are currently undertaking. There will be cost-saving benefits for you as well which might cover the cost of starting the franchise as in the future you will save on letting agency fees, advertising on Rightmove and it may save you considerable time due to their advance systems and processes. The HomeXperts franchise retained Gold for The Sunday Times’ Best Estate Agency Franchise award in 2015, having previously won Gold in 2014. HomeXperts were also recognised as a winner in The Sunday Times’ Lettings Awards 2014. The franchise package includes everything you need to get started with camera and wide-angle lens, iPad and digital measurer to award-winning software and websites.
The training academy will lead to qualification with the National Federations of Property Professionals (NFoPP) enabling you to become a member of the Association of Residential Letting Agents (ARLA) and the National Association of Estate Agents (NAEA). 40% of HomeXperts franchisees have earned over £10,000 per month in invoiced commissions with their top-earning franchisees earning more than £25,000 per month in invoiced commissions. Which means with hard work this business can deliver a significant level of profit to add to your rental income. Sometimes being a landlord can be lonely, when you join a franchise you are part of a network of like-minded individuals working alongside you in non-competitive areas. HomeXperts are currently recruiting new franchisees across England and Wales with training academies scheduled for February and May. Both ideals times to start your letting and estate agency franchise to take advantage of the spring market. Discovery meetings are held regionally and if you feel it’s time for change in the New Year, and you’re looking for a challenging, financially rewarding diversification of your business. It’s time to think seriously about starting your own lettings and estate agency. To find out more, call Josh on 01905 678 853 for an informal chat, he will be happy to answer any initial questions about the franchise package. To receive 100% of the information come to a HomeXperts Discovery Meeting held across the UK, email josh@ homexpertsuk.com with a convenient date and time to see how 60 minutes could change your life. ⌂
HomeXperts Win Highly Commended Small Business of the Year
LANDLORD INVESTOR December 2015
INDUSTRY SPOTLIGHT
So starting a lettings and estate agency franchise makes clear business sense, there are many different property franchise models available within the market, from the traditional letting agency franchise, for example Belvoir and Martin & Co, to the new breed of agency franchises such as the multi-awardwinning HomeXperts.
22
INvESTMENT oPPoRTUNITIES
lANDloRD INvESToR lAUNChES INvESTMENT oPPoRTUNITIES Beverley Meliniotis - Landlord Investor As 2015 comes to an end we can definitely look back on what has been a very successful year here at the LIS Towers. Having held 12 Landlord Investment Shows throughout the UK with over 550 exhibitors, 90+ seminars and over 10,000 Landlords and Investors attending the events, it has definitely been exciting.
wElCoME To ThE lAUNCh of oUR NEw SECTIoN "INvESTMENT oPPoRTUNITIES". After the success of our 2015 shows we are delighted to announce our dates for the 2016 Landlord Investment Shows. We will be taking our events to the top 15 hottest buy-to-let areas within the UK, connecting Landlords, Investors, Developers and Property Professionals – To view our full 2016 itinerary please click visit our website www.landlordinvestmentshow.co.uk In addition to this Landlord Investor has celebrated its first birthday and continues to grow from strength to strength covering all aspects of the buy-to-let market and keeping our 40,000 readers up to date within the property sector. The buy to let market is booming and properties are sought after so we have launched a new section for Estate Agents or Investors to showcase any properties they are selling directly to our audience
December 2015
lANDloRD INvESToR
of landlords. Landlord Investors database has over 40,000 contacts of whom over 80% are Landlords, these could be looking for more properties to add to their existing portfolio or for those looking for their first buy to let property. Our database has been organically grown through our road shows, so our contacts are unique and not available through any other resource. If this is something you are interested in please get in touch on 0208 240 4470 or email me on Beverley@ landlordinvestmentshow.co.uk and I can put a cost effective package together for you. Finally, may I take this opportunity to wish you a very Happy Christmas and a successful and healthy New Year. ⌂
23
BRIghToN - ChEShAM PlACE
BRIghToN - foNThIll RoAD
BRIghToN - BAlMoRAl CoURT
£335,000
£220,000
£210,000
Second floor apartment Two Bedrooms Close to seafront Period features Kitchen/diner
One bedroom flat Close to transport links with routes to London Double bedroom with sea views Gas central heating Over 900 years on Lease
Double Bedroom Built in Wardrobes 951 years remaining on Lease Double Glazing Wooden flooring
Yield: 4.84% Number: 01273 720 714 www.leaders.co.uk
Yield: 4.64% Number: 01273 720 714 www.leaders.co.uk
Yield: 4.86% Number: 01273 720 714 www.leaders.co.uk
gUIlDfoRD - SANDfIElD CoURT
MANChESTER - RIPPINghAM RoAD
MANChESTER - ANChoRSIDE CloSE
£375,000
£300,000
£140,000
Two bedroom apartment Second floor Private gated parking Modern Kitchen En-suite in Master bedroom
7 Double Bedrooms Ideal Student property Semi-detached Double fronted Rental includes utilities
Yield: 4.8% Number: 01483 455 990 www.leaders.co.uk
Yield: 10.29% Number: 0161 249 2820 www.leaders.co.uk
Two bedroom apartment Close to transport links Double glazed through-out Gas central heating Modern in character
Yield: 5.96% Number: 0161 249 2820 www.leaders.co.uk
lANDloRD INvESToR December 2015
INvESTMENT oPPoRTUNITIES
INvESTMENT oPPoRTUNITIES
24
INVESTMENT
No cash? No problem! Kevin Wright Positive Property Finance The problem with buying property as an investment is that you need capital to put down as a deposit and then it’s locked into your property for six months or more, until you can remortgage. The days of ‘no money down’ mortgages are gone; you need a deposit to get any mortgage these days. At this rate you'll be lucky to manage to add two properties a year to your portfolio, unless you have a big nest egg. The secret is not to lock your capital into a mortgage, but to use creative financial packages specially developed for property investors.
Do you fit the buy-to-let lender's typical profile? Don’t lenders love property investors, because they have plenty of assets so their mortgage is secure? No! Buy-to-let lenders like their clients to have a nice secure full-time job earning a minimum of £25,000 a year and have their own cash for at least a 25% deposit. If you have too many properties it can make them nervous in case you leave your secure job to become a full-time investor. They don’t like people who want to remortgage their property after six months when the property has been refurbished and is now worth a lot more. Serious property investors won’t be most lenders ‘flavour of the month’.
December 2015
LANDLORD INVESTOR
Is there another way? Not if you want to build your portfolio using traditional mortgages. Since the flexible mortgage products were withdrawn from the market in 2008 ‘no money down’ strategies are really describing a method of concealing the true purchase procedure from the lender. This is fraud and any legitimate investor or financing company will have nothing to do with it. However, there are creative means of putting together finance packages that are entirely legal and don’t put the lender, the purchaser or the property at risk. Using bridging finance intelligently gives you much more flexibility – and the potential to make MUCH bigger profits without tying up your capital. To be successful in bridging finance you need an experienced bridging lender and a solicitor who understands bridging finance and can complete transactions in days, rather than months. Positive Property Finance has a wide range of lenders and will match you up with the right one for your property deal. We can also introduce you to solicitors who understand bridging finance and will get things moving quickly. Give us a call on 01206 586586. ⌂
Property Mastery : Recycle Your Cash
Is your property investment giving you the results you want? If you’re finding: • The best deals slip through your fingers to cash buyers • You want to recycle your cash but your portfolio is growing too slowly because all your cash is tied up • Financial freedom is still not within your reach
Your Ninja Trainer Kevin Wright
The Ninja Investor Programme will reveal: The Fast Funding Formula™ Discover how to buy property like a cash buyer – without a 6 figure bank account The Negotiation Transformer™ Find out how to make ridiculously low offers – and get accepted The JV Profit Retainer™ Make sure you don’t give away any of your profits that you don’t need to The Rapid Cash Recycler™ Learn how to predict post-refurb value accurately, before purchase And Ninja Investor Strategies™ Transform your mind-set to enable you to transform your property investment.
DOUBLE GUARANTEE • If you’re not happy with the course and tell us by lunchtime on day 1 - you’ll get a FULL REFUND; no quibbles. • When you bring your first deal to our bridging brokerage; - you’ll get the FULL COST OF YOUR COURSE REFUNDED at completion.
NEW for 2016 - 2 day format with even more hot tips and smart strategies. Join a Ninja Investor Programme in: London 16/17 January 2016 Bristol 6/7 February 2016 Leeds (new) 27/28 February 2016 Birmingham 19/20 March 2016 Find out more – and book your place
07889 526979 • www.ninjainvestorprogramme.co.uk
26
INVESTMENT
How was your 2015?
Simon Zutshi property investors network As we approach the end of the 2015, you may be starting to think about and plan for next year and what it may hold for you, but before your set you goals and intentions for 2016, I think it is important to look back and recognise all you have achieved in 2015 and capture any important lessons you may have learnt.
In this month's article I have been asked to share with you some of my highs & lows and key lessons from 2015... ...plus ask you 5 questions to get you thinking about your last 12 months to help you make even more of next year. 2015 has been a year with some massive milestones for me. First and foremost it is 20 years since I purchased my first property back in 1995. My first property was a below market value (BMV), no money down purchase. Sounds impressive right? Well let me share a little more detail. It was the most expensive house I could afford at the time based on my Graduate salary at Cadburys.
December 2015
LANDLORD INVESTOR
The property was on the market for ÂŁ49k but I managed to buy it BMV by using all of my property knowledge and negotiation skill (which was zero at the time) to negotiate a huge discount of ÂŁ500 off the price, which I was very pleased with. As a first time buyer I was able to get a 95% mortgage but because I had no money at the time I had to borrow the deposit and moving costs from a family member. I paid them their money back with interest and so I guess that was my first private investors loan. I rented out the spare rooms in the house to two of my friends who were still at University and the rent they paid covered the mortgage and most of the bills. So I lived for free. 20 Years on and I still own that house which has been rented out to students ever since I moved out in 1998 when I purchased my second property.
27
This has caused another big realisation for me that maybe I have not been pursuing the wrong strategy for the last two years! I am still actively investing in property because as a property educator, I think it is important to be up to date with what is happening in the market today. Over the past few years I have been focusing on large commercial to residential conversion projects, all done as Joint Ventures using private investors money. I have focused on these kind of deals for three main reasons: If you had told me back in 1995 that the first property that I purchased for £48,500 would be worth £175,000 in 2015 I would have thought you were crazy. There was no way property prices could go up so much, but they did and here is the really important point for you. I am always meeting people who say to me “But prices are so high now surely they can’t go up any more” I truly believe that as long as the population of the UK continues to grow (which it looks like it will) there will continue to be an upward pressure on the demand for accommodation and so rent and property prices will have to rise over time. Prices can go up as well as down but with a finite amount of land and not enough property being built each year, the long-term trend is up. This also reminds me of a valuable property rule I would like to share with you. The real money made in property is through the long-term capital appreciation so it is wise to buy and hold property rather than sell it. Yes you can make money buying and selling but once you sell you crystallise the profit and so can’t make any more money from that particular property.
1) 2)
3)
There are lots of profitable deals available, There is not much competition for the £1m to £2m size deals There is a very good financial return for the time involved.
However, most of the apartments created from these projects are low cost affordable units, which are not something that I would normally buy as an investor because they only have a small positive cash flow. For this reason I have been selling them through agents to first time buyers etc. I have made a decision to change my strategy and only do developments where I intend to keep the end product for the long term and all of the development costs can be refinanced out from the project. Although I have made some good money from these projects, they have taken up a lot of my time that may have been better used if focused elsewhere, and the 100 or so units I have developed, have taken a long time to sell. Sometimes I think that it was a mistake taking on some of these bigger projects due to the distraction it has caused.
Just because property prices have gone up historically it does not guarantee that they will go up in the future. I teach my students to purchase property “as if the price may never go up” then you will be forced to only buy properties that give you great cash flow and return on investment now. Any increase in price is a bonus but in reality we expect prices to rise because of the increasing demand.
LANDLORD INVESTOR December 2015
INVESTMENT
So my first question for you is:"In 2015 have you been buying property strategically for long term buy and hold?"
INvESTMENT
28
MY SECoND QUESTIoN foR YoU To CoNSIDER IS: "ARE YoU USINg ThE CoRRECT STRATEgY To AChIEvE YoUR PRoPERTY goAlS?" This brings me to my next big lesson that I want to share with you. We need to be careful not to focus on the things that we have not done but instead make sure we recognise all that we have achieved. Very often people give themselves a hard time for what has not worked and fail to acknowledge all of their achievements. When I look back at 2015 and look at what I have achieved I recognise that it has been a really successful year despite the slight challenges with the bigger developments. I am really pleased with the progress we have made with my new business CrowdProperty.com, which is a peer to peer lending platform. This year we have successfully funded seven projects with over ÂŁ2m of funds from our crowd of lenders. In July this year I finally released the fifth updated version of my book Property Magic which I am really pleased with. In October we started the 20th Property Mastermind Programme, which is a real landmark moment. When I started the first Property Mastermind back in April 2007 I had no idea what an incredible success it would be or just what an amazing positive impact our incredibly supportive environment would have on so many people. It makes me very proud and humble at the same time when I think of how many people have transformed their lives for themselves and their families through being part of the property mastermind programme.
December 2015
lANDloRD INvESToR
So MY ThIRD QUESTIoN foR YoU To CoNSIDER IS: "whAT ARE All YoUR AChIEvEMENTS AND ThINgS ThAT hAvE goNE REAllY wEll foR YoU IN 2015?" All too often I meet investors who are working really hard to achieve their property goals but it seems to be all work and no play. It is important to enjoy the journey and also celebrate your success. Whilst I agree that we need to plan and build for the future and sometimes that means short term sacrifices for long term gain, we need to keep a balance in our lives and remember to be in the moment and enjoy life today because we never know what could happen in the future. I have a Bucket list of things that I want to do. Some of them are small some of them are big and I make sure that I tick several of these off each year. For example I have never been in a hot air balloon but my partner and I did it in October. A big thing on my bucket list was to go to Necker Island, which is Sir Richard Branson's Private Island in the British Virgin Islands. When I was invited to Necker earlier this year I jumped at the chance and spent a fantastic 6 days there in April. It was a trip of a lifetime and an inspiration to spend so much time with a small group of other very successful entrepreneurs, including Richard who was there with us for the whole week. Whilst we were there we also raised several hundred thousand pounds for the Virgin Unite charity.
29
MY foURTh QUESTIoN IS: "whAT Do YoU Do To CElEBRATE YoUR SUCCESS?"
Fed up with your tenants complaining about condensation, mould and ‘damp’?
Lost money re-decorating your properties?
Lost income from your tenants who move?
In January at the property investor network meetings I have put together an incredible presentation that will be delivered by some of our Property Mastermind coaches and pin meeting hosts all about “How to pick the best Strategy for you in 2016”. We will be giving away a copy of my Accelerator Strategy Flow Chart which we normally only give to people who attend my advanced three day Mastermind Accelerator workshop which is a £3k course. To get your complementary copy of my Accelerator Strategy Flow Chart and to find out how to make 2016 your best year yet why not commit to your own success and book into your local pin January meeting now. www.pinmeeting.co.uk ⌂
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lANDloRD INvESToR December 2015
INvESTMENT
And now I am looking forward to next year. We have some exciting plans to help even more people benefit from our unique Property Mastermind environment. We plan to grow CrowdProperty to help fund more development projects and target our lending to £10m in 2016 as long as we can find the right projects to fund. So if you have a larger project you would like to raise finance for please do contact us at CrowdProperty. And finally I have some amazing Bucket list trips planned including a long over due trip to South Africa and Safari, plenty of skiing holidays and a few more surprises up my sleeve. To do this I need to be even smarter with my time and focus on the really important things.
AND MY fINAl QUESTIoN foR YoU IS: "whAT ARE YoU goINg To Do DIffERENTlY IN 2016 To MAKE IT YoUR BEST YEAR YET?" MY INvITATIoN To YoU
30
INvESTMENT
BUY2lET.CoM CAllS foR AST REgISTRY To RooT oUT RogUES & QUANTIfY ThE MARKET
Martin Wilkinson - Buy2Let.com Just as owner-occupier property transactions are recorded and analysed via the Land Registry, founder of Buy2Let.com, Martin Wilkinson, is campaigning for a register of transactions by buy-to-let investors, to help quantify the market and root out the rogue landlords.
lEADINg PRoPERTY INvESTMENT SEARCh PoRTAl, BUY2lET.CoM hAS lAUNChED AN oNlINE PETITIoN vIA ThE UK PARlIAMENT PoRTAl, CAllINg foR A NATIoNAl REgISTER of BUY-To-lET PRIvATE RENTAl PRoPERTIES. Despite recent attempts by Government and The Bank of England to stifle the buy-to-let sector, the acute shortage of homes and increasing house prices means that the private rental sector continues to pick up the slack. Martin comments, “We frequently see reports and statistics on the owner-occupier market, but the lack of reliable, comprehensive data on the private rental and buy-to-let sector means no-one – including politicians, mortgage lenders and estate agents - has a clear picture of what is happening in the market. In much the same way as a mortgage charge is registered on traditional house sales, we think there should be a similar requirement for buy-to-let purchases.
December 2015
lANDloRD INvESToR
“The buy-to-let sector generates over £100bn in transactions every year, so it’s vital that we capture the true scale of this important market, and at the same time, use the data gathered to identify and stamp out malpractice and rogue landlords.” Buy2Let.com is the first portal of its kind to list genuine buy-to-let properties for sale, allowing investors to search and compare properties – which are categorised as vacant, tenanted, and HMOs - by annual yield; something which current owner-occupier property portals cannot offer. ⌂ To view and sign the AST Registry Petition, visit: http:// bit.ly/ASTPetition
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32
LETTINGS & MANAGEMENT
When do Landlords have the right to raise the rent? easyProperty
As a landlord, you should always be conscious that renting property is a business. This seems like common sense, but it’s understandable that many landlords feel guilty raising the rent. The cost of your mortgage, repairs and administration certainly don’t go down over time, so you may need to revise your rent every few years. But Landlords can’t just go round increasing their rents whenever they want. They do, however, have a right to adjust the rent at certain intervals. The way in which they can go about increasing the rent will depend on whether the tenancy is fixed or periodic. Bear in mind: If the tenancy agreement includes a specific rent review policy, the landlord must adhere to the terms of this policy.
December 2015
LANDLORD INVESTOR
Fixed term tenancies Landlords have no right to increase rent during a fixed term – unless the tenant agrees to the increase in writing. Once the fixed term is over, however, landlords can raise the rent in one of two ways:
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Renew the fixed term, but with a higher rent (provided you give tenants the appropriate notice and they agree to renew) Or let the fixed term run its course and let the tenancy automatically drift into a periodic/rolling tenancy, and then increase the rent
Landlords should notify their tenants 2 months before the fixed term is due to end. If the tenants accept the increase, the tenancy can simply be renewed with the new increased rent amount. If the tenants don’t accept the increase, it leaves the landlord time to serve notice
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Landlords have a right to increase rent once a year. However, there are some restrictions to that:
So consider all the angles before you raise your rent, give your tenants a decent amount of notice, and you’ll have a best chance of remaining a happy and profitable landlord.
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Good luck!
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If you want to increase the rent during a periodic/ rolling tenancy, then you will need to give your tenant a “Landlord’s notice proposing a new rent” form.
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The increase must be “fair and realistic”. This is defined as being in line with average local rents You must give your tenant appropriate notice (1 month’s notice if rent is paid weekly/monthly or 6 months if rent is paid annually)
One of the most important things to remember is that a great tenant isn’t easy to find. If you have a reliable tenant in place, it’s crucial that you maintain a good relationship. If you think your rent is £50 a month under the market rate, it may not be worth raising it at this point. If your tenant decides to leave, your property could remain empty while you search for a new tenant – something which could cost you thousands in lost rent.
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LANDLORD INVESTOR December 2015
LETTINGS & MANAGEMENT
Periodic/rolling tenancies
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LETTINGS & MANAGEMENT
The Rising Issue of Market Regulation in the Age of Online Lettings Agencies Simon Earles - Intus Lettings
Recent news headlines all seem to be talking about the same thing: the looming end of the high street. With ever-evolving technologies and more people than ever before using the internet, high street shops are increasingly becoming a thing of the past – and the same is true for today’s estate agencies. An increasing amount of people nowadays start their journey of looking for a suitable home online, using search engines such as Google and online portals like Zoopla or RightMove. It seems like the days of walking into an actual estate agency are long gone, or only occur when tenants sign the agreement at the agent's office
December 2015
LANDLORD INVESTOR
What is interesting however is that while the market is changing, the number of online estate agents is estimated to make up only approximately 2% of the overall market. In general, online agencies are able to offer more competitive fees than traditional high street agencies, as they have fewer fixed overheads. And let’s face it – in a market where house prices and rents are constantly rising, people want to get the best deal they can, together with the lowest possible costs.
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LETTINGS & MANAGEMENT
One surely could argue the point that online agencies may be less personal, meaning that when you as a landlord or tenant have an issue with your lettings agency, you cannot just walk into their office and sort it out. Whilst this is to some degree true, good online estate agencies subject themselves to certain standards set by organisations such as RICS (Royal Institution of Chartered Surveyors) and ARLA (Association of Residential Lettings Agencies). If your chosen agency is accredited by either one (or even both) of these, then that is generally an indicator of high quality and trustworthiness. Membership means that the company has not only passed certain requirements set by the organisations, but that they also promise to keep the properties in their portfolios up to a an exemplary standard behalf of the landlord, and for the benefit of the tenant. These lettings agencies sign themselves up to be regulated, proving their respectability to the market place. Unfortunately, many agencies (both online and on the high street) choose not to be part of one of these associations, as it requires employees to undergo training with RICS or ARLA, as well as then keeping to a code of conduct to look after properties and tenants properly. Although there are many calls for a change in the law, there are no rules in the current market to force estate agencies to join these regulatory bodies, meaning joining these groups remains entirely voluntary. However, membership with a company such as RICS or ARLA gives both renters and landlords a good indication of how dedicated that lettings agency will be. Customers are guaranteed protection from bad practice as they can complain about misconduct, potentially causing the agent to be penalised or even lose its membership.
Intus Lettings, an innovative online lettings agency, has been a proud member of ARLA since its inception. Intus is fully aware of market and consumer trends, especially regarding online behaviour, and hence offers nationwide services with both let-only and fully managed options. Whilst the company can be classified as an online lettings agency, it places a heavy emphasis on communication with both its landlords and tenants to manage your property portfolio effectively. Intus truly prides itself on how it treats landlords and manages tenants, together with the high quality services it provides. Simon Earles, Lettings Director at Intus commented: “We are an online lettings expert that operates nationwide. We also know that while our clients love the convenience of the internet, they also appreciate direct communication from their lettings agent. And here at Intus we make sure we give them exactly that. To ensure that we meet the highest industry standards, we are members of ARLA. I think there is a definite lack of official regulation in this ever-changing sector, and this has led to rogue lettings agencies taking advantage of tenants and painting a bad picture of the business. Lettings agencies should make renting easier and less stressful for both tenants and landlords. At Intus Lettings we strive to offer the best services from the first contact with the landlord, right until the end of the tenancy term.” While the lettings landscape continues to evolve, the protection of tenants as well as landlords remains an important issue. To make sure you and your portfolio are protected, it is vital to ensure that your lettings agent is an accredited agency, following the highest industry standards. With Intus, you know you are in safe hands – and it’s so easy to switch! Just see how switching to Intus Lettings can save you up to £700. ⌂
LANDLORD INVESTOR December 2015
lETTINgS & MANAgEMENT
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SANDfoRDS gIvE ThEIR PREDICTIoNS foR ThE loNDoN 2016 PRoPERTY MARKET
lATEST offICIAl DATA Show ThAT PRoPERTY MARKET gRowTh hAS CoNTINUED To Cool AND REgIoNS, PARTICUlARlY loNDoN, hAS BEEN fAR SlowER CoMPARED To lAST YEAR. Sandfords, a Central and North West London agent, reports that the slowdown followed the reforms of stamp duty in the Autumn Statement last December. Sandfords says: “The stamp duty changes that took place towards the end of 2014 have depressed the market across the board in prime Central London (PCL) and forecasts for next year have altered in light of this. I predict that price increases in the Prime Central London market in 2016 will be modest with some areas experiencing growth and others seeing prices remaining fairly static. We have seen many potential vendors choosing to stay put and spend the money that would have been expended as stamp duty on a purchase in refurbishing or extending their present home. This is currently particularly evident with family properties, and something we should expect to see moving into the New Year. The biggest price band that has been affected is from £1.5m to £5m.
December 2015
lANDloRD INvESToR
For properties below the £1.5m mark the changes are not too onerous. For anything above £5m, purchasers have sufficient funds and are therefore not too bothered about a heavy stamp duty bill. Unless something significant happens that we cannot foresee at the moment, there will not be a crash, but the global economic outlook combined with tax changes in the UK and the perceived high current values will subdue demand and this will take some time to work through. I do not anticipate sustainable growth returning until the 3rd quarter of 2016. Regent’s Park and Marylebone are still undervalued in comparison to Knightsbridge and Kensington, but are becoming increasingly more fashionable and desirable. Other areas of growth will be in Fitzrovia and Kings Cross which are rapidly changing out of all recognition. The capital is undoubtedly still one of the safest places in the world to live and invest, and will continue to be a top investment location. This year, buyers from all over the world including, the Far East, China, India, Greece and Europe have been heavily spending their money and buying properties in London, and it looks like they will still be big players in 2016." ⌂
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LEGAL
Government's new over-crowding measures won't stop sub-letting abuse
Paul Shamplina - Landlord Action
Landlord Action is in full support of the Government's latest proposal to crack down on rogue landlords. In particular, those who carve up properties to creative multiple sub-standard sized rooms in a bid to maximise their rental income. Founder, Paul Shamplina, believes imposing a minimum square footage per room, as a legal requirement, will help reduce the number of over-crowded, unsafe properties. However, he warns it will not prevent sub-letting scams, which are often the lead cause of ‘rabbit-hutch rooms’, and will require greater enforcement resources to be effective. The consultation paper explores the options for extending the scope of mandatory licensing of houses in multiple occupation, to smaller and medium sized properties. Widening the net of properties to which the rules apply and setting a minimum room size of 6.5 square metre (70sqft), aims to make it easier for local authorities to raise standards in properties used as shared homes.
December 2015
LANDLORD INVESTOR
Paul Shamplina, who has been part of a Government ThinkTank regarding key legislative changes to the buy-to-let industry, says: “There is in fact only a small proportion of landlords who abuse the system in this way. Nevertheless, they are guilty of exploiting the vulnerable whilst profiting from the housing crisis, particularly in the capital. Therefore, anything which helps to eliminate this problem and impose proper sanctions in the case of violation, is a positive step forward.” However, according to Landlord Action, there are two key hindrances with these proposed new measures; enforcement and sub-letting. Paul Shamplina says “One of the biggest problems with implementing any new legislation is enforcement. Local councils do not have enough resources as it is, with Environmental Health Officers (EHO) already responsible for monitoring overcrowding, sub-letting, poor conditions, and most recently retaliation eviction. There is no room in our sector for rogue landlords, but to tackle the problem properly, legislation needs to be backed up by more boots on the ground”.
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In addition, Landlord Action reports that the leading culprits of setting up uninhabitable rooms are not just rogue landlords, but in fact tenants posing as landlords and sub-letting properties to unaware tenants. “Landlord Action has never seen so many sub-letting cases as it has over the last two years, with an 18% increase. This has been fuelled by sky high rents preventing some tenants from being able to afford even single-unit accommodation, forcing many to resort to bedsits or shared accommodation.” In a recent North London sub-letting case handled by Landlord Action, partition walls were erected to create more bedrooms, most were barely large enough to fit a single mattress in, and the rogue tenant was sub-letting each “room” for £750 per month. Paul Shamplina concludes: “Cases like this are not only damaging to the property and financially devastating for landlords, but are also extremely unsafe, creating untold health and safety issues, particularly relating to fire safety and sanitation issues. They should also act as a reminder to landlords of the importance of carrying out thorough tenant referencing checks, as well as regular property inspections”. ⌂
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lANDloRD INvESToR December 2015
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CoURT CAll CENTRES fUEllINg PoSSESSIoN DElAYS Julie Herbert - Landlord Action Since reporting a year ago that under-resourced county courts were overwhelmed by the number of possession claims being put forward, Landlord Action says the problem has not improved and is now being compounded by the use of call centres run by inexperienced temporary staff.
ThEY wARN oThER PRACTITIoNERS "If YoU wANT AN ANSwER QUICKlY, BE PREPARED To ChASE." Twelve months ago, Landlord Action employed a fulltime member of staff solely to follow up claims made to the courts. They wanted to ensure they continued providing clients with an efficient service, despite the challenges via third party delays. However, with further court closures, it now transpires that some county courts are operating call centres, where temporary staff, with little or no experience, have been appointed to process claims and correspondence. In a recent routine phone call to follow up a case, an operator informed Julie Herbert, Head of Legal at Landlord Action, that there were just six people in one call centre dealing with calls and paperwork relating to 55 different courts. “It is evident that those at the call centre are not qualified to be able to dif-
December 2015
lANDloRD INvESToR
ferentiate between correspondence that can sit on a file, and correspondence that needs the urgent attention of a Judge in order for a case to progress. We have had numerous incidents where court staff appear to be opening post, filing it and doing little about it, adding to the problem even further” says Julie. Landlord Action has expressed concern that more planned court closures and the introduction of the recent Deregulation Act, will likely see a surge in more defended, contentious cases clogging up the system and resulting in even longer delays.
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lANDloRD INvESToR December 2015
LEGAL
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Considering ways to improve the system, Julie Herbert adds “When correspondence is received by the court, it needs to be looked at by someone who is capable of deciding whether the item of correspondence requires any action. If they are going to close courts, they need to transfer some of those qualified members of staff to these call centres. Alternatively, train up more qualified staff so that they have a legal understanding of each item of correspondence which the court receives. It can then be processed saving numerous calls from practitioners chasing them up”. According to Ms Herbert, a high volume of tenants’ applications have no merit. However, some applications are being processed by office staff, where hearings are being set down weeks after a possession order has been granted, causing further losses to landlords and putting a strain on court resources. “If judges actually got to see these applications in the first instance, decisions could be made on most without the need for a hearing” she says.
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In the interim, Landlord Action’s advice to other practitioners who are waiting for a reply from the courts on anything, is to carry out regular chase up calls, even more so than normal. “If told that it is in the system, push to know exactly when the file was or will be referred to a judge, as well as asking what timeframes are in place for when you can hear back from the court and take a name. It is important to follow up your conversation with the court by email, as this also provides evidence for you to show your client that you are being proactive” concludes Julie Herbert. ⌂ www.landlordaction.co.uk
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