LANDLORD INVESTOR LANDLORD | PROPERTY | INVESTMENT
34TH EDITION | 2018
LIMAGAZINE
LIS GEARS-UP FOR MARCH OLYMPIA SHOW / THE LANDLORD’S LOT / THE FIVE GOLDEN RULES OF PROPERTY INVESTING / MILLENNIALS: THE RENT-VESTING GENERATION / LANDLORDS LOOKING NORTH FOR INVESTMENT / INDUSTRY UPDATE / COURT OF APPEAL RULING POTENTIALLY DEVASTATING FOR LEASEHOLDERS / COMMON MISTAKES THAT LANDLORDS (AND SOME AGENTS) MAKE / COULD 2018 SEE MOMENTUM BUILD FOR THE SECOND CHARGE LOAN? / A TAIL OF DESTRUCTION
LANDLORD INVESTMENT SHOW ARRIVES AT LONDON OLYMPIA 15/03/18
#LIMAGAZINE
FULL UPDATE ON PAGE 4
WRITTEN BY INDUSTRY EXPERTS COVERING ALL ASPECTS OF BUY-TO-LET
LANDLORD INVESTMENT SHOW 2 0 1 8 D E S T I N AT I O N S LONDON THURSDAY 15 TH MARCH
MIDLANDS WEDNESDAY 16 TH MAY
LONDON THURSDAY 14TH JUNE
HERTS WEDNESDAY 12 TH SEPTEMBER
LIVERPOOL WEDNESDAY 19TH SEPTEMBER
MANCHESTER TUESDAY 9TH OCTOBER
CARDIFF WEDNESDAY 17 TH OCT 2018
LONDON TUESDAY 6 TH NOVEMBER
UK’S LEADING PROPERTY INVESTMENT EVENT The National Landlord Investment Show connects 1000s of property professionals at venues throughout the country and is the UK’s leading buy-to-let event. The shows give landlords and investors the chance to connect with suppliers, network and increase their knowledge.
+ Build your knowledge through seminars from property experts + Source leading products & services from throughout the property market + Share best practice and keep up to date with UK landlords and investors + Expand your business networks via the Morning Networking Event
To find out more and register for your FREE tickets go to landlordinvestmentshow.co.uk Follow us: @LandlordInShow
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WELCOME More challenges for landlords and leaseholders? There seems to be more bad news for the industry as a court's decision last month to uphold a lower relativity in leasehold valuations in the case of Mundy v. the Sloan Stanley Estate, is a "devastating outcome" for leaseholders and means that freeholders will receive even more money from leaseholders, as leaseholders will now be forced to pay more for their lease extensions – to the tune of many millions of pounds. The valuations model at the heart of this case earlier this year estimates that leaseholders are currently being overcharged by £480 million a year. Over the past two decades that's a staggering £9.6 billion that has been taken from householders due to flawed valuation methods that have favoured freeholders at the expense of leaseholders. The Government has recently said that it is willing to tackle unfair practices in the leasehold market, so it is extremely disappointing that the courts have yet again ruled in favour of wealthy freeholders. Read about the case on page 27. Having just entered the time of year where tenants are most likely to get into rent arrears, is it still all doom and gloom? With divorce, condensation and other problems caused by the season and weather, we are looking forward to Spring arriving, which also signals the arrival of our first show in March. if you’re a landlord or investor, you’ll need to ensure you understand the new tax challenges we’re facing in March, so register free for the show at Olympia on 15 March and join us at our Expert Property Panels where you can ask questions about tax and finance, as well as legislation and Brexit. Our NEW panel for local councils will help landlords understand the complexities and procedures relevant to BTL London boroughs. We’ve also got 100+ leading suppliers, a host of networking opportunities and advice as well as 37 additional seminars to keep you up-to-date. See you there!
C O N T E N T S
4 SHOW UPDATE
LIS gears-up for March Olympia show Other features of the show
8 INDUSTRY UPDATE The landlord’s lot
14 – 21 INVESTMENT
The five golden rules of property investing Millennials: the rent-vesting generation Landlords looking north for investment
24 INDUSTRY UPDATE
The latest industry news
27 LEASEHOLD
Court of appeal ruling potentially devastating for leaseholders
28 VIEWPOINT
Common mistakes that landlords (and some agents) make
30 LANDLORD INVESTOR MAGAZINE
BUY-TO-LET UPDATE
Could 2018 see momentum build for the second charge loan?
Editor Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors Tom Entwistle Simon Zutshi Paul Mahoney Eleanor Harvey Peter Littlewood Louie Burns Marie Parris Andrew Turner Mike Morgan
Design Marc Riley Advertising Beverley Meliniotis Marketing Anna Jackson
Follow us @LandlordInShow @LandlordInvestmentShow Contact Telephone: 020 8656 5075 landlordinvestmentshow.co.uk Tenants History Ltd, 27 Stafford Road, Croydon CR0 4HA
Statements and opinions expressed in articles, reviews and other materials herein are those of the authors; the editors and publishers. While every care has been taken in the compilation of this information and every attempt made to present upto-date and accurate information, we cannot guarantee that inaccuracies will not occur. Tenants History Limited and our contributors will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through the promoted links.
32 IN THE NEWS
Mayor invests £15m to buy homes for homeless Londoners
38 TENANCY DEPOSIT SCHEME A tail of destruction
Meet the team TRACEY HANBURY
RYAN DENNINGTON
T: 0208 656 5075 M: 07931 308 875 tracey@landlordinvestmentshow.co.uk
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STEVE HANBURY
BEVERLEY MELINIOTIS
T: 0208 656 5075 M: 07429 683 046 steve@landlordinvestmentshow.co.uk
T: 0208 656 5075 beverley@landlordinvestmentshow.co.uk
EDITOR & SALES DIRECTOR
DIRECTOR
LES HANBURY
SALES & EVENTS MANAGER
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ANNA JACKSON
MARKETING MANAGER
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SALES & EVENTS MANAGER
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Subscribe to LI Magazine Landlord Investor Magazine gives property professionals, landlords and investors monthly advice and information on the topics, news and legislation that matter to the industry. Your subscription gives you the latest industry information in 11 issues per year. Subscribe today for just £65.00 per year to get news, advice and comment on all areas of buy-to-let: • legal services & tax • insurance • investments • deposit schemes & landlord associations • property hotspots Call the subscription hotline on 020 8656 5075 today or visit landlordinvestormagazine/subscribe Published by LI Media, organisers of National Landlord Investment Show
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LANDLORD INVESTOR 34TH EDITION
SHOW UPDATE
LIS gears-up for March Olympia show 4
LANDLORD INVESTOR 34TH EDITION
SHOW UPDATE
Due to the success of its national shows in 2017, three of its shows will now be hosted by Olympia this year.
Registration is live for the NEW National Landlord Investment Show at Olympia this March. Having hosted 15,000+ landlords and investors, 600 exhibitors and 180 speakers in 2017, the UK’s leading landlord exhibition is heading to Olympia on 15th March for its first show of the year. Since the launch of the National Landlord Investment Show in May 2013 it has successfully delivered 54 property exhibitions across the UK. Due to the success of its national shows in 2017, three of its shows will now be hosted by Olympia this year, providing solutions, networking and advice for new seasoned and investors in the buy-to-let market throughout the UK. The Expert Property Panel, launched in 2017, is also back at the March show and is expected to host 450 t series of landlords and investors at what is the UK’s largest series of landlord debates.
This open panel debate allows landlords to voice their opinions on subjects which include tax, legal, finance, Brexit, Universal Credit, Immigration and everything within the private rented sector. Speakers this time include Tony Gimple, Managing Director at Less Tax 4 Landlords and Russell Conway, Senior Partner at Oliver Fisher Solicitors, who is regularly featured on LBC Property Hour. Marie Parris, CEO of George Ellis Property Services, will once again be chairing the debate. Renowned industry suppliers and seminar speakers confirmed Exhibitors include renowned industry suppliers such as Bedford Insurance, Elfin Kitchens. Envirovent, Glide, Howdens Joinery, State Bank of India, Mortages for Business and The Loan Partnership vital platform for brands to launch new products and services direct to the property market.
What the market says... 'Landlord Show - great event. Please keep them running, very informative and wide range of new businesses in the industry, which is great.' Client in Wimbledon, 10 November 2016, verified by email on Checkaprofessional
'On the day, I attended 4 very different presentations. All the speakers were experts, gave very useful advice and were very helpful. Well worth attending.' Client in Warlingham, 9 November 2017
'Absolutely brilliant show, busy, lots of people, excellent seminars and the panel debate was superb. Thank you.' Client in St. Neots, 7 November 2017
LANDLORD INVESTOR 34TH EDITION
Visitors can also keep up-t-date via 28 complimentary seminars in the seminar rooms around the show floor. Visitors can register for the show at landlordinvestmentshow.co.uk For exhibitor enquiries, please call 020 8656 5075 or visit landlordinvestmentshow.co.uk/exhibit About Landlord Investment Show National Landlord Investment Show is the UK’s leading property investment exhibition, providing solutions, networking and advice for new seasoned and investors in the buy-to-let market. Established in 2013 and operating in property hotspots throughout the country, it has now run 54 shows successfully, and has provided property investment solutions for over 20,000 landlords in the last 12 months alone, a growth of 31% since 2015. www. landlordinvestmentshow.co.uk
About Landlord Investment Show National Landlord Investment Show is the UK’s leading property investment exhibition, providing solutions, networking and advice for new & seasoned investors in the buy-to-let market. Established in 2013 and operating in property hotspots throughout the country, it has now run 54 shows successfully, and has provided property investment solutions for over 20,000 landlords in the last 12 months alone - a growth of 31% since 2015. www. landlordinvestmentshow.co.uk
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SHOW UPDATE
Other features of the show include... Expert Property Panel: discussing the issues challenging landlords today We’re giving landlords and investors the chance to get feedback from and ask questions to the experts on the Property Panels – live at Olympia, London on Thursday 15 March – in the 450 seater auditorium. The first of the two Expert Property Panels will focus on tax, finance, legal, Brexit plus much more. The NEW Council Property Panel will host councils at several London boroughs that will be able to address challenges for landlords and investors this year. The UK’s largest Tax and Finance Property Panel 10.00 – 11.15 Questions to be raised include: • Has there been a radical shift in investor strategy following the tax changes and what shape has this taken? This could include setting up a limited company, raising rents, selling property, buying property due to increase demand/ pressure on values, ceasing activity for 6-12 months etc). • Bearing in mind this is the first year that investors will feel the effects in their tax bill, what is the sense from the market on the severity of the shift in the tax regime?
• Has it been particularly harshly felt given the changes made by the Prudential Regulation Authority (PRA) in 2017? • How important is it to source specialist independent advice with regards to tax (tax specialists, IFA, mortgage broker)? • How do investors seeking finance remain ‘lender friendly’ ie. avoid high LTVs, keeping portfolio details up-todate and to be clear on their strategy as to whether they’re looking for appreciation or regular income. The UK’s largest Council Property Panel 15.30 – 16.30 Points for discussed include: • Effects of Universal Credit. • Landlord licensing and its fees. • Housing benefit payments not being received (either due to a new claim or claim being under review). • What standard does the property have to be in to be let through the council? • Can a tenant find out how much of the rent is likely to be paid before they sign the tenancy agreement?
• Who pays for damage after the property has been returned to the landlord or once a tenant has left. • What repairs are landlords responsible for in a council let property? • Tenants not paying council tax once they have left the property before the tenancy was due to end. • Overpayments of housing benefit. • Not discussing a tenants’ entitlement unless given approval by the tenant. • Rent guaranteed for short term rentals as well as long term rentals. • Be more transparent with landlords regarding problems with housing / closed claims. Informing landlords with updates regarding their tenants / tenancies. Caseworks should be able to give some indication as to what’s going on. • Long term rentals may mean less rent but rent guaranteed and the house gets inspected before and put back as it is (more beneficial) should be the same for short term
• What checks do the councils do on tenants prior to them moving in
The panels are complimentary and are offered on a first come, first served basis upon registration to the event. For more information and to view speakers, exhibitors, seminars, networking opportunities and for your free show tickets, visit landlordinvestmentshow.co.uk
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LANDLORD INVESTOR 34TH EDITION
SHOW UPDATE
David Smith, Economics Editor of the Sunday Times, presenting at part of November's Expert Property Panel, Olympia, London, November 2017 Standing room only. A packed audience watches the Expert Property Panel at Olympia, London. Simon Zutshi, entrepreneur and author of Property Magic, presenting at National Landlord Investment Show, Olympia London. November 2017 From tax advice to investment opportunities, the main thoroughfare at Olympia bustling with activity.
LANDLORD INVESTOR 34TH EDITION
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INDUSTRY UPDATE
TOM ENTWISTLE LANDLORDZONE
The landlord’s lot 8
LANDLORD INVESTOR 34TH EDITION
INDUSTRY UPDATE
It’s the time of year when, just after the Christmas festivities, tenants are more likely to get into arrears with rent payments, and there is often a spike in the number of couples splitting.
It’s an unfortunate truth that life invariably throws up these events as we all come down from the “high” of the Christmas festivities, only to be faced with these unwanted problems at perhaps the most miserable time of year, weather wise that is.
Rent arrears From a landlord’s point of view, rent arrears is perhaps the most problematic. You look at your bank statement online, only to find that a rent payment from one of your tenants has not appeared this month. Panic! If you accept payments by cheque then it’s a matter of waiting on tenter hooks to see if the cheque is just delayed in the post, or it’s not been sent. Taking payments in any other way except banking orders is, in my view, old hat; it certainly beats collecting rent in person, or waiting for cheques to arrive. When a bank payment does not arrive in your account, on the prescribed date,
you know for sure there is a problem. Making sure rent comes in on time goes right to the heart of good tenancy management. It starts with your tenant selection process and the documentation surrounding setting up a new tenancy because prevention is better than cure. But inevitably, some tenants will get into arrears whenever you do, sometimes through no fault of their own, so handling the situation properly and in a professional detached way is important. Though it’s stressful when the rent is not being paid, and you have expenses to pay yourself, getting angry and entering into confrontations is counterproductive. Confrontation can also get you into trouble if you are accused of harassment.
Dealing effectively with rent arrears First thing you should do is contact the tenant by phone, text or email reminding
them that getting into arrears is taken very seriously by you and that ultimately they may lose their home. Secondly, if payment is not made within a few days you should send a rent arrears letter*, which spells out the seriousness of the situation, how you may be able to help with re-scheduling payments and claiming benefits, and advice about debt problems. The letter should contain a rent payment schedule, a spread sheet showing when rent is due each month, what payments have been made, and the cumulative amount outstanding since the tenancy started – send a new schedule every week until the rent is brought back up-to-date. Enclose with this letter a Section 21 notice and a Section 8 notice, both of which may not be used to go to court, but at least it gives you a choice in future to decide which route you use if need be. It also puts the tenants on notice that it is serious, and it starts the clock ticking on these notices – Section 21 is two months.
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LANDLORD INVESTOR 34TH EDITION
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INDUSTRY UPDATE
It’s unfortunate for those involved, but when couples split-up it creates demand for rentals.
Section 21 In England and Wales landlords still have the benefit of the Section 21 no fault eviction process which means that, providing the fixed term has ended (minimum 6 months) the landlord can peruse an eviction claim through the courts. It’s regrettable if it comes to this, but landlords cannot afford to let rent arrears build up too much; it’s just bad management to allow it to happen. There is no doubt that Section 21 is the safe way to go. Section 8 can be used when the fixed term is still in place, though I would always advocate in these circumstances waiting until Section 21 can be used, if at all possible. Section 8 places a huge emphasis on the landlord proving default, the tenant can pay off part of the arrears to stymie an eviction, and the action can be defended. This can result in a legal wrangle and horrendous costs for the landlord, particularly if the tenant can get legal aid and wins the case. Having said that, great care must be taken even with Section 21. A recent case reported to me involved a landlord who made a minor error in his Section 21 notice. The tenant defended and the first court found for the landlord, the judge arguing that the tenant could easily have interpreted the landlord’s intention. However, the tenant, with legal aid, appealed, and the appeal judge found
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for the tenant, landing the landlord with an £8k plus tenant’s legal bill, plus his own legal costs. On the other hand, I’ve come across cases with bills of £15K and £20K when Section 8 goes wrong for the landlord. Responsible landlords don’t evict tenants for no good reason, so the Section 21 procedure is still a great asset to be used as a last resort for serious rent arrears, unlike in Scotland where it’s been removed, and this is now being threatened by the government opposition in England, if they gain power.
Divorce It’s unfortunate for those involved, but when couples split-up it creates demand for rentals, and any landlord with vacant property in January can often secure a very good tenant, albeit often short term. I recall one January we let a property to a lady who had split from her husband over Christmas. But by the time all the formalities had been completed, and she had moved in a few odd items of her furniture, they had reconciled. She never moved in, but as a decent professional person she paid the rent until we re-let, as she was obliged to do. Interestingly, this situation threw up an anomaly: if a tenant does not live in the
property as her main residence, then it cannot be an Assured Shorthold Tenancy (AST). It’s a common law tenancy, so no need to protect the deposit. However, under the Local Government Finance Act 1992, the landlord becomes responsible for paying Council Tax. This can in turn be collected from the tenant, providing the agreement puts that responsivity on to the tenant, as most agreements do.
Condensation The dreaded condensation is the other issue that landlords have to face in winter. The cold weather, coupled with high heating bills, brings on this problem. With musty damp clothes in wardrobes and mould beginning to appear in the coldest rooms, complaints to landlords often result. What are you going to do about it? It’s damaging my health, is often the cry! Unless the property is old, underinsulated and has a history of this, invariably I find condensation results from a lack of heating in the property. Lack of ventilation is often blamed, but who in their right mind will ventilate a house by opening windows when the house is already freezing through lack of heat. This is why tenants who are cold will often block up vents, in my experience.
LANDLORD INVESTOR 34TH EDITION
INDUSTRY UPDATE
A properly heated room will never get condensation, that’s a fact. So a tenant that cannot afford to heat the house to a steady minimum temperature of around 18 to 20 degrees celsius, that keeps all the windows and vents closed when cooking and washing, or when drying cloths on radiators, is pumping out so much steam that black mould becomes inevitable. The great difficulty for landlords, faced with this situation, is that most people, including many “experts”, once they see black mould, think there is only one person to blame – the landlord.
Government has recently suggested that tenants be allowed to sue their landlord whenever a property is unsafe, where it is full of black mould, for example. Granted, in the case of tower blocks such as Grenfell, where the tenants had complained for years about safety, or in HMOs with safety issues, tenants may need more power.
like condensation, the onus of proof is always going to be on the landlord. It is very difficult for landlords to prove they are not at fault, to prove a negative. That brings us back to “expert” opinion. Good luck with this in court.
In the Grenfell case, because the owners, the council in this case, also responsible for enforcing the safety laws, will not sue themselves. And of course lots of social housing falls into this trap. But with a contentious issue
Condensation, the Landlord’s Curse https://goo.gl/sTVHDH
Section 21 Notices https://goo.gl/UVHr26
*A rent arrears letter and other documents are available here: www.landlordzone.co.uk/documents
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LANDLORD INVESTOR 34TH EDITION
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LANDLORD INVESTOR 34TH EDITION
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INVESTMENT
SIMON ZUTSHI
The five golden rules of property investing As this month is the 10th anniversary of the publication of Property Magic, we thought for this month’s article we would ask Simon Zutshi to explain his 5 Golden Rules, which if you follow them, will help you maximise the return on your property investments and minimise the risks.
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LANDLORD INVESTOR 34TH EDITION
INVESTMENT
When I sat down to write the first edition of Property Magic in December 2007, I wanted to create some easy to follow guidelines, on how to avoid some of the mistakes that I had personally made since I started investing in 1995, and the same mistakes which I had see many other investors make since I started the UK’s first property networking meeting in 2003. As the property market has evolved over the past 10 years, I have released new editions of Property Magic, to make sure the content is as up to date as possible. In each new edition I have adapted the content, updated the examples, added more case studies and removed content that was no longer applicable. This month sees the launch of the latest 6th edition which takes into account changes such as Section 24. However, the 5 Golden Rules are still as valid as they were when I first wrote them back in 2007. I want to make sure you really understand the rules and apply them to your investing because you will make more money and minimise your risks of investing.
buy from 1. Always motivated sellers Instead of looking for a property you like and then negotiating with the seller, a smarter strategy is to look for motivated sellers who will be flexible on the price and/or the terms of the sale, and then decide if you want to buy that particular property. If the owner is prepared to sell at a discount for a quick sale, the amount of discount will vary depending on their motivation and the general market conditions. In a rising market you may be happy with a 15% to 20% discount. In a falling market you would want a bigger discount of 25% to 40% to give you more of a safety buffer in case prices come down further. With the uncertainty in the current property market, and potentially lots of landlords looking to sell up early over the next year or so, I think the next 12 to 18 month could be the buying opportunity of the decade. Just to be clear here, I am not saying that you always need to get a discount off the sale price. Sometimes property is already a great buy at the full asking price because it may already have been lowered for a quick sale. This is where knowing the values in your local market is really important so that you can spot a good deal when you see it. Many investors get fixated about buying below market value, which means they could miss out on potentially profitable deals because they don’t think they should pay the full asking price. If it is a good
LANDLORD INVESTOR 34TH EDITION
deal, I will sometimes pay the full asking price and more, especially if I can add value to the property. We also need to recognise that some sellers may not be able to offer you a discount because there is no equity in their property. However, if they are motivated, they may be more flexible on the terms of the sale, for example, when you actually pay them for the property. Price is not the only factor in negotiation. This means you may be able to use strategies such as ‘Exchange with a Delayed Completion’, or ‘Purchase Lease Option’. These strategies only really work if the seller is motivated. When dealing with motivated sellers we want to help them to solve their property related problem, by reaching an ethical win/win solution for all involved.
When you know how to do it, you can easily assess the true rental demand in any area. in an area with 2. Buy strong rental demand You need to accept that as a landlord, you may occasionally have void periods in your property, which is when you have no tenants. During these void periods you have no income, which means you have to cover the costs of owning the property yourself. Your investment then becomes a liability, rather than an asset. However, you can dramatically reduce potential void periods by only buying property in an area with strong rental demand. You want to ensure that if your current tenants decide to leave the property, you can quickly and easily rent it to new tenants at the full-market rent. A general rule of thumb is to buy properties in areas with strong local employment and good transport links with local facilities and amenities. When you know how to do it, you can easily assess the true rental demand in any area, by using the internet to find like comparisons, speaking to local letting agents, and even placing dummy adverts to test rental demand.
If you are not sure about the rental demand in an area, then I would suggest that you don’t buy the property in order to avoid longer than expected void periods, which will cost you money. Due diligence is very important before you make any investment decisions.
for positive cash flow 3. Buy This is a very important rule. As a property investor you should aim to buy investment properties that not only pay for themselves, but also make a cash profit (positive cash flow) each month. There are running costs associated with owning a property, but the basic concept is that the rent you receive from your tenants should more than cover all of the costs. Unfortunately, when markets are booming, many investors will purchase properties which would only just “wash their face”, where the rent would just about cover the monthly costs. Even worse than this, some speculators will buy properties that have negative cash flow, whereby the rent does not cover the monthly costs, in the hope that they will profit by prices continuing to rise. This means that the owners have to subsidise their properties each month, which is not a good position to be in, especially if you have a lot of properties like this. If your investment properties make a positive cash flow each month, then it does not matter if property prices fall in the short term, because you can afford to hold them until the market recovers. One of the reasons many people lost money in the 2008 property market crash, was because they owned properties which they had to put money into each month. If they could not afford to keep subsidising their property each month, then they had to sell. You should only ever buy property where each month there is a profit from the rental income you receive after paying all of the expenses, including mortgage payments, insurance, repairs and management fees. Positive cash flow is king. Although we expect property prices to rise in the long term, if you buy your investments ‘as if prices will never go up again’, you will be forced to buy only properties which give you great cash flow now. Extra cash flow will help you to build up a safety buffer, and help you cover potential rises in interest rates in the future.
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INVESTMENT
The real profit in property is in buying and holding for the long term to benefit from significant capital growth.
for the long-term 4. Invest buy and hold Some investors like to buy and sell property to make a profit. This is called flipping property and can be very profitable in a rising market. However, each time you sell a property you will crystallise your profit, and you will never make any more money from that particular property. Whereas, if you buy and hold, you can make money from the rental profit each month as well as long-term capital growth. This way you work once and get paid forever by that property for as long as you own it. I have sold properties in the past and usually regretted it, having seen how much values go up in the long term. I believe the real profit in property is in buying and holding for the long term to benefit from significant capital growth. The key here is being able to afford to hold it, and this is why Rule No 3 (a positive cash flow) is so important, so that you don’t have to subsidise ownership of the property. If you plan to hold for the long term and your property is rented out creating a positive cash flow, you needn’t be concerned by short-term fluctuations in price. I am reluctant to sell property and will only do so for these four reasons: 1. If the equity tied up in the property is not generating a good return
on investment so I could invest it elsewhere to make a better return. 2. If something has happened to the rental demand in the area since I first purchased the property, and I feel it may be difficult to rent it out in the long term. 3. If I wanted to raise funds to pay down some of my mortgages or build a war chest to make further purchases. 4. If I really needed the cash for whatever reason. If you do sell a property, then I suggest you reinvest some the profit from the sale into another property that will give you a better return on investment. To conclude, I believe it is best to hold property for the long term. That is how you can become very wealthy and pass wealth on to future generations.
a cash 5. Have buffer When talking about Rule No 3, I mentioned investors who had to sell their properties because they could not afford to hold them. A problem I sometimes hear about, is of properties getting damaged or just enduring wear and tear, making them difficult to rent. The landlord may not have the spare cash to make the necessary repairs and improvements and so the property remains void, which ends up costing the owner even more money. This becomes a vicious circle whereby
the landlord can’t afford to make the improvements because he has no rent coming in, and can’t get any tenants because he can’t afford to make the improvements. These landlords often become motivated sellers. The way to avoid this potential problem is to make sure you always have a cash buffer set aside to cover unexpected expenses. In reality, you can get insurance to cover most of the potential issues, including a tenant not paying the rent. However, the more insurance policies you have, the higher your costs and so the less cash flow you will have each month. I recommend you have a cash buffer in place, which you can use if need be. This could be cash in your bank, a clear credit card, or some cash in someone else’s bank that you have agreed you can borrow if necessary. The size of this buffer depends on your personal level of risk. A few thousand pounds per property might be a good idea. This will help you avoid becoming a motivated seller yourself. I do hope you have found this reminder about the 5 Golden Rules useful and if you follow them, I promise you will maximise you return and minimise your losses. Invest with knowledge, Invest with skill. Simon Zutshi
Claim your free copy of the new 6th edition of Property Magic This month I am giving away physical copies of the brand new, revised and updated, 6th edition of Property Magic. All you need to do, is just visit the webpage below, tell me where you want me to send your copy and I will get it posted out to you as soon as they arrive from the printer. We will just ask you to cover the cost of post and packing and I will also send your three brand new property training videos as a thank you for taking action. Why am I giving away copies of my book? Well, I am pretty sure that you will love the book and I hope that you will put a positive review for me on Amazon so more people can also benefit form reading the book. This is a limited offer while stocks last and may be removed at any time so visit this webpage now and claim your copy: www.propertymagicbook.com/get-the-book
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LANDLORD INVESTOR 34TH EDITION
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INVESTMENT
PAUL MAHONEY NOVA FINANCIAL
Millennials: the rentvesting generation 18
LANDLORD INVESTOR 34TH EDITION
INVESTMENT
Rent-vesting: the act of continuing to rent whilst investing in property.
Conventional wisdom says that it is financially savvy to buy and own your own home, but is it really that financially savvy? When it comes to comparing the cost of renting especially in a high-value low yield location like London and the Southeast of the UK compared to buying in that same location, it’s quite clearly cheaper to rent. For example, the average property price in Greater London at the moment is approximately £500,000 and the average yield is approximate 3.5%. This means that the average rent is approximately £1460 per calendar month. Compare this to the average mortgage repayment on that same value property assuming a 10% deposit and therefore a mortgage of £490,000 at an interest rate of 3%, monthly repayments would be £2,323 per month. So, an extra £863 a month to buy your own property. Is it worth it, it’s your property after all? Remember that you don’t own the property, the bank does and in taking this mortgage the buyer has committed themselves to a 90% loan to value mortgage on a particular property and those high repayments, over a 25 year plus timeframe. They have also committed a £50,000 deposit plus stamp duty & legal fees for a property that has been selected using very emotional criteria. The emotional criteria refers to when buying a property that is to be your “home” you need to be comfortable, you need to love the place and therefore the fundamentals of your decision-making process are extremely different to if you were investing in a property for the sole purpose of making money. The location will be selected based on things like the proximity to your work, facilities and amenities that you personally prefer and the style and design of the house that you personally like. This may be completely different to what makes the most sense as an investment which really should be determined by what the greater target market in the
LANDLORD INVESTOR 34TH EDITION
area wants and prefers to generate as much as possible demand in both the rental market and the resale market. Therefore, often the property selected with a commercial and unemotional mindset will perform better from rental yield and capital growth perspective than the property selected with an emotional and personal mindset. I can hear some of you asking, “But isn’t renting a waste of money?” I’m not inferring that people should just rent and do nothing with the £50k plus they would’ve used to buy a “home”. Rent-vesting is all about investing rather than buying a house to live in. Often renting in an area where you’re comfortable and happy and/or an area you can’t afford to buy and/or it may be cheaper to rent as described above can be the best option both financial and from a lifestyle perspective.
Far too many people buy the biggest and the best house they can afford far too quickly because “that’s what people do, isn’t it?” There is a very strong trend toward rent-vesting for millennials who live and work in London, can’t afford to buy or don’t want to commit to where they want to live right now so they invest elsewhere. Renting then Investing in an area that makes the most sense to best utilise their money. For example, using the £50,000 described above to invest in a more affordable location like Manchester that yields 7%+ gross and based on current interest rates
and general expenses this property could be achieving a 10% plus ROI on the money invested. That is £5,000 post-expenses and pre-tax which is a good chunk towards the rent on their London property. Then let’s assume that property also does well from a capital growth perspective, they are most certainly utilising the money in an efficient way whilst living in an area that is convenient and flexible for them. As London property continues to become more unaffordable and the gap between wages and property prices has extended beyond 10 times versus Manchester for example where it is 4.5 times, we expect this trend to continue and more and more rentvesters to continue to rent in London and invest in the North. This is just one more contributing factor driving areas like the North West property market to do extremely well in recent years and expected to continue over the coming years. Far too many people buy the biggest and the best house they can afford far too quickly because “that’s what people do, isn’t it?” They spend their whole life paying the house off which is nice but if they pay off their dream house by the time they retire and all their money had gone into it so they don’t have any investments, they have somewhere to live in retirement but they don’t have any investment/retirement income aside from a dwindling pension which isn’t very useful. We meet with far too many people who are asset rich and cash poor in retirement. This often means they’ll need to sell that dream home they’ve worked so hard to pay off and then invest to generate income which they could’ve done years ago and therefore achieved a lot more financially. If you would like to discuss how this can apply to you or simply know more about how you can invest in property to better your financial future then feel free to get in touch with Nova Financial; www.nova.financial, 0203 8000 600 or info@nova.financial.
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INVESTMENT
ELEANOR HARVEY BUYASSOCIATION
Landlords looking north for investment 20
LANDLORD INVESTOR 34TH EDITION
INVESTMENT
With the South East at saturation point the North has become a beacon for those in search of alternative investment opportunities.
Northern promise London has dominated the property market for many years, with rocketing house prices and rents, as well as consistently high demand in most areas with even the most run-down corners being gentrified. But as prices in the capital and the south-east begin to mature, investors are beginning to look for opportunities elsewhere. Look no further than the north of England… For savvy property investors, location is a vital consideration to ensure you’re getting the most out of your money. Last year, house prices in London went up by just 1%, according to the most recent data from Halifax, which is the smallest increase seen across the whole country and a huge fall from grace on the market’s performance a decade ago. Rental yields have also taken a hit, with eight London boroughs languishing in the bottom 25 postcodes of the UK. The truth is that investors’ London portfolios aren’t performing for them as they once were.
What’s the alternative? The northern regions are now leading the way in the property investment market, as more investors in the south of the country are looking elsewhere for the best for investments. With lower entry points, stronger rental yields and more opportunity for capital appreciation, hotspots such as Manchester, Liverpool, Preston, Newcastle and Sheffield are ripe for the picking for those looking to diversify their portfolios away from the capital and the south. Those with mature London portfolios might now be looking at cashing
LANDLORD INVESTOR 34TH EDITION
in their investments to seek better opportunities elsewhere. Recent statistics revealed that, for the first time in ten years, the number of young professionals exiting the capital is now higher than the number arriving, with 1,136 people aged 30-39 migrating north to Manchester, lured by improving job markets, transport links and amenities, as well as better affordability. More businesses and students are also finding solace in the north, and these opportunities are something that experienced investors cannot ignore. The BBC has had its Manchester headquarters in Salford’s Media City since 2011, bringing with it around 2,700 employees, and the ITV studios are based in the same location with a staff of 750. Other big businesses with major offices in Media City include Bupa and SIS, with the Guardian newspaper also contemplating a move to the city.
Why now? Recent tax and mortgage changes, as well as the slight rise in the Bank of England base rate, are all having a knock-on effect for property owners, and landlords and investors in particular. Portfolio landlords are seeing a crackdown on lending rules that could affect their ability to raise finance, while Section 24 will reduce and ultimately remove the amount of tax relief landlords can claim. These changes could all affect an investor’s bottom line, making it even more essential for investors to make their money work for them.
rates than London and the south-east. In the north-west, Savills predicts that property prices will increase by an average 18.1% over the next five years, more than double that of Greater London, where house prices are forecast to go up by just 7.1% in the same period. It’s the perfect time to invest. At BuyAssociation, we have been promoting northern developments for a number of years now, and we’ve seen a real increase in interest from investors who may previously have had their sights set on the London property market. With so many fantastic opportunities in the north right now, investors who stay ahead of the market and get in early will be sure to reap the rewards.
Last year, house prices in London went up by just 1%, according to the most recent data from Halifax.
Property prices in the north of England are still generally below the UK national average, but are set to rise at higher
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INDUSTRY INDUSTRY UPDATE UPDATE
PETER LITTLEWOOD SOUTHERN LANDLORDS ASSOCIATION
Industry update What is the Government thinking on housing? As we have reported in the news section of our web site (southernlandlords.org/articles) we have a new Housing Minister in the Prime Ministers recent re-shuffle (January 2018). Dominic Raab takes over from Alok Sharma – he departing for the Department for Work and Pensions (DWP) as Minister of employment.
priority. The Dept for Communities and Local Government has been rebranded as the Ministry of Housing Communities & Local Government, and Sajid Javid is now referred to as the Housing Secretary rather than the Communities Secretary. Couple this with the fact that two previous Housing Ministers have senior positions could mean the Prime Minister is finally taking housing seriously. The two senior positions are Brandon Lewis as Chairman of the Conservatives and Gavin Barwell as Chief of Staff to the Prime Minister.
As well as the Prime Minister not allowing an incumbent to have sufficient time to get to grips with their portfolio (this being the 15th Housing Minister in 17 years!) neither Raab nor Sharma are housing experts. Raab is a well-qualified solicitor, specialising in international law and competition law; in fact he moved from the Ministry of Justice to housing. Sharma was an accountant.
Ban on tenant fees WILL raise rents
We’ve not actually had anyone who understands housing since Nick Raynsford in 1997! Raynsford had been a director of Shelter, and had held the position of Shadow Housing Minister for 3 years previously.
The committee recently (Jan 8th) heard evidence from Shelter’s Head of Policy Kate Webb, the University of York’s Centre for Housing Policy Dr Julie Rugg and Professor Ian Loveland from the City Law School.
So the Government has had a succession of Housing Ministers with very little knowledge of housing. But does that matter, as long as they listen to advice.
The debate discussed how legally binding this legislation might be; if so, the likelihood of Local Authorities policing it – in light of everything else they are being asked to do; and the perceived weakness in the proposed housing court/tribunal (details yet to be seen).
On the positive side, Government seems to be giving housing a higher
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The DCLG Select Committee is hearing expert opinion on the proposed ban on agent fees.
The feeling from the experts was that tenants would lose out, either by increased rent to cover the landlords extra costs; and/or decreased services. There is an on-line petition to sign complaining about this, which can be seen on the SLA news section.
Over 11,000 homes have stood empty for at least 10 years, data shows The Lib Dems have conducted research that shows just 1 in 13 councils have used their powers to take over empty properties. The data was collected through a Freedom of Information request and showed that more than 11,000 homes have been empty for longer than 10 years. The fact that so many councils are unable/unwilling to use the powers they already have* is indicative of their problem of too many existing laws/ rules and insufficient resources to allow them to uphold them. We have been urging Government not to introduce any more laws, but to encourage councils to use what they have, especially to stop criminal landlords/ agents • Empty Dwelling Management Orders, introduced in the 2004 Housing Act
LANDLORD INVESTOR 34TH EDITION
INDUSTRY UPDATE
Banning order consultation announced
The end of 'no fault’ evictions?
At the end of the year (Dec 28th 2017) the Government announced the results of a consultation for Banning Orders.
Jeremy Corbyn has pledged to include an end to the Section 21 evictions in the next Labour manifesto.
Banning Orders were introduced via the 2016 Housing Act, but have not as yet been enacted. It is intended that they will come into force on April 6th 2018, and have suggested they will apply to the following:
The Labour leader believes the current rules can lead to the breakup of communities, children having to move schools or travel long distances to stay at the same school, and causes insecurity and anxiety for tenants across England.
• Illegally evicting or harassing a residential occupier in contravention of the Protection from Eviction Act 1977 or the Criminal Law Act 1977; • An offence under the Health and Safety at Work etc. Act 1974 where a person contravenes Section 36 of the Gas Safety (Installation and Use) Regulations 1998; • Failure to comply with a Prohibition or Emergency Prohibition Order under Sections 20, 21 and 43 of the Housing Act 2004; • An offence under Section 32 of the Regulatory Reform (Fire Safety) Order 2005; • An offence under the Fraud Act 2006; • Sentenced for possession of illegal drugs; • Any offence under Schedule 15 of the Criminal Justice Act 2003 (specified violent and sexual offences);
Asked whether abolishing the “no fault” evictions would be part of the next Labour manifesto, he replied: “Absolutely. I am very committed to housing and dealing with homelessness. I think it’s a moral litmus test for the country: do we just put up with so many rough sleepers or do we do something about it. “ Shelter is very exercised about the use of the Section 21, citing it as a large reason for homelessness. Whilst it is true that many landlords do use the Section 21 it is frequently for rent arrears, and they seem to prefer to use this rather than the (correct) Section 8. The SLA has urged landlords to use the Section 8 for some time. Not only does this help to set the record right that landlords are evicting due to arrears, but in fact is faster, if used correctly. Note that Scotland has already abolished the No Fault Notice.
• Anyone losing their immigration status; • Any of the following offences under the Housing Act 2004: – Failure to comply with an Improvement Notice; – Offences in relation to licensing of Houses in Multiple Occupation (HMOs); – Offences in relation to licensing of houses under Part 3 of the Act; – Allowing a HMO that is not subject to licensing to become overcrowded; – Failure to comply with management regulations in respect of HMOs; The full consultation can be seen in the SLA News section.
LANDLORD INVESTOR 34TH EDITION
Extension of mandatory HMO licensing comes closer Earlier in 2017 the Government consulted on extending HMO mandatory licensing, and also legislating on minimum room sizes. At the end of the year (December 28th) they published their response to this consultation. Whilst not 100% definite it looks almost certain that they intend to make changes to come into force April this year.
In short, it is proposed that in England – subject to parliamentary approval to: • extend mandatory licensing to all HMOs (other than Section 257 HMOs and flats in larger purpose built blocks) that are occupied by 5 or more persons in to or more separate households; • introduce mandatory conditions in all licensed HMOs concerning minimum sleeping room sizes and maximum number of occupants; • introduce a mandatory condition in all licensed HMOs concerning the provision of refuse storage facilities. It is anticipated that this will become law April 2018, but has to find parliamentary time to allow this. Under the new licensing regime, the government is introducing minimum space requirements, which mean rooms used for sleeping by a single adult will have to be no smaller than 6.51sqm, and those occupied by two adults will have to measure at least 10.22sqm. Rooms slept in by children of 10 years and younger will have to be at least 4.64sqm in size. The government has also unveiled details of criminal offences that will prevent those convicted from becoming landlords. To help prevent overcrowding, fresh rules enforcing minimum size requirements for bedrooms in houses of multiple occupation (HMO) will be introduced, with those landlords letting properties occupied by at least five people from two or more separate households required to obtain a licence by their local council.
EPC requirements Don’t forget that you might have problems letting your property after April if the EPC rating is below E. There are more details on the SLA website.
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글
LEASEHOLD
LOUIE BURNS LEASEHOLD SOLUTIONS
Court of appeal ruling potentially devastating for leaseholders. Leasehold enfranchisement specialists, Leasehold Solutions, says the landmark ruling by the court of appeal in the case of Mundy v. the Sloan Stanley Estate, is a "devastating outcome" for leaseholders, as they will be forced to pay even more for lease extensions and freehold acquisitions. Louie Burns says landmark appeals court ruling on leasehold valuation is a "devastating outcome" for leaseholders.
cannot be used to calculate the value of a lease extension. An estimated 2.1m homes in England and Wales have leases of less than 80 years.
Leasehold enfranchisement specialists, Leasehold Solutions, says the recent landmark ruling by the court of appeal in the case of Mundy v. the Sloan Stanley Estate, is a "devastating outcome" for leaseholders, as they will be forced to pay even more for lease extensions and freehold acquisitions.
Louie Burns, Managing Director of Leasehold Solutions, said: "This verdict is an absolutely devastating outcome for leaseholders up and down the country, not just those living in Prime Central London. It is so disappointing to see that yet again the courts have backed the interests of wealthy freeholders.
The decision to rule in favour of the Sloan Stanley Estate, a wealthy landowner with numerous freeholds in Chelsea, upholds a previous verdict by the Upper Tribunal (Lands Chamber) in May 2016. The outcome means that an alternative relativity graph developed by James Wyatt of Parthenia Valuations, which would have lowered the costs for lease extensions where the remaining lease length has dropped below 80 years,
LANDLORD INVESTOR 34TH EDITION
"The court's decision to uphold a lower relativity in leasehold valuations means that freeholders will receive even more money from leaseholders, as leaseholders will now be forced to pay more for their lease extensions – to the tune of many millions of pounds. "The valuations model at the heart of this case estimates that leaseholders are currently being overcharged by
£480 million a year. Over the past two decades that's a staggering £9.6 billion that has been taken from householders due to flawed valuation methods that have favoured freeholders at the expense of leaseholders. “Leasehold Solutions has been campaigning for reforms to the leasehold system for the past 15 years, and addressing the inherent failures of existing methods of valuation – which have always favoured the interests of freeholders – has been one of our key arguments. Unfortunately the financial power wielded by freeholders presents a significant barrier to meaningful reform. "The Government has recently said that it is willing to tackle unfair practices in the leasehold market, so it is extremely disappointing that the courts have yet again ruled in favour of wealthy freeholders and their lackeys, all of whom have a vested interest in maintaining the unjust status quo."
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VIEWPONT
MARIE PARRIS
Common mistakes that landlords (and some agents) make
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LANDLORD INVESTOR 34TH EDITION
VIEWPOINT
Pitfalls that will cause you hassle and cost you more money.
Property management has become a lot more detailed, more paperwork, more laws and regulations to know and landlords need to ensure they align themselves with experienced managing agents and not those who are clueless and sometimes complicit in their actions. Recently I went to a landlord forum (it will remain nameless, but we manage many units in their borough and I wanted to get better acquainted with their licencing team), but the head of their homeless unit was giving out totally incorrect information regarding the eviction process and forms to use. As the landlords scribbled her every word down, I could not sit there in silence and say nothing. So when appropriate and as nicely as I possibly could, I had to correct and clarify her comments. As a result (and definitely not my intention), a number of landlords approached me with a myriad of different issues they were experiencing. So this article is inspired not only for those landlords who I met that day, who are doing the very best they can, but hoping it will assist the community of self-managed landlords and of course some of those agents who just do not have the knowledge!
are (Right to Rent) and numerous other things. You must check their affordability. To use multiples to qualify someone’s ability to pay rent is wrong on all levels. Most agencies and tenant reference companies use this formula, it works in the following way 30 x the monthly rental. So they will qualify a tenant’s affordability if they meet this simple criteria which is utter nonsense and probably explains why over 50% of landlords (and it will get worse if you continue to use this formula) are in rent arrears. Proper affordability of your potential tenants should be done by collecting all the information of income and expenditure and verifying and seeing what is left. Let me put it another way. If you loaned a friend £2,000 and he said he would pay you back £200 per month for the next 10 months. However, after all his expenditure was deducted from his income (and recently he had a rent increase) that left him with a surplus income of £300 and one needed to buy food/travel and other things – please someone tell me sensibly how will he afford to pay you back £200 per month? Ahh, you get it! This is why multiples will never work when assessing true affordability.
Serving the wrong Section 21 Notice on an AST (assured shorthold tenancy) that started after 1 October 2015
Opting for the cheapest letting or management fees. There is a lot of paper work and lot more rules and it is not just about good systems and procedures in place but the character of those managing. A fair mix of assertiveness and charm combined with an overdose of legal and regulation requirements are other pointers to consider when using a good management or letting agent in today’s rental market.
No proof that the deposit, prescribed terms and information to tenants has been served to tenant(s) within 30 days. Not keeping a written/typed log of repair issues (which is law for any AST since 1 October 2015 as part of the Deregulation Act). Tenants can put a counterclaim when evicting them, to say there are outstanding repair issues which will delay the process. You cannot back up verbal conversations. The process of reporting repairs should also be written in your tenancy. Not sending the How to Rent Booklet and not requesting the consent of the tenants depending on how you are sending it. Beware! Not doing thorough referencing before you allow your tenant(s) into your property. It is imperative that as well as checking they are who they say they
LANDLORD INVESTOR 34TH EDITION
Not thinking outside the box. Think about the different ways to rent your property, consider your own network, incentivise your current tenants they have friends. Recently, one of my let only clients, informed me that one of their long standing tenants were moving on and if we could find new tenants for him. The tenants needed a slightly bigger property as they had a baby. It transpired that they were probably looking when the same landlord in his own portfolio had a property vacant that would have been excellent for them. Because he is not managing in the most effective way, an email to inform current tenants what
is available in your own portfolio would have saved this landlord over a thousand in letting fees. It is not only working professionals and students that make good tenants, but think about the retired population or those with special needs. In doing so make sure you are not breaking any terms of your mortgage agreement or licencing conditions first. Not continually educating yourself and keeping abreast of all the new laws and regulations that will impact on your rental. The next big thing is the change of licensing of HMO properties – effective April 2018. Which will mean all two storey properties will now need to be registered if they have 5 sharers. Can your current income incorporate this change? If not, act now, reduce your sharers to 4 or analyse how you will incorporate yet another expenditure that us landlords have to endure along with section 24, stamp duty increase, licensing costs, banning of tenant fees (impact will be on landlords), and the fact that there are now longer void periods due to the less tenants moving as frequently and Brexit. Marie Parris is CEO & founder of George Ellis Property Services.
Proper affordability of your potential tenants should be done by collecting all the information.
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BUY-TO-LET UPDATE
ANDREW TURNER COMMERCIAL TRUST LIMITED
Could 2018 see momentum build for the second charge loan? 30
LANDLORD INVESTOR 34TH EDITION
BUY-TO-LET UPDATE
Second charge loans have been around for a while, but the flexibility they can bring when it comes to financing could result in this form of loan growing in popularity, in a more regulated buy to let environment.
The Prudential Regulation Authority (PRA) rule changes in 2017 have resulted in stricter lending criteria for many buy to let borrowers. Data released by the Finance & Leasing Association showed that second charge mortgage business increased in May 2017 by 26% in value and 29% in volume, year on year. 2017 also saw six consecutive months of growth in second charge mortgage new business volumes, before the market fell marginally in September, along with the rest of the mortgage industry. So what is a second charge mortgage? A second charge loan enables you to use any equity (the difference between the value of your property and the amount that is outstanding on your loan) as security against another loan, without changing existing borrowing against the property. Whether you are looking to raise funds for home improvements, as a deposit for another property, to extend a lease on a property or for debt consolidation purposes, without affecting your current mortgage, then a second charge loan could be one option. Second charge mortgages are not suitable for everyone wishing to capital raise, but can offer a number of advantages, including: • A typically faster application process than for a standard mortgage; • Typically more lenient lending criteria;
LANDLORD INVESTOR 34TH EDITION
• A second charge loan means you can keep your first charge, which can be very useful if you are repaying on a low interest rate or where other types of refinancing might mean you incur Early Repayment Charges; • Mitigating the additional costs typically associated with remortgaging, such as transferring lenders and different interest rates and charges. Before taking out a second charge loan it is always important to ensure that your existing mortgage lender will accept this type of financing. James Briggs, National Sales Manager at Precise Mortgages has seen significant impetus for second charge loans in recent months. “Second Charge Loans enjoyed continued growth in 2017. According to figures released by the Finance and Leasing Association towards the end of the year, the market grew by 10% between November 2016 and 2017, with borrowing estimated to be around £1 billion. “The number of mortgage brokers and financial advisers offering Second Charge Loans is also growing. This is helping more customers to cost effectively raise capital on both residential and buy to let properties as more advisers recognise the viability of these products.
“In summary, I expect to see Second Charge Lending continue to go from strength-to-strength in 2018 and beyond,” he commented. The buy to let market continues to evolve thanks to the raft of rules and regulations that have been brought in. Factor in the uncertainty of Brexit, continued rising inflation and the Bank of England’s hints of possible future base rate rises and it comes as little surprise that many lenders are looking to innovate with their loan products in a competitive market place. That is why, with the tighter rules applied by many lenders to buy to let applications during 2017, second charge loans could increase in demand in the coming twelve months.
A second charge loan enables you to use equity as security against another loan.
“Compared to recent years, the cost of borrowing, in terms of the interest rates available, has reduced significantly and in 2017 the appreciation for these products, from financial services intermediaries, was at an all-time high.
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IN THE NEWS
IN THE NEWS THIS MONTH...
Mayor invests £15m to buy homes for homeless Londoners + New fund aims to make up to 330 properties available for homeless people across the capital + Mayor launches second round of grants for rough-sleeping support services
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LANDLORD INVESTOR 34TH EDITION
IN THE NEWS
The Mayor of London, Sadiq Khan, is investing £15 million in a new scheme that aims to purchase hundreds of homes for Londoners who have been, or are at risk of becoming, homeless. The scheme will purchase around 330 existing private properties in good condition, and let them at genuinely affordable rents to some of the most vulnerable Londoners, helping them to get back on their feet into independent living. The properties will offer individuals and families who are ready to move on from hostels and other temporary accommodation and live independently in a stable, affordable home. Tenants will also be able to access wider support to help them move into training and employment. The scheme, “Real Lettings Property Fund 2” will be run by Resonance Limited, a social impact investment company, and homelessness charity St Mungo's. On top of City Hall's £15million, the London boroughs of Croydon, Lambeth and Westminster have committed a total £45 million to the scheme. Resonance hope to get the support of other boroughs and investors to reach the fund target of £100 million. The scheme builds on the success of two similar projects already being run by Resonance and St Mungo's. All three funds have housed approximately 1,300 people to date, with data from the longest-running fund showing 100 per cent of tenants sustained their tenancy for more than six months, and 44 per cent now in employment. Sadiq also announced today that the second round of grants from his Rough Sleeping Innovation Fund are now available to bid for. The fund, which Sadiq launched last April, provides grants to small-scale, innovative projects to pilot original ideas and develop new services. Seven projects were awarded grants in the first round of funding, including Beam, the world's first scheme for crowdfunding employment training for homeless people, helping them to progress towards stable, paid work. The second round of £200,000 is now available, and the Mayor is urging potential projects across the capital to apply by visiting the London.gov.uk website. Grants range from £10,000 to £80,000 and bids that include match-funding will be prioritised. All bids must be supported by a London borough, and the next round of projects will start in April 2018. With more than 8,000 people seen
LANDLORD INVESTOR 34TH EDITION
sleeping rough in London last year, these schemes are just part of the Mayor's work to tackle homelessness and rough sleeping. Sadiq is investing £3.15 billion secured from Government into new affordable homes, and £9 million a year into services to tackle tackling rough sleeping. In December, he brought together 18 charities tackling homelessness into one coalition to launch the “No one needs to sleep rough in London” campaign. Offering Londoners one single donation point, the campaign has since raised over £94,000, with the money being split equally between these charities. The number of people seen sleeping rough between October and December 2017 was seven per cent lower than during the same period in the previous year – down from 2,818 to 2,630. This was mainly due to a fall in the number of new rough sleepers, down by 14 per cent to 1,121.* The Mayor of London, Sadiq Khan, said: “The scale of homelessness in our capital is shocking and we are doing everything we can to tackle it. By providing opportunities for homeless Londoners to leave temporary emergency accommodation, we can help them move on with their lives in an affordable, stable home of their own. I will do all I can with local authorities, social enterprises, and innovative new projects to help people who are homeless or sleeping rough - but we also need Government to play its part. They must fully fund services to help people who are homeless or at risk of becoming so, and tackle the long-term causes of homelessness including by investing more in social housing and reconsidering many of their changes to the welfare system.” Reductions in the Local Housing Allowance, alongside the total benefit cap, have contributed to a growing number of households across London facing homelessness**, with local authorities unable to cope with the demand for temporary accommodation. The Real Lettings Property Fund 2 is available for a maximum of nine years and the Mayor's funding, invested from his Affordable Homes Programme Innovation Fund, will be repaid on a quarterly basis from rental income and the property sales at the end of the term. Susan Fallis, Director of Real Lettings, said: “This investment will enable us to offer many more individuals who have been rough sleeping, or who are at risk of rough sleeping, a place to call
home. Real Lettings and St Mungo's are pleased to be working with the Mayor and Resonance in helping prevent homelessness and support those who are moving on with their lives, into work and longer-term homes.” Daniel Brewer Managing Director of Resonance says “We are delighted that City Hall has joined other pioneering authorities, Croydon, Lambeth & Westminster, in investing into the RLPF2. In partnership with Real Lettings, a social lettings agency of St Mungo's, our ambitious Homelessness Property Funds have already bought over 600 homes nationwide, housing more than a thousand people who were homeless or vulnerable to homelessness. We are thrilled that City Hall has caught the vision.” A 2015 Homelessness Link survey showed that those in London experience greater difficulty in moving on from hostels or B&Bs, with 51 per cent of those ready kept waiting for over six months, compared to 27 per cent across England. Joe, 37, was sleeping on and off occasionally for two years, after becoming homeless due to alcohol and drug addiction. After being referred to Beam by Thames Reach, Joe was supported in finding the right professional skills course to become a crane rigger and launching an online crowdfunding campaign profile. Joe successfully raised the money for his training in five days, and passed with 95 per cent. He is currently living in his own flat, applying for work and acting as an ambassador for Beam. He said: “Years back, I worked in construction and this year I passed my 'Construction Skills Certification Scheme' exam. I want to become a crane rigger which means working on the ground to assist the crane operator to move loads. This is the right role for me as I've got relevant experience and the pay is decent and will allow me to get off benefits.” Kate Bowgett, Director of Advocacy at Groundswell, said: “The Mayor's Rough Sleeping Innovation Fund supports Groundswell's Women's Homeless Health Peer Advocacy Service; training up women who have been homeless themselves, to support homeless women to access healthcare. The average life expectancy for homeless women is just 43 years – four years shorter than homeless men, and 37 years shorter than the general female population, so this is a vital project. This funding is allowing us to make a real difference in women's lives.”
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A new perspective for modern living 36
LANDLORD INVESTOR 34TH EDITION
ADVERTORIAL FEATURE
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However, the concept soon evolved when the founders identified a gap in the market for creating a onestop furnishing solution for the residential property industry. This was the turning point and in 2004 BTL Furnishings became LOFT Interiors, which today is a modern, ethical, socially and environmentally conscious business. LOFT Interiors believes strongly in its employees’ ability to bring the visions of its customers to life. With a strong focus on the private rented sector (PRS), LOFT Interiors not only provides furniture sourcing, delivery, installation and after-care services, but also invests heavily in its own inhouse interior design team. Diversification has been a key part of the company’s development. In 2009, LOFT Interiors moved into the student accommodation market with a dedicated Student-Furniture. co.uk brand, offering a removal and replacement service to purpose- built student accommodation (PBSA) operators, developers, universities and facilities managers. Since inception, Student-Furniture has constantly evolved as a brand with research and development of its products to ensure the furniture offering is stylish, robust and also keeps up with the latest student living sector trends. The rapid growth of LOFT Interiors shows no sign of letting up. The
LANDLORD INVESTOR 34TH EDITION
company has invested £1m back into the business in 2017, improving infrastructure and developing its employee base. This has enabled LOFT Interiors to create another new brand – IIO IIO Living – the brand will provide design-led furniture and accessories for the Build to Rent (BTR) sector, delivering an efficient and cost-effective solution for largescale interior fit-outs, including a dedicated interior design service. LOFT Interiors are gaining a foothold within London with the launch of the new warehouse and showroom facilities in Q1 of 2018, that matches the size and scale of LOFT Interiors’ Manchester base. In keeping with trends within the employment market, the Fitzrovia showroom will feature a co-working space aimed at London’s design community, providing both a place to work and network for young designers. The 25,000 sq ft warehouse will be located in Zone 3 of west London – a prime location for LOFT Interiors to service London’s PRS, PBSA and BTR sectors with next day deliveries.
The rapid growth of LOFT Interiors shows no sign of letting up. The company has invested £1m back into the business in 2017.
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TENANCY DEPOSIT SCHEME
MIKE MORGAN TENANCY DEPOSIT SCHEME
A tail of destruction It is thought that around 1 in 2 households in the UK now own a pet. It is therefore important when creating a new tenancy where the tenant(s) have a pet, to have a written record of the agreement to avoid potential conflict at the end of a tenancy. Letting the cat out of the bag In a case seen by TDS, the landlord submitted a claim for damage to two sofas and internal wooden door frames caused by a cat living in the property. The tenant was in agreement that the landlord should be compensated for damage, but disputed the claimed amount. The evidence provided included a signed tenancy agreement with a deposit clause specifying what the deposit could be used for as well as a clause stating that the tenant could not keep any animals at the property without the landlord’s written consent. A signed copy of the check-in report was provided stating that the two sofas were in ‘good condition’ at the start of the tenancy, but did not reference any doorframes. The check-out report detailed ‘damage to both sofas: scratch and puncture marks on both sofas caused by animal’ and ‘animal scratches across all internal doorframes’, as well as including dated
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photographs showing tears in the sofa fabric.
which was £300, despite the contractor’s quote exceeding this amount.
The tenant admitted he had kept a cat in the property without permission from the landlord, breaking the terms of the agreement, but argued that the amount being claimed was excessive. The tenant had agreed to pay £250 from the £300 deposit prior to adjudication and felt this was sufficient. A quote provided by the landlord, on contractor’s headed paper, showed £600 for re-upholstering the larger sofa. The landlord also stated that they wished to claim a further £200 for the smaller sofa but provided no quote or invoice.
Cataloguing evidence
While some of the claim was not supported by evidence, such as the doorframes, based on the evidence provided the adjudicator felt it was appropriate to award the full amount in dispute to the landlord for the sofas. However, the adjudicator could only award up to the amount of deposit held,
There are a number of key points that landlords can take from this case. While it’s important to specify in the tenancy agreement if a pet has been agreed between the parties, a breach of this agreement is not reason enough for an adjudicator to make an award. An adjudicator can only make an award to compensate any financial loss, so landlords would need to evidence how this breach resulted in a financial loss. It is also important for an adjudicator to know the total amount a landlord is claiming, even if it exceeds the deposit. Although TDS cannot award more than the amount of the deposit protected, should part of your claim be unsuccessful, the adjudicator can then consider other listed claims or deductions.
LANDLORD INVESTOR 34TH EDITION
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