LANDLORD INVESTOR LANDLORD | PROPERTY | INVESTMENT
38TH EDITION | 2018
YET ANOTHER BLOW FOR LANDLORDS / MAKING TROUBLESOME FLATSHARES A THING OF THE PAST / POOL PENSIONS WITH YOUR PARTNER / RENT PAYMENTS IN CREDIT SCORES / THE MOST IMPORTANT THING YOU NEED TO BE A SUCCESSFUL PROPERTY INVESTOR / PROPERTY INDUSTRY REACTS TO LONGER TENANCY PROPOSALS / MARKET UPDATE / 4 OUT OF 5 LANDLORDS RISKING THEIR INCOME / WHAT CAN LANDLORDS EXPECT FROM THE AUTUMN BUDGET?
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WELCOME Welcome to the 38th Edition of Landlord Investor Magazine. I hope you've had a good summer, it's been a busy one for us with a bumper show at Olympia and the launch of the National LIS Awards in November. In this issue Tom Entwistle looks at a proposed new tenancy regime from the government. Simon Zutshi reveals the most important thing you need to be a
C O N T E N T S
4
EXPERT ADVICE Yet another blow for landlords
11
INVESTMENT The most important thing you need to be a successful property investor!
successful property investor. Paul Mahoney looks at understanding what type of returns are best for you and your goals. Peter Littlewood give us a round-up of the latest regulatory news. Tom Gatzen explains how we can ensure troublesome flat-shares become a thing of the past. Gareth Bertram advises on how to pool pensions with a partner. Steve Cox spills the beans how 4 out of 5 landlords are risking their income, and I'll be commenting on how the property industry reacts to longer tenancy proposals, how rent payments appearing in credit scores could become a reality and what landlords can expect from the autumn Budget.
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INVESTMENT Understanding what type of returns are best for you and your goals
16
MARKET UPDATE
We hope you enjoy this edition.
The latest market news
After our North London show we head to the North West with two hugely exciting shows at Liverpool Football Club on September 19th and Manchester United Football Club on October 9th.
18
RENTAL INSIGHT
The shows boast excellent speakers and will have exhibitors from every aspect of buy-to-let including; tax, finance, legal, investment opportunities. As always we're booking-up fast so reserve your complimentary tickets by visiting www. landlordinvestmentshow.co.uk.
Making sure troublesome flatshares are a thing of the past
22
BUDGET UPDATE What can landlords expect from the autumn Budget?
24
PENSIONS Discover how to pool pensions with your partner
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LANDLORD INVESTOR MAGAZINE
TENANT SUITABILITY
Editor Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors Gareth Bertram Paul Mahoney Peter Littlewood Simon Zutshi Steve Cox Tom Entwistle Tom Gatzen Tracey Hanbury
Design Marc Riley Advertising Beverley Meliniotis
Rent payments in credit scores - when could this become a reality? Follow us @LandlordInShow @LandlordInvestmentShow Contact Telephone: 020 8656 5075 landlordinvestmentshow.co.uk Tenants History Ltd, 27 Stafford Road, Croydon CR0 4NG
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.
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INSURANCE 4 out of 5 landlords are risking their income
30
INDUSTRY INSIGHT Property industry reacts to longer tenancy proposals
Meet the team TRACEY HANBURY
BEVERLEY MELINIOTIS
T: 0208 656 5075 M: 07931 308 875 tracey@landlordinvestmentshow.co.uk
T: 0208 656 5075 beverley@landlordinvestmentshow.co.uk
STEVE HANBURY
CHARLOTTE DYE
EDITOR & SALES DIRECTOR
DIRECTOR
T: 0208 656 5075 M: 07429 683 046 steve@landlordinvestmentshow.co.uk
ADVERTISING SALES MANAGER
HEAD OF CLIENT RELATIONS AND OPERATIONS T: 0208 656 5075 M: +44 (0)7931 308 856 charlotte@@landlordinvestmentshow.co.uk
ALICIA CELA
MARC RILEY
ACCOUNTS
DESIGN MANAGER
T: 0208 656 5075 accounts@landlordinvestmentshow.co.uk
T: 0208 656 5075 marc@landlordinvestmentshow.co.uk
LES HANBURY
OLLIE HANBURY
DIRECTOR
HEAD OF SECURITY AND ENTERTAINMENTS MANAGER
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 8 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 38TH EDITION
EXPERT ADVICE
TOM ENTWISTLE LANDLORDZONE
Yet another blow for landlords A proposed new tenancy regime 4
LANDLORD INVESTOR 38TH EDITION
EXPERT ADVICE
Long Term Tenancies A three-year minimum tenancy? Is this really something landlords and tenants want, as the government seem to imply with its latest proposal, or will it be the last straw for many private landlords? The government is seriously looking at introducing a mandatory 3-year residential tenancy. It is one that would considerably enhance the security of tenure for tenants in England today, but will it tip that balance so far in favour of tenants that more and more buy-to-let landlords decide they’ve had enough? It would undoubtedly alter the delicate balance between residential landlords’ and tenants’ rights that have existed in their present form, relatively effectively in England since 1988. The government has suddenly changed its tune, from a stated policy a couple of years ago of encouraging voluntary longer-term tenancies, to one of compulsion. The reason, it seems to me, is more likely to do with political reality than any genuine desire to improve the workings of the private rental market, or any consideration of the landlords’ position. The Conservatives need those tenant’s votes in the future, because they will count in large numbers at the next general election. Shelter, the homelessness charity, would go even further; it is now arguing for a new mandatory fixed-term five-year tenancy. This idea to be introduced for all tenancies in the private rented sector would have annual rent increases linked to inflation – one suggestion most landlords would welcome. But under Shelter’s plan, as with this new government’s proposal, tenants could up and leave at any point in the term with two months’ notice – something landlords definitely would not welcome. On the other hand, the landlord would be tied in for the duration. In Scotland a radical new tenancy regime with an unlimited length tenancy was introduced last December. That gives tenants in Scotland considerably more protection. Is this to be the direction of travel for the rest of the UK? Are we headed back to the pre-shorthold rentcontrol, lifetime tenancy days? If this is the case most landlords in England would strongly oppose it, and many would be voting with their feet, in my view! Consultation Under the new Housing Minister, James Brokenshaw, MP, the Department for Housing, Communities and Local
LANDLORD INVESTOR 38TH EDITION
The government has suddenly changed its tune, from a stated policy a couple of years ago of encouraging voluntary longer-term tenancies, to one of compulsion.
Government (HCLG) has launched a consultation which, by the time you read this, will have closed on the 26 August 2018. As the blurb goes, “ministers are seeking views from landlords, tenants and related organisations about the most effective ways to tackle obstacles to introducing longer tenancies.” The very title is ominous: “Overcoming the Barriers to Longer Tenancies in the Private Rented Sector.” So the way this reads is that the consultation is not so much about whether or not to introduce the 3-year mandatory term tenancy, but how to overcome obstacles to its introduction, an astounding admission! It’s not a consultation then, it’s a confirmation exercise, and one which aims to provide a solution to the government’s problem. The Government’s argument As the introduction to the consultation states, “The private rented sector has changed dramatically over the last 30 years. The proportion of households has doubled. Half of them are families with children, and older people, looking for a long-term home. And yet one striking characteristic persists. The majority of tenants are on short term contracts - unsure if they can afford the next rent rise, or whether they might be asked to leave if they make a complaint. This instability and lack of power is bad enough, but an unfortunate few also bear the cost of unplanned and unwanted moves.”
Well yes, the private rented sector has grown substantially and more families rent, but they are still a small proportion of tenancies as a whole, and in fact many private landlords have become surrogates for the social rented sector. But private landlords don’t have the resources of a local authority; they are not in a position to subsidise long-term tenants, and governments should not expect them to. Local councils up and down the country have rent arrears deficits at astronomical levels. The consultation goes on to argue that landlords would be better off with long-term tenancies, free from the “hassle of unnecessary renewals”. The minister thinks that a “new model” tenancy is needed, one which “balances tenants’ need for protection, with landlords’ needs to regain their property when their circumstances change,” but I am keen to hear your views,” says the new minister. Well fine, landlords would welcome long tenancies because they don’t have the hassle of renewal. That’s exactly what every responsible landlord aims to achieve. They welcome with open arms tenants that pay their rent on time and look after the property. They do everything in their power to make these tenants’ stay as long as possible. Unfortunately the world of landlording is never so perfect. A small proportion of tenants don’t behave like that, they represent a major risk for small-scale limited resources landlords, and need to be removed, and quickly, there’s no other way around it. The proposal as it is currently framed does not address this problem because removing a tenant without the possibility of a major loss of income is simply not possible. The Proposed new tenancy: The government’s suggested longer term tenancy model is a three year tenancy with a six month break clause. The main components would be: a. A three year tenancy but with an opportunity for landlord and tenant to leave the agreement after the initial six months if dissatisfied. If both landlord and tenant are happy, the tenancy would continue for a further two and a half years. b. Following the six month break clause, the tenant would be able to leave the tenancy by providing a minimum of two months’ notice in writing.
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EXPERT ADVICE
c. Landlords can recover their property during the fixed term if they have reasonable grounds. These grounds would be in accordance with the existing grounds in Schedule 2 of the Housing Act 1988 and would include antisocial behaviour and the tenant not paying the rent. Landlords must give the tenant notice (which would follow the notice set out in section 8 of the Housing Act 1988 for the ground or grounds used). Additionally, there would be grounds which covered landlords selling the property, as is possible in the current model tenancy agreement, or 26 moving into it themselves. These grounds would require the landlord to provide at least two months or 8 weeks’ notice in writing. d. Rents can only increase once per year at whatever rate the landlord and tenant agree but the landlord must be absolutely clear about how rents will increase when advertising the property. Any agreement on rent should be detailed in the tenancy agreement.
of rogue landlords really do need to be clobbered.
The private rented market has grown exponentially through the diligence and hard work of many thousands of smallscale landlords.
e. Exemptions could be put in place for tenancies which could not realistically last for three years, for example, accommodation let to students or holiday lets.
where there’s absolutely no certainty of possession, unlike the section 21 accelerated route which is a mandatory paper based process; one that’s been, in my view, highly effective and balanced, and largely responsible for the growth of the private rented sector.
A Biased Survey
The Politics of it all…
The proposal is not quite as severe as the Scottish model, with its unlimited tenancy term, but it’s not too far from it. My issue with the consultation survey itself is the presumption throughout that landlords will welcome this change with open arms. Question after question presumes benefits to them, and what do you think xyz is needed to make it a success? I don’t think I’ve seen such a biased survey in all my career.
Yet again it would seem that the government is caving in to media pressure and political reality, that is, a large cohort of tenants now representing a huge voting bloc, one which will greatly concern the Conservatives when election time comes around.
This proposal would be a major transition away from the current shorthold tenancy where the landlord can use the section 21 no fault eviction process after the initial 6 months, that’s providing the fixed term has expired. Basically, under the current rules, it means the landlord has a degree of control and protection, should things go wrong, something he or she would lose under this longer term tenancy idea. When relying on section 8, which is being suggested, the onus falls on the landlord to prove that a tenant is in default, in a court of law – unlike with section 21 a court hearing is mandatory. Given the current state of the justice system, with court closures up and down the country, section 8 can be a long drawn-out and expensive process for landlords. It offers a largely discretionary eviction process
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The private rented market has grown exponentially through the diligence and hard work of many thousands of smallscale landlords investing their money into a sector. This was because the sector offered better returns than other asset classes and savings routes. In the process these landlords have provided much needed accommodation for those unable to afford to get themselves onto the housing ladder. For several years now governments have provided nothing but discouragement for the small-scale landlord, while at the same time feigning gratitude for what they do. Through multifarious legislative measures, including the introduction of successive rounds of new safety and tenancy regulations, restrictions on mortgage interest relief, and a stamp duty surcharge for second homes, the government has clobbered the landlord. Don’t get me wrong, some of this has been sorely needed, the small minority
Even under the current regime the court system is so slow and ineffectual that when tenants are months in arrears it can take an inordinate amount of time to obtain possession. If you were to transpose this to a long-term tenancy situation using only section 8, those unfortunate landlords with a bad tenant would find themselves many more thousands of pounds out of pocket, before the bad tenant can be removed. Landlords generally are not so concerned about void periods, it’s the time it takes to regain possession when it all goes wrong that is the big worry, the big risk that many will no longer be prepared to tolerate. By all means Mr Borkenshaw, encourage longer leases, and perhaps that could be done via some form of tax concession, but if private landlords find the odds stacked too far against them they will simply sell-up and move on. This won’t solve the housing crisis, it will simply make it worse. And don’t think the gap is going to be filled with corporate investment, large-scale developers, housing associations, and council housing. Local authorities don’t have the money or inclination to do so, and corporates currently operate in no more than around 2% of the market. Yes, there are more families renting. So why not introduce a longer-term tenancy for families, the “family tenancy”. Those landlords who want to enter into such a long-term protective tenancy would be completely at liberty to do so. On the other hand, the vast majority of tenancies, the short-term tenancies which benefit many thousands of tenants and landlords, given the flexibility they provide on both sides, could carry on as before. Without the introduction of tenancy tribunals to hear tenancy disputes in a timely and even handed fashion, and a more balance approach where tenants as well as landlords are tied into a contract, something akin to the Australian system, how can this new proposal be made to work effectively? And does the government have the resources to set-up a network of property tribunals? No, I don’t think that most landlords will welcome a mandatory longer term tenancy. Tom Entwistle is Editor of LandlordZONE® and an experience residential and commercial landlord.
LANDLORD INVESTOR 38TH EDITION
LANDLORD INVESTOR 38TH EDITION
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homeless and hungry
Please support Steve Hanbury On Monday 29th October 2018 I will be sleeping under the London sky at Lord’s Cricket Ground for one night. I wish and hope to raise as much money as I can to help the homeless and those who are living in poverty. I will be bedding down with CEOs and senior level executives to raise awareness and funds, each pledging to raise over £2000 to fight homelessness and poverty in London. You can help support me and this deserving cause here: www.justgiving.com/fundraising/stevenhanbury All donations gratefully received.
Thank you Steve Hanbury Co-Founder, Landlord Investment Show
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INVESTMENT
SIMON ZUTSHI
The most important thing you need to be a successful property investor!
LANDLORD INVESTOR 38TH EDITION
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INVESTMENT
Last month marks the 23rd anniversary of Simon Zutshi’s first property purchase back in 1995. We asked him to reflect on his 23 years of investing experience, 15 of which he has been teaching other people how to be successful investors, to share with you what he thinks is the most important thing you need to be a successful investor.
In this month’s article, I want to share with you why some investors are incredibly successful and achieve their property goals in record time, whilst others just fail to get the results they want, and usually end up giving up. There are of course many factors that will contribute to your personal success or failure, however I do believe there is ONE thing which is more important than anything else. Now before I explain what this is, I need to put it into context, because most people think they know this, but I would suggest that they don’t really know it, otherwise they would have all the success they desire. So bear with me here. I really want you to think about what I am going to share with you in this article because, I can honestly say, that this one thing which could make all the difference for you, if you really get it and also take action to work on it. I often ask investors “What is the biggest challenge you face” There are many different answers to this question, but the ones I hear most frequently are: 1) I can’t find any good deals in my area, and 2) I don’t have the money for deposits. These are very common challenges faced by many investors. Let’s face it, if you can’t find good deals in your area, or you don’t have any money to buy them, even if you did find them, then you are not going to get very far in your investing, or are you? How come there are some people who are finding deals in your area? How come there are some people on my Property Mastermind, who have no money, in fact they had to borrow money to do the Mastermind, and yet by the end of the 12 months they have replaced their income and built a cash generating property portfolio using none or their own money? Well it all comes down to this one thing.
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Are there deals in your area? Let’s deal with each of these challenges in turn. First of all, are there any good property deals in your area? I remember one year, when I was speaking and exhibiting at the Property Investor Show at Excel in London, I was standing on the property investors network stand chatting to people, then this one guy approached me, introduced himself as Tony, and politely asked if he could ask me a question. I said “Sure Tony that’s what I am here for, what do you want to know?” Tony then went on to explain how he had read my book “Property Magic” and although he had enjoyed it, he said that he had one major problem with my book. “What’s that Tony” I asked. Tony replied “Well where I live, I don’t believe there are any motivated sellers, so you can’t buy property Below Market Value!” I was not really surprised by his statement, as I must have heard it a thousand times before. So I asked Tony “Oh, so where do you live?” to which he replied “Bournemouth, and it’s a very expensive area”. Then I said something which took Tony by surprise. I said “Well that explains it. You’re absolutely right, there are no motivated sellers in Bournemouth” Tony appeared to be shocked by my answer. I think he expected me to disagree and say that there are motivated sellers everywhere. So I continued. “In fact when I write the next updated version of ‘Property Magic’ I need to add a footnote, which says that there are motivated sellers everywhere, apart from in Bournemouth” He looked even more puzzled, so I continued with a smile. “That’s because, no one has ever been repossessed there, no one has ever lost their job, or got into financial difficulty, or got divorced, or ever died in Bournemouth. That’s why there are no motivated sellers there”.
At this point, I saw that Tony got it. Previously he could not understand why anyone would sell their house for less than it was worth, because he would never do that. Now he realised that maybe he had not been looking at it from the point of view of a seller who for some reason, may need to sell quickly, and so much accept a Below Market Value offer. Tony realised that he could learn something from me and attended our one-day foundation course with his wife. Two weeks after this, he found his first motivated seller in Bournemouth and there has been no stopping him since. Prior to that Tony could not find any motivated sellers because he did not believe that there were any in his area. He did not believe that anyone would sell a house for less than it was worth. As Henry Ford said “If you think you can, or can’t you are right” What you believe will have a massive impact on your results. You will only ever achieve as much as you believe you can. Do you need your own money to invest? The second biggest challenge, that people face all the time, is that they don’t think they can invest because they don’t have enough money. If you do have money to invest, it is always going to be easier for you. But no matter how much you have, at some point you will run out of your own funds which happens to most investors. However, most professional investors don’t use their own money to invest. They use other people’s money. It is important to recognise the thoughts that were going through your head when you read the last paragraph. I want you to read it again and notice what pops up for you. So here we go:“Most professional investors don’t
LANDLORD INVESTOR 38TH EDITION
INVESTMENT
use their own money to invest. They use other people’s money instead.” So what was going on in your head? What were you thinking? When I have done this exercise at live events people have shared thoughts such as “I don’t know anyone with any money”. “Who is going to lend to me?” “I can’t ask anyone for money” “I don’t have any experience” and a whole plethora of self limiting beliefs. The reality is, that if you get good at finding great deals, there are plenty of people who will lend you money or joint venture with you. If you don’t believe this well then you will become stuck and not be able to fund of your deals once your money runs out. Alternatively, you could decide to challenge some of those limiting beliefs.
educate yourself then, you could make some expensive mistakes. But with the correct specialist knowledge, you can mitigate many of the mistakes made by most people.
Stop watching the news or listening to it on the radio. And stop reading the newspaper. They are all full of negativity and will have a detrimental effect on your own outlook on life.
The One thing So you may have guessed it by now, but the one thing that will have the biggest impact on your success as an investor, is your personal belief about what you can do. Let me remind you about a well know example of this. On May 6th in 1954, Roger Bannister was the first person recorded in history to run a mile in under 4 minutes. Many people had tried to run a mile in under 4 minutes, but no one had been able to do it. Most people believed that it was impossible to achieve. However, once Roger had done it, everyone’s belief changed. People realised that is was possible because Roger had done it. Another Athlete also ran the 4 minute mile later that same year, because they now had the belief that it could be done. What is stopping you? The biggest obstacle to you achieving anything you want is your own self limiting beliefs. We all have these beliefs, but you can choose to change your beliefs. First of all, you need to change your belief about what is possible. If someone else has done what you want to do, then at least you know it can be done.
Then you need to change your belief about what you can personally achieve. Just because someone else had done something it does not necessarily mean that you can do it. But if that other person is like you, well then maybe there is just a chance that you could emulate their success. If you don’t believe you can do something, then you won’t bother to take action, you won’t get results and you will have just proved yourself to be correct. However, you can decide to challenge your self-limited beliefs by choosing to create new beliefs. The best way to build your personal belief about what you can do, is by learning from other investors who are just like you, and being inspired by what they have achieved because, if they have done it then so could you. Here are some practical steps to help you build your personal belief. 1) Be careful who you listen to. There is so much negativity in the world that the general public think investing in property is too risky for you to do and, if you don’t know that you are doing, they probably are right. If you don’t
2) Surround yourself with like minded positive people. You want to be surrounded by people who will support and encourage you rather than question why you want to invest in property. On all of our training, whether it be my 12-month Property Mastermind, our large 3 day events such as “Property Magic Live”, or one of my online Home Study courses we get people learning together at the same time, and from each other to support and encourage one another. 3) Fill your head with positivity. Stop watching the news or listening to it on the radio. And stop reading the newspaper. They are all full of negativity and will have a detrimental effect on your own outlook on life. Instead, decide to put positivity into your head. So instead of listen to the radio in your car, listening to inspiring auto biographies of successful people, or property audio books and recordings of property events. 4) Be inspired by what other investors in your area have achieved. If they have done it, so can you. I suggest you go to YouTube and type in “Property Mastermind” to watch loads of inspirational case studies about investors just like you, to see what you could achieve in property with the correct knowledge, mind-set and support. This will really help your belief about what you too could achieve. In summary, the most important thing which effects the results you achieve is your own personal belief about what you can do. You will only ever achieve what you truly believe you can. Invest with knowledge, Invest with skill Simon Zutshi Author or Property Magic Founder property investors network
Claim your gift now I would like to give you a gift. The gift of inspiration and belief to build your personal belief about what you could achieve with your property investing. I would like to invite you, to peak behind the normally closed doors, at the final workshop for the current delegates on my 24th Property Mastermind Programme. We will have five of the top performers sharing their inspirational case studies of what they have achieved over last 11 months. All of them now have an additional £50k+ per annum profit, from their properties some of them with no previous experience and some using none of their own money. You can learn how they did it and build your belief about what you could do. Register you place here now: www. pinonline.co.uk/mmlivestream
LANDLORD INVESTOR 38TH EDITION
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INVESTMENT
PAUL MAHONEY NOVA FINANCIAL
Understanding what type of returns are best for you and your goals
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LANDLORD INVESTOR 38TH EDITION
INVESTMENT
Generally, the default when it comes to investing in property or anything else for that matter, is income.
That makes sense in a way because often the end goal is income, and it’s easy to think that the most important initial goal should be income. But if you’re looking to grow an asset base, income isn’t necessarily the most important type of return, or shouldn’t necessarily be the main focus.
average 5% yield on a £1M asset base will give you £50,000 a year so based upon the above you’d need to do that four times to get there. It’s not going to make you a millionaire overnight but it will get you there more confidently then taking lots of risk and maybe losing the lot.
For example, let’s say you’ve got £50,000 to invest. If you invest that £50,000 solely for income, and let’s say you get a 10% net yield which is pretty good, but it doesn’t grow in value at all. Well, that’s going to give you £5,000 a year. If your end goal is £50,000 a year, you’re going to have to save 10 lots of £50,000 using that strategy to get to where you want to be, which for most people is going to be unachievable or it’s going to take them a very long period of time.
An analogy I often use for growing versus yielding an asset base, is growing an orange and squeezing an orange. If you’ve got a tiny little baby orange, you’re not going to get very much juice. If you’ve got a nice big juicy orange, you’ll get as much juice as you like. If the goal is to grow an asset base, growth is quite an important focus. You need to make sure you’re investing in properties that are going to achieve that, and then once you gave the asset base or are at least working toward it, you shift your strategy more so toward income as that is when it is achievable to get the income you want and need.
On the other hand, if you take that same £50,000 and invest it into a £200,000 property with 75% leverage, and over a 10 to 15 year period later that £200,000 property doubles in value, which is around the UK average, and is then worth 400,000 pounds. Well all of a sudden your £50,000 is now £250,000. If you do that a few times, you’re going to be on a pretty decent track toward achieving your end income goal. The logic to that is just a fairly
LANDLORD INVESTOR 38TH EDITION
If you’ve got a nice big juicy orange, you’ll get as much juice as you like.
This illustrates the importance of having a strategy in the first place and constantly revising it in line with your goals and your stage of wealth. If you have any questions or would like assistance putting a strategy in place, contact Nova Financial Group on 0203 8000 600, www.nova. financial or info@nova.financial
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INDUSTRY MARKET UPDATE UPDATE
PETER LITTLEWOOD iHowz
Market update The Government are at it again. New legislation; changes and consultations abound.
New Guides A ‘How to Rent' guide was issued by the Government many years ago and they finally realised how useful it was and passed legislation in June 2014 making it mandatory for landlords to issue it to tenants after that date. Since then they have made some minor amendments to it, but this June they completely redesigned it and issue it with three other guides: ‘How to Let’ – a guide for landlords ‘How to Lease’ – for leaseholders ‘How to Rent a Safe Home‘ – a supplementary guide to the mandatory guide for tenants. The only problem was that they got the name of the mandatory guide wrong and had to re-issue it in the middle of July. Please make sure you issue the correct version, - it must be named
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‘The Checklist for renting in England’. Note that you only have to issue the checklist, not the other guides; whilst you don’t have to re-issue it if a new one comes out part way through a let it is recommended to issue the latest one if you propose to issue a (new) Section 21 (form 6a). Changes to Licensing Hopefully you are aware of the amendment to mandatory licensing for HMO’s. After October 1st this year any HMO having 5 occupants or more will need a licence to allow them to continue to operate. Previously it was 5 occupants (or more) on 3 stories (or more). Now the number of stories won’t count. It is worth re-iterating what an HMO is. It is a residential property occupied by more than 2 people who are not related; sharing vital facilities. Note the use of the word occupied, it doesn’t matter who is on the agreement anyone living there counts, at any age.
You also need to check if your local authority has introduced licensing of smaller HMO’s (Additional Licensing), and/or non HMO’s (Selective Licensing). The main message is if you need a license make sure you apply in plenty of time. Originally many authorities took the application as Tacit Permission to continue letting. Some have amended that so landlords have to have specific permission to continue letting. So don’t leave too late. Consultations There are a few consultations around. The main one that will have finished by the time this comes out is a consultation on making 3 year agreements mandatory. The details are not known, as usual the questions were very biased, and again Government has made its mind up in advance of asking.
LANDLORD INVESTOR 38TH EDITION
MARKET UPDATE
The Leasehold Reform Bill aims to establish a compensation scheme for cases where misleading particulars have led to certain leasehold agreements.
There is an earlier consultation on making electrical certificates mandatory for all lets. Whilst it is almost certain to be enacted soon, probably April next year, it is not known what will have to be checked during the test and by whom. At one stage it was being suggested that landlords could issue their own certificates. We have been advised by the Housing Ministry that there will also be a consultation on Selective Licensing. I await that one with interest. Council Tax on Empty Homes Government have allowed all Local Authorities (LA’s) to charge increased Council Tax on empty properties. Currently LA’s can double the tax on a property empty for two years or more. Now they can also charge triple on any property empty for 5 to 10 years and the quadruple on any empty for more than 10 years. Whilst not mentioned, it is likely there will be an exemption for any property stuck in probate. Some Bills going through Parliament
Homes (Fitness for Human Habitation) Bill. This is a Private Member’s Bill introduced in the House of Commons by Karen Buck. The Bill aims to amend the Landlord and Tenant Act 1985 to require that residential rented accommodation is provided and maintained in a state of fitness for human habitation; to amend the Building Act 1984 to make provision about the liability for works on residential accommodation that do not comply with Building Regulations; and for connected purposes. On 14 January 2018 the government confirmed that it would support the Bill.
Sublet Property (Offences) Bill. Another Private Member’s Bill. It is intended to make the breach of certain rules relating to sub-letting rented accommodation a criminal offence; to
LANDLORD INVESTOR 38TH EDITION
make provision for criminal sanctions in respect of unauthorised sub-letting; and for connected purposes.
Affordable Home Ownership Bill. This is to make provision for affordable home ownership; to require the inclusion of rent to buy homes in the definition of affordable housing; to make provision for a minimum proportion of new affordable housing to be available on affordable rent to buy terms; to provide relief from stamp duty when an affordable rent to buy home is purchased; and for connected purposes.
Creditworthiness Assessment Bill. This Bill would require certain matters (including rental payment history) to be taken into account when assessing a borrower’s creditworthiness.
Private Landlords (Registration) Bill. This would require all landlords to registered with their Local Authority.
Leasehold Reform Bill. This Bill makes provision about the regulation of the purchase of freehold by leaseholders; to introduce a system for establishing the maximum charge for such freehold; to make provision about the award of legal costs in leasehold property tribunal cases; and to establish a compensation scheme for cases where misleading particulars have led to certain leasehold agreements.
Tenant Fees Bill. This government Bill makes provision for prohibiting landlords and letting agents from requiring certain payments to be made or certain other steps to be taken; makes provision about the payment of holding deposits; to make provision about enforcement and about the lead enforcement authority; and amends the provisions of the Consumer Rights Act 2015 about information to be provided by letting agents and the provisions of the Housing and Planning Act 2016 about client money protection schemes.
Down with Deposits Here at iHowz we have been advocating for some time to think carefully about taking and holding deposits. The legislation is extremely badly written and there is a strong chance of a landlord/agent getting it wrong, and laying themselves open to a fine. A new report from the Centre For Policy Studies (August 5th 2018 - Down with deposits: the case for rental insurance) backs exactly that view, although they come from a slightly different position. The author, Brian Sturgess proposes that the Government should promote a deposit replacement insurance system as an alternative, which would allow renters to insure against potential damage or missed rent payments without having to find a large up-front deposit, he estimates it to average around £1,041 – although I can imagine in the South East it being higher. He suggests that this would be popular with tenants, and would be a zero cost to the Government, so presumably popular with them as well. Again I am pleased to say that we already have such an insurance product, jointly developed with our long standing brokers – the Alan Boswell Group. Contact us for more information. The full report can be seen on our web site.
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RENTAL INSIGHT
TOM GATZEN CO-FOUNDER, IDEAL FLATMATE
Making sure troublesome flatshares are a thing of the past
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RENTAL INSIGHT
What's one of the most annoying thing tenants say have been done by a fellow flatmate? 'Borrowed' their milk? 'Forgot' to pay their bills? Something worse?
Often, when moving into a new flatshare everything seems great. You bond over liking the same Netflix series and have a few fun nights out. But then it all starts to fall apart a few months, or even weeks, down the line.
Since launching Ideal Flatmate in 2016, we’ve been amazed at the positive reception we've had, with 100,000s of people looking for properties on the site and more than 10,000 people now adding a room or property to advertise.
Annoying habits or behaviours start to emerge and the person you thought your flatmate was, or was pretending to be, vanishes to be replaced by a nightmare…
The unique matching algorithm we've developed to join people up has also proven hugely popular and appears to be timely, with the need for the product now greater than ever. During the regular focus groups of flatsharers that we run, the number one issue identified as to why households breakdown is because the people do not get along, underlining the importance of getting the dynamics right!
It’s an experience all renters will have gone through at some stage and many hope to forget about, and is the reason Rob Imonikhe and I set up Ideal Flatmate. We’d both lived in our fair share of toxic households and had then experienced using traditional flatsharing sites to find new people to live with. Although other sites do what it says on the tin, we both saw an opportunity to build something that would match flatmates up based on compatibility and give them more information about their future living partners before meeting up and moving in. As well as helping young professionals trying to navigate the housing market and their own careers, Ideal Flatmate benefits landlords massively by allowing them to make a more informed decision about who will live in their property, thus reducing the instance of void periods when somebody moves out.
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Most of the ‘Millennial’ generation are locked out of buying their own home as a result of soaring house prices.
Most of the ‘Millennial’ generation are locked out of buying their own home as a result of soaring house prices. In fact, 60% of Londoners will be renting by 2025 and only a mere 26% of 20-39 year olds will be on the housing ladder within 10 years. These stats are not going to change overnight either. Recent figures also show that tenants are typically handing over a whopping 50% of their salaries to landlords, rising to 72% in London. The least we can do is help flatshares ensure they are going to be living in a harmonious atmosphere, paired up with people they have something in common with! Tom Gatzen Co-Founder, Ideal Flatmate
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BUDGET UPDATE
TRACEY HANBURY
What can landlords expect from the autumn Budget? With the autumn Budget only a few months away, we take a look at what landlords can expect from the major fiscal event of the year and what they might need to prepare for. 22
LANDLORD INVESTOR 38TH EDITION
BUDGET UPDATE
The autumn Budget – now the most important financial event of the year for the government, and in particular Chancellor Philip Hammond – will take place in November. No date has yet been fixed, but it could be one of the most vital in recent years as the government plans for life outside the European Union after Brexit. In recent years, landlords may feel they have been punished more than most in the Budget, with various steps introduced – including the additional 3% surcharge on second homes and the phasing out of mortgage interest tax relief – to try and quell activity in the buyto-let market.
As well as the incoming regulation, there have been changes in recent months that landlords have had to adjust to.
But what might the latest Budget have in store for landlords? Rumours of further buy-to-let stamp duty changes Speculation has been swirling that the Treasury plans to use the latest Budget to levy more stamp duty charges on buyto-let purchases. Political editor of The Spectator, James Forsyth, recently wrote a guest column for The Sun newspaper claiming that the government is planning further stamp duty changes for the buy-to-let market. Forsyth, who is known to have sources close to the government, said the Treasury’s thinking is that a further rise in stamp duty rates would help raise money for the Exchequer while also putting a dampener on house prices. In a piece by The Sun’s political editor Tom Newton Dunn, discussing Forsyth’s column, he quoted a government source as saying: “Increasing the buy-to-let levy is something the Treasury are looking at doing in the Budget. It will be sold as a measure to ease the housing crisis but it’s more about raising money.” Publicly, the government has kept its cards close to its chest, with no clear proposals to add further stamp duty on buy-to-let purchases. However, after last year’s major stamp duty change – when the government scrapped stamp duty for most first-time buyers with immediate effect – Hammond may be eager to make another big statement. Buy-to-let, once again, could be an easy target. With the finances set to be squeezed by Brexit, the Chancellor will be looking to raise money whenever he can – and upping stamp duty on buy-tolet purchases may be something he considers. LANDLORD INVESTOR 38TH EDITION
Further regulation coming in next few years It’s now nearly two years since Hammond announced the ban on letting agent fees to tenants, and it’s finally coming closer to reality with the Tenant Fees Bill 2017-19 currently making its way through Parliament. The Bill recently reached its Report Stage and Third Reading in the House of Commons, but the legislation isn’t expected to be introduced until spring 2019 at the earliest. While it will most directly affect letting agents, there are fears that agents could offset their loss of income by charging higher management fees. Landlords, in turn, may pass this on to tenants in the form of higher rents. Under the plans, deposits will also be capped at six weeks’ rent. There are other regulations that landlords still need to consider, with the phasing out of mortgage interest tax relief reaching its next stage in April 2019. The restrictions, which took effect in April 2017, saw tax relief being limited to 50% in April 2018. It will be reduced to 25% by April next year and, by 2020, will be removed entirely. The government also recently announced proposals for minimum tenancies of three years to give tenants more long-term security. The plans, which were subject to a consultation that closed at the end of August, would allow give private renters more stability, according to Housing Secretary James Brokenshire.
What’s more, there has long been talk of a new ombudsman – which would deliver binding resolutions to landlord/ tenant disputes. The government consulted on a shakeup of the housing complaints system in February this year and the feedback is still currently being analysed, but something could realistically be introduced at some point next year. As well as the incoming regulation, there have been changes in recent months that landlords have had to adjust to, such as the new energy efficiency measures – effective from April 2018 – that means a rental property being let to new tenants must have an Energy Performance Certificate (EPC) rating of at least E. Portfolio landlords also have to contend with the new PRA guidelines, introduced in September 2017, which means that all lenders must conduct specialist affordability checks on any borrower who falls into the category of owning four or more distinct mortgaged buy-tolet properties. How can you adapt and thrive in a changing market? If you own one, two or three properties and you’re considering expanding your portfolio to four or more, you’ll need to consider whether you can pass the more stringent affordability tests. If not, it may work out better – and more profitable – to keep to a smaller portfolio. Meanwhile, a popular way of limiting the impact of the mortgage relief tax changes has been moving properties into limited companies – something that is known as incorporation. Limited companies are only required to pay corporation tax – currently 19% - which could mean a landlord’s profits are much better protected. There are, though, pros and cons to incorporation – and it’s a good idea to speak to an expert first before deciding to place your property portfolio into a limited company. On the upside, this area of the market is growing, with more mortgage options on offer and lenders slashing their rates and relaxing their criteria. In light of the upcoming tenant fees ban, you may also want to consider the prospect of going it alone if your agent decides to up costs. Again, though, this approach has upsides and downsides and needs to be thought through carefully, particularly at a time of increased regulation and government intervention in the private rented sector. 23
PENSIONS
GARETH BERTRAM THE LANDLORD’S PENSION
Discover how to pool pensions with your partner
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PENSIONS
This is a fantastic low risk way of raising funds for property investment or business growth.
Pooling pensions, that is putting all your historic pensions and those of another person (or persons) into the same pot, has been possible for decades, yet very few people are aware of this option when it comes to pension planning. It’s low risk because although the funds are in the same pot, the value deposited into the pot remains under the sole control of that person. In a working example, if a husband puts in £60k and a wife puts in £40k then the husband retains control over his 60% share and the wife her 40% share. Neither party can dictate to the other what must take place but if both are in agreement, then the ability to achieve greater success is possible through the amalgamation and subsequent investment of the two (2) funds. If the couple then made an investment which produced a return, the return is split between the parties based upon the percentage invested at the outset. It should be noted that the term “partner” is not limited to your spouse or cohabiting partner, it is in fact possible to pool pensions with relatives or business partners. So now you understand the risk, how is it achievable? Pooling pensions is possible using either a SIPP or a SSAS pension structure. Most people would choose a SSAS because the benefits are far greater (visit www. thelandlordspension.co.uk to compare SSAS v SIPP) and the running costs much lower. There is also the benefit of less regulation of a SSAS, leaving astute business people to make their own investment decisions. The only qualifying rule prior to establishing a SSAS is that you or your partner are the Director of a genuine trading limited company.
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The Landlord’s Pension are experts in this niche area of pensions planning and have helped many couples and families combine their pensions. In a recent case, a cohabiting couple pooled their pensions to give them sufficient funds to buy a high street premises from which they plan to run their lettings business. This will give their company greater visibility to the public whilst creating the most tax efficient way of growing their business. In this example, the lettings business will pay rent to their own SSAS pension (the legal entity that owns the premises) the benefits of which are twofold. In the first instance the rent payment is paid to their own pension, thus growing the value of their retirement fund, and secondly the rent is given corporation tax relief reducing their end of year tax liability. Quite simply there is no better way to structure your business affairs. In other circumstances we have helped clients to invest in land, property bonds and crowdfunding. At this point you may be thinking that this is going to cost a substantial sum to arrange and manage but in fact it’s one of the lowest cost pension structures in the UK. The main reason is that the fees are fixed and not charged as a percentage, as is the case with most financial advisor managed pension funds. Some clients we have worked with have been paying as much as 2.25% per year for fund managed investment charges. In comparison a 2-member SSAS pension can cost less than £1,000 per year (payable by either the client’s SSAS pension or the client’s company). This is mainly because the funds are under the control of the business owners, resulting in significantly lower costs.
There are many SSAS options in the market place that allow pooling of pensions but each SSAS pension has its own rules. This is the part where people often need some guidance. The Landlord’s Pension is a SSAS broker employing experienced SSAS consultants who can help find the right SSAS pension for you based upon your requirements. No obligation phone consultations are free and available to book online in the daytime or evening.
The Landlord’s Pension are experts in this niche area of pensions planning and have helped many couples and families combine their pensions.
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TENANT SUITABILITY
TRACEY HANBURY
Rent payments in credit scores when could this become a reality?
With the Creditworthiness Assessment Bill now heading to the House of Commons for its consideration, we take a look at the movement for tenant's rental payment histories to be included in credit scores and why this could be vital for Britain’s housing future.
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TENANT SUITABILITY
The campaign for mandatory inclusion of tenants' rental payment histories in credit scores took a large leap forward in July when it passed its final reading in the House of Lords. The Creditworthiness Assessment Bill, launched in 2017 by Big Issue founder Lord John Bird, had its third reading in July, where no amendments were made. It will now make its way through the House of Commons. It’s received widespread support from all parties and the property industry and, by passing through the Lords with barely a hiccup, has reached a key milestone in its journey to becoming enshrined in law.
The proposed legislation would make rental payments a compulsory part of a good credit score.
What’s the Bill about? The proposed legislation would make rental payments a compulsory part of a good credit score, allowing rental and council tax payment history to be taken into consideration when assessing an individual's creditworthiness, especially those seeking a mortgage. In other words, rent would be made to count rather than being seen as ‘dead money’ as it would contribute towards tenants getting a loan or mortgage at some point in the future. It’s also hoped that the Bill would open up fairer access to more affordable credit to a wider pool of responsible borrowers, helping the ‘just about managing’ people Theresa May has frequently referred to and improving the chances of those who are struggling to get on the property ladder. Mike Georgeson, founder and chief executive of PropTech startup RentalStep – which already provides a solution to the long-standing problem with its TenantPassport system – said the day when all credit scores include rental payment histories can't come soon enough. “Making sure that all rent payments contribute towards credit scores should be considered a matter of urgency,” he commented. “With such a high proportion of the population privately renting, and therefore a phenomenal amount of money being spent on rent LANDLORD INVESTOR 38TH EDITION
“More people are choosing to rent for lifestyle reasons and for longer periods of time, meaning they’re likely to build up a history of payments which should provide a useful insight into their financial situation,” Georgeson added. “Rent is often described as 'dead money' but if it contributes towards helping renters get a loan or mortgage in the future, it can become much more valuable.” Will the Bill get past the Commons? There is a good chance it will, if the cross-party support it’s received so far is anything to go by. During a parliamentary debate on the topic in October last year – triggered by Plymouth dad Jamie Pogson’s 147,307 signature-strong petition arguing that paying rent should be proof enough that you are eligible for a mortgage – MPs from across the political divide backed Lord Bird’s proposed Bill.
It had its first reading in June last year before progressing to a second reading in November 2017. The committee stage hearing in May this year passed through without any amendments, before the Bill comfortably cleared the report stage and third reading in July. The hope will now be that it progresses through the Commons in a similarly timely fashion.
it comes to assessing whether they will lend to them or not.
each month, it’s imperative that these payments are recorded and contribute towards something as crucial as a credit score.” A rising number of renters The number of people renting is on the rise, with a particular explosion in the number of middle-aged and family renters. According to the most recent English Housing Survey, published in January, 20% of all households in England now rent (equivalent to 4.7 million people). Even more significantly, renting is now the biggest form of housing tenure in London. Many people are choosing to rent for longer periods of time, either because they are currently priced out of owning a home or for lifestyle reasons and the flexibility offered by renting. But surely they will be keen to have something to show for their years spent renting – and the rent they’ve paid – if they ever need credit or happen to apply for a mortgage of their own one day? Currently, a person’s credit score – which is based on a credit report (essentially a record of information about an individual’s credit history) – is based on things such as credit cards, personal loans, store cards, overdrafts, mobile phone contracts, some utility bills and regular monthly repayments (such as finance for a new car or instalments paid for a holiday). However, rental payments are not factored in. A lender will not take into account a tenant’s rental payment history when
Jonathan Reynolds, Labour’s Shadow Economic Secretary to the Treasury, insisted the opposition front bench was fully behind the proposed legislation, while the SNP spokesperson on the economy Kirsty Blackman – MP for Aberdeen North – hailed Lord Bird’s plans as a ‘genius idea’. The Bill has also received backing from high-profile figures such as former Education Secretary Nicky Morgan and Green Party peer Baroness Jones. While the Bill passed through the House of Lords in just over a year, there is no knowing how long it will take to pass through the House of Commons, particularly at a time when Brexit is dominating proceedings. With the countdown on to Britain’s planned exit in March 2019, all other business could be delayed for the time being. In the Commons, it will have to pass through the same stages as the House of Lords – first reading, second reading, committee stage, report stage and third reading. This is then followed by a consideration of amendments, before the Bill receives Royal Assent. So, while the will is there and the support for the Bill is strong, it could be a while yet before it reaches its end stage. On the other hand, it could pass through the Commons as quickly as it passed through the Lords. It’s not entirely clear at present, but the steady progress of the Bill so far is a reason for its supporters to be confident and positive. 27
INSURANCE
STEVE COX ALAN BOSWELL GROUP
4 out of 5 landlords are risking their income 28
LANDLORD INVESTOR 38TH EDITION
INSURANCE
With the Brexit vote getting closer and the chance of agreeing an amicable deal with the EU getting further away, the clouds of uncertainty are starting to gather.
Many of the UKs larger companies are making contingent plans on a No Deal Brexit. This will undoubtedly have a knock on effect to employees and other businesses who rely upon larger companies, whether it be as a supplier to them or subcontractor. Although this situation is worrying for everyone, landlords are especially vulnerable to economic downturns and even the most prudent landlord can be hit with issues. If someone loses their job, they may end up in arrears on their rent and despite their best intentions to pay may end up owing several months’ back payment. Often an overlooked insurance – Rent Guarantee insurance is there to provide a safety net. We’ve got your back ? If you have a rent guarantee insurance policy in place from Alan Boswell Group, we will actually cover the rent money you are due while your solicitor pursues the tenants for the money they owe. Rent guarantee insurances come with a variety of options; differing durations, variable excesses, increased monthly rents etc. We understand each landlord has differing requirements and we will understand these and offer a product fit for your requirements. If you are happy to take the income hit, you may be more interested in landlord legal expenses which cover the costs of pursuing a tenant who is in breach of the tenancy agreement and will help you to gain possession of your property. Both the rent guarantee and legal expenses policies offer great value for
LANDLORD INVESTOR 38TH EDITION
money, and they really are invaluable should you suddenly find yourself without your rental income. Do I really need it ? The answer is no, there is no moral or legal obligation for you to have this in place. However if a tenant defaulted, you would have no money going in whilst still having overheads. Could you afford to continue to pay the mortgage on the property, pay for maintenance and upkeep, and cover all of the other regular costs of running a house. In some instances the tenant may have gone into arrears with utility bills or council tax, which is yet another headache for you to deal with. With the average time to evict a tenant being several months it’s not an issue for the odd month.
Once you have gained possession of the property you will also need to clean it and relet it and this isn’t overnight.
Once you have gained possession of the property you will also need to clean it and re-let it and this isn’t overnight. What hoops do I need to jump through ? The criteria is simple, we require proof of ID as you would collect for Right to Rent, a simple credit check and proof the tenant(s) can afford the property. Like all forms of insurance you hope you never have to claim on it, but it's there as a safety net if you need it. Call us today on 01603 216399 to find out how we can make sure you’re fully covered.
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INDUSTRY INSIGHT
TRACEY HANBURY
Property industry reacts to longer tenancy proposals
Following the announcement of the government’s controversial plans for minimum three-year tenancies – and the subsequent consultation inviting views on the proposals – we look at how the industry reacted.
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INDUSTRY INSIGHT
In plans published by the government at the start of July, Housing Secretary James Brokenshire proposed the introduction of a minimum three-year tenancy term, with a 6-month break clause, to allow tenants to put down roots in an area as well as giving landlords longer-term financial security. An eight-week consultation, calling for views and comments on the benefits and barriers of longer tenancies, closed on August 26 and feedback is currently being analysed. Once the results of the consultation have been studied, the government will consider its next steps. The consultation - which was aimed at landlords, tenants and related organisations but was criticised for its short time span and for being called at the height of summer also looked at whether there should be any exemptions to longer tenancies, such as for student accommodation where the demand for short-term, flexible renting is much higher. How did the industry react to the planned measures? Not very well, to put it mildly. The plans to introduce mandatory three-year tenancies as standard were met with fury by the National Landlords Association (NLA), which called it a vote-grabbing ‘political move’. “This is a policy which the Conservatives derided when it was put forward by their opponents in the past two general election campaigns,” Richard Lambert, chief executive of the NLA, commented. “It’s hard not to see this as more of a political move aimed at the renter vote than a genuine effort to improve how the rented market works for all those involved.” Research carried out by the NLA claims that only 40% of tenants want longer tenancies, while a further 40% don’t. Its research also found that over 50% of renters are happy with their current tenancy length, with 20% who asked for a longer tenancy being granted this by their landlord. Lambert said the NLA would accept that the flexibility of the current Assured Shorthold Tenancy isn't used as effectively as it could be, and said the industry should be looking to find ways to make sure that tenants are offered the kind of tenancies they need at the time they need them. “That means thinking about how to modernise a model devised 30 years ago, to take account of the changes in the people who are renting and the way they live their lives,” he added. “How will that be achieved by moving to a more rigid system, more reminiscent of the regulated model the
LANDLORD INVESTOR 38TH EDITION
current system replaced?” Others were more supportive, with many in the Build to Rent sector – which already routinely offers three-year tenancies – backing the plans. Polly Neate, chief executive of housing charity Shelter, also called the move an ‘important step forward’ but added that the government needed to go further.
your home is vital to putting down roots and building stronger communities. That’s why I am determined to act, bringing in longer tenancies which will bring benefits to tenants and landlords alike.” Backers of longer tenancies say landlords will also benefit, in large part thanks to the reduced risk of costly void periods as well as greater financial stability.
“If the government really wants to stand up for renters, they should provide real protection from eviction, and the huge upheaval of having to move home, jobs and schools,” she said.
Those against longer tenancies, however, argue they are too inflexible, don’t offer tenants what they want and make life difficult for those landlords dealing with problem renters.
Labour, meanwhile, agreed that the plans didn’t go far enough. “Any fresh help for renters is welcome, but this latest promise is meaningless if landlords can still force tenants out by hiking up the rent,” said John Healey, the shadow housing secretary.
There are concerns, too, about the detrimental effect on the buy-to-let market – which has thrived since the introduction of the Assured Shorthold Tenancy. With a minimum three-year term, lenders may be more wary about granting loans. Those that do may increase their interest rates to reflect the increased risks at play.
“That’s why Labour’s new rights for renters includes controls on rents as well as an end to no-fault evictions and protection against substandard rented homes.” What are the pros and cons of longer tenancies? The government argues that longer tenancies would give renters more security. They could also give a financial boost to landlords, in the form of regular, stable rents, which would offer more long-term security and the platform from which to build or expand a portfolio of rental homes. While government data suggests that people stay in their privately rented homes for an average of almost four years, 81% of rental contracts are Assured Shorthold Tenancies with a minimum fixed-term of just six or 12 months. This, supporters of longer tenancies argue, can lead to tenants feeling insecure, unable to plan for their future, unable to fully contribute to their wider community and more afraid to challenge substandard property because of fears their tenancies will be terminated. This, in turn, prevents people from putting down roots in an area. Tenants would still be able to leave early under the new longer-term agreements, but they would also enjoy greater protection if it’s their intention to stay in a home for a longer period of time. “It is deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract,” James Brokenshire said. “Being able to call your rental property
Some also fear that smaller landlords – those with one or two properties – could be forced out of the market as financing their properties becomes more difficult and worries over the difficulty of evicting rogue tenants becomes more stark. What’s more, the NLA research above suggests many tenants don’t like the idea of being locked into long-term contracts, preferring the flexibility offered by shorterterm packages. Circumstances could change suddenly – a renter may need to move at short notice, or may be looking to buy a home of their own, and won’t want to be tied into a longer contract. While the government insists that tenants will still be able to leave their agreements early, it’s not clear how this would work in reality. What will the outcome be? We’ll only know more once the results of the consultation have been published. If the government decides to go ahead with compulsory minimum tenancies, primary legislation will be needed – which will see the government consult with legal professionals to draw up the potential legislation while considering whether any exemptions will be included. As we’ve seen with the ban on tenant fees charged by letting agents, getting a law passed through Parliament is a slow process, so longer tenancies won’t be upon us imminently. But the likelihood of them being introduced has gone up considerably as a result of the recent government announcements.
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