LANDLORD INVESTOR
WRITTEN BY INDUSTRY EXPERTS COVERING ALL ASPECTS OF BUY-TO-LET
LANDLORD | PROPERTY | INVESTMENT
47TH EDITION | 2019
Show & Tell JUNE OLYMPIA LONDON SHOW REVIEWED TURN TO PAGE 4
ALSO IN THIS ISSUE... Done and dusted: offering cleaning clarity following the tenant fees ban
Industry coalition calls for Section 21 to be retained
Fees ban: is a landlord sell-off and rising rents the next step?
Online lettings agents: fake or fabulous news?
Is now the time for professional portfolio landlords to thrive?
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LANDLORD INVESTMENT SHOW RETURNS 8 OCTOBER 2019
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I'm thrilled to welcome you to the 47 Edition of Landlord Investor Magazine.
IN THIS ISSUE...
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SHOW UPDATE Olympia London Show review.
8 Finally the sun deigns to grace us with its glorious rays. We even had to don our sunnies at the Landlord Investment Show a couple of weeks ago. The sun wasn't the only illumination however, as all three of our panel debates threw light upon subjects diverse as the chronic shortfall of social housing, the meritocratic nature of our industry and the practicalities of managing a property in another part of the country. Turn to page 4 for a full review of the day and visit www. landlordinvestmentshow.co.uk/videos to watch the panel debates in full. Equally diverse are the articles in this issue of LI Magazine. John King discusses the benefits of clarity when it comes to post tenancy cleaning following the tenant fees ban. Simon Zutshi looks at Creative Strategies for minimising the deposit required for your property investments. As letting services become increasingly digitised Calum Brannan asks if online lettings agents are fake or fabulous news. Andy Elley explains how to go about financing your own holiday let and I'll be looking at the impact of the fees ban on landlords, how the Industry Coalition is calling for Section 21 to be retained, and if now is the time for professional portfolio landlords to thrive. On the Landlord Investment Show trail we're in Manchester on October 8th, with a cracking line-up at the hallowed ground of Old Trafford. There's a chance to win a tour of the ground and have your pic taken with some silverware in a prize draw. All you have to do is register. Following that we return to London on November 5th with a fantastic line up of seminars and debates. Full details are about to be announced, but being so close to the deadline for leaving the EU you can expect some fireworks. As always our events are completely free to attend, all you have to do is register. Visit www.landlordinvestmentshow.co.uk to find out more and to subscribe to LI magazine. Have a great summer and I wish you all the very best on your property investor journey.
TENANCY AND DEPOSITS Done and dusted: offering cleaning clarity following the tenant fees ban.
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INVESTMENT Creative strategies to minimise the deposit required for your property investments.
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PRS UPDATE Fees ban: is a landlord sell-off and rising rents the next step?
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PROPTECH UPDATE Online lettings agents: Fake or fabulous news?
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PRS UPDATE Industry coalition calls for Section 21 to be retained.
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Tracey Hanbury
PRS UPDATE LANDLORD INVESTOR MAGAZINE Editor Tracey Hanbury
Editorial Contributors
Design Marc Riley
Simon Zutshi John KIng Andy Elley Tracey Hanbury
Advertising Beverley Meliniotis
Contact
Marketing Holly Maslin Ben Michaelis
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Is now the time for professional portfolio landlords to thrive?
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MORTGAGES Thinking of starting your own holiday let?
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NATIONAL LIS AWARDS 2019 Following the huge success of last year's event the National LIS Awards returns.
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LANDLORD INVESTOR 47TH EDITION
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SHOW UPDATE
Landlord Investment Show, Olympia London J U N E 13 T H 2 019
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LANDLORD INVESTOR 47TH EDITION
SHOW UPDATE
The National Landlord Investment Show returned to Olympia London on June 13th for the second of the season's three shows in the Capital. By all metrics it was a resounding success.
Highlights of the day With the concentration of private rental landlords in the South East, the LIS London shows are always going to be a draw. By population figures alone there's over 16 Million people living in the stretch between Cambridge and the Isle of Wight. And with the move towards rented homes becoming the norm, that's a lot of people with an interest in the buy-tolet property market. This was reflected in the footfall of over 3.5k registered attendees in a single day at Olympia London on June 13th. The Olympia Show Panel Debates are always part of the attraction and the Three sessions at the event did not disappoint. Kicking-off with The Future of the UK Housing Market Debate, Andrew Neil expertly chaired the myriad questions with excellent responses from the panel which consisted of: former London Mayor, Ken Livingstone, Knowledge and Product Editor of the MailOnline's This is Money, Sarah Davidson, Less Tax 4 Landlords Founder, Tony Gimple and Managing Director of Mortgages for Business, Steve Olejnik. A general consensus was quickly reached that successive governments have failed chronically to build anywhere near the number of new homes required to meet demand. No huge surprise maybe, but it was sobering to hear the cold, hard facts and figures. Not to mention hearing of the culture and sociological factors which fueled the housing shortfall, especially from the former London Mayor. There was also a unanimous view that the future of the Private Rented Sector and buy-to-let landlord is bright, despite the many challenges. The Women in Property Debate was frank, open and refreshing. Chaired
LANDLORD INVESTOR 47 TH EDITION
by TV Presenter and Property Expert, Sara Damergi the panel consisted of LIS Founder, Tracey Hanbury, Royds Withy King Senior Associate, Zainab Dakhil, George Ellis Property Founder, Marie Parris and Mortgages for Business Sales Director, Jeni Browne. The panel fielded some excellent questions and encouraged the audience to share their own stories. There were a couple of negative experiences shared, mostly where dealing with aggressive tenants were concerned. However, the overwhelming message was that the private rental property market is very much a meritocracy, and that anyone with the requisite drive, skills and knowledge can succeed regardless of gender. The UK Development Hotspots Debate was hugely interesting given the majority of investors were looking for opportunities beyond the Capital. Chaired by Nova Financial Group Founder Paul Mahoney, the panel featured High Street Residential MD, Gavin Fraser, Paul Nicholson of Luxor Group and John Howard of John Howard Property Consultants. All speakers brought highly insightful expert knowledge to the discussion with excellent points made regarding how to overcome the perceived difficulties of managing a buy-to-let property purchase in different parts of the country. Back on the exhibitor floor, the space was bristling with interested landlords, both existing and potential, hungry for the assistance of the specialist services on offer from the 110 exhibitors present. Over the page we have some great pics which capture the Panel Debates and Main Exhibition. Remember, remember the 5th of November
both sides of the table and look forward to our return to W14 for the last Olympia London Show of 2019 on November 5th. Prior to that we're in Manchester, at the hallowed ground of Old Trafford, home of Manchester United FC. To register for free admission to either show visit www. landlordinvestmentshow.co.uk/2019shows. If you couldn’t make it to the June show, you can watch the panel debates in full on the Landlord Investment Show website - www. landlordinvestmentshow.co.uk/videos. Finally we'd like to extend a massive thank you to all the exhibitors, speakers, sponsors and attendees who made the day such a resounding success.
The overwhelming message was that the private rental property market is very much a meritocracy, and that anyone with the requisite drive, skills and knowledge can succeed regardless of gender.
We're delighted that another hugely successful show was delivered from
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SHOW UPDATE
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LANDLORD INVESTOR 47TH EDITION
SHOW UPDATE
LANDLORD INVESTOR 47 TH EDITION
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TENANCY AND DEPOSITS
JOHN KING TENANCY DEPOSIT SCHEME
Done and dusted Offering cleaning clarity following the tenant fees ban.
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LANDLORD INVESTOR 47TH EDITION
TENANCY AND DEPOSITS
John King at Tenancy Deposit Scheme (TDS), the Government-approved tenancy deposit protection scheme, looks to ‘tidy up’ some confusion about what identified cleaning costs may and may not be charged to a tenant when a tenancy comes to an end following the introduction of the Tenant Fees Act (TFA) on 1 June 2019.
Landlords, tenants and professional letting agents are getting to grips with the impact of the recently introduced Tenant Fees Act (TFA) which affects Assured Shorthold Tenancy agreements in England. It’s important that all the parties involved in a residential letting understand these extra requirements.
done can be considered betterment. In other words; putting the landlord in a better position than they were at the beginning of the tenancy. Put simply – a tenant cannot be charged for professional cleaning services at the end of the tenancy as a matter of course, regardless of the condition of the property when they leave.
The TFA covers holding deposits, places a cap on the value of tenancy deposit, and prohibits fees being charged to tenants. In respect of fees that can be charged to tenants; landlords and letting agents will now need to manage the terms of a tenancy with any associated charges from the 1 June 2019 up and until the end of the transition period - 31 May 2020. Existing tenancy agreements, along with subsequent periodic terms with terms agreed and entered into prior to the 1 June 2019, are still enforceable during this time. Once a new tenancy or a renewal agreement is entered into, prohibited fees can no longer be charged. This includes charging for reference checks, inventory reports, and right to rent checks. However, one issue that may cause confusion is deductions from the tenancy deposit especially over the issue of cleaning. In TDS’s Custodial scheme in 2017 more than half (54%)1 of tenancy deposit disputes were post-tenancy cleaning-related, so an understanding of the legislation is vital. The cost of hiring specific professional cleaning service cannot necessarily be charged to a tenant at the end of a tenancy unless the parties agree to it. Expensive cleaning work carried out because the landlord desires it to be 1
Where a tenancy deposit dispute does arise as a result of a disagreement over cleaning requirements, it’s always important to have an audit trail of what has been agreed and discussed.
That does not, however, mean professional cleaning costs cannot be charged at all. Deductions from the tenancy deposit can still be proposed if the property’s condition is not to the standard as recorded in the tenancy agreement, or if there has been dilapidation between the check-in and check-out reports.
The tenancy agreement should set out the tenants’ obligations after leaving their accommodation. This means defects which occur due to fair wear and tear may not form part of a claim, but cleaning is not impacted by ‘fair wear and tear’. Where a tenancy deposit dispute does arise as a result of a disagreement over cleaning requirements, it’s always important to have an audit trail of what has been agreed and discussed. There are a number of documents that will help demonstrate cleaning dilapidations. Inventory reports and photographs should be signed by the tenants and detail the contents and condition of a property at the start of the tenancy. TDS has produced a free guide to check-in/ out reports and inventories which offers advice on how best to carry these out. Receipts and invoices for work that has had to be carried out to return a property to its original state are useful for an adjudicator trying to establish whether or not to make an award. The Tenant Fees Act marks some important changes for all of those involved in the private rented sector (PRS), but the TFA doesn’t necessarily impact the responsibility of the tenants to return the property to the same clean standard once the tenancy ends. Tenancy Deposit Scheme prides itself on educating all parties in the PRS, and if people know their rights and responsibilities, there’s no reason for any messy disputes because of the new rules. To find out more, please visit: www.tenancydepositscheme.com and our dedicated Tenant Fees Act resource at: www.depositcap.com
www.tenancydepositscheme.com/resources/files/StatisticalBriefingEN_FINAL.pdf
LANDLORD INVESTOR 47TH EDITION
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INVESTMENT
SIMON ZUTSHI
Creative strategies to minimise the deposit required for your property investments LANDLORD INVESTOR 47TH EDITION
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INVESTMENT
We asked Simon Zutshi to share some of the creative strategies that he teaches his students to minimise the amount of money they put into their investments.
One of main the property investing principles that I have taught since 2003, is the concept of seeking to minimise the amount of money you put into (or leave in) your property investments. This is for two reasons: First of all, the less money you put in (or leave in), the higher your Return on Investment (ROI). As investors you should always be looking to maximise your ROI to make sure your money is working as hard as possible for you. Secondly, as most people have a finite amount of money to use for investing, the less money you put in, then theoretically the more deals you can do with the funds available. As a general investing principle this works, however the main problem with this is that most Banks and Mortgage Companies don’t want this. Quite the opposite in fact. They want you to put in as much money as possible because they want you to have some skin in the game. This is because they want to make sure that if things go wrong, you don’t just hand the keys back, which is what many investors did in the aftermath of the credit crunch in 2008. Prior to the Global Financial Crisis (GFC) in 2007, you could get 85% Loan to Value (LTV), Buy to Let (BTL) mortgages, combined with 15% gifted developer deposits. This meant that you could buy property with no money down. Many of these properties were overpriced in 2007 and did not actually make any cashflow, or in fact often created negative cashflow. Despite this, investors snapped them up because they were “no money down” and most people thought the property market would keep booming. When the market crashed, people did not want these properties that were costing them money every month, and were sometimes in negative equity because the market had dropped 20% on average across the UK.
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Understandably, banks are now far more cautious and generally most BTL mortgages are for 75% LTV and require a 25% deposit from the investors. This means that if the property owner defaulted, and the bank were forced to repossess, there would be sufficient equity for them to be able to sell quickly at a discount, and still get all of their money and costs back. Whilst we are seeing some lenders offering 80% LTV mortgages and a few apparently offering 85% the vast majority are still at 75%. Let’s say you find a property, which has a true market value of £200k, but which you can purchase below market value for £160k, from a motivated seller who is prepared to sell at that discounted price for a quick sale. Even though the property is worth £200k, a traditional mortgage company will only lend you 75% of the purchase price not the value. In other words, they would lend you £120k which is 75% of the £160k purchase price. If the property requires a refurbishment as well, this ties up a lot of your capital in this one deal until you are able to re-mortgage 6 months after ownership. The challenge is that, if you have to put a 25% despot into each property, you will eventually run out of deposits. The good news is that, there are numerous strategies you can use which you can use with creative financing to minimise the amount of money you put into your property investments. Let’s consider just 3 different creative ways of minimising your personal cash input into your next property Project. Purchase Lease Options (PLOs) This is where you have the right to buy (but not the obligation to buy) a property, at a fixed price within
a certain time period. You pay the owner an upfront option fee and then a monthly option fee, which gives you the right to use the property until you purchase it. This is one of my favourite strategies but PLOs only work in certain circumstances, for example where the owner who wants to sell the property does not need the money from the sale now. Let’s say you get a PLO on a property which needs a refurb. Instead of putting down a large 25% deposit you pay a small option fee, carry out the refurb and then you can buy the property using the help of CrowdProperty who will take the market value of the property into account when they fund your purchase. Michelle Kennedy did exactly that. She found a 5 bed town house in Hemel Hempstead which she knew would be perfect to convert into a very profitable 6 bed HMO. The owner did not want the responsibility of the property and so accepted Michelle’s offer of a 3 year PLO with an end purchase price of £180k. Michelle knew that once this property was renovated it would be worth at least £290k. She spent £30k on the refurb and then approached CrowdProperty for the loan to exercise her PLO and purchase the property. Because Michelle had increased the value of the property to over £290k, CrowdProperty were able to lend her £205k which was 70% based on the new value of the property instead of the Purchase price which was just £180k. From the CrowdProperty loan Michelle was able to cover 100% of he purchase price, and all the buying costs and get some of the money back that she has spent on the refurb. She held it for 6 months and then refinanced to a traditional HMO mortgage provider.
LANDLORD INVESTOR 47TH EDITION
INVESTMENT
Understandably, banks are now far more cautious and generally most buy-tolet mortgages are for 75% loan-to-value.
Exchange with Delayed Completion (EDC) Instead of using a PLO, you could actually exchange contracts on a property, obtain a key undertaking, which means you can do some work on the property and then delay the completion until the work has been carried out and you have added value to the property. An example of this is Tushar Shar, who found a large property in Birmingham, which he knew would make a great 7 bed HMO. He agreed to buy the property for £215k with a 5% deposit and delayed completion until he had full planning granted to convert into the 7 bed HMO and also completed all of the refurbishment works which cost him £40k. The RICS valuation estimated the end GDV as £322k and so CrowdProperty were able to lend him 70% of the value which was enough to pay for 100% of the purchase price at £215k. After 9 months, Tushar refinanced to a traditional HMO lender to pay back the Crowd. Joint Venture with the property owner And finally, instead of buying a property, having to put in the deposit, get a mortgage and then do the development work, why not see if you can joint venture with the owner whereby they put in the property and you bring in the expertise and funding. If there is sufficient equity in the property you may be able to get 100% of the development costs covered by CrowdProperty, which means you don’t need to put in any money. If there is an existing debt on the property, CrowdProperty could lend the money to get this debt replaced as they always need to take the first charge property to protect their lenders. The benefit for the owner is that if they are prepared
LANDLORD INVESTOR 47TH EDITION
to wait for their money, you could give them more than you would for a straight forward sale, as you share some of the development profit. The obvious benefit for you is that you get to do the development project using none of your own money. Just to be clear, CrowdProperty will not fund just any property deal. There are criteria and will only support projects which have passed their robust due diligence. Unlike most lenders, CrowdProperty like creative projects, because it demonstrates that the borrower actually knows what they are doing. As you might expect, CrowdProperty need to make sure there is enough equity in the deal, so that in the unlikely event of a default by the borrower, they will take control of the project to ensure capital and interest is returned to the crowd of lenders. CrowdProperty have an impressive 100% pay back track record, which they are very keen to maintain. The main difference between CrowdProperty and any other lender is that CrowdProperty has been set up by, and is run by property investors who actually understand property investment and development. As a potential borrower, you also get to speak direct to decision makers, which just would not happen with a traditional mortgage lender or even a bridging company. CrowdProperty aim to build long term relationships with their borrowers to be able to offer the right borrowers, quick and reliable funding for all of their development projects. Many of the current projects being funded on the CrowdProperty platform, are from repeat borrowers who have come back with further projects funding because they have been so impressed with the personal and professional service from the team at CrowdProperty.
As you have seen from the examples in this article, if you find a great property project, you can structure it in a way to minimise your personal cash input, and use the equity in the project to act as security for an innovative lender such as CrowdProperty, which means you can do more deals and make more money. I hope this article has inspired you and got you thinking of more creative ways of funding your next property project. Invest with Knowledge, Invest with Skill. Simon Zutshi Author Property Magic Founder property investors network
Do you have a property project that requires funding? Whenever you have a property project, where you are adding value to a property, then you should take just 5 minutes to complete the simple 12 box application form on the borrower page of the CrowdProperty website. It’s quick and easy, and within 2 working days one of the very helpful and experienced borrower team will come back to you with an offer of exactly how much they could lend you, to help with the purchase and up to 100% of the developments costs. Subject to RICS valuation and passing the due diligence, your project funding could be available in as quick as a matter of weeks. For quick, and reliable funding, why not visit the CrowdProperty website today. www.CrowdProperty.com
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PRS UPDATE
TRACEY HANBURY
Fees ban: is a landlord sell-off and rising rents the next step? 14
LANDLORD INVESTOR 47TH EDITION
PRS UPDATE
After the introduction of the Tenant Fees Act on June 1, will landlords be encouraged to either sell off their homes or increase rents?
The Tenant Fees Act 2019 finally came into force on the first day of June, changing the rules on the fees landlords and letting agents can charge as well as capping security and holding deposits. There have long been fears that the introduction of the ban, which could lead to higher management fees for landlords, will see them exiting the market or levying higher rents on tenants to offset their own increased costs. Is this actually going to be the case, though? Sell-off gathers momentum On the eve of the fees ban being implemented, trade body ARLA Propertymark released data revealing that the feared Sell-off of rental properties was starting to become a reality.
properties,” David Cox, chief executive of ARLA Propertymark, said.
collectively cost landlords almost £83 million.
“The Tenant Fees Act, coupled with the proposed scrapping of Section 21, is forcing landlords to either increase rents or leave the market altogether.”
Meanwhile, ARLA Propertymark commissioned Capital Economics to analyse the possible economic impacts of the ban on letting agent fees. It found that, in the most likely outcome, letting agents will lose £200 million in turnover, landlords will lose £300 million in income and tenants will pay £103 more per year in rent.
He added: “As supply of rental accommodation falls further, tenants will only be faced with more competition for properties, pushing up rent prices on good-quality, wellmanaged properties and decreasing tenants’ ability to negotiate rent reductions.” “In order to remain profitable, landlords will increase rents to cover the additional fees they are now faced with and as a result, tenants will continue to feel the burn.”
In April, letting agents recorded the highest number of landlords selling their buy-to-let properties since May 2018. The number of landlords exiting the market rose to five per branch, up from four in March. At the same time, the proportion of tenants experiencing rent increases also grew in April, with some 33% of agents witnessing landlords upping their rents. This was up from 30% in March. Looking at this figure on a year-on-year basis, this was also up from 24% in April 2017 and 26% in April 2018. By contrast, the number of tenants successfully negotiating a reduction in rent dropped from 2.9% in March to 1.9% in April, the lowest figure seen since May 2016. Despite the rise in Sell-offs, though, supply is still holding up. In April, it was only marginally down to 202 per member branch, from 203 in March, which itself was the highest number since ARLA’s records began in 2015. What’s more, supply was up 13% yearon-year, rising from 179 properties per branch in April 2018. “As predicted, April’s findings have shown an upsurge in the number of landlords selling their buy to let
LANDLORD INVESTOR 47TH EDITION
The Tenant Fees Act, coupled with the proposed scrapping of Section 21, is forcing landlords to either increase rents or leave the market altogether. David Cox, chief executive of ARLA Propertymark
A threat to the industry? Various impact assessments have been carried out to try and estimate the potential damage and cost the fees ban could cause. One from the government last year suggested that in the first year of the Tenant Fees Act being in operation, letting agents would take a hit of £157 million, while it would
It also said that the lettings sector employs approximately 58,000 workers in England and Wales, with the impact of the ban expected to be a loss of 4,000 jobs. The impact assessment claims that, while renters will benefit from a reduction in upfront fees, much of this will be passed back to them via increased rents. Although tenants who move more frequently could enjoy a saving on overall costs, those who do so less frequently (in particular lowerincome families) could see a loss. The counter-argument fears that the fees ban will lead to agents absorbing costs, then passing these on to landlords with higher management fees, who in turn will pass these on to their tenants, is the example set by Scotland. Housing charity Shelter, for instance, says that rises in rent in Scotland had been ‘small and short-lived’, in spite of predictions that rents would increase more heavily. Since the 2012 introduction of the ban in Scotland, evidence suggests there has been no noticeable rise in rents or landlords exiting the market. But opponents argue that all the hits to the buy-to-let sector in recent years – including the extra 3% stamp duty surcharge and the phasing out of mortgage interest relief – have left many landlords considering their investment, with the fees ban potentially being the last straw. It will only become clear over time the true impact of the fees ban in England and (when it’s introduced in September this year) Wales too. Tracey Hanbury
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PROPTECH UPDATE
CALUM BRANNAN CEO, HOWSY
Online lettings agents Fake or fabulous news?
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LANDLORD INVESTOR 47TH EDITION
PROPTECH UPDATE
The cliché that 'change is the only constant' has never been truer. Although somehow, the world of lettings agents has managed to escape this doctrine. Until now.
The cliché that 'change is the only constant' has never been truer. Although somehow, the world of lettings agents has managed to escape this doctrine. Until now. A plethora of online lettings agents have arrived on the scene. It seems inevitable that, like other industries from music to travel agents to takeaways, digital disruption will eventually come to the lettings market. But how do you choose one? Trust The surfeit of online agencies is reminiscent of the travel industry in the 90's, when anyone with a laptop and an internet connection suddenly claimed to be a travel agent. First and foremost, agents must be regulated. Look out for membership of a Redress scheme, such as Property Redress Scheme. If they're not, they're operating illegally so avoid them like the plague. Tenant Find only services: Most online agents will just send you prospective tenants by listing your property on the likes of Rightmove. A staggering 92% of tenants search for their property online, so this makes sense. But you will need to do the legwork of viewings and selling. If the thought of talking, selling and negotiating with strangers sets you off in a cold sweat, this won't be for you.
LANDLORD INVESTOR 47TH EDITION
Fully managed services Only a couple of agents are providing managed services. Again, it's important to check what they are providing. Currently of the online agents only Howsy.com is providing a full end to end service, from tenant referencing, rent collection and even repair management at a fraction of the cost of a high street agent at a fixed monthly fee regardless of the rental value. It is a modular service, allowing you to pick and choose what you want and when. If you're looking to reduce your costs and save time, then this is your best option. Pricing With much smaller overheads, the online agents are, not surprisingly, much cheaper. But ensure you compare to get the best value. Some charge a % of rental income, which can be pricey. A simple low fixed monthly rate will generally give you a much better return, unless you're letting a cupboard under the stairs. Customer Support The benefit of the digital age is getting responses when you want. But not all the online agents offer round the clock support. As a landlord you're often only dealing with issues out of office hours. So look for agents that offer 24/7 support, for both you and your tenant. If you can't find contact details on the website, that's not a good sign.
It's clear that online lettings agents are going to change the industry, and for the better, taking the best of what the current high street agents provide and improving it through innovative use of technology. But choose well. It ultimately comes down to how much you value your time. If you don't mind managing the potential pitfalls yourself, then a tenant find only agent could be right. But if you want to take the pressure off yourself and still save yourself significant sums, then a fully managed agent like Howsy.com will transform how you manage your lettings.
Like other industries from music to travel agents to takeaways, digital disruption will eventually come to the lettings market.
17
PRS UPDATE
TRACEY HANBURY
Industry coalition calls for Section 21 to be retained
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LANDLORD INVESTOR 47TH EDITION
PRS UPDATE
As the government's plans to scrap Section 21 gather pace, a collection of industry organisations is campaigning for more certainty before changes are implemented. Earlier this year, the industry was taken by surprise when the government announced plans to scrap the Section 21 evictions process. Currently, Section 21 evictions provide landlords with the means to regain possession of their property for legitimate reasons without having to go through the courts. When announcing its proposals, the government argued that a new system would provide tenants with 'long-term certainty and peace of mind'. It has proposed that Section 21 will be replaced by an improved Section 8 notice and court procedure.
should have confidence that there is a system in place which allows them to swiftly and easily regain possession of their property. The organisations say their research shows the overwhelming majority of landlords who use Section 21 evictions do so for legitimate reasons such as rent arrears, property damage or anti-social behaviour. The proposal to require landlords to use Section 8 notices to repossess property will be ineffective, the coalition says, as the grounds make it difficult to address the problem of anti-social behaviour and don't include the key legitimate repossession reason of wanting to sell a property.
The reaction from those operating in the rental sector has been far from positive, with many market commentators arguing that scrapping Section 21 will make it virtually impossible for landlords to regain legitimate possession of properties in a timely and efficient manner.
What is the coalition asking for?
With the government's plans expected to move quickly, a collective of influential industry organisations have come together to form the 'Fair Possessions Coalition'.
It says that 'tinkering' with the current system is not enough and has instead called for a 'comprehensive overhaul' of the regulations which lay out clear grounds for repossessions which criminal landlords and unreliable tenants can't exploit.
The organisations taking part are: ARLA Propertymark, Cornwall Residential Landlords Association, Country Land and Business Association, East Midlands Property Owners, Eastern Landlords Association, Guild of Residential Landlords, Humber Landlords Association, iHowz, Landlord Action, Leeds Property Association, National Landlords Alliance, National Landlords Association, North West Landlords Association, Portsmouth and District Private Landlords' Association, Residential Landlords Association, Safe Agent, South West Landlords Association and Theresa Wallace (Chair, The Lettings Industry Council). The coalition argues that landlords prefer to have long-term, reliable tenants in their properties, with the average tenancy length increasing to over four years, according to the latest English Housing Survey. However, it says that in those cases where that isn’t possible, landlords
LANDLORD INVESTOR 47TH EDITION
The coalition is urging the government to retain the Section 21 process until a new system which provides landlords with the same level of confidence about legitimate repossessions is put in place.
There is also a warning that the government's plans to scrap Section 21 and introduce 'indefinite' tenancies could pave the way for rent controls to be introduced, which the coalition says could be 'highly damaging' and lead to a significant reduction in supply. The overhaul the coalition is calling for includes: •
Making sure there are clear and adequate periods of notice given by a landlord when seeking repossession.
•
Implementing applications to repossess properties that are easy to use so landlords are not required to invest considerable sums of money for legal representation.
•
Making rights for a tenant to challenge an application easy to understand.
•
Introducing an initial starter tenancy, before it switches to the indefinite model proposed by the government.
•
Making sure there are safeguards in place so tenants are protected against the minority of landlords who abuse the system.
•
Lowering the level of evidence landlords have to produce when making a repossession application.
•
Implementing a minimum fixed-term before which a tenant is not able to serve notice to leave the property.
•
Establishing a dedicated and properly funded housing court to address the failures in the current system.
Further industry reforms needed Alongside an overhaul of the repossessions process, the coalition says there should be a broader package of reforms to support good landlords and renters. It says there should be an end to the housing benefit cap, providing all Universal Credit claimants with the option to choose for the housing element to be paid directly to their landlord. Meanwhile, there should be more done to encourage sales of properties with sitting tenants and the development of new rental homes. There is also a call for proper implementation of the Homelessness Reduction Act to ensure the practice of councils telling tenants to wait until bailiffs arrive before leaving a property when a court has already agreed for it to be repossessed. The coalition says more resources for local councils would help to bring this unhelpful practice to an end. It says the bailiff system should also be improved and potentially privatised in line with the High Court Enforcement Officer system. The reason for this, according to the organisations in the coalition, is that it would relieve the Ministry of Justice from funding the service with the costs instead levied on service suppliers. Tracey Hanbury
19
ADVERTORIAL FEATURE
Legal advice for professional buy-to-let landlords
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LANDLORD INVESTOR 47TH EDITION
ADVERTORIAL FEATURE
Consistently focused and professional.
Changing policy and tax regulations are making the profitability of the buy-to-let sector more challenging. However, with good professional advice and guidance, this changing market could represent an opportunity for professional buy-to-let landlords. Experts believe the market will consolidate in the next few years and we could see rents rise by up to 15%. In these challenging times, our property experts can help you to maximise your assets and continue to grow your property portfolio. Working alongside our business partners and tax advisers we will be able to assess your needs and assist you in implementing the right business structure. Incorporation Many private landlords are taking advantage of the tax benefits available to limited companies by transferring their existing properties into a limited company. Our experts will be able to advise and help implement the best option. Declarations of trust If incorporation isn’t the best solution for you, you may wish to consider using a declaration of trust to alter the
beneficial ownership. We can advise and prepare the declaration of trust and liaise with your tax advisers to ensure that registration of the declaration of trust is noted with HMRC to enable the tax savings to take effect. Houses in multiple occupation (HMO) Changes have been made to the types of properties which require a HMO licence. We can help you understand your licensing requirements in this area.
Security. We will take an integrated approach to provide you with the best solutions so you can be confident that your future interests and wishes are protected. If you'd like to find out more, our highly experienced team are always happy to assist. See below for contact details or visit www.roydswithyking.com
Landlord and tenant issues Our property disputes team can offer assistance with all aspects of property issues, including landlord/ tenant matters and drafting of tenancy agreements. Time. We’ll invest the time to fully understand your circumstances so that we can help protect your interests. If you need to ask a question, we’ll make the time for you without making you feel like a burden. Expertise. Each of our teams are dedicated specialists in their area of expertise which means that you can be assured of the best advice and firstrate personal service.
In these challenging times, our property experts can help you to maximise your assets and continue to grow your property portfolio.
Zainab Dakhil Partner Residential Property T: 020 7842 1506 zainab.dakhil@roydswithyking.com Andrew Chalk Partner Residential Property T: 01865 268 687 andrew.chalk@roydswithyking.com
Royds Withy King 69 Carter Lane, London EC4V 5EQ www.roydswithyking.com
LANDLORD INVESTOR 47TH EDITION
21
PRS UPDATE
TRACEY HANBURY
Is now the time for professional portfolio landlords to thrive? 22
LANDLORD INVESTOR 47TH EDITION
PRS UPDATE
With recent figures suggesting that professional portfolio landlords are taking up a larger share of the buy-to-let market, is this demographic better equipped to cope with the challenges posed by the PRS? Professional landlords with multiple properties are increasingly becoming the backbone of buy-to-let mortgage lending, according to Paragon, the specialist banking group and lender.
the phasing out of mortgage interest tax relief, changes to the Wear and Tear Allowance, stricter lending tests and affordability checks and, most recently, the introduction of the Tenant Fees Act.
This suggests that amateur or individual landlords are no longer as widespread as they once were due to the bite of regulatory and tax changes.
There has also been a range of new legislation to come to terms with – from the Homes (Fitness for Human Habitation) Act 2019 to stricter energy efficiency regulations in the form of Minimum Energy Efficiency Standards.
Paragon recorded a 16% rise in first half mortgage lending to £834 million, up from £721 million in the same period last year, while buy-to-let business dominated new mortgage lending, up by 17% to £788 million, with the lender shifting its products towards professional landlords with larger portfolios. This demographic, Paragon said, is ‘becoming increasingly important to the supply of private rented property in the UK’. The shift towards professional portfolio landlords was further shown by the proportion of ‘complex’ buy-to-let completions in Paragon’s latest trading statement. Complex completions, made up by customers operating through corporate structures or running large portfolios, rose from 72% to 88% of the total during the first half 0f 2018 and represented 92% of the pipeline of future business at the end of March this year. John Heron, managing director of mortgages at Paragon, commented: “Complexity around the PRS resulting from fiscal changes and increased regulation has resulted in a shift in balance with professional landlords providing a greater proportion of the supply of rented homes.” Better set to deal with challenges? No-one can deny that those operating in the buy-to-let sector have faced some serious challenges in recent years, with many accusing the government of a deliberate campaign to destroy or at the very least dampen the sector significantly. Not only have landlords had to contend with chronic Brexit uncertainty and nearconstant political instability in the last few years, there has also been the introduction of the extra 3% stamp duty surcharge,
LANDLORD INVESTOR 47TH EDITION
As such, it's perhaps not surprising that professional portfolio landlords are currently thriving, as they have the means and capacity to deal with greater stresses, financial pressures and higher compliance thresholds in a way that a one property landlord, or an accidental landlord, might not. What's more, Incorporation – the act by which landlords can transfer their portfolios into a limited company structure to avoid being hit by the changes to mortgage interest tax relief can be a costly, lengthy and complex process, which again may put professional portfolio landlords at an advantage over those with fewer properties. What does the future of the PRS look like?
with Manchester, Leeds, Salford and Birmingham the main Build to Rent hotspots outside the capital. But is this type of renting, as well as the dominance of professional portfolio landlords, the future? According to the most recent official figures, the English Private Landlord Survey 2018, released by the Ministry of Housing, Communities and Local Government in January this year, the vast majority of landlords (94%) operate as private individual landlords rather than as part of a company or organisation. However, while nearly half of landlords own just one property, half of the tenancies in the private rented sector are let by the 17% of landlords with five or more properties – showcasing the key role portfolio landlords play in housing tenants. Additionally, since 2010, the number of landlords with just one property has fallen from 78% to 45%, or down from 40% to 21% of the sector. By contrast, the proportion of landlords with five or more properties grew from 5% to 17% in the same time period, or up from 39% to 48% of the sector. Tracey Hanbury
One of the biggest trends in the private rented sector of recent years has been Build to Rent, where institutional investors put money in to purposebuilt, professionally managed rental developments specifically designed for tenants. Rather than each unit being sold off individually to landlords, the rental homes are let direct to tenants themselves with the returns going to the institutional landlords. It's a rapidly growing phenomenon, with Knight Frank suggesting that £75 billion of investment will be committed to Build to Rent by 2025. Meanwhile, according to the British Property Federation's quarterly Build to Rent map, there are currently 140,090 units either completed or planned across the UK.
It's perhaps not surprising that professional portfolio landlords are currently thriving, as they have the means and capacity to deal with greater stresses.
London has a total of 73,974 units, while outside London there are 66,116 units,
23
MORTGAGES
ANDY ELLEY MORTGAGES FOR BUSINESS
Thinking of starting your own holiday let? 24
LANDLORD INVESTOR 47TH EDITION
MORTGAGES
Andy Elley, commercial mortgage expert, explains how to finance your new business venture...
1. Will I need to remortgage to turn my buy to let into holiday let? Probably! Most buy to let mortgage contracts require properties to be let on Assured Shorthold Tenancy agreements. ASTs typically start as fixed terms of six months to three years, which means lets for shorter periods are not permitted.
2. How will the lender know if I switch my property from a buy to let into a holiday let? If a holiday-maker can find your property online, then so can your lender! When applying for a buy to let mortgage, lenders will always check to see if the property is listed on Airbnb and similar sites, particularly if the property is in a tourist area.
3. How many lenders offer holiday let mortgages? Currently, there are eight properly active lenders in the holiday let mortgage market. Of these, only four or five will lend to portfolio landlords and only three will lend to limited companies.
4. Which mortgage lender is best for holiday lets? In our opinion, no lender stands out from the crowd. Most assess debt serviceability based on AST rental income, not projected holiday let income. Many require the borrower to have earned income of between £10,000 and £25,000 pa; others £40,000 pa.
LANDLORD INVESTOR 47TH EDITION
Here's one we did earlier… The clients: A married couple who were looking to purchase a holiday let via their trading limited company. Both husband and wife run a medical consultancy business working as doctors. Neither have any property investment experience. The property: A three-bed detached house overlooking a picturesque coastline in Northumberland. A popular spot with tourists, this property sits between two successful holiday parks.
which is needed for the borrower to obtain the required loan amount.) To both our and the client’s delight, the lender accepted on this basis. An offer was made in three weeks. The mortgage details: Value
£340,000
Loan
£238,000
Rate
3.69% 3yr fix
Term
25yr
Mortgage
£731.85pcm
Lender Fee £1,999
The finance: Using savings from their company as a deposit, the pair needed to borrow £238,000 for the purchase. The application: We approached a building society based in the north of the UK, which is often willing to take a view on applicants with no property investment experience. After discussing the case with their business development manager, we worked with the clients to collate the documentation needed to support the application. This included proof of ID, latest payslips, recent bank and mortgage statements and projected rental income figures from a local agent. The property wouldn’t have met many lenders’ required income cover ratio, due to the costs involved servicing the holiday let. However, through our understanding of the lender’s requirements we agreed the lender would consider top-slicing, which would consider both applicants’ high level of income. (Top-slicing is where a lender uses the borrower’s personal income to top-up any shortfall in rent
There are eight properly active lenders in the holiday let mortgage market. Of these, only four or five will lend to portfolio landlords and only three will lend to limited companies.
25
NATIONAL LIS AWARDS 2019
Following the huge success of last year's event, the National LIS Awards returns for 2019. The National LIS Awards, organised by the National Landlord Investment Show, celebrates the success of private landlords & buy-to-let services. These special awards bring together the key players in the Private Rented Sector including landlords/investors, developers and all professional services including: finance, legal, tax, developers, letting agents, online agents, auction houses, local authorities, landlord insurance, proptech, innovation, landlord associations, plus much more. Connect with the very best in the industry at the National LIS Awards on Thursday 21 November 2019 at the Grosvenor House Hotel, London. Agenda of the evening
Submit an entry - closes July 31 2019
See below overview of timings for the evening.
There are many benefits to be gained from entering the National LIS Awards, including:
18:00 Arrival Drinks Reception 19:15 Dinner is Served & Entertainment 21:00 Awards 22:30 Casino Opens 12.30 Carriages Dress Code: Black Tie E-invites will be sent out to registered guests in the weeks leading up to the event. Please note that all timings are subject to possible change.
Venue and how to get there The National LIS Awards 2019 will take place at the Grosvenor House Hotel, 86-90 Park Lane, London W1K 7TN. The closest main-line station is London Victoria and from here you can take a bus or a taxi. The nearest tube station is Marble Arch, which is a 10 minute walk to the venue.
+ Raising your company profile + Gaining recognition through out the Industry + Standing out from your competitors + Gaining press exposure through our media partners + Increasing staff morale & celebrating your company’s success + Establishing new networking opportunities Nominating your company for the awards is FREE and you can enter up to Three different categories. Closing date for entries is 5pm, 31st July 2019.
Award categories include Best Accounting and Tax Services for Landlords Best Landlord Insurance Provider Best Landlord Legal Services Provider Developer of the Year Best Lettings Agency Best Online Agency
Companies who supported the 2018 LIS Awards include:
Specialist Finance Provider of the Year Best Property Education Provider Proptech Company of the Year Best product for Landlords Best Property Auctioneer Best Property Investment Provider Best Buy-to-Let Mortgage Broker Best Seminars @ LIS Shows 2019 – as voted for by attendees of the shows
To find out more or submit your entry please visit www.national-lis-awards.co.uk
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LANDLORD INVESTOR 47TH EDITION
N AT I O N A L L I S AWA R D S 2 0 1 9 T H U R S DAY 2 1 S T N OV E M B E R G rosve n o r H o u se H otel , Pa rk L a n e, Lo n d o n W 1 K 7 TN
C E L E B R AT I N G
C AT E G O R Y
EXCELLENCE
AWAR D
I N T H E P R I VAT E
SUBMISSIONS
RENTED SECTOR
C L O S E 3 1 J U LY
Brought to you by the National Landlord Investment Show, the National LIS Awards celebrates excellence & professionalism in the private rented sector for both landlords, property investors and services throughout buy-to-let. To find out more please visit our dedicated LIS Awards website: www.national-lis-awards.co.uk
T T he Po he Ti As M m f Tr st, P ail es eat ib r O , T ur es op nl he ed , p er ine T in lu ty , H ele : s m 11 u g an 8, P ffin rap y ro gt h, m p o or er n e. ty ..
REMEMBER, REMEMBER THE 5TH OF NOVEMBER
The UK’s leading landlord and property investment exhibition. Our shows are 100% committed to the UK landlord and investor market.
Returning to Olympia London for the season finale 05/11/19.
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.
Expect fireworks!
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