For the vast majority of landlords, letting a home is generally a satisfying and beneficial experience. However, there is no denying the fact that the rented sector has undergone rapid change over the last few years with more set to come.
A lot of the landlords we work with have discussed concerns ranging from
- More potential changes to legislation
- Restrictions of buy to let mortgage lending, interest tax relief and 3% stamp duty surcharges
- Dealing with rent Arrears and welfare reform and eviction costs
- The proposed ban on upfront fees charged to tenants which could mean that at least 75% of these fees being passed onto landlords
We offer help through our leasing option- The benefits of the leasing option is that your rent is guaranteed for the term of the lease regardless if the property is occupied. We cover the council tax if the property becomes void and we manage the property as if it were are own. All general household repairs are covered by us a long with all on going health and safety costs such as the annual gas safety certificates, fire safety checks etc. We have a 24 hour 365 day of the year repair service so your properties are always covered. It also helps landlords with buy to let mortgage who are, in some circumstances unable, to rent out to potential tenants whose income is made up of benefits.
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Why is legislation such a concern?
As much as the actual content of new legislation introduced in recent years, it’s the sheer volume and unexpected nature of the introduction of new policies which have a lot of landlords concerned.
We’ve seen the implementation of the deposit protection scheme, the housing health and safety rating system (HHSRS), Energy Performance Certificates, Right To Rent, The Deregulation Act 2015 imposing a number of changes to the serving of notices seeking possession, introduction of HMO licensing to name but a few. We are set to see more changes moving forward.
The private rented sector, of which HMOs form part, has undergone significant growth. It is now the second largest tenure in the UK and houses around 4.3 million households in England. The Housing and Planning Act 2016 has given local authorities new enforcement powers in the form of civil penalties (up to £30,000) which can be imposed as an alternative to prosecuting landlords, and extended Rent Repayment Orders. In October 2016 the Government announced an intention to extend mandatory licensing to smaller HMOs and also to introduce a minimum room size in these properties this is still being discussed but is likely to be introduced in 2018.
From the 1st April 2018 it will be a legal requirement for all private rented properties to have a minimum rating of E. Nearly 17% of properties currently available in the private sector could become unlettable. The Government decision to stop funding green deal improvements will have a further impact landlords.
You mentioned earlier about Restrictions of buy to let mortgage lending, interest tax relief and 3% stamp duty surcharges causing concerns for landlords. Can you expand on this?
Yes so in terms of the 3% stamp duty surcharges it will affect anyone who is buying an additional residential property for £40,000 or more. This could mean a holiday home, buy-to-let or even a main residence you plan to live in.
Even if you already own just a share in another property, it will count so long as the share is worth £40,000 or more.
Properties anywhere in the world are considered too so if you have invested in property abroad you could be stung with the extra tax.
If this wasn’t enough for private landlords to contend with the restrictions to the buy-to-let mortgage interest tax relief could have a significant impact on landlords annual returns for higher tax rate paying landlords, whilst the buy to let lending restrictions could make it harder for some investors to expand their portfolios. The restrictions centre around lending criteria and affordability. Landlords will now have to prove to lenders they can meet mortgage payments in the event of a significant interest rate rise before being granted a buy-to-let mortgage.
Explain the issues regarding welfare reform and rent arrears and the problems faced by landlords.
Rental income is obviously one of the biggest drivers for any landlord whether you’re in the social housing or private residential sector.
Almost 10% of private rented tenants in the UK fell behind with their rent in August forcing 34 thousand landlords to issue possession claims between July and September at considerable cost to themselves. This is set to rise with further changes to the welfare reform expected.
There are a number of factors which have contributed such as
- the increase in Universal Credit Claims where the housing element is being paid direct to the tenants.
- Under occupation charges (bedroom tax)
- Local Housing Allowance rates
- Benefit caps
- Single room restrictions for under 35’s where you will only be paid the single room rate for a shared house regardless if you live in a 1 bed flat. Which is concerning when you consider that nearly half of 25 to 34 year olds live in the private rented sector, new detailed figures from the English Housing Survey show. Some 46% of those in their late twenties and early thirties are tenants, up from 24% in 2006.
- Universal Credit housing cost for under 21 where it is unlikely that an individual will get help with their housing costs
Is investing in private residential lettings still a viable option?
Yes despite what may appear to be doom and gloom at the moment the private housing sector is most definitely still a viable option. The private rented sector (PRS) has expanded rapidly in recent years, with 4.5 million PRS properties making up 20% of all households in 2015/16. 1 Knight Frank estimated in 2017 that this would rise to 24% of all households by 2021/2
In 2011, the sector overtook social renting as the second largest tenure behind owner-occupation. In the context of a housing supply shortage, there is increased focus on the role the PRS can play in housing people who cannot access social housing and who cannot afford to buy a property.
There is no denying that buy-to-let can now be classed as an expensive investment to purchase and exit from compared with other ways of investing, especially for a pension. Other investments may cost very little, if anything, to invest in and may indeed even attract additional tax relief.
However, this doesn’t mean that buy-to-let cannot work for landlords as part of their pension plan. Property, unlike stocks and shares, can be bought with a deposit, so buy-to-let investors can “gear” their investment.
If prices rise, this means, for example, three properties worth £100,000 each can be bought with a cash investment of £100,000 as opposed to just investing the £100,000.
This allows a benefit from growth of assets worth £300,000, meaning just a 10pc increase in property prices could potentially deliver an exceptional return compared with increases in financial markets on a cash investment of £100,000.
House prices are a massive factor when it comes to capital appreciation and the overall value of a property portfolio. Most predictions for this year suggest that average prices will continue to grow but perhaps at a slower pace than we’ve seen in previous years. But property investment is most definitely for the long term.
It is also possible to buy properties at a “true” discount. For example, a seller who needs to move on due to changes in their personal circumstances may be willing to sell for tens of thousands of pounds less, or if a property can’t be bought with a generic mortgage but cash only – if it has subsidence or a sitting tenant for example – again it may be possible to purchase the property for less than it’s worth, sort out the problem and instantly see a gain in value more than a standard financial investment could offer.
There are still deals to be had and government backed schemes for private developers to work alongside registered social landlords such as ourselves with good returns. In fact we’re working on a number of development opportunities now.
How Can Humankind Housing help?
We have a wealth of experience in the housing sector both as landlords ourselves, our development work, work with investment partners and our work with private landlords.
One of the most successful options we have for working with the PR sector is leasing.
We currently lease a number of property across the North East, Scarborough, Manchester, Hull and Bradford.
The benefits of the leasing option is that your rent is guaranteed for the term of the lease regardless if the property is occupied. We cover the council tax if the property becomes void and we manage the property as if it were are own. All general household repairs are covered by us a long with all on going health and safety costs such as the annual gas safety certificates, fire safety checks etc. We have a 24 hour 365 day of the year repair service so your properties are always covered. It also helps landlords with buy to let mortgage who are, in some circumstances unable, to rent out to potential tenants whose income is made up of benefits.
The arrears, void loss, problem tenants and legal costs become our problem not yours.
Can you tell me a little more about Humankind Housing?
We are a Registered Social Landlord and investment partner of the Homes & Communities Agency. We have a wealth of Social Housing experience both in the general needs and the supported housing sector. As well as managing our own housing stock, which is quite extensive covering much of the North East, Scarborough, Manchester, Hull and Bradford and consist of single dwellings, hostels, blocks of flats to Homes in Multiple Occupation. We also work with private developers and investors across the UK and also manage property on behalf of private landlords so we understand the concerns that a lot of existing landlords, and those considering investing in property have. The private rented sector (PRS) has undergone huge changes, more regulation is in place and it can be quite tough on landlords and those considering investing in property in this sector.
Contact us for help