Search Results For: buy to rent sector

Landlords Warned over Energy Efficiency Measures

Published On: March 5, 2013 at 5:09 pm

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Landlords in the Midlands have been issued a warning that they must adhere to new laws or face not being able to rent out their property.

Under the new regulations, landlords will be encouraged to go green and improve their property’s energy efficiency rating. Energy expert Ron Fox warns that if landlords do not heed the warning, one in ten buy-to-let properties could be unavailable to let in just five years time.

Landlords Warned over Energy Efficiency Measures

Landlords Warned over Energy Efficiency Measures

 

New measures

The new legislation will see all properties with either an F or G energy rating being unable to be rented out from April 2018. In addition, landlords will be unavailable to refuse reasonable requests for energy efficiency improvements to their property from April 2016. These measures could include providing loft insulation.[1]

It remains unclear whether the ban on F and G energy rated properties will come into effect by a certain date, or whether these properties will continue to be let out to the end of existing tenancy agreements.

Survey

A recent questionnaire from the English Housing Survey stated that just over 11% of homes in the private rented sector were rated as either an F or G. This figure was in comparison to just 2% of local authority properties, 1.6% of housing association properties and 8.2% of owner-occupied homes.[1]

Mr Fox believes that landlords should look to the future in order to save valuable money: “Landlords should plan ahead now to turn their properties green and to save more money.”

He continued by saying: “The Government has made it clear that there will be consequences for those who do not improve the energy efficiency of their properties voluntarily.”[1]

Growth

Latest figures indicate that the buy-to-let market has continued to grow. Buy-to-let investors borrowed £16.4 billion last year, an increase of 19% on the last 12 months. The total number of buy-to-let mortgages left outstanding at the end of last year totalled 1.45 million.[1]

The National Landlords Association (NLA) has also introduced a scheme to ensure energy improvements are carried out. Similar to the Government’s Green Deal, the NLA scheme will see all energy improvements paid for by a loan, supplemented by the property’s energy bill.

Mr Fox stated: “Up to 60% of heat lost in a home is through the roof and the walls.” As a result, he believes that “landlords should start by spray-foaming the attic with the environmentally friendly Icynene Insulation System which reduces heating bills by up to 50% and saves up to £600 a year.”[1]

[1] http://www.staffordshirenewsletter.co.uk/Landlords-green/story-20164505-detail/story.html

 

 

 

One in Ten BTL Homes may be Unlettable in Five Years

Published On: February 28, 2013 at 10:59 am

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Landlords must make improvements to their properties’ energy efficiency to avoid one in ten buy-to-let houses being unlettable in five years’ time.

New legislation will make it a crime to rent out properties with the two lowest energy efficiency ratings, F and G, from April 2018. Homes with these ratings are most common in the private rental sector.

Tenants will hold the power in demanding developments to insulation from 2016, with landlords unable to refuse reasonable appeals for better energy efficiency.

The English Housing Survey revealed that 11.4% of houses in the private rented sector had the F or G rating in 2011. In a dramatic contrast, just 2% of local authority properties, and 1.6% of housing association homes had these ratings. The number of owner-occupied houses was higher, at 8.2%.

These ratings expose a lack of basic insulation. Over half (57%) of owner-occupied properties have cavity wall insulation where a cavity existed, with 38% of privately rented houses having the insulation. Within social housing, the number is 63%.

Over 12% of house in the private rental sector do not have double-glazing, whereas 5.3% owner-occupied homes do not.

The Government is yet to decide whether the prohibition of letting out badly insulated properties will come into force on a set date, or whether they can be rented until the end of an existing tenancy agreement.

The National Landlords Association (NLA) has introduced a scheme to aid landlords in making the energy efficient changes to their rental properties. It reflects the Government’s Green Deal, in which energy efficiency improvements are paid for by a loan that is then repaid through an electricity bill add-on. The impression is given that a reduction in energy bills will cancel out the loan.

The NLA says: “The Government has made it clear that there will be consequences for those who do not voluntarily improve the energy efficiency of their properties by a specific time, so there is no excuse not to comply with the cost-neutral scheme.”1

Buy-to-let investors, however, could be caught by surprise by the laws. A growing number in the market borrowed a total of £16.4bn last year, a 19% rise on the previous year, and the highest level in four years.

Investors find buy-to-let appealing for the good rental incomes that surpass the poor returns from cash deposits. Rental yields average 6%, say Savills estate agent.

One in Ten BTL Homes may be Unlettable in Five Years

One in Ten BTL Homes may be Unlettable in Five Years

If this is an industry you’re looking into, there are certain things to reflect on. By considering all of your investments, you must ensure you have enough money to avoid borrowing excessive amounts, or place too much into property assets.

Stephen Rees, Head of Real Estate Advisory at Coutts, a private bank, says: “I wouldn’t advise putting more than 10%-15% of your assets in an investment property. It is an illiquid and specialist market. So if you have only £100,000 to invest, I would think very hard about it. If, on the other hand, you have £1m in assets, buy-to-let is worthy of serious consideration for a part of that money.

“Equally, be sure that you don’t over-borrow. If you put up 20% of the purchase price and borrow the rest, events beyond your control could get you into trouble. Instead, we would recommend at least 50% equity, and even then you should have a plan for cutting the debt if your lender gets cold feet.”

Rees also says that those with less to invest could have 30%-40% of their gross incomes consumed by costs. He says: “You are completely exposed to one tenant, so if he leaves, refuses to pay, or vandalises your property, your income disappears. You also have no economies of scale when it comes to maintenance and little bargaining power with tradesmen and estate agents. Successful investors have usually built up a portfolio of a few properties over time.”1

When choosing the perfect property, the area and home needs to appeal to tenants. Researching the market is vital in determining what they’re looking for.

Jeremy Leaf, a north London estate agent and spokesman for the Royal Institution of Chartered Surveyors (RICS) advises: “Imagine that you are moving to Tokyo or Adelaide and looking for a place to rent. What would you look for? That’s what tenants here will want too.

“Do a huge amount of research, make a nuisance of yourself. Call up estate agents posing as both buyer and tenant to get a feel for levels of supply and demand. Walk the streets at different times of the day to get to know an area. Find out about flood risks and crime levels, and if any new facilities are planned.”1

New build houses can provide low maintenance costs, and potentially guarantee rental income. However, they will also face competition from other investors for tenants, which could force rents down in the future.

A Director at Anderson Harris, mortgage brokers, Adrian Anderson, says: “Commuter towns to London are always good.”1

Another broker, of SPF Private Clients, Mark Harris comments: “The outlook for buy-to-let is bright. As first time buyers struggle to get on the housing ladder, rental demand continues to climb. Yields are improving while the rates on buy-to-let mortgages are looking increasingly attractive.”1

Borrowers are also advised to consider private banks, by Rob Currie, of Nedbank Private Wealth, who could offer better interest rates, equal to those on ordinary residential mortgages.

1 http://www.landlordexpert.co.uk/2013/02/27/energy-efficiency-one-in-10-buy-to-let-homes-will-be-unlettable-in-five-years/

 

 

 

One in Five Landlords don’t have Required Insurance

Published On: December 11, 2012 at 3:19 pm

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Part time landlords are posing an insurance risk, as many do not follow all regulations required by law, says new research.

The increasing number of investors turning landlord has caused a rise in insurance difficulties.

7% of adults in the UK are renting out properties to earn some extra money alongside their main salary. They receive an average rent of £678 per month, with landlords in London and the South East making £1,079 and £816 a month respectively. They earn an average pre-tax profit of 40%, after borrowing costs, management fees and maintenance spends.

Insurance group LV= have warned that the increase of landlords in this sector could have accidental penalties, as many are not aware of all the legal requirements.

Homeowners could also suffer, if they are renting out a property they were previously living in, as their mortgage provider needs to be informed, and they may potentially have to remortgage.

Managing Director of LV=, John O’Roarke says: “Renting out a property can be a great way to cover your costs if you are unable to sell or want to hold on to a home and make some extra money from it. But it is not without risk.

One in Five Landlords don't have Required Insurance

One in Five Landlords don’t have Required Insurance

“Landlords not only need cover for any damage to their property, but they also need to think about their tenants and how they will house them if the property becomes uninhabitable, as well as the lost rental income.”

Ordinary home buildings insurance for the property you live in does not usually cover homes that you let. LV= explained that one in five (195) of landlords, over 400,000, do not have the correct insurance for their tenanted properties.

Furthermore, nearly 500,000 landlords have not had their property examined by a gas safety engineer in the last year. This could result in prosecutions and fines up to £20,000.

Almost a third (32%) of landlords have had their rental accommodation damaged, with an average of £1,200 in repairs. Of all these cases, 44% were damaged by tenants, flooding caused 17% of problems, and storm damage affected 8% of homes.

It is not always an investor’s choice to become a landlord, however.

LV= discovered that 55% of buy-to-let landlords never intended to become one. This amount is caused by people having to rent out their old houses, because they want a bigger home; they have to move for work; they’re moving in with a partner; or not they do not want to or can’t sell their property.

The insurance company says that to comply current regulations on rented properties, gas and electrical equipment must be installed and checked annually by a registered engineer. Tenants’ deposits must also be put into a deposit protection scheme, and some local authorities even require landlords to have a licence.

Those who practise as a landlord full time may use a letting agent to manage their property portfolios.

Letting agents often charge for all legislation to be compiled, to vet tenants and organise rent collection.

Despite this, LV= revealed that almost half (49%) of part time landlords decide to manage their properties themselves, but do not have sufficient insurance. This could lead them to a hefty fine if a tenant makes a claim against them, or if the tenant has an accident as a result of the condition of the property. Property owners are liable for any harm a tenant or member of the public may come to through the state of their property.

Landlords can also be responsible for damage to adjacent properties, for example, an overflowing gutter causing water damage to an adjoining home.

The number of liability claims made against property owners has been increasing recently, say LV=, due to a compensation culture within Britain.

O’Roarke concludes: “If you are thinking of renting out a property, you should check the current regulations for letting properties in your area and make sure you have the right cover in place.”1

1 http://www.thisismoney.co.uk/money/news/article-2850652/Rise-time-landlord-leads-insurer-warn-owners-legal-safety-rules.html

 

 

Call for Investors to be Encouraged into Market

Published On: November 27, 2012 at 5:15 pm

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A new report from MPs has suggested that more build to let investors must be encouraged into the market in order to tackle the housing crisis.

The report from the Communities and Local Government select committee, entitled Financing of New Housing Supply called for large investment in the sector to tackle the growing problem. Additionally, the committee also said that they appreciate the role that smaller landlords will have to perform.

Clive Betts MP is head of the committee that published the dossier.

Financing of New Housing Supply

Included in the report is a suggestion that pension and institution funds “could make a significant contribution to the building of new homes in both the private and social rented sectors.”

Furthermore, the panel believes that real estate investment trusts “should be revamped to encourage investment in housing.”[1]

Call for Investors to be Encouraged into Market

Call for Investors to be Encouraged into Market

The report also calls for the ways that landlords are regulated to become easier. A small passage reads: “While it is right to consider the potential for large institutions to invest in the private rented sector, it is also important to remember that the sector is, and will continue to be, dominated by small companies and individual landlords.

“There are a number of issues facing those in the sector: the financial crisis had a significant effect on the availability of buy-to-let mortgages; many landlords no longer have the benefit of capital gains; and there is some concern about the levels of return.

“We have heard that the burden of regulation and taxation has deterred landlords from expanding their businesses.

“While constraints on mortgage finance will continue to affect investment in the sector, the Government could provide some support by taking steps to address this burden.”[1]

Welcome

The British Property Federation (BPF) has welcomed the findings of the report, having previously campaigned for the Government to remove barriers relating to institutions. This in turn would encourage pension funds to be invested in housing and to reinforce real estate investment trust (REITs) regimes.

Director of Policy at the BPF, Ian Fletcher, said: “We welcome the findings of the report and particularly the support for several of our proposals. With current finance models struggling, we must look at the broadest range of options for funding the UK’s housing supply and institutions and REITs, as well as smaller investors, can all play a part.

“Institutions have for some time expressed an interest in investing in residential property.

“While many of the conditions are already in place, such as rental demand and political support, the lack of scale to deliver an acceptable return remains a barrier.

“We underplay the important contribution individual investors make to housing investment, and I would rather see them investing in housing than classic cars or fine wine, but if we want to see institutions deliver on a large scale we’ll need to see specific build to let schemes.

“The select committee correctly highlights that whilst there is no silver bullet, we need to encourage and support a broad range of different investors in housing supply if we are to meet the nation’s housing needs.”[1]

Chairman of the Residential Landlords Association (RLA), Alan Ward, also welcomed the report. Ward stated that there is a “chronic shortage of accommodation,” and “many tenants are faced with too high rents and are left to simply accept whatever housing they can find.”[1]

As such, Ward believes that encouraging more build to let investors into the market can only be a good thing in attempting to tackle the housing crisis.

[1] https://www.scottfraser.co.uk/news/view/mps-call-for-build-to-let-investors-to-be-encourag

 

 

 

Accidental Landlords Facing Difficulties

Published On: November 24, 2012 at 11:26 am

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Homeowners who plan to let out their property as a method of avoiding the negative housing market may be surprised at how difficult is to become a landlord.

Within the tough rental sector, only the top properties are letting quickly, and these so-called accidental landlords can expect lengthy and costly void periods.

Tim Hyatt, Head of Residential Lettings at Knight Frank, says: “Contrary to what people might think, the lettings market is not busy across the board. As a landlord, you have to be totally flexible and you need to treat the property as you would an investment property; it must be well-priced, neutrally decorated, and ready for someone to move into straight away.”

It is not the first time that accidental landlords have appeared on the private rentals sector, however the number has increased drastically in the last year.

A Director of Savills Private Finance, Melanie Bien, explains: “The stagnant housing market is making it virtually impossible for many people to sell; at least at prices they are happy with.”

This rise in supply has not been met with such an increase of demand, however, as the number of tenants is growing, but at a slower rate.

Richard Price, Director of Operations at the National Landlords Association (NLA), sees the influx of accidental landlords continuing. “It is likely that if property prices keep falling, we will see more people choosing to hold on to their asset and let their property rather than sell it,” he says.1

The lettings industry is now hugely competitive, thanks to the accidental landlords. Hyatt notes: “Stock levels in many offices are up 100% over the past 12 months, while in some offices levels are three times as high as they were at this time last year.”

Jane Ingram is the Head of Lettings at Savills, and says this pattern has been seen in letting agencies also. “They are significantly higher than a year ago, with the number of properties doubling, if not trebling; partly due to the rise in accidental landlords coming new to the market,” she says.1

Hyatt adds: “At the top end of the London market, there is a huge variety of stock for people to look at, so this is a highly competitive market. In some areas, landlords are having to look at rent reductions of 20% to 40% per week.”

Accidental Landlords Facing Difficulties

Accidental Landlords Facing Difficulties

Letting out a home in this market is not as easy as it may seem. Professional landlords are aware of the type of properties that are in demand in particular areas, but accidental landlords do not have this choice.

Website PropertyFinder has said that, “landlords who have not had the power to choose an appropriate property will find it difficult to cover their costs.”1

But this does not mean that renting out your residential property is not a good option. By researching the market, it is possible to find out what type of house is in demand and what rates they are going for. Hyatt says: “Take the advice of your local letting agent.

“I say this all the time but no one listens: ask your agent for some examples of properties that will let overnight and then compare them to your own. If your property does not match up, you should prepare for long void periods.

“Accidental landlords are people who are renting out private homes decorated to personal taste. These properties may not be idea for the rental market.

“You need to ask yourself if you are prepared to make the necessary investment in the property, and whether you are prepared to refinance in order to make that investment. If not, you may struggle.”1

Homeowners entering the industry must also be aware of rental arrears. “For the highly geared landlord whose monthly mortgage payments rely heavily on monthly rental income, tenants not paying can quickly spell disaster,” says the NLA’s Simon Gordon.1

Some mortgage lenders do provide buy-to-let loans to landlords with a 25% deposit; however experts advise having a larger share in order to make money.

Liam Bailey, Head of Residential Research at Knight Frank, says: “The only landlords who are going to make lets work over the next couple of years are those with a decent slab of equity in their property, around 40%.”1

If renting out your home is still an appealing option, the first step should be to notify your mortgage provider. Bien says: “If you fail to do this, you are in breach of the mortgage contrast.

“Theoretically, if the lender finds out, it could insist that you repay the mortgage because you have broken that contract.”

The mortgage lender may permit you to stay on your existing mortgage for a certain length of time before you change to a buy-to-let arrangement. You could be required to switch straightaway. “If you have to switch to a buy-to-let deal straight away, this may be problematic because there are few deals available, and both rates and fees are high,” explains Bien.1

As well as getting permission for the mortgage company, your household insurer will need to be informed. Also, if you plan to offer your property furnished, you should look into specialist landlord insurance.

There are many rules and regulations associated with being a landlord. It is advised that you join a landlord’s association to remain up-to-date on any changes. They may also offer discounts on services, for example, landlord’s insurance. It will cost around £70 a year to join.

It is a necessity for landlord’s to produce an Energy Performance Certificate (EPC) for tenants to examine. EPCs do last for ten years, however. Deposits must be placed in a deposit scheme, such as the Deposit Protection Service, or the Tenancy Deposit Scheme.

Landlords with Houses in Multiple Occupation (HMOs) are required to have a licence from the local housing authority.

1 http://www.telegraph.co.uk/finance/personalfinance/investing/4269824/Buy-to-let-Warning-for-accidental-landlords.html

 

 

Do Banks Want to Lend to Landlords?

Published On: November 23, 2012 at 3:13 pm

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Owner-occupier mortgages have been more difficult to acquire recently. However, banks are offering better deals to landlords, hoping to cash in on the rising buy-to-let market.

Barclays are one of the banks who are amending their offers on buy-to-let mortgages. Their fixed-rate mortgages on buy-to-let properties have decreased by up to 1.1%. Barclays’ two-year deals at 75% loan-to-value is dropping from 5.29% to 4.19%, with their two-year 60% loan-to-value deal declining to 3.69% from 3.88%.

Their 75% loan-to-value rate is especially popular with landlords, says Barclays. Andy Gray, Managing Director of Mortgages, says: “These new products will help customers to save money and make investment in the buy-to-let market more affordable.”1

Precise, a specialist in buy-to-let lending, has also changed their conditions for loans. In the past, they required a minimum income of £25,000 per annum, before lending. Now, these requests are lenient, with decisions being made on three months’ bank statements, reviewing each individual case on its merits.

Alan Cleary, Managing Director of Precise, explains: “[It] is a positive move towards common sense lending where we assess if the loan is affordable, rather than imposing an arbitrary rule on our borrowers.”1

Unregulated Lettings Industry like the Wild West

Unregulated Lettings Industry like the Wild West

As rents are continuing to rise, and banks are showing confidence in the buy-to-let market, more deals could be made in the next few months and even years, which could prove effective to new landlords trying to break into the sector.

It is also claimed that building societies are favouring landlords over homeowners.

The Building Societies Association (BSA) says that almost all of their members offer buy-to-let mortgages. A spokesperson says: “Building societies were originally establishes to house local communities, and the sector still has a keen interest in supporting communities which offer a choice of different forms of housing, for some people, renting is a choice rather than a necessity.”2

However, the reality is often that many people do not want to be renting in the long term, and are trapped by a difficult market for first time buyers.

It isn’t hard to comprehend why building societies are eager to offer buy-to-let mortgages. Lending to landlords can often earn a society higher fees than to first time buyers, and are considered lower risk.

One in three of the BSA’s members’ loans were to first time buyers last year, they say. They also claim that lending to one area (buy-to-lets) is not at the expense of another (first time buyers). Despite this, it is clear that the kind of property a buy-to-let investor will buy is exactly the type a first time buyer may be looking for.

As Britain is building very few houses, when a loan is given to a landlord, an owner-occupier is losing another property option. Additionally, buy-to-let is still unregulated and loans are calculated with cheap interest-only rates. At the same time, first time buyers have a post-financial crisis to deal with.

If buy-to-let was limited to new build houses, money could be spent strengthening the construction industry, and halting price rises.

1 http://www.justlandlords.co.uk/news/Banks-Keen-to-Lend-to-Landlords-1515.html

2 http://www.theguardian.com/money/blog/2013/feb/22/should-building-societies-lend-buy-to-let-landlords