RICS Surveyors concerned about Landlords leaving the PRS

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The Royal Institution of Chartered Surveyors (RICS) conducted a survey of its members which highlighted their concern over landlords leaving the PRS when demand for rental property is already outstripping supply.

Member Surveyors surveyed thought on average over the next five years rental price inflation would be 3% where as they thought house price inflation would only average 2%.

61% of Surveyors thought more landlords would exit the market than enter the market over the next year and only 12% predicted the reverse.

Over the next 3 years 52% predicted there would be a net loss of landlords to the PRS and only 17% thought there would be a greater number (some may still not fully understand the consequences of Section 24).

Paul Bagust, of RICS, expressed concern over this prediction of landlords exiting especially when current house price inflation would normally mean the reverse.

Paul said: “A functioning private rented sector is crucial to a healthy housing market and it’s predicted that over 20% of all households will be PRS by 2020. The sector is extremely diverse, including many one home landlords.

“RICS is part of a sector wide collaboration developing a revised industry led PRS Code of Practice, to raise standards for both consumers and landlords, bring clarity to those already in the market on various policy measures, and encourage landlords back into a professionalised market.”

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Leicester BTL Recap (And What It Means For 2018)

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Leicester overview – the landlord year in figures

According to Zoopla, last year the average price for a property in Leicester was £206,115, whilst that average rose to £215,257 for August 2017, a growth of 1.11% on the year before. According to Rightmove’s Rental Trends Tracker for the East Midlands, asking rent saw an annual change of 2.7% and a quarterly change of 2.0%, suggesting Leicester’s rental market picked up in the last six months, no doubt aided by strong demand from student accommodation. That more or less reflects the wider picture. The national average of asking rent (outside of London) is up 1.9% on last year and 2.8% up six months ago, which is roughly in line with the 2.7% average of the last five years. In all, asking rents hold up despite a 7% increase in available properties.

These averages largely reflect the change to Buy-To-Let legislation seen this year. We take a look at them below.

Stamp Duty Land Tax (SDLT) (1st April 2016)

More than a year has passed since the new SDLT was devised to limit the rise of house prices and halt the decrease in the numbers of homeowners nationally, by creating a surcharge on Buy-To-Let purchases by 3% (see graph). So far there have been 60,000 transactions of these additional properties, accounting for £1.8bn in stamp duty. £1bn alone was raised by the new 3% tax. However, these figures also include property owners buying before selling. HMRC have refunded 10,700 of this type of SDLT taxpayer to the tune of £126m.

What does the new 3% tax mean for Leicester’s landlords?

Ex Housing Minister, Gavin Barwell, and George Osborne have gone some way to taxing investment and tackling irresponsible lending. This new 3% tax could leave many of Leicester’s landlords looking to make up losses by shoring up investments or raising rents. A £200,000 property would now cost £6,000 more with the additional 3% tax.

In the wider picture of the economy, the levy has certainly raised extra cash for the coffers, but hindsight reveals it has had a negative effect on the housing market with slower sales and rising rents.

New Buy-To-Let Mortgage Lending Regulation (1st January 2017 and 30th September 2017)

The Bank of England’s Prudential Regulation Authority (PRA) sought to tighten up affordability criteria earlier this year as well as mortgage stress tests at 5.5%. The end of September, sees the implementation of regulatory burdens on portfolio landlords; that is, lenders will now have to take into account income and mortgage details on all properties before refinancing landlords with four or more properties. These restrictions underline the Bank of England and the Financial Policy Committee’s fear that Buy-To-Let investors are more likely to cut losses and sell up than homeowners in the event of a poorly performing market. The logic behind the stricter rules is to avoid a property dump, price drop and a 1988 style bust.

Scrapping BTL mortgage interest rate relief (6th April 2017)

The new tax year heralded another blow to Buy-To-Let landlords by scrapping tax relief on mortgage interest payments. The new restrictions will be phased in over the coming years and eventually replaced with a 20% tax credit in 2020. Overall, this could be bad news for Leicester’s Buy-To-Let landlords as they’ll likely face lower profits and look to consolidate investments.

Tax will now be due on turnover as opposed to profits after deducting mortgage costs. This means that if mortgage rates rise, and rents do not rise proportionally, landlords will be out of pocket. At particular risk of seeing their returns wiped out are higher-rate taxpayer landlords whose mortgage interest makes up 75% or more of their rental income.

What It All Means For The Future

By scrapping tax relief, higher rate taxpayers will suffer the most, particularly if they have high levels of mortgage debt and a large portfolio. Some basic-rate taxpayers could see themselves pushed into the higher tax bracket. The added cost and the thinning margins of profit may mean landlords will be forced to up rent, particularly as housing supply is stifled and demand remains high. That, coupled with Leicester’s high rental yield and relatively low prices, means the city is as good a place as any to batten the hatches and weather the coming storm.

The new stamp duty hike will also make Buy-To-Let investors think twice before purchasing. Having said that, commercial ‘mixed use’ investments valued under £150,000 are exempt from stamp duty. Similarly, limited companies, are exempt from the new mortgage interest tax rules. Leicester landlords looking to explore the option of setting themselves up as a limited company should be aware of the drawbacks and seek professional advice.  Limited companies elicit higher interest rates, different tax restrictions and any transfer of properties may be liable to a capital gains tax and stamp duty and there are plenty of articles on the Property 118 platform about this.

Despite rental prices levelling out in areas, others have continued to rise, Leicester’s own rental prices have fared well, no doubt due to the landlord’s friend – regeneration – sticking around town.

Smart property are a student and professional property management and investment company in Sheffield, Leicester, Nottingham, Manchester and Salford.

As well as their property management services, they offer a long-term rent guarantee programme that Property 118 founder Mark Alexander found ‘so impressive’ he decided to invest in the company himself.

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Are you properly protected against claims by tenants and prosecutions by the authorities?

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This is the 16th and last post in my 2017 Legal Update series.  See the rest of them here.

During this legal update series, I have given you a brief overview of the main laws which apply to landlords renting in the private sector.

It’s a big topic and I have not been able to cover everything.

If you have read all the posts, you will see that there is a lot to know. And failure to comply with the rules can often be expensive.

If you get things wrong then

• You may have an issue with your tenants Or
• You may face action from the authorities.

Claims by tenants

These can be things like disrepair claims or claims for the penalty if you have failed to protect their deposit. Or they may be able to prevent you from evicting them through the courts.

Often tenants are reluctant to take action against landlords – for example if they are worried about losing their tenancy or because that they can’t afford legal fees. However, don’t count on this as there is a lot of advice ‘out there’ for tenants. I suspect, for example, that as the consumer protection laws (discussed in this post) become better known, they may start to be used more.

Don’t forget also that tenants can apply to the Tribunal for a Rent Repayment Order as discussed in this post. This will be VERY expensive for you if it happens.

Action brought by the Authorities

Up until now the main complaint made about Local Authorities is that they don’t do enough enforcement work and allow rogue landlords to ‘get away with it’. However, the main reason for this in the past is lack of funds to employ and train the staff.

I discussed new enforcement procedures available to Local Authorities at some length in this post and am not going to repeat what I said there here. Other than to say that as of April 2017 action by Local Authorities has become much more likely as they can now keep the enforcement fines and penalties and use this to fund their enforcement action.

The best protection

The best protection you can have as a landlord or agent against any sort of enforcement action is to ensure that you are fully up to date with the rules and that you comply with them – and can prove that you have complied. So, keep proper records of everything that you do.

I would advise therefore that you do as much training as possible – the cost of this will be considerably less than the fines and rent repayment orders you may incur if you don’t.

Doing the training

This legal update series has given you a lot of basic information which you can build on. Every post in the series has a section suggesting where you can find more information.

Much of this is to be found in the Easy Law Training online training courses.

Of course, you don’t have to get our training courses, there are other ways to keep up to date.   This Propty118 site, for example, is a wonderful resource.

However, our Conference Course 2017 is especially recommended as it has talks on practically every aspect of landlord and tenant law from specialist lawyers, and is up to date (at the time of writing). So, it is very good all-round training. Plus, you get the speakers detailed notes.

Here are some suggestions for how you could use the online training:

• Watch one of the videos every day, ideally with another landlord or your business partner.
• If you are a letting agency or other property firm – why not watch the videos together – either as a firm or as a department – and have a group discussion afterwards?
• Use the courses for induction training for new staff members
• Watch the videos when travelling e.g. by train – the website is mobile friendly so you can watch it on your mobile devices.

However, the training courses do not just have videos. You can also download mp3 audios of all the talks. So why not listen to them:

• In the car when you are driving to your properties
• While you are doing maintenance work
• In the gym or while walking the dog, or
• While standing in a queue at the supermarket

Most of our online courses also carry CPD which you can get via an online multiple-choice quiz – an excellent way to help you remember what you have learned.

You need to build training into your life as a landlord or letting agent and make sure that you are always learning something new. This is the best protection you can have against legal claims – plus it will make you a better landlord or agent.

Further information:

You will find more information about the Conference Course here.  There is a discount voucher for Property118 readers which is pp118cc30 – apply this on the checkout page and it will reduce the payment by 30%.  Note however that the coupon will expire after 16th September.

Note that you can find details of all our training at any one time via the Easy Law Training website.

There is also a lot of information on my Landlord Law site plus members can always ask me questions in the members forum.

You can find out more about Landlord Law here.  There is also a huge amount of (free) information on my Landlord Law Blog.

Note that we will be putting on a Landlord Law Conference in 2018.  It will be held on 18 May and you can find out more here.  Bookings will probably open in November.

Finally, I hope this legal update series has been useful for you.  You will find all the posts here.

Tessa Shepperson is a specialist landlord & tenant lawyer and runs the popular Landlord Law online information service.

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Rent increases being forced on landlords…

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The latest Private Rented Sector (PRS) report from the Association of Residential Letting Agents (ARLA Propertymark) shows that landlords are responding to the squeeze on their income by passing on at least some of their increasing costs, by way of rent increases.

Around one-third of member letting agents surveyed in July 2017 saw rents increase for tenants, which has increased from just 27% of their agents seeing rent rises in May.

In July ARLA report that the number of properties managed per member branch had increased marginally, to 192 – up from 190 in June, while demand from prospective new tenants had continued to increase.

Private landlords are being faced with a stark choice: either increase rents to offset the increased costs they are face with, due to recent tax rises, or think again about selling the rental property. This latter is happening in some cases and is adding further to the shortage of rental property and pushing up rents still further.

David Cox, ARLA Propertymark chief executive, reports:

“Landlords really are stuck between a rock and a hard place.

“All the tax increases they’ve incurred over the last 18 months have meant they either need to sell their properties and exit the market, or increase rent payments to plug the deficit.

“Neither of these outcomes benefit tenants; if they exit the market, supply is even more strained and matched with growing demand, rent prices will increase anyway.

“Government may claim they are helping tenants but the unintended consequences of their actions on the private rental sector are now really being felt by tenants in terms of lack of homes to choose from and the feeling of being constantly priced out of the market. This needs to change.”

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