Which? report reflects RLA housing court call

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Consumer champion Which? has echoed the RLA’s call for a new housing court in a comprehensive report on PRS reform. The report ‘Reform of the private rental sector: the consumer view’, sees Which? call for a programme of reform ‘to bring the rental sector up to the standards required in the 21st Century’. The report […]

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HMO or What?

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I have been offered a building split into 10 self contained units, no sharing. Planning is for one property and council tax is one property.

Question is ‘what is it’?

I’ve a couple of standard HMOs so know what that entails

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Leasehold reform, good and bad for landlords

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Long Leasehold:

Landlords will find themselves on both sides of the divide if and when the proposed changes to leasehold laws* becomes a reality. A large number of buy-to-let landlords own flats and apartments in blocks under long leasehold and shared freehold ownership, while other landlords own the outright freeholds of the blocks for themselves.

In England and Wales leasehold ownership had been a dying form of tenure for newly built houses and flats, but in recent years it has returned with a vengeance. In 1996, just 22% of new-builds in the UK were sold as leasehold, but this has doubled to 43% today. In London, nine out of 10 new-builds are now leasehold.

The DCLG (now MHCLG) in 2017 estimated that, in 2014-15, there were 4.0 million leasehold dwellings in England in the private sector. Of these, 2.3 million dwellings (57%) were in the owner occupied sector and 1.7 million (43%) were privately owned and let in the private rented sector. There were 1.2 million leasehold houses in 2014-15 and 2.8 million leasehold flats. This represents 30% and 70% of the total number of leasehold dwellings respectively.

Following a spate of leasehold sales, which tied the leaseholders to extortionate increases in ground rents, some doubling every ten years, coming to light, the government instigated a review.

Proposed changes to flat ownership

The Law Commission has been looking into ways to make it easier and cheaper for owners of leasehold flats to buy their freeholds which have been outlined in a report.

The Law Commission’s proposals in­clude changing the way valuations are arrived at when extending leases and buying freeholds, away from the complicated formula currently used. The of this aim being to bring down prices, while still provid­ing landlords with fair compensation. It says this would also remove the requirement that leaseholders have owned their property for two years before making a claim.

The Commission also proposes to give leaseholders an additional right to buy unlimited exten­sions without a ground rent, for ex­ample, for periods of 125 or 250 years.

These new proposals come after ministers recently announced measures to ban the sale of new houses on a leasehold basis, and now this detailed study by the Law Commission. The aim is to give leaseholders more security of tenure and control over their own homes.

Law Commissioner Nick Hopkins says:

“Enfranchisement offers a route out of leasehold but the law is failing home­owners: it’s complex and expensive, and leads to unnecessary conflict, costs and delay.

“We’ve heard of untold stress caused to homeowners who have had to put their lives on hold because of issues with their leases.

“Clearly that’s not right, and our solu­tions for leasehold houses will provide a better deal for leaseholders and make sure the law works in the best interests of house owners.â€�

*About Long Leaseholds

The leasehold system of property ownership is something of a relic of English property law dating back to the 11th Century, mentioned in the Doomsday book of 1089. Freehold effectively means full, outright ownership of land (albeit ultimately, in theory at least, the state owns all of the land in the UK), whereas a leaseholder “owns� or leases for a limited period of time, for example 120 years.

In the middle ages land equated to power, and powerful families wanted to retain ownership of their land while maximising their earnings from it. The concept of leasing was established to allow tenants to work a plot of land, for a fixed period of time, on the basis that they would pay ‘in-kind’ by providing food and services to those further up the social order.

The system was to a large extent exported around the British Empire, but it’s only England that retains the purest form of leasehold, while legislation has been introduced over the years to tame to some extent the worst excesses of the owner’s power over their leaseholders.

The increase in construction of blocks of flats from the 1950s onwards resulted in increasing numbers of leaseholds, particularly in London. During that time leasehold was the only legal means available – before the introduction of Commonhold – to subdivide and sell properties in a multi-occupied buildings.

Commonhold, introduced by the 2002 Leaseold Reform Act, is a system of freehold tenure of a dwelling within a multi-occupancy building, but with shared responsibility for common services. It has never really taken off and freehold ownership cannot be applied to flats and apartments because current property law requires a separate freehold land boundary identifiable on a map.

Leases were originally sold on the basis that when the lease expired, ownership of the land and property reverted back to the landowner/freeholder. This resulted in a public outcry in the 1960s when some elderly leaseholders, many of whom had bought with no understanding of the legal process, were threatened with eviction.

This prompted legal changes to protect leaseholders. But with common issues such as excessive service charges, expensive and inadequate block management, reduction in value and the inability to re-mortgage and sell easily when the lease length reduces below around 80 years, means that many people are still very wary of purchasing leasehold property.

Even today, leasehold is by far the most common form of flat ownership and it’s still possible, though quite rare, for a lease to expire and a leaseholder to be evicted, with the property reverting back to the freeholder. A leaseholder would have bury its head in the sand for decades to allow that to happen.

Legislation introduced between 1967 and 2002 rebalanced the relationship between freeholder and leaseholder to some extent, allowing owners of leasehold flats and houses to extend their leases for an additional 90 years and benefit from other rights, providing they bought the extension following a prescribed formula.

It seems now that further leasehold reform may be on the cards following a spate of abuse by property developers selling off houses as leaseholds.

See Also:

Freehold, Shared Freehold or Leasehold?

Leasehold Advisory Service

Law Commission: Leasehold law set for radical reform

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Breaking: Five-year electrical checks to be compulsory for PRS landlords

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Landlords must have electrical installations in their rental homes checked every five years under new rules announced today. The new mandatory requirement for PRS landlords is one of a number of safety measures to be brought in by the Government, which has also launched a consultation into building regulations’ fire safety guidance. The Government has clarified the […]

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Prolonged heatwave puts properties at increased risk of subsidence

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Subsidence:

As Britain’s longest heatwave in five years continues, Hamilton Fraser, who provide specialist insurance services to the private rented sector, have issued a warning to landlords to ensure they have sufficient buildings insurance, as the shortage of rain puts properties at increased risk of subsidence. In extreme cases, such damage can result in houses being uninhabitable while repairs are being carried out.

Subsidence is the downward movement of the ground supporting the building. Typically, claims for subsidence increase over the warmer months as the lack of rain causes shrinkage of clay soils which expand and contract with changes in their moisture content. In 2017, 65% of subsidence claims to Hamilton Fraser were reported between May and October, despite having a wetter than average summer¹.

With June 2018 ranked within the top five driest on record in England and Wales (figures dating back to 1910²) and the hot weather looking set to continue into much of July and August, Hamilton Fraser is predicting a surge of claims over the next few months.

Modern properties are at less risk as they are normally built on deeper foundations, but Victorian and Edwardian homes, built on shallower foundations, are at greater risk. Trees near properties are often the cause of the worst problems as their roots absorb vast quantities of moisture, exasperating the shrinkage brought on by the dry weather.

Subsidence damage to buildings is most commonly identified by cracks in walls which are; visible from both inside and outside the property, tapered and extending below the damp proof course.

Eddie Hooker, CEO of Hamilton Fraser comments:

“Minor cracks often appear in properties for a number of reasons, and most of the time these are not related to subsidence and can be dealt with during routine maintenance. If your home is in a shrinkable clay area, cracks with widths up to 5mm can occur during unusually dry spells and can then be treated by redecoration when they have closed again after the normally wetter winter months. However, if the cracks do not close, or continue to open beyond widths of 5mm, it is likely there is a long-term problem and you should consult your insurance company immediately.�

¹ Met Office
² Met Office

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Solution for buying student property – Shares?

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We have just sold several buy to lets we have had for a long time. We are looking at re-investing with minimum hassle running of the investment

There are plenty of schemes around which get you to buy a student pod or a room in a hotel

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Scotland’s most ‘responsible’ student tenants

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Students aren’t always renowned for being the most house proud but, for the first time, it has been revealed which Scottish universities have the most responsible student tenants.

Research from SafeDeposits Scotland, the country’s leading tenancy deposit protection scheme

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She’s out – thank you readers for your support and advice

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She signed the Deed of Surrender at 8.30pm last night after demanding that I be there at 4pm yesterday having given me 4 days notice of vacating. Put out the flags.

Some of you may remember that my tenant owes £4k+ in arrears (housing benefit shortfall and a 6 month HB over-payment).

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Increasing concern about an exodus of buy-to-let landlords

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Buy-to-Let Exodus:

According to new research carried out by the Residential Landlords Association’s (RLA) research arm known as PEARL, the UK Private Rental Sector could soon see the loss of 133,000 homes, at a time when in many locations rental vacant accommodation is getting scarce.

Consequently, rental prices are set to rise, and according to another recent survey of The Royal Institution of Chartered Surveyors (RICS) members, letting and estate agents, rents could rise by 15pc over the next five years.

Landlords and their representative bodies are blaming this on the Government’s squeeze on landlords; tax changes, tightening of mortgage rules, and increasingly onerous regulations which are in combination forcing landlords to sell up, warn the surveyors.

RICS says letting agents are reporting a drop in rental properties coming onto the market for the 21st consecutive month, in July 2018. Surveyors think rents will rise gradually over the next 12 months, and keep on rising for at least another four years. The government’s crackdown on buy-to-let owners over the last few years means fewer homes will become available for renting out.

The RLA’s own survey, which takes in the views of 2600 landlords, shows that tenant demand is not slowing down. Around 84% of landlords reported that tenant demand is either increasing or remaining stable. But rising costs for landlords, making the ability to remain profitable after financing costs, are already forcing owners to sell up. On top of the forecast of 133,000 homes lost to the sector, the RLA recon that around 46,000 private rented homes have already gone.

David Smith, Policy Director for the RLA says:

“The demand for private rental homes shows no signs of slowing up, despite efforts to encourage home ownership. The Government was always mistaken to place homes to own and to rent in opposition to each other rather than seeking to supply more homes in all tenures�.

Dr Tom Simcock, Senior Researcher for the RLA, says:

“These changes make it easier for those who are wealthier and cash-rich to invest in the private rented sector, over those middle income earners that may look to purchase a property with finance while also limiting the access of the sector for the more vulnerable tenants and those who can’t afford to buy nor can’t access social housing�.

As if all this wasn’t enough, the government is currently holding a consultation on the possibility of introducing mandatory three-year tenancies. These would have a probationary period of 6 months when the tenancy could be ended by the landlord, but after that the tenant would have a legal right to stay for the remaining two and a half years, while retaining the right to leave at any time, most likely with one month’s notice.

To combat the exodus, the RLA has called for smart taxation policies that would encourage private landlords to provide long-term homes. It is lobbying the Government to end its tax on new homes, suggesting that the additional 3% levy should be waived where a landlord invests in rental property, adding to the overall rental housing supply.

Landlords should make their views known in this important 3-year Tenancy consultation, which ends 26^th August – see here

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Increasing concern about an exodus of buy-to-let landlords | LandlordZONE.

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The cost of five-year fixed buy-to-let mortgage rates is down

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Mortgage Rates:

As customers brace themselves for a possible Bank of England rate rise early next month. The Monetary Policy Committee will announce any rates on August 2^nd.

There is positive news from research out today (18th, July 2018) from online mortgage broker, Property Master, the digital start up that uses algorithms to match the requirements of individual private landlords against the entire buy-to-let mortgage market.

This Property Master research shows the cost of five-year fixed-rate mortgages, increasingly popular with private landlords, and they have continued to fall since the start of the year.

The cost of five-year fixed buy-to-let mortgage rates is down on the start-of-year levels, despite fears of an imminent rate rise, that’s according to online mortgage broker, Property Master. 

Five-year fixed rate mortgages have been steadily gaining in popularity amongst buy-to-let landlords and these are the rates that have best retained their competitive price.

The Property Master Mortgage Tracker follows a range of buy-to-let mortgages for an interest only loan of £150,000 and this shows five-year fixed rate offers for 50%, 65% and 75% of the value of a property have continued to fall since the start of the year.

Savings for each of these mortgages respectively were £11, £24 and £13 per month.  Two-year fixed rates remained relatively stable although savings were available for landlords borrowing 65% of the value of a property.

The rates and costs recorded include product and application fees.  Deals from 18 of some of the biggest lenders in the buy-to-let market including Barclays, BM Solutions, RBS, The Mortgage Works, Godiva and Precise (full list below) were tracked.

Angus Stewart, Property Master’s Chief Executive, said:

“Buy-to-let mortgage rates have remained competitive despite gathering fears of a rise in interest rates.  Any increases in cost that we have recorded in our research, mainly for two-year fixed rates, have been moderate whilst the cost of the increasingly popular five-year fixed rates has continued to fall.

“Much of this has been the result of increased competition in the marketplace, recent figures recorded a 13% increase in the number of buy-to-let mortgages on offer.  Landlords are also benefiting from greater innovation as lenders respond to the changing complexity of regulation in this marketplace.�

Mr Stewart continued:

“Nevertheless, at some point the Bank of England will have to move rates.  There are only four more meetings this year of the Monetary Policy Committee at which a rate rise could be announced so landlords looking to refinance should not assume the deals they see currently on the market will continue to be available.�

Property Master was launched a year ago and aims to shake up the buy-to-let mortgage market currently served by around 12,000 mortgage brokers.  It has already attracted financial backing from a broad range of private investors including a minority stake being taken by LSL Property Services, whose estate and letting agency brands include Your Move and Reeds Rains.

Property Master has automated what was a manual, complex process to provide landlords with a free easy to use mortgage search tool which provides a mortgage quote that is pre-screened against each lender’s specific and changing criteria.  Over 25,000 landlords have already tried the Property Master service and a typical re-mortgage saving is around £1,800.

About Property Master 

Property Master launched last year and is the UK’s first and only digital mortgage brokerage service for UK buy-to-let landlords. Its innovative approach enables private landlords to take control of their financing online for the first time by matching their requirements on Property Master’s unique and complete database of mortgage information and lending criteria. Founded by a group of highly experienced financial services professionals, the company is directly authorised and regulated by the Financial Conduct Authority (FCA).

www.property-master.com

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