FCA to modify rules on mortgage prisoners

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It has been revealed that the Financial
Conduct Authority (FCA) will be reassessing rules to help those who have been
named as ‘mortgage prisoners’. The term refers to homeowners who are not
necessarily looking to move properties but are unable to change providers due
to being trapped on a rate by their current mortgage provider.

It is estimated that there around 150,000 people across the country who are classified as mortgage prisoners. Broken down into sub-categories, this equates to approximately 10,000 of these borrowers who are stuck on a rate with an authorized firm, 20,000 with a mortgage provider who is no longer lending and a staggering 120,000 who are trapped by a mortgage rate with a firm no longer authorised to lend.

What
action will the FCA take?

The FCA has stated it is proposing the idea of
a ‘modified assessment’ which will be a softer version of the affordability
checks that are carried out when someone applies for a mortgage. This
assessment would only be applicable to homeowners who are not looking to borrow
additional money and those who have kept up-to-date with their repayments thus
far. If borrowers meet these modified criteria, then they may then be eligible
for a lower, more flexible rate through remortgaging or through an
interest-only mortgage.

If this proposal is brought to fruition,
downsizers may benefit too, since those looking to sell their property and move
to one of a lower value, may too be able to go through the modified assessment
and access better rates.  The
consultation is set to end on 26 June 2019).

Peter Wilson of RemortgageQuotesOnline.co.uk commented: “This is a very exciting development that will be helping thousands of homeowners across the UK. We have a lot of good homeowners who have been keeping up with their mortgage repayments for years, but have been tied down to unfavourable rates because their banks have gone bust or their debt has been sold onto another party. This modified assessment could finally provide these good credit, well-paying homeowners the lower rates that they deserve.�

Alongside its recommendations for implementing
a modified assessment to help address the mortgage prisoner issue in the UK,
the FCA is also intending to create a comparison site. This website, which will
be an unbiased intermediary comparison site specifically for mortgage and
pensions, will be designed to provide transparency for consumers. It intends to
create a website free of bias that often exists on comparison sites and their
partners elsewhere on the web.

The FCA said: “We believe this will
incentivise intermediaries to use more lenders. This should drive up quality
among intermediaries and improve competition between them (as well as
competition between lenders). This might also help consumers referred to an
intermediary by estate agents and/or developers. Consumers would be better
placed to identify whether that intermediary offers the level and quality of
service that they want.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – FCA to modify rules on mortgage prisoners | LandlordZONE.

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Tenant Fees Act – Rent arrears default fees

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The way I read rent arrears is we can not charge unless it is more than 14 days overdue. Thereafter we can charge 3% above BoE base rate. We can no longer charge a fee for letters etc.

So assuming average rent in England excluding London of £782

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High rental demand off-plan Manchester opportunity with up to 6.7% yields

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Greenwood Place is situated on the outskirts of Manchester, only a 20 minute drive to the city centre. Leef Property Management has stated that these apartments are in a high rental demand location and expected to achieve rental yields of up to 6.7%.

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Rent to Rent Brexit guidance failure

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Ministers have so far failed to publish any guidance for landlords about the implications of Brexit for the Right to Rent scheme.

Under this scheme landlords are responsible for checking the immigration status of their tenants with the prospect of prosecution if they know or have “reasonable cause to believe� that the property they are letting is occupied by someone who does not have a right to rent in the UK.

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How to avoid underinsurance of your property

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Landlords’ Insurance:

Property underinsurance can be a huge headache for
landlords. Failure to insure your property adequately could leave you in
financial dire straits in the event of a serious loss or a fire or flood in
your property.

Current statistics put the rate of underinsurance of UK
rental properties at 40 per cent. That
could be you.

It is a landlord’s responsibility to ensure that they calculate and declare the full rebuild value of the rental property making sure it is adequately insured for its total rebuild cost this figure should also include reasonable amounts for architects, surveyors and legal fees, debris removal cost and other costs to comply with government or local authority requirements.

Property underinsurance is defined as a property that is insured for less than the total cost to rebuild. In the event of a claim related to an underinsured property, insurers will not pay the full amount of the claim regardless whether it is a total loss or not.

For some landlords underinsurance can be catastrophic, for example, would you be able to find £45,000 of a £100,000 claim? Landlords can avoid instances such as this by understanding how to avoid underinsurance and by taking out specialist landlord insurance. 

Why do landlords
underinsure their properties?

Often underinsurance is down to simply not understanding or
adequately researching the full rebuild cost of the rental property. Additionally,
in some instances landlords may think that underinsurance can be used to gain a
cheaper premium but the truth is that a small amount of money saved at renewal
of a policy could pale into insignificance when compared with a claim that is
not adequately covered due to insufficient insurance.

Other reasons for underinsurance include:

1. Landlords can often fail to take the total rebuild value into account. Buildings insurance works on rebuild value, rather than market value. Therefore insuring your property for less than the total rebuild value would mean your property is underinsured
2. Failure to protect the property with specialist landlord insurance. Unfortunately, some landlords believe that their property can be covered using a standard home insurance policy. However, standard home insurance does not protect the landlord adequately in the event of negligent tenant behaviour, liability cover or damage to the property. It is therefore important that landlords are adequately covered by a landlord specific insurance policy
3. Landlords failing to take loss of rent into account. Sometimes it can take a while for a property to return to a liveable, or workable, state after a claim. In this instance loss of rent cover may not be adequate for the extended period of time
4. Failing to carry out regular evaluations of the rental property. Multiple factors can influence your property’s rebuild cost, for example adding an extension to the property would increase its rebuild cost. In addition, many landlords fall foul of ‘auto-renew’ policies year after year and do not take into account any changes or enhancements to the property which could influence their insurance policy

What happens if you underinsure
your property?

In the event of a claim, if your property is underinsured
insurers will not pay the full amount and instead will apply what is known as
an ‘average’ to the claim.

For example;

A landlord insures their property for £100,000, and later
claims for £50,000 following an accidental fire in the property that was caused
by the tenant. When the insurers assess the actual rebuild cost of the property
the find it to be £200,000. In this instance the landlord has therefore only
covered 50 per cent of the actual value of the property (£100,000/£200,000). In
this event the insurer applies ‘average’ which means that only 50 per cent of
the £50,000 claim would be paid. The landlord is therefore then responsible for
picking up the bill for the additional £25,000. A costly mistake.

For this reason it is important that landlords ensure they
have declared the full rebuild value (including the costs mentioned earlier) to
ensure that their rental property is adequately insured to cover the costs
should the worst happen.

How do you avoid
underinsurance?

Luckily for landlords there are a number of ways to avoid
financial loss in the event of a claim. Top tips for landlords to avoid
underinsurance include:

• Making sure that a regular professional property valuation is carried out on the property. It is recommended that this is conducted every five years or if property prices have changed significantly. A valuation should consider all aspects of your property, this includes local and regional housing trends. To gain an indication of your property’s rebuild cost you can use the Association of British Insurers online calculator https://calculator.bcis.co.uk/
• Don’t forget to base your insurance cover on the rebuild cost and not the property’s market value. The value should include not only the main structure of the property but also external areas, including walls, and anything else that is on site. In addition demolition, removal of debris, rebuild and material costs and professional fees should also be included
• Making sure you understand the terminology. Keeping yourself up to date with the latest terminology can help to keep you informed. For example key terminology includes;
  • Buildings sum insured: the cost of rebuilding the property if it was completely destroyed including demolition, removal of debris, local authority and professional fees
  • Average: if a property is underinsured, in the event of a claim the insurer would proportionally reduce the pay out by the amount that the property is underinsured
• Ensuring that you take out a comprehensive specialist landlord insurance policy that is index linked. A policy that is index linked means that it will increase your buildings sum insured at each renewal by the percentage based on the BCIS House Rebuilding Cost Index; this is incredibly useful when it comes to reducing the likelihood of underinsuring the property
• Avoiding delays when it comes to obtaining adequate insurance and certainly don’t wait until you need to make a claim! Avoid underinsurance on your rental property by securing a comprehensive insurance policy from the start!

Hamilton Fraser Total Landlord Insurance can help you to protect your property from many eventualities. Speak to a member of the team today on 0800 63 43 880.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – How to avoid underinsurance of your property | LandlordZONE.

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Property Guardianship falls foul of HMO rules

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Property Guardians:

A property guardian is somebody who lives in a property
which would otherwise be vacant in order to secure it, and in particular to
protect the property against unauthorised occupiers such as squatters.

In recent years several companies have sprung-up offering
guardianship services to owners of properties, most commonly vacant commercial properties,
and these services have been very well received by property owners.

In the round the guardianship proposition seems a win-win
situation: the property owner enlists the services of a property guardian
company to secure an empty property. This works out far less expensive than
employing 24/7 traditional security services; and for those property “guardians�
who live in the property, they do so at much less than the average cost of
living in the private rented sector.

However, the guardianship companies have increasingly come
up against the residential letting regulations with regard to occupier safety
and security of tenure.

For example, Shelter, the homelessness charity have claimed
that the license (or guardianship agreement) commonly used by these companies often
contain terms that may be unenforceable when considered under the principles of
the housing, landlord and tenant, and consumer law.

Likewise, some local authorities have taken guardianship
companies to task over HMO regulations, arguing that any temporary guardianship
letting must meet the exacting safety standards required of a standard HMO. This
of course is difficult and may be expensive to achieve in say a factory or
office building, and when the letting may be only temporary, may put the
project into the realms of non-viability.

In the matter of security of tenure and safety, the government has offered guidance by way of advice on guardianship agreements – Property guardians: a fact sheet for current and potential property guardians – see here

But perhaps more worrying for guardianship companies is the pursuit
of these companies over the licensing HMO regulations. Colchester Borough
Council has prosecuted Camelot Guardian Management Company Ltd (Camelot Europe)
for failing to licence an HMO and for multiple breaches of HMO management
regulations. On 28 March, Camelot pleaded guilty to 15 charges.

As well as the failure of Camelot to apply for an HMO licence
for a former care home operated by Camelot having up to 30 guardians living in.
A local authority inspection found that there was a faulty fire alarm system,
blocked fire escapes and sealed doors. In addition, guardians only had one
kitchen and the shared bathrooms lacked hot water, charges to which Camelot
also pleaded guilty. They have yet to be sentenced to determine the levels of
fines likely in these situations, but in theory they can be unlimited.

It also transpires that a number of the former guardian
occupants of the property had already brought applications for Rent Repayment
Orders arguing that the property being an unlicensed HMO was illegally let. These
claims had been settled out of court by Camelot before the hearing at the FTT.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Property Guardianship falls foul of HMO rules | LandlordZONE.

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Our webinar about LLP’s is now available on demand

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This 64 minute webinar, recorded live on 6th April 2019 is now available to view on demand and free of charge.

The main presenters are:-

• Mark Smith, Barrister-At-Law and Head of Chambers at Cotswold Barristers
• Mark Alexander

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Worried to call mortgage supplier over consent to let

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I bought my house mortgage free 18 years ago to house myself and my 2 kids. I got a residential mortgage with Halifax 14 years ago and built a 2 storey extension to the side of my house consisting of granny annex &

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Neighbour issues leading to increased insurance claims…

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Landlord Insurance:

Neighbour related problems are on the rise, that’s according
to recent research by AA Home Insurance, which reveals that 16% of legal
expenses claims made to the AA in 2018 were down to neighbour related issues.
That compares to only 14% of claims made in 2017

According to the AA, the most common claims are made because
of:

• Water Leaks
• Tree root damage
• Party wall damage due to building works
• Noise
• Prevention of a right of way to a policyholder’s
  property
• Invasive plants such as bamboo, ivy &
  knotweed

One of the most frequently asked questions from those
insured with the AA was, does my insurance cover damage caused by neighbours?

The AA replies that, most home insurance policies don’t
specifically mention damage caused by neighbours, but it says it’ll be covered
by most policies.

If a neighbour, for example, living in a flat above, floods
the flat below, causing damage to yours, you’d be protected by ‘escape of
water’ cover.

Alternatively, if a little menace next door kicks a football
through your kitchen window, you’d also be covered if your policy has
‘accidental damage’ cover.

However, in both of the above examples, any policy excess
payment would apply.

It is important that landlords to read through policy documents
thoroughly to check what cover they have, and if there are any restrictions.

It is very important to make sure that your landlord policy
covers public liability / third party claims, such as accidents at the
property.  A normal household policy will
not give landlords total protection to these potentially very expensive claims.

You should always politely inform your neighbours and your
insurers when you do notice the initial signs of damage – or the possibility of
damage and a claim. The neighbours may not be aware that their actions are
damaging your property.

Your neighbour may not always be held responsible for damage
to your home says the AA if, for example, a storm is a cause for a tile falling
off their roof and causing damage to your property, then the neighbour is
unlikely to be responsible.

Should the dispute be unresolved by discussion, mediation is
an effective way to resolve inter-neighbour disputes if the parties can agree
to it.

Mediation is when an impartial legal representative acts as
a referee between two people who have fallen out. They work to resolve disputes
and come up with a mutually beneficial agreement for both parties. Although, a
fee may apply it’s generally quicker and cheaper than going to court, even if
your home insurance covers legal expense cover. This course of action prevents
the need for either side to take legal action. It also stops any disputes from
getting worse.

When claiming for damage caused by neighbours you should keep
a detailed written record of the problem by way of a journal, including
photographs if possible. The photographs will serve as your evidence that the
issue is ongoing, and potentially getting worse.

If the damage caused by your neighbour is substantial, is
not covered by your insurer, and your neighbour refuses to assist, then you may
have to consider legal action as a last resort. When your policy includes legal
expenses cover this you can use for your potential legal action.

However, the AA says, your insurer will usually first
consider whether your claim has ‘reasonable prospects’, that is ‘a 51% and
above chance of succeeding and enforcing any award’.

You can still take legal action if your home insurance
doesn’t include legal expenses, although this can be a costly process.

The AA release this animated video surrounding Neighbour Damage

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Neighbour issues leading to increased insurance claims… | LandlordZONE.

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Fitness for Human Habitation Act

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A fifth of the UK population now lives in rental accommodation. The Fitness for Human Habitation Act came into force just last week. This new Act is designed to ensure all rental accommodation meets certain criteria.

The rental property must be free of defects and this includes all private rentals

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