Comment: the self-defeating march of ever increasing landlord regulation

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Announcing his Levelling-up White Paper, Michael Gove unveiled the government’s plans “to transform the UK by spreading opportunity and prosperity to all parts of it.” The rhetoric sounds fine and dandy, but the reality for landlords is likely to be something quite different.

In addition to having to deal with a slew of additional regulations and restrictions, many private buy-to-let landlords are likely to have to put their hands deep into their pockets to substantially improve their rental properties. Older properties will need the most money

Older rental properties

Gove’s plans will force rental property owners with older properties – and the majority of rental properties tend to be older – to carry out improvements costing up to £15,000 each. There are estimated to be around 800,000 rental properties in England that fall into the category of needing up-grading.

The 400-page white paper proposes new minimum standards for private rentals, and new regulations which come on top top of existing rules, forcing landlords to make properties more energy efficient.

This, combined with the other landlord measures included in the White Paper, the tenant friendly letting restrictions, will undoubtedly drive some existing landlords out of the market. It will exacerbate an already severe shortage of suitable homes in the very regions the policy is focused on rejuvenating.

The National Residential Landlords Association (NRLA) certainly thinks so, it warns that the additional cost of these upgrades will force more private landlords to sell up, unless the Government comes up with some sort of support package.

Minimum health and safety standards

Mr Gove’s proposed changes will mean that all rental homes have to meet minimum health and safety and energy standards. But because areas in the North and Midlands, where levelling up is targetted, tend to have higher rates of poor quality homes, the measures will have a disproportionate effect on landlords in these regions.

Parts of Yorkshire and the Humber, the West Midlands and the North West are specifically mentioned in the white paper, but here property values are lower that other parts of the country, which means that landlords are unable to use mortgage debt to cover the high cost, as is the case in say, the South East.

Arguably, some of these proposed measures are sorely needed where a minority of neglectful landlords are concerned, and particularly those issues affecting health and safety, but others are taking the industry back to the dark old days of long-term security of tenure. The Rent Acts, which gave tenants lifetime security – and some of those legacy tenancies are still around today – are at the extreme end of this scale, but the trend now goes in that direction.

Section 21 to go…

The long anticipated abolition of Section 21, the ‘no fault’ eviction process which has provided a “safety net” for private landlords since the 1980s, is coming to an end, according to the paper. It will end the “unfair situation where renters can be kicked out of their homes for no reason,” the Paper says.

There will also be a consultation on introducing a landlords’ register, yet another measure that is supposed to crackdown on rogue landlords, the idea being that it makes sure that fines and landlord bans stop repeat offenders. However, it introduces further costs and a similar system operating in Scotland for some years now has met with questionable results.

Tightening regulations will make life tough for landlords

The current trend across the whole of the UK regions is to tighten landlord regulations, giving tenants ever more protection, but is this really helping?

Across the regions, starting with Scotland but spreading to Wales, Northern Ireland and now England there are seriously more stringent measures being introduced, all of which make the work of landlords more onerous and risky. They give tenants increased security of tenure, along with other protections.

When faced with delinquent tenants landlords want to be able to evict, and quickly. On the other hand, when landlords have good tenants who look after the property and pay their rent on time, most landlords would want them to stay as long as possible.

Compared for example to some American states – Virginia for example, with police sheriffs evicting tenants if they miss just a few weeks’ rent – evictions in the UK can never be described as quick or easy, averaging around 6 months, and this time period is now set to get extended even further.

A major deterrent for landlords

The assured shorthold tenancy – which remains in tact in England for now – was a major factor in the growth of the buy-to-let market, with around 4.4 million households now rented under the regime. It guarantees that landlords can regain possession, albeit with a few months’ wait, but it provided the necessary assurance that investors and mortgage lenders could at least get their property back, even if it meant a financial loss, usually before too much damage had occurred.

With these new proposals, the shorthold concept is under threat in England and is already gone in Scotland and Wales. It’s passing will be a major deterrent for landlords.

Most tenants are responsible

In my experience of dealing with working and professional tenancies, the majority of tenants, around 90% of them (19 out of 20), are excellent tenants. They respect the property and pay their rent on time. But if you get saddled with the 5% tenant, the one out of 20 who fails to pay, causes damage or generates constant complaints from neighbours, then it looks like you are in for a very rough ride in the future – there will be no quick, easy or inexpensive solution.

So, increasing security of tenure increases risk for those landlords. For those who operate a portfolio of properties, say 5 and upwards – and many now operate through limited companies – they can generally cope quite well with the odd rogue tenant. But what about the 45% or so of landlords with just one property, many relying on their rental income to pay a mortgage or fund retirement. For them a bad tenant becomes a financial nightmare, and it’s likely to get worse as these new laws come in.

House price growth is peaking

So far through the pandemic landlords have been bolstered by the growth in house prices. House prices growth has confounded all expectations though the Covid pandemic, and this has been a boost for buy-to-let investors with rents rising by 5% and house prices by 10%, keeping many landlords in the market. But as the virus recedes, we hope, and we face the massive debt that’s been accumulating, house price growth is likely to stall.

So, take more expensive mortgages, tighter regulations, draconian eviction restrictions throughout Covid causing serious rent arrears, a hostile tax regime and these new proposed measures and combined they could easily trigger a mass exodus of buy-to-let landlords in 2022. That’s what’s likely in store for the UK buy-to-let rental market in 2022.

There is only one result, in my view, of cracking down so heavily on the responsible majority of buy-to-let landlords who operate within the law and provide an excellent service – they will leave. If they leave, a rental shortage will keep rents high or push them even up higher – total rental stock levels are already some 43 per cent below their five-year average, that’s according to property portal Zoopla.

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Landlord Incorporation To Pay less Tax for Landlords in 2022

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Hundreds of thousands of property landlords are paying too much tax and in this video, I am joined by Mark Alexander from Property 118 to tell you what you can do about it.

Section 24 is a massive tax burden on Buy to Let landlords.

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LAW: Landlord brothers lose appeal against being fined £10,000 EACH over illegal HMO

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Two landlord brothers have lost their appeal against both being fined for failing to licence their HMO.

Gurmail and Jarnail Gill were each fined £10,000 by Greenwich Council for not licencing the property in Conway Road, Plumstead.

After a First Tier Property Tribunal backed the decision, however, they appealed to the Upper Tribunal which has now ruled that they are both liable because both had control of the HMO.

The court heard how the brothers had inherited the property from their parents in March 2017 and let it to a single tenant, Mr Pradhan, who was holding over under an expired tenancy granted to him by their father. 

£1,400 a month

The original tenancy had included a ban on sub-letting but Mr Pradhan did not live at the property and instead sub-let it to five elderly residents.

He paid £1,400 a month to the Gills and collected rents totalling £1,800. In October 2017, the house became subject to an additional licensing scheme.

The pair argued that joint landlords should jointly be liable for a single financial penalty as there was only one person with control, albeit a person comprised of two individuals.

They said that this was reinforced by the fact the rent was shared equally between them, so neither was a person having control who could commit the relevant offence.

However, the tribunal judge ruled: “Each was a person having control of the HMO and each held that status while the HMO was occupied in circumstances which required a licence but where none had been obtained. 

“The appellants did not jointly commit the offence, they each committed it and each could have been separately prosecuted. In the same way, each could be the subject of a separate financial penalty because each has committed his own offence.”

Read more about HMOs.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – LAW: Landlord brothers lose appeal against being fined £10,000 EACH over illegal HMO | LandlordZONE.

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EXPERT: Why HMOs are a landlord favourite once more

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HMOs are rapidly gaining in popularity with a wider range of renters on a budget, according to the boss of one of the country’s largest property investment firms.

Mish Liyanage, founder and CEO of Mistoria Group, believes HMOs now appeal to more people including professionals, especially those who are progressing through their careers and want to keep costs down.

“Rentals are high, and not everybody can afford to live in the city centre for example, so HMOs become a viable and affordable option,” he tells TheBusinessDesk.com.

Demand has also remained strong throughout the pandemic, particularly in university towns and cities such as Liverpool and Manchester where HMOs continue to be the property of choice for students looking to live with friends.

Risk spread

Liyanage adds: “For investors, HMOs often provide higher yields compared to single-let properties, risk is spread and there is more than one source of income, and we expect to do work with more investors in this area over the next year.”

He has previously warned of the pitfalls of buying properties at auction to convert into HMOs, pointing to increasing numbers of investor landlords who face expensive legal battles when they try to recover losses, due to vendors misrepresenting the legal pack.

Liyanage says: “After going through the purchase process, investors are finding that the development or conversion plans they have proposed to carry out are no longer possible as there are sitting tenants, with no evidence that the deposits have been protected with an approved scheme.”

He advises investors who are considering buying property with tenants in situ via an auction to do their homework on the legal pack, especially the AST, well in advance.

Mistoria Group owns more than 100 residential and commercial properties and manages another 1,000 properties and 3,000 tenancies across the North West.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – EXPERT: Why HMOs are a landlord favourite once more | LandlordZONE.

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HMO platform raises £275,000 as it bids to become ‘Airbnb for house sharing’

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A tech platform that enables landlords to manage HMOs more effectively has raised £275,000 in new funding as its bids to become the ‘Airbnb for shared living’.

The money comes from asset management giant Mercia which has ten offices around the UK. Its MEIF Proof of Concept & Early Stage

Fund has made the investment in COHO, whose CEO Vann Vogstad (main pic, centre).

He came up with the idea of an online property management platform just for HMOs after living in house shares in Birmingham when he was a student.

COHO, which is unique within the housing tech space, is hoping to accelerate the growing trend for co-living amongst people of all ages. It allows property investors to manage their portfolio and tenants to find a suitable house share with like-minded people.

The platform, which Vogstad co-founded with Liam Cooper last year, has since then signed up 80 landlords.

The funding will allow the Worcester-based company to expand the team with the addition of five new jobs and develop a host of new features to improve the management of shared living.

Mainstream

“By making house sharing easier to manage for both landlords and tenants, COHO aims to bring it to the mainstream,” says Vogstad.

“The support of our investors will enable us to move forward at a much faster pace to achieve our ambition of making shared living more accessible to both property investors and tenants, and become the Airbnb of house shares.”

Kiran Mehta, Investment Manager at Mercia, says: “The property management sector is ripe for innovation with many landlords, in particular those with HMOs, having to patch together multiple management tools.

“COHO offers a one-stop shop for property management. Vann and the team have carved out a strong niche in the HMO market and have plans for some exciting additions to the product roadmap.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – HMO platform raises £275,000 as it bids to become ‘Airbnb for house sharing’ | LandlordZONE.

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Landlords are their reducing leverage requirements

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“Since the end of lockdown, we’ve seen an increasing population of landlords who do not wish to leverage their properties as much as they may have done previously. As a responsible lender, we have launched some 50% and 60% LTV products to cater for this market and reward this prudent approach.

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