Renters’ Reform Bill – Mortgages and RGI

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Hi Everyone, Has anyone received any information/feedback regarding what mortgage and Rental Guarantee Insurance (RGI) companies’ thoughts are with regards to the proposed new legislation, The Renters’ Reform Bill?

I expect RGI insurance premiums will skyrocket and will certainly not cover ‘benefit tenants’

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It’s now cheaper to rent than to buy…

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According to recent research buy property agents Hamptons International, for the last 11 months it’s been cheaper to buy a home with a 10% deposit than rent. This is because to rental growth was tearing away before and mortgage rates were near their record lows.

In May this year, according to Hamptons, it was £40 per month cheaper to service a mortgage with a 10% deposit than it was to rent the same home, while last November it was £160 cheaper to buy than rent.

Now, however, after the latest Bank of England’s interest rate rise, according to figures quoted by Hamptons, the tables have turned and it is now cheaper to rent a home than it is to buy one and in some cases across the regions it is up to £98 a month cheaper to rent than buy.

Aneisha Beveridge, head of research at Hampton’s, says in their report:

“Rising interest rates are set to swing the scales for would-be first-time buyers. This is a reversal of pre-pandemic times when the average buyer saved nearly £800 a year by owning rather than renting.”

The research shows variations across the country, where renting has gone from being an average of £40 more expensive a month for those with a 10 per cent deposit, to £1 cheaper a month than buying.

Regional differences

There are some stark differences across the regions. It is generally cheaper to rent than buy the further south you go, while further north currently tends to be cheaper to buy than rent. Scotland has the strongest case for buying, followed by the North East, Yorkshire and Humber, North West and the one outlier – the Capital itself.

The strongest case for renting goes to The East of England, East Midlands, South East and South West. Wales and the West Midlands come out neutral on current interest rates, though this will change if rates start to climb higher.

The east of England is currently showing £98 a month cheaper to rent over buying, while Scotland gives the highest saving for renting at £176 a month. For those buyers who can only manage a 5 per cent deposit, the latest base rate rise puts buying over £100 per month more expensive than renting.

Aspirational homeowners, says Hamptons, typically are saving up for a deposit, the biggest barrier to home-ownership for most people. But today there are also many thousands of people rent long-term out of choice, even though they potentially have sufficient finances to afford their own home.

Inflation v stagflation

With inflation predicted to hit 11 per cent plus later this year, the Bank of England base rate is almost certain to go higher, though the Government and the Bank will be wary of slowing the economy into a state of stagflation by rising rates too far too fast.

If the base rate rises next on a similar scale to the last rise, it will likely add a comparable amount to mortgage repayments: for every 0.25% rise in the base rate, the cost of buying is pushed up further above the cost of renting by £41 a month for a typical first-time buyer with a 10% deposit.

Over the next year or so, says Hamptons, we expect several further small interest rate rises, with mortgage rates set to peak around the middle of 2023.

Rental growth, according to Hamptons, was hitting a record high of 11.5% across Great Britain in May, but the firm says, “we expect rental growth to slow later in the year as rising living costs squeeze affordability.” It means that for new buyers with smaller deposits, the monthly cost of purchasing a home will be significantly higher than renting one.

Landlords will feel the squeeze

With more base rate and mortgage payment rises, plus a lot of regulation changes in the pipeline, landlords profits are likely to be squeezed. Buy-to-let yields will be hit, fuelling fears that many property investors will be tempted to sell up.

Some landlords will be put under financial stress as higher interest rates begin to bite, while nationally, gross rental yields are already at a record low of 4.38pc because house prices have been climbing quicker than rents.

The international research consultancy, Capital Economics is reported in The Daily Telegraph as forecasting that by the end of 2022, average yields will reach a new low of 4.26pc.

With the general increases in prices, landlords’ costs will inevitably be pushed higher bringing the margin between rental income and mortgage costs thinner, the most squeezed it has been since the financial crisis of 2008.

According to Hamptons, the Bank’s decision to increase the Bank Rate to 1.25pc will cause the average net profit on a new buy-to-let property to fall by 15pc for a landlord who pays higher-rate tax.

Capital growth

Of course, long-term buy-to-let investors need to factor in two important considerations: (1) inflation at 10 per cent means that every year money in the bank reduces by this amount, and inflation favours borrowers, because payments reduce in real terms over time, and at the same time (2) property prices will likely go on rising year on year.

At 10.2 per cent in April, that rate of property price increase is likely to halve in the short term, and their could be a greater fall if the economy goes into recession, but the long-term trend for proeprty prices has always been upwards.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – It’s now cheaper to rent than to buy… | LandlordZONE.

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‘Unfit’ landlord given £12,000 fine over unlicenced HMO in Sussex

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A rogue landlord who operated an unsafe and unlicensed HMO has been handed a £12,000 fine and costs of nearly £4,000.

Brighton-based Ryan Otto, who is listed as a director of several property investment companies including one which companies house lists as in liquidation, converted a two-bedroom house in Barrack Road, Bexhill, into five bedsits in 2018, charging tenants between £370 and £470 a month.

When told he needed an HMO license, his application was refused by Rother Council as it deemed he was not a fit and proper person. Otto was told to reduce the number of tenants or find someone else to manage the property, but failed to do so.

As well as being a landlord, Otto has dabbled in ‘property investment’ advice in the past and until recently published his own podcast offering advice on evictions and tenancy management.

Poor conditions

Council officers inspected his property in March 2021 after one of his tenants complained about poor conditions. They served notices requiring him to make repairs and improvements to the house, including a broken toilet and shower cubicle and an electrical installation that had not been inspected and tested.

Hastings Magistrates Court fined Otto £6,000 for running an unlicensed HMO and £6,000 for breaching two improvement notices. He was also ordered to pay a victim surcharge of £190 and £3,705 costs.

Independent councillor Terry Byrne (pictured), the council’s portfolio holder for housing, says: “This clearly shows that our officers have the expertise and the will to pursue and prosecute private landlords who offer unsafe and sub-standard accommodation for rent on the private market.

“We are committed to raising standards in the sector and have several schemes to help landlords achieve these. We always prefer to work with landlords but if we do not get the required level of co-operation, we will prosecute.”

Read more guidance on HMO licensing.

Pic credit: Google Streetview

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First possible date of court proceedings?

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Hi everyone, I sent out a Section 8 notice (ground 1) on Monday 20th June using a tracked courier that does not require a signature on delivery. I was hoping it would have arrived yesterday or today. Unfortunately, it hasn’t arrived yet and will most likely arrive tomorrow

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First Section 21 notice in 20+ years looming?

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Along with my own portfolio, I look after a single property owned by my elderly mother. It is the last one of my late father’s portfolio, the others having been sold some years ago as they became vacant.

This one

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OPINION: What abolishing Section 21 evictions will mean for landlords

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The long-awaited Government White Paper, ‘A Fairer Private Rented Sector’, has finally been released which, amongst other significant changes to the sector, confirms the abolition of Section 21 and starts to map out the future of evictions.

Moving forward, landlords will always need to provide a reason for ending a tenancy, such as wishing to sell the property or wanting to move back in.

While this will be unnerving for some landlords, the reality is that this has been a long time coming and I believe those landlords who are committed to buy-to-let will remain.

The changes offer tenants greater security as part of a plan to create longer tenancies. But implementing more mandatory grounds of possession under Section 8 should also strike a chord with tenants, demonstrating that rent arrears, criminal and anti-social behaviour will not be tolerated. 

Previously, landlords have used Section 21 in these cases because trying to collate witness statements from co-tenants and neighbours has been challenging and often fruitless where the ground was discretionary.

Knowing this procedure is mandatory will mean a judge has to grant possession as long as the requirements are met and evidence provided.

Disappointing

I think it is disappointing that the notice period for the existing arrears eviction ground will be increased from two to four weeks, but I welcome the new mandatory ground for repeated serious arrears to prevent tenants paying off a small amount of arrears to stay below the eviction threshold. 

But I believe falling into series arrears twice in three years should be sufficient for mandatory eviction rather than the proposed three cases.

It is positive news that the changes have not been rushed in and the transition will be in two stages with at least six months’ notice of the dates that they will take effect, and at least 12 months between the two dates. 

Evictions spike

With concerns surrounding the cost of living, rising interest rates and impending changes to EPCs, I do think it is likely we will see an initial spike of landlords using Section 21 before the changes come in, of which the unintended consequence will be that perfectly good tenants will be evicted.

Over a third of Landlord Action’s instructions currently use Section 21 notices, so this is an indication of how much additional resource the court system will require, and a new robust system must be implemented to give landlords and agents the reassurance they need.

But much of what had been announced was expected.  It will take time for landlords to adapt and understand the new rules but as with everything, the market will adjust and find its new norm.

Author bio: Paul Shamplina is founder of Landlord Action and Chief Commercial Officer for the Hamilton Fraser Group.

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Homes for Ukraine scheme to allow unaccompanied children

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The Homes for Ukraine scheme will allow children and minors under the age of 18 who have already applied through the Homes for Ukraine Scheme to come to the UK without a parent or guardian.

After working closely with the Ukraine government

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NRLA moves to ensure landlords’ interest are considered in key RRO case

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The NRLA has intervened in a long-running legal wrangle over who pays a rent repayment order (RRO) when a property is operated via a rent-to-rent agreement.

The Rakusen vs Jepsen case will, ultimately, decide whether it’s the ‘superior’ (or actual) landlord or the ‘immediate’ one – i.e. the rent-to-rent agency – who is liable to pay the RRO.

The case has been rumbling on since 2019 when four tenants living in a property in North London realised their property had not been licenced under local HMO regulation rules.

They then successfully applied for an RRO not against the agency, whose management of the property had come to an end, but the owner of the leasehold flat, also called the superior landlord.

£26,000

In a subsequent Upper Tribunal case, the landlord argued it was the agency who should pay the £26,000 RRO as they had managed it at the time of the offence and received the rent from the tenants.

The Upper Tribunal awarded in favour of landlord Martin Rakusen but gave the tenants leave to appeal, largely because an earlier Upper Tribunal decision in Goldsborough & Anor v CA Property Management Ltd (2019). It had determined that an RRO could be made against a superior landlord despite there being no contractual connection between them and the tenants.

Rakusen then took his case to the Court of Appeal which found in his favour in July last year – i.e. that the agency should pay the RRO not him – but the tenants’ legal team then won a new hearing in the Court of Appeal.

NRLA intervention

A date for this is now being awaited, but in the meantime the NRLA has applied to intervene in the case because it believes that the outcome of the case may affect other landlords whose interests should be heard and whom it wishes to represent.

“This does not mean that we are directly supporting either litigant or have become party to the case,” it says in a statement published today.

Its Policy Director Chris Norris (pictured) adds: “The Housing and Planning Act 2016 specifies that an order can be made against ‘a landlord’.

“The Court of Appeal decision found that had parliament wished the legislation to act as a deterrent to superior landlords, it could have made “clear and express provision for it”, which it did not.

“In our intervention, we do not seek to defend bad practice or provide a route for rogue rent-to-rent operators to evade sanctions. We intend to make clear the potential implications for other superior landlords who may equally be victims of unscrupulous rent-to-rent firms.”

Read more about rent to rent orders.

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