Landlords are not evil says buy-to-let mortgage lender, Paragon Bank’s chief

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In a recent interview conducted for The Sunday Times, Nigel Terrington, the chief executive of Paragon Bank for the last 28 years, says he has witnessed the growth and indeed the boom in buy-to-let lending over his lengthy career with the bank, but that myths surround buy-to-let.

Having weathered many storms throughout his long career, in particular the financial crisis of 2007-8, which nearly brought down his organisation, he sees the current housing crisis as serious but not insurmountable for landlords.

Landlords leaving

Some landlords are leaving the private rented sector he acknowledges, due to an ever more complicated regulation regime, increased taxes and rapidly rising mortgage rates, which among other factors are bringing down house prices and driving up rents.

Despite this, Terrington remains bullish about the future for the private rented sector and Paragon. He wants to dispel what he says are the “myths” surrounding the role that buy-to-let and the private landlord plays.

Reflecting on the view that although some amateur landlords are leaving, most professional landlords – those with portfolios of properties as opposed to just one or two – and the ones his company targets, Terrington is confident that these landlords will survive and thrive.

The myths

“Its deep rooted in the British psyche, if you go back into black and white movies you had the evil landlord with his top hat and his big evil moustache throwing the widow and child out in the cold. And then in popular TV terms you had [sitcom] Rising Damp and [the miserly landlord] Rigsby. You can laugh at it but it settles in people’s psyche,” says Terrington.

Buy Mr Terrington is not laughing when he sees buy-to-let, which is obviously close to his heart, as an incredibly misunderstand product. A product that has seen his company deliver 75,000 mortgages and spawned a whole new industry since the advent of the buy-to-let mortgage more that 20 years ago. This industry he also sees as the focus of another great myth: the perception that investing in buy-to-lets is risky.

According to paragon’s experience says Terrington, over a 25 year history, mortgage arrears [debt] by buy-to-let landlords have actually been lower than those for owner occupier mortgage holders in every year, but just one.

It’s been tough for landlords and for tenants

Nevertheless Mr Terrington acknowledges there’s been an exodus of private landlords faced with a less favourable tax regime and, more recently, rapidly rising mortgage costs after thirteen consecutive bank rate rises to 5.25 per cent.

The resulting lack of supply in the sector is making tenants’ lives difficult with costs having to be passed on in terms of rent rises and a scarcity of rental accommodation that means that every vacancy is literally being fought over. Rents have risen by 5.3 per cent in the year to this July, the biggest jump since the Office of National Statistics started monitoring rents in 2016, and last year according to NRLA figures, 153,000 landlords left the private rented sector last year.

The Section 24 tax changes introduced by George Osborne, the then Chancellor in 2017, gradually reduced the amount of mortgage interest relief landlords could claim to zero. This was replaced with a tax credit of 20 per cent, but its tax effect on income for landlords with mortgages, especially for higher rate tax payers, was quite dramatic. Couple this with higher mortgage repayments and some landlords a barely making a profit.

For a man who coaxed his company through the banking crisis in 2007 by sending out a copy of Rudyard Kipling’s poem “If”, in order to encourage his executive team to “keep your head when all about you are losing theirs” he sees the current crisis as a mere blip in his company’s history, though he is concerned at the myths and the amount of legislative red tape landlords face.

There are 168 separate pieces of legislation extant, and with the anxiously awaited Renters Reform Bill that will add another layer of complexity and restrictions, for example it will make it more difficult to evict tenants.

The professional landlord

As Mr Terrington says, many of the larger professional landlords his company fiances are less affected by some of the punitive tax measures that many of the small-scale one or two property landlords face. That’s because they operate though limited companies.

It’s debatable whether a landlord with just one or two properties would benefit from incorporating, operating through a limited company. It would be expensive for most of these operators to transfer an existing investment property to a company. There is stamp duty to pay on transfers and potentially capital gains tax as well, when the property is sold to a company. Accountant’s fees a quite a bit more expensive for limited company accounts, as opposed to completing tax returns for personal accounts.

Despite all of this Terrington, as you might expect, being in the business he’s in, is optimistic for the future of buy-to-let landlords, especially for those operating at some scale, on a professional level with a small to medium size portfolio of properties.

The economics still stack up

With average rents around 7 per cent of the values of the property, and mortgage rates of 5.5 per cent, says Terrington, things don’t look all that great, but as he says, landlords don’t borrow on the full value of the property – the average Paragon customer around 63 per cent – a 3.5 per cent return is easily achievable. There’s also a large cohort of landlord who own their properties outright giving them a large cushion against the present economic difficulties, while enjoying the ability to pick and chose their tenants.

But the icing on the buy-to-let property investment cake is the ability of the rental income to maintain its value against inflation. With rents rising roughly in line with wages, around 30 per cent over the last five years, and on top of that landlords gain from the steady increase in the value of their rental properties over time.

View Full Article: Landlords are not evil says buy-to-let mortgage lender, Paragon Bank’s chief

NEW: City doubles cost of controversial selective property licence to £1,100

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Landlords in Oxford who failed to apply for a licence during the first year of the city’s new scheme have been hit with a big fee hike.

its Selective licensing came into force last September and means all the city’s private rented homes need a licence.

A new rate of £1,100 now applies unless the property is newly rented within 12 weeks of a complete application, in which case the fee drops to £530.

It replaces a £480 fee available during the first year of the scheme – the result of a consultation with landlords and agents who argued that responsible landlords making early applications shouldn’t have to shoulder enforcement costs to compensate for those who applied late or not at all.

The council has received 10,840 licence applications and so far, has issued 2,124 licences, 3,092 draft licences and 66 temporary exemption notices.

Enforcement action

Councillor Linda Smith (pictured), cabinet member for housing, says those private landlords or agents who haven’t yet applied not only face a higher fee but are also at risk of enforcement action if their properties remain unlicensed.

“We had nearly 11,000 licence applications during the first year of our selective licensing scheme and that’s great news for tenants and the majority of responsible landlords and agents,” she adds.

“Everyone should have a decent home and tenants deserve the confidence of knowing that theirs is safe, in good condition and well managed.”  

The NRLA voiced its opposition during the authority’s consultation, arguing that HMO licensing had led to rents increasing, and to those on lower incomes in the city being driven out of it, as the council seeks to rehouse people in Birmingham and elsewhere.

Oxford is the only council in the country requiring a licence for all privately rented homes.

View Full Article: NEW: City doubles cost of controversial selective property licence to £1,100

Private rented sector ‘a failure’ says tenant union lobbying for radical restructure

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Tenants’ union Acorn has admitted it is out to shake up the structure of property ownership – as well as taking on rogue agents and landlords.

In a passionate polemic, Norfolk-based committee member Adam Walker explains that one landlord correctly labelled the group, “a well organised national network with a vision to fundamentally change how property ownership is structured”.

A spokesman explains that the private rented sector offers the least affordable, most insecure and lowest quality housing of all tenures.

“Yet at every turn, landlords have resisted regulations that would improve it,” he tells LandlordZONE.

“It is clear that the 30-year experiment in massively expanding the private rented sector has failed.

To get us out of the mess that it has left us in, the government needs to build millions of council houses so that every renter once again has access to the safe, secure and affordable homes that we all deserve.”

Reputation

Walker stresses that there are more tenants than there are landlords and that estate agents are wary of Acorn’s reputation.

He adds that Acorn’s reach goes beyond picketing estate agents where agents, “lived in fear of when we would arrive again. Phones were left switched off; buckets of water thrown at us.”

He says it has also successfully campaigned for Norfolk County Council to extend their food voucher scheme into the school holidays while in other cities, Acorn branches have campaigned to secure landlord licensing, fire safety and public buses.

“Every victory, large or small, helps to shift power back to us: the majority, the people.”

Picture credit: Acorn.

Read more about Acorn.

View Full Article: Private rented sector ‘a failure’ says tenant union lobbying for radical restructure

House prices fall 5.3% year-on-year in August

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The Nationwide House Price Index for August indicates a monthly fall in prices of 0.8% feeding through cumulatively to an annual drop of 5.3%.

The average price of a property (not seasonally adjusted) now stands at £259,153 down £14,600 from the last August peak in 2022.

View Full Article: House prices fall 5.3% year-on-year in August

Newbuild and detached homes boost Scottish property market

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The Scottish property market has seen a slight dip in average house prices over the last year, but newbuild and detached homes have bucked the trend and recorded positive growth, data reveals.

The findings from lettings and estate agents DJ Alexander show that from July 2022 to June 2023

View Full Article: Newbuild and detached homes boost Scottish property market

Landlords ‘sleepwalking into huge fines’ as just 15% sign up for city’s licencing

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Birmingham landlords who fail to sign up to the city’s new selective licensing scheme have been warned they’re sleepwalking into being hit with a big fine.

With only a few days before enforcement of the new scheme takes effect – the UK’s biggest, covering up to 50,000 properties across 25 wards, it’s believed that only 15% of landlords have so far applied.

The slow take-up has been blamed in part on several landlord and property Facebook groups where members have urged landlords not to bother.

Landlords Licensing & Defence says since the scheme is already in place there are no excuses for not having a licence; it will be a criminal offence if they have not completed an application by 4th September.

Housing enforcement and casework director, Des Taylor, warns: “There is no reasonable excuse for not making the application, no matter what you are waiting for or are lobbying the council. Any social media group that tells you something different should not be followed.”

Well meaning

Compliance expert Phil Turtle (pictured) tells LandlordZONE that the “advice” being given is by well-meaning non-experts, many of whom are landlords who don’t like the selective licensing scheme and want to try to scupper it.

The firm now wants to warn landlords of the danger they are sleepwalking into, based on extremely poor peer advice.

Says Turtle: “Each of them faces a fine of £5,000 to £15,000 based on what we see with other councils.

“Councils treat failure to licence as one of the most heinous crimes anyone can commit and although it is a criminal act with the penalty at level five on the criminal scale (unlimited fines) most councils instead issue civil penalty fines which they get to keep as a massive revenue stream.”

LandlordZONE has contacted Birmingham Council for an update on application numbers.

View Full Article: Landlords ‘sleepwalking into huge fines’ as just 15% sign up for city’s licencing