Paragon Bank reports highest ever tenant demand

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A survey of almost 700 landlords, carried out by BVA BDRC for Paragon, reveals that that 67% of landlord respondents had experienced higher than usual tenant demand during the first three months of this year. This, according to Paragon, represents “a new all-time high and up from 65% recorded during the final quarter of 2022, the previous record high.”

Reflecting higher mortgage and running costs, landlords are increasing rents as they sign up new tenancies. Around 85 per cent of landlords, according to the Paragon survey, said that market rents are rising, while 52 per cent said they were planning to increase rents throughout their investment portfolios over the coming six months, with an average planned increase of 8.2 per cent.

A tough operating environment

A chorus of voices is highlighting the worsening problem of landlords leaving the sector and reducing the supply of reasonably priced rental accommodation. Tenants are struggling to find accommodation in the locations where they need them and at a price they can afford, because the supply simply is not there.

The latest Monetary Policy Report offers more proof, as if it were needed, that government tax and other policies are leading to the exodus of buy-to-let investors. The Bank says that “demand for rental properties continues to outstrip supply as the number of landlords choosing to exit the market has increased.”

New rules for renting

Housing Secretary Michael Gove has confirmed that a Bill will be introduced to Parliament this week that will radically alter the letting environment in England.

The new legislation, which has been expected for four years now. It is said to “improve conditions for private renters in England” but is one that is feared by many landlords. They think it will radically change the balance of power in the landlord-tenant relationship, giving more power and greater security of tenure to tenants.

The Renters’ Reform Bill is to include the long promised abolition of the now controversial Section 21 eviction process which allows landlords to evict tenants after giving 2 months’ notice and without giving a reason for doing so.

The Bill as it stands will also abolish fixed term tenancies, replacing them with continuous tenancies where landlords can only evict under specific circumstances such as rent arrears, if they want to sell the property or if they want to return to live in the property themselves.

The Bill is said to include a strengthening of the Section 8 eviction powers by adding a number of grounds for eviction which, unlike Section 21 based on a document only process, will involve a court hearing and an adversarial process.

An alternative dispute resolution process is to be provided for the benefit of landlords and tenants which will attempt to avoid the last resort of a court hearing. Attempts will be made through an independent mediation process to settle disputes before the need to resort to the courts. Also, a mandatory national landlord register will be set-up and a tightening of housing condition rules will be introduction with a Decent Homes Standard for the private sector, similar to that already in operation in the social housing sector.

Last week Michael Gove told Sky News:

“We’re introducing new legislation, it will be out next week and it will change the way in which the relationship between landlords and tenants work, providing tenants with new protection which should ensure that they’re better protected from arbitrary rent increases.”

No doubt a number of factors have contributed to the under-supply of rentals, not least higher tax and tightening regulation of the last few years, but these new radical proposals in the Reform Bill are it seems just the final nail in the coffin for many landlords.

Recent research by Savills backs up the exodus trend and worsening supply. According to their residential research analyst Sophie Tonge, “an increasing number of landlords decided to exit when the sales market was particularly hot, to realise the capital growth.” The threatened removal of Section 21 and the dramatic reduction in the capital gains tax allowance (cut from £12,300 to £6,000 in April) has further accelerated this trend.

An anti-landlord Bill?

Landlords could be forgiven for claiming the Government is a targeting buy-to-let, but despite the oft quoted claim that it values the small-scale landlord, all the evidence points that way. Is this a housing crisis of the Government’s own making and is it powering headlong into an even deeper crisis by introducing this radical seemingly “anti-landlord” Bill?

Meanwhile, for those landlords still in the game and prepared to stick it out, the outlook could be more rosy. The demand for renting means that landlords can be choosy about the tenants the sign up and the increased mortgage and with demand so high other costs can be covered by increasing the rents – average rents in England rose by around 1.2 per cent to £1,103 in April over one year ago, that’s according to data provided by letting agents, Goodlord this last week.

However, demand is not evenly spread throughout the country. The paragon survey reveals that in the South West, 94% of landlords said they were experiencing “strong, or very strong” demand for their properties, while in Wales 92%, the West Midlands 92% and in the South East 91% said demand was high.

The highest demand Across England and Wales, was reported in the East of England with 90 per cent recording a rise, while the lowest reported in the West Midlands at 73 per cent.

Paragon Bank managing director for mortgages Richard Rowntree has said:

“The fact that we’ve seen another high in the proportion of landlords who have told us that they’ve experienced an increase in tenant demand reinforces what I’ve said previously — put simply, we need more private rented sector homes, not less.

“An important element of this is policy that strikes the right balance between driving up standards and providing tenants with protection while not acting as a barrier to investment.

“Failure to address this will further drive rental inflation and increase competition for rented homes at a time when affordable housing is as important as ever.”

View Full Article: Paragon Bank reports highest ever tenant demand

Most UK office landlords have no sustainability strategy

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According to the findings of recent research commissioned by infinitSpace, in partnership with The Instant Group, the majority of UK office landlords have not made any concrete plans to improve the energy efficiency ratings of their buildings – they do not have any form of sustainability strategy in place.

The survey defined a “sustainability strategy” as the landlord or tenant having several policies in place with an overall aim of reducing greenhouse emissions and/or promoting environmentally friendly practices.

There are many ways office landlords and their tenants can work towards sustainability by making plans to help the country meet it’s environmental net zero target. Perhaps the greatest impact they can have here is by achieving a higher EPC rating for their building. Indeed, this is a pressing legal requirement and one which is being steadily tightened-up by Government regulation.

From April 2023, the minimum energy efficiency standard (MEES) that already makes it unlawful for a landlord to grant a new tenancy, or extend an existing tenancy on a poorly performing building, will be tightened further in England and Wales.

Subject to a few exemptions (leases of less than 6 months, or more than 99 years, for example), landlords must not grant a new tenancy or continue to let any property after 1 April 2023 where the property has an EPC Rating below E.

If a landlord lets or continues to let a property in breach of the Regulations the lease will still be valid but the landlord is liable to a hefty fine. For commercial buildings, any breach of up to three months could result in a fine of up to £50,000, with a maximum fine of £150,000 for letting for over 3 months.

The government is currently consulting about further measures towards its targets to enforce all commercial properties to achieve a minimum energy efficiency of EPC band C from 1st April 2027, rising to a minimum standard of EPC band B from 1st April 2030.

Who bears the cost?

Exactly who bears the cost – landlord or tenant – of reaching these increasing targets for a tenanted commercial buildings is unclear. This is an area that could become the subject of disputes particularly where the property is let under a longer lease. It is likely to come down to interpreting the clauses in the lease as to whether the work involved comes under the heading of repairs, improvements or a combination of these two categories, with the tax implications these carry.

This is something landlords need to contemplate when granting new leases, to decide whether to incorporate clauses government the costs involved in meeting future energy-efficiency targets for repairs / improvements in the future.

Extra funding resources

Unlike with residential property, there are no third-party funding resources available for these works for commercial buildings, which means they must be funded either by the landlord or the tenant or a combination of the two.

The seven-year rule

Installation of energy efficiency improvements will only be required for a non-domestic property where the recommended achieves an energy efficiency payback of seven years of less. However, energy efficiency improvements will only be required for a commercial building where the EPC recommended work will achieve an energy efficiency payback of seven years of less.

Improved measurements

Much scepticism has been written and recorded about MEES and the reliability of the required Energy Performance Certificate (EPC) ratings. On the Government’s agenda is a push through on developing new energy measurement tools. However, experts are advising owners to look beyond the short-term and face the inevitable need to improve standards.

With improvements in technology it is becoming easier to install systems to measure and manage energy in commercial buildings. These changes need not involve significant investments and indeed small changes carried out over time and on a continuous bases can be both economic and allow owners to spread the costs over several accounts periods, all tax deductible.

Increasing awareness of energy costs

The cost of living crisis has heightened awareness of energy use and cost not just in the home but at work too. Money spent on insulation in all buildings has an immediate payback in terms of energy usage, reduced carbon emissions and cost. This awareness can lead to improvements in the ways people use their workplaces and to better collaboration between landlords and tenants.

Tenant preferences

Landlords are finding that tenants now favour buildings which are the most environmentally friendly, energy efficient and with good well designed state of the are occupier facilities. The investment required to achieved this is often repaid many times over by having fewer void periods and longer leases.

The infinitSpace study found that of 250 commercial landlords with offices in the UK:

• Only 30% have a sustainability strategy in place, meanwhile
• 42% have individual sustainability policies in place, but no overall strategy
• 23% are unaware if any sustainability policies are in place across their portfolio
• 5% have no sustainability policies in place

However, 48% recognise that having strong environmental policies is essential to attract tenants to a commercial property today. Of those with an occupancy level greater than 70%, over half (56%) have sustainability strategies in place – almost double the average (30%).

The study from infinitSpace, creator of tech-enabled “white-label” flexible workspaces, and The Instant Group, a global marketplace for flexible workspace solutions, used independent market research firm Censuswide to survey 250 commercial landlords with offices in the UK.

It revealed that just 30% of UK office owners have developed a clear strategy to reduce overall greenhouse emissions or promote environmentally friendly practices. Two in five (42%) have one or more sustainability policies in place but no overall strategy, while a quarter (23%) are unaware of what sustainability policies are in place across their portfolio and 5% have no sustainability policies.

Despite this low uptake, almost half (48%) of the landlords surveyed did recognise that having strong policies is essential to keeping occupancy rates high. This was demonstrated by the correlation between landlords’ occupancy levels and sustainability strategies. Of those with an occupancy level greater than 70%, over half (56%) have sustainability strategies in place – almost double the average (30%). Comparatively, of those with an occupancy rate of less than 40%, almost half (46%) have no policies or are not aware of what they are.

Wybo Wijnbergen, CEO of infinitSpace, says:

“Sustainability is a key factor for businesses when selecting a workspace, and our research has clearly demonstrated that landlords which prioritise this will be rewarded with uptake in demand.

“But that is not the only reason landlords must have robust sustainability strategies in place. In the UK, the built environment is responsible for a quarter of all greenhouse gas emissions; so the real estate sector clearly has a key role to play in reducing emissions. infinitSpace and The Instant Group’s research highlights that this cannot be achieved without helping office landlords to make their portfolios more sustainable.”

Sam Pickering, Executive Director of Sustainability at Incendium (part of the Instant Group) says:

“It’s undeniable that the right strategic advisory and investment in sustainability practices are mutually beneficial for both asset owners and the planet. The correlation between established sustainability strategies and higher occupancy rates as revealed in this research is significantly compelling.

“As the evolving world of work and prioritisation of sustainability continue to disrupt the real estate industry, office landlords and investors are at a crossroads. The time is now for owners and landlords to commit to long-term sustainability strategies. Otherwise, achieving targets will become more challenging or even missed, and they will get left behind. It requires a fundamental mindset and behaviour shift that puts sustainability at the core of business agendas and operating models.”

View Full Article: Most UK office landlords have no sustainability strategy

REVEALED: Why higher interest rates are making it trickier for BTL investors

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Buy-to-let mortgage searches were down 23% in April compared to the previous month, while investors have been putting down larger deposits as high-interest rates bite.

Research by Twenty7tec shows that average loan-to-value (LTV) has dropped considerably over the past year, from 66% in April 2022 to 61%.

London average BTL property prices have fallen by 4%, while loans required dropped 15% as landlords put larger deposits down. National average BTL property prices increased 0.6%, while loans required dropped 8%.

Those looking to buy had, on average, higher combined incomes of £68,907 (up 4% nationally compared to March) and £88,276 in London (up 3%).

Lee Grandin (pictured), MD of Landlord Mortgages, says the significant increase in interest rates has impacted landlords’ ability to finance.

“Assuming rental income remains static, then as interest rates rise the landlord is forced to borrow less,” he tells LandlordZONE. “This means fewer mortgages can be granted at the funding level landlords want and if property values remain static this drives down the loan to values.”

Dropped

Mortgage product volumes have dropped by about 50% in the max LTV 65% range, explains Nathan Reilly, director at Twenty7tec, who says the real driver for increased use of max LTV 60% products is that landlords are trying to rebalance their portfolios to reduce their costs.

“The drop from 65% to 60% is a breakpoint which yields real benefit to landlords looking to offset the increasing interest rate environment.”

Reilly says there has been a 10% bump in 65% product availability during the past month, but where possible, he expects landlords to continue to use the lower max LTV products until they see interest rates go down.

“Why have searches gone down? It’s hard to say for sure, but interest rate uncertainty must be one overarching factor,” he tells LandlordZONE.

View Full Article: REVEALED: Why higher interest rates are making it trickier for BTL investors

New report urges Government to stop describing private landlords as ‘bad’

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Government policy should move away from thinking that social housing and home ownership are good while private landlords are bad’ if it is to solve the rental stock and rent costs crisis.

That’s the view of a new report from Cambridge University Land Society which says this mindset translates into discrepancies when helping the PRS to retrofit properties, as it largely doesn’t have access to public funding or political support.

“Homes rented privately are no less valuable or important than owner occupied or social homes, but they are typically less well capitalised even before the need to retrofit and yet only sticks are used to incentivise action – no carrots – because this tenure is positioned as worse,” according to the authors of A Vision for the UK Housing Market.

They have tried to come up with genuine solutions to the housing crisis and suggest that policy should instead incentivise quality upgrades for existing properties.

Landlord incentives

The report suggests mortgage lenders should be encouraged to offer discounted mortgage products to property owners providing longer term tenancies, and that property owners offering longer leases could be given tax breaks to provide residents with greater security.

It also suggests releasing the freeze on Local Housing Allowance and enhancing incentives to mortgage lenders to offer long term low interest rate mortgages in return for energy performance upgrades.

The report adds that it would help if the government moved away from old fashioned terms such as landlord and tenant and used property owner and resident in its policies instead.

The authors explain: “The overriding proposal is for more joined up and coherent housing policy. This should run wider than just not changing housing ministers frequently but also engage HM Treasury and the financial regulators. Only then could we achieve the goal of defining and moving towards housing market success.”

Read the report in full.

View Full Article: New report urges Government to stop describing private landlords as ‘bad’

87 MPs are now landlords including Chancellor, reveals campaign group

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Nearly one in five Conservative MPs are currently landlords, according to research by campaign group 38 Degrees, a surprising figure given the Government’s anti-landlord stance in recent years.

The study counted 87 MP landlords – more than 13% of the Commons – of whom 53 claimed rental income from one home and 34 from two or more properties, according to a report in The Guardian.

Of the 68 Conservative MPs, chancellor Jeremy Hunt has seven flats in Southampton, while home secretary Suella Braverman, Gillian Keegan, the education secretary, and Lucy Frazer, the culture secretary, all declared one rental property in the latest House of Commons members’ register of financial interests.

Income

Alex Chalk, the justice secretary, declared a flat in Shepherd’s Bush and a share in a cottage in Gloucestershire, both producing more than £10,000 a year in income.

On the Labour frontbench, David Lammy, Emily Thornberry and Lucy Powell are all landlords. Overall, MPs could be earning as much as £2.2m a year from renting out homes, the research found.

38 Degrees chief executive Matthew McGregor (pictured) says: “Whilst we make no inherent criticism of those politicians who make money from renting property, we highlight their extra duty, to their tenants as well as their constituents, to bring forward reform without delay.

“With MPs almost four times more likely to be landlords than the rest of the population, and with eight cabinet members and nearly one in five Conservative MPs earning rental income, we highlight the need for tenants’ voices to be heard at the top of government.”

Housing Secretary Michael Gove has announced that the draft Renters Reform Bill will be published next week and would “change the way the relationship between landlords and tenants works, providing tenants with new protection, which should ensure they are better protected against arbitrary rent increases”.

View Full Article: 87 MPs are now landlords including Chancellor, reveals campaign group

The Property Cast: How can landlords spot a bad letting agent?

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In this episode of The Property Cast, founder of the HFIS group, Eddie Hooker, is joined by the Head of Redress at the Property Redress Scheme, Sean Hooker, and special guest Nathan Emerson – CEO of Propertymark – the leading membership body for property agents.

With the private rented sector on the cusp of a major overhaul, this episode explores Propertymark’s perspective on all things lettings.

Eddie, Sean and Nathan kick off by discussing what makes a bad agent. There are two types, says Nathan – but how can landlords spot one? And what are the most common agent errors? Nathan provides his top tips for landlords when it comes to choosing a letting agent.

Changes

How does Propertymark view the big changes that are coming for the rental sector? And what aspects of reform are likely to have the biggest impact on landlords and agents?

The trio discuss topical issues from antisocial behaviour and pets, to whether landlord redress is the right way to raise standards in the private rented sector. We hear a lot about landlords exiting the market, but how can landlords be encouraged to invest? What would Nathan do if he could change one thing to keep landlords in the sector?

On the way to Wembley

Finally, the Propertymark One conference is coming up on 27 June at the OVO Arena in Wembley. Open to both members and non-members, and bringing several disciplines together under one roof, it will be the biggest event Propertymark has ever staged.

What can delegates expect? Tune in to find out more and to hear Nathan’s answer to The Property Cast’s closing question – ‘You’ve got £20k to invest in improvements to your rental property – what changes would you choose to make, and why?

View Full Article: The Property Cast: How can landlords spot a bad letting agent?

Build-to-rent sector stalls as completions slump

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The number of build-to-rent (BTR) completions in the UK has slumped by 56% in a year – with the decline being blamed on the London market, research reveals.

Property developer Stripe Property Group has analysed the historic data on the annual BTR completions in London and elsewhere to better understand the emerging residential sector.

View Full Article: Build-to-rent sector stalls as completions slump

Controversial Renters Reform Bill to be published next week – possibly

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The long-awaited Renters’ Reform Bill which could lead to a massive shake-up of the private rented sector (PRS) is set to be published next week.

However, there is no confirmed date and no mention of it in the Parliamentary timetable for next week.

View Full Article: Controversial Renters Reform Bill to be published next week – possibly

Airbnb returns to its roots with ‘Rooms’ but will initiative silence critics?

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Airbnb is going back to its roots by launching Airbnb Rooms, an updated version of its original aim to let guests stay in a room within someone else’s home.

The platform explains that in the current cost-of-living crisis, and years of being isolated, visitors are looking for “ways to connect with people and have authentic experiences”.

Founders Joe Gebbia and Brian Chesky (main pic) came up the idea of allowing people to rent out a spare room for the odd night or two after they charged three guests $80 each to sleep on airbeds in their San Francisco apartment in 2007. The concept has since grown to more than four million hosts across the world.

This year, Airbnb is expecting more than 300 million guest arrivals but it, along with the rest of the short-lets sector, has come under increasing scrutiny from communities, councillors and MPs – particularly in coastal resorts – who claim it is depriving residents of long-term rented accommodation. This move would seem to go some way to addressing that.

Host passport

The platform explains that every Airbnb Room will feature a Host Passport, which helps guests get to know their host before booking their stay, including a larger personal photo and background information.

It has created a rooms category with more than one million listings, showing whether the bathrooms are shared or private, if the bedroom door has a lock and whether people other than the host will be there during a stay.

“With Airbnb Rooms, we’re getting back to the idea that started it all – back to our founding ethos of sharing,” says Chesky.

“Airbnb Rooms are often more affordable than hotels, and they’re the most authentic way to experience a city.”

View Full Article: Airbnb returns to its roots with ‘Rooms’ but will initiative silence critics?

LATEST: Renters’ Reform Bill due next week after Coronation, says Gove

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The Renters’ Reform Bill is finally due to be published next week – four years after it was first discussed.

As predicted, the draft legislation will begin life a few days after the King’s coronation, Housing Secretary Michael Gove confirmed on Sky News this morning.

Gove said: “We’re introducing new legislation, it will be out next week and it will change the way in which the relationship between landlords and tenants work, providing tenants with new protection which should ensure that they’re better protected from arbitrary rent increases.”

Many in the sector are now bracing themselves in readiness for what the Bill could contain, and which is expected to a different name.

Crash helmets

Tenancy expert at PRS Mediation, Julie Ford, posted: “Crash helmets on people! We’ve got a good idea of what’s going to be in there, we’ve seen the consultation and Bill in its original form and seen the white paper but what it’s actually going to look like, who knows?

“We know Section 21 will be abolished and we need to get ready for that, but what else is going to be in there? We’ll have to wait and see.”

Fun week

NRLA chief executive Ben Beadle commented: “Secretary of State Michael Gove confirms that we will see the long awaited #rentersreform bill next week. A fun week ahead beckons!”

The government first announced its proposals in on ‘a new deal for renting: resetting the balance of rights and responsibilities between landlords and tenants’ back in 2019, followed by a White Paper last year.

After a protracted consultation, suggested measures are set to include abolishing Section 21, a property portal, requiring private rented properties to meet the Decent Homes Standard and establishing a new ombudsman covering private landlords.

Last month Michael Gove held a roundtable meeting with key representatives from the private rental sector to discuss the reforms, including the NRLA, Generation Rent, Shelter, the Local Government Association, and National Housing Federation.

View Full Article: LATEST: Renters’ Reform Bill due next week after Coronation, says Gove