Mortgage rate rises major threat to London landlord profitability, says Moody’s

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More than a third of landlords (38%) with fixed-rate mortgages due to end between now and the end of 2024 will end up with loss-making properties if rates rise four percentage points higher than their current deals.

According to credit ratings agency Moody’s, as interest rates rise, these investors face taking a big hit because their interest coverage ratios (ICR) – the ratio of the gross rental income to mortgage payments – will fall below 110%. Two-thirds of landlords on fixed-rate mortgages will come to the end of their deals in the next two years.

Half of the nation’s worst-performing investment properties are in the capital where landlords would have to raise rents by 37% to keep them solvent.

Loss-making

More than a fifth (22%) of the buy-to-let properties at risk of becoming loss-making are in the Southeast where landlords will need to hike rents by 28% to make their properties mortgageable and profitable, while across the rest of the UK, rents would need to be raised by 24%.

Moody’s analyst Alexis Rivet (pictured) told The Telegraph that London will be home to the largest share of landlords falling below the 110% ICR benchmark because rental growth in the capital has lagged behind the rest of the country during the pandemic. Rents on newly-let properties in London are soaring at a record rate, but the measure that matters for landlords is the average rent across all rental properties. 

“Those landlords whose ICR falls below 110% have three options,” says Rivet. “They can increase the rent, they can reduce the amount they can borrow, or they can sell the property.”

However, many would struggle to make such sizeable rent increases during the cost-of-living crisis while tenants are being hit by energy price rises and a record drop in real earnings.

View Full Article: Mortgage rate rises major threat to London landlord profitability, says Moody’s

Research reveals cost benefits to tenants of living in an HMO

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Renters living in a one-bedroom flat can combat the cost of living by moving into an affordable shared house, while HMOs provide landlords with a confidence-building financial buffer against increasing portfolio expenses.

We recently conducted an analysis which revealed that renting a high-quality room in an HMO is more than 50% cheaper compared to single-tenancy letting.

View Full Article: Research reveals cost benefits to tenants of living in an HMO

Selective licensing for landlords is a massive rip-off

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Let’s call selective licensing for landlords what it is: an unfair mandatory tax that is a massive rip-off.

Sure, council officers and councillors will tell everyone how they are going to crack down on rogue landlords, but they don’t actually do that.

View Full Article: Selective licensing for landlords is a massive rip-off

LATEST: Savills predicts 8% of all rented homes will be build-to-rent by 2032

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The number of build-to-rent (BTR) homes is set to increase five-fold in the next decade – from 76,800 to more than 380,000 – according to research from the British Property Federation and Savills.

They predict that the sector could be worth £170 billion by 2032 when 8% of UK homes for rent will be purpose-built, up from 1.5% today. Single-family homes are set to make up almost a fifth (18%) of BTR stock in ten years’ time, up from 12%.

Since the UK’s pilot scheme opened at the Stratford Olympic Village in 2012, the neighbourhood has become a BTR success story and home to 7,000 residents. Ten years on, £30 billion has been invested in the sector nationwide, which now has 163,400 homes in the planning and delivery pipeline.

Fans of the model

While developers and investors initially focused on London, since 2017 there has been a shift towards other cities led by Manchester, Birmingham and Leeds. Many local authorities are now fans of the model, with 47% having BTR in their housing pipelines, compared with just 20% five years ago.

Jacqui Daly, director of residential research at Savills, believes that the demand for high-quality, professionally managed homes for rent is only going to increase, not only for the core demographic of graduates and young professionals but also for single families, couples and individuals of all ages.

Ian Fletcher (pictured), British Property Federation’s director of policy, adds: “The current market conditions underline that we must continue to diversify housing supply in order to drive economic growth, and the government must continue to look at how planning reform, more support for local authorities and the release of land for development can enable the sector to continue its upward trajectory.”

View Full Article: LATEST: Savills predicts 8% of all rented homes will be build-to-rent by 2032

LATEST: Letting agents report ‘rapid rise’ in tenants seeking properties to rent

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The number of home-hunting tenants has continued to climb rapidly this year while the number of available homes to rent has come to a standstill.

Propertymark’s latest housing insight report reveals that since February, letting agents have seen an 88% increase in new tenants wanting to register, reaching a new peak of 147 in September, despite rising rents.

In contrast, each member branch reports having just 11 properties available since June. This means an average Propertymark letting agent would have had one property available for 13 new registrants in September – and that’s on top of those already registered.

Rising rents

It found that 74% of agents reported month-on-month rent prices increasing last month, down slightly from 82% in July but still much higher than the pre-pandemic average for September of 34%.

Propertymark CEO Nathan Emerson (pictured) says the UK sector’s reform continues to affect the sentiment of landlords who have also been hit with rising costs, impacting their annual yields. As a result, the trade body believes there will be no end to affordability issues until many more homes are added to the market.

“The pressure is on for private landlords, and the situation is not improving,” adds Emerson. “Raising interest rates, increasing legislation and tax burdens mean that many landlords are faced with increasing their rent to cover their rising costs or to cut their losses and sell.

“Landlords have been demonised recently, but in truth they provide homes for those who can’t be served by social housing or afford to buy.”

Read more: Complete 2022/2023 tax guide for landlords.

Pic credit: TheConnorFinn/Twitter

View Full Article: LATEST: Letting agents report ‘rapid rise’ in tenants seeking properties to rent

Major bank inks deal with Shelter to help customers fight their landlords

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HSBC banking brand First Direct has signed up Shelter to offer its customers living within the private rental sector advice to fight their landlords.

This includes help on how to fend off unaffordable rent increases and eviction notices.

The deal is to last for 12 months and will see tenants offered the service for free via a dedicated team within First Direct who will work alongside experts from Shelter.

First Direct says the backdrop of fast-rising rents within the UK private rental sector and the wider cost-of-living crisis prompted it to set up the partnership with Shelter, which will also offer debt and welfare support as well as housing advice.

Chris Pitt (pictured), CEO of First Direct says: “No-one should face the prospect of homelessness. Our partnership with Shelter aims to support private renters who find themselves in difficulty.

“We believe that our customers should feel they can come to us for help when they need it.  

“Our dedicated team and the experts from Shelter will be taking a hands-on approach to tackling the difficulties many private renters are facing as landlords pass on the costs of rising bills and mortgage payments.

“This is just part of the support we’re offering customers during this difficult time.” 

First Direct is freer than many other banks to sign this sort of deal because it does not offer landlords insurance or buy-to-let mortgages.

Frontline services

Polly Neate, Chief Executive of Shelter, adds: “Our partnership with first direct will help their customers access vital housing advice and support at a time when they need it most.

“It will also help our frontline services continue providing free and expert support to thousands of other people facing homelessness, as well as helping us campaign for lasting change.” 

View Full Article: Major bank inks deal with Shelter to help customers fight their landlords

Rising interest rates and tax changes – finding certainty in uncertain times

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Manoj Varsani, founder and CEO at Hammock, the property finance platform for landlords, looks at the implications of the government’s Making Tax Digital initiative.

Everywhere you look and in everything you do, it’s seemingly impossible to avoid reminders of the wider economic downturn and the likelihood of an upcoming recession.

View Full Article: Rising interest rates and tax changes – finding certainty in uncertain times

Should empty homes be taxed?

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Hi everyone, Would it not be a good idea to tax properties that are left empty and disincentivise them from remaining outside the available housing stock?

A residential property, in my opinion, should not be used purely as an investment as it should be used firstly as a home while the housing crisis is at such a peak.

View Full Article: Should empty homes be taxed?

Greggs wins high-profile High Court Covid insurance case

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The Newcastle headquartered firm Greggs has won an initial High Court ruling in a £150m Covid related case against the insurance company, Zurich.

Greggs’ claim was over its business interruption insurance with Zurich in which the firm claims it is due monetary compensation for interruption during the Covid pandemic.

Greggs £150mn claim

Greggs lodged its claim in the High Court for the sum of £150mn which it claims it is owed as compensation for when its estate of over 2,000 outlets stores was forced to close during Government mandated lockdowns.

Lawyers acting for Greggs, a British company employing around 25,000 staff across its 2,000 plus shops and other outlets, told the court that every single outlet suffered some interruption or interference with trading during the government imposed lockdowns.

Zurich’s defence

Zurich on the other hand, claimed that Greggs could only claim for one single occurrence of business interruption compensation under its policy, a position that if upheld would limit Gregg’s claim to £2.5mn.

Greggs’ lawyers counter argued that the company was entitled to a separate limit of £2.5m each time the UK and the national devolved Governments announced new Covid restrictions.

The judgement

Mr Justice Butcher has now handed down his judgement in which he says:

“In substantial measure I have accepted what was put forward at the hearing as Greggs’ primary case, based on the different Governmental announcements/regulations.”

Impact on Greggs’ profits

Following the first lockdown commencing March 2021, the fast food chain now famously providing its customers with vegan sausage rolls, posted its first ever full-year losses since the company came to be quoted on the stock market in 1984. The company posted a £13.7m pre-tax loss, compared to a profit pre-pandemic in 2019.

The company weathered the storm better than most business in the sector and its losses were not as big as the analysts had forecast, but still resulted in the directors failing to approve a dividend payment to stockholders until profits returned. Profits fell from record highs of over £1bn pre-pandemic in 2019 by around 30 percent.

The judge in the High Court case ruled that there had been a “single occurrence” at the first lockdown from March 2020 to May 2020, followed by separate occurrences in each jurisdiction in the UK as the restrictions were changed over the rest of the year. He also said that there were other separate occurrences within each jurisdiction where the local lockdowns and other restrictions had been imposed.

The lawyers’ response

A spokesperson for lawyers Charles Russell Speechlys, the firm acting for Greggs in the landmark BI trial, said:

“today’s judgment substantially accepts Greggs’ primary case for payment of business interruption and related losses caused by Covid-19 and its consequences.”

Insurers’ initial argument that there was only one limit available for Covd BI losses, entitled Greggs to only one limit of £2.5 million for all of its Covid BI losses had been “firmly rejected”, the firm said.

For its part, Greggs argued that it was entitled to access a separate limit of £2.5 million each time the Westminster and devolved Governments in the UK adopted a major Covid restriction measure affecting its business. This meant that there were multiple such restrictions and multiple £2.5 million limits.

The Lawyers Charles Russell Speechlys said the judge accepted the “main thrust” of Greggs’ primary case and ruled that there was a single occurrence at the outset (from March 2020 until May 2020).

This was followed by separate occurrences in each jurisdiction within the UK as the level of major restrictions in place was adjusted from time to time over the course of 2020 and also separate occurrences within each jurisdiction where there were local lockdowns or other restrictions.

The judge also held that those regulations which merely continued existing restrictions or made small changes did not provide additional £2.5 million limits.

The case has winder implications

“This outcome vindicates Greggs commencing proceedings and has wider implications for all businesses that purchased the Resilience Insurance policies. Insurers’ argument that there was only one limit available for COVID business interruption losses has been firmly rejected,” said Charles Russell Speechlys’ partner, Manoj Vaghela.

Subject to appeal, the firm said that the case of ‘Greggs plc v Zurich Insurance plc’ will now proceed to phase two, in which insurers and Greggs will calculate the value of the business interruption loss recoverable under the insurance policy.

The High Court also ruled on business interruption cases brought by The Stonegate Pub Company Ltd vs MS Amlin, Liberty Mutual Insurance Europe and Zurich, plus Various Eateries vs. Allianz Insurance Plc, with varying degrees of success.

View Full Article: Greggs wins high-profile High Court Covid insurance case

Why the Renters’ Reform Bill won’t deliver the positive change tenants need

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Richard Dawson, rental sector expert at RentGuarantor, says the Renters’ Reform Bill is flawed and explains why he feels greater regulation is the answer.

At face value, the ‘Renters’ Reform Bill’ outlined in the recent government whitepaper

View Full Article: Why the Renters’ Reform Bill won’t deliver the positive change tenants need