Legal Compliance: Help for Landlords

If you’re a landlord or a property investor and you keep an eye on the property media, you’ll know what a tightly regulated sector this is.

To begin with, there are many well-established and largely well known regulations governing the fitness and safety of properties in the private rented sector; important and necessary regulations that exist to protect lives and wellbeing. In addition, there are numerous financial regulations that affect everything from buy-to-let mortgage applications to tax relief, tax reporting and the timeliness of payments.

Any landlord operating in Britain will soon become be familiar with most of these. Nevertheless, stories about prosecutions often make the news, so there are clearly still those who fail to comply with everything they should.

Some prosecutions will doubtless be deserved, yet the resulting media coverage can paint a very distorted picture. ‘Rogue landlords’ represent only a tiny fraction of the sector as a whole. The vast majority of housing providers are diligent about meeting their many obligations, and they want nothing more than a settled, happy relationship with their tenants. No one wants to face disputes, void periods or legal action, so mutual respect is in everyone’s best interests.

Landlord regulations: a changing landscape

However, legal difficulties do sometimes arise, particularly when new regulations are introduced. Sometimes, especially in the case of small-scale investors who might well have many other family and professional responsibilities, staying abreast of all the legal requirements can be a challenge.  It’s certainly not an impossible task – many thousands of people do it every year – but keeping yourself informed is an important and ongoing responsibility.

Since 2016, the private rented sector has faced a barrage of new tax rules, some of which have been politically motivated, with the undoubted aim of skewing the market in favour of home buyers rather than investors. However, while measures such as the 3% hike in Stamp Duty might have put a new focus on tax costs and profitability, they are at least relatively easy to recognise and to follow.

More tricky are introductions of new sector-specific landlord regulations, many of which occur at the start of each new tax year. In April 2017, for example, new rules came into effect under the Housing and Planning Act 2016. They allow local authorities to impose fines of up to £30,000 for various offences – including (amongst others) failing to apply for an HMO licence, and breach of a Housing Health and Safety Rating System  enforcement notice.

This new ruling came into effect at the same time as several other changes, including the much more widely publicised reduction on mortgage interest relief. These changes followed others in October when, amongst other things, landlords were required to install smoke alarms on every storey of their rented living accommodation, and a Carbon Monoxide alarm wherever a solid fuel appliance is used.

Keeping constant tabs on every changing regulation is difficult, and what’s more, the requirements vary across the UK. Rules that apply in England may very well be different in Scotland or Wales.  Only this month, the Scottish government published new guidance for local authorities explaining new landlord registration enforcement rules. The Landlord Registration Statutory Guidance seeks to raise standards in the sector by requiring local authorities  to maintain a register of ‘fit and proper’ private landlords. Those that fail to register – or to meet the necessary standard – can expect difficult times ahead.

Getting Support:

Fortunately, the challenges that landlords face are not being ignored. A number of important public and professional bodies have published tools to help the hard-pressed investor.

The Gov.uk website features many useful tools, tips, webinars and advisory notices for landlords. For example, its “Help and support for landlords” page features webinars on subjects including property income, expenses, profits and losses, and tax relief on loans and mortgages. There are also online courses and links to videos about self assessment and property-related tax returns. The HMRC’s Property Rental Toolkit is also freely downloadable; a PDF that sets out advice for tax advisers and offers advice on risk mitigation as well as a checklist for property rental income.

The Residential Landlords Association (RLA) also offers various forms of support. For example, in the wake of the Grenfell Tower disaster, it produced a fire safety foundation course that can be studied online. (The cost is £14 for non members and £11.20 for members.) It notes that: “legislation on fire safety is complex with different buildings/property types being subject to different laws and regulations.” In an effort to clarify things, it has devised a course that provides a basic overview of legislation and how the different forms relate to different types of property. It also suggests some practical fire safety tips and shows how to conduct a meaningful fire risk assessment.

This is just one of many online courses available on the RLA website. They also examine other landlord regulations such as the laws on deposits, lettings compliance issues, immigration law and ‘right to rent’.

Online tools such as ‘Landlord Secure’ and ‘LateRent’ are also now available to help landlords to conduct credit checks on prospective tenants, and to track those with a history of late payments.

In short, landlords face a continuing obligation to understand and comply with all the relevant legislation within their sector, but there are resources available to help them cope. Nevertheless, it does require a conscious effort to recognise regulatory changes, and this effort must constantly be maintained.

Future Changes:

Looking ahead, there are more changes in the pipeline. In June, for example, the Government published proposals to limit tenancy security deposits to a value not exceeding one month’s rental payments – half the amount currently allowed.

Tax reporting will also change. The government’s plans to introduce quarterly tax reporting this year were postponed due to its unexpected failure to secure a Commons majority, but its imposition seems to be a matter not of ‘if’ but ‘when’. Certainly, elements of it are already scheduled to come into effect in 2019 with respect to VAT-registered firms. The Gov.uk website notes:

“A number of concerns about the pace and scale of change have been raised. As a result, the government has announced that the roll out for Making Tax Digital for Business has been amended to ensure businesses have plenty of time to adapt to the changes. Businesses will not now be mandated to use the ‘Making Tax Digital for Business’ system until April 2019, and then only to meet their VAT obligations.”

By 2020, the majority of businesses and self-employed landlords will be expected to submit quarterly self-assessment tax returns using HMRC software.

These are two examples of forthcoming changes but the sector can expect more. The Grenfell fire disaster might well prompt new guidance on fire safety and, with party conference season approaching, property investors can expect the question of housing to be high on all the main parties’ agendas.

Compliance and Confidence:

For those investors who lead busy lives – or for those who just don’t want the burden of having to stay on top of all the associated legal obligations – one obvious answer is to appoint a lettings agency. As property experts with a vested commercial interest in maximising their clients’ profits, lettings agents are ideally placed to identify (and provide solutions to) any legal compliance issues.

Delegating responsibility for compliance can be simple, convenient and cost effective. A good agent will keep you free from the threat of fines or prosecution, and ensure that your tenants stay happy – thereby minimising the risks of voids or late payments. What’s more, reputable agents know that their credibility rests on staying ahead of the game, so they’ll give their clients useful advance notice about forthcoming changes, and advise them accordingly.

For those who feel able to take more of a hands-on role with respect to rental collections, property maintenance, marketing and legal compliance, lettings agents can still be a valuable ally – an experienced advisor to call upon whenever a specific need arises.

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If you’re uncertain about the impact of current legislation or any proposed new regulations, please call our lettings team on 01244 343 355.

Considerations Prior to Making an Offer on an Investment Student Property

While students are busy preparing to go back to university or college, many of our clients are reminded of the lucrative returns that can be made in the student property sector.

There are many different aspects to putting in an offer on an investment student property, with a few major things to consider. Many people look at the location of the property alone as the main criteria for their investment property search. If a property is in the heart of an attractive city or near a university, why not pay the asking price and see how a refurbishment can add considerably to the value? Although location is an attractive aspect of buying an investment property and one of the key decision points of purchase, it isn’t the be all and end all.

At Residential Estates we guide our clients through the investment decision process. As an example, there are a number of other considerations to make before investing in a student property.   Such as……

The Price of the Property  This may sound like a simple consideration that any investor in property is bound to make, but it is always worth mentioning as it is so critical to every property transaction, whether for investment purposes or otherwise. With high demand and a low supply of good quality student property in certain city centre areas, it isn’t uncommon to find that properties that are listed with an offers over valuation to actually end up being sold for a valuation around 20% over that listed amount. Always have this in the back of your mind when researching potential investment properties.

Know the LTV   The LTV (Loan-to-value) of the student property will help a mortgage provider work out the rate of the mortgage. So for a 70% LTV mortgage you’ll be expected to come up with the remaining 30% of the student property valuation in cash. This can have a massive impact on the funds available to you when searching for a property investment.

*** HOWEVER ***

Many student investments are below 30 square metres in size and as such investors will not be able to get finance on them making them cash only investments, but for those investors able to raise the funds to purchase outright, the returns can be very lucrative – on average 6% – 10% NET.

New Lending Rules   Come 30th September 2017 there will be new rules for lenders to adhere to. The Prudential Regulation Authority (PRA) will require that lenders put together a stricter set of checks for the affordability of portfolio landlords. These new rules apply to any borrowers who have four or more distinct mortgaged buy-to-let properties, either together or separately, in aggregate. This can include the experience as a landlord of the individual, assets versus borrowing, cashflow history and a history of tax returns.

Stress Testing   Lenders will usually advertise a loan with a certain interest rate, say 1.99% but actually stress test the loan at a higher rate and add a student rent cover ratio on top of that. So you may find that a loan advertised at 1.99% is actually being tested at a much higher 7.99% (as an example). If the student rent is higher than the stress test, the loan will be agreed in most cases.

Planning Permission   Many student investment properties are attractive to the buyer because they offer a chance to develop and refurbish the structure before selling it on at an added value. In many cases it is important to understand whether planning permission will be granted for the property in question, as well as the ins and outs of requirements for planning consent on listed properties, building warrants and any planned change of use for the property. Undertake due diligence on all factors to ensure you understand all predicted costs in full before a transaction is completed.

Local Authority Regulations   There is a different responsibility and obligation in terms of regulations depending on the local authority your new student investment property falls under the control of. This ranges from landlord registration, tenancy deposit schemes, tax returns and fire safety measures. It is important to understand the relevant costs associated to your local authority prior to making an offer on a student investment property.

House of Multiple Occupancy (HMO)   If you are planning on the property to become a student house with multiple tenants who are unrelated, there are a number of strict regulations to adhere to. Speak to your local authority and understand the specific detail as it could cost you a huge portion of your budget to make sure rooms meet the minimum width, that kitchen worktops are the right size, there are strict electrical and fire safety procedures in place and many other considerations.

Tax Situation   In situations where a property is being bought for buy-to-let purposes there is the standard Land & Buildings Transaction Tax, beginning at properties valued at higher than £145,000, and the Additional Residential Property Tax, which is a 3.0% tax on the whole price of a property.

Student Rental Yield   You’ll want to know how much money you’ll see in return from your investment and local lettings and student property management agencies can provide you with some general ideas on rental prices in the area, and for property types similar to the property you are planning to purchase.  We tend to consider developments where we can offer our clients between 6% – 10% NET returns.

STAMP DUTY  Lastly a positive to consider when looking at purchasing an investment, Student investment developments will have in many cases NO stamp duty to pay.  In 2016 the Finance Act 2016 received royal assent and became law. One section of the new law has major implications for buy-to-let investors. You don’t pay the higher rate of stamp duty on accommodation for students in further or higher education, this is because student halls of residence are not classified as being used as a dwelling which means you pay the lower rate of stamp duty, up to £125,000, this is 0%. Many of the student investments we market are well below £125,000

Feeling a bit overwhelmed? Don’t be.   Residential Estates are specialists in the student sector so come to us for initial free advice.

For more information about student property investment advice and guidance we have to offer at Residential Estates, contact our office on 01244 343 355 or email sales@residential-estates.co.uk. We also have a live chat function on this page and a simple to use contact form where our friendly customer service team can return your call at your convenience.

Interest Rates and BTL Mortgages

  • Interest rates held for the time being
  • Bank of England signalling gradual rate rises
  • Higher rates may affect landlords’ profitability
  • BTL mortgage rates low and still falling
  • Worth considering locking into a fixed BTL mortgage deal

On 3rd August, the Bank of England’s Monetary Policy Committee (MPC) met to decide the UK’s base rate of interest. Once again, it voted to keep the rate at its current historic low of 0.25%.

The decision came as little surprise to many forecasters who  pointed to a sluggish economy and the continuing economic uncertainties arising from Brexit – neither of which, they argued, would benefit from an increase in the cost of borrowing. Britain’s GDP growth slowed to 0.3% in the second quarter of 2017, and this news will have featured prominently in the MPC’s discussions. Businesses generally need credit to fuel their expansion, so to have raised interest rates would have risked curtailing economic growth at a time when Britain is already floundering at the bottom of the table of G7 economies.

The MPC members will doubtless have been aware that a rate rise would also further damage a housing market that has been hard hit by problems of affordability. Consumer borrowing is already approaching a record high and to raise interest rates now would likely put further pressure on prospective homebuyers.

Nevertheless, the vote was not unanimous; it was split 6 to 2. Partly, the pressure to raise rates arises from the need to keep inflation in check – something the MPC has failed to do in recent months. This pressure was alleviated a little in June when inflation was lower than forecast (2.6% rather than 2.9% the previous month) but the rising cost of living is still very much in the Committee’s sights, as the minutes of the meeting reveal.

The minutes state: In the MPC’s central forecast, GDP growth remains sluggish in the near-term as the squeeze on households real incomes continues to weigh on consumption… The MPC expects inflation to rise further in coming months and to peak around 3% in October, as the past depreciation of sterling continues to pass through to consumer prices. Conditional on the current market yield curve, inflation is projected to remain above the target throughout the forecast period. This overshoot reflects entirely the effects of the (Brexit) referendum-related falls in sterling.

Given that the Bank of England evidently has little confidence that inflation will fall back in line with its 2% target, there seems a growing likelihood that the MPC will eventually raise interest rates. However, Mark Carney has signalled that should it do so, the process would be slow and incremental. The report’s summary stated: “All members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.”

The Committee also appeared to acknowledge the limitations of using interest rates to control inflation, saying: “attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth.” In short, there seems little appetite for risk, given the shakiness of the domestic economy.

 

Responding to the announcement – which came with a warning that “monetary policy could need to be tightened by a somewhat greater extent” than markets had previously been expecting – the National Institute of Economic and Social Research revised its predictions, concluding that a rate rise was now more likely to occur in the first three months of 2018, rather than in 2019 as it had previously suggested.

Implications of a rate rise:

If and when the base rate rises, borrowers will almost inevitably see an increase in costs. Businesses will see a rise in the cost of credit and consumers will feel the pinch on everything from mortgages to credit card repayments.

The MPC will therefore be careful about the speed at which it increases the base rate. The Bank of England has already recognised that consumer credit has become a cause for concern, with the value of outstanding loans on cars, credit cards and other personal debts rising by 10% over the past 12 months. This compares against average incomes, which have risen by only 1.5% over the same period – less than the rate of inflation. The Financial Conduct Authority recently reported that 2.2 million borrowers are now in financial distress, despite the low cost of borrowing, so to add to people’s costs at such a time would inevitably increase the risks of hardship and repossessions. A “slow and steady” approach by the MPC therefore seems wholly understandable.

Interest and mortgages:

Of course, any rate rise is going to be unwelcome news to landlords who have already had to contend with a number of tax-based assaults on their profits. Now, however, property investors can insulate themselves against the effects of an increase by taking advantage of some very hospitable conditions within the buy-to-let mortgage market.

At the start of the year, there was a pronounced drop in the number of BTL mortgage products available to investors,  but lenders have since found a new confidence and competition is once again fierce.

On 31st July, Moneyfacts published the results of its own independent research, noting: “BTL mortgage competition is showing no signs of stopping, which is great news for landlords looking to build their portfolio. Our research shows that the average two-year fixed BTL mortgage rate has fallen by 0.31% in just one year, and even though the pace of the fall has slowed in recent months… the continued drop is nonetheless welcome.

“The figures also show that the market has now recovered from the significant drop in products that was seen at the start of this year, suggesting that landlords can benefit not only from low rates, but also a higher number of mortgages to choose from.”

More intense competition is certainly helpful for any investors looking to lock in to a good deal while rates are still at their all-time lows. 2 and 5-year deals are now being offered that offer investors considerable confidence that mortgage repayment costs will remain both predictable and manageable.

Changes in September:

While now might be a good time to consider new mortgage products, investors should note that new regulations will come into effect from 30th September. These will require lenders to apply stricter affordability checks on applicants with four or more properties. Previously, lenders of BTL mortgages sought to ascertain an applicant’s ability to pay by demanding proof that rent would cover 125% of proposed mortgage interest payments, assuming a hypothetical interest rate of 5.5%. As of the end of next month, that figure will rise to 145%. Currently, there are major lenders still offering new BTL mortgages according to the old criteria but it remains to be seen how long these will remain available.

Commenting on the changes, Charlotte Nelson, finance expert at moneyfacts.co.uk said: “Given that 89% of the mortgage deals on the market today are available for borrowers with four or more properties in their portfolio, these changes will affect a large chunk of the market.”

Looking ahead:

What is certain for all investors is that good information and advice will remain key to making a success of property. The BTL market itself still offers considerable benefits over conventional savings accounts, and the prospect of steady yields and capital appreciation generally make for a safer, less volatile investment than stocks and shares.

However, not every property deal will be a winner; location is key, so it’s essential to choose the right property in the right area, aimed at the right kinds of tenant. Add to that the importance of choosing the most appropriate financial package and one can quickly appreciate the wisdom of seeking expert professional advice.

If you’d like any information or help with finding a property that’s right for you, please contact one of our advisers today on 01244 343 355 or email info@residential-estates.co.uk

Choosing Chester

 

As a Chester based property specialist, we naturally have a keen appreciation of the market conditions prevailing within one of Britain’s most historic cities. In the course of our work, we routinely help clients to buy and sell homes here, to find quality rented accommodation and, of course, to make profitable, well informed investments.

In this article, we thought we’d explain what makes Chester’s property market so special.

First, of course, there are the aesthetic considerations. Anyone who has even a passing acquaintance with the city will be familiar with its beauty, its character and its rich history. Just say the name and images of ancient walls and half-timbered buildings spring unbidden to mind. Visitors and residents alike will understand why it regularly makes the top listings of foreign visitors’ favourite city destinations. Home to roman ruins and one of the country’s best loved race courses, it has a thriving tourist economy that seems to grow stronger every year.

But an extensive count of such familiar strengths is essentially unnecessary; as a gem of British heritage, as one of the region’s leading tourist attractions, Chester is already widely renowned. Most readers won’t require a long list of superlatives in order to appreciate that the city is a unique and bewitching place to live. Numerous surveys and ‘quality of life’ indices would certainly support that view.

Looking beyond the immediate doorstep appeal of a typical city home, what else separates Chester properties from those in other regions? Beautiful and desirable the location may be, but does it make sound financial sense to relocate or invest here?

 

The Economic Argument:

In answering that question it is worth examining the economic health of the region. Any prospective homeowner or tenant will doubtless want to know how the city is likely to fare in the challenging years ahead; whether neighbourhoods will continue to prosper; whether Chester is capable of sustaining the same enviable quality of life it offers today.

Happily, all the indications are good. Local business conditions are healthy, buoyed by a number of large, well established employers, and the region is attracting considerable volumes of new investment from both the public and private sectors.

Despite its evident history, Chester is not a city wedded to the past. It is home to many forward-focused businesses and it affords a base for workers engaged in some of the UK’s most advanced industries. It boasts a thriving financial sector – sustained by major players such as Bank of America, HBOS, Virgin Money and Marks & Spencer Money – and it has always benefited from its well established chemical, pharmaceutical, automotive and manufacturing sectors. This is an impressive feat for a moderately small city with only around 118,000 inhabitants.

One particular growth sector is advanced manufacturing. A relatively recent development has been the creation of a large Airbus UK factory in Broughton. The facility is responsible for the production of Airbus A380 wings and now sustains around six thousand jobs. Its workforce continues to grow, boosting the local economy and fuelling healthy demand for property.

Other large local employers include Moneysupermarket.com, which has its registered head office in nearby Ewloe. There is also the Countess of Chester Hospital, the frozen foods company Iceland and, of course, the tourism industry itself. Collectively, tourist businesses contribute £1.78 billion to the local economy each year and sustain approximately 27,000 jobs.

Another significant employer  is University of Chester, one of the oldest higher education institutions in the country. It has five campuses in the city alone, including a science park, a business school and sites teaching a variety of vocational courses.

These organisations are all helping to ensure that prospects for employment remain excellent, that the property market remains buoyant, and that living conditions in and around Chester remain amongst the most appealing in all the country.

 

Inward Investment

Some of the most notable developments in the vicinity of Chester are being orchestrated by the Chester Renaissance Board as part of a 15-year regeneration programme. Called the One City Plan,  it is designed to run from 2012 to 2027 over three phases. The first phase saw £37 million invested in a new 800-seat theatre, which economic development experts predict will support 400 jobs and attract an extra £17 million of visitor spending each year. Phase 1 also includes the construction of the £300 million Chester Northgate Scheme  – a retail and leisure development that seeks to generate around £140 million of extra annual income and to deliver 1,000 permanent new jobs.

Meanwhile, the city centre itself will be undergoing a £100 million facelift, through which planners seek to enhance the shopper/visitor experience, boost the retail sector and thereby support around 3,500 new jobs by 2028.

Elsewhere, Chester’s Cathedral Quarter will be the subject of regeneration work. The city will also benefit from a new waterfront development and a business improvement district. In subsequent phases, the One City Plan will also deliver improvements to the Castle Gateway, Chester’s famous Roman amphitheatre, the racecourse and several other well known city districts.

Further out, Chester Zoo will see a £225 million upgrade, which is part of a tourist strategy designed to produce a 100% increase in visitor numbers by the middle of the next decade. If successful, that strategy would swell the tourist revenue coffers by as much as £3 billion each year.

Cheshire Science Corridor is yet another important development. In March 2017, growth director John Adlen noted its potential to energise the regions economy, explaining that the  250-acre enterprise zone was designed to attract international investment, to support 20,000 new jobs and 500 new businesses. He said: “We want to put Cheshire on the map with its outstanding science and technology assets. Our aspiration is to create a new golden triangle in the North.” The site will focus on high value, knowledge-based sectors such as energy technologies and biotechnology.

And so the list goes on. In the pipeline, there are also approved plans for new hotels and supermarkets, new office developments, and infrastructure improvements to support it all – including improved rail links to John Lennon Airport.

In short, there is every reason to believe that Chester’s fortunes are on an upward curve; that business will continue to thrive and that the city as whole will benefit from a steadily improving economy. Should that prove to be the case, then that will spell unequivocally good news for residents, home-buyers and anyone with a commercial stake in the city.

 

Chester’s Housing Market

Despite all the activity now taking place in Chester, local property prices are still affordable, particularly when compared to the overheated markets of the South. Accordingly, those seeking attractive, high quality rented accommodation can still find reasonably priced apartments within easy commuting distance of all the major centres of employment. Likewise, investors will recognise that lower absolute prices often translate into very attractive yields.

Chester – Key Facts

 

According to the LendInvest Buy-to-Let Report for June 2017, the average Chester property rose in value by 3.8% over the last 12 months.  Rental prices rose by 5% and average rental yields stood at 4.87%.

For house buyers, the prospects are equally encouraging. Borrowing rates are currently at an all-time low, properties in Chester are still sensibly priced and the prospects for capital appreciation are extremely encouraging. Given the perennial shortage of good family homes on the market, prices were already destined to increase, but given the scale of inward investment, more jobs and more people with disposable incomes should see capital values rising steadily.

Over the last year, affordability concerns have had a constraining effect on price growth at the national level but northern markets have been less affected than those in the South. Having risen at a slower rate, prices in the North now have greater room to move. For markets like Chester, where people are drawn by the promise of a better quality of life, the implications can only be positive.