Monday 27 October 2008

The Rugg Report


The long awaited report Review of Private Rented Sector Housing, commonly known as the Rugg Report after one of its authors Julie Rugg, has been published.

This is essential reading for everyone involved in the lettings industry. The report was complied on the instructions of the Department for Communities and Local Government so it is very likely that this will form the basis for future Government legislation affecting the private rented sector in England.

The Executive Summary can be found here The Private Rented Sector Executive Summary.

The full report can be found here The Private Rented Sector: its contribution and potential.

Tuesday 14 October 2008

A Review of Buy-to-Let Mortgages


In the past few days we have witnessed unprecedented intervention in the Banking sector by central governments both at home and abroad with more to follow. The result is that we will have fewer market participants and reduced competition. From over 2,000 BTL mortgages just over a year ago there are now only around 262 BTL mortgages from just 27 lenders.

Banks, in real terms, will be cash poor and will look to make strong returns on the money they lend. Banks will not look to attract any business that is deemed risky and will look increasingly at the strength of the applicant, their current commitments and ability to service those commitments.

Political pressure could mean sweeping changes to the availability, structure and pricing of BTL mortgage products as the Government and legislators take an active financial stake in the banking sector.

With some politicians and commentators blaming the BTL sector as a major contributory factor in the recent boom in house prices, it is not too outrageous to assume that the Government may seek to distance themselves and the banks that they support from active participation in the BTL sector. It is difficult to imagine the Government allowing banks that they have poured £billions into to lend that money to BTL landlords in preference to first time buyers and small businesses.

Rather the Government may look to capitalise on the current unrest in the housing market by encouraging and promoting wider social housing provision via large scale players in the private rental sector. It is notable that some of the larger developers have already concluded deals with housing associations to take up unsold stock.

All this turmoil leaves the BTL mortgage market in serious disarray. Today BTL interest rates range from 5.39% to a staggering 15.9%. Application fees have soared and can be as high as £2,000. Arrangement fees that were virtually unknown just 12 months ago now range from £690 to as much as 3.25% of the loan.

Today there is just one lender still offering an 85% loan to value BTL mortgage, just 6 companies are left offering 80% loan to value mortgages. It is only at 75% loan to value and below that there is anything approaching genuine choice.

Two lenders are actually paying BTL borrowers to take their mortgages to another lender. One of them has offered a staggering 30% rebate to one landlord to encourage him to find another lender.

Lenders who offer competitive rates find themselves swamped with enquiries and quickly withdraw them as their internal systems clog up. It is increasingly likely that lenders will offer limited tranches of money.

Landlords looking for good mortgage or re-mortgage products need to plan ahead. To ensure that you get these deals as they become available you need to start building a good working relationship with a specialist BTL broker now. Otherwise, by the time you find out that that a good deal is available, make an enquiry and complete an application form the chances are that the money will have gone. Some mortgage deals are now only available for just a few hours before they are withdrawn.

Some of the best BTL brokers are now charging small, upfront retainers. They are choosing to work only with experienced, serious landlords who are willing and able to plan ahead, and act quickly as attractive rates become available. Landlords who are waiting for the market to turn are beginning to find that they are being left behind and are finding that they are missing the best deals.

It is now more crucial than ever that landlords plan ahead. Many landlords are seeing their current mortgage deals coming to an end and need to ensure their cash flow is maintained.

At the same time growing numbers of landlords are taking advantage of the drop in house prices to increase their portfolios. History tells us that many successful landlords often made their most astute purchases during times of economic turmoil and as ever preparation is everything.

To be successful in securing funding in the coming months, Landlords must be able to demonstrate:

· A positive income stream be it rental, earned or a mixture of both (Landlords need to be able to evidence this income with tax returns, pay slips or confirmation from an accountant)
· Modest levels of unsecured personal debt (large credit card balances coupled with personal loans will not encourage lenders to extend further loans).
· Clean credit profile, commitments have been met to date
· Application process is key. Submitting an application with missing or incorrect information will almost certainly mean the application will fail.

It is highly unlikely that there will be an increase in the number of BTL mortgages in the coming months. Many experts are now predicting that little will change before the end of 2009 or even well into 2010. Similarly it is unlikely that BTL interest rates will fall any time soon. But there are still BTL mortgages available and those who plan ahead will get the best and most attractive rates.

If you would like to discuss your mortgage requirements with an expert BTL broker please follow this link Mortgages through NetRent.co.uk or call us now on 01352 759988.

Thursday 9 October 2008

Letting Agent shames tenants who refuse to pay rent


Merseyside letting agents Sutton Estates have come up with a novel and daring way to name and shame defaulting tenants.

"Rent Dodger Lives Here" signs are affixed to the property of tenants who fall into serious arrears and refuse to discuss or acknowledge the problem. Rob Downey, a partner in the letting agent, told us that they were targeting individual cases and this was "not about persecuting people".

So far just two signs have been used and the tenants have now left in both cases. Rob told us that in one case they also had to call in the RSPCA. Neil Heffey, a partner in Sutton Estates, said he was sick and tired of being “avoided” by those who refused to pay for their living accommodation, provided by or through his company. He added “They can avoid us, but not their neighbours. Now, every time they walk in and out of their door, the neighbours will be laughing at them.”

The Liverpool Daily Post newspaper reported that Mr Heffey said recent changes in how benefits are paid, which are intended to give tenants greater control over their rent payments, had seen more and more people falling behind. This also comes as the credit crunch sees property owners finding it more difficult to maintain mortgages.

The Liverpool Daily Post quoted John Tuson, head of commercial property at Kirwans Solicitors who said the estate agent’s signs could potentially open them up to legal action. Among the areas for concern, he pointed out, were the possibility of defamation, incitement to assault or affray, harassment, breach of the tenancy agreement, or even trespass.

Mr Tuson said: “There is also confidentiality, in that the landlord should not expose information about the tenant to a third party, and there’s the issue of privacy under Article Eight of European Convention of Human Rights, along with data protection issues. And I dread to think what the consequences would be if the signs were accidentally put on the wrong houses.”

Rob Downey from Sutton Estates claimed that there was no legal precedent and he said that no-one was sure what the legal implications were.

There is little doubt that many landlords and letting agents would support this kind of action against tenants who abuse the system without regard for the consequences. Many landlords who have responded to our Petition Against Changes to Section 21 Notices have called us to complain that their human rights are being infringed by tenants who simply refuse to pay their rent.

It will be interesting to see how this form of direct action by Sutton Estates develops.

HMRC in new clampdown on Landlords


HMRC (the Taxman) is set to target Landlords in a new clampdown on Buy to Let rental income.

New powers will give Government inspectors the right to turn up and inspect Landlords records in their own homes. Letters have been sent out by HMRC warning Landlords about new measures which come into force next April.

Earlier this year HMRC sent out 500 letters to Landlords to test whether there was a case to specifically target Landlords. HMRC routinely requests details from local government authorities, its Stamp Office and letting agents about rental income and the sale of properties - and that this information will be "data matched" to identify individuals who have not made the appropriate tax returns.

Some newspapers have even claimed that HMRC will be checking property to rent adverts in local shop windows in an attempt to identify as many Landlords as possible.

HMRC are reported to be especially concerned that many Buy to Let investors have incorrectly assumed that they can offset the full cost of a repayment mortgage against their profits for tax purposes. With over 1 million Buy to Let mortgages in the UK there is a lot of potential for investigation.

It is claimed that many landlords do not fully understand the tax rules surrounding their investments, which allow them to offset only a certain proportion of their mortgage payments against their tax bills. Only the interest payable on a mortgage loan can be offset against tax, so any landlord with a repayment mortgage is liable for tax every time they pay off part of the capital they have borrowed.

Our experience suggests that most Landlords opt for interest only mortgages which can be offset against tax, but our advice is to carefully check what you are allowed to claim. HMRC have advised all Landlords to check with their website to ensure that they correctly reporting their status to them. For more information click here HMRC Website. We recommend that all Landlords should seek professional tax advice and correctly declare all your earnings. If you don’t HMRC could be knocking on your door.

Thursday 2 October 2008

Demand for EPCs increases dramatically


Energy Performance Certificates became mandatory on virtually every new tenancy in England and Wales from 1st October. As we have been predicting for months demand for EPCs has risen sharply across the country. This has caused prices to rise and because there is a general shortage of qualified assessors there are now delays in getting EPCs completed.

Landlords have already contacted us to say that their letting agents will not allow tenants to move into properties without a valid EPC. This has caused landlords to miss out on valuable rental income.

Since March we have been able to hold the price of EPCs supplied through NetRent.co.uk at just £70.50 inc VAT. Regretfully, as from Monday 6th October we will have to increase the price of our EPCs to £80 inc VAT.

Our advice to landlords remains the same - book your EPCs now to save time and money. Remember EPCs last for 10 years, get them done now and get them out of the way.

EPCs become mandatory in Scotland from 4th January 2009. If you have rental property in Scotland book your EPCs now.

For more information on EPCs and to order an EPC please click here EPCs through NetRent.co.uk