Buy to Let
Letting agent rip offs are under the spotlight once again after new findings from Shelter released this week. In a survey of 5,000 tenants, the organisation found that 23% claimed that they had been unfairly charged by an agent at some point for contract renewals, repeated credit checks and even for viewing a property.
The poll found that the most common complaint was in regard to ‘administration’ – a term which covers a wide range of charges and tends to average at around 14% of the tenant’s property charge. In some cases, this amounted to a non-refundable, one-off fee of up to £540.00.
Typically, a 10% charge would then be applied for an initial credit check and further 8% fees levied for contract renewals. Incredibly, charges for repeated credit checks of up to £150.00 were made while some tenants were even asked to pay £100.00 simply for viewing a property.
“It’s scandalous that some letting agents are creaming off huge profits from the boom in private renting by charging both tenants and landlords fees that are totally out of proportion to the service they provide,” said Kay Boycott, Director of Campaigns, Policy and Communications at Shelter.
Jane Ingram, who is president of the Association of Residential Lettings Agents (ARLA), acknowledged that standards needed to be raised and pointed to her organisation’s repeated requests to the coalition government.
“Standards in the lettings industry do need to be raised. That’s why we have long-called on the Government to act swiftly and introduce a robust licensing system designed to protect consumers,” she said.
The figures have led to an attack on the government by the Labour Party who accused the coalition of standing by and doing nothing while the crisis deepens.
“Unscrupulous lettings agents are ripping off tenants by charging them fees they didn’t know they would face, and exploiting landlords and tenants alike by failing to protect the money they hold for them,” said Jack Dromey MP, the Shadow Housing Minister.
Mr Dromey went on to underline the effect these charges in having at a time when many families are struggling to cope financially.
“As the growing housing crisis and double dip recession put the one million families in the private rented sector under pressure, this is the last thing they need,” he added.
Shelter also found that some agents were double charging their fees to both landlords and tenants while some renters asserted claims that they feel vulnerable in the current climate.
Calls for the government to act are increasing and the only certainty is that this situation will only be repeated until action is taken.
In previous weeks, studies and surveys have told us that many families are currently caught up in a rental trap. With the lack of available mortgages and the struggles for first time buyers to raise a deposit for a new property, a significant proportion of potential buyers are having to be patient in the current climate.
However, there are increasing suggestions that this pattern is set to become a permanent way of life for this and possibly future generations. A study by Cambridge University which has been published by The Observer suggests that much of the UK buying public face being locked out of the market for the long term.
In the present day, the survey claims that 35% of the population are homeowners although that figure has dropped from 43% in 1993. It goes on to claim that further decline is set to follow and that as few as 27% of us will own our own homes by the year 2025.
The report indicates that those with families are in the greatest danger of renting for life as they continue to spend over half their income on monthly rental charges. As a result, there is simply no money left to save for a deposit and they remain locked in to the prospect of renting on a permanent basis.
“The worse the economy, the more the likelihood of this group’s housing being in the private rented sector,” the report continues. “In London, if current trends continue, tenants will soon outnumber owners, with important political, social and economic implications.”
The news has been met with resignation in some areas and the housing organisation Shelter says that the government has to recognise that renting has now become a ‘way of life’ for many families. It has gone on to call for major investment in the private rental sector in order to improve standards in all areas.
“This report shows what is fast becoming the new reality of our housing market in the current economic climate: home ownership continuing to fall while renting becomes a way of life for British families,” said Shelter’s Chief Executive Campbell Robb.
“Yet despite the growing pressure on the rental market, the government’s recent housing strategy virtually ignored the sector and did little to address the issues of affordability, stability and quality that so many renters face. It’s time government woke up to the fact that ‘rental Britain’ is here to stay.”
Many of those families would naturally want to retain a hope that they can still move into home ownership and as such, will be hoping that the future isn’t as bleak as the report suggests. As far as Shelter are concerned however, maybe a proportion should really be considering that rental has now become permanent.
As pressure to address the housing crisis in the UK grows stronger and stronger, new solutions are starting to emerge that could help to ease the strain. According to UK charity Empty Homes, there are currently 1.7 million families on council housing waiting lists and that figure continues to grow. The UK population is growing and yet house building rates have not been this low since the 1920s.
It Could Cost as Little as £10,000 to Renovate an Empty Property
New ideas come and go on how to ease this problem, but one idea that can’t be ignored is the idea of reusing the thousands of homes currently standing empty across the UK. Empty Homes has spent a great deal of time collating local council statistics and estimate there are currently 720,000 empty properties in the UK. Renovation of each property could cost as little as £10,000. With new-build homes at an all-time low, this seems like the ideal solution to the shortfall in available housing.
Thousands of Properties Ready to Be Renovated
Often these properties are privately owned or properties that have fallen into disrepair. Some have been inherited by owners who simply don’t have the resources to renovate the property. Whatever the reason, it’s apparent that many of these homes could be made habitable for the thousands of families desperate for accommodation and that’s exactly what Empty Homes sets out to achieve.
Empty Homes was first established in 1992. Over the years they have acted on behalf of those individuals and families desperate for somewhere to live by challenging Government policies and suggesting ways to take advantage of thousands of empty homes. One of the largest problems faced by the owners of these empty properties is the lack of funds to renovate and repair them. Empty Homes successfully campaigned for tax-breaks for these owners helping them to raise the funds to make them habitable once more.
Help Empty Homes to Rehome Thousands of UK Families
On a local level, Empty Homes is helping thousands of individuals to bring homes back into use. On a national level, every council in the UK now has a named officer whose responsibility it is to restore empty homes back into habitable condition. These are just some of the initiatives that Empty Homes has addressed and they plan to continue working with home owners and local authorities to help ease the housing crisis and help the thousands of people desperate for a place to call home.
Empty Homes provides a wealth of free advice and assistance to those looking to renovate an empty property and to those looking to invest in empty property. You can also report an empty property through their website so they can investigate further.
Almost a third of all properties in the private rented sector have major safety hazards according to data released in a Government survey of housing stock in the UK.
The annual English Housing Survey reveals that 28.2% of homes in the private rented sector have what is known as a category 1 hazard. This is compared to 14.5% of local authority properties, 10.8% of housing association properties and 21.5% of owner-occupied accommodation.
A category 1 hazard is classified by the Housing Health and Safety Rating System and includes any hazard that could cause death, permanent loss of consciousness, lung cancer, the loss of hand and foot, heart attacks, 80% burn injuries, eye disorders and poisoning.
Under the Housing Act 2004, these hazards obligate a local authority to vacate a property of all tenants and to arrange immediate repair and making safe of these hazards. The most hazardous type of property is flat conversions, with 37.7% having at least one category 1 hazard. Older properties can also pose more dangers especially those built before 1919.
A total of almost 5 million properties in the UK have such hazards with the most common hazards being those which could cause slips and falls. Baths, stairs, and showers with inadequate or poorly installed grab rails and handles were the most likely areas to cause issues.
Newspapers recently published a story about how an 85 year old man in Hackney, East London, became stuck in his bath with no heating or food for five days. Luckily he was able to reach his sink to drink water, but even this suggested the bathroom was too small and not fit for purpose. The man was only rescued when friends became worried about his whereabouts.
The second largest hazard listed was excess cold and this is especially a problem for those aged 60 or over. A healthy indoor temperature as at around 21C, but many properties were found to have inadequate heating leading to a serious risk to health.,
The report said: “The percentage rise in deaths in winter is greater in dwellings with low energy efficiency ratings. There is a gradient of risk with age of the property, the risk being greatest in dwellings built before 1850, and lowest in the more energy efficient dwellings built after 1980.”
Other category 1 hazards included biocides, asbestos, lead and radiation, carbon monoxide, and electrical and fire hazards. Of course, occupier behaviour can also play a major part in the risk these hazards pose and certainly was a factor in over 80% of fires in rented accommodation last year. However, there were also 2000 fires in the same year associated with faulty wiring and cabling, issues that can be avoided.
All landlords have a duty to protect their tenants and a vested interest in protecting their property investment. Any category 1 hazards need to be dealt with immediately with tenants vacating the premises if necessary whilst any other reported hazards should be assessed and dealt with as soon as possible or at the very least made safe.
Property lettings are put under the microscope this week as a survey released by one prominent agent suggests that the costs of renting your home may be dropping. Meanwhile, the survey goes on to suggest that Christmas spending is one of the factors currently having an impact on a rise in late rental payments.
LSL Property Services claim that the average monthly rental payment across the UK in December fell by 0.8% from the previous month. However, LSL go on to state that this still represents an increase of 4% on comparative prices from December 2010.
The fall comes after ten straight months of rental increases, although this does represent a fairly familiar ‘seasonal decrease’.
“The rental market was sheltered from the full impact of the seasonal lull by the strength of underlying tenant demand as many prospective renters took the opportunity to move in the run-up to Christmas at a time when the market is traditionally less competitive,” said David Newnes, director at LSL.
The survey also revealed an increase in late rental payments which it blames squarely on the impact from Christmas spending. The findings suggest that 10.7% of all rental payments were late or unpaid in December, as opposed to a figure of 9.3% from the previous month.
Those figures have prompted the Association of Residential Letting Agents to highlight the difficulties faced by tenants and landlords alike and has reiterated the need for watertight contracts, preferably from a recognised agent.
“It is more critical than ever to take references and conduct thorough research before signing a tenancy agreement,” said Arla’s President Tim Hyatt.
“Seeking advice from a professional, licensed letting agent is the best way to ensure tenants and landlords’ rights are protected.”
The fall in monthly rental prices may be seen by those looking to rent as a positive sign however, industry experts are warning against too much excitement, while affirming their belief that this is no more than a seasonal anomaly.
“It may be premature to say the UK rental market has peaked and that we are about to see rents fall away,” said Matt Hutchinson, director at Spareroom.co.uk.
“What we are probably seeing is a temporary blip, a natural cooling off period for the rental market.”
Overall, rental prices are expected to shortly begin climbing once again while continuing to increase throughout 2012 but the next survey run along similar lines may give us a more telling picture.
It’s a seemingly never ending question and one which has been in the news once again this week as the property website Zoopla claim that there has been a recent, significant move back towards a buying preference.
Zoopla’s Nicholas Leeming states,
“For those lucky enough to be in a position to get a mortgage, there may never have been a better time to buy.”
Leeming goes on to qualify his statement by stating that the issue for many prospective buyers is the difficulty in obtaining a mortgage in the first instance. It appears that this problem is a major factor in the number of people who accept renting as their only option.
“With house prices down, low interest rates and sky high demand in the private rental sector, buying has never been a better option for those able to secure a mortgage,” Leeming said at the time.
Returning to the question of buying versus renting, there are other, obvious reasons why a purchase is more attractive to UK buyers. In the private sector, the concept of ‘renting for life’ is rare, and while this option may be readily available in other countries, in the UK, it’s virtually non-existent.
This question of security is therefore a major factor but if restrictions on mortgage lending prove to be too much of a barrier, what can prospective purchasers do?
A popular way to get that first foot on the property ladder has been to buy a property in need of ‘modernisation’. This can, of course, be a risky investment as the term can cover such a wide breadth of properties in all states of disrepair.
However, for anyone happy to take on such a property, this can represent a cheap initial investment and a new website has been launched with the sole intention of helping buyers find exactly the right house for renovation.
Unmodernised.com takes all such properties from the websites of the nation’s estate agents and lists them on one central portal. There are naturally going to be developers crawling all over the new site but Julian Bryson, co-founder of unmodernised.com believes that first time buyers are healthily represented among the early enquiries.
“End-users have different aspirations to developers,” Bryson said.” They want to live in a home that they can truly make their own, and who actively seek a “project”. “There’s definitely an element of that in our buyers, and they’re very creative and design-led.”
Buying a house in need of modernisation should be considered extremely carefully but for those struggling to get on the ladder it is an option nevertheless.
If you are just starting out in the buy-to-let game or you’re a seasoned landlord, you need to understand the importance of carrying out background checks on potential tenants. It’s a landlord’s market right now with more and more people choosing to rent so you don’t need to bite off the hand of the first person who shows an interest in your property. You can afford to be a little more choosy.
The National Landlords Association (NLA) has issued a reminder to landlords to carry out checks on potential tenants before they let out a property.
This advice is being given to all landlords so they can confirm the identity of the tenant and ensure there are no reasons why rent payments would be missed.
The NLA carried out recent survey which revealed that almost three quarters of all landlords seeking possession of one of their properties suffered from rent arrears.
After carrying out a number of searches, NLA’s Tenant Check found that almost 1 in 20 tenants had more than one CCJ (County Court Judgement) against their name at a previous address during the first quarter of 2011.
Most tenant check services include a CCJ search, ID check, alias name search, history of previous addresses, together with a bankruptcy check. A more thorough check, and this is recommended, will include employer and landlord references and an assessment of a tenant’s ability to meet rent payments.
The NLA reported a record number of tenant checks during the month of August and this included the highest number of full tenant checks in any one month. These figures show that landlords are becoming more and more conscious of the tenants they let their properties out to.
David Salusbury, Chairman, NLA, said: “Getting a proper background check done on all tenants before they move into a property is one of the most important things a landlord can do before handing over the keys.
“It is vital landlords find out basic information about their prospective tenant to help avoid rent arrears or other problems further down the track. This gives the landlord peace of mind that their properties are in good hands and will hopefully mark the start of a satisfactory and hassle-free tenancy.”
People have been investing in buy-to-let property for years, nothing new there. For centuries tenants have been renting from landlords, but it’s only been recently that the average ‘man on the street’ has had unprecedented access to finance products to use for investment purposes. Until the credit crunch bit, lenders were practically falling over themselves to provide buy-to-let finance.
However, since the economic downturn, the cost of buy-to-let finance for lenders has increased dramatically. Lenders are now reviewing their lending criteria so that only those cream of the crop investors get the best deals.
If you are serious in investing in property and you have the finances to do so, the market is still viable, but you should review our golden rules of property investment before you start.
Research is King
You wouldn’t buy a car without knowing the make, model or mileage and the same principles apply to property. Even more so! Research your market thoroughly including the area you are thinking of buying in, any regeneration plans, the local transport links, and also other amenities such as schools and shops. Any property 10 minutes away from transport and local amenities is a safe bet!
Location, Location, Location
Consider who your ideal tenants would be. You need high quality locations to attract quality tenants.
How to Buy Well
When purchasing a property, consider content and price. This could save you money in the long run if white goods and furnishing could be included in the price too.
Make the Numbers Work
Buy a property that supports capital appreciation. Make sure you include all the costs involved in the property purchase including legal fees, service charges, stamp duty, contingency and ground rent so that you can afford any void periods that occur between tenancies. Many people ignore these costs and it can be a catastrophic mistake.
Use the Right Advisors
It’s essential that you use good mortgage and letting advisors. A regulated advisor will ensure you have access to the best deals that are free from any fees and which operate in alignment with your investment plans. A good letting agent will work to keep void periods to a minimum.
Don’t Expect to Get Rich Quick
Property investment needs to be approached with care and patience. This is a long-term investment opportunity.
Supply and Demand
Speak to local agents to see what is particularly needed in your chosen area. This will help you to meet the need and to attract tenants easily.
Head Not Heart
Don’t be ruled by your heart when making decisions. If you are not going to be living in your investment property you should only furnish and decorate it to a clean and basic standard unless you want to attract high end professionals. Speak to local agents to understand the quality that is expected.
Avoid the Gimmicks
Be wary of any deals offering incentives, such as no money down for example. Also, so-called get rich quick schemes should be avoided like the plague. A few years ago these might have been worth a punt, but not right now.
Keep Pricing Real
Never pay over the odds when purchasing an investment property. You should never pay up-front fees, finder’s fees or commissions prior to completion.
In summary, your aim should be to find a property that generates long-term wealth. There are many solid investment opportunities out there for those with the finance available.
Put simply, Below Market Value or BMV properties as those that are available to purchase below their market value. Normally this is because the previous owners experienced financial difficulty or needed to dispose of their property quickly without the protracted sales process. The reason for this is usually the threat of repossession.
The official guidance from the Royal Institute for Chartered Surveyors (RICS) about how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (Red Book). The foundation for the valuation of a residential investment property is normally its market value. Market value is defined in the Chartered Surveyors hand book as:
‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’
If a property was marketed properly and then a sale agreed, a landlord might consider that they got a BMV bargain. But this isn’t always the case. For instance, let’s say an investor buys a property for £180,000 and a year previous to that a similar property sold for £200,000. The landlord may consider that they have bought the property at 10% BMV. If we look at the guidance set out by RICS the investor has just actually paid the market price.
So, do BMV properties really exist? They do and it all depends on whether the property was fully marketed before sale or not. These situations occur when buyers are given access to ‘motivated or distressed sellers’ who don’t want to go through the normal process of sales and marketing or cannot afford to.
Locating motivated sellers is usually quite simple if you are in a good position to buy. Targeting your local area with adverts or leaflets is one way. You could also contact your local estate agents highlighting your interest in property bargains and that you are a potential cash buyer of residential investment properties. Even if you need to arrange a mortgage for a bargain property it’s still possible to flush out some good deals. Persistence pays in the current market. Make your name and number known and make it clear that you are serious about making a purchase.
As with any industry, the BMV industry is rife with rogues and dishonest middlemen. Those posing as BMV gurus are often anything but and just after preying on those desperate to sell and in a distressful financial position. Their main concern is with making a massive profit between desperate seller and landlord. It is much better and easier to search for BMV properties through local estate agents or by offering your own direct service to local customers.
Of course, there are dangers with buying BMV property and this is mostly down to the provisions of the 1986 Insolvency Act. These provisions could result in a landlord who has bought BMV property legitimately being sued by the previous seller. If several years down the line the seller has become bankrupt they can take out a court order to reverse the sale or claim the difference back between market value and the agreed sale price. The reason for this is because the Insolvency Act allows the trustees of a bankrupt to prevent the bankrupt from giving away or selling assets below the normal market price. A landlord who purchases BMV properties can be exposed to these provisions for up to 5 years. However, there is a way to protect against this instance by asking the seller to execute a Deed of Solvency. This declaration states that the seller was solvent at the time of sale.
The number of successful mortgage applications peaked at its highest level for 15 months in the month of August according to figures released by the British Bankers’ Association.
In August, the number of mortgages approved for purchasing property rose to 35,226 whilst in July this figure was 33,734 and 31,542 in February. This is the fourth month in a row that mortgage approvals have shown signs of rejuvenation and August shows the highest figure since May 2010. We’ve reported in a number of articles that mortgage lenders are starting to relax their criteria a little allowing more first time buyers to enter the housing market with more confidence.
Buy-To-Lets Push Up Approval Figures
BBA statistics director, David Dooks, commented: “The banks’ new lending has ticked up in the past couple of months with higher buy-to-let demand … although the general landscape is one of households not wanting to take on more borrowing and businesses waiting for trading conditions to improve.”
The average value of a mortgage taken out has been £145,000 which is 1% higher than the same time last year, but still down from July’s figure of £151,000.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Although they [mortgage approvals for house purchases] were at a 15-month high in August, there is currently little evidence that housing market activity is really shifting up a gear. Indeed, at 35,226 in August, mortgage approvals were only 62% of the average monthly level of 57,059 seen since 1997.”
Earlier this week, the Council of Mortgage Lenders released figures showing that mortgage lending rose to a high of £13.4bn in August.
A Subdued Market Remains
But the CML’s chief economist, Bob Pannell, believes the market is still fairly muted: “Much of the recent variation in monthly lending figures appears to have reflected seasonal factors, with the underlying picture being one of activity levels that continue to be subdued but broadly stable.”
BBA also released figures for lending on loans and credit cards and these show that householders are paying off a figure that still outweighs new lending.
Archer said: “Consumers’ desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs.