Tips to Avoid Problem Tenants in your Rental Property


Tips to Avoid Problem Tenants in your Rental Property


 

2345Having the right tenants in your property can truly make a huge difference in your ability to succeed in owning investment rental property. While problem renters can definitely exhibit some warning signs, there are some problem renters who are quite adept at getting past landlords. As a result, it is important to understand that you simply cannot always rely on your first impression of a prospective tenant in order to determine whether they will be responsible and reliable.

There are some tips you can use; however, in order to avoid tenants which could prove to be difficult.

First, always have prospective tenants complete a rental application. The application should be in writing and should provide you with the information you need to make a decision regarding renting the property. Along those lines; however, you need to make sure that you always follow laws, such as the Fair Housing Act. Discriminating against prospective renters is against the law and could land you in quite a bit of trouble. You are not allowed to deny someone the ability to rent your property based on religion, race, etc. By following the Fair Housing Act, you can make sure that you do not violate any discrimination laws.

Always make sure that you obtain proof of identity. This includes seeing a photo identification from any prospective tenants that you interview. On the rental application you have prospective tenants complete, make sure they write down their driver license information. Make a copy of the photo ID and be certain that you attach it to the rental application.

Many landlords make the mistake of not performing a background check. This is a mistake that you cannot afford to make if you want to ensure that you avoid potentially troublesome tenants. Performing a background check gives you the opportunity to determine if there are any previous problems. For example, running a background check can let you know if a prospective tenant has a history of destroying property or skipping out on the rent.

Along with a background check, you should also perform a credit check. You will need to obtain the applicant’s permission in order to do this; however, you can do this on the rental application. You will also need to obtain the applicant’s Social Security number on the application to run a credit check.

References are also essential. Make sure that you obtain the name of the applicant’s previous landlord so you can follow-up. This is because not all landlords make a report to the authorities when there is a problem, so by checking with the landlord directly you have a better chance of determining if there were any problems.

In addition, ask for character references. Make sure that you take the time to actually check with those references. If the applicant did not give you a valid reference this is a good way to find out about it and weed out the applicant.

Finally, make sure that you include information regarding a code of conduct with each application or lease. The code of contact should state what is expected of the tenant and have the prospective tenant sign and date the document. By making sure that these expectations are clearly outlined in the beginning, you can help to avoid a number of problems.

Britain’s biggest buy-to-let investors have sold nearly half their £250m property portfolio – Should You?

The Wilsons are an extraordinary couple. Fergus and Judith were both previously maths teachers. But starting in the mid-1990s they built up a buy-to-let property empire that eventually led to them owning 900 houses in Kent.

They put their success down to the appearance of buy-to-let mortgages with favourable terms which enabled them to expand their portfolio quickly. In those days, it was easy to get loans with a high loan-to-value ratio that were also interest-only. In fact Fergus Wilson has claimed in an FT interview that in those days, the only requirement was that you could spell your name and that checks were almost non-existent.

However, recently the couple have sold off about 400 of their properties in Kent, mostly to overseas buyers. Mr Wilson thinks that the era of the amateur landlord is over and that life is much tougher these days for people trying to acquire a buy-to-let property. In the article, he quotes 60% loan to value mortgages as a particular problem.

The FT quotes OneSavings Bank which has decided, since Brexit, to focus on professional buy-to-let investors since it considers that they will be better able to ride out any market volatility. It has also tightened lending criteria for smaller landlords.

Meanwhile Mr Wilson, who one suspects never listened to this kind of advice but ploughed on regardless, is waiting to complete the sales of property within his portfolio, pay off his mortgages and hopefully walk away with £200 million profit.

Although he doesn’t own property in London, he describes a type of overseas buyer who is desperate to obtain a property in the UK. He believes that Brexit will in the short term assist these buyers, as the fall in sterling will help them to afford a property in the UK.

He believes that in the longer term, UK property prices will be underpinned by the shortage of housing and that the developers cannot possibly deliver the numbers of houses that are needed in the next 15 years.

It’s likely that one of the Wilsons’ motivations may be retirement as both are at the age where the challenges of running a large property portfolio may be just a little too much. It’s certain that a new generation of keen private landlords are seeking to replicate their success, no matter what the challenges.

One of the challenges for landlords who are in the business long term is to keep up with the constant changes in legislation that affect the property rental business. This is a key reason to employ an agent who can keep up with them on your behalf and let you know about the issues that are relevant to you.

The Association of Residential Letting Agents (ARLA) has apparently said that there are currently 160 regulations that apply to property rental. Add to this the assured landlord schemes and guidance that landlords are supposed to take on board, and you can see how someone who has say, two or three Failsworth lettings, might feel overwhelmed by the level of regulation with which they must comply. What’s more, with the law constantly being challenged by court cases, the interpretation of it can change rapidly.

This is why landlords who don’t want to find themselves on the wrong side of the law employ a professional lettings agent to advise them. Only an agent who has looked at your particular property can advise as to what specific legislation you may need to take into account.

Of course, some new laws can be helpful to landlords. For example, landlords are now able to carry out checks known as “Right To Rent”. This will allow them to check that the person they are thinking of signing up as a tenant has the right to be in the UK. This will help them to avoid the potential £3000 fine for each tenant who is here illegally.

Some commercial finance websites are also reporting that around a half of landlords are intending to raise their rents next year. If returns are falling, many landlords will feel under pressure to increase rents in order to restore some profitability to their portfolio.
The Wilsons may feel that it’s all become too much effort and that now is the time to cash in their portfolio.

Possibly so, but one thing is certain – there will still be plenty of willing buyers out there.

DSS or Dogs?

Yesterday a very intersting article was published on the BBC website: No DSS: Most flat shares refuse benefit claimants

It claims that landlords are twice as likely to accept potential tenants who own pets than people who claim benefits.

The article goes on to look at the case of one particular tenant, Eva, who is a single parent, working full time but having her low wage subsidised by Housing Benefit. Day in day out we come across numerous people like Eva, hard working, honest people who have become victims of a stereotype and face discrimination due to their circumstances. We do not recommend or condone lying about your circumstances to obtain a rental property, often with our tenants it is the case that we can sit down and work together to agree affordability and help find a suitable property, as we understand the local market and our landlords tend to be receptive to tenants in receipt of benefits.

The private rented sector has doubled in size since 2002 and now accounts for 20% of all UK households, recent cuts in welfare means benefit payments in many parts of Manchester no longer cover the rest.

You can see our thoughts below on this short video regarding renting to people on housing benefit

 

Every week our Lettings Manager, Joe, makes a short video in response to enquiries throughout the week, if you’re interested in viewing more of our videos you can do so on our YouTube Channel

Should You Let to DSS Tenants?

Some landlords won’t let to DSS tenants under any circumstances, but others recognise that not all DSS tenants are going to wreck the house and turn it into a crack pad. In fact, some DSS tenants have more regular, stable incomes than employed people and may be a better bet for a buy-to-let landlord. So how do you sort the wheat from the chaff?

Delays in Payments

One of the key factors with DSS tenants is that they are dependent on the efficiency of the benefits systems which pays them. Universal credit has acted as a gigantic spanner in the works here. Because it involves a switch from the previous benefits system to a new set of processes, it was always going to be difficult, but add in the necessity to alter computer systems, which has never been a strength of government, and you have a recipe for tenants who are not getting the money they need to pay their rent.

This is not their fault, and if they were employees who had not been paid because the banking system had gone down, there would be abject apologies on their behalf. However government appears to think that not paying claimants is a risk-free activity, and government has also decided that DSS tenants who live in private rented accommodation are now personally responsible for paying housing benefit to their landlord.

Clearly, if there are delays in processing a person’s claim, they will not get their housing benefit on time and will be in a position where they must pay the landlord late. DSS tenants are people who are in receipt of housing benefit. How much they get depends on their circumstances and any other income that they have.

But tenants are usually very clear with landlords about the amount of benefits they receive, because if they manage to secure a tenancy, they need to inform the Housing Officer of the new rent that they have agreed to.

Poor Publicity has Affected the Better Tenants

Many tenants who are claiming benefits and want to pay landlords rent from their housing benefit are in their current situation through no fault of their own. They may have been diagnosed with a serious illness that has meant they could not continue in work. Or they may have lost their jobs, been unable to keep up their mortgage payments, had to sell their house, spent the resulting equity in private accommodation and finally ended up claiming housing benefit. Anyone dealing with lettings and Manchester property in general will have come across these cases.

Unfortunately, some reality TV programmes have given the impression that anybody claiming any kind of benefit is a drug-addled waster who will trash the property and leave without paying six months’ rent. This simply isn’t the case, any more than employed people who appear to have a lot of income are really faking it and waiting to sublet the property to another dozen tenants.

In the employed sector and the DSS sector, there are good and bad people who may make excellent or dreadful tenants. The key thing is to be able to distinguish between the two.

How to Get a Good DSS Tenant

One of the things you need to look for is any disparity between the amount that the tenant is receiving in housing benefit, and the amount that you are charging. The tenant has to make up the shortfall every month and if they are disabled or have no access to extra income, they are going to find this extremely difficult. So, to avoid rent arrears, make sure that your tenants can afford the rent from their housing benefit.

Make sure that you have a suitable landlord’s insurance policy in place and don’t gloss over the fact that you are letting to DSS tenants. Yes, they are slightly higher risk and you may need to pay a slightly higher premium but let’s face it, these tenants tend to be renting in areas where property is cheaper, and therefore rental yields are higher. Just accept slightly higher insurance as the cost of doing business.

And always meet the tenants personally. Your gut feeling is probably a better guide than any risk assessment. Look at why the tenants are dependent on DSS payments and you’ll get some insight into whether they are seeking a secure home or are irresponsible and likely to cause you problems.

“Right to Rent”: New Rules

Landlords and letting agents need to make sure they’re on top of the new set of amendments to the Immigration Act which came into effect at the beginning of December.

The penalty for letting to illegal migrants has been toughened. Previously this was a civil offence, but it’s now become a criminal offence, which means the fines are potentially higher and there is even a possibility, in the worst cases, of a prison sentence.

The vast majority of letting agents and landlords will be unaffected by these particular changes, but there are a few other amendments in the area of evictions that they ought to be aware of.

Who Has the Right to Rent?

These new regulations revolve around the right to rent and the Home Office identifying people who are in the country illegally and therefore do not have the right to rent property. If the Secretary of State has given them permission to take up the tenancy, that’s okay, otherwise the Home Office refers to these people as “disqualified” from renting and they are basically those who:

• Need permission to enter or stay in the UK but don’t have it
• Do have leave to stay but are subject to a condition saying that they can’t occupy the dwelling they are currently occupying

Agents and landlords already have to check tenants’ documentation to make sure they are here legally. Remember to check all of the tenants – you’re not allowed to pick out individuals you have suspicions about. You need to make copies of the documents and to keep them for a year after the tenancy ends.

There’s been some grumbling from landlords about the fact that they are not experts at document authentication. How are they supposed to know whether a passport is genuine or not, unless it’s a really obvious fake? There’s no answer to that, so it’s a case of doing the best you can.

1. If none of your tenants has a legal right to rent

If none of the adult tenants has the right to rent and the Secretary of State notifies the landlord of their identity, the landlord can give the tenants 28 days notice provided that the notice is correctly worded and formatted. This notice can only be used where the Home Office has given the landlord notification that all of the occupiers are disqualified from renting and not in any other circumstances.

You can use this notice even if the tenancy started before the changes to the legislation came in. If it is properly served with the accompanying Home Office list of tenants, then the landlord can repossess the property without any recourse to the High Court – the notice itself is like a High Court order. See here for more information: http://www.legislation.gov.uk/uksi/2016/1060/images/uksi_20161060_en_001.

You can serve the notice by delivering it in person to the tenants, sending it through the post, leaving it at the property and so on. The Protection from Eviction Act won’t apply to tenants who are identified as having no right to rent.

2. Some have the right, some don’t

A much more common situation will be that a group of tenants are renting a house, and while some of them have the right to rent, others don’t. Again, the landlord has to have a written notice identifying the disqualified tenant, and this must come from the Secretary of State (i.e. the Home Office).

It now begins to get a lot more complicated, and any landlord in North Manchester would do well at this stage to talk to their letting agent who will be able to give professional advice or point them in the right direction.

Also be aware that the landlord has to take action within a reasonable period. Currently we are waiting for guidance on what that actually means, but a period of four weeks has been mentioned.

Landlords Have Trouble Keeping up with the Changes

The fact that these changes have happened and yet most members of the general public are unaware of them shows just how difficult it is, particularly for smaller landlords, to keep up with the constant amendments to legislation. One law is changed, and because of the complexity of the legal framework that governs housing, another law is amended in consequence.

It’s not surprising that landlords need to use letting agents. An individual landlord would be really hard pushed to keep up with these constant changes.

When Even The Guardian Thinks Landlords Have a Case…

You might expect The Guardian to be lining up and cheering at the woes of the buy-to-let sector, as its young readership is probably heavily composed of tenants renting from private landlords. However it recently ran a piece quoting a buy-to-let landlord who said that landlords were being “vilified”. The piece gave a sympathetic hearing to those who are being hit hardest by the tax changes.

One of the landlords quoted will be paying £3,000 more tax from April 2017, and another will find that his personal tax will pretty much double. Other landlords are quoted as saying that their tax bill will, in effect, go up to 100%. As a Moston letting agent, we’re hearing the same story from landlords here.

Rob Hill, one of the landlords quoted, has three buy-to-let properties in London and is furious that the government’s tax changes are wreaking havoc on people’s retirement investments. The numbers quoted are interesting. He lets two houses and a flat, and gets just over £40,000 in rent each year, after he’s paid letting fees and service charges.

Out of that £40,000 he has to pay £13,770 in mortgage repayments. Until now, that has meant that he has a residual profit of £27,042. He pays 40% tax, so he owes the taxman £10,816 on his rental business.

Let’s look at what will happen to Mr Hill and many like him after the government has withdrawn tax relief at 40%. At the moment, landlords can offset all the interest on the mortgage as an expense that reduces their tax bill. In Mr Hill’s case, since he is paying 40% tax, that means that the expenses he is claiming are being allowed at the rate of 40%.

However, starting in 2017 and concluding in 2020, Mr Hill’s rate of relief will be changed. Despite being a 40% tax payer, he will only be allowed to deduct expenses at a 20% flat rate.
If you want to see a fully worked out example of this, The Guardian provides one at https://www.theguardian.com/money/2016/dec/10/buy-to-let-landlords-vilified-lending-crackdown-tax-hike-profit-loss

However, the plain fact is, that instead of being taxed on his profit as nearly all businesses are, Mr Hill will now be taxed on his turnover. From paying tax on his profit of £27,042, he will now pay tax on his turnover (all the income he receives in rent) of £40,813. He can take off the basic 20% tax relief (£2,754). The net effect of this is that instead of paying £10,816 tax on his business, he is now going to pay £13,571.

This must be one of the steepest rises in taxation ever implemented, and Mr Hill is actually more fortunate than many other landlords because he doesn’t have very large mortgages on his properties.

Many landlords feel that the government is well aware that buy-to-let is being used to fund future retirement because of the decline of final salary pension schemes, the lack of confidence in financial companies, and the fact that interest rates are at an all-time low. They feel that the government should have taken this into account before taking such drastic action against the sector.

Furthermore, it’s highly likely that those people who are trying to fund retirement in the absence of any other way of doing it are the very people who are going to be hit hardest. They are the ones who are likely to be pushed into paying 40% tax because the government is going to tax their turnover rather than their profit. They are also the ones who are most likely to have large mortgages on their properties, because they will have moved into buy-to-let in the past 10 years.

Those who will be least affected are the very large estates and families who have, for generations, owned property that they rent out. Many of these landlords have no mortgages on their properties. Some of these estates are no longer acquiring property, so the rise in stamp duty will also not affect them.

For other buyers in England and Wales, however, the stamp duty on a £200,000 house bought with a buy to let mortgage is going to rise from £1,500 to £7,500.

And that’s always supposing that the landlord can get a mortgage. The Bank of England has decided to clamp down on buy-to-let borrowing and apply stringent affordability tests. Net result of all this? Everyone, including tenants, is going to get poorer.

At Last – Some Actual Facts About Landlords!

The Council of Mortgage Lenders (CML) has published the results of the biggest survey yet of landlords in the UK. The survey was carried out on behalf of the CML by academics at the London School of Economics. It’s interesting because as well as asking 2,500 landlords for facts and figures, it tried to find out what kind of people they are and what plans they have for the future.

Half of the landlords had no mortgage on their properties, so the restrictions on offsetting mortgage interest against rent haven’t affected them. But the top 25% of landlords who have the highest income from rental and, of course, the largest property portfolios, are going to find themselves paying more tax. The survey wanted to find out how this might change their behaviour in the future.

Because the government’s tax increases have been implemented across the board rather than targeted at specific groups of landlords, some landlords will face significant extra burdens while the sector as a whole may not respond in the way the government expects.

Landlords Less Heavily in Debt Than the Government Thinks

The government is correct in thinking that buy-to-let landlords hold larger portfolios of property than those who own their properties outright. The buy-to-let landlords also have more valuable portfolios. However, more than half of the buy-to-let landlords had mortgage debt that was less than 60% of the value of their properties – in other words they were not financially stretched and hadn’t over borrowed.

Only 1% of the buy-to-let landlords had mortgages that were worth more than 90% of the value of their properties.

The ‘Greedy Landlord’ Stereotype: Here are the Actual Facts

Nearly 2/3 of landlords own just one property, which puts the “greedy landlord” accusations into perspective. What’s more, even when you add in people who own more than one property the average buy-to-let portfolio consists of two or three houses (2.7 to be precise).

We’re not talking Duke of Grosvenor here are we? What we’re actually looking at is people who may have inherited a house or gone out and bought one to provide some extra income, often in retirement.

And very far from the idea that buy-to-let landlords are amassing more and more property, the size of landlords’ portfolios has been shrinking significantly.

Landlords’ Profiles

Landlords are significantly older than they were previously. The survey runs comparisons with 2004 – back then 25% of landlords were aged 55 or older, while today over 60% are. This must tell us that a generation who cannot get any pension income because of low interest rates have bought – typically just one – rental property in order to get some income.

In fact, almost a quarter of them are “accidental landlords” in that they ended up renting out a property because of circumstances. 15% are actually what we might call “benevolent landlords” in that they entered the rental market to provide a home for a friend or relative.

Hardly the rapacious characters that some people make them out to be.

And here’s another staggering fact – only 1 in 20 of the landlords surveyed said they made a full-time living from being a landlord. For most of them, rent provided less than 25% of their income.
What’s more landlords tend to own property that is near to where they live, so they are locals themselves. So, for example, if you have a property in Middleton you are quite likely to be local to the area and to be using a letting agency in Middleton.

A Stable Group of Property Owners

The Chancellor and the Bank of England seem to have wound themselves up into a frenzy, much worried by the idea that buy-to-let and rental property represents some incredibly unstable bubble in the property market that is going to bring the whole thing crashing down. The facts in the survey appear to point in the opposite direction.

Very few of the landlords had plans to either increase or decrease their holdings in the immediate future. If anything, there was what the survey calls a “modest drift” towards letting go of some of their holdings.

It’s useful to have some facts to quote when so much of the debate has been based on ill-informed criticisms of landlords. This is a high-quality, academic study and should be given the attention it deserves, especially by those in government.

An Introduction to Blackley for Landlords

Just three short miles from Manchester city centre, and with great public transport and road links to the north west region, Blackley is a popular spot for renters. Although the area has suffered from a somewhat sketchy reputation in the past, there are now a number of new housing developments and modern apartment blocks. These are attracting young couples and families who are priced out of the city centre but want to be close to all the amenities of Manchester. Recent Blackley property news reveals new and upcoming developments from the likes of Taylor Wimpey that are sure to enhance the area still further.

Public transport links

As with most of the areas surrounding Manchester city centre, Blackley enjoys excellent public transport links. Many bus routes connect Blackley with both the city centre and other towns and villages in the region. In addition, Manchester’s excellent Metrolink tram network serves the area, providing frequent and speedy journeys into the city for commuters. Residents can also travel further afield by tram, with towns such as Bury and Altrincham easily accessible.

Excellent road links

The M60 motorway that circles the city of Manchester passes by Blackley, and in fact borders the area to the north. Easily accessed from Blackley, the M60 links up with many of the region’s other motorways, offering straightforward commutes to towns and cities further afield.

Parks and green spaces

Blackley is home to a number of sizeable parks and green spaces, ensuring that there is plenty of scope for outdoor leisure activities. Irk Valley, Tweedale Common and Nutbank Common are all located in the area. One of the most famous local landmarks is Boggart Hole Clough, a popular park with lots of pleasant walks. The park has recently been rejuvenated thanks to heavy investment, and now boasts a number of improved leisure facilities. As well as football pitches, basketball and tennis courts, Boggart Hole Clough has a popular boating lake, a bowling green and a well-maintained athletics track. Events are held in the park throughout the year, with summer fun days taking place during the warmer months, and an impressive firework display on Bonfire Night. Those who enjoy walking will love discovering the numerous paths and trails, as well as spotting the historical stone bridge that crosses the brook running through Boggart Hole Clough.

Heaton Park, now famous as a concert venue that has hosted some of the biggest names in British music in recent years, is situated in Blackley and is home to Heaton Hall, an impressive Grade I listed mansion. Blackley Forest is another popular outdoor spot, and was one of the earliest Community Woodlands in England. Originally developed to celebrate Queen Elizabeth II’s coronation, the forest also commemorates those who lost their lives in World War II. The forest was planted on the spot of an ancient woodland dating back at least a thousand years. The forest attracts a wide range of walkers and families, and is well served by a number of trails and paths.

Local amenities

Blackley Golf Club is situated near the M60 motorway, and celebrated its 100th birthday several years ago. The club has recently invested in improvements to its facilities, with its current clubhouse opening in 2009. In addition to its golf club, Blackley is also home to Blackley Cricket Club.

Blackley has an excellent range of shops, both small independents and large national retailers, including Asda. There is also an indoor market. Avenue Library and Learning Centre is a large, modern and well-equipped library on Victoria Avenue East. Built on the spot where Blackley Cinema once stood, the library is a hub of learning and community activity. As well as traditional lending library, the centre also offers classes and training programmes for local people.

Blackley property

Those who aren’t familiar with Blackley, and who only know of its previously rather rough reputation, are often surprised by the variety of properties available in the area. Modernised semis and detached properties, as well as new build houses, routinely sell for in excess of £300,000. At the lower end of the market, however, it’s possible to find small terraced homes going for not much more than £60,000.

The variety of properties available in Blackley make it a great choice for buy-to-let investors, who should have no problems finding a property to meet their requirements. Modern apartments that need no major work are readily available for below £100,000, and are easily let to young professionals who want a luxury property but not at city centre prices. Much of the local housing stock consists of traditional red brick terraces, generally of two, three or four bedrooms.

Build-to-let – the next big thing?

The Financial Times reported recently that owner occupation in the UK has fallen from 71% in 2003 to 63% currently. With mortgages difficult to get and house prices constantly rising, “generation rent” doesn’t look as though it will be comprised of homeowners any time soon.

And in response, a new type of landlord is entering the market. Private investors are financing the construction of affordable new homes without any intention of selling them on. Instead they want to keep them as long-term investments. Some of these schemes involve entire housing estates and much of the construction is in the North of England.

The developers include companies such as Sigma Capital, a housing developer backed by various finance groups including the Islamic bank, Gatehouse.

This trend may change the structure of the rental market in the UK. In the recent past, only social landlords such as housing associations and local councils, have been building affordable homes for rent. Strict criteria for getting these homes have meant that many people have been left outside the subsidised rental sector and have instead rented privately from landlords.

These landlords often hold just a few properties, perhaps as part of a retirement plan. Typically, they rent the property out and leave the tenants to pay the gas, electricity and any other utility charges.

The model being used by developers such as Sigma is different. In their properties, the monthly rent includes a charge for all utility bills and there is also a contribution towards some maintenance items, such as having the grass cut periodically in those properties that have gardens.

Sigma has a partnership with the house builder Countryside Properties which has built over 600 homes purely for rental and is expecting to deliver another 550 during 2017. Countryside Properties has focused on northern cities where local councils are receptive to the idea of private companies building housing on the large land banks held by the councils.

The properties being built by these investors and developers are not, as you might imagine, blocks of flats aimed at students and single people. Many of them are family houses and a significant percentage of Countryside’s properties are situated next to housing of exactly the same design that has been built for sale to homeowners.

Currently, a house on one of these schemes, with three bedrooms, will achieve a rent of £700-£800 monthly. Four-bedroom homes go for about £1100 a month, but that includes house insurance and all utility bills. The houses would cost roughly £210,000-£225,000 if they were bought on the property market.

Nor are the people renting these homes necessarily short of money. Because it is cheaper for people to rent than to buy, the tenants tend to have more disposable income. Graham Barnet, chief executive of Sigma, points to the cars sitting on tenants’ driveways as a sign of their prosperity.

It is possible that the availability of new rental stock on well-maintained estates, may raise standards across the board, as small landlords have to compete with these larger schemes and tenants. Certainly the model of the all-inclusive rent is being adopted by some landlords because it means that they don’t have to constantly deal with changes of account and possible defaults on utility bills.

And the trend for building rental properties shows no sign of abating. British Property Federation statistics are showing that the number of rental properties in progress or newly completed, has risen to 57,000 from 21,400 with significant developments in the North of England.

Stonegate Developments has a scheme for 162 new rental apartments in Newcastle and there are a minimum of 28 build-to-rent schemes planned for Manchester alone, according to the figures released by the BPF. Any letting agency in North Manchester will confirm that the demand for rental properties is there.

Across the country, Sigma is intending to build another 10,000 homes to rent in the next five years, concentrating on development sites that have good transport links so that commuters will find the properties attractive.

Certainly, if tenants get used to the idea of an on-site maintenance service which some residents of the new purpose-built developments are now enjoying, they may become rather more demanding tenants than those which private landlords are used to.

It will be interesting to see what effect this new development has on the Manchester lettings market.

What does the Budget Mean For Us?

What does the Budget Mean For Us?

Earlier this week we met as a team and were notably hawkish about what may come to light this week in the the budget. The chancellor told us what we all already knew, the future is indeed uncertain. In this, the so-called “budget for the next generation” we have a number of key takeaways and thoughts.

Keeping politics and personal opinions out of the blog, we have included below just the facts as we see them, and the major factors that will cause an impact to the people we work with on a day to day basis. We are happy to discuss any of the key points here and how they will affect you. Either call us on 0161 681 3724, or leave a note in the comments section at the end of the blog and we’ll respond and open up the debate.

 

Landlords and second homeowners

Stamp Duty

A 3% Stamp Duty surcharge on second homes and Buy to Let properties from 01 April 2016 will be introduced and larger investors will not be exempt as previously thought from the stamp duty charges, meaning all purchasers of Buy to Let properties will pay the additional tax. This was expected not to be of concern to people owning 15 or more houses however this isn’t the case it applies to everyone.

 

21st March – Mortgage Credit Directive

From 21st March consumer buy-to-let mortgages (on rented properties that are not being used as part of a business) will be regulated by the Financial Conduct Authority (FCA). Second charge mortgages (also known as secured loans) will also come under regulation. This could mean that financing deals become a little harder

 

Taxation

Capital Gains Tax (CGT) will be cut from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers. Residential property sales and carried interest will be exempt from Capital Gains Tax (CGT) being introduced on 06 April 2016.

There will be an 8% surcharge to landlords selling a buy to let property meaning this benefit is not being passed onto landlords. We consider the reason behind this that because of recent tax changes in stamp duty and also the clause 24 meaning less tax relief on mortgages of BTL property’s (unless held in a ltd Company) many landlords are already considering selling if they were to benefit from the CGT reduction this would encourage more meaning an increased amount of property to the market that may create a crash in prices.

 

Rents

We consider all the recent changes in tax and legislation on current landlords will increase the rents. There will be more landlords moving out of the market along with no large increase in building will increase demand. As LHA rates are frozen for the next 4 years this will mean either attracting working tenants or expecting LHA tenants to top up their rents.

 

THE NOTHERN POWER HOUSE

We all have our own views on the current effectiveness of the Northern Powerhouse, or lack thereof, but the budget statement did have some promising news for our region, my key takeaways were:

Homelessness

A major issue for Manchester – and one the government has been under pressure to address.In response the Chancellor strayed out of his usual territory to set up a £115m fund to help tackle rough sleeping. Most of that will be used to provide ‘low cost’ accommodation for people leaving hostels before they get into regular housing, creating 2,000 new beds.

It is also delaying a planned cap to local housing allowance by a year – and getting immigration officials to work more closely with local authorities to send back EU migrants who end up sleeping rough, a significant problem in Manchester.

The city has seen rough sleeping rise tenfold since 2010 and there is no sign of that rise slowing.

It is so far unclear how that money will be allocated – whether it will be done according to population size or the current rough sleeping figures.

Nevertheless the big structural problems that underpin our rising homelessness still remain: cuts to benefits and a chronic housing shortage but this is only expected to get worse by the unfair taxing of landlords

Buisness Rates

Greater Manchester has been handed control of all its business rates in replacement of its main central government grant.

Along with Liverpool and London, the area will move towards a model where it is far more reliant on the taxes it raises from local firms going forward.

At first sight the figures for 2016 would suggest Greater Manchester as a whole will be £80m better off as a result.

However there are all sorts of unknowns – including what happens if a huge economic downturn hits the region, such as when the steel industry collapsed in the north east.

There are currently revaluations taking place across the country, due to come in in 2017, that will be used to reset the amount paid by businesses in rates – so that could dramatically alter the amount of income available to councils.

Within Greater Manchester there is the issue of how the money will be redistributed, given that as it stands areas such as Rochdale and Oldham would lose out significantly compared to those such as Manchester and Trafford, which would gain enormously.

But perhaps the biggest danger is also contained within the Budget: thousands of small businesses – 90,000 across the north west – being taken out of business rates altogether.

That looks dangerously close to making a very generous tax cut – and making town halls pay the price.

Transport

High Speed III train between Manchester and Leeds has been given the green light. This will only help as increased infrastructure and improved transport can only help house pricesProbably the most significant part is £161m for the Highways Agency to speed up improvements to the M62 on both sides of Manchester , but money was also committed towards bringing town train journeys between the two cities to half an hour.

He also found £4m towards the eventual transformation of Manchester Piccadilly – and other northern stations – ahead of HS2’s arrival in more than a decade’s time.

CRIMINAL JUSTICE

Greater Manchester is to become the first English region to get new powers over the criminal justice system.

Chancellor George Osborne used the Budget to announce further devolution of powers to the area.

The change means decisions on offender management, education in prisons and work with youth offenders will be made locally.

The region’s Labour mayor, Tony Lloyd, said “we will have to read the fine print” to make sure there is “no loss”.

The Chancellor also announced the region will get a new prison and will keep 100% of business rates, beginning next year. Greater Manchester Combined Authority, which comprises the region’s 10 councils, said it will have more control of funding to support both offenders and victims of crime.

It is proposing devolving other budgets, including for female offenders, young offenders and those sentenced to fewer than two years in prison, which would mark a major change to the current system.

Announcing the change, Mr Osborne said: “This is the kind of progressive social policy that this government is proud to pioneer”

 

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