Buy to let news to Thursday, July 18th, 2019

Health and safety changes; 4.5pc BTL yields achievable;
Plug socket

Health and safety changes on the horizon

The Government is to make amendments to its Housing Health and Safety Rating System (HHSRS), which helps to gauge health and safety in homes.

HHSRS is used by council officers to determine whether a rental property has hazards that could create a risk to tenant health – and can be used to take legal action, against landlords, who fail to meet safety standards.

Reform is on the way, following a sweeping review of the present system, by the Ministry of Housing, Communities and Local Government (MHCLG).

One of the conclusions is that the present systems need to be made easier to understand.

The recommendations of the scoping review provided three options for the second stage of the HHSRS review, with the decision made to:

Establish the minimum required to improve, clarify and modernise the HHSRS assessment, while also determining if some hazard profiles can be removed or merged. It also aims to enhance the guidance which is delivered to landlords and tenants, to improve understanding.

MHCLG commented:

“Government will proceed with option two as this will make the system easier to understand for landlords and tenants, correct the disconnect between the HHSRS and other legislative standards, and facilitate the effective enforcement of housing standards by local authorities. It is also the most cost-effective option.”

John Stewart, RLA policy manager said:

“This will give the government the opportunity to simplify the HHSRS system to make it easier for landlords and tenants to understand and make its application more consistent.”

You can read the Government’s report by clicking here.

Relaxed man watching arrow ascend

Buy to let yields grow to 4.5% on average

Despite Government measures, buy to let yields have grown to an average of 4.5% over the past 12 months, the fastest rate of increase since 2017.

The data has been produced in the Kent Reliance for Intermediaries Buy-to-Let Britain report, which indicates that average rents have hit an all-time high of £896 per calendar month, with rental growth increasing at an average rate of 1.3% annually.

Whilst the report highlights that in London rents have increased by 0.5% over the same period, it says that the combination of reducing property prices and yields of 4.1% have worked in investors’ favour.

It also states that the private rented sector (PRS) increased in value in the last 12 months by £6 billion, resulting in a £1.3 trillion industry.

The data also showed that the average rental property value has increased by 0.3% in the past 12 months – which Kent Reliance attribute to the impact of Brexit uncertainty.

The report also indicated that the ongoing impact of Government tax changes and regulatory amendments - plus stricter lending rules, have undermined landlord confidence and is having an effect on the availability of rental housing stock.

Of the 827 landlords surveyed, 37% were optimistic about their property portfolio, a 4% fall on the 2018 figure.

Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance for Intermediaries brand, said:

“Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.

“The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.”

He continued:

“However, it’s clear the PRS now holds less appeal for amateurs.

“Without some policy stability, there is the tangible risk that the supply of homes will contract, and rents will become less affordable. Rents are already rising, and will continue to do so as landlords come to terms with higher set up and running costs, on top of larger tax bills. Neither outcome suits tenants, nor helps with the ultimate issue of housing affordability.”

Semi-detached houses

Savills set to introduce ‘Property MOT’ for rental homes

Savills is looking to introduce a new checklist into its letting process, ensuring that properties meet a minimum standard to ensure that they are fit to let.

The “property MOT” concept has been muted for some time and Theresa Wallace, a Savills director and chair of The Lettings Industry Council, responsible for investigating the merit of the concept, has suggested that in time it could replace existing licensing schemes.

She stated that Savills was keen on creating property MOTs and that Hunters had already trialled it.

The process will involve completing a checklist that ensures the property has met all regulatory requirements and it would also incorporate tenancy agreements and inventories.

The MOT would also link property details into Land Registry data and the results could be checked by the public and by Trading Standards.

She said:

“We do believe there is a place for larger HMO licensing schemes, but there has to be a better solution to additional and selective licensing.

“We think we have identified a not-for-profit company to host a portal and it could also integrate deposit registration.”

Scottish flag

Scottish landlords under scrutiny over tenancy deposits

Concern is growing over the number of landlords in Scotland, who are failing to protect tenancy deposits; a legal requirement for the past 18 months.

Since the rules came in, making it compulsory for landlords to protect tenancy deposits in one of three Government-approved schemes, over 200 landlords are known to have breached the law.

Landlords have 30 working days in which to register a tenant deposit within one of the schemes.

Failure to adequately protect a tenancy deposit can see a landlord fined up to three times the value of the deposit by the First-tier Tribunal for Scotland (Housing and Property Chamber).

One of the three-approved schemes, SafeDeposits Scotland, looked at publicly-available data from the Housing and Property Chamber First-tier Tribunal for Scotland website.

Since the rules around tenancy deposits changed, in late 2017, cases of non-compliance had resulted in £186,657 being paid out to tenants, equating to over £900 per case.

Victoria Smith, chief operating officer at SafeDeposits Scotland, commented:

“Deposit protection legislation is designed to protect all parties involved in the private rented sector and costs landlords nothing to comply with. The schemes also offer free and impartial adjudication services to ensure that any deductions from deposits are fair and can be scrutinised.

“We believe that the overwhelming majority of landlords operate within the rules, but the findings from our research into the first 18 months of the First-tier Tribunal demonstrates that there are some out there who don’t.

“In most of the cases we’ve looked at, the landlord has not acted out of malice, but was either simply unaware of the legislation or forgot, however, that does not reassure tenants or save landlords from fines.”

Mortgage agreement

May buy to let activity on a par with 2018 numbers

New data from UK Finance suggests that landlords have not been driven out of the buy to let sector, as activity in May was on a par with May 2018.

The latest lending figures indicate that there were 5,500 buy to let loans for property purchases, the same number as a year earlier.

Meanwhile, landlords looking to lower rates or for longer-term fixed rate security, created a sharp rise in remortgage activity, which was up 20% year on year in May.

The volume of money lent to landlords in May 2019, was £3 billion, identical to in May 2018.

Andrew Turner, chief executive at specialist buy to let broker, Commercial Trust Limited, said:

“These statistics clearly illustrate that despite some of the press and wider claims of an industry in crisis, buy to let has resilience.

“Landlords have not left the private rental sector en masse. Many have looked at purchasing opportunities, or have taken advantage of low remortgage rates.

“Lenders continue to fight for landlord business, offering a large volume of product choice. This ongoing commitment to the sector, reinforces the popularity of buy to let.”

Students looking at lets on a computer

University locations link to best buy to let yields

New research has revealed a link between the best postcodes for buy to let rental yields and proximity to a university campus.

Seventeen of the top 20 buy to let postcodes were found to be within a stone’s throw of a university campus.

The BD1 area of Bradford, had the overall best buy to let yield at 10.2%, followed by Sunderland’s SR1 at 9.4% and Liverpool’s L7 at 9.3%.

All three postcodes are close to universities, as is the TS1 region of Middlesbrough and L6 in Liverpool.

Lettings platform Howsy reviewed data from analytics company PropertyData. Howsy came to its conclusions by assessing 12 months’ rent and dividing this by the average property price in the postcode area.

Calum Brannan, Howsy chief executive officer, commented:

“It’s no coincidence that the vast majority of postcodes with the highest rental yields are found near a university campus, and for a safe bet on your investment, these are the places to look when buying.

“While students aren’t always the ideal tenants, they bring consistent demand via an annual flow of new arrivals, the void periods are generally much shorter, and the supply demand imbalance puts the landlord in control when choosing a tenant.

“As a result, these hot pockets of buy to let demand offer landlords an investment option that is almost certain to provide a healthy return despite slower market conditions and uncertain times in the buy to let market.”

To let sign

Major shake-up set for property agents

The Government is set to unveil extensive plans to revolutionize the property agency sector, with the aim of raising standards.

A Government report, produced by the Regulation of Property Agents working group, covers lettings and sales, auctioneers, rent to rent providers, property guardians, international property agents, and online-only firms.

It recommends the introduction of minimum standards – including making qualifications compulsory, a single code of practice, the licensing of agents and the creation of a new regulator.

The new regulator will report to the Secretary of State and the businesses it regulates, will fund the body.

It will have the scope to appoint a single ombudsman if it feels there is a need to do so.

Under the proposals, the regulator will be able to issue warnings and revoke licenses, while unlicensed agents could face prosecution.

In order to obtain a licence, an agent will have to acquire qualifications and to pass a fit and proper person test.

The report states:

“To confirm appropriate qualifications and credentials, property agencies and qualifying agents should be required to hold and display a licence to practise from the new regulator.

“Before granting a licence, the new regulator should check that an agent has fulfilled its legal obligations (such as belonging to a redress scheme and submitting a copy of their annual audited accounts to the new regulator) – and that they have passed a fit-and-proper person test.”

The powers of the regulator could in time be extended to cover self-managing landlords, developers, Right to Manage companies, and possibly tenancy deposit and client money schemes, according to the report.

Mark Hayward, NAEA chief executive, and David Cox, ARLA boss, said in a joint statement:

“This is a significant moment for those in the property industry and a huge leap forward in stamping out bad practice.

“We have long called for Government intervention to ensure everyone in the industry is licensed, adheres to a strict code of practice and holds at least a Level 3 qualification (A-level).

“These are substantial changes which will require agents to start making preparations now to ensure that they are well placed for when these proposed qualification requirements are introduced.

“While we anticipate that the need for property qualifications will be phased in, we advise agents to get ahead of the competition and to stand out by adopting the new requirements early.”

Isobel Thomson, chief executive of safeagent, formerly NALS, described the report as “a blueprint for a professional regulated property sector which, if fully implemented, would ultimately offer consumers the same level of protection they already experience in other areas of their everyday lives.”

Richard Lambert, CEO at the National Landlords Association, added:

“We hope that the proposals outlined in the report will drive forward the professionalisation of the private rented sector, making it a better place for those who live and work in it. We were particularly pleased that the report went beyond simply looking at activities and placed a new emphasis on the importance of ethics and behaviour.

“But the new regulator will be toothless if the Government continues to fail to provide the resources to enforce existing legislation, let alone any new requirements.”

You can read the full report by clicking here.

Young couple

Tenant satisfaction rises in the PRS

The latest English Housing Survey, covering 2017/18, calls into question some of the Government’s legislative changes aimed at raising standards in the private rental sector (PRS). 84% of tenants stated they are satisfied or very satisfied with their current accommodation.

Furthermore, on a scale of one to ten, life satisfaction among private tenants was higher at 7.4, than for social renters (7.1), although owner occupiers had the highest levels at (7.9).

The latest survey reported that 4.5 million households make up the PRS in England, just under 20% homesteads and the second largest category (after owner occupiers) in the country.

There were mixed messages regarding rent affordability; whilst 71% of tenants said they found it easy to pay their rent, private renters spent a larger proportion (33%) of household income than any other sector.

This figure rose to 42% of income for private renters in London (42%), compared to 30% for the rest of England.

For 20% of private renters, household income included an element of Housing Benefit.

Deposits and end of tenancy

The report contained other indicators of tenant satisfaction - 72% had moved home on their terms – because they wanted to.

18% of these did so for work-related reasons, while 16% wanted to move to a better area and 13% to move into a bigger home.

According to the EHS, private renters had lived in their current home for an average of 4.1 years – less than other tenures (11.9 years for social renters and 17.8 years for owner occupiers), but still a suggestion that in general, tenants are happy with where they live.

Perhaps reflecting the flexibility that private renting offers, 27% of private tenants had moved home within the last year.

The issue of tenancy deposits has undergone transformation during 2019, with the introduction of the Tenant Fees Act, putting limitations on the size of deposit an agent or landlord can charge.

For 2017/18, 76% of private tenants paid a deposit, with 73% confirming this was protected within a Government-approved scheme.

However, 20% of renters were unsure if their deposit was held in such a scheme.


Home ownership aspirations

57% of tenants believed they would eventually own a home, with the majority (68%) of those who didn’t think so, citing affordability.

63% of private renters said they had no savings, while 37% said they had some form. 11% of private tenants reported having savings in excess of £16,000.


Living conditions

The PRS had the largest percentage of non-decent homes of any tenure in the latest EHS, with a quarter of let housing stock falling into this category, according to the Decent Homes Standard.

The current Housing Health and Safety Rating System, revealed that 14% of privately-rented properties possessed at least one Category 1 hazard.


Private tenant ages

The survey revealed that at 40 years-old, on average, private renters were younger than for other tenures.

That said, the number of older household ref

erence people (HRP) in the PRS has grown in the past 10 years, suggesting a growing number of older people are now living in the PRS.

In 2007-8, 5% of private rental HRPs were aged 55-64 year-old – but that figure has grown to 9%.

You can read the English Housing Survey 2017/18 Private rented sector report by clicking here.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.