We have all seen in the news that there is a lack of affordable housing in the UK right now, which is why the government have been called upon to find new ways to increase the amount of new builds. However, it has now been revealed that in 2012 the number of housing starts actually dropped by eleven per cent, and now many organisations are becoming worried that the housing crisis will only get worse in the near future.
Figures from the Department for Communities and Local Government (DCLG) also revealed that since its peak in 2006, the number of new houses being built has fallen dramatically from 183,000 per year to 98,280 in 2012. The housing charity Shelter has shown concern over the lack of new affordable houses being built, with chief executive Campbell Robb saying: “Unless action is taken now, it’s hard to see our housing crisis improving any time soon.”
However, the government have defended themselves, with a spokesman from DCLG saying: “The government is far from complacent, which is why, despite the need to tackle the deficit, we’re investing £19.5bn public and private funding in an affordable housing programme set to deliver 170,000 homes, putting £1.3bn into unlocking stalled sites and building the infrastructure we need and making enough formerly used, surplus public sector land available to deliver 33,000 new homes.”
The Home Builders Federation have also defended the decrease in new builds by claiming that building new homes is difficult due to the challenging economic environment, and stated that: “A lack of mortgage finance is the most important short-term issue and if buyers can’t buy, builders can’t build. But we have seen a much more positive start to the new year with an easing in lending and schemes like the government’s NewBuy enabling people to get a 95% mortgage.”
Even though it may be difficult for buyers to secure a mortgage for a new property, many buy-to-let landlords are finding that banks are making it easier for them to take out loans for new properties. Even though the housing market is still a bit risky, landlords who invest in properties are very likely to find tenants quickly as there is a huge demand for private rented accommodation, and if landlords protect themselves with landlord insurance they could find increasing their portfolio extremely profitable.
Due to the current financial climate many landlords are looking for new ways to save money, and buytolet.org.uk has revealed in a survey today that many landlords are now opting to manage their portfolios themselves instead of paying large fees to letting agents. Generally, letting agents charge around fifteen per cent of the rental income for their services, so landlords are planning on brushing up on their accounting, marketing, and DIY skills so that they can save money and look after their portfolios themselves.
Lee Grandin from buytolet.org.uk said: “As the recession bites many landlords are looking at ways to cut costs. While letting agents will do a lot of hard work, they do demand a big percentage in return, so it is well worth learning how to fix a tap and market your property to its best advantage. But be prepared to give up weekends and evenings for viewings, advertising and repairs. This might not be a good option for people who are time poor as it’s a big commitment.”
Mr Grandin goes on to discuss how landlords can manage their portfolios successfully, and says that “Your first steps should be to draw up a legally binding tenancy agreement, otherwise known as an Assured Shorthold Tenancy (AST), which both parties must sign. This includes details such as the length of tenancy, amount of rent and deposit details. Drawing up an inventory is also key. Always ensure you take photos proving the condition of the property before a tenant takes residence, this will protect you from any dispute over the deposit that may arise in the future.”
Landlords are also advised to make sure that they have all the legal documentation they need before attempting to rent out their properties, such as a gas safety certificate and an Energy Performance Certificate. Mr Grandin also says that having a good landlord insurance policy is vital and that “It makes sense to prepare for all eventualities, such as a tenant injuring themselves and bringing a compensation claim against you or covering yourself against rent not being paid. Landlord insurance will also protect you against malicious damage, water pipes bursting and accidental damage to items and electrics.”
Just over a third of landlord insurance holders are expecting to increase their rent prices in 2013, a study from LSL Property Services has revealed. It is believed that the Autumn Statement released last week has had a direct impact on the amount of people becoming landlords, as well as the costs of rent. David Brown, commercial director at LSL Property Services stated that “Pension savers have been hit particularly hard by the Autumn Statement, and as rental incomes improve, buy-to-let looks increasingly attractive as an alternative long-term investment.”
The survey polled just over one thousand landlords, and revealed that 39 per cent are planning to raise their rent by an average of 4.6 per cent. Furthermore, ten per cent of those polled are expecting to raise rental prices over five per cent, and only one per cent are planning on actually decreasing their prices. According to the LSL, the average rate of rental increase is currently only 3.4 per cent, meaning that next year the rental market will become even more profitable.
Brown has said that he believes that the fact landlords are planning on increasing their rent prices next year is down to more fierce competition from tenants wanting properties. The poll shows that almost half of the landlords surveyed have seen an increase in rental demand in the past six months, with sixty five per cent believing that this increase will continue within the next twelve months. Brown also notes that many landlords may be increasing their rent in order to prevent inflation eating into their income.
Brown stated that “With lending to first time buyers without substantial deposits historically subdued and the number of UK households increasing, landlords expect demand for rental accommodation to swell further.” This means it may be the perfect time for landlords to invest in more properties, with over have of those landlords polled (52 per cent) saying they are now enticed to make further investments due to such high tenant demand.
A UK investigative website that specialises in exposing tax loopholes used by the wealthier echelons of society believes buy-to-let landlords are avoiding up to £2 billion of tax each year by swapping mortgage loans from their own homes to those they are letting out to tenants.
Exaro claim that the tax bonus enjoyed by buy-to-let investors is roughly the same amount the Government intends to whittle away from Housing Benefit claimants and accuse millionaire property owners of using the tax loophole to avoid paying taxes. Their claims are supported by campaign group Priced Out whose spokesman said property investors are pushing first time buyers to one side when it comes to buying residential homes and are probably pushing up house prices, explaining “Buy-to-let investors are competing with first time buyers for the same properties and have more buying power. It would be remarkable if buy-to-let has not had an upward or supporting pressure on house prices.”
It is certainly true that buy-to-let mortgages now account for 1 in 5 arranged mortgages in the UK today when just five years ago they accounted for just 1 in 25. Property investors should have no qualms about giving landlord insurance providers more business in the future as a spokesman for Her Majesty’s Revenue and Customs said they had no intentions of stopping property investors claiming their rightful tax allowances, asserting “There is no such thing as a buy-to-let tax break; it is simply a business cost which is a claim against tax the same as any other business.”
It is a statement that most landlords would agree with, after all not many can claim to be in the millionaire bracket and the great majority of landlords in the UK own no more than three properties.
With no end in sight to the boom in the letting business, landlords are even turning to more expensive loans in a bid to expand their portfolios in time to take advantage of the present situation.
A report by bridging loan experts West One Loans says that more and more brokers are being approached by professional landlords keen to get buy-to-let loans but who have been turned away by High Street Banks. 98% of brokers interviewed said they were doing more business now with property investors interested in landlord insurance than they were at the beginning of the year.
Chairman of West One Loans, Duncan Kreeger, said the report conversely showed slightly fewer brokers thinking now was an opportune time for landlords to take on more properties but explained: “While there has been a fall in the number of brokers who are certain investors should expand their portfolios, the change is small – and 81% of brokers are still confident it’s a good time to invest in the sector. Furthermore, the number of brokers who think it’s definitely not a good time to pile into the market has fallen to less than one in ten. Landlords and brokers have different opinions of the market. While fewer brokers think it is a good time to invest in buy-to-let, high demand from landlords suggests they feel otherwise. Despite a slight cooling of broker sentiment towards buy-to-let as an investment for the future, thanks to the current demand from landlords, buy-to-let bridging is flourishing. Bridging is still not being affected by increasingly problematic conditions in the wider residential market. In fact, it’s thriving off the back of them.”
It is perhaps indicative of the confidence landlords feel that they are prepared to go for these expensive loans. Tenants are in plentiful supply in all areas of the country and they have virtually killed off competition from first time buyers who find it even more difficult to get a home loan from the High Street Banks. The result is residential landlords can drive a hard bargain with sellers when it comes to negotiating a price on a property, which in turn will reconcile the extra interest they are paying on their loans.
Buy-to-let landlords are cashing in after buying former council flats that have been bought at a huge discount under Right to Buy. The former council flats are in one of the most expensive areas of London and look set to be a goldmine for private landlords.
New figures have been released that show around 3,600 Westminster council flats that were sold under Right to Buy are now in the hands of private landlords who have protected their investment with buy-to-let insurance. The figures show that the council has sold 9,135 (40%) of its stock of 21,243 flats to tenants qualifying for the Right to Buy scheme, however, 3,603 (39%) are now owned by small and multiple private landlords. This means that in some parts of Westminster, there are now more private tenants on council estates than there are council tenants.
In Bayswater the 420 council tenants are outnumbered by 477 leaseholders, and in upmarket St John’s Wood there are 750 council tenants and 850 leaseholders. Local councillors claim that some of the ex-council flats in Westminster which are now owned by private landlords are being rented out at more than £2000 per month. This is over four times what a council tenant would be paying in a similar flat. What makes the situation even crazier is that many of these private landlords are getting their rent paid for by taxpayers, because the tenant is on housing benefit.
Councillor Paul Dimoldenberg, leader of Westminster Council’s Labour Group, said “Right-to-buy has transformed many council estates in Westminster into buy-to-let goldmines for private landlords. Rather than meeting housing need, some of Westminster’s council estates are now providing buy-to-let landlords with increasing financial returns as rents continue to escalate, often with the help of a huge government subsidy via housing benefit payments. Meanwhile, Westminster residents in overcrowded conditions have to wait even longer to get rehoused. We need a massive building programme of new homes at social rents right across London and an end to the current sell-off of more council property. Westminster’s housing stock of homes, for those on low incomes, has been almost halved over the last 30 years.”