Oxford landlords, are you ready for MEE?

This weekend marks one year to go before the introduction of Minimum Energy Efficiency Standards.  These will require that private rented properties achieve a minimum ‘E’ rating for energy efficiency from April 2018.

Over the last 12 months, tenants living in private rented homes with F and G ratings have been able to request improvements, such as insulation.  The landlord has been legally bound to bring the property up to at least an E rating (except where upfront costs were required).

Now properties with an Energy Performance Certificate rating of F or G are classified as ‘sub-standard’.  From April 2018 agents and landlords must not grant a lease on a sub-standard property.

From April 2020, landlords must not continue to let-out sub-standard properties.  Currently 330,000 buy to let properties stand to be affected across the UK.

If you are in doubt about the rating of your property, you should validate that you are rated ‘E’ or better.  Where the rating is F or G, remedial works must be specified, scheduled and completed over the coming year.

Who will look after Oxford tenants’ interests after the tenant fee ban?

As is well known to regular readers, I am opposed to the government’s plans to interfere in the private rented sector by introducing a ban on fees charged by letting agents to prospective tenants.  Earlier this week, I attended the Association of Residential Letting Agents (ARLA) annual conference.  During a moderated debate, Baroness Hayter of Kentish Town (a Labour peer) expressed the view that it was inappropriate for letting agents to act for both their landlord clients and their prospective tenants.  She made comparison with the legal profession to illustrate her point.

When challenged by the question who will act for the tenants, the Baroness stated that they could act for themselves.  A response, which demonstrated how removed she has become from the realities of the private rented sector.

In Oxford, like many other University cities, tenants for private rented homes are drawn from a wide spectrum of socio-economic background, nationality, age and, experience.  Many are new to renting, and don’t properly understand the law, their obligations, the landlord’s obligations and how to ensure that they minimise the likelihood of deposit deductions at the end of their tenancy through their actions throughout the tenancy period.  Many have limited financial means, and many have guarantors who ultimately bear the financial responsibility for their tenancy.  Many guarantors do not understand their own risk and how that risk can be mitigated by the tenant’s action during a tenancy.

Good letting agents recognise that the more they help prospective and current tenants to recognise their obligations to look after the property, being attentive to routine matters such as ventilation, cleaning, refuse management and general condition, the more they are acting to protect themselves financially.  This advice is reinforced during a tenancy via regular property inspections identifying actions that if taken now, to avoid them worsening and resulting in damage. Such agents also have an obligation to advise prospective tenants prior to the start of their tenancy to ensure that they request any specific furniture or provision they require to be made by the landlord as a condition of signing an assured short-term tenancy agreement, and to ensure that the landlord specifically commits to such provision prior to them signing.  Good agents will assist tenants to understand the deposit protection and deposit return process, detailing the factors that can result in deposit retentions, so tenants are equipped with the facts they need before they are committed to a contract.  All landlords and their agent are obliged to ensure prospective tenants have a right to rent, checking their legal status to reside in the UK and ability to enter into a contract.  And, good agents insist that a tenant can afford the required rent requiring their credit, income and employment status to be confirmed.

So, are these agent activities purely to benefit the landlord?  Or, do they benefit both parties?  It is clear to me that that an agent’s services are of material benefit for both landlord and tenant.  For some tenants, particularly foreign nationals visiting and renting in the UK for the first time, young first-time renters and young families needing to stretch themselves to accommodate growing families, the agent’s services can be of particular value.

So, if as Baroness Hayter suggests, letting agents should act purely for the landlord, who will act for the tenant?  Will tenants see the value to taking separate advice?  Will they be able to afford to pay for 3^rd party advice? And, will agent services change subtly over-time, becoming less consensual and a little more adversarial?

Will more landlords choose to skimp on affordability checks due to the cost transferring to them?  If yes, it seems likely that both landlords and tenants will suffer as more tenants over-stretch themselves and struggle to pay rent.

Of course, there is no firm answer to these questions, but my own experience suggests that prospective tenants will not pay for advice from a 3^rd party.  Whilst good landlords and their agents will recognise the value of the services provided to tenants, some will no longer recognise the importance of tenants understanding their obligations and being well-informed of the risks involved prior to entering a tenancy agreement.  If I am correct, there will be an increase in arrears, repossessions, and deposit disputes/retentions, which will far outweigh the financial impact of fees for tenants.

Finally! Some good news from the government for Oxford landlords regarding Client Money Protection

Good afternoon folks,

 

So, fresh from our recent visit to yesterday's ARLA conference at the Xcel in London, I bring you all some truly wonderful news regarding the latest government announcement relating to Client Money Protection in the UK......

 

 

PRESS RELEASE: David Cox, Chief Executive, ARLA Propertymark comments on today’s announcement that the Government will be introducing compulsory client money protection (CMP) for all letting agents: 

 

"The Government has finally accepted ARLA Propertymark’s calls for mandatory CMP. This is an argument we have been making for some time alongside Baroness Hayter and Lord Palmer. Working together we have managed to convince the Government of the merit of compulsory CMP. It’s a campaign that’s taken over two years to come to fruition and is a clear step forward towards a more regulated industry; akin to others such as solicitors or travel agents. CMP safeguards landlords and tenants in the event that agents misappropriate their money. With the ban on letting agent fees on the horizon, this is more important than ever before, so we are very pleased the Government has agreed to take it forward.

“We welcome the review of CMP undertaken by Baroness Hayter and Lord Palmer, and wholeheartedly agree with their recommendation to mandate CMP for all letting agents. We look forward to the Government’s response to Baroness Hayter’s parliamentary question tomorrow afternoon and hope to see the Government take forward ARLA Propertymark’s campaign to improve the industry by safeguarding landlord and tenants’ money through mandatory CMP.”
Baroness Hayter, said:

“The working group, chaired by Lord Palmer and myself, looked carefully at whether CMP should be mandatory for all agents handling client money. The evidence was overwhelming, and we recommended the government use its reserve powers to implement this. We are therefore delighted that the Government has accepted our recommendation as it will ensure tenants and landlords alike are provided with extra security in the lettings process. May I also extend special thanks to ARLA Propertymark for its role in marshalling the industry to back the measure and for providing the working group with real ‘on the ground’ evidence for why mandatory CMP is so desperately needed.”

In short this new measure will take a very significant step towards flushing out rogue agencies in our market looking to side step important landlord and tenant issues particularly ignoring the principle concern of ensuring their money is safe.

You will of course be reassured to know that we have been operating under client money protection for many years, recognizing its importance to our clients and significance to our standing as a leading agent in the Oxford market.

With us you are safe already!

For more on this please feel free to call me for a chat.

Richard

Don’t miss the opportunity to save money

The last meeting of the Bank of England’s (BoE) Monetary Policy Committee had their first split-vote for several months when agreeing that interest rates should remain at 0.25%.  It is clear that the pressure is growing to revise interest rates back up to 0.5%.

Since their meeting, UK inflation figures have been released indicating that over the last month inflation has risen above the BoE target of 2% registering 2.3%.  This is the first time the target has been breached since November 2013.

Why is this important to Oxford’s landlords?  Because, once the BoE base rate rises from 0.25% mortgage rates will follow immediately.  Landlords have a closing window of opportunity to lock-in historically low interest rates and save themselves money.

Why is now a good time to minimise costs?  Because, the new rules relating to the tax treatment of mortgage interest rate payments are to be phased-in from 6 April 2017.  These changes, which will bite progressively over the coming 4 years, will increase landlord costs materially.  Taking time now to remortgage could off-set the increased cost in tax, helping to insulate landlords from higher tax charges. 

Remortaging can also be a great way for landlords to release capital from their properties for further investment and/or to fund maintenance and renovation works.

Many landlords know they should look to optimise their mortgage arrangements, but either can't be bothered, or feel a sense of loyalty to their long-term lender.  Now is no time for apathy or misplaced loyalty.  Your costs are going to rise and you need to mitigate the losses.

As a rule I try not to use this blog to promote my own lettings business, but on this occasion, I will make an exception, as I believe we are well placed to help readers to investigate this opportunity quickly and conveniently. 

Martin & Co, Oxford have partnered with L&C Mortgages, the UK's largest fee-free mortgage broker. L&C has a panel of 88 mortgage lenders coving private, buy to let and corporate mortgages.  You will be able to get expert advice at the end of a phone when it suits you. Their expert advisers are on hand 7 days a week, and L&C will manage a full search of the mortgage market so you don’t have to. Over 1 million people have gone to L&C for fee free expert mortgage advice, so we believe that you can trust them to help you, too.

Either drop me an email on info@OxfordPropertyBlog.co.uk to request a call from L&C, or call L&C directly on 0800 923 2045 quoting Martin & Co, Oxford.

Oxford's landlords need to prep for the future ban on fees charged to tenants by letting agents

In a written answer to a question tabled in parliament, housing minister Gavin Barwell has confirmed that consultation on the government’s proposed ban on letting agency fees levied on tenants in England will launch “in the spring.”

Barwell says his government “is committed to building a strong and safe private rented sector, which provides security and stability for both tenants and landlords.” 

He goes on to say that the government “announced at the 2016 Autumn Statement a ban on letting agent fees paid by tenants, to improve competition in the private rental market and give renters greater clarity and control over what they will pay. The government will consult in the Spring on the detail of implementation.”

“We will consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold and consider further reforms through the consultation to improve consumer choice and fairness for leaseholders” says Barwell.

Finally, he adds, “An increasing number of private tenants are happy with their tenure and standards are improving. We are determined to ensure all sectors of the housing market provide decent homes.”

‘Flipping’ Heck - Oxford Property Values Rise by £68.19 a day

Investing in Oxford buy to let property is different from investing in the stock market or depositing your hard-earned cash in the Building Society. When you invest your money in the Building Society, it is considered by many as the safe option. But, the returns you can achieve are awfully low (the best 2-year bond rate from Nationwide is a whopping 0.75% a year!).  An alternative investment is the Stock Market, which can give great returns, but unless you are able or willing to be on the phone every day to your Stockbroker, you will most likely invest in stock market funds - making the investment quite hands off meaning one always has the feeling of not being in control. 

However, with buy to let, things can be more hands on. One of the things many landlords like is the physical nature of property - the fact that you can touch the bricks and mortar. It is this factor that attracts many of Oxford’s landlords – they are making their own decisions, rather than entrusting them to city whizz kids in Canary Wharf playing roulette with their savings.

I always say investing in property is a long-term game. When you invest in the property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth, also known as capital appreciation, has been strong in recent times in Oxford.  Whilst the value of property does go up as well as down (just like shares do) Oxford has enjoyed consistent year on year increases since 2006.  Rental income is what the tenant pays you - hopefully this will also grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your gross yield, or gross annual return. Deducting any mortgage and other costs such as maintenance and/or letting agent fees gives you the net yield.  

Over the last 5 years, an average Oxford property has risen by £124,450 (equivalent to £68.19 a day), taking it to a current average value of £490,800 (based on all properties sold registered in the Land Registry). Gross yields start at around 4% a year, but can reach double digits’ percentages for larger properties that have a licence to be a house of multiple occupation (HMO).

However, something I haven’t spoken of before is the more specialist area of flipping property to make money. (flipping - buying a property, carrying out some minor cosmetics and re selling it quickly).  I have seen several investors recently who have made decent returns from this strategy. For example:

• One Oxford Investor paid £290,000 for a 2 bed apartment on Cheney Lane in January 2015. It appears some cosmetic work was done to the property and it was resold a few months ago (November 2016) for £360,000 a 24.14% return before costs (or compound annual return equivalent of 12.29% AER) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=42804441&sale=89070732&country=england
• Another Oxford Investor flipped a lovely 3 bed semi on Croft Avenue, Kidlington, paying £330,000 in May 2015 and selling it again after some doing some cosmetic works for £422,500 a few months ago (December 2016) … 28.03% return before costs (or equivalent 16.52% AER) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=45863565&sale=89071191&country=england

This demonstrates how the Oxford property market has not only provided very strong returns for the average investor over the last five years but how it has permitted a group of motivated and active landlords to become particularly wealthy. 

In my article next week I will introduce the proprietary model I have developed to help landlords and property investors to plan their returns – understanding how to optimise a portfolio for both capital growth and rental yields.

Landlords - Use letting agents, don't rely on listings websites

The following article was published by Letting Agent Today.  It is unusual for us to re-publish an article in this way, but this is an important topic given the cost pressures many landlords are feeling.  It will be tempting to look for ways to reduce operating costs and in so doing open themselves up to unforeseen risks.

With the forthcoming ban of letting agent fees to tenants, there will be further temptation to skip credit and employment reference checks on tenants, exposing landlords to unscrupulous tenants.

As reader know, as well as being author of this Blog, I am the owner of Martin & Co, Oxford, which is a letting agency.  So, of course I do have a vested interest in Oxford landlords continuing to use a letting agent (particularly my own!).  However, with so much government scrutiny on protecting tenants from unscrupulous landlords, it is important that landlords recognise the risks presented to them from unscrupulous tenants.

In recognition of the risk to landlords of letting their property to rogue tenants we offer our clients access to a comprehensive protection policy that provides financial protection in the event that a tenant risk like this materialises, despite the credit and employment reference checks conducted by us having been passed prior to the tenancy commencing.

The article read as follows:

The founder of eviction specialist Landlord Action is advising landlords to use accredited letting agents and not try to take the cheap option of advertising for tenants on websites. 

Shamplina is a host of Channel 5’s TV show Nightmare Tenants, Slum Landlords, and on last evening’s episode he discovered what happened when one landlord decided to let her property through a listings website. 

Initially she was delighted when a young professional moved into her flat promising to look after the place. He boasted of a private education and his references showed a successful career in the City - but it didn’t take long before he stopped paying the rent. 

"We've learnt that bad tenants are more likely to target [websites] because they hope they will be subjected to fewer checks. In the future, we'd always go through an agent - although even this has no guarantee. It's the law that needs to change to make landlords less vulnerable to unscrupulous tenants” McNaught told the programme.

Shamplina says this situation is not uncommon. 

“This guy is a serial bad tenant. He has been evicted previously after running up costs of £30,000 in unpaid rent and stolen furniture from an overseas landlord. In Vicky’s case, he used false references to secure the property.” 

Shamplina says this should serve as a serious warning to landlords about using free classified websites to advertise their property to rent. 

“We’ve come across many similar cases in the past where we see serial bad tenants prey on less experienced landlords who let their properties on consumer websites. Unfortunately, the majority of these landlords are deceived by well educated con artists. With absolutely nothing in place to safeguard landlords, they find themselves in all sorts of trouble” he says.