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Thursday 31 May 2018

Has the Government gone too far? Is it worthwhile being a landlord?


This question is at the heart of matter for landlords as taxation policy and general regulations are tightening in response to the growth in the number of UK citizens renting their homes from private landlords.

Since the financial crisis in 2008, buy to let has been seen as a low-risk alternative to savings or stock market investments.  Oxford’s landlords have done particularly well, benefitting from strong annual rent inflation and strong capital appreciation.  

Data from Kent Reliance shows that over the course of a 25-year investment, a basic tax paying landlord, placing a typical 30% deposit of £73,908 on a property, will generate a total profit of £265,500 after all costs and taxes taking into account the Government’s changes

Once the impact of inflation over the period is factored-in, this represents a profit of £162,000 in today’s money, or £6,475 annually. 

If buy to let returns look set to continue being attractive, why are landlords leaving the market, selling their assets and investing elsewhere?  According to Hamptons, the number of properties available for private rental has fallen by 5% over the last 2 years in the South of England that’s 82,000 fewer rental homes.  That at a time when demand for rented accommodation has never been higher, and when it is predicted that over 17million UK citizens will depend on good quality rented homes being available to them.

So, has the government gone too far?


That question is not straightforward to answer.  Based purely on the economic argument, the figures above from Kent Reliance show that buy to let will continue to be viable financially.  Evidence from Scotland (where a tenant fee ban has been in place for several years), suggests that the ban of tenant fees in England will increase costs for landlords initially, but thereafter rents will rise above their historic trend rate.  If the supply of private rented homes is already reducing as Hamptons assert, then the rate of rent inflation could be even higher in England than that seen in Scotland.

Being a landlord is a business.  Just as companies owe a duty of care to its employees, landlords owe a duty of care to their tenants.  And, just as businesses budget their costs to optimise profits, so should landlords should budget a proportion of their gross income for reinvestment to maintain their assets.

Some changes being introduced by Government are both considered and necessary e.g. the improvement of minimum standards in the areas of gas, electrical and fire safety, the licencing of houses in multiple occupation; tightening of mortgage assessment processes and level of rental to repayment cover to protect landlords as interest rates rise.  However, other changes are pure politics, and seem certain to have unwanted consequences e.g. the ban of fees charged to tenants, and the stamp duty surcharge.  Both of these risk reducing the supply of private rented properties at a time when cities like Oxford already have a shortage.

As things stand:  Has the Government gone too far?  Yes.  Is it still worthwhile being a landlord? Yes, provided you recognise that you are running a business and are prepared to devote the time to running that business properly.

Wednesday 30 May 2018

How to be a winner in Oxford’s competitive housing market


Asking prices for Oxford homes show no signs of falling, up 4% year on year to a new record high average value of £422,157.  However, the number of completed transactions in our City is down 11% year on year.

The number of houses on the market for sale is high, but 11% fewer properties are selling successfully, so Oxford has a buyer’s market.  What can sellers do to optimise the chances of their home selling successfully?

To achieve a sale, four factors must be considered:  Location, Condition, Presentation and Price.  We will explore these in turn.

Location


This is fixed, your home is where it is.  What makes it a great place to live?  Who is typically attracted to the area? – know your market.  Will your home and location appeal to first-time buyers, young and growing families or investors for example.  How easy is it to commute to the City centre, to London or to Birmingham?  Does it have great road links or great rail links?  You have lived in this area for a while, think about what attracted you in the first place, and how has it improved since?

Condition


Selling a home is competitive.  Why should buyers make the effort to view if you don’t make the effort to present it to its very best standard?  Your home must be presented to a high standard to compete effectively.  This starts with cleaning – from the carpets, to the kitchen cupboards, the bathroom to the cobwebs in the corner of the downstairs loo and dust on the skirting boards.  Believe me, buyers notice!  Employing a contract cleaner to really blitz the place is money well-spent. 

Do any walls or rooms need re-decorating? – be honest and don’t cut corners.  A tin of paint costs £20 to £30, but it could add £5,000 to the price you achieve.  Try to stick to light, neutral colours and avoid dark browns and black.  Pay attention to the details – chipped door frames, scuffed skirtings and tired window ledges.  Are there any fixtures that need fitting or repairing? That blind that’s half pulled out of the wall or the door that’s sticking.  And, above all, declutter – viewers want to imagine their belongings in your home not yours.  There’s a reason show homes are immaculate, clutter-free zones!

Think about how some ‘staging accessories’ could be positioned to wow potential buyers.  Cushions, Rugs, posh toiletries can all be used and taken with you.  For viewings, buy some flowers to add colour, and buy bedding and new towels that you only use for viewings, and then pack away until the next time.  Paint a picture for viewers – they can lack imagination, so show them how great their life will be in your home.

Presentation


Visual appeal is King – whether online, in the estate agent’s window or in the brochure that viewers take home.  A minimum of 10 high definition photographs, a floorplan and a description that helps buyers understand why your home is perfect for them.  Where are the shops?  Where are the Schools?  Where are the restaurants and bars?  Draw a picture in words of what they will love about your home.  But everyone has great photos and a floorplan, so go further – a 3-dimensional virtual walk through will create interaction, boost interest and improve the quality of your viewings – they’ve already walked round virtually, and now they want to do so for real.

Price


When all of the above is in place, you must be realistic about price.  Do your research. Use Rightmove and Zoopla to look at comparable properties against which you will compete for attention.  Buyers will have a forensic knowledge of the local market and will assess it dispassionately.  You need to do the same. 

Many estate agents will allow a buyer to over-price their property, confident that they will secure price reductions over-time.  But a property has its greatest impact over the first 2-3 weeks on market.  So be realistic and don’t squander the early marketing.

The viewing


This is THE critical moment. Plan it carefully.  Are there times of the day to avoid – because of noise or congestion?  Make sure your home looks as good in real life as it did for the photos.  Stay enthusiastic – it might be your 10th viewing, but it is the viewer’s first!  Clean, tidy, declutter and ‘stage’ for every viewing.  And remember, the outside is as important as the inside – first impressions count.

The sale


Because it is a buyers’ market expect to negotiate the price.  Many Oxford homes sell for prices lower than advertised.  Know what’s your bottom-line and negotiate carefully to achieve it.

Over the last year 2,898 Oxford homes found a buyer and completed a sale that’s 360 fewer than in the previous 12 months.  Last year, I wrote a guide for Oxford homes sellers – ‘How to sell your home quicker and for more’ to help buyers understand how to succeed.  It has proved very popular. If you are selling your home and think the guide might be helpful please give Jay Sarbatta a call on 01865812110.

Wednesday 16 May 2018

National Landlord Association forecasts a ‘Perfect Storm’


The National Landlord Association (NLA) has released research based on feedback from 1000 landlords, which shows that 19% of landlords plan to sell one or more of their properties – a historic high!

With record growth in demand from renters, this trend points to a reduction in the number of available properies suggesting a ‘Perfect Storm’ where demand is rising and supply is falling.

The survey suggests the biggest reason for sale is the changes to mortgage interest rate relief.

The survey suggests that 78% of those who plan to sell will sell apartments and terraced houses – which is bad news for young renters, but potentially good news for first-time buyers.  However, the tightened rules of mortgage lending, mean that for most, the dream of buying rather than renting is not available to them.  It is the high cost of a deposit and/or the ability to access mortgage finance and not competition with landlords that stops most young adults from buying a home.

This blog has been pointing out the unwanted consequences of Government policy for several weeks.  If supply falls and demand rises as forecast, rents will rise naturally.  Add to that, the scheduled ban on fees charged to tenants which will increase landlord costs, and there will be additional rent inflation pressures.


Friday 4 May 2018

What do the ‘political tea leaves’ indicate?


There’s a growing belief the Conservatives are just one electoral jolt away from hijacking some of Labour’s rental sector policies in a bid to woo younger voters.  With reports last week of 16m UK citizens renting over the coming years, it is clear tenants will become an increasingly powerful electoral force.

Just last week the editorial in the right-wing political magazine The Spectator, advocated that the Tories steal Labour’s policies on rent caps and longer tenancies - or risk losing the next general election.

If the Conservatives do badly in next Thursday’s local elections, the increasingly common view is that the party should become more pro-tenant and by implication more anti-landlord.

So, if the Conservatives lose local council seats in London, will they start demanding policies to win back disillusioned young voters in time for a General Election in 2022?  And will they start with the disillusioned young people who feel that they have been forced to rent by unaffordable house prices, mortgage lender demands for large unattainable deposits and by the burden of student debt repayments.

So, what might these further reforms target?


They could introduce rent caps aligned to local salaries. They could make 24 or even 36-month tenancies standard.  They could give further planning advantages to Build to Rent.  They could further raise stamp duty and capital gains tax on second homes. And, they could clampdown on incorporated landlords.

Will such reforms benefit the rental market?


In the main, no.  Any easing of planning restriction to create new rental properties is to be welcomed, but the reality is that there is already insufficient available properties for rent, and anything that discourages private or incorporated landlords from investing in new property is likely to exacerbate the supply crisis.  Further constraint on supply will perversely drive-up rents, causing further demands and pressure for rent caps to keep renting affordable.

Unfortunately, the reforms being demanded by the Labour party and increasingly stolen and rebranded by the Conservative party are not conceived as a rational well thought out response to a difficult market situation, they are purely aiming to be popular with lots on young voters.  To hell with solving the problem, let’s just do what’s popular!

So, what should landlords do?


Those with properties should hold-on to their valuable assets – they are the lucky ones.  Further changes to the tax system are unlikely to be sufficiently significant to undermine the returns and value of their assets.  Those wanting to expand their portfolios should probably get in quick – it seems unlikely that barriers such as the stamp duty surcharge will be repealed and more likely that they will become tougher.  Those with a longer-term plan? - it is probably a wait and see and compare the returns from buy to let to other investments at the time.

I think all buy to let investors though need to consider the wider investment climate, and the potential volatility of alternative investments.  Oxford’s Global profile as a centre for learning, a beautiful historic city and a vibrant knowledge-based economy will create stability of demand for accommodation.  As the plans to join together Oxford and Cambridge materialise, housing supply will increase progressively over the coming 10 to 15 years.  Until then, demand for good quality private rented properties will continue to grow.  So landlords, keep calm & carry-on investing, but keep an eye on the politicians, they don’t have your best interests at heart!