HMO Licensing Changes expected in 2018

New HMO Licensing Rules:

Since mandatory licencing was introduced by the 2004 Housing Act, and landlord with a property housing 5 or more unrelated occupants over 3 or more stories has had to apply for a licence from their local authority to operate a multi-occupied letting.

This licence sets down strict safety standards to which landlords must comply, and these premises are covered by two pieces of legislation specific to them:

• The Management of Houses in Multiple Occupation (England) Regulations 2006 – applies to all HMOs – Bedsits and shared houses.
• The Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007 apply to buildings converted into self-contained flats not complying with Building Regulations 1991 or later.

However, another category of House in Multiple Occupation (HMO), which does not currently need a licence, and is not subject to quite the same strict safety criteria, is one of two stories or less which has 3 or more unrelated occupiers, commonly known as a house share. These are very commonly used for student housing, where students have their own rooms in a standard house, sharing bathroom and kitchen.

But, sometime this year (likely April) it is expected that there will be a much tougher regime for these types of lettings. This is when some new HMO licensing rules are expected to be introduced. This change is likely to come as a surprise to many landlords as it will almost certainly require them to do work in their properties.

Whereas existing mandatory licensing applies to around 60,000 properties up and down the country, the new rules could apply to many more than this. It is thought that around 175,000 properties will be involved in the new mandatory licensing scheme.

The New Mandatory Licensing Rules

These new rules, which are really aimed at rogue landlords who are abusing the lettings system, will impose tough new standards, with the objective of improving the overall standard of lettings in England. Minimum room sizes and rules governing refuse disposal and its storage are likely to be imposed.

A Government consolation exercise has been ongoing on proposals for England only to remove the 3-story rule and draw up limits on minimum room sizes. For example, it is proposed a room must be a minimum of 6.52 square metres for one person, and 10.23 square metres for two people. The measurement of these rooms cannot include areas where the ceiling is below 1.5 metres in height.

In this scenario it is proposed that mandatory licensing will apply to all shared homes with five or more occupants, if at least two of them are unrelated (from different households). This would also take in any flats above or below shops and other business premises meeting this criteria.

Any landlord applying for a license will need to prove that they are a “fit and proper person”, a test which is to be tightened up under these proposals, and will likely include criminal record checks. Fines for not obtaining a license for an HMO will possibly by unlimited.

The changes are intended to improve the overall standards and safety of lettings in England generally. There is likely to be a grace period for landlords to catch up with these standards.

Although more landlords with properties meeting the above criteria will pay more in fees to their local authority, working to improved standards in their properties may result in more favourable mortgage applications.

The government’s drive to improve letting standards comes after much bad press involving rogue landlords and health and safety, and combined with a national housing shortage, the government want to get “onto the front foot” with rented housing.

Housing and planning minister Gavin Barwell has said:

“In order to build a country that truly works for everyone, we must ensure that everyone has somewhere safe and secure to live.

“These measures will give councils the powers they need to tackle poor-quality rental homes in their area. By driving out rogue landlords that flout the rules of business, we are raising standards and giving tenants the protection they need.”

Important Property related dates for 2018!

January 2018

Help to Save trial starts

If you’re a would-be first-time buyer on a low income, the Government’s promised Help to Save scheme is worth keeping track of.

First announced in the March 2016 Budget, the scheme is open to anyone who is in work and receives Working Tax Credits (or the Universal Credit) with an individual or household income of at least £542.88 a month.

Qualifying savers can set aside up to £50 a month and, after two years, receive a Government bonus of up to £600 – that’s the equivalent of half the maximum £1,200 you can personally put aside.

At that point, you can either choose to cash in or continue saving into the scheme for another two years and get paid a further bonus of up to £600. In total, this means savers could accumulate a pot of £3,600 under the scheme, £1,200 of which is from Government coffers.

Help to Save was due to launch on 1 April 2018 but has been delayed until October 2018. A trial of the scheme is due to roll out from this January – although details and providers have yet to be confirmed.

April 2018

Changes to stamp duty in Wales

On 1 April 2018, Welsh stamp duty will be devolved and replaced by Land Transaction Tax.

While the rules will stay largely the same as in England, there will be some differences to note. For example, around the 3% stamp duty surcharge that applies to the purchase of additional homes – and how ‘replacement of a main or only residence’ rules can apply as an exemption.

The change also means that first-time buyers in Wales only have until 1 April to benefit from the stamp duty breaks announced in the Government’s latest Budget which apply to property purchases up to £500,000.

Changes to how Lifetime ISA bonus is paid

Got a Government Lifetime ISA or planning on opening one?

The accounts allow you to save up £4,000 a year with the Government topping up your savings with an annual tax-free bonus of up to £1,000. The cash can then either be put towards buying your first home or to boost your retirement savings.

Currently, the Government bonus is paid into the account annually but, from April 2018, payments will switch to monthly. You can read more about the accounts at, What is a Lifetime ISA?

New energy-efficiency rules for landlords

April 2018, is also the trigger date for when landlords undertaking new tenancies will need to prove their property has a minimum energy-efficiency rating of E on an Energy Performance Certificate. The law will apply to existing tenancies from April 2020.

Ban on lettings agency fees charged to tenants

2018 has been earmarked for the start of the ban on lettings agency fees to tenants – a move which was first announced in the 2016 Autumn Statement. An exact kick-off date has yet to be confirmed, although it’s expected to be more towards the end of the year.

A Draft Tenant Fees Bill has already been published (November 2017). In addition to a ban on tenant fees, it proposes a deposit cap of no more than six weeks’ rent and a cap on holding deposits of no more than one week’s rent.

Landlords in 2018 should also get prepped to join a new compulsory Ombudsman Redress Scheme, which will be set up by the Government to help solve tenant/landlord disputes.

Beyond 2018…

It’s worth bearing in mind that Government schemes to support first-time buyers don’t last forever.

The Help to Buy scheme in Scotland – also known as the Affordable New Build Scheme – will close its doors for good in March 2019 for example. However, equivalent schemes in England and Wales are set to continue until April 2021.

December 2019 also marks the end of the Government’s Help to Buy ISA scheme, a tax-free savings account in which the Government will top up your cash with a maximum bonus of £3,000.
Read more at https://www.zoopla.co.uk/discover/property-news/key-property-dates-for-next-year-s-diary/#qFW8HzhVUpf6xBrD.99

Cost of Running a HMO in Derby

Houses of Multiple Occupancy (HMO) continue to be the buzzword in the Derby property Market, despite increased discussions around nationwide Article 4 roll out, , and a huge number of properties coming onto the market.

The reason for this gold rush is that the figures thrown around by investors are enough to make anyone giddy with excitement. ‘Retire on one deal!’ or ‘Make £1,500 per property per month!’ do sound appealing, and whether you’re looking at it from a rental income, yield, or ROI perspective, the numbers are very appealing.

So what’s the truth behind all of the top line figures?

We’ve recently finished our latest HMO Project – turning a 3 bedroom semi-detached house into a 6 bedroom licensed HMO – and now that all the rooms are occupied and been running for a few months, I thought I’d share the breakdown of monthly running costs we have to deduct before we get to see how much money we’re really making from our HMO.

So how much does it actually cost to run an HMO?

Some of these running costs are fixed, and some are variable, some are paid monthly, and some annually, but we feel these should all be taken into consideration for the majority of HMO properties.

Mortgage Payments

Mortgage payments go without saying really, unless of course you’re fortunate enough to own the property outright.  These will vary from house to house depending on level of borrowing, lender, type of finance (commercial or residential etc),

Letting Agent

Opinions are split on whether you should use a letting agency or not to manage your property. On the one hand, nobody will care about your property quite as much as you do, but on the other hand I’m sure you didn’t become a property investor to replace one job with another.

I fall into the latter camp, so use a letting agent to manage our portfolio (even if I own that letting agency…). Rates for HMO management would typically be 10-15% of monthly rent collected, which may or may not be subject to VAT on top of that depending on who you use.

I charge myself 10%, which is a slightly discounted rate compared to what we charge typical customers.

£240pcm

Insurance

Having the right insurance in place is critical. Make sure the broker you speak to know the house will be rented, that it’s an HMO, there are locks on the bedroom doors, whether or not it needs a license etc.

There is nothing worse than having paying for insurance only to find out when you need it that the policy isn’t valid. Similarly, having a properly insured building can get you out of a seriously bad situation.

£15pcm

 

Utilities

Gas, electricity and water can again vary massively from property to property depending on the size of the house, number of tenants, type of tenants, energy efficiency and so on.

This HMO was taken back to brick and had a new roof so is well insulated. Most tenants are out of the house during the day as well so there’s less demand on heating and hot water from 9am-5pm. If you have tenants who don’t work or work shifts, you might find your heating is running 24/7.

This house doesn’t have a water meter, so it’s based on average usage for this size of house rather than actual consumption. If you have a water meter, your costs could be significantly higher.

£170pcm on average as it is lower during the summer months and higher during the winter

Council Tax

Thankfully we don’t live in a city where the council tax valuation office are enforcing Band A council tax ratings on individual rooms within an HMO. This is a serious risk in many areas already though, and seems to be spreading.

Our property is in council tax band A, making the payment quite low.

Monthly Council Tax Payments – £81

 

Broadband & TV Packages

I suppose in theory broadband is a discretionary cost, but I doubt you’d be getting many professional tenants or students moving into a house that didn’t offer broadband.  Be aware that good broadband is classed as an essential in our houses, almost more so that heat and running water!

TV packages are more of an added extra, and it really depends on who your target market is and what your competition are offering. Freeview is pretty good these days, and services like NetFlix are starting to make TV redundant to younger generations.

We put in a basic Virgin Media package, which is a step up from freeview and comes with a set top box that allows recording of live TV etc. We’ve noticed some of our competitors are offering full sports/movie packages though, and even some subscription services like NetFlix & Apple TV, so we might need to up our game in future.

Monthly Virgin Media Payments – £38.99

 

TV Licence

This is a slightly tricky one. In theory, every room of an HMO should have it’s own licence if they have their own TV. In practice, we provide one licence for the communal TV that we provide, and advise the tenants that they will need their own TV licence if they choose to watch TV in their own room as well.

So far this has worked out OK, but keep in mind the official advice is to get licences for each room (and if each room does have its own licence, you don’t need a further one for the communal area).

Monthly TV Licence Payments – £12.13

 

Cleaners

Cleaners are an absolute must in any shared house. Without them, the standard of the house can quickly deteriorate and tenants tempers can flare as arguments escalate over whose turn it is to scrub the toilet.

As well as keeping the communal areas clean and tidy, they also act as a first line of defence in spotting potential maintenance issues, safety hazards etc and reporting back to the landlord or agent.

Depending on the quality of housing you provide, the size and the prices you charge, your cleaning could vary from a weekly deep clean to a monthly run around with a vacuum and a mop.

We started off with fortnightly cleans in our HMOs, but moved to weekly pretty quickly as we found it kept the tenants happier, didn’t cost us much extra, and reduced maintenance costs for things like resealing shower trays and replacing communal carpets.

Our cleaners charge £10 per hour, and in this house they do 2 hours per week.

Monthly Cleaning Payments – £80

Maintenance/Voids

Everyone has their own way of estimating what maintenance and voids will be. I don’t think this is so much about guessing how much it will cost you on any given month, but more about getting into the mindset of putting money aside for when things do go wrong.

You might have a 6 month period where you’ve got full occupancy and not a single issue, then all of a sudden 2 tenants move out, their rooms need redecorated (fair wear and tear so no deposit deductions to pay for it) and the boiler goes on the blink.

Putting aside a set amount every month helps balance these costly months with the ones where everything is going to plan. We typically allocate 5% for voids and 5% for maintenance of the gross rent. We find this gives us a good buffer when things do go wrong, and any excess makes for a good a shopping trip!

Monthly Maintenance/Void Payments – £240

 

Other costs

The other costs associated are licensing fees, electric safety certificates, gas safety/service, alarms servicing, pat testing etc

We budget £35pcm

 

Overall

Gross Rental income £400 per room (all en-suites)	£2400
Deductions:
Letting agent Fees	£240
Insurance	£15
Utilities	£170
Council Tax	£81
Broadband	£39
TV License	£12
Cleaner	£80
Voids	£240
Other	£35
Monthly Net Profit	£1488

 

These figures are based on our costs there could be significant savings on cleaner costs, voids, maintenance, and bills, so the actual figure for you can look more towards £1700 net

Also it does not take into consideration interest on mortgage costs as this varies from property to property.

If you are thinking of investing in a HMO why not give us a call/email to discuss potential investments!

 

 

 

 

 

 

First time buyers on the increase

Demand from first-time buyers is driving the UK housing market as landlords and homeowners hold off making any big decisions, according to the latest research.

The findings from Connells Survey & Valuation reveal that first-time buyers made up almost half – 49% – of all property purchases last month, which is up 6% on the five year average of 43% for July.

Greater activity among people looking to get a foot on the housing ladder was supported by a jump in mortgage lending, with first-time buyers taking out 36,000 loans in June, up 22% month-on-month and 6% year-on-year, reaching its highest level since November 2006.

John Bagshaw, corporate services director of Connells Survey & Valuation, said: “Demand from first-time buyers is supporting the housing market at the moment.  People are eager to get on the property ladder, with record high employment and competitive mortgage rates. But this doesn’t mean it’s an easy task to get a foothold in the market.

“Economic conditions are still tough.  The increasing cost of living and house price inflation are making it harder to save for a deposit.  House prices are around eight times higher than earnings – and they’re rising twice as fast.”

With the value of a typical property rising £10,000 in a year, Bagshaw insists that first-time buyers “still need help” and suggests that they “could be given an exemption from stamp duty”.

A quick guide to converting HMOs – Derby

With property prices ever increasing and successive governments taxing income from property more and more each year, landlords and property investors are often  turning to houses of multiple occupation sometimes known as HMOs for higher rates of return.

So why do HMO give landlords and property investors a higher rate of return?  Well essentially this is down to the fact that HMO properties are rented out by the room rather than as a whole property.

So how do you achieve these higher rents and higher rates of return? 

What you do is you create a situation for individual single tenants where the rent is affordable. Note the word affordable here. We’re not saying that it wouldn’t be cheaper to rent a whole property if you were say in a couple or in a group but if you are renting on your own and have no one to share the costs with then renting a room in a shared house will ultimately be cheaper.

So what creates an attractive proposition for such a single tenant? 

Well I would say first of all it is having a room in a house which is literally ready to go. Nothing more required than bringing your own small possessions and clothes and getting settled in.

Why is this important? Because it keeps costs down and it allows people to move quickly.

What this means to you as someone thinking of converting a property into an HMO is that you need to ensure that the rooms large enough to be comfortable and that the property is sufficiently furnished and well equipped – to all intensive purposes so it’s ready for someone can move into it in the same way they would a hotel room.

You also need to ensure the property that you are thinking of converting into an HMO is in a location which your tenants will want to live in.

But what about the legal constraints for creating or converting an HMO?

You may have heard that there is a lot of legislation surrounding converting and running an HMO and you’d be right. Due to the nature of HMOs and the number of people that live in them, there are naturally concerns about ensuring that the occupants are safe and secure. Iit is no longer a situation where there is a single family unit where people are looking out for each other but instead 5 or 6 individuals and it can’t be it can’t be assumed that they are all cooperating in keeping the property safe.

So what can you do as a landlord to ensure that you stay on the right side of the law when converting a regular residential property to an HMO? 

Firstly I would say invest in your own education.  There are plenty of courses run by industry experts who will teach you everything you need to know relating both to the legislation and the practicalities of converting a property to be a compliant and functional HMO.

Secondly, speak to a local agent you have a working knowledge of he knows not just from a theoretical point of view from the practical experience of actually letting and managing them.  take it from me there a lot of different skills and knowledge required to safely and successfully let and manage an HMO.

Thirdly, don’t underestimate the amount of time which managing as an HMO will take.  you may think at the outset it is just a large terraced house but if it is 6 bedroom HMO then in reality what you have are six houses with six separate tenancies 6 separate tenants 6 lots of questions problems rent to chase and other usual repair and maintenance issues.

As a landlord myself and having managed my own and families properties myself I can attest to the fact that whilst it is perfectly possible to manage one rental property what even 2 or 3 whilst holding down a full time job it is very difficult to manage any more than that and retain a healthy work life balance.  This is why I say to any landlords or property investors thinking of buying or creating / converting a property to an HMO, factor in the costs of professional management.

Is there any specific legislation which you should be aware of?

The short answer is yes lots but in a nutshell the main things you need to bear in mind or and this is in no particular order

• minimum room sizes
• emergency lighting
• fire risk assessments
• Fire doors
• smoke detectors
• heat detectors
• minimum numbers of Bathrooms and sinks
• article 4 restrictions
• large HMO (more than 6 bedrooms) planning requirements

For more help, information and advice about converting the residential property to an HMO what any other aspects of owning, letting or managing an HMO in Derby please contact us on 01332 732872 or email us info@arboretumlettings.co.uk

The Positives of Property Investment in Derby 2017

You would have had to have been living under a rock to not know about the Government’s recent tax attacks on buy-to-let landlords. But there are still positives of property investment in 2017 in Derby…

If you’re considering a new property investment, either to start off your portfolio or expand an existing stock of properties, you may have been put off by higher Stamp Duty rates and the reduction in tax relief on finance costs for buy-to-let landlords. The important thing to remember, however, is that property investment still has many positives, even in 2017!

Arboretum lettings have put together a short list of positives which have been overshadowed by negative changes in legislation:

Low mortgage rates

It couldn’t be a better time to take out a mortgage, as interest rates are currently sitting at rock-bottom figures and lenders are fighting to keep their deals as competitive as possible. If your plan is to invest in property using a buy-to-let mortgage, you’ll also benefit from the wide range of products available on the market, as banks and specialist lenders tap into growing demand in the sector.

With interest rates looking more likely to rise than fall in the near future, it’s time to secure one of the great deals available.

High tenant demand

Although these low mortgage rates, combined with new schemes from the Government, are making it easier for struggling first time buyers to get onto the property ladder, sky-high deposit requirements are still preventing many taking their first steps. This means that the private rental sector continues to experience soaring levels of demand from tenants.

The higher the demand in the market, the more likely your property will get let quickly and to good tenants.

Rising rent prices

As with house prices, the latest rent price figures look like they could go no higher, but they always seem to manage it. If rents keep going up, you will be able to justify higher prices on your properties, which will boost your monthly rental income and overall yields.

With demand so high in the sector, it doesn’t look like prices will be coming down anytime soon – but remember to buy in a thriving rental market.

Diverse investment options

Choosing property as your investment option doesn’t need to be restricting – there are plenty of different property types and opportunities to consider. Within the private rental sector, there is now a host of different tenants that you could target, such as young professionals, students and families, while Houses in Multiple Occupation (HMOs) or purpose-built Build to Rent are also popular choices.

As the market continues to grow and develop, a wide range of investment options will keep opening up, so the sky really is the limit.

Long-term returns

Unlike other investments, property is typically an incredibly long-term option. This means that you can hold a solid investment for a long period, which will boost your returns when it comes to selling or releasing equity on your asset.

And with house prices only going one way, it appears that property will continue delivering strong returns.

Steady income stream

One of the biggest positives of property investment is that it provides a steady income stream, in the form of weekly or monthly rental payments. This means that you not only benefit from the overall capital appreciation on your asset, but also receive a regular income stream, which can be used to cover mortgage repayments, maintenance and letting agent fees.

However, Arboretum Lettings warns that you should protect your rental income against rent arrears, which can damage your own finances as an investor. Its Rent Guarantee Insurance ensures you still get paid if your tenant can’t – email info@arboretumlettings.co.uk to get more info

Although all news relating to the buy-to-let sector seems to have been negative of late, there are still positives surrounding property investment in 2017 – we hope you find them and invest wisely!

As always Arboretum Lettings are happy to guide you in making a wise investment visit http://www.arboretumlettings.co.uk and get in touch

Overseas Buyers and the Value of the Pound

There is no disputing that the current value of the pound presents a fantastic opportunity for overseas buyers. Derby has long been a coveted destination for UK buyers and now foreign buyers who view owning property here as a solid investment that delivers exceptional returns.

Despite the economic uncertainty surrounding Brexit, confidence in the Derby property Market from abroad remains high. The UK is largely regarded as stable and resilient, especially compared to other European markets. We are finding that cash-rich buyers from those countries are opting to purchase property in Derby oppose to the likes of cities like London.
International interest is typically centred around particular locations within the city centre projects, we’ve noted a marked increase in enquiries from foreign buyers. In fact, the last three investment enquiries we have had were from foreign investors, although we’ve also seen an increase from those buying in American dollars – from the Far East and America, often at the higher end of the market.

Certain places, however, continue to remain popular among domestic buyers, like DE22 and DE23 and the surrounding area. As a return on investment they provide the most interesting returns, and as a Property Management Agency in Derby we are never short of demand from tenants

Article 4 coming to Derby

Over the past few years, what are known as Article 4 Directions have sprung up all over the country. Put simply, what they state is that anyone wishing to convert a house currently in use as family accommodation into a house in multiple occupation (HMO) must be granted planning permission.

Article 4 Directions have been introduced in a range of English cities including Sheffield and Leeds. In the East Midlands, Loughborough was the first to take advantage of the new legislation in February 2011 and Nottingham followed suit a year later in March 2012. Derby has yet to launch a consultation on Article 4 but according to the Environmental Health Officers in Derby it is on its way whereas Leicester will be making an Article 4 Direction in August of this year, although this will be what is known as a non-immediate direction; landlords will have a one year grace period in which to reinstate their properties as HMOs if they so wish. Needless to say, Article 4 is hugely unpopular with landlords, but how did it come about?

The route of the problem can be traced back to 1995 and the introduction of the General Permitted Development Order (GPDO) which granted automatic planning permission for certain types of development, known as permitted development. Article 4 of the GPDO gives Local Planning Authorities the right to restrict some types of permitted development. It was originally intended to enable councils to preserve the character of conservation areas and that is actually what it is still used for today in places such as Brighton and Bath. However, that all changed in April 2010 when HMOs were given their very own usage class under the planning laws, Class C4. Previously HMOs had been categorised as Class C3, small dwelling houses used as a main residence by families or groups of up to 6 people living together as a single household. A class C4 property is defined as a small dwelling house occupied by between 3 and 6 unrelated individuals who share common amenities such as a kitchen or bathroom. Most importantly, under the GPDO, change of use between Class C3 and C4 or vice versa counts as a permitted development.

The problem is that councils can use Article 4 to restrict change of use between the two classes as a permitted development. It would be easy to assume that Article 4 is just another form of regulation that landlords have to deal with, something that takes up both time and money, but the reality is that planning permission for change of use from C3 to C4 is unlikely to be granted. To further complicate things, for the purposes of mandatory licensing, a HMO is defined as a building with three or more storeys and five or more unrelated tenants. Article 4 is actually far more restrictive than mandatory licensing because it applies to houses with 3 or more unrelated tenants and any number of storeys. HMO licences also tend to be granted provided the applicant meets the licensing conditions, unlike planning permission under Article 4.

So, what is the justification for using Article 4 to restrict the proportion of HMOs within a given area? Well it certainly isn’t in the interests of raising revenue; there is no fee payable for making a planning application to convert a house from C3 to C4 usage and the council has to bear the whole cost of processing the applications and dealing with any appeals. One thing immediately becomes clear when you look at the use of Article 4 Directions to restrict HMO development; they are almost exclusively used in areas with high student populations. Dig a little deeper and another thing becomes apparent; Article 4 tends to be used in poor cities with vibrant, successful universities. This is true of Sheffield, Leeds, Leicester, Nottingham, Loughborough… the list goes on. Look at Oxford and Cambridge, both renowned university towns but both also affluent cities in their own right. In Cambridge there are no Article 4 Directions in place and no intention of introducing any. In Oxford there is a very limited Direction in place but it does not prevent C3 houses changing use to C4; rather, it prevents a handful of office and industrial sites – places that generate employment, wealth and tax revenue for the city – being converted into student accommodation that generates higher yields for the landlords.

When Sheffield City Council introduced Article 4 they cited a desire to create “cohesive communities where people from different backgrounds and of different generations get on well together, feel valued and feel they have a voice.” They stated that allowing the development of areas with a high concentration of shared housing, which can lead to a transitory population, should be discouraged. There was much talk of creating “balanced communities.” The consultation exercise performed by Nottingham City Council in advance of the launch of Article 4 also made much of balanced, diverse communities and hinted darkly at the problems that might be caused by high concentrations of HMOs though, given that in some areas of the city over 50% of the housing stock is made up of HMOs, any such problems should already be glaringly apparent. It spoke of reclaiming the city centre for families and creating vibrant communities. It seems that the justifications for Article 4 are extremely light on facts and statistics and more to do with creating a utopian vision of a community where old and young, rich and poor live in vibrant harmony.

What about the problems created by Article 4, for they are many and various. Firstly, an Article 4 Direction massively skews the housing market in an area it is applied to. Houses with HMO status increase in value, those without fall in value; evidence has shown that this fall is typically between 20 and 40%. The winners are landlords who own existing HMOs, the losers are owner occupiers who cannot sell their houses. In other words, the residents that the council are trying to support and lure back into these communities are the very ones that are being penalised by the legislation.

Article 4 also takes no account whatsoever of changing demographics. In Sheffield as a whole, 1 in 9 of the residents are students. In the City of Nottingham students make up an even higher proportion of the population, 17% or 1 in 6. Back in 1984 there were around 12,000 students in Sheffield; last year there were 61,000. These increases are driven by a number of factors including the “education, education, education” policies brought in by Tony Blair. Whatever the causes, all these students have to live somewhere and in areas close to the universities students make up a significant majority of the residents. Of course, they could live in the purpose built student accommodation developments that are springing up in many university cities, but most students prefer to live in HMOs, not least because rents in purpose built accommodation are around 50% higher.

This policy is unbelievably discriminatory against students. They are forced to live in accommodation that is expensive, institutional and disruptive for those with heavy workloads or who, like nurses, work shifts. They are denied any chance to become part of the community in which they will typically live for at least two years. It is not just students that live in HMOs but also young professionals and people who have moved through work. Students can’t afford to compete with these people for increasingly scarce HMO places. If a local government tried to discriminate against any other social group in this way, they would find themselves in court.

The very concept of a balanced community is a nebulous one. I live in a town where 95% of the residents are owner occupiers, where unemployment is virtually unheard of and well under 1% of the population belong to an ethnic minority. It is hardly what you might call balanced but, strangely, the local council are reluctant to introduce any policies to address this highly unsatisfactory situation. It is hard to imagine a more vibrant, diverse and balanced community, yet this was an area with a large student population and a high concentration of HMOs. All the evidence suggests that HMOs and students go a long way to creating balanced communities, not destroying them.

The laws of supply and demand dictate that restricting the number of HMOs in an area will drive up rents. Conversely, all local authorities are required by law to ensure a given number of places are available in small HMOs and it is well known that the stock of social housing that caters to one person households is wholly inadequate. By imposing an Article 4 Direction, councils are actually preventing themselves from meeting their own obligations.

It is clear that the justifications given for imposing Article 4 to limit the number of HMOs do not hold water, so what are the real reasons? There have been some suggestions that Article 4 has been used to create demand for purpose built student accommodation developments, many of which are undersubscribed. The argument is that since some PBSA blocks are owned and operated by local authorities, this is a method of revenue raising by the back door. However, most PBSA developments are being built by the universities and private investors; most city councils only have a modest presence in the market, not enough to justify legislating to distort the market. Well, I love a conspiracy theory as much as the next man so let me combine a few facts and a healthy dose of conjecture to explain what I think Article 4 is really all about.

Usage Class C4 was created by a struggling Labour government just three weeks before the last election. Given that they were still dealing with the aftermath of the worst financial crisis since the 1930s and facing a drubbing in the polls, you would have thought that pushing through a minor amendment to the planning laws would be at the bottom of their list of priorities. The timing was suspicious to say the least. Although it was a minor change, it had a big impact because it allowed Article 4 of the GPDO to be used to restrict development of HMOs. A cynic might argue that Class C4 was created expressly for this purpose. Certainly, within months of the change, the first consultations for Article 4 Directions were already being made.

Article 4 is almost exclusively used in areas with high student populations. In the consultation for the introduction of Article 4 in Nottingham, the language used about students was very negative; they were described as a continuing drain on community resources. Students are by definition a transient population; they normally live in university accommodation for their first year and then in the community for the next two years. Many of them are registered to vote at home rather than at their university address. Councils that penalise students are unlikely to pay the price at the next election.

It has been said that Article 4 is an attempt at social engineering. Could it be that in reality it is actually electoral engineering?

What does the Tenant Fee Banning actually mean to Landlords & Tenants?

With our new Chancellor of the Exchequer revealing a ban on tenant fees in his first Autumn Statement what does this actually mean for Derby tenants and Derby landlords?

 

The private rental sector in Derby forms an important part of the Derby housing market and the engagement from the chancellor in the Autumn Statement is a welcome sign that it is recognised as such. I have long supported the regulation of lettings agents which will ensconce and cement best practice across the rental industry and, I believe that measures to improve the situation of tenants should be introduced in a way that supports the growing professionalism of the sector. Over the last few years, there has been an increasing number of regulations and legislation governing private renting and it is important that the role of qualified, well trained and regulated lettings agents is understood.

Great News for Derby Tenants

So, let’s look at tenants.. this is great news for them, isn’t it?  Well before you all crack open the Prosecco, read this …

Although I can see prohibiting letting agent fees being welcomed by Derby tenants, at least in the short term, they won’t realise that it will rebound back on them.

First up, it may well take between 12 and 18 months to ban fees, as consultation needs to take place, then it will take an Act of Parliament to implement the change. A prohibition on agent fees may preclude tenants from receiving an invoice at the start of the tenancy, but the unescapable outcome will be an increase in the proportion of costs which will be met by landlords, which in turn will be passed on to tenants through higher rents.

Published at the same time as the Autumn Statement, hidden in the Office for Budget Responsibility’s Economic and Fiscal Outlook on the Autumn Statement (The Office for Budget Responsibility being created by Government in 2010 to provide independent and authoritative analysis of the UK’s public finances), it said …

“The Government has also announced its intention to ban additional fees charged by private letting agents. Specific details about timing and implementation remain outstanding, so we have not adjusted our forecast. Nevertheless, it is possible that a ban on fees would be passed through to higher private rents”

 

The charity Shelter and Scotland

Scotland banned Letting Fees in 2012. The charity Shelter have been a big voice in persuading and lobbying the Government since it managed to persuade the Scottish Parliament to ban fees in 2012. On all the TV and radio shows at the moment, they keep talking about their Independent Research, which they said showed that,

“renters, landlords and the industry as a whole had benefited from banning fees to renters in Scotland. It found that any negative side-effects of clarifying the ban on fees to renters in Scotland have been minimal for letting agencies, landlords and renters, and the sector remains healthy.”

 Going on,

“Many industry insiders had predicted that abolishing fees would impact on rents for tenants, but our research show that this hasn’t been the case. The evidence showed that landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK. It found that where rents had risen more in Scotland than in other comparable parts of the UK in 2013, it was explained by economic factors and not related to the clarification of the law on letting fees”

 .. yet the devil is in the detail….

Only yesterday Shelter were quoting this Research from December 2013 to say rents never went up following the tenant fee ban in Q4 2012. We have read that research and I agree with that research, but it was published three years ago, only 12 months after the ban was put into place.

I find it strange they don’t seem to mention what has happened to rents in Scotland in 2014, 2015 and 2016 because that tells us a completely different story!

 

What really happened in Scotland to rents?

We have carried out my research up to the end of Q3 2016 and this is the evidence I have found..

In Scotland, rents have risen, according the CityLets Index

by 15.3% between Q4 2012 and today

(CityLets being the equivalent of Rightmove North of the Border – so they know their stuff and have plenty of comparable evidence to back up their numbers).

When we compared the same time frame, using Office of National Statistics figures for the English Regions between 2012 and 2016, this is what has happened to rents

• North East 2.17% increase
• North West 2.43% increase
• Yorkshire and The Humber 3.21% increase
• East Midlands 5.92% increase
• West Midlands 5.52% increase
• East of England 7.07% increase
• South West 5.82% increase
• South East 8.26% increase
• London 10.55% increase

….and let me remind you about Scotland … 15.3% increase.

Are you really telling me the Scottish economy has outstripped London’s over the last 4 years? Is anyone suggesting Scottish wages and the Scottish Economy have boomed to such an extent in the last 4 years they are now the Powerhouse of the UK? .. because if they had, Nicola Sturgeon would have driven down the A1 within a blink of an eye, to demand immediate Independence.

So what will happen in the Derby Rental Market in the Short term?

Well nothing will happen in the next 12 to 18 months .. it’s business as usual!

… and the long term?

Rents will increase as the fees tenants have previously paid will be passed onto Landlords in the coming few years. Not immediately .. but they will.

As a responsible letting agent, I have a business to run. It takes, according to ARLA, (Association of Residential Letting Agents) on average 17 hours work by a letting agent to get a tenant into a property. We need to complete a whole host of checks prescribed by the Government; including a right to rent check, Anti Money Laundering checks, Legionella Risk Assessments, Gas Safety checks, Affordability Checks, Credit Checks, Smoke Alarm checks, Construction (Design & Management) Regulations 2007 checks, compliance with the Landlord and Tenant Act, registering the deposit so the tenants deposit is safe and carry out references to ensure the tenant has been a good tenant in previous rented properties.

All of which the vast majority of lettings agents take very seriously and are expected to know inside out making us the experts in our field. Yes, there are some awful agents who ruin the reputation for others, but isn’t that the case in most professions?

.. but business is business.

No landlord, no tenant and certainly no letting agent does work for free.

I, along with every other Derby letting agent will have to consider passing some of that cost onto my landlords in the future. Now of course, landlords would also be able to offset higher letting charges against tax, but I (as I am sure they) wouldn’t want them out of pocket, even after the extra tax relief.

So what does this all mean for the future?

The current application fee for up to two applicants at my agency is £225 and £75 for every applicant thereafter but on average the fee is £225 per property.

I am part of a Group of 500+ Letting Agents, and recently we had to poll to find the average length of tenancy in our respective agencies. The Government says its 4 years, whilst the actual figure was nearer one year and eleven months, so let’s round that up to two years.

That means £225 needs to found in additional fees to the landlord, on average, every two years.

 

In Actual Pound Notes

In 2005, the average rent of a Derby Property was £561 per month and today it is £640 per month, a rise of only 14.1% (against an inflation rate (RPI) of 38.5%).

Using the UK average management rates of 10%, this means the landlord will be paying £768 per annum in management fees.

If the landlord is expected to cover the cost of that additional £225 every two years, rents will only need to rise by an additional 2.9% a year after 2018, on top of what they have annually grown by in the last 5 years.

So, if that were to happen in Derby, average rents would rise to £769 per month by 2022 so the landlord would pay £1147 per annum in management fees which would go towards covering the additional costs without having to raise the level of fees.

 

.. but that is bad news for Derby Tenants?

Quite the opposite. If the average rent Derby tenants pay had risen in line with inflation since 2005, that £561 per month would have risen today to an average of £776 per month. (Remember, the average today is only £640 per month).. and even if inflation remains at 2% per year for the next six years, the average rent would be £769 per month by 2022.. meaning even if landlords increase their rents to cover the costs tenants are still much better off, when we compare to the £769 per month figure to the £856 per month figure.

 

Conclusion

The banning of letting fees is good news for landlords, tenants and agents.

It removes the need for tenants to find lump sums of money when they move. That will mean tenants will have greater freedom to move home and still be better off in real terms compared to if rents had increased in line with inflation.

Landlords will be happy as their yield and return will increase with greater rents whilst not paying significantly more in fees to their lettings agency. Letting agents who used to charge fair application fees won’t be penalised as the rent rises will compensate them for any losses.

.. and the agents that charged the silly high application fees.. well that’s their problem. At least I know I can offer the same, if not a better service to both my landlords and tenants in the future in light of this announcement from Phillip Hammond.

Should I Repair or Replace my Boiler?

Yes it’s that time of year again when everyone starts to put on their heating systems and complains about it getting too cold. As the heating systems have not been in use throughout the summer, now that they are being tested faults with the system are occurring some problems which could have been resolved earlier if tested rather than now when it’s unbearable to go a day without heating.

I spoke to a landlord just this week who owns a property in the derby city centre, she was upset at the fact that she had to find cash for a new boiler as the engineer who she normally uses advised her that it would be more cost effective for her to replace the boiler which is approximately y 14 years old.

She emailed me after following the derby city blog in recent weeks, and asked for my advice as to when it’s the right time to reinvest into a new boiler and is it worth repairing the old one. With all my experience in Property Management in Derby I can honestly say it varies boiler to boiler but usually after 13 years its best to replace a boiler that has a significant fault.

The reason for this is old boilers will develop problems almost every year, on average if it’s costing you £150-£200 to repair every year or needs a one off £350+ repair once a major component goes or when 2 components go, is it really worth it?

On average it costs approx £1100-£1200 to change a boiler. A boiler at this price should be good for 10 years without developing any problems, so on average if a landlord puts away £100 a year towards the cost of a new boiler after 11 years you will have the money to change it without feeling the pinch.

Now in the long run comparing £100 a year towards saving for a new boiler vs. £150 every year on average repairs is a no brainer. Not only is it cost effective but it leaves you with the peace of mind that for 10 years you don’t have to worry about this problem. The £100 a year saving is better option even when comparing to taking out a insurance policy which will cost you around the same on yearly policies but once you need a call out the excess charges will hurt your pocket more so. Insurance companies are there to make a profit so it is common sense to know in the long run it costs you more.

After seeing the calculations we both agreed that if she spent £400 to repair her boiler and there was no guarantee that another part would go, it’s not worth the risk. As you could imagine spending £400 one year if the following year it developed another £200 fault you could have been half way through a new boiler. Some repairs are worth the risk others not so, it’s best to take the advice of your gas engineer, if in doubt get another quote as it is probably one of the biggest one off costs in a buy to let property it is good to be sure.

If you have any property related issues please feel free to message me and hopefully we could go through your costings.