THE NEWSLETTER FOR BELVOIR LANDLORDSLandlord

ISSUE 3

Landlord Issue 3

Can the government tame property prices – and how would it impact Buy to Let? To answer this question; understanding that property prices are mostly influenced by supply, demand and finance is essential. Prices rise when more buyers chase fewer properties for sale; finance is cheap and readily available. They fall when the reverse is true. All of which have occurred in recent years. Property values fell everywhere from 2007 to 2009. Since that time, the supply and demand for property at a local level has been varied, as our analysis shows. Across the UK we’ve seen prices rise, fall and remain static depending on the type of property, area and availability of cash buyers.

What has happened in Cardiff? In Wales, property prices rose for longer than most other areas, and then started to fall, so their recovery is behind places like London. Cardiff prices fell by 17% from 2008 to 2010, rising slightly before falling again and flattening out in 2012. Prices started to move forward in November 2013.

What has happened in London? The London homes market currently dominates the headlines. The Land Registry says that the average house price there is now £440,000. However, this average is very misleading. There are thirty-two London boroughs and average prices range from £245,000 in Barking and Dagenham to £1.3 million in Kensington and Chelsea. In addition we are seeing house prices increasing exponentially whereas flats, in more plentiful supply, do not always grow at the same rate.

Of course, demand for property in London while it’s population is expanding is always likely to be higher than supply and there is lots of cash around too, meaning there is not a massive reliance on mortgage finance, allowing prices to defy the lack of wage growth and potentially interest rate changes. On average, prices here are 25% higher than the 2007/8 peak, and a continued, albeit slower, future rise is anticipated.

What has happened in Falkirk?The Scottish media appear less obsessed with property prices than elsewhere, so buyers and sellers are less likely to be ‘panicked’ into impulse buying or selling. The dynamics of wages, population changes and supply make prices appear more stable. Average prices in Falkirk are just over £110,000. They fell by around 25% in 2008 and are still awaiting recovery.

What has happened in Belfast? Northern Ireland had the biggest housing bubble of all UK regions. The average price in Belfast peaked at just under £260,000 in 2007, and fell by nearly 50% by 2009. Despite these falls, Belfast property prices are recovering fast, currently growing at 6% annually.

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So what is causing today’s price rises? Property prices started to rebound substantially in the Spring and Summer of 2013, coinciding with the Help to Buy Scheme launch, where people could again buy property at 95% loan to value, initially for new builds, and from January 2014 including existing homes.

This has led to claims the schemes are driving prices upwards. However over the last 18 months, it is responsible for only 40,000 from over a million sales – so can’t have physically driven prices upwards. This is particularly true for areas like Hackney, where prices have risen substantially in the last year but hardly anyone has bought through Help to Buy.

The driver is really due to pent up demand. Only half of normal home purchase levels were made between 2007 and 2012. Consequently buyers, especially first-time buyers, have ‘rushed’ back into the market in a short space of time. As prices were then reported to rise, this gave a further incentive to buy. On the supply side, sellers haven’t rushed

to sell. So, demand has shot up, supply is restricted and with cheap finance, together with economic growth, the market is now moving upwards.

What has been done to curb price increases? Although reported as holding back price pressures, the Bank of England’s and the Chancellor’s recent interventions are in fact designed to restrict how much lenders can borrow versus the buyer’s salary to keep future household debt down.

For example, someone wanting to buy a £200,000 property with a 95% mortgage needs a minimum £42,000 salary. Lenders can make exceptions, but are being asked to restrict lending at a maximum 4.5 times salary, for no more than 15% of their loans. This limit also applies to anyone buying into the Help to Buy Schemes.

In reality though, most people currently borrow under 4.5 times salary, and lenders have only 10% of their borrowers over the new limit, so although things are being done, it is unlikely to impact on prices anytime soon.

Whether you like to be ‘hands-on’ with your investment, or prefer to let us manage it, we offer a service tailored to your requirements. We can let the property for you and check the tenant in, or provide a full management service. The good news is we vet tenants for you as part of our service. We run a comprehensive series of checks to ensure they can afford to rent your property, and scrutinise other references to weed out all-night party givers and potential criminals who might target your property to operate from.

Thoroughly check the tenantYou’re likely to see regular adverts for services offering to check tenants for just a few pounds. We don’t rely on these kinds of services exclusively. While they are perfectly adequate for basic credit referencing, even poor tenants can score well on these tests. So we carry out additional references from the tenant’s workplace, previous landlords or from other agents they have dealt with.

Secure as much information about the tenant as possibleIf a tenant stops paying rent or absconds owing money, it is essential to have as much information as possible about them to help trace them and deal with their rental arrears. If you are carrying out the management, take a note of any car registrations, and check their bank account records so you’re sure their claims about salary are genuine and know the day they are paid.

Unfortunately some bad tenants are smart, and make false salary claims difficult to spot by paying all the money you ask very quickly, or offering to pay extra months upfront, faking reference letters and even bank statements. Once they have moved in, they stop paying, knowing it will take you months to evict them.

Despite all precautions, some bad tenants inevitably slip through the net. So you’re not out of pocket, we have helped create a specialist landlord insurance that helps cover repossession and tenant defaults. Find out more about our insurance cover.

Will these changes affect your Buy to Let returns? Currently there’s no reason to suppose the new restrictions will impact negatively on Buy to Let. You make your money through capital growth and income. If buyer demand is affected, this may restrain price growth slightly, but will also increase tenant demand: everyone has to live somewhere!

So any impact the restrictions have is likely to be positive for rental demand, which is good news. If the rhetoric over the summer makes buyers nervous and reduces demand, this could restrict property price growth, but this will only impact if you sell. One thing to consider though is if annual property price growth slows, gearing your investment, i.e. not buying with

Let us manage tenant referencing for you

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Next page...Latest news from Belvoir

NEWS ROUND-UP FROM AROUND THE COUNTRYEngland

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Scotland

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In England, the Quarter two 2014 average rent for all offices is £735 suggesting rents are pretty static year on year. This compares to our forecast of a growth in rents of 1-2%.

The government has started to look into how people under-35 find their homes in the private rental sector and, having studied this, the research is quite interesting. We are certainly seeing an increasing number of people, ranging from students to professional singletons and migrant workers, seeking to rent homes as a group, or rent individual rooms. Nationwide, some local authorities are reacting positively to this growth, while others are introducing licencing which, in some cases, is restricting supply. Hopefully, the consultation will help to identify a consistent and more positive approach to this growing trend.

The average monthly rent for Wales in Q2 2014 is £622, year on year, just £1 less than the Q2 2013 average rent of £623. We forecast a 1% increase for rents in Wales year on year, to date rents are pretty static.

The Welsh Housing Bill has now been passed and means the introduction of game-changing rules and regulations for landlords and agents. Firstly, all landlords and letting agents will have to register and anyone wanting to manage properties will, by law, need to be licenced through an approved scheme, within a recognised body such as NALs or ARLA. Other changes include allowing authorities to charge higher council tax rates for those owning second homes, and for empty properties. The next stage of the Housing Bill is awaiting Royal Assent, which will become law as early as April 2015.

After some extraordinarily tough times for house prices in Northern Ireland, they now appear to be starting to bounce back. With some prices falling by as much as 50%, landlords have still done well as rent levels have held fairly steady. But we are now seeing some positive price growth, with Belfast up 6% year on year, and 5% above prices seen in the last quarter of 2013. Across Northern Ireland as a whole, prices ranged from static through to an increase of over 10% in areas such as Antrim and Ballymena.

A new index on private rents suggests the ‘average rent’ for Northern Ireland was £538 per month, with a Belfast average of £581, and North Down attracting the highest rents at £600. Meanwhile, Moyle seems to offer the best value at £433.

For the latest market news on rents and prices in your area, visit the Housing Executive price summary.

In Scotland, our Lettings Index shows the average rent for Quarter two 2014 is £583 per month. Last year we forecasted rent would be static or would grow up to 2%. So far this year, rental performance is varied from static to a small rise. Read our county rental index to find out what is happening in your area. The much talked-about “Scottish Housing Bill” has been passed and will soon become law. The Bill is wide-ranging and terminates the ‘right to buy’ scheme for people living in social housing. It also includes

substantial changes to the management of social housing in Scotland, increasing the power of local social landlords. Local authorities will have increased power to enforce repairs and maintenance, not just on rental homes, but on private homes too.

Other changes you need to familiarise yourself with, especially if we aren’t managing your property include:- n The new PRS Housing Tribunal for tenant and landlord disputesn A new register and code of practice for the letting agent

industry, and a new dispute processn Additional requirements to improve electrical safety Mandatory obligations to install carbon monoxide detectorsn Increased powers for local authorities to make applications to the Private Rented Housing Panel to ensure the Repairing Standard is enforced.

Visit Scotland.gov.uk for more information or contact your local Belvoir office in Scotland. Whether we manage your properties or not, we can help ensure you comply with the new laws.

100% cash, is more important than ever to maximise your returns.

Buy to let is a constantly changing market and the returns are driven by local factors. At Belvoir we don’t just let properties; we advise on Buy to Let strategy too, so if you are considering whether you to buy, sell, or hold, do talk to your local office for expert help.

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For any help with your rental properties or if you have any Buy to Let queries, contact your local office at www.belvoir.co.uk

BUY TO LET MORTGAGE UPDATEWill the new Mortgage Market Review affect lending on Buy to Let? Although the more rigorous checks being made on mortgages really apply to homeowners, we spoke to Andy Young our mortgage specialist to check out potential implications for investors.

Andy explains “The long term effects of the changes to residential mortgages as a result Mortgage Market Review remains to be seen, but the new obligations for lenders to obtain more detailed proof of income and expenditure for all residential mortgage applications, means first time buyers could face increased difficulties securing finance. This is likely to mean demand for rental accommodation remains high and with good rental stock in short supply, suggests an opportunity for landlords to consider expanding portfolios.”

To keep up to date with the latest offers, visit www.belvoirlettingsmortgages.com

Award winnersWe are delighted to say you have chosen one of the top award-winning letting agents to look after you and your properties!

In association with the Sunday Times and The Times, we were awarded:- Lettings Franchise of the Year Customer Service Award (Bronze)We also won Silver for the best large letting chain at the Estate and Letting Agent Awards (ESTAS), where eight Belvoir offices were given regional awards. Since our own landlords vote for the ESTAS, we were thrilled that so many of our offices received a resounding vote of confidence. Award-winning offices include: n Rugby n Telford n Birmingham Central n Macclesfield n Perth n Liverpool n West Derby n Leeds North West n Bedford

Nationally and regionally, we regularly receive recognition for our hard work and passion in delivering a great lettings service to our tenants and landlords. So if you have properties in an area that we don’t currently look after or are thinking of expanding your portfolio, please talk to your local Belvoir office. We will do everything we can to make sure that you have a great buy to let experience.

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LATESTNEWSFROM

BELVOIR

Landlord and agent licencing

Max LTV85%80%75%60%

Initial Rate

4.99% Fixed4.99% Fixed3.79% Fixed2.45% Discount

Term

2 Years31.12.201631.12.20162 Years

Completion Fee2.5%0%0%£1950

BookingFee£130£150£150£250

Incentives

NoFree valuationFree valuationOne free valuation on properties valued up to £1m

Incentives

Kent Reliance Semi ExclusiveMortgage Trust ExclusiveMortgage Trust ExclusiveHinkley & Rugby Exclusive

At present you as landlords, and we as agents, have to abide by huge numbers of rules and regulations to let a property. There are now fines of up to £20,000 or more for those who fail to observe them, although oddly, anyone can become a landlord – and a letting agent! Mortgage lenders will happily lend on buy to let properties, providing the rent covers the payments, they don’t require any checks on the property’s condition or require landlords to be educated on legal obligations regarding letting. That’s all left to self-regulated agents like us!

Now the only place where this isn’t currently true is Scotland, where licencing of landlords was introduced in 2001. This is about to be imposed in Wales and also, potentially, in Northern Ireland. In England an ‘area-by-area’ policy currently operates, where local authorities can impose licencing of both properties and landlords. However, all English letting agents will have to belong to, as a minimum, a Property Ombudsman Scheme, so tenants and landlords can freely access an independent third-party complaints system.

Speaking to Mike Campbell in Falkirk, his view on licencing is, “It’s a good idea to introduce this, as it makes it easier for me as a letting agent to ensure the landlords I deal with are good ones. And licencing agents, which has just come into law too, means landlords now know I can also be trusted to work with. However, what we do find is a lack of knowledge about tenants’ and landlords’ licencing and a real lack of enforcement which means rogue agents and landlords still continue to operate.”

In Wales the most recent housing bill requires all landlords and letting agents to be registered. And anyone wanting to manage the property needs in addition to be licenced. Vaughan Schofield, from Belvoir’s Wrexham office, says, “I am looking forward to the new rules being imposed. The price of £50 per licence isn’t too onerous, and it means landlords and the agents who don’t know letting rules and regulations will have to use professionals belonging to a recognised letting organisation that requires specialist training to operate – which Belvoir has been for many years.”

Terry Lucking, who owns Belvoir Peterborough and Cambridge, comments that licencing should help clean up the market, and considers the Welsh scheme quite good in theory. However, any scheme needs to ensure “charges are fair, especially to landlords and agents who are signed up to independent self-regulated schemes”. These include organisations such as NALS (National Approved Letting Scheme) and ARLA (Association of Residential Agents) and/or NLA (National Landlord Association). In Terry’s experience, once schemes are introduced, “there needs to be a regular audit carried out street by street to find the rogue landlords. Any money earned from prosecuting them should go into a pot to fund future legal action against criminal landlords.”

If you are concerned about new licencing schemes being proposed in your area, or want to know more about how to get involvedvisit your local office, email or call.