Top Ten Challenges Facing London Landlords · 10. Affordability, Subletting, Scams •High...

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National Landlords Association


Top Ten Challenges

Facing London LandlordsRichard Blanco, NLA Representative


1. Regulation of Buy To Let Loans

• Drivers

– Lots of landlords sell,

could “seriously affect UK

economy”

– Rise in BTL from 5% to

16% of the mortgage

market

– Landlords out of favour –

prefer homeowners and

Build To Rent

• Two Phases: 1 Jan & 30

Sep 2017


1. New Criteria

• Phase 1 – Increased stress test - 1 Jan 2017

– Old criteria 125% @ around 5% rental coverage

– New criteria 145% @ 5.5% minimum

– Take into account tax status

– Different approach if remortgaging

– 5 Year fixes are exempt

• Phase 2 – ‘Portfolio Landlords’ – 30 Sep 2017

– 4 mortgages or more

– Assets & liabilities, business plan, cashflow


Impact Of Phase 1 On Yields

Yield Max LTV

under old criteria

Max LTV

under new criteria

6% 96% LTV

(theoretically)

75% LTV

5% 80% LTV 63% LTV

4% 64% LTV 50% LTV


Impact Of Phase 2

• Example of criteria: BM Solutions

– New cap of 10 properties, min income of £30k

– Whole of portfolio assessed at 145% x 5.5% & max

LTV of 75%

• Use specialist brokers

• Use different lenders

• Borrow less than expected

• Have to use commercial lenders


2. To Re-structure or Not…

• 1 in 4 landlords consider incorporation/spouse

• Move to limited company (or LLP or both)

– CGT and SDLT

– 20% corporation tax and dividend tax up to 38.1%

– Corporation tax falling to 19% then 17% (2020)

– 7.5% Tax on dividends over £2,000 from 2018

– Ltd company must provide deposit for loan

– Restricted to commercial loans


3. Uncertainty – Four Factors

• House prices

– Land Registry 4.9% in June (Halifax Aug 2.1%)

– Down 6.3% in Prime Central London (Knight Frank)

– Micromarkets: 15.7% W Forest, 14% Newham

– Where are we in the house price cycle?

• Tax Changes

– 19% landlords say they will sell (NLA)

– Opportunity (15%) or Negative portent?

– Landlord optimism at an all time low


Uncertainty – Four Factors

• Brexit

– Economy is buoyant

but will this last?

– Impact on rental

demand?

– Falling pound

encourages

international investors

• Government Policy

– Anti landlord, pro FTB

& build to rent

– Letting agent fee ban,

deposit caps

3 year tenancies next?


4. Your Business Plan

• Sell Up, Stay Put or

Expand?

• Move into Buy To Sell

(buzz of the refurb)?

• Your Plan Should

Consider

– Tax changes

– Yields

– Rental demand

– Opportunity for capital

growth

– Financing (taking

account of changes)


5. Increasing Govt Regulation

• Documents when starting an AST to retain s21

– EPC, GSC, DPC, How To Rent, License, Alarms

• Energy Efficiency

– No F & G after April 2018/Request improvements

• Digital Tax from April 2019 (£85k +)

• Housing & Planning Act

– Electrical Safety, Civil Penalties, CMP

• New HMO Mandatory Licensing Definition

– 5 people in 2+ unrelated households – but when???


6. Article 4 & Licensing Compliance

• 22 boroughs have or considering discretionary

licensing

• 8 boroughs have Article 4 directions

• www.londonpropertylicensing.co.uk

• Understand types of license

– e.g. many landlords wrongly or unlicensed in

Newham and Tower Hamlets

• Consider these factors when business planning


7. Changes In Rental Demand

• Sales transactions

are down

– Down to 96,910 lowest

now since Oct 2016

– New instructions fell

for 16th month in a row

– Moves by mortgaged

homeowners down by

50%

– Drag caused by Stamp

Duty on properties

over £1m

– Gross mortgage

lending down by 8%

(CML)

– First Time Buyers up

by 8%


7. Changes In Rental Demand

• 37% of landlords

report declining

tenant demand in

Central London in last

3 months

– 20% nationally – trend

is growing

– 23% decreased rents

• Brexit related or surge

in sales to April 2016?

• Reconsider your

target market, sell,

adjust price?


8. Tips On Avoiding The Void

• Setting the right tone at

the start

• 12 month contracts,

works during tenancy

• Marketing photos on file

• Talk about renewal at

9th month, confirm at

10th month

• Viewings in 11th month


8. Avoiding The Void

• Check out letter and

follow up visit

• Help agent – quick

access to keys

• Flexible on price and

furniture

• Line up contractors

• Quickly resolve

deposit return


9. Is Build To Rent A Threat?

• 25% of new starts 2016 in London Build To Rent

(but PRS is 26% of housing in the capital)

– GLA estimates top 90th percentile - premium offer

– Drive up standards & expectations?

– Small landlords co-exist in student market

– 3% surcharge and high land values (over £1.05m)

• Could compete with

– High end HMOs

– Drive out lower end of market


10. Affordability, Subletting, Scams

• High occupation levels

• Unscrupulous rent to rent

• Fake landlords, serially bad tenants, Gumtree,

Air BnB scams

• Take steps to avoid

– Proper referencing

– Induction and inspections

– Clear guidance and response to subletting

– Tell tale signs: cash up front, not lived in, evidence of

extra people, befriend neighbours


Inside Property Podcast

• New monthly podcast

– HMOs

– Expand, Hold or Sell?

– Brexit & Investing

– Crime in the PRS

– Property in the media

– Scotland & Wales

– Maintenance

– Landlord tenant

relations

• insideproperty.org.uk


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What do you think?

Time For Questions

Richard Blanco, NLA Representative

[email protected]

To do business with the NLA

[email protected]

Handout of this session at my blog

www.richardblanco.com

Top Ten Challenges Facing London Landlords · 10. Affordability, Subletting, Scams •High...

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