Rent to Buy and Property Lease Options

September 2nd, 2010

Our brief comment in past blogs on the topic of property lease options (or Rent to Buy) schemes which were quoted in last weekends’ “Financial Times” Money section have been taken up by a number of other websites.

In some cases they have used some of the article in the FT and reproduced it without quoting us properly.

Just to clarify, in the FT we said just this, ” The danger (with these schemes) is that the tenant turned possible buyer has no real security at all over the property.”

This lack of real security is our concern. In our view, some types of property lease options and rent to buy schemes in the private market may be dangerous for would-be first time buyers, who as tenants, pay a premium for a lease option (on top of the rent under their tenancy agreement) to a landlord to give themselves an option to buy the property from the same landlord at some future date.

It seems to us that the majority of the risk is usually on the tenant’s side, because in the event the landlord defaults on his mortgage, the lender (if there is one) will ultimately recover the property and the lease option would have to take second place. In this scenario, there is a real likelihood that the tenant’s lease premium would expire worthless and they would find themselves homeless at worst, or, at best, having to pay rent to the mortgage lender (who would normally ultimately seek repossession.)

Also, in some versions, if the tenant misses just one payment under the lease option, the lease option could expire too.

We feel that much tighter controls should be in place to make would-be first time buyers aware of the risks and would strongly urge property buyers to take INDEPENDENT legal advice before entering into such arrangements. We would hope the FSA and Council of Mortgage Lenders were aware of this too.

Of course, these schemes are attractive to some property investors as it potentially gives them an additional income stream (from the lease option)   and may be very especially attractive when used in connection with what are called “sandwich lease option” deals.

However, whilst they are usually good for investors and landlords, we worry about the risks some tenant-buyers are taking on with these schemes which can, in the worst cases, prove worthless for them.

Other types of property lease options may be more ethical and fair and if the lease option is worded fairly these types may be OK too (though we cannot see a way around the repossession problem in the event the landlords defaults on the mortgage and the lender repossesses.)

We would hope all property investors look only to get involved in schemes that are fair and transparent with the risks to the other party clearly explained.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

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Posted in Property Lease Options and Rent to Buy | No Comments »

Buying a Leasehold Flat, Guarantors in Tenancy Agreements. Plus Local Authorities Survey Private Landlords Housing Benefit Intentions

August 31st, 2010

Next Property Investment Seminar and Networking Event

A bit of a quiet week this week, though I was quoted in the FT again:  http://bit.ly/9o5NZ0 so, with not much news to report, I thought I would offer up some random observations from my working week as a speaker and commentator on the world of buy to let and letting property.

Local Authorities Research Private Landlords LHA Intentions

At last, I see, some local authorities have followed my exhortations and actually gone out and surveyed private landlords to find out their intentions post the new LHA or Housing Benefit changes. I received no less than two surveys in the same day from different London boroughs.

A good start, though in our view both boroughs missed the chance to ask all the right questions and because of the structure of the surveys, some of the survey results may be ambiguous. Still, the fact that the councils have done the surveys is better than sitting there wringing their hands and trying to second guess what landlords will do.

Why I Don’t Buy Flat Conversions in Single Block Victorian Houses with More Than One Other Flat

When I do speaking engagements the two things I get asked about most are problems with leases on flats and problems of tenant guarantees.

Looking at leases, if you have read my book you will know my views on these already. Buy the Book at Amazon

I say in the book that “……whilst many lease arrangements work just fine, in nearly every newspaper there is a column in the property supplement where frustrated leaseholders (and some freeholders) seek advice from the paper’s solicitor on how to solve some problem or other with the working of their lease. Their questions are usually about how to get a freeholder or managing agent to do something they should be doing anyway, how to stop other leaseholders from doing things they shouldn’t, how to extend a lease, buy the freehold or take over the management. The fact is there are quite a few flats – especially conversions – where the building is managed badly. Typical problems are noise, crumbling exteriors and filthy common areas. Given that the law on leasehold has changed frequently in the last twenty or so years suggests it needed fixing. Things today are better than they were, but for many leaseholders there are still problems.”

Most of the queries I get are from frustrated leaseholder and co-freeholders of flats which are in single block properties that have been converted from a large house or small commercial building into flats.

All too often the leases on these types of properties are badly drafted and there is no mechanism for collection of service charges or even insurance or for doing maintenance.

Enforcing your rights can be hard and time consuming and this is the reason why, as a landlord, I never now even bother look at buying flats in these types of conversions. And there are many investors and leasehold experts who share my view.

But If You Must Buy One……

Of course, I fully appreciate that, due to financial constraints, for many first time buyers and investors there is no option but to buy a flat in a Victorian or Edwardian conversion block.

If this is you, then try to buy one where there is just one other flat in the block (preferably with an amenable owner who is not mad) because you will at least have a starting chance to put things right if there are problems. If you have to get three or more other leaseholders (some of whom will inevitably be absent landlords) on your side it gets a lot harder to get the freeholder or other co-freeholders to join in actions with you or get anything done.

If you are thinking of buying this type of flat, your priority even before you move ahead on the legals is to get hold of and scrutinise the lease first. Find out how long there is left on the lease (amazingly many estate agents won’t even know which is kind of stupid as it has a huge bearing on price), how many other flats are in the arrangement and what the arrangements are for collection of service charges and doing maintenance work.

If you don’t like the answers you get, then avoid! And if you need more advice on leasehold and freehold, there is a small section in my book. Plus, you really also should get in touch with “Lease”, the Leasehold Advisory Service at http://www.lease-advice.org/

Also look at  Leasehold and Freehold which is an article where we look at why extending a lease is often better than buying the freehold.

Guarantors

The large and rapidly increasing number of queries I get about guarantors is a sure sign of the recession. As recession bites, more tenants will find it hard to prove an income to a landlord and therefore need a home owning guarantor to say they can play the rent in event the tenant can’t.

But signing up a guarantor is an area that is fraught with problems for landlords. You can all too easily make a muck-up of the guarantor process which means you cannot actually enforce the guarantor’s guarantee! In other words, the guarantee is worthless.

We will look at this again in a forthcoming blog post but you may find this short article useful at our website:

http://www.lettingfocus.com/pages/myarticles_Guarantorsintenancyagreements.html

House Share Rents Appear to be Down

According to the latest data rents are up overall but anecdotally we have noticed that the rent level for rooms in shared houses are more down than up, at least here in London.

This is another sign of recession and one we think that is caused by people who may have lost their jobs turning to letting out a spare room in their house (which is tax free up to £4,500 per annum.)  The extra supply is driving these kinds of rents down.

I would expect to see this drive down rental levels on HMOs and student accommodation. Next Property Investment Seminar and Networking Event

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, local authorities, social housing providers, institutional investors in the private rented sector and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities by advising on LHA issues and finding private landlords (private rented access schemes, local letting agency models etc.) I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell.

If you are from an organisation and would like to bulk buy at least 50 books, please ask us for special rates (which are lower than Amazon).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

Tags: , , , , , , , ,
Posted in Buy to Let and Landlord Tips, Guarantors in Tenancy Agreements, Housing Benefit, Leasehold and Freehold Matters, Letting A Room In Your Home, Local Housing Allowance | No Comments »

Same Day Mortgages, Property Lease Options and Protected Bonds That Aren’t Really Protected

August 24th, 2010

It was nice to see my story about next day re-mortgages (see last week’s blog) was picked up by the FT writer Claer Barrett and actually appeared on both the front page and Money section of the Weekend “Financial Times.”

Ms Barrett originally came to know me when she was doing an investigation for the FT’s sister mag, “The Investors Chronicle” into the sometimes murky world of property seminars and buy to let advice. She actually came undercover to one of my own seminars (which cost £30 not £2,000 like some of the others she had been to.)  Next LettingFocus Seminar and Networking Event

Once she realised I wore a white hat and was not in the business of selling property or finance or indeed, another course at £2,000 odd quid, she came clean, shook my hand and has been quoting us from time to time ever since.

Here is an edited summary of the FT’s article:

“The government is pursuing negligence claims against law firms that advised Bradford & Bingley on hundreds of buy-to-let loans that are facing losses. B&B, nationalised in 2008, is alleging that anti-fraud guidelines were ignored by firms that advised on “same-day remortgaging”, a practice that was promoted by (some) buy to let investment clubs at the height of the property boom.

Investors were encouraged to buy property from distressed sellers or developers that were being offered at below market value using a one-day bridging loan. Investors then remortgaged on the same day at the open market value of the property, allowing them to bank a quick profit.

B&B alleges that some solicitors failed to disclose crucial information about the deals to Mortgage Express, the arm of B&B that was the largest buy-to-let lender during the 2006 boom. The bank said an internal review highlighted a number of same-day remortgage applications that had been “unknowingly accepted” when they otherwise might have been rejected. Potential losses to B&B would include the costs of repossession if borrowers default and the shortfall on its mortgage advance, as in most cases the value of the loan far outweighs that of the property.

The UK bank said it was pursuing claims against solicitors where there had been a breach of the Council of Mortgage Lenders Handbook. It claims solicitors have a duty to supply specific information when lodging mortgage applications. A solicitor that failed to report that borrowers had acquired their properties less than six months before remortgaging, for example, would be in breach of the lending code.

“There will be many more claims of this type in the future as buy-to-let lenders struggle to find someone to blame for what looks like a lack of due diligence,” said David Lawrenson of LettingFocus.com, a private rented sector consultant.”

Thanks to the FT for allowing me to reproduce this here and look out for a  piece in the FT or Investors Chronicle this weekend or next on property lease options which will be quoting me too.

Buy to Let Battles for Life

As you may know, I’m not necessarily a cheer leader for there being more properties let out. (Oh, for the good old competition free days of the late 90s!)

But one of the things I do find amusing is the way many journalists keep finding reasons to say that private landlords are all about to sell up. (Perhaps they think those landlords who made a muck up of buying property using techniques like next day remortgages are the norm? Sorry, but they aren’t. Those that used such financial techniques are a minority and even then, many of them who did, managed to do quite well in the end  -which is more than can sometimes be said of the lenders.)

So it’s interesting that latest Council of Mortgage Lender’s figures show that buy to let mortgages are forming an ever higher proportion of mortgage loans and another survey shows that rents are going ever higher each month.

With news like that, it hardly sounds as if the private landlord is on his knees does it? Even with the ludicrously high and unjustified (by arrears rates) margins on buy to let mortgages, that sounds to me like the private landlord is in pretty rude health. But I doubt if these figures will stop the naysayers.

Protected Bond …. Or Is It

In last week’s blog I moaned about how banks and building societies were selling these “Protected” or “Guaranteed Bond” schemes under false pretences and how I had written to the PR people of one building society that I happened to visit two weeks ago.

Now I have the reply from their PR. See if you can follow the thought pattern here. (If you get bored just read the bits in bold.)  It said:

“The Society’s Protected Capital Account is a fixed term structured deposit account which is designed to offer the investor returns based upon the performance of the FTSER100 Index with the initial investment being repaid in full at the Plan Maturity Date, provided the investment is held for the full term. With the Protected Capital Account products sold by the Society the investor’s initial capital is therefore protected in the sense that, regardless of how the FTSER100 Index performs, the investor will receive their initial capital back in full provided they remain invested for the full investment term.

Feeling happier now? Thought so…. But read on as she says…..

“…… the Protected Capital Account is ultimately dependent upon the continued financial security of the Deposit Taker. For our current Protected Capital Account this is XXXX High Street Bank therefore should they fail to meet their obligations the investor could lose some or all of their investment as no additional protection or guarantee is provided by XXXX Building Society or XXX Investment Bank. Deposits into the Protected Capital Account are afforded protection under XXX High Street Banks’ participation in the Financial Services Compensation Scheme, subject to the limitations of the Scheme.”

Mmm, bet you are kind of getting worried here……There’s more. She goes on:

“ …… …..to ensure customers are made aware that a 100% capital return guarantee is not provided, the Society takes particular care on its marketing literature and through its subsequent product sales process to highlight to the potential investor the extent of the capital protection provided by the Account.”

FSA Should Not Allow This

Got that? Well if you did, you are brighter than me. Kind of contradictory isn’t it. And another good reason why I remain an investor who prefers to invest in property letting and directly in shares instead. I just think all these opaque stock market related products are like endowment policies. Avoid the lot of them!

But seriously, how on earth does the FSA allow these building societies to make big claims about their bond being protected, when it isn’t… or is it? Who knows? This building society obviously doesn’t.

Twitter

Having a Twitter page is a great way to sound off about things like “Protected Bonds That Aren’t” Here are two more from recent Tweets. See more at Our TWITTER PAGE: Twitter

1. A bugbear of mine is agents who market leasehold flats but don’t say or know how the long lease is. It’s kind of important to assess value, guys.

2) A level results – Mmmm, either the students are now geniuses or we have inflation of grades. How long before we see A** and A*** grades?

Sorry to the nation’s students. I’ll prefer to think you are all very bright geniuses and the cure for cancer, the end of carbon fuel and world peace is just round the corner. Alleluia.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.)

I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the top right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell. (If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon)).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

Tags: , , ,
Posted in Below Market Value Property, Buy to Let Mortgages, Buy to Let Not Dead, Get Rich in Property, Index Tracker Bonds, Property Lease Options and Rent to Buy, Same amd Next Day Remortgages | No Comments »

Next Day Remortgages Legal Questions and Another Property Investment Firm Bites the Dust

August 16th, 2010

Next Property Investment Seminar and Networking Event

One of my mentors in property investment is Richard Bowser of “Property Investor News.” He’s been around property investing even longer than me, wears a white hat and really knows his stuff in the residential property investment sector. Also, like me, he’s seen lots of the “Get Rich Quick in Property” people come and go.

In the last issue of his magazine he refers to how he went to one “seminar” where the chap claimed on the blurb about how you could become a “property billionaire, achieve financial freedom and escape wage slavery” in no time at all. Er yes, that’s right, “billionaire” not even “millionaire.” As Mr. Bowser noted in his editorial, that’s quite a claim even by the usual wildly optimistic standards of the property advice industry!

Crash and Burn

This man with the billionaire seminars (no, I won’t name him because perhaps he had the best of intentions after all) has now apparently crashed and burned – taking lots of his “investors” cash with him.

Well, I guess he won’t be billing himself as a billionaire (or even mere millionaire) from now on then. Of course, many of you will wonder why would a property billionaire / millionaire want to spend his time running expensive seminars anyway – why not just go on and make more money or give it to charity or back to the community. And that’s a fair question!

The latest faller from grace is following a well trodden path used by the likes of Inside Track and many others who, having claimed fast riches in property were just sitting waiting to be plucked from the tree, crashed themselves. (Actually, I must clarify this, Inside Track did not as far as I am aware actually take folks’ money and simply not buy property with it, but they did charge pretty hefty fees with three naughts on them for weekend “education seminars” where novice buyers were told that the way to riches was via new build flats. Alas, buying over hyped over priced new build flats that all too often wouldn’t fetch the rent Inside Track promised, usually wasn’t a route to riches as most of these “investors” later found out!)

With property being largely unregulated and a rich minefield for the “Get Rich Quick While Sitting In Your Armchair” type of advisor, this latest failure will not be the last property entrepreneur advocating “passive investment” strategies who ends up taking their mainly novice investors to the cleaners.

The Great Next Day Re-Mortgage Scam  – What Did The Lenders Know

Talking of skullduggery in buy to let, those of you who have been around long enough will recall the “Great Next Day Re-mortgage Scam.”

Well, not so much a scam, more a strange and clever finance system that used bridging loans to allow people who sometimes didn’t have a bean to their name to buy property using a mortgage taken out on the property the same day, or more usually the next day – hence the terms “Same or Next Day Re-Mortgages” and “No Money Down” property investing.

Back in the day, various advisors liked promoting these techniques because they often got a cut from the bridging loan company and maybe another from their own friendly solicitors who were the only ones who understood the structure of the deals. (Your local high street solicitor with their beloved 1950s furniture and badly cleaned office wouldn’t have a clue. Why is the local solicitor’s furniture always so old, but I digress?)

This way of buying property worked because there was always a rich vein of people who liked the idea of “financial freedom” from their Godawful day job and the idea of getting rich as a property investor but unfortunately didn’t have much wonga for a deposit.

The bridging loan technique was clever and some of the investors did OK using this method of finance and purchase. Usually, they were the switched on types who also learnt who to be good landlords too. But the “passive investor” types who used bridging loans and next day remortgages and then didn’t bother to learn the nitty gritty of being a landlord often didn’t.

Legal Action

Anyway, I hear that at least one of the lenders who wrote lots of this business – i.e. provided the mortgages – is taking legal action against the solicitors who, er, “did the business” on the conveyancing side.

The solicitors defence is that the mortgage lenders must have known that the borrower had only “owned” the property for a day and that it was bought via a bridging loan  – something that was actually against the lenders’ rules.  But the mortgage lenders are saying, “No, we didn’t have a clue.”

Don’t Believe You!

None of the brokers I spoke to believe the lenders for a minute. “They surely must have known” they all chime.

I agree  – all the lending banks needed to have done would have been to have come down to some of the property shows and seen the advisors in action promoting “next day remortgages” and bridging loans as a way to get wealthy fast “with none of (the punters) own money down.”

No Bankers at The Big Property Shows

Of course at the big property shows one never saw a mortgage lender – lots of brokers sure, but no actual lenders. The lenders were (and many of them usually still are) much too aloof from the nitty gritty of what landlords want and do to attend a property show!

All the same, even allowing for their glaring omission not to bother to really know their business, they must still have surely known what was going on  – and the way their mortgage deals were being used (some would say abused.)

Anyway, my sources tell me that the solicitors who are under fire, have, it seems, hired other legal folks to try to get documentary evidence to prove that the lenders not only knew all this was going on but even positively sanctioned it. A big paper chase is on to find the proof. Indeed I was contacted by one of the law firms preparing the defence last week and by the FT, where we will be featured commenting on this on Saturday 21 August. All good stuff!

When Is an Index Tracker Bond Protected?

Still on the subject of dodgy business, last week I was in a certain building society and noticed a huge poster in the branch which screamed “Protected” in big print but, alas, the small print seemed to say otherwise.

They were trying to sell one of these stock market linked bonds that quite a few of the building societies and banks seem to be trying to flog to death these days. It’s the latest wheeze dreamed up to drum up funds didn’t you know?

Now, I simply cannot understand how a leading high street brand can get away with what appears to be a misleading up front claim. I asked them, “Is it protected or not? And exactly what is protected because I have read all the small print in this and with my very clever expensively educated and big MBA head on and a lifetime in finance, I have to say I cannot work out even after reading all the small print, exactly what’s protected, so God help the average punter off the street.” It’s been a week now and I await their PRs reply.

New Nameplate

The particular building society will soon be changing the nameplate on its door after having been forced into a merger with a bigger society, largely as a result of a pretty hopeless foray into buy to let mortgage lending. I don’t know if they did next day re-mortgaging but they certainly did some duff lending.

Eight years ago I wrote to their Chief Exec and offered my services to help with their buy to let mortgage lending activities (having pointed out that in my humble opinion, they were going to lose a lot of money with the strategies they were employing at that time). But this society did not even acknowledge my letter. It’s a shame because w e could have helped them as we help some other lenders now – see this feature in Mortgage Finance Gazette about my work in this area:

http://www.mfgonline.co.uk/article/Advice-for-the-novice-landlord-230128.html

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc.) I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our (very occasional) group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts or click on the categories pull down menu over to the right. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES and also to find a small sample of links to articles where our comments have been featured in the National Press please click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors (which now take place just once or twice a year): Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here to Buy the Book at Amazon plus anything else at that Amazon sell.

If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates (which are lower than Amazon).

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers but please put us on your “white list” to ensure you receive our emails!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE?

IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME. PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

For my random thoughts on property and various other things that typically make me grumpy, please see our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

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Posted in Buy to Let Mortgages, Get Rich in Property, Index Tracker Bonds, Landlords Show Award | 2 Comments »

Housing Benefit Rate Changes, Bumper Bank Profits and a Grouch

August 9th, 2010

A colleague at the on line letting agency, Upad sent me this document: http://www.dwp.gov.uk/docs/impacts-of-hb-proposals.pdf which is a government paper looking at the impact of the future changes to the rates of Housing Benefit / Local Housing Allowance. At first glance, it seems to play down the cap effect from what I had understood. A bit wordy but worth a read, especially page 7, table 9 on page 27 and table 23.

We will return to this issue again later because the changes to the LHA rates have big implications for all landlords, not just those letting to people claiming Local Housing Allowance. Read the category, “Housing Benefit” over to the right to read more on this issue which we have already covered extensively.

Bank Profits but Buy to Let Mortgages Still Rationed

The chunky profits unveiled last week at the high street banks points to the need for more competition in banking and especially in retail banking. The ongoing exhortations from ministers to the banks to lend more and at decent rates and all the associated hand wringing is just a show put on for the public – Ministers like to be seen to be doing something about the naughty banks.

In the case of Lloyds and RBS where the taxpayers have a stake some would like ministers to be doing a lot more than just murmuring words of discontent. But what’s really needed urgently is some competition and we hope that the likes of Metro Bank will one day open things up for more sensible lending at fair terms for both businesses and consumers. It’s a shame that in the meantime the economy is going to have to suffer because of this lack of credit.

Specifically in the arena of buy to let mortgages we desperately need the money markets to reopen fully so lenders with no access to retail deposits can offer up some real competition to Lloyds and Nationwide who I understand currently have a whopping 80% share of new buy to let lending.

Right now, I’m not adding to my portfolio – not with buy to let mortgage rates at SVRs of about 5% over base rate (on anything north of a 75% loan to value). If base rate were to rise in future to 4% – not unrealistic in a 2 year time frame – that would mean I would be paying 9% on any new mortgages taken out now, which makes any new houses purchases uneconomic as I think it would be unlikely I could jack the rents up enough to compensate (and neither would there be any significant capital growth) in such a scenario.

In the June issue of “Mortgage Finance Gazette” – one of the financial services industries trade publications – I criticised the banks for their poor showing in buy to let mortgage lending and especially for weak customer service and non existent landlord support and advice.

I said that many banks simply do not understand the private rented sector. This caused a stir but, interestingly no rebuttals. Instead we got a number of enquiries about our work helping this sector. Maybe, just maybe, the lenders are listening after all.

Barmy Brussels Bureaucrats Ban the British Banger. “The Mail” Makes a Stand

Whilst on holiday abroad the only two British papers we could get (at least on same day as printed) were the “Daily Express” and “The Daily Mail”. After 2 days or so of holiday, I was hungry for news (I leave my lap top at home on hols) so I bought both papers.

But I only did this once. The depressing strands of news in them – Britain is being swamped by bogus asylum seeking scroungers and there are paedophiles infesting every children’s playground apparently – meant that one day’s read was enough. No wonder some Brits can be such a grouchy lot if they read such stuff on a daily basis.

Post Office Grouch

It seems anything bigger that a postcard or weighing more than a feather now requires more than a standard first class stamp. What’s your experience?

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.

Services to Businesses and the Public Sector

Primarily I work as a consultant to banks, local authorities, social housing providers, insurers, city investors and other organisations – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending. I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc) and I advise institutional investors looking to get into buy to let. Plus, I occasionally write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories to the right read blog posts on related posts. (To find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you and click to read all the posts we have written under that Category / Topic.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords we have worked with, please click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk. If you are from an organisation and would like to place a bulk order for a minimum of 50 books (delivered to a UK address), please contact me at david@LettingFocus.com for special bulk order prices.

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.

This blog is updated once a week, usually on a Monday or Tuesday.

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Posted in Banking Profits, Buy to Let Mortgage Terms and Conditions, Buy to Let Mortgages, Housing Benefit, Local Housing Allowance | 1 Comment »

Furnishing a Buy to Let Property Should Landlords Furnish a Let Property or Not

August 2nd, 2010

In past blogs we have written about whether landlords should furnish a let property or not.

And really, the answer comes down to what your local tenant target market wants – which is something you should have looked into before you bought the property, right?

To get the level of furnishing right, we recommend testing the extent of demand for furnishings with suitably worded test ads before you even buy the property.

Less Furnishing Usually but Not Always Better

Of course, part furnished or totally unfurnished properties have their advantages.

You’ll definitely get less potential disputes with tenants over inventories (was that table lamp damaged at the start of the let or not?), you’ll have slightly reduced inventory clerk costs, there will be less insurance costs and there will be less things to have to fix when they break.

So, fewer call outs for you, lower insurance costs, a smaller inventory management cost and less disputes. Sounds good?

Also, the less things you provide and the more the tenant brings in, the more likely he or she will be to stay longer – so lower void periods for you and less time (and money) spent having to re-advertise for new tenants.

It looks good, doesn’t it and for the type of properties I let out, I have always gone with a low amount of furnishings – just white goods – or even nothing much in the way of furnishings at all.

Sometimes More Furnishings are Needed

But, there are certainly parts of the market where the tenant will demand more stuff.

Student markets and any large shared house or HMOs is one such market. Short tem more up market lettings is another.

And, of course, you could hardly hope to do well in the holiday let business unless you fully furnish, unless, of course, you want to have some distinctly unhappy campers.

Council Tax and Furnished Properties

An often overlooked implication of furnishing is council tax.

A reader of this blog, David B wrote to me recently saying, “I have recently purchased a second property for letting and I received a demand from the local council for due tax. I told them that the property in not furnished and not habited. They told me that the property has already received a 6month council tax free period before I purchased the property and that I have to pay even if it is not furnished nor inhabited. Is this correct and is there any way I can avoid paying this tax until I finish the refurbishment?”

The answer is that there are two types of council tax exemptions that you can apply for, regarding unoccupied properties.

First, there is a Class C exemption which applies to unoccupied, unfurnished properties.

Council Rules Vary

The problem is that the exact level of discount differs from one council to another – but in many cases it is a 100 per cent discount, running for a maximum of six months.

After the six months has elapsed, if the property is occupied for at least six weeks, then a further Class C exemption can be applied for. So, one option is for Mr. B to move back in and occupy it, but even here it seems that the councils are kind of making it up as they go along. Also, if I was him, I would point out that what happened before he bought it is outside his control.

Furnished Lets

If the property is furnished, you can apply for an ‘unoccupied discount.’ Again, this varies from council to council. Some will offer 10 per cent, others 50 per cent.

The discount runs up to the end of the tax year and you may have to reapply for the following year, after 31 March.

At Rochdale’s local government website it says, “Exemptions can apply when a property is left vacant or unoccupied. Vacant means a property that is both unoccupied and substantially unfurnished.”

What Does Substantially Unfurnished Mean?

But then Rochdale point out that, “Unfortunately, legislation does not provide a definition for ’substantially unfurnished” – therefore the words have to be taken in the literal meaning.

Most authorities regard a property as “’substantially unfurnished” if there are insufficient furnishings that would allow for someone to live in the property.

People may leave items such as carpets and curtains and maybe an old sofa in the property to make it look habitable and therefore discourage vandals. A visit will be carried out by an enquiry officer to clarify the details.

So, it seems you can expect a visit from Big Brother from the council. (In our patch, whilst I have been told to expect a call from a local authority man with a clipboard, no one has ever called. Lack of resources maybe or do they just trust me? I don’t know)

Tax

Finally, if you let furnished property, you are permitted to claim an allowance on the tax you pay for letting income, equal to 10 per cent of the “net rent” i.e. the total rent minus charges and services such as council tax and water rates. This is known as a “wear and tear allowance.”

Alternatively, you can claim the net cost of replacing a particular item of furniture, but not the original cost of the item. This is known as a “renewals allowance.”

But you cannot claim either of these allowances for unfurnished property. And you have to decide which allowance you want to claim and stick with it. It isn’t possible to chop and change from year to year, unfortunately.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to a range of organisations including banks, local authorities, social housing providers, institutional investors and insurers – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.) I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find a limited amount of time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event

We have OFFERS on a few services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk. If you are from an organisation and would like to bulk buy at least 50 books please ask us for special rates.

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers!
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.PLEASE GET IN TOUCH!

This blog is updated once a week, usually on a Monday or Tuesday.

See our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010.

Tags:
Posted in Letting and Furnishing | 1 Comment »

Pensions versus Property Investing and Do We Need So Many Housing Associations

July 17th, 2010

It must be the new government having an effect on me (or maybe it is the sun) but I have decided to go a bit political this week.

Base rate remains on hold this month but one thing that won’t be staying on hold is the mechanism that is used to up rate pensions to account for inflation. It looks like the lower CPI inflation measure, not the historically higher RPI will be used in future when your pension funds come to work out what you will get in income from your little pot of money that you had to work to age 65, 66, 67, 68, 69, 70, 71… for. (Yes, the age is going up)

Property v Traditional Pensions

Those who did not trust the government and pension funds and invested in residential property instead (as their own little pension) will not be affected by this of course! This is part of the reason property as an investment still retains some attractions. (You could add the split cap investment trusts scandal, the Equitable Life scandal and the duff returns on endowment mortgages to a list of reasons why people like property.)

Despite the increases in red tape there has not (thus far) been too much government interference in the private rented sector. Private landlords remain free to invest where they wish and adjust rents to what the market will bear, though some who depended on pretty generous LHA payments in London may need to think again now. Which leads me neatly back to the dangers of an investment strategy that is government dependent (e.g. standard pensions!)

Certainly investing in the private rented sector is continuing to attract people in and existing landlords to invest more. According to think tank BSHF, if recent trends persist, the private rented sector (PRS) would be larger than the social rented sector by 2013 and by the end of the decade one in five households could be private renters. They add “It seems reasonable to assume that some of the likely drivers of recent changes in tenure mix will continue and, therefore, that the private rented sector will continue to grow.”

Six years ago I predicted one in three households could be in the PRS by 2026. Back then few commentators agreed. Now, it seems quite a few others are getting on board and backing my predictions.

Are First Time Buyers Really Priced Out?

But where does all this buy to let stuff leave the first time buyer? Are they being priced out? I’m not sure they are priced out because borrowers moving home in May saw their mortgage interest payments account for the lowest proportion of their income in 35 years, according to new data from the Council of Mortgage Lenders. So why aren’t the first time buyers out in force?

Well, I guess there is a fear among first time buyers and others about their own economic prospects. People aren’t buying in droves because they are worried about their jobs, possible house price falls, worries interest rates could rise and also to some extent because of the high deposit requirements the lenders are asking for. These things do constrain would be house buyers but all the same, this attractive affordability position hardly paints a picture of millions who are being priced out of buying a home. It’s always a big jump to buy your first property but as Warren Buffet says, “the time to buy is when others are fearful.” First time buyers should ignore the dire warnings from the likes of Capital Economics and the like and get in and buy within the next 12 months or miss the boat when house prices rise again in 2011.

1200 Housing Associations in the UK – Is that Enough?

I see there are “significant problems” with housing associations in Northern Ireland, according to a report from the Audit Office. The watchdog found 14 out of 33 of the province’s housing associations were performing at an ‘unacceptable’ level, and that many were underachieving on property maintenance. One may wonder why the venerable province of Northern Ireland needs 33 housing associations.

I’m no expert in housing association management but I would have thought that this number is too many. There are over 1200 housing association in the UK. Yes, twelve hundred. Surely, there must be some economies of scale that could be realised with a smaller number?

I really wonder about the efficiency of some of these institutions. I’m sure that many are very well run with dedicated staff and my own experience of a few local authority’s housing departments and housing associations has convinced me there are some excellent people doing some great work. But there are clearly some duffers too. Here in sunny South London my own experience of an arms length housing management company (yes, I know it’s not an HA) who manages the communal areas of one of my let properties (previously the local authority did it) is that they could not manage their way out of a paper bag let alone get basic fixes done. In the end only my letters to their Chief Exec (whose salary has five noughts on it) got them to do anything about the things that were wrong at the property.

Dismantling the Big State is not Always a Bright Idea

The Conservatives are all for decentralisation and dismantling the state (or as they would no doubt put it “bringing control closer to local communities.”) This is all very well but even though big state bodies can be inefficient, there is also a huge lack of control that comes from doing things in a very distributed or decentralised way. Some things simply don’t lend themselves to market economics.

I’m convinced that it would be better if social housing was mainly built and managed by local authorities. And, of course if there was more of it! People on low incomes are still suffering as a result of the great council house sell off. Private landlords have plugged the gap but the debate now raging on changes to Local Housing Allowance (LHA) rates is surely simply a symptom of that.

For more on the big LHA debate, please select “Housing Benefit” from the drop down category list to the right. We are having a break from blogging for a week  – the next blog will be on Tuesday August 3rd.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.

Services to Businesses and the Public Sector

Primarily I work as a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending. I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc) and I also advise institutional investors looking to get into buy to let.
I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories to read blog posts on related posts. (To find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you and click to read all the posts we have written under that Category / Topic.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event

We have OFFERS on some services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both commercial organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk. If you are from an organisation and would like to bulk order for a minimum of 50 books (delivered to a UK address), please contact me at david@LettingFocus.com for special bulk price rates.

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.

PLEASE GET IN TOUCH!

See our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010. This blog is updated roughly once a week usually on a Monday or Tuesday.

Tags: , ,
Posted in Housing Associations, Property v Pensions | 1 Comment »

Research Is Needed Into Implications of Budget Changes to Housing Benefit Rates for London Boroughs

July 13th, 2010

The detail of how the change to Local Housing Allowance / Housing Benefit rates will be managed in practice will be interesting and the government will need to tread very carefully and will have to carefully consider the needs of the old, the sick and the HB claimants with young families in all this or they could be facing a PR disaster. Visions of vulnerable people being forcibly moved from expensive central London boroughs to cheaper neighbouring boroughs sound worrying.

Local Authorities Face A Big Challenge

Local authorities will now also need to get a whole lot smarter with what they call their “private rented sector access schemes” or “social letting agencies”  (For the uninitiated these are the schemes they have in place to try to move the large numbers of (often young) people who are stuck in possibly unsuitable council and RSL accommodation because there is no social housing provision available that they could qualify for.)

If they have not already done so, the local authorities, especially in the more expensive London boroughs will need to team up seamlessly with other outer boroughs to find housing solutions for those who will find themselves priced out of some areas.

All local authorities will also be an even greater need to make sure they do all they can to ensure LHA processing systems are fast, especially at making payments direct to private landlords if their Local Housing Allowance dependent tenants don’t pay their rent. If there is a failure to deliver this, private landlords could really start to desert the business of letting to LHA dependent tenants (starting with the more up market boroughs first.)

At LettingFocus we help local authorities and RSLs in this area and we think that a properly thought out strategy for the private rented sector (PRS) – one that makes the most of what it has to offer tenants should be at the heart of any local authority’s housing strategy, not on the periphery as is so often the case.

For councils, getting the strategy right for the PRS should not be that hard because the reality is that even after the budget changes are implemented, many private rented sector landlords outside the most expensive areas should still be happy to let to LHA dependent tenants (yes, even after rents have been set at the 30th percentile rather than the old median level) just as long as they are paid promptly.

What Private Landlords Want (and Don’t Want)

This is important because many studies have shown that private landlords aren’t too bothered about being incentivised to let to benefit dependent tenants.

It’s our opinion (and this is backed up by research from practitioners in the  housing charities) that the rent guarantee schemes, bonds and landlord incentives as used by many local authorities are not the most efficient way of incentivising private landlords.

All landlords really want is their rent to be paid on time, every time and with the minimum of hassle. What private landlords don’t like is void periods and having to pay to recruit new tenants, they like tenants who pay and who stay for long periods. Tenants who are on LHA stay longer and landlords like this.

But the trouble for private landlords is that they also see tenants on LHA as a “potential hassle” – not the tenants themselves (though some, like any other private tenant, will have “issues”), but rather the system.

Landlords know the application forms for Housing Benefit are very long, complicated to fill out and that it is all too easy for even the most clued up tenant to fill them out wrong. This makes LHA awards and payments often late with the result that the LHA dependent tenant is perceived by landlords to be too high a risk.

Solutions

But there are solutions for all these things. Take the risk of tenant default, for example. In private rented sector access schemes, it ought to be possible for a local authority to sufficiently reference check a former council housed tenant and provide a private landlord with a cast iron and underwritten guarantee that the tenants won’t default. Insurance ought to be available to cover this, thus giving an added comfort level to the private landlord.

But if the local authority is managing LHA and rent payments properly, we would argue there is no need even for external rent guarantee insurance. In other words, the local authority could “self insure” and save the premiums.

Local authorities have to put in place (where necessary) and then sell the benefits of LHA dependent tenants to private landlords, but all this will count for nothing if the authority cannot make the LHA system of application, award and payment faster.

Villains

Private landlords are often cast as the villains of the housing piece. Is this fair?

Well, some of them sure aren’t angels. But post Thatcher and the sale of swathes of council stock, I don’t see anyone else (including the institutions hungry for tax breaks to induce them to enter the PRS) providing much accommodation just now, so I guess local authorities will just have to learn to live with their private landlords.

Certainly, many private landlords targeted areas where they knew the LHA rates were (previously) pretty generous relative to the capital values of properties. They invested in these areas for the good yields knowing that the level of local LHA dependency was sufficiently high and that the government (by setting LHA based on median local rents) was actually bidding up and in effect, setting rent levels in some areas. And since landlords and tenants knew what was payable (because the figures were published by the Valuation Office), they rather unsurprisingly tended to set rents at the maximum payable by the state under LHA.

Now, following the last budget and the caps on LHA levels, these landlords will have to think again – which goes to show the risk to them of developing an investment and lettings business based on what the government does. Some may sell but some could come to realise that in reality they cannot get any more than the new LHA rates from private-non-LHA-dependent tenants. For them, the LHA gravy train doth end here! And so it should despite the protestations from some landlord groups.

How many of these landlords will stop taking LHA dependent tenants and / or sell their properties or just accept that they are not going to get as much in future is a big question but with a bit of quick but targeted research this is a question that can be answered within weeks. And those involved in housing at local authorities must surely stop wringing their hands and find out the answers to these questions pretty quickly because the result of the changes to LHA rates could be that a lot more people will be seeking housing in the less expensive boroughs of towns across the UK. These neighbouring boroughs will need plans to manage the increased numbers seeking housing and they will need them fast.

Local Authorities Must Engage With Landlords

People working in local authorities may not like having to depend on private landlords so much. I can understand this and as a landlord myself I agree with most of them that selling off council homes was a huge policy mistake. But that’s what happened and is now history. And so, going forward local authorities and others in the business of the housing will have to accept that they will have to continue to depend on private landlords to house people. Their challenge is to make sure they properly engage with landlords.

On their PRS access schemes, they will need to be sharper at finding good landlords cheaply. One way to do this would be to use the internet much more effectively and stop mucking about with localised letting schemes and local advertising campaigns to attract landlords. These are also inefficient and we think potentially a waste of taxpayers cash.

Once they have efficient systems to attract landlords, the local authorities should make letting to LHA dependent tenants actually sound like a good idea. And to do this, they must reduce the risk that landlords currently perceive exists in letting to tenants on low income and who are benefit dependent. So, local authorities will also need to improve the marketing message that letting to LHA tenants is OK.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

Services to Businesses and the Public Sector

Primarily I am a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.) I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories at the bottom of each post to read blog posts on related posts. (If you want to find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event

We have OFFERS on services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both commercial organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers!


IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.PLEASE GET IN TOUCH!

See our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010. This blog is updated roughly once a week usually on a Monday or Tuesday.

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Posted in Emergency Budget June 2010, Housing Benefit, Local Housing Allowance, Local authority Tips for Housing Departments, Private Rented Sector Access Schemes, Private Renting Schemes, Social Letting Agency | No Comments »

House Price Forecasts Ignore the Impact of the Private Rented Sector

July 7th, 2010

I’ll publish my ideas for how Local Authorities should be working now to deal with the impact of rising LHA rates next week.

For now, I’ll return to an interesting question that comes up a lot – and that is the issue of house prices and whether they will go up or down in the near future.

A number of commentators writing in the mainstream press are always very keen to compare the historical ratios between house prices and average earnings and come to the conclusion that house prices are either too high or too low relative to this historic ratio and must either go down or up accordingly. Usually, they say they are too high and will drop anything from 10% to over 30%. To me this analysis is a bit too simplified.

I must say right away that I’m not a cheerleader for higher or lower house prices. I have the view that it ought to be possible for ordinary people who work hard and save a bit to be able to buy their own property (if they want to do that – and of course many don’t.)

Other Factors Are At Work

The problem with simplistic comparisons of house prices to average earnings is that they do not take account of the level of prevailing and future expected interest rates, the rate of current or future expected employment, the rate of current and expected future inflation or the population size. Should I go on? It could be that base rates will stay low for a long time – and so may inflation too. The same goes for the other “drivers” – the fact is we just don’t know.

Now, of course, we could happily sit down and input things like the median level of interest rates, the median level of employment etc – i.e. that which it has been on average over the last 30 or so years  -and then say, hey, house prices are above (or below) their long term mean and must therefore fall (or rise.)

That’s reasonable enough but the problem with doing that is that it could be the case that the next 30 years could be very unlike the last 30 years in terms of these driving forces. Take the Japanese experience for example – they have had zero or negative inflation for 20 years or so and as all investors there will know, their stock market is still less than a third of what it was in 1989.

Here in the UK, we might repeat the experience of Japan or we might not. Again, we just don’t know. Sure, there are macro factors like the growth of China and the increase in the amount of low cost goods  – which have driven down inflation in the West. That might continue or it might not (for political reasons as much as anything else) and your informed opinion on this is likely to be about as right as any City analyst with a private education, a spotty face and a recent PPE degree from Oxford.

One Big Factor is the Private Rented Sector’s Growth

But there is one thing about these house price forecasts that we can say and that is this:

We know that since 1989 the private rented sector has grown from about 8% of all the UK’s housing stock to over 15% (and it is much higher than that in some areas – notably London.)  This must surely have a  huge impact on house prices because the price of a property in the private sector is driven now (at least in part) not just by folks’ earnings (and all the other stuff like inflation and interest rates) but also by the yield that a property can produce as a rented asset.

Yield is a key driver of commercial property prices and now that lots of non- commercial property is rented out, it should not be ignored by analysts who wish to make predictions about the price of houses. But too often it is ignored.

Net rental yields (after all running costs) in London are at about the 4 to 5% level right now. That is much the same as you get on the FTSE 100 if you pick the right high yielding shares. The outlook for house price growth (away from the prime stock currently being gobbled up by well off tax avoiding refugees from Greece and the like ) is pretty flat or even downhill a bit for the next 12 months. The outlook for rises in share prices is choppy, but again, who really knows?

However, these private rented sector rental yield levels, while not as great as they once were, are not that bad either and because of this, I don’t think house prices are about to fall off a cliff as the “earnings-to-price-multiplier fans” suggest they will.

Will house prices ever become as affordable for first time buyers that they were before? Yes, possibly. The more affordable house prices we saw in the mid 80s and mid 90s could come back again –we will just need the stars in the economic firmament to be lined up right again.  I can’t see that happening for quite a while, but again, we just don’t know.

People who own property, the tenants who rent the houses, the first time buyer who would like to buy – all of us are facing some difficult times now. The key is to invest sensibly but to try to keep debt down and to manage your assets well. As one of my birthday cards this year said, “Keep Calm and Carry On.”

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.

Services to Businesses and the Public Sector

Primarily I work as a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending. I help housing associations / local authorities find private landlords (private rented access schemes, local letting agency models etc) and I also advise institutional investors looking to get into buy to let.
I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories to read blog posts on related posts. (To find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you and click to read all the posts we have written under that Category / Topic.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event

We have OFFERS on some services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both commercial organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.

PLEASE GET IN TOUCH!

See our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010. This blog is updated roughly once a week usually on a Monday or Tuesday.

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Posted in House Prices | No Comments »

New Local Housing Allowance Rates How the New LHA Rates Have Huge Implications for House Prices and Rents Everywhere

July 1st, 2010

Even landlords who don’t let to benefit dependent tenants and tenants who don’t get state aid to pay their rent will be affected by the capping of Local Housing Allowance (LHA) rates.

As a result of the changes to LHA rates, there could be some potentially big changes to local house prices and rents.

Lots of Heat

The whole issue of the government’s reform of the levels of Local Housing Allowance rates has raised a lot of heat on various discussion forums. In some of these, private landlords are cast as the villains of the piece but often it is the last government who gets the flak for their approach to LHA.

The arguments usually go something like this.

Someone – who is usually keen to point out they are a taxpayer - will say, “I cannot afford to live in say, Westminster borough myself, so why should I have to pay out of my taxes for those on benefits to live in such locations?” They will point to the figures that show that the average Greater London rent in the private rented sector is £403pw for a 4 bed and £184pw for a one bed as proof that cheaper accommodation is available, adding something along the lines of, “Hey, cheaper accommodation IS available below the new capped LHA rates – you’ll just have to move for it, like people have to move when they need a new job.”

The very real concern is that as a result of the new caps, some vulnerable people will be forced to move from their old homes in these expensive areas to other areas – one has horror visions of armies of old grandmothers with disabilities and young Mums being forcibly moved to cheaper boroughs further out.

Those who may be asked to move to areas where rents are cheaper will rightly point out that it was not they who sold off the council housing stock so it should not be them who have to suffer. To this, the “taxpayer” inevitably replies, “Sure, and it was the bankers who caused the current economic crisis, but us taxpayers are going to have to pay for that too through higher taxes. It’s a shame you now have to move out of expensive Westminster but that’s life. Welcome to the real world.”

And so the argument goes on.

Big Hit

Landlords letting in central London and other “expensive-to-rent-in” UK boroughs to LHA dependent tenants, whose LHA rates will be hit by the new capped rates will soon face a big hit on LHA rates payable once the new rates are implemented next year. (In places like Westminster we are talking huge numbers of LHA dependent tenants) And tenants in these areas will struggle to make up the difference once rates are cut to below the new cap.

So what will these landlords do? Well, they will have to 1) Accept reduced rents from their old LHA tenants but keep going or 2) Give notice to the LHA tenants and let to non LHA dependent tenants instead or 3) Sell up.

What will the tenants do?  Well, if they cannot afford to make up the difference somehow, it looks like they will have to move to different boroughs where they can still get the accommodation they need at below the new LHA cap.

If large numbers do this I can only see additional demand placed on housing in neighbouring boroughs which (for now) have cheaper rents.

So landlords with existing residential property in places like Southwark, Lewisham and Haringey could well see rental demand rise strongly and as a result, house prices going up becuase even if they don’t currently let to LHA dependent tenants, the effect of that extra demand will be to push rents up.

In more expensive to rent in boroughs like Westminster, the opposite will probably happen.

In next weeks’ blog I’ll show how these changes have huge implications for both “expensive-to-rent-in-boroughs” as well as neighbouring cheaper ones and I’ll look at what the local authorities should be doing now to plan for this.

Useful Links for Landlords

This site, run by the London Mayor shows the level of private rented sector rents in different parts of London (using VOA data): http://www.london.gov.uk/rents/

Here, using this site, you can what a tenant can get under LHA in different areas for different bedroom sizes:

https://lha-direct.voa.gov.uk/Secure/LHASearchIntro.aspx

Here are the Likely new rates from next year:

http://www.voa.gov.uk/LHADirect/LHA-emergency-budget-news-2010.htm

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.

Services to Businesses and the Public Sector

Primarily I am a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.)
I also write for property websites and am regularly quoted by the media.

Services for Private Landlords

We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor.
We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

AT OUR WEBSITE LETTINGFOCUS.COM:

TO GO TO THE HOME PAGE OF THIS BLOG click here: Blog

You can also use the tags and categories to read blog posts on related posts. (To find relevant posts from before 30 April 2010 you can also click on LettingFocus’s Old Blog  - Categories, then search from the list for a topic that interests you and click to read all the posts we have written under that Category / Topic.)

THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page

For general info on our CONSULTING SERVICES click here: Consultancy and Seminars

For ONE TO ONE PRIVATE CONSULTANCY FOR PRIVATE LANDLORDS click here: Property Mentoring

NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investment Seminar and Networking Event

We have OFFERS on services and products here: Services and Products for Landlords

TO READ CLIENT TESTIMONIALS – from both commercial organisations and private landlords click here: Testimonials

BUY “SUCCESSFUL PROPERTY LETTING” click here: Buy the Book at Amazon plus anything else at Amazon.co.uk

To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com – Please note we WILL NOT send spam or sell our mailing list to advertisers!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR TO OUR WEBSITE? IF YOU SELL SERVICES TO LANDLORDS, YOU COULD BE A PARTNER ON OUR AFFILIATE PROGRAMME.

PLEASE GET IN TOUCH!

See our TWITTER PAGE: Twitter

Copyright of Blog: David Lawrenson 2010. This blog is updated roughly once a week usually on a Monday or Tuesday.

Tags: , , , , , , , ,
Posted in Emergency Budget June 2010, Housing Benefit, Local Housing Allowance, Private Rented Sector Access Schemes, Private Rented Sector Management, Private Renting Schemes | No Comments »

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