Housing Benefit and Shared Houses – More Pesky Government Meddling

Welcome to this weeks blog - a whole day early.
Well, the current government sure likes to meddle in the private rented sector - which, of course, keeps writers and consultants like me very busy indeed.
In the latest move, Housing and Planning Minister, John Healey MP has announced plans to tackle anti-social behaviour and property standards by requiring landlords to get planning permission before turning a property into an HMO or house in multiple occupation for the first time.
Also, they have announced plans to make it easier for local authorities to introduce licensing schemes.

Odd Move
The plans to require landlords to get planning permission before turning houses into HMOs, strikes me as rather odd because when the plans were first mooted they were rejected by a pretty broad lobby consisting of organisations as diverse as the National Union of Students and the British Property Federation.
The National Landlords Association said, “If the Government was really interested in dealing with anti-social behaviour and property standards in the small minority of places where they are an issue, they would have taken up the NLA's call for more targeted local management action by councils working with landlords in their areas.”
They went on to say that these measures could lead to “A 'nimbys charter', creating no-go areas for landlords, students, young professionals, low income families, migrant workers and a wide range of other groups who rely on private-sector shared housing.
I agree.

Not Enough Low Cost Housing
Surely, the government should "go back to the start" and look at why more people are living in shared houses.
And the answer is that as the population has grown faster than housing supply and there are just not enough houses for people to live in.
Doh!
And as we aren’t building enough low cost social housing, people who need a home are looking to the private rented sector to provide it.
“Simples!” as the Meerkat would say!

New LHA Arrears Guidelines
And of course, increasing numbers of tenants now get their private sector rent paid by housing benefits (or Local Housing Allowance as the new flavour is called.)
Still, there was one bit of good news on that front.
The government has just changed its Local Housing Allowance (LHA) guidance on rent arrears and payment to landlords.
Local authorities can now pay LHA direct to landlords when tenants are contractually 8-weeks in arrears, rather than waiting until 8 weeks have physically passed.
This change takes into account the situation when rent is due in advance.
So, it means most landlords (whose tenancy agreements require rent in advance) will only have to wait 4 weeks.

Housing Benefit and the Press
Of course, the likes of the more right leaning press (when they are not getting cross about inward migration and hook handed clerics) get themselves very worked up about the growing Housing Benefits bill.
Certainly from my experience the number of people of housing benefits has grown massively.
Indeed, in my patch it is hard to find any tenants whose rent is not paid via the Local Housing Allowance system.
This is all very different to 10 years ago.
Back then, 90% of my tenants were UK nationals with the remaining 10% from countries like Ireland and Aussie and the odd Frenchman and German. Nearly all were all paying their own rent (they were not on housing benefits)
Five years ago, mass inward migration really took hold and suddenly 90% of my tenants were new migrants from all points of the world. Again, all seemed to be working. None were on Housing Benefit.
Today, 90% of all the tenants I have applying for my latest property are overseas nationals with about 75% on Local Housing Allowance - for which it seems residency qualifications are minimal. Just don’t tell anyone at the Daily Mail!

Why Many Landlords Don’t Like Local Housing Allowance
Getting landlords to let to people on housing benefits is not easy (even if the payment in many areas is at least 10% above private sector rents).
Why, because quite a lot of landlords don’t like the fact that the monies are normally paid to tenants (not direct to landlords like in the old days unless they are in arrears as explained above) so there is the risk the tenants go and spend it on something else.
The Tories have pledged to reinstate tenants choice for immediate direct payments to landlords should they win the election.
As part of my consultancy work with housing associations and local government I work to help them get more landlords to let to people in receipt of LHA / Housing Benefit them.
As you can imagine, this consulting work is in demand.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

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Unfortunately, in the UK today, property advice in the UK is still largely unregulated and what counts as “good advice” is too often more about making the promoter money than giving useful information to the investor.
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Property Seminars and a Word on HMOs by Letting Focus

For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
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Our latest seminar event took place on 4th November 2009. Sorry, if you just missed it!
These events take place only once every 6 months and at each event we have somewhere between 18 and 30 people - so it is all very small and informal and a world away from the big property shows.
At our events, unlike some "Landlord Meets" and "Property Meets", no one will try a hard sell on you but you will learn a lot from our very eloquent speakers and from other attendees in the hour before we start the talks, in the short breaks between the talks and afterwards.
To reserve a place at the next event, please email me David@LettingFocus.com

Speaking At the Property Shows
As usual, over the autumn, I have been speaking at the big property and landlord shows.
They are well worth going to but you sometimes do have to work hard to find the good people to listen to.
If you go, the Old Grand Daddies of property investment and fountains of knowledge Tom Entwistle and Richard Bowser should not be missed.
And it’s always worth listening to Paul Shamplina of Landlord Action too. I’m pleased to say that Paul came down to speak at our Seminar Event on the 4th November.
Paul’s business is mainly about recovering property for landlords from defaulting tenants for a fixed fee but recently he has also been recovering money from property firms too who supplied less than value "below market value" leads on property to wpuld be investors.
You an see Paul on BBC1 Iplayer on the "Inside Out" Programme. He is seen doing a recovery from a property sourcing firm who supplied leads for below market value properties for investors.

Duff Property Leads
Some of these property firms have been in the business of supplying leads for what were supposedly below market value property.
What happened was that would-be Landlord-Investors seeking the Holy Grail of “financial freedom fast” paid property firms up front cash for access to high quality “below market value” property deals –which turned out not to be er, well, not that much below market value at all.

Paul Shamplina’s Talks
Paul Shamplina is a real mine of information. He usually talks about how to recover property from non-paying tenants, how to avoid getting a problem tenant in the first place and also on the danger of using property finders and sourcing companies to get access to “great property deals”
(There are good sourcing companies - just make sure you use one.)

Tax and Landlords
Another speaker, Geoff Everett talked about tax and how it affects landlords.
And this is an area that has got very interesting recently.
In my view, taxation on landlords is relatively light.
Capital gains tax was reduced 2 years ago to 18% and there are lots of legitimate ways a landlord can ameliorate (and often completely reduce) the impact of tax with a bit of forward planning.
Now that there is real talk of the Government stopping higher rate tax relief on contributions to pension schemes, property as an investment will become relatively more attractive still.

HMO, Houses in Multi Let Properties
Finally, I would like to say something about HMOs
Many people think you can get a much greater return by letting rooms in big houses individually to tenants (i.e. room by room) rather than putting them all on one agreement.
Well, I have done it both ways over many years with a “mid market, nothing special” 6 roomed house in S London.
I can tell you that the excess on NET RENT of individually let rooms compared with doing it via a “single let” is about 18%.
But what about net PROFITS?
Well, the downside of letting room by room is that there is definitely more work as tenants change over quite a lot and you sometimes have to get involved when they don’t “get on” - which is a a real pain, very time consuming and a real “no win situation”

Disputes
You also have more wear and tear and more disputes over inventory with singly let rooms, sometimes an HMO licence fee to pay too (though on the plus side you do normally have less voids overall).
Based on my long experience and the type of property I have, there is not much in it profit wise, certainly after allowing for the cost of your own time.
Letting individual rooms in big multiple let properties is not a panacea to riches, nor a way to huge yields compared to other property investment opportunities.
But it would be good to hear what others experiences with singly let rooms in HMOs is in different types of market is – especially more up market places and properties in different locations.
Click on the Categories box at the bottom of this post for more posts by me on HMOs and Houses in Multiple Occupation.

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At LettingFocus we offer independent unbiased seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
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Studentification, HMOs, Schools and House Prices by Lawrenson of Letting Focus

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Thought we could get through a month without some new proposal or regulation affecting landlords?
Well think again.
A few weeks ago now, a consultation document from the Department of Communities and Local Government (CLG), came out which examined if it could be made necessary for landlords to have to get permission to convert a home into a House in Multiple Occupation.
HMOs are broadly defined as a residence for three or more unrelated occupiers.
At the moment, the regulation of houses of multiple occupation (HMO) in England and Wales only considers cases where there are at least six residents (unless HMO licensing has been extended locally to cover other smaller HMOs.)

Studentification
The consultation came about because of concerns that the “studentification” of towns – high densities of student homes in residential areas – can cause anti-social behaviour, distort property prices and make for “ghost towns” during the long summer holidays.
The proposal has been condemned by landlords’ associations and this is one idea that I don’t think will fly.
After all, what would happen to all those people living in those HMOs right now? Would they be housed in private halls of residence at the taxpayer’s expense?
Cue deafening slence from the Government.
Having recently seen areas of Birmingham and Cardiff which are heavily populated by students, I would say that it would be good for landlords who own the more run down properties to occasionally find the time to give their properties a bit of an external makeover and clear away all the rubbish dumped in the front gardens by last year’s students.

Neighbours
Doing this would certainly make the non-student neighbours feel a lot better about the student housing in their midst.
If a landlord (or indeed any owner of any property whether commercial or residential) lets the front of his property become an isaw, it ought to be possible to strengthen the powers that councils have to force them to improve them.
After all, why should everyone have to suffer from having to look at properties that are run down?
Surely, a better way to do this would be for the government to look at extending their powers in this regard (perhaps one way would be to extend their existing powers to extend HMO licences to cover smaller HMOs.)

Schools and House Prices (and a Bit of Politics)
It has been a while since someone did a report on how being near to a good school affects house prices.
Yup, if you are in a duff area and wondering why the house prices are inexplicably high it’s probably due to the presence of a good school locally.
Right now in the Lawrenson house we are sharpening our minds (and elbows!) to think about our son’s schooling at secondary level.
The options are ….
1. We send him to an OK but “bog standard” local comp (or whatever they are called now -academies, science college etc) here in London. He gets some duff A levels but enough to get on to study for a degree in Pointless Studies at The University Of New Town in Godknowswheresville.
2. We spend loads of dosh and go private (against my old political principles).
3. We move out to rural Kent where all our neighbours will probably be Tories but where they still have half decent schools and you have more than a cat in hells chance of getting into one (Though even out in Kent you need those middle class elbows to push ahead of other parents by paying for extra tuition to be sure of getting in the good local grammar.)
Tough choice! And what a shame we should have to make it as I rather like cosmopolitan London.
When I was at school (a Grammar since you ask) lots of the lads at our school were from pretty poor backgrounds from a local mining area.
But these days Grammars (where they exist) and other good schools have very few kids on free school meals. Sadly, the chance of getting an above average education seems to have moved futher away than ever from poorer parents here in London and other big UK cities.
What a failure of education policy over the years - Tory and Labour.
If any Government can make the schools better here in the middle of London and other big cities, families may stay here. Of course, that would push up house prices into the stratosphere which won’t be so good so everyone.
Until that time I expect the great exodus of the families to the rural shires to continue.
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ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
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Are HMO properties or multi let houses worth investing in asks of Letting Focus

I spent all of last weekend at the Property Investor Show in London, which has great fun and very interesting.
It was pleasing that record numbers of people came to hear me speak at the show and my own private seminar last night was well attended too.
These events all require (and then generate) a lot of work for me but they are fun to do - and it is nice to help people and meet bright clued up investors – which I’m pleased to say is the kind of people we always seem to attract.
And I also always learn a thing or two from the other speakers and from people who come to the stand and the seminars.
Anyway, today is a beautiful day and it is nice to be back and “ready to roll” at my own property investments.
Expanding my portfolio of properties and managing those that I have already got probably takes up 80% - 85% of my time with my speaking and consulting work, (including talking to journos), accounts only accounting for 15- 20%.
But in the run up to the two big property shows in London and the ones in Manchester and Brum, there is always a lot of work to do, which means my own work as a landlord investor has to take a back seat for a few weeks.
So, it is really good to back in the saddle and looking to buy more property for myself.
Unfortunately, the opportunities now being presented to me as an investor as a result of the falling property market has meant that my own seminars and networking evenings will now only take place just twice a year.
DO get in touch if you want to arrange a private one to one consulting session. I enjoy doing them and can always fit them in.
Anyway, I’m sure you would rather speak to someone whose primary business is actually BEING A PROPERTY INVESTOR rather than someone whose main source of business is from property education.
After all, anyone in search of education about property investment should validly ask the presenter, “If you are such a good investor then why do you spend all your time running these seminars.”
A fair question, I think!
For me the answer is that I actually get a bit bored of landlord work so from time to time, meeting people and networking is always good fun. It is just that right now I can’t afford to do too much of it.
The current property market is really exciting for me as I have not bought in the capital for 5 years (as prices have been too high) but there are signs that property is becoming more sensibly priced. So, I fully expect to make a few additions to my portfolio in 2009.

HOUSES IN MULTIPLE OCCUPATION or HMOs
One thing you get from going to the property shows is a shift in mood and emphasis on certain sorts of investments. (It’s a shame that few property journalists bother to leave their desks and go as they would be better informed for the experience if they did.)
At the show last weekend I detected an increasing number of people asking me about HMOs or Houses in Multiple Occupation
One or two new players are now on the scene advocating that you invest in these shared houses – hence the interest, I guess.
What do I think?
Well, it all depends.
A House in Multiple Occupation can certainly be a good investment and they can outperform more standard lets. There are areas where you can get a higher net rent by renting out each room separately (or you could of course put all the tenants on one agreement.)
But there are downsides, which as someone who has ran an HMO over many years, I feel well qualified to highlight. These are:
First, the management of a large shared house is without doubt more demanding for a number of reasons, principally because turnover of tenants will be higher. One eternal problem is that you will always struggle to know who is actually living in your property.
Second, there are quite a few rules and regulations to cope with and getting a licence (if that applies in your area or if the property is more than 2 storeys and 5 or more tenants) can be very expensive.
Third, mortgage finance will be more costly and harder to obtain.
Fourth, your wear and tear costs will be higher than under a standard let.
Fifth, many letting agents are not interested in letting individual rooms (if that is the way you want to manage it) so you may have to do this on your own.
So, look at multi let properties carefully and consider the increased costs and management time that you will spend on them.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of property experts’ lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” which for the last 3 years has been the UK’s top selling property title - buy the UK's top selling landlord book.
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying property below market value.
I’m an expert property journalist, property speaker and a well known buy to let blogger
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property investment advice
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property training programme at my website.What’s unique about lettingfocus.com is that we offer you help as an independent landlords' mentor because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.Copyright: David Lawrenson 2008. This blog is updated once a week.
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Landlords are not selling because of reduced Capital Gains Tax CGT says Lawrenson of LettingFocus.com

The doomsayers and those who would love to see the demise of buy to let said that the new tax year would see lots of landlords selling their investments.
Well sorry folks, as I predicted we now have new evidence that this does not appear to be happening.
In fact, the Royal Institution of Chartered Surveyors (RICS) has just found that just two per cent of landlords are playing to sell property when current tenancy agreements expire. This is down from the 4.6 per cent of landlords planning to sell in the three months to the end of January, and the 6.5 per cent in the three months prior to this.
There had been fears the restructuring of capital gains tax could see most landlords face a rush to the exit. However, this is clearly not the case.
"Fears landlords would take advantage of the more favourable capital gains tax regime to bail out of the buy-to-let market appear misplaced," commented Simon Rubinsohn, Rics chief economist.
He went on to add, "Significantly, with the reduction in loan-to-value (LTV) ratios by lenders leaving first-time buyers struggling to access the housing market, rents are now rising sharply and the expectation is that this trend will continue. The incentive to cash in on the lower tax rate is being outweighed by attractive yields."
I cannot say I am surprised.

WHAT JOINT AND SEVERAL LIABILITY MEANS
Here is my tip of the week.
If you let to people who are unrelated and on a single tenancy agreement, it is best if you must make clear to them what joint and several liability means. To make it crystal clear, I send this email to all my tenants.
“Please note in case of any doubt, and as explained on your tenancy agreement that you are both jointly and severally liable for the whole rent. This means the tenancy is made with both of you as one party and with me as the other party.
It therefore means that you must usually BOTH give notice of your wish to terminate the tenancy at the same time and give me the due notice in writing.
Of course, when one of you leaves, the other could stay on but only if they notify me in writing of that fact and be prepared to pay the full rent on their own.
Also, jointly and severally liable, means that each of you is liable for the whole rent and in full for all moneys owing as a result of this tenancy agreement”
That usually does the trick but it is amazing how often tenants, especially student tenants fail to understand or check the meanings of terms like these when they sign an agreement.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson from property consultants lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” the UK’s top selling property title buy the book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying below market value. I’m an expert property public speaker and a well known property investment blogger and I contribute to newspapers and a host of property websites, write a property investment blog, a number of columns in the press and I run a landlords help service.
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer independent property mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.

Houses in Multiple Occupation Rules in Relation to 2-storey Houses?

Suppose a landlord has a 2 storey, 3-bedroomed house, not covered by mandatory licensing (as it’s less than 3 storeys) and assume also that the local authority has not extended licensing locally to smaller HMOs.
In this scenario is there anything to stop a landlord putting in six or more tenants in such a property and staying outside the HMO regulations? If so, what regulations would then apply to prevent this?
This is a tough question which even I did not know the answer too and I’m grateful to the guys at the Residential Landlords Association at http://www.rla.org.uk/ for supplying the answer.
The RLA experts say that the property would, of course, be an HMO (assuming the tenants are not members of the same family). However it would not nned a license as it is only three storeys.

'Elf and Safety
But a landlord trying to stuff it full of tenants would be stopped by other rules. The legislation applying would be: the HMO Management Regulations, the Housing Health & Safety Rating system coupled with Part 1 of the Housing Act 2004 which provide local authorities with the powers to deal with any hazards at the property, the Housing Act 1985 Part X which deals with minimum room sizes and the Housing Act 2004 which deals with the prevention of overcrowding in HMOs.
So there you have it!
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We help landlords and property investors make money in property by coaching them in ways that work, which are ethical and which involve minimal risk.
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HMO, Houses in Multiple Occupation - Still Money There (In Brum at Least!)

Whilst at the Birmingham Property Investors Show, I stayed with my young nephew in his multi let student house in Selly Oak.
What a fascinating area - it's pretty well all student HMOs here.
My nephew's place was not fully compliant in respect of the fact that though there were 6 of them living there, they did not have wash basins in each room.
However, it was decent enough accommodation - there were lots of other amenities - and for all I know Birmingham City may have adopted a softly softy attitude on when the wash basins must be put in - perhaps giving landlords time to make the changes (and for the government to change its mind on this rather daft aspect of licensing).
But wow, the yields here were good.

Good Yields on HMOs
I calculated his landlord would have been getting about 6.75% gross, though running costs on this kind of property will probably peg back net yields to 5%.
And student demand was very high. This was clear from the fact that most properties had notices on them to stop students calling to make enquiries about next year.

Downsides of Houses in Multiple Occupation
However, there are downsides to HMO lets for a landlord.
There is a lot of work checking people in and out and recruiting new tenants - especially if the tenants are all on separate tenancy agreements.
HMO properties also tend to get a lot of wear and tear -and it can be hard to get people to pay up for damage - as each tenant will blame the other. Expect to be asked to mediate a lot between warring tenants. This all takes a lot of your time up.
Often you have to pay the council tax and electricity and gas, especially if you are letting each room separately. And you may have to pay an HMO licensing fee if the property is big enough or if the local authority requires it.
This all hits the net yield.

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years. I know all about HMO and multi let property as I have let one for over 20 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price and whether or not to go for Houses in Multiple Occupation. I can also explain how to reduce the risk of getting a bad tenant.

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Read this Related article on Multi Let Houses: http://www.lettingfocus.com/pages/myarticles_HMOAdvice.html
Read this article on landlord licensing:
http://www.lettingfocus.com/pages/myarticles7.html

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