Private Landlords, Local Authorities and Buy to Let Mortgages
We thought it would be useful to publish the October 2011 Newsletter right here on our blog. (Our latest, January 2012, Newsletter was published on 29th December and is available free now to those who sign up to receive our newsletter. Just send us an email if you would like to join the mailing list!)
Here is the Newsletter…..
“….. The continued upward trajectory of rents in most areas means the PRS is now attracting some serious press attention.
Each month, as soon as the LSL Rental Index comes out showing further big increases in private residential rents, the press frenzy starts once again.
Questions such as: “How can people afford to pay their rents, why are people not buying houses instead, whose fault is it, aren’t landlords driving out potential first time buyers by snapping up the little housing stock that does come on the market etc?” are hurled around the media.
And in response to the rising rents, there have been an increasing number of calls from some, for controls on rents (most unlikely to happen) and / or a review of the tax regime affecting landlords (still unlikely in the short term, but more chance of happening.)
Rising rents are happening at the same time as the cuts to the way housing benefit is calculated are starting to bite.
One outcome of this is that that councils are finding it even harder to find landlords who are prepared to let to tenants who are on housing benefit (or Local Housing Allowance as it’s called when landlords are involved.)
Another side consequence of housing benefit cuts is a reduction in the amount of accommodation available from private landlords to house homeless or potentially homeless people. And so, with few private landlords coming forward, councils now have to spend increasing amounts of taxpayer cash on temporary accommodation to put potentially homeless people in B&B type properties.
Years ago we predicted this would happen unless strategies for the private rented sector at the town halls were radically re-shaped and revised. But alas, back then the opportunity was missed.
Wasteful Duplication at Some Town Halls
At our blog, we have often highlighted the sometimes wasteful duplication of products and services for landlords at local authority level, the lack of targeted marketing to recruit landlords by councils, the poor administration of housing benefit payments (a particular bug bear of landlords), the lack of understanding of the PRS by councils and some of their advisors and the obsession with well meaning accreditation type schemes which can cost a lot to promote but which too often lack any features that private landlords value.
Unfortunately, with many vested interests at some of the UK’s town halls – both in terms of sunken political capital and occasionally in terms of council and housing association jobs – we think change here will not come fast.
However, a parliamentary group of MPs and peers has now been set up to look at the private rented sector. We are talking to the MPs and making our views known.
Little Evidence that HB Cuts are Driving Down Rents
Many housing experts thought that the cuts to housing benefit rates could drive average rents in the private rented sector down. But this does not seem to be happening apart from for the most basic housing stock – the type of stock which never had much appeal to the non LHA tenant anyway.
And with rents in most areas rising, the key drivers remain the same as ever – a lack of sufficient housing supply and a rising population driven primarily by increases in net inward migration. (Last year alone net inward migration increased the population of the UK by 230,000, which is roughly the population of Derby.) With further expansion of the EU on the agenda and the widespread use of the English language I don’t see that particular trend changing any time soon.
Job insecurity is also continuing to push potential house buyers – especially first time buyers – to rent instead of taking on the risks and high entry costs that come with home buying and servicing a mortgage. Some think the tight lending criteria from lenders are not helping first time buyers either (and this may be counteracting the relative affordability that’s now emerging.)
Buy to Let Mortgage Update
However, the fruits of our consultancy work advising buy to let mortgage lenders, will mean that the days of the “one mortgage fits all landlords” model be replaced in time, by a set of lending criteria that fully takes account of a landlord’s net asset and liabilities position, their level of experience and the risk inherent in different property types / locations as well as the intended target tenant market.
We may see more innovation in the buy to let mortgage product design too.
Landlords who know their business will benefit from this but landlords who sign up to the latest “get rich quick in property scheme with no money down” may find their choice of lenders becoming more ever reduced and their mortgages ever dearer.”
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