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LettingFocus

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PRS Access Schemes, Build to Let and the Rugg Review. LettingFocus Surveys the Wreckage

Reading the housing section of the Labour party manifesto, one can see that the PR campaign that the British Property Federation (BPF) and their members waged on Labour Grandees has paid off in terms of Labour support for “Build to Let,” which for the uninitiated, is where the Government tries to open up the private rented sector (PRS) to big property firms and institutions.


Curious Move – And What Would Julie Rugg Say?


As I have said before, this is all very curious because Labour has decided to ignore Julie Rugg and the finding of the report they themselves commissioned.

Just to remind you, the Rugg Report said that those small pesky private landlords do a better job of being a landlord than the big boys. To quote her: “Bigger doesn’t necessarily mean better – as can be seen when you look at banks and utility companies. Small landlords are more flexible: they don’t necessarily feel that they have to put up rents year after year. I also think larger investors aren’t impressed by the private rented sector because they simply don’t understand it. Indeed, there is a complete dearth of management skills in the corporate sector” (Julie Rugg quoted in “Residential Property Investor” the RLA magazine March/April 09 edition.)


Fast Growing PRS


And with the private rented sector growing from 8% of all housing stock to 14% plus over the last 20 odd years, you could add that the individuals who make up the bulk of the UK’s army of private landlords is doing quite well on their own and is also coping rather well with the current level of reduced mortgage availability. Read this piece for more on how well they are doing right now: http://bit.ly/dkoFz0

So, like me, you may be wondering, why does the Government need the big property firms to come in and join the private rented sector party? (And, no the answer is not to do with payback for donations to political parties.)


More Stock Needed in the PRS


Well, I guess one answer is that we need even more stock in the private rented sector. (Everyone now accepts that the Thatcher claim that most of us could be homeowners was always utter nonsense.)

The Government will certainly understand this need for more stock as it faces an ever mounting bill for Local Housing Allowance as more tenants - who would in times long gone, be housed in council houses - must now be housed by landlords. And so the Government clearly thinks: More stock in the PRS equals lower rents equals a lower local housing allowance (housing benefit) bill for us to have to foot.

And that’s all true. We do need more houses in the private rented sector. But what I’m not sure about is whether the big property companies and the institutions are the best people to provide it.


Tax, the PRS and Build to Let


It seems that the institutions and big property firms worry greatly about trying to get the Government to give them suitable tax breaks so they can make investing in the private residential sector or "build to let" work for them.

Now, we know the money is there to be made in the private rented sector. (At www.LettingFocus.com we show both corporates and private individuals how to do this.)

But the institutions that wish to join the party and invest, first need to understand how to maximise the "tenant asset" - and that is all about getting the right tenant in the first place and then providing a high level of service focused on their needs. If they can understand that part of the work and learn to get it right (doable but not easy), they can make money in the PRS without recourse to special tax breaks or other unique treatments doled out by Government. (Indeed we argue that these tax breaks are unfair on the UK’s small scale landlords.)


Who Will Help the Big Property Firms Get It Right?


Who can help these big institutions and property firms, who are much more used to commercial property, get the knowledge to allow them to be good in the private rented sector?

Well, managers of public housing assets (such as housing associations) could be candidates for this role, but I would suggest that managing tenants in the private rented sector is a tad different and calls for a slightly different approach and treatment.


At LettingFocus we work as consultant in the area around Private Rented Sector Access Schemes for the local authorities and housing associations. We know these bodies do a lot of good work in this area but we have found that they lack a really close understanding of the needs of landlords and are often inefficient in recruiting them. Indeed, the way many private rented access schemes are currently set up are a long way from being the optimum method of recruiting landlords and in some cases are incredibly wasteful of taxpayers’ cash.


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 am a consultant to banks, local authorities, social housing providers 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 broadcast 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 either a one-to-one mentoring / coaching basis or through our occasional group seminars. With no links to property firms, developers or bridging loan providers we can advise on where and what type of property to buy for investment and when to buy it. We also show you how to manage tenants properly.

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Rugg Review Government Response by Lawrenson of Lettting Focus

In this bog I will look at the Government Resposne to the Rugg Review
But first, did you know that 90% of UK households are potentially eligible to access state aid to cover their housing costs?
I have to say that surprised me too when I read it in a piece of research from Knight Frank.
So, no longer do you need to be a key worker to get help. Knight Frank say that £60,000 of household income is now the accepted limit for eligibility for access to most shared ownership schemes and they add that there is talk of this limit being raised to £74,000 in London where Mayor Boris Johnson has “equated eligibility to cover everyone paying basic rate income tax.”

Front of Queue
Of course, just having a household income of £60K won’t cut you to the front of the queue for one of the many schemes.
A friend of mine who tried to find out more was told that most of the schemes were already fully “sold” out of cash within a very short time of getting the money in from the state.
Mmm, what a strange state of affairs it is when money for housing is rationed to those fastest off the mark for one or other of the subsidised or shared ownership housing schemes?
It all show that we really need a fresh debate and new thinking on housing.

Government Response to Rugg Review and Consultation
Talking of fresh thinking, if you ever have a few hours to spare you really ought to read the generally excellent and well observed Rugg Review into the Private Rented Sector.
For the most part it is full of good ideas and reasoned arguments.
Also, worth a read is the Government’s Response to the Rugg Report and Invitation to Consultation. Put "Government Response to Rugg Review" in your Search Engine.
Whilst I liked the Rugg Review, I did have a few issues with the Government’s Response to it.
In particular, the Government does not think that landlords have to “wait too long to get a possession hearing.”
Well that is a matter of debate.
What they don’t seem to understand is that once a landlord has an order in his favour, it does not end there.
If the tenant does not go by the end of the period in the possession order notice, then the landlord has to appoint a bailiff – and this all takes a long time.
In the experience of one of my clients (who by the way got his tenant from hell from one of the many fly by night letting agents), at least another 6 weeks can be added to the process.

Section 21 and Section 8
Also, they don’t understand that you can only use Section 21 (the so called accelerated possession procedure) when the fixed term in a tenancy agreement has ended.
If it hasn’t ended and is not is nearing the end soon, then you must use the Section 8 notice and normally you cannot even start proceedings until at least 2 months is overdue in rent.
This actually means that from the last time you received rent to having a bad tenant forcibly evicted by bailiffs can easily take 5 to 6 months. I’m sure most people - even the Government - would accept that this is an unreasonable period of time.

Government Fixation with "Build to Let" Won’t Die
Also, unless I have got this wrong, I recall that Dr Rugg recommended against the involvement of big institutions in “build to let” given that she found that small landlords did a pretty good job as it is on the whole. (All we need to do is weed out the rogue landlords – a thing we are all agreed on!)
So, given the good growth of private rented sector (from 8% of all housing stock in the late 80s to about 12% now) and the generally happy view that most tenants have of their experiences in it, why does the Government seem to be so determined to get the big institutions involved in the sector?
Is there something we should know? Is it just me, but I always smell a rat when a Government wants to give something to big business even when its own advisors have indicated it may not be such a bright idea.
There goes the gong for my dinner. Must go!

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the property experts and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property book for the last 3 years.
What’s unique about LettingFocus is that I offer independent unbiased
property seminars covering property investment and letting because unlike most people in the buy to let and property “advice” business I am not linked to a property company, developer, agent or bridging loan financier.
I can tell you where to buy (which areas), what type of property to buy, when to buy, how to buy property at a low price, how to make sure you get tenants who are going to pay the rent and how to manage a rental property to make money.
I can also comment on how to avoid getting a bad tenant.
I can answer most questions on letting property because I have been a landlord and property investor myself for over 25 years.

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Landlords licensing, register & build to let - LettingFocus.com

It’s looking increasingly likely that all private landlords in England and Wales will soon have to be registered before they can let residential property.
The costs are likely to be low at about £50 per annum and will cover all private landlords but, natch, it looks unlikely to apply to those models of efficiency, the social landlords!
For decent landlords it looks unlikely that you will have to do anything more than you do now, apart from have to pay another fee, of course.
This new idea comes on top of extra work like tenancy deposits, HIPs and getting an HMO license (if you operate in that sector). all of which have been introduced in the last 3 years.
GOOD LANDLORDS WONT NEED TO WORRY
Good landlords already carry out repairs and they don’t intimidate tenants. And why should they? After all, decent landlords want to keep decent tenants not lose them.
The intention from the government is that the system will operate with a “light touch” to root out rogue landlords, but another compliance cost and another level of bureaucracy will be just one more thing to scare off both would-be landlords and the new “accidental landlords” who have fallen into letting because they cannot sell their house.
No wonder most letting agents think it is a good idea as more and more novice landlords will be ever more likely chuck their lot in with a letting agent rather than read a book on letting property and learn to do it right themselves.
BUT IS THIS REALLY ABOUT GETTING TAX EVADERS?
It is likely that a landlord would get a licence number which would have to be shown on all documents related to a letting.
A spin off of all this is that it would make it easier for HMRC to identify tax evaders and many think this is the real driver behind the move - because it is well known that the taxman thinks lots of landlords are evading tax. (If that is the case, we suggest a trawl of Land Registry data to show multiple ownership would be a better starting point!)
LETTING FOCUS’S VIEW
At LettingFocus.com we say another piece of regulation on top of all the others probably wont hurt too much but how it will be implemented is key.
There are undoubtedly some bad landlords out there and weak letting agents too - and if this roots them out then that is for the good of society.
But if it is just another bit of bureacracy with no teeth that will further put off good landlords, then it will be a waste of time and money.
One can only hope that implementation is better than it was In Scotland, the land of Big Government, where they already have a landlords registration scheme.
There, in year one, only one in 6 landlords bothered to register at all and rogue landlords continue to ignore the scheme despite the penalties.
WHAT ABOUT IMPROVING THE LUMBERING COURTS PROCESS TO SPEED UP EVICTIONS?
Good landlords will also rightly question when something will be done to speed up their ability to recover their property from bad tenants which can take 6 months to go through the lumbering courts process all the way to bailiffs and an eviction.
Indeed recent figures show it is taking longer than ever as more people fall behind on rental payments.
SMALL LANDLORDS MISS OUT TO THE BIG BOYS - AND IT DOES NOT SEEM FAIR The proposal for landlords licensing falls out of the Rugg Report from last year but it’s a shame that the Government is not expected to back Rugg’s other call for tax relief for landlord repairs, such as new roofs, windows or boilers.
And hey, there are other plans afoot too because the Homes and Communities Agency has invited big property firms and other investors to support a fund to build lots more homes for rent – so called “build to let”.
I can see the logic of this. It would restart the house building sector and provide places for people to live. All good!
But what I object to is that the government seems to be negotiating incentives for big investors like stamp duty tax breaks or guarantees to underwrite rents on unfilled properties to get them on board.
This is unfair on two counts.
First, the Rugg report clearly said that small landlords do the job better.
Second, government incentives almost certainly will not be available to small scale landlords and so will penalise them and create an uneven playing field.
But can we be surprised?
The current government seems to be getting increasingly close to big business as we can see from other industries - just look at food retailing where Tesco and the other big boys have been allowed to wipe out the competition from the smaller players.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the property investing experts. Read Property Articles.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - buy Property Investment Book.
The new edition is for accidental and experienced landlords and is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing and capital gains taxes.
I’m an expert property writer and property speaker - and I run the well known landlords blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general advice on property letting and consulting to anyone looking to buy property for themselves or to let out. I can help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we offer independent unbiased property advice because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
On the contrary, we are often asked to evaluate other property investments.
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A Quick Review of the Rugg Report by David Lawrenson of Letting Focus

So much news about right now that I have decided to write an extra post to the blog!
All government sponsored reports into the private rented sector end up with landlords being made to look awful, right?
Well wrong.
For once, we at last have a report, the Rugg Report, which is sensible and which recommends only “light touch regulation” for good landlords. (The full report is called “The Private Rented Sector: its contribution and potential” and is by Julie Rugg and David Rhodes)
Sure, it suggests big changes, like mandatory licensing of all private residential landlords and managing agents but I think these proposals make sense if it means bad landlords and lousy letting agents are driven out.
The report starts off by recognising the importance and contribution of landlords in the housing market.
It proposes tax changes including an overhaul of the Stamp Duty banding system to enable landlords to buy more properties in bulk and the reform of Capital Gains Tax, so that landlords could quickly gain relief from property improvements.

NO PLACE FOR BIG LANDLORDS
It no doubt went down like a sack of spuds with the likes of the British Property Federation who had been calling (on behalf of larger, institutional landlords) for tax changes to encourage large scale” build to let” because Rugg said that smaller landlords often give their tenants better value for money than larger institutional ones and it seemed to pour cold water on claims that standards within the private rental sector could be improved by having more corporate landlords or making greater use of managing agents.
In fact it went on to say that there is some dissatisfaction with managing agents’ standards.
The report also suggests that poor tenants on housing benefit should have access to a wider range of properties and this could be done by helping tenants with rent in advance and deposits.
It rejected proposals by some housing charities that landlords cannot serve a section 21 notice if they have had a complaint about repairs.
Some social housing activists will not like this one bit, especially as the report said that retaliatory evictions (where a tenant is evicted if they complain about disrepair) are rare.
The report also rejected claims that “studentification” in university towns is a serious problem and that the problems that DO exist - e.g. noise by students - should be dealt with by existing agencies.
The proposed landlord license would cost £50 with points deducted for bad behaviour and the licence removed for serious breaches.
The money paid would fund a redress scheme – a compulsory ombudsman service to which all landlords would have to belong and to which tenants could complain.
The report’s findings are now likely to find their way into a Green Paper and pave the way for consultation and legislation.
All in all, a fine report with lots of sensible proposals.
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ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord experts.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property title - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition 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 sale and rent back.
I’m an expert freelance property writer, 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 investing advice for anyone looking to buy property for themselves or to let out.
In my work as a consultant I help private individuals with any aspect of buying property or buy to let. What’s unique about lettingfocus.com is that we are independent property mentors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role, I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2008. This blog is updated once a week.
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