Top Ten Challenges Facing London Landlords · 10. Affordability, Subletting, Scams •High occupation levels •Unscrupulous rent to rent •Fake landlords, serially bad tenants,

www.landlords.org.uk

National Landlords Association


Top Ten Challenges

Facing London LandlordsRichard Blanco, NLA Representative


1. Regulation of Buy To Let Loans

• Drivers

– Lots of landlords sell,

could “seriously affect UK

economy”

– Rise in BTL from 5% to

16% of the mortgage

market

– Landlords out of favour –

prefer homeowners and

Build To Rent

• Two Phases: 1 Jan & 30

Sep 2017


1. New Criteria

• Phase 1 – Increased stress test - 1 Jan 2017

– Old criteria 125% @ around 5% rental coverage

– New criteria 145% @ 5.5% minimum

– Take into account tax status

– Different approach if remortgaging

– 5 Year fixes are exempt

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

– 4 mortgages or more

– Assets & liabilities, business plan, cashflow


Impact Of Phase 1 On Yields

Yield Max LTV

under old criteria

Max LTV

under new criteria

6% 96% LTV

(theoretically)

75% LTV

5% 80% LTV 63% LTV

4% 64% LTV 50% LTV


Impact Of Phase 2

• Example of criteria: BM Solutions

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

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

LTV of 75%

• Use specialist brokers

• Use different lenders

• Borrow less than expected

• Have to use commercial lenders


2. To Re-structure or Not…

• 1 in 4 landlords consider incorporation/spouse

• Move to limited company (or LLP or both)

– CGT and SDLT

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

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

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

– Ltd company must provide deposit for loan

– Restricted to commercial loans


3. Uncertainty – Four Factors

• House prices

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

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

– Micromarkets: 15.7% W Forest, 14% Newham

– Where are we in the house price cycle?

• Tax Changes

– 19% landlords say they will sell (NLA)

– Opportunity (15%) or Negative portent?

– Landlord optimism at an all time low


Uncertainty – Four Factors

• Brexit

– Economy is buoyant

but will this last?

– Impact on rental

demand?

– Falling pound

encourages

international investors

• Government Policy

– Anti landlord, pro FTB

& build to rent

– Letting agent fee ban,

deposit caps

3 year tenancies next?


4. Your Business Plan

• Sell Up, Stay Put or

Expand?

• Move into Buy To Sell

(buzz of the refurb)?

• Your Plan Should

Consider

– Tax changes

– Yields

– Rental demand

– Opportunity for capital

growth

– Financing (taking

account of changes)


5. Increasing Govt Regulation

• Documents when starting an AST to retain s21

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

• Energy Efficiency

– No F & G after April 2018/Request improvements

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

• Housing & Planning Act

– Electrical Safety, Civil Penalties, CMP

• New HMO Mandatory Licensing Definition

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


6. Article 4 & Licensing Compliance

• 22 boroughs have or considering discretionary

licensing

• 8 boroughs have Article 4 directions

• www.londonpropertylicensing.co.uk

• Understand types of license

– e.g. many landlords wrongly or unlicensed in

Newham and Tower Hamlets

• Consider these factors when business planning


7. Changes In Rental Demand

• Sales transactions

are down

– Down to 96,910 lowest

now since Oct 2016

– New instructions fell

for 16th month in a row

– Moves by mortgaged

homeowners down by

50%

– Drag caused by Stamp

Duty on properties

over £1m

– Gross mortgage

lending down by 8%

(CML)

– First Time Buyers up

by 8%


7. Changes In Rental Demand

• 37% of landlords

report declining

tenant demand in

Central London in last

3 months

– 20% nationally – trend

is growing

– 23% decreased rents

• Brexit related or surge

in sales to April 2016?

• Reconsider your

target market, sell,

adjust price?


8. Tips On Avoiding The Void

• Setting the right tone at

the start

• 12 month contracts,

works during tenancy

• Marketing photos on file

• Talk about renewal at

9th month, confirm at

10th month

• Viewings in 11th month


8. Avoiding The Void

• Check out letter and

follow up visit

• Help agent – quick

access to keys

• Flexible on price and

furniture

• Line up contractors

• Quickly resolve

deposit return


9. Is Build To Rent A Threat?

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

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

– GLA estimates top 90th percentile - premium offer

– Drive up standards & expectations?

– Small landlords co-exist in student market

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

• Could compete with

– High end HMOs

– Drive out lower end of market


10. Affordability, Subletting, Scams

• High occupation levels

• Unscrupulous rent to rent

• Fake landlords, serially bad tenants, Gumtree,

Air BnB scams

• Take steps to avoid

– Proper referencing

– Induction and inspections

– Clear guidance and response to subletting

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

extra people, befriend neighbours


Inside Property Podcast

• New monthly podcast

– HMOs

– Expand, Hold or Sell?

– Brexit & Investing

– Crime in the PRS

– Property in the media

– Scotland & Wales

– Maintenance

– Landlord tenant

relations

• insideproperty.org.uk


Join Us

• Today for £75 instead

of £99

• Advice line & Library

• UK Landlord

• Discounts on

mortgages, insurance

and other services

• Your voice

• Be a professional

• 87% satisfaction rate


What do you think?

Time For Questions

Richard Blanco, NLA Representative

[email protected]

To do business with the NLA

[email protected]

Handout of this session at my blog

www.richardblanco.com