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Buy-to-let landlords must take tenant affordability into account

While demand for rental property remains strong, landlords always have to be mindful of tenants’ ability to pay higher prices, according to the Scottish Housing Regulator.

Returns achieved by landlords in Scotland remain highly competitive when compared to other asset classes, the latest figures show.

The average monthly rent in Scotland hit £574 in September, the latest data from Your Move Scotland reveals. However, with rental price inflation running ahead of general inflation as measured by the consumer price index, buy-to-let landlords are being urged to recognise that tenants have, or are, reaching an affordability ceiling. 

Speaking at the Glasgow and West of Scotland Forum of Housing Associations’ (GWSF) annual conference last week, George Walker, the Scottish Housing Regulator’s chair, reflected on the impact of the recent inflation figures.

He said: “You’ll know that inflation rose recently to 3%, the highest rate for more than five years. Most tenants in employment have seen earnings rise at rates either below inflation or indeed, not at all. Tenants on benefits have had to manage freezes on the uplift in benefit rates and the introduction of caps.”

Walker pointed to feedback from the Regulator’s National Panel of Tenants and Service Users, noting that two thirds of the Panel have concerns about future rent affordability.

He offered the following advice to landlords: “We look for you to consider tenants’ ability to keep paying rent in the longer term when setting rents. You should demonstrate transparency on costs and a vigorous pursuit of value for money to us and to tenants.

“We expect you to give tenants genuine options and choices during rent consultations and have a dialogue about costs versus service levels. Be clear on how you will take tenants’ views into account. And vitally, be clear on what is affordable for your tenants now and in the future.”


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Tax breaks for landlords needed to keep them in the market

A raft of ‘anti-landlord’ policies introduced by the government have prompting concern that buy-to-let landlords with low profit margins could end up making a loss as a result of various tax changes, which will push some out of the market altogether.

The introduction of the 3% stamp duty surcharge, the scrapping of the 10% ‘wear and tear’ tax relief, and the fact that mortgage tax relief is currently being phased out, means that landlords simply need a break a tax break, according to Paul Shamplina, founder, Landlord Action.

He explained: “Many of the anti-landlord policies introduced over the last two years are now starting to impact private landlords, leaving many to consider selling up or increasing rents, both of which will be detrimental to tenants. The market needs to increase not decrease the supply of housing and the only way to do that is to offer incentives to landlords.

“Tax breaks for landlords who offer longer-term tenancies would be welcomed.  However, landlords will also need greater assurances that if their tenant breaks the terms of their agreement, landlords can evict them more efficiently than the present system allows.”

But Sarah Bush, director, Cheffins is concerned that the Chancellor Philip Hammond may be planning to introduce further caps on second homeownership.

“After having been in the spotlight for many months now, the letting industry could also come under fire,” she said.

Communities Secretary Sajid Javid suggested at the Conservative Party Conference in September that the Chancellor might launch incentives for landlords to offer 12 month tenancies, along with a new housing court, making letting contracts fairer for both parties.

“Whilst these would be helpful in principle, landlords are being weighed down by new taxation and costs and the government needs to consider breaks and incentives to keep private landlords in the marketplace,” Bush added.

But instead of offer landlords a tax break, speculation is growing that the Chancellor will actually take measures to stop buy-to-let investors purchasing property via companies.

One way round the mortgage interest relief loss has been to set up as a company. Mortgage interest can be offset against tax where the borrower is a corporate structure, and the number of landlords incorporating has rocketed.

Although the rules would be difficult to draw up and apply, it is possible that Hammond could extend the loss of tax relief on mortgage interest to incorporated buy-to-let investors. This would naturally have wider consequences for tenants and the housing market.


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The effects of the Manchester city centre housing boom

A continuous increase in the number of cranes, hoardings and skyscraper frames around Manchester’s inner ring road is visual proof of the current Manchester City Centre housing boom. As London has seen a housing market flat line, Manchester has seen nothing short of a market boom, following economic growth and millions of pounds of investment over recent years. Whilst many will see this as a huge plus point for the city and success for the city’s leaders, others have demonstrated their lack of positivity.

Residents of the Manchester area are struggling to comprehend increases to rent and overseas investor returns, as well as the ‘investor-only’ properties that prevent first time buyers from buying homes. Manchester’s Labour leaders are unsure on what is best for the region, and housing has become a hot topic in Westminster following the frustration shown by younger voters.

Who is benefiting from the housing boom?

At present, there are 10,000 apartments currently being or set to be built within the city centre, catering for young professionals coming to work in the city. Because of this, property prices have risen by 15% in the last year, with rents increasing 6.5% over the same period of time.

Property investors are seeing a real boost to the finances of their property portfolio, especially those that have owned properties for several years, even before the recent boom. Not only are they able to charge higher rental fees each month, but the value of their property has significantly increased.

The young professionals flocking to the city are also amongst those that are benefiting from the recent housing boom, despite being the ones paying the increased prices. With Manchester being a great city for business and seeing economic growth, young professionals are seeing the opportunity to live and work in Manchester as a much cheaper alternative to London. They get to experience the same business lifestyle with good quality jobs, all at a much cheaper living price and a less intimidating environment when compared to London.

Why do some not appreciate the housing boom?

Although the rental market is surging and is in a better position than ever before, the reasons for the boom are having a significant impact on the ability to buy a house as a first-time buyer. Despite having a healthy deposit to contribute towards buying their house, many first-time buyers are facing real troubles when trying to buy their home, even where money isn’t the issue in hand. 

A lot of current properties for sale are set as an ‘investor only’ property or are being marketed directly to buy-to-let investors, and therefore those looking to buy their first home are being completely cancelled out.

Another issue is that with anybody already renting a property, they are likely to see increases to their monthly rental fees as a result of the housing market boom.

Landlords and investors are aware that the current market allows for them to charge higher amounts for their property, and so they do this wherever possible. As well as this, any landlords operating with short-term contracts have the ability to make regular increases to the rent, simply increasing the price when current contracts expire.

Mark Burns is the managing director of property investment firm, Hopwood House.


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