Labour Party’s U-turn on the £252,501,630 grab on Paignton landlord’s wallets

Well, with the General Election upon us and having been asked by a number of Paignton homeowners and Paignton buy to let landlords what the different main parties would do to the local property market, in this article we focus on Labour’s contentious Right to Buy proposal for private tenants. Launched in September, the plan was designed to force landlords to sell their buy to let investments to their tenants who wished to buy them…. at a substantial discount.

Shadow Chancellor John McDonnell told the FT in September that, under a new Labour government, tenants would be given the Right to Buy their tenanted home with a hefty discount – just like the Tory Right to Buy policy for Council house renters that came into force after the 1979 General Election.

Yet it was not certain who would have been expected to pay for discounts on buy to let homes sold to tenants. Four years ago, Jeremy Corbyn advocated using the £14bn of tax allowances that UK landlords had at the time to pay for these discounts, allowing tenants to buy their tenanted home at the same discount as they would a local authority home without leaving the landlord out of pocket.

However, these tax allowances have been substantially reduced with the changes in the way mortgage interest relief on landlords’ mortgages is calculated, meaning that this method of funding would no longer be feasible. In fact, bankrolling a project at a modest 20% discount for the whole of the UK would cost £177.84bn; a lot more than the £14billion quoted by Mr Corbyn. So, what would that policy cost Paignton landlords?

Labours policy of 20% Right to Buy discount could cost Paignton landlords £252,501,630

… and if Paignton tenants got the maximum discount of 35% that Council tenants have with the Right to Buy scheme that would cost Paignton landlords £441,877,850.

However, it appears Mr McDonnell has re-considered the original suggestion and done a (slight) U-turn, stating it should apply only to the richest landlords and not those who only own a couple of rental properties. He was quoted in The Times as saying, “There’s a large number of individuals or families who have bought another property as an asset for the future and we wouldn’t want to endanger that”.

Yet, even this somewhat watered-down account still creates threats to the private rental sector and Paignton’s overall stock of private rented homes. John McDonnell seems to have altered his initial thought to permit all private tenants the right to buy from their landlords to apply only to those with more than a couple of buy to let properties. The shift appears to be aimed at pacifying middle England small time landlords who are probably swing voters with smaller property investments and instead, Labour’s focus is on the larger scale buy to let investors. Looking at the stats, and being generous that we are only looking at landlords with 6 or more (not the couple that Mr McConnell suggested) ……

Of the 5,296 rental properties in Paignton, 1,446 are owned by Paignton landlords with 6 or more properties in their portfolio

To target these larger scale landlords, who would unquestionably leave the property market in their hordes if their buy to let investments could be so easily destabilised. There would be mass sell offs before the legislation became law, thus making the tenants homeless (and who would house them??) ..and even if that didn’t happen, it would be very damaging and someone (probably landlords) would have to stump up the £48.54bn national bill (£68,942,100 in Paignton alone).

If Labour want to fix the property market, it needs long term certainty and confidence, yet even these revised policies would instantly challenge this

And don’t think I am just Labour bashing here as the Tory 2014 Help to Buy scheme hasn’t really helped either as their scheme which gave first time buyers (FTB) a 20% interest free loan, if they put down a 5% deposit, has been a boon for new home builders.

The Tory’s announced recently another £10bn of taxpayer’s money will be pumped into a scheme which, quite frankly, wasn’t needed to boost an already decent property market. The banks were already giving 95% first time buyer (FTB) mortgages from 2010 and the Help to Buy scheme was only allowed on new homes purchases, meaning it didn’t help the larger second-hand market. That £10bn could have been better spent building Council houses, not helping the large plc builders line their pockets with Government cash.

Are the Tories Selling Off the Final Part of the Family Silver?

1,900 Paignton Housing Association Households & the Right to Buy Their Homes

In 1979, Margaret Thatcher was voted in on a Tory landslide with the ‘right to buy your own council house’ being a mainstay of Conservative policy. She encouraged people to buy their own their own council flats and houses, although it might interest you to know, that the council tenant right to buy idea was first proposed in the late 1950s and formed part of the manifesto of the Labour party. Yet Maggie’s version was based on massive discounts for tenants and 100% mortgages (i.e. no deposit). However, the real bugbear was that half the monies raised form the house sales went to central Government and the other half to the local authorities … but that money had to be used to reduce the local authorities debt rather than building new houses – so houses were being sold and not replaced.

2,111 council homes in the Torbay area have been bought in the last 40 years (an average 53 per year)

Interestingly, the Tories relaxed the rules in 2012 for right to buy and raised the highest discount on a property to £75,000 (it has subsequently increased further, to £100,000, in some parts of the UK) meaning 62,114 council houses have been sold nationally since the rule change, raising £6.228bn since 2012 alone.

The issue, stated by many existing council house tenants, is that those tenants turned homeowners subsequently sell on their ex-council homes at a huge a huge profit, meaning the demographics of those areas has become ever more transient, more specifically, properties that were once council homes are now owned by buy-to-let landlords who rent them out on a short-term basis.

Yet up to this point in time, nothing has been said about ‘other’ type of social housing – housing association properties. Whilst council houses are properties owned by the local authority providing low cost social housing, housing associations also provide lower-cost social housing for people in need of a home, yet they are private, non-profit making organisations.

The Tory’s state one of the biggest divides in our British society is between those who can and cannot afford their own home, so plan to establish a new national model for shared ownership which allows people in new housing association properties to buy a proportion of their home while paying a lower/subsidised rent on the remain part – helping thousands of lower income earners get a step onto the housing ladder.

So, what for the tenants of the existing 1,900 housing association households in Paignton? The Conservatives have said they will work with housing associations on a voluntary basis to determine what right to buy offer could be made to those Paignton tenants, although there are already existing rules which give most housing association tenants the right to buy their home, yet with only modest discounts of £9,000 to £16,000 depending on where you live. So, what does all this mean for the current homeowners and landlords of Paignton properties?

The Tory’s sold off 1,975 council houses in Torbay whilst in power between 1979 and 1997

This really created waves in the housing market in the 1980’s and was a contributary factor to the housing crash of 1987 when Dual-MIRAS tax relief was removed by Nigel Lawson. By the selling off of council housing in those years they were accused of selling off the family silver cheaply, thus created the foundation of the buy-to-let boom of the early to mid 2000’s, because of major shortage of affordable housing being sold in the previous two decades.

Yet this time round, note the Tories state it is just for new housing association properties, not existing. Also, that tenants will have the right to go into shared ownership – NOT OUTRIGHT OWNERSHIP. This means this policy will have hardly any effect … unlike the Thatcher policies of 1979.

A Golden Opportunity?

Over the last 12 months we have seen unprecedented changes in the property market, in terms of legislation and tax changes. Such that many investors are wondering if it is still such a good idea to invest in property.

The reality is that the property market is constantly changing, and as professional investors know we need to learn to adapt to and make the most of the changes.

I believe it is a golden opportunity which is open to us for just the next 12 months.

I think we will see a lot of amateur and accidental investors sell off their portfolios because of the new proposed tax changes for property investors

Surprisingly some investors are not aware that they are sitting on a property time bomb

Koru ConnectionsSo how we can adapt to the ever changing property market?

  • We still live on an island
  • There is not enough accommodation
  • What will happen regarding immigration?
  • The Government is not going to kick people out of the UK
  • Population is growing even without immigration

Interest rates have been reduced to a record low so the cost of borrowing will fall; the expectation is that rates will remain low while the economy recovers. This is good news for existing and new property investors but not good news for savers!

We are also seeing competition between mortgage lenders which can only be good news if you are buying a property.

Why I believe the next 12 months represents a once in a lifetime, Golden Opportunity

  • Take advantage of the uncertainty
  • Buy whilst others are waiting
  • Make sure it stacks up and hold for the long term
  • Be careful of flipping ( buying , refurbishing and selling on )in this market
  • Educate yourself and take action now
  • The next 12 months could be the best opportunity for you to build your property portfolio

Sally & Kevin Cope – Koru Connections – 0845 0569513 – https://www.facebook.com/koruconnections/

Legislation, Regulation & Aggravation

We’re very close to launching our new website and I’ve been busy writing all the copy from scratch which is quite a mammoth task. One section I’ve just started is about all the rules and regulations for landlords to abide by and having written the list it even surprised me how many different pieces of legislation there are that we have to adhere to.

We have to work hard to keep up to date with all the changes that could cause a problem for us as agents and it got me thinking what chance does an individual landlord have of knowing exactly what to do to protect themselves?

Rules & RegulationsRecently I had a call from a landlord arguing with me about the need to protect a tenant’s deposit within one of the government approved schemes, this is legislation that changed back in 2007 and could very easily result in the landlord not being able to issue notice to the tenant and/or being fined up to 3 times the amount of the deposit paid.

The legionella risk assessment that is now an obligation for all businesses regardless of whether you have a water tank or not also applies to landlords.  This was disputed recently by a landlord who said that other agents had told him it wasn’t necessary, the confusion appears to stem from the fact that the Health & Safety Executive have stated that testing for legionella is not an automatic requirement, which is true. I am not too bothered what other agents advise their own clients but it is annoying when it is incorrect and causes us to have to spend more time confirming to our landlords that it is necessary to assess the risk adequately.

When I think about landlords with a family, managing one or two properties alongside their full time job or business, it amazes me how many people want to spend their free time doing things such as viewings, decorating or dealing with problems when they could be paying an agent to take all the hassle away from them.

When not to call the Fire Brigade

I had a call on Saturday afternoon from our out of hours call answering service informing me that one of our tenants boilers was on fire.  I was quite shocked to hear this and obviously asked them to put the call straight through to me, it turns out that it wasn’t actually on fire but the boiler cover did have some scorch marks on it.  I was pleased that they had decided to call me on my mobile to ask if I wanted to take the call as it really could have been an emergency.

fire-engineI discovered that the tenant had an electric shower and an immersion heater and was therefore able to cope without the boiler for a couple of days. I asked him to turn the boiler off until we could get a gas engineer out after the weekend which he was very happy to do.  It would have been very easy to call out a heating engineer over the weekend but it just wasn’t necessary on this occasion.  The landlord thanked me for not incurring him in extra cost, he’ll still have the cost of someone going out to look at it but not at a premium rate.  Our general rule of thumb on deciding what action to take, is what I would do if it was at my own house and common sense usually rules.  Tenants don’t always appreciate this unfortunately as they sometimes feel that because they are paying to live there, we should be able to magic up a solution when despite our best efforts it is not always immediately possible.

When you manage as many properties as we do, maintenance issues come up on a daily basis, some of which need instant attention whilst others are naturally less pressing.  We have an online reporting tool which is also available as a mobile phone app to allow our tenants to report any maintenance issues clearly and easily.  It’s amazing how often we receive several almost identical queries in a short space of a time, as people start turning boilers back on after the summer we’re bound to get a number of boiler faults so it looks like our heating engineers will be kept very busy over the coming months.

Is Energy Efficiency really that important?

EPCs?

If you are selling or letting a property, it requires by law to have an Energy Performance Certificate (EPC).

Most of the time having me carry out a survey is just part of the process you go through, I come round, I draw a plan, I take pictures of your lightbulbs and I stick my head in your loft space. It’s a tick off your ‘to do’ list!

You also probably only see the coloured grid that looks like the stickers on a new freezer but the report is actually about 4-5 pages long and includes details of construction, any insulation and heating system, along with estimated running costs, and any recommended improvements

It is also a public document which can be seen by potential buyers and tenants online.

The EPC is actually valid for 10 years so you may think of it as a ‘done and forget’ piece of paper but does it still represent your property? If you have made improvements to the heating system, added insulation or made any changes to the structure of the property then does it still represent your property? If you had gone to the necessary expense of installing a new boiler would you want the EPC to still have a recommendation to ‘install a new boiler’?

sue-colemanLikewise when you are looking at a property to buy, if you looked thoroughly at the EPC and looked at the recommendations and saw a list – loft insulation, replace boiler, draughtproofing, heating controls….. Would that not make you look a little closer, or does it even give you a little bargaining power.

Whatever you may think. energy costs can only go one way and that it up, and the running costs of our homes impacts greatly on our comfort and lifestyle.

Admittedly we are all generally swayed by a nice kitchen, spacious bathroom or easily maintained garden, don’t overlook the EPC.

Sue Coleman

DEA Torbay

www.deatorbay.co.uk

01803 400094

sue@deatorbay.co.uk

When is a bedroom a bedroom?

On the face of it, it seems a fairly straightforward question that should have a straightforward answer but when it comes to marketing your property for sale, there are certain regulations you have to be aware of before it can be The World's Smallest Bedroom?counted.

Generally speaking a bedroom can only be called a bedroom if it has a window, is up to current building regulations (or the building regulations at the time it was built/converted) and is of a sufficient size.  Examples where this would not be met is a loft conversion without standard stairs to access it, a room with only an internal window using borrowed light or a room you simply couldn’t put a bed in.  We recently had a property to let that you could fit a cot in but a bed would have almost filled the room so we made the decision to not call it a bedroom, to avoid misleading anyone.

It is possible to call a dining room a bedroom if in common usage it would be used as a bedroom even if the current occupiers don’t use it as such.  It would only be possible to do so if there were no connecting doors or access to other rooms though.  For us most of the time it’s about the balance of the house, there is no point in having 6 bedrooms if that leaves you with a small lounge, a kitchen and a bathroom.

Ikea Studio flatThat’s not to say that you can’t make the most out of  a very small room with some very clever interior design, just take a look at what Ikea do with their studio flat layouts in store.

If you have a very high ceiling in the room there is always the possibility of using a cabin bed with wardrobes etc underneath.  Another alternative is to steal a bit of extra space from a neighbouring room, it doesn’t have to be as complicated or expensive as it may at first seem. Just be careful not to be left with 2 single bedrooms instead of a double and a study or a nursery!

How to save 3% on your next buy to let…

After the government brought in the 3% stamp duty surcharge for 2nd home owners back in April there was initially a slight decrease in the number of buy to let purchases. A lot of buyers have now simply factored the cost in to the overall return from their investment and assuming a property is kept for 10 years it is only the equivalent of 0.3% a year.

Save 3% on your next buy to letOne way to avoid the surcharge is to look at buying a mixed use development as these do not attract the charge whatsoever.  Whilst traditionally small investors have shied away on the basis that it may need a different set of skills to manage a commercial property, most landlords should be capable of dealing with a shop, an office or a service business.

We’ve currently got a mixed use development on the market for £260,000 just up the road from our Town Centre office in Tor Hill Road. It comprises three 1 bedroom flats and a hairdressers on the ground floor, generating in excess of £23,000 per annum with potential to grow that to around £25,000 giving a gross yield of around 9%.  The stamp duty would be £3,000 as opposed to £10,800 if it had been a fully residential building.  There are some mortgage considerations to be aware of when buying a mixed-use development in that some lenders won’t consider them but there are enough that will to make it still a competitive market.

Room sized remnant

Carpet SaleLike any good agent, before I go out on a market appraisal I do my research on the property to see if it is currently on the market or if it has been recently.  Often I am astounded at the quality of the photographs my competitors have taken especially when it comes round to the angle that they have taken the photo from.

One I saw recently was as if they had some sort of carpet fetish, every shot had about 50% of the frame taken up with the floorcoverings which only left the other 50% for the rest of the room.  I’m not saying that you should ignore the flooring, particularly if it’s of a good quality and in keeping with the decor of the property.

I won’t embarass the other agent by revealing who they are but suffice to say if my most most junior staff member had come back to the office having taken those photographs I would have sent them straight back out to re-take them.

Wooden Floor

I’m quite tall so my natural height to take a photo is higher than a lot of people’s so I simply bend down to get the right aspect or use a tripod to get the best shot possible.  It’s not rocket science but it does take time to check the photo’s at the property and re-take any that haven’t come out as well as we may have hoped.

You only get one chance to make a first impression, why would any vendor or landlord be happy with poor photography?

There are lots of good websites with terrible estate agent photo’s featured on them, this is probably the best one as it comes with some hilarious captions:

http://terriblerealestateagentphotos.com

If you spot any horrors that you’d like to share let me know and I’ll add them to this article.

It’s not always as ‘Easy’ as it appears

AirplaneI read a review of a well known brand’s online letting agency offering the other day and it made me laugh.

The reviewer has split the service being offered down into its’ constituent parts and looked at each part individually including comparing the costs.  I won’t go into all the details but some points really stood out:

  • “I have never met a tenant yet who knows how to read a floor plan, or would care about one. In my experience, most buyers don’t understand them either.”
    • I couldn’t disagree more with this comment, most viewers love to see a floorplan and properties with them get 30%+ more views online
  • Inventory – Quite expensive, the main cost is the time for the agent to do this on your behalf. Usually less than an hours job.
    • I would counter the cost of not completing a thorough inventory would more than outweigh the cost of having a professional do one and most will take longer than an hour even with experience
  • An agent won’t care if your prospective tenant looks like a dirty, unkempt mess, they will only care about the money they earn for an hours work.
    • What a ridiculous comment! Agents who value their reputation will only put forward suitable tenants to their landlords even if they are not going to be managing them.
  • Letting boards are a bit pointless to a private landlord.
    • Why would you not want prospective tenants to know your property is available to let?

The most telling part of the review was this:

“It would probably be cheaper and better managed to employ an regular agent.”

There will always be people who prefer to do everything themselves but thankfully most landlords realise that employing a professional to do the job will save them time and hassle.

Invariably a good agent will save a landlord money by getting a higher rent, ensuring compliance with all necessary legislation and by not putting in the wrong tenant in the first place.