New legislation brought in to tame unscrupulous sale and rent back landlords

With more people finding themselves homeless as a result of bad practice in the Sale and Rent Back market, the Citizens Advice Bureaux (CAB) has welcomed a recent FSA announcement regarding regulation.

The CAB social policy officer Peter Tutton said: “We have seen where the sale and rent back sector has caused considerable detriment in the past. While sale and rent back agreements might be the right thing for some people, Citizens Advice Bureaux have reported numerous cases where bad practice has resulted in people losing both substantial sums of money and where they were not permitted to remain in their home in the longer term, finding themselves homeless within a year.

“We have been calling for regulation of sale and rent back agreements since 2006 and are relieved that action is being taken quickly, especially considering the impact of current climate where more people are struggling with mortgage arrears, facing the threat of repossession and may be attracted by what appears to be a solution.

“This will provide much needed protection for consumers, stop cowboys and provide controls on who can provide these agreements and what they can do.”

His comments follow the government’s recent secondary legislation laid before Parliament to bring sale and rent back agreements within the scope of Financial Services Authority (FSA) regulation.

The Government also published a summary of responses to its consultation on the sale and rent back market, which closed on 1 May 2009. The FSA is to publish details of its regulatory regime, which will take effect on 1 July 2009 subject to Parliamentary approval.

The Government's consultation followed an Office of Fair Trading (OFT) market study published at the end of last year, which looked at the impacts of the growing sale and rent back market. The OFT report identified a number of risks to homeowners entering into these arrangements and made three recommendations to Government, including compulsory regulation, increasing consumer awareness and improving information about housing benefits.

The legislation announced recently includes a two-stage approach to regulation, in order to ensure consumers are protected as quickly as possible in the current market environment. The FSA will put in place its full regulatory regime in the second quarter of 2010, following consultation and the publication of its final rules.

The Chief Secretary to the Treasury, Yvette Cooper, said: “The Office of Fair Trading found last year that vulnerable homeowners were at risk from unscrupulous sale and rent back operators. It's not right that people can be pushed out of their homes through dodgy deals.”

Renting to students can reap dividends for buy to let investors

Renting out properties to students can help landlords beat the recession, says Landlord Assist, the nationwide tenant eviction and rent arrears collection firm.

It says that while much of the Buy to Let market is in the doldrums, student letting remains an appealing prospect as accommodation remains in hot demand.

The latest figures from the UK University & Colleges Admissions Service (UCAS) showed an 8 percent increase in higher education applications last year, as more people looked to delay entering the jobs market.

This is good news for landlords with properties in university towns, where the yield can be considerably higher than normal Buy to Let properties, sometimes as much as 10 percent.

Graham Kinnear, MD at Landlord Assist, said: “Very few students are able to afford mortgages, so there remains plenty of scope in the student market, particularly in so-called university towns. The market tends to be predictable and reliable as students tend to stay in a property for at least a year at a time.

“After students complete their studies they generally plan to return to their home town, therefore it is uncommon that they refuse to leave the property.”

But his colleague Stephen Parry warns that landlords should not be blinded by the hope of increased yields.

He said: “In the current economic climate landlords across the board are fighting to retain tenants, and also competing with ‘accidental’ landlords who have entered the market offering cheaper rents because they are unable to sell their property.

“As a result there are more properties out there for students to choose from and this will no doubt affect the monthly return that landlords can expect to earn.”

Landlord Assist also warns that renting to students is different from the average rental property. Prospective landlords looking to enter the student accommodation market must consider the legislative requirements prior to entering the market.

Houses may need to be licensed under the ‘houses in multiple occupation’ agreement, deposits must be protected under the tenancy deposit protection scheme; fire, gas, electrical and other safety requirements must be met; and landlords are also legally required to show tenants an energy performance certificate.

Landlords must also be prepared to deal with a higher level of wear and tear and have funds available to correct any damage ready for the next academic year.

MPs turning to rented accommodation is good news for landlords and taxpayers

With the controversy over MPs expenses rumbling on, a property expert is estimating that taxpayers will save more than a million pounds a year if ministers and Lords are forced to rent accommodation near the Palace of Westminster rather than buy second homes in the capital.

In response to public fury over second-homes, Tory Party Leader David Cameron has said his MPs will only be allowed to rent second-homes rather than buy. Nick Clegg, leader of the Liberal Democrats has said the only long-term solution with second-home expenses is to bar MPs from buying or selling properties at all.

The average rent for a studio flat in Westminster is £1,378 a month. But assuming an interest-only mortgage at 4.2 percent on a purchase price of £538,404 at 75 percent LTV (and mortgage fees of £1,000 amortised over two years) renting costs approximately £177 less than buying.
With 1,372 tenants to pay for, taxpayers will end up saving approximately £1,267,399 every year on housing allowances alone according to Smartlandlord.co.uk.

MD Keshav Thukaram, said: “This is obviously good news for taxpayers who will save as a result of this move. The saving should be even larger assuming parliamentarians have less scope to charge for renovations or flipping. And some MPs can rent in cheaper Lambeth, but we’re not counting on that.”

Although the flood of MPs and Lords looking to rent property in Westminster will be good news for taxpayers, it will be bad news for local tenants.

Smartlandlord.co.uk says rents in Westminster are set to rise significantly as MPs and Lords pile out of the second-home market and into rented accommodation.

There are only 29,000 privately rented homes in Westminster, and Smartlandlord.co.uk says the low level of housing stock will not be able to accommodate an influx of 1,372 MPs and Lords.

Thukaram added: “With 646 MPs and 726 Lords looking for rental properties, we’re going to see a dramatic increase on rents in the local area. It’s a question of supply and demand.

“If demand suddenly goes up and supply is stagnant, market forces will push up prices. I’d say a 5 percent increase on the average rental bill is about right. The increases in rents should be good news for local landlords.

Scottish landlords urged to smarten up to avoid having empty properties

Edinburgh landlords are being urged to consider property upgrades to stay ahead of the competition.

With more rental properties on the market than at any other time over the past five years, tenants have a wide choice of high quality accommodation with up-to-date fixtures and fittings.

In order to minimise void periods and ensure tenants renew contracts landlords have started upgrading kitchens and bathrooms and redecorating city centre properties.

Edinburgh property lettings and management specialists Cullen Property have seen their refurbishment service gain in popularity over the past six months.

Operations Director Steve Coyle said: “Landlords have to compete for tenants if they want to avoid flats lying empty.

“Property types that were hard to find such as two bedroom flats in sought after areas, are now available across the city and prospective tenants can take their pick, making it even more important that landlords offer accommodation to a high standard.

“Our refurbishment team has definitely been busier than ever before over the past six months advising existing landlords as well as new clients on changes needed and how they can make a property more attractive.

New landlords tend to underestimate the importance of a property’s quality, but offering a high standard of accommodation massively increases their chances of finding a reliable, long term tenant.”

While Edinburgh’s property market is showing some early signs of recovery, Cullen Property predicts that the number of flats available for rent will remain high for the foreseeable future as landlords wait for property values to rise again.

The company currently manages nearly 300 flats across the city and continues to achieve above 98 percent occupancy levels.

Residential Landlord - In brief

Bank of England committee says no change in base rate

A BBC business journalist who said on Breakfast Television that he would eat a computer mouse if The Bank of England’s Monetary Policy Committee changed the base rate this month has been spared the microchip meal following the announcement that the official Bank Rate paid on commercial bank reserves at 0.5 percent.

The Committee also voted to continue with its programme of asset purchases totalling £125 billion financed by the issuance of central bank reserves.The Committee expects that the announced programme will take another two months to complete. The scale of the programme will be kept under review.

A £75 billion programme of asset purchases financed by the issuance of central bank reserves was initiated on 5 March 2009. The programme was increased to a total of £125 billion on 7 May 2009.

Council leads the way in housing homeless people in the private landlord sector

Camden Council has welcomed the London Mayor’s renewed promise to halve severe overcrowding and reduce under-occupation in council homes, by two thirds, by 2016.

The Strategy promises a London-wide social housing mobility scheme by 2011.

Camden has led the way in many of the strategy’s preferred solutions. It pioneered the London Landlord Accreditation Scheme and successfully housing vulnerable and homeless people in the private sector.

Camden has also backed the Mayor’s pledge to deliver 50,000 affordable homes by 2011 and deliver more family homes across the capital.

Camden is already working towards the Mayor’s agreed target of providing 1000 affordable homes in the borough over the next three years.

Landlord who changed his locks opened the door to a court appearance

A landlord who changed the locks on a property he rented out in an attempt to get rid of his tenants had to face a court to explain his actions recently.

Milton Keynes Magistrates were told that when local housing officers were called in to investigate following a complaint by the tenants they also discovered the HIMO (House in Multiple Occupation) was unlicensed.

Dr Anthony Ojo, of Clegg Square, Shenley Lodge, admitted failing to ensure that a HIMO was properly licensed, for which he was fined £1,000.

He received a further fine of £200 for changing the locks with the intention of making the occupier to give up occupation at his Oldbrook property. Ojo was also ordered him to pay the council’s costs, of £1,196.24.