Written By Em

Em Morley

Call for Letting Agent Commission to be Exposed

Published On: September 17, 2013 at 3:16 pm

Tags: letting agent commission,letting agents using contractors

A property maintenance organisation has appeared to go against its fellow firms by blowing the lid on a letting agent scam that is putting landlords out of pocket.

Aspect, the firm in question, decided to expose the practice after being asked to pay Foxtons 20% commission following the completion of work on landlords’ properties. The firm says that this practice, where agents charge landlords for the cost and then additional commission for firms, is something that needs to be exposed.

No protection

Aspect believe that Government proposals to force letting agents to join an Ombudsman Scheme will not go far enough in protecting the public from similar scams. Managing Director of Aspect, Will Davies, said: “Finally, after years of complaining from consumer groups, letting agents may become regulated by a regulated Ombudsman Scheme, but this will only provide a system of redress after things have gone wrong and not clean up an industry that is rapidly deteriorating into a racket.”[1]

Call for Letting Agent Commission to be Exposed

Using Foxtons as an example, Davies said that his company stopped working for them “when they wanted to increase their commission from 15% to 20%.”

Explaining the scam further, Mr Davies stated: “Basically, letting agents can milk their clients by charging them a fee to manage the property and then they take a commission from the maintenance companies they use so their clients end up paying more than they should on top of the charges they are already paying for the service.”[1]

Decision

The managing director of Aspect went on to say that his company grew tired of the practice, which is unbeknown to most landlords. Mr Davies said: “We took a policy decision that we would not do work for any letting agents that wanted to charge a commission, as we knew their clients weren’t aware of this particular scam and we didn’t want to be associated with that.

“The practice is still rife within that market and will not be within the remit of the proposed Ombudsman Scheme. Letting agents handle billions of pounds of other people’s money every year and the industry should be subject to full regulation.”[1]

Charging maintenance firms is a debated issue among agents. Some state it is just a bung, whereas other agents defend it, saying that it generates regular work for firms.

[1] http://old.lettingagenttoday.co.uk/news_features/Letting-agents-maintenance-scam-should-be-exposed-call

The Difference Between Capital and Rental Growth

Published On: September 16, 2013 at 11:44 am

Author: Em Morley

Categories: Finance News

Tags: capital growth on property,making returns on property investment,rental income growth

To make sure that they are in a position to make sizeable returns on their investment, landlords must understand the difference between capital and rental income growth.

Capital growth

As a property gains value over time, this is known as the capital growth. Despite being good in recent years, a number of factors can affect capital growth. These can include the state of the housing market and local issues in close proximity to the property.

Rental income

Rental income is rather obviously what the tenant pays the landlord. This will hopefully increase over time, but as a landlord, it is imperative that additional costs are budgeted for. Planning for both expected and unforeseen costs will greatly assist landlords, as will understanding that they must take responsibility for all costs whether the property is occupied or is empty.

Some of the most common costs incurred by landlords are by dealing with the following:

Insurance Premiums

The Difference Between Capital and Rental Growth

These types of premium will change for each property, but landlords should budget for between 2-3% of rent.

Maintenance

Unfortunately, things don’t last forever, therefore it is important to factor in costs for when things inevitably break. The age of appliances and general condition of the property will give landlords an indication of when they will need to factor in these costs and should be taken into account when buying a property.

Changing fixtures and fittings

Landlords are advised to budget 10% of their rental income to replace worn fixtures and furniture. This should also include redecoration costs.

Void period allowance

Property owners must never presume that a paying tenant will always inhabit their property. Instead, savvy landlords will budget for one void month each year.

Letting agency fees

Fees attributed for letting agent services will vary but it is important that landlords know exactly how much they are to pay and budget accordingly.

Mortgage

It goes without saying that the biggest cost for landlords will be their mortgage. The majority of buy-to-let lenders will only allow landlords to borrow up to 80% of the overall value of the property.

After all of these costs have been factored in and subtracted from the total rent, this will give the total net rental income.

If this number is subsequently divided into the value of the property, with all the costs attributed to buying the house factored in, this will give the net rental yield.

For example, if the net rental income is £10,000 and the cost of a property is £200,000, the net rental yield will be £10,000 divided by £200,00, giving a figure of 0.05, or 5%.

If a landlord finds that after working out this cost, the net rental yield is less than the cost of their mortgage, they will be left with a shortfall on their investment. Hopefully however, if they have invested wisely, landlords can expect that their rental income will rise over time, alongside the property’s capital growth.

Rent Guarantee Insurance Ensures Investments Remain Secure

Published On: September 13, 2013 at 2:55 pm

Author: Em Morley

Categories: Finance News

Tags: evictions,rent guarantee insurance

Landlords have seen a rise in tenants falling into rent arrears in the last few years, after the cost of living has grown and wages have remained the same.

Some landlords use rent guarantee insurance to ensure that their investments remain secure, however, others will have to evict tenants who regularly miss rent payments.

Rent Guarantee Insurance Ensures Investments Remain Secure

Daniel Dovar, co-author of Residential Possession Proceedings, says: “Rising rents on residential property and falling real wages are trends that have been in place for a number of years, and have stretched the finances of an increasing number of tenants to breaking point.

“Low vacancy rates for rental properties, especially in London and the South East, mean that landlords are also more willing to remove tenants who have a history of defaulting on their rent from their property.

“With demand for rental property in many local markets outweighing sully and forcing rents upward, the opportunity cost to a landlord of having a property occupied by someone that can’t or won’t pay their rent has increased. That makes emptying a loss-making property quickly a bigger priority. Landlords are also under a lot of pressure to meet their mortgage payments on buy-to-let investments.

“If the availability of mortgages to first time buyers continues to improve and the pipeline of new build property recovers, we might see the momentum behind rental price growth ease. That could go some way to relieving the financial stress some tenants are encountering.”¹

As Dovar states, there are indications that the housing market will recover, and if this continues, the pressure on the private rental sector will decline, which will allow landlords to be more tolerant of their tenants.

However, with areas such as London being predominantly rented, landlords with homes in these places will have to remain attentive when it comes to missed rents.

Until there is a decrease in demand in this sector, an increase in wages, and more affordable private rental accommodation, landlords will have to explain the consequences of not paying rent at all, or on time, to their tenants, before signing an agreement.

¹http://www.justlandlords.co.uk/news/Eviction-Levels-Highest-in-5-Years-1769.html

Recovery in the Property Market Gaining Buyers’ Confidence

Published On: September 12, 2013 at 4:17 pm

Author: Em Morley

Categories: Finance News

Tags: BTL investor,BTL mortgage

The recovery in the property market over the last few months has improved buyers’ confidence. Alongside the Government’s Help to Buy and Funding for Lending schemes, the amount of properties being sold has increased, as has the average price they achieve.

A rise in house prices can be good for the buy-to-let sector, however, they can cause a struggle for those looking to break into the industry, or expand their portfolio.

Recovery in the Property Market Gaining Buyers’ Confidence

If you already own a buy-to-let property, higher prices and a recovering housing market will have a positive impact on your portfolio. Subject to the sector that your home is in, the market strength could increase your capital growth, or in the worst case, stop any further drops in value.

However, if you are looking to invest in buy-to-let now, or expand your portfolio further, available yields could be extremely low, and may not produce enough money to cover daily costs.

Yields are generally around 3-4% in central London, and 5-6% in the majority of the UK. Some areas, such as Nottingham, and Sunderland can produce 10% yields.¹

Preferably, a buy-to-let investment would return about 7%, allowing you to ensure there are available funds when rates go up.

Additionally, it is important to consider whether rents can rise with inflation. Most rental reports are currently stating that rents are staying the same or even falling.1A primary reason for this is that rents are likely to rise and fall in line with disposable income, and this has declined recently.

If you are a cash buyer, you are less likely to be concerned over yield levels. Nevertheless, cash buyers need to consider that house price growth must keep up with inflation to avoid a drop in income returns, and an asset’s value decreasing.

Furthermore, investing when prices are growing will cause added competition with buyers. If prices fall, you will find good bargains, but finding good deals when prices are rising is increasingly difficult.

¹http://www.landlordexpert.co.uk/2013/09/11/is-the-property-market-recovery-good-or-bad-news-for-buy-to-let-investors/

Successful Landlords Avoid Trouble and Keep to the Law

Published On: September 9, 2013 at 9:17 am

Author: Em Morley

Categories: Landlord News

Tags: successful landlords

Not only can tenants be difficult, there are also complaints from tenants having issues with landlords.

This can be a problem for landlords, with all landlords now having to register with their local authorities. Some of the matters that cause disputes between tenant and landlord are outlined and explored below. Avoid these troubles, and keep to the law, to be as successful as possible.

Successful Landlords Avoid Trouble and Keep to the Law

Increasing rent

When deciding to raise rents, it is important to take into account how and when this can be done. Rents cannot be increased throughout the fixed tenancy period, so if a tenant is in an assured shorthold tenancy (AST), the original timeframe must be kept to before rents can be discussed.

At this point, a landlord must give their tenant notice, unless there is a rent review clause in the agreement. An increase must be fair and cannot be raised more than once in a twelve-month period.

Not returning the deposit

If there are reasons for keeping hold of a tenant’s deposit, these need to be explained and made clear. Minor reasons should not cause a deposit to be withheld. By creating a detailed inventory of the condition of the property and everything in it, signed by both landlord and tenant at the start of the agreement, arguments can be avoided at a later date.

If the tenancy is an AST taken out after 6^th April 2007, the deposit should be invested into an approved tenancy deposit protection scheme. If a dispute arises over the property’s condition, and the landlord wishes to withhold some of the deposit, the scheme provider may be able to give advice. If an agreement cannot be reached, they can also mediate the matter.

Visiting without warning

A landlord cannot turn up at the property unannounced, even if there is suspicion over what’s going on there. A tenant must be given reasonable notice, preferably in writing and in agreement, before a landlord carries out an inspection on the property.

It is acceptable for a landlord to check up on their property, however the tenant is permitted quiet enjoyment of the house.

Eviction

Rules and notice periods are in place that must be followed in regards to eviction of tenants. The correct forms and timeframes need to be adhered to. If eviction proceedings go to a court hearing, a landlord can take the fall if they haven’t paid attention to the law. It is a criminal offence to evict a tenant in any way but obtaining a court order for possession.

In the majority of cases, under an AST, the landlord must give the tenant two months’ notice, but no reason has to be given. A court order for eviction will still need to be obtained, unless the tenant has already left before that time.

If there are rent arrears, or the tenant broke the terms of the agreement, there are different procedures. Given that the landlord has observed all of the correct rules and actions for the type of tenancy, an eviction order can still be gained. However, in the case of rent arrears, a tenant may plead poverty, and could receive an order allowing them to stay in the property and continue paying rent plus arrears.

Appalling behaviour by landlords has resulted in fines, penalties, and even jail sentences. There are a small minority who aren’t capable of properly letting a property, but even the best landlords should take note of the possibility of a civil case, and the importance of communication.

The most crucial thing to do in becoming a landlord is understanding the laws and regulations involved in letting. Legislation does not need to be studied, but being mindful of specifics of a dispute is of great importance. Even if you know this, but are breaking the law, you are liable to be prosecuted.

Landlords are legally obliged to allow tenants the freedom of their property, but it is vital that all rules are explained before they move in. With documenting this, however, it cannot be proven that tenants were told of specifics. Landlords should note every conversation and keep records.

If a landlord is not practising properly, then they will have no defence, however landlord cover can pay the costs if a tenant takes you to court. It is a good idea to sign up to a buy-to-let property firm to ensure their backup should there be a dispute.

Some of the negative coverage of landlords has resulted in tenants looking for the worst in their landlord. If the laws are understood, all explanations recorded, and suitable support, the risk of renting will be removed.

Universal Credit Scheme Criticised by National Audit Office

Published On: September 6, 2013 at 9:32 am

Author: Em Morley

Categories: Finance News

Tags: Universal credit scheme

Welfare changes have been badly managed and are plagued by significant IT problems, as costs could rise by hundreds of millions of pounds, says a report by the Government’s official auditors.

The National Audit Office (NAO) said “weak management, ineffective control and poor governance” had affected the project.¹The Universal Credit scheme, a £2.4 billion plan, was designed to combine six welfare payments into one.

Ministers have already cut their losses after £34m was wasted on faulty IT programmes for the scheme. The Department for Work and Pensions (DWP) are running the project, and may have to postpone the national launch beyond the expected 2017 introduction, says the NAO.1

Labour grasped the report as evidence against Iain Duncan Smith, the work and pensions secretary, who they believe has supressed important problems that could put welfare claimants at risk. The shadow work and pensions secretary, Liam Byrne, called Universal Credit a “Titanic-sized IT disaster.”1

Byrne requested cross-party conferences to make sure that a welfare programme is agreed. He says: “The Conservatives welfare revolution has now finally collapsed. It is now mission-critical that David Cameron and Iain Duncan Smith swallow their pride and agree to the talks we proposed in the summer.”

Universal Credit joins six different benefits so that the claimant receives one single monthly household payment. It entails different payments to landlords, more online claims, and fuses in-work and out-of-work benefits, meaning that for those in work, there are new descriptions to benefit conditions. Universal Credit will also need close cooperation between the DWP and HM Revenue & Customs (HMRC).

Universal Credit Scheme Criticised by National Audit Office

The DWP predicted significant savings from the scheme, with a net benefit of £38 billion by 2023.1

From 2023, the expected annual benefit was £7 billion.1Originally, the project was to be introduced nationally by October this year, however, pilot schemes were behind and are currently underway in four areas.

The audit office’s report said that the Government have not reached “value for money”1on spending to the end of April, the majority of which was spent on making IT programmes to handle data for 184,000 claimants. Out of the £303m spent on IT, £34m has been written off and the programmes still have “limited functionality.”1

Duncan Smith told parliament in March 2013 that Universal Credit “is proceeding exactly in accordance with plans.”1However, the report explains that the scheme was “reset”¹a month earlier, after the Major Projects Authority intervened on behalf of taxpayers.

The chair of the public accounts committee, Margaret Hodge, says: “The DWP seems to have embarked on this crucial project, expected to cost the taxpayer some £2.4 billion, with little idea as to how it was actually going to work.”¹

The NAO discovered that the IT programmes could not recognise possible fraudulent claims, and therefore manual checks are needed.

Hodge continues: “Such checks will not be feasible or adequate once the system is running nationally. Delays to the introduction will reduce the expected benefits and, if the department maintains a 2017 completion date, increase risks by requiring the rapid migration of a large volume of claimants.”¹

Civil servants have been blamed of having weak control of the programmes. Hodge adds: “These problems represent a significant setback to Universal Credit and raise wider concerns about the department’s ability to deal with weak programme management, over-optimistic timescales, and a lack of openness about progress.”¹

The DWP have claimed that they will continue with the planned improvement and is dedicated to providing the service on time by 2017, and within budget.

The DWP says: “The report does not cover the significant developments we’ve made since April included the go-live in Greater Manchester, our progress on the IT challenge, the latest plans for expansion from October, or the fact that we brought in two of the country’s leading project management experts to lead UC [Universal Credit].”¹

Francis Maude, Cabinet Office minister, states: “Universal Credit is a brilliant policy designed to ensure that work always pays and that hardworking taxpayers see their money being spent judiciously.”¹

¹http://www.theguardian.com/politics/2013/sep/05/david-cameron-24bn-universal-credit-problems