Elmhurst Energy, the energy assessor trainer, is welcoming legal changes that mean landlords must make contributions to higher efficiency standards in their rental properties, if they do not meet the minimum requirement.
Changes to the Minimum Energy Efficiency Standards (MEES) regulation that came into force on 1st April 2019 mean that residential landlords may need to fund the installation of measures for higher efficiency standards in their properties, to ensure that they meet the minimum requirement.
If residential landlords are unable to secure third party funding, they must dig into their own pockets in order to cover the cost of improving their properties to an Energy Performance Certificate(EPC) rating of E. This requirement is subject to a spending cap of £3,500 (including VAT) for each rental home, which is applied to the overall improvement costs, rather than individual measures.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015previously provided a no cost to landlords provision, which allowed investors to register an exemption on the PRS Exemptions Register. This exemption was used by landlords who were unable to implement higher efficiency standards at no cost to themselves.
However, from 1stApril 2019, this provision was removed, meaning that landlords will be required to fund improvements themselves, when third party funding is unavailable.
Those who registered for the no cost to landlords exemption prior to 1stApril 2019 will also see their exemption period reduced from five years, with investors now required to make the necessary improvements to their properties by April 2020.
Stuart Fairlie, the Technical & Operations Director of Elmhurst Energy, says: “We welcome this change to the regulation. The removal of the no upfront cost to the landlord clause will certainly make the regulations easier to understand and implement.
“As the Clean Growth Strategy document has a mission to improve all homes in the private rental sector to band C by 2030, we believe that this is a positive step to help ensure that our most inefficient homes become warmer and cheaper to run.”
With talk of the short-term lettings industry booming and many changes forcing landlords out of the traditional lets sector, we spoke to Akash Sharda, the CEO and Founder of short-term rental management firm Spothost, to find out more about the market.
It is claimed that landlords can earn significantly higher rental yieldsin the short-term lettings industry than letting their properties to long-term tenants. But how true is this?
Indeed, Sharda claims that Spothost’s data reveals that landlords can earn 2.5% more per month from short-term lettings, compared to traditional lets.
However, he warns of inconsistencies: “Just like the long-term letting market, yields are poor in certain areas of the country and there is a similarity in the short-term rental market, too. Typically, yields tend to be better in the short-term rental market in comparison to the private rental sector. A number of considerations need to be taken into account, such as paying for bills, Council Tax, wifi, etc., which are all additional expenses and need to be paid for by the landlord.”
Nevertheless, these extra costs can benefit landlords when calculating rent prices on short-term lets. Sharda explains: “As these fees lie with the landlord on a short-term letting model, it means that they need to factor in the maximum usage, which will effectively allow them to decide on an appropriate nightly rate for the property. The key word being here is maximum usage. During the summer months, heating typically isn’t needed and therefore bills are much lower. Those savings are then passed onto the landlords.”
But, aside from strong rental yields, there are other benefits to the short-term lettings sector.
Landlords Making 2.5% More Per Month Through Short-Term Lettings
Sharda picks out the points that could appeal to landlords moving away from the traditional market: “They can expect a much higher standard of property maintenance, as the property is inspected several times a month and cleaned to a high standard. In conventional long-term lettings, the majority of the time, landlords need to re-paint walls or replace furniture after the end of contracts.
“They also have greater flexibility over their property, meaning that they can book it out for their own use if needed.They have no long-term ties or commitments. In a long-term tenancy, the new laws allow tenants to almost become a permanent resident in the property, meaning it could be very challenging to evict tenants.”
Sharda believes that it’s legislation that is causing landlords to move into the short-term lettings industry. He claims that, with more favour towards tenants in the traditional rental market, landlords will consider the change.
With the tenant fees bandue for introduction in England in less than two months’ time, the short-term lets sector could see an influx of investors from the private rental market, Sharda adds.
“The tenant fees ban was another money making exercise for agencies and landlords, therefore, once this become illegal, more people will look at how to recoup this extra income,” he says.
So, if you’ve decided that you’d like to take advantage of higher returns in the short-term lettings sector, how should you change your investment strategy?
Sharda gives his advice: “Landlords will need to make sure that they are buying properties in popular tourist locations to maximise their return on investment. Appropriate insurances and mortgages need to be put into place, as this type of letting is much different to the traditional long-term letting, and landlordsmay also need to seek management agencies to help manage their rental.”
The average UK rent price is now at its lowest level for three years, after dropping again in the first quarter (Q1) of the year, according to the latest Rent Index from The Deposit Protection Service (DPS).
The average UK rent fell to £757 per month in Q1, with private tenants paying £5 (0.64%) less than in the previous quarter and more than £14 (1.87%) less on an annual basis.
The decline continues the overall downward trend seen in the first three quarters of 2018, which The DPS believes may be due, in part, to a reluctance among tenants to move until the Government’s tenant fee bancomes into effect on 1stJune 2019.
Daren King, the Head of Tenancy Deposit Protection at The DPS, says: “The depressed market for rents is part of the larger slowdown that began during the summer of 2016, and which we believe is linked to broad economic factors affecting spending power and demand in the UK.
“We also believe that the rental market may be experiencing a period of tenant inactivity, driven by uncertainty ahead of the imminent enforcement of the ban on tenancy fees.”
He adds: “Even after a long period of stagnation, we don’t see many signs of a recovery anytime soon, and it is possible there will be more quarters of low or negative growth this year.”
Of the UK regions, only the South West, East Midlands, Yorkshire and the Humber, and Wales experienced rent price growth in Q1, although all were minimal, with the South West recording the greatest increase, at an average of just 0.63%.
London remains by far the most expensive region in which to rent a home in the UK. The capital has seen consistent average rents over the past three quarters, following a sharper decrease in the first half of 2018.
The North East is still the cheapest region in which to rent, at an average of £513 per month – just over £244 lower than the national average.
Terraced and semi-detached houses, as well as flats, all recorded a decline in average rents in Q1, although detached houses experienced a marginal increase of £3 (0.34%).
On average, UK tenants spent 31% of their wages on rent in Q1. The proportion is highest in London (41%), and lowest in Northern Ireland, Yorkshire and the Humber, and the North East (24%).
2018 was the first calendar year since the global financial crisis of 2008 that the average UK rent decreased.
Alexandra Morris, the Managing Director of MakeUrMove, shares details on what landlords and tenants need to know about the Fitness for Human Habitation Act 101.
Last month, the Government introduced the Fitness for Human Habitation Act. This law, which is also known as the Homes Act, essentially ensures that all rental properties are deemed safe.
While the majority of landlords will only rent out properties that are safe, the new law protects tenants should their landlord fail to keep them safe.
Who does the act apply to?
The Fitness for Human Habitation Act is applicable to all social or private rental properties. This means landlords are responsible for adhering to the Act, and tenants can take action using the Act if their landlord doesn’t keep to the new laws.
Tenants who signed a tenancy agreement from 20thMarch 2019 will be able to use the Fitness for Human Habitation Act straight away, if they feel their rental property is not safe.
However, tenants who signed a tenancy agreement before 20thMarch 2019 won’t be able to use the Fitness for Human Habitation Act. If you have a secure or assured tenancy, statutory tenancy or a private periodic tenancy, you will be able to use the Act from 20thMarch 2020. However, if the tenancy is a fixed term contract that began before 20thMarch 2019, then tenants will have to wait until the end of the tenancy.
That’s not to say that any problems tenants – who signed their tenancy before 20th March this year – face with their rental property cannot be dealt with, as you can still complain to your letting agent or local council about taking action.
Exceptions to the rule
While tenants are entitled to a home that’s safe and fit for habitation, there are some exceptions where your landlord wouldn’t be responsible.
One instance is if the tenant is responsible for the reason why a property is no longer fit for habitation. This could be due to damage caused by the tenant or through illegal activity. Where this is the case, the tenant will actually be the one responsible for putting the problem right.
When it comes to possessions, the landlord is only responsible for possessions that are included in the inventory at the start of the tenancy, and not the tenant’s own possessions.
Landlords may also need to seek permission from all parties before taking action on making a rental property fit for habitation. For example, in the case of flats, landlords will have to get permission from the building owners, and even the council, before they can make certain changes to a property.
Lastly, landlords are not held accountable for acts of God, such as fires, storms and floods, as these are beyond a landlord’s control.
The words “Property Management 101” on a yellow legal pad
What is considered a problem under the Fitness for Human Habitation Act?
There are several aspects which could make a property no longer fit for human habitation.
These include if a building is structurally unstable, or problems such as damp, lack of ventilation, carbon monoxide, overcrowding, and problems with drainage, and the supply of hot and cold water.
This list isn’t exhaustive by any means, and tenants should check if a potential problem is listed in the Fitness for Human Habitation Actor in the tenancy agreement.
There are also a number of places for tenants to get more help, including Citizens Advice, Shelter, the local council, or check Generation Rent’s website for local tenants’ rights groups.
What to do if you think your rental property is unfit for habitation
If you find any of the problems listed here within your rental property, the first step is to notify your landlord. Once your landlord is aware of the problem, you should allow a reasonable length of time for them to rectify the problem, which is dependent on the scale of the problem.
However, if your landlord fails to fix the problem in a reasonable length of time or at all, then you can use the Fitness for Human Habitation Act.
Using the Fitness for Human Habitation Act
Before using the Fitness for Human Habitation Act, tenants should contact their landlord a second time to notify them of the problem. This is because, if it is taken to court, tenants have to show they tried to sort the problem with their landlord.
In this second piece of contact, tenants need to highlight the problem, when they first reported it to the landlord, and any consequential problems that have resulted due to the rental property not being fit for habitation. If your landlord still fails to put the problem right, then the next step is court.
If a case gets taken to court, then evidence will be required. This includes copies of contact made between the tenant and landlord, or even a letting agent and local council regarding the problem.
Tenants will also need photographic evidence, a doctor’s note if it has had an impact on their health, receipts of anything that has had to be replaced, a copy of the tenancy agreement, or proof that rent is being paid to the landlord.
Winning or losing the court case
If a landlord is found to have not provided their tenant with a home fit for habitation, the courts will either enforce the landlord to undertake the work to make the rental property habitable or make the landlord pay compensation to the tenants.
The compensation amount will be based on the length of time the rental property was deemed unfit for human habitation, the seriousness of the problem and the impact this has had on the tenant.
If a tenant loses their case, then they will have to pay the legal costs associated with taking the case to court.
It’s worth reiterating that, if a tenant is concerned the property they’re renting is not fit for habitation, they can also consult with the local council, as they can take action on a tenant’s behalf for free.
Landlords, if you want to ensure your rental property meets the Fit for Human Habitation Act, make sure you have read the Government’s How to rent guide.
Many tenants are relatively flexible when it comes to the area that they are happy to live in, but there are plenty of other features of a rental home that renters will simply not compromise on, Zoopla has found.
Research by the property portal found that 61% of tenants are not dead set on the area that they are looking to live in, but they are not so flexible when it comes to nearby amenities, including shops, bars and entertainment.
The survey of more than 1,700 tenants across the UK asked respondents what they would or would not be willing to compromise on when looking for their next rental home.
Following nearby amenities being crowned as the factor that tenants are least likely to compromise on, the number of bedrooms and size of property were ranked in second and third place.
These three features were ranked above inclusion of outside space, which came in fourth place, and proximity to family and friends, which ranked tenth.
The top ten, from least to most likely to compromise on, are:
Nearby amenities
Number of bedrooms
Size of property
Outside space
Distance from place of work/study
Price
Décor/furnishings
Proximity from transport links
Standard of the property
Proximity to family/friends
Annabel Dixon, the Spokesperson for Zoopla, says: “Our research paints an interesting picture of renters’ priorities when looking for a new home. It may come as a surprise to discover that renters are more likely to prioritise access to local amenities over the number of bedrooms and rental price.
“Given that the majority of renters are open-minded on location, our research highlights an opportunity for letting agents to introduce renters to new areas that they wouldn’t have considered themselves.”
Landlords, take this research into account when marketing your rental properties!
Lower remortgage activity in the buy-to-let sector is expected going forward, due to landlords’ actions to mitigate higher tax costs, according to the latest PRS Trends Report from Paragon, covering the first quarter (Q1) of 2019.
The bank’s quarterly survey, which tracks the experience of more than 200 landlords with an average of 12.8 properties and over 20 years’ experience in the UK’s private rental sector, shows that, while investors in this group remain engaged in the market, they are now prioritising measures to bolster financial strength over portfolio expansion.
Specifically, the survey shows how landlords have scaled back their buying intentions, reduced their resilience on mortgage debt and improved affordability, by spending less of their rental income on mortgage payments.
For example, the proportion of landlords looking to purchase property has fallen from between 15-20% before the announcement of tax and regulatory changes in 2015, to just 7-10% in Q1 2019.
Average portfolio gearing – which measures the proportion of debt finance relative to a portfolio’s overall value – has fallen from 40% in 2014 to 33% today, with landlords who have three or more properties typically borrowing 36% of their portfolio value.
Meanwhile, mortgage costs as a proportion of rental income are down from 30% at the beginning of 2017 to 27% – also aided by landlords remortgaging onto lower interest rates and longer-term fixed rate mortgage deals.
The latest figures from UK Finance highlight the extent of the switch in focus from property purchase to remortgage activity, with buy-to-let purchase transactions in 2018 down by 34%, to 66,400, compared with 2014, and remortgage actvitiy up by 76%, to 169,100, over the same timeframe.
John Heron, the Director of Mortgages at Paragon, says: “The shift in focus from portfolio expansion to financial strength has driven a surge in buy-to-let remortgaging, with lower interest rates and longer initial fixed periods helping landlords reduce finance costs and lock in greater certainty.
“However, it also extends the product maturity cycle, guaranteeing a reduction in the scale of opportunity to refinance buy-to-let mortgage deals over the next few years.”
Landlords, are you expecting a reduction in remortgage activity going forward?
