Base rate up 0.25% – the cost to your portfolio

Today the Bank of England announced an increase to the base rate of 0.25%, making the new rate 0.75%.

The last base rate increase was in November 2017, nine months ago.

What will this increase mean for your buy-to-let portfolio?

For most investors, using fixed rate mortgages, the effect of this change won’t be felt for a while. (You can record fixed rate mortgage expiry dates in PaTMa to make sure you don’t miss them.)

If you’ve got properties on a standard variable or tracker rate though you’ll likely see the result of this base rate increase quite rapidly.

For every £100,000 of interest only mortgage, a rate increase of 0.25% will cost you an extra £21 per month (£250 per year).

You can use our free re-mortgage buy-to-let profit calculator to see what the effect will be in your particular scenario – enter your own mortgage borrowing and the new interest rate.

The dwindling tax reduction effect

As a property investor you currently still get to claim some of your mortgage interest expense against tax. Thanks to the Section 24, mortgage interest relief changes, this is now rapidly reducing though.

Right now, in the 2018/2019 tax year, if you pay 40% tax on your buy-to-let profits then a 0.25% interest rate rise will actually cost you 0.175% of your mortgage balance. That’s £175 of extra annual cost for every £100,000 of mortgage borrowing you have.

In 2020/2021 the effect will be the same for everyone as there will only be 20% tax relief on all buy-to-let mortgage interest. At that point, a 0.25% interest rate rise will actually cost you, after tax, 0.2% of your mortgage balance per year.

Does this change your next buy-to-let deal?

You can use our free buy-to-let profit calculator and adjust the mortgage interest rate to see what effect this will have on your next projects profit.

HMO licensing changes from October 2018

From the 1st October 2018 the national rules on HMO licensing are changing so that they cover a lot more properties. If you own or manage an House is Multiple Occupation (HMO), your must apply for a licence before October 1st 2018.

New HMO licences

There are already mandatory (nation-wide) licensing requirements for HMOs and some councils have additional HMO licensing beyond the mandatory rules.

Thousands of additional properties will required an HMO licence from the 1st October 2018 as the rules are changed to capture smaller HMO properties. The regulations that all HMO properties must meet are also changing from October.

What’s an HMO for licensing purposes?

From the 1st October 2018 any dwelling, regardless of the number of floors is an HMO if the tenants consist of 5 or more people from 2 or more households (which roughly equates to them not being related).

Previously smaller HMOs – those with only one or two floors were not included in the mandatory licensing requirements, but from October these smaller HMOs also require a licence.

The licensing process

A licence application means you must complete a form and provide supporting documents. Some authorities use an online process, others provide an application form that must be printed and filled in.

Details needed for an application will generally include:

  • Applicant information
  • Licence holder information
  • Manager and owner contact details (including mortgage provider and the freeholder)
  • Details to confirm the licence holder is a “fit and proper person”
  • Planning permission (if more than six tenants)
  • Building regulations approval, if there have been significant changes, refurbishment, etc (including just internal work)
  • A floor plan showing rooms, sizes, smoke detectors, etc
  • An example tenancy agreement

Building safety requirements

To pass the licensing process the building will need to meet a number of safety requirements. You’ll need to consult the guidance from the relevant council but some common key points are:

  • Three storey buildings require emergency lighting, occasionally two storey buildings will too if the exit route is “complicated”.
  • 30 minute fire doors (three storey), with self closers.
  • 20 minute fire doors (two storey), with self closers.
  • Multi purpose fire extinguisher on each floor.
  • Fire blanket in the kitchen (away from the cooker).
  • No key should be required to get out of rooms. Multiple types of lock/mechanism are available to support this.
  • HMO noticeboard required in a common area with contact details, EPC, gas safety and a copy of the HMO licence.
  • PAT testing for all electrical appliances must be done every year.

Door closers should be on all habitable rooms on the escape route plus “at risk” rooms, ie kitchens. Bathrooms and toilets likely do not require door closers.

Room sizes

Another big change in the mandatory HMO requirements from 1st October are the new minimum bedroom sizes. Some councils have already included these in their additional licensing but for many they will be new.

The raw size requirements are:

  • Single adult bedroom: 6.51 m2
  • Double adult bedroom: 10.32 m2
  • Child (under 10) bedroom: 4.64 m2

Things to be aware of when measuring your room sizes:

  • En-suite bathrooms do not count
  • You cannot combine multiple rooms (regardless of whether the tenant has exclusive access to them)
  • Areas with a ceiling under 1.5m high do not count
  • The *floor* space must be usable as an actual floor

Licence cost and duration

The cost of a licence varies for each council, ranging from a few hundred pounds to over one thousand pounds. The cost is also dependant on the type and size of the HMO being licensed.

An HMO licence will generally last for five years.

The council may choose to issue a licence that’s valid for less than five years in some circumstances, eg if they feel any details about the landlord or property may need early review.

Issuing process

Be aware that the council will issue a draft licence to everyone involved in the property, including any mortgage company and the freeholder. This means a property cannot be licensed without their knowledge.

The mortgage company may object, although it shouldn’t be grounds for the council to refuse a licence. However it may trigger an issue with the mortgage provider!

Timing – new licences and renewals

All properties that fall under the new mandatory HMO definition must apply for a licence before 1st October 2018. It’s quite likely that not all licences will be issued before October 1st though.

The new room sizes will not apply to existing (ie larger, 3 floor HMO) licences until that licence is due for renewal.

Finding unlicensed properties

Once the good landlords have all applied to new HMO licences, how will councils find the bad landlords who haven’t?

Councils can collect tips about an HMO from a number of sources, such as:

  • deposit protection schemes
  • council benefits team
  • planning applications
  • social workers
  • health workers
  • neighbours

Penalties

Failing to license an HMO when it’s required can result in prosecution and fines of up to £20,000. This can apply whether you’re the owner or manager of such a property.

Source and Video

These details are based on a presentation I attended by the person responsible for HMO licensing in Crawley. You can read some more details about the event, presentation and Crawley specific information here.

Keep track of your licences

You can keep track of all your licences, safety certificates and other HMO property details in Property and Tenant Manager. You’ll receive automatic reminders when renewals are due and your documents will always be available at a moments notice.

New How to Rent Guide – July 2018

It wasn’t long ago that the Government issued their last update to the How to Rent Guide but it seems there were a couple of minor issues that warranted an urgent fixing release.

Officially announced on the 9th July, but actually sneaked out a few days before, you can find the latest release of the Governments How to Rent guide here.

All tenants must be provided with a copy of this guide at the start of a new tenancy. Given that it seems the version issued on June 26th may have been incorrect (it didn’t use the legally recognised document title), we recommend re-issuing the latest version for any tenancies that started on or after the 26th of June.

If you’re using Property and Tenant Manager, re-issuing the latest guide is as simple as:

  • Visit the recently started tenancy
  • Open the tenancy start checklist
  • Click the link to send “required tenant documents”

That’s it, your tenants will receive the latest guide by email.

The latest cover now looks like this:

How to Rent Jul 2018 Cover

 

 

The How to Rent guide is issued by the Ministry of Housing, Communities and Local Government. You can download the PDF directly here.

How to issue the guide to tenants

So what’s the best way to legally issue the How to Rent guide to your new tenants?

Well the simplest method is to use the automated tenancy start process in PaTMa. Just enter the basic information for your new tenancy and tenants, click to generate the AST and send it straight to your tenants for online signing. The default AST template includes provision for serving the How to Rent guide (and other documents) by email. So once your tenants have signed up, it’s just another click to send them a complete welcome pack – including the How to Rent guide, the property’s EPC, your latest gas safety certificate and your chosen deposit scheme terms.

We’ll always make sure the latest How to Rent guide is included – you’ll never have to worry about checking with the Ministry of Housing and downloading the latest guide again.

If you prefer the manual approach you can always email the guide yourself – just make sure your tenancy contract allows for it.

Or for those few who’d really rather collect bits of paper, the guide can be printed out and physically handed to your tenants. However the electronic version of the guide does include lots of links to extra information so I really recommend issuing the PDF version if you can.

New How to Rent Guide from the Government

Update: A new How to Rent guide was released in early July 2018.

Today the Government released a new version of their How to Rent guide.

All tenants must be provided with a copy of this guide at the start of a new tenancy. So all tenancies from today (June 26th 2018) must include the new version.

The latest version includes largely the same information but has been given a completely new design, cover image and layout. The checklists are much clearer to read and there’s a bit more supporting information included.

Here’s the previous cover and the new one:

How to Rent guide Jan18 coverHow to Rent guide Jun18 cover

 

I quite like the bricks on the cover of the previous edition (from January) but I have to agree that the latest one looks more modern.

The How to Rent guide is issued by the Ministry of Housing, Communities and Local Government. You can download the PDF directly here.

How to issue the guide to tenants

So what’s the best way to legally issue the How to Rent guide to your new tenants?

Well the simplest method is to use the automated tenancy start process in PaTMa. Just enter the basic information for your new tenancy and tenants, click to generate the AST and send it straight to your tenants for online signing. The default AST template includes provision for serving the How to Rent guide (and other documents) by email. So once your tenants have signed up, it’s just another click to send them a complete welcome pack – including the How to Rent guide, the property’s EPC, your latest gas safety certificate and your chosen deposit scheme terms.

We’ll always make sure the latest How to Rent guide is included – you’ll never have to worry about checking with the Ministry of Housing and downloading the latest guide again.

If you prefer the manual approach you can always email the guide yourself – just make sure your tenancy contract allows for it.

Or for those few who’d really rather collect bits of paper, the guide can be printed out and physically handed to your tenants. However the electronic version of the guide does include lots of links to extra information so I really recommend issuing the PDF version if you can.

Build to Rent Panel Debate – Landlord Investment Show

While I was at the Landlord Investment Show last week I managed to catch the build to rent (BTR) panel debate. This post is a summary of the things presented and discussed there. It turned out to be more of a presentation for build to rent than a debate though. I also watched and wrote about the expert property panel which was a lot more varied and interesting.

Update: since I wrote this, Property Tribes have published a video of the discussion – scroll down to the bottom if you’d rather watch that instead of reading.

What makes Build-to-Rent (BTR) different?

Longer and more tenant focussed tenancy agreements. They’re typically trying to do 5 year tenancies and only tenant can terminate (without fault) after 6 months.

The annual rent increase is defined in advance, generally 2 – 5% and often based on RPI.

No fees to tenants – no setup fees and no renewal/extension fees.

They’re exploring not taking deposits. Experience is showing that no fees and no deposit is a big selling point for tenants.

In 18 months, it’s predicted that no institutional developer will take deposits on their properties.

Generally BTR properties allow pets – they believe that pet owners typically have more structure in their lives and pets can also help to build a community.

Developments are trying to facilitate a community, helping neighbours to interact.

Lots of extra, on-site facilities are being included – gym, concierge, on-site maintenance, etc. Often using technology to help facilitate contact and access to make it easier for tenants.

Many developments are offering more choices for tenants. For example, allowing them to paint walls, move within developments (if circumstances change) and select between furnished, part furnished or unfurnished.

Including Internet access (via WiFi) is a particularly popular benefit, mostly because it avoids lead time in connections. Although it also helps with the perception of value for money.

Costs

Build to rent apartments typically achieve rents slightly higher than the rest of the market. Perhaps 9% to 20%. [That’s a lot – not sure I heard it correctly!]

Demographics

Vanessa pointed out that build to rent is focused mainly on apartments, hence generally town centre and for smaller families. Vanessa suggests that house based landlords have nothing to fear from build to rent. There are occasional build to rent schemes doing family homes but very few. Build to rent probably needs a time span of 10-15 years to gain traction.

The panel pointed out that the last decade has seen a lot of re-urbanisation.

The main speaking started with build to rent six years ago. They expect build to rent to be providing 80,000 to 90,000 units by 2021.

There’s a surprisingly large mix of tenants renting build to rent units – including older renters who may have sold their family home and are wanting to live in town again with more of a community.

What happens if tenants can’t pay?

Build to rent schemes are very keen on supporting their tenants when they can, they will find the time to speak to individual tenants if needed and have the flexibility to make changes, eg moving tenants to a smaller apartment.

Does built-to-rent damage the market for others?

Current experiences are that build to rent developments actually increase general rental demand in an area, including for other properties. The extra people and facilities also help to improve (and cause others to improve) the area.

Video

There’s also a forum discussion about this build to rent debate on the Property Tribes site. That discussion includes some interesting points from a recent  build-to-rent survey, eg “The survey also found that over a third of tenants across all groups are becoming increasingly aware of Build to Rent initiatives, and that 53% of all tenants said they were interested in them”.