Arrears

Landlords, is Buy-to-Let still worth it?

Recent media attention has reported recently that many landlords have made the decision to sell their Buy-to-Let properties. Some have taken the decision due to tightening legislation and increased taxation. Others have bowed out due to the increase in mortgage rates and uncertainty surrounding the Renters (Reform) Bill, which is estimated to come into law on 1st October 2024 (which initially, will only affect new tenancies). There’s no denying the challenges that have driven numerous landlords to leave the market. Rising costs, surging interest rates, and tightening regulations have made being a landlord more complex and financially demanding than in previous years.

Discover why we believe Buy-to-Let is still a great investment option

Recent media attention has reported recently that many landlords have made the decision to sell their Buy-to-Let properties. Some have taken the decision due to tightening legislation and increased taxation. Others have bowed out due to the increase in mortgage rates and uncertainty surrounding the Renters (Reform) Bill, which is estimated to come into law on 1st October 2024 (which initially, will only affect new tenancies).

Weathering the storm

Nevertheless, for landlords that have stuck it out and weathered the storm, there are still potential benefits to the current climate of the rental market. The high demand for rental properties and less competition from other landlords can work in their favour, and the scarcity of available properties allows for longer tenancies, higher rental prices, and fewer void periods. If you are a Landlord grappling with a decision to keep or sell your property, or a first time investor wondering whether or not to purchase a buy to let property, read on, and discover more about why we believe Buy-to-Let is still a great investment option.

Increase in demand, strong rental growth and healthy yields

An overwhelming surge in demand for rental homes (a third higher than the 5-year average) supply is limited by low new investment, and rents are expected to rise between 5% and 8% next year as there is still affordability headroom across most of the country. The average gross rental yield in the UK is currently 5.49%. The average buy-to-let property costs £262,288 and the UK’s average rent is £1,201.(Zoopla) Yields have improved across all regions in the last year as house prices have started to fall and rents have continued to rise. There is also further for house prices to fall. If house prices are falling and rents are rising, gross yields will continue to improve.

A well-balanced investment portfolio

There are many ways to invest money, for example, pensions, Cash ISAs, stocks and shares, government bonds, even classic cars - It’s always advisable to spread the risk. One way of doing this is to add a Buy-to-Let property to your investment portfolio.

Prioritise your returns when you choose to

If your main goal is to generate monthly profits to supplement your income or pension, you can explore the option of investing in a rental property with a high yield, even though this may mean sacrificing potential capital growth in the future. Conversely, if your priority is to grow your capital for a significant lump sum in approximately 15 years, you can select a property that is more likely to provide that outcome while still covering monthly expenses.

Financial leverage

When it comes to any other form of financial investment, the requirement is that you personally contribute the full amount of the capital. However, when it comes to real estate, you have the advantage of utilising the bank's funds and still retaining all the profit (minus taxes, naturally!). For example, You have £60,000 to invest in shares, the market rises by 10%, and you make £6,000. However, if you put that £60,000 down as a 25% deposit on a Buy to Let property and borrow the remaining 75% via a mortgage, you can secure an investment worth £240,000. Then, when the market rises by 10%, you make £24,000. So by leveraging the bank's funds and your own, you can enjoy the advantages that arise from the bank's money growth in addition to your personal investments. Although mortgage payments, expenses, taxes, and fees must be considered, the inclusion of rental income can significantly alleviate most of these financial obligations. Therefore, investing in property with a mortgage is a viable option, enhancing your returns.

See value in your Buy-to-Let property from the very beginning

Making money on property is all down to smart buying. If you can purchase a property below its market value, for example, cash buyers may be able to fix a healthy discount with the seller and then mortgage the property later if necessary. Or you might find a property that requires refurbishment. No matter the scale, improvements and renovation projects are a great way to increase the value of your investment from the outset.

Buy-to-Let Mortgage rates

Mortgage rates on fixed deals have been falling in recent months and into February 2024, against a backdrop of predictions that the Bank of England will start cutting the base rate later this year. This is good news for borrowers looking to take out BTL mortgages, as lenders may reduce their mortgage rates further.

Achieve success in the Buy-to-Let market

To achieve success in the Buy-to-Let market, it’s crucial to approach it with the same level of dedication as any other business endeavour. Thorough research, knowledge of the market, and the ability to analyse data are all essential for effective budgeting and monitoring the performance of your property in the long run.

Still wondering, is buy to let is still worth it? We advise that you conduct these essential steps before making any investment in property:

• Engage in extensive and thorough research on the local market, focusing on pricing, rental rates, supply and demand. Collaborate with experienced real estate agents specialised in sales and rentals in the specific area.
• Conduct a comprehensive analysis of projected income, expenses (including a maintenance estimate for the next 10-20 years), and returns for various timeframes: 1 year, 3 years, 5 years, and 10 years. This thorough evaluation ensures that the property will not only cover its operating costs but also generate a profit.
• Apply a stress test to the calculations, considering longer-than-average periods of vacancy and higher mortgage interest rates to determine the break-even point. Additionally, ensure you have sufficient financial reserves to consistently maintain the property over time to guarantee the property remains financially viable and sustainable in the long run.

So, is Buy-to-Let still worth it for Landlords in 2024?

No investment is without risk but if you take a long-term view of it, buy-to-let can work for you. It’s not a get rich quick scheme but with demand for rental homes outstripping supply, there is a good income to be made if you go in with your eyes open. Although some of the recent changes make Buy-to-Let less attractive to some investors, if done right, it still remains profitable. Whilst rental yields have declined, it's important to remember that although rental income is important, capital growth is also a factor that makes investing in property very lucrative.

What stage is the Renters Reform Bill at?

Here you will find the latest update on the Renters Reform Bill. The Renters (Reform) Bill is one of the most significant pieces of legislation for private renters and landlords in the past 30 years. Introduced to Parliament on 17 May 2023, the bill is going through a lengthy parliamentary process before it becomes law. Having gone through its first two readings, the bill completed its Committee Stage on December 6, but has not yet been scheduled for its next stage, the Third Reading. Normally, a bill takes around a year to progress through Parliament and become an Act, then usually starts to take effect around six months after that. And with the next general election likely to be in January 2025, if Labour comes into power, the RRB could be further delayed, amended or scrapped altogether

All you need to know, the Renters Reform Bill

The Renters Reform Bill - What Lettings Agents and Landlords need to know. The Renters Reform Bill has been a much talked about topic in recent months between lettings agents and managers. In this article we have rounded up some of the most frequently asked questions, with of course, their answers.

What is the Renters Reform Bill?

Put simply, The Renters Reform Bill is a piece legislation that’s been proposed by the Government with the intention to reforming the private rented sector (PRS), to level up the quality of housing, and to provide a better deal for renters. It’s been said to represent the biggest shake-up of the private rented sector in 30 years.

Why has the Renters Reform Bill been initiated?

The size and role of the Private Rented Sector has increased vastly over the last 3 decades. More people than ever have taken the opportunity to become Landlords. This has prompted the Government to expand and bring up-to-date legislation that was originally in place. The Government’s plan is to “bring in a better deal for renters” and to make certain that private rented homes meet basic standards. Additionally, the new laws that are being proposed are also there to “support the vast majority of responsible landlords providing quality homes to tenants while delivering our manifesto commitment to abolish Section 21 ‘no-fault’ evictions.”

When will the Renters Reform Bill become legislation?

While no official date has been confirmed by the government, it is estimated that the Renters Reform Bill will come into law on 1t October 2024. Before then the Bill must be passed through both Houses of Parliament where amendments will be applied. Following this stage there will then be an implementation phase which is usual, before a Bill becomes law. Time is running short for the Government because there is already a busy schedule. Recesses, party conference season and preparations for a General Election also have to be allowed for. There is a possibility that the Bill will not make it in time. If this is the case, the whole process will start again when a new Government is formed. The Government states that implementation will be rolled out in two stages, and at least 6 months of notice will be given of the first roll out date after which all new tenancies will be periodic and governed by the new rules, which will include the changes relating to renting with pets. The date of this will be dependent on when the Bill has received Royal Assent. To avoid a two-tier rental sector and to make sure landlords and tenants are clear on their rights, all existing tenancies will transition to a new system on the second implementation date. There will be a gap of 12 months between the first and second date.

What should Lettings Agents and Landlords be doing now?

If you are a letting Agent or Landlord, there is no action to take at this time. However, it’s beneficial to be up to speed with any possible implications that the Bill might have.

Can a Section 21 notice still be served to end a current tenancy?

The Renters Reform Bill is yet to become law, so at present Lettings Agents and Landlords are able to continue to serve the Section 21 Notice in line with both current legislation and their tenancy agreement.

Will possessing a property back become difficult?

If the Bill is passed, the way a Landlord regains possession of their property will change. Firstly the Landlord will have to give a specific reason stating why they are serving notice. There will be amendments made to the Section 8 Notice Process, it will be updated to include the specific reasons permissible within the new legislation. If the reasons the Landlord gives is not referenced within the amended notice then time frames could increase.

In what circumstances can a Landlord refuse pets?

The government has stated that since every situation is different within the diversity of the private rented sector, it would not be possible to legislate across the board so Landlords will be expected to consider fully all requested on a case-by-case basis. If reasonable there will be situations where pet requests can be refused for example, when a superior Landlord prohibits pets. However, when a disagreement arises a tenant can approach the Private Rented Sector Ombudsman or the court, who will make a final decision based on the evidence provided by both parties.

What happens if property is damaged by a tenants pet?

To protect the Landlord, the government is making amendments to the Tenant Fees Act 2019, so that landlords can require insurance to cover any damage caused by pets living in the property. In extreme cases when insurance does not compensate for the cost of damage, a landlord can take the tenant to court to recoup additional funds.

How will Landlords register with the property portal and what might happen if they ignore this requirement?

It will be a legal requirement for all Landlords to legally register their property on the Property Portal. They will be able to do this online. Enforcement action against private landlords that fail to join the Property Portal will be taken by Local councils.  If a landlord lets or advertises a property without it first being registered on the Property Portal, they can be fined up to £5,000 by the local council.

How much will registering on the Property Portal cost Landlords?

Landlords will be required to pay a fee to register on the Property Portal. The cost of registering is still to be decided by the Government, however they say they will work to ensure that the fee is proportionate and will represent good value to Landlords.

Final Thoughts on the Renters Reform Bill

This Bill really shouldn't make much difference to good landlords who are already letting professionally, although there will be the additional cost of joining the Ombudsman and registering on the portal. The two most significant benefits are probably the strengthened grounds for possession and the Government's pledge to prioritise serious court cases, meaning landlords should be able to evict tricky tenants more quickly.

Arrears

Arrears are an unfortunate fact of life in the world of lettings. Never more so than during a cost of living crisis. We all know that there’s a lot that an Agent and landlord can do to mitigate the cost of rent arrears. (The most obvious solution being Rent and Legal Protection). But what do Move Lettings do when we are first aware of rent arrears and how successful are we in minimising the downside for everyone? Our first task is to engage with the tenant as soon as possible. It’s a much easier subsequent call to our landlord if we’ve already taken action and the solution’s already in place. Tenants that are in arrears are not always keen to speak to us, so we always start by reassuring them that we want to help. We use email, text and phone calls in a structured way so that if the case reaches a court room, we can provide an audit trail of contact. We understand that It’s really important to keep our landlord informed regularly so that they know we are doing all that we can to fix the problem.

Expensive mistakes

Tenants have never been better informed than they are today, and that’s generally a good thing. But, there are organisations who actively encourage tenants to make complaints and claim compensation from landlords and Agents. They have email templates available to make things even easier. Local Authorities will regularly advise tenants that they will not help with social housing until the legal eviction process has been completed….and that can take months. There’s no thought at all for landlords who have tried to get things right, but made a simple procedural mistake. It’s not just the financial impact of successful claims from tenants that landlords and Agents should be wary of. It’s the reputational damage that can result if the tenant takes their story to social media and the press. Move Lettings exists to give high quality advice to Agents and landlords. You can trust us to work with you and your customers to keep you safe. A great reputation is hard won…why risk it?

Rent and Legal Protection

So many people in the Lettings world dismiss Rent and Legal Protection (RLP) as another ‘insurance’ that customers can do without. To be completely honest with you, when I let a property for a friend or member of my family, there’s no way in the world I let them do it without RLP. Admittedly, I’ve been in the business a long time, but I’ve seen so many examples of good tenants falling into significant arrears over the years causing stress and hardship to landlords. The most frustrating thing is that it’s completely unnecessary. The best agents I’ve every worked with routinely (strongly) recommend RLP. By doing so they understand that they are looking after their customer and protecting their income at the same time. One final thought: If a tenant that you have introduced falls into arrears and your landlord has to go to court to evict them at great expense, it’s logical that they might think twice before instruction you the let their property again. With RLP, the landlord is much more relaxed and you will almost certainly get the relet!

The Fear Factor

Arguably, many property professionals are hesitant about building a lettings business because they are less confident discussing a tenure that they have less experience in. Perhaps the biggest misconception is that we can make a choice between Lettings and Sales because so often, eventually, we can have both. Vendors let their property and landlords sell. We should ask ourselves a question or two: Why in ‘Generation Rent’ would an Agent ignore such a significant and lucrative market? Why are ambitious Estate Agency businesses hoovering up lettings businesses as fast as they can? Move lettings are dedicated to removing the fear factor for you. We will help you every step of the way and would be very happy to demonstrate to you how, by leveraging your existing relationships, you can pay yourself a significant passive income for as long as you choose. At the same time, you will be adding significant value to your business.