Top 10 Challenges Faced By London Landlords
Are you a landlord in London?
Chances are that you must have faced some of the challenges mentioned in this post.
It is important that you learn about these challenges and how to overcome them early on to live a stress-free life.
Without further ado, let’s take a look at the top 10 challenges faced by landlords in London.
10. Tax Strategy
One of the main challenges facing London landlords is tax strategy or the lack thereof. Ever since the section 24 tax changes which put a restriction on tax relief on every mortgage interest payment, landlords had a difficult time getting to grips with the change. According to NLA research, it was found that only 49 percent of landlords fully understood the changes. Thus, if you plan on restructuring your business due to tax purposes, it will end up costing you more. Besides, you do know whether the tax rules would change again or not.
9. Hold, Sell, or Buy?
NLA research reveals that even though 15 percent of landlords intend on purchasing in the next 12 months, 22 percent intend to sell off some of their properties. It was reported by UK Finance in July 2018 that buy to let lending has decreased by 22 percent. However, lending to first-time buyers has increased by close to 10 percent over the last 12 months. It shows that the government hopes to suppress landlord borrowing and encourage first-time buyers to own a home. Similarly, property prices have gone up by 3.2 percent nationally as reported by the ONS. But, house prices have fallen by 0.2 percent in London.
8. Staying Ahead of Regulation
The government has enacted more regulation over the year. Thus, it is crucial for landlords to be at the top of their game and compliant. There are electrical safety checks, minimum energy efficiency standards, GDPR, redress scheme, fees ban, and a new HMO definition that needs to be considered. Join a landlord’s association in London to stay updated.
7. Obtaining a Mortgage
Ever since the Prudential Regulation Authority Changes were made, the mortgage landscape has changed drastically. The majority of applications would be subject to the test of rent covering around 125 percent of the cost of a mortgage at the rate of 5.5 percent hypothetically. A stress test would be applied to your entire portfolio if you own four or more properties. Landlords are having a much harder time obtaining mortgage finance.
6. Article 4 and Licensing Strategy
Landlords need to understand mandatory, additional, and selective HMO licensing. 22 boroughs in London have been subject to discretionary licensing. Article 4 places restrictions on 9 London boroughs for lets to non-related individuals.
5. The Evolution of the Letting Agent Sector
The government had promised to completely regulate letting agents in October 2017 at the Conservative party conference. Client money protection needed to be in place by April 2019 after the transparency regulations and redress scheme.
Moreover, a trade body had to be created to sign up the desired code of conduct. An approved qualification will be required by all agents and letting fees are to be banned. When it comes to revenue based on turnover, letting fees made up around 30 percent of the revenue generated by agents. Thus, a change in pricing strategies would be needed. Landlords in London should always select an agent who is a member of UKALA, RICS, NALS, or ARLA.
4. Disruptive Regulatory Forces
Policy shifts are being considered by politicians. They would prove disruptive for the entire private rented sector. No fault eviction was discussed and whether it should be banned by John Healey, the shadow housing minister at the Labour party conference. Instead, compulsory three-year tenancies, renters’ unions, and rent controls may be introduced to strengthen the rights of tenants. This would boost the number of sales made by landlords, leading to house price deflation, and reduce the number of private rented housing units available.
3. Getting Good Yields
To obtain a mortgage, landlords tend to face greater pressure to show that they receive good rental yields. Since rents in London have softened to -0.2 percent during the course of the last 12 months according to the ONS, it would be difficult for landlords to obtain a mortgage. However, there are signs which show that the market is recovering and good yields should be expected in time to come. It is important for investors to buy property in a good location, set high standards, and take pride in their property to attract the top tenant. Multi lets and students offer the highest yields. But they cause a greater turnover of tenants. On the other hand, working family tenants offer a considerably lower yield but a much longer stay.
2. Subletting
A common problem faced by landlords in London is subletting. Some tenants manage to find a way to share the costs and there is also a risk of unscrupulous rent to rent operators that would exploit your assets. Now, Article 4 directions have forced one to let only related people. However, there are some tenants that end up exploiting this and bring in more relatives. Thus, it is imperative for landlords to ask applicants about who would live in the property before an agreement is made. Ask tenants to check in the meeting and warn them not to move in with anybody else without your express permission. It is vital that periodic inspections be made every 3 to 6 months to ensure that occupancy is as agreed upon.
1. Avoid the Void
Finally, the current lettings market shows that it can take much longer to find a new tenant for your property. Hence, it is crucial that landlords plan ahead for tenant changeovers before the end of the tenancy agreement. It is a good idea to utilize Airbnb to sublet your property for short stays and a higher profit margin.
As a landlord in London, challenges are inevitable. However, it is vital that you identify and understand the challenges in order to act accordingly.
More importantly, you need to partner with a real estate agency that helps you tackle these issues. Evernest properties is a brand of trust for landlords all over the U.K. We provide specialized services to landlords to help them achieve the best possible deals.
Contact us today for a consultation session.
