Property investors have had a lot to deal with in recent years. With a rising tax burden and increasing regulation, there’s a lot for landlords to consider. However, the fact remains that the fundamentals of a Buy to Let investment continue to be as strong as they ever have been.
According to Zoopla, the number of homes available to rent in the UK has fallen by a third over the past 18 months. In its March Rental Market Report, Zoopla said that rents for new lets have increased by 11.1% in the last year, while earnings have increased by 6.7%. Over the last three years, the report says that rents have risen by 20%, adding an average additional income to landlords of £2,200 a year.
With demand for housing continuing to exceed supply, there’s little doubt that landlords who buy the right property in the right area should be making a good investment, and it’s important they understand the responsibilities that come with this investment.
Unsurprisingly, given that around a fifth of all UK households now live in privately rented accommodation, the regulations around letting property have been tightened to protect tenants.
Under a standard fixed term Assured Shorthold Tenancy (AST) for example, landlords can’t ordinarily put the rent up until the fixed term ends - unless the contract has a rent review clause and they must give at least one month's notice. If the fixed term of the AST is a year, landlords must then give six months' notice ahead of increasing rent on the property. For rolling term ASTs landlords can usually only put up the rent once a year, they must give at least one month's notice when they do so, and any rent rise must be fair and realistic.
There are also strict rules in England surrounding the holding deposit a landlord can ask of potential tenants to reserve a property. The holding deposit, for example, can’t be more than one week's rent and tenants should get the money back within seven days of signing their tenancy agreement – unless it has been agreed that this will go towards their rent.
Asking tenants to leave a property is also an area where tenants are strongly protected and landlords need to make sure they follow the strict rules, or risk any eviction being considered illegal or even finding themselves guilty of harassment.
There are two main ways of evicting a tenant, both of which need to be delivered in writing. A "section 8" notice can be provided if a landlord has a reason for wanting a tenant to leave, such as late rental payment or breaching the terms of the AST. While a "section 21" notice can be given to a tenant without providing a reason. The government has consulted on removing this section 21, but as of yet has not confirmed a final decision.
There are also rules about the condition of the property and tenants have the right to "live in a property that's safe and in a good state of repair". So, a rented home might be considered unfit if, for example, it has damp, unsafe electrics, or a rodent problem. However, landlords aren’t expected to do small jobs like changing light bulbs.
If you are working with first-time landlords, or even more experienced property investors, you can add extra value by discussing some of their responsibilities and considerations, as well as their mortgage requirements. This isn’t intended to put them off investing in property but, by encouraging your clients to go into an investment with their eyes open, you can help to ensure that they have the best chance of making it a success.