Newsletter - December 2016

Managing unauthorised subletting

Why don’t landlords like it?

There are many reasons but the main ones are:

 Extra wear and tear on the property

1. People living in the property who have not been personally approved by the landlord (and who could be problematic)
2. Problems that they will incur if you move out leaving the sub tenant in occupation
3. The possibility that the subletting could turn the property into an HMO (and they could be fined for not having the proper license) or
4. Breach of license conditions if they already have an HMO license which limits the number of occupiers

 There are not a few cases where landlords have rented out properties to what they thought was a normal tenant, only to find that this tenant has sublet all the rooms – and maybe even put up partitions to make more – resulting in damage (maybe structure damage) to the property. There are several different types of subletting though. Let’s take a look at them:

Lodgers

This is where you rent out a spare room in your house to someone. This is a time honoured way to get a bit of extra money and is probably the subletting which your landlord is most likely to agree to (although many landlords are dead set against it).

To persuade your landlord to agree to this you will need to show them that the lodger is a responsible person who will not damage the property in any way or cause problems with the neighbours, or turn the property into an HMO, and will help you to pay your rent on time.

Renting out the whole property

This will almost certainly be in breach of your tenancy agreement. The only situation I can think of where it might be acceptable is where you put in a ‘caretaker’ to look after the property, for example if you are away on a long holiday. Note also that if you move out and sublet the property to permanent tenants, you will probably change the nature of your tenancy. So if you have an assured shorthold tenancy it will change to a common law / unregulated tenancy.

If you have a tenancy type which gives long term security of tenure, such an assured or a protected periodic tenancy, you will lose this protection and your landlord will be able to end your tenancy by using a Notice to Quit and recover possession.

This is particularly important with Protected Tenancies which are now quite rare. If you are lucky enough to have a protected tenancy – note that the only way you can keep it is live in it. If you move out and sublet – it will be gone.

What can landlords do about it?

Many tenants think that as they rent the property they are entitled to do what they like with it.

But that’s not so – in almost all cases subletting will be prohibited by the terms of your tenancy agreement. So if you sublet you will be in breach. Most landlords will be really annoyed by this. They often take a lot of care in the choice of their tenants, so they don’t want someone else, not chosen by them, living in it. If they find that you are subletting, they will be perfectly entitled require you to leave at the end of the term and you may find a section 21 notice dropping through your letter box.

Or in some cases (for example if your subletting is causing them to breach the terms of their HMO license) they may be justified in evicting you even before the end of your term – so don’t think that because you have a three-year lease, you can sublet with impunity.

So if you want to keep your property you should either make sure they never find out about it or (preferably) get their permission first. For some types of subletting – eg a lodger or an occasional Airbnb guest, they may agree or be prepared to turn a blind eye.

Otherwise – you risk losing your home and getting bad references in the future.

  

 

Selecting suitable tenants helps to maximise your cash flow by ensuring that the rent is always paid on time. Careful tenants, who take care over your property, will also minimise your costs of maintenance. Lastly, when you rent to serious and financially-solvent individuals you’ll minimise your vacancy rate, keeping that rent book working month-after-month.

In days gone by selecting suitable tenants was often pot-luck.

Buy Below Market Value

It’s been said before that the smartest investors make a profit when they buy, rather than when they sell. Purchasing a property below market rate can not only help to provide near-instant equity in your new purchase, but can also keep mortgage payments down without affecting rental income. As a result, yields can be improved.

There are a number of routes to sourcing buy-to-let property below market rates. Firstly, auctions can provide an opportunity to pick up a bargain, though you’ll generally need to investigate specialist financing options for auction purchases. A second option involves buying off-plan, or from an investment company who buys lots in bulk, in order to secure a discount. It is not unusual for buyers of such properties to save 10% or more off the market price of such properties. Lastly, while they’re ever-harder to find, buying a property that is structurally sound but in a cosmetically-distressed state can be a smart move – assuming you have the time or capital to bring it up to scratch before renting it out.

Refinance (With Care)

The rental yield that landlords enjoy is largely a measure of the balance between your income and expenses. Of these, arguably the largest outgoing that any landlord needs to consider is their buy-to-let mortgage. As a result, taking the time to regularly reassess your financial situation can be beneficial. After all, even just a modest reduction in your monthly mortgage payments can have a significant effect on the overall yield that such a property provides to you.

Be aware of forthcoming changes to the way in which BTL mortgages are calculated, which have the potential to reduce overall yields. Consequently, while refinancing can increase yields, it is important to carefully investigate all the options available before making a decision.

Boost The “Wow” Factor

While many of us like to think of ourselves as rational human beings, in control of our emotions, many of us have felt the warm glow of walking into a property that “feels just right”. Indeed, in a recent interview Kirsty Allsop claimed that after a property’s location she considered the most important factor to be “aspiration”. In short, how much of a “wow factor” does your property transmit?

Often something as simple as planting fresh flowers in the front garden, replacing doors or windows, or adding some stylish features can be enough to really make your property stand out to prospective tenants. What’s more, the bigger the “wow factor”, the more likely it is that you’ll be able to inch up the monthly rent to effectively boost your yields.

Refurbish to Meet Current Demands

It’s no secret that certain refurbishments and improvements can impact the overall value of a property, while others have a negligible impact. If you’re keen to boost the rental you can charge – and hence your return – it therefore pays to focus on those improvements which appeal most.

Prospective tenants are currently favouring properties with off-street parking, decent Internet connections and eco-credentials to keep utility bills under control. More traditional improvements, such as re-installing period features or having an en-suite bathroom, are now ranked much further down the list of “must have” property features than in years gone by.

Brexit - Rents To Surge Over Next Five Years

Good news is that the UK's rents are going to increase quite drastically over the next half a decade because of the surge of private renters, which apparently is down to Brexit, claims a major UK estate agency chain.

From their research the chain estimates that over the next five years rents will rocket by 19%, whereas in the same period up to 2021 will see an increase of home ownership of 13%.

The research forecasts that on average the capital's rents will increase by 24.5% due to the much higher property prices.

Increasing numbers of potential home buyers will face having to rent as the housing crisis determines the tougher conditions of the housing market, and many prospective landlords will be deterred by the recent tax changes causing decreasing demand for new builds.

The chain predicts home price rises will be minimal, if at all, over the next two Brexit 'negotiation' years as many may be put off by the uncertainty.

Recent research from a major lender into UK home property prices claiming that house process had stopped rising in October (the end of a fifteen month run) due to Brexit and that there was not any change from September.

The estate agent chain forecast that UK house prices will on average remain the same in 2017 and will increase by 2% in 2018, by 5.5% in 2019, by 3% in 2020 and only by 2% in 2021.

The head of residential research of the agent's Lucian Cook, said: “Brexit has forced the market to change gear and created uncertainty.

“The period of negotiation with the EU is likely to be a rollercoaster of confidence.

“Buyer sentiment across all sectors of the market is likely to be fragile during the period of negotiations to leave the EU.”

Ruling In Favour Of Landlords In Council Tax Disputes

There is good news for landlords who still have to pay council tax even though their tenant has moved out. In an appeal a court has ruled that landlords do not have to continue pay the council tax if a tenant has vacated the property before the end of a tenancy agreement.

The recent ruling in favour for the buy-to-let sector occurred after the Leeds City council took a landlord to court for non-payment of council tax, as the tenants had moved out before the end of their tenancy agreement. However an Appeal Court passed judgement that contractual periodic tenancies following a fixed term, were the same as a fixed term assured shorthold tenancy.

The landlord who was in dispute with the council by refusing to pay council tax on five of his empty 'homes', but the council took him to court because the tenancies had not been officially terminated. The council stated that a single tenancy could not be both fixed term and periodic at the same time.

The landlord successfully argued that a contract created a single tenancy for a six month term, and thereafter became a monthly tenancy.

The ruling supports the basic principles of tenure and is good news for many landlords that have previously had to pay council tax for empty properties.

21% Of Landlords Take Four Months To Sign Up First Tenants

A major Building Society's survey states that it takes one in five landlords (21%) four months and sometimes longer, to have their first tenants renting their property after completing their buy-to-let mortgage. Using an online property and tenant finder such as myDoorkeys.co.uk, decreases the time to sign up tenants significantly.

The research also found that 53% of landlords receive their first monthly rent within a couple of months, however many are having to suffer financial pressure through delays.

The average landlord has an additional cost of £2,000 on top of the mortgage before successfully signing up a tenant, whilst 35% managed to incur an extra £1,000.

Approximately 62% of the respondents stated that they had to refurbish or redecorate the property with 28% saying that the work took them more than two weeks.

Stephen Reade, Lettings Operations Manager of the building society, said: “Becoming a landlord remains attractive for thousands of people, but it is clear landlords need to think carefully before making the decision and also to plan ahead. Having to wait four months or more before getting tenants in can put a strain on finances and landlords need to ensure they have spare money to invest in their property over and above basic mortgage costs."

The research also claimed that on average landlord spends around £700 a year for each property on maintenance with 37% saying that they had spent less than £500.