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EAST MIDLANDS
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Private Sector Landlord
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OCT – NOV 2014
No bricks and
no brickies.
Trouble ahead on
the supply side
Time for reform?
– Parliamentary
plans for the PRS
How training and
education can
make you a
better landlord
“Revenge
evictions”
A private
member’s bill
too far
A L I F E M A G A Z I N E S P U B L I C AT I O N I N C O N J U N C T I O N W I T H E M P O
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OCTOBER/NOVEMBER 2014
WELCOME
Welcome to the October/ November edition of Private
Sector Landlord. As the private rented sector grows in size
and importance, scrutiny of it in the media, parliament and
local government has grown ever more intense. The latest
manifestation of this is a review by a Parliamentary Select
Committee. EMPO’s Giles Inman takes a look at the report
from the committee which calls for considerable reform in the
sector. Happily, it’s not all bad news; read The Knowledge on
page 10 to find out more.
CONTENTS
Landlord News
6
EMC Tiles
8
The Knowledge: Parliamentary review of the PRS
10
The Big Issue: Supply side squeeze
14
Demand for rented housing in the private sector continues
to increase, but little thought is given to the supply side of
the equation. Disturbing evidence is beginning to emerge
indicating that there might be troubles ahead including a
sharp rise in the price of investment properties, a lack of
skilled tradespeople and even a shortage of bricks. Our Big
Issue feature takes a closer look at the problem.
The Secret of My Success: Raj Beri
16
Letters Page
18
Boilerjuice
19
Our lead news story focuses on a Private Members Bill
put forward by Liberal Democrat MP, Sarah Teather, which
is aimed at preventing “revenge evictions” of tenants
who complain about health and safety issues. Landlords
are deeply concerned at what they see as a whole raft of
unintended consequences. This month’s featured landlord,
Raj Beri, talks about the advantages of education and training
for professional landlords.
Subscribe to Private Sector Landlord
19
Copy deadline: For Dec/Jan Edition: 14th November
CONTACT
T: 01636 815561 M: 07812 575540
Life Magazines, GPR House, Mill Park, Station Road,
Southwell NG25 0ET
Finally, if you run a business that provides services for
landlords, why not promote it in the pages of this magazine.
Advertising is cheaper than you think highly effective. See our
advert on page 9.
Sales: [email protected]
Editorial: [email protected]
Subscription: [email protected]
Enjoy the autumn.
Editor: Howard Clemmow
Howard Clemmow | Editor
Contributors: Adeela Ahmed, Lisa Chamberlain,
Howard Clemmow, Giles Inman
Published by: Life Magazines (Notts) Ltd
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OCTOBER/NOVEMBER 2014
Landlord News
Rogue Landlords to be banned
From “Revenge Evictions”
The government has decided
to back a Private Members
Bill that would prevent private
landlords from evicting tenants
purely for making a justifiable
complaint. The bill has been
proposed by Sarah Teather, a
Liberal Democrat MP. The idea
is that tenants would not have to
fear eviction just because they
complained about a faulty boiler
or a leaking roof. It is proposed
that the tenant would need to
call in the council to confirm
there is a health and safety issue
before being able to claim legal
protection from being evicted
solely for that reason.
Stephen Williams, Minister for
Communities, said he wanted to
“outlaw revenge evictions once
and for all - ensuring tenants do
not face the prospect of losing
their home simply because
they’ve asked for essential
repairs to be made.” However,
the government’s stance is
thought to be that they support
the bill on the condition that it
only targets bad landlords and
does not prevent legitimate
evictions.
The bill was originally called
for by housing charity, Shelter,
who claim that there are over
200,000 so called revenge
evictions each year. Chief
Executive, Campbell Robb,
stated, “Nobody should have to
raise their children in a place
where their health and wellbeing are at risk, let alone live
in fear of being thrown out
simply for complaining about a
problem in their home.”
having to give any reason. This
suggests that the Housing Act
would have to be amended for
the bill to be effective. There
is also the question of what
protection would be granted
to landlords who are trying to
evict the tenants because of rent
arrears or antisocial behaviour,
the most common reasons for
issuing a Section 8 Notice to
Quit.
As with most proposed
legislation, the devil is in
the detail. Under existing
legislation, when a standard 6
month AST comes to an end,
the landlord can serve a Notice
to Quit under Section 21 of
the Housing Act 1988 without
In any case, the bill is unlikely
to become law before next
year’s general election. The
bill is due to have its second
reading on November the 28th
2014 but it would have to be
prioritised by the parliamentary
authorities to stand a chance of
being granted Royal Assent by
the end of March, a prerequisite
of becoming law by May.
Alan Ward, chairman of the
RLA, expressed concerns about
the proposed legislation, noting
that only 9% of tenancies are
ended by landlords, in the
majority of cases because
of non-payment of rent or
antisocial behaviour. He is
concerned that the bill would
discourage landlords from
investing in the sector at a
time when buy to let landlords
are the only real source of
growth in the supply of rented
accommodation.
£11,000 fine for illegal subletting
For the first time, a man has been convicted for illegally profiting from a social housing tenancy under
a new act, the Prevention of Social Housing Fraud Act 2013. The act was brought in to counteract the
estimated 100,000 social tenants who make a profit from breaching the terms of their tenancy agreement
each year. The act creates two new criminal offences; the first is where a tenant sublets a property
knowing that it is a breach of the tenancy agreement. A second, more serious offence involves the tenant
dishonestly subletting the property and ceasing to occupy it as their principle home. In this case, the
court has to prove dishonest intent, rather than simply knowledge that they are in breach. The second
offence is punishable with a fine of up to £50,000 and/or a prison sentence of up to 2 years.
Edward Cawdron of Watford
was ordered to pay £10,716
in damages to the Watford
Community Housing Trust for
dishonestly attempting to sublet
his home. He was also ordered
to surrender his tenancy. It
6
transpired that at the time of the
offence he owed £3,000 in rent
arrears. He had also illegally
taken £4,700 in deposits from
prospective tenants. The
housing trust first became aware
of the situation when they saw
the 2 bedroom house advertised
to let in the local press.
Tina Barnard, Chief Executive
of Watford Community Housing
Trust, commented, “It sends
a powerful message that we
tracking down tenancy cheats.
We are also delighted that this
house will now be offered to a
family in need in Watford.
The law was introduced in
response to a Private Members
Bill put forward by Richard
Harrington, MP for Watford. He
said, “It was precisely because
there were instances of social
housing fraud locally that I
took this up in Parliament, and
introduced the new bill to create
stronger powers against those
that commit this crime.”
OCTOBER/NOVEMBER 2014
PBSA Blocks
Begin to Bite on
Student HMOs
Some student HMO operators
in Nottingham are reporting
disturbingly high levels of
vacancies. This is widely
linked to the growth in the
number of purpose built student
accommodation (PBSA) blocks.
The number of places in PBSA
developments in the city will
exceed 20,000 in the current
academic year.
Giles Inman of EMPO
commented, “The landlords who
are really struggling tend to be
those who have not invested
Rushcliffe
enough in improving
the quality
Borough Council
of their accommodation in the
last few years. The PBSAs
have done a very good job
of promoting themselves to
students and many landlords
have struggled to keep pace with
that.”
Location also appears to be a
significant issue. Giles gives the
example of a new development
on Castle Boulevard that has
failed to fill all its places, despite
being a very attractive place
to live on the face of it. “The
problem is that it’s not really
convenient for either Nottingham
Trent or the University,” he
remarks. “Students are spoiled
for choice in that kind price
bracket.” Significantly, roughly
two thirds of PBSA places have
been built by the universities and
inevitably they are much closer
to the main campuses.
Several landlords have been
expressing concern about
overcapacity in the PBSA
sector. This state of affairs might
Rushcliffe
confi
rm that their concerns have
Borough
Council
been justified.
Chinese may buy
Fergus Wilson
rentals portfolio
It has emerged that Fergus
and Judith Wilson, England’s
largest buy to let landlords,
are on the brink of selling
their entire portfolio of around
1000 properties to one of three
Chinese investors for a price of
“at least” £250 million. The pair,
both former maths teachers, built
up the portfolio over the last
20 years by continually buying
mainly new build houses and
promptly remortgaging them as
property prices rose.
revealed that all three potential
buyers had come forward over
the weekend of the 20th and
21st of September, something
he believes is linked to the
successful ﬂoat of Alibaba on
the New York Stock Exchange.
He valued the portfolio using
Rightmove, the online property
portal, and has stated that £250
million is the minimum price he
will accept.
He believes that a deal will be
agreed in the next month. £45
million of the proceeds will
have to be repaid to a variety
of lenders and he estimates that
after tax and disposal fees he
will walk away with around
£100 million, enough to “keep
me in fish and chips for the rest
of my life.”
Attention
Attention
Mr Wilson, who has repeatedly
courted controversy in the last
few years, said he was selling
up because “you can’t take
it with you to the grave.” He
Private Rented Scheme
The story was first broken in an
article in the Financial Times.
Landlord cut electricity supply to force out tenant
Private Rented Scheme
A Manchester landlord has been found guilty of harassment and unlawful eviction after she entered her property without permission and
removed several fuses, cutting the electricity supply for the heating, lighting and hot water.
Patricia Searle of the Eccles area of the city was fined £1000 and ordered to pay costs of £5250 after a four day trial at Manchester County
Court. When the tenant complained to Salford City Council about the incident, she denied any involvement and produced forged paperwork
purporting to show she was away on a course when the incident took place.
Attention
Attention
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7
OCTOBER/NOVEMBER 2014
Ceramic tile style creates the
perfect balance for landlords
Life for landlords is something
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always something waiting to
chew away at your profits.
Maintenance costs, redecoration, repairs and the
times when your property may
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losses rather than income. This
skill is to minimise the costs
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When it comes to making the
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Every landlord knows the value
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if you are going to attract
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property. Ceramic tiles are the
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Then there are all the wonderful
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Responsible letting agents
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Private Sector
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A L I F E M A G A Z I N E S P U B L I C AT I O N
OCTOBER/NOVEMBER 2014
The Knowledge
PRS Reform- Will it happen?
A cross party group of MPs
and Peers is calling for a full
scale review of all regulations
affecting the private rented
sector (PRS) including the
introduction of lifetime bans
on landlords – two of many
recommendations from a
report published in July by
the All Party Parliamentary
Group for the PRS.
With the sector having
now overtaken the social
rented sector in size and still
growing strongly, the Group
believes that the regulatory
regime governing it needs
a fundamental review to
determine whether it is fit for
purpose and is enforceable.
Their report calls for a
nationwide banning order
preventing landlords from
renting properties in the
future if they are found to
have deliberately breached
their legal obligations, along
with calls for the Office for
Fair Trading to be given
the powers to order out
of the market any letting
agents found to be behaving
inappropriately or abusing
their position. It states, “It
is an anomaly that the OfT
enjoys such powers over
estate agents but not letting
agents.” Allied to this is a
demand for clear guidance
from the Sentencing Council
to the courts on the tools
available in responding
to breaches of the law as
they relate to private rented
housing.
Publishing the report,
the Group’s chairman,
Oliver Colvile a Tory MP
said, “Given the growing
importance of the PRS, it is
important that consideration
is given to how it should
be run to provide sufficient
protection to tenants and
support and encouragement
to the majority of good
landlords whilst rooting out
those who reap misery for
tenants.” He adds, “The
report provides a number
10
of ideas to ensure that the
sector is fit for the 21st
century and the group hopes
and looks forward to all
political parties giving serious
consideration to this detailed
work.”
expect to buy a property of
their own at some point in
the future. Around 25% of
households in the PRS are in
receipt of housing benefits
compared to 64% of all
social rented households.
BACKGROUND TO THE
PRIVATE RENTED SECTOR
The most recent data on
the profile of landlords
in England can be found
in the Department for
Communities and Local
Government publication,
“Private Landlords Survey
2010,” which found 89%
of landlords were private
individuals; 5% were
companies; and 6% were
‘other organisation’ landlords.
These were responsible
for 71%, 15% and 14%,
respectively, of all dwellings
in the sector. Surprisingly
78% of all landlords only
owned a single dwelling for
rent, comprising 40% of the
total private rented housing
stock. Interestingly 79% of
all landlords earned less than
a quarter of their income
from letting properties in the
PRS with 21% earning no
income at all. Only 8% of all
landlords in the PRS were
full-time landlords with the
remainder being part-time.
The PRS is now the only
housing tenure growing in
England. Having reached
its low point of comprising
9% of all households in
1992, in 2012-13, the sector
made up 18% of all English
households. (Department
Communities and Local
Government, February 2014.
English Housing Survey –
Headline Report 2012-13.)
Comparatively, the proportion
of households which are
owner occupied has fallen
from a high of 70.9% in
2003 to 65.2% in 2012-13,
a smaller proportion than at
any time since 1987. Social
rented housing now accounts
for 16.8% of English
households, down from a
high in 1981 of 31.7%.
Aside from the considerable
growth seen, a further
noticeable characteristic
of the sector has been a
shifting demographic of
private sector tenants,
changing from the traditional
view of a sector dominated
by students and young
professionals viewing
renting as a step towards
homeownership. A majority
(50.8%) of private rented
sector households now have
tenancies in the name of
someone aged 35 or under
whilst the proportion of
private rented households
with a lone parent or couples
with one or more dependent
children now stands at
32.2%. Just over 45% of
private sector tenants have
been in their properties for 2
or more years, although 60%
A striking feature of the PRS
in England is the age of the
stock with housing built
pre-1919 comprising 33%
of all private rented homes.
With this comes considerable
challenges for the sector,
as 33% of private rented
housing stock is classed
as non-decent, with a high
proportion of housing failing
to meet the decent homes
standard compared with
the owner occupied and
social rented sector. Private
rented housing is also likely
to see the largest proportion
of safety problems, with
19% of households in the
sector containing at least
one category one hazard as
measured by the Housing
Health and Safety Rating
System (HHSRS). Around 9%
of private rented homes also
suffer from damp problems,
a larger proportion than any
other housing tenure.
Despite this and contrary
to what the media, Crisis
and Shelter would have you
believe 83.1% of private
rented tenants are satisfied
with their accommodation,
of which 43.8% are very
satisfied and 39.3% are fairly
satisfied. In the social rented
sector, 82.1% of tenants
have expressed satisfaction
with their accommodation.
The high point in recent
years was the 84.6% of
private sector tenants who
stated they were satisfied
with their accommodation
as reported in the 2009-10
English Housing Survey.
What is also encouraging is
the fact 68% of tenants in the
private rented sector report
being satisfied with the way
that their landlord carries out
repairs and maintenance on
their property.
In April 2014 the Office for
National Statistics published
an analysis of rents in the
PRS. This data shows
between March 2013 and
March 2014 rents in Britain
grew by 1%. Rental prices
for Great Britain excluding
London grew by 0.7% in the
same period. Over the nine
years March 2005 and March
2014, rental prices increased
by 9.5% in England.
KEY FINDING OF THE MP’s
REVIEW INTO THE PRS
The report highlights the fact
that the PRS is swamped
with regulation and requests
an assessment on how this
regulation actually works
in terms of enforcement
and delivering the desired
outcomes. There is a concern
that in the quest to find
savings, local authorities (LA)
and others are losing vital
OCTOBER/NOVEMBER 2014
capacity and resources to
properly enforce regulations
and are unable to work
proactively to find those
landlords operating under
the radar who cause misery
for tenants. An example of
this savings culture was
brought to the attention
of the group by a panel of
invited guests; who claimed
that Environmental health
departments are reluctant
to seek advice from local
authority legal departments
as a result of internal charges
to access such services.
If true, this would be a
concerning development and
the group have requested
clarification from the
Government on this point.
The report recommends
that the Local Government
Association works with the
Department for Communities
and LA’s to understand the
extent of the enforcement
capacity problems faced
by Environmental Health
departments and their ability
to absorb and effectively
enforce the regulations for
which they are responsible.
The report suggests these
parties should examine
how they can speed up
prosecutions and ensure
the courts demand higher
fines for non-compliance.
The group wants to
ensure a strong signal
is communicated out to
landlords who breach their
legal obligations that if they
break the rules they have
to pay the full cost of the
action taken against them,
not the council tax payer.
This is why there is a need
for the Sentencing Council
to provide clear guidance to
the courts on responding to
breaches of the law relating
to private rented housing
The report encourages
Ministers to work with the
industry to prepare a single,
common guide for tenants on
renting property. Included in
it should be a simple check
list of questions to ask of a
landlord or letting agent prior
to signing a contract along
with details of who to ring or
email to express concerns. It
recommends that as part of
the Government’s proposed
tenant’s charter, such
information be supplied to
tenants at the point that they
first make enquiries about
finding a property to rent.
To ensure tenants do not
suffer financial problems
during a tenancy, the report
suggests details of the costs
of utility bills associated with
a particular property such as
council tax, gas, electricity
and water rates should be
provided to tenants by the
landlord or letting agent.
There is a concern in the
report that only a small
percentage of landlord’s join
landlord and accreditation
associations. The report
suggests the introduction
of a light-touch, national
register of all landlords.
Such a register would enable
government and other public
bodies to communicate
to landlords about policy
developments that will have
a bearing on their activity. In
order to ensure that such a
register is not burdensome,
it should be kept to a simple
list of landlord names and
contact details. In return,
a nationally recognised
badge could identify those
registered. This would not
be a regulatory tool, but a
simple contact database
to aid communication with
landlords.
The report recognises
the importance of LA’s
having a suite of options
available to them to tackle
problems within the PRS in
their area. However within
current housing regulation
there is confusion on many
fronts. For example, under
licensing the fit and proper
persons test for landlords
is an important part of the
licensing process and yet
there is confusion about what
constitutes such a person. In
the interests of consistency
in its interpretation, the report
calls on the Government to
issue clear guidance on what
constitutes a fit and proper
person and how it should be
applied. There is recognition
that licensing should be
used to tackle problems
associated with low demand
and/ or anti-social behaviour
but there is concern over
whether it should be used to
regulate housing conditions
where LA’s have existing
powers including the HHSRS.
The report highlights the
worry where a landlord has
paid to join an industry
run accreditation scheme
and are then forced to pay
again if a licensing scheme
is introduced. An option
suggested by the report is
for local authorities where
a landlord is proved to be a
member of an accreditation
scheme, become
automatically exempt from
having to apply for a licence.
The report welcomes the
Government’s decision, in
response to the Communities
and Local Government Select
Committee, to undertake a
review of the HHSRS system.
It recommends as part of
this review an analysis of the
data sets on safety in the
PRS should be conducted
to provide more detailed
information on the nature
of safety hazards in rented
housing. It urges Ministers
to ensure that the review
engages all interested bodies
with a view to establishing
appropriate guidance that
has the confidence of all
involved in providing, residing
in and regulating private
rented housing. It calls for
the outcome of the review
to include simple, easy to
understand guidance on
how the HHSRS should be
applied with a particular
emphasis on improving
understanding among those
responsible for enforcing
HHSRS. The report stresses
the need to identify further
ways in which more detailed
information can be recorded
on the nature of safety
hazards and episodes that
occur.
The report supports a
statutory requirement for
landlords to have an annual
electrical safety test as they
do with gas appliances. It
states it is an anomaly that
the two are treated differently.
Given the importance of
well-informed tenants, it
is important that they can
get easy access to basic
safety information. Therefore
tenants should be able to
see Gas Safety and a new
Electrical Safety certificate
for their properties online
in much the same way
as Energy Performance
Certificates.
East Midlands Property
Owners (EMPO) is
encouraged by the
report’s recommendations
which overall offer a
balanced analysis. We are
particularly in favour of the
recommendation for the
need for better enforcement
of criminal landlords by LA’s
by utilizing the wide range
of existing powers within
the armoury of regulation to
enforce standards.
In terms of objections
we believe some of the
recommendations require
further analysis and evidence
to prove justification. For
example the requirement for
an annual electrical safety
checks in private rented
homes needs to be properly
researched as there is little
evidence that such regular
checks would achieve a
notable improvement in
safety.
Giles Inman
EMPO
11
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Established in 1942, EMPO (East Midlands
Established
Property
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Owners
EMPO (Eas
Limited) is a not-for-profit organisation
Limited)
that represents
is a not-for-profit
the needs
organis
of Landlords across the East Midlands.
of Landlords across the East Mi
EMPO works with Government, Local AuthoritiesEMPO
and Industry
works with
to provide
Government,
the bestLocal
deal Autho
possible for independent landlords in this region.
possible for independent landlords in this r
EMPO is run by an elected committee, experts in
EMPO
their own
is runfield
by an
within
elected
the property
committee, exp
market, dedicated to ensuring that members of market,
the association
dedicated
benefit
to ensuring
from their
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collective strength.
Our association is regarded as one of the most Our
progressive
association
landlord
is regarded
associations
as oneinof the m
the country with over 450 members, our numbers
theare
country
continually
with over
increasing
450 members,
and our our nu
working relationships with suppliers and local authorities
working relationships
constantly gain
withstrength.
suppliers and lo
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• Networking
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EMPO have regular meetings where landlords come
EMPOtogether
have regular
to hear
meetings
related where lan
services, including accountants and solicitors discuss
services,
renting
including
residential
accountants
property
and sol
as well as putting landlords in contact with otheraslandlords.
well as putting landlords in contact w
• Discounts
• Discounts
EMPO work tirelessly to negotiate discounts on thousands
EMPO work
of products
tirelessly that
to negotiate
landlordsdiscoun
use everyday. Be it paint, tiles, key cutting, or timber,
useEMPO
everyday.
hasBe
specially
it paint,negotiated
tiles, key cutting
rates with suppliers across the regions that will save
rates you
withmoney.
suppliers across the regions t
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deal Central
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a
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successfully
Recently
beenseveral
campaigned
important ca
that would have meant a harder time for landlords.
thatAswould
part of
have
YOUR
meant
locala landlords
harder time for
association, we can help to make your opinion count.
association, we can help to make your o
• Keep up-to-date
• Keep up-to-date
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Don’tmembers
get caught
areout
kept
with
up-to-date
changes in the
with changes in legal requirements that effect residential
with changes
landlords.
in legal requirements that
• Reduced Property Insurance
• Reduced Property Insurance
EMPO have a specially negotiated deal with a large
EMPO
building
have insurer.
a specially
Notnegotiated
only does deal w
this provide perhaps the best landlord specific building
this provide
insurance
perhaps
onthe
thebest
market,
landlord s
it frequently saves landlords more than their annual
it frequently
membership
savesfee.
landlords more than
• Reduced rates for HMO Licenses
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EMPO continue to forge excellent relationships EMPO
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councilstothroughout
forge excellent
the relatio
and Nottingham.
East Midlands area including Derby, Leicester, Lincoln
East Midlands
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OCTOBER/NOVEMBER 2014
The BIG Issue
Will a supply squeeze bring the PRS to a grinding halt?
It is hard to exaggerate
the impact that the private
rented sector has had on
the housing market over the
last six years. This year, for
the first time in 60 years,
the number of privately
rented homes exceeded
those provided by the social
housing sector. In London,
over a quarter of homes
are provided by the PRS.
A significant proportion of
all new build houses are
snapped up by buy to let
landlords, often paying cash.
There is also compelling
evidence that landlords
have done much to fuel the
current house price boom;
I spoke to a local estate
agent recently who was
marketing a development
of 2 and 3 bedroom houses
in Bingham. She revealed
that the sale prices rose by
10% in just 6 months. Every
single one of the houses
was bought by a buy to let
landlord. It would appear
that the good times continue
to roll for private sector
landlords.
When we interview a
landlord for our regular
feature, The Secret of My
Success, one of our stock
questions is what are
the main threats to your
business? The usual answer
is the increasing burden of
regulation, or maybe rising
interest rates. However,
our latest landlord, Andy
Churchill, identified two new
threats. The first was that the
margin between investment
properties and owner
occupied properties has
narrowed alarmingly. Two
years ago you could pick
up a rundown 3 bedroom
ex council house for around
£40k. Once refurbished, the
market price would be £75
to £80k. Now, these kind of
investment properties go
for £55 to £60k but prices in
the owner occupier market
have not really increased
14
at all. The margin may now
be as little as £15k and
the refurbishment costs
are almost guaranteed to
exceed that. A landlord
buying an investment
property in this market would
actually make a loss; he
would be better off buying
a house through an estate
agent. I should point out that
this is a problem specific to
the East Midlands and the
north; in London and the
home-counties house prices
have seen such strong rises
that the margin between
investment properties and
owner occupied has if
anything increased.
Traditionally, plenty of
landlords have used
investment properties as a
cost effective way of building
their portfolio. Two factors
drove this; firstly a surprising
number of landlords are
builders or have a strong
business relationship with
a builder, so they can get
the renovation work done
relatively cheaply. Secondly,
many landlords and property
investors are cash buyers or,
at the very least, have ready
access to cheap finance.
In the years following
the financial crisis, many
owner occupiers couldn’t
even raise a mortgage, let
alone borrow money to
fund renovation work, so
this gave landlords a lot of
buying power and enabled
them to snap up rundown
properties at low prices.
This situation of a narrow
margin between investment
and owner occupied
properties has arisen before.
In the heady days of the
mid noughties when Sarah
Beeny’s Property Ladder
was at the height of its
popularity, everyone believed
they could be a property
developer. In 2007 I watched
a near derelict 1970’s house
set in a modest plot in my
home town of Southwell
go under the hammer.
It fetched £480,000 at a
time when a very similar,
completely modernised
property less than quarter
of a mile away could be
bought for £320,000. The
buyer had plans to demolish
the existing house and put
up a fabulous new build
in its place; he admitted
afterwards that he got
carried away at the auction.
Then the financial crisis
came along and he couldn’t
borrow the money to fund
the building work. Now he
lives in a rundown house
that he paid £200k over the
odds for. This time around
the demand for investment
properties is coming from
professional landlords and
property investors who you
would think would have
more sense than to get
carried away at a property
auction. Even so, the effect
is the same – investment
properties are now so
expensive that, in the East
Midlands at least, they are
no longer a viable way of
adding to a rental portfolio.
The other factor that Andy
Churchill commented on was
a serious skills shortage in
the building trade. He spoke
about a new development
of HMOs and one bedroom
flats he is building in
Ilkeston. One day he arrived
on site to find several of the
bricklayers conspicuous
by their absence. When he
made enquiries he found
that the missing brickies
had been lured away to
a building site down the
road by a promise of higher
wages. This could be viewed
as just an isolated incident
but in recent months the
bosses of at least two of
the largest house builders
in the UK have raised the
same issue. They can’t build
as many new homes as
they’d like simply because
there aren’t enough skilled
tradespeople to build them.
It could be argued that this
is a problem of the house
builders own making; they
laid off too many workers
when the financial crisis
hit and drastically cut the
number of new apprentices,
but it doesn’t matter who is
to blame; it doesn’t make
the problem go away.
A shortfall in the number
of new homes being built,
particularly in England, has
been a problem for years. In
2007 house building peaked
at about 185,000. Even
then it was estimated that
we needed to be building
200,000 homes a year with
demand being driven by
an increasing population,
largely due to immigration.
Demographic changes have
also had an impact, an aging
population means that there
are more “empty nesters,”
married couples whose
children have left home
but who continue to live
in 4 or 5 bedroom houses.
The proportion of single
person households has also
increased. By 2009 house
building had plummeted to
less than 80,000 homes and
it remained under 100,000
until 2013. The net result
of all this is that it is now
estimated that we need to
build 300,000 new homes a
year for the next five years to
satisfy pent up demand.
There were a number of
problems immediately after
the financial crisis that
limited the number of new
homes being built. Business
lending all but dried up.
This meant that although
the developers had the land
to build on, they couldn’t
borrow the money they
needed to actually build
the houses. Also, house
prices went into freefall
so properties that were
already being built had to be
OCTOBER/NOVEMBER 2014
dumped on the market at a
hefty discount, sometimes
at a loss. Mortgages were
being heavily rationed,
usually by the mechanism
of demanding at least a
25% deposit which first
time buyers simply couldn’t
afford. This meant that
the developers had little
confidence that there would
be buyers for their new
homes, even if they could
afford to build them in the
first place.
There was also the question
of planning constraints
which were widely seen
as delaying and restricting
new developments. Since
2012 the planning laws
have been relaxed with the
much vaunted “presumption
in favour of sustainable
development,” part of the
National Planning Policy
Framework which is
intended to speed through
planning applications that
accord with an up-to-date
Local Plan. However, there
is still a right of appeal
and local residents who
are viscerally opposed to
any new developments in
their neighbourhoods have
become adept at playing the
system to delay consent. In
some cases involving smaller
developers, the developer
goes bust while waiting for
planning permission to go
through. A prized brownfield
site just up the road from me
is on its 5th owner in 8 years
and not a single footing has
yet been dug.
The latest obstacles to large
scale house building are the
skills shortage I mentioned
above and, bizarrely, a lack
of materials, particularly
bricks. Sources within the
building industry claim
that smaller developers,
particularly in the north of
England, are being told
that they must wait for up
to a year for sizable orders
of bricks to be fulfilled.
Apparently, after the financial
crisis many established
manufacturers went to
the wall (excuse the pun)
as demand plummeted.
The supply of bricks has
been further impacted by
new European emissions
regulations that have
forced several older kilns
to shut down because they
can’t afford to upgrade to
comply with the regulations.
Efforts to import bricks
to make up the shortfall
have been hampered by
similar problems afflicting
European manufacturers.
Meanwhile, the national
house builders have used
their buying power to snap
up what few supplies are
available and this has led
to prices increasing by as
much as 20% in 6 months.
It’s a similar story with the
supply of building blocks
too, for much the same
reasons. Although new starts
for house building are rising
strongly, completions have
actually fallen back slightly,
mainly due to problems in
the supply chain, and are
estimated to be around
140,000 in 2014, less than
half the output required.
Let’s take a moment to
look at the demand side
of the equation from the
standpoint of the PRS. The
population of the country
continues to increase, with
net immigration remaining
stubbornly above 100,000
and people living longer
than ever before. The
proportion of homes that are
owner occupied is drifting
downwards from its peak
of 71% in 2003; currently
it is around 64%, so more
people rent their home than
ever before. The proportion
of people who rent their
homes from the private
sector will increasingly
outstrip those who rent from
the social sector; many of
those small developers who
can’t get enough bricks
build social housing. More
students will start university
this year than ever before,
confounding expectations.
For private sector landlords,
the demand side is in the
rudest of health.
There have to be concerns
on the supply side though.
It is obvious that not enough
new homes are being
built to meet demand and
that situation is unlikely to
change any time soon. In
the East Midlands, buying
investment properties for
the rental market no longer
makes financial sense.
Landlords who opt to build
their own properties are
going to struggle with the
same shortages of labour
and materials that other
developers are facing.
If it comes to a bidding
war for new build homes,
professional landlords and
property investors are likely
to continue to win against
owner occupiers, but that
scenario presents its own
set of problems. If landlords
pay more for a property and
rent levels stay constant,
by definition the yield will
fall. It is the relatively high
yields compared to other
investments (typically
7% for student HMOs for
example) that makes rental
investments so attractive
right now. Admittedly,
landlords will be able to sell
their properties and take the
capital gains but that is a
one shot deal when prices
are rising, if they try to reenter the market they will
pay even more for properties
and face even lower yields.
What about raising rents
in line with house prices?
Unfortunately, after several
years of sluggish economic
growth coupled with
hefty rent increases, high
inflation and falling average
incomes, many tenants have
reached the limit of what
they can afford to pay. The
consequences of any further
increases are likely to be
vacant rooms and higher
rent arrears.
Of course, everything
changes over time. Average
incomes are expected to rise
next year, more brickworks
are coming online, more
apprentices are being
taken on in the trades and
new housing starts are
rising strongly. Prices of
investment properties will
no doubt start to fall to more
sensible levels and rising
house prices in the East
Midlands should open the
margins again. Even so,
problems on the supply side
will impact on landlords for
some time to come.
Howard Clemmow
Editor
15
OCTOBER/NOVEMBER 2014
The Secret of My Success
Raj Beri
Benefit Sector for cash-flow,
whilst having systems in place
to get in excess of 12% gross
yields on the more standard
three bedroom terrace
portfolio. As Raj explains,
“I now invest in different
tenant tenures to spread my
investment risk.”
Having been in the property
business for around eight
years, what is interesting
about Raj’s story is that he
has invested time in property
education and training. He
began by reading property
forums and attending property
shows, as he realised that if
he wanted to be in property
full time then he needed to
do it properly and gain the
requisite knowledge to extend
his portfolio. In due course, he
researched suitable mentors
and trainers and began
attending property seminars
in order to broaden his
knowledge of the sector.
Raj Beri is the first to admit
that until a few years ago his
only thoughts about property
were either as a place to live
or as an asset class. It wasn’t
the case that he was someone
who hated his job or his boss.
In fact, he was a scientist
who loved his work and was
well paid to perform it. So,
how and why has Raj made
the transition from content
employee to full-time property
investor and what has he
learned along the way?
Raj bought a couple of
properties in West Bridgford,
just outside Nottingham,
primarily for capital growth,
adopting the time honoured
mind-set that “prices only go
up, don’t they?” At this point,
he paid no real attention to
investment yields or cash
flow. With the onset of the
financial crisis, he didn’t have
the available cash to put
down deposits on additional
16
properties, so he re-financed
his own home- and was
persuaded to invest in the
North East.
What did he learn from these
initial experiences? Raj told
me, ‘Having originally started
with the goal of capital growth,
then being led to believe that
the best investments could
be found up north, I now only
buy locally and, at present, my
wife and I self-manage these
properties.’ Wanting to invest
in properties with higher yields
and better cash flow, he has
since developed his portfolio
to include HMOs.
Raj comments, “I always try to
negotiate the best discount I
can get on the purchase price
to give me the best chance
of recycling my capital within
twelve months, by the means
of remortgaging to buy more
properties.” Moreover, he
now operates in the Housing
Even now, Raj still has that
thirst for knowledge. At every
stage of his development he
has embraced education,
for example, being a full
time landlord allowed him to
become a local representative
for the National Landlords
Association (NLA). This
took his knowledge of the
rental sector to a new level.
In addition, he has found it
both enjoyable and helpful
as it keeps him up to date on
both the state of the market
and the rapid changes in the
associated legislation.
I wanted to know if Raj had
any top tips for property
investors. He believes that you
must decide what your values
and goals are and make
sure that your timescales are
realistic. Ensure that you buy
assets that put cash flow into
your pocket in the short term
whilst realising the benefits of
capital appreciation over the
long term.
Once again, his mantra is
the importance of education
and seeking guidance when
necessary. He advises,
“Leverage other people’s
expertise – thinking you can
do it alone might be one of
the biggest mistakes you
will ever make.” Despite
his own personal success,
Raj still uses a mentor
periodically to accelerate his
progression and help him
implement his aims. “I have
managed to buy fantastically
discounted properties due to
all the training I have had, and
continue to have, allowing
me to remortgage much
more quickly and to grow my
portfolio whilst being mindful
of not over-leveraging on the
borrowing.”
Most would-be property
investors start off on a parttime basis and, if you are
holding down a full time job,
Raj believes you must be
prepared for some hard graft.
He takes the view that it is
useful to have support around
you. He acknowledges that
his own wife has helped him
immeasurably. She was there
at the beginning allowing
Raj to build up his property
portfolio, which she now
manages, so that he can focus
on the buying side and also
his ongoing property coaching
and education.
Raj is keen to share his
experience with other
landlords and property
professionals and really enjoys
being a mentor. If you would
like to find out more, you
can check out his LinkedIn
Profile at uk.linkedin.com/in/
beriraj or you can phone him
on 07894 543931. His final
word of advice is that “now”
is always the right time to
invest in property if you have
the right mindset and do your
homework. As someone once
told him, ‘Don’t wait to buy
property, buy property and
wait.’
Lisa Chamberlain
OCTOBER/NOVEMBER 2014
17
OCTOBER/NOVEMBER 2014
PROPERTY VINE
Questions answered by EMPO’s resident in house expert
any knowledge if one is
more effective than the
other?
A
: A tenant is entitled to
“quiet enjoyment” – see
http://www.foxwilliams.com/
news/704 for a definition and
some case law on this.
Q
:I have a tenant under
a standard AST with
circa £1,500 in rent arrears
and I have a notice to quit
in force. We gave 24 hours’
notice of a maintenance
inspection but she has been
very obstructive, so we
advised we would access
the property even if she was
not present.
We then received abuse and
threats of violence from her
guarantor. We have reported
these matters to the police
but can you advise whether
we are able to enter the
property with 24 hours
written notice, even if the
tenant has not consented
and is not present.
Up until the maintenance
request, her and her
guarantor were unresponsive
to our calls, texts, visits
and letters and so we have
concerns as to the condition,
occupancy and possible
illegal activities being carried
out at the property.
Also, could you offer an
opinion on debt recovery?
We wish to take action
against the guarantor but
have no experience with
either debt recovery agents
or solicitors. Do you have
18
A landlord usually has a
right to inspect the property
reserved within the terms
of the lease and often this
will be subject to giving
24 hours’ notice. I have
presumed you have checked
this and are requesting
access in accordance with
the terms of the tenancy.
If you follow the provisions
of the lease, then the tenant
can’t object to this – unless
your inspections are so
regular as to affect their
right to quiet enjoyment. You
may want to take someone
with you when you carry out
the inspection to act as a
witness to any issues that
that you come up against.
As far as the debt recovery
is concerned, the best way
is a money claim online,
a small claim dealt with
by the County Court. You
can do this yourself but
you can only claim what is
outstanding at the time that
you make the claim. If the
tenant is still in the property,
then you won’t be able to
claim for any subsequent
months of non–payment or
for any damage they have
caused to the property.
You may therefore want to
wait until the tenancy has
been finished and she has
vacated and you know what
the total amount owing is.
In the meantime, I would
get a solicitor to write to the
guarantor saying that you
intend to take legal action
and asking the guarantor to
pay. Sometimes this works.
Q
:We have a house
under the jurisdiction of
Rushcliffe Borough Council
in West Bridgford. The
council has levied council
tax on us for the remainder
of the tenancy agreement
because all the students’
courses have finished bar
one.
We understand from the
council that this is the
responsibility of the landlord
even though the tenancy
agreement lasts until 31st
July. The students have been
to the Citizen Advice Bureau
who told them that this is
correct for houses with HMO
status. We have tried to pass
the cost of the council tax to
the students as they are still
living in the property. Can
you tell me if the council is
correct in billing the landlord
and we have no come back
on the students?
A
: The rules for
Council Tax are fairly
complicated and the council
tax term “Houses in Multiple
Occupation” has a different
definition to the housing act
definition.
For council tax purposes, a
HMO is either a house let on
separate contracts (i.e. room
by room contracts) or there
are locks on bedroom doors.
It doesn’t matter how many
people live in the property –
i.e. if you have a 2 bedroom
property let room by room
to two people, it is a HMO
for council tax purposes
(it wouldn’t be a HMO for
Housing Act purposes).
As you probably know, a
student in full time education
is usually exempt from
Council Tax – for this to
apply they must be enrolled
on a full time course. If the
course has finished, then
the Council are right in that
Council Tax should apply
to the property if they are
still living there. If the house
is a council tax HMO the
rules say that Council Tax is
charged to the landlord.
I would advise that in
your contract you have a
covenant that allows you
to charge back the Council
Tax to any tenant where they
hold the landlord liable to
pay Council Tax. If you don’t
have this covenant you may
not be able to re-claim.
Whether the Council are
correct in charging you
in the first place depends
on whether it is a Council
Tax HMO. If you have one
contract and no locks on
doors then you should
advise the Council that they
are billing you incorrectly
and should bill the students
directly.
If the students have moved
out and only the person that
is exempt is living there,
then the house can still be
put in to exemption – i.e. no
charge is applicable. It is a
bit of a minefield with lots
of rules. Where you have
Council Tax HMOs you need
to be on the ball. We have
had cases where Councils
have continued to charge
Council Tax months after the
tenants have vacated. This
can mean that the tenants
have returned overseas
and deposits have been
returned.
If you have any questions or
comments on any aspects
of being a landlord, please
email them to
[email protected]
Giles Inman
East Midlands Property
Owners Ltd
OCTOBER/NOVEMBER 2014
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