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Why landlords need your help

Our recent research amongst landlords showed that only 21% said they were a full-time landlord. The rest had another job. So it is fully understandable why it is difficult for landlords to keep abreast of the constant flow of regulatory changes. Even those full-time landlords that I know struggle, so just imagine what it is like for the rest.

This is why having a financial adviser is so important for landlords, which is great news. Over the years we have read about perceived threats to the adviser community, from when the internet first begun through to robo advice and a new era of AI. But nothing can be further from the truth and landlords are now wanting a relationship that goes beyond pure advice on their mortgage.

This was reinforced in our research. Of those landlords using a financial adviser, 23% wanted help in understanding how new regulation affects them. There are changes to the licencing rules for houses in multiple occupation (HMOs) in October, for example. This has been discussed a few times within the media, but I suspect many of your landlord clients will be in the dark about this. For some, they may need to raise capital if they need to make any refurbishments and changes to comply with the new HMO licencing rules.

A further 35% of landlords, who use a financial adviser, said they need help understanding the implications of taxation, given the raft of rule changes that have been implemented. It is a complex area and I know some advisers are building reciprocal arrangements with tax advisers to determine if owning a buy-to-let property via a limited company is the right thing to do for the client. Nonetheless, the market is seeing a rise in limited company buy-to-lets. At Foundation Home Loans, over 40% of our buy-to-let applications are under this structure.

The buy-to-let market continues to change and because of this change, your landlord clients need your help more than ever – and there are lots of landlords out there who don’t have a financial adviser and are probably on the lookout for one. So take advantage before someone else does.

Source: Mortgage Introducer

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How buy-to-let landlords can stay profitable in 2018

A casual observer may be forgiven for regarding buy-to-let as a poor investment right now thanks to new taxes, increasing regulation and rising interest rates.

But think again – in reality, it still provides strong returns for those who research what to buy and where.

Undeniably, the sector is tougher than before but one truth should guide investors: demand for homes to rent is growing faster than the supply of homes to let.

Research based on the government’s English Housing Survey and other reports shows there are now 4.5 million privately rented homes making up 20% of UK households; the estate agency Knight Frank suggests this will hit 24% by 2021.

High house prices (first-time buyers now pay £409,975 in London or £207,693 across the rest of the UK, says the Halifax bank) mean growing numbers have no alternative but to rent privately.

With demand high and growing, how do landlords optimise profits in the current climate?

Consider incorporation

Changes to mortgage interest tax relief are underway and once completed in 2021 will prevent landlords with buy-to-let mortgages from deducting interest payments or other finance-related costs from their turnover before declaring their taxable income. The result could be significantly higher tax payments.

However, landlords who own properties as a limited company will instead pay corporation tax – currently 20% – on their profits alone.

Additionally there may be a capital gains tax benefit. Currently individual landlords with buy-to-let properties pay 40% capital gains tax on their total capital appreciation when they sell them.

Many companies, however, are not taxed on the share of the appreciation that is due to inflation, currently running at 2-3% annually – that could save thousands.

But there are pitfalls too; company set-up costs may be based on current market values of properties, so some experts suggest corporate structures work best for future investments, not existing ones.

Always seek out an independent financial adviser or accountant to help.

Switching properties to high-yield areas

Many surveys show the best yields are now in the north of England, with its low capital values and reliably strong rents.

TotallyMoney recently analysed over 500,000 homes across 2,700 postcodes, finding the bulk of the 25 highest yields (ranging up to 12.63%) in the north; none was in London or the south east.

If you do sell to buy elsewhere, remember some evergreen rules: locations with strong employment stats and transport links and substantial student populations, typically provide the best returns.

But always check local agents to assess on-the-spot market conditions.

Consider short-term lets

Letting out a property Airbnb-style for a few nights at a time can be an excellent income supplement if done between longer-term tenants.

On a rent-per-day basis returns are higher than for traditional buy-to-let but you must inform lenders and insurers and arrange someone to hand over keys, clean the property, provide fresh linen as appropriate and be on call in the event of emergencies.

Remember most local authorities have a maximum – usually 90 nights per year – that homes can be used for short lets before they require planning consent for this kind of use.

Remodel to become a home in multiple occupation

If your property permits and the local market shows demand from young renters in particular, seek planning consent to turn it into a home in multiple occupation (HMO) delivering larger monthly returns from a greater number of tenants.

An HMO is rented by at least three people who are not from one household and who share facilities like the bathroom and kitchen.

A large HMO is defined as one let to five or more people who form more than one household in a building with three or more storeys.

HMOs involve strict licensing and safety regulations and much greater maintenance in addition to the costs of conversion. Nonetheless, this is regarded as the most profitable buy-to-let investment; using a lettings agent means they (not you) have to know the regulations and manage tenants. And agents’ charges to landlords are tax-deductible too.

Optimise your borrowing

The total you can borrow is linked to a property’s value so if older buy-to-lets are revalued you may be entitled to a higher loan-to-value with a wider choice of products – and at better rates.

Monitor the mortgage rate for each buy-to-let loan you have and check how far through the initial deal you are.

If you have finished the initial deal you will be free to switch, probably at no cost – this is particularly sensible if you have fallen on to your lender’s standard variable rate, which often happens automatically.

With more interest rate rises likely, a move to a fixed rate may be best. Again, an independent financial adviser is a good idea.

Source: Mortgage Introducer

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Should student landlords offer All-Inclusive Bills in 2018?

An increasing amount of student landlords are becoming attracted to the idea of an all-inclusive rent package because it allows them to forecast their outgoings more precisely, and it makes their life simpler. If you’re a landlord who’s considering an all-inclusive rent offer for the 18/19 academic cycle (or even to young professionals in a shared house) but you’re’ concerned it’ll leave you out of pocket and take up more of your already limited time, fear not!

These days, HMO management is all about efficiency and value for money and students do expect to pay a little bit more for this hands off and time saving inclusion! But student landlords should not be left out of pocket, and there’s a way to manage it quickly and efficiently which should actually save you time in the long run! This article talks you through it, step by step!

Why do students want all-inclusive bills?

An all-inclusive rent takes a lot of the hassle out of HMO management for landlords, and also for student or professional tenants living in a HMO, where traditionally, tenants have had to set up their own utilities and waste precious minutes calculating who owes what! It’s undoubted that an all-inclusive rent is more attractive to the modern HMO tenant that’s used to fixed price mobile phone contracts, Netflix subscriptions, annual bus passes and the like. By offering a rent that includes many of the usual extra costs, all rolled into one handy, single monthly payment, student tenants can have a much better idea of how much pocket money they’ll be left with for the rest of the month. In my experience, you’ll increase the likelihood of getting a better caliber of student tenants who respects your property and your values as a landlord. Ultimately, and perhaps most importantly for them, it makes planning their shopping, 4G data spend, fancy dress costumes and 2 for 1 drinks nights (some of the well known student priorities) much easier!

What bills should you consider offering?

We run you through some of the options a landlord could include and suggest some considerations for each. If you do opt to include bills, ensure that you include a fair usage cap in each tenancy agreement, it’s just good HMO management practice. We also recommend that you inform tenants of their responsibilities regarding safe usage when they move in, along with the usual utility information such as emergency shut off valves and meter locations.

  1. Gas, Water Electricity – Consider switching regularly to take advantage of better rates and offers such as cash back and vouchers.
  2. Council Tax – Take on the responsibility of informing your council of your tenant’s details when they occupy the property. If they are students, they’ll be exempt from having to pay Council Tax, but if the council don’t get told, you could be on the wrong end of some aggressive enforcement letters!
  3. Broadband A high-speed and unlimited broadband service is essential for student tenants. If you are a portfolio owner, you can set up one account with a provider and installing a service at a new property is as easy as sending one email! Virgin and Sky both offer good landlord packages.
  4. TV License – If you supply a TV with your property (which is another essential for 2018) then you are responsible for this anyway. One quick call will make sure it’s in place, and pay annually because it will save you money.
  5. Sky, Virgin, Amazon, Netflix – If you really want to stand out from the crowd, consider some of these add-ons in your student house, but make sure you set limits, so you don’t experience unexpected bills!
  6. Cleaning – Having the shared areas cleaned every 2 weeks helps keep a student property in great shape and allows you to have someone regularly checking the condition of the property. It’ll give you an advantage when it comes to viewings too!
  7. Gardening – If you provide a garden or yard, you should consider getting a gardener to visit on a semi-regular basis. Not many HMO tenants own lawn mowers and secateurs! But keeping foliage trimmed will help make a good first impression on prospective new tenants, and more importantly, mums and dads.

How can you make bills more economic?

Besides shopping around for the best tariffs (try U-Switch to get started) some suppliers can send you a free ‘Smart Meter’ for the property which will allow your more economically minded student tenants to get a real time indication of their energy consumption and costs, and it will let you as a landlord, check their usage at any time, from anywhere in the world, from your phone. You could also install a smart heating control system such as Inspire that allows you to set pre-determined heating parameters. This will stop your tenants turning off the heating in the winter in an attempt to cut their costs (a sure fire way to get condensation and mould issues) or if you’re including the bills for them, it’ll stop them from blasting it all day every day at a huge and unnecessary cost.

What else can you do in a property?

Light Bulbs – Replacing just one old light bulb with an energy saving alternative can reduce lighting costs by up to £78 over the lifetime of the bulb. Plus they last up to 12 times longer than ordinary light bulbs.

Radiators – Fit reflector panels behind your radiators. These can reflect back into the room 95% of the heat energy radiated from the rear of your radiator. Other radiator extras are also available on the market such as Smart Radiator Valves which turn the radiator on and off at set times of the day, and radiator boosters that ‘suck’ heat in from your radiator and circulate it 50% more efficiently around your room.

Thermostat – As a rule of thumb, you can save around 3% on your heating bill for every degree that you turn down your thermostat. This is a balancing act of keeping your tenants happy, keeping your property warm enough to prevent condensation issues, and keeping bills economic.

Taps – A dripping hot water tap can waste enough hot water to fill half a bath in just one week, so fix any leaking taps!

Draft Proofing – Draft proofing windows, doors, loft hatches, wall and ceiling fittings can save the average property £55 per year on heating bills.

Provide a washing line – This is a real no brainer!

Fridges and freezers – Defrost these appliances annually, this helps them to run more efficiently. Bear in mind that some fridges and freezers self-defrost though, which saves you time and money in the long run!

Hot water tank – If you have a hot water tank, check that it is well insulated.

Cavity wall insulation – can save landlords around £150 a year, and the pay back will be approximately 5 years!

Loft Insulation – The approximate saving per year for those who have thick loft insulation installed is £175. Be sure you don’t compress the thickness of the insulation as this can see savings decrease dramatically. Installation can cost anywhere between £100 and £350 depending on the size of your property.

Under floor insulation – Older properties are more likely to have suspended timber floors. Timber floors can be insulated by lifting the floorboards and laying mineral wool insulation supported by netting between the joists. This can save you around £60 per year and cost as little as £100 if you do it yourself. Filling in the gaps between your floor and skirting board alone could save you £25 per year.

Solid wall insulation – Older houses tend to have solid walls rather than cavity walls. Having either internal or external insulation installed on your solid walls could save you around £445 to £475 per year. However, the cost of having such insulation installed can be high at £5,500 to £13,000. Nevertheless, external insulation can renew the appearance of your outer walls, improve weatherproofing and sound resistance, fills cracks and gaps in the brickwork, which will reduce draughts, increase the life of your walls by protecting the brickwork and reduce condensation on internal walls to help prevent damp (though it will not solve rising or penetrating damp).

Source: Property 118