Buying, selling and letting - Investment news

 A survey conducted by Mortgages for Business, one of the UK’s leading independent buy to let mortgage brokers, amongst a panel of experienced buy to let landlords has found deep confusion surrounding recent changes in law relating to the property investment market.

 The survey conducted at a seminar attended by 75 buy to let landlords from across London and the South East asked landlords for their views on the recent legislation relating to Houses of Multiple Occupation and the Local Housing Allowance.

 Local Housing Allowance

The Local Housing Allowance is currently being trialled in eighteen areas in the UK before its nationwide rollout in 2008. This new approach to paying rent will see housing benefits paid into tenants’ bank accounts rather than paid directly to landlords.  The move is intended to give tenants greater control over their finances although there are fears that this will lead to greater rental arrears and subsequently tenants being evicted.

The Mortgages for Business survey included landlords with property in the pilot areas.  Over 25% of landlords surveyed said they would move out of this tenant market completely when the new rules come into force with a further 25% stating that they would be re-assessing their investment strategy.  Nearly 30% of respondents reported a lack of understanding of the impending change and are unsure of how they should act.  However, just one investor reports having withdrawn from this market to date.

Jonathan Moore, marketing director at Mortgages for Business, said: “This piece of legislation will fundamentally change the investment dynamics for those letting to DSS tenants. Many landlords have expressed concerns that this is essentially a backward step that will see the return of the ‘Dickensian landlord’ collecting rents every Friday afternoon”.

 Houses of High Multiple Occupancy (HMOs)

The survey also reports that landlords with HMOs in their portfolio have unanimously experienced difficulty at some point in the process of obtaining a licence from their local authority, either due to delays in processing paperwork or confusion over which properties qualify for a licence. Licences were introduced in April 2006.  Of particular concern to landlords is the way local authorities seemingly interpret the rules in different ways which leads to further confusion.

 A small number of landlords report finding themselves in a ‘catch 22’ situation, with lenders requiring evidence of a licence before releasing funds and landlords unwilling to pay for a licence without confirmation of funds to purchase the property.

 The survey found that of those landlords currently in the HMO market, six per cent had experienced difficulty in securing funding.  Nearly 70% of respondents experienced difficulty in interpreting the legislation and only one landlord from the survey reports having to change his tenancy agreements to avoid falling into the legislation criteria.

 “The dynamics of the buy to let market are changing with both lenders introducing tighter lending criteria and the government introducing new legislation to protect the seemingly vulnerable tenant.  Landlords at the sharp end of the social housing market see this legislation as ‘woolly and ill-thought through’, and is likely to stifle further investment in this particular market,” concludes Moore.