LANDLORDS – YOUR BUSINESS – DO IT RIGHT!
Being a residential landlord is not a hobby, it is a business. If only one property, or hundreds, there is legislation, there is an income, there are outgoings, with bills to pay. Often one comes across the term 'accidental' landlord. This is often used when a property is inherited, and the new owner decides to let out rather than sell. It could also be where two single owners become a couple, and rent out one of the properties, living in the other. Whilst accepting that in such cases the properties were not purchased to produce an income, a conscious decision has been made not to sell, and is this really an accident?
The Eastern Landlords Association, is a regionally based membership organisation for landlords and letting agents. We were established back in 1989, being started, as many groups are, by a group of like-minded people getting together in a pub, and sharing problems. Problem solving is still much the ethos of the ELA all these years later. It is our main purpose to provide information, sound advice and support through professional help and guidance.
Being a professional is absolutely key, as in any business, and to understand your rights and responsibilities, and those of your tenants. Many of these are set in the numerous pieces of legislation that apply to the private rental sector. As in any business, legislation is always changing, and it is very important that landlords are compliant with the law as it is today. Simply because something was fine years ago, it may not be in late 2016.
An example of legislation that has been in for some years, since 2007, and unfortunately there are still many landlords that seem oblivious to, is the issue of damage deposits. Whilst these do not have to be taken, we would certainly advise they are; they must be protected in one of the government approved schemes. There is no excuse, and ignorance is no defence in law.
Each year brings new challenges for landlords, and with the current housing situation in the country, demand for private rented property is as high as it has ever been. This is true for the East Anglia region, whether it be city areas such as Norwich or Cambridge, or towns like Great Yarmouth, Lowestoft and Kings Lynn.
Having been involved in the industy in varying guises for over 20 years, I very quickly became aware that there is no such individual as a typical landlord. As in society generally we are all different. We have members who have one property, and others have hundreds. There are landlords who have a very mixed portfolio of properties, that may include commercial. Others will specialise in student lets, HMOs, corporate lets, flats, family homes etc. Some will have a business model that only includes property within a set radius of their home. Some will self-manage, others use letting agents. There are landlords, who due to the demograhics of the area they operate in, have many tenants that are on housing benefits. This in itself can be challenging, especially with major changes in this sector of the market. Universal Credit is a subject that on its own could fill this magazine.
When assessing a possible purchase, or even looking at a disposal, the yield is often a factor, and we know of landlords who will have a figure, say 5%, and will not consider anything under this figure. Re-iterating, it is a business, and a danger for many is letting the heart rule the head. Generally when a property is bought it will not be lived in by the landlord. The chandelier may be wonderful, and garden amazing, and the price seems good. However is this what a tenant wants? Although it is somewhat of a cliché, know your market. The property is your product, with the tenant the customer, or client.
One element of any business is of course costs, of which taxation is a very important component. It is probably fair to say that the majority of the private sector initially, were not too dispondent last year at the result of the general election. A majority administration from a party that purports to support business and the 'smaller' companies. It soon become very clear that the now departed George Osborne and his team had other ideas, with changes that can only be described as landlord bashing.
The major change to the taxation regime is the withdrawal of tax relief on mortgage payments. The majority of landlords, as most business people, have borrowed for their investments, with many having Buy to Let mortgages. Although not a silver lining, this is not in one hit. From Aril next year, 2017, the tax year 2017/18, the private sector landlord will be taxed on rental income before any mortage interest payment is deducted, and then will be given a tax credit for the interest. The tax credit will be gradually reduced over four years down to the basic rate of income tax, currently 20% by 2020.
For many landlords the largest cost is on the loan, and this could well mean that for many landlords they will pay tax on a loss. This is contrary to our basic taxation policy going back hundreds of years, and does not apply to other businesses.
There is a campaign ongoing to fight this Treasury treachery, 'Axe The Tenant Tax', with a application for a Judicial Review to be heard in early October. This is being lead by Cherie Blair QC on behalf of landlords. Also the delay in this being heard is due to a request, which was granted, from HMRC, as their lawyers were not available for an earlier hearing.
Unlike most legislation changes, Clause 24, as this tax change has been labelled, will have differing effects on landlords. Not all have borrowings, and those with, will have differing gearing, and many will be joint loans. Each case will be slightly different, and generic advice is not really helpful. As business people the landlord must look at the repercussions to their own business. If the property business is a company, the rules are very different from a taxation position. Lenders have quickly realised the changing market, and there are now many more company products. This is not really a great help to many, as the process of transferring to a company requires very careful consideration, with cost implications.
From April this year, us landlords also had the pleasure of another tax hike. This was the 3% levy to Stamp Duty for every purchase made of a property that was not to be a main residence. Another unwelcome and additional expense for landlords. There was a spike in purchases in March, and a clear fall after this.
Changes to the taxation for landlords, like most legisaltion is national, albeit slightly different for properties in Scotland and Wales. However the landlord also has be aware of changes that can effect their business locally. Local Councils have considerable powers to impose other conditions, these are notably in the form of discretionary licensing.
Over the last few years many councils have introduced additional and selective licensing, which do incur a financial cost to the landlord to buy the licence, and in many cases more expense to comply with the conditions of these licences. Some of the arguments and rationale for these are a little thin and even spurious, and could cynically be seen as local councillors even trying to justify to their electorate that they make decisions, however ill thought out.
Here in Norwich City there has been an apparent 180 degree turn within a period of only some 18 months by the authority. By the time this goes to print, the cabinet of the council would have met and discussed a proposal to introduce Article 4 to certain areas of the city. Such action is not welcome, and the evidence produced to date hardly compelling. Norwich is a city with an excellent relationship with students, and now the home to two universites, and may decide to introduce a form of social engineering, and restrict homes for single people.
All this was after a committment from the same council to introduce a Property Registration Scheme for the sector, and assess this, with a policy to re-look at Article 4 after a time, and certainly not before 2017. The scheme has been running for a matter of only a few months, and it is much too earlier for any realistic assessment.
It is quite refreshing that the ELA have had many new members this year who have been landlords for many years, and have joined us to ensure that they do know the current laws, and are updated with the many aspects of running a succesful business.
Thank you very much for reading this, and please do contact, whether by email, a telehone call, or come and see us at our office in Norwich.
Peter Davis – CEO – 01603 767101 – .uk
1 SPROWSTON ROAD NORWICH NR3 4QL