Do You Owe HMRC?

The majority of landlords are law abiding citizens who are fully aware of their tax liabilities, but if you made a mistake on any of your recent annual your tax returns, or worse, didn’t bother to submit one at all, you could find yourself facing the wrath of HMRC very soon!

An HMRC taskforce is about to be launched and it seems likely that it will focus primarily on landlords in certain parts of the UK, although the investigations could be further extended to all parts of the UK eventually. Landlords with HMOs and temporary let accommodation are most likely to be targeted, but this does not mean you are safe if you only have one or two private rental properties!

What is HMRC looking for?

HMRC inspectors are hoping to find evidence of underpaid taxes, either due to ignorance, or through deliberately providing misinformation on tax returns. Information is likely to be gathered from a wide variety of sources, including other government departments; HMRC is also likely to trawl through property advertisements placed in universities and on the Internet in their efforts to leave no stone unturned.

What about VAT?

If you operate temporary accommodation, perhaps for seasonal workers, you need to be aware that VAT is chargeable in the same way as it would be on a B&B or hotel accommodation.

What should I do if I think I owe HMRC money?

Your best course of action is to speak to your accountant as soon as possible in order to sort your tax affairs out, and if you don’t have one, find one immediately. HMRC might already have identified you, so by ignoring the fact you owe tax, you will likely face far higher penalties.

Buy to Let Mortgages Exempt from EU Regulations

Following months of wrangling, the EU has finally decided that UK buy to let mortgages will be exempt from the tough restrictions governing other types of mortgages and whereas the rules for lending on residential mortgages look set to be tightened up considerably, landlords seeking financing for rental properties will not be affected.

If the EU hadn’t seen sense, landlords would have found it very difficult to obtain mortgages as lenders would not have been allowed to take anticipated rental income into account when deciding how much to lend; instead they would have based their lending decision on annual earnings, in much the same way as lenders currently do when considering whether a customer is eligible for a residential mortgage. Obviously for many landlords, annual income isn’t enough for a lender to consider giving the green light for a buy to let mortgage and in these cases, investing in rental property or expanding an existing property portfolio would be impossible.

The current draft agreement has not yet been signed off, but it has been agreed in principle and the bill will now be passed through each member country of the European Union so that individual members can iron out any last remaining sticking points. This process is expected to take around a year, but for the UK at least, buy to let landlords can finally rest easy, although industry experts are still keeping a close eye on the proceedings to ensure no further issues come to light which could affect buy to let landlords in the UK.

Landlord Faces Court for Failing to Carry Out Essential Repairs

A UK landlord could be found negligent after a pregnant woman died last year as a result of his alleged failure to carry out essential repairs on a damp property. The young woman, who was pregnant with her second child, passed away in her sleep following a series of severe chest infections, believed to be as a result of the damp and mould in the property.

The young couple moved into the rental property last August and despite their repeated complaints to the landlord about the sorry state of the property and asking him to sort out the damp issues, nothing was done. Eventually the local council intervened on behalf of the tenants and handed the landlord an environmental health enforcement order asking him to carry out essential repairs necessary to put things right. Once again the landlord failed to do anything and when council environmental health inspectors returned a few weeks later, they discovered no work had been carried out. Sadly the young mother passed away two days after the second visit from the council inspectors.

The young woman’s husband firmly believes his wife died as a result of the excessive damp in the property and the local council is now hoping to prosecute the landlord for his alleged failure to carry out essential repairs. Whether or not they are successful in their case remains to be seen, but the fact remains that the landlord was clearly negligent in not carrying out repairs, whereas if he had done his duty, the young mother might still be alive today.

Avoid the Void

Thanks to rising demand for rental properties, most landlords are experiencing shorter void periods between tenants, which is good news for our pockets. Of course there are always going to be times when a property is vacant for a week or so, and even though the average void period has fallen from 3.2 weeks to 2.8 weeks, there are still a few things you can do to attract new tenants and fill the gap as fast as possible.

Once you know your tenant is leaving, advertise the property in as many places as possible. The internet should be your first port of call for advertising purposes as most people search online before looking elsewhere, but it is worth advertising in the local press or college notice boards if you are marketing at students.

One of the biggest problems with having a property empty for any length of time over the summer is garden upkeep. Grass grows at an alarming rate when the weather is warm and sunny, but new tenants will be put off if they come to view and are faced with a jungle. Keep an eye on empty properties and make sure they stay clean and tidy.

Good photos are essential if you want to attract new tenants. Rental properties may be in demand, but tenants are more likely to show interest if your property looks great in the pictures. It is also a good idea to take new marketing pictures after you have given the property a good clean—it will look more attractive to potential tenants!

Recession Fuels Buy to Let Boom

As anyone with a house to sell in the current market knows, it is nigh on impossible to find a buyer unless you are willing to drop your price and practically give your home away for free.  Even if you are lucky enough to find a buyer willing to pay the asking price, or something in the region of, should you require a mortgage to fund your next house purchase, then the real fun begins!

Prior to the recession it was not that difficult to get a mortgage, which is why large numbers of people were able to borrow five or six times their income and subsequently end up in massive debt. But times have changed and with the collapse of so many financial institutions, lenders are understandable leery of handing over cash unless the borrower is able to put down a substantial deposit on the loan, and even then, many lenders are still baulking.

As a result of this difficult situation, a large number of people are being forced into the rental market—either because they can’t obtain a mortgage or because they can’t sell their home and are forced to let it out. Indeed, the latest research suggests that the average first time buyer is now a comparatively old 37 years of age.

The obstacles in the way of anyone wishing to own their own home means good news for landlords since the more people in the market for rental accommodation means higher rental yields and greater profits, which is why the average rent continues to rise and the buy to let market thrives. With the deepening crisis in the Eurozone, it seems likely that mortgages will become as rare as fairy dust and landlords can expect to see a steady supply of tenants beating a path to their door.

Unscrupulous Letting Agents

As anyone with a house to sell in the current market knows, it is nigh on impossible to find a buyer unless you are willing to drop your price and practically give your home away for free.  Even if you are lucky enough to find a buyer willing to pay the asking price, or something in the region of, should you require a mortgage to fund your next house purchase, then the real fun begins!

Prior to the recession it was not that difficult to get a mortgage, which is why large numbers of people were able to borrow five or six times their income and subsequently end up in massive debt. But times have changed and with the collapse of so many financial institutions, lenders are understandable leery of handing over cash unless the borrower is able to put down a substantial deposit on the loan, and even then, many lenders are still baulking.

As a result of this difficult situation, a large number of people are being forced into the rental market—either because they can’t obtain a mortgage or because they can’t sell their home and are forced to let it out. Indeed, the latest research suggests that the average first time buyer is now a comparatively old 37 years of age.

The obstacles in the way of anyone wishing to own their own home means good news for landlords since the more people in the market for rental accommodation means higher rental yields and greater profits, which is why the average rent continues to rise and the buy to let market thrives. With the deepening crisis in the Eurozone, it seems likely that mortgages will become as rare as fairy dust and landlords can expect to see a steady supply of tenants beating a path to their door.

Unscrupulous Letting Agents

Lots of inexperienced landlords choose to pay a letting agent to manage their properties because it seems like the best option for all concerned, and if the landlord lives a long way from their property, a letting agent is usually better placed to deal with routine matters and changes of tenant. But, unfortunately, despite government promises to improve the situation, letting agents in England and Wales remain unregulated, which means there are a large number of rogue operators charging unfair fees and behaving in a less than professional manner.

Unscrupulous letting agents use all kinds of tactics to maximise profits at the expense of unwitting landlords and tenants. They often charge ridiculously high property management fees, including fees running to hundreds of pounds for simple tasks such as credit checking a tenant, and because they make more money when tenant turnover is high, they are happy to harass tenants and negotiate rent increases that are typically based on what they think a tenant is willing to pay rather than what current rental market prices are.

Many landlords put up with such practices because they are able to offset the fees charged by letting agents as a legitimate business expense, but instead of being ripped off every month if you are using a letting agency to manage your properties, consider finding another agency with a clearly advertised and unambiguous fee schedule. If landlords only choose to work with a letting agency running their business fairly and efficiently rather than one of the more unscrupulous agents currently in business, hopefully the rogue agencies will eventually be driven out of business.

More Properties = Greater Profits

Some interesting new research into buy to let property businesses has indicated that landlords with several buy to let properties are more likely to make larger profits than landlords with just one rental property. Obviously this is always going to be the case for landlords who run buy to let as their sole business, but there are also a large number of investors in the buy to let market who use buy to let to generate a secondary income whilst working as an employee elsewhere.

Why does it pay to own more than one property?

There is nothing inherently wrong with supplementing your income with profits made from letting out just one property, but if you plan on making a decent living from buy to let, it pays to have a larger property portfolio. Keeping your eggs in one basket is always a recipe for disaster and buy to let is no different from any other business venture: if you are selling a product, you would think it foolish to have only the one customer, right?

Maintaining several properties is more work, but if you experience any down periods when a property is empty between tenants, you can use the income generated from other properties to tide you over. Maintaining a larger property portfolio also helps to maximise your rental income, which in turn boosts profits from the business. Even with only two or three properties in your portfolio you will see a greater return on your investment and the research figures indicate that 38% of landlords with between five and ten properties on their books are able to make a good living from their business. This rises to a very healthy 72% of landlords with more than twenty properties in their portfolio.

Licences Required for Welsh Landlords

In an attempt to improve living conditions in the Welsh private rented housing sector, the government has published a White Paper in advance of the new Housing Bill, which outlines a number of important legislative changes that will affect all landlords and letting agents in Wales, irrespective of how many properties they own or manage.

The changes will require that all landlords sign a mandatory housing register before they can let a property to a tenant. Landlords will also be required to pass a test to ensure they are a “fit and proper person”, although the definition of a “fit and proper person” has yet to be clarified! Once a landlord or letting agent is given appropriate accreditation, they will be able to run a property rental business in Wales.

By putting such legislation in place to protect tenants, the government clearly recognises that the private rented sector is awash with both good and bad landlords, but with the introduction of these legislative changes, it hopes to reduce the number of cases of “bad landlords” taking advantage of vulnerable people, desperate for a home.

Although I should point out that landlords are not the only ones to blame: there are plenty of dodgy letting agents operating in Wales and other parts of the UK, companies who make money from charging landlords and tenants hidden fees or adding questionable expenses to the cost of their services.

However, even though better regulation of the private rented sector is an excellent idea, there still remains a significant shortage of available rental property, and not just in Wales, which is a problem that urgently needs addressing.

Lending Still Slow in Buy To Let

Although there has been a small spike in the number of mortgage applications in the last few weeks, mostly fuelled by first time buyers rushing to take advantage of the favourable stamp duty rates before they go up in June, for the most part, the UK property market remains stagnant with very little activity.

Figures for mortgage lending in 2011 certainly back this up—lending was at its lowest for more than thirty-five years. However, unlike the rest of the housing market, the buy to let sector was the only one that actually grew last year as lenders sought to take advantage of the demand for buy to let mortgages from landlords eager to cash in on the shortfall in rental accommodation.

But despite the positive outlook for landlords hoping to make money in the current buy to let boom, it is still not easy to get financing from the high street lenders, so even though more than 72% of landlords have borrowed money on some of the properties in their portfolio, most still feel that lenders are making it prohibitively difficult to obtain new financing, which in turn is restricting growth in the buy to let sector—without money, a landlord can’t increase his portfolio.

And if the EU has its way and buy to let lending is lumped in with residential mortgages whereby eligibility for a loan is assessed on the basis of income rather than predicted rental yield, a situation described as “fundamentally misguided” by the Council of Mortgage Lenders, the situation will only get worse.