The Universal Credit system of payments has now gone “live” in a
number of areas across the UK. It remains to be seen how well the
system works, but there is at least one positive change for landlords
worth mentioning.

Good news for landlords

Previously it was thought that all payments would be paid directly to
the tenants, with the onus on them to pay rent to the landlord.
Because of this new system it was feared that some tenants would
struggle with budgeting issues and would therefore fall into arrears
with their rent payments, thus leaving landlords out of pocket.
Thankfully a small policy change has been spotted by eagle-eyed RLA
experts and brought to the attention of landlords.

A welcome change in policy

If a tenant is in arrears with their rent payments for more than two
months, direct payments to landlords will automatically be triggered
and the tenant will receive support to help them better manage their
budget. This is a sharp about-turn on previous government policy,
which stated that direct payments to landlords would only be made in
exceptional circumstances. And even that wasn’t guaranteed.

However, there is no word as yet that this reversal in government
policy will be extended when Universal Credit payments are rolled out
across the rest of the country later on in the year. The RLA are also
lobbying for a reduction of the two-month period landlords must wait
before they can apply to have direct payments made, plus more details
to be made to landlords of how they can request direct payments from
tenants.

A recent case heard in the Court of Appeal has highlighted the
potential problems faced by landlords when they agree to accept
several months of rental payment in advance. Thankfully, the final
judgement from the above case found in the landlord’s favour, which
should help to clarify that advance rental payments cannot (in most
cases) be treated as a deposit.

Why accept advance rent payments?

Asking for several months rent to be paid in advance is wise for any
number of reasons. Most of the time landlords do this because a
tenant has failed their credit check or is a bad risk for some other
reason. By insisting on at least 6 months rent in advance, the
landlord can hopefully avoid being left out of pocket if the tenant
defaults on their payments.

The difference between advance rent and a deposit

The issue of whether rent paid in advance can be classed a deposit is
an important one. As all landlords know, deposits must be placed in a
deposit protection scheme whereas rent payments are placed into a
rent account as opposed to being held as security. This was one of
the grounds for appeal in the case of Johnson vs. Old: the tenant
claimed the landlord had not protected the sum of money paid in
advance by placing it in a secure deposit scheme.

How can issues like this be avoided?

Drafting a clear and transparent tenancy agreement is the best way to
avoid potential problems regarding financial issues. Make sure your
tenancy agreements are worded clearly and that your tenants
understand them before they sign on the dotted line.

The government launched the Funding for Lending scheme in August last
year. It was designed to encourage banks to offer cheaper loans to
small and medium sized businesses. As a reward for offering cheaper
credit to businesses, the banks would then be able to take advantage
of cheap loans from the Bank of England.

Funding for Lending scheme extended

The Bank of England scheme has now been extended to accommodate
property investors. This means that any business with an annual
turnover of less than £25 million can lend money to landlords and
other property investors.

“It could be a no-brainer,” commented Rob Wood, chief UK economist at
Berenberg Bank. “Lend to a landlord – collateral easy to price – and
get 10 times that lending back as essentially free funding, then
recycle some of that back out again on mortgages or BTL.”

Landlords can widen their investment portfolios

Expansion of the Funding for Lending scheme is a great opportunity
for landlords to access cheaper debt and expand their investment
portfolios. Landlords have already been able to take advantage of
cheaper buy to let lending thanks to the Funding for Lending scheme.
Since last August when the FLS launched, the average rate on offer
for a buy to let mortgage has fallen from 5.09% to 4.28%. As a
result, buy to let lending has increased by 19% in the same period.

Criticism of the scheme

There has been criticism of the FLS, however, and some experts feel
that the government should be channelling more money into helping
first time buyers get a foothold on the property ladder instead.

Derbyshire police are calling for landlords to keep a close eye on their rental properties in a bid to reduce the number of illegal cannabis farms cropping up in residential areas. The local constabulary is concerned about the rise in criminal activity associated with illegal cannabis farms and they are asking landlords and local people to report any signs of suspicious activity in rental properties.

Terrible damage

Criminals using rental homes as cannabis farms often cause horrific damage to the properties. They rip out all the furniture and bypass the electricity supply to keep their cash crops nice and warm. And since they aren’t actually living in the property, the garden is usually left to deteriorate into a wasteland.

Landlords left with the repair bill

If a rental property is used for criminal activity, this normally invalidates the insurance, so the landlord is left to pick up the bill for any damage caused. In some cases, the cost of repairing a house after criminals have used it to grow cannabis has run into tens of thousands of pounds. No landlord wants to be faced with a huge bill, especially if they only manage one or two properties.

Threat of prosecution

Paying a huge repair bill is bad enough, but the police are also keen to point out that landlords who don’t take responsibility for their properties could end up being prosecuted under the Misuse of Drugs Act. Landlords need to make regular checks on their rental properties and report anything suspicious to the local police

In an attempt to reduce the annual welfare bill, the government is
introducing a number of stringent reforms. One of these is a cap on
the amount of money benefits claimants are entitled to. This cap is
intended to ensure families and individuals are always better off
working as opposed to claiming benefits. The benefit cap is currently
being tested in four London boroughs and will go “live” in the rest
of the country towards the end of the year.

How will the benefit cap affect landlords?

Until the Universal Credit comes into effect in October, deductions
made as a result of the cap will be taken from the Local Housing
Allowance element of benefit payments. This will inevitably mean that
many tenants cannot afford to pay their monthly rent and unless they
find a way of making up the shortfall from the rest of their benefit
payment, rent arrears will soon be on the increase.

The NLA believes that landlords could end up out of pocket as a
result of the changes. Indeed, a recent survey carried out suggests
that increasing numbers of landlords are abandoning the social
housing sector because they are concerned about the prospect of rent
arrears.

Supply and demand

In some parts of London demand for rental housing is so high that
landlords do not need to let to tenants in receipt of benefits.
Unfortunately, the private rental market plays a big part in
providing housing to tenants on a low income, so if landlords do
start to pull out of the sector, a lot of families could end up
homeless.

In a case that has had implications for property investors everywhere, a landlord has finally withdrawn his appeal against a surveyor. In the original case, the buy to let property investor won his case and was awarded £72k by the High Court. But the Court of Appeal later overthrew the award and although it looked as if the landlord would take his case to the Supreme Court, he has now withdrawn it.

The background of Scullion Vs. Bank of Scotland

Mr Scullion, a property investor, originally applied for a mortgage to buy a property in Surrey with the express intention of letting it. A valuation was carried out and the surveyor reported that the property could expect to earn around £2k per month in rental income. Unfortunately, Mr Scullion was never able to get more than £1,100 per month and eventually he sold the property at a loss. In order to try and recoup some of his losses, he took the surveyor to court.

Judge’s decision

The original judge awarded in Mr Scullions favour. He concluded that the surveyor should have known that (even though there is no duty of care in transactions motivated by commercial gain) Mr Scullion would be relying on information contained within the valuation report to help him make a decision as to whether the property was a good investment.

A successful appeal

The Appeal Court subsequently overturned the decision. They concluded that there was no duty of care and that a property investor could reasonably be expected to seek out his own commercial advice. So if you think you have a potential claim against a surveyor for dodgy advice, think again.

Any landlord who has had to deal with letting agents at any point will know that not all of them play by the book. There have been numerous complaints over the years relating to hidden charges and dubious business practices, and often, when a letting agents goes out of business, landlords who are owed money have no way of seeking financial redress.

Unregulated letting agents

As things currently stand, anyone can set up in business as a letting agent, and unlike estate agents, letting agents are not subject to registration or compulsory licensing. Industry experts have been campaigning for years to have greater regulation of letting agents and although the last Housing Minister, Grant Schapps, failed to do anything about the issues, it seems that the current Housing Minister, Mark Prisk, is prepared to take the first steps towards regulating letting agents.

Letting agent registration

Housing Minister, Mark Prisk, has sanctioned an amendment to the Regulatory & Reform Bill. This means that letting agents will be forced to register with an approved scheme of redress. The redress scheme will help to protect landlords by giving them access to an independent dispute resolution process, irrespective of which letting agent they choose to do business with. It also means that compensation can be awarded if a letting agent unexpectedly goes out of business leaving landlords and tenants out of pocket.

Who will run the redress scheme?

It is likely that the existing ombudsman for estate agents will be called upon to administer a similar scheme for letting agents.

According to a leading landlord mortgage broker, the first quarter of
2013 has seen a surge in the number of landlords seeking new finance
deals in order to buy new properties. This increase reflects how
confident experienced buy to let landlords are that the current
market conditions are unlikely to change any time soon.

Remortgaging deals

Refinance mortgages only represented 43% of landlord finance deals at
the end of 2012. This figure has now risen to 69%, which is a very
large piece of the pie. Other figures show that refinancing deals on
Houses in Multiple Occupation (HMOs) are now becoming increasingly
common, as landlords seek to cash in on the demand for rental
accommodation.

Will this trend continue?

The signs are certainly looking good. The country is still in the
grip of a tough economic climate and the demand for rental
accommodation is far outstripping supply in many areas, particularly
London and the South East. With this in mind, it is hardly surprising
that landlords are hoping to cash in by trying to expand their
property portfolios. The more properties you have, the more you can
spread the risk of rent arrears and long void periods.

Mortgages and lenders

At one stage it was quite difficult to find lenders willing to offer
finance deals on buy to let properties, but with the increasing
demand for rental properties, more and more lenders are seeing the
light. There are fewer mortgage products on offer now, but this has
more to do with the fact that lenders are streamlining their products
rather than making it more difficult to borrow money.

There is little doubt that the government’s welfare reforms are going
to shake things up a great deal. Many tenants in receipt of Housing
Benefit will see their payments fall as the ‘bedroom tax’ takes
effect and others stand to lose a large amount from disability and
incapacity benefits. Unfortunately, some areas are likely to be
harder hit than others.

Research into the effect of government welfare reforms

Research carried out by Sheffield Hallam University indicates that
some areas of the UK will experience far greater financial loss than
others. Blackpool, the Las Vegas of the north, has the dubious
privilege of being identified as the place where the welfare reforms
will hit the hardest. Researchers estimate that every adult of
working age living in the town will be around £900 per year worse off
in their benefit income. Many deprived seaside towns and older
industrial heartlands will also soon be feeling the effects, as will
some of the poorer boroughs in London. Other parts of the UK should
come off relatively unscathed. These include the southeast and many
parts of London.

Wider effect on the economy

The researchers also claim that an estimated £19 billion per year
will be lost from the economy as a result of the welfare reforms,
thanks to a knock on effect as households can no longer afford to
spend as much in the shops and other local businesses.

Widening the gap

As a consequence of welfare reforms, the research team believe that
the gap between the prosperous southeast and many parts of northern
England is likely to widen since the more deprived the area, the more
the residents will be affected.

Rogue landlords tend to hit the headlines on a regular basis, but in
this instance the tenant was at fault. One poor landlord has been
left with an almighty cleanup job after his tenants finally moved out
following a lengthy battle to have them evicted from his property.

Two-year eviction fight

The tenants (a single mother and her four children) had been living
in the rented property in Burton-on-Trent for two years.
Unfortunately, the mother (who was in receipt of Housing Benefit) had
not bothered paying her rent for nearly a year. Unsurprisingly, the
landlord soon lost patience and started eviction proceedings against
the family in a bid to reclaim his property.

Huge amount of mess

When the landlord finally got the keys to his property and went round
to inspect it, he was horrified at the state it was in. Mountains of
rubbish were strewn all over the garden, the beds had been broken and
there were piles of food detritus and rubbish in most of the rooms.
He estimates it will take at least £2k to clean up the mess and
repair the damage, so on top of the rent arrears and his solicitors
costs, he is now seriously out of pocket.

The court ordered the woman to pay back the rent arrears, but the
landlord’s solicitor has advised him he has no chance of ever seeing
his money again. Sadly this is not an isolated occurrence. It can
often take ages to evict problem tenants when they stop paying the
rent, and if the tenant is feeling vindictive, they are quite likely
to leave a huge mess behind when they finally vacate a property.