On Thursday 14th June 2018 I attended the landlord investment show in London. The main show kicked off with an expert panel debate which I really enjoyed listening to. This post is a loose (ie paraphrased, not direct quotes) record of what was discussed.
The panel consisted of (from left to right):
- Marie Parris (Chair)
- David Whittaker (DW)
- Tony Gimple (TG)
- Nicole Bremner (NB)
- Gary Bovan (GB)
- Charles Haresnape (CH)
After introductions the discussion started with some topics from the chair.
How and why use the High Court for evictions
GB: There are reducing county court resources so more people are using the High Court.
Tips for getting a case transferred to the High Court (which must be applied for from the County Court) - tell a story to help explain why you want a section 42 transfer to the High Court. Explain why speed is important - perhaps there are threats of violence or animals are involved. Make sure you include it in the initial submission.
Tenant eviction costs
CH: Top tip - use good local lawyer and get insurance in advance!
Audience: They had a tenant in a property with £1,900/month rent, they'd gone six months without paying and then left belongings when leaving. It cost £3,000 for goods removal plus eviction fees, etc. Total cost to the landlord was over £15,000!
The property market
NB: Property sales in the south are currently very stagnant, the Midlands is now also looking softer, the North probably still a bit better.
Levels in prime London are nearly back to 2009 levels. Help to buy is essential to sell in London at the moment. Auction results have also been really low recently.
Tax changes
CH: Recent tax changes have backfired. Forcing smaller landlords out of the market but not bringing in first time buyers due to them not having deposits. Will reduce the number of properties on the rental market - while more people are choosing to rent.
As an aside, there's now less stigma in renting. We're catching up a bit with Europe in that way. Institutional investors in the rental market will be growing though.
Audience: Only one is planning to get out of the rental market [probably unlikely to find many retiring landlords at a property show]. Quite a reasonable number (although far from majority) are planning to buy. One other is thinking about about shrinking their portfolio. [So presumably most are planning to just hold what they currently have.]
TG: Don't worry about the tax changes, long term being a landlord is still a really good proposition.
CH: The changes have taken out high leverage landlords, which is a good thing. Generally 30%+ is a good base to be putting into property deals. Property is still a good investment.
NB: With interest rates so low you're losing money on cash in the Bank so investment money has to go somewhere.
Interest rate rises
DW: Now is a good time for landlords because there's lots of money available. Discussing when interest rates will go up - Brexit will land badly, so the Bank of England needs to get the base rate up to 1% before Brexit so it can lower it again to help cope with the impact when Brexit lands badly. Probably increments of 0.25% starting in August or November.
CH: Probably no rate rise until well into 2019. Otherwise completely agrees. The challenge will be that many young purchasers have never seen a real increase in interest rates and hence it may be a shock to them.
Limited companies
DW: 70% of purchases are now coming in [to his business] for limited companies.
Audience: The majority are personal owners, only a handful of limited company owners.
Impact of tax changes (again)
[Several "not advice" disclaimers came with comments in this section.]
TG: It's best to start with end objective, generally wanting to grow yield. Don't look at capital growth as it's too hard to predict. So small or accidental landlords, especially if only paying basic rate tax - don't sweat it, stay as you are. Portfolio landlords or higher rate tax payers - get some good advice.
Never switch to a limited company just to avoid Section 24. Using a limited company has lots of complications, higher costs and inheritance issues. Probably best to own personally and have a company or LLC for management.
CH: The cost of borrowing in limited company has come down a lot, it's now comparable to personal borrowing.
Institutional investors prefer new builds. The come with a warranty, lower maintenance and renters like new properties. This means higher tenant retention and hence reduced costs.
Fix for two or five years?
CH: Two year fixes are currently more popular, but only just. Five year fixes have been getting more popular. There's less difference in rates between two and five recently.
HMO refinancing
DW: Changes to HMO licence requirements are a big worry to lending institutions. Lots of ordinary houses will become HMOs, lenders will do nothing about it until refinancing. But at refinance they'll insist on changing to an HMO product. The product set will widen though, more products are already available.
TG: Changing to an HMO doesn't change the tax. There might be tax advantages because of extra allowances for running an HMO, including allowing for improvements in shared areas.
Rental demand
NB: There's strong rental demand in central and outer London. Good quality products are especially popular resulting in very low voids. Developments are renting some floors while still finishing others.
What's a good LTV?
NB: Likes to keep property debt to around 50%. Currently doing a lot of investment outside property (but most have a relationship to it).
CH: Obviously can't give real advice as it always depends on the persons situation. Personally, intending to deleverage as heading towards retirement. If younger would buy another property but choose that property very carefully.
GB: Would get rid of borrowings but generally worries more about tenant risk.
Big tenant debts
GB: The highest debt eviction had £78,000 owing. It was a property in Mayfair rented to a private tenant. They paid it off in full when they turned up to evict! The eviction was a combined writ so they'd clamped the tenant's Rolls Royce in the car park - the tenants were keen to sort it out!
It's best to prevent the situation in the first place - prevention is all about communication and building a good relationship with tenant.
The return rate of chasing rent debt after the tenant has left a property is about 4%. Not many have a Rolls Royce.
Rogue tenants - a central database?
Chair: There are many concerns about rogue tenants. Should there be a central database for deliberately bad tenants?
GB: It's best to use local landlord meetups but you need to be careful about the risk of discrimination. Has evicted the same tenant three times, they've never paid any rent!
CH: Experian tracking of rent a good thing, it helps good tenants too. Although it may not catch really deliberate rogue tenants.
Rogue landlords - a central database?
Chair: Should there be database of rogue landlords?
Audience: A builders experience - they see lots of disgusting rental properties.
A small amount of general support from the audience. Some concerns about how it would be managed.
DW: Due to the new portfolio rules that require a lot more information from larger landlords, lenders now get a better view of rogue landlords and they actually won't lend to them.
Planning
NB: Infill increases have been claimed but not witnessing it yet.
CH: Planning regime improvements are often talked about a lot but nothing actually changes.
That's it, I found it really good to listen to and I hope this summary has been interesting for you to read. There are more landlord shows coming up if you want to join in with the next one.