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by John McKay
13:34 PM, 13th February 2016, About 8 years ago 21
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I have always tried to keep my rents low, and like many other full-time ‘professional’ landlords I have the ethos that I don’t increase rents on tenants in situ. In recent years this has been relatively easy as interest rates have been low (though my HMOs have seen utility bills rise significantly).
Clause 24 has overturned this philosophy and is forcing me to take action that hitherto I have never considered. ARLA forecast that rents will have increased by 25% by 2020/21 and this assumes interest rates staying low. It is impossible to make increases like that in one go, unless there is a change of tenants, so I have started the process now and many of my tenants are now feeling the first effects of Osborne’s indirect Tax On Tenants. This is intended to be a snapshot of where I am with rent increases due to Clause 24 of the 2015 Finance Act, and also to show that many of my tenants are not in a position to buy.
First, I must say that 3 or 4 years ago I took the decision to start handing the tenant management over to letting agents though I generally look after the properties myself. This handover has usually taken place at a change of tenant and means that for a lot of properties I do not have in-depth knowledge of the tenant’s circumstances, so I have not included them in this summary.
HMO 1
I manage two tenants that have been with me a long time, the other 3 are managed by the agent.
Adam – Ex army and in his late 50’s and been with me for nearly 7 years. Adam is on his own and moved to the area to be close to his daughter and grand-daughter. He works as a cook and is on a low income. He enjoys the low-cost lifestyle and has no aspiration for his own place whether rented or purchased. His double room is part ensuite with its own shower and basin. His rent has been £72 pw ever since he moved in but has now increased to £77 (7% increase) with further annual increases planned. The rent covers all utilities, broadband, council tax and a cleaner for the shared areas. These facilities apply to all my HMO’s.
Trevor – Trevor has been with me about 5 years and is in his twenties. He works as a journalist for a railway magazine and whilst I can’t say for sure, he also doesn’t seem to want to get his own place. His rent has always been £65 pw for his double room but has now been increased to £70 pw (7.7% increase), with further rises planned on an annual basis.
HMO 2
Ella – She is a young Polish woman who has her own cleaning business and also works evenings at a local restaurant. Ella would love her own home but does not have a long enough credit history in this country. Her rent has just been increased from £65 to £70 pw due to clause 24 (7.7% increase). Ela is a great tenant and very cost conscious so whilst I am concerned that after the next rent rise, she may well move on, I have little choice but to increase rents due to C24.
Thomas – Thomas is a nice Polish guy and is managed by a letting agent. He has the biggest bedroom and currently pays £75 pw. I will be talking with the letting agent with a view to increase it to £80pw. He works shift at a salad packing company. He again cannot buy his own house due to lack of credit history, and doesn’t want the extra cost of renting a house because he is on a low income.
Neil – A divorcee in his 50’s that wants to live locally to be close to his 4 sons, all of which still live with their mother. He’s been with me 8 years and works on building sites but has no real aspirations to get his own place. There was a recent exception to that when his ex-wife threw his oldest son out and Neil was trying to get Council accommodation for them both. However the situation resolved itself. The rent on his room has just been increased from £70 to £75 due to C24 (7% increase) and there will be further annual rises.
Gordon – He is a really nice fellow, in his early forties and works as a hospital porter. Gordon had his own house but decided it was too expensive to run on his income. He sold it and rented it back for a short while but then moved in to my house where he’s been for over 5 years. His rent has been increased from £70 pw to £75 pw (7% increase).
This house offers exceptional value for money with 4 double bedrooms, and huge shared areas along with two bathrooms. There is high speed broadband laid on to this property.
House 1
Gemma – This lady has been with me in this house for 5 years and another one of mine before that for a while. She is a single mother of 5 and the wear and tear on the property is excessive. There have been other difficulties, such as rent arrears, but she has an excellent guarantor and I also feel sorry for the kids who have not had the best of starts in life. I have therefore persevered with the tenancy. Her rent has always been £700pcm but I have just raised it to £735 (5% increase), with more annual rises planned. Frankly I do not think she will be able to pay them as she relies on benefits, so I can see that I will have to evict the family to either upgrade the tenant to one that can afford the rise, convert to HMO, or sell. If I sell the lady is very unlikely to find a suitable house within the Housing Benefit limits set but will hopefully qualify for some sort of discretionary payment, otherwise there are few options open to her. I would add that this would most likely be the second property I’d sell, the first being one that houses a low-paid care worker and her family.
House 2
Sonia and David – This house is a SARB (sale and rent back) that I acquired 9 years ago. They are an elderly couple that were going through severe financial difficulties, despite their quite frugal lives. Derek had been irresponsible with their money and had to actually declare bankruptcy at a later date. I purchased the house at a small discount but I made it a condition that I would replace the bathroom as it was well by its ‘sell-by date’. They pay about 70% of market rent at present and it’s the same figure as we agreed 9 years ago, and whilst I haven’t increased it yet, I fear I may have to. C24 will put great stress on the rents I charge so I will have to pass it on. If they can’t pay then I’ll have to evict this lovely old couple who have lived in that house for nearly 40 years.
House 3
Chris – This is another SARB and the gentleman had also got into a financial problem. I bought the place over 8 years ago and he has enjoyed the same rental figure of £550 pcm since that date. I have now increased it to £580 due to C24 (5.5% increase).
House 4
This house is managed by agents. I bought it in 2003 and it was on an estate which had been wrecked by gypsies resulting in making it like a ghost town with most houses boarded up. This one was partly boarded. I completely refurbished it and let it out at £600 pcm. It has had a few tenants over the years and the rent has always been set at the same figure but due to C24 we just increased it to £675 and it was still snapped up (12.5% increase). The estate has slowly come back into use and is now a decent place to live, but I was amongst the first few people to take a chance in buying one of the houses.
House 5
This is managed by an agent and whilst the tenant has been there for a couple of years on £550 pcm, we have just increased it to £600 due to C24 (9% increase). There will be another rent rise next year.
House 6
Again managed by agents but had been empty for 14 years. I spent a great deal of money to renovate it as it was a ‘real state’, and it is now let to a young family. The rent has not increased since they moved in 4 years ago and I would have been happy to let it stay as it is. I cannot do that due to C24 and we will be imposing a 5% rise soon.
House 7
This was my own home for 27 years and now houses a single mother of 2, handled by an agent. The market rent would be around £1050pcm (according to a surveyor) but she has paid £825 since she moved in two and a half years ago. She is a great tenant but I am now feeling pressure to increase the rent due to C24, which I would not do otherwise. The lady is on a relatively good income but way below what she would need to earn to buy a house, unless she has about £150k to put down as a deposit. If I am forced to sell this property she will struggle greatly to find a similar property on the rent I am charging, unless she moves out of town and further away from Cambridge where she works. This will make it difficult for her children, they can walk to school from where they now live, and will vastly increase her travelling costs.
Like many ‘professional’ landlords I have always taken the view that I do not increase rents on a tenant in situ, and I think that is illustrated by just how long some of my tenants have been with me on the same rent as the day they moved in. C24 has turned that upside down and I now must put them up.
Not one of my tenants has given notice since I increased their rents.
Related articles >>> http://www.property118.com/category/budget-2015-campaign/
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MPs warn buy-to-let tax measures risk damaging whole economy
Alison King
11:07 AM, 14th February 2016, About 8 years ago
Reply to the comment left by "Alan Loughlin" at "14/02/2016 - 10:44":
The model agreement is unclear in a number of key areas.
Many mortgages do not allow tenancies longer than a year anyway so it's not up to the landlord and tenant to agree that. Little mention is made of rolling monthly tenancies; preferred by many tenants as they want the mobility, and what about landlords who would rather not increase the rent at all during a tenancy but may occasionally be forced to due to external pressures outside their control? There are some good things in that agreement but it needs more work.
John McKay
19:17 PM, 14th February 2016, About 8 years ago
I saw an argument being made on one of the National paper sites. The landlord was saying that he was putting up rents and what I think was a female aspiring FTB suggested that doing so would make the landlord uncompetitive, as many landlords own their properties outright.
Of course that situation with some properties being unencumbered exists right now so the argument holds no water.
When the landlord said that he didn't want to put up rents the lady came back with a sarcastic remark about how sorry he must be in increasing them She still didn't grasp that the extra money is all going to Osbo.
This is a terrible situation being forced by Government. Calling it the 'Tenant Tax' is very appropriate I think.
Chris Byways
22:14 PM, 14th February 2016, About 8 years ago
Not sure why an unencumbered LL would not consider increasing rents.
1- They may not be 'forced' to, but all finance has to be funded, either by paying interest to a bank, or by losing interest/dividends
2- they have no 'relief' (sic) to deduct, so they have to pay 40% typically on all rent (except repairs and insurance)
3- the discriminatory, selective, SDLT increase will tend to depress prices of HMOs flats and those properties specifically in demand for renting, so they will likely lose value through lack of demand from other prospective landlords (understandably). Further buyers may insist the price is reduced by the 3% they will have to pay.
4- the c24 tenant tax will limit buyers, so reducing buyers, and their ability to pay. These are, in general not the type FTBs want, or if they can afford to buy certainly don't want ex HMOs.
5- there will still be strong rental demand from those wanting to, (or more often having to rent), with less properties available to rent due to some LLs quitting.
6- A competitive market, with demand already greatly exceeding supply will enable more fitting returns for the risks and work involved. Institutional LLs expect "double digit returns", private housing providers don't make that in most areas.
7- all LLs are waiting for the next attack, verbal abuse from Osborne and his dummy Calridge, more regulations, licensing, controls etc, so mortgaged or not, LLs are not likely to offer a two tier pricing regime.
8- are new tenants going to shop around asking LLs "do you have a mortgage, am I likely to be evicted if repossessed, AND can I pay you less because you don't have to pay the bank interest?" I doubt it.
Trendo
1:46 AM, 15th February 2016, About 8 years ago
I never issue AST >12mths - mort conditons and my preference, altho i have tenants that have been in situ for >15 years, new ast means new negotiated rent agreed by T & LL. Also this applies in England which means i am currently unaffected by it !
But a quick read found this :
Can this agreement be used if we want to enter into an agre
ement for
a fixed term of less than 2 years?
Whilst this agreement has been developed with longer tenancies in mind, the
Government realises that many landlords and tenants find that an agreement with a
fixed period of 6, 12 or 18 months suits their needs
. If you only wish to have a fixed
term period of, say, 6 or 18 months, then you should fix the rent for the whole period
(see clause B6) and can ignore the break clauses in section F of this agreement as
they have been drafted so that they only apply to
tenancies of 2 years or more. The
agreement can then be renewed at the end of that period, if the parties so wish, or
the tenancy can simply run on from month to month until terminated.
Monty Bodkin
11:19 AM, 15th February 2016, About 8 years ago
Reply to the comment left by "Chris Byways" at "14/02/2016 - 22:14":
Not sure why an unencumbered LL would not consider increasing rents.
I'm not unencumbered but I am, now, largely unaffected by clause 24.
I am putting up rents to as much as the market will bear.
With an ever increasing choice of good tenants, it would be foolish not to. Who knows what is coming next?
John McKay
14:54 PM, 15th February 2016, About 8 years ago
Reply to the comment left by "Monty Bodkin" at "15/02/2016 - 11:19":
I completely agree with you Monty, there is much madness afoot.
Generation Rent are actually calling for a further 22% tax on rental turnover, as though they haven't hurt renters enough with forcing rents up as they have. The trouble is that GO has his ears open to anything that puts cash in the coffers and this sort of idea would have him salivating. So if Betsy whatsername and her colleague Dan get their way then rents will be forced up even further. We have to protect ourselves against stupidity and if you are unencumbered, it makes sense to take advantage of your position. From my original post you'll understand that I like to keep rents low, but who knows what could come next.
Chris Byways
20:33 PM, 15th February 2016, About 8 years ago
The term "Tenant tax" has been hijacked
http://www.mirror.co.uk/news/uk-news/george-osbornes-tenant-tax-could-7326844
Really Reluctant Landlord
10:35 AM, 20th February 2016, About 8 years ago
I didn't read all of your post but get the general idea. I just wanted to say we have been renting flats for 40+ years and have always increased the rent on a yearly basis by approx 3%. Recently we have increased by 4-5%. We have only ever had one tenant object who left and promptly came back a couple of months later, to the same flat! The lease does of course advise that each year there will be an increase, so no surprises.
Incidentally, our commercial properties have an increase by the RPI on a yearly basis.
Chris Byways
16:13 PM, 20th February 2016, About 8 years ago
Reply to the comment left by "Gennie Nash" at "20/02/2016 - 10:35":
Yes this RPI increase works fine for most FRI commercial leases where there are few ad-hoc (vindictive, murderous) increases the LL has to foot, totally at odds with the PRS where all the regulatory liabilities fall on the LL. (Gas, electric, damp, insurance, legionella checks, RtR checks and fines, etc)
Am I right in thinking all loans to buy commercial property is tax deductable, and the SDLT remains unchanged at the old slab commercial rates?
Commercial or mixed use looks a lot more promising than the way Gidiot is persecuting those that provide a lot of good housing (and a bit of bad that can be eradicated with existing legislation, properly enforced).
Monty Bodkin
14:09 PM, 22nd February 2016, About 8 years ago
Reply to the comment left by "Gennie Nash" at "20/02/2016 - 10:35":
Most landlords don't do annual rent increases- up until now.
According to the latest housing survey tenants of 5+ years are paying 15% less than new tenants. Plenty of built in rent increases right there.
I think we will see this figure eroded and annual increases will become the norm, written into AST's as standard.
The only reason I've not changed to fixed annual increase AST's is because I expect to see above inflation rent increases for the near to medium future.