My trip to Birmingham last week proved unsuccessful, as far as the auction goes. I chose to not attend for various reasons, just as well, as the prices went way above the guide price. For example, one property which was guided at £55k went for £134k. A local agent said the price will go through the roof and predicted it will sell for £80k, however, the price went for two and a half times the guide price. This sale has raised the ceiling on the street for prices sold.
The reason why we did not go for this property was not driven by the price, but because we would have been unable to accommodate enough rooms in the property to push the yield up. The council has a policy in place for a minimum size, which they enforce with vigour.
The second property we had earmarked, was a large house with six flats within it. Generating £28k per annum, and guided at £250k, it went for £424k. We ended up rejecting this one due to its grading on the EPC. Any property which has a rating below an E standard on the EPC report will need to be upgraded. You will not even be able to renew a tenancy until this has been complied with. This property had F and G ratings on its flats. Judging from the owner who was present at the viewing, it seemed he had run out of money which perhaps prompted him to put the property in auction and secure a sale in a timely manner. It seemed the property was due to suck up a large amount of cash very shortly.
It’s clear there is a lot of buoyancy in the Birmingham market, and the yields currently seem to make more sense here. We still intend to close a few deals here, as there is both yield and future capital growth potential in this location. We are working away to make this happen, and I am sure in time we will close; however, it needs to be the right deal, without any future surprises. Hence the trepidation, and perhaps a little procrastination.
Closer to home, we are looking to close three deals in tomorrow’s auction. The lots are all short lease properties in prime central London. One is 14 years, another is 16 years, and the third is 68 years. The price for the 14 year lease property has been guided at £190k. You can look at this deal and say this is not a property, it’s a tenancy for 14 years; and you would be right. However, there is one important point which changes this perspective, and this is the Leasehold Reform Act, which allows one to extend the lease after it has been owned for 2 years. This right can also be applied for and passed onto an incoming buyer.
It is almost hard to believe two hours north and you can buy a whole freehold house for the same price as buying a short lease flat.
The dampened environment means you can put a good case together for a low extension of the lease. The client we have lined up for all three properties is in the process of completing a couple of lease extensions already, and so is very comfortable with the process and the lucrative nature of lease extensions in the current environment.
The lawyers are checking through the paperwork, with a view of reporting back later today, and hopefully bidding on all three properties tomorrow.
—————
New EPC rules are heading our way!
And the cost of non-compliance could be steep…
The government is trying to make the carbon emissions for all buildings to be close to zero by the year 2050. In the long term, properties will have to take their energy efficiency rating up to A. As far as their short term goals go, if you’re renting or selling a property there is a good chance you fall under its ruling. From 1st April 2018, all buildings will need to have an EPC rating of at least E. Ratings below E will not be sold or rented, unless you fall into one of the exemptions.
What you need to know
An energy performance certificate (EPC) is a document you must legally have, setting out the energy efficiency of your property. It comes in ratings of A to G. It gives an indication both for you as a landlord and any potential tenants or buyers. You have to provide this free of charge to the tenant on advertisements for the property as clearly as possible. If your property is currently rated below E, you will have to make changes and have it recertified to ensure it meets the required standards. If you don’t, things can get pricey. Penalties range up to £5,000, and will depend on the severity of the breach.
Penalty charges:
l Providing false or misleading information to the PRS Exemptions Register - £1,000
l Failing to comply with a compliance notice from your local authority - £2,000
l Renting out a non-compliant property for less than three months - £4,000
l Renting out a non-compliant property for more than three months - £5,000
Anytime you’re in contravention, the notice will be published, so this is something which could not only hit your pocket but harm your reputation as a landlord. The trouble is, while many landlords are becoming aware of the new rules, not everyone is certain about what they must do to comply.
The first thing to do is to act quickly. You should order an EPC inspection before your property goes to market, and then have it available within seven days of it going up. There is a grace period of 21 days, but beyond that you absolutely have to have one, or face a fine.
Once issued, it goes onto a database and is valid for 10 years. However, you might decide you want to have it redone. For example, if you have made any changes to the property and think it deserves a higher rating, this can become a selling point. It’s worth looking at this as an issue of more than just compliance.
We will cover further areas next week, when we look at tips on how we can improve your rating!
