This will be a good year if you’re intending to purchase central London Property, BUT to do so you will need a hefty deposit given the increased rental cover ratios, which are currently being implemented by mortgage lenders.
As if rental yields weren’t low enough already, there is the additional burden of the higher rental cover, typically from 125% they will jump to 140% - 145%. Then you have the tax to be concerned about, as you cannot offset the interest element of the mortgage against the rental income, not at the higher rate of tax anyhow. For basic rate payers there will be no difference.
The increase in rental cover is in response to the new tax regime, which is due to be implemented in phases from this coming year, with full implementation occurring in 2020. This has served to diminish the number of BTL Landlords, according to The Council of Mortgage Lenders applications have dropped from around 6,000 new purchases a month using buy-to-let mortgages, compared with 10,000 - 11,000 last year.
This is a huge drop of 40%. This means there are less buyers in the market therefore arguably more deals to be had, though this then begs the question: how does one define a deal if the market is in a state of flux?
In short, the BTL game can only be played with increased stakes, you need a bigger deposit and you still have the tax issue to worry about.
However, there is an alternative, given the right mechanism you can invest with less money and strip out the issues concerning rental covers and therefore larger deposits, and the tax implications, and still have the benefit of investing in central locations. There are still ways and means of achieving your objective by investing in strong locations, as this is the first mantra of property investment and cannot be broken in any market. There are some extra benefits in investing in this way too.
Too good to be true?
Not so, we will be unveiling the means to achieve this in our seminar on the 25th January 2017. This is our first one of the year, where we will be sharing our strategy and vision for the London property market and the best way to exploit this market, which presents an opportunity which hasn’t existed in recent years.
Please call the office to register for this unique seminar. Spaces are limited, so book your space now to avoid disappointment.
Non payment of rent
The number of landlord possession claims going to County Court remains high, with a strong trend for using the accelerated procedure. In this article, I highlight some of the pitfalls of obtaining possession and urge landlords to insure for legal expenses and loss of rent.
Get insurance
Non-payment, late or partial payment of rent is the biggest worry for landlords. Good letting agents are increasingly tending to highlight the risks to landlords and are putting strict vetting procedures in place. This can be backed up with rent and legal protection insurance to help protect themselves and the landlord against the non payment of rent.
Late Payers or Non payers
If your tenant pays the rent late or not at all, try to enter and maintain a dialogue with them to gain an understanding of their situation and explain that legal action will follow, if the arrears are not met. You will need to serve tenants with the necessary notices to gain possession as soon as possible, whilst keeping the lines of communication open. If the tenant subsequently pays, the notices can be withdrawn.
Go for possession – how not to do it
In a court case, last year, a judge found against the landlord as he unlawfully evicted the tenant, who was awarded £22,500 in damages. The tenant had returned from a holiday to find the locks had been changed and a new family were now living at the property, leaving her, her husband and three young children homeless.
Go for possession – be careful with serving your notices
In a recent case, Spencer v Taylor, the landlord got the expiration date wrong when serving notice. The judge had to decide whether a fixed date, or a date calculated by a formula, applied in the context of serving a valid Section 21 notice.
If you do have insurance in place - beware of notification deadlines
If you have insurance in place, be aware of the policy conditions for notifying claims. Many insurance policies have a very short window for notifying claims. This can sometimes work against the agent who is working with the tenant to get the rent payments back on track.At Sow & Reap we can assist, or take over any issues you are experiencing, with removing your tenant from your property and are at hand to offer initial advice for free, either in person or over the phone.
