Fines crackdown on HMO landlords

Landlord confidence drops

Lease lengths hit all time low

Widening imbalance between demand and supply

Many sellers moving into rented accommodation

Fines crackdown on HMO landlords

Property investors and landlords are being urged to ensure their houses in multiple occupation (HMOs) are licensed following a spate of fines recently.

A HMO property is any building or part of a building, such as a house or flat, that is occupied by unrelated tenants that share basic amenities. If the HMO has three or more storeys and five or more tenants using shared facilities, then by law, the property has to be licensed with the council.

In a recent case, two landlords in Peterborough were given £4,000 fines after running HMOs without a license. Another case in Swansea saw a landlord who rented to students for 13 years receive a fine for more than £10,000 for failing to have a license and maintain the properties.

Chris Baguley, director at lending specialist Auction Finance Limited, said: “HMO is a commonly used phrase but many landlords don’t understand exactly what the term means and if they need a license. Landlords of HMOs must manage their properties well and this means ensuring there is a means of escape, fire fighting equipment and alarms in working order. Councils are increasingly cracking down on landlords that don’t abide by the rules.

“It’s common for HMOs to come up for sale at auction and they’re always extremely popular as they can achieve high yields. As long as you get a license they make an excellent investment. If you need a license and fail to get one from the council, you could be liable for a huge fine. If you’re in any doubt about whether you need a license, contact your council.”

Changes to the way HMOs operate are also due to come into force this October. A consultation period is currently in place and new legislation could mean that property owners will have to apply for planning permission for change of use.

Landlord confidence drops

Confidence among landlords has dipped for the first time in almost two years, driven by uncertainties including housing benefits and tax changes announced in the emergency budget, according to the latest NLA Landlords’ Optimism Index in conjunction with BDRC Continental.

The Index dropped from 51 to 47 points between Q1 and Q2 2010. However, four in ten landlords expect the increase in Capital Gains Tax to have a detrimental impact on their investment, while others predict that the CGT increase, and any future interest rate rises, will lead to a decline in investment. The results also indicate that landlords are concerned about the planned cuts to the Local Housing Allowance which could lead to more rent arrears.

Chris Norris, policy manager, NLA, said: “Despite gains over the past two years, landlord optimism has dropped from the first quarter of 2010 as landlords consider tax changes announced in the emergency budget and they hear talk of a double-dip recession. Furthermore planned cuts to Local Housing Allowance are causing concern to many landlords as they could leave tenants struggling to pay their rent.

“Despite these negative factors, the NLA / BDRC Continental survey shows that more than half of landlords are still positive about prospects in the next three months and are predicting strong rental demand whilst the current economic uncertainty continues.”

Lease lengths hit all time low

Average lease lengths on UK commercial property fell to their lowest ever recorded levels this year, falling by more than 10 months to just five years in 2010.

An independent analysis of 91,000 tenancies recently published shows that small businesses are increasingly signing shorter deals, with 81% on leases of five years or fewer and therefore unlikely to face a rent review. By comparison just over 3% of small businesses have a lease of over 10 years.

The thirteenth edition of the BPF/IPD Annual Lease Review also shows that 2009/10 was a significant year for rent free periods and break clauses as landlords and occupiers grappled with poor economic conditions. The move towards shorter leases, however, has been constant over a period of more than 10 years now also illustrating significant long-term change in the commercial property market and our economy.

The largest study of its kind ever completed, the data shows that a quiet revolution has been taking place in leasing practice since the early 1990s, when the vast majority of leases were what was called ‘institutional’, typically for 20 or 25 years, and often containing upward only rent reviews.

This data shows that the average lease length fell from 5.9 years in 2008/09 to 5.0 years in 2009/10. Lease lengths have therefore basically halved in the period since the Conservative Party last formed a Government in the 1990s.

Other statistics showed that: Lease lengths for retail (5.4), office (4.7), and industrial property (4.0) have come down substantially over the past year from figures of 6.5, 5.4, and 4.6 respectively.

The average lease length for an SME was 4.1 years. The average lease length for a large company was 6.6 years.

Widening imbalance between demand and supply

The latest monthly survey from Hometrack of over 5,100 agents and property surveyors shows a widening imbalance between supply and demand which is having a growing impact on sales volumes and pricing levels. Demand for housing dropped for the second month in a row falling by -2.2% in August. The company says that this is in part seasonal, but the underlying trend for the last 6 months has been downwards.

Hometrack say that the supply of homes for sale grew by 2.4% in August - well above average for what is typically a quiet month. Over the last 5 years supply has grown by an average of 0.8% during the month of August and that over the last 5 months the supply of housing for sale has grown by 14% while demand has fallen by 2% - a trend that is driving price falls. The extent of house price falls increased over August with prices down across 30% of the country compared to 12% in July and just 2.6% in June.

The proportion of the asking price being achieved dropped in August to 93.5% from the 94% figure recorded in July. Prices fell across 9 regions and were static in Wales. The South East and North West posted the largest monthly decline of 0.5% while prices in London have been falling for 4 consecutive months and declined by 0.4% in August.

Richard Donnell, director of research at Hometrack said: “The UK housing market is in the process of a modest re-pricing that is likely to run for the next 6 to 12 months. This follows a period of 18 months during which prices firmed rapidly on the back of a potent mix of rising demand and a chronic lack of housing for sale. House prices were down across 30% of the country in August with gains in just 3% of the market.”

Many sellers moving into rented accommodation

As talk of a double dip and plummeting house prices abound, figures just out from Safestore, the self storage company, shows that more and more people are selling up and moving into rented property, to sit tight and await the outcome of a significant drop in house prices. Figures released today from Nationwide confirm that house prices dropped for a second month in August as the imbalance in supply and demand that drove prices higher in 2009 continues to unwind, according to the building society.

Safestore say they are seeing unprecedented levels of occupancy growth in their storage business, 26% higher than in the comparable period in 2009. The data has shown that one of the primary reasons for this is from people selling their current properties and then using storage to house their possessions, whilst they move into rental properties to bide their time before buying again.

Mortgage lending dived sharply last month to its second lowest levels since records began, down to just £86 million in July, a significant drop from June’s level of £518 million, according to reports from the Bank of England.

Neil Riding, COO of Safestore, said: “Understandably, many people are wary about leaping into another house purchase. Having capitalised on recent house sales, our records show that more and more UK people are moving into rented accommodation to wait for the outcome – they will have sold at a peak in the market and are now waiting for house prices to drop off. House owners have become much more savvy about playing the housing market, particularly after the financial crisis and the availability of self storage facilities really helps them to be as flexible as possible. Storage enables them to keep many of their possessions in a safe and secure location until they are ready to move on again.”