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  • Buy-to-Let

    How will you be wording rent increases caused by Clause 24 to your tenants?

    We recently heard that Uber Landlord Fergus Wilson was putting up his rents ahead of Clause 24.

    We all know Fergus has a very direct way of communicating. Smile

    Milton Keynes Landlord, Alex Caravello, has already been breaking the news to his 100 tenants:





    Alex says he will now be increasing rents 5 - 6% per annum to counter tax increases.

    However, letting tenants know you are being FORCED to put up the rents because of Government tax changes needs to be handled carefully and with some thought for breaking bad news to your tenant.

    I would be interested to hear from PT landlords how you are communicating this news.

    Between us, perhaps we could create a template letter that explains clearly why we are having to raise our rents, and that softens the blow a little bit for our tenants?

    We could also take this opportunity to encourage our tenants to sign the petition against landlord tax changes. This issue unites both tenants and landlords and we should stand together against it!

    [Image: house.png]Related content:

    Fergus Wilson - "Tax changes will lead to homelessness"

    Housing crisis?! You ain't seen nothing yet!

    Letter notifying rent increase

    Are you selling up or disposing of rental properties because of Clause 24?
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    We all seem to be assuming we will be able to increase rents. What if the market just cannot bear it? e.g. I'd love to rent out our 2 bed place in Wandsworth for £10k pcm but that's just not going to happen - I have to rent it out at a price the market can bear.

    To the extent we will be raising rents, we will certainly blame GFO.
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    The above is a general comment and is not intended as legal or professional advice; you should not take any action in reliance thereon without obtaining advice specifically tailored to your circumstances from your own solicitor or other professional advisor(s).
    Thanks for being the first to comment Fanio.

    I think many landlords, myself included, have actively chosen not to raise rents for good quality long term tenants who pay on time. We instigate rental increases once a good tenant departs, and we can re-market the property at a higher rent.

    For example, we have a flat in Slough where we charge £750pcm to the tenant, although the market is so hot there, it would support a rent of £850pcm.

    We are waiting for the tenant to leave before increasing the rent for a new tenant.

    Landlords who have been following this policy will likely have quite a bit of capacity to increase rents and will be forced to do so now imho.
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    (11-01-2016 11:29 AM)Vanessa Warwick Wrote:  Thanks for being the first to comment Fanio.

    I think many landlords, myself included, have actively chosen not to raise rents for good quality long term tenants who pay on time. We instigate rental increases once a good tenant departs, and we can re-market the property at a higher rent.

    For example, we have a flat in Slough where we charge £750pcm to the tenant, although the market is so hot there, it would support a rent of £850pcm.

    We are waiting for the tenant to leave before increasing the rent for a new tenant.

    Landlords who have been following this policy will likely have quite a bit of capacity to increase rents and will be forced to do so now imho.

    Hi Vanessa

    You’re right that many landlords don’t impose regular rent increases up to full market rent for existing tenants.

    We are currently preparing a survey for tenants to try to find out how widespread this phenomenon actually is. I suspect it is quite a large proportion of the PRS. We would like the NLA and RLA to promote a similar survey so that, as an industry, we can demonstrate that rents have plenty of capacity to increase and, if landlords are forced by Clause 24 to raise rents, then the impact will be hard felt. If anyone can help with distributing this survey then all assistance is gratefully received.

    I don’t want to share the contents of our letter verbatim, as I don’t like the thought of 1000’s of tenants receiving ‘identikit’ letters from their landlords. I would prefer that they hear the same reason in different words, depending on their situation.

    However, the format of our letter goes thus:

    “Dear .........

    I’m writing to let you know about some of the changes announced in the Government’s Summer Budget 2015 and how those changes will affect your tenancy. The Conservative government has decided to increase costs to private rental businesses by taxing our ‘turnover’ rather than our ‘profit’ and by making the increased tax burden a simple cost of doing business. I’ll explain more about how this change will affect you further in this letter.”


    I then describe their current rent situation, what their starting rent was and how inflation would have increased their rent during their occupation, thereby demonstrating that their current rent is below inflation adjusted rent. Usually, the inflation adjusted rent figure is also more than the market rent, thereby further demonstrating that private rents have actually increased by less than inflation, despite rhetoric to the contrary.

    I explain that we have benefitted from lower mortgage interest rates since 2009, but that all our other business overheads have increased (i.e. insurance, accountancy, legal, enforcement, bad debts, wages, payroll, IT, telecoms, licensing, compliance, CPD, renewals/replacements, premises, storage, vehicles, fuel, etc) and this is the only reason that our rents have remained fairly stagnant over the last 8 years,

    I go on to explain that we are being forced to increase rents to avoid suffering post tax losses and being forced to sell our tenants’ homes and that we will not benefit from these rental increases. I liken Clause 24 to adding VAT on private rents - we are being forced by Government to add to the cost of renting by an unfair tax.

    I also urge our tenants to sign the petition against Clause 24 and to write to their MP.

    I then enclose two Section 13 rent increase notices and ask them to sign a copy and return it to me in an SAE.

    As we collect rents by Direct Debit using LandlordsRent our tenants don’t actually have to do anything - we adjust their rent collection accordingly - but I like to have a copy of the counter signed Section 13 notice on file.
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    Given that if you use most agents it costs at least 1 months rent every time the tenant leaves (assuming very sort void), is it worth the risk of putting rents up to "market" levels? Maybe put them up to £50pcm below current market levels.
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    Four of my properties have not had a rent increase in many years. That will be changing from the next AST - but I am not shooting the prices up. I am going to ask for £15 per month. I will explain it is down to the new taxation rules from The Government.

    I see £15 as affordable on a monthly basis and will still keep these properties competitive or well below rentals in the area and hopefully my tenants in place. Changing tenants is expensive and at that point I'd put the property on at full market value.

    I hate doing this to working families and people that are simply trying to get by.

    £15 per month is only £180 per year. But multiply that by 5 years and that's £900 per year by the time the tax hits hardest and that will help with the new tax bill. Goodness help us if interest rates shoot up, but that's looking unlikely, more chances of another asset and house price crash led recession.

    Jason McClean
    https://www.thepropertyinsurer.co.uk
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    Thanks for your input here Alex.

    With regards to your survey, which sounds like an excellent idea, when you are ready, please create a new post on Property Tribes with a link to it and we will happily share it. Smile
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    Well, there you go, as if we really needed it, definitive proof that the majority (two thirds) of PRS tenants do not see annual rent increases and of those that do (one third), their rent increases lag behind the market rent (1.3% versus 3.1% market rent increase).

    https://www.landlordtoday.co.uk/breaking...-1-in-2015

    Just a few years with zero rent increase and the average tenant will find that they are paying 20% or more below market rent. This is the Government’s own definition of ‘affordable rent’ and the same model they are forcing Housing Associations to confirm to just to keep their state funding.

    So, despite supporters of Clause 24 sneering that landlords “can’t just raise rents because the market won’t tolerate it” we can now all see that there is actually plenty of spare capacity for landlords (businesses) to increase their rents to market levels and redistribute the tax burden onto tenants (customers).

    Way to go Tories! Yet another tax on private tenants, just like licensing, right-to-rent and dozens of other ‘well meaning’ pieces of legislation that affects tenants’ standard of living!
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    (19-01-2016 12:20 PM)alex_caravello Wrote:  Well, there you go, as if we really needed it, definitive proof that the majority (two thirds) of PRS tenants do not see annual rent increases and of those that do (one third), their rent increases lag behind the market rent (1.3% versus 3.1% market rent increase).

    https://www.landlordtoday.co.uk/breaking...-1-in-2015

    Just a few years with zero rent increase and the average tenant will find that they are paying 20% or more below market rent. This is the Government’s own definition of ‘affordable rent’ and the same model they are forcing Housing Associations to confirm to just to keep their state funding.

    So, despite supporters of Clause 24 sneering that landlords “can’t just raise rents because the market won’t tolerate it” we can now all see that there is actually plenty of spare capacity for landlords (businesses) to increase their rents to market levels and redistribute the tax burden onto tenants (customers).

    Way to go Tories! Yet another tax on private tenants, just like licensing, right-to-rent and dozens of other ‘well meaning’ pieces of legislation that affects tenants’ standard of living!

    This article also only refers to tenants who have renewed their tenancies. A tenancy renewal is a convenient time for the landlord/agent to put the rent up; I'd imagine that, among tenants whose tenancies have been left to go periodic, there will have been a singificantly lower proportion of rent increases.
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    [Image: 75pxLogo.jpg]

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    I might be wrong, but can't larger landlords set up as a company which allows them to off-set mortgage interest as an expense, and therefore not increase rents?

    Rgds,

    George

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