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Landlord Action on the Local Housing Allowance

October 28th, 2010

Please see below another interview we undertook with Paul Shamplina from Landlord Action – an organisation that needs very little introduction growing to become the UK’s most popular calling point for issues related to the relationship between property investment owners and tenants. We have focused the interview on the recent changes in the landscape of social housing, an area within which Paul is very knowledgeable – we discuss preconceptions of the Local Housing Allowance (LHA); new ‘austere’ measures being introduced by the new coalition government; the implications of the Comprehensive Spending Review; research and the role of the Valuation Office Agency (VOA); the role of the ‘floating tenancy support service’; recent comments by the Department of Work and Pensions on LHA landlords; Paul’s thoughts on the future of the property market amongst other topics. We would also highly recommend a seminar focused on the subject of LHA run by Landlord Action which goes into what is discussed below in much depth.

1) Can you please introduce yourselves and explain your experience to readers who are unaware? Paul Shamplina, Founder of Landlord Action – an organisation that helps landlords and agents deal with problem tenants. I have around 25 years experience working within the legal field, previously working as a Clerk, Private Investigator and Certified Bailiff. Now, I run Landlord Action with my business partner. We started in 1999 as fixed-fee tenant eviction specialist. The organisation has gone on to revolutionise this area of practice and we have acted on over 17,000 evictions since 1999.

2) What do you think are the main preconceptions that property owners have with regards to letting their property / properties to LHA tenants? Many will only hear and read about the horror stories in the media. The problem is that these aren’t representative of the entire sector. There are countless LHA tenancies where landlords have never had an issue with the tenant. Typically, these tenants are less socially mobile and, therefore, stay for longer periods within a property. However, there are some common issues which we see at Landlord Action.

With about 1 in 5 of our new instructions being directly related to an LHA tenancy failure, we are in a unique position to see what is going wrong. The biggest problem is rent arrears, and this relates to the fact that the tenant will receive the money for the rent (i.e. the housing benefit) and they then have a duty to pass it on to the landlord. The problem is that this is not working in practice, with many tenants not passing over the rent. The landlord then faces the issue about securing direct payments from the Local Authority which can be like pulling teeth out.

3) Do you think they are justified? Partly. It is clear that there are issues with the way that Local Housing Allowance is paid. There are some administrative failings. For example: the issue to do with direct payments and the issue of overpayment to the landlord (where the tenant is not eligible for benefits any more, but the rent was paid to the landlord – in this scenario, the landlord will be liable to pay back any overpayments) are just some of the issues that put landlords off.

Then, there is the fact that, if your tenant is in arrears, the likelihood of the landlord getting any rent back is minimal. Prior to claiming housing benefits, tenants will undergo a rigorous means test – if they have any liquid assets, likelihood is that they will not get the housing benefit. The upshot is that if the tenant falls into arrears, how are they going to pay this back? Where does the money come from?

The problem is compounded by some of the advice that tenants are receiving. It is an open secret that organisations such as Citizens Advice Bureau, Shelter and even some Local Authorities advising tenants that if they leave the property voluntarily, they will not be eligible to be re-housed since they made themselves homeless. These organisations advise that the tenant wait until the landlord present them with a possession order. These days, it can take around ten weeks to get to Court. During this period of time, it is likely that the landlord will not be receiving any rent.

4) Can you talk through the main changes that the government has made with regards to the Local Housing Allowance (LHA)? We have entered the age of “austerity”. The Coalition Government came to power promising to reduce the deficit. The implication is that cuts will need to be made across all sectors. For the property sector, this directly translated into reductions on the levels of housing benefits that are paid out. Clearly, the ramifications of this will be felt by landlords. In many cases – especially the South of England and London – landlords will have a tenant who is receiving benefits which amount to less than the agreed amount of payable rent. Therefore, whilst the government is doing its work towards reducing the deficit, it most certainly isn’t doing all it can to effectively combat homelessness. It seems that the result is going to be landlords losing out again – something that they are getting very tired of. The danger for the government is that this is going to put off many landlords from letting their stock to LHA tenants, which means that supply shrinks whilst demand is ever increasing. I am not an economics professor, but this is usually a recipe for pushing prices (i.e. rents) up.

5) In its new form – what do you see as the main advantages of private landlords renting to LHA tenants? The important thing is for landlords to understand that LHA tenants are different from ‘regular’ tenants. However, there are clearly advantages. As previously mentioned, LHA tenants are less socially mobile and usually stay in a property for a longer period of time. Further, we are in an economic climate where many are becoming unemployed and having to receive benefits – for many of these tenants, they may not be claiming benefits for very long. Also, it is important to note that, most benefit tenants do not want to be on benefits forever. Most want to achieve financial stability. Another advantage for the landlords is that there is a lot of demand for social property. The waiting lists for Council accommodation are long and the Government need private landlords to provide housing to ease the burden.

6) What do you think will be the major implications of the Comprehensive Spending Review for property investors and landlords? As usual, in terms of housing, landlords are going to be the ones to get hit the hardest. Caps on LHA rates will mean that if a tenant is receiving benefits less than the amount of their rent, they probably will not have the means to pay the difference (they are on benefits, after all). Given that the majority of LHA arrears are practically unrecoverable, it looks like landlords are going to foot the bill… again.

7) In terms of researching a rental estimation for an area (wherever in the UK) – how can this be done? There are a couple of ways to do this properly. With the internet providing information at our fingertips 24/7, the first places to look will be on websites that allow tenants to look for rental accommodation. This will give an idea about market prices within a certain area. Secondly, the Valuation Office Agency run a service called LHA Direct where you can get this sort of information that is specific to Local Authorities.

8)Can you give us an outline of the role of the Valuation Office Agency (VOA)? The Valuation Office Agency is instrumental within the administration of Local Housing Allowances. They value property for taxation and social benefit purposes – i.e. they set the rates of LHA. They are not an organisation that you should fear. On the contrary, we encourage landlords to provide them with information relating to the rents that they receive. The more landlords do this, the more accurate their data will be, which can only go some way to helping the situation. The VOA gave a great presentation to our landlords at our previous Local Housing Allowance seminar in the summer. John Craddock, who is the VOA’s head of lettings research in London, has agreed to give another presentation at our next seminar on the 29th October.

9) What is the ‘floating tenancy support service’ – and how can landlords take advantage of them? Their main job is to liaise with landlords and tenants in order to prevent tenancy failures. At our seminars, we go through the best ways to engage these floating support services since they can be invaluable to landlords with LHA tenants, often providing helpful information that is hard to come by.

10) What are the main differences between a ‘normal’ tenancy agreement and one drawn up for LHA purposes? In terms of the actual tenancy agreement, there is no difference (most being an Assured Shorthold Tenancy). However, landlords need to understand the behavioural differences – which are greatly affected by the economic situation of a tenant. As a result, there are a few other things that landlord’s should do if they have a tenant who is claiming LHA. There are far too many to list here, but one of the most underrated ones is keeping good communication lines open with tenants. This way, a landlord will always be up-to-date with the situation of the tenant and if necessary, can help them accordingly.

11) Should the worst case situation happen and eviction needs to be started with a LHA tenant – is the process any quicker than compared to a normal tenancy agreement? No, it is the same process. We feel that the process of eviction can take far too long – whether your tenant is an LHA tenant or a ‘regular’ tenant. We feel that with cases where anti-social behaviour has been demonstrated or rent arrears, then eviction should be quicker and landlords should have better access to their own properties. As a result, we have launched a campaign with Mike Weatherley MP, The Residential Landlord Association and the Southern Landlord Association to campaign for speeding up the eviction process. The petition already has over 2,000 supporters and many key organisations within the PRS are backing the campaign. Please click here to sign the petition – the more landlords get behind it, the better)

12) In your experience, is eviction something that often needs to be done with LHA tenants? We’re not really in a position to comment on this fairly. With us, we only get a phone call from a landlord to evict a tenant when things have gone wrong. But, these calls aren’t representative of the bigger picture. However, although we are an eviction specialist, we suggest that eviction is always a last resort. It is always a good idea to try and work with the tenant to come to some arrangement, as opposed to going straight for eviction – this is true for ‘normal’ tenants and LHA tenants. For example, we have had many landlords try and work out payment plans for outstanding arrears that are getting unpaid rent back, but also, not putting a tenant under excessive financial pressure. Ensure to always have everything documented properly as to leave a paper trail. This can then be used as evidence at Court (if necessary). However, if no arrangements can be made, or promises are not kept, then landlords need to look to evict the tenant and get in a tenant who is paying on time. Remember, your property is an investment – although landlords should do everything in their power to help the tenant, there comes a point where lines must be drawn.

13) What was your response to the recent report by the DWP on landlords abusing the housing benefit system? Do you think it is fair? There is always the temptation to blame landlords – we are an easy target. However, remember our role – we are providing accommodation to the government for social housing purposes – and we are are not doing anything wrong here. In fact, if anything, this is helping the government to address the problem of homelessness. Then remember, landlords are not investing for fun (although investing can be fun) – they are investing for profit (as all investors, not just landlords). To suggest that because of this, they are abusing the system is absolute nonsense. If rental prices are increasing, then the government should be doing more to increase the supply of affordable housing, which should theoretically bring down rental prices. If landlords are putting a premium on the rent they charge due to housing benefit tenants, then this is a reflection of what they perceive is extra risk. However, with the new caps, there is very little room for landlords to put a premium on the rent. With this in mind, it is hard to see how ‘all landlords are abusing the system’. We must accept that there always will be a small percentage of people who do abuse the system, the overwhelming majority are law abiding and aren’t doing anything wrong.

14) What are your thoughts on the future of the property market in the UK – particularly from a supply point of view? Although the housing market has seen a dip over the past couple of years, it is always important to note that property is a long term investment – and this is where it becomes a safe investment (especially when leveraged conservatively). It is still the case that there is a lack of housing in the UK. It is harder for some people to get on the property ladder. With increases in immigration over the past few years, combined with a generation of first time buyers who are priced out of the market (if you look at the earnings to house price multiple), this obviously represents an opportunity for investors. Just because people can’t afford their own home, doesn’t mean that they don’t need one. This is where landlords and investors come in.

15) Please can you talk through the up-and-coming seminar being run in London and how readers can find out more? Around about the turn of the year, we noticed that 20% of our new cases are related to LHA tenancy failure. It was clear that landlords needed help to make heads and tails out of the system. We then had two options – we could have either put a seminar ourselves, or, we could get the experts in to deliver the seminar. We chose the latter option. Therefore, we asked our partners at Settled Housing Solutions to deliver the seminar (they used to work within the public sector, now they consult to it). We also invited key organisations that are involved in LHA to speak at the vent – like the VOA. We are showing how to effectively manage LHA tenants, addressing some of the typical issues that landlords and agents face. Hundreds of landlords and agents have already attended our previous ones and their feedback has been great.

London, 29/October/2010 – Landlord Action Local Housing Allowance Extended Seminar

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The British Property Federation on the Current Buy to Let Market

October 14th, 2010

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As one of the leading and influential bodies on the UK housing market, the British Property Federation has some of the country´s most prominent organisations and institutions as members. Please see an interview below with spokesman Patrick Clift where we discuss a variety of issues related to the private rented sector including the importance of landlords post-credit crunch; the need of professional standards in the industry; what the BPF are doing to encourage the sector; tax incentives; reforms to the Local Housing Allowance (LHA) system / social housing policy; UK infrastructual improvements and the future role of the organisation.

1) Can you outline the essential role of the British Property Federation (BPF)? The British Property Federation is a membership organisation devoted to representing the interests of all those involved in property ownership and investment. We aim to create the conditions in which the property industry can grow and thrive, for the benefit of our members and of the economy as a whole. BPF have three objectives. Firstly, to raise the profile of the property industry with political stakeholders, the media, and the public. Second, to improve legislative, fiscal and regulatory conditions that affect our industry and so enhance the benefits the industry can bring to the UK. And third, to encourage best practice within the industry as a means of increasing long term value and improving stakeholder perception.

2) Who are some of your main recognised members? Among our largest and most active members are Allsop, Argent Group, Bank of Scotland Corporate Banking, Big Yellow Group, The British Land Company, Cadogan Estates, CB Richard Ellis, Credit Suisse, Crown Estate, Derwent London, Development Securities, Dorrington, Grainger, Great Portland Estates, Grosvenor, Hammerson, Jones Lang LaSalle, Land Securities Group, Legal & General Property, Lend Lease, Miller Developments, Morgan Stanley, Segro and Westfield Group.

3) How important does the BPF see the role of landlords in the future of the housing industry? The private rented sector has provided 1.1m additional families with a home since 2000, accounting for nearly all housing growth in that time. However, with almost 5m people languishing on council waiting lists it is clear that more new homes are needed. The private rented sector is vital to delivering flexible tenure for a mobile workforce and providing housing where social renting or home ownership is not applicable or affordable.

4) Do you think that there are enough professional standards within the buy-to-let sector? The government recently decided against regulation of the private rented sector, and we would agree with ministers that rather than introducing new powers, local authorities have got to show they can better use what already exists.

5) What kind of actions are you taking to encourage the private rented sector? The BPF has promoted the sector every step of the way – increasing its profile, establishing it as a key sub-sector of the housing market and devising policy solutions to increase investment in it. The BPF is in dialogue with the department for Communities and Local Government, the Treasury and the Homes and Communities Agency to promote PRS and change policies to help encourage institutional investors. Earlier this year, as part of the Property Industry Alliance, we produced a joint consultation response with the Council of Mortgage Lenders and the Association of Real Estate Funds into a Treasury consultation into increasing investment in the private rented sector.

6) You have long lobbied for tax incentives – particularly for the institutional investor – what kind of progress has been made? Disappointingly, the new government has decided not to pursue this. The BPF has long argued that a simple and relatively cheap tax incentive would be to disaggregate stamp duty land tax on the bulk purchase of homes. At present, an investor has to pay SDLT on the total cost of a portfolio, as much as 5%, even if the homes would only have been charged at 1% if bought individually.

7) In terms of the recent changes that were put in place to limit the levels of Local Housing Allowance (LHA) receipts – with the government saying that one of the main reasons is to encourage people to get back into the employment market. With the economy in the state its in, how realistic do you think this is? Do you think the problems are going to be exacerbated? We agree that the housing benefit system is in need of reform. However, the government seems to assume that all claimants are long-term and need incentives to return to work, when in fact many have lost their jobs recently as a result of the last recession. By contrast, we would argue that the welfare system should seek to support a person remaining in their home in the early stages of unemployment because that will greatly assist their ability to quickly find another job.

A major issue will be linking housing benefit rises to CPI, rather RPI at present. Over the past decade rents have risen at about 4.5% per annum. CPI on the other hand, is the explicit focus of the Bank of England Monetary Policy Committee, which has a target to maintain it at 2% per annum. This will have a devastating effect. The mismatch between 2 and 4.5% will be that the pool of property notionally available to claimants will be constantly being eroded by the diminishing purchasing power of their benefit.

The Chartered Institute of Housing analysed the long term effect of this change for different property sizes. They conclude that in some areas, within two years of the change coming into effect, it is projected that no properties will be available that can be fully paid for with LHA. The consequences are stark. Either that household will build up rent arrears which consequently might lead to eviction, or they must cut back on income intended for other necessities.

8)Related to this – statistics have proven the country’s ongoing demand for social housing – but how are property buyers attracted to this sector to be encouraged with the government imposing stricter rules (such as the increase in LHA)? Powers exist to open up social housing for private investment, particularly by pension funds and other institutions, and that is something that we would be keen to explore with government.

9) On a general level – what about the infrastructural development of the UK (roads, city regeneration, transport) – what can investors expect to see in the coming years? Tax increment financing, an innovative method of funding that the BPF has campaigned for since 2005, was adopted as policy at the Liberal Democrat conference last month. This is fantastic news for the provision of new infrastructure, particularly in areas where new infrastructure is needed for property development to go ahead. TIF allows councils to forward-fund infrastructure through prudential borrowing. The loan is then re-paid through the business rates generated by the development unlocked by the new infrastructure. It is a very elegant solution, and if done property will cost tax-payers nothing.

10) What kinds of plans does the BPF have in the short-medium term future of interest to property investors? We will continue to lobby for the private rented sector – both for new investment and against the more damaging aspects of housing benefit reform. The BPF will continue to work with government to create a “local” planning system that works, and to promote ways in which central and local government can use public sector assets as a catalyst for regeneration and renewal.

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Being a Landlord / Landlady in 2010…

June 30th, 2010

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Please see a short interview we recently did with Steven Hilton from the National Landlords Association (NLA) – a well established organisation that many readers would already be aware of. We discuss their long history; the benefits / risks of being a landlord in 2010; the concept of the ‘property millionaire’; industry ethics; the scrapping of the landlord registration system; the Local Housing Allowance (LHA) and evictions…

1) For those new to the industry, can you provide a brief explanation of what the National Landlord Organisation (NLA) is and does? Representing landlords from all over the UK, the NLA is the leading organisation for private-residential landlords. It campaigns for the legitimate interests of landlords by seeking to influence decision-makers at all levels of government and by making landlords’ collective voice heard in the media.

The NLA helps landlords make a success of their lettings business by providing a wide range of information, advice and services. It seeks to raise standards in the private-rented sector while aiming to ensure that landlords are aware of their statutory rights and responsibilities.

2) The NLA have been a long established as a central point of call for investment property owners – how has the organisation changed over time? The NLA has changed a great deal over its 37 year history, even our name was changed in 2003 to better reflect the national spread and diversity of our membership.

However, the core values and objectives of the organisation have never changed. The NLA was created (as the Small Landlords Association) in 1973 to campaign for a more equitable legal and business framework for private-landlords and although the sector has been transformed in the time since there is still an important role to be played to ensure that the collective voice of property investors is heard.

3) What are the main benefits of being a landlord in 2010? Rental-property is still be a potentially lucrative investment vehicle. Despite the economic downturn returns have remained relatively stable for the majority and provided that you are prepared, and able, to plan for the long-term prospects have continued to be strong.

4) And, conversely, what are the risks? Investors in residential-property have to bear in mind that bricks and mortar are not like stocks and shares. Property, and more importantly tenancies, require maintenance and commitment. During the course of a tenancy things will go wrong and in all likelihood they will cost time and money so landlords must ensure that they have sufficient contingency funds to cope.

5) Do you believe there is enough information available on the realities of owning investment property? There is a great deal of high quality information available to investors (and potential investors). However, there is also a considerable amount of very poor quality ‘advice’ on offer in the form of ‘get-rich-quick’ schemes and armchair investor workshops. It can be very useful to have the assistance of a reputable landlord association (like the NLA) to act as a filter.

6) Particularly prior to the onset of the credit crunch there was a rise in the presence of unscrupulous landlords - do you believe that there are enough ethics in the industry? Unscrupulous, or rogue landlords as they are often termed, have always existed irrespective of the economic climate. However, immediately prior to the credit crunch we would argue that there was a noticeable rise in ill-prepared property investment. This led to bad practice resulting from ignorance rather than malice so I would suggest that the issue is not an ethical one – but a matter of education and awareness.

7) What can be done to control the presence of such landlords whilst ensuring that those who do operate in an ethical manner do not feel that they are being overburdened with regulation? This is effectively the $1 million question. There are a small number of genuinely unscrupulous operators active in the sector, whom successive governments have attempted to regulate without significant success. The best thing that the sector can do is to continue to drive up standards so that those who fail to offer a decent service are highlighted as unacceptable and driven out of the marketplace.

8)To the relief of many, it was recently announced that impending ‘landlord registration’ system was to be scrapped - do you view this as a positive step or should there perhaps be something in place to protect the rights of good-willed tenants? This announcement was most definitely a positive step as it signals government recognition that the vast majority of landlords offer high quality accommodation.

In the rush to regulate it is often overlooked that there is a significant degree of statutory protection already in place providing an equitable balance between landlords and tenants rights.

9) What are the NLA’s views on the current Local Housing Allowance (LHA) system at present – particularly with regards to the fact that more landlords are becoming reluctant due to the stricter rules that were previously in place (such as rent being paid directly to tenants)? It is highly unfortunate that at a time when more and more tenants are becoming reliant on LHA inadequacies in its administration is making the housing benefit market less appealing to professional landlords. It is essential that the Government restore a tenant’s choice to elect for direct payment of their LHA to the landlord to arrest the growth in arrears and the spread of the stigma which is becoming attached to LHA recipients.

10) It is said that the UK has one of the longest periods it takes to evict a tenant (for example one who is refusing to pay rent) -what are the NLA’s thoughts on this and what could be done to help landlords in this ever-common situation? It is a common misconception that UK landlords are forced to wait considerably longer to regain possession of their properties than their international counterparts. In fact there are a great many countries with far less agreeable housing legislation. Never-the-less it can take an unacceptable length of time to obtain vacant possession due to the often sclerotic nature of the courts system. Ensuring that landlords understand the system and approach proceedings properly prepared is the most straightforward way to expedite matters. A landlord association can help with such preparation for a fraction of the cost of formal legal advice.

11) Finally, how can readers find out more about what you do and become an accredited member? Please see our website at www.landlords.org.uk or call our membership team on 020-7840-8900. Please also feel free to follow us on Twitter and join our Facebook fanpage.

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Interview with The Mortgage Works (TMW)

June 23rd, 2010

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Please see an interview with Paul Howard – Head of Intermediary Sales – at The Mortgage Works (TMW), one of the UK’s leading buy-to-let lenders. Property investors were recently very interested in hearing that TMW were the only mortgage company in the current marketplace to raise their loan to value ratio to 80 percent. We ask what was their reasoning behind this, particularly as several other prominent lenders have failed to follow suit, as well as looking into their thoughts on the short, medium and long-term; how lender behaviour has / is changing; the new Financial Policy Committee (FPC); the new build phenomenon; Local Housing Allowance lending and more:

1) Can you start by giving a brief history of TMWs’ presence in the UK buy to let market? Sure, the Mortgage Works actually began as the Sun Bank which was a subsidiary of Sun Life Canada (an insurance company). In the mid 1990s, the company started lending in what was then termed as ‘residential investments’ (the term ‘buy-to-let’ was pretty much non-existent at that time). The company was subsequently acquired by the Portman Building Society and, in 2002, the name was changed to The Mortgage Works. In 2007, Portman merged with the Nationwide and the company has been a subsidiary ever since. Today, we are one of the two largest buy-to-let lenders in the UK (the other being Birmingham Midshires) and are very comfortable in the market place.

2) Many investors were excited to hear that you were the first to offer 80 percent loan to value with a competitive pay rate after an extended period of buy to lenders taking a stricter attitude – what was the rationale behind this and, perhaps more importantly for our readers, is it a sign of things to come? The move to 80 percent loan to value was essentially a direct reflection of how our buy to let lending portfolio has performed throughout the recession. As a company, we are proud to say that we have historically been prudent lenders and, as a result, coped well in what has been the worst economic downturn since the 1930s. Additionally, the recent changes in the market place also influenced our decision to decrease down-payment requirements. When compared to a year ago, the housing market on a general level has seen some improvements – for example, the drops we witnessed in 2008 and 2009 are in no way as severe as they are today. Additionally, we are of course witnessing a very low bank base rate which has helped manage affordability and kept our delinquency levels low. So, overall, our business model has remained successful and, consequently, we like buy-to-let and want to increase our presence. In answer to the second part of your question, I would very much doubt we would be increasing it for a while as we appreciate that – whilst the market is improving – things remain very fragile, particularly from a broader economic perspective.

3) Generally are you lot more confident about the buy-to-let market now? Absolutely, and I think buy-to-let investors should be too. The main reasons are that properties are much cheaper and are offering more solid returns than what was perhaps becoming the case in the build up to the credit crunch. For those that already own buy-to-let property, most have seen an improvement in their equity position in the last year and many (such as those on trackers and variable rates) have benefitted from very low mortgage payments. Furthermore, bringing in factors such as an increase in the amount of people looking to rent as well as lack of supply of housing in the UK – we feel it is certainly an advantage to be in the industry.

4) As the UK enters into a slow recovery period – what do you think will happen in the short/medium term buy-to-let market? Yes, the economy still remains in a relatively vulnerable position and our view is that we will remain in a low rate environment for some time to come (even they do start to rise I think it would be at a slow pace). However, we also expect to see a continued level of subdued lending. The Council of Mortgage Lenders’ (CML) forecast on the total market size is at £150 billion for this year; last year it was £142 billion, representing a very negligible rise. Indeed, nobody within the industry is suggesting that next year is going to be any different. So I believe that buy-let-investors should be expected to see very slow to modest growth due to the fact that banks these days are ever concerned about their own ability to borrow from the money markets and many are also facing securitization issues. The level of growth that the buy to let industry will witness in the medium term will depend on the willingness of more lenders to come back into the marketplace – at the moment many have the scourge of the recent past weighing over them and view buy-to-let as risky. It should also be noted that most of what is being said here applies to the overall market and not just buy to let.

5) Continuing on this point and looking back to the onset of the credit crunch a few years ago – do you think, on a general level, that buy to let was taken far too lightly by lenders in general? I would not say in general, more by some. I think that many practices that were undertaken are now clearly viewed as a mistake which has resulted in more usage of the word ‘toxic’ to describe them – which is a great shame as our experience of them has been everything but toxic. One example would be the ‘day-one’ remortgage: a process where investors were able to effectively pull out their initial down payment, often with extra cash to spare in a very short space of time – whilst many were able to build their portfolio quickly using this method, when the market changed it meant that banks were exposed due to having large portfolios of clients with very little/no equity. Another example would be lending to so-called ‘property clubs’, who largely focused on pooling investors funds together to buy over-valued stock only for the market to crash, leaving enormous debt positions and very unfortunate consequences.

6) And going on from that, how has TMW’s underwriting procedure changed since the credit crunch? I don’t think the procedure has changed hugely – as I mentioned above, we have always been relatively careful lenders but it would be fair to say that apart from stricter loan-to-value ratios we are also requiring higher payment calculations as well as placing a particular importance on any applicants credit rating (the criteria of which has also increased slightly and which also applies to existing customers). Overall, however, we are using the same processes as before with buy-to-let: a professional surveyor will inform what the open market value and realistic medium-long term rental figure is for a property which will enable us to determine the viability of providing the loan – a fairly robust practice followed by most lenders which I would not imagine to change for some time.

7) We wanted to get your thoughts on the recent inception of the Financial Policy Committee (FPC) in relation to the future of the buy to let industry? It’s probably too early to tell but the new body certainly intends to regulate the buy to let market which will certainly affect the way lending procedures are managed across the board – this is going to be a challenge for both lenders and landlords. For us at TMW, however, such regulation is unlikely to make that much of a difference as we already treat buy to let mortgage / further advance / remortgage and other secured lending applications in exactly the same way as we do with regulated prime applications. Any mortgage application made through the Nationwide is already subject to the necessary controls of the FSA so we would need to adapt according to the new regulations – yet we do not envisage this as being a significant overhaul of our existing practices.

8)You mentioned new-build property clubs before – the property investment community has, in recent times, noticed a large amount of this stock come back on to the market place – perhaps more realistically priced in light of the market changes. What are TMWs thoughts on lending on these types of property? We have, for some time, had some concerns about new build apartment blocks in particular – in fact, we stopped lending on them back in December 2004 (although we do lend on new build houses). As I mentioned above, our reasoning for this was the glut of over-priced properties combined with several unscrupulous investment clubs effectively playing the mortgage system – another reason which eventually fuelled the collapse of the market. Whilst you are right that this position is passing now, I still don’t think we are at the stage where we are comfortable to lend on them as yet. I think the majority of buy-to-let lenders would concur due to the fact that it was not too long ago that eye-wateringly large sums of money were lost as a result of going too heavily into this market. Another concern that is readily apparent is the fact that it remains very difficult, from a surveying perspective, to truly value new build properties due to, firstly, a lack of comparable sold data due to the current low activity in local market places and, secondly, the issue of many developers releasing their stock in batches – thereby changing the valuation dynamics (something that has, for a long time, effected the way we view this type stock). Readers who are still interested in buying new build should not that there are lenders out there who will work with new-builds, but it is highly likely they would offer a product with a low loan to value and undertake fine-toothed due diligence to ensure that their interest in the asset is protected.

9) What are your views on landlords who house Local Housing Allowance (LHA) tenants? We have no issues with lending to landlords who let to LHA tenants – our position is focused around the property owners ability to maintain the loan and the fact that he/she would have carried out appropriate due diligence upon application (which we would obviously verify during our underwriting procedure). We will undertake the necessary checks on the landlord and NOT the tenant as it will always be the former who will be looked into if things go wrong (which, in reality, they rarely do). This is the approach we have adopted for the last 2 years and seems to be working very well.

10) What would be your advice to property investors and landlords to best prepare themselves to obtain a buy to let mortgage? The importance of keeping a spotless credit record cannot be understated, as the merest glitch at the moment can sabotage your entire application (this goes for any buy-to-let application, not just with TMW). As important is to undertake detailed due diligence – focus on the area (schools, hospitals, shops, banks, chemists and other local amenities); the specific location; demand / supply; what tenants you are likely to house; earnings; yield comparables; crime statistics; transport links to name a few. One of the many advantages of the modern times we live in is that most of this information is readily available for free!

11) Lastly, what about remortgaging? Would you adopt a similar lending policy to how you would a purchase mortgage? Our lending principles with regards to re-mortgaging remain broadly in line with house purchases – the process does often tend to move quicker due to most of the information we need already being in place (such as Assured Shorthold Tenancy agreements and other relevant documentation pertaining to the property). At the moment, we are seeing that many existing investment property owners are not needing / wishing to re-mortgage so as to maintain the favorable terms they are currently receiving as a result of the low bank base rate. The fact that it is not financially in their interest to remortgage has had an effect on this side of the market for us – but we expect this to gradually change over time.

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