At a time of uncertainty, resulting from a concoction of issues including confrontational Brexit negotiations (both at home and abroad), a government with no working majority* and interest rates rising for the first time in a decade, the lettings' market is finely balanced with affordability being a key component for both landlords and tenants.
Landlord returns are being steadily eroded, but if they try to redress the balance by increasing rents the level of demand from tenants will fall.
However, on the positive side the government has announced that letting agents are to be regulated and new proposals will require that they join a professional organisation and meet 'certain minimum standards'. The Association of Residential Letting Agents (ARLA) and various other bodies have been lobbying for many years for this to happen.
In addition, while letting agents already have to be part of a redress scheme, this will now be extended to all landlords to enable tenants to complain about poorly managed properties and rogue landlords.
Alan Stewart, Director & head of Residential Lettings & Property Management says: "The buy-to-let sector is still very challenging for landlords who have had to contend with changes in regulations and legislation with investment having been curtailed - particularly amongst the more short term speculative landlords - by the restriction of income tax relief on mortgage interest payments and the introduction of more stringent mortgage affordability tests.
"Pressures on the residential investment market and achievable yields will certainly continue next year with many local authorities introducing selective licensing controls on some properties plus the effect of new Energy Performance regulations, which will increase the financial burden for landlords."
Legislation will be introduced next year to prevent tenants being charged any fees in connection with the letting of a property. This will impact significantly on letting agents
According to latest figures from the British Property Federation the build-to-rent sector is continuing to grow and play an important part in increasing the supply of homes. Combined with this, the Prime Minister has just unveiled a major council house-building programme that will see the release of government owned land and the goal of providing homes at affordable rents.
In the student housing sector investment demand is buoyant. In a recent survey it is estimated that there has been a 24% increase in transactions in the first half of 2017 compared to the same period in 2016. Purpose built student accommodation continues to offer attractive returns, particularly for overseas investors.
Alan continues: "Our region has seen a period of rental stability with tenants now very focussed on achieving value for money when selecting properties. If the accommodation is not well presented we are finding that prospective tenants are looking elsewhere or seeking a reduction in the asking rent.
"I believe that during the course of 2018 we may find that some accidental landlords look to sell their properties and larger investors take the opportunity to restructure their portfolios, but overall demand could be sustained by first time buyers who still cannot afford to purchase a property and there will be more choice in the rented sector with the completion of a variety of build-to-rent schemes.
"At Caxtons we are keen to promote the benefits of engaging a good letting/managing agent who can steer a landlord through all the complexities of letting residential property."
* The Conservative Party has formed a minority government and has signed a "confidence and supply" agreement with the Democratic Unionist Party.
A recent story in the Daily Telegraph raised the question of whether the 'student housing bubble' was about to burst. Duncan Reeves, Associate Director and head of Student Lettings in the Caxtons' Canterbury office responded to some of the messages promoted.
The journalist's position was that the student sector had seen an upsurge in the availability of expensive, luxurious alternatives to traditional accommodation. It is true that developers large and small have invested in purpose built student accommodation (PBSA), whether converting existing buildings or building off plan. It is also true that students are now spoilt for choice and the oversupply is affecting all areas of the student accommodation market.
Duncan agreed that a key point raised, relating to a drop in demand from students, does resonate.
"With the big PBSA providers now firmly established in Canterbury, it will be interesting to see what effect this will have long term on the existing student accommodation."
The first wave of PBSA in Canterbury, which began over 10 years ago, are located on the outskirts of the city – not as convenient for study or socialising. These properties may begin to suffer as students gravitate to the newer blocks in the city centre. There is also a murmur amongst agents that communal house living is still in demand as hard-up students look to save money, so some of the studio apartments that are favoured by developers may not be such a hit with the students.
Duncan continues "I don't believe that student property in Kent is very different from other university towns and with less than a week until terms starts, we have half-a-dozen studios on our books and landlords are accepting discounted rents to attract tenants.
"A large proportion of tenants who have rented purpose built studios are overseas students and money is less of an issue than for UK students. Even so, with the increased competition it has put pressure on some of the developments on the outskirts of the city."
So - have we reached saturation point with the number of student studios in Canterbury?
Duncan's opinion was "Where there are still sites available within walking distance of the University of Kent, or in the city centre, it may make out-lying student properties more challenging to let - as evidenced with the new CRM block at the moment."
An alternative view is that the continued development of PBSA may free up much needed housing stock as landlords of traditional HMO's are forced to sell up. This does not appear to be the case so far this year and Caxtons increased their stock of traditional HMOs, which have let well.
Whilst there has been a desire – even a necessity - for PBSA in recent years, for the majority of UK based students, the pressure of increased tuition fees has meant they are looking for better value over outright exclusivity and facilities. Whilst it is possible that HMOs, just like PBSA, located on the outskirts of town or cities or in poor locations will struggle and may be sold on, there is still strong demand for this traditional student property in Kent. The argument that first time buyers or families would be interested in buying this high turnover letting stock is definitely not guaranteed.
In its latest report, the London School of Economics (LSE) highlights problems for leaseholders who are being asked to pay excessive amounts when they extend the lease on their properties.
According to the LSE 'The researchers estimated how a property's sale price varies with the remaining term on the lease by analysing data from 8000 sales of leasehold properties that took place between 1987 and 1992 in Belgravia, Chelsea and Mayfair.'
(The London areas used in the research have some of the highest concentration of short leases in the UK and have historical property data available.)
It suggests that when extending a lease, current practises may underestimate the value of leasehold properties.
Charles Oliver, an expert on leasehold residential property at Caxtons says "Typically leases begin with 99 or 125-year terms. However, the value of a lease will go down as the time on it diminishes and it could prove difficult to sell a flat, particularly when the lease has fewer than 60 years left to run because most potential purchasers will have difficulty getting a mortgage on the property."
As long as the owner and the flat qualify, leaseholders are entitled to extend the lease by an extra 90 years at no rent, but must have owned the flat for 2 years (although that does not apply when collectively buying the freehold*).
The fee to extend a lease will depend on how much ground rent is due, and how long the lease has left to run; the shorter the lease, the more it will cost. The price takes account of the loss of the ground rent income to the landlord and the fact that he will have to wait a further 90 years before receiving full market rent. If the lease has less than 80 years to run, then the price will increase as the calculation also takes account of the value of a flat now and after the lease has been extended because the landlord is entitled to half of the increase between the value of 'his' and 'your' interests added together, before and after purchase, called 'marriage value'. The leaseholder will also have to pay all legal and surveyors costs.
In order to extend a lease there is a procedure with strict deadlines that must be followed. The leaseholder is entitled to ask for information about the landlord, who in turn is entitled to visit the property to value it. The landlord may ask for 10% deposit (of the price offered by the
An alternative option would be to *purchase the residential property freehold from the landlord. As long as the building qualifies, the landlord is not protected, and the required number of qualifying tenants wish to participate, they can join together and require the freeholder to sell to a nominee purchaser or Right to Buy company that will be set up to buy the freehold. Having followed a strict procedure, tenants will then own a share in the company and, with the other tenants, jointly become their own landlord. This procedure is known as enfranchisement.
The fee to 'buy out' is almost the same as for extending the lease, except the landlord will lose the rental income completely, and it will take into account the value of all of the leases.
With both freehold purchase and lease extension, if a price cannot be agreed, then the matter must be referred to the independent First-tier Tribunal within a six-month deadline to decide the terms.
If the landlord plans to sell the freehold to someone else, he must give the tenants first refusal, as long as there are at least 2 flats, at least 50% of the building is residential, and a majority of the tenants qualify. If he plans to sell by auction, the leaseholders must be given four months' notice so they can reserve their right to match the winning bid.
There are many long-term advantages to extending a lease or jointly buying the freehold – not least the value of a flat upon sale - but it can be a complicated procedure so advice from a professional who knows about enfranchisement is essential.