Starting a business from a rented property

The conservatives have an interesting new proposal, to end:

restrictions on people starting a business in social housing, to enable social tenants to become entrepreneurs

This is a great idea, and very useful.  But I fail to see why this should only apply to people in social housing.  Can we please have the same applied to the AST?

Yet another example of the invisibility of private tenants to politicians.

Margin calls begin for leveraged property speculators

The FT is reporting that borrow to letters are facing the arrival of the margin call.  This is an very important development.  A lot of people have been criticising the bankers recently for leveraged speculation, but most people do not realise that the man on the street only has one option for leveraged speculation: property.  The thing about leveraged speculation is that when prices rise, it is extremely profitable.  When prices fall, however, you either need to find cash quickly or face being closed out of your position by the lender.  This forces you to take the loss even if prices may return in the longer term.

Up until now, the lenders have avoided this.  It is partly a prisoners dilemma problem where if one bank starts margin calls it may well cause further distressed sales and therefore more downward pressure on prices which would in turn require more margin calls.   However, the FT story indicates that this attitude is changing.

Agents fear collapse in rents

It’s a great time to be a renter, according to the Guardian:

People who are unable to sell their properties because of the collapse of the residential sales market are now flooding the lettings sector with unusual, high-specification homes that are often being offered to tenants at bargain prices.

‘You have properties that have been refurbished for sale - real high-spec properties - now coming up for rent,’ he says. ‘These often make traditional rental properties, with their B&Q kitchens, somewhat tired by comparison and therefore more difficult to let.’

In the short term, this is obviously great for tenants.  However, I think this will only increase their precarity in the long term.  Living as a stop gap ‘until the market recovers’ does nothing to make you feel secure in your home.  I recently saw an advert that states (excuse the caps, they are from the letting agent):

PLEASE NOTE THAT THE RENTAL HAS BEEN REDUCED AS THE PROPERTY IS STILL ON THE MARKET FOR SALE AND TENANTS ARE EXPECTED TO CONDUCT VIEWINGS WITH PROSPECTIVE BUYERS.

So not only do you not have any security, you are expected to do the agents job as well - with obvious potential for fun!  The real issue here is that the owners letting them out will quickly tire of subsidising the tenant while waiting for the market ‘to recover’.  I was recently offered a let that was on the market for £275,000 at £750pcm.  This gives a yield of 3% after agents fees.  After costs, I can’t really see this being a winner for the landlord - it would barely offset the monthly fall in value of the property.  How long could it last?

The government considers giving tenants more notice of their eviction

The BBC reports that the government is currently considering changing the rules on giving tenants notice of repossession.  Currently, only two weeks notice is required.  This demonstrates just how precarious the rental life is in the UK, and RR would support changing this rule.  However, it would be better that tenants were never exposed to this risk through amateur landlords borrowing beyond their means.

Buy to letters want help too

The National Landlords Association wants the government to extend its mortagage support scheme to buy to let mortgages.  The spokesman is quoted as saying:

If the endgame is to prevent people losing their homes, then it makes no sense for buy-to-let mortgages to be exempt from these new measures. By giving landlords breathing space, they would have a chance to offer any struggling tenants a similar period to get their finances in order and prevent the homes being repossessed

This is obviously not the correct way to solve the problem. The correct way would be to offer the tenant housing benefit to carry on paying the rent.  Otherwise, the tenant is relying on the generosity of the landlord.  This is something I don’t want to test.

One example of the difference is that you cannot get housing benefit if you have over £16,000 in savings.  For the mortgage support scheme, the level is £60,000.  Why the difference?  These renters are also the potential first time buyers who are needed to ‘kick start’ the housing market.  Therefore punishing them for saving is crazy.

The real reason the NLA wants this is is to help landlords who may be subsidising their tenants to pay the mortgage, or experiencing a void due to rising unemployment.  Far more desirable for tenants would be the ability to demand a credit check on your landlord when moving in, and the requirement that the landlord places several months of their mortgage as deposit.

This sums it all up perfectly

The FT reports that Gordon Brown is proposing mortgage holidays:

Gordon Brown is to grant homeowners in financial difficulty the right to demand a two-year mortgage holiday, guaranteed by taxpayers, in a dramatic bid to underpin the housing market.

Why should someone in financial difficulty get special treatment just because they own a house?  Wouldn’t some form of financial help that did not discriminate on the way you live be in order?

These crazy attempts to prop up the profligate - at the expense of those who did not borrow beyond their means to enter a bubble which has brought the financial system to its knees - beggars belief.

Is there a case for long term tenancies?

Here are a few quotes from property investor to illustrate what we’re up against:

One of the chief attractions of the residential property market to investors is the ease with which landlords can get their tenants out

Today, landlords can serve a simple Section 21 notice on tenants: there doesn’t have to be any fault on either side

If there are abuses – and that’s a big if – it is that letting agents now routinely charge a renewal fee if the tenant stays on after the initial six months or year.

You can read the article here: http://www.propertyinvestor.co.uk/london/newsletters.asp

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