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Landlords, Enjoy Your Victory While You Can

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Landlords, enjoy your victory while you can - the FSA has its eye on you

A High Court ruling will put an end to the large commissions charged by estate agents but just a landlords get over one hurdle they may be faced with new regulation from the Financial Services Authority (FSA) which has threatened to extend its remit to cover buy-to-let.

Konnie Huq, the former long-standing Blue Peter presenter, called it ‘a great day for landlords’. The National Landlords Association described it as ‘a victory for landlords throughout the country’.

And it is – last week’s ruling by the High Court will see an end to the huge commission charged by estate agents. The victory against Foxtons paves the way for thousands of buy-to-let landlords to claim millions back from estate agents.

Landlords wanting to renew the tenancy agreement for another 12 months may have previously had to pay around 11% of the annual rent as a renewal commission to letting agents like Foxtons. But the judge likened such arrangements last week to a ‘trap, or a time bomb’. He also found that Foxtons had used language in its contracts which is not 'plain and intelligible'.

Landlords across the country will now be able issue proceedings to recover overpaid charges for the past 14 years on existing contracts.

Tenants will be waiting to receive the subsequent drop in rent to take account of the money landlords are saving.

But the fair breezes of victory may not last long – look carefully and those are surely storm clouds on buy-to-let landlords’ horizon.

The threat is four-fold.

The first comes from market forces. Rental yields on residential property are falling, while unemployment is still rising and tenants’ arrears are increasing. Many lenders just aren’t providing the capital, not passing on the reductions made to the base rate by the Bank of England. Although buy-to-let mortgage rates have come down, lenders have compensated by imposing hefty arrangement fees.

The second comes from the taxman who has his eye on tripling the amount of tax raised from Britain’s 700,000 landlords. HMRC’s limited powers would be boosted to force lettings agents to hand over the names and addresses of all landlords on their books in order to identity those who avoid paying tax on their rental income or capital gains when they sell a property.

As part of HMRC’s plans to raise £200 million from landlords, tax evaders who did come forward as part of a previous amnesty could have to pay 100% of tax owed for up to six years, and could be prosecuted.

The third comes from a watchful regulator. The FSA said again last week that it is considering regulating buy-to-let. With increasing numbers of ill prepared ‘reluctant’ or ‘accidental’ landlords, this couldn’t come at a better time for tenants, nor a worse time for landlords.

While the FSA gives no details of what regulation would entail at this stage –other than that it would throw the vast conduct of business book at landlords – better standards of repair for privately rented properties, as well as better prevention of unlawful evictions would be a start.

Many buy-to-let investors will shrug this off – they have survived the increasing red tape of recent years and will continue to do so.

But if this ability survival holds for the large sophisticated investor, it will not for the smaller landlord. The fourth threat comes from the 'Robbie Fowler-type property tycoons’. Referring to the property empire built up by the former Liverpool star, a recent major investigation by a team at the University of Nottingham concluded that ‘you need local knowledge and active management to make a success out of the market. The days of speculative investment in property you haven't seen are rapidly coming to an end.’ Smaller landlords will be outmatched by the empire builders.

So, buy-to-let investors fed up with being told the future looks bleak; sorry, the future looks bleak. For all of the efforts from buy-to-let lenders to talk up the market, the government and its regulator have set their course for a collision with landlords.

Why on earth would you want to invest in something so heavily legislated? Especially when you can get a similar, risk free return from a bloody current account in this econonic climate.

BTL is dying a death, to be sure.

Edited by cashinmattress

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Why on earth would you want to invest in something so heavily legislated?

Because it returns 12% pa.

Oops it doesn't do that anymore, sorry!

tim

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Landlords, enjoy your victory while you can - the FSA has its eye on you

Why on earth would you want to invest in something so heavily legislated? Especially when you can get a similar, risk free return from a bloody current account in this econonic climate.

BTL is dying a death, to be sure.

The reduced rents and heavy legislation will deter new landlords from entering the business, maybe the LL's who have most or all their mortgages already paid will carry on.

HMO's look the only place to make some kind of profit but even more rules, costs and hassles than a rented family house.

When IR's do start to increase then a good deposit account will be better, guaranteed.

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Landlords, enjoy your victory while you can - the FSA has its eye on you

Why on earth would you want to invest in something so heavily legislated? Especially when you can get a similar, risk free return from a bloody current account in this econonic climate.

BTL is dying a death, to be sure.

The FSA will not regulate BTL, they will simply (if they decide to) bring BTL mortgages within the regulatory loop in the same way that residential ones are. This poses no real issues for landlords that I can see.

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