Local Housing Allowance: Another Good Idea Poorly Applied

Firstly, sorry for the delay between postings. I just had to put pen to paper on this:

The Local Housing Allowance was, in my opinion, one of the better pieces of housing legislation passed under the current government. Some -- in my opinion too many in my area -- landlords were being prejudicial and discriminatory against housing benefit claimants; tarring them all with the same brush.

Not that I am too harsh on the landlords for this: what they were doing is essentially the same as an insurance company using your credit history to judge the likelihood of you making a claim. None the less it was unfair to those looking for quality rented accommodation -- especially perfectly decent people like a member of my family and their family, who felt the brunt of this once too often.

The LHA was also supposed to allow people to top up their housing benefit to get better accommodation if they so chose. But -- like the Home Information Pack -- the LHA was a good idea poorly applied; giving the money straight to tenants was asking for trouble, and trouble it got as thousands of people simply failed to pass the money on.

The government well, the Department for Work and Pensions is currently in consultations as to how to combat the new problem. They are considering allowing tenants to choose to have the money paid straight to the landlord.

Immediately you could say that this will put tenants right back at square one, faced with the landlord seeing that the money was coming from the housing association. However, the kind of decent tenants, like the aforementioned member of my family would have no need to have the money paid straight to the landlord, because they would ensure their rent was being paid on time anyway.

So, I am definitely for that option, but again, applied in a better way, i.e. without the choice: any tenants found not to be passing the money on should have it taken and paid straight to the landlord, everyone else should be left alone.

Are Buy to Let Landlords Buying Property Again? Yes and No

I just read a great Citywire article titled, Buy to let: Who Do You Believe? The article was about the recent survey of residential landlords conducted by the Association of Residential Lettings Agents, or rather the conclusions drawn from the collected responses.

ARLA says that its findings mean buy to let landlords are buying again, while Citywire (courtesy of Lorna Bourke) says otherwise. Here is a balanced look at their arguments so you can decide for yourself what is going on with the buy to let market.

The ARLA survey found that the average number of properties owned by residential landlords had increased from 6.4 in March this year, to 7.5 in June, before falling back to 7.0 in September.

ARLA says: this indicates that residential landlords have been buying property this year

Citywire says: this is more likely a reflection on the number of novice 1 and 2 property owners who have been repossessed since the onset of the downturn.

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It is not that easy. Yes, the credit crunch and ensuing recession took a scythe to the numbers of speculative new buy-to-letters, who got caught with their pants down, having failed to do proper research and/or borrowed too much. That is for sure.

But many of those repossessed properties were bought by -- you guessed it -- buy-to-letters. The auctions were held up and down the UK to sell all those repossessed properties, and the consensus of opinion is that most of the properties were being bought by investors. The reports that I can find also suggest that novice investors were predominant early this year.

This was apparently while old while the old hands waited out the market, foreseeing the flood of rentals that would come as the buy to flippers failed at the flipping.

Another reason why novices outweighed the old hands is that the auctions were primarily filled with cash-buyers, as a lot of well-off mum and dad's took the opportunity to set their career endangered kids up as buy to letters, cest la folie.

See the following articles that back up my assertions on the trends of buy to let buying at auctions:

• Repossessed Homes Go Under the American Hammer
• UK Properties Snapped Up By Opportunistic Investors
• The Big Repossession Sell Off
• House Price Crash Forum on Repossession Auctions, primarily posted to buy investors

Excuse the REDC tone, but it is a collection of articles I bookmarked while researching an article on first time buyers buying at auction.

Citywire said that ARLAs other finding, on the increased experience of investors confirms their view; that it was the reduction of 1 and 2 property owners that accounted for the average number of properties owned going up, Citywire says:

Experience levels among property investors have certainly grown with the average landlord having run a portfolio for 9.2 years up from 7.8 six months ago,’ says ARLA.

Landlords cannot possibly have gained 1.4 years experience in six months. The rise in experience in the market are exactly what would happen if the new novice investors who bought city centre flats at the top of the market in 2007 bailed out.

Again I think this is an oversimplified way of looking at it. Sure, the average experience of investors rising like that could indicate a decrease in the number of novices, but it could also indicate a rise in the number of experienced investors. How many buy-to-letters of old will have taken the opportunity to buy repossessed properties at such low prices and restart their land lording operations.

The rise in experience could also be because of the young breed of novice investor using their own marketing methods and not using letting agents.

Maybe one of those reasons explains the rise in experience or maybe a combination of several factors does, the simple fact is that you should not use the experience indicator to tell whether buy to letters are buying, and you shouldn't even try.

So, taking that out of the equation, the reason why the average number of properties owned by buy to let landlords increased is most likely because they were buying repossessed properties at auction. This is confirmed by the fact that the number has decreased more recently as the number of repossessed properties has been decreasing.

This does not mean buy to letters are buying again in the sense that ARLA meant it, but it does not mean that they categorically aren't either, as Citywire would have you believe, so the answer over who to believe is; neither of them.

Buy to Let Investment Back in Business? it was Never out of Business!

Buy to let is back in business according to the CEO of lettings portal Upad.co.uk. But in the UK, where property is put on such a pedestal, the truth is it never really went out of business.

James Davis founder of Upad has said that now the UK housing market is showing clear signs of bottoming, buy-to-let investors should seize the opportunity to pick up property at heavily discounted prices.

Davis also pointed out that although prices have fallen, first time buyers are still finding it difficult to obtain a decent mortgage -- especially if they don't have a substantial deposit, which many don't. This is leaving many people forced to continue renting. Many more forced renters include those who sold property during the boom to rent for a few months, and have been unable to find a suitable property, or unwilling to buy in a down market.

However, buy-to-let investors face a lot of difficulties in the market that has been left standing after the crunch; perhaps the biggest being lenders' unwillingness to consider the rental income from previous investments as a person's income.

That said: this is likely just another way to restrict lending at a time when banks are trying to repair their balance sheets. So, investors with immaculate credit history and a chunk of equity in their properties should still be able to secure the finance they need.

In all honesty though, buy to let never really went out of business in Britain. We Brits have always put heavy value in property as an investment.

Though there hasn't been a lot of spare cash about, and lending has been restricted, there have still been literally thousands of people at auctions buying distressed and repossessed property to let -- and not all experienced investors. In fact the reports said that it was mainly new investors, having borrowed from the bank of mum and dad to launch their career as a buy to let landlord.

This article in the Guardian shows the level of investors at the first REDC auction in the UK in April, and this article on Write About Property shows that in January most properties being sold in the UK were being sold to new investors. In fact, the slowing pool of distressed and repossessed property for sale as the market recovers, coupled with continually restricted lending, may actually slow buy to let investment.