Precautions you must take while renting your room to students

The soaring cost of living and the severe credit crunch is forcing many families to let a single room in their home to a student. Home owners are earning a good income by adopting this concept which was quite prevalent in olden days.

You can fetch an income of £4,250 per year without paying any tax. If rental income goes beyond £4,250, you can decide to pay tax on the rent amount above £4,250 or on the amount equal to rent income minus expenses incurred on maintenance.

You can let a single room or entire floor of your house provided it is not self content. The room which you would let out must be furnished. It is important to get the support of professionals in pre-screening of the prospective tenant for checking their bonafides. You must enquire in their college and speak to some references to verify the student’s credentials.

Those interested in letting their homes must attempt to get more details about the tenant such as how much time they will spend outside, where will they take meals or whether they would prepare it themselves. It is also important to know about the students’ hobbies, which may not be acceptable to you.

It is better to lay down rules in writing regarding visitors, late hour visits and payments. A formal contract must be signed between the owner and the lodger to avoid conflicts at a later date.

Finding a quality tenant

A quality tenant is one who takes good care of your property; pays you on time and, at the end of the tenancy contract, hands over your property without delay. A proper screening of a potential tenant can give you peace of mind whilst letting the property.

A simple way to find a good tenant is to put a brief ad in the local news paper and divert inquiry calls to an answering machine, then spend your free time contacting interested callers. Inform them about the time and date when you will be available to show them your property. It is better to call all of them on the same day and time so that you need not have to put off other assignments. This way you will save spending time on those who are not seriously interested in the deal.

After showing your property to the interested tenants, you might find some people more interested in talking to you about the offer. Such people, who stick around, are likely to qualify as good tenants.

Obtain full details of these potential tenants in the form of applications, including their place of employment or business, present location, reasons for renting; their income and capacity to pay deposit and rent. Get their credit report to ensure that they have regular flow of income and are punctual in payments.

Before making a final selection, ensure to check their relationship with any existing and previous landlords and neighbours.

This process of screening will help eliminate your worries once you decide to let your valuable property to the person who qualified as the best, according to your standards.

Growing number of new landlords putting strain on buy-to-let mortgage sector

As increasing number of homeowners are opting to rent their homes, with the result that the buy-to-let mortgage sector is likely to struggle even more.

Failing to meet the rising demand, two of the sector’s largest lenders, Bradford and Bingley along with Paragon, have refrained from doing new business in the recent months. This has added to shortage in mortgage lending.

The financial comparison site Moneysupermarket.com reports that buy-to-let mortgage lenders are funding only those borrowers whose credit records are excellent and whose amount of equity in homes is significant. It points out that the number of offers on buy-to-let mortgage has gone down to just 300 from more than 4,300 in the previous year.

David Hollingworth of London and Country, who lends free advice on mortgage, has a word of caution for homeowners who aspire to become amateur landlords. He explains that under the circumstances when the credit is highly expensive and difficult to obtain, homeowners would be simply increasing the level of their debt to an amount higher than initially planned.

He advises that borrowers must understand the risks involved in being a landlord. They will have to make larger payments irrespective of tenants being in place or not.

Thousand of investors who bought properties a few years ago are unable to get enough rental income to pay mortgages. Their hopes of value appreciation of their properties were dashed by the collapse in the market. The number of defaulters on mortgages has gone up in the past few months amidst predictions of the market getting worse in second half of the current year.

Dawnay Day to sell 200 investment properties

Dawnay Day has put its portfolio up for sale. Its administrator, BDO Stoy Hayward, informed that hundreds of prospective buyers have been approaching the company for the purchase of its property assets.

The company is going to sell 200 investment properties which will generate rental income of more than £45m. It is looking for a single buyer, but did not rule out selling the property to a number of purchasers.

Rival groups are trying to buy Dawnay Day’s sound assets at a minimal value, taking advantage of the stricken company’s desperate attempt to raise cash quickly.

Dawnay Day’s decision to sell the investments including a 50% stake in London’s upmarket Wolseley restaurant, has not been forced by the downturn in the property market. The group is trying to raise cash to fund an investment in F&C Asset Management, whose share prices crashed recently.

Dawnay Day estate has three portfolios: Dawnay Day Properties, Insureprofit and Starlight Investment. These properties largely include retail assets and some office and industrial buildings.

The group was built in 1981 by Guy Naggar and Peter Klimt from a shell operation into a financial and property service. Both of them invested in the UK commercial property market to build the business. They had £3.25bn under client management and £2.15bn in assets, before the collapse.

Brixton registers loss and big fall in property valuation

Brixton Estate, the London-based group run by Tim Wheeler, has suffered a first-time loss of £236.7m in the first half of 2008, against pre-tax profit of £192m in the same period last year. Its net asset value came down by 18% to 448p per share.

According to a Brixton spokesperson, the commercial property market, reeling under credit crunch and economy slowdown, has become more challenging as predicted by the group this year. It claimed that a lack of transactions in the market has created confusion over direct property pricing.

The group points out that since the release of its interim performance statement, the situation has worsened further. It is predicting that inflationary concerns, slowing growth and unclear scenario of the interest rate and costs, would lower the business activity all over the UK.

Brixton, established in 1924, became a public company in 1934. It sold off operations in the US, Belgium, Germany and Australia and started focussing solely on the UK since 1977. Last year, it was converted in to a real estate investment trust.

The group, which specialises in industrial property, has facilities in Park Royal and Heathrow. It manages 19m square feet of property. In anticipation of the downturn, it sold secondary properties, worth £560m, in 2006.

Brixton group announced completion of its development work and stated that it would not be undertaking any construction work in the immediate future.

A word of advice for first-time tenants

It is always exciting to rent a new property, especially for those who have never rented one before. To ensure that your first experience turns out to be pleasant one, you should keep the following infomation in mind.

There are various aspects of property rentals, such as payment of rents, content and inventory of property, landlord’s requirements, etc.  All of which are important for establishing harmonious relations with the landlord.

When confronted with problems like leakages, or breakdown of certain equipment you must bring it to the notice of a landlord, or report it to the letting agent. A timely report helps in resolving any issue quickly and amicably.

You must read and understand tenancy agreement carefully, before signing. Get your doubts cleared by a landlord or agent.

Keep record of Rental Payments

It is safe to keep records of rent payments including amounts, dates and mode of payment. Always insist for a receipt from the landlord. A widely used mode of payment is standing order payment where you instruct your bank to credit your rental payment directly into the landlord’s specified bank account. You also get a clear record of payments in the bank statement which you should preserve. This will help you in resolving any issues related to rental payments.

Treat a property as your own

Every landlord expects that his property remains safe in the hands of tenant. You are therefore responsible to keep the property and all the contents in good condition during the tenure of the tenancy. Your landlord will return the full deposit at the end of your tenancy if his property is undamaged.

By law, a landlord is responsible for the maintenance and upkeep of the structure and exterior of his property. This covers electricity, fittings, gas and water connections.

Lenders cut selective mortgage rates

Halifax, one of the biggest mortgage lenders of the UK, has announced another rate cut. For borrowers who can deposit minimum of 25% of the property value, the tracker-rate or fixed deal rates are lowered by an average 0.25%. The deals must be arranged through brokers to obtain the cut rates.

The announcement marks the continuation of trend prevailing in recent weeks, where lenders have been offering small reductions to bring headline rates to the 6% level or below. You can get rates below 6% if you have the capacity to deposit large lump sums of money.

According to Halifax spokeswoman, it is passing on the benefit of cut in swap rates to the borrowers. Swap rate is the borrowing cost between banks.

Other lenders such as nationalised Northern Rock, Yorkshire Building Society and New Castle Building Society, have cut the costs on certain deals.

According to Ray Boulger, of John Charcol mortgage broking, lenders have offered cuts only on selective deals, not on every deal.

The Britannia Building Society and Coventry are offering the best deals to borrowers who can afford to deposit a minimum 50% of property’s value.

Boulger thinks that lenders are relaxing their lending policy and more lenders are likely to offer still cheaper fixed rates in the next few weeks.

Landlords demolish buildings after government scraps rate relief

Some of the UK’s landlords, frustrated due to Government’s withdrawal of business rate relief on vacant commercial properties, are resorting to demolition of buildings to minimise financial losses.

The industrial landlord O&H Q7 demolished its fifth Alexandra Business Park, Sunderland, this week. It also ordered further demolition of 37,000ft of its 750,000ft park.

Landlords are now required to pay full business rates on unoccupied office and retail property, while they were previously entitled to 50% tax relief on such properties. Landlords of industrial properties have been hit more severely by the abolition of relief. They were entitled to full exemption previously, but would now be paying full tax for the vacant industrial space.

The British Property Federation is aggressively campaigning against the abolition. It is joined by the other bodies including SSA, CBI, British Chamber of Commerce and British Retail Consortium.

Linda Riordan, Labour MP for Halifax, with the backing of 35 MPs, would be tabling a motion for reintroduction of relief as per the Rating Act 2007.

As a mark of protest against abolition of business rate relief, Vanguard Holdings demolished its empty pub in west London and hoisted a sign which read:

“Sorry Mr. Brown – no empty rates on this one.”

Fixed rate mortgages become cheaper, confirms Bank of England

The Bank of England has confirmed that some fixed-rate mortgages have become cheaper in July. The latest average rate being charged on a new two-year deal was 6.36% for borrowers with a 25% deposit. It was 6.6% in June; the highest in the last eight years.

Both the big and small lenders had started cutting lending rates since last month in order to attract more borrowers. Latest to join these lenders were Halifax and Abbey.

However, borrowers who sought loans on a five-year fixed term with a 5% deposit had to pay 7.14% in July compared to 7.13% in June.

The credit crunch has caused a significant upset in the UK housing and mortgage markets. This has resulted in steep rise in the cost of home borrowings.

According to Michelle Slade of Moneyfacts, higher fees and interest rates charged by the lenders are compelling borrowers to reluctantly put out larger deposits. She informs that offer rates are much higher, while swap rates, bank base rates and Libor rates, which determine the overall mortgage rate, are lower than last year during the same period. Slade points out that the fall in house prices and increase in the risk of default is forcing lenders to raise prices for the higher risk factors.

Slade warns that it may take more time before lenders feel much safer to lend and therefore cut their rates.

Fall in flat prices slows down housing market

The UK government figures point out that a significant fall in flat prices is one of the causes for slowdown in the housing market.

It is reported that flat prices came down by 3.6% during May and June. Though the market is continuously slowing down, the Department for Local Government and Communities (DCLG) reports that prices are higher by 0.6% compared to those prevailing in June 2007.

DCLG survey, compiled on the basis of information from lenders, normally lags behind by a month with other surveys on house prices. It is also based more on total money invested and gets loaded towards London prices which are quite high.

The report indicates that the UK house price growth has slowed down for the eighth consecutive month. In June it was 0.6%.

The annual growth of house prices in England fell to 0.5% in June from 3.1% in May. The fall was even lower for Scotland at 0.2%. The year-on-year fall in Wales is reported to be 1% and 9.4% in Northern Ireland.

But the English regions were the exception where prices rose marginally compared to prices in June 2007. Humber prices were up by 0.7%, South East by 1.8%, the East 1.5% and London by 1.4%.

On average, first-time buyers derived a benefit of 0.5% on the prices in June.