Tuesday 17 September 2019

The challenge for long distance buy-to-let investors in UK regions

Pressure: Becoming a long-distance landlord can leave buyers exposed to fraud and unruly tenants, as many UK buy-to-let investors have learned to their cost
Pressure: Becoming a long-distance landlord can leave buyers exposed to fraud and unruly tenants, as many UK buy-to-let investors have learned to their cost

Adam Williams

For landlords in London and the south-east of the UK who have seen their returns hammered in recent years, buying a property elsewhere in the country can seem like an attractive prospect.

But becoming a long-distance landlord can leave investors vulnerable to fraud and unruly tenants, or facing large property management fees.

High purchase prices and unfavourable tax changes implemented by the UK government have caused activity in the buy-to-let markets of the south of England to slump.

Lower house prices and higher returns in northern regions, Scotland and Wales have tempted many to look further afield for their next investment opportunity. Likewise for expats and retirees abroad, owning and letting a UK property is often seen as a safe way to earn a strong return.

Data published by Your Move, the UK letting agent, shows that the average annual yield for a property in London has fallen to 3.2pc. By contrast, landlords in the north-east typically earn 5pc a year on their investment. The north-west (4.8pc), Scotland and Wales (both 4.6pc) are also home to much higher yields than average.

Matthew Hillyer of largemortgageloans.com, a mortgage broker, said: "Since the changes to stamp duty and removal of mortgage interest relief, many professional landlords based in the south-east have focused on high-yielding properties in the midlands and the north."

But living far away from a property can have disastrous consequences. Chris Yates is a 30-year-old accountant who struggled to manage his properties in Kent and Norwich while living in Abu Dhabi.

Mr Yates tried to let his property through friends of friends, but was left nursing a £6,000 loss when a tenant illegally sublet one of his homes and stopped paying rent.

"I heard through someone else that the tenant had left the property," he said. "I had to ask a friend to go around and then somebody else answered the door. It was just by chance we found out."

The illegal tenants had caused significant damage to Mr Yates's property, meaning he had to foot the repair bill and try to restore the house from afar.

"I lost quite a bit given the damage in the house and I didn't get any money back," he said. "I realised I was reliant on others to vet new tenants and use their judgment."

After this episode he was forced to enlist a management company to keep tabs on the property and tenants, although such a service cost between eight and 10pc of the monthly rent, plus other fees.

He added: "It was a nightmare, I learned my lesson the hard way."

While Mr Yates was living thousands of miles away at the time, there are also issues domestic landlords buying in unfamiliar parts of Britain must contend with.

For instance, landlords in Scotland, Northern Ireland and Wales must apply for a licence, but in England there are no such requirements. Rental properties in England and Wales must meet minimum energy efficiency standards, but these do not apply in Scotland or Northern Ireland. Scottish rules require regular electrical checks, while this is not required in other areas. Smoke detectors are mandatory on all rented properties located in England and Scotland but are not always needed in Wales and Northern Ireland.

David Cox of the Association of Residential Letting Agents, a UK trade body, warned that many landlords were caught out by the disparity in the rules.

"Landlords who are considering buying and renting out a property away from their local area are unlikely to be familiar with the market," he said, adding: "It's vital they research the area and familiarise themselves with local rents and whether there are any special licensing conditions in place."

Mr Cox criticised the "piecemeal legislation" applied by local and national authorities and encouraged the use of UK-wide polices. "It makes it extremely difficult for landlords operating in the sector to grasp the ever-changing legislative differences," he added.

Mr Yates has now returned to Britain and uses a letting agent to find tenants, collect rent and draw up contracts, while managing matters himself on a day-to-day basis.

Based in Norwich, he can monitor his properties in the city and is selling his properties in Kent rather than manage them from a distance. Living abroad created further complications, as many banks were unwilling to offer him a mortgage when he tried to expand his portfolio.

Mr Hillyer said such problems were common: "The biggest issue most expats face is providing satisfactory documentation. Proof of address is a great example.

"In most Middle Eastern countries, post is sent to PO boxes rather than home addresses, meaning it can be very hard to provide evidence of where you live."

Long-distance landlords may also be required to declare buy-to-let income to local tax authorities as well as HM Revenue & Customs, he added. (Daily Telegraph London)

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