There is no doubt that landlords have had to put up with a good few changes in the buy to let market over the last few years. There are plenty of anecdotes on the internet citing the problems this is causing.
Landlords may complain about not making good returns but the truth is that BTL is still a profitable and highly efficient way to invest in property. It delivers profits from rising house prices as well as from rental income despite increases in stamp duty and new fee regulations coming into effect.
One increasing issue that you’ll find discussed in buy to let forums is the number of councils that are now introducing selective licensing, with 1 out of 4 boroughs currently running schemes.
Here’s our take on selective licensing and what it means for your buy to let property investments. It doesn’t have to mean you are left out of pocket, especially if you choose your investment areas wisely.
What is Selective Licensing?
Essentially, it means you need to apply to the local council for a licence to be a landlord. To do this, you need to prove that you are a suitable person and show that the property you have to rent is actually fit to be lived in.
Identifying the areas that have introduced selective licensing can be a little confusing and it’s easy to get caught out if you don’t have the right information or advice. Even within different councils or boroughs, it’s not utilised universally. The reasons for bringing in selective licensing in a particular areas can depend on a couple of factors including that there is a low demand for housing or because there have been instances of anti-social behaviour which councils feel landlords contribute to.
Selective licensing doesn’t apply to all landlords either. If you own a house, you are a private landlord and are in a designated area you will need to apply. If you are a housing association, own a holiday let, are a university with its own accommodation or have business premises that are occupied by members of your family, you don’t need to apply.
You may, of course, find that your property is suddenly in an area that the local council has designated with selective licensing, even after operating as a reputable business for a number of years. In this case, you will still need to apply for a license.
The upshot is that the rules can vary for different areas so it’s worth checking whether you fall under the conditions that mean you need to get a license.
The Benefits of Selective Licensing
While it all seems a little confusing, the idea of selective licensing is to help improve standards. It’s not there to punish landlords, although it can appear to be just that. If you already run a HMO where licensing is required, you won’t be particularly phased by this change.
Councils cannot introduce selective licensing for just any reason. The primary one is that the area is suffering from persistent anti-social activity and the local landlords are failing to take action to control it. The benefit here is that it is designed to improve the level of rental properties in the local area which can also benefit landlords.
For councils, it can be about ensuring that landlords provide adequate facilities for their tenants. There are plenty of horror stories in the media where disreputable landlords have not only left their properties in states of disrepair but put the health of residents at risk as well. If you’re a reputable landlord too, ensuring these bad eggs are weeded out of the system can be beneficial for both you and potential tenants. Applying for a license means that you need to have things like your gas safety certificate, smoke alarms and electrical equipment and wiring that is in good order.
If you are in an area where selective licensing is present, your application lasts for 5 years before you need to think about renewing it.
The Disadvantages of Selective Licensing
Most landlords will tell you that the big disadvantage of selective licensing is the cost. This can vary from region to region as can the areas that are using the licensing. In regions like London, you may be paying well over £1,000 per property while in Liverpool you could be looking at £400. If you are in a selective licensing area and fail to apply and register your property with the local council, you could also be liable to a fine of up to £30,000.
Head onto social media and you’ll find a lot of landlords who are unhappy that their profit margins are being further squeezed by the cost of applying for selective licensing. Councils have been accused of employing money making schemes and that they are making landlords directly responsible for areas where anti-social behaviour exists.
How to Avoid Selective Licensing
While these are all valid arguments, it’s unlikely that selective licensing is going to disappear anytime soon and may well increase. Because of its nature, however, it doesn’t have to be the drain on resources that some landlords have found. Choose the right locations and make your investments wisely and it’s likely you won’t have to worry about selective licensing at all, at least not for the immediate future.
It pays to work with a property agent that knows what they are talking about when it comes to selective licensing. At Aspen Woolf, we handle a wide range of properties from London and Manchester to Luton and Leeds and understand the licensing requirements in each city.
The truth is that property investment, especially in the buy to let market, is still highly profitable. First of all, levels of rentals and tenancies are at an all-time high and people are always looking for great accommodation in decent areas. If you make good choices on which property you invest in and attract the right tenants, combined with the rising value of your home, there is still plenty of profit to be made.
If you’d like to find out how Aspen Woolf can help with your future BTL property purchase, contact our expert team today.