alternatives to selective licensing

With the introduction of selective licensing coming into force in more residential areas, is being a landlord becoming less profitable? Are there still ways to make money as a landlord, and what are the alternatives to selective licensing?

What is selective licensing?

Selective licensing has been applied to certain areas in the UK, where landlords must apply for a licence to let property, by proving that they are a “fit and proper” person and that the accommodation they are offering is of an acceptable standard in terms of how it is managed and the safety measures that are put in place.

Areas designated for selective licensing are chosen at the discretion of local authorities, either on the basis that there is low housing demand, or persistent problems with anti-social behavior. Landlords who own houses within those areas designated for selective licensing, must obtain a licence if they let the property to private tenants. Social landlords or those who own holiday lets, student accommodation owned by a university, business premises or property that is occupied by family members are not required to hold a licence. Landlords who already hold a mandatory HMO licence do not need to apply for a selective licence.

If landlords find out that they own property located in a selective licensing area, they will have to fill in an application form to obtain a licence, these forms will be available from the local council.  The cost associated with the application varies and is dependent on the area. A licence is valid for five years and then must be renewed. The cost of the selective licence is projected to be £1250 per property in Bristol with the fee being as low as £400 in Liverpool.

Landlords who fail to obtain a licence could be prosecuted or pay a civil penalty of £30,000. Landlords may also find that they will be unable to let their property in the future.

Why is selective licensing enabled in some areas?

The aim of selective licensing is to reduce anti-social behaviour in neighbourhoods and reduce the number of rogue landlords. The selective licence fees are being implemented in areas where there are a percentage of HMO student houses. It is seen by some as stealth council tax duties, whilst the council says that the fees are to cover the cost of enforcement. “One of the landlords whom we met at the Bristol Landlords meeting said that he has not had one property inspection by council since the first round of licensing was introduced two years ago” claims Stuart Cowie of One Touch Property Investment.

Those who propose it also say there are also perceived benefits to landlords, who may experience an uplift in rental income once the area improves due to an increase in interest, which will have the added benefit of reducing the time a property sits empty. It is also thought to level the playing field between the landlords who already ensure their property is of a decent standard, and those who look to undercut them with sub-standard accommodation.

Opposition to selective licensing

In this time of social media and increased completion of purpose-built student housing, it can be argued that the forces of completion and increased supply would deter landlords from having inferior or uninhabitable property. If the landlord has been providing a poor level of service, then the tenants would simply go elsewhere.

Selective licensing is opposed by most landlords, who argue that it reduces their already strained profit margins, and that the money spent in obtaining a licence would be better used improving the condition of the property they are renting out. Also, it is entirely likely that the landlords letting sub-par accommodation that selective licensing is meant to identify and work with to improve upon, will not bother obtaining a licence.

Some representative bodies of landlords have expressed a concern that this is simply a council “money-making” scheme that will have little effect on improving the neighbourhood in which it is enacted.

There is also the point that landlords should not be directly responsible if one of their tenants exhibits any anti-social behaviours. Landlords can choose to issue eviction notices if they see fit to nuisance tenants, but they are certainly not obliged to, especially if the behaviour does not have a direct effect on the property.

How can landlords avoid selective licensing?

Of course, the cost of the licence and to renew it is another financial burden on a landlord’s already strained profit margin. It is also understandable how landlords can feel frustrated about the number of restrictions placed on them and the rising cost of being a landlord.

By now perhaps many buy to let or would-be landlords are wondering how they can make a profit from property, and whether they would make suitable returns. What is the alternative if an investor wishes to buy property but wants to avoid the additional financial burdens and regulations?

Commercial property – a solution for those whose profits have been squeezed from selective licensing?

For those considering property investment, but who have been deterred from buy to let due to the rising number of costs associated with it, commercial property like care homes could be a viable alternative. There is no stamp duty for Commercial property under £150,000 and no selective licensing fees. An additional benefit of investing in commercial property such as retirement property, is that the units will be maintained by a management company, minimising the involvement a landlord will have with their investment.

Rental income is strengthened by the UK’s ageing population. Retirement homes are generally located in rural areas along the south coast or north of England, which generally boast a higher elderly population compared to cities and conurbations, positively influencing demand.

The south west of England is often cited as one of the best places for over 65s to retire. Stunning countryside surroundings, low crime rates and a higher than average life expectancy for both men and women are just some of the reasons why the region is appealing.

Scotland is also appealing to pensions due to the rugged surroundings, and in 25 years the number of over 65s is meant to increase by 25%. Portpatrick is the latest luxury retirement home investment opportunity consisting of circa 45 luxury suites, based in the town of the same name on the west coast of Scotland. This investment is in the Dumfries and Galloway region where almost a quarter of the residents are aged 65 or over, meaning that there are many people who potentially might want to stay at Portpatrick, either over the long term or short term. Portpatrick is home to one of Scotland’s top golf courses, adding to its appeal for retirees who are fond of the sport.

Suites will start from £85,950 and a 10% return over a ten-year commercial lease is guaranteed. As this investment is fully managed, investors will not have to worry about finding new tenants or managing agreements. They will also not have to worry about answering to the council with regards to licensing or maintenance issues, ensuring a fully hands-off experience.

These types of luxury retirement homes attract self-paying residents. Aside from meaning that the income stream is consistent due to the residents’ ability to pay, it also means that landlords are less likely to encounter difficult tenants, and if they do it is the responsibility of the management company to successfully deal with them.

The lower entry point, fewer additional costs and hands-off nature of commercial property investments are just some of the reasons they are gaining popularity in the UK. Luxury retirement home investments particularly seem to be appealing to investors due to the ageing population of the UK, and the housing wealth the “Baby Boomer” generation holds. Furthermore, a quarter of over 55s in the UK plan to downsize to more manageable homes. According to Knight Frank, if that figure is assumed for over 65s as well, potentially there could be a demand from an additional 582,283 individuals. This stable demand has had a positive effect on rental yields, which remain some of the highest out of all investment classes.

Contact One Touch Property today to find out more about how commercial property investments can make a good alternative to traditional buy to let, if one is concerned with selective licensing restrictions.

Telephone: +44 (0) 203 709 4275

Interested in investment property news?
Sign up to our newsletter and keep up to date on the latest property news and investment opportunities.

Would You Like Property Email Alerts?
Sign Up To Our Newsletter Today!
Your email address is safe with us - we HATE spam

Latest Property Investments

Still unsure? Click here and we will call you back!