12 The Sunday Times May 29, 2022
MONEY
A
bout £2,250 of Katie Rober-
ton’s monthly spending goes
on rent. The 32-year-old
from Wandsworth, London,
has been living with her
young son in a two-bedroom
flat for three years, paying
about £1,700 a month. She
also rents an office space
for £550 a month.
“It keeps me awake at night and it can
be scary because you can’t control it,
especially when all other costs are going
up,” said Roberton, who runs her own
ceramics business, Outlandish Creations.
“It’s a bit of a struggle most of the time,
and I wish I had more security.”
Average rents across the country are
rising at a record rate, from £897 a month
in March last year to £995 for March this
year, according to the property website
Zoopla.
But Roberton is lucky because she has
a good relationship with her landlord.
“If there is a problem I know I can go to
him. It would be more stressful if not. I’m
sure he would agree to sort something
out with me,” she said. “He is relatively
understanding and knows we’re good
tenants who have paid the rent on time,
and that business is quite tough at the
moment.”
She has managed to keep down the
cost of her rented office space, where
she stores her kilns and other business
materials. When the landlord wanted to
increase the rent she told him she would
have to leave because she couldn’t afford
more. He agreed to keep it the same.
“My energy bills have gone up by about
£80 a month,” she said. “I have to use the
kiln for work, and that uses a lot of elec-
tricity, so it is really taking a toll. That’s on
top of rises in our normal grocery shop.”
The cost of living crisis is creating a
dilemma for landlords and tenants.
Landlords are trying to be sympathetic to
the pressures faced by some tenants as
inflation hit 9 per cent for the 12 months
to April. At the same time, their costs are
increasing as mortgage rates and man-
agement fees head skyward.What can tenants do?
Renters are already changing the type of
tenancy they are looking for in response
to the cost of living crisis, according to a
survey by Rightmove.
Tenants are looking for longer terms,
with 18 per cent of landlords reporting an
increase in the average length of stay.
Demand for tenancies that include bills
increased 36 per cent compared with last
year as tenants try to shield themselves
from energy prise rises.
If you are a tenant and struggling to
pay rent, it is important not to bury
your head in the sand, said the NationalResidential Landlords Association. “It is
essential that households communicate
as early as possible to discuss the options
available,” it said. “In many cases land-
lords will be open to rent adjustments,
repayment plans or even rent deferment
as an alternative to unanticipated arrears
and the prospect of having to find new
tenants.”
You should make sure that you apply
for any benefits you might be entitled to,
such as universal credit. Your landlord
may be able to help you to provide evi-
dence for a claim.‘I’ve made a deal with my tenants’
James Adkin, 38, has promised his ten-
ants that he will not drastically increase
the rent until his mortgage costs rise.
Adkin, who works in finance, has been
a landlord for seven years and rents out
a three-bedroom house near where he
lives in West Sussex for £1,200 a month.
“We agreed that we won’t put the rent
up each year while the mortgage costs
stay the same,” he said. “As part of the
deal, if there are small things like chang-
ing the lightbulbs or painting a wall, we
ask if the tenant can do that themselves.”
Adkin, who lives with his wife and two
children, aged five and seven, took out a
five-year fixed-rate mortgage at the end
of 2019, so his monthly payment will
remain at £891 for another two and half
years. The property is part of his retire-
ment plan. He pays into a pension but as
a self-employed worker he does not bene-
fit from company contributions.
“Hopefully the mortgage will be paid
by the time we retire so we can keep it,”
Adkin said. “Our view is that the property
is for capital appreciation purposes,
rather than a monthly income.”
He has approached his tenants and
told them to contact him if there are any
problems regarding the cost of living.
“There has to be an element of trust,”
he said. “We asked them to give us as
much notice as possible if they were
going to struggle to pay, and we would try
to work it through with them and under-
stand what their plan was going forward.”What can landlords do?
Landlords are recognising the challenges
their tenants are facing, according to
Rightmove. There are three times the
number of tenants inquiring about places
to rent as there are properties available,
making it the most competitive rental
market ever. Despite this, 63 per cent of
landlords did not increase rents in the
past year.
Saif Derzi, a landlord in the northwest
of England with a portfolio of properties
worth £7.2 million, said dealing with
tenants who were struggling was about
“trying to work with the tenant ratherof the property) and are married, the
income is assumed to be split 50:50, but
you can specify unequal proportions to
match how you own the property. If you
own it as tenants in common and you are
not married, you are usually able to split
the income how you see fit.
Splitting the income unequally could
save you money, particularly if one of you
pays basic-rate tax and the other is a
higher-rate taxpayer.
Since April 2020 landlords have not
been able to deduct mortgage expenses
from rental income, and instead receive a
tax credit, based on 20 per cent of mort-
gage interest payments. This means that
only basic-rate taxpayers get the full tax
relief. Higher-rate taxpayers also pay a
higher rate of tax on the rental income.
You should remember that transfer-
ring any share of a property between you
could incur tax charges. While there
would be no capital gains tax if you are
married, there may be a stamp duty
charge if there is a mortgage.
Buying a property through a limited
company has become increasingly popu-
lar since the tax benefits of being a pri-
vate landlord have been eroded. Rental
profits are taxed at corporate tax rates
(19 per cent, increasing to a maximum of
25 per cent from April 1, 2023) and there
is no cap on the amount of mortgage
interest you can claim for. However,
there may be additional administration
costs for operating as a company.RISING RENTS
Average rent per month£1,0007008009002013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Zoopla2012than seeming to work against them”. He
said: “If they have lost their job, we will
discuss universal credit or housing bene-
fit from the local council and help them to
put in a claim. We will understand what
they can afford to pay, then put an afford-
able payment plan in.”
Evicting and replacing a tenant can be
costly and time consuming, so it is often
in your best interests as a landlord to
come to an arrangement.
It is also worth making sure you take
your rental income tax-efficiently. If you
own the property with someone else as
joint tenants (whether you are married or
not), the income is split 50:50, according
to Chris Etherington from the accountant
RSM. If you own the property as tenants
in common (where you each own a shareCeramicist
Katie Roberton,
above, spends
more than
£2,000 on rent;
James Adkin, a
landlord, below,
has agreed not
to charge his
tenants moreunvaccinated travellers,
probably a hangover from
when the vaccine was only
available to certain age
groups. There are six policies
that exclude cover for any
medical costs relating to
Covid for those unvaccinated
aged 40 and over, and nine
that apply the same exclusion
to those aged 50 and over.
Gap-year policies to cover
younger people travelling
to multiple destinations
had the most exclusions for
unvaccinated travellers, with
28 per cent of policies not
covering medical costs or
cancellations due to Covid.More than a fifth of travel
insurance policies will not
pay out for Covid-related
claims if you have not
been vaccinated.
Insurers including
Barclays, Direct Travel, RAC,
Sainsbury’s Bank and Virgin
Money have medical and
cancellation exclusions on
certain policies, meaning that
unvaccinated policyholders
who need to cancel their
holidays or seek medical
treatment abroad due to
Covid would not be covered.
The research companyDefaqto found that 18 per
cent of travel insurance
policies would exclude
both cancellations and any
medical treatment for Covid,
while 22 per cent of policies
had at least one exclusion
related to the pandemic.
“Consideration needs to be
given to this when looking for
travel insurance,” said Anna-
Marie Duthie from Defaqto.
“If there is a medical reason
for not getting vaccinated,
then discuss this with your
insurer before travel.”
Some policies also apply an
outdated upper-age limit on
covering medical costs forImogen Tewcharges a £3 monthly fee if
customers do not deposit
at least £1,500 a month.
Meanwhile, Nationwide
is offering £100 to first-time
FlexAccount, FlexDirect or
FlexPlus account holders and
£125 to existing customers
who transfer two direct
debits from an existing
current account.
Switching to the Virgin
Money M Plus account
can earn you 20,000 Virgin
Red points that can be spent
on gifts, experiences or
flights. For example, cream
tea for two at Harrods costs
6,250 points.A current account war has
resulted in banks offering
large incentives to customers
to switch their bank account.
The most generous
switching deal on offer is a
£170 payout from HSBC to
new customers who open an
Advance account. To qualify,
customers have to deposit
more than 1,500 within
60 days of opening the
account and use the Current
Account Switch Service
(Cass) to transfer at least two
direct debit payments to
their new bank.The Cass transfers your
money to a new bank, carries
over existing standing orders
and closes your old bank
account within seven days.
New First Direct customers
can secure £150 if they
deposit £1,000 within three
months of switching their
current account. Customers
who open a new current
account, but do not close
their old one are eligible
for a £20 payout.
New Lloyds Club
customers can earn £125
for switching their current
account before June 27.
However, the accountLily Russell-JonesBank accounts with a bonus
People approaching
retirement are being urged to
delay drawing their pension
to avoid locking in huge losses
and the impact of inflation.
The war in Ukraine, global
supply chain disruptions and
the soaring cost of living have
spooked markets, making it a
stressful time for anyone who
was hoping to retire this year.
Shaun Robson, the head
of wealth planning at the
investment firm Killik & Co,
said: “Those looking to retire
this year should consider
delaying. An additional year
or two of work ensures a
stable income without having
to dip into your pension or
savings immediately.”
Ian Browne at the wealth
manager Quilter said: “If
you are beginning your
retirement journey, then
it is worth thinking about
prolonging your career.”
Here are some steps to
consider if you are nearing
retirement.Is it time to
think about
delaying your
retirement?
Take income from
dividends and cash
“One way to avoid locking
in recent losses is to take
income from dividends and
bond payments rather than
touching your investments,”
Browne said.
If you have cash savings or
other assets you can afford to
live off so you can allow your
pension investments to grow,
then this might be the best
option, he suggests.Add to your pot
Adding more to your pension
while you are still in work and
when markets are down can
also help.
Jason Hollands, the
managing director of the
wealth manager Tilney
Bestinvest said: “If you’re
seriously squeezed avoid, if
possible, stopping your
pension contributions.
“If you can make
economies elsewhere, for
example cutting out
subscriptions, you might
consider increasing paymentsinto your pension to edge it
back on track.”
If you go down this route,
keep in mind your annual
allowance. This is particularly
important if you have started
flexi-access drawdown,
where you have started
taking some pension benefits,
since your annual allowance
falls from £40,000 to £4,000.
You can avoid triggering
the lower annual allowance,
known as the money
purchase annual allowance
(MPAA), by withdrawing
money from smaller pots
worth £10,000 or less. You
can do this on three
occasions without activating
the MPAA.Review your investments
Traditionally, people are told
to de-risk as they reach
retirement age, moving from
assets such as equities into
traditional safe havens such
as government bonds.
However, leaving equities
too soon or in too great a
proportion could have a
divesting impact on your
pension pot, particularly if
you plan to retire later.
Government bonds
struggle during periods
of rising interest rates
and inflation. Shares, on
the other hand, give you the
best chance to beat inflation
over the long term.Cut your income if you can
If you are drawing your
pension, reduce the amount
you take out each year.
Browne said: “If you are
in the unfortunate position
where you need to take more
out to help make ends meet,‘WE DITCHED
M&S AND
SOLD OUR
MERCEDES’
Steven Alexander, 48,
who works at a business
consultancy and lives in
Glasgow, has reduced
pension contributions
from £500 a month to
£300 to help to ease
the cost of living ( Ali
Hussain writes).
He may also retire in
his sixties rather than his
fifties, as he had hoped.
He mainly saves into a
workplace pension.
He and his wife,
Michelle, 42, have sold
their Mercedes E-Class
and now use one car.
The couple have also
stopped shopping at
M&S and Waitrose,
except for special
occasions, and use
Aldi and Lidl instead.then check how sustainable
this will be. You do not need
to take out the same amount
of income each year so you
can allow your pot to
recover during more
sanguine times.”Consider an annuity
Fixed income products, such
as bonds, tend to do badly
when the cost of living
increases. The benchmark
ten-year yields on
government bonds, known as
gilts, rose from 0.5 per cent
in the summer of last year,
to 1.9 per cent today. This
is good news for those
considering an annuity,
which is an income for life
“Gilt yields drive annuity
rates, so if you dismissed
annuities a year or so ago
as part of your retirement
plan, take another look,”
Hollands said.Update your retirement age
If you are saving into a
workplace pension you will
most likely be invested in a
default scheme with a set
retirement age, typically in
your mid-sixties. The fund
automatically reduces risk as
you approach this target age,
gradually focusing more on
capital preservation than
growth. If you plan to delay
retirement, inform your
workplace-scheme provider.
Maike Currie at the wealth
manager Fidelity
International said: “If your
plans have changed and you
have decided to work for
longer, updating your
provider will ensure you
continue contributing to
funds that aim for growth.”Ali HussainInsurers reject unvaccinated
How to be a
good landlord
in tough times
With rents rising at a record pace and mortgage
rates on the up, buy-to-let investors and tenants
may need to negotiate, says Imogen Tew
Banks
ease the
mortgage
squeeze
George NixonBanks are increasingly happy to lend to
self-employed borrowers. Britain’s third-
largest mortgage lender, Santander, said
last week it was increasing the maximum
loan-to-value ratio it would offer them
from 75 per cent to 90 per cent. The pre-
vious limit was put in place in March last
year due to “market conditions”.
In April last year the bank said it
would not include income from the
2020-21 tax year if a business was affected
by the pandemic and borrowers could
use the previous two years’ earnings
instead.
Other banks are also unwinding limits
brought in because of the pandemic. Ear-
lier this month HSBC said it had
returned to its pre-Covid position for self-
employed mortgage applications, which
meant they would no longer be required
to submit the past three months of bank
statements and a letter from their
accountants.
At the end of April TSB lifted the loan-
to-income cap it had on self-employed
mortgages from 4.49 times to 5.
Banks had previously made it more dif-
ficult for the self-employed to get mortga-
ges during the pandemic amid concerns
their income had dried up, with the
group receiving less government help
than employed people.
Before August last year HSBC had
been asking for business account state-
ments from January to March 2020 as
well as the previous three months, to see
how businesses had been doing before
the pandemic.
Mark Harris, chief executive of the
mortgage broker SPF Private Clients,
said: “Restrictions introduced because of
the pandemic have been lifted now that
many businesses are able to operate as
normal.
“That gives underwriters numbers to
look at to compare how incomes and
profits have been affected pre- and post-
lockdowns.”
Not all banks have let up, however.
NatWest requires three months of pay-
slips and bank statements from
employed mortgage borrowers, but
those who are self-employed need to pro-
vide two years’ of certified accounts, an
SA302 form and a tax year overview for
an application.
And Nationwide Building Society’s
helping hand scheme, which lends up to
5.5 times income to first-time buyers who
fix for at least five years, is limited to
those who are employed.
Some 23 per cent of self-employed bor-
rowers said they had previously had a
mortgage application rejected, com-
pared to 12 per cent of employees,
according to the Mortgage Lender.
And despite a recovery in the jobs mar-
ket, there are still about 800,000 fewer
self-employed people in work at the end
of March 2022 compared to February
2020, according to the Office for National
Statistics. By comparison, there are
about 646,000 more employees than
there were before the start of the
pandemic.
David Hollingworth at the mortgage
broker L&C said: “Of course criteria
will remain varied and the key thing
will be to consider the market as a whole
to find the best fit for the individual
circumstances.”