Search Results For: buy to rent sector

Buy-to-let purchase activity still sluggish

Published On: March 15, 2017 at 9:48 am

Author:

Categories: Landlord News

Tags: ,,,

The total number of buy-to-let loans taken out by buy-to-let landlords rose in January to the second highest monthly level since the Stamp Duty surcharge rises last April.

Figures from the Council of Mortgage Lenders show that the number of loans taken was at the greatest level, save for November 2016.

Remortgaging

However, rather than loans to invest in needed private rented housing, the activity was particularly driven by buy-to-let remortgage lending, which accounted for two-thirds of total lending.

The volume of loans for buy-to-let house purchases in January dropped to an eight-month low- partly due to the dip in activity during the Winter.

In contrast, buy-to-let remortgage lending reached its highest monthly level since November.

With mortgage interest tax relief set to be phased out from next month and given the fact the Bank of England has been given greater powers to oversee the buy-to-let sector. This in turn will make it harder for many buy-to-let landlords to get a mortgage, as activity levels in the sector will slow further.

Buy-to-let purchase activity still sluggish

Buy-to-let purchase activity still sluggish

Paul Smee, director general of the Council of Mortgage Lenders, noted: ‘Buy-to-let house purchase activity continues to be weak, despite strong buy-to-let remortgage levels. This will likely remain so going forward as lenders tighten affordability criteria ahead of the PRA mandated stress tests and the introduction of tax changes in April.’ [1]

‘Jeremy Leaf, north London estate agent and former residential chairman of RICS, said: ‘While there is little change month-on-month, the figures are encouraging because they demonstrate market resilience – which is what we are seeing at the coalface. Encouragingly, we have noticed a bit of a pick-up in activity over the past few weeks as buyers and sellers seem to be getting on with it as they usually do at this time of year.’[2]

 

[1] https://www.landlordtoday.co.uk/breaking-news/2017/3/buy-to-let-property-purchase-activity-continues-to-be-weak

[2]  http://www.propertyreporter.co.uk/property/house-purchases-fall-to-lowest-levels-since-2015.html

 

 

 

Private Renting to Match Homeownership Levels in London by 2025

Published On: March 14, 2017 at 9:53 am

Author:

Categories: Property News

Tags: ,,,,,

Private renting in the capital will match the levels of homeownership in London by 2025 – just eight years away, according to a new report from the Mayor of London.

Private Renting to Match Homeownership Levels in London by 2025

Private Renting to Match Homeownership Levels in London by 2025

The study, titled Housing in London: 2017, will form the basis for the Mayor’s forthcoming London housing strategy.

It shows that private renting was once the single largest housing tenure in London, but shrank from 46% of all households in 1961 to just 14% in 1991, a decline that was similarly matched across the rest of the country.

By 2011 – the latest date quoted in the report – the private rental sector accounted for 26% of all London households.

In contrast, social housing made up 35% of housing in the capital in 1981, before dropping to 24% in 2011.

The Mayor of London’s new report, which will provide evidence for his key strategy, forecasts both social renting and homeownership to continue falling in the capital, while private renting will grow.

By 2025, it expects both private renting and homeownership to each account for 40% of all London households, while social renting will make up just 20%.

The 114-page report analyses historical data on housing tenures in the capital, certain demographic, economic and social trends, before addressing the crisis that is now blighting Londoners.

It assesses housing supply and the number of empty homes, the costs of buying and renting a home, along with the serious issue of affordability, and the need for housing across the capital. In addition, the study considers mobility and decent homes.

To read the full report from the Mayor of London, click here: https://files.datapress.com/london/dataset/housing-london/2017-01-26T18:50:00/Housing-in-London-2017-report.pdf

As ever, we will continue to keep you up to date on changes to the London property market, particularly private renting, at Landlord News and through our handy – and FREE – monthly newsletter – sign up here: /register/

UK rental growth at slowest level since 2013

Published On: March 13, 2017 at 9:46 am

Author:

Categories: Property News

Tags: ,,,,

The most recent data released by Landbay has revealed that UK rental growth is currently at its lowest level since April 2013.

Rental growth across Britain slowed to 1% year-on-year in February, according to the analysis.

Capital Pains

In London, rents fell for the ninth straight month and fell -0.53% in the course of the year. As a result, the average rent paid by a tenant in the capital has fallen to £1,882, the lowest since September 2015.

Typical rents in the boroughs of Kensington & Chelsea, Westminster and Camden saw the most substantial falls in the last year. Rents here slid by -3.50%, -2.23% and -1.79% respectively.

On the other hand, rents in the boroughs of Barking and Dagenham, Havering and Redbridge have risen by 2.88%, 2.64% and 2.08% respectively. This is a sign that demand for properties in the outer boroughs of London is increasing.

In the rest of Britain, while rents continued to move upwards, the rate of this growth slowed to just 0.10% in February. With the exception of London, rents in England saw the top rate of growth, reaching 1.92%. This was followed by Wales (1.37%) and Scotland (1.26%). Only Northern Ireland saw growth rise below the UK average of 1%, with rents here increasing by just 0.47% in the last twelve months.

UK rental growth at slowest level since 2013

UK rental growth at slowest level since 2013

Masked Relief

John Goodall, CEO and founder of Landbay, observed: ‘While it may seem as though we are starting to see some much-needed relief for renters, the cost of renting a property remains a huge burden for the 4.3 million people in the private rented sector across the UK, especially in London where average rents are significantly more expensive than the rest of the country. Although this could give the impression that the market is beginning to turn a corner, this is a situation that is unlikely to change in the foreseeable future. Demand for rented accommodation will remain robust over the coming months and years and continue to stoke up rental values, as rising house prices, falling wages and rising inflation dampen the ability of aspiring homeowners to save for a property of their own.’[1]

‘Whether tenants are renting as a stepping stone on the way to home ownership or, increasingly, renting for life, people rely on a well-served buy-to-let market to ensure rental growth doesn’t become unbearable. The Chancellor’s decision not to raise the stamp duty threshold in this month’s Budget was yet another blow for first time buyers, so it’s important that we now see some clear follow through to the promises made in the housing white paper to ease at least some of the pressure on Generation Rent,’ he added.[1]

[1] http://www.propertyreporter.co.uk/landlords/uk-rental-growth-slows-to-lowest-level-since-2013.html

 

What the Spring Budget Means for the London Property Sector

Published On: March 10, 2017 at 11:10 am

Author:

Categories: Finance News

Tags: ,,,,

Earlier this week, Chancellor Philip Hammond delivered his first and last Spring Budget. While many were disappointed with the announcement, it may affect the London property sector.

If you’re a London landlord, homeowner, tenant or prospective first time buyer, Portico London estate agent has summarised how the Spring Budget will affect you:

Landlords

Landlords across the country will be delighted that they have not been dealt any new blows in the Spring Budget. But, unfortunately, the Chancellor did not reverse the additional Stamp Duty charge or the mortgage interest tax relief changes set to come into force next month.

Currently, landlords are able to deduct all of their mortgage interest, and other finance costs, from their rental income before they calculate their tax bill. But, as of 6th April, tax relief will be cut to 75%, and will be gradually reduced until it is replaced with a flat 20% rate in 2020.

If you have a large buy-to-let mortgage, it’s vital that you meet with an accountant to talk through the changes and make sure you’ve accounted for them. If you don’t have a mortgage or you’re a lower rate taxpayer, it’s good news – you will not be affected by the changes.

The tax changes are certainly a hit for buy-to-let landlords, but investment in the London property sector can still be extremely profitable in 2017 if you invest smartly and make the most of record-low interest rates.

However, Hammond did offer a goodwill gesture, announcing that the amount you can earn in profit before tax is payable will rise from £11,000 to £11,500 from 6th April, then to £12,500 by 2020.

Limited companies 

As a result of the forthcoming tax relief changes, a large number of landlords have set up, or considered setting up, a limited company to pay less tax. This is because, unlike individuals, limited companies can still benefit from the full mortgage interest deduction mentioned above.

But the Chancellor has clearly suggested that he doesn’t want landlords to form limited companies to dodge the tax change, announcing in the Spring Budget that the tax-free dividend allowance for company directors will be cut from £5,000 to £2,000 from April 2018. The dividend allowance cut will cost basic rate taxpayers £225, higher rate taxpayers £975 and additional rate taxpayers £1,143.

What the Spring Budget Means for the London Property Sector

What the Spring Budget Means for the London Property Sector

Self-employed individuals

Hammond also made it clear that he’s determined to make the tax system more equal for employed people, company directors and self-employed individuals, announcing a 1% increase in Class 4 National Insurance contributions from April 2018, and a further 1% rise from April 2019.

Furthermore, he plans to announce more changes to “reduce the gap to better reflect the differences in state benefits”. Portico advises you think very carefully if you’re planning on setting up a limited company, as it may not be the best move.

First time buyers

The Office for Budget Responsibility released its predictions for house price growth alongside the Spring Budget, claiming that house price growth will drop by almost half by 2019. According to its forecast, house price growth will fall from an annual rate of 7.6% in 2016 to just 4% in 2018. In 2019, growth will edge upwards to 4.4%, before increasing to 4.6% in 2021, it states.

The Regional Sales Director of Portico, Mark Lawrinson, comments: “We’ve already seen the start of this in prime central London, with the first year-on-year price drop since the crash in ‘98. It’s likely this will have a ripple effect across London in the coming years, and price growth will start to slow.

“But as the Office for Budget Responsibility has predicted, price growth will not slow for long, as this is primarily due to a chronic lack of supply; money is as cheap as it can be to borrow at the moment, so if you are hoping to get on the property ladder in London, this may be the perfect opportunity to grab a good deal and enjoy the security of owning a home.”

He adds: “Unfortunately, nobody can predict the future, so if you’re in a position to buy today, then don’t hesitate; remember you’re buying a home first and an investment second.”

Savers 

Unfortunately, Hammond did not announce any new savings initiatives. However, he did confirm the promised National Savings and Investments three-year bond (which he spoke of in the Autumn Statement last year), detailing that, as of April this year, the account will pay a fixed rate of 2.2% on deposits of up to £3,000.

Experts in the savings sector have slammed the initiative, claiming that savers would earn just “£6 a year more than they could get on the open market” – Anna Bowes, the Director of independent savings advice site SavingsChampion.co.uk.

Thankfully, there are already lots of initiatives available for those hoping to buy their own homes:

  • The Lifetime ISA will launch on 6th April. For every £1 you save into the account, the Government will contribute another 25p, and it’s all tax-free. The annual contribution limit is £4,000, which puts the maximum Government bonus at £1,000 per year.
  • The Help to Buy ISA includes a Government bonus of 25%. So, for every £200 you save, you’ll receive a Government bonus of £50. The maximum Government bonus you can receive is £3,000.
  • Help to Save, which is set to launch in April 2018, will give lower income savers who can save £50 a month a tax-free bonus of up to £1,200.

Tenants

Tenants in London were waiting patiently for news on when the Government’s letting agent fee ban will come into force. However, Hammond failed to mention the ban in his Budget. Although we do not have an exact date, a consultation is expected to take place this spring.

In conclusion, not much will change for those in the London property sector as a result of the Spring Budget announcement.

Is the Government, ‘wiping out the buy-to-let economy?’

Published On: March 9, 2017 at 10:08 am

Author:

Categories: Finance News

Tags: ,,,,

The Chancellor’s failure to add any further or amend any existing tax reforms will only serve to have far-reaching consequences for the buy-to-let market, according to one industry peer.

Plans to remove landlords of mortgage interest tax relief will have a ‘detrimental impact’ on households throughout the country, according to David Hannah, principal consultant of Cornerstone Tax.

Tax Relief

From April, landlords, will begin to lose the right to deduct their entire mortgage interest costs at the rate they pay income tax, which is currently up to 45%. When the changes are fully implemented by 2020, the maximum will be 20%.

Mr Hannah has criticised the move, claiming it will only result in higher rents for tenants across the UK.

In response to yesterday’s Budget, Hannah said: ‘With real estate representing 21% of the UK economy, it is a mystery as to why the Government persists in hindering a crucial sector, by creating an unnecessary burden on tenants, landlords and homeowners.’[1]

He describes the changes to mortgage interest tax relief and the 3% additional Stamp Duty as a ‘double-blow effect wiping out the buy-to-let economy.’ He feels that this, ‘doesn’t chime with the current socio-economic needs of the UK.’[1]

Is the Government, 'wiping out the buy-to-let economy?'

Is the Government, ‘wiping out the buy-to-let economy?’

Demand

Continuing, Mr Hannah observed: ‘The demand for rental accommodation is set to rise by one million households in the next five years-a combination of restricted access to mortgage finance, unaffordability created through eye-watering SDLT rates and a shift in labour market trends towards a more mobile workforce.’[1]

‘Yet the government continues to breakdown the very sector that has absorbed change and provided homes for those who simply either cannot afford or do not wish to commit to homeownership. With the sector currently in its fourth consecutive quarter of decline, paired with a fall in homeownership rates, we are fast approaching a new type of housing crisis.’[1]

Obsession

Moving forwards, Mr Hannah wants to see the Government stop, ‘their obsession with homeownership’ and to, ‘think carefully’ about what the country needs.

He wants to see, ‘an accessible, flexible and affordable housing supply’ and feels, ‘the private rental sector, where buy-to-let landlords are a major contributor, provides just that.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2017/3/the-government-is-wiping-out-the-buy-to-let-economy

Buy-to-Let Still Profitable in Major UK Cities

Due to the Government’s recent so-called attack on buy-to-let, you would be forgiven for believing that property investment is no longer a viable option. But if you invest in major UK cities, excluding London, it still could be…

Combined with Brexit, stricter lending criteria and an unaffordable property market, the Government’s tax changes are making buy-to-let seem like a broken market.

But investing in buy-to-let could still be a lucrative option if you choose major UK cities, explains Paul Mahoney, the Managing Director of Nova Financial, a property investment and finance advisory company.

Speaking to CityAM, Mahoney explained how the buy-to-let sector is changing:

Paul, we’ll start with the big question, is buy-to-let dead?

“Great question, and certainly a topic of hot debate at present. When considering the tax changes and higher rental coverage rates for lending, there are certainly some areas where buy-to-let property investment is becoming a lot less viable. London and the South East are the main areas that stand out, given lower rental yields that average circa 3.5% that restrict the maximum borrowings in most cases to less than 60%, so a lot more cash needs to be applied.

“And given the average property price in London is now well over £500,000, the average cash investment is well over £200,000 including costs. Due to the low yields available in these areas, properties that are leveraged at 60% loan-to-value (LTV) are barely breaking even and, therefore, landlords are exposed to interest rate rises and potential negative cash flow situations. Add to this the tax changes which will reduce the tax efficiency of an investment for anyone earning more than £50,000 if the investment is in their personal name, and you have quite a few reasons to not be investing now.”

Buy-to-Let Still Profitable in Major UK Cities

Buy-to-Let Still Profitable in Major UK Cities

Well that all sounds quite negative with regards to London. Are there other areas worth looking at?

I’m glad you asked. Many of our clients have been investing in other major UK cities such as Birmingham, Manchester and Liverpool. The most interesting trend affecting the property market currently is North Shoring, which is the movement
of employment from London to 
the North West. Net migration is strongly positive from London to the Midlands and the North West, which is being driven by strong job growth. Manchester alone has benefitted from over 60,000 new jobs since 2011, and major companies, such as Ernst & Young, Price Waterhouse Cooper and Deutsch Bank, to name a few, are contributing. This is driving strong population growth to cities such as Birmingham, Manchester and Liverpool, and changing the dynamics in a very positive way.”

That’s very interesting. I suppose the general consensus has been that London is more stable and will provide more growth – what are your thoughts on that?

Well, if we look at the changes that have occurred in Liverpool over the past 12 months, job growth year-on-year to June 2016 was 38.1% and the economy grew by 15%, which is incredible. There is also over £10 billion of infrastructure spending currently underway in central Liverpool, which is expected to create over 100,000 new jobs over the next decade. That will affect the property market in a positive way.

“Each of the cities on average have outperformed London over the past 12 months for capital growth and are providing circa double the yields, so there seems to be a swing coming about in the UK property market.”

How do the tax and lending changes affect cities like Birmingham, Manchester and Liverpool?

Given that yields generally range from 6-8%+, there is no problem with rental coverage at all and, although the tax changes may slightly impact upon some investors’ cash flow, there is a stronger buffer given the difference between interest rates and the yield is greater.

“These changes
 are therefore far less likely to impact the above mentioned cities and, in
 fact, have already started to impact them positively as the shine comes off London, and investor interest is shifting to each of these cities from both domestic and international investors.”

So where have most of your clients been investing and what returns are they getting?

The vast majority of our clients have been investing in the Liverpool and Manchester city centres renting to young professionals. With the ability to borrow up to 75% LTV at interest rates of circa 2.5% and generate yields of 7%+, the net return on investment is mostly 10%+, excluding growth.

“A fairly average growth rate of 5% per annum offers a 20% return on your deposit, as you’ve leveraged four times, so when you 
add that to cash flow, that is 30%+ per annum. This may seem very high, even too high to be true, but it is due to the borrowings which accelerate returns on your cash deposit four times.”

Is there any way that people can avoid the tax changes?

Yes, many of our clients have been investing through limited company structures or in a spouses’ names, but you should seek advice before doing either.”