Posts with tag: finance

Buy-to-Let Lenders Favouring Percentage-Based Fees

Published On: April 20, 2017 at 8:11 am


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Buy-to-Let Lenders Favouring Percentage-Based Fees

Buy-to-Let Lenders Favouring Percentage-Based Fees

Percentage-based fees for arranging loans have become the new standard among buy-to-let mortgage lenders, according to the latest Buy-to-Let Mortgage Costs Index from Mortgages for Business.

Flat fees have long been popular as a way for lenders to maintain profitability, while still offering competitive rates. Meanwhile, other products instead carry a variable fee based on the loan amount.

Figures from the first quarter (Q1) of 2017 show that 44% of all buy-to-let mortgage products now carry percentage-based fees, overtaking flat fees (41%) for the first time in four years.

There was also a rise in the average flat fee, up to £1,446 from £1,397 in Q4 2016. Together, these changes have increased the average effect of mortgage charges to 0.64%. This compares to 0.62% in Q4, and is the strongest effect recorded since the first half (H1) of 2015.

Steve Olejnik, the COO of Mortgages for Business, comments: “With the challenges lenders have faced to generate business in the face of successive blows to the buy-to-let sector, it is only natural that many have chosen to focus on cutting rates at the cost of increased fees. The recent trend towards percentage-based fees is an example of lenders doing exactly this, as fees of this type become more expensive for larger loans.”

The index also shows that there has been a shift in the pricing of five-years fixed rate products. Although products available at 75% loan-to-value (LTV) and below remained on trend, five-year fixed at higher LTVs saw a 0.2% rise in headline rates.

This was fuelled by an influx of investor demand following tighter Prudential Regulation Authority (PRA) affordability guidelines, which only partially apply to long-term fixed rates.

Landlords, have you seen a move towards percentage-based fees from buy-to-let lenders in recent months? Will this affect your decision to take out a loan?

Landlord Tax Restructuring – the Three most Popular Strategies

Published On: April 19, 2017 at 9:44 am


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Landlord Tax Restructuring – the Three most Popular Strategies

Landlord Tax Restructuring – the Three most Popular Strategies

Landlord News has obtained insightful information via The Landlords Union about the three most popular methods to avoid the consequences of restrictions on finance cost relief, which came into force in April 2017.

Over the next four years, legislation will increasingly prevent individual landlords treating their finance costs as expenses. Instead, a tax credit will be applied at a flat rate of 20% of finance costs. This will push several landlords into higher rate tax bands and result in loss of other benefits. In some cases, personal allowances will be lost completely and result in as much as 40% tax on finance costs!

The three most popular restructuring strategies are:

For married couples, the first level of tax planning is a restructure of your income to optimise all available basic rate tax allowances between husband and wife (currently £43,000 each). The tax changes to only landlords whose total taxable income (including mortgage interest) exceeds £43,000 a year. The Chancellor of the Exchequer has confirmed this figure will increase to £50,000 by the year 2020. Restructuring income between spouses is achieved by changing the percentage of beneficial ownership and does not necessitate refinancing.

A  partnership enables landlords to allocate profits disproportionately to ownership and to allocate drawings disproportionately to profits. For example, if the landlord’s adult children or parents help in the running of a business, they could be made partners. This can result in significantly lower tax bills as well as being a useful IHT (Inheritance Tax) planning tool. Furthermore, it’s a step towards incorporation.

Incorporation can wash out all capital gains to date. Also, companies are not affected by restrictions on finance cost relief. However, beware CGT (Capital Gains Tax), Stamp Duty (LBTT in Scotland) and refinancing costs when considering the transfer of your properties to a company. Under the right circumstances, however, all of these are avoidable

The Landlords Union has released a suite of tax tutorials, which are free to download in PDF format.

For further details, please see:

Mortgage Accessibility has hit a Three-Year High

Published On: April 3, 2017 at 8:57 am


Categories: Finance News

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Mortgage accessibility has hit a three-year high, as brokers report encountering fewer difficulties when sourcing mortgages for clients than at any point since the introduction of the Mortgage Market Review (MMR) in April 2014, according to a new report from the Intermediary Mortgage Lenders Association (IMLA).

Almost a third (30%) of mortgage brokers reported that they encountered no problem sourcing a mortgage for any type of client in the second half of 2016 – up from 26% in the first half of the year and double the rate recorded a year earlier (15%).

This increase in mortgage accessibility is a clear reflection of improving lending conditions and a sign of the continually strengthening relationship between mortgage lenders and brokers.

Brokers also reported an uptick in successfully sourcing mortgages for a variety of different groups of borrowers. The rate of brokers who said they were unable to source a mortgage for first time buyers dropped from 29% in the first half of 2016 to 16% in the second half of the year, while the proportion who were unable to source a mortgage for standard-status borrowers also fell, from 26% to 15% over the same period.

Mortgage Accessibility has hit a Three-Year High

Mortgage Accessibility has hit a Three-Year High

Softening conditions were also reported for borrowers who sit outside of the mainstream mortgage market. The rate of brokers who were unable to secure a mortgage for borrowers who are self-employed or have irregular incomes decreased from 50% in the first half of the year to 25% in the second half, while the rate for those unable to source mortgages for interest-only borrowers dropped from 52% to 31%.

Furthermore, there was also a substantial decline in the rate of brokers who were unable to source a mortgage for borrowers looking for loans lasting into retirement, which fell from 43% to 29%.

The increase in brokers successfully sourcing mortgages for a greater proportion of clients is set against a backdrop of decreasing average mortgage rates. The Bank of England (BoE) reported that the average two-year fixed rate mortgage at 75% loan-to-value (LTV) fell by 45 basis points, from 1.90% to 1.45% between December 2015 and December 2016 – enhancing consumers’ affordability.

The Executive Director of the IMLA, Peter Williams, comments: “It is hugely encouraging to see a greater number of brokers are reporting that they are successfully arranging mortgages for a wide variety of clients. Over the past few years, regulations like the MMR have raised the bar in terms of borrowers’ requirements, which some predicted would leave many borrowers locked out of the market. This new regulatory regime has made the intermediary channel more important than ever, and brokers are clearly doing a great job of helping people get a foot on the housing ladder.

“House prices have been growing faster than incomes over the past few years, which has challenged affordability. This issue has been particularly acute among first time buyers, which means the fact that just 16% of brokers reported they were unable to source a mortgage for someone in this group over the six months is very positive news. Low mortgage rates have continued to support borrowers’ affordability by reducing monthly payments.”

According to the report, both lenders and brokers alike considered the remortgage market as having the best prospects for growth in 2017, followed by lending to first time buyers.

The remortgage market has grown considerably over the past year, with homeowners looking to tap into growing equity and take advantage of the low rates available to them. According to the latest data from the Council of Mortgage Lenders (CML), homeowner remortgage activity rose by 22% in value (from £5.8 billion to £7.1 billion) and 21% in volume (from 33,200 customers to 40,300) in the 12 months to January 2016.

In terms of mortgage accessibility for the remainder of 2017, lenders viewed borrowing into retirement as the segment of the market with the greatest prospects for growth, with a total of 83% of lenders anticipating that there would be greater availability of mortgage finance to such individuals.

The area of the market chosen to have the greatest increase in availability over 2017 was lending to landlords using a limited company vehicle – in the face of the forthcoming changes to mortgage interest tax relief – with 65% expecting growth potential.

Williams concludes: “The low rate environment is ideal for existing homeowners looking to switch onto a better mortgage deal, and it is no surprise that both lenders and brokers foresee significant increases in this part of the market. While mortgage rates look as though they might have bottomed out, any increases are likely to be minor and will still be conducive to remortgaging activity.

“It is also positive to see that lenders predict greater availability for customers looking to borrow into retirement. This part of the market has been underserved in recent years, and it is vital that this growing demographic has access to the mortgage market.”

Have you seen a change in mortgage accessibility over the past year?

Mortgage Approvals were Down in February, Reports the BBA

Published On: March 27, 2017 at 8:14 am


Categories: Finance News

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The latest high street banking statistics from the British Bankers’ Association (BBA) show that mortgage approvals were down in February.

Mortgage Approvals were Down in February, Reports the BBA

Mortgage Approvals were Down in February, Reports the BBA

However, the figures also show that household borrowing of £13.4 billion in February was 4.6% higher than in the same month last year.

The data found that consumer credit is also growing, at an annual rate of 6.6%.

Gross mortgage borrowing of £13.4 billion in February was 4.6% higher than in the same month last year. After allowing for repayments, February’s net mortgage borrowing was 2.5% higher than in February 2016.

Nonetheless, house purchase approval numbers of 42,613 were 4.6% lower than in February last year and 3.5% lower than in January 2017, but still above the 2016 monthly average of 41,287.

Remortgaging approvals stood at 25,414 in February – much lower than January’s figures and a slight drop on the 2016 average of 25,987.

Other advances were 4.8% higher than a year ago.

The BBA also reports that business borrowing continues to be subdued, growing by just 0.9% annually.

The Managing Director for Retail Banking at the BBA, Eric Leenders, says: “Elevated approval volumes for house purchases and remortgaging experienced during the winter months fell back in February, to average levels seen throughout most of last year. Consumers’ use of credit cards and personal loans reflect last month’s increased spending figures.

“Businesses continue to exercise a cautious approach to borrowing, using cash reserves and alternative lending sources to finance their operations.”

Will mortgage lending continue to decline over the rest of this year, or will it pick up as the property market hits the spring rush?

We will keep you updated on all aspects of the property market at and through our handy monthly newsletter, which you can sign up for free at www.

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Government to Introduce new Anti-Money Laundering Watchdog

Published On: March 16, 2017 at 10:53 am


Categories: Finance News

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The Government is set to introduce a new anti-money laundering watchdog to close loopholes used by criminals, in a wider clampdown on money laundering and terrorist financing.

Government to Introduce new Anti-Money Laundering Watchdog

Government to Introduce new Anti-Money Laundering Watchdog

It plans to launch the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) – a new group that will sit within the Financial Conduct Authority (FCA) – by the start of next year. It comes as the Government moves to introduce new, stricter money laundering regulations that it said would ensure the UK meets the latest global standards.

The aim is for OPBAS to remove the inconsistencies and gaps between the numerous different guidelines that govern anti-money laundering efforts and other measures tackling financial crime.

Alongside HM Revenue & Customs (HMRC), the FCA and the Gambling Commission, there are a further 22 accountancy and legal trade bodies that supervise and issue rules to fight money laundering across various sectors.

The Treasury is worried that the abundance of guidelines has opened loopholes that are being exploited by criminals, an issue it hopes to combat with OPBAS. Ministers have proposed that the new watchdog will have the power to fine supervisors if the new anti-money laundering regulations are breached.

The new watchdog will also seek to simplify the anti-money laundering rules that apply to different industries.

The Economic Secretary to the Treasury, Simon Kirby, says the new regulations and watchdog “will bring the UK’s anti-money laundering regime into line with the latest international standards and ensure consistently high standards of supervision across all sectors, sending a strong message that money laundering and terrorist financing should not and will not be tolerated”.

The Chief Executive of NAEA Propertymark, Mark Hayward, comments on the plans: “It’s good news that the consultation on money laundering has finally appeared. When the legislation comes into force, it’s vital the sector acts to implement the changes.

“The Government has announced that purchasers are now included in the application of customer due diligence, so additional checks will need to be made by sales agents and auctioneers, which will be complicated by the fact that buyers are sometimes at arm’s length and there’s not necessarily a face-to-face relationship.”

He adds: “However, further clarity will be required as to at what point the purchaser becomes a purchaser, and this is an issue we will be seeking guidance on.”

The Government’s consultation is open until 12th April 2017. Get involved here:

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.”