Posts with tag: investing in buy to let

Is the Buy-to-Let Boom Coming to an End?

Published On: July 13, 2015 at 2:07 pm

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George Osborne announced last week that higher rate tax relief on buy-to-let mortgage interest repayments will be abolished. This could cost some amateur landlords thousands of pounds per year.

This could stop potential investors buying a rental property and even force existing landlords to sell their property and seek other investment options.

So is this the end of the buy-to-let boom?

Since the first buy-to-let mortgage was introduced in 1996, property investment has beaten almost every other investment, as investors have benefitted from not only rental income, but also capital growth from increasing property prices.

They also received income tax relief of up to 45% on their mortgage interest payments, which is unavailable to residential homeowners.

Some have said that this gives investors an unfair advantage over first time buyers, which has pushed them off the property ladder.

In the first quarter (Q1) of this year, buy-to-let lending rose by around 20%, while lending to homeowners increased by only 1.6%, says Equifax Touchstone.

Research Analyst at DTZ, David Ramsden, comments: “There has been a growing trend of first time buyers being gazumped by buy-to-let landlords in much stronger financial positions.”1 

Osborne’s plan to cut the maximum buy-to-let tax relief to 20% from 2017 onwards is aimed at being fair to both landlords and first time buyers. It could also raise £665m for the Treasury in the 2020-21 tax year.

Founder of online estate agent eMoov, Russell Quirk, says that it is a bad decision for landlords: “Based on average rent, they could be up to £2,000 worse off each year.”1

Is the Buy-to-Let Boom Coming to an End?

Is the Buy-to-Let Boom Coming to an End?

Osborne has also abolished the automatic right for landlords to claim 10% of rent received on furnished properties against wear and tear costs. From April 2016, they will only be able to deduct costs that they actually incur and must supply receipts.

Older investors who bought a small number of properties to support their pension will consider this particularly unfair.

Partner at chartered accountants Blick Rothenberg, Genevieve Moore, says that the announcements in the Budget will affect ordinary workers who have saved and invested in property to boost their income.

She believes that many will leave the buy-to-let sector: “We could see a flood of buy-to-lets being sold as the squeezed middle bows out of the rental market.”1

Head of Lending at the Mortgage Advice Bureau (MAB), Brian Murphy, thinks that buy-to-let investors are being unfairly blamed for the housing crisis: “This can be remedied only be a large programme of house building.”1

Recently, the Bank of England (BoE) released its Financial Stability Report, which warned that buy-to-let is a threat as borrowers invest too much and could be forced to sell if the economy takes a downturn, which would worsen house price declines.

Others believe that buy-to-let and the property market generally will survive.

UK Head of Real Estate at EY accountants, Russell Gardner, says that reducing tax relief will only affect landlords who are in the higher rate income tax bracket: “This may marginally dampen down buy-to-let as an investment proposition for the middle classes over time, but we doubt people will sell.

“Despite the changes, buy-to-let still remains quite an attractive part of a broader investment portfolio.”1

Chief Executive at The Share Centre, Richard Stone, claims that mortgage interest tax relief has twisted investor priorities: “Many will now take a second look at other investments, such as stocks and shares.”1 

However, recent market instability will affect the appeal of equities. Chief Executive of LMS, Andy Knee, says that first time buyers have been driven out of the property market by competition from tax-subsidised landlords and should therefore welcome the changes.

He states: “They may now find securing their chosen property a little easier as a consequence.”1

Other critics believe it could be bad news for Britain’s 8.5m private tenants.

Chief Executive of MyOnlineEstateAgent.com, David Grundy, cautions that landlords could increase their rents in an attempt to recover their losses, especially those of furnished properties, while a reduction in supply would have the same effect.

He says: “Increased rents will be a major set back for tenants who are trying to save for a deposit in order to get onto the property ladder.”1

However, landlords may find the changes less damaging than initially thought.

Spokesperson for specialist lender Kensington, Alex Hammond, thinks: “Landlords should not be investing simply for the tax relief. Buy-to-let has been a massive success and should remain so.”1

The tax relief changes will be phased in gradually until they are at the basic rate in 2020-21; landlords have many years to adapt.

Furthermore, there may be a way around the changes, as they only apply to individual investors, not companies.

Head of Property Specialists Assetz For Investors, Stuart Law, says landlords can invest through a limited company instead.

In doing so, they will benefit from forthcoming cuts in corporation tax, also announced in the Budget.

Law states: “Bricks and mortar will still be seen as one of the safest and most profitable investments for years to come.”1

1 http://www.express.co.uk/finance/city/590497/Death-buy-to-let-boom-years-George-Osborne-budget

 

 

 

 

Ten Tips to Becoming a Buy-to-Let Landlord

Published On: June 24, 2015 at 3:27 pm

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The buy-to-let market is booming, but as with any investment, you should always ensure it is going to work for you.

The following tips and advice could help you determine if buying and renting out a property is the best direction for your savings:

  1. Research the market

Investors should be aware of the risks as well as the benefits. Buy-to-let involves tens of thousands of pounds and usually a mortgage.

If property prices increase, you could make high gains above your mortgage debt, but if they drop, your deposit is reduced and your mortgage will stay the same.

Many people have received big gains from buying to let, but you should understand the potential disadvantages as well as the perks.

If you know someone who has already invested in property, you could ask them about their experiences – the more knowledge and research the better.

  1. Choose the best location

When considering the right place to buy, think about whether it is an area that people would like to live in.

Certain parts of towns or cities can be specifically appealing. Also look at transport links if you’re investing in the commuter belt. To rent to families, consider good schools nearby. And don’t forget that students will want to live near their university and close to social spots.

Additionally, the type of property you buy needs to suit the area you’re investing in.

Usually, property investors buy a rental home in the area that they live in, as they know the market better. This can be positive, as you are more likely to know which properties will work. You can also be close enough to keep an eye on your investment.

However, if you are a homeowner, you already have an investment in your local housing market and so choosing another area or property type will leave you less exposed to future market changes.

  1. Make sure your numbers add up

Make a note of the price you would like to pay for a property and the rent you are likely to receive. Buy-to-let lenders often like rent to cover 125% of the mortgage interest repayments. They also generally require a 25% – or more- deposit.

The best buy-to-let rates often have high arrangement fees and even the good deals are more expensive than residential mortgages.

Also remember to factor in maintenance costs and void periods.

Find out how much your mortgage payments will be and if you choose a tracker mortgage, budget for any rate rises.

  1. Look around for better deals

It’s never wise to go into just one mortgage provider and ask for a deal. Also remember that many high street lenders don’t offer buy-to-let products.

Ten Tips to Becoming a Buy-to-Let Landlord

Ten Tips to Becoming a Buy-to-Let Landlord

Speak to a leading independent broker who can talk you through all the available deals and help you decide which is right for you and whether to get a fixed-rate or tracker.

  1. Consider your target tenant

Instead of wondering if your investment property would suit you, consider the tenant you are targeting. Work out what lifestyle they have and what kind of home they want.

If you’re renting to students, they will want somewhere easy and comfortable, but not luxurious. Young professionals would prefer somewhere more stylish and modern. Families typically have their own belongings and therefore would like a simple home that they can easily move their things into.

It may be a good idea to allow your tenants to make their mark on the property, as this will make them feel more at home and likely to stay longer.

  1. Focus on your returns

Experts advise landlords to invest for income not short-term capital growth. You should look at different properties’ yields to compare value. This is the annual rent received as a percentage of the purchase price. For example, a home making £10,000 in rent per year that cost £200,000 has a 5% yield.

Most buy-to-let mortgages are interest-only, meaning that you will not pay off the amount borrowed over time. This is good news, as it means you can offset mortgage payments against tax.

If you can make a rental return that is significantly higher than your mortgage payments, you can build up an emergency fund and then save or invest any extra monies.

Remember that your return goes towards running costs, maintenance and letting agent fees. Calculate whether buy-to-let is still better than other investment options.

Once the mortgage, tax and other expenses are considered, the rent should add up over time so that you can invest elsewhere or pay off the mortgage at the end of its term. This means that you will have benefited from the rental income, paid off your loan and hold the home’s full capital value.

  1. Search for potential

Although buying close to home can be a good idea, your area may not offer the best investment opportunities.

Transport links, good schools and universities will always attract renters. Property wise, a house that needs improvement could be negotiated on and could therefore have a lower asking price.

  1. Negotiate

Buy-to-let investors have the same advantage as first time buyers; they are not in a chain and are less of a risk for vendors. This can help when negotiating a discount on price.

Make low offers and don’t overpay. Understand the market before going into a sale and if possible, find out why the vendor is selling and how long they have owned the property.

  1. Know the downsides

Don’t invest without being aware of the pitfalls. Property prices are increasing, but growth has slowed and they could start to drop.

If house prices fall, will you be able to carry on holding your asset?

Mortgage rates are very low at present and this is pulling people into the market, as rental income is comfortably covering mortgage payments. But what if they start to rise again?

Properties often need repairing and there are many things that can go wrong. If you don’t have enough money to cover maintenance, then you should hold off investing.

  1. Visit regularly

Landlords should visit their rental property every six months for an inspection, giving tenants a week or two notice. It is important to look after the tenants, as this will avoid you getting void periods. If the tenants do decide to leave, they might recommend you/your property to someone else.

Ensure the home is a nice place to live and form a good rapport with the renters.

Most Assured Shorthold Tenancies (AST) are for six months and then come up for review. This allows you to build a relationship and keep an eye on the tenants and your property.

 

 

 

 

Buy-to-Let Could see Boost from Pension Changes

Published On: January 9, 2015 at 3:33 pm

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Regulation changes to pensions could drive a boost in the buy-to-let sector, as so-called silver landlords look to invest in the market.

Direct Line for Business (DL4B) have conducted research revealing that 32% of people aged 45-64 with a pension would consider using some or all of their pension to buy a buy-to-let home as an alternative investment.1

Buy-to-Let Could see Boost from Pension Changes

Buy-to-Let Could see Boost from Pension Changes

The amount of silver landlords could rise substantially after the pension regulation changes come into force from April 2015, meaning that those reaching retirement and pensioners can access as much or as little of their pensions as possible.

As property prices and rents rise, buy-to-let is becoming an appealing option for many, says letting expert Kate Faulkner, who claims that strong returns can be seen over 15 to 20 years.

Faulkner says: “Given the recent pension liberation announcement, for some it could be good to diversify their investments when approaching retirement, but landlords need to seek financial, or expert advice and ensure they understand the returns that property can deliver and especially the tax implications.”1

Buy-to-let can provide a regular income, and also offer the opportunity for capital appreciation. Research indicates that 43% of would-be silver landlords would consider this option based on the regular income provided.1

23% aspiring investors are attracted to the supposed security of buy-to-let, 17% by the anticipated capital appreciation, and 9% would like to leave an inheritance for their children.1

Those nearing retirement predicated the high returns possible for landlords at an average of 10%-14%.1

Jazz Gakhal, Head of DL4B says: “Buy-to-let can be a flexible investment, providing an immediate source of income as well as being a long-term asset. As such, it is understandable that people approaching retirement age are considering investing their pension pots in property.

“However, prospective landlords should understand that buy-to-let does not come without financial risk. Legal expenses for repossessions and potential damage to property are but just a few of the costs that can take significant chunks out of landlords’ annual yield.

“Taking the necessary precautions such as carrying out full reference checks on prospective tenants, inspecting your rental property regularly, and taking out landlord insurance can help to minimise some of the risks faced by landlords.”1

1 http://www.landlordexpert.co.uk/2015/01/09/uk-buy-to-let-could-get-a-boost-from-new-pension-changes/

 

 

 

Becoming a First Time Buy-to-Let Buyer

Published On: April 18, 2014 at 3:53 pm

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With buy-to-let investment continuing to boom, the demand and availability of buy-to-let mortgage options has followed suit. Buy-to-let investment is currently at its highest rate since before the recession.

First time buy-to-let investors

As a result, a number of first time buy-to-let investors are opting to join the market. Understandably, there are many dangerous attributed to this, therefore it is important to consider the following guidelines: 

  • Make sure the risks are fully understood

First time buy-to-let landlords must make sure that they are aware of the risks as well as the benefits. Deposit money could well be tied up for a considerable amount of time and for many, investing could use up all of their savings. With most lenders offering a maximum 75-80% of the price of the property by way of loan, investors will have to ensure they can afford the rest of the deposit.

  • Check that a mortgage can be obtained
Becoming a First Time Buy-to-Let Buyer

Becoming a First Time Buy-to-Let Buyer

 

Due to changes in the market, very few lenders are prepared to have first time buyers as landlords. This is due to the fact that many people have tried to gain this type of mortgage after failing standard affordability tests. It is advisable that first time buy-to-let buyers contact a mortgage broker to discuss and learn from their knowledge of the market.

  • Research the area

When selecting the area in which they wish to rent, first time buyers should always research the demand in close proximity. They should ask themselves questions, such as: Are there already a number of unoccupied rental properties in the area? Are there sufficient transport links? Is the area well populated with schools, shops, etc?

  • Work out the set-up costs

There are a number of costs that potential owners of a property must consider. Legal fees, mortgage application fees, and survey costs are just some of the expenses that will have to be budgeted for. In addition, gas and safety checks, repairs and redecoration will also have to be factored in. 

  • Type of tenant

Landlords should be clear what type of tenant they want to live in their property. They should think about whether they want to rent to families, or if they would be comfortable renting to people such as students. Groups such as students notoriously bring extra problems, so the investors should think very carefully.

  • Managing the property

When investing in a property, first time buyers should make sure that they are fully comfortable on how the property will be managed. Self-managing buyers will need to perform duties such as finding tenants, checking their backgrounds, and drawing up contracts.

Letting agents will be able to perform these duties on behalf of the buyers, but for a fee of around 8-15% of the total rent. First time buy-to-let investors should research their agents thoroughly and should only use agents fully accredited with organisations such as the National Landlords Association (NLA) or Association of Residential Letting Agents (ARLA).

  • Seek advice

Most importantly, buy-to-let first time buyers must seek professional mortgage and letting advice before they contemplate signing up for a property.

Landlords Think Now is a Good Time to Invest

Published On: September 5, 2012 at 2:22 pm

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Recent figures collated from existing landlords suggest that now could be a good time to invest in the buy-to-let market.

Invest

The survey suggests that around half of landlords feel that it is a profitable time to invest, with only 1% believing that they should cut the size of their property portfolio.

Similarly, the survey suggested that around 40% of landlords questioned thought that they would raise rents in the coming year.

Landlords Think Now is a Good Time to Invest

Landlords Think Now is a Good Time to Invest

Revival

Responding to the Council of Mortgage Lenders’ announcement that lending in the buy-to-let market had risen by 5% in the last quarter, one property investment specialist was not surprised. Co-founder of Kingsbridge and Carter Oliver Barber thinks: “Buy-to-let investors will see a gradual profit revival in the years ahead, with regional cities such as Leeds, Manchester and Birmingham offering better returns than London.”[1]

Barber likens the anticipated revival to a “bull market”, suggesting that the rise will last for around fourteen years. He goes on to say: “Those investing in the market now are likely to make the best returns over time.”[1]

Short-term pains

Jeremy Raj, partner at law firm Wedlake Ball, disagrees with Barber and believes that more should be done to change the short-term rental market. Raj believes that short-term tenancies “deter developers and means instability for tenants who are not just young, single people but increasingly families wanting and needing more security.”[1]

He goes on: “Rental price volatility and lack of guaranteed income, something the current British rental system encourages, hardly fosters enthusiasm.”[1]

Raj also attacks previous Governments, arguing: “The 1988 Housing Act effectively signalled the end of long-term, Rent Aid protected tenancies and introduced the Assured Shorthold Tenancy.”[1]

[1] http://www.landlordexpert.co.uk/2012/09/05/half-of-uk-landlords-think-now-is-a-good-time-to-invest-in-more-buy-to-let-properties/