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What’s in Store for Landlords in the Autumn Budget?

Published On: October 15, 2018 at 8:14 am

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It’s now just two weeks until Chancellor Philip Hammond delivers his Autumn Budget. So, what can we expect to be in store for buy-to-let landlords?

Already, we’ve heard from the National Landlords Association and Residential Landlords Association what they want to hear from the Chancellor in this Budget, but what changes might we actually see?

With housing high on the political agenda, Andrew Turner, the Chief Executive of specialist buy-to-let broker Commercial Trust Limited, has assessed some possible announcements:

CGT tax breaks

Rumours are circulating that landlords could receive Capital Gains Tax (CGT) relief if they sell their rental property to a sitting tenant who has lived there for at least three years.

This concept was put forward by think-tank Onward, which indicated that further tax changes could be introduced if the Government follows its recommendations.

However, a shared ownership supporter believes that this would not solve the housing crisis.

Changes to CGT filing

What's in Store for Landlords in the Autumn Budget?

What’s in Store for Landlords in the Autumn Budget?

Draft legislation, which was originally announced three years ago, could be actioned by the Chancellor. This would change the amount of time that landlords and owners of second homes have to pay any CGT liabilities.

Currently, landlords can postpone payments until filing a tax return for that particular tax year, which may mean that nothing is paid for 18 months.

However, Government plans would see liable CGT due within 30 days of any sale.

Stamp Duty increase

In the summer, James Forsyth, the political editor at The Spectator, wrote an article in The Sun suggesting that buy-to-let Stamp Duty, which currently carries a 3% surcharge, could be increased in order to generate further Treasury funds.

Limited company tax changes 

The controversial Section 24 changes to mortgage interest tax relief have had a staggering effect on parts of the buy-to-let sector, with many landlords deciding that it will be more financially advantageous for them to turn their lettings businesses into a limited company structure.

From a Government perspective, Section 24 is, in effect, an attempt to reduce landlords’ tax relief on their finance costs, meaning that the Treasury receives more funding from buy-to-let.

However, the taxation of limited companies is different, and many have taken this step, meaning that the limited company element of buy-to-let has grown.

So-called tax loops, which deny the Treasury finances, are often closed down, so the Government may decide to alter the taxation of limited company buy-to-lets.

Tax breaks for longer tenancies

The Government’s plans to introduce mandatory longer-term tenancies continue to be debated in Parliament. For a year now, it has been suggested that landlords could receive tax breaks as an incentive to offer long-term tenancies.

This has yet to come to fruition, however, with talk gathering momentum, we could get a definite answer from the Chancellor.

Of course, none of these suggestions are set in stone and we wait to hear what the Chancellor will reveal on Monday 29th October. You can stay up to date with the announcements at LandlordNews.co.uk.

Rewarding Landlords who Sell to Tenants is Not the Solution to the Housing Crisis, Argues Shared Ownership Supporter

Published On: October 12, 2018 at 9:53 am

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The Director of a portal for shared ownership properties and mortgages has insisted that the Government should not reward landlords who sell to their tenants, in a bid to solve the housing crisis.

Stephen Dwelley, of Share to Buy, has spoken out in response to a report from think-tank Onward.

He explains his stance: “Following this week’s research from the Institute of Fiscal Studies, which shows that house prices have increased by 173% over the past two decades, think-tank Onward has suggested that the Government should reward landlords for selling properties to long-term tenants, to help young people onto the housing ladder.

“However, with recent rents continuing to rise to unprecedented levels, particularly in the capital, such a move is likely to further reduce stock of quality rental properties, putting additional upward pressure on rents. This would ultimately make saving for a deposit even more of a challenge for Britain’s under-35s.”

Dwelley believes: “The only genuine, long-term solution to the UK’s housing crisis is to dramatically increase housing output, with a specific focus on homes built for affordable homeownership – such as shared ownership and London Living Rent, backed by the Mayor of London.

“The median household income of London-based shared ownership registrants on Share to Buy is £42,000 – almost 40% less than the average first time buyer in the capital. Minimum deposits for shared ownership homes in London average at just £6,335.97 for a one-bed, or £8,390.60 for a three-bedroom home – making this perhaps the only affordable route onto the housing ladder.”

Nevertheless, his idea faces difficulties: “However, in the current market, the UK’s affordable homeownership providers face dwindling funding to deliver truly affordable homes in sought after areas across the country and, as a result, demand for shared ownership homes undoubtedly outstrips supply.

“In the up-coming Autumn Budget, we would implore the Government to prioritise alternative homeownership schemes, helping to safe-guard the future of would-be first time buyers in the UK.”

We have already received the National Landlords Association’s and Residential Landlords Association’s expectations from the Chancellor for this month’s Autumn Budget.

Nearly Half of Buy-to-Let Investors are Pension Pot Landlords

Published On: October 12, 2018 at 9:28 am

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Nearly half of buy-to-let investors in the UK are so-called pension pot landlords, according to the latest report from Your Move.

The estate agency network’s latest Landlord Survey defines pension pot landlords as those who are over the age of 45 and view their portfolio as a long-term retirement investment.

Over four in ten property owners in the buy-to-let sector class themselves as pension pot landlords, with almost a quarter (23%) of this group having been investors for 15 years or more.

Your Move surveyed 1,071 landlords to learn more about their portfolios, behaviours, and attitudes towards tenants, letting agents and the lettings sector.

Accidental landlords – those who were not planning on becoming landlords – were the second most common type of investor (29%), followed closely by professional landlords (20%).

The survey found that accidental landlords are most likely female and under the age of 45, who are often thrust into the market through inheritance or changes in their personal circumstances.

Professional landlords, on the other hand, tend to be male, over 45-years-old and consider being a landlord as a job or career.

The findings also show that pension pot landlords are more likely than the other groups to live close to their rental properties, with 41% living within 1.5 miles.

Furthermore, nearly three in ten (29%) pension pot landlords see their properties as a business, with over half (53%) investing in more than one property.

However, even though these landlords may be more investment minded, Your Move revealed that pension pot landlords are also more likely than the other groups to build a personal rapport with their tenants and want tenants who will protect their investment.

In fact, 18% said that they like to meet or talk to new tenants before signing a contract, which was the highest proportion of any group. More than half (53%) also felt that it was important that tenants view the property as their own home.

Martyn Alderton, the National Lettings Director of Your Move, comments on the findings: “Our research suggests that the private rental sector is still seen to offer significant opportunities, providing many landlords with a source of income and funding into retirement. It’s also clear that pension pot landlords are keen to build a personal rapport with tenants who will look after their investment.

“As an industry, it’s increasingly important that we continue to support these ties, providing long-term benefits to tenants looking for a property to call their home and also for landlords looking for ways to fund their retirement.”

The UK’s Top Buy-to-Let Hotspot has been Revealed

Published On: October 12, 2018 at 8:15 am

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Mortgage broker Private Finance has revealed which town or city takes the crown as the UK’s top buy-to-let hotspot in October…

New analysis by the broker has named Southend-on-Sea as the UK’s top buy-to-let hotspot, offering an average rental yield of 6.6% once mortgage costs are taken into account.

With an average annual rental income of £23,280, landlords in Southend-on-Sea enjoy a lucrative return for a relatively small upfront investment, with house prices in the area only slightly higher than the national average (£279,358, compared to £231,000).

While a seaside town takes the UK’s top buy-to-let hotspot, UK cities dominate the rest of the top ten. Nottingham came in in second place, while Edinburgh, Greater Manchester, Liverpool, and the London boroughs of Westminster, Tower Hamlets and Camden all enjoy some of the UK’s highest net yields. Home to significant populations of university students and young professionals, these urban locations have high tenant demand, which helps to bolster rent prices.

The UK’s top buy-to-let hotspot

Location Average house price Average monthly rent price Average rental yield
Southend-on-Sea £279,358 £1,940 6.6%
Nottingham £137,835 £928 6.4%
Westminster £970,990 £5,554 5.1%
Edinburgh £254,170 £1,410 4.9%
Greater Manchester £167,928 £911 4.8%
Liverpool £136,521 £725 4.6%
Tower Hamlets £473,327 £2,447 4.5%
Camden £810,708 £4,178 4.5%
Coventry £185,990 £952 4.4%
Southampton £212,155 £1,045 4.2%

Shaun Church, the Director of Private Finance, comments on the report: “Southend is a popular spot for renters, with all the benefits of living in a popular seaside town less than an hour’s commute from central London, and with good airport connections.

“With the high cost of renting pricing many out of the city, towns in a commutable distance from London that offer a more relaxed lifestyle at an affordable price are becoming increasingly popular among young professionals. Rental demand is likely to grow in these pockets outside of London, offering good opportunities for buy-to-let investors.”

House prices as influential as rental income 

The UK's Top Buy-to-Let Hotspot has been Revealed

The UK’s Top Buy-to-Let Hotspot has been Revealed

The analysis, which calculates rental yields in the 50 UK towns and cities with the highest proportion of private rental housing stock, highlights that house prices and mortgage costs can be just as influential as rental income when assessing the best locations to invest in.

While four out of ten areas with the highest rental yields also have some of the highest house prices (Westminster, Camden, Tower Hamlets and Southend-on-Sea), an equal number of areas with the lowest house prices also feature in the top ten list.

Liverpool, Nottingham, Greater Manchester and Coventry all feature in the top ten and benefit from some of the lowest house prices in the UK, suggesting that buy-to-let investors should not only consider potential rental income when assessing where to invest.

This is also encouraging news for hopeful investors with smaller sums to invest with, demonstrating that you don’t need to spend millions to secure a lucrative property investment.

Buy-to-let mortgage rates at near record lows

While landlords have been hit by a raft of tax changes, including higher rates of Stamp Duty and restricted mortgage interest tax relief, buy-to-let mortgage rates have been gradually falling, with lenders introducing lower rates in a bid to galvanise the market.

Bank of England data shows that the average buy-to-let mortgage rate in September (2.31%) was close to its most affordable level (2.27% in August 2018) since the statistics were first published in 2012. This helps to improve the profitability of buy-to-let investments across the UK.

Based on a 75% loan-to-value mortgage against the average UK house price, landlords’ typical interest-only repayments have dropped by 54% since 2012, from £733 per month to £334, meaning that those who have remortgaged onto today’s competitive rates could be set to enjoy an annual saving of £4,788 compared to six years ago.

Church continues: “While recent Stamp Duty changes in the sector may have dampened landlords’ appetite, our analysis shows buy-to-let still remains a viable and lucrative investment. Strong rental incomes, matched with declining mortgage costs, mean that landlords can still enjoy a level of return on their investment they’d be hard pressed to find elsewhere.

“When considering a buy-to-let investment, location is often the most important factor determining the yields investors enjoy. While investors may be wooed by the prospect of strong rental income, house prices can be just as influential in determining rental yield. Looking for areas with opportunities for house price growth can also provide landlords with the added benefit of a profit from the eventual sale of their property, in addition to a regular monthly rental income.”

He concludes: “Whether it’s through a limited company or a personal purchase, there are a number of ways to buy a buy-to-let property, all of which have varying financial implications, such as tax. There’s no one-size-fits-all approach to purchasing buy-to-let. Enlisting the advice of an independent mortgage broker will help ensure your investment is as profitable as possible.”

HMO Regulation Changes Present an Opportunity for Brokers

Published On: October 11, 2018 at 10:36 am

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By Andy Virgo, Business Development Manager, LendInvest

One of the reasons that Houses in Multiple Occupation (HMOs) have become increasingly popular among property investors in recent years has been that they offer outstanding yields.

According to the Mortgages for Business complex buy-to-let index, in the second quarter of 2018, the typical HMO was delivering a yield of 8.6%. That’s phenomenal when you consider vanilla buy-to-let was found to return an average of 5.5%. HMO was also well ahead of multi-unit freehold blocks (7.5%) and semi-commercial property (7.8%) (https://issuu.com/mortgagesforbusiness/docs/mortgages_for_business_buy_to_let_m?e=32682678/63373382).

However, there are new challenges ahead for landlords looking to invest in HMOs, and so it is crucial that intermediaries are well informed about what incoming regulations mean for their clients, old and new.

Extending licensing

One of the big changes surrounds the licensing of HMO properties.

Previously, a licence was mandatory when the property was occupied by five or more individuals – who are not all related to each other – and the property had at least three storeys. Local authorities could stipulate that specific areas require some form of licencing that didn’t meet those criteria.

However, from 1st October, far more HMO properties are subject to mandatory licencing. The minimum property size has been removed, which means that any HMO property that has five or more occupants must have a licence.

HMO Regulation Changes Present an Opportunity for Brokers

HMO Regulation Changes Present an Opportunity for Brokers

This obviously means far more landlords will have to have a licence in place than was previously the case. What’s more, the licence must have been applied for before 1st October in order for the property to continue being rented out legally.

Minimum room sizes

The other big development from the new HMO regulations covers the minimum sizes of bedrooms within the property.

The minimum sizes that apply are:

  • 4.64㎡ for any room in which one child under the age of ten sleeps
  • 6.51㎡ for any room in which one person over the age of ten sleeps
  • 10.22㎡ for any room in which two people over the age of ten sleep

Any rooms smaller than 4.64㎡ will not be allowed to be used for bedrooms, while landlords will have to inform the local housing authority of any room within the HMO which has a floor area smaller than that.

On top of this, local housing authorities will be tasked with installing conditions over the maximum number of people who can occupy specified bedrooms within the HMO.

Why the new HMO regulations should be welcomed

From my perspective, these new regulations are a positive. There is no doubt that the changes the Government has made to the buy-to-let sector in recent years – and there have been plenty of them – have been aimed at increasing the level of professionalism within the rental market, and these new rules are just the latest example of that.

HMOs can have something of a mixed reputation among tenants, and that’s really down to some of the less scrupulous investors who see the sector as a chance to make a quick buck.

But the true professionals, who invest in HMOs for the right reasons, want to provide their tenants with quality accommodation, somewhere they can be proud to call their home.

Increasing the oversight of landlords, and ensuring that bedrooms are only ever of a decent size, is a good way to improve the reputation of HMOs and ensure that landlords deliver a more positive experience.

As a lender that has only ever dealt with professional property investors, rather than dinner party landlords for whom property is a bit of a sideline, any move to improve the lot of professional investors is welcome.

Changes represent an opportunity

All good brokers know that there is far more to the relationship they have with their clients than simply sorting out a good loan. Brokers add value to their clients in all sorts of ways, perhaps more so in buy-to-let than any other area of the market.

As such, these HMO changes should be seen as a real opportunity for intermediaries to continue the dialogue with their landlord clients, to ensure that they are not only aware of the incoming changes, but prepared for them, too.

There will inevitably be some clients who are not up to speed on the new requirements, so, by raising awareness, you can further strengthen that relationship.

Liverpool is Setting an Example for other UK Cities

Published On: October 11, 2018 at 9:34 am

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Liverpool has just hit the headlines for leading the UK’s cities in terms of its house price growth. The Hometrack UK Cities House Price Index reported 7.5% inflation in Liverpool during the year to August 2018. For those working in the Liverpool property sector, the news comes as no surprise.

Jonathan Stephens, MD, Surrenden Invest, commented:”Liverpool has exceptionally strong credentials as a property investment destination. It has a booming city centre population, a thriving business community and a superb cultural offering. This combines to produce a high and sustained level of demand for decent, well-located rental homes, which in turn means that property investors can earn healthy yields, as well as enjoying the potential for impressive capital growth.”

“Liverpool is one of those rare cities that has it all. It’s a delightful blend of economic opportunities, cultural pursuits, a superb gastronomic scene, a lively sporting offering and a thriving property market. The city also enjoys property prices that are well below the average for the UK, which is another reason that it is such an exciting prospect for property investors.”

“This is definitely an exciting phase in Liverpool’s history. The city is one of the most investable destinations not just in the UK, but in the world. The resulting boom in population is generating a long-term, positive impact on the property market. I wouldn’t be surprised to see Liverpool leading the UK again in terms of its property price increases over the coming months.”

As part of the Liverpool-Manchester metropolitan area, the city was recently flagged up by IBM’s annual Global Location Trends report as being among the top ten cities in the world for foreign direct investment (FDI). The area pulled in the tenth highest number of FDI projects in 2017, according to the report, resulting in the creation of some 7,000 jobs.

Earlier this year, TripAdvisor also highlighted Liverpool as one of the best places in the world to visit. The city’s cultural offering was key to that decision. This year, it is offering a year-long programme of events, exhibitions, seasons and performances to mark the ten-year anniversary of Liverpool being crowned European Capital of Culture. One of the most impressive offerings is the Terracotta Warriors exhibition, which is drawing in visitors from around the UK and beyond.