Written By Em

Em Morley

Stamp Duty Relief for First-Time Buyers Costing Government more than Expected

Published On: March 15, 2018 at 10:41 am

In Chancellor Philip Hammond’s Spring Statement, he shared forecasts for economic growth, and discussed the effect of the Stamp Duty cut so far on the Treasury.

The removal of Stamp Duty for first-time buyers has brought relief and encouragement to many looking to get on the property ladder. It has affected around 60,000 first-time buyers, making the process of purchasing their first house that much more financially obtainable.

However, research from the Officer for Budget Responsibility (OBR) also came to light at the same time as Hammond’s statement, drawing attention to the fact that this repeal has cost the Government more than they originally anticipated.

Nimesh Shah, partner at accounting, tax and advisory practise Blick Rothernberg, has commented: “Based on the Chancellor’s claim, the first-time buyer relief has cost the Treasury up to £300m in just under four months since its introduction. At the current run-rate, it will cost the Treasury close to £1bn in the first year.”

When taking into account that this was money the Government previously expected and made use of, this amounts to a substantial sum for them to miss out on.

Looking forwards, the OBR has calculated that the costs will come to £125m within the last few months of the 2017-18 financial year, £560m in 2018-19 and up to £670m in 2022-23.

It could be said that more information is required on Hammond’s part, in relation to the effects of the relief in different regions.

Sam Mitchell, CEO of HouseSimple and former head of lettings at Rightmove, has said: “It would be interesting to see how many of those 60,000 plus first-time buyers, who have benefited from Stamp Duty relief, bought in London.

“Also, the Chancellor didn’t go into detail about the average amount saved by first-time buyers. For many who have bought in areas where house prices are well below the UK average, the Stamp Duty savings are likely to be so small as to be meaningless.”

As beneficial as it has been for many so far, it is understandable that those who live in regions with a higher average of house prices, such as London, are still facing other hurdles. It can be difficult to save a substantial deposit for a house where prices are high, whilst also stretching your pay to cover rent, utility bills, and other general living expenses. It is worth considering making the most of other Government schemes available to those looking to move, such as Help-to-Buy ISAs for first-time buyers.

January 2018 Sees Increase in Remortgage Applications

Published On: March 15, 2018 at 9:39 am

Author: Em Morley

Categories: Finance News

The beginning of 2018 has brought about a nine-year high of remortgage applications, according to UK Finance’s latest update on mortgage trends.

As well as this increase, we are also seeing a higher number of first-time buyers and home moves, compared to last year at this time.

In January alone, there were 49,800 new homeowner remortgages. This is most likely a reaction to recent speculation of interest rate rises, with homeowners at the end of their fixed term and looking to lock into another that’s similar or better. Looking at monthly figures, UK Finance has revealed that this is the highest monthly number of remortgages since November 2008, which resulted in a figure of 51,300. Overall, it was 19.1% higher then January 2017. When looking at the monetary figures, the £8.9bn that came from remortgaging in January 2018 was 20.3% more year-on-year.

Jackie Bennett, Director of Mortgages at UK Finance, has said: “While an increase in remortgaging is expected in the New Year as people put their household finances in order, this strong growth is above the seasonal fluctuations we tend to see at this time of year.”

First-time buyer mortgages have also risen this January, compared to last year, seeing a 7% increase. Again, financially there has been a higher yield, with the £4bn of new lending providing an 11.1% increase year-on-year. UK Finance’s update has also revealed that the average age of first-time buyers is 30, with a gross household income of £41,000.

Shaun Church, Director at Mortgage broker Private Finance, has commented: “The first-time buyer market is continuing to flourish. Government initiatives such as Help to Buy and Stamp Duty cuts are clearly starting to bear fruit, and with Theresa May’s pledge last week to galvanise housebuilders into building more homes, it would appear that the prospects of first-time buyers are finally and firmly on the up.”

January 2018 Sees Increase in Mortgage Applications

Looking at the mortgages taken out by home movers, January saw 25,000 completed. Again this was more than in the same month last year, seeing a 6.4% increase. Financially, there has been a 10.2% increase, with £5.4bn of new lending. The age of those moving from one home to another is at an average of 39 years, with a gross household income of £55,000.Although there is a temptation to lock into a mortgage or remortgage before the rates rise again, there are always other factors to consider. We feel it’s worth thinking about other fees that can accompany these deals. You may find extras such as arrangement fees and early repayment charges, which do not apply to every mortgage, so working out the overall cost of going with a specific lender can save you some money.

Ishaan Malhi, CEO and founder of online mortgage broker Trussle, has shared their view: “Borrowers must look beyond the interest rate… and instead focus on the deal’s true cost, which includes fees and incentives. The lowest-rate deals on the market aren’t always as competitive as they may first seem. Talking to a broker is one way to ensure you’re choosing the right deal.”

Overall, the increase year-on-year of these figures looks promising. Despite rising house prices in some regions, and the increase of interest rates, January has shown a strong start to the year for those buying properties. If it is to be believed that these figures reflect panic caused by rising interest rates, then this trend could continue for 2018. With each increase, some might feel eager to lock into a fixed term mortgage in order to avoid future rises. First-time buyers might therefore feel under pressure to find themselves a property as soon as possible.

Simon Heawood, CEO of Bricklane.com has said: “We would like to see more support for Generation Rent to save enough to build up a deposit and get on the first rung of the property ladder, so that this encouraging trend upwards is made sustainable, The government and industry must look at innovative ways to helping first-time buyers save up for their first home deposit.”

As long as support such as Help-to-Buy ISAs, and the removal of Stamp Duty on houses under £300,000 for first-time buyers continues, then the opportunity is there. We look forward to seeing how this support develops in the future.

Property Insiders React to Chancellor’s Spring Statement 2018

Published On: March 14, 2018 at 9:08 am

Author: Em Morley

Categories: Property News

Following Chancellor Philip Hammond’s Spring Statement 2018 yesterday, property insiders have offered their thoughts on the announcement.

The Chancellor unveiled upgraded projections for growth, and predicted falling inflation, debt and borrowing in his Spring Statement 2018.

He claimed that the UK economy had reached a turning point and there was “light at the end of the tunnel”. He also ruled out an immediate end to austerity, but hinted at possible spending rises in the future.

The Labour Party accused Hammond of “astounding complacency” in the face of the worst ever public sector funding crisis.

The Chancellor told the House of Commons in his 26-minute statement that growth was forecast at 1.4% this year – 0.1% higher than predicted by the Office for Budget Responsibility in November, with the expectation for 2019 and 2020 unchanged, at 1.3%.

In this year’s Spring Statement, Hammond also said that debt would fall as a share of GDP from 2018-19, which would be the start of “the first sustained fall in debt for 17 years, a turning point in the nation’s recovery from the financial crisis of a decade ago”.

The Chancellor resisted calls from Labour and some Conservatives to use the extra cash from an unexpected boost in tax receipts to ease the spending squeeze.

However, he hinted at possible spending increases to come, in his Autumn Budget, when he will “set an overall path for public spending for 2020 and beyond”, with a detailed spending review in 2019.

Hammond also unveiled a series of consultations on future policies:

A reduction in tax for the least polluting vans, to “help the great British white van driver go green”
A possible tax on single use plastic
A new VAT collection mechanism for online sales, to ensure that the VAT that consumers pay “actually reaches the Treasury”
How online platforms can help their users to pay the right amount of tax
A call for evidence “on whether the use of non-agricultural red diesel tax relief contributes to poor air quality in urban areas”
Inviting cities across England to bid for a share of £840m to deliver on “local transport priorities”
A plan to make the least productive businesses learn from the most productive
Measures to end late payments for firms
The future of cash and digital payments

In a break with recent tradition, the Chancellor did not use the Spring Statement 2018 to present a mini-Budget or pre-Budget report.

However, Hammond did announce that London would receive an additional £1.7 billion to deliver 26,000 affordable homes, including properties for social rent, taking the total number to more than 116,000 by the end of 2021/22.

Property Insiders React to Chancellor’s Spring Statement 2018

Comments

In response to different aspects of the Spring Statement 2018, we have various comments from property insiders.

Neil Cobbold, the Chief Operating Officer of PayProp in the UK, responds to the lack of housing issues/funding raised by Hammond: “Due to the shift to annual Treasury reporting, the Spring Statement was not as in-depth or wide-ranging as an annual Budget. That said, relatively few housing measures and spending plans made it into the Chancellor’s statement.

“The Government has consistently promoted its commitment to fixing the UK’s broken housing market, so we expected more updates to this effect.

“Some of the housing measures yet to be addressed or finalised include the ban on letting agent fees, the proposed extension to mandatory HMO landlord licensing and additional regulation of the private rental sector.”

On the Government’s continued efforts to fix the broken housing market, Cobbold gives his thoughts: “The Government is clearly committed to addressing the UK’s ongoing housing problems. Increasing the supply of available homes to buy is a key strategy and one that could have obvious positive outcomes in the future.

“However, one issue that is potentially being overlooked is affordable housing in the private rental sector. Private tenants now account for a fifth of all households and the latest annual English Housing Survey shows that renting is now the largest housing tenure in London.

“It could, therefore, be beneficial to move away from the notion that everyone wants to buy a home, embrace the rental revolution and work out how to provide more high-quality, affordable rental housing.”

He also looks at the recent Stamp Duty reforms for first time buyers: “The Chancellor revealed that the Stamp Duty cut for first time buyers announced in November’s Budget has benefitted over 60,000 property purchasers.

“Moving forward, what could be valuable is a Government investigation into the 3% Stamp Duty surcharge on additional homes and how it has affected the rental market during the two years it has been in operation.”

Finally, Cobbold addresses the forthcoming ban on letting agent fees: “The ban on fees has been hanging over the industry for almost 18 months and it would benefit all parties involved in the private rental sector to have a solid date to work towards.

“For the majority of agents, plans to mitigate the effect of the ban will already be in place, and now is the time to put these plans into action and make sure your business is ready to adapt to this huge market change.

“Agents need to ensure they are exploring ways to streamline their processes, generate additional revenue and improve their landlord proposition.”

Nimesh Shah, a Partner at accounting, tax and advisory practice Blick Rothenberg, reacts to the Stamp Duty claims in the Spring Statement 2018: “The Chancellor claimed during the Spring Statement that 60,000 individuals have benefited from the first time buyer relief. The first time buyer relief is worth up to £5,000 saving in Stamp Duty Land Tax. Based on the Chancellor’s claim, the first time buyer relief has cost the Treasury up to £300m in just under four months since its introduction. At the current run-rate, it will cost the Treasury close to £1 billion in the first year.

“At the Autumn Budget, the Treasury estimated the 2017/18 cost to be £125m, and by 2022/23, £670m. Today’s claim by the Chancellor that 60,000 first time buyers have already benefitted suggests that the Government’s original figures were significantly under-estimated.”

Russell Quirk, the Founder and CEO of hybrid estate agent Emoov.co.uk, has his opinions: “Reaffirming from the Chancellor yet again covering the hot topic of housing, but we still haven’t seen the delivery of promises from previous Budgets, so only time will tell if these words will actually equate to action. If it does come to fruition, his pledge of 300,000 homes a year will go some way in addressing the UK’s housing crisis.

“Today’s additional announcement of 215,000 homes within the West Midlands region by 2031 will see an already strong area of the UK property market further accelerate where price growth is concerned. Despite uncertainty plaguing the current property landscape, these more affordable regions have seen a sustained level of buyer demand, and so this increased investment into the local property market should only see this continue.

“In contrast, London has been one of the worst hit in terms of a dwindling appetite for property amongst buyers. While the commitment of 26,000 affordable homes in the capital and a total of 116,000 affordable homes by 2022 would be a step in the right direction, the Government delivered just under 7,000 affordable homes in 2017. So, there is quite a large gap between their good intentions and reality, and this is simply not adequate enough to fix London’s broken housing market.”

Finally, Shaun Church, the Director of mortgage broker Private Finance, comments: “The cut to Stamp Duty is helping to ease the climb onto the property ladder for thousands of first time buyers. Mortgage lenders are also ramping up their product offering for new buyers in a bid to beat the competition and win first time buyer business – resulting in low rates and favourable lending conditions for those looking to get their first mortgage.

“Existing homeowners, however, have been left out in the cold. With no sign of Stamp Duty reform for those further up the ladder, the prohibitively high cost of moving is continuing to dampen activity at the upper end of the property market. While this might not seem like a problem for ordinary buyers, a healthy market requires plenty of movement at all rungs of the ladder. A blockage at the top will have a trickle-down effect, as those who want to upsize may struggle to find any properties available, which will in turn impact those further down the chain.”

Rent Controls Proposed by Scottish Labour Leader

Published On: March 13, 2018 at 9:59 am

Author: Em Morley

Categories: Tenant News

The Scottish Labour Party Leader, Richard Leonard, has revealed plans to implement rent controls and limit the power of private landlords north of the border, despite concerns that the proposals could cause more issues for tenants.

In his keynote speech to Scottish Labour’s spring conference on Saturday, Leonard detailed his vision to reshape the private rental sector in Scotland, including the introduction of a new Mary Barbour law to protect tenants.

The proposed Mary Barbour law is named after the Red Clydeside political activist who played a leading role in the rent strikes of 1915.

Leonard outlined how his party aims to introduce a private member’s bill that would create a new points-based system to enforce fair rents, ensuring that “no one is forced to rent a home that pushes them into poverty”.

Describing a home as a “basic fundamental human right”, Leonard explained that the points system would link rents to average wages and give tenants the power to challenge unfair prices.

Aside from giving tenants the power to challenge unfair rents, it would also enable “proper standards” for health and safety and energy efficiency on private rental properties to be imposed.

Leonard is not the first member of the Labour Party to propose rent controls.

Last year, Jeremy Corbyn proposed rent controls, which even housing charity Shelter warned could “exacerbate Britain’s housing crisis”.

Longer-term tenancies of five years and inflation-linked controls on rent price rises within those agreements is established Labour policy, but Corbyn told party members in Brighton in September that Labour would go further and directly limit rent prices, based on models adopted in other countries.

However, the Chief Executive of Shelter, Polly Neate, said that this would result in a reduction of rental properties on the market.

She explained: “What ends up happening is landlords will just sell because they can’t make any money.

“That actually exacerbates the crisis, because you end up with an even greater housing shortage.”

All landlords, letting agents and tenants should be aware of new tenancy rules in Scotland, which were introduced in December 2017.

Investing 101: What are your Investment Options?

Published On: March 13, 2018 at 9:13 am

Author: Em Morley

Categories: Finance News

By Paul Mahoney, the Managing Director of Nova Financial

When it comes to investing, you have three broad options, which are: interest bearing investments, shares and property. Other investments, such as commodities and fine wine, etc. don’t generate an income and are, therefore, more of a speculation on their potential for an increase in value, rather than an investment in the true sense of the word.

Which one is right for you? Well, it very much depends.

Interest bearing investments

This type of investment includes cash in the bank, term deposits, ISAs, and any other types of investment where you invest your funds and receive a fixed or variable cash flow return without the chance of the capital value of your investment increasing or decreasing, other than with inflation. You can get your initial funds back at some point in the future with interest. In general, historical returns tend to be approximately 2-4% per annum.

Shares

Investing 101: What are your Investment Options?

When investing in shares, you are buying a portion of ownership in a company. There are many different ways to determine which companies you should invest in, such as fundamentals, qualitative, value, analysis or simply guessing and hoping for the best, and so on, which are outside the scope of this article, however, mostly it is based upon optimism with regards to the prospect of that company. Often, such companies will have a historical return that is made up of capital appreciation (or depreciation) and dividends, which is the yearly income provided through the share of profits. In general, historical returns tend to be approximately 6-8% per annum, but vary greatly across different sectors and types of companies.

Property

The direct purchase of real estate generally for the purpose of letting it out to generate an income and ideally an increase in the capital value. The old cliché of location, location, location is very important here and often determines the demand for a property, due to employment, facilities and amenities in an area. In the right locations, supply tends to be restricted due to land being a limited commodity and, therefore, if there is a strong demand, then prices tend to increase. Similar to shares, the return tends to 6-8% per annum, but the big differentiating factor with property is the ability for finance over the long-term at relatively low interest rates and that lenders have no ability to call in the loan until the end of the period.

Should you borrow to invest?

When it comes to making an investment, you must decide whether your investment will be solely cash or will you leverage your cash to make a larger investment. Taking debt to invest can be higher risk, but not taking debt can put you at risk of not meeting your goals and under-utilising your money. Unfortunately, most people struggle to save sufficient funds over their working life to be sufficient to provide for retirement, so the prudent use of investment debt is in many cases essential to reach set goals.

If investing in interest bearing investments, then, in most cases, borrowing doesn’t make any sense. This is because the cost of borrowing will outweigh the return and hence defeat the purpose.

When investing in shares, you can borrow to invest with what is called a margin loan. Margin loans work on the basis that your lending can only be a certain percentage of your portfolio value. The risk here is, if the value of your shares falls and, therefore, the loan percentage increases, then you can be forced to sell at the worst time or add more money in a falling market. Interest rates tend to be high (6%+ at the time of writing) and maximum loan-to-values of 60%. So, borrowing to invest in shares is high risk and high cost, meaning the return you need to generate must be higher to make it worthwhile.

Property is the third option, which enables you to borrow at low interest rates (2-3% at the time of writing) for the long-term – 20 years+ – with no ability for recall and at loan-to-value rates of 75%+. So, low risk, low cost and, hence, an average return on the overall asset value can actually result in a great return on the cash invested, given the multiplying factors that debt provides. E.g. £25,000 invested in a £100,000 property; just a 5% increase in value, which is less than the historical average, is a 20% return on your £25,000 of £5,000. Assuming your rental yield is sufficiently higher than the interest rate and costs, then you can also add net income. This is the beauty of leveraged property – fairly average returns on the overall value result in great returns on your cash applied. Add to this the ability to remortgage to invest further when you build equity through price growth and pay down debt with the income, and you have a strong strategy for building an investable asset base over the long-term.

If you have any questions or would like to determine how Nova Financial can be of assistance, please call 0203 8000 600, visit www.nova.financial or email; info@nova.financial.

New Mortgage Rules for Portfolio Investors

Published On: March 12, 2018 at 9:15 am

Author: Em Morley

Categories: Landlord News

Property has always been seen as a sound investment, and, while it may be subject to fluctuations in the short-term, over a longer period of time, it is always likely to be a profitable investment. As property prices boomed, casual property investors became landlords with multiple property ownership. The buy-to-let market was born. Hiten Ganatra, of Visionary Finance, explores the new mortgage rules for portfolio investors:

Multiple property owners

It is estimated that around one in 30 adults is now the owner of multiple properties. But with many first time buyers struggling to get on the property ladder, the Government, through the Prudential Regulation Authority (PRA), has introduced new rules for those looking to buy properties for this reason. The new rules – effective from 30^th September 2017 – are not intended to prevent or harm the buy-to-let market, but rather to make it fairer for all concerned.

New mortgage rules

Many of the changes only affect a landlord of four or more properties who are considered to be portfolio investors under new rules being put in place by the PRA. The major change means that lenders will now assess a portfolio in terms of total income, rather than as individual cases, in order to assess the potential impact of any new borrowing that the investor may want to take on. The idea is to ensure that any new borrowing does not adversely affect the overall affordability of other properties already owned.

This will fundamentally mean more work for lenders, who will now have to carry out further checks on the portfolio owned by the potential borrower and determine whether it will become too much of a burden, by carrying out an interest coverage ratio (ICR) over the whole portfolio and determine any weakness. Additionally, the lender will probably also take into account the landlord’s individual earned income/salary and assess whether they are likely to default on any new borrowing or have to use it to support other properties.

What this means for landlords

This means that for landlords who already own four properties in their portfolio, or currently own three and are looking to buy at least a fourth, are likely to find that they are more limited in the choice of lender and may not get such advantageous interest rates. The whole application process is likely to take a significantly longer time to complete, too.

But interest rates are still historically low, and landlords are collecting good yields on their properties. Generally, the Government has left the market alone, but the current growth of the market means that the financial establishment want to ensure that it remains buoyant, even if that means applying these new rules.

Impact on asset classes

The overall intention is to ensure that this asset class remains just that and doesn’t become a liability for its users. Asset classes are used to split up a number of different tangible forms, usually identified as cash, shares, property, and fixed-interest securities – also known as bonds. Generally, of these, shares and property are the most unpredictable, and, since fewer private people invest such large amounts in shares as property, it hasn’t attracted the need for such streamlined legislation.

A property portfolio is still an excellent long-term investment, but to ensure that it remains that way, the Government and financial establishment are keen to check that extended investment doesn’t extend the financial burden on the borrower, and that is the main purpose of the new rules.