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Rise in landlords incorporating their business

Published On: June 13, 2016 at 1:16 pm

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A specialist buy-to-let mortgage firm has observed that lending to landlords that have set up limited companies has risen substantially in the first quarter of the year.

Data from Kent Reliance’s Buy To Let Britain report, shows that 38,000 landlords set up as private limited companies were lent to in Q1 of 2016. This was more than the total lending figure in the whole of 2015.

Rise in lending to limited companies

Further data from the report indicates that the number of loans to private limited companies will increase to around 100,000 by the end of 2016.

Many landlords have chosen to incorporate following the 3% additional Stamp Duty land tax that came into force on April 1st. Borrowing through a limited company sees investors taxed at lower corporation rates. What’s more, they are able to offset financial costs against rental income.

Kent Reliance also said that rents are increasing, as landlords look to offset their increased bills. According to the lender, 40% of landlords believe rents will increase during the next 6 months, by an average of 5.6%.

Rise in landlords incorporating their business

Rise in landlords incorporating their business

Blame game

Almost three-quarters of landlords who are looking to increase their rents blame the reduction in mortgage interest tax relief, which will come into force next year.

Separate research from the Council of Mortgage Lenders shows that the total value of rent collected by buy-to-let landlords in Britain over the last year was £53bn. This was a rise of around 10% from one year previously.

HMOs Continue to Outperform Standard Buy-to-Lets

Published On: June 13, 2016 at 11:58 am

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Houses in Multiple Occupation (HMOs) continue to outperform standard buy-to-lets on both yield and return on equity, according to a new report by Multi-Let UK.

The HMO investment and management specialist found that the average gross return, before void periods and maintenance, on capital for HMOs let to professionals over the past five years has risen by an average of 18-20%, compared to an average gross return of 6-8% on a standard buy-to-let (BTL).

Using these averages, Multi-Let UK found that every £1,000 invested in HMOs in 2011 has grown to £1,900 in 2016, compared with £1,300 for a standard BTL, based on cashflow excluding equity. Although the average initial capital investment on an HMO is higher than a standard BTL, the majority of HMO investors have received a considerably higher return over the last five years – an average of £600 on every £1,000, applying a gross return to both.

As Daniel Hill, the MD of Multi-Let UK explains, HMOs in the right location and market are by far the best performing investment for monthly cashflow returns compared to other traditional BTL properties.

He says: “HMOs are highly attractive to investors, especially in UK cities with a high proportion of students and young professionals. However, in today’s market, a high-yielding HMO, this can be down to the detail of the correct street.

“Whilst the market conditions in many areas are becoming more developed and competitive, a HMO property with the correct scheme and management can deliver landlords and investors an average gross yield of 10-13%, leveraged return on investment of 18%-plus, before voids and maintenance. These yields are much higher than standard single let rental properties, which are achieving average yields of between 4-8%, subject to location.”

He explains in more detail: “A three-bedroomed, single let property in the Midlands may typically achieve a gross rent of £650 per calendar month (pcm) for a family. It is usual that, once converted, the gross rent on the same property will exceed £2,000 pcm as an HMO. This represents a significant profit opportunity for buy-to-let investors who have the required expertise to generate sustainable returns in this increasingly competitive market.

HMOs Continue to Outperform Standard Buy-to-Lets

HMOs Continue to Outperform Standard Buy-to-Lets

“HMO properties can generate this significant increase in revenue because they are rented out to individuals, on a room-by-room basis. HMOs often provide between four and ten rooms, rented to individual tenants. Rent will typically include the internet, general utility bills and Council Tax. Whilst the individual bedrooms are rented as private for exclusive use, most HMOs have communal areas, including kitchen diners and lounges.”

He adds: “Many standard properties can be successfully converted to HMOs with the introduction of C4 building regulations. If a high quality refurbishment is undertaken, the property can attract working professionals in the right location, who are prepared to pay more for a shared property with a superior finish. Luxury ensuites, large TVs, premium kitchen appliances and furnishings are the type of features that help to generate a high yielding HMO, where the market conditions accommodate.”

So, how do you create a high yielding HMO portfolio?

  • Buy the right property – Look for at least five bedrooms (ideally six plus), as profits grow significantly with this number of rooms.
  • Find the right location – It is vital that you choose the correct location, not just the town or city, but even down to finding the best road.
  • Target the right tenants – Look for an area with a high density of young professionals and students in town/city centres with good transport links.
  • Don’t over/underspend – Always keep to a budget when refurbishing and make sure your accommodation is scoped to a specific market and tenant demands.
  • Know the market – Ensure that your property suits the market. Always do thorough research and use local experts if needs be.
  • Stick to the law – Make sure you understand the various regulations and legislative requirements, and that you comply with them.
  • Use reputable tradespeople – If you are refurbishing, the job will go much more smoothly if you use professionals. Once the refurbishment is complete, you don’t want to be spending time and money on maintenance.
  • Minimise maintenance costs – Always choose high durability fixtures and fittings, opt for long warrantees if possible and select furniture with the best suitability to your property and tenants.

What about managing an HMO portfolio?

  • Select the right tenants – Always conduct thorough reference checks on prospective tenants, and secure guarantors and deposits.
  • Don’t mix tenant groups – Keep your HMO for either students, young professionals, housing benefit tenants, etc.
  • Don’t compromise on facilities – Always provide high quality accommodation, including at least five bedrooms and living and dining areas.
  • Keep on top of maintenance – HMOs can require more upkeep than standard BTLs, and there are generally more call-outs due to the volume of tenants, but always respond quickly and efficiently.
  • Offer good customer service – Provide tenants with a high quality, 24/7 service. This will make them stay longer and recommend you to friends and family.
  • Retain ownership of bills – It can be wise to own and control utilities and recover the costs through monthly rent. Also, consider using a cleaner for the main living areas, absorbing the cost into the rent price.
  • Cut operating costs – Find the cheapest utilities on the market, from electrics to gas to broadband.
  • Keep on top of the law – Landlord News provides you with the latest legal updates.
  • Comply with management regulations – These are special building control and health and safety regulations, which apply to all HMOs. If a landlord does not comply with these regulations, they can be prosecuted by the local authority and fined by the magistrates’ court. If you are unsure about what the regulations cover, check them online and speak to the required authorised body.
  • Be proactive – By conducting monthly inspections, you can record your legal requirements and identify any maintenance work that needs to be carried out.
  • License your property – Mandatory licensing is required if a property houses five or more unrelated occupiers on three or more floors. However, a property of only three or more households still requires C4 building regulation. Many local authorities have applied for additional licensing, which means all HMOs in these areas must be licensed. Consult your local authority if you are unsure.
  • Adhere to gas, electric and fire safety regulations – Conduct all of the mandatory checks, keep certification of work and ensure that your property meets all safety regulations.
  • Work with experts – Managing an HMO portfolio is a specialist and full-time job. If you own a large portfolio, it could be a good idea to work with an expert firm, such as Multi-Let UK, to ensure your property is managed effectively.

Who Would Win the Euros Based on Property?

Published On: June 13, 2016 at 11:37 am

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With the Euros kicking off last week, online estate agent eMoov.co.uk has taken an alternative look at how the teams match up from a property point of view.

eMoov has compared each team in the tournament based on the cost of living in each country, rather than how good their players are. It has taken the average take home pay after tax, property price per square foot, the cost of monthly utilities and (keeping with the sports theme), the cost of a monthly gym membership in each country.

The analysis began with some good news for England fans, with the country offering the best take home pay after tax across all teams. But that’s as far as it goes for the team, as England is home to the highest property price per square foot, at a huge £10,464. The tournament’s other worst offenders where house prices are concerned are Switzerland (£8,160), Sweden (£5,199) and France (£4,274).

eMoov ranked each team by awarding goals for the following:

  • One goal was awarded to the team with the highest take home salary.
  • One goal was awarded to the team with the lowest average house price.
  • One goal was awarded to the team with the lowest utility cost per month.
  • One goal was awarded to the team with the lowest gym membership cost per month.

The results for each group are as follows:

Group A 

Despite a substantially lower take home income when compared to France and Switzerland, Albania and Romania top the group with seven points each. Both offer significantly lower property prices per square foot (below £1,000), and Albania’s extremely low cost of living across the board sees them top of the set.

Who Would Win the Euros Based on Property?

Who Would Win the Euros Based on Property?

France isn’t too far behind Romania where the cost of living (other than property price) is concerned, and despite just one win for the group, the country did enough to secure one of the third place qualification spots.

Although Switzerland offers the best take home income by far, at £3,850, the cost of property per square foot and gym membership are more than double that in France, meaning Switzerland comes out with no points.

Group B 

Unfortunately, but predictably, England put in a disappointing performance in the group and fails to make it through, or even score a point. Despite a higher take home income, England is also home to the highest cost of living when compared to the rest of the group.

With two wins and a draw, England’s neighbours Wales tops the group with seven points.

Russia takes second place with five points, doing enough for automatic qualification, while Slovakia claims third place with four points.

Group C 

The biggest shock of the tournament is that Germany leaves the Euros without scoring a single point. Despite a higher take home income, Germany’s property price and utilities are considerably higher. However, they lost out by just £0.69 to the next highest team in terms of gym membership, Northern Ireland.

Although they missed out on automatic qualification to Poland, Northern Ireland managed to sneak through as another third place qualifier, with the Ukraine and Poland qualifying with nine and four points respectively.

Group D

Turkey and the Czech Republic automatically qualified for the next stage after scoring points for the lowest utility bills and low property prices.

However, Spain and Croatia both made an early exit. Spain had the second lowest utility costs out of the group, although its high property prices let it down, at £2,107 per square foot.

Group E 

Belgium sailed through with ease into the next round, having the lowest property price, gym membership and second lowest utility bill cost of the group. Additionally, although the country’s cost of living is low, its average monthly income is the third highest of the group, making Belgium a firm favourite to win the tournament!

However, it’s not such good news for Italy, which came bottom of the group, if not the entire tournament. Although the country’s property prices, utility bills and gym membership costs are the highest within the group, its average wage is the lowest.

Group F 

Austria’s vastly higher property prices and utility costs put them out of the tournament with just one point. Despite a low take home pay, Hungary’s cheaper house price sees them top the group with five points, along with Portugal, which has the lowest utility costs of the set.

Iceland made it through as the final third place qualifier, although, despite a high take home income, they are likely to exit in the next round due to high property prices and gym membership costs.

The founder and CEO of eMoov, Russell Quirk, says: “With another major tournament comes the build up and hype of England’s potential chances, and there is an underlying feeling that this revamped team could go some distance. It’s likely that football’s world powers will prevail again, with the likes of Spain, Germany and France making the final stages, so we thought we would take an alternative look at how the teams match up.

“It’s interesting to see how each team scores when it comes to the cost of living and how they match up with others in the tournament. A higher property price doesn’t necessarily translate to a high cost of living across the board – Sweden has a property price per square foot of over £5,000, but at £60 a month, the utility costs are one of the lowest in the tournament. On the flip side, the take home income in Italy is the lowest in Group E, but the cost of living is very expensive.”

He adds: “It’s unlikely that our research will mirror real life, apart from England’s early exit perhaps, but it will be interesting to see who makes it through from out last 16 to the group stages in a few weeks.”

Abolish rental deposits, property expert urges

Published On: June 13, 2016 at 9:45 am

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A leading property expert has moved to welcome plans to reform rental deposits. What’s more, Southampton MP Alan Whitehead Labour MP has called for policy makers to abolish the legislation altogether.

Chancellor George Osborne has recently revealed the Government’s intention to change rental deposit laws, while deputising for David Cameron at Prime Minister’s Question.

Pot luck

Mr Whitehead also said that letting agents are, ‘completely unregulated,’ which in turn led tenants to rely on, ‘pot luck’ when trying to find scrupulous property owners.

Osborne noted, ‘we are looking at what we can do to make sure that people who rent have proper consumer protection, including protection from landlords who withhold deposits unreasonably.’

Property expert Ajay Jagota, owner and founder of property firm KIS, the first letting agents to abolish monetary deposits, feels that these kind of deposits should be scrapped across the sector.

Solutions

Mr Jagota said, ‘Alan Whitehead was quite right when he said renters can face pot luck when it comes to choosing the right landlord or letting agent. The irony is that a glaringly obvious solution to that problem has been staring everyone in the face for some time. He was less right when he claimed the lettings industry is unregulated. In fact landlords and letting agents need to comply with almost 150 individuals pieces of legislation.’[1]

Instead of churning out more red tape for good landlords or creating new costs to be passed on to tenants, the simplest and most effective landlords or creating new costs to be passed on to tenants, the simplest and most effective solution to guarantee a better deal for renters is to abolish deposits and move the private rented sector towards the insurance-backed model used in almost every other industry on the planet,’ Jagota continued.[1]

Abolish rental deposits, property expert urges

Abolish rental deposits, property expert urges

a

Rising rents

Continuing, Jagota noted, ‘study after study concludes that they are the biggest barrier to entering and moving house in the private rented sector, with our research showing the average renter needs to stump up more than £1,000 to get the keys to a new home before they’ve even paid the first month’s rent.’[1]

‘But time and time again policy-makers ignore this in favour of the same old cul-de-sacs and clichés like banning of letting agent fees or rent controls. Not only would abolishing deposits mean the £3.2billion being release into the wider economy, £2bn of which is literally just gathering dust and interest right now, it would make it easier for renters to move house, easier for them to keep a house and easier for them to save for a property of their own.’[1]

‘A survey recently showed that 78% of renters want greater protections from their landlords – this is the simplest and most effective way of giving them that piece of mind,’ he concluded.’[1]

[1] http://www.propertyreporter.co.uk/landlords/politicians-urged-to-abolish-rental-deposits.html

London Property Owners Sell to Release Investments

Published On: June 13, 2016 at 8:44 am

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The most common reason for London property owners to sell their homes in the first quarter (Q1) of 2016 was to release investments, according to Marsh & Parsons.

The estate agent found that four in ten (43%) sellers in prime London put their properties on the market in order to release their investments, making this the most common reason for selling.

Behind this, almost a third (29%) put their home up for sale to upsize to a bigger property. A further one in five (19%) intended to relocate after finding a buyer. Just 5% of prime London sellers put their property on the market in order to downsize, while 3% of prime London homes were sold due to divorce in Q1 2016.

A much greater proportion of vendors sold their homes to upsize in outer prime London areas. In locations such as Balham, Battersea, Queen’s Park, East Sheen and Clapham – popular spots with first time buyers and young families – 34% of sellers put their homes up for sale to move to a bigger property.

In prime central London, where the average house price is much higher and often demands the top rate of Stamp Duty, just 12% of sellers planned to upsize. Instead, releasing investments was the main reason to sell, accounting for almost half (49%) of all sales – a higher proportion than anywhere else in the capital.

London Property Owners Sell to Release Investments

London Property Owners Sell to Release Investments

Relocating was the second biggest reason for selling in prime central London, with 21% of homeowners putting their homes on the market for this purpose. Downsizing was also more common in prime central London than the wider capital average, with 9% of property owners planning to move to a smaller home.

The CEO of Marsh & Parsons, David Brown, comments: “The London property market has long been the home of outstanding capital returns, especially in infamous prime central postcodes. The vast majority of Londoners are understandably attempting to capitalise on the rapid rise in house prices over the past few years, alongside the steady stream of eager buyers, by selling their home in order to liquidate their investment.

“But in prime central areas, there is much greater appetite to downsize and relocate elsewhere, to circumvent the more stringent Stamp Duty levy, which they will have to pay as a buyer on their next purchase.”

He adds: “However, property sellers in outer prime London are more likely to be looking to move up the ladder. These more affordable locations act as a great springboard for many first time buyers and young professionals, with lower property prices enabling their first foray onto the housing ladder, yet still delivering some of the strongest house price growth and capital returns on offer across the capital.”

Among sellers of properties costing above the highest Stamp Duty threshold of £1.5m, downsizing was much more likely to be the reason for a sale, at 29%.

Overall, releasing investments, at 33%, was the main reason for selling a property at this level of the market. However, property supply is smallest within this tax bracket, with just 11% of all sales in Q1 2016 costing over £1.5m.

Of the homes sold within the Stamp Duty bracket of £950,001-£1.5m, releasing investments was a much more common reason behind the decision to sell (50%), followed by upsizing (23%), relocating (13%) and downsizing (10%).

The majority of Q1 sales (69%) cost between £250,001-£925,000, with none of these sellers planning to downsize. Instead, upsizing was more common (32%) for these vendors, while releasing investments was less of a concern (42%) than in other tax brackets.

Brown continues: “Those selling the most expensive and exclusive homes in London have to be aware of the much increased rate of Stamp Duty now liable on purchases. Concerns about the impact this had had on buyer interest or of having to compensate for this additional cost in their asking prices has dampened some seller enthusiasm over the past year, but as the new status quo beds in, property is still coming up for sale regularly, and we’re now seeing homeowners getting on with life decisions. The impact of the Stamp Duty revisions is perhaps now more evident in the fact that sellers at the top end are looking to downsize and avoid this higher levy on their next move.”

Refurbishment: The Surefire Way for Landlords to Increase the Value of a Rental Property

Published On: June 11, 2016 at 8:20 am

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As the weather gets warmer, many peoples’ minds turn to spring-cleaning and property improvement. This is also true of landlords, both those with properties they think could benefit from some work and those looking to buy a refurbishment project. Sprucing up a property is a classic way for landlords to be able to improve the tenant profile occupying the space and generate more rental income from that property. Karl Griggs, the Director of CPC Finance, explains how landlords can increase the value of their rental property this summer.

With any refurbishment project, a healthy dose of realism is key. There is a limit to how much value it is possible to add to a property with refurbishment work. Despite careful planning, it is not possible to predict property values and how the rental market will move in the future. If you are buying a property, it is generally better to purchase below market price and stick to a sensible business plan rather than get carried away by unnecessary add-ons to the property, which may not add to the value of it, and may not be appreciated by tenants.

Quick ways to increase rental yield

For landlords, in addition to increasing the value of the property, refurbishment will cut down on long-term maintenance and attract higher quality tenants, who often stay for a longer period. Most tenants want to feel that they’re living in a modern, convenient property. Low-cost updates like repainting in a bright modern colour and updating amenities such as taps, door knobs etc., can change the feel of a property. Equally, putting in the latest appliances will make tenants feel the property is more desirable.

Refurbishment vs repair

Landlords of unfurnished, part-furnished and furnished properties should be aware that the automatic Wear and Tear Allowance has been removed. The standard 10% allowance for wear and tear has been replaced with relief on actual money spent on replacing furnishings and appliances. This measure came into effect for expenditure incurred on or after 1st April for corporation tax payers and 6th April for income tax payers. However, as this is intended to enable landlords to maintain a property in its existing condition, through replacing furniture, landlords cannot claim for refurbishments and improvements.

Refurbishment property finance

Karl Griggs, the Director of CPC Finance, offers refurbishment advice

Karl Griggs, the Director of CPC Finance, offers refurbishment advice

If a landlord does not have the ready cash to work on a property, or to buy a property in need of work, finance is available. Specific refurbishment finance is not something that high street lenders generally provide. Most of them will only offer a mortgage on a property that is already considered habitable. Instead, more specialist lenders will be able to provide specific refurbishment finance or short-term finance. The interest rates offered will depend on the landlord’s level of experience and the level of complexity of the project.

For property investors who need finance quickly, an advantageous kind of finance available for all kinds of refurbishment is short-term loans, giving investors the benefit of being able to raise finance quickly to do the works, increase the value and then redeem or change to a buy-to-let mortgage, normally without early redemption charge.

For those looking for a short-term refurbishment loan, there are two kinds of refurbishment. Landlords who are looking to do minimal works on a property will need light refurbishment finance. This is classed as work that costs less than 15% of the property value. These include cosmetic improvements to a property and smaller works such as rewiring, repainting or installing a new bathroom.

Heavy refurbishment work on the other hand constitutes major structural work, costing more than 15% of the property value. This could need planning permission or involve certain building regulations.

However, both kinds of loans are intended for experienced landlords and lenders will expect to see an exit plan in place, either how you intend to pay off the loan within the necessary timeframe or how you expect to move onto a longer term mortgage. You should consult a broker to find out about your finance options.

An alternative can be using your own home to raise the finance through a secured loan, also known as a second charge mortgage. At CPC Finance, we have had clients raise a short-term loan to buy a property and then use secured loans for the works. If you have a mortgage on your home but you want to use it to raise finance, a secured loan can be a better option than remortgaging. Secured loans sit behind the existing mortgage, meaning no exit fees.

A new refurbishment project

Refurbishment can be very capital intensive and for a new project you will need to have a thorough plan in place first, both for your own peace of mind, and if you need finance, to reassure lenders you know what you are doing. This can include working out the costs of the property, choosing your target tenant market and determining realistically how much you will get from selling or renting the property. This will help you work out your profit margin and if the endeavour is worthwhile. Other local property investors can be a good source of insight on local rental and prices.

As refurbishment can be a considerable cost, buying the property at the right price is key. Auctions can be a great place to pick up a property below market value. Our guide to buying property at auction can help you approach the auction in the right way.

Fulfilling the potential of a property through refurbishment can be a powerful way for landlords to maximise the return on an investment. However, they are not to be underestimated and should be planned carefully to ensure that they are a success.