Written By Em

Em Morley

Preparing for Future Economic Changes in the Buy-to-Let Sector

Published On: May 21, 2016 at 8:17 am

Tags: buy-to-let sector,EU referendum,landlord finance,landlord taxes,mortgage interest tax relief

The Government’s clampdown on the buy-to-let sector will continue into next year, alongside economic changes that will have an effect on the property market. How should you prepare for any financial difficulties you may face?

Just next month, the country will vote in its first European referendum since 1975. It is believed that the EU vote will cause house prices and sales to drop, due to uncertainty in

Preparing for Future Economic Changes in the Buy-to-Let Sector

the market. However, property professionals have called for a Brexit in a recent poll.

So should you continue to invest in property at this volatile time?

Nova Financial’s Managing Director, Paul Mahoney, explains: “Our advice to our clients is that property is a long-term investment and therefore isn’t about timing the market, but rather time in the market.

“All too often we meet with people in their 60s who have always had a reason not to invest, whether it’s a property bubble, tax changes, Brexit, Easter or Christmas, and unfortunately, these tend to be the people with little to no investable asset base, because they’ve always had a reason to wait. Those that invest in quality properties in areas with strong fundamentals ride out the short-term blips and achieve strong growth over the mid to long-term.”

He adds: “My point is that regardless of the EU referendum outcome, property will remain a strong investment over the long-term and it should not stop people from positioning themselves to take advantage of that fact.”

Additionally, many landlords are considering forming limited companies to avoid the gradual reduction in mortgage interest tax relief, from April 2017.

The latest data from mortgage lender Foundation Home Loans claims that landlords will favour limited company mortgages in the future, as this type of property business will be exempt from the cut in how much tax relief landlords can claim against mortgage interest payments.

Mahoney comments: “We have been advising on and forming limited companies for many of our clients, given the recent tax changes. When running the numbers and accounting for a slightly higher interest rate payable for limited company buy-to-let mortgages, we find that it is certainly worth considering for anyone on the highest tax rate with mortgage loan-to-values above 50%. This affects anyone earning over £43,000 per annum currently and £45,000 as of next year. Those that are borderline on the threshold need also be careful, as if they are landlords receiving rental income, the recent changes may push them above the bracket. It is very important to seek tax advice on this matter and if they haven’t already, all landlords and prospective landlords should be getting personal advice.”

If you are thinking of investing in the buy-to-let sector, or are considering changing your business model, remember to seek professional advice from a leading expert.

Rogue leaseholders of HMO fined £120,000

Published On: May 20, 2016 at 1:49 pm

Author: Em Morley

Categories: Landlord News

Tags: HMO,Prohibition order,rogue landlords,tenants

The leaseholders and landlords of a 10-flat property in north London have been fined £120,000 after complete disregard of their responsibilities.

Idris Raza, TISHK Limited and Hanasa Limited were found guilty at Willesden Magistrates Court of ignoring a Prohibition Order. Despite this notice, there were still tenants living in the 10 studio flats located in the Golders Green area of the capital.

Complaints

After a complaint from a tenant in one of the flats, Barnet council found the accommodation to be in an inadequate condition and poorly managed.

The magistrates said that Raza had shown reckless behaviour as an individual and as a director of both TISHK and Hanasa Ltd. It was uncovered that very serious harm would have been extremely likely should a fire have broken out in the property, with up to 20 people potentially losing their lives.

In addition, the magistrates said that the tenants’ financial situation had left them vulnerable.

Rogue leaseholders of HMO fined £120,000

Risks

Risks reported to the court included inadequate fire separation between rooms, four studios with no external windows, broken ceiling panels and faulty locks on studio doors.

Alongside failing to comply with the Prohibition Order, the leaseholders and landlords were found to have breached the Houses in Multiple Occupation Regulations 2007.

All three defendants were found guilty and fined a total of £120,000, with costs of £21,660 and a surcharge of £360.

Financial stability of British renters revealed

Published On: May 20, 2016 at 12:16 pm

Author: Em Morley

Categories: Finance News

Tags: Buy-to-Let,homeowners,rent,renters

An interesting new report has revealed that a rising number of UK adults are struggling to purchase a home. This in turn is causing them poor levels of financial wellness, according to the Momentum UK Household Financial Wellness Index.

The Index was conducted by the University of Bristol’s Personal Finance Research Centre and is the first of its kind to assess the financial wellness of the UK.

Poor planning

Financial wellness is split between homeowners and non-homeowner, with tenants suffering down to a lack of assets and poor long-term planning.

Those with a mortgage average 71/100 Index points, with those owning a property outright gaining 74/100. However, those in rental accommodation average financial wellness points of 62/100 for private renters and Housing Association tenants and 60/100 for Local Authority.

The lack of substantial difference in score between private renters and those in social housing shows that despite their relatively greater incomes, private tenants are being made financially unstable by their living arrangement.

Spending

The Office for National Statistics’ Economic Review suggests that renters spend almost 20% of their income on rent. This figure rises to 25% for private renters, rising by 10% in the last three decades.

These costs are evidenced in the Index’s findings, which show that renters are half as likely than homeowners to suggest that that their income can cover their monthly outgoings. In addition, renters were revealed to be half as likely to say they are comfortable with their standard of living.

What’s more, double the amount of renters said that they had missed a minimum repayment on their credit card, loan or other debt during the past twelve months.

Financial stability of British renters revealed

Hardship

Ferdi Van Heerden, CEO of Momentum UK, noted, ‘the financial hardships being faced by renters are making it impossible for them to build the deposit necessary to get their foot on the property ladder. Soon we will see a situation where only those who already own or inherit property will be able to own a home.’[1]

‘Private renting is on the increase from 6% of the population in 1988 to 16% in 2014. By contrast, the prevalence of mortgaged home ownership among under 40’s is lower than in 1977, when the Right to Buy was introduced to address just such an issue,’ he continued.[1]

Long-term impact

Renters were also found to be more likely to see their financial prospects hit due to the effect that renting has on their overall income. According to the Index, tenants are twice as likely to have no savings, insurance or pensions in place. In addition, they are twice as likely as homeowners to have nothing in place for their retirement.

Mr van Heerden concluded by saying, ‘if we do not address the UK’s rental trap, we are effectively creating a lasting social divide between the haves and have nots. We cannot simply assume that the current system will resolve this issue and action must be taken to address this.’[1]

[1] http://www.propertyreporter.co.uk/landlords/the-rental-trap-financial-wellness-of-uk-renters-revealed.html

A Brexit Would Help First Time Buyers

Published On: May 20, 2016 at 10:14 am

Author: Em Morley

Categories: Property News

Tags: Brexit,EU referendum,first time buyers,house prices

First time buyers in the UK would benefit from a Brexit in next month’s EU referendum, according to a leading ratings agency.

Moody’s reports that a decline in house prices followed by a vote to leave the EU would make it more affordable for first time buyers to get onto the property ladder.

Vice President and Senior Analyst at Moody’s, Gaby Trinkaus, explains: “First time buyers would benefit from lower competition for housing, as house price and rental inflation would slow down if immigration is curbed.”

A Brexit Would Help First Time Buyers

She adds that whatever the outcome of June’s EU referendum, the outlook is picking up for first time buyers in the capital.

“Regardless of the referendum vote, the ambitious affordable housing agenda for London following the mayoral election will help those looking to get on the housing ladder.”

Earlier this month, Sadiq Khan was voted the new Mayor of London, after putting housing at the core of his mayoral manifesto.

Many housing experts have claimed that a vote to leave the EU would cause a house price crash, however, a recent poll suggests that property professionals are calling for a Brexit.

Just yesterday, the National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA) claimed that leaving the EU would have “damaging consequences” on the property market.

However, Moody’s claims that a Brexit would be a positive move for first time buyers, many of which are currently priced out of the market.

In March, UK house prices increased at the fastest monthly rate since 2004. The boost is thought to be due to a rush of landlords investing in the buy-to-let sector ahead of Stamp Duty changes.

Moody’s believes that the London property market could be even more affected by a Brexit, and landlords may struggle to pay their mortgages because of a drop in rental demand.

Trinkaus comments: “A decline in rental demand could hit landlords’ ability to pay their mortgages on buy-to-let properties if London becomes less attractive to foreign nationals.”

Moody’s also warns that self-employed Britons are more at risk than employees, as their pay may fluctuate in the event of a Brexit. The firm believes that if a vote to leave the EU has a bigger negative impact on the UK economy than expected, mortgage arrears would increase among self-employed borrowers.

It says: “The highest risk would apply to those borrowers with additional risk characteristics, such as poor payment history, high loan-to-value or interest-only features.”¹

How do you think a Brexit would affect the housing market?

¹https://www.theguardian.com/business/2016/may/19/first-time-buyers-brexit-moodys-eu-referendum

Another Mortgage Lender Tightens its Criteria for Landlords

Published On: May 20, 2016 at 9:37 am

Author: Em Morley

Categories: Finance News

Tags: buy-to-let finance,buy-to-let mortgage,landlord taxes,mortgage interest tax relief

Yet another mortgage lender has tightened its criteria for buy-to-let landlords, ahead of changes to their finances.

Barclays has now imposed more stringent checks on landlords looking for buy-to-let mortgages.

Another Mortgage Lender Tightens its Criteria for Landlords

From 26^th May, the bank will increase its rental cover requirements, meaning that landlords must receive more rental income relative to their mortgage payments.

However, the lender will continue to conduct an income and expenditure assessment to measure whether borrowers can use their earnings to cover any shortfall in rental cover.

Additionally, Barclays will reduce its stress rate from 5.79% to 5.5%.

This announcement follows last month’s decision by Nationwide to tighten its lending criteria for buy-to-let landlords.

The building society’s buy-to-let arm, The Mortgage Works, revealed that it would require landlords to be able to cover 145% of their mortgage costs in rental payments, up from 125%.

In a statement to mortgage brokers, Barclays claims that the new changes are being introduced to account for the reduction in mortgage interest tax relief for landlords from April 2017.

A spokesperson for Barclays says: “As a responsible lender, Barclays Mortgages wants to ensure that aspiring landlords can continue to meet all their financial commitments and are protected as they look to invest in buy-to-let over the long term.

“Customers will continue to complete a full income and expenditure assessment, and we will continue to allow personal disposable income to make up any shortfall in the rental cover calculation.”

As of April next year, the amount of mortgage interest that landlords can offset against tax will be cut to the basic rate.

The Managing Director of Nova Financial, Paul Mahoney, insists that buy-to-let “is not dead”, and has advice for landlords ahead of the tax change: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

We will continue to provide you with updates of any changes to landlord finance and taxes.

Investment in student property set to increase

Published On: May 20, 2016 at 9:23 am

Author: Em Morley

Categories: Property News

Tags: Buy-to-Let,investment,student landlords,student property

More landlords are looking to invest in student property, according to new research.

Rising rental values in the sector are persuading more investors to purchase in the sector, according to data released by Knight Frank.

Increases

Investment in student property in Britain reached a record high of £5.1bn in 2015, a figure more than double the £2.41bn recorded one year previously.

The firm suggests that year-on-year growth during this year will follow the pace set in 2015, meaning there will be a rental uplift of 3.5%. This will give would-be investors a fairly secure income.

Knight Frank also predicts that the development pipeline for purpose-built student accommodation will slip during 2016, particularly in London.

Both London and Manchester are examples of cities with substantial student populations but modest delivery deadlines. That is the view of Neil Armstrong, partner at Knight Frank Student Housing Valuations.

Investment in student property set to increase

Solid

Mr Armstrong said, ‘in 2015 Student Accommodation showed rock solid occupational demand supply credentials. Rental growth averaged at 3.65% as student numbers grew and supply struggled to meet demand. Whilst the macro picture (3.65%) is relatively steady, each market demonstrates different credentials largely depending upon the current level of structural under supply together with the development pipeline and its delivery in any specific year.’[1]

In retail, office and industrial, student accommodation offered large capital (15.3%) and total returns (21.5%) during 2015.

James Pullan, head of Knight Frank Student Housing, noted, ‘of the 49,271 student bedrooms transacted in 2015, over 46% were acquired by Institutions. This wave of Institutional investment has now polarised the market such, that assets which fail to meet institutional specification have much reduced liquidity.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2016/5/investment-in-student-housing-set-to-rise