Written By Em

Em Morley

Cheaper to buy than rent in 1/3 of UK cities

Published On: October 12, 2015 at 2:51 pm

Tags: homeowners,housing market,private rental sector

Fresh research from property search firm Zoopla suggests that it is cheaper to buy a property rather than rent in one third of British cities. Buying is also more effective in the north of the country.

Better-off

Mortgage payments were found to be less expensive than monthly rent in 36% of British cities. In Glasgow, home-owners are more than £100 better-off than renters in the city.

However, renting is still more profitable than buying in the south, with home purchasers in London, Reading and Cambridge spending hundreds of pounds more.

Across the nation, the cost of renting a two-bedroom house in comparison to taking out a mortgage showed that renters pay £58 less on average per month than buyers.

In Scotland, buyers faired better than their renting counterparts. Looking at Glasgow again, rents in the city total a monthly average of £596. Monthly mortgage payments however totalled just £447. Glaswegian buyers therefore are paying 25% a month less to own a property rather than rent it.[1]

Southern switch

On the other hand, the South East of the UK gave the best value for money for renters. An average tenant in London pays £2,218 per month in rent, whereas homeowners pay an average of £3,302. This means that buyers are paying 49% more.[1]

Cheaper to buy than rent in 1/3 of UK cities

Typically, buyers in Reading and Cambridge pay more than renters. Property owners in Reading typically pay £3,600 per annum more than tenants, with those in Cambridge paying an additional £3,700.

Nationally, the average asking rent for a two-bedroom house is £666 per month, in comparison to an average asking price of £145,840. What’s more, taking out a 90% LTV mortgage costs £58 per month more than the average tenant would pay if they were to rent the same property.

Leap of faith

Coupled with the peace of mind that owning a home brings, a large number of homeowners have more disposable income at the end of the month than their renting counterparts, according to Lawrence Hall of Zoopla.

Hall said that if would-be homeowners, ‘can make the leap and are willing to relinquish the flexibility that comes with renting, tenants up north in particular would be much better off buying and paying off a mortgage every month.’ In addition, he noted that Scotland and the North of England are now international university hubs, with excellent universities in York, Edinburgh and Durham. This, Hall says, ‘means increasingly high numbers of students are flocking to these areas, all looking for places to stay and driving up rents as a result.’[1]

Concluding, Mr Hall observed that London and the South East are certainly not cheaper places to rent. However, he did say that, ‘growing pressure on housing supply in this corner of the UK from professionals, families and overseas investors means that getting a foothold onto the property ladder in these areas is only becoming a more costly endeavor and the mortgage payment attached to this are rising to bridge this gap.’[1]

[1] http://www.propertywire.com/news/europe/uk-renting-buying-property-2015101211082.html

RLA Calls for Landlord Tax Breaks if They Sell to First Time Buyers

Published On: October 12, 2015 at 2:16 pm

Author: Em Morley

Categories: Landlord News

Tags: landlord finances,landlord tax relief,landlord taxes,rental property tax

The Residential Landlords Association (RLA) has called for buy-to-let investors to be given tax relief if they sell their properties to first time buyers.

Chairman of the RLA, Alan Ward, says the proposal follows David Cameron’s speech at the Conservative Party conference last week, which focused on a rise in homeownership. However, he adds that the plan would give landlords “a way out of the market”.

RLA Calls for Landlord Tax Breaks if They Sell to First Time Buyers

He says: “With tax changes coming up that will severely impact on their incomes, a number of landlords will be looking to quit.

“A second group of landlords looking for a way out could be older ones, who may have held onto their properties for a very long time, and who now want to retire or who need the money for other things.”

Despite lobbying by the RLA, Ward reports that there is no sign of Chancellor George Osborne backing down on the tax changes announced in the summer Budget.

The plans will gradually remove the ability for landlords to offset mortgage interest from their rental income, with tax relief to be cut to the basic rate.

According to the RLA, this will mean that some landlords will pay tax on a loss.

However, it adds that landlords will also be hit by tax if they try to sell their properties now.

Capital Gains Tax (CGT), which landlords pay when they sell, is generally set at the higher rate of 28%.

It means that if a landlord purchased a property for £250,000 in 2005 and sold now, the CGT bill would be a huge £63,000.

Contrastingly, owner-occupiers do not pay any CGT.

After surveying landlords, Ward reports: “Selling to first time buyers or sitting tenants would be attractive to more than three-quarters of landlords, given the right tax environment.

“David Cameron’s speech lacked detail as to how landlords could be encouraged to sell and tenants to buy.”

The plan to let landlords off paying CGT if they sell to first time buyers was first announced in the RLA’s pre-election manifesto, which was released at the start of the year. It was aimed at all political parties in the run-up to the general election. The RLA also called for CGT relief when a landlord sells one rental property, but reinvests the funds in another.

Ward explains: “No other business that wants to reinvest would be penalised in this way.

“We also have to accept that markets change. For example, an area in south Manchester was popular with landlords investing in student property.

“Now that the [Manchester Metropolitan] university has moved its campus, those landlords could be usefully encouraged to sell up and reinvest, for example in city centre apartments.”¹

Find out more about what was said at the Conservative conference: /prime-minister-to-promise-200000-starter-homes/

¹http://www.propertyindustryeye.com/landlords-ask-osborne-for-tax-break-if-they-sell-to-first-time-buyers/

Average rent for newly let UK home £941

Published On: October 12, 2015 at 12:32 pm

Author: Em Morley

Categories: Property News

Tags: first time buyers,property market,property purchasers

A new report from Countrywide plc has indicated the average rent of a newly let home in the United Kingdom has increased by 3.6% year-on-year.

This means that average rents now stand at £941 per month.

Affordability gap

The report also shows that the gap between the places people can afford to rent and to buy has grown in every year since the financial crash of 2008. This has been driven by a mixture of increasingly stretched affordability and first-time buyers getting older. Those renters that purchased a home during the last year bought in a region where the average house price was £35,000 less than where they were renting.

51% of people who made their first steps on the housing ladder in 2015 bought a home outside of the town or city in which they were previously renting, up from 39% in 2008. With the price of property accelerating faster than rents, a growing number of households are finding themselves renting in locations where they cannot afford to buy. Tenants in the South of England were found to move the furthest in order to get onto the ladder.[1]

In fact, this region has seen the largest gap between where people can afford to rent and to buy since 2012. Across the capital and the South East, property prices have risen by 42% in the last three years, rising from £218,000 to £375,000. Over the same period, rents have risen just 19% from £1,000 to £1,234 per month.[1]

Within Britain as a whole, two-thirds of tenants purchased property in a cheaper area, with that figure rising in the most expensive housing markets. In London, three-quarters of tenants who bought a home in the last twelve months ended up somewhere cheaper than they had been renting, with an average price gap between the two locations of £93,000.[1]

Northern light

Moving north up the country sees a different set of results. In the less expensive areas of the country, tenants are less constrained by affordability restrictions when making purchasing decisions. Tenants in the North East, North West and Yorkshire are more likely to buy in a similar area in which they were renting. Indeed, the average difference in price between the areas in which people rented and bought property in these regions was just £8,000. In some cities, such as Newcastle, the typical first-time buyer who had previously been renting actually moves from a cheaper area to a more costly one.

Data from the report also shows that alongside affordability, space is also a deciding factor of where tenants eventually choose to purchase a home. Nationally, 32% of renters who buy property in the same area buy a property with three or more bedrooms, a figure that rises to 45% in people buying elsewhere.[1]

Average rent for newly let UK home £941

Search

‘Renting enables many tenants to live in areas where they could not afford to buy but that means aspiring home owners often have to look elsewhere to find a home they can afford,’ noted Johnny Morris, Research Director at Countrywide. He went on to say that it is, ‘common for first time buyers to make sacrifices to buy their first home, so with price rises in recent years outstripping income growth, more are choosing to bypass rising prices by looking further for cheaper areas.’[1]

Morris went on to point out that renters are getting older, due to lack of affordability. ‘With over 30s and families the fastest growing type of tenants, renters buying their first home are getting older and are more likely to do so at a later stage of life. They’re skipping owning the small central city flat, in favour of the larger family home the first time around,’ he noted.[1]

Concluding, Morris said, ‘rents continue their growth over the year, with prices supported by falling numbers of homes available to rent and sustained demand from tenants. Seasonal factors usually see the rate of price growth slow in the second half of the year, after the rush in activity over summer starts to subside, hence small month on month falls in September.[1]

[1] http://www.propertywire.com/news/europe/uk-average-rents-monthly-2015101211081.html

Immigration Bill to get second reading

Published On: October 12, 2015 at 11:11 am

Author: Em Morley

Categories: Landlord News

Tags: Immigration Bill,landlords,tenants

Landlords are being reminded to carry out the relevant immigration status checks on their potential tenants, ahead of the second reading of the Immigration Bill in Parliament tomorrow.

Failure to conduct the necessary checks could see many buy-to-let investors facing a prison sentence.

Changes

Since December 1^st 2014, the ‘right to rent’ check has been piloted in parts of the West Midlands. In August of this year, the Government announced that the new Immigration Bill would change further the rules on right to rent. Initially, breaches of the Bill were to see landlords face a civil penalty. This has now been altered to include criminal sanctions of up to five years behind bars.

Should the Bill pass its second reading, landlords will be charged with undertaking a more prominent role in the Government’s intentions of cutting down on illegal migrants.

However, a number of landlords and letting agents have raised concerns about the possibility of a prison sentence for property owners, many of whom could be unaware of the changes.

By shifting the responsibility of immigration checks from border guards onto often-inexperienced landlords, concerns are all mounting that some property owners will stay away from tenants who they feel could pose a risk. This in turn is highlighting the possibility of discrimination of some would-be tenants.

Unfair

Andrew Turner, Director at Commercial Trust Ltd, feels that, ‘the Immigration Bill wrongly pushes front line immigration checks onto landlords.’ He said, ‘many landlords will be unaware of the Bill and their new responsibilities and could inadvertently end up facing a prison sentence which is both unfair and unreasonable.’[1]

Immigration Bill to get second reading

‘At the other end of the spectrum, landlords who become aware of the new Bill and become over cautious could instead open themselves up to challenges on the grounds of discrimination, leaving landlords between a rock and a hard place,’ Turner continued. ‘While the code of practice for avoiding discrimination is welcome, landlords are not trained immigration officials and, in conducting right to rent checks, could find themselves in the precarious position of potentially committing one of two separate offences if they put a foot wrong. It is also incredibly difficult to disseminate information on new legislation to landlords. The Immigration Bill is just one of many recent and upcoming changes to the legislative environment in which landlords operate, and a concerted effort to advise landlords of their changing obligations and responsibilities is desperately needed in place of the piecemeal approach currently employed’.[1]

Concluding, Mr Tuner noted that, ‘landlords are, after all, running businesses that are vital to the housing infrastructure of the UK. It is the Government’s duty to ensure that landlords have all the knowledge and tools they need before any new laws take effect and that they are not putting unreasonable burdens on the landlord community that may impact their ability to continue to provide housing for so many in the UK.’[1]

[1] http://www.propertyreporter.co.uk/landlords/landlord-prison-sentence-warnings-as-immigration-bill-gets-second-reading.html

Tax Changes Will Push Landlords Out of the Market, Reports Savills

Published On: October 12, 2015 at 10:47 am

Author: Em Morley

Categories: Landlord News

Tags: buy to let investment,buy-to-let mortgage tax relief,landlord tax changes,mortgage interest tax relief

Tax Changes Will Push Landlords Out of the Market, Reports Savills

The plans to cut buy-to-let landlords’ tax breaks, announced in the summer Budget, are likely to push investors out of the market, believes Savills.

In a recent report, the property firm states that landlords’ earnings will drop substantially.

Savills predicts that a landlord with a 70% loan-to-value (LTV) mortgage would potentially suffer a cash loss after tax, even if their property delivers a gross yield of 6%.

Its calculations reveal that the loss, based on a £200,000 home bought in 2020, could be £3,180 if the gross yield is 3%, £2,280 on a gross yield of 4%, £1,380 on a yield of 5% and £480 on a 6% yield. On a 7% gross yield, the landlord would make a profit of just £420.

In another example, Savills shows that a property today worth £214,000 on a mortgage of £115,560 and with a gross rental yield of £10,700 per year makes a net surplus income of £2,562 after borrowing, as tax relief on mortgage interest is fully deductible.

However, from 2020 – when the tax change is fully enforced – the value of the property will have gone up to around £255,302, and the rent up to £12,894. However, the landlord’s net surplus income after borrowing will go down to £949.

Savills’ report arrived at four main conclusions:

Many investors will sell off parts of their portfolios and a “large number”¹ will not expand.
Some will move over to lower value, higher yielding sectors.
Although the Government is pushing homeownership, demand for private rental accommodation will continue growing.
However, private landlords may not be able to meet this demand.

¹http://www.propertyindustryeye.com/new-tax-regime-will-push-landlords-out-of-the-sector-says-savills/

1.1m Households Had Mortgage Debt 4.5 Times Their Income in 2013

Published On: October 12, 2015 at 8:54 am

Author: Em Morley

Categories: Finance News

Tags: household debt,interest rate rise,mortgage debt,mortgage interest rates

More than 1.1m households in the UK had mortgage debts worth more than 4.5 times their income in 2013, despite the number falling in recent years, reveals official data.

The figures, from the Office for National Statistics (ONS), consider how exposed these borrowers could be if interest rates rise.

According to the statistics, 1,117,000 households had mortgage debts worth over 4.5 times their disposable income, accounting for almost one in seven (13.2%) households with mortgages. However,

1.1m Households Had Mortgage Debt 4.5 Times Their Income in 2013

this was down on 2011’s level, when 1.3m households had mortgage debts at this rate, a higher percentage of all mortgage holders, at 14.5%.

A quarter of households with mortgage debts at this level in 2013 were in London and a further 27% were in the East or South East of England.

The Chief Economist at the Resolution Foundation, Matthew Whittaker, believes the amount of households with high levels of mortgage debt relative to their income is “concerning”, considering it has only dropped slightly during a period of record low interest rates.

He comments: “With rate rises back on the agenda… it’s vital that banks engage with their customers to explain how their mortgage repayments could rise.”¹

Stricter mortgage lending criteria was enforced in April 2014 under the Mortgage Market Review (MMR), which made lenders conduct more thorough checks into the spending habits of homebuyers and those looking to remortgage, to ensure their loans are truly affordable. Lenders must now apply stress tests to mortgage applications, making sure borrowers can still afford their repayments if interest rates increase.

Furthermore, the Bank of England (BoE) imposed limits on the supply of credit to higher leveraged households in October 2014. These are defined as those with debt-to-income ratios above the 4.5 level. A household’s leverage is the amount of debt they have in relation to their income.

Recently, households have been rushing to take advantage of low mortgage rates before they are taken off the market. It is believed that the BoE’s base rate could start to rise from its record low of 0.5%.

Competitive mortgage lenders have been offering their lowest ever rates, although some of the best deals may have already been removed.

The ONS report says that if households have used the period of low interest rates to cut their debts, then the effect of a rise will be “relatively muted”.

However, if they have “normalised” low interest rates, then they may have taken more debt than they can afford in the long-term. It says that these cases could result in “considerable mortgage distress if interest rates return to their previous, higher levels”.

The ONS reports that following a “substantial rise in leverage”¹ between 2001-08, total household long-term debt dropped from a high of 131.2% of income in the third quarter (Q3) of 2008 to 118.5% in Q2 2015.

¹http://www.theguardian.com/money/2015/oct/07/1m-uk-households-mortgage-debts-worth-4-times-their-income-2013