Posts with tag: buy to let investors

Bank of England Commissions Analysis of Buy-to-Let Market

Published On: September 29, 2015 at 2:52 pm

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The Bank of England (BoE) fears that the buy-to-let mortgage market, alongside the economic crash in China, could have a detrimental effect on the UK’s banking system.

Policymakers are examining the buy-to-let sector, seeking any measures by lenders that could make it easier for prospective landlords to obtain loans.

The Bank is also concerned that a substantial drop in house prices could cause landlords to sell their properties, worsening the decrease.

The BoE reports that the “downside risks” of stability have grown since July, specifying the market insecurity caused by China’s stock market crash in August. On so-called Chinese Black Monday, the FTSE 100 index of leading stocks lost over £60 billion.

The Bank is commissioning a study of this contagion and the impact of computer trading strategies.

Bank of England Commissions Analysis of Buy-to-Let Market

Bank of England Commissions Analysis of Buy-to-Let Market

In its quarterly report on potential risks to the financial market, the BoE says it is not taking any immediate action to slow down the buy-to-let sector, where the majority of mortgages are interest-only. However, it is considering whether the buy-to-let boom could aggravate rises and falls in house prices.

The Bank has published figures revealing that buy-to-let mortgage lending rose by over 40% since the 2008 financial crisis, while owner-occupier lending increased by just 2% over the same period.

The Financial Policy Committee (FPC), which was created by the coalition government to spot potential threats to financial stability, reports: “Buy-to-let mortgage lending has the potential to amplify the housing and credit cycles, though the extent of the amplification is hard to judge because the market has only recently grown to significant levels.

“Any increase in buy-to-let activity in a upswing could add further pressure to house prices. Buy-to-let investors may further exacerbate a downturn if they expect rental incomes to fall below their interest payments, and consequently add to selling pressure.”

The FPC says there is evidence that 40% of buy-to-let landlords would sell their properties if their rental income fell below their interest payments.

The FPC first began monitoring the buy-to-let market in July, when it expressed concerns over the level of household debt.

In its most recent update, the BoE states that the rapid growth of the buy-to-let sector is the reason for its call for the Government to give it powers to intervene in the market, as it can with residential mortgages. A consultation is scheduled for this year.

The Bank says: “The FPC is alert to the rapid growth of the market and potential developments in underwriting standards. As the market continues to grow, particularly if driven by loosening of underwriting standards, the sector could pose risks to broader financial stability, both through credit risk to banks and the amplification of movements in the housing market. Intensified completion among lenders could lead to loosening underwriting standards in future.”

The FPC has also conducted an annual review of the effect of the Help to Buy scheme on the sector. The incentive allows buyers with 5% deposits to purchase a home. Its conclusion states: “The scheme does not pose material risks to financial stability.”

It its latest study, it also considers global risks, highlighting the potential lessons from Chinese Black Monday, when there were over 1,000 temporary suspensions on individual equities on the New York Stock Exchange. The FPC has called for analysis from the Financial Conduct Authority (FCA) on the way contagion spreads between markets.

The FPC says: “The committee is alert to the possibility that future heightened volatility and reductions in market depth could have more widespread and persistent effects, including on the provision of credit to the real economy.”

In July, the FPC was wary of Greece’s financial situation, but concludes that the risk has subsided: “However, other downside risks to UK financial stability stemming from the global environment, and to which the United Kingdom as a global financial centre is exposed, have increased. These risks come from both China and emerging market economies more broadly.”

The results of bank stress tests will be revealed in December, looking at their ability to endure global threats and the impact/scale of future fines for misconduct.

The FPC adds: “The scale of future misconduct and redress costs for the UK banking sector is highly uncertain and banks should hold sufficient resources to pay these costs without affecting their ability to continue to lend to the real economy.

“The committee will review potential future costs as part of the 2015 stress test of the UK banking system.”1

1 http://www.theguardian.com/business/2015/sep/25/bank-england-buy-to-let-scrutiny-china-mortgage-lending

 

 

Buy-to-Let Landlords Owe Equivalent of Hong Kong Economy in Mortgages

Published On: September 23, 2015 at 10:36 am

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British buy-to-let landlords owe over £200 billion in mortgage repayments, equivalent to the size of the Hong Kong economy, says the Council of Mortgage Lenders (CML).

The CML’s report states that changes, such as Chancellor George Osborne’s proposal to cut landlord tax relief and an expected interest rate rise, are currently causing “considerable uncertainty” in the sector.

Buy-to-Let Landlords Owe Equivalent of Hong Kong Economy in Mortgages

Buy-to-Let Landlords Owe Equivalent of Hong Kong Economy in Mortgages

The CML has urged ministers to consider the effect of these plans on the wider economy and indicates that rent rises are likely, as landlords attempt to recover lost income.

The report says: “The Chancellor’s announcement of tax changes affecting buy-to-let landlords, which are being introduced over a five-year implementation period, has created another source of uncertainty for landlords, tenants and lenders.

“The measures are likely to deter some landlords from expanding their portfolios, and may encourage others to reduce their property holdings. They could also lead landlords to seek to increase rents to cover some of their additional tax liabilities. Overall, the extent to which the measures may discourage future growth of buy-to-let and the private rented sector is unclear.”

It continues: “Over the last 15 years or so, buy-to-let has made an important contribution to the expansion of the private rented sector, helping to reverse many decades of decline.

“Currently, however, there is considerable uncertainty over the impact of a series of regulatory and fiscal proposals on both buy-to-let and the private rented sector.

“We have, however, already urged the Treasury to take into account the effect of tax changes in finalising its proposals to reform macro-prudential powers.”1 

The CML report also reveals that the private rental sector has doubled in size over the last 12 years, following decades of decline.

Of all buy-to-let mortgages granted in the UK, 24% are for properties in London, compared to just 13% of all owner-occupied mortgages being issued in the capital.

The figures show that landlords favour certain types of properties, with 36% of loans for flats and 34% for terraced houses. This trend is even more marked in London, with flats accounting for almost two-thirds of buy-to-let purchases.

The CML also found that the sector witnessed a stronger recovery than the wider market following the financial crisis, with buy-to-let lending reaching £27 billion last year, after a low of £9 billion in 2009.

At present, there are around 1,100 buy-to-let mortgage products on the market, the highest number since April 2008.

1 http://www.propertyindustryeye.com/buy-to-let-landlords-owe-equivalent-of-hong-kong-economy-in-mortgage-repayments/

 

Remortgaging Activity Surged in August

Published On: September 8, 2015 at 11:43 am

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Remortgaging activity outperformed all other sectors of the housing market in August, according to new research from Connells Survey & Valuation.

The number of valuations for remortgaging increased by 25% in August compared with July. As a result, the amount of remortgage valuations grew by 102% over the last 12 months.

Total valuation activity was slower in August. The number of valuations across all sectors, including remortgaging, rose by 7% monthly. Activity increased by 48% compared with August 2014, mostly driven by remortgaging.

Corporate Services Director of Connells Survey & Valuation, John Bagshaw, says: “Concern and media attention about an interest rate rise in the near future is the key driver of this surge.

Remortgaging Activity Surged in August

Remortgaging Activity Surged in August

“Due to the very low Bank of England base rate, there are currently some very appealing remortgaging deals on offer from lenders. But homeowners have been influenced by a powerful perception that these deals will not last.

“Underneath the short-term surge, remortgaging is also driven by a longer term shift. People are increasingly looking to upgrade their home rather than trade, and so, for a slightly different purpose, are also keen to take advantage of cheaper mortgage deals.

“Meanwhile, the wider picture looks encouragingly stable. First time buyers and homeowners are far more optimistic about the housing market now than they were at this point in 2014, and this is evident from the strong, steady growth we’ve been seeing throughout 2015.”

The amount of valuations for existing owner-occupiers looking to move house has increased by 3% since July. As a result, activity on behalf of home movers rose by 30% from August 2014.

First time buyer activity was similar. The number of valuations conducted in August for those looking to buy their first home rose by 1% monthly and 31% year-on-year.

Bagshaw continues: “Home mover and first time buyer activity has been sizeable and speedy growth over the last six months, so a period of more stable growth is a sign of consolidation.

“It shows that these sectors command long-term momentum and demonstrates a more stable optimism from households about the future.

“For those moving up the ladder, low mortgage rates are combining with property price growth as a basis for their next purchase. Meanwhile, first time buyers don’t have the benefit of this natural deposit, but are showing remarkable fortitude in the face of price rises – buoyed by a jobs market that is increasingly showing real wage growth.”

The only sector to see a fall in August activity was buy-to-let, in which valuations dropped by 5% on July. Despite this, the total number of valuations carried out for buy-to-let investors increased by 29% compared to last year.

He concludes: “Buy-to-let has retained its winning popularity with investors. The slight slowdown the sector experienced this month is likely due to some investors taking a step back to calculate the cost of the Chancellor scrapping certain tax exemptions for buy-to-let landlords in the summer Budget.

“However, the fundamentals of the rental market remain very strong, driven by tenant demand. Even buy-to-let – once a rollercoaster sector in terms of growth – is showing signs of settling into a positive pattern of strong and steady growth, a pattern replicated across many other sectors of the mortgage market.”1

1 http://www.propertyreporter.co.uk/property/remortgaging-activity-soars-in-august.html

Tips from a Buy-to-Let Success Story

Published On: August 29, 2015 at 3:14 pm

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The future is looking bleak for buy-to-let investors as mortgage rates are set to rise and landlords face higher taxation.

The Bank of England (BoE) has hinted that an interest rate increase is due around the New Year, which will likely push up mortgage rates from current record lows.

Additionally, changes to landlord mortgage interest tax relief were announced in the summer Budget, cutting the relief to the basic rate of income tax, 20%.

Many buy-to-let investors now fear the future of their businesses, but one 26-year-old property investor has high hopes for the sector.

Ryan Windsor has a portfolio of 11 properties that he’s been growing since the age of 18, when he invested £6,250 of savings in his first venture in Thetford, Norfolk.

Over the past eight years, Ryan has built a portfolio that he believes will continue to prosper, despite forthcoming issues.

Ryan is a Cambridge graduate who purchased properties when prices were low and stress tests his portfolio to protect it against future challenges.

Ryan, of Thetford, first became interested in property in 2006 when house prices in his area dropped by up to 50%.

He recalls: “Repossessions were increasingly common and many people were put off buying property altogether, but I saw it as an opportunity to get a good deal.”

He bought a repossessed three-bedroom terraced house for £62,500 on his street. He used his £6,250 savings as a 10% deposit – he saved while studying and worked part-time. He spent around £8,000 on renovating the home, with the money coming from inheritance.

At the time, the area experienced strong demand from migrant families for rental property, but these homes were often in poor condition.

Ryan realised that he could build a business by providing a better standard of living. He began searching for similar properties that were selling at a discount.

He states: “I now own most of my street. I know the properties in the area are well built and they are ideal for families.”

Unlike many investors, Ryan did not remortgage his existing properties in order to buy more. He saved the required deposits while working.

In the first few years, the homes he purchased were all repossessions in need of complete refurbishment, which generally cost between £8,000-£15,000.

Ryan charges between £600-£650 per month in rent. In the last eight years, he has had just one two-week void period and his typical tenancy lasts four years.

He claims that he rarely has trouble with late or missed rent payments and spends between five and ten hours a week on landlord responsibilities.

He says: “Over the last eight years, I’ve had tenants from Portugal, Poland, Latvia and Lithuania. There is a perception that migrants come to the UK and go onto benefits, but my tenants have all been really hard workers who are drawn to the area because of the good employment opportunities, particularly in agriculture and factory work.”

Homes on Ryan’s street are now worth up to £140,000, but he has paid a maximum of £110,000.

All 11 properties are still mortgaged, with 80% on interest-only loans and 20% on a capital repayment basis.

Ryan protects his portfolio by constantly stress testing his business plan. He safeguards against rising mortgage rates by ensuring he can still make a profit at rates of up to 9%.

The changes to mortgage interest tax relief proposed by Chancellor George Osborne will increase his tax bill, but Ryan always assumes that no relief is available when calculating his returns, so he sees even 20% as “a bonus”.

Ryan states that his portfolio’s gross return – the rental income as a percentage of the cost of the properties – is 19%.

He says: “My original goal was to achieve financial freedom, which I’ve done. Initially, I wanted to build a buy-to-let empire with hundreds of properties, but I’ve realised that it’s better to have fewer properties and better cash flow.

“Landlords often get a bad name and while there will always be those who cram 20 people into a two-bed flat to maximise their profits, there are many who genuinely want to provide a good service to their community.”

Ryan’s tips for landlords

  • “Get to know your target area well. Find out what type of properties are in demand, what type of tenants are attracted to the area and how much they can typically afford to pay.
  • “Familiarise yourself with local legislation. Councils often have their own rules about health and safety requirements in rental properties for example, which are essential but can be costly, especially if you get them wrong.
  • “Build a good relationship with your local council. They are typically very happy to offer advice and work closely with landlords.
  • “Find a team of good, reliable tradesmen who can help you fix any maintenance issues quickly.”1

1 http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11767771/I-own-most-of-my-street-buy-to-let-investor-26.html

Buy-to-Let Power Couple Sell Their 1,000 Property Empire

Published On: June 9, 2015 at 2:56 pm

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The couple that became Britain’s biggest buy-to-let investors have started selling off their 1,000 property empire, hoping to make a £100m profit.

Fergus and Judith Wilson announced last year that they were planning to sell their portfolio, which is based in Ashford, Folkestone and Maidstone.

The former teachers have already made about £25m from selling around 100 properties to Chinese and Indian investors. They hope to have sold all of their rental houses by the end of next year.

Mr. Wilson, 67, says: “We have got another 20% to sell between June and mid-September. We plan to have sold 40% by the end of December. So we will sell nearly half our portfolio this year

and half next.”

The couple have two adult daughters and live in a £2m house near Maidstone, which they use as their office.

They initially hoped to earn £250m from the sale of the portfolio, which is predominantly modern two and three-bedroom houses. However, Mr. Wilson lowered his estimations after months of negotiating with potential buyers and to appeal to more agents.

The properties already sold were mortgage free – creating a higher return – and Mr. Wilson says that there is not much left to pay on the other homes.

Previously, Mr. Wilson promised to protect existing tenants, saying that their tenancy agreements will be passed onto the company or landlord that buys their rental property.

“We didn’t sell at a discount, all at market price. Basically you’re lucky; I’m selling you houses with tenants that have never defaulted and not asking for a premium. The last thing you want to do is to kick a tenant who has done nothing wrong.”

Land Registry data revealed that the average price of a detached house in Kent was £364,000 in March 2015, a £17,000 increase on the June 2014 average of £347,000.

The couple bought their first home in Maidstone in 1975 when they were training to be teachers at Goldsmiths College, London. This was a three-bedroom semi-detached property.

They soon realised that buying to let could provide strong returns and went on to quit their jobs in the early 1990s, focusing on their growing empire.

Mr. Wilson previously said that he would be heartbroken to sell the empire that has been thriving since 1992. At one stage, the couple were buying one property per day.

The couple did face difficulties during the financial crisis, but Mr. Wilson claims the decision to sell is based on his desire to retire.

Before announcing the sale, Mr. Wilson was criticised for saying that he prefers renting out to Eastern European migrants, as they are less likely to fall behind on rent payments than Britons on benefits.

He sent eviction notices to about 200 tenants on housing benefit, saying that he was helping them not to get into any more debt.

Last July, Mr. Wilson explained the intention to sell: “We are selling up the whole lot. The market has recovered and passed the 2007 level. An intermediary is handling it. Is it China money, Indian money, Saudi money? We will see. I am sure there will be much interest. I would like it to end up in English hands, but it is a case of who will pay top dollar.”1

1 http://www.dailymail.co.uk/news/article-3115091/Ex-maths-teachers-Britain-s-biggest-buy-let-couple-start-selling-1-000-strong-property-empire-bid-make-100m-profit.html

 

 

Buy-to-Let Property Portal Launches

Published On: June 1, 2015 at 2:21 pm

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A new online portal has launched today, offering property investment opportunities.

Buy2Let.com will list thousands of properties, sourced from agents including Northwood, Leaders and Stirling Ackroyd.

Buy-to-Let Property Portal Launches

Buy-to-Let Property Portal Launches

The portal’s auction partner, Bamboo Auctions, will list chain-free instant purchase properties, which will feature in live online auctions.

Founder of Buy2Let.com, Martin Wilkinson, says: “Today we are delighted to launch the first and only business-to-business property listings portal dedicated to the buy-to-let market.

“Buy2Let.com is designed to be the perfect marketing partner for agents to reach investors directly, and encouragingly, it seems our panel of forward-thinking early adopters already recognise us as such.

“We appreciate that some agents and developers don’t have the time to dedicate sufficient resources to the investment market and we know that the current property portals simply do not cut it when it comes to marketing to investors.”

Wilkinson explains: “Our new portal provides the crucial pieces of information that investors need to make a purchasing decision – uniquely, it allows them to search for and identify opportunities by annual rental yield as well as categorising each listing as vacant, instant rental or tenanted, and HMOs [Houses in Multiple Occupation].

“No other portal offers this level of insight or comparison because they are not intended for the buy-to-let property investment market.

“We are confident that our portal will prove to be a vital resource, both to agents and investors, especially at a time when the market is thriving.”

He adds: “We will continue to work with estate agents, developers and corporate landlords to source and list genuine buy-to-let investment properties, providing selling agents with an unrivalled direct marketing outlet and investors with a dedicated resource of property investments and analysis of the market.”1 

Visit the portal here: http://www.buy2let.com

1 http://www.propertyindustryeye.com/new-buy-to-let-investor-portal-launches-today/