Posts with tag: Buy-to-Let

Property prices set to increase despite scepticism

Published On: July 26, 2016 at 9:52 am

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Despite the Brexit vote affecting sentiment in the housing market, many households are expecting property prices to rise, albeit at a steady pace.

The latest House Price Sentiment Index (HPSI) from Knight Frank and IHS Markit indicates that households across the UK feel the value of their home dropped during July. Respondents in nine of the eleven regions covered by the Index put this solely down to the decision to leave the European Union.

Positive future?

This said, the future HPSI is positive, with the majority of households suggesting that the value of their home will increase over the next 12 months. However, this rise is forecasted to be at its most modest since October 2012.

‘The impact of uncertainty in the wake of the Brexit vote is clear from the HPSI index reading for July, especially in light of the relative strength of sentiment in the run-up to the vote. Although there has been a marked drop in the index, the readings are hovering around the no-change mark, similar to levels in 2012/2013,’ noted Grainne Gilmore, head of UK residential research at Knight Frank.[1]

Regional variations

Results from the Index show that households in the South of England are more confident about property price rises than those in the North, Scotland or Wales.

Alongside geographical discrepancies, there are differences in positivity throughout various age groups. Those over 55 expect the value of their home to fall in the next year, similar to those aged 18-24. However, other age groups expect a moderate rise.

Tim Moore, senior economist at HIS Markit, said, ‘the surge in economic uncertainty after the EU referendum weighed heavily on UK house price sentiment during July. The current prices index signalled the greatest month to month loss of momentum for at least seven-and-a-half-years. Despite a sizeable fall since June, the latest reading signalled that house price sentiment was at a level seen in early 2013 and only marginally downbeat overall.’[1]

‘Households across all UK regions also indicated a sharp recalibration of their property price expectations for the next 12 months, led by those living in London and the South East,’ he continued.

Property prices set to increase despite scepticism

Property prices set to increase despite scepticism

Referendum reductions

Before the referendum, 43% of UK households expected a yearly rise in property values, as opposed to 8% that predicted a fall. Now, there is a fairly even split, with 26% predicting a rise in values and 23% anticipating a fall.

Concluding, Mr Moore said, ‘While it is too early to evaluate the full impact of the EU referendum on the UK property market, it is already clear that heightened uncertainty has cast a shadow over household sentiment. At the same time, fundamental imbalances between housing supply and demand have not changed materially, while lending conditions remain supportive. Nonetheless, a sharp jolt to consumer confidence in July has impacted swiftly on UK households’ perception of their property value, and this is also a signal that price expectations could remain highly sensitive to economic and political developments over the months ahead.’[1]

[1] https://www.propertyinvestortoday.co.uk/breaking-news/2016/7/house-prices-set-to-rise-despite-waning-confidence

Rental market stays stable post Brexit

Published On: July 26, 2016 at 8:46 am

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The latest report from the Association of Residential Letting Agents has suggested that the rental market has stayed relatively stable following last month’s Brexit vote.

Referendum reality

In the aftermath of the decision to leave the European Union, there has been very little movement in terms of rental costs.

12% of letting agents reported a fall in rent, while 77% saw no change.

Prior to the vote, 19% of agents suggested that rents would increase, with 20% expecting them to drop. 61% thought that they would stay the same.

Supply of available properties and housing demand has also stayed fairly constant since the referendum. 67% of ARLA members have reported no change to supply, with 64% saying that there has been no change in the number of tenants looking to secure a rental property.

This said, 45% of letting agents have seen uncertainty from landlords looking to let, which could cause problems in the coming months.

Calm

David Cox, managing director of the Association of Residential Letting Agents, noted, ‘the rental market has responded to Brexit in a calm fashion, with no immediate fallout amid extreme political and economic uncertainty. What we need is some certainty from the new Government that housing remains a priority with the rental market playing a central role. For example, we want to avoid a situation where institutional investors start pulling away from the market, because ultimately this will impact tenants by squeezing supply further and pushing up rents.’[1]

‘Although we’ve seen some hesitation from landlords this is relatively mild and it’s importantly they do not act in haste. Any inevitable longer-term changes will then be taken on board with greater ease,’ he continued.[1]

Rental market stays stable post Brexit

Rental market stays stable post Brexit

Monthly rises

On a month on month basis, demand for rental accommodation was up during June. In addition, the supply of properties managed on agents’ books also rose. There were 37 would-be tenants on average registered per ARLA branch in June, up from the 33 recorded on average in May.

The supply of rental properties increased by 3% in June, from 171 in May to 176.

Cox concluded by stating, ‘if one thing is clear following Brexit, it’s that supply and demand remains a real issue in the rental market. If supply continues to dwindle against growing demand, no matter what the eventual implications of Brexit are, renting will become more difficult and expensive for tenants.’[1]

[1] http://www.propertyreporter.co.uk/landlords/rental-market-survives-storm-brexit.html

Landlords told to be aware of tax restrictions

Published On: July 25, 2016 at 9:18 am

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Buy-to-let landlords should pay close attention to tax rules coming into force for residential property in April 2017, or they could face serious consequences.

That is the view of London Chartered Accountants Blick Rothenberg, who have moved to stress the potential costly future facing landlords.

Changes

These tax changes were announced during last year’s Summer Budget, but HMRC only issued guidance on them on Thursday.

The additional 3% stamp duty surcharge has been prominent in the buy-to-let sector, but the restrictions in mortgage interest tax relief could have far-reaching consequences.

Mortgage interest tax relief will limit the amount of interest a residential landlord can deduct to calculate their income tax liability. These restrictions are coming into force in April 2017, being phased in over 4 years until it takes effect in April 2020.

Awareness

Nimesh Shah, partner at Blick Rothenberg, noted, ‘investors in residential property need to be aware of this marked new change and need to start planning for their portfolios now. Whilst the additional 3% SDLT has created the most anxiety amongst buy-to-let investors, the restriction to interest relief may have been overlooked, but this is likely to have greater longer-term effect on after tax returns.’[1]

HMRC say in their latest guidance that ‘all residential landlords with finance costs will be affected, but only some will pay more tax.’  The statement is quite misleading as the changes could have quite far reaching effect, which most buy-to-let landlords will not appreciate,’ he added.[1]

Landlords told to be aware of tax restrictions

Landlords told to be aware of tax restrictions

Rises

Shah went on to note that, ‘A number of individuals have picked up a buy-to-let property in recent years, whether that is an investment property to supplement earnings, a second home which is occasionally rented out or a property which they have inherited and decided to let out.’[1]

‘It is wrong for HMRC to say only some will pay more tax, as entitlement to child benefit, personal allowance and the pension annual allowance will all be affected indirectly through how this new measure operates in practice.  It would also not be an unreasonable assumption to say that the majority of buy-to-let landlords will be higher or additional rate taxpayers and they will be affected without question.  This change will capture a large proportion of the buy-to-let landlord population.’[1]

Impact

When the measures were announced in the Summer Budget, the measure was described as limiting interest relief at the 20% basic rate. However, the actual workings of the restrictions will have a larger impact.

Mr Shah explains, ‘Currently, buy-to-let landlords can deduct all their interest cost to calculate rental profits.  When the new measure takes full effect, the interest cost will be completely disallowed in computing rental profits and instead a tax credit equal to 20% of the interest will be given against the person’s income tax liability. Whilst this may sound like what the Government intended the measure to achieve, the fact the interest is completely disallowed means the individual will have higher overall taxable income.’[1]
‘This could push an individual into a higher rate of income tax (40%/45%), start to reduce their personal allowance (if their income now starts to exceed £100,000), affect their entitlement to child benefit and restrict the amount on which they can claim tax relief for pensions.’[1]

[1] http://www.propertyreporter.co.uk/landlords/landlords-urged-to-pay-attention-to-changes-in-residential-property-tax-rules.html

 

 

Landlords, Consider the Effects of Tax Relief Changes Now

Published On: July 22, 2016 at 11:01 am

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Buy-to-let landlords are being warned to consider the effects of mortgage interest tax relief changes for residential property, which will be introduced in April 2017.

London chartered accountants, Blick Rothenberg LLP believe that some landlords could be in for costly tax consequences if they don’t pay attention to the changes now.

The tax relief changes were announced in last year’s summer Budget, although the Government has only recently released its guidance on the new rules.

The 3% Stamp Duty surcharge for landlords, which was introduced in April this year, has dominated discussion within the sector over recent months. However, the firm insists that the forthcoming tax relief changes are more of a concern for buy-to-let investors.

Landlords, Consider the Effects of Tax Relief Changes Now

Landlords, Consider the Effects of Tax Relief Changes Now

The measure will restrict the amount of interest that a buy-to-let landlord can deduct to calculate their income tax liability. The reduction will be phased in over four years from April 2017, with interest restricted by 25% each year until it takes full effect in April 2020.

A partner at Blick Rothenberg, Nimesh Shah, states: “Investors in residential property need to be aware of this marked new change and need to start planning for their portfolios now.

“Whilst the additional 3% Stamp Duty has created the most anxiety amongst buy-to-let investors, the restriction to interest relief may have been overlooked, but this is likely to have a greater longer-term effect after tax returns.”

The recent guidance from the Government on the changes includes some worked examples to illustrate how landlords will be affected.

Shah comments: “HMRC say in their latest guidance that ‘all residential landlords with finance costs will be affected, but only some will pay more tax’. The statement is quite misleading, as the changes could have quite a far-reaching effect, which most buy-to-let landlords will not appreciate.

“A number of individuals have picked up a buy-to-let property in recent years, whether that is an investment property to supplement earnings, a second home which is occasionally rented out, or a property which they have inherited and decided to let out.

“It is wrong for HMRC to say ‘only some will pay more tax’, as entitlement to child benefit, personal allowance and the pension annual allowance will all be affected indirectly through how this new measure operates in practice. It would also not be an unreasonable assumption to say that the majority of buy-to-let landlords will be higher or additional rate taxpayers and they will be affected without question. This change will capture a large proportion of the buy-to-let landlord population.”

When the change was announced in the summer Budget, it was described as a restriction to interest relief to the 20% basic rate. However, the actual mechanism of how the reduction works has a wider impact.

Shah explains: “Currently, buy-to-let landlords can deduct all their interest cost to calculate rental profits. When the new measure takes full effect, the interest cost will be completely disallowed in computing rental profits, and, instead, a tax credit equal to 20% of the interest will be given against the person’s income tax liability.

“Whilst this may sound like what the Government intended the measure to achieve, the fact the interest is completely disallowed means the individual will have higher overall taxable income.

“This could push an individual into a higher rate of income tax (40/45%), start to reduce their personal allowance (if their income now starts to exceed £100,000), affect their entitlement to child benefit and restrict the amount on which they can claim tax relief for pensions.”

The following two examples highlight some of the issues:

Example 1

Susan is retired and owns a number of residential buy-to-let properties. Her only source of income is the rents from her residential property portfolio, which total £60,000 per annum. She has mortgages on the properties and she pays annual interest of £25,000. Therefore, her net profit before tax is £35,000.

Susan’s income tax position and net profit after tax over the next five years are as follows:

Tax year 2016/17 2017/18 2018/19 2019/20 2020/21
Rental income £60,000 £60,000 £60,000 £60,000 £60,000
Loan interest £25,000 £18,750 £12,500 £6,250 –
Net rental income £35,000 £41,250 £47,500 £53,750 £60,000
Less: personal allowance £11,000 £11,000 £11,000 £11,000 £11,000
Taxable income £24,000 £30,250 £36,500 £42,750 £49,000
Income tax payable £4,800 £6,050 £8,200 £10,700 £13,200
20% tax credit for interest cost – £1,250 £2,500 £3,750 £5,000
Total income tax payable £4,800 £4,800 £5,700 £6,950 £8,200
Net profit after tax £30,200 £30,200 £29,300 £28,050 £26,800

Although Susan could be excused for believing that she is not affected by the change, as her net income after deducting the personal allowance is within the 20% tax rate, the table shows that Susan’s tax bill increases by £3,500 (over 70%) when the restriction takes full effect in April 2020. This is due to the way the restriction operates, which pushes Susan into the 40% rate of income tax. Her overall effective rate of income tax rises by almost 10% because of the changes.

Example 2 

Peter is employed and earns £80,000 in salary and bonuses per annum. As well as his employment income, Peter owns a buy-to-let residential property from which he receives £40,000 a year. Peter has a mortgage on the property and pays £25,000 interest per annum, so that his net rental profit before tax is £15,000.

His income tax position and net profit after tax over the next five years are as follows:

Tax year 2016/17 2017/18 2018/19 2019/20 2020/21
Employment income £80,000 £80,000 £80,000 £80,000 £80,000
Rental income £40,000 £40,000 £40,000 £40,000 £40,000
Loan interest £25,000 £18,750 £12,500 £6,250 –
Total income £95,000 £101,250 £107,500 £113,750 £120,000
Less: personal allowance £11,000 £10,375 £7,250 £4,125 £1,000
Taxable income £84,000 £90,875 £100,250 £109,625 £119,000
Income tax payable £27,200 £29,950 £33,700 £37,450 £41,200
20% tax credit for interest cost – £1,250 £2,500 £3,750 £5,000
Total income tax payable £27,200 £28,700 £31,200 £33,700 £36,200
Net rental profit after tax £9,000 £7,500 £5,000 £2,500 –

The above examples are just two ways that the measures have a wider effect than simply restricting the tax relief on mortgage interest costs.

Buy-to-let landlords must urgently review their portfolios and mortgages, and calculate the exact impact on their businesses after tax returns. Some may decide that buy-to-let is no longer a viable investment option…

UK Landlords Remain Confident Following Brexit Vote

Published On: July 18, 2016 at 9:47 am

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Although many UK landlords feel uncertain or worried about the Brexit vote’s possible negative impact on the private rental sector, almost half believe that the outcome will not affect their own lettings business.

A post-EU referendum survey by BDRC Continental reveals how landlords felt in the immediate aftermath of the UK’s decision to leave the EU.

The study found that despite two-thirds of UK landlords feeling uncertain or worried about a negative impact on the private rental sector, they remain confident about their own investments.

According to the BDRC Continental report, 65% of landlords are unsure or concerned about a negative impact on the private rental sector following the vote. Worryingly, 40% of landlords believe that the result will have a negative effect on the sector, while a quarter (25%) are unsure what the impact will be.

UK Landlords Remain Confident Following Brexit Vote

UK Landlords Remain Confident Following Brexit Vote

One landlord commented: “It’s difficult to plan to expand the business in a period of economic turmoil and uncertainty – not knowing how or what changes will occur with costs of borrowing, taxation, availability of labour in the building trades, etc.”

Of those landlords that fear the Brexit will result in a downturn in the private rental sector, over four in ten (42%) have a buy-to-let mortgage – highlighting the potential financial worries associated with leaving the EU.

Other landlords stated: “Less EU residents means less tenants overall, so there will be more empty properties and it will take longer to find new tenants. I also think interest rates will rise so mortgage costs will increase.”

“My rental tenants are EU migrants, so depending on the outcome of the agreement negotiated with the EU, I could lose out on excellent tenants. I anticipate house prices decreasing, which may put my rental into negative equity.”

“The EU referendum has affected the financial markets. If this continues, it will affect interest rates, which for those buying on a mortgage is scary. I am fortunate as I have no mortgage, but unstable financial markets affect the whole economy.”

Despite this, almost half (43%) of UK landlords believe the Brexit will have no impact on their lettings business. However, the majority (53%) of those landlords do not have a buy-to-let mortgage.”

Some landlords remain positive: “People will still need somewhere to live. Demand will not change.”

“Reduced immigration will reduce the demand for rental properties, although I continue to expect demand to outstrip supply, which allows the sector to be healthy.”

The Director of BDRC Continental, Mark Long, comments on the findings: “These early findings in the days immediately following the UK’s decision to leave the EU paint an interesting but mixed picture for private landlords. Attitudes and future intentions vary widely, with an underlying current that the only certainty is that there is no certainty.

“Some of the key factors that will determine how private landlords weather the storm include their exposure to EU residents and the extent to which they have strong underlying profitability across their lettings portfolios to adapt to the evolving financial landscape. The next quarterly landlord’s panel results in early August will provide further insights on the sentiment among the UK’s private landlords, on whom much of the population relies for good quality housing.”

Are you confident in the future of the private rental sector post-Brexit?

Tenants being hit by uninsured landlords

Published On: July 15, 2016 at 10:43 am

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UK tenants are being hit with unforeseen costs that are not being covered by their current landlord, according to a concerning new report.

The study from insurance providers Endsleigh shows that many are not insured against features such as boiler repairs, flood damage and property maintenance.

Costly

Data from the report shows that 14% of tenants face unexpected costs averaging £165.41 per year. 70% of these renters said they did not agree with the reasons for these charges.

The investigation of tenants also found:

  • 47% are not expecting rises in rents
  • 45% do not understand their responsibilities under tenancy agreements
  • 83% are happy with their current landlord

41% of landlords questioned said that they would go the extra mile in order to keep hold of quality tenants. 28% stated that they would take on the increased costs of rental increases in order to keep reliable tenants in the property for longer.

Tenants being hit by uninsured landlords

Tenants being hit by uninsured landlords

Positivity

David Hadden, head of property at Endsleigh Insurance, acknowledges that, ‘although the research could paint a picture of discontent in the worlds of both landlords and tenants, the positives far outweigh the worries. Noticing the number of landlords surveyed willing to go the extra mile for their tenants is reassuring to say the least, highlighting the fact that they are valued and listened to.’[1]

‘Inevitably, costs will continue to held high on the tenants’ agenda and though unexpected charges may occur in some cases, hearing that almost a third of landlords will absorb these is very encouraging,’ he added.[1]

[1] http://www.propertywire.com/news/europe/uk-residential-tenants-costs-2016070712115.html