Posts with tag: Buy-to-Let

Scottish Budget brings more charge for landlords

Published On: December 17, 2015 at 9:14 am

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Scotland’s Finance Secretary John Swinney has revealed today that there will be an additional charge for people purchasing second homes and buy-to-let properties.

In his budget, Mr Swinney followed Chancellor Osborne’s move in this year’s Autumn Statement, by announcing an additional supplement of 3% on the purchase price of a home. This will be on top of the existing Land and Buildings Transaction Tax.

Changes

The Land and Buildings Transaction Tax (LBTT) replaced UK stamp duty in April of this year. This new system has raised £218m in its first seven months and uses a graduated tax rate, in the same way as income tax is calculated.

Under the current LBBT, properties bought for up to £145,000 do not incur any tax payments. For sales between 145,000 and £250,000, a tax rate of 2% in incurred, with a 5% rate for properties valued between £250,001 and £325,000.

For transactions between £325,001 and £750,000, the marginal rate is 10%, with a top rate of 12% applicable to all of those above £750,000.

In the address, Swinney also said that the rates for residential, non-residential and lease transactions will be the same next year. In addition, he said that he would bring forward legislation on the second home charge as soon as possible, to become effective from April 2016.

Second-home issue

Mr Swinney said to MPs that he is, ‘conscious of the issue of second homes.’ He went on to say that, ‘we need to ensure that the opportunities for first-time buyers to enter the market in Scotland are as strong as they possibly can be and we need to make certain that tax changes elsewhere in the United Kingdom do not make it harder for people to get on the property ladder.’[1]

‘This is why I today announce my intention to introduce a supplement to LBTT for those purchasing and additional home for £40,000 or more. Such properties will be subject to a supplement of 3% of the total purchase price, payable in addition to the existing LBTT charge,’ he continued.[1]

Scottish Budget brings more charge for landlords

Scottish Budget brings more charge for landlords

John Blackwood, chief executive of the Scottish Association of Landlords also commented that, ‘landlords will be disappointed and frustrated by the decision by the finance secretary this afternoon to copy the policy of the Conservative Party at Westminster and punish those who choose to invest in the private rented Scotland. The supplementary tax on the purchase of second homes will have a huge impact on the buy-to-let market and exacerbate an already serious shortage of properties in many areas.’[1]

‘We firmly believe that the biggest losers from today’s statement will be tenants who will now find it even harder to get the accommodation they want at a price they can afford,’ he added.[1]

Investment

Chartered Institute of Housing Scotland policy and practice officer Ashley Campbell said, ‘we welcome proposals to increase land and buildings transaction tax for second homes and buy-to-let properties but would like to see more details of where the additional revenue raised will be invested.’[1]

Campbell went on to say that, ‘our preference would be for these funds to be re-invested towards increasing housing supply.’[6]

[1] http://www.bbc.co.uk/news/uk-scotland-scotland-politics-35113952

 

Bank of England wants action on BTL sector

Published On: December 16, 2015 at 12:29 pm

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Categories: Finance News

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In the wake of the Autumn Statement and the strongly opposed 3% stamp duty hike on buy-to-let homes announced for April 2016, the Bank of England has moved to express concern about the sector.

The Bank’s Governor, Mark Carney, said he was worried about high levels of lending to landlords and that the Bank was looking to intervene.

Watching

‘There are a number of things happening…we are watching it closely and we will take action,’ Carney told the Financial Times. He went on to say that he was worried that investors could sell their properties at the same time if house prices were to fall.

This is not the first time the Bank has expressed concern over the buy-to-let market. In September, the Bank’s Financial Policy Committee made a warning over the sector. The committee is headed by Mr Carney and said that the expanding market posed a real threat to the UK’s financial stability. The Bank warned, ‘the stock of buy-to-let lending might be disproportionately vulnerable to very large falls in house prices.’[1]

Surge

Higher rates of stamp duty tax come into force at the beginning of the next financial year in April. As a result, there are concerns a buy-to-let rush could materialise with landlords seeking to invest before the changes. This could in turn push property prices up even further.

At present, there are 1.7m buy-to-let mortgages, accounting for around 16% of the value of all outstanding mortgages in total. Every year, in excess of two million individual landlords declare their rental income to HMRC.

Earlier in 2015, Mr Carney said that the Bank was in discussions with Mr Osborne regarding the chance of gaining more powers to regulate the buy-to-let mortgage market.

In addition, the Governor used the Financial Times interview to defend himself over interest rates. On a number of occasions over the last two years, Carney has suggested that the base rate of 0.5% would rise. However, with inflation remaining below the target of 2%, the Monetary Committee has been forced to delay.

Bank of England wants action on BTL sector

Bank of England wants action on BTL sector

No warning

Moving to defend himself, Carney said, ‘did I know that oil was going to fall 12% in the last 10 days? No, I didn’t know that.’ He added that there was no, ’12 months heads-up’ from the Chinese over the devaluation of the yaun. However, Carney insisted that he will, ‘continue to try to frame as accurately as possible what’s guiding my deciding process.’[1]

The UK’s inflation rate turned positive in November for the first time in four months. Despite the US Federal Reserve being expected to raise rates for the first time in ten years, Carney says that Bank of England is in no hurry to follow.

Interest rates have remained constant for the past six and a half years in Britain. An annual survey of finances found that nearly a third of households would have to cut spending, work more or make alterations to their mortgage payments, should rates rise by 2% with no increase in wages.

In conclusion, the Bank’s research found that the Government’s austerity programme, ‘has weighed on household spending and is likely to continue to do so.’[1]

[1] http://www.bbc.co.uk/news/business-35108952

 

 

Landlord concern over short-term prospects grows

Published On: December 16, 2015 at 11:07 am

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The buy-to-let sector continues to grow, with tenant demand remaining consistently strong.

However, a new survey has indicated that some landlords are concerned about their short-term prospects.

High demand, low confidence

BM Solutions’ buy to let quarterly index indicates that 41% of landlords reported an increase in tenant demand during the last quarter, but that confidence has fallen dramatically.

Tenant demand was highest in the East of England, with 52% of landlords reporting a rise in tenant demand over the last three months. The largest quarterly increase was recorded in the East Midlands, where demand was up by 12%.

At the lower end of the scale, the South West and North East saw the greatest drop in landlords noting increased demand over the last quarter.

By region, tenant demand altered in the last three months as followed:

Property location Tenant demand in Q2 2015 (Net increase) Tenant demand in Q3 2015 (Net increase) Quarterly change (% point change)
East of England 48% 52% 4%
London (Outer) 40% 48% 8%
South East 41% 47% 6%
East Midlands 35% 47% 12%
London Central*** 35% 45% 10%
Yorks & Humber 35% 39% 4%
West Midlands 37% 38% 1%
Wales 36% 38% 2%
South West 45% 37% -8%
North West 27% 34% 7%
Scotland 30% 33% 3%
North East 39% 31% -8%

[1]

Outlook

The report revealed that confidence in the UK’s financial market has dipped, with 25% confident about the outlook for the next quarter, as opposed to 37% in quarter two of this year. Landlords also reported a fall in confidence in the private rental sector as a whole, with 34% saying they were positive about the sector, as opposed to 59% in Q2 of 2015.

61% of landlords said that they intend to live off the rental income generated by their portfolio when they eventually retire. A further 36% said they would make a decision based on market trends at the time.

Landlord concern over short-term prospects grows

Landlord concern over short-term prospects grows

Void periods recorded also increased during the last quarter, with 35% of landlords experiencing this in Q3, as opposed to 29% in the previous two quarters. In addition, the average rental yield achieved dropped to its lowest level for five years, falling to 5.6%.

By region, landlords in Yorkshire and the Humber and Wales saw the highest rental yield of 6.1%. Those letting in Scotland and Outer London saw the lowest, with 5.1% and 4.8% respectively.

Average rental yields per region were over the last quarter were:

Property location %
Yorkshire & the Humber 6.1
Wales 6.1
North West 5.9
East Midlands 5.8
West Midlands 5.7
North East 5.6
East of England 5.6
South West 5.5
South East (excl. London) 5.4
London (central) 5.2
Scotland 5.1
London (outer) 4.8

[1]

Spotlight

Phil Rickards, Head of BM Solutions noted, ‘there has clearly been a spotlight shining on the Buy-to-Let market and Private Rental Sector for most of 2015. Landlord confidence in the outlooks for the private rental sector as a whole and landlord’s own lettings businesses have seen statistically significant declines when benchmarked against Q3 2014.’[1]

‘However, the market is still holding up and at the same time four in 10 landlords report demand has increased in the areas where they hold properties during the last quarter and yields remain strong. There’s no doubting 2016 looks like a challenging year ahead however I take comfort in the fact there’s still a need for a strong private rental sector along with good quality housing to support demand,’ he concluded.[1]

[1] http://www.propertyreporter.co.uk/landlords/landlord-confidence-dr0ps.html

 

 

Rental market sees start of seasonal slowdown

Published On: December 15, 2015 at 11:48 am

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A new investigation by Landbay suggests that the UK rental market entered a seasonal slowdown over the last month. Research from the report shows that rents fell by 0.4% in November to stand at £1,290.

There was no festive cheer for landlords in London, where rents were down by 0.6%, bringing down the overall UK average. Typically, the rental market in the capital is sensitive to fluctuating demand from tenants and often sees this type of seasonal slowdown as demand from the summer relaxes.

Yearly rises

However, rents did continue to rise on a year-on-year basis. UK rents were 2.9% greater than in November last year, with wages also up by 3.0%.

These rent increases were driven by one-bed homes, popular with young professionals. Rents in these properties were up by 4% year-on-year, while three-bed properties saw a 3.6% increase.

Rents have seen a upward trend since January 2013 and have climbed by 7% from this period. Wage growth has risen by 4.8% over the same timeframe. One-bedroom rents have increased by 8.6%.

The Southeast was revealed to be the area with the quickest rental growth over the last year.

Rental market sees start of seasonal slowdown

Rental market sees start of seasonal slowdown

Slowdown

John Goodall, CEO of Landbay, said that, ‘a seasonal Christmas lull has finally managed to put the brakes on the speedy London rental market. But this is a case of notching down a gear rather than an emergency stop, Rents continue their upward trajectory, albeit at a slightly less frenetic pace.’ He observes that,’ London’s rental market is a very sensitive to changes in supply and demand. The November dip is likely to reflect softening tenant demand as new hiring slows in the run-up to Christmas and fewer people move to the capital for work.’[1]

‘On an annual basis rental inflation is tracking wage growth quite closely,’ he continued. ‘Scotland was only part of the UK to see rental growth below 2%. The big picture is that we are in the midst of a housing crisis and that wages are rising-both these facts mean that rents are more likely than not to continue to climb next year. With house prices rising at the same time it is a little wonder that there is such a strong appetite for investments that are secured against British homes.’[1]

[1] http://www.propertyreporter.co.uk/landlords/rental-market-slows-as-uk-enters-festive-period.html

LGA want new powers to deter rogue landlords

Published On: December 15, 2015 at 10:28 am

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The Local Government Association (LGA) has slammed the legislative system currently in place for dealing for rogue landlords.

Branding the system as, ‘unfit for purpose,’ the LGA believe that it should be replaced with a national database, which would cover all housing-related convictions.

Powerless

Rogue landlords are, according to the LGA, being stopped from working in certain regions but then being free to move to others and continue their unscrupulous dealings. At present, local authorities do not have the power to prevent this.

However, a database listing landlords who are subjected to banning orders is already in the Housing and Planning bill. Councils want this to be extended to include private landlords who have been convicted of other housing-related crimes.

Further research from the LGA also showed the slow process of prosecuting rogue landlords. This can take up to 16 months and can be very costly to the council.

For example, Wolverhampton City Council found a property with 11 contraventions. The council then fined the landlord £2,600 but was left facing a bill of £5,500 in costs.

LGA want new powers to deter rogue landlords

LGA want new powers to deter rogue landlords

Changes

As such, the LGA is calling for:

  • A more strenuous fit and proper persons check to hunt out rogue landlords at an early stage
  • Letting agents to be bound by the same legislation as estate agents
  • Harsher sentencing guidelines for magistrates
  • A larger set of penalties

‘A national information pool of rogue landlords is urgently needed so councils can identify the serial rogue operators and target them more effectively,’ said LGA environment spokesman Councillor Peter Box. ‘We are calling for a system which protects the good landlords, whose reputation is being dragged down by the bad ones.’[1]

Box went on to say, ‘councils are doing everything they can to tackle rogue landlords. However, they are being let down by the current system, which fails to account for the seriousness of the situation. Local authorities have found home with fire escape doors opening out onto three-storey drops and without proper front doors, so tenants have discovered strangers sleeping on their sofas.’ He feels action must be taken as at present rogue landlords are, ‘calculating they can keep these sub-standard properties going while the cash comes in and walk away with effectively a slap on the wrist.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2015/12/councils-call-for-new-powers-to-tackle-rogue-landlords

 

Stamp Duty rises amount to 11 months net income

Published On: December 14, 2015 at 10:55 am

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Categories: Finance News

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New research has found that the cost of the forthcoming 3% stamp duty on buy-to-let properties will be equivalent to 11 months income for the average mortgaged landlord.

An investigation by property services group Countrywide suggests that most private sector landlords looking to buy after April 2016 will attempt to offset this cost by offering less when buying.

At present, rents on newly let properties increased by 2% year on year. This rise was led by markets in the East of England.

Rises

In this year’s Autumn Statement, Chancellor Osborne announced plans to introduce a new 3% stamp duty tax rate for buy-to-let landlords and second home owners.

Research from Countrywide shows that should that larger tax burden not be factored into the purchase price of a property, this would lead to a reduction in gross yield of 0.2%. This is the same as 11 months income for the typical buy-to-let landlord, when borrowing costs are taken into account based on the average LTV of 68%.

Buy-to-let landlords in the South West and the North of England will experience the greatest cost relative to their rental income, with the extra tax burden equivalent to 14 and 12 months rental income respectively. Landlords in the North West of the country will see the least cost hike, accounting for 8 months of income.

The majority of buy-to-let purchases were found to take place in London, the South and East of England. 60% of homes sold in this market during the past year were in these regions. Landlords within these areas face the greatest cash increase in stamp duty of £6,000 on average.

Stamp Duty rises amount to 11 months net income

Stamp Duty rises amount to 11 months net income

Great expectations

It is hoped that the widely anticipated house price growth during 2016 will take some of the sting from the tax increase. Should prices increase at the same rate as in the last five years, the next year will see the cost of additional stamp duty offset.

In the Midlands and the North of England, 16% and 12% of sales are to landlords. What’s more, data from the Countrywide report indicates that the average property purchased in these regions would previously have not faced a stamp duty bill, but will now face a £3,200 tax charge from April.

These changes in stamp duty come as the number of homes available to rent continues to dwindle, with numbers down by 5% year on year.

‘The stamp duty increase will impact landlords’ purchasing power,’ observed Johnny Morris, research director at Countrywide. ‘Many entering the market will be faced with a choice between making a lower offer when buying of having to cover the additional costs themselves, impacting yields.’[1]

Morris went on to say, ‘most landlords view property as a long term investment, on average holding a property for 17 years and larger investors will be exempt from the higher stamp duty rate. This means over the long term the private rented sector will continue to grow, but there’s likely to be a few lumps and bumps along the way as landlords get to grips with and adapt to the changing environment.’[1]

‘It’s unlikely the change to stamp duty will see an immediate impact on rents. Landlords are rarely able to pass on increasing costs to tenants, as rental prices are set by market forces. But if less landlords choose to invest in the sector in the short term, a fall in homes available to rent could put pressure on prices,’ he concluded.[1]

[1] http://www.propertywire.com/news/europe/uk-rental-market-landlords-2015121411312.html