Posts with tag: finance

Buy-to-Let Lending Up by Almost 40% Over the Past Year

Published On: September 13, 2016 at 1:36 pm

Tags: buy-to-let finance,Buy-to-let lending,finance,mortgages

Buy-to-let lending has risen by almost 40% over the past year, defying new Government measures to curb investment in the private rental sector.

Buy-to-Let Lending Up by Almost 40% Over the Past Year

According to the latest figures from the National Association of Commercial Finance Brokers (NACFB), buy-to-let has had a very strong year, despite the various tax changes that have been announced over the past 18 months.

The organisation found that landlord borrowing has not been materially affected by April’s Stamp Duty hike, when the 3% surcharge for buy-to-let investors and second homebuyers was introduced.

Almost £5 billion worth of business was written by NACFB for buy-to-let landlords in the year from July to June, marking a 39.1% increase on the previous 12 months.

Alongside the Stamp Duty surcharge, landlords have been faced with the 10% Wear and Tear Allowance cut and forthcoming restrictions to mortgage interest tax relief.

The body also reports that small business lending has hit an all-time high over the past 12 months, despite a backdrop of political and economic uncertainty surrounding the EU referendum. Lending has risen by almost 30% to reach £20.7 billion.

However, while traditional forms of lending – such as commercial mortgages – have had an impressive 12 months, lending in the alternative finance space, which includes peer-to-peer and crowdfunding, has slowed. Business written by NACFB brokers over the last year has dropped by 14.4%, down from £848m to £725m.

Despite this, other areas have also experienced strong growth, including invoice finance (22.8%), leasing and equipment finance (10.5%), development finance (49.8%) and bridging finance (74.6%).

The organisation’s Adam Tyler comments: “It’s been a phenomenal and record breaking year across the commercial finance sector. With the UK’s SME community showing a real appetite for growth, despite the uncertainty of Brexit, we have seen small business lending at levels above even those registered before the financial crash.

“Interestingly, the figures show that there has been a significant switch by small businesses back to traditional forms of lending. The alternative finance sector has grown at such a pace that it was inevitable that rate of growth couldn’t be sustained. Peer-to-peer will always have its place, but alternative forms of funding are no longer the only future; they are just one of many forms of finance available to small and medium-sized businesses.

“There has never been a better time for businesses to secure finance, as the commercial finance sector continues to innovate and diversify. The challenge is to make sure the message reaches SMEs that there are many routes to funding.”

Landlords, have you continued to invest in buy-to-let this year, despite the tax changes you face?

How Will the Interest Rate Cut Affect You?

Published On: August 5, 2016 at 8:42 am

Author: Em Morley

Categories: Finance News

Tags: Bank of England,finance,interest rate cut,interest rates,mortgages,pensions,savings

Yesterday, the Bank of England (BoE) decided to cut interest rates for the first time in over seven years. So how will the interest rate cut affect you?

The Bank’s decision to cut interest rates from 0.5% to 0.25% marks the first interest rate change since 2009 and stems from market uncertainty caused by the EU referendum vote.

But what does the cut mean for the average consumer? A series of experts explain:

Savings

“Today is a bad day to be a saver; savings rates have already plummeted to record lows, so a cut to interest rates is only going to increase savers’ pain,” says Charlotte Nelson, a Finance Expert at Moneyfacts.co.uk.

She continues: “Rates have tumbled since the last base rate change; for example, the average easy access account has fallen from 0.94% in March 2009 to 0.55% today, while the average two-year fixed rate bond fell from 2.83% to 1.31% over the same period.

How Will the Interest Rate Cut Affect You?

“The base rate cut does not necessarily mean that providers will pass on the reduction to savers, but seeing as rates are already dropping, this latest change will give them yet another opportunity to cut their rates. Anyone considering switching deals will therefore need to do so sooner rather than later.”

Mortgages

Could the interest rate cut be beneficial to those with mortgages?

Nelson explains: “Borrowers have already been enjoying some of the lowest rates on record, and the 0.25% cut to the Bank of England base rate will provide further impetus to the rate-cutting trend.

“Thanks to Government lending initiatives and falling SWAP rates, lenders are very keen to attract new customers and retain existing business, which is why the average two-year fixed rate mortgage has fallen from 4.79% in March 2009 to 2.48% today.”

She adds: “This cut in base rate will also be a significant boon to those currently sitting on their Standard Variable Rate (SVR). Based on the average SVR of 4.80%, today’s cut represents a drop of £28.64 to monthly repayments. However, with fixed rate mortgages still currently sitting at record low rates, borrowers may still be better off looking elsewhere and fixing to a new deal.”

Pensions

If you have a pension, Richard Eagling, the Head of Pensions at Moneyfacts, explains how you will be affected by the change.

“The interest rate cut is not only bad news for those pensioners relying on their savings to generate an income, but also for those on the verge of retirement who may be looking to secure an income through an annuity, as it’s likely to add extra downward pressure on annuity rates at a time when they are already at record lows. The greater demand for gilts could see yields fall further, and since these are used to back annuities, it seems inevitable that annuity rates will take a hit.

“An interest rate cut will also have an adverse impact on the already precarious funding position facing most defined benefit schemes, as lower gilt yields will increase pension liabilities. Employers will need to look at ways of addressing the greater pension deficits that this is likely to create.”

Property market

The founder and CEO of eMoov.co.uk, Russell Quirk, offers his insight into the interest rate cut’s impact on the property market.

He says: “Today’s cut in interest rates will come as welcome news to UK homebuyers, who will continue to enjoy rock-bottom mortgage rates as a result of this latest cut.

“The Brexit result brought about sensationalist prophecies of a less stable housing market and, as a result, many would have been deterred from buying. However, today’s news should come as a reassurance that the UK property market is in a more than stable condition.

“A cut in interest rates is the antidote for the post-Brexit worry and will, as a consequence, ensure that the UK economy continues to be underpinned by buoyant property prices.”

What do you think about the latest interest rate cut?

Landlords, Consider the Effects of Tax Relief Changes Now

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

Author: Em Morley

Categories: Landlord News

Tags: Buy-to-Let,finance,landlord taxes,mortgage interest tax relief,tax

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

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…

Bank of England Releases Statement Following EU Referendum Result

Published On: June 24, 2016 at 10:19 am

Author: Em Morley

Categories: Finance News

Tags: Bank of England,Brexit,EU referendum,finance

The Governor of the Bank of England, Mark Carney, has issued a statement following the results of yesterday’s EU referendum.

This morning, it was revealed that Britain has decided to leave the EU, with 51.9% of the vote.

The UK’s central bank has now released its thoughts following the revelation:

“The people of the United Kingdom have voted to leave the European Union. Inevitably, there will be a period of uncertainty and adjustment following this result.

“There will be no initial change in the way our people can travel, in the way our goods can move, or the way our services can be sold. And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world. Some market and economic volatility can be expected as this process unfolds.

“But we are well prepared for this. The Treasury and the Bank of England have engaged in extensive contingency planning, and the Chancellor and I have been in close contact, including through the night and this morning.

“The Bank will not hesitate to take additional measures as required, as markets adjust and the UK economy moves forward.

Bank of England Releases Statement Following EU Referendum Result

“These adjustments will be supported by a resilient UK financial system – one that the Bank of England has consistently strengthened over the last seven years.

“The capital requirements of our largest banks are now ten times higher than before the crisis. The Bank of England has stress tested them against scenarios more severe than the country currently faces.

“As a result of these actions, UK banks have raised over £130 billion of capital, and now have more than £600 billion of high-quality liquid assets.”

But why does this matter?

Carney explains: “This substantial capital and huge liquidity gives banks the flexibility they need to continue to lend to UK businesses and households, even during challenging times.

“Moreover, as a backdrop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250 billion of additional funds through its normal facilities.

“The Bank of England is also able to provide substantial liquidity in foreign currency, if required.

“We expect institutions to draw on this funding if and when appropriate, just as we expect them to draw on their own resources as needed in order to provide credit, to support markets and to supply other financial services to the real economy.

“In the coming weeks, the Bank will assess economic conditions and will consider any additional policy responses.”

He concludes: “A few months ago, the Bank judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability.

“To mitigate them, the Bank of England has put in place extensive contingency plans. These begin with ensuring that the core of our financial system is well-capitalised, liquid and strong. This resilience is backed up by the Bank of England’s liquidity facilities in sterling and foreign currency. All these resources will support orderly market functioning in the face of any short-term volatility.

“The Bank will continue to consult and cooperate with all relevant domestic and international authorities to ensure that the UK financial system can absorb any stresses and can concentrate on serving the real economy.

“That economy will adjust to new trading relationships that will be put in place over time. It is these public and private decisions that will determine the UK’s long-term economic prospects.

“The best contribution of the Bank of England to this process is to continue to pursue relentlessly our responsibilities for monetary and financial stability.

“These are unchanged. We have taken all the necessary steps to prepare for today’s events.

“In the future, we will not hesitate to take any additional measures required to meet our responsibilities as the United Kingdom moves forward.”

Experts in the property industry have also responded to how the result will affect the housing market: /brexit-mean-housing-market/

Stamp Duty Deadline Causes Huge Drop in Buy-to-Let Borrowing

Published On: June 16, 2016 at 8:31 am

Author: Em Morley

Categories: Finance News

Tags: buy to let mortgages,finance,first time buyers,mortgages,Stamp Duty

The 1^st April Stamp Duty deadline has caused a huge monthly drop in buy-to-let lending, according to the latest Council of Mortgage Lenders (CML) report.

Landlords borrowed £2.5 billion in April, down by a huge 65% on March and 7% on the previous year. A total of 16,100 loans were approved, down by 64% compared to the previous month and 10% on April 2015.

Stamp Duty Deadline Causes Huge Drop in Buy-to-Let Borrowing

As of 1^st April, buy-to-let landlords and second homebuyers are charged an extra 3% in Stamp Duty on property purchases. This caused a rush of investors to flood the market in the first three months of the year.

Homeowners borrowed £8.1 billion for house purchase in April, down by 40% on the month and 4% annually. They took out 47,300 loans, down by 31% on March and 5% on April last year.

The report also found that first time buyers borrowed £3.9 billion, marking a decline of 11% month-on-month, but up by 15% on the year. This equated to 25,100 loans, down by 9% on March, but up by 7% yearly.

Those moving home borrowed £4.3 billion, down by a significant 53% on March and 14% compared to the previous year. This represented 22,200 loans, down by 46% monthly and 15% year-on-year.

Remortgage borrowing totalled £6 billion in April, up by 25% on March and 40% on April 2015. This came to 34,800 loans, up by 23% on the month and 30% on last year.

The Director of e.surv chartered surveyors, Richard Sexton, comments on the figures: “Concerns about a potential Brexit could account for a slight lending market slowdown, with May seeing house purchase loans total 65,113 – down 1.7% from April. Alongside this, lenders are adapting to much calmer market conditions after the rush of buy-to-let activity at the start of the year.

“Lending to first time buyers in particular has eased off slightly on a monthly basis, as a temporary caution enters the market. But lenders are committed to helping first timers get a foot on the property ladder in the long run. Since last year, significant effort has been made to support first timers through a variety of flexible mortgage deals offering low rates and even enabling family support.”

Sexton adds: “Buy-to-let borrowing may also be taking a breather, but the lending market remains buoyant. A remortgaging rush shows no sign of slowing as we approach summer, with homeowners taking advantage of more mortgage options, rising wages and a static interest rate. All this activity suggests that the next couple of months will see an increasingly resilient and balanced lending environment.”

Refurbishment: The Surefire Way for Landlords to Increase the Value of a Rental Property

Published On: June 11, 2016 at 8:20 am

Author: Em Morley

Categories: Landlord News

Tags: finance,property investors,refurbishment,rental property

As the weather gets warmer, many peoples’ minds turn to spring-cleaning and property improvement. This is also true of landlords, both those with properties they think could benefit from some work and those looking to buy a refurbishment project. Sprucing up a property is a classic way for landlords to be able to improve the tenant profile occupying the space and generate more rental income from that property. Karl Griggs, the Director of CPC Finance, explains how landlords can increase the value of their rental property this summer.

With any refurbishment project, a healthy dose of realism is key. There is a limit to how much value it is possible to add to a property with refurbishment work. Despite careful planning, it is not possible to predict property values and how the rental market will move in the future. If you are buying a property, it is generally better to purchase below market price and stick to a sensible business plan rather than get carried away by unnecessary add-ons to the property, which may not add to the value of it, and may not be appreciated by tenants.

Quick ways to increase rental yield

For landlords, in addition to increasing the value of the property, refurbishment will cut down on long-term maintenance and attract higher quality tenants, who often stay for a longer period. Most tenants want to feel that they’re living in a modern, convenient property. Low-cost updates like repainting in a bright modern colour and updating amenities such as taps, door knobs etc., can change the feel of a property. Equally, putting in the latest appliances will make tenants feel the property is more desirable.

Refurbishment vs repair

Landlords of unfurnished, part-furnished and furnished properties should be aware that the automatic Wear and Tear Allowance has been removed. The standard 10% allowance for wear and tear has been replaced with relief on actual money spent on replacing furnishings and appliances. This measure came into effect for expenditure incurred on or after 1^st April for corporation tax payers and 6^th April for income tax payers. However, as this is intended to enable landlords to maintain a property in its existing condition, through replacing furniture, landlords cannot claim for refurbishments and improvements.

Refurbishment property finance

Karl Griggs, the Director of CPC Finance, offers refurbishment advice

If a landlord does not have the ready cash to work on a property, or to buy a property in need of work, finance is available. Specific refurbishment finance is not something that high street lenders generally provide. Most of them will only offer a mortgage on a property that is already considered habitable. Instead, more specialist lenders will be able to provide specific refurbishment finance or short-term finance. The interest rates offered will depend on the landlord’s level of experience and the level of complexity of the project.

For property investors who need finance quickly, an advantageous kind of finance available for all kinds of refurbishment is short-term loans, giving investors the benefit of being able to raise finance quickly to do the works, increase the value and then redeem or change to a buy-to-let mortgage, normally without early redemption charge.

For those looking for a short-term refurbishment loan, there are two kinds of refurbishment. Landlords who are looking to do minimal works on a property will need light refurbishment finance. This is classed as work that costs less than 15% of the property value. These include cosmetic improvements to a property and smaller works such as rewiring, repainting or installing a new bathroom.

Heavy refurbishment work on the other hand constitutes major structural work, costing more than 15% of the property value. This could need planning permission or involve certain building regulations.

However, both kinds of loans are intended for experienced landlords and lenders will expect to see an exit plan in place, either how you intend to pay off the loan within the necessary timeframe or how you expect to move onto a longer term mortgage. You should consult a broker to find out about your finance options.

An alternative can be using your own home to raise the finance through a secured loan, also known as a second charge mortgage. At CPC Finance, we have had clients raise a short-term loan to buy a property and then use secured loans for the works. If you have a mortgage on your home but you want to use it to raise finance, a secured loan can be a better option than remortgaging. Secured loans sit behind the existing mortgage, meaning no exit fees.

A new refurbishment project

Refurbishment can be very capital intensive and for a new project you will need to have a thorough plan in place first, both for your own peace of mind, and if you need finance, to reassure lenders you know what you are doing. This can include working out the costs of the property, choosing your target tenant market and determining realistically how much you will get from selling or renting the property. This will help you work out your profit margin and if the endeavour is worthwhile. Other local property investors can be a good source of insight on local rental and prices.

As refurbishment can be a considerable cost, buying the property at the right price is key. Auctions can be a great place to pick up a property below market value. Our guide to buying property at auction can help you approach the auction in the right way.

Fulfilling the potential of a property through refurbishment can be a powerful way for landlords to maximise the return on an investment. However, they are not to be underestimated and should be planned carefully to ensure that they are a success.