Posts with tag: mortgage interest tax relief

The Private Rental Sector Will Continue to Grow, Despite Clampdown on Landlords, Says Savills

Published On: February 24, 2016 at 3:54 pm

Tags: Buy-to-Let,buy-to-let landlords,landlord finances,landlord taxes,mortgage interest tax relief,private rental sector,Stamp Duty

Over the last few months, landlords have been subject to forthcoming changes to the buy-to-let market, which could dampen future investment. However, Savills believes that the private rental sector will continue to grow, despite the measures.

The Government has announced a series of policies designed to clamp down on buy-to-let investors and increase homeownership in the country. The changes to landlord law and finances are detailed here: /contrary-to-popular-belief-buy-to-let-is-not-dead-insists-finance-firm/

The Private Rental Sector Will Continue to Grow, Despite Clampdown on Landlords, Says Savills

Despite the changes, demand for rental properties appears to be as high as ever, with the latest forecast from Savills suggesting that the sector will continue to grow for years to come.

The country’s strengthening economy and improved employment figures, which have hit an all-time high recently, would usually push up the number of homebuyers. However, the continuing surge in house prices – the average is edging closer to £300,000 – means that many people are still priced out of the property market, leaving the private rental sector in a state of constant expansion.

Savills reports that the Government’s statistics reveal the private rental sector has grown by around 17,500 homes per month for the ten years to the end of 2014. The firm believes that this growth will continue over the next few years, with Government policies designed to dampen the market having only a minimal impact.

Despite continued demand, private tenants may start to feel the pinch, as landlords are forced to raise rents in response to changes to their finances.

At present, there are 4.6m households in the private rental sector, with 260,000 added each year, says Savills.

But even with the Government trying to push for increased homeownership, it is only expected to bring around 40,000 new homeowners per year from the private rental sector, meaning that rental market growth will still continue, rising by only 15% less than the current level, at 220,000 per year.

With constant high demand expected for the sector, institutional investors are seeking clarity from the Government regarding their exemption from certain policies.

Originally, it was stated that institutional investors (those purchasing 15 or more properties in one transaction) would be exempt from the Stamp Duty surcharge arriving in April, but this has not been confirmed.

Additionally, landlords that operate as limited companies will not be subject to the cut in mortgage interest tax relief, set to be implemented gradually from 2017. Over 40% of landlords are looking at forming a limited company to avoid the change.

If large-scale investors are not exempt from the Stamp Duty surcharge, there is a risk of a lack of money, and therefore shortage of supply, coming into the private rental sector.

Landlords Rushing to Avoid Buy-to-Let Tax Changes

Published On: February 3, 2016 at 9:29 am

Author: Em Morley

Categories: Landlord News

Tags: buy to let investors,buy to let mortgages,landlord finance,landlord taxes,mortgage interest tax relief,Stamp Duty

New research suggests that landlords are rushing to invest in the sector ahead of key buy-to-let tax changes.

As the 1^st April Stamp Duty surcharge deadline approaches, many property investors are seeking to avoid the hike.

Landlords Rushing to Avoid Buy-to-Let Tax Changes

Meanwhile, more individual investors seem to have turned their lettings businesses into limited companies in order to be exempt from Chancellor George Osborne’s clampdown on the buy-to-let sector.

Limited companies accounted for 43% of all buy-to-let deals in January, up from 38% in December, according to specialist broker Mortgages for Business.

The total number of buy-to-let mortgage applications – by both individual investors and limited companies – increased by 27% in January from the previous month.

From 1^st April, buy-to-let landlords and second homebuyers will be subject to a 3% Stamp Duty surcharge when they purchase a property worth over £40,000.

The Managing Director of Mortgages for Business, David Whittaker, explains how this is changing the market: “The increase is due to landlords trying to get as many purchases as they can completed before the Stamp Duty surcharge comes into effect on 1^st April, after which I would expect transactions to return to more considered levels.”

Additionally, landlords face the forthcoming change to buy-to-let mortgage interest tax relief, which will be cut to the basic rate. However, limited companies operating lettings businesses are exempt from this change.

Whittaker comments: “Landlords have woken up to the fact that transacting via a corporate vehicle is a feasible option, and in many cases, the most prudent route going forward.

“I wouldn’t be surprised if the percentage continues to rise as landlords, especially those paying the higher tax rate, prepare for the forthcoming changes to relief on finance costs.”¹

Have the planned changes affected the way you are investing in the buy-to-let sector?

¹http://www.mortgageintroducer.com/ltd-buy-to-let-takes-43-share-in-january/#.VrHGmFtLH8s

Contrary to Popular Belief, Buy-to-Let “is Not Dead”, Insists Finance Firm

Published On: January 27, 2016 at 2:58 pm

Author: Em Morley

Categories: Landlord News

Tags: finance,landlord taxes,mortgage interest tax relief,Stamp Duty,tax changes,wear and tear allowance

Despite Government efforts to “take the shine off buy-to-let” through major tax changes for landlords, the sector is still “a very attractive investment opportunity”, according to an independent finance and property advisory firm.

Paul Mahoney, the Managing Director of Nova Financial, insists that the property sector “will remain resilient and continue to provide strong returns”, despite the changes.

Over the next few months and years, landlords will face numerous changes to the way they operate their lettings businesses, particularly financially.

Mahoney explains what’s in store for you in the near future if you’re a buy-to-let investor.

Contrary to Popular Belief, Buy-to-Let “is Not Dead”, Insists Finance Firm

He starts with the Wear and Tear Allowance: “As of 1^st April 2016, furnishings will no longer be depreciated at a flat rate of 10% per annum. However, a positive change is that replacements of furniture will be deducted against the income of the investment for that year.”

Additionally, many landlords will see reductions in mortgage interest tax relief. Mahoney says: “From 2017 to 2020, the ability to offset mortgage interest against the income of the investment at the landlord’s own marginal tax rate will be reduced to the basic rate.

“This will be phased in using proportions of the landlord’s tax rate versus the basic rate as follows: 2017 = 75%/25%; 2018 = 50%/50%; 2019 = 25%/75%; and in 2020, all mortgage interested will be deductible at the basic rate of 20%. There are solutions to this scenario for those that may be negatively affected.”

He continues: “Lastly, as of 1^st April 2016, there will be a 3% Stamp Duty premium for second homes and buy-to-let properties.”

Mahoney believes that the measures were proposed in order to crack down on the sector. He states: “The Government is trying to take the shine off buy-to-let, which has been, and will remain, a very attractive investment opportunity.

“They are using the proceeds to fund first time buyer incentives, which will have a positive impact upon the property market overall.”

But he insists: “Potential investors and current landlords need to be aware of these changes, how they relate to their investments and therefore account for them in making decisions moving forward. The key to doing this right is to seek professional advice.”

And while some landlords may be contemplating leaving the sector, Mahoney thinks the market is robust enough to handle the changes.

“These changes may negatively affect the sentiment of buy-to-let in the minds of some, but given the long-term nature of property and the fact that prices do not tend to move up and down quickly, like they do in stocks, the property market will remain resilient and continue to provide strong returns,” he claims.

“The buy-to-let sector is certainly still an attractive investment,” he maintains. “Contrary to what many journalists are saying, buy-to-let is not dead.”

However, Mahoney does acknowledge that landlords will see changes to their personal finances: “There will undoubtedly be some landlords that currently hold portfolios that are in a post-tax positive cash flow position, that will potentially be pushed into a negative cash flow position following the reduction in the ability to offset mortgage interest at their own marginal tax rate.

“These landlords may need to downsize their portfolios and rethink their strategy moving forward, but there are options.”

He reassures investors: “This is by no means the majority of landlords though, and the simple law of economics will prevail in property; when there is a lack of supply of housing and a growing demand for housing, prices in general will increase, both from a rental and capital appreciation perspective.”

Mahoney offers his advice to investors: “So when investing in areas where there are very strong reasons for people to live, such as employment, infrastructure, facilities and amenities, strong socio-economic levels and low vacancy rates, and where land is a limited commodity, you can have confidence in positive outcomes.”

He concludes: “The old cliché of property doubling every ten years no matter where you buy may be over, but by selecting very carefully, ideally with the help of an independent advisor, great opportunities exist.”

For all of the latest buy-to-let updates and landlord advice, remember to check LandlordNews.co.uk.

RLA Seeks Legal Advice on Challenging Osborne’s Tax Changes for Landlords

Published On: January 20, 2016 at 9:46 am

Author: Em Morley

Categories: Finance News

Tags: homeownership,landlord taxes,mortgage interest tax relief,RLA,Stamp Duty

The Residential Landlords Association (RLA) is seeking legal advice on whether to challenge Chancellor George Osborne’s proposed tax changes for landlords.

In the summer Budget last year, Osborne announced plans to cut mortgage interest tax relief for buy-to-let investors.

The change will mean that landlords will be taxed on turnover, not profit, and targets smaller investors.

RLA Seeks Legal Advice on Challenging Osborne’s Tax Changes for Landlords

The RLA is taking advice on whether the change will breach the Human Rights Act and EU law on free movement of capital.

Separately, two landlords have crowdfunded to fund a judicial review. Read more: /angry-landlords-hope-to-tackle-george-osborne/

The RLA also believes that the Government’s policies are encouraging overseas property investors.

The additional 3% Stamp Duty charge for buy-to-let landlords and second homebuyers, announced in the Autumn Statement, will, similarly to the change on mortgage interest tax relief, be imposed on smaller landlords.

Landlords with smaller portfolios will be subject to the extra tax, while those buying 15 or more properties in one transaction will be exempt.

The RLA says that this will favour larger investors, “many of whom are likely to be from overseas”.

The Chairman of the RLA, Alan Ward, comments: “It is astonishing that a Conservative Chancellor is leaving the way open for foreign investors and cutting opportunities for individual UK landlords.

“This additional assault on private landlords coming on top of changes to the taxation of rental income will only lead to reduced supply and higher rents.”

He continues: “The Chancellor’s planned changes to Stamp Duty came as a bolt out of the blue. Regardless of the Government’s plans for homeownership, demand for rented housing is only set to increase.

“The Government needs to understand that not everyone will be able to afford to buy a house or indeed want to, even if more houses are built. Its whole policy towards the private rented sector needs to change. If it does not, it will only make the housing crisis worse.”¹

The Chair of the Treasury Select Committee asked the Chancellor yesterday whether the Stamp Duty charge would aid or hinder mobility in the jobs market.

Osborne responded: “I think that it will help to promote homeownership, because it will mean that there is a more level playing field between an owner-occupier who wants to buy a house, a first time buying family and a buy-to-let landlord.

“There is nothing wrong with people investing in property, but there should be a level playing field so that we reverse the decline in homeownership in our country.”²

¹http://news.rla.org.uk/government-discrtment-in-housing/

²http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm160119/debtext/160119-0001.htm#16011944000005

Landlords Shouldn’t Pay Extra for Limited Company Mortgages

Published On: January 19, 2016 at 9:18 am

Author: Em Morley

Categories: Finance News

Tags: buy to let mortgages,buy-to-let finance,buy-to-let taxes,mortgage interest tax relief,mortgages,Stamp Duty,wear and tear allowance

Mortgage lenders have been criticised for charging extra on limited company buy-to-let products by Foundation Home Loans (FHL), a specialist buy-to-let mortgage provider.

Landlords Shouldn’t Pay Extra for Limited Company Mortgages

In December, the firm announced that its own limited company buy-to-let mortgage would be priced at the same rate as its ordinary range.

The Commercial Director of FHL, Simon Bayley, believes that landlords should not be expected to pay extra due to a lack of choice, at a time when they face huge changes to their finances.

From April, mortgage interest tax relief for buy-to-let investors will be cut, along with a reduction in the Wear and Tear Allowance. However, those operating as limited companies will not be subject to the tax relief changes, leading to many landlords changing the way they run their lettings businesses.

Additionally, landlords and second homebuyers will be charged an extra 3% in Stamp Duty on property purchases.

Bayley expresses his concerns: “Certain lenders are charging up to 100bps extra for this product over their core range, when the risk is no different – effectively, asking landlords to pay any tax saving from using a limited liability company structure to the lender instead.

“Fortunately, the intermediary community is far too canny to go on selecting lenders who decide on this kind of pricing model. As soon as they realise that there are lenders, like FHL, who are not in the market to take short-term advantage of landlords keen to minimise their tax exposure, then I am sure that market forces will dictate that this kind of overpricing will quickly disappear. It certainly will not win any friends among advisers and their landlord clients in the long term.”¹

How will the tax changes affect your business?

Remember to check back to LandlordNews.co.uk for the latest landlord updates and advice.

¹http://www.financialreporter.co.uk/mortgages/industry-to-combat-limited-company-btl-charges.html

Conservative Peer Attacks Buy-to-Let Tax Changes

Published On: January 6, 2016 at 12:46 pm

Author: Em Morley

Categories: Finance News

Tags: buy to let mortgages,Buy-to-Let,buy-to-let landlords,mortgage interest tax relief,property investors,Stamp Duty

Howard Flight, a Conservative peer, has attacked his own party’s changes to the buy-to-let sector.

Conservative Peer Attacks Buy-to-Let Tax Changes

Lord Flight, a former Conservative shadow chief secretary to the Treasury, has voiced his concerns over the forthcoming reforms to landlord taxes.

“I hope the Government will re-think its sudden attack on buy-to-let this summer and autumn,” he begins. “Otherwise, it risks the very crisis in the buy-to-let housing and lending markets of which the Governor of the Bank of England has recently warned.”

Flight warns that buy-to-let tax changes could cause a sharp decline in property prices, “if not a crash”.

He explains: “The only buy-to-let ‘tax advantage’ has been the ability for the interest cost [on buy-to-let mortgages] to be offset against an individual’s income to determine their tax bills – the very thing which the Finance Act measure has hit by limiting the tax deductibility of mortgage interest to a 20% tax rate.

“This will hit more modest buy-to-let investors the most, while many of the more sophisticated have their buy-to-let properties held via a company.”

Under the Finance Act 2015, buy-to-let mortgage interest tax relief will be cut, but landlords operating through a company will not be hit.

Additionally, from April, buy-to-let investors and second home buyers will be charged an extra 3% in Stamp Duty on properties worth over £40,000.

Flight warns that these two tax changes together could “put thousands of tenants’ security at risk”, as landlords rush to evict tenants and sell their properties.

He explains the significance: “Buy-to-let has provided some three million homes for those not able yet to afford to buy their homes – especially in London.”

The article, published on the Conservative Home website, arrives just days after a major accountancy firm, KPMG, warned that these tax changes could push rent prices up.

It believes that developers could struggle to sell new build property due to high Stamp Duty costs for investors, causing the supply of rental homes to drop and therefore driving rent rises.

Read Lord Flight’s full article here: http://www.conservativehome.com/thecolumnists/2016/01/howard-flight-the-government-is-wrong-to-attack-buy-to-let.html