Posts with tag: tax changes

Rents to Rise by 4% Outside London This Year, Claims Rightmove

Published On: January 12, 2017 at 9:28 am

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Asking rents will rise by 4% outside London this year, according to Rightmove.

Rents to Rise by 4% Outside London This Year, Claims Rightmove

Rents to Rise by 4% Outside London This Year, Claims Rightmove

Last year, the property portal reports that asking rents increased by 3% outside London, but dropped by 4.4% within the capital.

The highest growth in rental prices of the year was recorded in the northern regions of Yorkshire and the Humber and the North West. However, all regions outside London saw a rise.

In inner London, rents fell by 5.2%, while there was a smaller decline of 2.5% in outer London.

The Head of Lettings at Rightmove, Sam Mitchell, considers the future of the rental market: “This year will be one of caution for buy-to-let investors, due to tighter lending criteria and increased Stamp Duty.

“We definitely won’t see the spike in Q1 purchases that we saw last year, as landlords rushed to buy before last April’s new Stamp Duty deadline.”

He also assesses how further changes will affect the sector: “If the tax changes being phased in from this April lead to even fewer buy-to-let purchases and some landlords deciding to sell, then a tightening of supply in some areas will lead to increasing rents.

“We forecast that asking rents could rise by 4% outside London by the end of 2017, though in London, prices are likely to stay flat.”

Mitchell advises landlords on the best locations to invest: “Investors looking for the strongest yields could consider investing in certain areas in the North West, where both demand and yields are high.

“Those with a number of properties in the capital may find that tenants are more price sensitive, so setting realistic rent levels will be the key to avoiding void periods.

“In order to mitigate this, we would recommend landlords asking for longer tenancies to help secure a steady rental income over the next few years while they adjust to what the tax changes will mean for them.”

While recent reports claim that rental yields are expected to drop below the five-year average this year, landlords should be aware that strong returns are still possible in some locations.

Rise in limited company applications recorded

Published On: January 6, 2017 at 10:55 am

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Categories: Finance News

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The latest Mortgages for Business’ Limited Company Buy to Let Index shows that a rising number of landlords are looking to incorporate to overcome tax alterations.

Additional Stamp Duty charges for buy-to-let purchases, the phasing out of income tax relief and other changes saw the number of investments from limited companies rise in the final quarter of 2016. These purchases increased by 6% when compared to Q3.

Rises

This figure is substantially higher than the 21% seen before the alterations to tax relief were unveiled in July 2015. This shows that a rising number of buy-to-let landlords are taking action to avoid being stung by the greater tax costs facing them.

By incorporation, landlords can still offset finance costs against rental income.

David Whittaker, managing director of Mortgages for Business, noted: ‘The sharp increase in purchase applications made by landlords using a limited company structure is unsurprisingly given the financial incentive to do so and it is encouragingly to see growing numbers of landlords approaching their investments intelligently.’[1]

‘With the changes to tax relief set to be phased in from April 2017, this trend is unlikely to be reversed any time soon,’ he continued.[1]

Rise in limited company applications recorded

Rise in limited company applications recorded

Applications

Despite the growth of the number of applications made via limited companies, lenders catering to this market remained static between the reporting periods. Only 14 offered products to limited companies.

Mr Whittaker concluded by saying: ‘Although many mainstream lenders do not yet have an offering for investors using limited companies, many smaller lenders have significant expertise when it comes to servicing this part of the market.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2017/1/sharp-rise-in-limited-company-buy-to-let-applications

Number of Landlords in Mortgage Arrears at Two-Year High

Published On: January 5, 2017 at 9:25 am

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The number of buy-to-let landlords in mortgage arrears has hit a two-year high, according to new figures from the Council of Mortgage Lenders (CML).

Number of Landlords in Mortgage Arrears at Two-Year High

Number of Landlords in Mortgage Arrears at Two-Year High

Mortgage arrears among landlords rose by 6% – from 4,700 to 5,000 – between July and September last year. This was the first increase seen since records began two years ago.

Following a rush of buy-to-let activity early last year ahead of the introduction of the 3% Stamp Duty surcharge in April, fewer investors are now adding to their property portfolios.

But some experts fear that many landlords, especially those entering the buy-to-let sector for the first time, acted too hastily in acquiring property that they could not afford to avoid being hit by the higher tax on additional homes.

The Chief Executive of the National Landlords Association (NLA), Richard Lambert, believes: “Some first time landlords may have rushed in to the market ill-prepared to beat the Stamp Duty hike. Unless landlords begin to make plans to mitigate the impact of these changes, it’s likely that buy-to-let mortgage arrears will continue to rise.”

The increase in the number of landlords falling into mortgage arrears has led to concerns that thousands more investors could get into debt when they are hit by further tax changes in April this year.

The existing rules that allow landlords to offset all of their finance costs against tax will, from 6th April 2017, be phased out under Section 24 of the Finance Act 2016, restricting the amount of tax relief that landlords can claim on mortgage interest.

The NLA estimates that around 440,000 basic rate tax payers will be forced into the higher tax bracket from April, once the changes come into force.

By April 2020, when the change is fully implemented, the consequences of Section 24 will mean that it is likely that higher rate tax payers will only receive 50% of the relief they currently get, with various experts warning that landlords will be left with little alternative but to pass higher costs onto tenants.

And with the forthcoming ban on letting agent fees for tenants, it’s highly likely that landlords will be forced to put their rents up considerably, leaving many tenants struggling to afford a home.

Looking Back at the Buy-to-Let Landscape: 2016 in Review

Published On: December 28, 2016 at 9:51 am

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By Karl Griggs, Director, CPC Finance

2016 has been a tumultuous year for landlords. Some changes were expected, like the additional rate of Stamp Duty, announced in 2015’s Autumn Statement and brought in April this year. Others, such as the result of the European Referendum in June, were less widely anticipated. Here, we round up the critical events that have shaped the buy-to-let landscape this year. 

  • European Mortgage Credit Directive

Most second charge mortgages (also known as secured loans) are now regulated in the same way as first charge homeowner mortgages. This gives them FCA protection and means brokers and lenders need to apply for the right permissions to be able to respectively source and provide advice for these loans.

  • Additional 3% Stamp Duty
Looking Back at the Buy-to-Let Landscape: 2016 in Review

Looking Back at the Buy-to-Let Landscape: 2016 in Review

Since April, anyone buying an additional residential property worth more than £40,000 (whether they are a landlord or not), must pay an additional 3% of the purchase price in Stamp Duty. This does not apply to land, commercial or semi-commercial units. This does apply irrespective of whether the property is purchased by an individual or limited company.

  • New energy efficiency measures

Landlords in England and Wales must now consent to any reasonable request to make changes to a private rented property to improve energy efficiency. To qualify as reasonable, the request must incur no cost to the landlord and be submitted in writing. The cost can be met through Government funding, a tenant paying or a combination of both. The new regulations also require that landlords raise the Energy Performance Certificate (EPC) ranking of a private rented home to an E by 2018. If landlords fail to comply, they will not be allowed to rent out the property.

  • Changes to Wear and Tear rules

The Wear and Tear Allowance for private rented properties has been replaced by a deduction for the replacement of furnishings. Furnishings include furniture, furnishings, appliances and kitchenware. This does not apply to holiday let properties. The deduction amount is the cost of the new replacement item (as long as it costs the same as an equivalent item), if it represents an improvement on the old item (beyond the reasonable modern equivalent), plus the costs of disposing of the old item, or acquiring the replacement, less any amounts received on disposal of the old item.

  • EU referendum result: Brexit

As much as the result was unanticipated, the full implications for UK landlords are not yet clear. Many landlords are therefore adopting a wait-and-see approach, whilst the uncertainties around how Brexit will be implemented, the timescales and impact are resolved.

  • Letting agent fees for tenants banned

Although there were no major announcements impacting landlords in the 2016 Autumn Statement, the Chancellor’s announcement that letting agent fees will move from the tenant to the landlord will affect landlords’ bottom lines. It is another cost for them to account for. However, it is not clear when exactly this shift will happen.

  • New buy-to-let underwriting rules

From January 1st 2017, the Prudential Regulation Authority is introducing stricter buy-to-let rules, but most buy-to-let lenders have already started to bring in new stress calculations, since the 19th December.

It is a time of upheaval for landlords, but whatever the changes in the buy-to-let landscape, the industry will pull together to weather them and, at CPC Finance, we are here to support our clients every step of the way.

Almost Half of Landlords Would Stop Using Letting Agents if Profits Fell

Published On: December 14, 2016 at 9:35 am

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Almost half of UK landlords would stop using their letting agents if their profits fell as a result of forthcoming tax changes, according to the UK Association of Letting Agents (UKALA).

The study was conducted to assess what impact the reduction in mortgage interest tax relief could have on letting agents when it is gradually introduced from April next year.

Almost Half of Landlords Would Stop Using Letting Agents if Profits Fell

Almost Half of Landlords Would Stop Using Letting Agents if Profits Fell

Almost Half of Landlords Would Stop Using Letting Agents if Profits Fell

The news arrives as yet another blow to agents across the country, following the recently announced ban on tenant fees, which is likely to increase charges for landlords so that agents can cover their costs.

Overall, 57% of landlords – around 1.1m – say they employ the services of a letting agent, with 36% being regular users and 21% occasional users.

Regionally, more landlords in Scotland would stop using their agent if their profits fell than anywhere else in the UK. Contrastingly, just one in three landlords in the West Midlands would ditch their agent – the lowest number in the UK.

The study also revealed that a quarter of landlords who use letting agents to exclusively manage all of their properties would forego their services in the face of declining profits. This drops to a fifth of landlords who use agents on a let-only basis.

A third of landlords would retain the services of their agent, even if their profits were compromised.

The Executive Director of the UKALA, Richard Price, says: “A significant number of landlords will be hit hard by the tax changes and agents’ fees will be one of the items underneath the magnifying glass if profits begin to decrease.

“As landlords’ costs inevitably rise, agents will need to do more to position themselves as indispensible, and make it obvious that they provide solid value for money. Otherwise, as future tenancies come to an end, landlords will either shop around or start to consider self-managing their properties.”

Richard Lambert, the Chief Executive of the NLA, also comments: “Landlords should already be looking ahead to the forthcoming tax changes and working out how they will be able to maintain profitability. That will intensify with the prospect of agents’ fees increasing as a result of the ban on charging tenants.

“However, while it may seem an appealing proposition to minimise your outgoings, the majority of landlords simply won’t have the resources to deliver a service that meets the standards of professionalism that their agent currently provides.”

Would you stop using a letting agents if your profits dropped?

Policy changes to increase costs for buy-to-let landlords

Published On: December 13, 2016 at 12:40 pm

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Categories: Finance News

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Undoubtedly, the current market is a tough one in which to be a buy-to-let let landlord. The number of measures aimed at curbing the market have led to many concerns that investors with lower profit margins could well end up making a loss.

Some could well be pushed out of the market completely.

Challenging changes

The introduction of the 3% stamp duty surcharge, alterations to mortgage interest tax relief and Right to Rent checks are just some of the measures that have impacted on landlords over the last year.

Now, the Bank of England’s Financial Policy Committee has been granted increased powers over the buy-to-let market.

John Heron, director of mortgages at Paragon, believes, ‘it is clear that this will need to be reflected in lender affordability assessments.’[1]

‘Government policy towards the private rented sector will increase costs for landlords. The Prudential Regulation Authority’s supervisory statement released in September this year is helpful in ensuring that lenders approach this in a consistent fashion,’ he continued.[1]

Policy changes to increase costs for buy-to-let landlords

Policy changes to increase costs for buy-to-let landlords

Affordability concerns

Paragon is the latest lender to make changes to its affordability assessment for buy-to-let mortgages, to take into account the increase in costs that some landlords will face as a result of the alterations in mortgage interest rate relief.

The lender is bringing in graduated interest coverage ratio, in order to tailor to each individual landlord’s tax status.

Landlords paying a basic rate of income tax will carry on being assessed at a ratio of 125%. However, landlords paying a greater rate of tax will be assessed with an interest coverage ratio of 140%.

Concluding, Heron said: ‘The changes that we’re announcing are designed to tailor affordability to each landlord’s individual circumstances, whilst keeping the application process straightforward for brokers and their customers.’[1]

[1] https://www.landlordtoday.co.uk/breaking-news/2016/12/government-policy-towards-the-prs-will-increase-costs-for-landlords