‘normal’
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Most Landlords Surprisingly ‘Normal’ According To Research

Two-thirds of private landlords have what is classed as ‘normal’ jobs, renting out property to supplement their main income.

New research from online letting agent MakeUrMove found that the most common occupations for landlords are jobs in IT, teaching and accountancy. Surprisingly, just 5 per cent of buy to let investors are full time landlords who own five properties or more, which suggests that very few landlords profit from large portfolios.

Although many landlords are in the business through choice, the number of accidental landlords has risen significantly in recent years. The research found that a mere 18 per cent of landlords became landlords through intending to create a property investment business. 16 per cent of landlords let a property that they inherited and 22 per cent became landlords through a range of circumstances, such as being unable to sell a home.

The fact that more than half of landlords own just one property refutes the conception that all landlords are wealthy.

Managing director of MakeUrMove, Alexandra Morris, said: ‘These figures shed some light on what British landlords really look like. The reality is that wealthy, multi-property owning landlords are quite rare. Most landlords are ordinary people working in normal jobs who are renting out a property to try and save for their retirement or to supplement their main income. With 53 per cent of landlords owning one single property, it’s clear that most landlords are not living off a portfolio of properties. They work as electricians, taxi drivers, hairdressers or social workers – they are just normal people who want to maintain healthy, stress-free relationships with their tenants.’

She continued: ‘We’ve found that a good number of landlords fell into renting their property through unforeseen circumstances such as inheriting a property or struggling to sell their own house. Many of these landlords start on a consent to let mortgages and later become buy to let mortgage holders, having a mortgage on the property means they are forced to pass on the costs to their tenants.’

Source: Residential Landlord

rental property
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Supply of rental property continues to fall

Despite rising demand, housing levels in Britain’s private rented sector are dwindling, highlighting the need for more investment in purpose-built rental property for the country’s growing number of tenants.

Summary:

  • Up to 4,000 traditional buy-to-let rental properties are being sold each month by private landlords
  • New taxes introduced to curb buy-to-let investment are forcing more second property owners to sell due to rising costs
  • At a time when more people are renting their homes, it is imperative that greater levels of investment is put into the purpose-built rental sector

The gap between supply and demand levels of UK rental property continues to widen.

Close to 4,000 traditional buy-to-let rental properties are being sold in the UK each month, according to the latest report from the Ministry of Housing. In total, supply fell by 46,000 properties in 2017, the first recorded decline in rental homes in the country for 18 years.

The reduction in the availability of buy-to-let homes, often older properties on the outskirts of city centres originally intended for owner-occupiers, comes at a time when private landlords are being faced with increasing costs. Two years ago, a series of new tax measures, including a 3% rise in stamp duty on buy-to-let purchases, came into effect, decreasing profit levels.

As a result, it’s prompted many landlords to leave the market. Recent figures from UK Finance highlight a 19% fall in new mortgages approved for buy-to-let homes in the UK.

These findings back up those published earlier in August 2018 from the Royal Institute of Chartered Surveyors, who believe that this falling supply at a time when the demand for rental accommodation continues to rise will drive rental prices up 15% by 2023.

Increased taxation aims to shift the focus away from the outdated buy-to-let sector and grow investment in the purpose-built rental sector. These homes, located in prime city centre locations with the best facilities, are the properties that modern tenants will pay premiums to access.

Source: Select Property

Brexit
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Bill Jamieson: Continent counts the cost of ‘no-deal’ Brexit

Business pressure is growing on the UK to reach a deal with the EU on Brexit. From farmers to manufacturers, healthcare companies to banks and financial companies and SMEs to the behemoths of the CBI, the clamour is growing for the UK government to avoid a “no deal” outcome. All this is unfolding against the background of a sluggish performance by the UK economy and concerns over the lack of economic momentum –much of this blamed on the uncertainty caused by the relentless, debilitating lack of progress in securing a withdrawal deal.

Now Chancellor Philip Hammond has further racked up the pressure by repeating the findings of the Treasury’s provisional Brexit analysis earlier this year that a no-deal Brexit could mean a 7.7 per cent hit to GDP over the next 15 years, compared with the “status quo baseline”. He said that under a no-deal scenario chemicals, food and drink, clothing, manufacturing, cars and retail would be the sectors “most affected negatively in the long run”.

Let’s set aside the row over whether this is just a Remain-supporting chancellor regurgitating the earlier warnings of “Project Fear” which failed to materialise. We have much to be concerned about. And it adds to the sense that Michel Barnier and the European Commission negotiating team have nothing to lose by holding out and pushing the UK to the brink – and beyond. But we should also look more closely at what is at stake within the EU itself. For Brussels is under equal and equivalent pressure to agree a withdrawal deal.

The Eurozone economies, too, need to secure an agreement that minimises disruption to continental trade with the UK and wider negative effects. It’s generally assumed that the UK is the economic laggard, and that the EU, underpinned by the Single Market and the customs union, is enjoying a superior rate of economic growth and rising exports. But the latest figures suggest otherwise.

Eurozone economic growth slowed further in the second quarter of this year. Eurostat estimates that gross domestic product in the 19 countries sharing the euro, far from growing faster than the UK, is trailing our performance. It is grew by 0.3 per cent quarter-on-quarter in the April-June period, not only below analysts’ expectations but also slightly behind the 0.4 per cent growth recorded for the UK over this period.

The UK’s improvement on the first three months of the year has been attributed to the spell of warmer weather – though the Eurozone countries also enjoyed more clement conditions after the freeze of the opening months. Bert Colijn, a senior economist at ING Bank, said: “Trade uncertainty seems to have already had a significant effect on the Eurozone economy in Q2…

With lower confidence among businesses and consumers, concerns have likely translated into somewhat weaker domestic demand growth. In an economy in which capacity constraints abound and credit conditions remain favourable, confidence is the likely factor keeping investment down.” The Eurozone’s second quarter slowdown follows a sharp deceleration in the first three months of the year.

The combination of a slower global recovery and strong euro caused exports to plunge in the three months to March, with GDP growth falling from 0.7 per cent in the fourth quarter of 2107 to 0.4 per cent. Industrial production shrank in April and economic sentiment fell throughout the quarter. A stronger euro has taken a bite out of export growth, while rising inflation has been weighing on household spending – all too familiar here.

The euro area is also having to contend with political uncertainties – a fragile populist coalition in Italy, continuing turbulence in Spain, evidence of growing disenchantment with President Emmanuel Macron in France, while in Germany, Chancellor Angela Merkel has been under pressure from her coalition partners. Meanwhile, tensions with the United States, the Eurozone’s largest trading partner, are high following tit-for-tat tariffs implemented in June.

According to FocusEconomics, five Euro economies, including major players France and Germany, have had their growth prospects cut. Cyprus, Estonia, Greece and Luxembourg were the only economies to see higher GDP growth forecasts, while Belgium, France and Italy will be the slowest growing – all expanding below two per cent. Germany is forecast to grow by 2.1 per cent this year.

Latest data from France suggests the economy expanded modestly in the second quarter, while industrial production contracted for the third consecutive month in May – the fourth monthly decline so far this year. In addition, consumer confidence dropped to a near two-year low in June amid mounting unemployment fears. Consumers are growing more fearful that the economic recovery is running out of steam.

In Italy recent industrial output figures in April and May, and the average of PMI readings throughout the quarter point to a slowdown. Consumer spending also seems to have cooled, as retail sales contracted heavily in April and rebounded timidly the following month. If, as seems likely, world trade continues to slow as US tariffs continue to bite and President Donald Trump threatens more, the Eurozone’s leading companies will be anxious not to have their prospects further damaged by a “no deal” UK exit with all that this means for companies exporting to the UK.

Exports from the EU to the UK totalled £341 billion last year, with a surplus vis-à-vis the UK of £67bn. While the UK enjoyed a £28bn surplus on trade in services, this was outweighed by a deficit of £95bn in goods. Two EU export sectors look particularly exposed: cars and food products. German car makers have long warned that Brexit would hit their exports to Britain and disrupt international supply chains.

About a fifth of all cars produced in Germany are exported to the UK, making it the single biggest destination by volume. As for food and non-alcoholic drink imports from the EU, these are running at £24bn a year – trade which EU suppliers will be acutely anxious to protect. As the clock ticks on, I see intensifying pressure from business on both sides for a deal to be reached – and preferably with the minimum of delay.

Source: Scotsman

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Are Londoners really ditching London property market?

The London property market is the crown on top of the UK market and has been for many years. London itself has one of the most diversified cultural spreads and while Brexit has caused concerns, are things as bad as some people are suggesting? A report by Hamptons International highlighted the number of people selling their London properties and reinvesting in the Midlands and the North. While these figures may have increased significantly in recent years, are Londoners really ditching the London property market?

BASIC STATISTICS

The report by Hamptons International confirms that the number of people relocating to the Midlands or North of England has trebled since 2008. In 2008, one in 17 selling their London properties reinvested in the North or Midlands while the figure now stands at one in five. We also know that the first six months of 2018 saw 30,280 Londoners selling their property to locate outside of the capital – an increase of 16% on the previous year. However, when you consider the population of London is around 8.8 million this is only a tiny percentage of London property owners.

VALUE FOR MONEY

The price differential between London and the Midlands/North of England has been well documented over the years. Indeed figures suggest that those quitting London have spending power of over £420,000 when looking for a new home. Average spending for London leavers in the North and Midlands is as follows:

• North West (7% of London leavers) average spend £149,530
• East Midlands (6% of London leavers) average spend of £167,790
• West Midlands (5% of London leavers) average spend of £181,220

To give some balance, the North East of England only attracted 1% of London leavers with an average spend of £132,730. It is also worth noting that the South and East of England still attract the highest percentage of London leavers:

• South East (38% of London leavers) average spend of £575,010
• East of England (30% of London leavers) average spend of £394,480
• South West (9% of London leavers) average spend of £544,580

While there are various issues to take into consideration, such as employment prospects, these figures reflect the fact that London property owners would appear to be seeking better value for money. Evidence suggests that some of those moving to the South and East of England are commuting into London and even securing additional accommodation through the week.

NEVER UNDERESTIMATE LONDON

It is fair to say that Brexit is being used as a reason to “rebalance” London property market prices compared to the rest of the UK. The difference in property values between London and the rest of the UK is well documented as is the perceived value for money. However, this does not take into account the unique characteristics of London.

So far, the expected evacuation of London by some of the leading business lights has failed to materialise to forecast nightmare levels. Yes, Brexit does create a number of challenges but the London business market, and the financial markets in particular, have a history of adapting to change. It would be unfortunate if the previously tight Brexit deadlines are extended, causing further confusion, but those who write-off the London property market do so at their own risk. The number of people leaving the capital is increasing but considered against the overall population of London there is nothing to worry about, yet.

Source: Property Forum

investing in property
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Issues to consider when investing in property

There are many issues to consider when investing in property, some of which are fairly obvious while others might make you think. We will now take a look at some of the more important issues to take into consideration.

LOCATION, LOCATION, LOCATION

It goes without saying; the location of any property investment is key to the long-term success and maximising return on investment. There are some relatively simple factors to consider which include:

• Local economy
• Demand for property in the area
• Growth drivers including future developments
• Property price ceilings
• Rental value ceilings

In many ways, the process of investing in property should in the early days be a relatively simple tick box exercise. If the relevant number of boxes are ticked then it is time to do more research.

FUNDING – INVESTING IN PROPERTY

There are very few property investment opportunities today which do not require some form of deposit. It is essential that the deposit does not stretch your finances to a level where you may well struggle in the event of unforeseen financial events.

• Leave yourself some financial headroom
• Ensure monthly payments are affordable
• Remember to switch to lower rates where applicable
• A buy to let property should be self-funding
• Never assume 100% occupancy with buy to let

There are different funding vehicles available for different types of investments so it is worth taking on board the advice of a mortgage specialist. It may also be worthwhile looking at crowdfunding which is gathering momentum.

CASH FLOW

Is all good and well having the best investments, paper profits but if you do not have sufficient cash flow to cover your short to medium term financial requirements, this can cause major problems.

• Avoid overextending your finances
• Resist the temptation to grow your property portfolio too quickly
• Make full use of equity built up in your property investments
• Ensure your income is always significantly greater than your outgoings

They say that “cash flow is king” and it is only when you are struggling with cash flow that you will realise exactly what this means. Profits on paper are great but if you do not have the cash flow to support them it can cause major problems with fire sales, etc.

EXIT STRATEGIES

It is bizarre when you realise that the vast majority of people investing in property give no thought to how they will exit and bank their profits. You should always have an exit strategy in mind in the event of unforeseen circumstances or long term changes to your life.

• Tax efficient investment is important
• Whether an outright sale, remortgage or some other option, always have an exit strategy in mind
• Set yourself a long-term target and exit route
• A portfolio of properties with strong cash flow can be easier to sell than individual properties

It is all good and well having significant paper profits but at some point you will need to realise these returns. There will be situations where it is more attractive for investors to buy a group of properties with strong cash flow than cherry pick individual assets. You should also consider how your family might manage your investments when you are no longer capable.

Source: Property Forum

women
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Women Own Nearly Half UK Buy To Let Investments

Buy to let property investment is far more evenly split between men and women than other forms of investment, according to Ludlowthompson, a London estate agent.

Women comprise 46 per cent of the UK’s buy to let property investors, or 1.1 million of the 2.4 million in the sector. This comes from an analysis of Government data from ludlowthompson.

They also generate 43 per cent or £13.8 billion of the total £32.3 billion generated in rental income by the UK’s buy to let property investors. In contrast, in other types of savings such as pensions there is a far larger gap in ownership between the two genders. For example, women receive just 37 per cent of the income from pensions, equating to £46.5 billion. In contrast, men receive £79.3 billion of income from pensions.

The buy to let sector may have proved itself to be more progressive than expected, with a more even distribution of asserts marking an important step towards gender equality.

Ludlowthompson has suggested that one reason why women might have been active investors in buy to let is due to the fact that residential property is a relatively stable asset and not likely to drastically decline in share value. Research that looks into different investment strategies favoured by the two sexes found that women tend to be less keen on speculative investment types than males.

Stephen Ludlow commented: ‘Whilst a lot of men get entranced by get-rich-quick investments like CFDs and cryptocurrencies – women are said to much more grounded and prefer lower risk investments like real estate. When we started our business 25 years ago we noticed that it was an investment that seemed to be favoured by women over men. That’s been great news for those early pioneers as residential property investment has easily beaten other outperformed other asset classes like shares, bonds and cash.’

He continued: ‘Women who have built up substantial buy to let portfolios deserve a bit of recognition as they have done this in the face of constant criticism that buy-to-let property is risky. The reality is that assets like shares have proved to be far riskier.’

Source: Residential Landlord

Local authorities
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Local authorities splash out £4.1bn on commercial property

Local authorities have spent a huge £4.1bn on commercial property over the past four years and are on track to set a new annual spending record this year, according to exclusive data from Savills. Last year they spent a record high of £1.8bn, a whopping 1,868% up on the £93.8m spent in 2014.

Local authorities

Local authorities

As a result of this spending spree, local authorities have seen their share of total investment in the commercial property market grow from 0.2% to 3.4%. The investment push was sparked by the government’s announcement in December 2015 that local authorities would need to finance their spending entirely from locally raised revenue by 2020. Many councils took advantage of low-interest-rate loans available from the Public Works Loan Board.

With the supply of central government funding due to be cut off, councils need to find alternative sources of income to ultimately pay for the services they need to supply to their residents, says Mark Garmon-Jones, a director in Savills’ UK investment team. Hence the rush to invest in revenue-generating commercial property.

In many cases, councils are buying property in their own town centres to kickstart regeneration projects “that the private sector can’t or won’t do”, says Garmon-Jones, citing the example of retail-led regeneration schemes. “Interestingly, there hasn’t been a shopping centre bought by a local authority outside its jurisdiction,” he says.

Since January 2014, the top five biggest local authority investors in commercial property have been Spelthorne, Runnymede, Warrington, Canterbury and the City of London.

Local authorities

Just a fortnight ago, Spelthorne Borough Council, which had already spent £620m on commercial property since the start of 2017, acquired a £285m office portfolio from Landid and Brockton Capital.

Council spending on commercial property hit £994.5m in the first half of 2018, up from £681m during the same time period last year. Yet Garmon-Jones predicts spending in the second half will cool and end of year totals will be about the same.

He is not unduly worried about the prospect of local authorities becoming significant investors in commercial property. “As long as they are well advised, from houses like ourselves, then fantastic,” he says. “They just need to tread carefully and not get carried away.”

Source: Property Week

government
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Government publishes no deal Brexit guidance

The government has published documents advising companies on what will happen if the UK leaves the European Union with no trade deal.

Britons visiting the EU could face extra credit card charges while people living abroad could lose access to their bank accounts.

Ministers said “short term disruption” is possible without a deal – which is their top priority.

Stephen Jones, chief executive of UK Finance, said: “A ‘no deal’ scenario can and should be avoided. Both the UK and our EU partners should focus on agreeing a managed exit and a clear framework for cross-border trade including in financial services.

“However, it is right that contingency plans are made to minimise disruption for consumers and businesses on both sides of the Channel in the event of a ‘no deal’.

“The government is taking a pragmatic approach to addressing critical cliff-edge issues and to ensure consumers and businesses can continue accessing vital cross-border services.

“However, these issues cannot be addressed by the UK acting alone. It is therefore vital that negotiators on both sides work together to agree solutions that prevent any unnecessary disruption and additional costs for customers in both the EU and UK.”

Source: Mortgage Introducer

property
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Property investors – stick around and watch your investment grow…

The country’s housing market has long been subject to debate.

Since the crash, there’s been an undeniable struggle to cope with growing buyer demand and numerous government schemes have come and gone in recent times as they try to solve what’s been dubbed as a housing crisis.

And whilst investors may well be hesitant in this uncertain time, those who intend on staying around rather than coming out of the market are likely to see their profits grow.

This is according to the property investment platform, British Pearl, and their research which states that, over the last 50 years, property investments have made a profit 82.6% of the time.

There have only ever been five periods of time where house prices have dropped over those 50 years, showing a success rate of 89.1%, adjusted down to 82.6% after stamp duty, legal fees and interest rates were taken into account for property investors.

This all falls in favour of investors in the UK.

No matter how unstable you might think that the housing market is, the UK has a proven track record of returns, and the ongoing demand for housing means, when paired with careful property selection, the housing sector remains one of the most attractive investment markets.

The government is doing what it can to get buyers onto the property ladder, with the introduction of Help to Buy in 2013 and the tax changes to the buy-to-let market which has, unfortunately, made it harder for landlords to make a profit.

So, the news that playing the long game will benefit you if you’re an investor should come as good news. Especially at a time when stricter mortgage lending, rising interest rates and Brexit seem to have stunted house price growth.

To put it into context, if you were an investor in the pre-crash market circa 2007 and decided to exit following the recession, you wouldn’t have reaped the benefits of the current property price growth which has now comfortably exceeded the levels reached before the crash.

The housing market is renowned for rewarding those who ‘stick around’ in hard times, build upon their portfolios and do thorough research. As long as you have faith in the market and your investments, you will continue to reap the rewards.

Source: Property Forum

Buy-to-let
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Buy-to-let mortgages through a Ltd company explained

Since April 2017, mortgage interest tax relief has reduced by 25% every tax year.

With the new changes in tax for the buy-to-let arena, investors have been looking for ways to alleviate the pressure and recoup some of the losses that they’d make under the legislation.

One such way is to put your buy-to-let mortgage through as a Ltd company.

Because Ltd companies are taxed differently; it’s thought that it’ll be more tax advantageous for them to switch to this sort of business structure.

However, if you’re looking to do this, you may have found that an inexperienced broker has turned you away.

Simply put, it’s because most high-street lenders won’t offer this sort of arrangement and stick to the standard black and white mortgages rather than getting involved with the more complex products.

And if you aren’t aware of the wider lender market, the chances are that you’ll end up borrowing money personally rather than as a Ltd company, meaning you miss out on a number of benefits.

Regardless of the size of your portfolio, there are massive tax benefits to buying your property through a Ltd company, especially if you’re on the higher tax bracket.

It can also be beneficial if you’re looking to buy property as a collective rather than two separate individuals, or if you’re wanting to distance yourself from personal liabilities if something were to go wrong.

Usually, specialist mortgage lenders are only likely to approve companies that deal solely in property, though there are a handful of lenders that will consider those trading in other areas.

BECOMING A SPECIAL PURPOSE VEHICLE…

If you’re registered as a Ltd company and only trade in rental property, then you’ll be known as a Special Purpose Vehicle (SPV) and will be classified by lenders according to the Standard Industry Classification (SIC) code that is given to your company by Companies House.

Examples of these SIC codes include:
68100 – Buying & sell own real estate
68201 – Renting & operating of housing association real estate
68209 – Other letting & operating of own or leased real estate
68320 – Management of real estate on a fee or contract basis

THE LENDERS…

Despite there being a number of main lenders that specialise in Ltd buy-to-lets, with high street lenders becoming tighter and stricter with their lending, a specialist broker will be who you need to see to access this sort of mortgage. Loan-to-values begin at 85% and vary in rates and types so the number of products, whilst limited, is still huge in depth.

WHAT IF YOU’RE ALREADY AND LTD COMPANY BUT AREN’T AN SPV?

There is still a small number of lenders who will look at buy-to-let lending to Ltd companies that trade in other areas. You will usually need a 25% deposit as a minimum, as the number of lenders is greatly restricted and they will require greater security to counteract the risk.

WHAT IF YOU’VE ONLY JUST REGISTERED AS AN LTD COMPANY?

If you’re a newly-created Ltd company, buy-to-let mortgages are still possible with a handful of lenders.

The Ltd company would need to be created when you apply and would benefit from being registered as an SPV to give you access to a wider panel of lenders and a greater chance of being approved.

As the mortgage is for a new company, there will be no trading history or track record of success that the lender can base their decision to lend on.

You will need at least two, or one if it’s a sole Ltd, directors that will have to be credit-checked to ensure that the Ltd company is creditworthy, as it won’t have a history of its own.

Because of this, lenders may ask for personal guarantees from the director(s), meaning that, if the mortgage isn’t paid, the director(s) become responsible.

The director(s)’ will also need to verify their income to establish that there is an underlying affordability.

Again, loan-to-values begin at 85% and the lenders will base your affordability on the rental yield, with your income needing to be at least 125% of your total mortgage payment.

WHAT’S THE CATCH?

Other than those that we’ve already discussed, there aren’t really any more.

There are a limited number of lenders, which means the criteria and product choice is restricted and leads to higher rates and it’s slightly more complicated to set up when compared to a standard buy-to-let.

But it can be hugely tax advantageous, and with limited liability, you won’t be forced to sell your personal assets if things don’t go to plan – unless you’ve given it as a guarantee.

HOW DO I START?

As you can see, this sort of mortgage can be a complicated process and requires a wider knowledge of the mortgage market.

It’s imperative that you speak to a whole-of-market mortgage adviser that has access to a wider panel of lenders to ensure that you have the best chance of getting your mortgage approved.

Source: Property Forum