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Unprecedented fall in buy-to-let fixed rates

Fixed rates in the buy-to-let mortgage space have fallen across the board, according to online mortgage broker, Property Master.

Angus Stewart, Property Master’s chief executive, described this as “unprecedented”, and follows on from recent remarks by the Governor of the Bank of England that the UK leaving the European Union without reaching some sort of trade agreement may well require some sort of economic stimulus such as a cut in rates to weather the shock of no deal.

He commented: “We have been tracking buy-to-let mortgage interest rates in this way for 18 months and we have never seen before a fall across the board in this way. It is quite unprecedented.

“Last month we were seeing a drift upwards in the cost of buy-to-let fixed rate mortgages but it may be that the market is now expecting rates generally to fall rather than rise.”

“It is likely that lower rates are also being fuelled by the continuing increase in the number of buy-to-let mortgage products. Whilst it is true some lenders have exited the market others are boosting their range and competing hard for new business.

“As landlords continue to be pressed on all sides by rising regulatory costs such as the new Tenant Fees Act and falling tax reliefs today’s news of a lowering of mortgage costs will be very much welcomed.”

Property Master’s July 2019 Mortgage Tracker shows the biggest fall in monthly cost was for five-year fixed rate buy-to-let mortgage offers for 75% of the value of a property. The monthly cost fell by £36 per month June to July.

Five-year fixed rates for 65% loan-to-value fell month on month by £6. Five-year fixed rates buy-to-let mortgage offers for 50% of the value of a property fell by just £3 per month.

Two-year fixed rate buy-to-let mortgages for 50% and 65% of the value of a property fell by £5 each. Two-year fixed rate buy-to-let mortgages for 75% of the value of a property fell by £8 per month.

The Property Master Mortgage Tracker follows a range of buy-to-let mortgages for an interest-only loan of £150,000. Deals from 18 of some of the biggest lenders in the buy-to-let market including Barclays, BM Solutions, RBS, The Mortgage Works, Godiva and Precise were tracked. Figures for this month’s Mortgage Tracker were calculated on deals available on July 1, 2019.

Property Master was launched almost two years ago and aims to shake up the buy-to-let mortgage market currently served by around 12,000 mortgage brokers. It has already attracted financial backing from a broad range of private investors including a minority stake being taken by LSL Property Services, whose estate and letting agency brands include Your Move and Reeds Rains.

Property Master has automated what was a manual, complex process to provide landlords with a free easy to use mortgage search tool which provides a mortgage quote that is pre-screened against each lender’s specific and changing criteria.

By Joanne Atkin

Source: Mortgage Finance Gazette

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Rising Yields Boosting Professional Buy To Let Investors

Rising yields are boosting professional buy to let investors, especially those considering adding to their portfolios.

Rents have hit a new record high at an average of £896 per calendar month, with growth accelerating to 1.3 per cent a year, according to the ninth edition of Kent Reliance for Intermediaries’ Buy to let Britain report.

As a result, rising yields have now hit a two-year high. The average yield now stands at 4.5 per cent, its highest since the first quarter of 2017.

In London, rents have only risen by 0.5 per cent. However, with property prices falling, yields in the capital have reached 4.1 per cent, their highest level since the end of 2015.

However, despite rising yields, growth of the private rental sector is subdued on the back of government intervention and the economic impact of Brexit uncertainty.

The value of the £1.3 trillion private rental sector grew by £6 billion in the last year, as the expansion of supply dwindled, and property prices weakened in several parts of the country. The value of the average rental property has risen by 0.3 per cent in the last year, with Brexit uncertainty gripping the wider housing market

As the costs of property investment rise, landlords are seeking to recoup these in higher rents to preserve their profitability and protect rising yields. Around a quarter (24 per cent) of landlords, already expect to raise rents in the next six months, nearly five times the number that expect to reduce them.

Improved finances among tenants is also allowing more leeway. Wages are currently rising at 3.4 per cent, up from 2.9 per cent a year ago and well in excess of inflation.

Professional landlords are not just seeking to recoup higher tax costs in the form of higher rents. Many now operate via limited companies to mitigate the impact of the changes to mortgage tax relief. Analysis of Kent Reliance for Intermediaries’ mortgage data shows that in the first quarter of 2019, 72 per cent of buy to let mortgage applications were made through a limited company, significantly higher than in 2016 (45 per cent).

Andy Golding, Chief Executive of OneSavings Bank, commented: ‘Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.

‘The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.’

Source: Residential Landlord

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More brokers searching for lenders who accept first-time landlords

In June lenders who accept first-time landlords was the most popular search on criteria sourcing system Knowledge Bank.

This follows a raft of recent product and criteria changes by lenders and suggests that potential landlords have not been put off by a loss of tax incentives and the ban on tenant fees.

Nicola Firth (pictured) chief executive of Knowledge Bank said, said: “The buy-to-let sector has taken a few punches over recent years with the removal of tax incentives, the ability to charge fees and even lenders going into administration.

“However, this is a resilient market and with competitive interest rates, and a wide product selection, potential landlords are asking brokers to find them a home for their loan requirements.

“Buy-to-let is another example of a sector where criteria changes are made on a daily basis so it’s vital for brokers to whittle down the lenders who will consider their clients in advance of any product sourcing. There’s no point finding a great product only to discover that your client is refused on criteria.”

Recent reports also show that product availability for first-time buy-to-let mortgages is the highest it has been for five years, coupled with an average fall in interest rates over the same period.

In other product areas; the monthly criteria activity tracker showed that the maximum age borrowers could be at the end of the mortgage term was the most searched-for criteria in the residential mortgage category.

Other search highlights reveal that the maximum loan-to-value continues to be the most popular search for second charge loans and the minimum age of borrowers at application the most searched for criteria within equity release.

By Michael Lloyd

Source: Mortgage Introducer

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Government urged to hold off on further buy-to-let interventions

The Government is being urged to hold a moratorium on further buy-to-let interventions after analysis found the market has swung in favour of large institutional landlords.

Research by the Intermediary Mortgage Lenders Association (IMLA) – based on the Government’s 2018 English Private Landlord Survey – warned that further changes could affect rental supply and mean higher rents for tenants.

IMLA’s analysis found professional landlords, as of the end of 2018, represent 48% of the private rental sector, up from 38% in 2010.

In contrast, the number of single-property landlords has fallen from 40% to 21% over the same period.

This was blamed on a tougher mortgage market, the increasing size of the build-to-rent sector and mainly, IMLA claims, due to Government changes such as additional Stamp Duty and the scaling back of mortgage interest relief making buy-to-let less profitable.

Kate Davies, executive director of IMLA, said: “We are concerned that layers of Government intervention have adversely affected small-scale landlords’ ability and appetite to invest in properties over recent years.

“As increased tax and regulatory responsibilities increasingly disincentivise landlords, we face a possible topping out of the private rental sector (PRS).

“While it’s good to see professional and institutional investors increasing their stake in the nation’s housing stock, the number of one-property buy-to-let investors has fallen by almost half.

“Squeezing the PRS puts the pressure on millions of renters in Britain. We are strong advocates of a fair market with a quality supply of homes. Restricting the PRS risks a lack of supply, rising rents and a fall in the quality of rental accommodation.

“We have repeatedly called for Government to put the brakes on regulating and taxing our nation’s landlords. We urge a more moderate approach to ensure our private rental sector remains strong for the millions of renters who rely on it.”

By MARC SHOFFMAN

Source: Property Industry Eye

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Cost of BTL products dips

The average price of a buy-to-let mortgage has dropped over the past three months in a further sign that demand was drying up.

Latest data from Mortgage Brain’s quarterly analysis of the market showed the average cost of both tracker and fixed-rate buy-to-let products dropped and some experts have put the reduction down to providers trying to entice landlords in a difficult market.

For example, the analysis showed the cost of a 60 per cent loan-to-value two-year tracker mortgage dropped 3 per cent in Q2, while the same product at 70 per cent LTV now costs 2 per cent less than it did in March.

Landlords looking for fixed rates have also seen a decline in cost as the data showed a 2 per cent reduction in the cost of five-year fixed products.

The findings also showed a fall in cost of about 1 per cent for 60 per cent and 70 per cent LTV three year-fixed buy-to-let mortgages.

Although seemingly marginal, Mortgage Brain stated that a 3 per cent drop for a £150,000 mortgage at 60 per cent LTV could save a borrower upwards of £230 a year in a market where margins are slim.

Mark Lofthouse, chief executive of Mortgage Brain, said: “With new regulations, tax changes, and the potential for base rate rises coming into play, the buy-to-let landscape remains as complex as ever.

“While the mortgage cost movement over the past three months has been minimal, the majority of the movement has been favourable and with specialist advice and support from brokers, buy-to-let investors and potential landlords can continue to make the most of the low rates and costs in the buy-to-let market.”

Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016 shortly followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules and the government has proposed abolishing the so-called ‘no fault’ Section 21 notices which give landlords the power to evict tenants at the end of their tenancy without a reason.

Back in January, the Intermediary Mortgage Lenders Association warned this year’s tax return would be the first time many landlords would see the effects of the changes on their earnings.

The data from Mortgage Brain also showed the difference in cost between residential and buy-to-let products, demonstrating the variation in risk between the two strands of mortgages.

The latest figures showed the cost of an 80 per cent five-year fixed product was 19 per cent higher than for its residential equivalent, while tracker products cost about 7 per cent more in the buy-to-let sphere.

Nick Morrey, product technical manager at John Charcol, said: “The difference between buy-to-let and residential products is interesting as it highlights the risk difference between the two.

“It would appear that the difference is highest for five-year fixed rates, which is a reflection of the need for them for landlords whose properties do not meet the affordability stress tests on other products and therefore effectively find themselves being able to only consider five-year fixed rates.”

According to Mr Morrey, this has created a “captive market” where lenders can levy a higher rate on five-year fixes and still sell the product as for some landlords it is the only option.

Mr Morrey added that the drop in costs for buy-to-let lending in general was not unexpected given the high level of competition in the area and the fact the market had seen some signs of declining demand due to changes to tax and regulation.

He said: “To grow or even maintain market share, lenders are shaving down their rates as much as they can and looking to tweak their criteria to cast a slightly wider net.”

By Imogen Tew

Source: FT Adviser

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Buy To Let Property Investors Want Fast Track Housing Tribunal

Buy to let property investors are calling for a fast track housing tribunal to help protect their property investments should the Section 21 ‘no-fault’ eviction process be abolished as planned.

Almost four out of ten landlords (39 per cent) would like the Government to introduce a fast track housing tribunal according to Paragon’s PRS Trends Report for Q2 2019 which surveys the views and experience of over 200 landlords.

The Paragon survey comes ahead of a Government consultation this summer, designed to gather views on how best to make the existing Section 8 process work more effectively.

Alongside a fast track tribunal, almost one quarter of landlords in Paragon’s survey (24 per cent) called for a shorter court process, one in seven (15 per cent) would like a guaranteed way to cover their costs and 7 per cent argued for the ability to submit evidence online.

The vast majority of landlords (84 per cent) said they felt the maximum time from serving notice to taking possession should be no longer than eight weeks. It is felt by that a fast track housing tribunal would help to speed the whole process up to enable landlords to regain their properties.

The survey was commissioned after the Government announced its intention to abolish Section 21 in April this year. In its place, it proposes that landlords should follow the Section 8 process which requires them to demonstrate that tenants are in breach of their rental agreement when serving notice.

Director of Mortgages at Paragon, John Heron, said: ‘Some of the main concerns for landlords around a move to the Section 8 eviction process relate to the efficacy of the existing court process. What we see here is widespread support for a fast track housing tribunal that can deliver a fair and timely solution for both landlords and tenants.’

Source: Residential Landlord

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First Time BTL choice up and rates down

Competition within the first-time landlord buy-to-let mortgage market has increased significantly over the last five years seeing a rise in the number of products available and a reduction in rates, research from Moneyfacts.co.uk reveals.

Over the last five years, the number of products available for first-time landlords has increased from 645 in 2014 to 1,405 today. As well as this, rates for both two-year and five-year fixed mortgages have also fallen, with the average two-year fixed rate decreasing from 4.01% in 2014 to 2.97% today and the average five-year fixed rate falling from 4.68% to 3.52% during the same period.

Buy-to-let market analysis – First-time landlord products

Jul 2014 Jul 2017 Jul 2018 Jul 2019
Average two-year fixed rate 4.01% 2.85% 2.83% 2.97%
Average five-year fixed rate 4.68% 3.63% 3.94% 3.52%
Number of overall products 645 1,034 1,268 1,405

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Fixed rates for first-time landlords start below 1.50% on a two-year fixed deal, but the associated upfront product fees must be considered carefully. Borrowers must ensure they weigh-up the true cost of any deal before they commit; for example, choosing the lowest two-year rate in the market from Barclays Mortgage at 1.46% would cost £20,901 in repayments after the first two years, which includes its £1,795 product fee*. However, if they opted for a deal with a lower fee, such as the mortgage from Post Office Money® priced at 1.48% with a £1,495 product fee, they would have saved £255, as the repayment would be £20,646 over two years.

“First-time landlords concerned about potential rate rises may instead consider a five-year fixed deal, and thankfully rates have fallen in this sector since 2014. In fact, the average five-year fixed rate for first-time landlords has fallen by 1.16% since July 2014, down from 4.68% to 3.52% today.

“As the market is awash with economic uncertainties and regulatory adjustments, consumers would do well to first seek independent financial advice if they are considering a buy-to-let investment, not just to find the best product, but to also review these impacting influences.”

*Based on £200,000 repayment mortgage over a 25-year term.

Source: Property118

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Landlords holding back from further purchases over next 12 months

Fewer than a third of landlords would add to their buy-to-let portfolio over the next 12 months, research claims.

A survey of 5,000 landlords by letting agent Benham and Reeves, assessed sentiment in the property sector amid tax and regulatory changes.

The majority (83%) said they were unlikely to sell up this year, but just 28% said they would consider investing in a property in the next 12 months.

Half said they would consider expanding their portfolio within the next five years.

Two thirds of landlords said the proposed changes to Section 21 notices made them more cautious about investing in a further property, while opinion was divided over changes to mortgage interest relief  and whether the sector still provided a good investment as a result, with 49% believing it is and 51% no longer sure.

Despite this uncertainty, 73% considered property is still the best and least volatile long-term investment when compared to all other asset classes.

More than a third (37%) felt very confident that they will see an adequate return on their portfolio over the next ten years, with a further six per cent stating they were extremely confident and 51% not as confident.

Marc von Grundherr, director of London-based Benham and Reeves, said: “The Government has really gone to war with buy-to-let investors of late and a consistent string of detrimental changes to the sector through Stamp Duty increases, tax relief changes and a ban on tenant fees has had the desired impact of denting industry sentiment and dampening appetite for future investment due to a reduction in profitability

“However, for the institutional buy-to-let investor, this is but a mere blip on a much longer timeline, and the overwhelming overtones are that while Brexit poses a challenging obstacle for the immediate future, the market remains the investment option of choice with many confident on a return further down the line.

“This is a testament to the durability of buy-to-let bricks and mortar in the UK as, despite a Government-backed clampdown, it remains a lucrative business and one that continues to gain the backing of those that are on the frontline.”

By MARC SHOFFMAN

Source: Property Industry Eye

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Property still considered the best investment

Some 73% of buy-to-let investors consider property as still the best , least volatile long-term investment when compared to all other asset classes, letting and estate agent, Benham and Reeves has found.

In the wake of a number of government changes to the sector, 66% believe that the government would fail to implement any initiatives aimed to boost overseas investment in order to drive consumer demand.

Marc von Grundherr, director of Benham and Reeves, said: “The government has really gone to war with buy-to-let investors of late and a consistent string of detrimental changes to the sector through stamp duty increases, tax relief changes and a ban on tenant fees has had the desired impact of denting industry sentiment and dampening appetite for future investment due to a reduction in profitability.

“However, for the institutional buy-to-let investor, this is but a mere blip on a much longer timeline and the overwhelming overtones are that while Brexit poses a challenging obstacle for the immediate future, the market remains the investment option of choice with many confident on a return further down the line.

“This is a testament to the durability of buy-to-let bricks and mortar in the UK as, despite a government-backed clamp down, it remains a lucrative business and one that continues to gain the backing of those that are on the frontline.”

With Brexit continuing to dominate the headlines with no end in sight, it’s no surprise that 72% of investors have had their outlook on the property market altered since the vote, with 68% now less confident in the market itself.

With more changes to property and investment laws on the horizon, 80% of those asked could be forgiven with being unfamiliar with the latest changes to the buy-to-let market.

Although it has only just been implemented, the recent changes to Section 21 notices have also had an impact, with 66% of investors now more cautious about investing.

However, opinion is divided over changes to buy-to-let tax relief and whether the sector still provided a good investment as a result, with 49% believing it is and 51% no longer sure.

The current financial landscape has provided some assurance, with 60% confident that rates will remain low over the next five years and while 66% aren’t as confident in an adequate return over this time period, 22% remain very confident, with just 10% not at all confident.

However, with buy-to-let always requiring a long-term investment outlook, this increased to 37% of investors feeling very confident that they will see an adequate return over the next 10 years, with a further 6% stating they were extremely confident and 51% not as confident.

By Michael Lloyd

Source: Mortgage Introducer

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Capital gains tax take rises as landlords feel the squeeze

There has been an increase in capital gains tax receipts in a sign that landlords are selling up as regulatory and tax changes start to bite in the buy-to-let market.

Latest figures from HM Revenue and Customs revealed there was an 18 per cent increase in capital gains tax receipts in 2018-19 compared to the previous year – with the amount raised reaching £9.2bn.

According to industry experts, this has been driven in part by private landlords ‘offloading’ less profitable buy-to-let properties as landlords’ margins narrow.

Unlike when a homeowner sells their house or flat, private landlords are charged capital gains tax on any profitable gains they make so an exodus of private landlords from the market could lead to increased revenue for the exchequer.

The trend is a sign that landlords have started to feel the effect of tax and regulatory changes on their income, as had been predicted by the Intermediary Mortgage Lenders Association in January.

Imla warned this year’s tax return would be the first time many landlords would see the effects of the changes on their earnings.

Landlords have been subject to a number of regulatory changes in recent years, with an introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016 followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules.

Sean McCann, financial planner at NFU Mutual, said the double-digit hike in capital gains tax receipts could be attributable to this clampdown on private buy-to-let investors.

He said: “Capital gains tax is a growing source of revenue for the government. Last year’s record haul of £9.2bn already looks like it could be surpassed.

“The increase is partly due to some private landlords choosing to offload buy-to-let investments.”

Research from Arla Propertymark also showed the number of buy-to-let properties up for sale had increased by 25 per cent in April.

Mr McCann said: “Essentially, landlords are being squeezed from two sides by the taxman. From one side, the higher rate tax relief on mortgage interest is gradually being phased out, which makes it a much less profitable exercise.

“From the other, those looking to sell buy-to-let properties are being squeezed with an extra 8 per cent capital gains tax.”

Mr McCann went on to say that HMRC “clearly saw the opportunity to increase the capital gains coffers” when it targeted landlords and was now introducing new rules to collect the revenue earlier.

Currently, the tax is due by January 31 following the end of the tax year in which the sale has occurred but the government plans to change the rules from April 2020 to require tax to be paid within 30 days of the sale.

The government is also cracking down on overseas landlords avoiding tax and new research shows letters and campaigns have led to a 61 per cent increase in those admitting to not paying tax on their rental income.

In a further knock to landlords, the government has proposed abolishing the so-called ‘no fault’ Section 21 notices which give landlords the power to evict tenants at the end of their tenancy without a reason.

At the time, the National Landlords Association warned that any greater security for tenants would mean little if the homes to rent were not there in the first place.

Chris Norris, director of policy and practice at the NLA, said although an exodus of private landlords from the market could represent a windfall of sorts for the exchequer, he thought private property contributed far more to the UK economy when it was actively let than when it was disposed of as an asset.

He said: “Landlords’ taxable income from rent is generally taxed every year at 20 or 40 per cent depending on their income, whereas taxable gains are likely to attract only 18 or 28 per cent and are a one-off charge.

“In many cases, after an individual’s annual tax-free allowance, capital costs, and other deductibles are taken into account, it is likely that the tax raised by a typical property sale would be equivalent to only a year or two’s income tax.

“It would be far better for the government’s tax take to encourage landlords to keep trading, rather than sell up.”

By Imogen Tew

Source: FT Adviser