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Revealed: Top 10 most profitable areas for landlords in London

Kensington and Chelsea is the most profitable borough in London, with landlords set to make a net profit of £1.1m over 25 years, according to a study from mortgage lender Kent Reliance.

Westminster is the second most profitable for landlords, according to the analysis, with a net profit of £993,000, followed by Camden at £867,000.

The study also found that across the London rental market, the typical landlord in the capital will see an estimated net profit of nearly £505,000 per property over the next 25 years through rental income and capital gains.

Local authority / Unitary Authority Initial rental income pa Total rental income Total Capital Gains Total Costs Total Profit Profit in Today’s Money
Kensington and Chelsea £48,613 £1,772,409 £1,444,410 £2,116,090 £1,100,729 £670,928
Westminster £40,757 £1,485,980 £1,210,987 £1,703,380 £993,587 £605,622
Camden £33,592 £1,224,754 £998,104 £1,355,616 £867,242 £528,611
Hammersmith and Fulham £30,882 £1,125,939 £917,575 £1,245,489 £798,025 £486,421
Richmond upon Thames £26,802 £977,177 £796,342 £1,079,697 £693,822 £422,906
Islington £26,622 £970,609 £790,990 £1,072,378 £689,221 £420,102
Wandsworth £24,289 £885,556 £721,676 £977,588 £629,644 £383,788
Hackney £22,073 £804,749 £655,824 £887,531 £573,042 £349,287
Barnet £22,062 £804,361 £655,508 £887,098 £572,770 £349,121
Haringey £21,519 £784,584 £639,391 £865,058 £558,917 £340,677

London’s rental income is nearly twice the national average of £162,000, the study found. Profits from rents in the capital are also more than double the next most lucrative region in the country, the east of England.

The research also factors in an opportunity cost of over £73,000, the return an investor could have made from long-term savings instead.

John Eastgate, sales and marketing director at Kent Reliance’s parent group Onesavings Bank, said: “The buy to let market is undergoing a sea change.

“Regulatory and taxation changes have altered the market dynamic, reducing its attractiveness to amateur landlords, and increasing the tax bills of higher-rate investors.

“In spite of rising costs, there are still healthy returns to be found in property for committed investors.”

Source: City A.M.

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New Homes To Flood The Market As Buy To Let Investors Sell Up

380,000 buy to let investors might be about to sell at least one investment property, bringing a potential flood of new homes to the sales market.

According to the National Landlords Association, 19 per cent of all landlords are considering selling a property. Of that number, almost half have stated that within a year they could be likely to sell a flat. Another third have said that they are likely to sell a terraced house.

Both of the aforementioned property types are typical homes of choice for first time buyers. According to the NLA, this is good news for these purchasers, although the influx of new homes on the market might reduce prices across the sector.

Significantly, a mere seven per cent of landlords who plan to sell have stated that they intend to sell to other landlords, suggesting that a large number of new homes might be leaving the sector in future.

NLA chief executive, Richard Lambert said: ‘These findings sound like positive news for potential new homeowners, but the reality is not everyone wants, or is in a position financially, to buy. In fact, if all these homes are sold as planned then it will lead to a significant fall in the supply of property available to those who choose to rent, or have no other option but to rent’

He continued, stating that the negative relationship between landlords and first time buyers is often misrepresented: ‘Everyone seems to have a gut instinct about the extent to which they feel landlords and first time buyers compete for homes in the UK, but homeownership is a highly emotive issue so the facts are often overlooked. There’s certainly no denying that competition exists, but the significant barriers to homeownership are more likely to be the high cost of a deposit or ability to access mortgage finance.’

Source: Residential Landlord

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Should You Convert a Commercial Property into Residential?

Altering a commercial property – such as a former office, a shop with flat above, a pub or even an old library – into a residential property, may sound ambitious, especially if you’ve never done it before. But this has proved a popular property investment strategy for many savvy investors for some time now.

In fact, upmarket estate agents Savills say the number of office to residential conversions increased by 40 per cent in 2017 alone.

So, why are previously die-hard buy-to-let investors turning to commercial properties?

Well, as you’ll have read in Simples Emerging landlord report, the property market is changing. And savvy landlords are changing with it looking for opportunities, and diversifying their strategies

The commercial property sector has been somewhat depressed in recent years – with many businesses changing their business models and vacating their traditional business environments. Consequently, there is an abundance of empty commercial properties with owners willing to sell. Whats more, the government introduced a little something called ‘Permitted Development Rights’ – meaning certain commercial properties can be converted to residential properties without the need for full planning.

All together this makes a great and attractive opportunity for landlords willing to look at things a little differently.

So, what do you need to know about converting a commercial property into a residential property?

Check out the list of pros and cons right here and judge for yourself.

Pros for converting commercial property into residential

  • You may not require planning permission (many shops and offices come under Permitted Development Rights, for instance).
  • Even if you do need planning permission you’re likely to get it since the government’s National Planning Policy Framework makes the reuse of empty buildings a priority
  • You’re getting a much bigger property for your money (in many cases)
  • Offices tend to be pretty centrally located and therefore attractive residential lets.
  • You won’t have to pay higher Stamp Duty for your ‘second’ home since non-residential and mixed-use properties are exempt from this.
  • There’s no property chain to delay your purchase so it should all be much smoother sailing
  • You won’t have to pay VAT (currently 20 per cent) on the purchase if you issue the seller with a 1614D form.
  • You can also save on VAT (from 20 per cent to just 5 per cent) if you need to spend money on construction works in order change your commercial property into residential accommodation.

    Cons for conversion: commercial into residential

  • In some cases you will have to apply for planning permission, this may involve architects and therefore fees!
  • You’ll need to take out a specialist buildings survey on the structure of the commercial property prior to any conversion, again increasing costs
  • Conversions can become money pits of not managed carefully.
  • You’ll need to get a specialist commercial property solicitor for the purchase
  • Often you will need development finance to do the project and this can prove more costly than a typical buy-to-let mortgage

Source: Simple Landlords Insurance

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Sterling slips back towards 2018 lows as dollar surges

Sterling fell on Wednesday back towards its weakest level of the year amid fresh worries about Britain’s Brexit negotiations, a new leg higher in the dollar’s rally and after relatively modest UK wage growth earlier in the week.

Sterling fell 0.2 percent to $1.3480, not far from the 2018 low reached on Tuesday of $1.3452. It had touched as low as $1.3456 on Wednesday.

A rally in the dollar and slashed expectations for British interest rate rises have caused what had been one of the best performing major currencies to give up all its 2018 gains.

“The pound has been unable to pull itself out of the doldrums following a month of weak data, a dovish Bank of England and growing concerns over the health of the labour market,” said Fiona Cincotta, a market analyst at City Index.

Versus the euro, the pound managed to gain 0.3 percent to 87.390 pence per euro as the single currency sold off across the board.

The British government said on Tuesday it would publish detailed plans for its future relationship with the European Union next month in an attempt to break the deadlock in Brexit negotiations.

Divisions within the government about what the relationship should look like, and repeated complaints from EU officials that Britain has not been clear on what it wants, has left investors convinced Brexit talks remain a real risk for the pound less than a year before Britain is due to leave the bloc.

“That illustrates once again: the clock is ticking loudly and rapidly, in less than a year a valid and realistic deal has to be reached. Things are not looking good on that front at present. And as a result nor are they for sterling,” Commerzbank analysts said in a note.

On Tuesday, UK data showed British employers hired many more workers than expected in early 2018, a tentative sign that the economy’s weak start to the year may be temporary.

However, wage growth data remained mixed, with annual growth in earnings, excluding bonuses, at 2.9 percent in the three months to March, as expected in the Reuters poll.

Source: UK Reuters

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Double-digit drop in remortgagors and buy-to-let buyers in March

Fewer borrowers chose to switch their mortgage while the number of landlords buying dropped 20%, according to the latest figures. Remortgaging levels softened after a busy start to the year, according to UK Finance.

In March there was £5.6bn of remortgaging, 9.7% down year-on-year. There were 32,400 new homeowner remortgages completed in the month, some 12% fewer than in the same month a year earlier.

Buy-to-let purchase business fell more significantly. There were 5,500 new buy-to-let home purchase mortgages completed in the month, 19% fewer than in the same month a year earlier. By value this was £0.8bn of lending, 20% down year-on-year.

UK Finance said the recent softening of the buy-to-let market is mostly down to a number of recent tax and regulatory changes, including the limiting of landlords’ Mortgage Interest Tax Relief (MITR), the 3% Stamp Duty surcharge and new underwriting requirements introduced by the Prudential Regulatory Authority (PRA).

Small boosts

First-time buyer lending held up better with a small increase in lending by value, despite fewer first-time buyers actually taking out deals. There was £5.1bn of new lending to first-time buyers in the month, up 2% year-on-year. 31,200 new first-time buyer mortgages were completed in the month, some 1.9% fewer than in the same month a year earlier. The average first-time buyer is 30 and has a gross household income of £42,000.

Jackie Bennett, director of mortgages at UK Finance, said: “Remortgaging levels softened in March, after a busier than usual start to the year saw customers locking into attractive deals ahead of a potential interest rate rise.

“There has been relatively flat growth in lending to first-time buyers, reflecting recent Bank of England figures showing a fall in mortgage approvals.

“Meanwhile the buy-to-let market remains subdued, as recent tax and regulatory changes continue to have an impact on demand.”

Separate figures from the Bank of England show that gross mortgage lending in the first quarter of 2018 was £61.1 billion, up 3.4% from £59.0 billion in the first quarter of 2017.

Source: Your Money

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Falls in mortgage lending across entire market including first-time buyers, home movers and buy-to-let

The value of mortgages lent to first-time buyers increased slightly amid a fall in approvals across the whole of the market, lenders say. Data from banking trade body UK Finance has revealed there was £5.1bn of new lending to first-time buyers during March, up 2% annually, but representing 1.9% fewer actual mortgages at 31,200.

The value and number of mortgages to home movers also decreased during March, falling 4.7% annually to £6.1bn and down 7.8% to 28,400.

Buy-to-let approvals were also down 19.1% to 5,500 and fell 20% by value on an annual basis to £0.8bn in March.

Jackie Bennett, director of mortgages at UK Finance, said: “There has been relatively flat growth in lending to first-time buyers, reflecting recent Bank of England figures showing a fall in mortgage approvals.

“Meanwhile the buy-to-let market remains subdued, as recent tax and regulatory changes continue to have an impact on demand.”

Commenting on the figures, Mike Scott, property analyst at Yopa, said: “First-time buyers are keeping the housing market going, according to March’s lending figures.

“Overall, the picture is of a gradually slowing market, confirming other figures showing a similar reduction in the volume of house purchases.”

Source: Property Industry Eye

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Second charge lending falls

Second charge mortgage performed poorly in March, falling by 10% year-on-year with £86m of lending.

There was £1,023m of second charge lending in the 12 months leading up to March, an increase of 15% from that of the previous year.

Figures from the Finance & Leasing Association (FLA) also found there was £244m second charge mortgages in the three months leading up to March, with no percentage change year-on-year.

Tim Wheeldon, chief operating officer at Fluent for Advisers, said: “I don’t think some of the headlines I have read so far, highlighting the monthly fall in volumes, is the real story here.

“One month’s figures are not representative of a trend and while the month-on-month comparison shows a drop, the first quarter shows that the sector is ahead of last year’s figures.

“Our own experience at Fluent is that over the same period, we are registering record months with increasing volumes from our intermediary business.”

Source: Mortgage Introducer

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New build sales fall in London

Annual new build sales have fallen by 13.8% in prime central London with quarterly transactions plummeting to 88, London Central Portfolio (LCP)’s latest Residential Index reports have found.

Sales in Greater London have also slowed, with growth falling from 25% to 5.2%, resulting in a fall in market share to 15.6% from 20% a year ago.

Naomi Heaton, chief executive of LCP, said: “Findings from LCP’s April LCPAca Residential Index, LOREMA’S 2018 report and the ONS all show a troubling picture for the new build sector in London.
“ONS data just released for the first quarter shows the construction sector suffering its worst performance since 2012, with private housebuilding shrinking for the first time since June last year.

“The sector contracted at its sharpest rate in just over five years, with output falling by 2.3% compared with the previous three months.

“Whilst the ‘Beast from the East’ has shouldered much of the blame, in truth it was already suffering.

“According to the ONS, a large portion of the fall was due to a sharp 2.6% decline in January. This is a significant barometer of whether developers think there is strong enough demand for long-term projects.”

New build fell by 25.4% in Inner London in 2017, compared with 2016.

The largest falls were seen in Southwark (61.8%) and Tower Hamlets (43.3%).

Applications increased by 4% although there were falls in seven of the 11 boroughs with the largest at just over 42% in both Wandsworth and Westminster. Planning permissions also fell by 7.4% and completions by 6.1%.

Similarly new build starts fell by 1.1% despite a 25.8% increase in Outer London and planning permissions also fell by 1% and completions by 3.4%.

Average prices in prime London have fallen by 12.7% while outer London has seen a more robust performance, with average prices increasing by 8.5%.

Nevertheless, average prices of new builds in London as a whole have fallen by 2.6%.

Tower starts (residential buildings of more than 20 storeys) dropped from 46 in 2016 to 32 in 2017, resulting in units started falling 33%, from 8,200 to 5,500.

Tower applications fell by almost 10% from 74 to 67, with far fewer in Zone 1 than previously.

Heaton added: “A downturn in international buyer sentiment has impacted the new build sector which remains the most volatile.

“According to the LCPAca Residential Index, there have been both quarterly and annual price falls in Prime Central London and a lacklustre performance in Greater London.

“It is quite possible new build transactions will continue to decline, particularly in Inner London, given the 25.4% fall in new build starts reported by LOREMA.

“This situation could well worsen over the next two to three years, as schemes under construction which fail to sell off-plan come to completion.”
“This may well impact developers’ desire to commence new build projects, resulting in a negative impact on the provision of new housing, one of the government’s key aims.

“However, an increase in activity in Outer London may help mitigate this, particularly given the tower blocks being developed in the more peripheral areas of London, the fact that 30% of new tower starts are for the rental market compared with zero four years ago is also encouraging for the burgeoning generation of renters.”

Source: Mortgage Introducer

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Buy-to-let must be long game to make a profit

Despite rising costs, landlords could see net profits of more than £265,500 on their properties over 25 years, research has suggested. One Savings Bank calculated the profit, which is £162,000 when inflation is taken into account, and suggested buy-to-let could therefore still be a good bet for investors, although the research showed higher-rate tax payers will generate nearly a quarter (24 per cent) less than basic-rate taxpayers.

Returns also vary significantly by region, with profits in London more than £307,000 over the period, far greater than the UK average.

John Eastgate, sales and marketing director of One Savings Bank, which carried out the research, said that with a 25-year investment, a basic tax paying landlord, placing a typical 3 per cent deposit of £73,908 on a property, would generate a total profit of £265,500 after all costs and taxes.

Accounting for the impact of inflation over the period, this represented a profit of £162,000 in today’s money, or £6,475 every year.

He said: “The buy-to-let market is undergoing a sea change.

“Regulatory and taxation changes have altered the market dynamic, reducing its attractiveness to amateur landlords, and increasing the tax bills of higher-rate investors. In spite of rising costs, there are still healthy returns to be found in property for committed investors.

“However the days of speculation are gone. It is a long-term business endeavour, requiring commitment and expertise.

“Investors must be prepared to undertake business and tax planning, understand the risks as well as the rewards, and, most importantly, the responsibilities they have towards their tenants.”

The figures show that the cost of investing for 25-years amounts to £373,000, including more than £100,000 in tax.

A significant proportion of landlord returns over this period would come from capital gains, but the research suggested that most properties would also make a profit on rental income that more than covered outgoings.

The figures follow a sustained campaign by the government to reduce the attractiveness of buy-to-let investment, which has included increasing the amount of stamp duty payable on investment properties as well as decreasing the amount of tax relief available on mortgage interest payments.

As a result of the changes, investment into buy-to-let has dropped significantly in recent years with figures from the Intermediary Mortgage Lenders Association (Imla), in February, showing net investment in buy-to-let property fell from £25bn in 2015 to just £5bn in 2017 – a steeper drop than was seen immediately after the credit crunch in 2008.

Bob Riach, principal of Riach Financial in Scunthorpe, said that although interest had slowed down in the area, it still stacked up financially.

He said: “The average price of a buy-to-let here is about £120,000, with rental income of £550. It is viable, but the stamp duty surcharge has made it less popular.”

Source: FT Adviser

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UK House Prices see worst drop in over 8 years

The housing market has undergone peaks and troughs, with values in traditionally expensive regions dropping between 2017/18. The first quarter of 2018, specifically March and April, saw average house prices fall to their lowest in over 8 years. Overall, prices fell by over 3.1%, or nearly £221,000 according to a news report by Bloomberg.

The study by Halifax, part of the Lloyds banking group, demonstrated that the UK market is weakening. Meanwhile, consumer interest wanes due to a decrease in mortgage approvals overall. But while the first quarter is a poor start for the market, increases to the job market may redress this.

House Prices at 8-year low

Halifax also found that while mortgage approvals and buyer interest had depreciated. So too did the number of houses being placed on the market, contributing to a wider decrease in market value. For both London and the rest of the UK, the spring season is uncharacteristically quiet compared to other years.

“We are entering what is supposed to be the busy spring buying season, which tends to set the tone for the rest of the year.” – Jeremy Leaf, N. London Estate Agent (The Guardian)

Decreasing values are affecting housing across the UK, with London homes falling to prices of £430,000 or below.

Source: Gooruf