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Limited company structure becoming standard for all BTL

Purchasing a buy-to-let property through a limited company is now the preferred route for all landlords regardless of portfolio size or type of property, research has shown.

The data, published by Foundation Home Loans yesterday (November 6), showed 62 per cent of landlords with one to 10 properties would purchase via a limited company, almost equal to the 65 per cent of those with 11 or more properties who said the same thing.

Previously landlords with larger portfolios were more likely to purchase properties through a limited company while those with smaller properties typically took out a buy-to-let mortgage in their individual name.

I think it will be the standard way the majority of landlords buy a property in the near future as the knowledge that limited companies are the most tax efficient way is filtering down and will soon become common knowledge

Nick Morrey

Overall almost two thirds (64 per cent) of the 888 landlords polled in September planned to make their next purchase within a limited company vehicle — up from 55 per cent of those asked in June.

The buy-to-let market grew rapidly after the financial crisis but has since taken a beating as a number of tax and regulatory changes have hit landlords’ pockets.

How the rules changed:
An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.

Landlords then took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.

The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 landlords will be unable to deduct any of their mortgage expenses from taxable rental income.

Instead, they will receive a tax-credit based on 20 per cent (the current basic tax rate) of their mortgage interest payments.

Following the changes, landlords who were higher or additional-rate taxpayers would now only get refunds at the 20 per cent rate, rather than top rate of paid tax.

On top of this, landlords could also be forced into a higher tax bracket because they would need to declare the income that was used to pay the mortgage on their tax return.

Based on a property yielding £950 in rent and a £600 mortgage per month, the landlord’s income could drop by 57 per cent after the rule changes, from £2,520 to £1,080, as shown in the table:

Tax yearProportion of rental income falling under previous systemProportion of rental income falling under new systemTax billPost-tax and mortgage rental income
Prior to April 2017100%0%£1,680£2,520
2017-1875%25%£2,040£2,160
2018-1950%50%£2,400£1,800
2019-2025%75%£2,760£1,440
From April 20200%100%£3,120£1,080

Due to the tax shake up, limited company status is more attractive to landlords as changes would not affect them and they can offset mortgage interest against profits which are subject to corporation tax instead of income tax rates, which is cheaper.

Interest coverage ratios on limited company applications are also lower than for most individual landlord applications.

Nick Morrey, product technical manager at John Charcol, said the research was “very much” in line with what he saw in the mortgage market at the moment.

He put the latest surge in limited company popularity down to the fact more buyers and advisers were aware of the benefits and that from April this year only 25 per cent of interest qualified for tax credit.

He added: “I think it will be the standard way the majority of landlords buy a property in the near future. The knowledge that limited companies are the most tax efficient way is filtering down and will soon become common knowledge.”

By April 2020, no mortgage interest will qualify for tax credits on the old system.

Jeff Knight, director of marketing at Foundation Home Loans, said: “The rise in limited company usage by landlords shows no sign of tailing off, particularly as we have a more professional landlord community who recognise the benefits of using such a vehicle.

“It’s therefore perhaps no surprise to see a growing number of landlords signalling their intention to make their next purchase through a limited company.”

With a general election set for December 12, the housing market and buy-to-let in particular is likely to be a topic during the campaign.

Last month advisers urged the potential future government to tackle the fact successive pieces of regulation had made it harder for landlords to operate economically.

By Imogen Tew

Source: FT Adviser

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More lenders are offering limited company buy-to-let mortgages

More than half (59%) of all buy-to-let mortgage lenders offered products to landlords who use limited companies as borrowing vehicles in Q2 2019, Mortgages for Business has found.

Its Buy to Let Mortgage Index showed the number of providers serving corporate buy-to-let borrowers has been growing steadily since the cut in mortgage tax relief was introduced.

Steve Olejnik (pictured), managing director of Mortgages for Business, said: “The Index points to some good news for landlords, particularly those using limited companies who now have a greater choice of lenders than ever before, to help them finance their rental properties and access to better rates.

“In particular, we’ve seen the options increase at the more specialist end of the market, and we’re delighted that the number of lenders in that space is growing.”

The restriction of income tax relief on mortgage interest has meant that limited companies can be a more tax and financially efficient method of operating property portfolios than the self-employed route which was used predominately by landlords in the past.

In addition, the findings are also reflected in the total value of buy-to-let mortgage applications completed in the quarter at Mortgages for Business.

By value, more than half (52%) were from landlords using limited companies.

Furthermore, the gap in pricing between the average buy-to-let mortgage rate (3.1%) and the average rate available to limited companies (3.7%) diminished by 0.02% when compared to Q1.

Lenders’ margins over the cost of funds fell slightly to 0.54% from an average of 0.55% in Q1 2019.

While this is not a huge cut, it demonstrates that lenders are really having to squeeze margins to remain competitive.

Low loan-to-value products fared the best, with margins dropping below the 0.5% mark (0.48%) for the first time since Mortgages for Business started tracking costs and fees back in 2013.

There was an increase in the proportion of fee-free and flat fee-based products, up to 20% and 38% respectively.

This was to the detriment of percentage-based fees which fell to 40% despite having peaked at 48% at the end of 2018.

Mortgages for Business said this is a positive outcome for borrowers, who tend to dislike percentage-based fees and another sign that lenders are vying for business in a challenging market.

Flat lender arrangement fees, sitting at £1,504, fell slightly quarter on quarter which bodes well for landlords in need of finance.

By Michael Lloyd

Source: Mortgage Introducer

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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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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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Buy-to-let revealed! The most in-demand cities for renters today

It was once the destination of choice for buy-to-let investors, but London has fallen way out of favour with both would-be and existing landlords over the past year.

The electrifying property price growth of recent decades may have required some truly staggering wads of cash for people to build their property portfolios. However, the rate at which rents were also booming in the capital meant for many this was a price worth paying.

How things have changed since then. London is no longer considered hallowed ground by buy-to-let participants. Added to the problem of stagnating or even falling property prices in some boroughs, changes to stamp duty on second homes have also resulted in eye-watering payouts to the taxman compared with those of previous years.

Bristol’s best
There’s a treasure trove of evidence showing returns in other British cities now exceed those you can expect from investment in the capital. And new research from Bunk gives fresh ammunition for landlords to give London short shrift and buy elsewhere.

According to the lettings platform, which sought to discover the country’s most in-demand city based on which have the highest number of properties already let as a percentage of total listings, Bristol came top of the pile with a score of 50%. Newport and Nottingham followed in second and third place, respectively.

Top 10 Cities By Demand

Location / Rental demand

  • Bristol 50%
  • Newport 39%
  • Nottingham 36%
  • Plymouth 34%
  • Cambridge 34%
  • Portsmouth 32%
  • Bournemouth 30%
  • Oxford 29%
  • Manchester 26%
  • Glasgow 25%

Commenting on the data, Bunk co-founder Tom Woollard said: “We’re starting to see a real change in the rental market with a number of the more alternative cities coming to the forefront in terms of popularity,” with renters seeking out great places to live without the huge rents that come with so-called traditional cities.

London found itself languishing in the bottom 10 of Bunk’s report with a score of just 21%.

Bottom 10 Cities By Demand

Location / Rental demand

  • Aberdeen 8%
  • Newcastle 14%
  • Edinburgh 14%
  • Leeds 16%
  • Swansea 16%
  • Liverpool 18%
  • Cardiff 21%
  • Belfast 21%
  • London 21%
  • Sheffield 22%

Sticking with stocks

I have to confess, though, that this latest set of data isn’t enough to encourage me to get involved in the Bristol buy-to-let scene. No thanks. Given the mix of rising costs and increasing paperwork, not to mention the vast amounts of initial cash needed to buy property in the UK, I’d rather stick with stock investing.

And what a time to be an investor in equity markets right now. Dividends from the world bourses are hitting record high after record high. While signs of a slowdown in the global economy are predicted to dent many a company’s earnings in 2019, any such slowdown are unlikely to harm payout growth in the immediate future.

Take a look at the FTSE 100, for instance. The average forward dividend yield for the index sits at a chunky 4.3%, though this is not the only reason to grab a slice of some of Britain’s blue-chips. As I type, some of the index’s big hitters are trading on irresistibly-cheap valuations, something which is illustrated by the Footsie’s low forward P/E ratio of around 13 times.

My tip? Take advantage of the recent reversal in FTSE 100 share prices and go grab a big-dividend-paying bargain, or two.

By Royston Wild

Source: Yahoo Finance UK

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Buy-to-let market doom ‘overdone’

The buy-to-let market is in better shape than many might think, a lender has said.

John Goodall, chief executive of specialist buy-to-let lender Landbay, said recent industry commentary that states the market is on a downturn and that regulatory changes are forcing landlords to sell up was “a little overdone”.

Last week research from Arla Propertymark showed there had been a 25 per cent increase in the number of landlords selling up their property and those at the coalface said regulatory changes and a reduction in tax relief had stopped many viewing the buy-to-let market as a profit maker.

But Mr Goodall disagrees. Speaking to FTAdviser, he said: “There’s always been a churn in the market. Of course there are some people selling up property and getting out the market but that’s always been the case.

“At the moment, the highlight is on those selling rather than those buying. But those buying do still exist. Some small buy-to-let investors are getting out but it’s still only a small fraction.”

Mr Goodall cited UK Finance figures which showed that, in terms of outstanding stock, the buy-to-let market grew from £237bn to £243.9bn over the course of 2018 — an equivalent of 2.7 per cent.

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, which was closely 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.

Mr Goodall said the changes are more likely to scare off smaller landlords with only a few properties, which would eventually lead to a more professional industry.

he said: “Small investors that hold property in their own name have seen the biggest changes in terms of tax and stricter regulations are likely to affect smaller landlords more.

“But this has raised standards in the market and means most portfolio owners now act like a small, formal business.

“For example, of course it’s a good thing that houses of multiple occupancy have stricter licensing rules but this could turn off smaller landlords.”

According to Mr Goodall, more business-like landlords entering the market was a good thing would eventually help tenants.

He added: “I think it’s far better for the tenants to think their landlord is committed to it and that they are not just in it for the short term.

“If someone’s doing it on the side and alongside a full time job, the service is going to be worse for the tenant and the tenant does not have as much security.”

Observers in the industry have commented that a reduction in landlords could increase the price of renting and hurt consumers.

Mr Goodall refutes this, saying the market was self-regulating and “if rents go up, that entices more landlords, so more competition and the market would work itself out”.

He also pointed out that the buy-to-let market does not represent the entire private rental sector — as many who buy property can do so without a mortgage or some may inherit property.

The UK’s stagnant housing market — annual house price growth remaining under 1 per cent and home-mover rates on the decline — is often put down to political uncertainty and consumers holding back on decisions until after Brexit.

Mr Goodall agreed with this analysis and suggested uncertainty was more likely to be the cause of any dip in the buy-to-let market.

He said: “Brexit uncertainty is a more pressing issue. People will not invest at the moment.

“Landlords should be getting into it with a five to 10 year plan, but people don’t want to make those kind of big changes with Brexit on the horizon. There’s a little bit of sitting on the sidelines.”

Rachel Lummis, adviser at XpressMortgages, also said she had yet to see any evidence of a sell off of buy-to-let stock from their landlords.

She said: “We are seeing more landlords purchase via a limited company now rather than in their personal names which is resulting in landlords with portfolios with a mix of ownership in their private name and ltd company.”

Ms Lummis added that the type of property landlords liked — typically a two bed flat — had shifted to more high yielding properties such as HMOs and student accommodation, while many were also looking further afield, out of London and Surrey..

By Imogen Tew

Source: FT Adviser

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Investors Selling Up Buy To Let Properties Before Fee Ban

Many buy to let property investors are selling up before the tenant fee ban comes into force according to the latest figures from Arla Propertymark.

The number selling up buy to let properties in April reached its highest level since May 2018, rising from an average of four landlords leaving the market per lettings agency branch in March to five in April.

However, this could lead to higher yields for those landlords holding fast and not selling up. The proportion of agents who reported that landlords had increased rents rose to 33 per cent last month, up from 30 per cent in March.

The number of tenants negotiating rent reductions fell in April, from 2.9 per cent in March, to 1.9 per cent last month – the lowest figure seen since May 2016.

Despite some landlords selling up, tenants had a greater number of rental properties to choose from in April than a year ago, at 202 instead of 179 per lettings branch.

This could imply that larger portfolio property investors are using the opportunity to increase their portfolios as other landlords leave the market.

Demand from prospective tenants fell slightly in April, with the number registered to look for properties declining from 67 in March to 64 last month.

Arla Propertymark chief executive David Cox commented: ‘As predicted, April’s findings have shown an upsurge in the number of landlords selling their buy to let properties. In just a few days’ time, on 1 June, the Tenant Fees Act will come into force in England. This, coupled with the proposed scrapping of Section 21, is forcing landlords to either increase rents or leave the market altogether.’

He continued: ‘As supply of rental accommodation falls further, tenants will only be faced with more competition for properties, pushing up rent prices on good-quality, well-managed properties and decreasing tenants’ ability to negotiate rent reductions. In order to remain profitable, landlords will increase rents to cover the additional fees they are now faced with and as a result, tenants will continue to feel the burn.’

Source: Residential Landlord

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Quickest Places To Sell Buy To Let Investment Property

When investing in buy to let investment property, it is worth knowing how quickly you can sell if you wish to.

New research from property sales company Sellhousefast has looked into how long it would take to sell property in 10 locations recently suggested by LendInvest as perfect for buy to let investment.

The locations, namely Stockport, Coventry, Wolverhampton, Birmingham, Peterborough, Colchester, Manchester, Canterbury, Luton and Enfield, were analysed using postcode data compiled by Thomas Sanderson to reveal where properties are likely to go fastest.

The fastest postcode to sell properties in was found to be Stockport, where properties sell an average of 104 days, with the fastest postcode being SK4 where properties are expected to stay on the market for no more than 60 days and are worth £280,768 on average.

Second place went to Coventry, where properties take 124 days to sell. The fastest-selling postcode in Coventry is CV6, where property sells within 76 days and typically costs £158,742.

The last podium place went to Wolverhampton, where on average it takes 138 days to sell a property, with the fastest postcode being WV8 taking just 92 days.

Managing director of Sellhousefast, Robby Du Toit, commented: ‘From our research, it’s plain to see sales in the north and central England, in particular, are very promising. Locations like Stockport, Coventry and Wolverhampton have the benefit of lower property prices (in comparison with the south) and fast-paced, growing markets; something investors should take advantage of; should they be able to.’

He continued: ‘However, it is also promising to note that no matter where you want to invest there is a location available where property sells quicker than most. It is so important therefore to make sure you do your research before you take on an investment property. Shop around, ask questions, compare prices – don’t just choose the most amenable, obvious property. When it comes to selling, this is not always what makes a success.’

Source: Residential Landlord

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Buy To Let Property Investors Back As Prices Fall

Buy to let property investors are returning to the market as falling prices make property investments viable according to independent estate agent, haart.

The agent found that the number of landlords registering for buy to let property has risen by 7.9 per cent on the month but has fallen by 21.8 per cent on the year across England and Wales.

In London, the number has risen by 11.8 per cent on the month but fell by 28.1 per cent on the year. The number of buy to let property sales has dropped by 2.6 per cent on the year across England and Wales and fell by 71 per cent in London. Average buy to let property sale prices are down 11.9 per cent across England and Wales annually, and by 12.4 per cent in London.

According to haart’s figures, house prices across England and Wales fell by 0.6 per cent on the month and by 5 per cent on the year with the average house price now sitting at £218,556.

New buyer registrations rose by 23.2 per cent on the month and by 7.8 per cent annually. The number of properties coming onto the market this month rose by 12.3 per cent and has risen by 1.9er cent on the year. In March, there were 12 buyers chasing every property across England and Wales.

CEO of independent estate agent, haart, Paul Smith, commented: ‘Three years on from George Osborne introducing the 3 per cent hike in stamp duty surcharges on second homes, landlords are beginning to come to terms with the additional costs and are cautiously entering the market again. Our branches across England and Wales saw a monthly uptick of 7.9 per cent in the number of landlords registering to buy, a figure which has been continuing to grow since the start of 2019.

Interestingly, sale prices to landlords are down by nearly 12 per cent on the year which may be spurring on this activity, these price decreases could be causing the available stock to fall within lower stamp duty thresholds, making the stamp duty levy a little easier to stomach. Despite this, landlords are not back in their hundreds, the number of registrations is still down 22 per cent on the year. Whilst some brave souls are re-entering the market, the hammering buy to let property investors received in terms of various tax changes is still fresh in many of their minds.’

He concluded: ‘Clearly investors are recognising the value that can still be found in buy to let property, especially in comparison to the overvalued and faltering stock market. Although the property market hinges on confidence, the FTSE 100, gold and cash are far more volatile to socioeconomic impact, so investors are increasingly returning to property where they deem their money safest, and where the yields are highest.’

Source: Residential Landlord

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The number of buy-to-let remortgage transactions will drop

Landlord action to mitigate higher tax costs will lead to a lower level of buy-to-let remortgage transactions going forward, Paragon’s PRS Trends Report for Q1 has predicted.

While landlords with an average of 12.8 properties and over 20 years’ experience in the private rented sector (PRS) remain engaged in the sector, they are now prioritising measures to bolster financial strength over portfolio expansion.

John Heron (pictured), director of mortgages at Paragon said: “The shift in focus from portfolio expansion to financial strength has driven a surge in buy-to-let remortgaging, with lower interest rates and longer initial fixed periods helping landlords reduce finance costs and lock in greater certainty.

“However, it also extends the product maturity cycle, guaranteeing a reduction in the scale of opportunity to refinance buy-to-let mortgage deals over the next few years.”

Landlords have scaled back their buying intentions, reduced their reliance on mortgage debt and improved affordability by spending less of their rental income on mortgage payments.

For example, the proportion of landlords looking to purchase property has fallen from between 15-20% before the announcement of tax and regulatory changes in 2015 to just 7-10% today.

Average portfolio gearing – which measures the proportion of debt finance relative to a portfolio’s overall value – has fallen from 40% in 2014 to 33% today, with landlords who have three or more properties borrowing 36% of their portfolio value on average.

Meanwhile mortgage costs as a proportion of rental income are down from 30% at the beginning of 2017 to 27%, also aided by landlords remortgaging onto lower interest rate and longer-term fixed mortgage deals.

By Michael Lloyd

Source: Mortgage Introducer