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Buy To Let Investors Contribute £16.1 Billion To Economy

Buy to let investors in the private rental property sector contribute a huge £16.1 billion to the UK economy.

Through their spending over the year, landlords in the UK contribute towards thousands of jobs from builders and tradesmen through to accountants and letting agents. This figure has nearly doubled from £8.5 billion a decade ago, following the long-term expansion of the rented sector and rising costs per property.

Property maintenance and servicing represents the largest running cost for landlords across the private rental sector (PRS), totalling £5.8 billion. The next largest outlay is for those landlords that use a letting or management agent and contribute a collective £5 billion.

Investors spend a total of £567 million on accountancy and legal fees, £341 million on administration and registration costs, contributing an additional £908 million of spending solely dependent on the PRS’ existence.

Landlords also contribute £2.3 billion on service charges and ground rents, £848 million on utilities, £791 million on insurance, and £618 million on other associated costs of running a property.

The average landlord now spends £3,571 per property in annual running costs, before tax or mortgage interest – equivalent to 32.9 per cent of rental income. These costs have risen by 5.6 per cent in the last two years without factoring in increasing taxes. Since the start of 2009, costs have jumped by 28 per cent, a rise of £771.

£1,086 is currently spent on maintenance, repairs and servicing, and £935 spent on letting agent fees per property. A typical landlord spends £426 per property each year in ground rents and service charges. Insurance typically costs £149, and legal and accountancy fees £107, while administrative and license fees add another £64 per year.

A further £528 is lost in void periods each year, a figure that has climbed in recent years as a result of higher rents, and a slightly longer gaps between tenancies.

Faced by rising costs, and higher tax bills following the recent changes to mortgage interest tax relief, landlords are now looking to cut the amount they contribute.

36 per cent of landlords, surveyed by BVA BDRC on behalf of Kent Reliance, are already reducing or planning to reduce their spending. Overall, a typical landlord reviewing their outlay would cut spending per property by around 6 per cent. If replicated across the PRS, this would reduce their total spending by nearly £1 billion each year, reducing the revenues of the industries that depend on the PRS.

Sales Director of OneSavings Bank, Adrian Moloney, commented: ‘The political discourse around the private rented sector has been one-sided to say the least. Overlooked is the significant economic contribution landlords make, supporting thousands of jobs through their spending and housing a large portion of the country’s workforce. Instead, landlords have faced punitive tax and regulatory changes, at a time when running costs are climbing.’

Source: Residential Landlord

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Buy-to-let landlord numbers are plummeting!

It hasn’t been an easy time for buy-to-let investors over the past two-and-a-half years. First came the European Union referendum of summer 2016, an event whose result led to fears of collapsing house prices amid a meltdown in the UK economy.

We may still be waiting for this slump to happen, and is something I believe won’t occur given the scale of the supply imbalance in the homes market. But one thing is sure. The breakneck property price boom of recent decades has ground to a painful halt and is showing no clear sign of returning in the near future.

Landlord are evacuating With the stunning house price growth of yesteryear now seemingly over, a trend that had created a great number of buy-to-let millionaires, there seems little reason to take the plunge right now. With tax relief for landlords also being tightened, costs rising, and the sheer quantities of paperwork for these property owners increasing, well it’s little wonder that the rental market is in sharp decline.

This phenomenon was underlined by recent data from estate agent haart released this week. This showed the number of landlords registering to buy property over the past year plunged 37.4% on a nationwide basis.

The widening of the supply shortage in the rentals market has pushed rents up all over the country, and particularly so in London where the agency advised the average has jumped 6% over the past 12 months to a fresh record of £1,924.

Rents to keep rising? Haart chief executive Paul Smith commented: “The lack of new homes to buy has, in turn, pushed up rental prices… as Londoners scramble for rental accommodation as an alternative to buying a home.”

Smith blamed the “misguided efforts” of government to reform the property market by hiking the tax liabilities of landlords, and tipped that the cost of renting will continue rising for tenants. “Until buy-to-let taxation is relaxed, we can expect rents to rise throughout 2019,” he added.

The punitive tax changes that have hit both proprietor and renter hard in the pocket are here to stay too. Government is desperate to be seen to be helping first-time buyers get onto the housing ladder by reducing the number of homes hoovered up by the buy-to-let sector, even if in reality this is resulting in higher near-term costs for those aspiring to own their first home.

If anything, the financial and practical headaches for landlords in particular are only likely to rise in the years ahead as demand for new homes steadily booms. This imbalance makes the housebuilders great places to invest in for the years ahead, in my opinion. I for one would much rather invest in the stock market right now than to take the plunge in the increasingly-challenging buy-to-let market.

Motley Fool UK 2019

Source: Investing

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Buy-to-let investors! Why London is a rental market that could still make you rich

The three words ‘London housing market’ have been enough to send a chill down the spines of many a property owner over the past 12 months or so.

We all know the stresses that Brexit, and its current (and future) consequences, have had on home values since the EU referendum. The stratospheric home price growth of yesteryear has seemingly been consigned to history, and in the case of the capital, has been replaced by stagnating, if not receding, prices.

Latest figures from Hometrack UK indicated that home prices in the capital had risen just 0.2% in January on an annual basis. And Foxtons warned just this week that a range of factors, including political ones, mean that low transaction levels were likely to persist “in the short-to-medium term.”

Capital gains for landlords

You can come out from behind the sofa, though, because things aren’t all bad. Well certainly not if you’re a prospective or existing landlord. According to Foxtons, “there is momentum in the lettings business” and the estate agency consequently saw revenues rise here in 2018.

Indeed, a recent report from ideal flatmate showed one sub-sector of the rental market that is performing particularly well: the market for tenants seeking single rooms.

According to the online property website, the average price of a room advertised on its boards sailed 13% higher in 2018, to £855 from £781 in the prior year, thanks to “a continued lack of suitable stock and a reduction in buy-to-let investors.” And prices have continued to rise in 2019, ideal flatmate said. The average price currently sits at a whopping £902, with the most expensive average in London sitting at £1,045 for a room in Westminster.

“We’re currently seeing the price of room rentals in London increase at a rate of at least one per cent a month on average,” co-founder of ideal flatmate Tom Gatzen said, who also attributed the jump to “a reduction in the number of landlords and letting agents with rooms to rent as a result of the stamp duty shake-up, changes to tax thresholds and the impending ban on letting fees.”

The Top 10 Most Expensive London Boroughs

Borough Average Room Rent (Per Month)
Westminster £1,045
Camden £999
Kensington and Chelsea £997
Hammersmith and Fulham £959
Islington £910
City of London £900
Hackney £898
Wandsworth £810
Tower Hamlets £809
Southwark £807

Source: ideal flatmate

Alive and kicking

Talk of the demise of the buy-to-let market is clearly overdone. The London market still provides plenty of scope for landlords to make huge returns.

And while home prices are currently under some pressure, this isn’t something that long-term proprietors need to worry over, in my opinion. The capital remains one of the world’s most popular cities for both native and foreign homebuyers and it always will, meaning that property values are bound to make a comeback.

Would I invest in the rentals market myself, though? No. The sea of tax changes in recent years means that buy-to-let isn’t the lucrative investment opportunity that it was just five years ago, whilst increasing regulation makes it a much more complicated endeavour. There are much better ways to make your money work for you, in my opinion, and for this reason I’m using my cash elsewhere (like investment in the stock market) to help me make my fortune.

Source: Yahoo Finance UK

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New Electrical Safety Rules For Buy To Let Property Sector

Buy to let investors renting properties out will soon face new electrical safety rules on all properties they rent out in the private rental sector, following a government announcement.

Minister for housing and homelessness Heather Wheeler MP announced this week that mandatory electrical safety inspections will have to be carried out by ‘competent and qualified’ inspectors, with landlords facing tough financial penalties if they don’t comply with the new electrical safety rules.

Government ministers are due to publish new guidance which sets out the minimum level of competence and qualifications necessary for those carrying out the electrical safety inspections to ensure let private rental properties are safe from any electrical faults.

The minister said that the new guidance will provide clear accountability at each stage of the electrical safety inspection process, making it clear what is required and whose responsibility it is to put it in to place, but without placing excessive cost and time burdens on private sector landlords.

She said: ‘Everyone has the right to feel safe and secure in their own home. While measures are already in place to crack down on the small minority of landlords who rent out unsafe properties, we need to do more to protect tenants.

‘These new measures will reduce the risk of faulty electrical equipment, giving people peace of mind and helping to keep them safe in their homes.

‘It will also provide clear guidance to landlords on who they should be hiring to carry out these important electrical safety checks.’

The new electrical safety rules are part of the government’s continuing efforts to drive up standards in the private rented sector. Gas safety checks have long been in place in the private buy to let sector, and carbon monoxide alarms are required by law wherever there are solid fuel appliances.

Source: Residential Landlord

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What buy-to-let landlords can expect in 2019

As 2019 gets underway, and economic conditions continue to be uncertain, it is important for buy-to-let investors to be on top of the market and its changes.

The past three years have seen the market face a host of new regulations and tax changes, and this year is set to be no different as buy-to-let landlords must brace themselves for further uncertainty. However, it’s not all bad news – some of the changes are set to have a positive impact on the market, and there are still plenty of landlords planning to increase their property portfolios over the coming 12 months.

Tax reforms have been unkind to the buy-to-let market, with landlords only able to claim 25% of their mortgage tax relief, when filing their taxes between April 2019 – 2020. This is down from 50% for the previous tax year. Not only will this increase tax bills, but it could also mean that some landlords who are currently paying basic rate tax find that they are pushed into a higher rate band.

The good news is that the slow market activity means lenders are offering rock-bottom mortgage rates to tempt landlords, following the Bank of England’s base rate decision last year. However, the low rates are unlikely to stay that way for long. Many mortgage lenders will continue to offer incentives, such as free valuations and cashback, to attract business from landlords.

From April, all lettings agents will be required to register with a Client Money Protection scheme (CMPS), which protects both landlord and tenant money. For example, deposits, rent or money for property maintenance – should the letting agent go into administration. Landlords can rest assured that even in an uncertain economic climate, their rental income will be protected.

The likely introduction of the Tenant Fees Bill will also offer greater peace of mind to tenants, although it could come at a detrimental cost to landlords. The bill will mean tenants will only be required to pay their deposit and rent when signing a new tenancy agreement. If letting agents increase charges in other areas to compensate for the loss of fees, and subsequently become too expensive for a landlord to use, they may have to pass the added costs onto tenants in the form of rent increases. Alternatively, more landlords may decide to self-manage their properties rather than go through an agent, however this may result in many landlords struggling to stay on top of ever-changing property rules and legislations.

Of course, depending on the outcome of Brexit, house prices in the UK could take a hit. Deterred by the uncertainty of the property market, an increasing number of individuals could be looking to rent property instead of buying, pushing up the demand for rental housing and the cost of rent. If you’re currently considering investing in buy-to-let property, it’s worth monitoring the property market, as house prices have the potential to drop significantly. However, you will need to be prepared to act quickly if you are hoping to invest in buy-to-let property, so getting your finances in order ahead of 29 March will make you are more attractive buyer. Alternatively, bridging loans and other alternative finance options can give landlords access to fast, flexible finance to secure property acquisitions in a competitive market.

2019 is set to be an uncertain time for landlords and staying on top of the new regulations can feel like a full-time job in itself. The UK Adviser offers support to landlords of all portfolio sizes, ensuring that you remain fully compliant amid the economic and political market changes.

Source: Mortgage Introducer

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Five ways to clean up your buy-to-let portfolio in 2019

While January is a great time to be making financial resolutions, with many over-spending at Christmas, it’s sometimes best to concentrate on making the most of what you already have. For 2.5m people owning £1.4 trillion of buy-to-let, investment property is the best place to start. It comprises an enormous part of personal wealth, it requires time commitments that are akin to a part-time job, and the outlook for individual landlords is increasingly uncertain.

With that in mind, we’ve put together five tips for landlords to consider as they think about how to optimise their buy-to-let holdings in 2019.

1. Manage your mortgage

Mortgage payments may represent a significant part of your costs, and this will increase in a rising interest rate environment.

But there are great deals in the market, including fixed-rate options. Alongside traditional brokers, tech-powered online mortgage offerings like Trussle and Habito are able to help you sort through the huge range of deals on offer.

2. Review your managers

Many landlords make do with “rack rates” from high street agents for the management of their properties.

While you may have got the best offer when you bought the property, it is worth reviewing contracts periodically, with regard to both costs and service. If you have multiple properties, you should be able to secure significant discounts.

Also consider whether they are providing you and your tenants with a good service. Unhappy tenants mean voids, and voids significantly reduce returns, particularly if your properties are mortgaged.

3. Look at your profit and loss.

Do you really know how much you are earning, after mortgage costs, wear and tear, property management, and voids?

Most landlords focus on the rents they receive, not the bottom line. The answer might surprise you – 61 per cent admit that they underestimated costs last year.

4. Beware tax changes.

Once you’ve got to a clear-eyed view of the economics of your properties, you have to consider your personal tax situation. For example, mortgage relief is being phased out, and there have been changes to “wear and tear” allowances that may erode returns.

Some portfolio landlords are using limited companies to optimise their tax position, but this will only make sense for larger portfolios, given the overheads involved.

You need to consider if it justifies the amount of time (and risk) involved with running your portfolio.

5. Plan your strategy.

Property is a long-term asset class, and involves considerable costs, effort, and time, so you should be deliberate with regard to the future.

It might be prudent to reallocate your property exposure to different regions of the country (areas like Manchester and Birmingham have delivered strong returns on price and rental income). It may be that you want to gradually decrease your allocation to property compared to other asset classes.

You’ll also want to take a long-term view of your tax position, potentially with advice. With many young people struggling to get on the property ladder, advice can be particularly important when thinking about how to allocate investments between generations.

Whatever you decide, you need to be paying attention. The government and the market are making it increasingly hard to be an “armchair” landlord.

Without due consideration, you could be sleepwalking into investments that cost you money as well as time, while thoughtful landlords reap the benefits of their care and attention.

Source: City A.M.

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3 reasons why buy-to-let could crash in 2019

The prospects for buy-to-let investors appear to be relatively downbeat at present. In fact, this year could prove to be a challenging period to be a landlord.

Political risk in the UK appears to be causing a reduction in demand among property buyers, and this could hold back the rate of capital growth which is on offer for landlords. Similarly, affordability issues and the increasing appeal of other assets may mean that the outlook for buy-to-let investors deteriorates during 2019.

Political risk
While Brexit negotiations have been ongoing for a number of months, a clear path towards the UK exiting the EU doesn’t seem to be any closer. At the present time, almost any conclusion to the Brexit process is feasible, with a new Prime Minister, a change in government, or even a reversal of the initial referendum result still all possibilities.

In response, it appears as though prospective home buyers are becoming increasingly cautious. Various house-builders have reported a softening of demand in parts of the UK, and this trend could continue over the course of 2019. Even after Brexit has taken place, there may still be caution due to its one-off nature, linked to the fact that it’s never been undertaken before. As a result, demand for homes could slow and capital growth prospects for landlords could decline to some degree.

Affordability
The affordability of property in the UK continues to be a potential risk facing buy-to-let investors. In 2018, the house-price-to-earnings ratio reached its highest level since records began in 2002, which shows that many people are finding it difficult to get onto the property ladder. The natural response of the market to this issue is likely to be a fall in demand, which could help to ease affordability issues over the medium term.

This situation would be bad news for landlords, since it could mean that the capital growth which has been experienced in previous years is somewhat lacking in 2019. And with yields on property already relatively low in a number of areas, the total return capacity of the industry could be limited.

Relative appeal
While buy-to-let may be unappealing this year, other asset classes could become increasingly attractive. Equities, for example, have experienced a severe pullback in the last six to eight months. This may continue in the short run, but history shows that corrections are always followed by recoveries. There could therefore be an influx of capital away from property and into the stock market as investors seek to capitalise on the undervaluation of the latter and the potential overvaluation of the former.

As such, 2019 could be a tough year for property investors. While in the long term there could be continued growth ahead, there may be better opportunities within the stock market for investors who are seeking to obtain a mix of income and capital growth in the coming months.

Source: Yahoo Finance UK

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Less Buy To Let Investors Registering To Buy Property

There were less buy to let investors registering to buy property in 2018 according to new data released by estate agent Haart.

The number of landlords registering to buy property with the agent fell by 36 per cent year-on-year in November when compared to November 2017.

London recorded the biggest fall in property investors registering, down by 47 per cent on an annual basis.

On a broader scale, the number of landlords registering to buy property across the market in England and Wales dropped by 15.6 per cent on a monthly basis but was actually 22 per cent higher than the corresponding month last year.

From a rental point of view however the opposite is true. Average rents across England and Wales fell by 0.9 per cent on a monthly basis, and by 3.6 per cent year-on-year.

However, demand in London has increased by 7.6 per cent on a monthly basis and by 41.4 per cent annually, a major factor why rents edged up 1.2 per cent monthly month and by 6.9 per cent year-on-year.

CEO of Haart, Paul Smith, commented: ‘It’s very promising to see house prices climb up on the month amidst choppy political and economic waters. November and December are typically quieter months for the property market, but I expect we will see a surge in activity across the country once the Christmas lull is over.

He continued: ‘The monthly drop in the numbers registering to buy in London, which coincides with a huge increase in the number registering to rent, is indicative of buyers waiting for the political in-fighting to blow over. However, if the government were to provide clarity on Brexit, this would act as an ignition to unlocking the market’s huge potential.

‘Throughout 2018, the market has enjoyed a number of underlying strengths. With demand for property remaining significantly higher than supply, and a range of low fixed mortgages readily available, coupled with the fact that employment figures are at their highest in decades, there is plenty of reasons to be confident about the UK’s housing market going into 2019.’

Source: Residential Landlord

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Best Investment Property For Rental Yields

Buy to let investors are always looking for the best rental yields, so what type of properties can provide the best rental yields at the moment?

According to data from online buy to let agency yieldit, three out of the top five highest-yielding properties were houses with three bedrooms or more, producing net rental yields of up to 11 per cent.

Houses with three bedrooms or more are able to attract multiple tenants or larger families, and also tend to be freehold and therefore have no service charges attached that need to be deducted from the net rental yield.

In fact, houses as a whole came top for rental yields at an average of 6.4 per cent, followed by studios at 5.3 per cent and apartments at 4.9 per cent.

When it came to apartments, one-bedroom apartments were found to be a better investment than two-bedroom, with average net rental yields of 5.4 per cent compared to just 4 per cent.

One-bedroom apartments without parking were found to have higher rental yields (5.5 per cent) than those with parking (5.2 per cent), likely down to a lower purchase price.

Head of Sales at yieldit, Ryan Hughes, commented: ‘Deciding on what type of property to invest in is one of the biggest choices a landlord has to make. Houses suitable for families remain a popular choice, and yields can be significantly higher when you remove costs like ground rent, service charge and self-manage – however it’s important to note that this type of property might require more work and unexpected maintenance costs could affect annual returns.’

He continued: ‘For those looking to invest in apartments, the data suggests that there is a growing demand for one-bedroom apartments without parking. As environmental issues become more prevalent, we can expect to see tenants opt for more environmentally friendly ways to travel and an unwanted parking space might push up the price for renters.’

Source: Residential Landlord

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Does Brexit turmoil offer buy-to-let investors the perfect buying opportunity?

Brexit! What is it good for? Leavers and remainers are both struggling to answer that question right now but I’ve finally found something. The current turmoil may offer a chance for buy-to-let investors to pick up a property at reduced price, while share investors could also find bargains in the FTSE 100.

Slowing down
House prices have been relatively resilient since the referendum but now they are beginning to soften, with £1.6bn wiped off values over the past year. Buyers, sellers and investors are all adopting a ‘wait and see’ approach, as Brexit plays out, the global economy shows signs of fatigue, and interest rate rises potentially loom.

London prices are down 5% in a year as foreign investors are driven out by uncertainty and higher property taxes. The RICS says pessimism intensified in November and UK sales and prices will fall over the next three months. The average home now takes four months to dispose of.

Opportunity knocks
This is a blow for FTSE 100 housebuilders, whose share prices have fallen sharply, but their struggles may be good news for investors, because today’s low valuations could offer the opportunity of a lifetime. It may also be good news for those who are still keen on investing in buy-to-let.

That the last two or three years have undoubtedly been a disaster for buy-to-let, as the Treasury’s tax crackdown has driven up costs and slashed post-tax profits in a deliberate push to tilt the balance in favour of first-time buyers.

Second chance
The 3% stamp duty surcharge on second homebuyers and investors, combined with the phasing out of higher rate mortgage interest relief, has destroyed margins. You can’t do much about the second of these, but if you could get, say, a 5% or 10% discount on the purchase price, that will more than offset the extra stamp duty.

So if you are still tempted by buy-to-let, your chance may not have passed after all. As Brexit uncertainty looks set to drag on to the 29 March deadline for leaving the EU and beyond, you might pick up a bargain in the months ahead.

A better option
You should first decide whether buy-to-let is really something you want to do. As my colleague Royston Wild points out, enthusiasts have been hammered over recent years and it may be better to look at stocks and shares instead.

There is certainly a buying opportunity on the FTSE 100 now, with the index plunging from a peak of 7,877 in May to 6,826 today, a drop of 13% in just over six months. This means it now yields a whopping 4.37%, almost as much as you can get on a buy-to-let property, but with less bother. Trading at 15.63 times earnings, it isn’t overpriced either.

If you pop a FTSE 100 tracker inside your annual tax-free ISA allowance, you don’t have to worry about paying income tax or capital gains on your returns either. Plus there is no bother with tenants and all that nonsense. Now may be a buy-to-let buying opportunity, but the FTSE 100 could be a better one.

Source: Yahoo Finance UK