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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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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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The big problems facing buy-to-let investors in 2019

There’s no two ways about it, the buy-to-let market has become much more challenging for investors of late for a broad variety of reasons. And landlords need to be braced for conditions becoming even tougher in the months ahead.

One problem I previously touched on is the impact that the Bank of England’s recent interest rate rises have had on driving buy-to-let mortgage costs higher again. And the trend is expected to continue into 2019 and probably beyond.

Andrew Turner, chief executive of dedicated buy-to-let lender Commercial Trust, was bang on the money when he commented this week that the current environment of exceptionally-low mortgage rates “will have to change.”

Turner said that “the bumpy road of Brexit may see the base rate brought down slightly, once things settle, but I think it is unlikely and in any event, there is not too much scope for reduction.” He added that “my view is that the overall picture for the next decade is a gradual upward trend in rates.”

Rates poised to rise That said, recent commentary from the Old Lady of Threadneedle Street released earlier this month suggests that any reduction in borrowing costs in the short term or beyond to support the economy in the event of a catastrophic no-deal Brexit cannot not be considered a given.

As the Bank of England explained in its most recent minutes, “the economic outlook will depend significantly on the nature of EU withdrawal,” and that therefore “the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.” Indeed, should sterling dive in response to the UK’s Brexit strategy, the committee may have no choice but to hike rates in an effort to tame a likely surge in inflation.

A property price crash? Another clear risk of a disorderly Brexit in the spring is the possibility that house prices in the UK could fall off a cliff.

The property market crash that many had predicted in the event of a Leave campaign victory in June 2016 may not have transpired. But home price growth has slowed to a crawl, the latest home price inflation gauge today showing expansion of 3.5% in September, more than halving from the 7.7% rise posted exactly two years earlier.

The impact that Brexit is having on homebuyer confidence has proved devastating, and the problem was again highlighted by Foxtons this week, the estate agency advising that it had recently closed another six branches in and around London in reflection of the “challenging market.”

Demand from first-time buyers may still be strong, but the uncertain outlook for the UK economy has seen transaction activity from existing homeowners slow to a crawl. And I would expect buying appetite from both of these demographics to sink, at least in the immediate term, should Britain fall out of the EU with a bang.

The buy-to-let sector is becoming more and more of a minefield for investors and for a variety of economic and political factors. In my opinion it’s a sector that is far too high risk and I think that savers should seek other ways of deploying their cash, like stock market investment, to generate solid returns.

Source: Investing

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Buy To Let Investors To Increase Portfolios Over Next Year

The vast majority of buy to let investors plan to increase their portfolios over the next twelve months, despite the uncertainty of Brexit and other potentially challenging government measures.

A survey by investor forum and advice website, The Property Hub, has found that almost 80 per cent of landlords plan to increase their portfolios over the next 12 months. This equates to around 1.95 million investors.

The new survey found that most landlords plan to purchase at least one more property next year, with 70 per cent stating that even a no-deal Brexit will not put off their plans.

Buy to let investors also overwhelmingly confirmed in the survey that the mass exodus predicted from the private rental sector will not happen, with 84 per cent saying that they had no plans to sell properties, and 66 per cent confirming that even if the government were to announce further tax measures – such as restricting interest relief for companies, they still wouldn’t be selling up.

Co-founder of The Property Hub, Rob Dix, commented: ‘There’s been so much talk of a mass exodus of landlords and the death of buy to let, it’s easy for some would-be landlords or, indeed, tenants, to believe the rental market is on its knees. However, it’s clear from our survey that landlords are far from retreating from the market.’

The government proposal for mandatory 3-year tenancies is also not putting off buy to let investors.

When asked what would need to happen in order for them to support this policy  82 per cent said they’d need a way to remove tenants who fall into rent arrears that is faster than the current fault-based method, 69 per cent said the ability to increase rent would need to be given, and 59 per cent said there’d need to be tax incentives, like the ability to deduct more mortgage interest.

Less than 9 per cent of the investors polled said they would oppose the policy regardless.

Mr Dix commented: ‘Getting good long-term tenants is the goal for any landlord so it’s not surprising that less than 9% of landlords would be against this policy regardless of any concessions. However, landlords obviously need to be protected too so it’s only natural that those operating in the sector are calling for some reassurance.’

Source: Residential Landlord

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Asking prices growing at slowest rate for over six years as investors sit on their hands

Asking prices are now growing at the slowest annual rate for over six years as buy-to-let investors become less active, Rightmove said today.

A second property website, Home, said that the market correction is “well underway”, while Hamptons International said landlords are buying fewer buy-to-let  properties and spending less when they do buy.

According to Hamptons, there were 64,260 buy-to-let purchases in the first half of this year, down 13% on the same period last year, and 31% down on the first half of 2015.

Landlords spent £12.1bn on buying rental properties, down 30% from the £17.3bn spent in 2015.

Separate Rightmove data out this morning shows new asking prices were up just 0.9% annually this month to £307,245, which is the lowest annual rate of growth since February 2012.

Price growth has also hit lows on a monthly basis, at 1%, the lowest rate for October since 2010.

The overall low rates of growth were attributed to asking price falls on smaller homes typically purchased by landlords and first-time buyers.

For two-bedroom or smaller properties, new asking prices fell 0.1% over the month to £190,587, with selling time rising  from 55 to 58 days.

Miles Shipside, housing market analyst for Rightmove, said: “Landlords are clearly buying far fewer properties and that leaves a gap in the market for first-time buyers.

“While landlords were hit with a 3% Stamp Duty surcharge on property purchases back in April 2016, in contrast most first-time buyers were effectively awarded Stamp Duty free status in November 2017.

“The fall in prices at the bottom of the market during what is a traditional busier time means that those keen to sell need to price accordingly, which gives an opportunity for those Stamp Duty free first-time buyers to negotiate harder.

“First-time buyer mortgage approvals are up, albeit by a marginal 1% year-on-year, showing that some first-time buyers are helping to fill the gap in the market left by less competition from investors.

“If the Chancellor’s Budget this month encourages more landlords to sell to long-term tenants via Capital Gains Tax relief, then landlords who are looking to sell and renters who aspire to become first-time buyers could work together for their mutual benefit.”

Meanwhile, Home has claimed price cutting is “the new normal”.

The property information website said 16% of properties currently for sale have had their prices reduced in the past 30 days, a percentage last seen in January 2009.

The total number of properties that had their asking prices reduced in September soared to levels last seen in September 2011 at 83,780 in the UK, Home said.

This put average asking prices at £309,366, up just 0.6% annually.

Overall supply of property for sale in the UK was up by 6% and the total stock for sale has increased by 10.7% year-on-year, while typical time on the market has increased by three days to 92 this month compared with October last year.

Doug Shephard, director of Home, said: “The market correction is now well underway. This month another key region, the east of England, joined the year-on-year negative club, and the south-west is applying for membership.

“Overall, annualised price growth for England and Wales looks set to hit zero by the end of the year and fall into the negative in early 2019.

“This is the hangover after one of the biggest property investment binges in UK history, fuelled, of course, by ultra-low interest rates. How long it will take to play out is unclear but we don’t expect the market to return to overall growth any time soon.”

Hamptons said that lack of new supply has led to rent rises in every region.

Source: Property Industry Eye

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Ireland is Europe’s buy-to-let hotspot

Ireland is Europe’s buy-to-let hotspot for the third year running with an average rental return of 7.69%, the annual European Buy-To-Let League Table from WorldFirst, the international payments expert, has found.

Investors in Ireland’s property market have benefited from significant returns due in large part to reasonable property prices in comparison to soaring figures in other Western European countries. A stable euro, continued economic growth and consistent rental demand have also contributed to the country’s performance.

In Ireland while a one-bedroom city centre apartment would now set you back almost £11,000 more than it would have this time last year (+6%), average rents have risen by £127 (+11%) per month.

Jeremy Thomson-Cook, chief economist at WorldFirst said: “Buy-to-let investors looking for the best rental yields in Europe once again need look no further than Ireland, taking the crown for the third time in as many years.

“Part of the reason for Ireland’s buy-to-let success is while average house prices across the country are on the rise; they still sit some way below the country’s 2008 peak.

“What’s more, only Malta, Luxembourg and Sweden have experienced higher population growth than Ireland meaning that rental demand continues to go from strength to strength. Add these two factors together and you have a compelling overall proposition for buy-to-let investors.”

With an average rental yield of 4.67%, the UK sits at the middle of the table in 16th place –a significant improvement on its ranking last year (25th).

Strong rental demand is a significant factor in the UK’s ascent up the table. YourMove’s monthly rental tracker for England and Wales reports that average rents are 2.6% higher than a year ago.

The fall in the value of sterling since the EU referendum has impacted UK buy-to-let investors looking for opportunities abroad. Sterling currently sits approximately 17% lower than the euro in comparison to its position three years ago.

With Brexit uncertainty continuing to cast a shadow over the UK, and London in particular, WorldFirst’s research took a look at how 10 of Europe’s largest cities compare with regard to rental yield.

Dublin (pictured) ranked top of the league table (6.46%), closely followed by Amsterdam (5.33%) and Warsaw (5.15%). London (3.17%) ranked ninth out 10, with only Paris (2.89%) lagging behind.

Cyprus was the biggest climber this year – up from 9th to second place – and Belgium was one of the biggest fallers, down from 6th last year to 12th in 2018. France ranked last place, taking over from Sweden which has held the position for the last two years.

Thomson-Cook added: “While the domestic market has lost its lustre for UK landlords, our research clearly shows that opportunities remain across the European Union more widely. However, though access to this market is still good – it is anyone’s guess as to how much longer that will last.

“For any landlord taking the plunge and looking to invest abroad, while the value of the pound might make the initial purchase price less palatable than it was a few years ago, collecting rent in a different currency could really pay off – particularly if you look further afield than your high street bank for the best exchange rates to bring that income home.”

Source: Mortgage Introducer

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Buy To Let Investors Losing Money Selling Empty Properties

Buy to let investors are potentially losing £500 million collectively as they are encouraged to sell their property investments empty and tenant free.

New figures from buy to let marketplace Vesta have revealed that over half a billion in rental income is lost due to private landlords evicting good tenants due to the belief that they need to sell their properties empty. This can lead to the average landlord losing over three months rent as a result of evicting tenants in order to sell.

Loss to a single private landlord with just one home to sell can amount to £2,757 or even £5,514. The total loss to Britain’s private landlords can reach £551 million – £1.1 billion.

In addition to losing landlords money, this practice causes distress to long-term tenants who are forced to find alternative accommodation. Creating longer tenancies has been marked as a goal by the government. The latest industry figures have suggested that up to 380,000 private landlords could sell their properties empty, leaving many families displaced.

Vesta’s Chief Executive, Russell Gould, commented: ‘The practice of landlords evicting perfectly good tenants when they want to sell their property is outdated in this day-and-age and highlights that the sector is long overdue for reinvention and transformation. You really have to question a process that loses rental income for the seller whilst putting the tenant through huge amounts of stress and cost when it is totally unnecessary. Until we adopt a different approach, the problem for both landlords and tenants will only get worse.’

He continued: ‘Forecasts suggest that 380,000 private landlords are planning to sell their properties in the next 12 months resulting in thousands of tenants facing unnecessary evictions. We want the buy to let sector to realise that there are viable alternatives to the traditional model that are both socially responsible and financially beneficial to investors, landlords and their tenants.

Source: Residential Landlord

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Buy To Let A Strong Investment For Most

The majority of buy to let investors still see buy to let as a good strong investment, with 56 per cent looking to keep or buy more rental properties.

The majority of landlords still see the sector as offering a good money making opportunity. However, there is concern that it will decline in the future with 44 per cent looking to sell. For those who are looking to leave the sector, 24 per cent are blaming falling yields. 23 per cent are concerned about tax changes and 19 per cent blame a decline in house prices.

60 per cent of landlords feel that property management had become a burden, likely because of growing regulation in the sector. 61 per cent of buy to let investors undervalued the costs that were involved.

However, some of those who are planning to sell their portfolio will remain involved in property, with 27 per cent planning to invest the money into their main property compared to a third who are thinking of re-investing in another asset class.

A significant regional divide was noted in terms of the best performing areas. Analysis from Octopus Choice revealed that typical rental properties in London cost landlords over £1,250 per annum for the first five years. While there are still hotspots such as Tower Hamlets, Barnet and Hackney, three quarters of landlords in the capital think buy to let investment will be less worthwhile in five years.

In Scotland and the East Midlands returns were more plentiful. Scottish landlords saw average annual returns of 8.8 per cent on their investment over an eight-year period, while those in the East Midlands return 8.2 per cent, making buy to let still a strong investment.

Head of Octopus Choice, Sam Handfield-Jones, said: ‘Brits still have an incessant love affair with bricks and mortar – but the hassle and cost of buy to let is a source of growing frustration, and some landlords may find that their once reliable day-to-day income is becoming harder and harder to come by. But this isn’t the case across all parts of the market, with money still to be made from the right property in the right region.’

Source: Residential Landlord

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Fight or flight? Landlords split over prospects for the buy-to-let sector

Landlords are almost evenly split between those pressing on despite tax changes and others heading for the exit.

Analysis by peer-to-peer property lender Octopus Choice of more than 1,000 buy-to-let investors found that 56% want to keep or buy more rental properties in contrast to 44% who are looking to sell.

A quarter blamed falling yields or tax changes, while a fifth said they were leaving due to cooling house prices.

Another 60% said property management had become a burden and 61% undervalued the costs involved.

Millennial landlords – those aged 18 to 35 – were more inclined to sell than stay with two thirds planning to offload one or more of their properties. This compares to 29% of over-55s.

Younger landlords were also more likely to admit that managing a buy-to-let has become a hassle, at 81% compared to 39% of investors over 55.

The analysis also found that London landlords have been hardest hit by tax changes.

The platform built a model to analyse the income and costs associated with buying, running and selling an additional property over an eight-year period, including repairs, mortgage charges and annual agency fees of 15% of rent.

It used the 2017 average UK house price growth statistics and rental yield figures from LiveYield, revealing that a landlord with an average property in London worth £475,000 would have to sell it for £590,000, a 2.46% return, just to break even.

In contrast, those in the east midlands and Scotland have seen growth from their portfolios of above 8%.

Sam Handfield-Jones, head of Octopus Choice, said: “Brits still have an incessant love affair with bricks and mortar – but the hassle and cost of buy-to-let is a source of growing frustration, and some landlords may find that their once reliable day-to-day income is becoming harder and harder to come by.

“But this isn’t the case across all parts of the market, with money still to be made from the right property in the right region.”

Overall return after eight years, by region

 

London

-2.46%

Wales

0.26%

North East

1.72%

East

2.19%

South East

2.29%

Yorkshire & Humber

3.36%

South West

3.91%

North West

3.96%

West Midlands

6.47%

East Midlands

8.18%

Scotland

8.82%

Source: Property Industry Eye