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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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SOS for private landlords over Osborne tax

Thousands of buy-to-let landlords could be forced out of business when tax demands land early next year, according to a Scottish property expert.

In January, landlords will face having to pay significantly higher income tax bills as measures brought in by former chancellor George Osborne start to bite.

Paul Smith, chief executive of Helensburgh-based property investment adviser Touchstone Education, warned the tax demands could “spell disaster” for thousands of landlords and place further stress on local authority housing.

His comments came on the back of a warning last month by Scottish property management firm DJ Alexander that a flatlining of rental growth will see an exodus of landlords from the private rented sector.

From April 2017, the amount of income tax relief landlords can claim on residential property finance costs was restricted to the basic rate of tax. The changes also apply to income earned by UK taxpayers on holiday properties overseas.

The shake-up will require them to pay significantly higher tax bills than in the past, in some cases a doubling or trebling of previous rates.

The move comes on top of increases in stamp duty and the Land and Buildings Transaction Tax (LBTT) in Scotland. Smith said the tax changes were aimed at cooling the London market, but have meant that many landlords across the UK have been left with no choice but to evict tenants and sell-up or to increase their rents.

“Thousands have already exited the buy-to-let market, switching their investments into commercial properties or serviced accommodation. Those who remain will now have to pay significantly higher income tax bills for the first time,” he said.

At a recent seminar staged by Smith, one landlord delegate discovered he owed £120,000 in additional tax to be paid by the end of January. The tax rises will compound static rental growth in many parts of the country, highlighted by figures released by Edinburgh-based DJ Alexander last month.

Although the average private housing rental price has increased by 0.6 per cent in Scotland over the past year, in the medium-term growth is poor.

In Scotland annual rental price growth was last above 2 per cent in June 2015 and has fallen steadily, even going into negative territory four times since then.

David Alexander, managing director of DJ Alexander, said that although there “probably won’t be many tears shed for private sector landlords leaving the Scottish market”, he stressed they play an essential part in providing vital housing stock.

The Scottish private rented sector has doubled in the past 15 years and now accounts for over 15 per cent of all housing.

Source: Scotsman

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Landlords warned of 2019 rate rises

Landlords must act on competitive mortgage deals before looming buy-to-let rate rises, a broker has warned.

Andrew Turner, chief executive at buy-to-let broker Commercial Trust Limited, urged borrowers to take advantage of cheaper deals while they were available – predicting rates were due to rise in 2019.

Mr Turner said “historically low” rates in the buy-to-let sector had been prominent for some time and reflect a “hugely competitive” marketplace.

But he warned this trend might begin to change as 2019 approached, with rates tied to another potential Bank of England rate rise and Brexit uncertainty.

He said: “The Bank of England’s monetary policy committee have implemented two base rate rises in the last 12 months, yet the added cost to lenders has not shown itself in any significant way in the deals they are offering.

“In my view this will have to change.”

Mr Turner added: “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.

“My view is that the overall picture for the next decade is a gradual upward trend in rates.”

Monthly figures from trade body UK Finance identified a recent trend in buy-to-let remortgage growth while purchases in the same market had droppedamid recent tax and underwriting changes.

Last month Jackie Bennett, director of mortgages at UK Finance, suggested the recent relatively strong growth in buy-to-let remortgages showed many existing landlords remained committed to the market.

Mr Turner said he feels the surge in landlord activity around buy-to-let remortgages was no coincidence.

He said: “For this reason, if you are concerned that rates are set to trend upwards, fixing now at a competitive low rate and for a period suited to you, could bring you a great deal of security through turbulent times.”

Liz Syms, chief executive at Connect Mortgages, said the market was still in a very low interest rate environment and fixed rates, including longer term fixed rates, were very well priced.

She said: “All borrower types should look to take advantage of the low fixed rates as there is no guarantee on how long these will continue at the current level, and predictions expect a continued gradual increase of rates.”

But Ms Syms stressed borrowers must also consider future plans when considering longer term fixed rates.

She said: “Most fixed rates have early repayment charges if they are repaid within the fixed rate period, so if there is a chance the borrower may wish to sell the property or change their funding requirements during this period they should consider all options available and not just fixed rates.”

Source: FT Adviser

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Attention buy-to-let landlords! You could boost your returns with this simple trick

Over the past few decades, buy-to-let investing has generated a tremendous amount of wealth for investors.

According to the Office for National Statistics, over the past 10 years, the average house price in the UK has grown at a compound annual rate of 3.1% from £168,000 to £228,000. Including an average annual rental yield of 5%, this indicates that the average buy-to-let investor has seen a yearly return of 8.1% since October 2008.

These are just estimates based on averages. The actual return achieved by individual investors will vary greatly because there are so many different factors to consider here like mortgage rates, maintenance costs and taxes.

The end of buy-to-let

My figures show that after including the impact of the government’s recent tax changes and slowing home price growth, buy-to-let investors getting into the market today will be lucky to walk away with an annual rental yield of 3.4%, excluding mortgage costs. Capital growth is also likely to be much lower over the next decade than it has been during the prior one. All in all, I estimate buy-to-let investing could produce a 6% annual return for investors getting into the market today.

A return of 6% per annum does not seem like much, especially as this does not include mortgage costs or the cost of property maintenance. But never fear, if you are worried about this low level of return, there is one simple trick you can employ to improve your investment returns.

Diversify, diversify, diversify

The way I see it, the biggest problem with buy-to-let investing is diversification. If you only own one or two properties, it won’t take much for your returns to evaporate. A property sitting empty for a few months or a broken boiler could eliminate a year’s worth of rental profits.

The solution to this problem is to increase diversification, but for most investors, this option is not available. Adding an extra five properties to your portfolio at today’s prices would cost around £1.1m (on average).

With this being the case, I believe the best solution to the diversification problem is to invest rental profits in equities. If you invest your income from rental properties into the stock market, you can achieve diversification and an extra passive income stream, that requires almost no extra work on your part.

Over the past decade, the FTSE 250 has produced an average annual return for investors in the high single-digits. Buy-to-let investing has matched this return since 2008, however, with returns set to fall going forward, I believe the FTSE 250 will outperform property. And, because you can own a FTSE 250 tracker fund inside an ISA, you don’t have to worry about the impact of tax (or changes to the tax regime) on returns.

Overall, if you want to improve your returns from buy-to-let investing, diversifying into equities could be the best decision you will make, I believe.

Source: Yahoo Finance UK

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Landlords turn to incorporation

A hostile tax environment has driven many landlords to register as a company.

Landlords are increasingly choosing to invest in properties through companies rather than as individuals. Nearly half (44%) of buy-to-let mortgage transactions are now made by limited companies, according to data from Mortgages For Business. This is up from 42% in the second quarter of this year.

The simple explanation behind more landlords choosing to incorporate is that they want to pay less tax. Before 6 April 2017, landlords could deduct mortgage interest from rental income before paying income tax. But this tax relief is gradually being phased out, and from 2020 relief for financing costs will be restricted to the basic rate of income tax: 20%. This will affect the profits of higher earners who previously qualified for relief at 40% or 45%. New affordability checks have also made it harder for landlords operating as individuals to borrow as much against a property as they could previously.

A different option

Landlords can avoid the increasingly punitive tax situation by setting themselves up as limited companies, as these benefit from favourable tax treatment of profits. Landlords who pay higher- or additional-rate tax, and who have a mortgage, tend to benefit most from incorporating. If you hold a property in a company, profits are liable for corporation tax at 20% – potentially halving your tax bill. Incorporated landlords can also continue to deduct all their costs, including finance, from rental income for tax purposes. Setting up a limited company is straightforward. You’ll need to register at Companies House, which can be done online for £12. You’ll need a company name, an address, at least one director and details of any shareholders. After you’ve established your business, you have three months to register it for corporation tax.

Buying properties as a limited company is also fairly simple. The main caveat is that you’ll need to find a mortgage lender that lends to limited companies. You may find interest rates are higher than on mainstream mortgages.

Transferring properties you already own to the limited company is trickier, as effectively you need to sell the property to the company. This means you’ll personally be liable for capital-gains tax on any increase in the property’s value since you purchased it, while your company must pay stamp duty on the purchase. In some cases, it may be possible to transfer properties subject to their existing mortgages, but if not you’ll need to pay off the mortgages and take out new ones in the company name. This process may trigger early repayment charges to redeem an existing mortgage, plus associated fees.

Keep on top of the administration

Running a limited company involves a lot of paperwork. You’ll need to file company accounts and tax returns, as well as your own self-assessment tax return. If you hire staff, you’ll need to run a pay-as-you-earn salary scheme and workplace pension. You may need to pay an accountant, who can help you with things like drawing income from the company. Any salary drawn (above standard tax allowances) will be subject to income tax plus employee’s
and employer’s National Insurance. Most company directors take income as a combination of salary and dividends. In general, it’s a good idea to take both tax and mortgage advice before incorporating, to check it makes financial sense.

Source: Money Week

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Nothing For The Buy To Let Landlord In Autumn Budget

In an Autumn Budget much anticipated by the property industry, the Chancellor of the Exchequer, Philip Hammond has given very little in the way of help.

The hoped-for announcements of waiving Capital Gains Tax for landlords who sell to first time buyer tenants, and also tax breaks and incentives for landlords who offer longer-term tenancies and various cuts to stamp duty have failed to materialise in the Autumn Budget.

Instead, token gestures towards fixing the UK property market seemed to be the order of the day.

£5.5 billion for the Housing Infrastructure Fund – in a move aimed at supporting the building of 650,000 new homes.

£1 billion to support SME housebuilders.

The abolition of Stamp Duty for all first-time buyers of shared ownership properties valued up to £500,000 – which will be backdated to the date of the last Budget.

The failure to introduce tax breaks for landlords prepared to offer longer tenancies seems a particularly missed opportunity, as industry research has shown that mandatory longer tenancies may cause some landlords to exit the sector, and that not all tenants are looking for long-term agreements.

The introduction of tax breaks for longer tenancies in the Autumn Budget would certainly have lessened the blow to many landlords of announced plans to introduce mandatory three-year tenancies.

Founder and CEO of Emoov, Russell Quirk, commented: ‘As expected, the Government has chosen to turn its back on addressing the current housing crisis and has instead deployed yet more cheap magic tricks and white rabbits in an attempt to divert our attention.

Retrospective stamp duty relief on shared ownership properties up to £500,000 is a very small give away and £500 million to help with an additional 650,000 homes will equate to nothing but rhetoric.

To say that the big developers are not land banking shows a completely naive disconnect from reality. Today absence of any meaningful housing announcements is disappointing, to say the least especially when housing is the second hottest political topic in this day and age.

We’ve been led to believe that this Government is serious about fixing Britain’s broken housing market, but so far their attempts equate to little more than plugging holes with PVC and sticky tape, rather than delivering a solution based on a watertight blueprint.’

Other property experts were equally disappointed by the Autumn Budget.

Rory O’Neill, Head of Residential, Carter Jonas, said: ‘The Chancellor has withheld much-needed support from landlords and tenants who are in a continuous state of flux over changes in fees and tax legislation. We would urge the Government to explore the correlation between financially squeezed landlords, many of whom struggle to invest in their properties, and tenants struggling to find homes that are fit for purpose.

‘In throttling landlords with the removal of taxation relief, many are vacating the market altogether, which is creating a shortage of good quality lettings properties in an affordable price bracket. Not ideal when so many tenants are already crippled by rents and unable to save for a deposit of their own.’

Source: Residential Landlord

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Buy To Let Landlord Profitability Up In Third Quarter

Landlord profitability rose in the third quarter of this year, as buy to let property investors settled down with their portfolios.

The latest quarterly BM Solutions/ BVA BDRC Landlords Panel found that nearly nine out of ten landlords (88 per cent) reported a profit on their buy to let property portfolios in the last quarter, a rise of 2 per cent from quarter two.

Continuing the positive outlook, landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK private rental sector and their own letting business compared to the third quarter of last year.

Average rental yields actually dropped during the third quarter from 6.2 per cent to 5.9 per cent. However, this followed a rise of 0.4 per cent in the second quarter.

The highest rental yields were enjoyed by landlords operating in the North West and Wales at 6.7 per cent and 6.3 per cent respectively. Rental yields are the lowest in Central London at an average of 5.3 per cent and Scotland at 4.7 per cent.

Tenant demand has also increased to the highest level since the second quarter of 2017, with Central London in particular seeing a 9 per cent rise in the proportion reporting increasing demand for rental properties and a 14 per cent fall in the number of landlords who feel that demand has decreased in the last three months.

The number of landlords increasing rents increased slightly to around a third, and the number intending to increase rents in the next six months was also up from 24 per cent to 27 per cent.

Head of BM Solutions, Phil Rickards, commented: ‘Despite many recent challenges to the buy to let market, it’s encouraging that more landlords have made a profit from their buy to let properties this quarter, and that landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK Private Rental Sector (PRS) and their own letting business compared to Q3 last year.

‘For those speculating about the future of buy to let, the figures supporting tenant demand should help to dispel this myth.’

He continued: ‘Considering the much talked about shortage of housing supply, it is vital that we continue to support a healthy Private Rented Sector and with tenant demand scores improving, or remaining stable across all UK regions, it is clear that the PRS still has a very important part to play.’

Source: Residential Landlord

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This is the best place for buy-to-let investors to buy!

It’s no surprise that the UK buy-to-let market is suffering a crisis of confidence right now. Landlords are becoming jittery over the stagnation (or in the case of London, painful decline) in property price growth over the past couple of years, not to mention tales of a possible market collapse in event of a cataclysmic ‘no deal’ Brexit.

They’re also becoming more and more troubled over the growing raft of regulations befalling the sector, a natural consequence of politicians trying to curry favour with the growing number of young and middle-aged adults still stranded in the rental trap.

Indeed, recent data shows that in this climate, landlords are more likely to reduce the size of their property portfolios than to buy up more bricks-&-mortar assets.

Irish eyes are smiling Sure, conditions might be tough in Britain, but there’s still plenty of opportunity for buy-to-let operators to make a fortune. They simply have to look a little further afield.

Ireland, for instance, has proved a lucrative hunting ground for property investors for years now. A report from WorldFirst shows that little has changed.

The Emerald Isle just took top spot on the international payments specialist’s European Buy-To-Let League table for the third year in a row, with the average rental yield there registering at 7.69% in 2018. By comparison, the average rental yield in the UK stands at 4.67%, it said.

Commenting on the data, WorldFirst said that “investors in Ireland’s property market have benefitted 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.”

WorldFirst said that while sterling has plunged around 17% over the past three years against the euro, Ireland still continues to offer strong returns for investors. It noted that “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%), the good news is that average rents have risen by £127 (+11%) per month.”

UK buy-to-let remains robust That’s not to say that the British buy-to-let market is totally unattractive, though. Strong rental demand means that average rents in England and Wales were up 2.6% year-on-year in September, according to estate agency YourMove, a rise which WorldFirst attributed to landlords increasing rents in response to the government’s decision to axe tax relief for proprietors.

All things considered, though, I believe that investing in stocks is far superior to taking the plunge in the rental market here or abroad. Indeed, if approached the correct way, buying into share markets has the capacity to make the sort of returns that most buy-to-let landlords can only dream of.

Source: Investing

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Nearly half of all landlords in the UK Buy to Let sector are ‘Pension Pot’ landlords

Nearly half of all landlords in the UK Buy to Let (BTL) sector are ‘Pension Pot’ landlords, latest research from Your Move, one of the UK’s largest estate agency networks, has today revealed. Your Move’s annual Landlord Survey defines ‘Pension Pot’ landlords as those who are over the age of 45 and view their portfolio as a long-term retirement investment. Over four in ten property owners in the BTL sector class themselves as ‘Pension Pot’ landlords, with nearly a quarter (23%) of this group, having been a landlord for 15 years or more.

Your Move surveyed 1071 buy-to-let landlords to learn more about their portfolios, behaviours and attitudes towards tenants, letting agents and the lettings market. ‘Accidental’ landlords – those who were not expecting to be landlords – were the second most common type of landlord (29%), followed closely by ‘Professional’ landlords (20%).The survey also revealed that ‘Accidental’ landlords are most likely to be female and under the age of 45, often thrust into the market through inheritance or other changes in their personal circumstances. ‘Professional’ landlords, however, tend to be male, over 45 years old, and consider being a landlord as a job or career.

The findings also showed that ‘Pension Pot’ landlords are more likely to live close to their rental properties than either ‘Accidental’ or ‘Professional’ landlords, with 41% living within 1-5 miles of the property.

Further, nearly three in 10 (29%) ‘Pension Pot’ landlords see their properties as a business, with over half (53%) investing in more than one property. However, even though these landlords may be more ‘investment minded’, Your Move’s survey found that ‘Pension Pot’ landlords are also more likely than the other groups to build a personal rapport with tenants and want tenants who will protect their investment. In fact, 18% said they like to meet or talk to new tenants before signing a contract, which was the highest proportion of any group. Over half (53%) felt it was important that tenants view the property as their own home.

Source: London Loves Business

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Half of landlords use property as pension

Nearly half of all landlords in the UK’s buy-to-let sector are aged 45 plusand view their property portfolio as a long-term retirement investment, according to a poll.

The survey, conducted by estate agency network Your Move among 1,071 buy-to-let landlords, found these so called ‘Pension Pot’ landlords were more likely to live closer to their rental properties than ‘accidental’ or professional landlords.

Four out of 10 (41 per cent) of those in surveyed in the pension pot category were living within five miles of their rental properties.

Just under three in 10 of those in this category saw their properties as a business, with 53 per cent investing in more than one property.

Martyn Alderton, national lettings director at Your Move, said the research suggested the private rental sector is still appealing to many landlords as a source of income and funding into retirement.

He said: “It is also clear that ‘Pension Pot’ landlords are keen to build a personal rapport with tenants who will look after their investment.

“As an industry, it is increasingly important that we continue to support these ties, providing long-term benefits to tenants looking for a property to call their home and also for landlords looking for ways to fund their retirement.”

David Hollingworth, associate director of communications of mortgage broker London & Country, said the results of the survey showed landlords in the ‘Pension Pot’ category clearly perceive that investment as an important channel within their retirement portfolios.

He said: ‘People are investing over the long-term and it is, therefore, not surprising that they see property investment as part of their pension pot.

‘In the past, there has been concern that landlords would be dumping stock at the first sign of a downturn, but, in the Financial Crisis, that didn’t transpire and people stuck with it – People were instead looking at the income they could generate from rental income.”

Source: FT Adviser