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Bittersweet profits for buy-to-let landlords

Buy-to-let investors in the UK have suffered a dismal few years. The government’s determination to make the sector less appealing to investors seems to have worked.

As we pointed out in last week’s issue, the number of landlords in the UK has fallen by 120,000 in the past three years, according to figures from estate agent Hamptons International. Nevertheless, these landlords are leaving the sector with fairly significant profits. The average landlord in England and Wales sold their buy-to-let property in 2018 for £79,770 more than they paid for it (before tax), having owned it for nearly ten years on average.

Last year, 85% of landlords sold their property for more than they paid for it, with 15% making a loss. As you might expect, those selling property in London made a profit almost three times the national average, selling for a £248,120 profit. However, landlords made more money in 2017, selling for a £83,430 profit, with London landlords making £272,120. It’s also important to take into account the potential opportunity cost of leaving the sector.

Until a few years ago, buy-to-let was a fairly reliable source of income and capital growth for many. The government was concerned that landlords were pushing up prices beyond the reach of first-time buyers. While its clampdown has cooled the buy-to-let frenzy, it’s a shame that the Help to Buy programme is having the same effect.

By: Sarah Moore

Source: Money Week

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Number of landlords in arrears up 12%

The number of buy-to-let mortgage holders in significant arrears has increased by 12 per cent since last year, according to new data from UK Finance.

The trade body’s mortgage arrears and possessions update, published today (May 9), showed there were 1,200 buy-to-let mortgage properties in serious arrears — 10 per cent or more of the outstanding balance — in the first three months of 2019.

This was 12 per cent greater than in the same period in 2018.

The total number of buy-to-let mortgaged properties in any arrears, 2.5 per cent or more of the balance, increased by 3 per cent to 4,620 in Q1 2019.

The residential market fared better as the new data showed the number of homeowners in arrears remained at a historic low.

There were 76,580 homeowners in low level arrears in the first three months of 2019, down 4 per cent on the same period last year, and the number of consumers in serious arrears decreased by 3 per cent.

Arrears led to 1,380 residential properties and 570 buy-to-let mortgaged properties being repossessed in the quarter.

For the buy-to-let market, this meant repossessions fell by 14 per cent while for residential mortgages, the number of houses repossessed increased by 10 per cent.

UK Finance stated the increase in possession in the residential market had been driven in part by a backlog of historic cases and stressed that the total remained well below the levels seen between 2009 and 2014.

Commenting on today’s findings, Jonathan Harris, director of mortgage broker Anderson Harris, said: “Encouragingly, there has been a further fall in the number of homeowners in mortgage arrears, with numbers at historically low levels.

“The vast majority of borrowers are paying their mortgage in full and on time each month, perhaps not surprising when one considers how low interest rates are.”

But Mr Harris stressed there was no room for complacency in terms of mortgage repayments and said borrowers should plan ahead and consider how they would cope if interest rates were to rise.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “Buy-to-let landlords are falling into arrears from the pressure of tax and regulatory changes, as we might have expected.

“These figures also show that there is little appetite among lenders to repossess because they are not going to do too much better than the owners themselves in achieving a sale at a reasonable price.”

According to Mark Pilling, managing director at Spicerhaart Corporate Sales, the increase in buy-to-let properties in arrears could be down to the fact that many private landlords were looking to get out of the sector as a result of regulatory change.

This rise, he said, could be down to the fact that some tenants who have been given notice are now not making their rent payments.

He added: “In terms of residential mortgages, arrears are down slightly but possessions are up by 10 per cent, a fairly significant increase. And while they are still not at the levels seen after the financial crisis, they are slowly creeping up.

“And I think we will now see these residential possession numbers continue to increase every quarter, ballooning at the end of the year as borrowers start to run out of options to get themselves out of difficulty. And while forbearance is still an option for some, lenders need to look at all the circumstances of each customer and get the right strategy in place.”

In January, the Intermediary Mortgage Lenders Association warned the introduction of various tax and regulatory changes since 2015 would begin to have an effect on property availability and tenant choice in the rental sector as landlords began to feel the pinch of new regulation.

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.

By Imogen Tew

Source: FT Adviser

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Finally, some positive tax relief news for landlords! Could this help buy-to-let rebound?

For UK landlords, the taxman has morphed into the bogeyman in recent years, hiking stamp duty and reducing the tax breaks available for buy-to-let owners as part of the government’s uphill battle to make homes available for first-time buyers and thus soothe the housing crisis.

First HM Revenues and Customs came for the Wear and Tear Allowance that it switched out in favour of Replacement Relief in the 2016/17 tax year. Then the following year it introduced a phased reduction in mortgage interest tax relief on rental mortgages before the benefit is totally eradicated in 2020/21. And more recently in late 2018, the government launched plans to also eradicate tax breaks on capital gains when certain properties are sold. This will affect people who once lived in a now-rented-out property and will reduce returns when the home in question is sold.

Fun in the sun? In a turn up for the books, though, news emerged from the corridors of power this week to finally put a smile on the face of many buy-to-let investors.

In a Westminster debate discussing steps to help regenerate dilapidated seaside resorts, a House of Lords committee suggested that, along with measures like improving transport links, boosting digital connectivity and reviewing flood defence investment, government should consider introducing tax breaks for landlords in these areas.

More specifically peers recommended “the introduction of stronger incentives for private landlords to improve the quality and design of their properties,” measures that “might include tax relief for making improvements to properties.”

Don’t break out the bubbly yet Clearly these are just suggestions and remain a long way off from being signed off by the Treasury. And what’s more, these proposed changes would only benefit those investors whose properties are (or would be) located on the coast, individuals who comprise a very small slice of the overall pie.

This news is a much-needed step in the right direction for the sector, though, given that recent tax changes have solely served to penalise landlords. The committee’s findings were certainly celebrated by the Residential Landlords Association, which “welcome[d] the recognition this report gives to supporting landlords to invest in raising the standard of housing for their tenants” and which added that “we call on the government to accept this proposal.”

Let’s hypothesise for a moment and imagine that those recommended tax breaks do indeed come into force. Can it be argued that they would make buy-to-let investment in holiday resorts that much better on balance, given the raft of adverse tax changes I mentioned at the top of the piece? Certainly not, I would say. In fact, irrespective of this week’s news, legislative changes in the months and indeed years ahead are likely to remain mostly detrimental to landlords as the government takes action to solve the housing shortage. This is why I’m giving buy-to-let a wide berth and will continue to do so.

Source: Investing

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40% of landlords plan to expand portfolios

Four in ten buy-to-let landlords are planning to expand their portfolio this year, according to new research from a UK property investment specialist.

A recent report by Experience Invest shows that 39 per cent of buy-to-let landlords are planning to add to their portfolio this year, compared to 11 per cent who intend to reduce theirs.

The survey of more than 500 buy-to-let landlords also shows that London, Manchester and Liverpool rank as the popular cities for buy-to-let investment in the UK.

In terms of the most popular cities, London (35 per cent) just beat Manchester (33 per cent) to take the top spot.

Liverpool (25 per cent) and Nottingham (15 per cent) came in third and fourth, followed by Bristol and Leeds, at 14 per cent and 13 per cent.

The rest of the top ten consisted of Birmingham and Newcastle (both 12 per cent), Luton (11 per cent), and a four-way tie between Brighton, Edinburgh, Glasgow and Sheffield (all 8 per cent).

Houses (67 per cent) were the most popular choice of investment, followed by flats (54 per cent).

Meanwhile, 39 per cent of respondents were keen to invest in new-build residential properties, while 24 per cent were interested in student accommodation properties.

Commercial (34 per cent) and semi-commercial (21 per cent) property were the other leading asset types among UK property investors.

Jerald Solis, business development and acquisitions director at Experience Invest, said: “In light of tighter tax regulations on landlords and on-going Brexit uncertainty, there have been some doom and gloom predictions about the future of the UK property market.

But today’s research shows that, as an investment asset, real estate is still hugely popular, with a significant number of property investors looking to grow their portfolio further in 2019.

“It’s interesting to see that, while London remains the most popular location for property investment, other regions across the UK are very close behind. In particular, the North West has established itself as something of a ‘hotspot’ for buy-to-let investors, with cities like Liverpool and Manchester providing strong rental yields and healthy capital growth.”

Source: Simple Landlords Insurance

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Landlords beware! New charges for buy-to-let come in today

There’s no question that buy-to-let is becoming an increasingly-troublesome gauntlet for investors to run in 2019. Landlords have been getting accustomed to the increasing ream of regulations, changes to tax policy, and the subsequent cost increases that the government’s attack on the rentals market has created over the past couple of years.

It’s why property sales for buy-to-let purposes is falling through the floor — in 2018, sales to landlords tanked 12% year-on-year to some 66,400, recent figures from UK Finance showed — and the latest round of energy efficiency rules introduced from today could hasten the decline of this once-popular investment sector still further.

Energy drive
The new rules that come into effect from April 1 don’t affect all landlords, but those whose homes aren’t on the ‘greener’ end of the scale could be in for a significant hit in the pocket.

From this week on, those landlords whose property or properties have an Energy Performance Certificate (EPC) rating of F or G will need to illustrate that the costs to raise the grade to at least an E would be higher than £3,500 per property (including VAT). They would then be granted a ‘zero cost’ exemption.

If it’s decided that a landlord isn’t eligible for such an exemption, however, individuals without third-party funding will be forced to spend up to £3,500 to upgrade the green credentials of each of their homes to an E rating.

Under Minimum Energy Efficiency Standards legislation that’s been in force since last April, new tenancy agreements cannot begin in England and Wales on properties which require an EPC that have a ranking of E or below. But as from April 2020, all existing tenancies in these regions will be required to have a minimum E rating, including those that are currently registered for those ‘zero cost’ exemptions.

Conditions getting tougher
Facing the prospect of big bills for added insulation, new windows and other similar energy-saving measures, the possible returns for many landlords have diminished still further. And for those operating in London and the South East of England, regions where rental yields have taken a particularly hard smack in recent times, these extra costs are really going to be quite painful.

For many who already own buy-to-let assets, the market may well remain lucrative enough for them to hang on to these properties, at least for the time being. But I staunchly believe that those who are yet to take the plunge, or are tempted to boost their existing investment portfolio with more properties, should resist the temptation to do so.

Government is failing miserably in its bid to jack up build rates in the UK, and it is unlikely to reach its target of 300,000 new homes per annum by the middle of the 2020s (the country is currently building 55% of that magic number each year). This means that, in the absence of a cohesive housing policy to help us meet this goal, the attack on buy-to-let is only going to rise to free up housing for first-time buyers. Think conditions are tough for landlords now? I expect them to be much harder, and as a consequence more costly, for proprietors in a few years’ time. Best to stay away, I think.

By Royston Wild

Source: Yahoo Finance UK

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Nearly 60% of landlords saw tax bills rise

Nearly six out of 10 landlords (58%) saw an increase in their 2017-18 tax bill, Paragon’s PRS Trends Report for Q1 2019 has found.

Landlords with three or more properties were more likely to report an increase in their 2017-18 tax bill than those with smaller portfolios, with an average annual increase in tax of £3,039 for those reporting a rise.

While over 60% of landlords confirmed that the change in their 2017-18 tax bill was as expected, one third (33%) said it was either a little or a lot more than expected.

John Heron, director of mortgages at Paragon said: “These figures provide early insight into how the tax changes impacted landlords in the first year of implementation.

“The January tax deadline was the first real data point for measuring change and it’s clear that landlords are continuing to adapt their approach as the transition progresses.

“The fact that almost one quarter of landlords intend to respond by selling property is bad news for tenants, impacting supply to the sector, driving rental inflation and ultimately making it more difficult for those that rely on the UK’s Private Rented Sector for a home.”

Almost half of landlords (49%) who reported a higher than expected increase said they would make changes to their portfolio as a result, with the most popular measures including selling property (24%), increasing rent (20%) and reducing borrowing (19%).

Mortgage interest tax relief for buy-to-let landlords is being phased out over a four-year period and replaced with a basic rate tax credit.

In the 2017-18 tax year, landlords could deduct 75% of mortgage interest costs from rent. This was reduced to 50% in 2018-19. It will fall to 25% in 2019-20 and then to zero.

By Michael Lloyd

Source: Mortgage Introducer

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Landlords switch to limited companies

Professional landlords are increasingly switching to a limited company structure to avoid tax charges stemming from new buy-to-let rules.

Research from specialist lender Precise Mortgages showed landlords with bigger portfolios in particular had swung to using limited company status for new purchases.

It found almost two out of three (64 per cent) landlords with more than four properties and who planned to buy this year will use limited company status compared with just 21 per cent who intend to buy as individuals.

A series of tax and regulatory changes have sparked an increasing move towards limited company structures in the buy-to-let market as landlords seek to reshuffle their portfolios for maximum profitability.

The introduction of an additional 3 per cent stamp duty surcharge in April 2016 was closely followed by the abolition of mortgage interest tax relief for landlords, to be phased down to a 20 per cent flat rate in 2020, further pushing the limits of landlord profitability

The phased reduction in mortgage interest tax relief does not affect limited company landlords who can continue to offset mortgage interest against profits, which are subject to a corporation tax of 19 per cent instead of income tax rates.

Across the buy-to-let market as a whole 44 per cent of landlords planning to purchase another property will use limited company status, but that falls with the size of landlord’s portfolio with 17 per cent of landlords with one to three properties favouring the structure.

The research found two out of five (37 per cent) of smaller portfolio landlords will buy as individuals.

Alan Cleary, managing director of Precise Mortgages, said: “The buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector.

“There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next.

“Brokers and customers however need expert specialist support when buying as a limited company or considering switching to limited company status as there are considerable costs involved.”

In November last year Shawbrook Bank reported its buy-to-let borrowers were increasingly transferring properties to limited companies to navigate tax changes in the market.

Figures from the lender showed the proportion of buy-to-let mortgages completed by individual landlords had fallen from 68 per cent in the first half of 2015, to 34 per cent in the same period of 2018.

Meanwhile the proportion being completed by limited companies had doubled from 32 per cent to 64 per cent in the same period.

By Rachel Addison

Source: FT Adviser

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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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Demand from landlords wanting to purchase rental homes plummets by over a third

Haart is urging the Chancellor to relax the buy-to-let taxation crackdown after its data showed the number of landlord registrations was down by more than a third during January.

The agent’s data showed the number of landlords registering to buy rose by 2% between December and January, but fell 37.4% annually.

In London, the number of landlord registrations was down 41.3% annually.

Its branches did, however, report that the number of national sales to landlords was up 13.9% annually in January.

In sales generally, branches reported a 15.2% annual boost in new listings, a 2.6% rise in buyer registrations and a 5.5% yearly increase in exchanges.

Paul Smith, chief executive of haart, said: “There is a clear appetite to move amongst buyers and sellers.

“Just one month from Brexit, buyers are continuing to act in ignorant bliss, ignoring formidable predictions that are still dominating headlines.

“With increased confidence in activity, we can expect price rises over the coming months.

“But January was very much a tale of two halves. The London market did not pick up in the same way that the rest of the UK did, and the number of new instructions for sale in the capital dropped by 2.6%.

“The lack of new homes to buy has, in turn, pushed up rental prices by 6% on the year to a record £1,924 as Londoners scramble for rental accommodation as an alternative to buying a home.

“This is a not a fault of Brexit, but rather a consequence of the Government’s misguided efforts to reform the property market with taxation on buy-to-let landlords.

“Until buy-to-let taxation is relaxed, we can expect rents to rise throughout 2019 and tenants will increasingly be faced with difficulty when finding a new home in the capital.”

Source: Property Industry Eye

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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