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Buy-to-let sector still offers opportunities

It is easy to forget that behind the scenes of the supposed landlord exodus, one in five UK households still rents privately and there are still attractive opportunities in the buy-to-let and build-to-rent sectors.

This truth is not lost on the slew of property investment platforms out there, which continue to grow, many of which are technically peer-to-peer firms or intermediaries rather than asset managers.

You might even say there has been an air of over-confidence, as an explosion in P2P property investment has sparked a flurry of interest from institutional investors.

However, lack of a track record coupled with lingering suspicions surrounding the wildly different range of approaches taken by such firms, has held the sector back.

It is not hard to see why — it is all about risk. At one end of the spectrum, some offer seemingly attractive returns riskier development projects without any concern for their performance.

At the other, you have asset managers with a vested interest in performance.

In every new fintech industry, harsh lessons are learned. Some models fall by the wayside and it is normally those that cut corners. Property investment platforms have not experienced a day of judgement like this yet.

Sky-high default rates sparked a wave of platform collapses in China this year and the Financial Times revealed in November that £112m of the £180m in Lendy’s loan book was at least one day overdue in October. Warning signs the day of reckoning may be closing in?

Natural selection is coming in 2019 and the defaulters will identify the fittest so advisers do not have to.

We just have to get the bloodletting out of the way first.

Source: FT Adviser

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Has there been a better time to be a buy-to-let investor?

Regular readers of The Motley Fool will know that we writers, broadly speaking, are not exactly cock-a-hoop over the buy-to-let sector.

A litany of issues, from painful tax changes to slowing (or even reversing) home price growth, from rising interest rates to inconvenient and even costly regulatory changes governing tenancies, mean that this type of property investment is now a minefield.

Having said that, some would argue that the financial market volatility of the past month shows how buying bricks and mortar is a much safer and more stable investment destination than stock investing, the sharp sell-off dragging both good and bad stocks through the floor.

And there’s room for plenty more pain to come down the road. The seeds of last month’s market panic, i.e. concerns over interest rate rises in the US choking off global growth allied with fears over the implications of President Trump’s trade wars with China, haven’t gone away. And other problems like the short- and long-term implications of Britain’s Brexit saga; the emergence of Cold War 2.0; and fiscal battles between Italy and EU lawmakers, add extra layers of fragility to the current trading climate.

Mortgage choices are rising… but so are costs
For risk-averse investors, now would appear to be a great time to get into buy-to-let investment, and particularly as the range of mortgage products available to landlords continues to grow, more than doubling over the past year, in fact.

And there’s been a slew of new products brought out in the past few days alone. Among the big movers, Atom Bank entered the rentals arena at the start of the week with the introduction of two- and five-year tracker mortgages, and Paragon Bank expanded its suite of products to include a specialised product for expat landlords and UK holiday lets. These moves followed digital lender Molo Finance entering the buy-to-let sector in late October.

Increased competition in the market should mean good news for consumers, of course. But investors need to be aware that right now mortgage costs are rising. A report from broker Property Master this week showed that the monthly cost of a two-year fixed rate £150,000 buy-to-let mortgage rose between £2 and £5 due to recent Bank of England interest rate rises, and between £4 and £5 for a five-year fixed rate product.

Sure, these additional costs are not exactly astronomical. But as Property Master pointed out, further rate rises from Threadneedle Street may be just around the corner, a scenario that would likely push mortgage costs still higher.

Stick with stocks
All things considered, I’m yet to be convinced that buy-to-let is a smart way to use your cash today. Irrespective of last month’s stock market sell-offs, investing in shares remains a vastly superior way of generating strong shareholder returns over a long time horizon, something that has been proven time and time again.

Sure, buy-to-let was a wise way to make your money work in years gone by as Britain’s homes shortages pushed property prices and rents through the roof. But the raft of increasing costs and ratcheted-up regulations make it quite a problematic investment arena, and one that is likely to get trickier. I for one will continue to shun the temptation of buy-to-let.

Source: Yahoo Finance UK

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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

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Younger landlords more pessimistic about Buy To Let, despite opportunities

UK landlords are divided along generational lines over the future of the buy-to-let sector and whether to stay the course or sellup, new research suggests.

Overall, some 56 per cent want to keep or buy more rental properties, but 44 per cent are looking to sell, according to data from investment firm Octopus Choice.

Millennial landlords are more inclined to sell than stay, with 65 per cent planning to sell one or more of their properties. This compares to 29 per cent of those aged 55 and over. Younger landlords are also more likely to admit that managing a buy to let has become a hassle with 81 per cent doing so compared to 39 per cent for investors over 55.

The biggest annoyance cited by millennials is dealing with onerous tax returns, while older generations blame high one-off costs.

Some 87 per cent of millennials admitted that they underestimated the costs involved, including repairs and upkeep, insurance and initial legal and conveyancing fees, compared to just a third for those over 55.

Among those looking to exit the market, some 24 per cent blame falling yields while 23 per cent say it is due to tax changes and 19 per cent are put off by cooling house prices.

Some 60 per cent say that property management had become a burden and 61 per cent had underestimated the costs involved.

Sam Handfield-Jones, head of Octopus Choice, said: “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 location, he pointed out.

He added that London landlords face the toughest choice, with falling yields and slowing house price growth set to reduce profits.

An analysis by the firm shows that typical buy to let properties in London cost landlords over £1,250 per annum for the first five years and an average London house worth £475,000 would have to be sold for £590,000 eight years later, just to break even, even taking into account the income over that eight year period.

While London hotspots can still be found, such as Tower Hamlets, Barnets and Hackney, three quarters of landlords in the capital think investing in buy-to-let will be less worthwhile in five years time, more than any other area.

In Scotland and the East Midlands, it’s a different story with Scottish landlords enjoying average annual returns of 8.8 per cent on their investment over an eight year period, while those in the East Midlands only return 8.2 per cent.

Handfield-Jones added: ” Against this backdrop, its not surprising that some investors are seeking alternative ways to indirectly invest in the property market.”

“For those looking to leave, there are growing numbers of ways to keep one foot in the door”

Richard Truman, Head of Operations at Simple Landlords Insurance added ” Our own research into the ’emerging landlord’ sees landlords in general getting younger. Perhaps what were seeing here is the difference between the small, accidental landlords, and the larger professional landlords. And it;’s a gap thats widening.

Those getting into property investment to make a quick hassle-free buck, and who haven’t done the due diligence, research and number crunching , are going to find things tough in today’s market.

Those investing for the long term, clear on their strategy and goals, looking to grow, and savvy about the market challenges and opportunities- those are the landlords winning at property, and confident about the future.”

Source: Simple Landlords Insurance

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This July was strongest for remortgaging in a decade

This July was the busiest for remortgaging in a decade, as there were 46,900 residential transactions worth £8.7bn that completed, UK Finance figures show.

This means that volumes were 23.1% higher than the same month in 2017 and by value there was a 26.1% increase year-on-year.

There was a similar trend in buy-to-let remortgaging, where 14,700 loans worth £2.4bn were completed, increases of 7.3% by volume and 9.1% by value year-on-year.

Jackie Bennett, director of mortgages at UK Finance, said: “The residential remortgaging market saw its strongest July in over a decade, as homeowners pre-empted the latest Bank of England rate rise by locking into attractive fixed-rate deals.

“There was also considerable growth in remortgaging in the buy-to-let sector, showing that while recent tax and regulatory changes are impacting on new purchases, many existing landlords remain in the market.”

The number of buy-to-let purchase mortgages completed fell by 14.1% year-on-year, with just 14,700 being completed.

Richard Pike, sales and marketing director of Phoebus Software, said: “While July is traditionally a busy month, it is clear that a number of people were kicked into action by the anticipation of the base rate rise.

“It was not such a rosy picture for purchases however. It is clear that consumer confidence is starting to take a hit, undoubtedly by all the talk of a no deal Brexit.

“Whenever there is uncertainty, people tend to put off making big decisions such as buying a new home. I expect to see more and more caution over the next six months as people wait to see what the outcome will be and what effect it will have on them personally.

“If ultimately, the result is better than expected, this could turn out to be pent up demand with a surge in house moves afterwards, but it could be many months before we see this come to fruition.”

Shaun Church, director at Private Finance, said: “Remortgage activity appears to be the main thing keeping the buy-to-let market afloat.

“Though punitive regulatory changes have dissuaded new entrants to the market, today’s data suggests many existing landlords are staying put.

“With mortgage costs often being one of landlords’ biggest expenses, swapping to a lower-rate deal is a sensible strategy for making a rental property more profitable.”

Source: Mortgage Introducer

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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

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Three more years of decline in buy-to-let sector, forecasts bank

The buy-to-let sector is set to continue declining until 2021, says a new report, which also forecasts a further price correction in the London housing market.

The number of buy-to-let mortgage approvals for purchase dropped in 2016 by 13%, followed by a drop of 27% last year.

The new report, compiled by the Centre for Economics and Business Research for Shawbrook Bank, says there will be further falls as the sector adjusts to a raft of tax changes and new regulation.

The bank says that government policies have had a marked effect.

It expects that the market will stabilise in 2021, which will be followed by returns to growth in the following two years.

Shawbrook expects that strong tenancy demand will continue, and that supply will be underpinned by professional landlords.

The report also says that London house prices could drop further.

It says: “London has long dominated the BTL sector.

“But a flat housing market and limited capacity for rental growth in the capital means that other places in the country offer better yields to investors, especially cities with large student populations.

“Brexit adds a further layer of uncertainty: with a number of City jobs at stake, London’s housing market might be in for a further price correction.”

Source: Property Industry Eye

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Buy-to-let sector to dampen for three years

Buy-to-let mortgage approvals are expected to fall for the next three years, a report by Shawbrook Bank and the Centre for Economics and Business Research has predicted.

Buy-to-let mortgage approvals fell by 13% in 2016 and 27% in 2017 – and the report anticipated more drops, albeit at a slower rate owing to a core of professional landlords in the market.

More positively, approvals are expected to stabilise in 2021 and increase in 2022 and 2023.

Policy interventions dampening the market include the 3% stamp duty surcharge, reduction in mortgage tax relief and stress tests from the Prudential Regulation Authority.

Karen Bennett (pictured), ‎managing director for commercial mortgages, said: “Whilst the series of government and regulatory changes have had a significant impact on the sector, we have seen the impact felt more heavily amongst the “amateur” landlord community which has presented growth opportunities for professional investors.

“Recent political turbulence has had an amplifying effect on investor confidence but positively, the market remains buoyant for those with a long-term strategy who draw upon specialist advice to fully understand the impact of these policy shifts.

“Regulatory change that supports the public interest is not something to be afraid of, and we predict that this high performing asset class will remain a fundamental strength over the long-term provided lenders continue to adapt and change alongside it.”

Source: Mortgage Introducer

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Incentives For Longer Tenancies Favoured By Buy To Let Sector

Proposals for incentives for property investors offering longer tenancies are being welcomed by the buy to let sector.

The much-publicised consultation on the matter of three year tenancies has recently seen the government propose a number of options in order to aid the implementation of the three-year tenancy model. The proposals come in response to a growing demand from families and older people for longer tenancies in the private rental market. The government had suggested that it would be consulting on plans to have three-year tenancies as standard, with a six-month break clause and certain exemptions for students.

One of the options proposed by the government is financial incentives. The government argues that these could be ‘quicker to implement’ than mandatory three-year tenancy agreements.

Policy director for the Residential Landlords Association, David Smith, spoke out about the matter: ‘With landlords having faced a barrage of tax increases we believe that smart taxation, such as that being proposed today, would provide the longer term homes to rent many families and older people want. We would warn against making it a statutory requirement to introduce three year tenancies. Many tenants simply do not want to be tied to a property long term. It is vital that the market is able to provide the flexibility that many need in order to swiftly access new work and educational opportunities.’

In contrast, Build To Rent operators were in support of the government’s proposed three year tenancies in the private rental sector. Managing director at Moda, a BTR developer, Johnny Caddick said: ‘It makes sense that residents are given security of tenure. So we support these moves provided people have flexibility if they only wish to stay for a year or two. We need a customer-centric rental market if people are to grow confidence in the property sector. That has to mean encouraging more rental development through the planning system that is willing to provide better homes with no risk of eviction because the landlord wishes to sell or move back in.’

Source: Residential Landlord