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More London-based landlords buying outside the capital

Nearly three in five (59%) London-based landlords purchased their buy-to-let property outside the capital during the last 12 months, Hamptons International Monthly Lettings Index has found.

Historically, London landlords bought their investment properties near where they lived. In 2010 just one in four (25%) London-based landlords purchased their buy-to-let outside the capital, with 75% investing in London.

Aneisha Beveridge, head of research at Hamptons International, said: “April marks the three-year anniversary of the stamp duty surcharge introduction for second homeowners.

“Following the tax hike, landlords have been adapting their strategy to find new ways to make their returns. Lower entry costs and higher yields outside of the capital are enticing investors to look further afield than they have previously.

“Following a sluggish 2018 London rents reached a record high in March. The average cost of a new let in London rose to £1,737 per month in March, 2.3 times more than the average rent outside the capital.

“Meanwhile every region in Great Britain recorded rising rents last month other than Scotland.”

However, due to high house price growth and a clampdown on landlord taxation, more London-based landlords have chosen to invest further afield in search of higher yields and lower stamp duty bills.

The proportion of London-based investors purchasing buy-to-lets in their home region has fallen 17% since 2015 before the stamp duty surcharge on second home purchases was introduced in April 2016.

A landlord buying in London during the last 12 months faced a £24,600 stamp duty bill on average, compared to £5,330 for an investor buying outside the capital.

The average stamp duty bill for an investor buying in London is now £11,760 more compared to pre-stamp duty changes (Q1 2016), but only £3,910 higher for an investor purchasing outside London.

As a result, a record proportion of London investors have headed North to purchase buy-to-lets. Some 34% of London-based investors bought buy-to-lets in the Midlands and North during the last 12 months, up from just 14% in 2015 and 4% in 2010.

The East Midlands and Yorkshire & Humber saw the greatest increase following the stamp duty surcharge introduction, with 6% more London landlords buying investment properties in those regions than in 2015.

The South East remains the most popular destination for London-based landlords purchasing buy-to-lets outside the capital. Some 11% of London-based landlords purchased their buy-to-lets in the South East over the last 12 months, 2% fewer than in 2015.

Dartford is the most popular destination for London-based landlords in the South East. Landlords living in London bought 60% of buy-to-lets in Dartford during the last 12 months.

The average cost of a new let in Great Britain rose to £969 pcm in March as rental growth continues to rise. Rents in Great Britain increased 1.9% year-on-year, driven by a 3.7% rise in Greater London.

The average rent of a home in Greater London rose to £1,737 per month, the highest level on record. Meanwhile, Scotland was the only region where rents fell in March, down -0.1% year-on-year.

By Michael Lloyd

Source: Mortgage Introducer

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The number of buy-to-let remortgage transactions will drop

Landlord action to mitigate higher tax costs will lead to a lower level of buy-to-let remortgage transactions going forward, Paragon’s PRS Trends Report for Q1 has predicted.

While landlords with an average of 12.8 properties and over 20 years’ experience in the private rented sector (PRS) remain engaged in the sector, they are now prioritising measures to bolster financial strength over portfolio expansion.

John Heron (pictured), director of mortgages at Paragon said: “The shift in focus from portfolio expansion to financial strength has driven a surge in buy-to-let remortgaging, with lower interest rates and longer initial fixed periods helping landlords reduce finance costs and lock in greater certainty.

“However, it also extends the product maturity cycle, guaranteeing a reduction in the scale of opportunity to refinance buy-to-let mortgage deals over the next few years.”

Landlords have scaled back their buying intentions, reduced their reliance on mortgage debt and improved affordability by spending less of their rental income on mortgage payments.

For example, the proportion of landlords looking to purchase property has fallen from between 15-20% before the announcement of tax and regulatory changes in 2015 to just 7-10% today.

Average portfolio gearing – which measures the proportion of debt finance relative to a portfolio’s overall value – has fallen from 40% in 2014 to 33% today, with landlords who have three or more properties borrowing 36% of their portfolio value on average.

Meanwhile mortgage costs as a proportion of rental income are down from 30% at the beginning of 2017 to 27%, also aided by landlords remortgaging onto lower interest rate and longer-term fixed mortgage deals.

By Michael Lloyd

Source: Mortgage Introducer

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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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Cambridge Top For Buy To Let Property Rental Demand

The University city of Cambridge has the highest buy to let property rental demand in the UK according to new research.

Inventory and property compliance specialists Verismart have analysed rental listing data across the major property portals, ranking each of the UK’s 100 largest cities on the proportion of rental stock available to that already let, to ascertain where the highest rental demand locations are.

Cambridge came top with 57 per cent tenant demand making it the most sought-after city for rental accommodation.

The list of areas with the highest rental demand was dominated by the London commuter belt, with Basingstoke close behind with 56 per cent tenant demand, followed by St Albans on 53 per cent.

Crawley at 47 per cent and Tamworth 46 per cent were in fifth and sixth place respectively of the highest rental demand areas across the UK.

Bristol was the first city outside of a commutable range to London to make the top 10 at 45 per cent, joined by York (43 per cent), Worthing (43 per cent) and Hastings (42 per cent), completing the top ten.

Rental demand in London may be high, but in relation to the stock listed and the stock let, the capital ranks just 53rd for tenant demand when compared to the top 100 UK cities.

Inside the capital, high rental prices see many renters looking to the outskirts with the highest levels found in Bromley (41 per cent), Sutton (39 per cent), Bexley (38 per cent), Havering (35 per cent), Richmond (35 per cent) and Waltham Forest (35 per cent).

Lewisham was the only inner borough to make the top ten with demand at 33 per cent along with Enfield, Kingston and Greenwich.

Founder of VeriSmart, Jonathan Senior, commented: ‘While London will always remain attractive from a buy-to-let point of view, it’s clear that the current market slowdown and wider economic and political uncertainty has stretched to the rental sector.

‘It would seem many are still very much sat on the fence ahead of a Brexit solution and although London is home to some of the largest levels of stock, many are choosing to refrain from a commitment until stability returns. This is most prevalent across the prime central market which is understandable given the larger financial commitments, however, the outer stretches of the city remain in good favour with the capital’s tenants for the time being.’

Source: Residential Landlord

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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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Buy-to-let mortgage costs show little movement

Mortgage costs have remained stable in the buy-to-let market with little movement recorded over the past three years despite many changes in the market, Mortgage Brain’s buy-to-let product data analysis has found.

The data, as of 1 March 2019, showed that the cost of a number of 2 and 5-year fixed rate mortgages have remained static when compared to the costs at the beginning of December 2018.

The cost of a 70% LTV 2-year tracker and a 70% LTV 5-year fixed fell by 2% and 1% over the same period. The reductions in cost – while marginal – do offer buy-to-let investors a potential annual saving of £126 and £72 respectively on a £150,000 mortgage.

By contrast, the cost of a 3-year fixed buy-to-let 70% LTV is now 2% higher than it was in December and equates to an annual cost increase of £125.

Mortgage Brain’s longer-term analysis, however, does show that the buy-to-let market is still in a healthy position compared to this time three years ago – a period when the controversial 3% stamp duty hike for landlords was introduced.

The cost of a 60% LTV 5-year fixed buy-to-let mortgage, for example, is now 11% lower than it was in March 2016, while a 60% LTV 2 and 3-year fixed are 7% and 10% cheaper.

By Michael Lloyd

Source: Mortgage Introducer

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Best Yielding UK Buy To Let Property Investment Postcodes

The best yielding buy to let property investments are the utopia every investor looks for, and research by sales and letting agent Benham and Reeves highlights the best spots.

Being a London agent, Benham and Reeves have obviously included the capital when searching for the best buy to let areas for rental returns, but the north can offer better yielding places.

Top on the list came Liverpool’s L7 postcode. With an average price of just £105,000, the area offers an average rental yield of 10.7 per cent.

This was closely followed by the neighbouring L6 postcode where yields are currently 10.4 per cent. Middlesbrough, Manchester, Bradford, Sunderland, Newcastle, Sheffield and Nottingham were also home to some of the highest yielding postcodes.

When it came to the capital, the agent found the highest yielding postcode to be the E6 postcode in East London, along with IG11, which covers Barking. Both locations offer a rental yield of 5 per cent.

East London dominated the top 10 highest returns for buy to let postcodes, with Romford postcodes RM8, RM9 and RM10 also amongst the best with rental yields of 4.9 per cent.

With E15 and EN3 also in the top ten highest yielding London postcodes, N18, which straddles the North Circular, is one of the only postcodes outside of East London to make the list with a rental yield of 4.8 per cent, while SE28 was the only postcode south of the river to appear.

Unsurprisingly, director of Benham and Reeves, Marc von Grundherr, concentrated on the capital, saying: ‘The DNA of the London rental market is so complex that it pays to consider where to invest on the most granular level possible when looking at the buy to let market.

‘Of course, London’s more prime postcodes are always a safe bet, attracting investment due to their prestigious image and positioning. While we may have seen some decline in price growth due to political uncertainty, they remain very much in demand from a rental point of view and so far, those with the budget to buy there, a return isn’t hard to come by.’

He concluded: “They also offer better capital growth than London’s peripherals and for those not completely dependent on yield but preferring to opt for more long-term growth, inner London is still the go-to place to invest in the capital’s buy to let market.’

Source: Residential Landlord

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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