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Half of current landlords would not go near buy-to-let now

Half of current landlords would not enter the buy-to-let market for the first time now.

Rather than invest, they would stay out of the market, citing government intervention, regulatory changes, economic uncertainty and a lack of returns.

Out of 738 landlords asked for their opinions, 40% said they would still invest in buy-to-let, saying it provides better returns than other types of investment and they believe property can still deliver capital growth.

Only one in four landlords said they intended to increase rents over the course of the next 12 months, while a majority of landlords believe they are renting out at least one of their properties below market rental value.

Half (51%) called for the Government to U-turn on policies designed to squeeze private landlords – specifically, the 3% Stamp Duty surcharge on the purchase of buy-to-let properties, and the phasing out of mortgage interest tax relief.

The landlords were taking part in a poll commissioned by mortgage lender Foundation Home Loans.

By ROSALIND RENSHAW

Source: Property Industry Eye

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Landlords seek u-turns on tax relief

A majority of landlords believe future government u-turns on the increase in stamp duty and cuts to mortgage interest tax relief could provide a “significant stimulus” to the buy-to-let and private rental sectors, latest research by Foundation Home Loans reveals.

Over half (51%) of landlords argued that both measures to be addressed in order to help build greater confidence in the sector.

Jeff Knight, director of marketing at Foundation Home Loans, said: “It doesn’t seem surprising that the two biggest impacts on landlords over the past five years – stamp duty increases and cuts to mortgage interest tax relief – are seen as the biggest factors holding back the market.

“Clearly, such measures were always going to have a real influence and they have undoubtedly resulted in a large number of so-called amateur landlords either selling up, or not being able to go ahead and add to portfolios.

“We now have a sector which is much more in line with professional and portfolio landlords; utilising limited company vehicles to ensure they retain their tax relief, and where appropriate, adding to their portfolios via these structures.

“Because of this, the move towards greater levels of limited company business is likely to continue for many landlords, as I expect a u-turn is very unlikely despite fiscal loosening likely to be a strategy adopted in the very near future to stimulate a weakening economy.

Meanwhile almost a quarter (22%) suggested remaining in the EU would give the biggest boost, whilst 14% said securing the UK’s withdrawal from the EU would be the most helpful.

Four in ten landlords said they would still be willing to make their first investment in property, arguing that buy-to-let remains a good long-term investment.

According to the research however, 50% of landlords said that due to government intervention and regulatory changes, they would not choose to make a first investment decision now.

Only on in four landlords said they wanted to increase rents in the next 12 months, whilst a majority believe they are renting out at least one of their properties below market value.

Knight continued: “There is a continued appetite to be active in this sector and a recognition of the strong demand for quality properties from tenants.

“That being the case, and with a perhaps more sympathetic government ear, we might anticipate that demand for mortgage advice and buy-to-let mortgages will continue to grow, although many are clearly worried about the current economic uncertainty and what might happen in a post-Brexit world.

“The other positive here is the long-term view taken by many landlords and the fact over four in 10 would still invest today if it was their first property.

“Given all the demographics and the underlying demand drivers for the private rental sector, advisers are still likely to see a steady stream of landlord clients seeking to remortgage and/or purchase, for many years to come.

“It continues to pay to be a specialist in this sector and Foundation is here to help advisers develop their buy-to-let propositions for the demand that is clearly still out there.”

By Jessica Nangle

Source: Mortgage Introducer

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More landlords opt for limited companies

Purchasing a buy-to-let property through a limited company is now more than twice as popular as buying as an individual, as more landlords are seeking out the most tax efficient methods.

Research from Precise Mortgages showed more than half of landlords (55 per cent) plan to use limited companies to buy properties in the year ahead — more than double the 24 per cent who intend to buy as an individual.

The findings also showed the number of landlords using limited companies to expand their portfolio was on the up, from 44 per cent at the end of 2018 to 53 per cent in the first three months of 2019.

Limited companies were the most popular among landlords with a portfolio of 11 or more properties — as 71 per cent of landlords in this sector used them for purchases — but it was also the dominant choice for those with 10 or fewer properties (51 per cent).

By comparison, only 27 per cent of landlords with 10 or fewer properties chose to buy as an individual.

The buy-to-let market grew rapidly after the financial crisis but has since taken a beating as a number of tax and regulatory changes have hit landlords’ pockets.

How the rules changed:

An additional 3 per cent stamp duty surcharge, introduced in April 2016, was closely followed by the abolition of mortgage interest tax relief for landlords.

Landlords then took a further hit when a shake up of rules by the Prudential Regulation Authority meant buy-to-let borrowers were now subject to more stringent affordability testing.

The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 landlords will be unable to deduct any of their mortgage expenses from taxable rental income.

Instead, they will receive a tax-credit based on 20 per cent (the current basic tax rate) of their mortgage interest payments.

Following the changes, landlords who were higher or additional-rate taxpayers would now only get refunds at the 20 per cent rate, rather than top rate of paid tax.

On top of this, landlords could also be forced into a higher tax bracket because they would need to declare the income that was used to pay the mortgage on their tax return.

Based on a property yielding £950 in rent and a £600 mortgage per month, the landlord’s income could drop by about 57 per cent after the rule changes, from £2,520 to £1,080, as shown in the table:

Tax yearProportion of mortgage interest qualifying for 20% tax credit under previous systemProportion of mortgage interest qualifying for 20% tax credit under new systemTax billPost-tax and mortgage rental income
Prior to April 2017100%0%£1,680£2,520
2017-1875%25%£2,040£2,160
2018-1950%50%£2,400£1,800
2019-2025%75%£2,760£1,440
From April 20200%100%£3,120£1,080

Source: Which.co.uk

Due to the tax shake up, limited company status is more attractive to landlords as changes would not affect them and they can offset mortgage interest against profits which are subject to corporation tax instead of income tax rates, which is cheaper.

Interest coverage ratios on limited company applications are also lower than for most individual landlord applications, according to Precise.If landlords who are higher rate taxpayers hold properties directly in their own name, in some circumstances this additional tax can wipe out all profits.John Goodall, chief executive at Landbay

Alan Cleary, managing director of Precise Mortgages, said: “Despite the challenges in the market, professional landlords have still managed to grow their portfolios over the past year with the use of limited companies, and it will continue to be the most preferred purchase route particularly for those with larger portfolios.”

Mr Cleary said the increased use of limited company status was further evidence of how the buy-to-let market was changing and demonstrated how brokers and their clients needed “expert specialist support” when buying as a limited company or considering switching.

Traditional buy-to-let mortgages have also become more popular, according to the research, as nearly seven in ten (69 per cent) landlords now intend to fund their next portfolio purchase with such a policy, compared with 62 per cent at the end of 2018.

David Hollingworth, director at L&C Mortages, said: “With the changes to tax relief on mortgage interest being felt by many landlords that pay higher rate tax, there’s likely to be more considering the use of a limited company as they seek to grow a portfolio.

“Being able to set the cost of mortgage interest against income within the limited company will be the main draw and corporation tax is charged at lower rates.

“Tax advice should be a crucial part of the landlord’s decision to use a limited company and help them understand the practical considerations of setting up and using a company as well as the potential for personal tax when withdrawing income from the company.”

Mr Hollingworth added the growing number of mortgage options for those using limited companies would also help to give landlords more choice to improve the rates on such specialist products.

John Goodall, chief executive at Landbay, said he was seeing a significant increase in landlords who were borrowing within a limited company.

“If a landlord holds their buy-to-let properties within a company structure they will be taxed on profits in the usual way, and the interest they pay will be treated as a cost.”

The market has also seen a number of landlords leave the buy-to-let space due to the changes and in May, as research from Arla Propertymark showed the number of landlords selling their properties had increased by 25 per cent.

The number of new landlords coming to market also took a hit and the number of new buy-to-let purchases dropped 9.1 per cent year-on-year in March.

By Imogen Tew

Source: FT Adviser

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Rent Price Rises Hit Record High For Buy To Let Investors

The number of buy to let property investors introducing rent price rises to their tenants hit a new record high in June.

More than half of letting and management agents (55 per cent) witnessing landlords making rent price rises. This is a 22 per cent increase from May which was a previous record high.

The latest ARLA Propertymark June Private Rented Sector (PRS) Report also showed that year-on-year the number of tenants experiencing rent price increases is up from 31 per cent in June 2017, and 35 per cent in June 2018.

The record level of rent price increases is thought to be mainly because of the introduction of the tenant fees ban forcing landlords to recover costs through higher rents.

Letting agents had an average of 199 properties under management per member branch in June, a decrease from 201 in May.

However, demand from prospective tenants increased marginally in June, with the number of house hunters registered per branch rising to 70 on average, compared to 69 in May.

Despite fears of a mass exodus by landlords in the private rental sector, the number of buy to let investors exiting the market remained at four per branch, the same figure seen in June 2018.

ARLA Propertymark Chief Executive, David Cox, commented: Unsurprisingly, rent costs hit a record high in June as tenants suffered the impact of the tenant fee ban. Ever since the Government proposed the ban, we warned that tenants would continue to pay the same amount, but the cost would be passed onto tenants through increased rents, rather than upfront costs.’

He continued: ‘In addition to the repercussions of the Tenant Fees Act, the proposed abolition of Section 21, coupled with the Mayor of London’s recent call for rent controls, will only cause the sector to shrink further. In turn this will increase pressure on the sector because it will discourage new landlords from investing in the market, causing rents to rise for tenants as less rental accommodation is available.’

Source: Residential Landlord

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Buy To Let Property Investors Spend Over £3k Per Year On Investments

Buy to let property investors in the UK spend over £3,000 per year on their properties on average according to new research by LV General Insurance.

The insurance company found that landlords collectively spend a total of almost £4.7 billion over the year, equating to £3,134 each.

The spend was found to include renovations and refurbishments (£370), replacing/repairing (£370), fixing structural damage (£313), decorating (£265) and garden maintenance (£203).

Extra spend also came from damage caused by tenants, with carpets the most likely thing that landlords had to spend out for to replace, repair or clean, as reported by 66 per cent of landlords asked.

Damage to walls was next at 45 per cent, white goods (27 per cent) and doors (24 per cent).

Landlords therefore spend the most money replacing/repairing flooring (£322), white goods (£298), other items (£256), cleaning at the end of a tenancy (£178) and removing forgotten items (£149).

The amount of spend required varied across the UK. The South West saw the most money spent on repairing damage made by tenants (£3,461), whereas landlords in the North West spend the least on repairing damage (£2,738).

Tenant disputes were another thing that landlords often had to spend out on. Although 46 per cent have never experienced a tenant dispute, almost a quarter (23 per cent) have disputes at least once a year, with 6 per cent even quoting once a month.

The most common causes for tenant disputes are delayed rent (43 per cent), damage to property (41 per cent), cleanliness (33 per cent), disputes over bills or deposits (10 per cent), pets (9 per cent) and sub-letting (7 per cent).

Managing director of LV General Insurance, Heather Smith, said: ‘Finding the right tenant is crucial. Although the majority rarely experience tenant disputes, it’s clear that, when they do, the disputes are challenging and potentially costly.

‘Our research found that 13 per cent currently don’t have landlord insurance, meaning they are missing out on things such as cover for accidental damage by tenants, loss of rent if the property becomes uninhabitable, and contents cover.’

Source: Residential Landlord

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Professional landlords drive BTL lending

Paragon Banking Group reported another quarter of strong growth. The latest update shows a total of £1.90 billion of new lending across all business lines in the nine months to 30 June 2019. This represents a 20% increase on the previous year. Within this total, Paragon’s mortgage lending grew from £1.13 billion to £1.19 billion.

Paragon’s specialist focus on professional landlords enabled it to increase its share of the market, with 89% of completions being from complex landlords, compared to 76% in 2018.

It was a particularly strong quarter for buy-to-let, with the new business pipeline reaching £733 million, up from £711 million in the previous quarter. Annualised buy-to-let redemptions continue to be encouraging at 8.6%, down 2.1 percentage points from the previous year.

John Heron, Managing Director of Mortgages at Paragon, said:

“Paragon is performing well. We have delivered strong new lending across all our business lines and the buy-to-let pipeline has grown despite the uncertain economic backdrop. We’re confident of meeting our objectives for the year as we continue to focus on the needs of larger, more complex and specialist landlords.”

Paragon’s Commercial Lending division, which includes development finance, has grown its new lending to £0.71 billion, up 58% from the previous year.

This growth reflects Paragon’s commitment to supporting more British SMEs in specialist lending markets.

Paragon has continued to strengthen its asset finance and development finance divisions. The development finance business has enhanced its product range following the acquisition of Titlestone Property Finance last year. Since then, Paragon has funded multiple projects in the South-East of England and has revealed plans to expand its services to small and medium sized property developers throughout the UK.

The above is an example of how the market is switching from small nonporfolio BTL borrowers to the larger professional landlords and borrowing in Ltd companies especially.

Source: Property118

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The buy-to-let market stabilises

Buy-to-let activity was mostly unchanged in May, leading to suggestions that it has stabilised, the UK Finance Mortgage Trends Update has found.

There were 5,500 new buy-to-let home purchase mortgages completed in May, the same number as this time last year. There were 15,000 remortgages in the buy-to-let sector, 2% more year-on-year.

Mike Scott, chief property analyst at full-service estate agent Yopa, said: “The number of buy-to-let mortgages for house purchase was unchanged from 2018, suggesting that the buy-to-let market has finally reached a new stable level after several unfavourable tax changes.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “Buy-to-let continues its steady trend, showing that investors are sticking with the sector rather than deserting it in their droves.

“That said, we are also not seeing a flood of new landlords – rather, the experienced ones are adding to their portfolios where they see opportunities and remortgaging to keep costs down.”

Tomer Aboody, director of property lender MT Finance, also highlighted that he hasn’t seen a flood of buy-to-let investors selling up as a consequence of the extra taxes that have hit them.

In 2015 the government said it would start to phase in mortgage tax relief. In 2017 to 2018 the deduction from property income was restricted to 75% of finance costs, in 2018 to 2019 the finance costs are down to 50% and during 2019/2020, 25%.

From 2020 to 2021 all financing costs will be subject to a basic rate tax reduction.

Aboody said: “Investors are absorbing the extra costs and refinancing, hoping that in the long-term values will go up.

“This once again proves that higher stamp duty and extra taxes haven’t helped create more movement in the housing market, but have done the complete opposite and created stagnation instead.”

There were 30,720 new first-time buyer mortgages completed in May, 0.5% more year-on-year.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, attributed this increase in first-time buyer numbers to the slowdown of the buy-to-let market.

He added: “First-time buyers are also taking advantage of reduced competition from the buy-to-let market as landlords reduce activity following various recent tax and regulatory changes with several more on the way which will compromise profitability.

“They are also benefiting from almost record low mortgage rates and improving affordability.”

By Michael Lloyd

Source: Mortgage Introducer

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Rising Yields Boosting Professional Buy To Let Investors

Rising yields are boosting professional buy to let investors, especially those considering adding to their portfolios.

Rents have hit a new record high at an average of £896 per calendar month, with growth accelerating to 1.3 per cent a year, according to the ninth edition of Kent Reliance for Intermediaries’ Buy to let Britain report.

As a result, rising yields have now hit a two-year high. The average yield now stands at 4.5 per cent, its highest since the first quarter of 2017.

In London, rents have only risen by 0.5 per cent. However, with property prices falling, yields in the capital have reached 4.1 per cent, their highest level since the end of 2015.

However, despite rising yields, growth of the private rental sector is subdued on the back of government intervention and the economic impact of Brexit uncertainty.

The value of the £1.3 trillion private rental sector grew by £6 billion in the last year, as the expansion of supply dwindled, and property prices weakened in several parts of the country. The value of the average rental property has risen by 0.3 per cent in the last year, with Brexit uncertainty gripping the wider housing market

As the costs of property investment rise, landlords are seeking to recoup these in higher rents to preserve their profitability and protect rising yields. Around a quarter (24 per cent) of landlords, already expect to raise rents in the next six months, nearly five times the number that expect to reduce them.

Improved finances among tenants is also allowing more leeway. Wages are currently rising at 3.4 per cent, up from 2.9 per cent a year ago and well in excess of inflation.

Professional landlords are not just seeking to recoup higher tax costs in the form of higher rents. Many now operate via limited companies to mitigate the impact of the changes to mortgage tax relief. Analysis of Kent Reliance for Intermediaries’ mortgage data shows that in the first quarter of 2019, 72 per cent of buy to let mortgage applications were made through a limited company, significantly higher than in 2016 (45 per cent).

Andy Golding, Chief Executive of OneSavings Bank, commented: ‘Landlords have rolled with the punches as best they can, but there is no escaping that growth is subdued in the private rented sector following four years of government intervention. Brexit uncertainty has only compounded this issue, having the obvious knock-on-effect on landlords’ confidence.

‘The positive news is that for those landlords looking to expand their portfolios, underlying market conditions seem to be changing. Yields are climbing as rents rise faster than house prices, providing further opportunities for committed investors.’

Source: Residential Landlord

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Government urged to hold off on further buy-to-let interventions

The Government is being urged to hold a moratorium on further buy-to-let interventions after analysis found the market has swung in favour of large institutional landlords.

Research by the Intermediary Mortgage Lenders Association (IMLA) – based on the Government’s 2018 English Private Landlord Survey – warned that further changes could affect rental supply and mean higher rents for tenants.

IMLA’s analysis found professional landlords, as of the end of 2018, represent 48% of the private rental sector, up from 38% in 2010.

In contrast, the number of single-property landlords has fallen from 40% to 21% over the same period.

This was blamed on a tougher mortgage market, the increasing size of the build-to-rent sector and mainly, IMLA claims, due to Government changes such as additional Stamp Duty and the scaling back of mortgage interest relief making buy-to-let less profitable.

Kate Davies, executive director of IMLA, said: “We are concerned that layers of Government intervention have adversely affected small-scale landlords’ ability and appetite to invest in properties over recent years.

“As increased tax and regulatory responsibilities increasingly disincentivise landlords, we face a possible topping out of the private rental sector (PRS).

“While it’s good to see professional and institutional investors increasing their stake in the nation’s housing stock, the number of one-property buy-to-let investors has fallen by almost half.

“Squeezing the PRS puts the pressure on millions of renters in Britain. We are strong advocates of a fair market with a quality supply of homes. Restricting the PRS risks a lack of supply, rising rents and a fall in the quality of rental accommodation.

“We have repeatedly called for Government to put the brakes on regulating and taxing our nation’s landlords. We urge a more moderate approach to ensure our private rental sector remains strong for the millions of renters who rely on it.”

By MARC SHOFFMAN

Source: Property Industry Eye

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Cost of BTL products dips

The average price of a buy-to-let mortgage has dropped over the past three months in a further sign that demand was drying up.

Latest data from Mortgage Brain’s quarterly analysis of the market showed the average cost of both tracker and fixed-rate buy-to-let products dropped and some experts have put the reduction down to providers trying to entice landlords in a difficult market.

For example, the analysis showed the cost of a 60 per cent loan-to-value two-year tracker mortgage dropped 3 per cent in Q2, while the same product at 70 per cent LTV now costs 2 per cent less than it did in March.

Landlords looking for fixed rates have also seen a decline in cost as the data showed a 2 per cent reduction in the cost of five-year fixed products.

The findings also showed a fall in cost of about 1 per cent for 60 per cent and 70 per cent LTV three year-fixed buy-to-let mortgages.

Although seemingly marginal, Mortgage Brain stated that a 3 per cent drop for a £150,000 mortgage at 60 per cent LTV could save a borrower upwards of £230 a year in a market where margins are slim.

Mark Lofthouse, chief executive of Mortgage Brain, said: “With new regulations, tax changes, and the potential for base rate rises coming into play, the buy-to-let landscape remains as complex as ever.

“While the mortgage cost movement over the past three months has been minimal, the majority of the movement has been favourable and with specialist advice and support from brokers, buy-to-let investors and potential landlords can continue to make the most of the low rates and costs in the buy-to-let market.”

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 shortly 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 and the government has proposed abolishing the so-called ‘no fault’ Section 21 notices which give landlords the power to evict tenants at the end of their tenancy without a reason.

Back in January, the Intermediary Mortgage Lenders Association warned this year’s tax return would be the first time many landlords would see the effects of the changes on their earnings.

The data from Mortgage Brain also showed the difference in cost between residential and buy-to-let products, demonstrating the variation in risk between the two strands of mortgages.

The latest figures showed the cost of an 80 per cent five-year fixed product was 19 per cent higher than for its residential equivalent, while tracker products cost about 7 per cent more in the buy-to-let sphere.

Nick Morrey, product technical manager at John Charcol, said: “The difference between buy-to-let and residential products is interesting as it highlights the risk difference between the two.

“It would appear that the difference is highest for five-year fixed rates, which is a reflection of the need for them for landlords whose properties do not meet the affordability stress tests on other products and therefore effectively find themselves being able to only consider five-year fixed rates.”

According to Mr Morrey, this has created a “captive market” where lenders can levy a higher rate on five-year fixes and still sell the product as for some landlords it is the only option.

Mr Morrey added that the drop in costs for buy-to-let lending in general was not unexpected given the high level of competition in the area and the fact the market had seen some signs of declining demand due to changes to tax and regulation.

He said: “To grow or even maintain market share, lenders are shaving down their rates as much as they can and looking to tweak their criteria to cast a slightly wider net.”

By Imogen Tew

Source: FT Adviser