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Rents in the regions grow faster than UK average

Rents in the UK’s regional hubs are growing significantly faster than both London and the UK average, as workers continue to relocate from London, buy-to-let lender Landbay has found.

Rents rose by 0.03% in November 2018 which, although the lowest monthly rise since the start of the study, feeds into growth of 0.97% in the year; 0.04% higher than the same point in 2017. This is mostly down to London’s improved performance, recording growth of 0.58% this year.

John Goodall, chief executive and co-founder of Landbay said: “It’s hard to escape the fact that we’ve seen a slowdown in the property market due to Brexit uncertainty and recent tax and regulatory changes for landlords.

“In that context, these growth figures show just how resilient property continues to be as an asset class. As with all investments, it is prudent to have a diversified portfolio – backed up in the case of buy-to-let by London’s recent fall and revival alongside strong performances from cities including Leeds and Manchester.

“London’s green shoots paint a positive picture for landlords ahead of what will likely be testing economic times with Brexit and further interest rate rises expected.”

The average monthly UK rent currently sits at £1,212, a rise of £10 since the start of the year. When London is removed, rents sit at £769, up from £761 since the beginning of 2018.

Rents are rising in 27 of the 33 London boroughs, a very different picture from this time in 2017 when rents were falling in 26 of the capital’s boroughs. While every region in the UK has seen rents rising, the speed of growth has not been consistent – with all areas other than London experiencing a slowdown.

The East Midlands (2.25%), Yorkshire & Humber (1.50%) and West Midlands (1.48%) have all experienced the most substantial growth in the past year and are expected to climb further as we head into 2019.

Growth in the North East peaked to its highest point in two years in November 2017 but since then growth has depreciated to 0.05% on an annual basis – it’s lowest growth rate since August 2013.

While London’s rental growth stands at 0.58% year-on-year, it is now cities like Leeds (2.54%), Birmingham (2.05%) and Manchester (1.91%) which are experiencing accelerated annual growth.

This could be attributed to internal migration as millennials leave the capital at the highest rate in almost a decade. Since the start of 2012 London has seen a net loss of nearly half a million residents as people vote with their feet amid the growing living and housing costs.

However, some will also be moving due to work commitments.

MediaCityUK now employs more than 3,000 people at its base in Salford, after welcoming 2,300 BBC employees back in 2010. Salford has seen rents rise by 2.62% year-on-year and 22.76% cumulatively since January 2012, more than double London’s pace (9%).

HSBC has announced it will move 1,000 jobs to Birmingham, whilst Leeds has seen jobs created by companies including Burberry.

Goodall added: “The truth is there is now a twin speed rental market as London’s rent growth is dwarfed by cities such as Leeds and Manchester.

“This is being fuelled by the capital’s millennial exodus as countless young professionals realise there is more to life than London. This same message carries weight with landlords, who are increasingly seeing the value of investing in these regional hubs.

“In many ways it could be argued that the ‘Northern Powerhouse’ is beginning to take effect amid stretched affordability and a harsher tax regime.”

Source: Mortgage Introducer

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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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Fewer people purchasing buy-to-lets

Significantly fewer people acquired buy-to-let properties in Q3 2018, HMRC figures have showed.

Additional properties, for which stamp duty land tax is payable at the standard rate plus 3%, have seen a fall of 11% (7,400) compared to the same period in 2017.

And Hamptons showed that the number of homes bought by landlords had dropped by a third over the last three years with a 13% decrease last year alone.

Michael Lynn, chief executive at Relendex, said: “Property remains an investable asset class, however there is a trend borne out by these figures that people are moving away from investment in buy-to-let.

“There are several reasons for this including the higher rate of stamp duty land tax, the lack of access to funds and the uncertainty caused by Brexit.

“These factors all leave investors looking for new and innovative ways to maximise their savings.  Peer-to-Peer allows lenders to invest in specific property projects and access their money when they want it through an active resale market.

“What’s more, lenders can get high returns on their money, on average 8%, whilst having the security of knowing that they have invested in a stable asset. It is important that Peer-to-Peer investment properties are treated with the same care and attention that would be put into a buy-to-let.

“Loans should be secured on the properties themselves and have a loan to value ratio which safeguards the investment and that money will be paid back.

“If this is done correctly Peer-to-Peer allows lenders to get the returns associated with buy-to-let without having the hassle of managing the property themselves.”

The higher rate stamp duty land tax was introduced in 2016 for those purchasing second properties which includes buy-to lets.

Between Q2 and Q3 2018 additional dwellings transactions increased by 7% to 58,400. Compared to last year, it has fallen by 11% (7,400).

For the last four quarters additional dwellings have made up about 24% of all liable transactions and have generally increased as a proportion of residential transactions.

Source: Mortgage Introducer

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The places where Buy to Let still pays off

North West and Liverpool are hotspots for property investors and amongst the places where Buy to Let still pays off.

A recent article on discusses how the North West’s comparatively strong rents, coupled by low house prices, makes it a buy-to-let hotspot right now.

As capital gains forecasts dampen in London and house price growth in the capital becomes worse than anywhere else in the country, investors are looking to other regions for attractive returns.

Totally Money compiles a regular buy-to-let investment report on the top towns and cities for property investors. It states that not only does Liverpool’s high rental demand make the city a dependable market for landlords, but its house prices are relatively cheap when compared to many other areas in the UK. All of this allows for fewer void periods for landlords and good yield returns.

Emma Cox of Shawbrook Bank commented: “Landlords have had a rough ride over the past few years with multiple tax changes. But our research shows that it’s not all doom and gloom for potential investors.”

The above shows Shawbrook’s ranking of Britain’s regions by rental yield, which measures average rents that could potentially be achieved against average house prices. The North West leads the yield ranking with an average yield of 5.4 per cent.

“Lower rental yields in London and affordability constraints for investors has driven interest North, where borrowers are chasing the yield and heading to locations with lower average house prices,” Emma Cox continued.

Buy-to-let mortgage rates continue to fall

Lenders are continuing to slash their buy-to-let mortgage rates in an attempt to lure in new business.

Average rates in the buy-to-let sector have dropped significantly since changes were originally introduced in 2015 – indicating how keen lenders are to get new business onto their books as demand drops.

For example, TSB is currently offering a two-year fixed rate deal at 1.30 per cent with a fee of £1,971 and a maximum loan-to-value of 60 per cent.

Sainsbury’s Bank has a three-year fixed rate deal at 1.49 per cent with a £2,021 fee at 60 per cent loan-to-value.

All the above, coupled with the recent Savills residential property forecasts report predicting that the North-South divide will be turned on its head during 2019 to 2023. The biggest price rises are predicted in the North West (21.6 %). So we hope you are just as excited about about investing in Northern locations as we are!

Source: Property118

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Buy-to-let masterclass: how to spot the next property hotspot

In the latest instalment of his buy-to-let masterclass series, property expert and presenter of The Property Podcast Rob Bence looks at how to find the next property hotspot.

With 2018 drawing to a close, property investors will be looking ahead to the next 12 months and considering their next investment.

But how do you go about choosing a location? For most investors there’ll be mitigating factors that will influence the decision.

Some like to buy properties near to where they live, for example.

Others will be swayed by the type of property they’re after, which will then determine where to look.

For those willing to take a punt on a new and upcoming area, there can be big rewards and the simplest way to identify these areas is by using a technique we call ‘the ripple effect’.

It’s a very simple and, in some ways, obvious tactic.

Spotting the first ripple

When property in one area starts to become more expensive, those people who would have traditionally bought in that area are priced out and have to start looking a little further afield.

They’ll buy a property in a nearby location (so the original spot is still accessible) and this second area will, in turn, start to see price growth as a result.

That means the people who would have bought in this second area are also priced out and have to move a little further out and so on and so on.

So that initial price growth in the first area causes a ripple effect that spreads much wider.

The most obvious example of this is London. Following the economic crash in 2008, the London property market was brought to its knees.

Prices fell significantly.

However, overseas investors who saw London as a safe haven for their money quickly began to snap up prime London properties, pushing would-be buyers further out.

This ripple effect continued until almost all of the South East was impacted.

Indeed, in 2016, eight years after the crash, Luton was named the best investor hotspot in the UK by estate agents Jackson-Stops.

Liverpool an intriguing prospect

buy-to-let masterclass

A similar thing is happening in Manchester.

A few years ago the city was not seen as the first choice for property, but millions of pounds of private, public and overseas investment has seen Manchester soar and as a result, the surrounding areas in Greater Manchester have also seen significant price growth.

I predict Liverpool will be next.

Overseas investors currently ploughing money into Manchester will start to look for their next location and Liverpool ticks a lot of the boxes they’ll be looking for.

We’re already seeing development there and I know from speaking with developers that there is a lot more to come.

So how can you identify the ripple effect elsewhere?

How to spot the next big thing

Well, the important thing to remember is that all ripples start with a stone being thrown.

That stone could be a number of things: gentrification is a big one.

Once an area becomes a nice place to live, more businesses move into it, more amenities are created and prices start to rise.

East London is a perfect example of this.

Transport links can also start the ripple effect: a new train station, for example, can see prices increase in areas 10 or 20 miles away.

When an area becomes a ‘commuter’ town prices can soar.

It’s a commonly-used tactic, but it’s not for the faint-hearted. To really make the most of the ripple effect you need to be brave.

You need to get in on an up and coming area before anyone else, before you, too, become priced out.

But, if you’re willing to take the plunge, it can reap huge rewards.

Source: Love Money

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Limited company buy-to-let has changed the market

I wrote in an earlier post that buy-to-let was evolving at a pace and that the rush to incorporate so many investor borrowers would inevitably create a different looking market.

And so it has come to pass. According to Mortgages for Business’ Buy to Let Index, the number of buy-to-let lenders lending to limited companies has risen by 47% over the past year. 22 buy-to-let lenders now lend to limited companies – up from 15 in Q3 2017 and the total number of mortgage products available to them has more than doubled since Q3 2017 – from 263 to 628. The result has been that 44% of buy-to-let transactions now made by limited companies – up from 42% in Q2 2018

This change in market behaviour should not surprise us. We are only just over a year from last September’s changes issued by the Prudential Regulation Authority, the 3% stamp duty surcharge on second homes in April 2016 and a withdrawal of tax relief by 2020.

We’ve already seen that the more stringent rules on buy-to-let lending has meant the near two million ‘hobby’ landlords who own 15% of the housing market have found it increasingly difficult to raise finance from traditional lenders but many have also embraced the business model of Houses of Multiple Occupancy in an effort to improve yields unaware of the many more stringent rules that accompany these kinds of dwellings.

Limited company structures do not come without their challenges and costs for all concerned. They not only affect individual borrowers’ tax positions but also demand skills in lenders such as understanding how company structures and law affect lending positions.

Completely new companies have no trading history or track record of success upon which lenders can base their decisions. Without any credit history it’s hard to establish the chances of the loan being repaid. In these circumstances, the lenders that do consider such applications often ask for personal guarantee’s from the directors, so that should the mortgage not be repaid the directors become personally responsible.

There may be additional administrative costs related to operating as a limited company, and in some instances it can be more complicated to transfer property and assets. When a property is sold via a limited company, it is subject to corporation tax, rather than capital gains tax. While the rate of corporation tax is lower than the rate of capital gains tax, an individual benefits from the capital gains tax allowance, which does not apply to a company.

There is the expectation that people borrowing through companies realise there are no blurred lines. A limited company has its own legal personality, which is separate to the individuals who participate in it. Rent the company earns cannot be spent on things other than business activities without these becoming a taxable wage or benefit. Because the extraction of money has to be through salary and dividends that money is subject to rules under the companies act and there is tax to pay for the recipient/shareholder.

It is when things go wrong that expertise is really in demand. A company does not retain the same rights an individual in the law or in practice and these has implications for tenants and landlords. A lender that has lent money to fund the purchase of a borrower’s home may be sympathetic when circumstances cause a borrower to get into mortgage arrears.

Further, the mortgage lender has a regulatory duty to help that borrower address the problem. However, where money has been lent on what is effectively a commercial enterprise, the lender may not be prepared to listen to excuses and may be much quicker to initiate repossession proceedings once a borrower gets into mortgage arrears. In some cases where arrears have built up on a buy-to-let property, the lender may appoint receivers to administer the property and accept any rents being paid.

Clearly, proper management of these loans and the processes for recouping losses in the sector now requires levels of expertise previously not required. From seeing the opportunity to underwriting complicated company structures, lenders need commercial underwriters to assess properly the opportunity to lend and experienced professionals if things do not go according to plan.

Source: Mortgage Introducer

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Buy-to-let remains solid investment

Buy-to-let remains a solid investment with demand for rental housing stronger than ever, Andrew Turner, chief executive at specialist buy-to-let broker Commercial Trust, has argued.

He said that it was inevitable that tax changes, which could potentially suppress profitability in the short-term, would impact upon the perceived desirability of buy-to-let.

Turner said: “The expectation was that this would be most keenly felt by those with fewer properties, because adjusting to the changes would be a more painful process for new investors or those with less experience.

“However, the simple fact is that buy-to-let remains a solid investment option, with strong potential for an attractive and profitable return on capital invested.

“Investors should not be deterred from buy-to-let. Demand for rental housing is stronger than ever, the cost of debt remains relatively cheap and the housing shortage is likely to continue. Even so, any investment decision requires care and expertise.

“Many headlines have focused on one and two property investors who have left the market because they have found it difficult to adjust. The real story has really not been about buy to let becoming unattractive as an investment option.”

Data from UK Finance indicated an evolution in buy-to-let, rather than a mass exodus.

Jackie Bennett, director of mortgages at UK Finance, revealed in November that forecasts for 2018 buy-to-let purchase activity were likely to fall about £3bn short of expectations.

She said: “This is undoubtedly the impact of various tax, regulatory and legislative changes that have happened to landlords in the buy-to-let sector.”

However, Bennett went on to add that buy-to-let remortgaging exceeded forecasts for 2018, with lending likely to reach £27bn, representing a £3bn surplus on what was anticipated.

Turner added: “The market continues to grow and in Q2 2018 increased by 6% over 2017 levels. UK Finance statistics revealed that much of this growth was in remortgages, which grew by 15%, while purchases dipped by about 12%.

“In early August 2018, the Bank of England decided to increase rates by 0.25%. Although there has been limited market reaction so far, I expect to see market rates increase, because margins are wafer thin.

“The Bank of England has said as much itself, with repeated messages that rates are anticipated to rise gradually over the long-term.

“Landlords have responded to this and there has been significant interest in fixed rates, useful to guard against rate rises.

“Investors are likely to continue to do this as their renewal dates come up and therefore I’m sure the remortgage market for buy-to-let will remain buoyant over the coming months.”

Source: Mortgage Introducer

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Is buy-to-let the best way to boost your retirement income as the State Pension age rises?

The appeal of the State Pension is set to decline over the long run. The State Pension age is expected to increase to 68 within the next 20 years, while the current ‘triple-lock’ appears to be unaffordable over the long term, given the expected increase in number of retirees.

Individuals may, therefore, be searching for a means of generating an income in retirement so that they are not reliant on the state. Buy-to-lets have generally been popular in the last couple of decades, with rising house prices and falling interest rates holding appeal for investors. However, with a range of tax changes and an uncertain economic outlook, is property really the best means of overcoming the shortcomings of the increasingly unattractive State Pension?

Uncertain future
With interest rates close to their historic lows, they are likely to move upwards over the next decade. Certainly, they could be held back or even dropped in the near term. Brexit could cause challenges for the UK economy and an uncertain future for the economy may mean that the Bank of England seeks to put in place a more accommodative monetary policy. However, with history showing that interest rates have never stood still for too long, a more hawkish monetary policy could be ahead.

This would negatively affect the returns available to investors over the coming years. Those issues surrounding the prospects for the UK economy could also mean that increases in rent may not be as impressive as they have been in previous years. And if the economy experiences further downgrades to its growth outlook, it could suggest that house price growth since the financial crisis may at least take a pause over the medium term.

Changing industry
Of course, perhaps the biggest change affecting buy-to-let investors is the tax paid on investment properties. Many landlords will find that their mortgage interest payments will no longer be tax deductible, while the cost of a buy-to-let has increased due to changes in stamp duty on second homes.

There appears to be a political consensus that the UK faces a housing shortage. As such, it would be unsurprising for buy-to-lets to be subject to further tax and regulatory changes over the medium term, with the government seeking to tip the balance towards owner-occupiers, and away from buy-to-lets.

As such, the prospects for the industry appear to be relatively unfavourable. Certainly, there could be further growth in house prices over the coming years, but owning properties outright may not be the best way to access this from a risk/reward perspective.

Rather, buying shares in housebuilders, REITs or listed landlords could be a shrewd move for investors keen to overcome the declining prospects for the State Pension. Alongside a range of other stocks, they could lead to impressive returns, as well as lower risks from tax and regulatory changes.

Source: Yahoo Finance UK

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The big problems facing buy-to-let investors in 2019

There’s no two ways about it, the buy-to-let market has become much more challenging for investors of late for a broad variety of reasons. And landlords need to be braced for conditions becoming even tougher in the months ahead.

One problem I previously touched on is the impact that the Bank of England’s recent interest rate rises have had on driving buy-to-let mortgage costs higher again. And the trend is expected to continue into 2019 and probably beyond.

Andrew Turner, chief executive of dedicated buy-to-let lender Commercial Trust, was bang on the money when he commented this week that the current environment of exceptionally-low mortgage rates “will have to change.”

Turner said that “the bumpy road of Brexit may see the base rate brought down slightly, once things settle, but I think it is unlikely and in any event, there is not too much scope for reduction.” He added that “my view is that the overall picture for the next decade is a gradual upward trend in rates.”

Rates poised to rise That said, recent commentary from the Old Lady of Threadneedle Street released earlier this month suggests that any reduction in borrowing costs in the short term or beyond to support the economy in the event of a catastrophic no-deal Brexit cannot not be considered a given.

As the Bank of England explained in its most recent minutes, “the economic outlook will depend significantly on the nature of EU withdrawal,” and that therefore “the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.” Indeed, should sterling dive in response to the UK’s Brexit strategy, the committee may have no choice but to hike rates in an effort to tame a likely surge in inflation.

A property price crash? Another clear risk of a disorderly Brexit in the spring is the possibility that house prices in the UK could fall off a cliff.

The property market crash that many had predicted in the event of a Leave campaign victory in June 2016 may not have transpired. But home price growth has slowed to a crawl, the latest home price inflation gauge today showing expansion of 3.5% in September, more than halving from the 7.7% rise posted exactly two years earlier.

The impact that Brexit is having on homebuyer confidence has proved devastating, and the problem was again highlighted by Foxtons this week, the estate agency advising that it had recently closed another six branches in and around London in reflection of the “challenging market.”

Demand from first-time buyers may still be strong, but the uncertain outlook for the UK economy has seen transaction activity from existing homeowners slow to a crawl. And I would expect buying appetite from both of these demographics to sink, at least in the immediate term, should Britain fall out of the EU with a bang.

The buy-to-let sector is becoming more and more of a minefield for investors and for a variety of economic and political factors. In my opinion it’s a sector that is far too high risk and I think that savers should seek other ways of deploying their cash, like stock market investment, to generate solid returns.

Source: Investing

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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