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Chancellor urged to revisit stamp duty for landlords

The government is being urged to “do more” to ensure the housing market is able to overcome the impact of Brexit.

Online mortgage broker Mortgages.online is calling on the Chancellor to take further steps in his Spending Round to stimulate the market amid Brexit uncertainty, pointing to the buy-to-let market as the one that requires focus.

Stamp duty in particular needed revisiting it stated after a surcharge of 3 per cent was introduced for second homes in April 2016, closely followed by cuts to mortgage interest tax relief for landlords.

Paul Flavin, managing director of mortgages.online, said: “The increased stamp duty payable on buy to let purchases, and the removal of the ability to offset mortgage costs has put many investors off the property market, with a knock on effect of reducing the stock of rental properties.

“We would encourage the Chancellor to look again at the negative impact these measures have.”

He added that Brexit fears had helped create a general lack of confidence and depressed values, exacerbated by valuers being cautious.

Mr Flavin said: “We have two basic messages for the Chancellor. Relief for buy to let investors and measures to stabilise the economy with clarity once and for all on Brexit, are both needed urgently.

“The alternative is for a continuance of a depressed housing market which is healthy neither for the economy nor the government if an election is on the horizon.”

The call comes after research found a record number of landlords are planning to sell rental property in the next 12 months as their profitability has fallen for the third successive quarter.

Meanwhile yesterday (August 28) the government announced measures to make it easier for people to get on the housing ladder with Help to Buy.

Under the changes, which are taking effect immediately, people will be able to take out longer mortgages than the current 25-year terms.

The move reflects change in the wider mortgage market, where the number of first-time buyers taking out a mortgage of more than 30 years has doubled in the last decade.

Housing minister, Esther McVey MP, said: “We are determined to open up the dream of home ownership to the next generation and our Help to Buy schemes have already been used more than 500,000 times by families to get a leg up onto the property ladder.

“I want our Help to Buy scheme to work for homeowners so we are giving people the freedom and flexibility to take out longer mortgages, if it suits their needs.”

Mr Flavin said: “The extension to 35 years will help many borrowers as their monthly payments will reduce but the Chancellor will need to do more in the Autumn Statement on 4 September if the housing market is to overcome its Brexit blues.”

The government also announced reforms to shared ownership rules that allow homeowners to increase their share at increments of 1 per cent rather than the current 10 per cent.

Mark Hayward, chief executive of NAEA Propertymark, said: “We support thinking creatively about ways to help first time buyers on to the housing ladder and consumers will welcome the opportunity to increase their share of ownership more easily and to simplify the process by which they can sell their homes.

“Government must be careful of the unintended consequences that any changes to Help to Buy could have on the rest of the market as in many cases these are not properties that feed into the general market place but into a ‘cul de sac’ with no assistance to upward activity”.

The Treasury has been approached for comment.

By Jennifer Turton

Source: FT Adviser

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‘Record’ number of landlords to leave the market

A record proportion of landlords are planning to sell rental property in the next 12 months as their profitability has fallen for the third successive quarter, according to research.

Research firm BVA BDRC’s Q2 Landlords Panel report, seen by FTAdviser, found more than a quarter (26 per cent) of landlords were planning to sell at least one property from their portfolio in the next year.

According to the report, this was up 8 per cent from the tally measured in the first quarter of this year, three times higher than at the start of 2015 (9 per cent) and the highest level of planned sales the report had ever measured (since 2006).

On top of this, out of the 738 landlords polled in June, just one in seven intended to purchase additional property over the next year.

The most commonly cited reason for wanting to divest property was that it was no longer financially viable or profitable, followed by an increasing burden of legislation alongside “too much hassle/stress for too little return”.

The report also found that net profitability for landlords had fallen for three successive quarters — the first time since tracking began in 2006.

Although net profitability remained high at 80 per cent, this was down from 81 per cent in Q1 of this year, from 84 per cent at the end of 2018 and from 85 per cent in Q3 2018.

This decline was partly down to a fall in rental yields which, according to the report, fell to 5.5 per cent in Q2 — the lowest in nine years. Landlords managing houses of multiple occupancy derived the highest average yield alongside student properties.

But profitability has also been affected by tax and legislative changes which have hit the buy-to-let sector over recent years.

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.

The changes to mortgage relief have been phased into the system since April 2017, but by April 2020 the relief will be limited to the basic rate of tax, currently 20 per cent.

Consumer site Which predicted landlords’ incomes could drop by up to 57 per cent due to the changes.

Since the changes, purchasing a buy-to-let property through a limited company has become more than twice as popular as buying as an individual as it is seen to be more tax efficient.

Landlords 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 government has since announced a proposed abolition of Section 21 orders — so-called ‘no-fault eviction orders — and has banned all tenant fees, meaning estate agents now charge landlords for the entire cost of letting agreements.

Joanna Leyden, director at Monument Financial, said: “The increased regulation for landlords is likely to be a driving factor, although we are still seeing people buying property as an investment.

“It’s possible too that falling property prices in London have made some decide to increase the diversification of their investment portfolio and reduce their exposure to real estate.”

Shaun Church, director at Private Finance, said the number of landlords selling up was a “trend that will continue”.

He thought there were fewer buy-to-let landlords coming into the market and that those within it will looked to move properties into limited companies.

He added: “I think the people coming out the market will be those ‘accidental landlords’. And I do think it will continue as it’s not going to get any better.

“The market has definitely fallen, for us anyway. We’re not doing very many of buy-to-let purchases at all.”

But Craig McKinlay, new business director at Kensington Mortgages, said although there had been many government imposed changes over the last few years, there was still room to be successful in the buy-to-let space.

He said: “The remortgage market remains strong and limited companies are going from strength to strength.

“Brokers and landlords who focus on the right areas can still be successful and access some of the lowest rates ever seen.”

By Imogen Tew

Source: FT Adviser

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Over half of landlords letting to Universal Credit tenants experiencing arrears

Universal Credit is causing tenants to fall behind with their rent, according to new research for the Residential Landlords Association.

It reports that 54% of private landlords who have let to tenants on Universal Credit in the past 12 months have seen them fall into rent arrears.

Of these, 82% said that the arrears only began after a new claim for Universal Credit or after a tenant had been moved from housing benefit.

Almost seven in ten (68%) landlords said that there was a shortfall between the cost of rent and the amount paid in Universal Credit.

Private landlords renting to Universal Credit claimants can apply to have the housing element paid directly to themselves when a tenant has reached two months of rent arrears.

This is known as an Alternative Payment Arrangement (APA).

The RLA’s research shows that it took landlords an average of almost 8.5 weeks for an APA to be arranged – meaning that landlords can be left with almost four months of rent arrears before they begin to receive the rent they are owed.

The research further found that 36% of landlords said that they had buy-to-let mortgage conditions which prevent them from renting to benefit claimants.

The RLA is calling on the Government to do more to prevent rent arrears occurring in the first place, including:

Giving all tenants from the start of a claim for Universal Credit the ability to choose to have the housing element paid directly to their landlord.
Ending the five week waiting period to receive the first Universal Credit payment.
Ending the Local Housing Allowance freeze to ensure it reflects the realities of private sector rents.
David Smith, policy director for the RLA, said: “Today’s research shows the stark challenges the Government still has in ensuring Universal Credit works for tenants and landlords.

“The system only provides extra support once tenants are in rent arrears. Instead, more should be done to prevent tenants falling behind with their rent in the first place.

“Only then will landlords have the confidence that they need that tenants being on Universal Credit does not pose a financial risk that they are unable to shoulder.

“Without such changes, benefit claimants will struggle to find the homes to rent they need.”

By ROSALIND RENSHAW

Source: Property Industry Eye

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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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Landlord warning over new Right to Rent guidance

Landlords are being warned that new guidance from the Government on its Right to Rent scheme could lead to them breaking the law if they followed it.

The document says that for nationals from Australia, Canada, Hong Kong, Japan, Singapore, South Korea and the United States, planning on staying in the UK for up to six months, landlords will only be required to see their passport and airline ticket as proof that they can rent property. They do not need a visa.

According to the Residential Landlords Association (RLA), whilst this guidance has no legal standing, the legally binding Code of Practice agreed by Parliament makes clear that for such nationals landlords must be shown clear evidence from the Home Office that the holder has the right, either permanent, or for a time limited period, to reside in the UK.

The RLA argues that a simple airline ticket with a passport does not meet this threshold. Without a corresponding change to the Code of Practice by Parliament, the guidance does not give any legal cover for landlords should a tenant stay longer than six months.

Following a court judgement that Right to Rent breaches human rights law because it causes racial discrimination that otherwise would not happen, the RLA has written to the Home Secretary calling for the scheme to be scrapped altogether.

Under the Right to Rent policy, private landlords face potential imprisonment of up to five years if they know or have ‘reasonable cause to believe’ that the property they are letting is occupied by someone who does not have the right to rent in the UK.

‘This represents a new low in the sorry saga of the Right to Rent. Having already been ruled to be discriminatory by the High Court, the Government is now putting out guidance which could leave landlords open to prosecution,’ said David Smith, RLA policy director.

‘It reinforces once against that the Right to Rent policy needs to go and go now,’ he added.

Source: Property Wire

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More landlords shift to 2-year fixes

More landlords are shifting to 2-year fixed buy-to-let deals, broker Commercial Trust has claimed.

At the end of 2018, 68% of its buy-to-let applications were for 5-year fixed rate terms and 26% for 2-year fixes. 

However, by the end of Q2 of 2019, 5-year fixed-rates account for 59% and 2-year fixed rate deals are at 39%.

Andrew Turner (pictured), chief executive of Commercial Trust, suggested this could be because of political and economic uncertainty.

He said: “5-year fixed rate buy-to-let deals have proved dominant over several quarters, notably since the introduction of the PRA rules, which tightened lending criteria for shorter-term products in 2017.

“5-year applications remain predominate, but there has been a definite shift to two-year applications during the first half of 2019.

“There could be a number of factors at play here, with the obvious explanation being that the first half of 2019 has seen political and economic uncertainty, largely as a result of Brexit negotiations.

“The Bank of England has at different times hinted at rates rises, should the economy grow in line with their forecasts, but then suggested that a no-deal Brexit could see the base rate cut.

“Many landlords are perhaps looking to hedge their bets for the short-term, with a competitive, low rate buy-to-let mortgage, which will hopefully last beyond all of the uncertainty, without locking them into a long-term agreement.”

Turner said that at the same time, many experienced landlords have had two years to digest the implications of the PRA changes and have perhaps already made a move to a 5-year deal.

He added: “Of course locking in for two years gives a landlord the opportunity to reassess the market much sooner and to consider remortgaging in two years’ time, without necessarily incurring additional early repayment charges.

“It will be interesting to see whether this trend towards shorter term deals continues, particularly given data that suggests the gap between 2-year and 5-year fixed rates has reduced.”

Turner said three regions in the UK have seen consistent growth in their overall proportion of buy-to-let purchase application business, with the South West leading the way.

He said: “After five consecutive quarters where year on year, the South West’s proportion of applications fell, this region made considerable ground up in Q2 of 2019 with a 3.5% increase.

“Other areas to see gains in overall proportion so far in 2019, compared to the whole of 2018, are the East of England and the East Midlands, while there has been a fall in the overall percentage of applications from London and the South East.”

In London, there has been a 3.7% fall in the overall proportion of buy-to-let applications, from Q1 to Q2 of 2019.

The capital was on a par with the North West, contributing 12.4% of buy-to-let application business during the most recent quarter.

Turner added: “During Q2 of 2019, the East of England proved the leading region, responsible for 12.9% of applications.

“The South East saw a notable fall in its proportion of buy-to-let applications from Q1 (14%) to Q2 (7%).

“Affordability may still be an issue in London and the South East and regional house price variation and the effects of stamp duty, may be encouraging buy-to-let investors to investigate potentially cheaper properties and better yields elsewhere.”

By Michael Lloyd

Source: Mortgage Introducer

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Landlords falling behind on latest legislative reforms

Property is a hugely popular asset class among investors in the UK. Indeed, there are an estimated 2.5 million landlords across the country, and many more who would not consider themselves “a landlord” by trade, but whom rent out a second property they own.

However, over the past 12 months it has become apparent that the increasing regularity with which new legislative reforms have been introduced is a source of significant stress for professional landlords.

Most will know well that the UK government has been making sweeping changes in the buy-to-let space. From hiking up stamp duty to new rules around housing standards, investors who let residential properties to tenants must now navigate a more challenging landscape if they are to profit from this market.

To delve further into this topic, in June 2019 MFS commissioned an independent survey of more than 400 UK landlords. We asked them about how aware they are of the new legislative and regulatory reforms that have been introduced in the past year, and whether they have taken action to account for these changes.

The findings were illuminating. For one, we found that 30% do not understand the changes to House in Multiple Occupation (HMO) licensing, which came into effect in October 2018 to stipulate on the minimum sizes of rooms.

Furthermore, almost one in three (28%) landlords admitted to not fully knowing what the abolition of Section 21 means. The reform, which was implemented in June 2019, aims to prevent unfair tenant evictions.

A similar number (27%) said they do not understand the tenant fees ban (June 2019) or how it may affect them.

MFS’ research uncovered a similar lack of knowledge when it comes to tax reforms that are likely to impact UK landlords. A quarter (25%) said they are not up-to-date with the latest changes to reduce tax relief on buy-to-let mortgage repayments, while even more (28%) do not understand the reforms to inheritance tax with regards to passing down properties.

The legislation and regulation governing the UK’s rental market is constantly evolving, and landlords are quite clearly struggling to keep pace with the change. From HMO regulations to the abolition of Section 21, these are significant reforms that, for the most part, are rightly designed to protect tenants, create more transparent processes and promote better practices.

Our research shows a clear need for the government to do more to educate landlords around the reforms it introduces. Landlords, too, must be more proactive in seeking out information to ensure they abide by the new rules.

What’s more, the study highlights just how important it is for property investors and their brokers to work with service providers who have strong knowledge of the everchanging legal framework. Doing so ensures landlords will not be caught out by changes that could bring about significant financial repercussions if ignored or not properly adhered to.

By Paresh Raja

Source: Mortgage Introducer

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Rental income supplements PAYE for half of Landlords

New research* for specialist lender**  Precise Mortgages, shows 52% of landlords use letting income to boost earnings from a full-time job.  The findings highlight the need for lenders to offer top slicing to help more customers achieve greater flexibility on buy to let products and loan size.

The study found that even among landlords with bigger portfolios many are still working full-time and have other earnings beyond letting income. Around 32% of those with 11 to 19 properties say letting income supplements day job earnings while 18% of those with 20-plus properties have other income in addition to rental earnings.

Precise Mortgages has enhanced its top slicing feature, which enables customers to use surplus portfolio or earned disposable income to prove they can meet any financial stresses on a new loan application rather than through the rental income of the property alone.

It is now accepting top slicing on all eligible personal ownership, limited company, portfolio, HMO, and holiday and student let applications. First-time buyers are excluded.

Across the market as a whole 33% landlords earn their living purely from their property portfolios, rising to 47% among those with six to 10 properties. Around 16% landlords plan to add more properties in the year ahead with 71% funding purchases with a buy to let mortgage.

Alan Cleary, Managing Director of Precise Mortgages, said:

“Given that the majority of landlords have other earnings that can be used to show they can meet underwriting standards, lenders need to reflect this in their product offering to support landlords accordingly.

“Top slicing allows landlords to manage their properties in a way they choose and gives them greater access to the products and loan sizes they want and particularly for those who may have been restricted by ICR requirements in the past.”

Source: Property118

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More landlords fleeing the private rented sector or hiking rents

Letting agents have reported a spike in landlords selling up.

The exodus was ahead of the tenant fees ban, to be implemented tomorrow, and which is expected to result in higher costs for landlords and the abolition of Section 21.

ARLA Propertymark’s April report found that letting agents saw the highest number of landlords selling their buy-to-let properties since May last year.

The number of landlords exiting the market rose to five per branch, up from four in March.

There were also signs of rents rising ahead of the fee ban, with 33% of agents reporting a rise, up from 30% in March.

The number of tenants successfully negotiating rent reductions fell from 2.9% in March to 1.9% in April – the lowest figure seen since May 2016 when it stood at the same.

Rental supply was marginally down from 203 properties per branch to 202, but this is still up 13% annually.

Demand from prospective tenants also decreased over the month, with the number of house hunters registered per branch falling to 64 on average, compared with 67 in March.

David Cox, ARLA Propertymark chief executive, said: “As predicted, April’s findings have shown an upsurge in the number of landlords selling their buy-to-let properties.

“Tomorrow, the Tenant Fees Act will come into force in England.

“This, coupled with the proposed scrapping of Section 21, is forcing landlords to either increase rents or leave the market altogether.

“As supply of rental accommodation falls further, tenants will only be faced with more competition for properties, pushing up rent prices on good-quality, well-managed properties and decreasing tenants’ ability to negotiate rent reductions.

“In order to remain profitable, landlords will increase rents to cover the additional fees they are now faced with and as a result, tenants will continue to feel the burn.”

By MARC SHOFFMAN

Source: Property Industry Eye

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Andrew Turner: Landlords should consider remortgages

Now is the time for landlords to review their existing portfolios and consider remortgaging to a lower, fixed rate buy-to-let mortgage, Andrew Turner, chief executive of Commercial Trust has argued.

He said this because of a variety of products in this competitive market, and the base rate being held at 0.75% yesterday, with Bank of England governor Mark Carney warning of possible interest rate rises in the future.

Turner (pictured) said: “The present window of opportunity for what may seem favourable buy-to-let conditions in a few months’ time, may be closing.

“For landlords with a buy-to-let mortgage on a variable or tracker rate, the implications of a rates rise or fall can change their annual payments by hundreds of pounds

“In an atmosphere where rates are almost at historic lows, the prospect of monthly payments increasing on a variable or tracker rate mortgage, should the Bank increase the base rate, will seem very unappealing.

“A fixed rate mortgage is safeguarded against base rate changes for the duration of its term, while variable and tracker rate mortgages might be susceptible to any changes. Mr Carney’s suggestion is that rates are more likely to go up rather than down.”

Moneyfacts has found that there are over 2,000 products available in the buy-to-let market now, a 12-year high.

Turner added: “A conversation with a specialist buy-to-let broker, can help to identify a clear strategy and the right type of buy-to-let deal for individual circumstances, faced with such choice.”

With a sluggish housing market, Turner said that tenant demand remains undiminished, as those unable to afford to buy a home, seek accommodation in the private rental sector.

He suggested for those with money to spend, the current environment may offer opportunity to invest in buy-to-let with lower house prices, soaring tenant demand and historically low interest rates.

Turner said: “I would suggest anyone holding off at the moment, faced with these facts, to consider what they are waiting for?

“The bigger question is how long current conditions will last? Mr Carney’s suggestion is that a change in interest rates is just around the corner. That could mean that the competitive deals currently available, may soon evaporate with any base rate change.

“So, whether you are a first-time landlord or considering remortgaging, while time is currently on your side regarding interest rates, how long will that last?”

By Michael Lloyd

Source: Mortgage Introducer