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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

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Just over half of private landlords do not use an agent at all – survey

Just over half of landlords do not use an agent to let or manage their properties.

A third (34%) use an agent for let-only, and just 9% use an agent for both letting and management.

The remaining 5% use an agent for management services only.

The finding emerges in a new survey of private landlords in England published yesterday by the Government – the first time the exercise has been carried out since 2010.

During that time, the number of households in the private rented sector has risen by 25% from 3.6m to 4.5m.

There have also been major changes since 2010, including tax changes, a Stamp Duty surcharge of 3% on the purchase of buy-to-let properties, and tougher lending criteria on buy-to-let mortgages.

The new Private Landlord Survey says: “These changes were made as part of the Government’s wider efforts to make the housing market work for everyone and to ensure the housing market delivers the homes the nation needs.”

The survey questioned almost 8,000 landlords and agents registered with one of the three tenancy deposit protection schemes.

It found a total of some 3.4m live deposits registered, equating to 1.5m landlords. Of that number only about 360,000 had registered the deposits themselves.

The survey also paints a picture of a cottage industry, with 94% of landlords operating as individuals rather than as part a company, and almost half (45%) owning just one property. Only 17% own five or more properties.

The average gross rental income that a landlord earns is £15,000.

After tax and other deductions, the average that a landlord gets is 42% of their total gross income.

According to the survey, half (53%) of landlords plan to keep their portfolios the same size, 11% plan to increase the number of properties, and 10% plan to reduce. A further 5% plan to sell all their portfolio.

Agents are more likely than landlords to raise the rent when there is a new tenancy, and also to take a larger deposit.

However, landlords (52%) are more reluctant than agents (37%) to let to certain groups of tenants, including those on housing benefit.

The survey also found that 25% of landlords and 10% of agents are unwilling to let to non-UK passport holders, while 18% of landlords and 6% of agents are unwilling to let to families.

Three-quarters of landlords and agents are willing to offer longer tenancies, but 70% said they would do so if it became easier to remove problem tenants.

The report also found that agents were more likely than landlords to be legally compliant – for example, 87% of agents carried out Right to Rent checks, compared with 62% of landlords for their most recent letting.

More agents than landlords provided tenants with the How to Rent guide, and with a copy of the EPC. Agents were also more compliant about fire safety and annual gas inspections.

Speaking about some of the findings, NALS chief executive Isobel Thomson said: “The results of this survey make for interesting reading, particularly given some of the anti-landlord and agent rhetoric that we have seen recently. In fact, we see that only 7% of tenancies end in eviction, that agents and landlords are willing to offer longer tenancies, and that most deposits are returned in full or part.

“NALS wants a better, safer private rented sector for all. These results show that in the main, agents and landlords are working hard to achieve that, and that the many tenants who rely on the sector do have a good experience.”

At 62 pages, this is a report dense with market information, insights and charts – and essential reading for agents, especially if there won’t be another one for eight years.

Source: Property Industry Eye

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Landlords to feel effects of buy-to-let changes

The private rental sector may be approaching a “watershed” moment as landlords begin to feel the effects of recent tax changes reflected in their tax bills for the first time this month, a trade association has warned.

The Intermediary Mortgage Lenders Association (Imla) warned the introduction of various tax and regulatory changes since 2015 would begin to have an effect on property availability and tenant choice in the rental sector.

The body expects policies to contribute to higher rents for tenants, which would in turn make it harder for those who are trying to save for deposits to buy their own homes.

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, which was closely 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.

Imla believes this year’s tax return will be the first time many landlords will see the effects of these policies on their earnings.

Kate Davies, executive director of Imla, said: “These measures continue to erode the buy-to-let sector, and in turn the whole private rental sector.

“In fact, we may be approaching a watershed, as landlords will only be starting to feel the adverse effects of income tax changes when these are reflected in their tax bills for the first time this month.”

Ms Davies suggested a recent period of subdued rental price increases may be disguising the true effect of these changes on the rental market.

She said a report published by IMLA in early 2018 had shown the “continued erosion” in buy-to-let, with net investment in rental property “collapsing” by 80 per cent over the course of two years.

She added: “It is no coincidence that, despite a growing contribution from build to rent, 2017 brought an abrupt reversal to 16 years of uninterrupted growth in the stock of private rental dwellings.”

Ms Davies said: “Buy-to-let landlords represent a key element of the private rental sector, providing homes for a very wide spectrum of households and including many benefit claimants who would in the past have had access to social housing.

“We consider it vital that no additional measures should be introduced which could risk further eroding the health of the private rental sector or the well-being of those who rely upon it.”

David Hollingworth, associate director of communications at London & Country Mortgages, said: “The raft of change to the buy-to-let market, which includes stamp duty and tighter criteria as well as the reduction in tax relief on mortgage interest, was always going to hit the market hard.”

Some landlords will have already factored the tax changes into their calculations but some may still face a nasty shock when they submit their returns, said Mr Hollingworth.

He added: “Demand for rental property is likely to remain strong and whilst there was a feeling that the buy-to-let market may have been growing too rapidly there’s equally a risk if it contracts too far.

“If supply dries up then rents will inevitably rise, especially with tighter lending criteria in play. Nonetheless where there’s demand there will still be investors and many established landlords are likely to retain an interest in adding to portfolios where the numbers stack up.”

Source: FT Adviser

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Majority Of Students Satisfied With Their Landlord

As we start the new year a new survey has shown that most students are satisfied with their landlord.

Contrary to the popular belief that students are taken advantage of by landlords, the National Student Index survey commissioned by student property app BubbleStudent has shown that 63 per cent of students are satisfied with their landlord.

The survey shows that students are generally satisfied with their living conditions and the services provided by their landlords.

However, a perhaps surprisingly small percentage, only 7.5 per cent of those surveyed, were largely dissatisfied with their landlord’s communication and general behaviour.

The findings largely disprove the widely held notion that student-landlord relationships are strained, and students are not satisfied.

The student market has become a very large part of the buy to let investment market in recent years, with almost 2 million students at university, and around half renting from private landlords.

The removal of the university admissions cap in 2015 has seen record numbers of students take up places at university, offering a guaranteed market for buy to let investment landlords.

CEO and founder of BubbleStudent, Felix Henderson, said: ‘There are many misconceptions about the relationship between student tenants and landlords, however, our research has revealed that the majority of students are more than satisfied with general landlord behaviour and the standard of their accommodation, representing a real shift in the dynamic from previous years.

‘This change is in part due to increasing awareness of just how lucrative the student market can be, along with improvements to the way these relationships are facilitated and managed. We use an app-based service to match students with properties, book viewings, secure contracts and help students make rental payments. This virtual proximity has gone a long way towards helping to remove some of the barriers and pain points for both students and landlords alike, resulting in improved satisfaction across the field.’

Source: Residential Landlord

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Landlords rely on brokers for better deals

Landlords rely on brokers to guide their financial choices because they feel intermediaries have access to better deals, according to research by a bridging lender.

In a survey of 2,000 adults who own three or more residential properties, 35 per cent agreed they rely on brokers to inform choices made when securing finance for a property purchase.

The research, conducted by bridging lender Market Financial Solutions, found 41 per cent of the landlords who relied on brokers felt they could access better rates than a borrower going direct with the lender.

Paresh Raja, chief executive of Market Financial Solutions, said: “Whether it is someone purchasing their first house or their 50th, this research shows how instrumental brokers are in guiding property buyers through the financial options available to them.”

Recent figures released by fintech firm Mortgage Brain found a significant difference between the cost of comparable buy-to-let mortgages and mainstream residential products.

As of November 1, the cost of a five-year fixed buy-to-let mortgage at 80 per cent loan-to-value (LTV) was 24 per cent more than the same product type for a residential mortgage.

A two-year fixed buy-to-let mortgage at 80 per cent LTV cost 20 per cent more than its residential equivalent.

The survey of landlords with a portfolio of three or more properties also found a preference to explore financing outside of traditional mortgage products, with 41 per cent expressing a want for a better understanding of the options available to them.

Mr Raja said: “Importantly, beyond the historically dominant mortgage providers, there are now many forms of alternative finance that buyers can call upon.

“And property investors are clearly keen to explore options outside of mortgages that might be better suited to their particular circumstance.”

Mr Raja said with more than a third of landlords relying on brokers, it is vital intermediaries have in-depth knowledge of all financing options and not just different rates for the same product.

Steve Olejnik, managing director at Mortgages for Business, said he thought the number of respondent landlords using brokers to guide financial decisions in the survey was surprisingly low.

He said: “In my experience nearly all buy-to-let mortgage business is done via intermediary channels.

“But there will be landlords who purchase in cash and therefore don’t require finance – I would think therefore that those not going to a broker are predominately cash buyers.”

Mr Olejnik said brokers are becoming increasingly important in filling the advice gap.

He said: “In a buy-to-let environment more complex than ever, landlords really do need broker advice to find the right product.”

Source: FT Adviser

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Extent of landlord exodus to limited companies revealed

Landlords are increasingly transferring properties to limited companies to navigate tax changes in the buy-to-let market, according to lender data.

Figures from Shawbrook Bank 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.

The buy-to-let market grew rapidly after the financial crisis but tax changes and the introduction of stricter affordability testing meant there was steep fall in the number of buy-to-let mortgages.

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.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules.

Shawbrook Bank has said the reduction in mortgage interest tax relief had led to an increased professionalisation among landlords, with those in a private limited company able to treat interest payments as business expenses to be offset against profits.

Gavin Seaholme, head of sales at Shawbrook Bank, said the buy-to-let figures showed individual landlords were moving across to limited companies but warned this may not always be suitable.

He said: “Firstly, borrowing through a limited company structure is generally more expensive than for an individual, offsetting some of the expected tax savings.

“Secondly, for private landlords with existing portfolios it can be very costly to actually transfer the properties into limited company ownership due to capital gains tax which is due upon the sale and stamp duty due when the newly set up company purchase the properties.

“Together these one-off payments can leave a significant dent in the finances of buy-to-let investors, which makes careful planning necessary.”

Mr Seaholme said the more favourable option could be to convert or create a limited company to continue on the property journey, subject to the correct tax and planning advice.

In its assessment of the buy-to-let market in July, Shawbrook Bank predicted demand for buy-to-let mortgages would fall further over the coming years and expected many landlords to only feel the true impact of changes next year when filing their tax returns for 2017-2018.

Stuart Gregory, adviser and managing director at Lentune Mortgage Consultancy, said since the amendments to taxation for landlords were announced he had seen a big downturn in enquiries for buy-to-let purchases.

He said: “Those we have received have been related to limited company buy-to-let, which does indicate a shift of opinion.

“However, the biggest issue will be as, and when, the landlords’ accountants raise the onward issue of the new taxation – we fully expect to see some more existing landlords to thin out their portfolios, which will of course increase the property supply potentially for first-time buyers.”

But Andrew Turner, chief executive at buy-to-let broker Commercial Trust, has advised to ignore the “doom-mongers” and stressed the buy-to-let market was thriving.

He said: “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 investment.”

The changes were expected to be most keenly felt by those with fewer properties, Mr Turner said, because adjusting would be a more painful process for new investors or those with less experience.

He added: “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 – 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.

“The real story has really not been about buy-to-let becoming unattractive as an investment option.”

Source: FT Adviser

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Some rare good news for landlords

The trouble with the sheer volume of Budget coverage in the press is that it’s easy to overlook some of the less dramatic announcements. Here are two property-related changes you might have missed, along with a rare good-news story for landlords.

Help to Buy has its wings clipped

Last week’s Budget confirmed that the Help to Buy equity-loan scheme, which offers taxpayer-backed loans worth 20% of the purchase price of a new-build house, will be extended until 2023. But from April 2021 it will only be available to first-time buyers. Buyers will also only be able to purchase properties worth up to 1.5 times the “current forecasted average first-time buyer price” for the region, with a maximum of £600,000 for London. This will mean buyers in the north east will only be able to buy houses worth a maximum of £186,100, while those in the north west will be able to spend up to £224,400.

The current iteration of the equity-loan scheme has been widely criticised for pushing up the price of new builds, as it widened the pool of people who could suddenly afford new-build properties and fuelled demand. So it follows that a price cap might push prices down somewhat by tempering demand, perhaps to the point where the original Help to Buy borrowers could have afforded to buy without the scheme. Unfortunately, these people are already (or will soon be) stuck paying the interest on their government loans (which are interest-free for the first five years).

Crackdown on energy efficiency

Another measure from last week’s Budget that escaped many people’s attention will see more landlords required to improve the energy efficiency of their properties. Since April, landlords who own properties with an energy-performance certificate rating of F or G have had to upgrade them to at least band E or face being barred from arranging new tenancies. Yet landlords only had to carry out these improvements where financial support was available to cover the costs.

From 2019, however – a date is yet to be specified – landlords will have to pay for improvements that don’t exceed £3,500. The cost of bringing a house to the minimum energy-efficiency level is typically around £1,200. This new rule will affect 290,000 properties, estimates the government. Most landlords should not be affected by this rule change, assuming their properties already comply.

Buy-to-let borrowers in demand

Mortgage lenders are offering attractive deals to buy-to-let landlords, in a bid to win the business of those who haven’t left the increasingly unprofitable sector. The past few years haven’t been kind to landlords, as the government has brought in various taxation and regulatory changes in an attempt to slow the expansion of the buy-to-let market. In the first half of this year, landlords spent £12.1bn on new buy-to-let purchases, which is 30% lower than the amount spent in the first half of 2015.

So buy-to-let lenders are competing for fewer customers, and adjusting their offers accordingly. Last month the average five-year fixed buy-to-let rate had fallen to 3.4%, the lowest level since data provider Moneyfacts began collecting these figures in November 2011. Leeds Building Society currently offers an “easy start” mortgage, which gives landlords an initial three months of interest-free payments before reverting to a fixed rate of 2.72% for the rest of the five-year period. The Mortgage Works, part of Nationwide Building Society, offers a five-year fix at 1.99% (plus a £1,995 fee), while Sainsbury’s offers a two-year fix at 1.4%.

Source: Money Week

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Landlords face another Budget tax blow

Landlords letting out their former home face another tax hit from today’s (October 29) Budget.

Philip Hammond announced during today’s speech he would reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.

This reform will apply from April 2020 and the final period exemption will also be reduced from 18 months to nine months.

There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.

Lettings relief can reduce the capital gains tax on the sale of a property which was at some point used as the taxpayer’s residence but which has since been let out as residential accommodation.

This is the latest in a number of tax hits which landlords have had to face from recent Budgets.

In April 2016 the government added a 3 percentage point stamp duty surcharge for private landlords and a year later removed tax relief on mortgage interest for higher rate tax payers.

In response to the chancellor’s announcement to make changes to the lettings relief, Lilla Dilliway, director at mortgage brokers BlueWing Financials, said in her experience, most people who share their home with a tenant does not officially admit it, so the rental income is unlikely to make it onto their tax return.

She said: “As a result, I am not sure that people are even aware of this lettings relief, let alone make use of it. Those who claim it will not be happy about any reduction, but overall, I would assume that the changes will only impact a relative minority.

“As a side comment, lenders don’t normally allow tenants in someone’s main residence, but would normally give consent to a lodger.

“The reason being that a tenant has different legal rights from a lodger, so if the landlord had to repossess the property, they would have a hard time kicking out a tenant.”

Source: FT Adviser

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Record proportion of landlords made a profit this quarter

Almost nine in 10 (88%) landlords have made a profit in in quarter three from their lettings activity, up by 2% from quarter two, BM Solutions has found.

The quarterly BM Solutions/ BVA BDRC Landlords Panel found that active landlords haven’t experienced any increased financial difficulty this quarter, with the overall landlord profitability index reaching an historic high of +85.

Phil Rickards, head of BM Solutions, said: “Despite many recent challenges to the buy-to-let market, it’s encouraging that more landlords have made a profit from their buy-to-let properties this quarter, and that landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK Private Rental Sector (PRS) and their own letting business compared to Q3 last year.

“For those speculating about the future of buy-to-let, the figures supporting tenant demand should help to dispel this myth.

“Considering the much talked about shortage of housing supply, it is vital that we continue to support a healthy Private Rented Sector and with tenant demand scores improving, or remaining stable across all UK regions, it is clear that the PRS still has a very important part to play.”

Maintaining the positive outlook, landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK private rental sector and their own letting business compared to Q3 last year.

However, they are feeling less confident year-on-year when it comes to the prospect of capital gains and the UK financial markets. Landlord confidence in their own letting business remains 7% above the historic low of 36% recorded in Q2 2017.

The average rental yield dropped this quarter from 6.2% to 5.9%. This follows the 0.4% rise recorded in Q2, when average rental yields were at their highest point since Q4 2014.

Landlords operating in the North West and Wales are currently generating the highest yields at 6.7% and 6.3% respectively. Rental yields are the lowest in Central London (5.3%) and Scotland (4.7%).

Tenant demand has increased to the highest level recorded since Q2 2017, but there are regional variations.

The proportion of landlords reporting a drop in tenant demand is now at its lowest point since the end of 2016, falling 8% from last quarter.

Unsurprisingly, Central London has seen a 9% rise in the proportion reporting increasing demand for rental properties and a 14% fall in the number of landlords who feel that demand has decreased in the last three months.

A third of landlords raised rents over the past 12 months, representing a slight increase from quarter two.

There has also been an increase in the proportion planning to increase rents in the next six months, reaching 27% from 24%, whilst there has been a fall of only 4% in landlords planning to reduce rents.

More landlords are also seeing rents rising in the areas where they let properties, with an increase of 9% from quarter two.

Four fifths (82%) of landlords expected their mortgage provider to increase their mortgage interest rate due to recent base rate rises.

Source: Mortgage Introducer

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Life-Long Renters Lead To Supply And Demand Imbalance

A growth in life-long renters has led to a surge in demand for private rental housing, just at the time many buy to let investors are contemplating leaving the sector.

A number of regulatory and financial changes has led to many landlords deciding that the pressure of the buy to let sector is too much. There were 19.45 per cent fewer buy to let mortgages taken out in June in comparison to the same month the previous year. There was also an 11.1 per cent drop in value to £0.8 billion. However, more people are choosing to remain in the buy to let sector as life-long renters, leading to an imbalance in supply and demand.

Managing director of DJ Alexander Ltd, David Alexander, explained: ‘The BTL market has become much tougher in recent years with changes to affordability, access to finance, and a reduction in the tax benefits of property investment. All of this has led to a softening of the market and the option for many landlords of either leaving or contemplating leaving the marketplace. The result is potentially a fall in the number of private rental properties available although this will be different across the UK with some rental markets stronger than others. Therefore, many life-long renters, of whom there are a growing number in their thirties and forties, may find their choice limited by a smaller marketplace.’

In the long term, the buy to let sector has been growing, with private renter figures increasing from 11.4 per cent to 28.5 per cent over the last 11 years. Over the same period, the number of owner occupiers in the 35-44 age group has declined rapidly from 71.6 per cent to 52.4 per cent.

David continued: ‘With a growing number of life-long renters emerging there is going to be an increasing need for more social housing, more private renting, and more affordable homes across the country. The government and local authorities need to work together with the private sector to ensure that we have a sufficient housing stock to serve the changing needs of the UK population. This means the freeing up of more land in areas where demand is high for property development, a steady and continuing programme of social house building, the encouragement of the private sector to build more homes in areas of greatest need, and the encouragement of a strong and vibrant private rented sector.’

Source: Residential Landlord