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UK holiday let market creating opportunities for investors

UK: Thousands of Britons are opting to spend their holidays closer to home and as a result, holiday let property investors are seeing the potential business opportunities this presents.

That was the opinion of Commercial Trust Limited chief executive Andrew Turner, speaking to Property Reporter, in which he said the holiday and short-term lettings market would experience “significant” growth in 2019.

Last year, estate agent Savills analysed data which revealed 39 per cent of the British public who purchased holiday lets in 2018 opted for staycations in domestic UK properties. That contrasts starkly with the figure of 14 per cent, which was recorded to the economic recession in 2017.

Meanwhile last month, Cottages.com reported a 23 per cent rise in listings in its holiday property portfolio in the space of 12 months.

Turner’s findings included the following:

Market demand
Thousands of Britons are choosing to staycation domestically due to reasons such as Brexit and the resultant economic and passport and customs uncertainty. Tourists are still coming over to visit the UK from abroad and coupled with the weaker pound, it is leading to a larger pool of people looking for short-term letting options when travelling.

Differences in tax
Government changes to buy to let have gradually restricted the amount of mortgage interest tax relief that landlords can claim. By April 2021, landlords will be able to claim a flat level of 20 per cent as a tax credit, unlike in the past when they could previously claim 100 per cent of mortgage interest.

For furnished holiday lets, landlords can still claim all of the interest paid, as well as capital allowances on wear and tear and furniture replacement, while also potentially qualifying for capital gains tax relief as a business.

According to HMRC rules, a property must be available to let for at least 210 days a year and it must be let for at least 105 days in order to qualify for mortgage tax relief.

According to Turner, many landlords now seemingly use properties as a savings vehicle for their future pensions.

Yields
Yields on holiday lets can outperform more traditional forms of buy to let.

2018 statistics from holiday property fund Second Estates showed landlords with holiday homes in Wales were able to achieve yields of 11.7 per cent over a 12-month period.

Yields are dependent on several factors, including property value, the going rate for rent and the number of bookings or demand in the area. Second Estates predicted a further rise for holiday let yields in the coming years.

From 2018 to 2022, the holiday property fund said it envisaged an average 14 per cent return across the UK, with the North West and East of England expecting to achieve returns of around 16 per cent.

Turner summarised by saying that the holiday lets market is thriving and will continue to attract keen interest from property investors. Circumstances with uncertainty over Brexit have created a market for buy to let landlords to look for further entrepreneurial ways to generate and maintain a profit.

He also advised anyone who is considering re-mortgaging and operating a holiday let to speak with a specialist first to fully comprehend the implications of costs.

By Paul Stevens

Source: Short Term Rentalz

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Housing market could take hit in Labour IHT reform

The housing market could take a hit if inheritance tax is reformed the way the Labour party intends, experts have warned.

Last month the Labour Party’s independent report on cutting inequalities in land ownership had called for the abolition of inheritance tax in a bid to stabilise house prices.

Under the plans, inheritance tax would be replaced with a lifetime gifts tax levied on the recipient on the gifts received above an allowance of £125,000. When this lifetime limit is reached, any income from gifts would be taxed annually at the same rate as income.

Since then the Office of Tax Simplification’s review of the IHT rules — which currently levies a 40 per cent charge on estates over £325,000 — has been published, calling for a reform of the seven-year gifting rule, alongside a new allowance and abolishing the tapered rate of Inheritance Tax.

Experts warned the ‘bank of mum and dad’ — which currently acts as the eleventh biggest UK lender in terms of buying property — would be scuppered by Labour’s £125,000 limit.

According to data from L&G, parents and grandparents will help buyers purchase a total of nearly £70bn of property wealth this year, much of which could be taken away by the taxman under the plans.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a reform of IHT rules like the one Labour is suggesting would “fill parents with horror”.

She said: “Inheritance tax is already Britain’s most hated tax, but at least at the moment they can take steps to avoid it.

“They can pass as much of their wealth to younger members of their family throughout their lifetime as they want and as long as they live for seven years after making the gift, it’s not counted as part of their estate for inheritance tax purposes.”

The Labour report estimated that taxing gifts through the new system would raise £15bn in the 2020-21 tax year — £9.2bn more than under the current IHT system and in a ‘more progressive way’.

Last month (June 30) shadow chancellor John McDonnell confirmed the Labour Party was looking at the reforms in the report as a range of ways to distribute wealth more equally in the UK.

Ms Coles said the current rules on lifetime giving had helped encourage people to share their wealth within their family before their death and the earlier they make these gifts, the better from a tax perspective.

This means younger people benefit from payments when they need them most and the new rules would remove this incentive, she added.

Dan White, of White Financial Services, said there was “no doubt” that IHT could have an impact on potential buyers.

He added: “That said, if property prices drop then any potential ‘gift’ monies could be less relied on and may not require such large ‘gifts’ to help towards deposit funds.”

Ruth Whitehead, of Ruth Whitehead Associates, said: “The housing market could definitely take a hit as it would definitely impact on middle class families in the south of England trying to support their first time buyer offspring to buy in a very expensive market.

“But, Labour are only ‘looking at’ lowering the inheritance tax allowances. This would only come to pass if Jeremy Corbyn won a general election and became prime minister.

“Which isn’t going to happen any time soon, if at all. So I don’t feel that is, as yet, a matter of concern.”

By Imogen Tew

Source: FT Adviser

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Property investors call for more government support

The majority of UK property investors (97%) feel the government is not doing enough to support the UK property market.

Meanwhile, 33% of property investors called for a reversal on the changes to tax relief on buy-to-let mortgages and 17% believed introducing a tiered tax system on buy-to-let property would better support the UK property market.

Gareth Lewis, commercial director at MT Finance, said: “It is interesting that the stamp duty surcharge and removing it is more important to property investors than mortgage interest tax relief – it suggests this group of investors are the ones who are most likely to expand their portfolios.

“The government has introduced a series of changes to slow down an overheated property market and reduce the number of buy-to-let investors over the years.

“Property investors have been dealt some serious setbacks, impacted by changes to stamp duty and changes to tax relief but despite the changes, many remain resilient and still see property investment as a key tool for retirement planning, and a good home for their monies whilst interest rates are low.”

When asked who they would vote for if a general election were called today, half revealed they would back the Conservative Party, 18% said the Liberal Democrats, followed by the Brexit Party at 16%. Only 3% of property investors revealed they would back the Labour Party in a general election.

By Michael Lloyd

Source: Mortgage Introducer

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North’s housing market the best performing in the UK, new survey shows

HOUSE prices in the north have increased at the sharpest rate in the UK, according to a new survey.

The latest Nationwide figures show that the Northern Ireland market remains the best performing, with annual growth the strongest of all UK regions.

The average house price in the north between April and June was £143,343, 5.2 per cent more than the same period a year ago and greater than the 3.3 per cent increase recorded in the previous quarter.

Wales was next in the figures, reporting a 4.2 per cent jump to an average of £160,407, followed by Yorkshire and Humberside (3 per cent growth).

The UK as a whole reported muted growth of 0.6 per cent to an average of £215,910. This was heavily influenced by the English market, with prices roughly flat in the last quarter compared to a year ago.

London saw annual prices fall for the eighth quarter in a row between April and June – down 0.7 per cent, although that was an improvement on the 3.8 per cent drop seen in the previous three months.

Over the month between May and June UK house prices edged up 0.1 per cent between May and June, but there are concerns Brexit uncertainty is set to weigh on growth over the coming months

Property prices edged higher month on month in June to an average of £216,515 after adjustment for seasonal factors.

This marks an improvement on the 0.2 per cent monthly fall recorded in May.

But, the building society warned that, while low mortgage rates and a healthy jobs market will help support the property market, wider uncertainty in the economy will take its toll.

Nationwide chief economist Robert Gardner said: “Survey data suggests that new buyer inquiries and consumer confidence have remained subdued in recent months.

“Housing market trends are likely to continue to mirror developments in the broader economy.

“While healthy labour market conditions and low borrowing costs will provide underlying support, uncertainty is likely to continue to act as a drag on sentiment and activity, with price growth and transaction levels remaining close to current levels over the coming months.”

Howard Archer, chief economic adviser at the EY Item Club, said: “We believe, with Brexit being delayed until October 31 – and it currently very unclear what will happen then – and the domestic UK political situation unsettled, prolonged uncertainty will weigh down on the economy and hamper the housing market.

“Consumers may well be particularly cautious about committing to buying a house, especially as house prices are relatively expensive relative to incomes.”

Source: Irish News

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Buyer demand is increasing in parts of the UK, analysis suggests

The latest industry data shows that buyer demand in the UK in the second quarter of 2019 was at 42.3%, a 1% increase on the previous quarter, with London seeing an increase of 1.4% so far this year.

The analysis, using data from the major property portals by Springbok Properties shows that the highest level of buyer activity is currently in Glasgow at 60.2%, closely followed by Edinburgh at 57.6%.

Sale is the most in-demand area in England at 57.3%, followed by Bristol at 56.6% while Worthing near Brighton recorded the biggest uplift in buyer demand since the start of the year with a 7.1% increase.

York at 6%, Woking at 5.2%, Mansfield at 5%, Basingstoke, Bristol and Exeter are all at 4.6%, St Helen’s at 4.4%, Southport at 4.2% and High Wycombe at 4.1% are also locations with some of the biggest increases in buyer demand.

Bexley remains the most sought after borough in London for buyers, along with Waltham Forest, Barking, Sutton and Havering while Redbridge recorded the largest uplift quarter on quarter at 5.4%, with Sutton and Waltham Forest, seeing some of the largest increases in demand.

Shepherd Ncube, chief executive officer of Springbok Properties, believes that buyers are getting bored of Brexit and pushing on with sales but he pointed out that the resurgence remains largely refined to the more affordable cities where home owners have seen their property potential decline at a more marginal rate, and as a result, they are happy to sell even if it means adjusting their asking price expectations.

He added that Worthing is benefiting from the ripple effect of buyers looking outside of Brighton. ‘House prices in Brighton have become inflated due to the ability for buyers to work in the city by week and spend their weekends at the seaside. Of course, while it remains more affordable now, an influx of buyer demand will always bring an uplift in prices,’ he said.

Source: Property Wire

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Property price growth continuing to cool nationally

Property price growth has slowed nationally – with Dublin showing the most significant cooling off, new figures show.

The latest report from MyHome.ie found that annual asking price inflation fell to 2.4% nationally in the second quarter of the year – the lowest level it has been in five years.

In Dublin, that figure entered negative territory for the first time since 2013. It is down to -0.6%.

Despite the downward trend in the annual inflation rate, the report – which is published in association with Davy – found asking prices are continuing to rise, albeit at lower rates.

Asking prices nationally rose by 2.1% in the second quarter of this year when compared with the previous quarter.

In Dublin, prices rose by 0.5% in the same period, the weakest second-quarter gain since 2012.

Overall, the median asking price for new sales nationally was 276,000 euro, up 5,000 euro on the previous quarter, while the median asking price in Dublin was 382,000 euro, an increase of 2,000 euro.

Outside of Dublin, there was stronger growth, with prices increasing by 7,000 euro in the quarter to 231,000 euro.

Newly-listed properties are seen as the most reliable indicator of future price movements.

The author of the report, Conall MacCoille – chief economist at Davy, said that while the price falls may fuel fears of a more damaging downturn, the reason for the price falls this time round were as a result of increased regulation.

The Central Bank of Ireland tightened its mortgage lending rules last year.

“The current slowdown in price inflation is largely due to the Central Bank’s lending rules and stretched affordability,” he said.

“These factors are preventing the latent housing demand from translating into rampant house price inflation fuelled by rising leverage on mortgage loans.

“Ireland’s economy continues to perform well and the property market will continue to be underpinned by high employment and wage growth.

“While the economy has been driven by strong foreign direct investment, export growth and a slow rebound among indigenous companies, the recovery in home building is still in its infancy.”

Angela Keegan, managing director of MyHome.ie, said the fact that we are seeing more transactions, more properties on the market and more sustainable price increases were all positives for prospective buyers.

“The environment for buyers is becoming much more favourable, with 22,600 homes listed for sale in June 2019 on MyHome, up 4.5% on the same period of 2018,” Ms Keegan said.

“The improvement is especially marked in Dublin, with 5,400 homes listed for sale on MyHome – up 9% on last year.”

Source: iTV

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Young people half as likely to own a home as two decades ago

Millennials’ chances of owning their own home in their early 20s have nearly halved over the past two decades, according to new figures.

Only 11% of people born in the mid-1990s were homeowners by the age of 22, compared to 21% of people born in the mid-1970s.

Many young people will be “stuck renting into retirement,” according to an analysis of official figures by the Local Government Association (LGA), which represents councils.

The LGA says home ownership is a “distant dream” for many would-be buyers as the high costs of renting privately prevent them saving for a deposit.

Rents now eat up more than half of average household earnings in some parts of London, according to the LGA.

Separate figures released by HomeTrack on Thursday show first-time buyers need an average household income of £54,400 to afford a mortgage for their first home.

Boris Johnson, the frontrunner in the race to be the next UK prime minister, is reportedly considering scrapping stamp duty on homes under £500,000 if Britain crashes out of the EU without a deal.

First-time buyers already benefit from lower or zero stamp duty depending on a property’s value, but analysis by Yahoo Finance UK suggests it could save them up to £10,000 on their first home.

Martin Tett, LGA housing spokesman and leader of Buckinghamshire county council, said: “Home ownership remains a distant dream for most young people, with the high cost of the private rental sector meaning many are unable to save for a deposit to get on to the property ladder and face the prospect of being stuck renting into retirement.”

The LGA is calling for more powers for councils to build new social housing and take control of the right-to-buy scheme ahead of its annual conference next week.

Lindsay Judge, senior policy analyst at the Resolution Foundation, told Yahoo Finance UK said more security for the record number of families renting privately was also key.

“While home ownership has finally started to rise in recent years, young families are still far less likely to own by their early 30s than their parents were. The barriers to home ownership remain significant.”

By Tom Belger

Source: Yahoo Finance UK

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First-time buyers need to earn £54,400 to get on the property ladder

The average first-time buyer needs a household income of £54,400 to get on the property ladder in British cities, new figures suggest.

First-time buyers need to earn more now than three years ago in most UK cities, with the exception of the most expensive areas—where buying is now marginally more affordable.

The average house price in 20 UK cities is now £256,200, up 1.8% on a year ago, according to a monthly review of the UK property market by Hometrack.

Fast-rising property prices in Manchester and Leicester mean first-time buyers now need to earn around 20% more than three years ago.

The highest increases in house prices have been in some of the most affordable cities, with prices up 5% in Liverpool and 4.6% in Belfast.

Buyers can secure their first home of their own on a total household income of £26,000 in Liverpool and Glasgow, whereas Londoners need £84,000 a year.

But the expensive cities where buyers need the highest income have seen the property market become slightly more affordable in recent years.

London, Oxford and Cambridge have seen the average income to buy fall 5% since 2016.

The latest Hometrack report says house prices in UK cities have grown around 7% a year for the past 23 years, far outstripping growth incomes.

Separate figures released today by Lloyds Bank also show the number of homes worth £1m or more has reached a record high.

More than 14,600 homes worth at least £1m were sold in 2018, up 1% on the previous year despite a slowdown in the property market particularly in London and the south-east.

By Tom Belger

Source: Yahoo Finance UK

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Key UK Property Investment Sectors to Quadruple in Value

A new report estimates the purpose-built student accommodation, build-to-rent residential and retirement sectors will eventually reach a combined value of £880 billion, as private and institutional investors from around identify the huge opportunity in these assets.

Summary:

  • Three of the UK’s biggest purpose-built property sectors are forecast to rise in value by four times their current combined amount
  • Purpose-built student accommodation, build-to-rent residential and retirement property sectors are receiving increasing levels of global investment, particularly from institutional buyers
  • “The fundamental demographic and economic changes supporting these sectors are difficult for investors and developers to ignore”, as changing generational attitudes are helping to drive the development of Britain’s property market

There is a huge growth opportunity for investors in the UK’s large-scale, professionally owned real estate sectors.

That’s the message from Savills, who estimate that three of the country’s largest purpose-built property sectors are set to quadruple in value once they reach full maturity.

At present, the combined value of the purpose-built student accommodation (PBSA), build-to-rent residential and retirement property sectors stands at £223 billion. But, as momentum in these markets continue to build, this will be rise four times to £880 billion.

Although already established sectors, they are still in their infancy in terms of the growth opportunity for investors. As more students, young professionals and retirees demand higher-standard accommodation, in locations close to places and amenities important to their respective demographics, the advancement of these purpose-built property sectors will continue to drive investment levels.

“Common to all these sectors is the recognition that investing in where people live has great potential for investors, particularly those seeking long term income streams,’ said Lawrence Bowles, Savills research analyst.

“The fundamental demographic and economic changes supporting these sectors are difficult for investors and developers to ignore. Institutional interest will continue to grow as these asset classes mature and can increasingly demonstrate their track record.”

Of these sectors, PBSA is currently the most mature, with Savills estimating its value at £51.2 billion. Last year, global investors poured £3.1 billion into the sector, and a further 35,000 PBSA are expected to be bought in 2019. However, while total PBSA unit numbers stands at 640,000, the UK’s student population has increased 9.7% over the last five years, underlining the undersupply the sector currently faces.

Like PBSA, the build-to-rent sector has helped to raise standards in the UK’s residential rental market, with high-quality apartments in key city centre locations, operated by professional management companies.

But build-to-rent is only just at the beginning of its development, presenting investors with huge growth potential. Savills currently values the sector at £9.6 billion, but projects it will be worth close to £550 billion at full maturity and provide over 1.7 million UK households.

Yet, despite their similarities, only a relatively small number of institutional investors operate in both the PBSA and build-to-rent markets. Savills, however, believes this will soon change.

“Given the similar challenges in development and management, we would expect to see more investors expanding their capabilities to cover the full spectrum of operational residential assets,” commented Peter Allen, Head of Savills Operational Capital Markets.

“Student housing investors have the potential to extend their brands into build to rent and use a strong track record in a very established sector to secure favourable finance terms to maximise opportunities in a newer, less mature sector.”

Source: Select Property

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The housing market – and the Brexit backdrop

As an economist who has worked in the housing market for more than 15 years, I used to be frequently asked about what interest rates were likely to do.

I now tend to be asked about what Brexit will do. Anticipating interest rate changes a decade ago was not easy, as they were much more variable than they are now, but it was a lot easier than anticipating Brexit.

When I wrote our recent Spring/Summer Market Briefing, I began: “Despite the travails of Brexit, the Scottish housing market has continued to perform strongly…” I got an immediate response from a client saying, “Despite Brexit, ha, ha, ha!”

Obviously, my pro-Brexit client was intimating that people like me thought that Brexit would prove disastrous and were proving ourselves wrong with our own market analysis. But I did not say that – Rettie & Co does not have a position on Brexit. I said: “Despite the travails of Brexit.” It does not matter if you are pro or anti-Brexit, it is clear the painful and laborious process is clouding the market in uncertainty.

In such circumstances, you would expect economic activity to weaken and for this to have a knock-on effect on the housing market. However, the market so far this year has been resilient.

The data for the first quarter of 2019 highlighted that transactions and average prices across Scotland were broadly the same against the same period last year – not bad, given the market uncertainty.

This picture is true in both Edinburgh and Glasgow. In Aberdeen, where the housing market has been battered by the reduced price of oil, there was a bounce-back of 14 per cent in market activity, with average prices on a par with a year ago.

This strongly hints at a much sought-after stabilisation that Aberdeen estate agents have been yearning for. Dundee, by contrast, is fast-emerging as a standout housing location with average house prices 10 per cent up on a year ago, making it one of the strongest-performing markets in the whole of the UK. Elsewhere, areas in commuter hinterlands such as East and West Lothian in the East and West Dunbartonshire in the West have seen double-digit growth in transaction levels.

However, there are concerns. Residential Land & Building Transaction Tax (LBTT) revenue in the first quarter of 2019 was down nearly 6 per cent on the same period last year despite a rising number of returns.

The bulk (nearly three-quarters) of LBTT revenue is collected from the market above £325,000 (just 10 per cent of total sales). These statistics clearly signal a softening of the upper part of the market.

Experience from other economic slowdowns shows that it is the top end of the market that tends to get hit first and hardest; in fact, it is a clear economic bellwether.

As we argued in our recent annual briefing on LBTT, a concern for the Scottish Government is that its taxation strategy has been to shift more of the tax take onto a smaller number of payers.

This remains a dangerous course for a government potentially facing a budget blackhole over the next few years, as highlighted by the Scottish Fiscal Commission recently. In my view, on LBTT at least, the government has too many of its eggs in too small a basket. The effects of fiscal drag will likely push more eggs into this basket unless the Scottish Government acts to make at least an inflationary adjustment to the bands on which LBTT is paid. With the interminable Conservative leadership contest taking over the front pages and the fact that we can all pour through passport control without much fuss this summer, perhaps the market is shrugging off Brexit for at least a little while.

But it will be back and it will certainly test market resilience later this year. And I still do not have an answer yet as to what it will do.

By John Boyle

Source: Scotsman