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Buy-to-let continues to fade as stamp duty and income tax crackdown throw up a barrier to the property investing dream

The number of amateur landlords buying new properties continues to tumble as recent tax changes bite. According to figures from trade body UK Finance, there were 5,500 new buy-to-let home purchase mortgages completed in May, some 9.8 per cent fewer than in the same month a year earlier.

That shows the attraction of buy-to-let is continuing to fade as the 3 per cent stamp duty surcharge means those buying rental properties must pay thousands to the taxman.

By value there was £700million of buy-to-let lending in the month, 22.2 per cent down year-on-year.

Jackie Bennett, director of mortgages at UK Finance, said: ‘Purchases in the buy-to-let market continue to be constrained by recent regulatory and tax changes, the full impact of which have yet to be fully felt.’

Buy-to-let remortgages increased slightly, climbing to 14,600 in May from 12,700 for the same month last year. By value this was £2.3bn of lending in the month, 21.1 per cent more year-on-year.

How much does it cost to get into buy-to-let?

Following a number of changes over the past two years, It is now far more expensive to purchase a buy-to-let property.

The extra 3 per cent surcharge on stamp duty means that a £250,000 property spells a £10,000 tax bill for an investor.

This compares to the £2,500 it costs an owner occupier, which is the same amount a buy-to-let investor would have paid before the hike kicked in.

Understandably, this has considerably slowed the market for amateur landlords. The extra £7,500 in tax is money that they cannot put into a deposit on the property and most buy-to-let mortgages require at least 25 per cent down.

The deposit on a £250,000 buy-to-let would be £62,500, with the stamp duty bumping that bill up to £72,500 before any conveyancing and mortgage fees.

It is also tougher to get a mortgage to begin with and landlords face bigger income tax bills on rent, as full income tax relief on mortgage interest is rolled back towards a maximum 20 per cent tax credit.

A crucial change also adds rental income to a landlords other income to decide what rate of tax they pay – bumping some up into higher brackets – and overall the changes mean a landlord pays tax on revenue not profit.

Last month research from the Ministry of Housing revealed that the number of privately rented homes in England fell by 46,000 to 4.79 million last year – the largest reduction since 1988.

The reduction in privately rented homes marked the end of a rise in the volume of rental dwelling stock that had been ongoing for nearly two decades.

The number of first-time buyers is on the rise

The figures weren’t all doom and gloom, however, because where buy-to-let investors are missing out, first-time buyers appear to be stepping in.

There were 32,200 new first-time buyer mortgages completed in the month, some 8.1 per cent more than in the same month a year earlier.

The average first-time buyer is now 30 and has a gross household income of £42,000, according to the research.

Andrew Montlake, director of Coreco Mortgage Brokers, said: ‘What is most encouraging in these figures is the continued increase in first-time buyers and the return of homemover.

‘There are still challenges in the form of stamp duty costs and affordability, but the slight dampening of house prices coupled with continued low mortgage rates has begun to encourage more home owners to finally make the move they have been putting off for a while.’

There were 36,000 new homeowner remortgages completed in the month, some 7.1 per cent more than in the same month a year earlier. The £6.3bn of remortgaging in the month was 6.8 per cent higher than last year.

Jeremy Leaf, estate agent and a former RICS residential chairman, said: ‘These strong numbers from UK Finance reinforce the view that interest rates are likely to rise sooner rather than later.

‘Unfortunately, any imminent rate rise is likely to have a disproportionately negative effect on already brittle confidence.

‘On the ground, business is still one month up, one month down, with no clear pattern other than a fairly fragile price-sensitive market where confidence is weak at best.’

The changes to buy-to-let

Former Chancellor George Osborne first announced a tax raid on landlords in 2015, stating the move was designed to support home ownership amid claims that landlords were scooping up properties and making it harder for hopeful first-time buyers to compete.

Intending to put a stop to this, the Government slapped a 3 per cent surcharge on stamp duty payable on new buy-to-let purchases from April 2016. This trebled the tax bill compared to residential property in some cases.

A further change arrived in April last year, as landlords began to lose their tax relief under a rule known as Section 24, which also forces them to pay tax on their rental income rather than just on their profit after mortgage costs.

Furthermore, the Bank of England also clamped down on mortgage lenders, forcing them to require landlords to earn a much higher ratio of rental income compared to their mortgage payments.

In October last year, further rules were brought in for landlords with four or more mortgaged properties to ensure their debt levels are not too high.

Source: MSN

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Buy To Let Transactions Fall As Remortgaging Rises

Volumes of buy to let investment transactions have fallen as remortgage deals begin to rise, according to the latest LendInvest BTL Index.

The buy to let index surveys 105 postcode areas around England and Wales based on a combination of factors including capital value growth, transaction volumes, rental yield and rental price growth. The index for July 2018 found that Luton came out on top for the first time since December 2016 as offering the UK’s best property investment opportunity.

Birmingham was also singled out as a top investment opportunity, with the Midlands city pulling ahead in front of Manchester to take fourth place.

Cambridge and Bristol were also marked out as regional capitals, pushing their way into the top ten and claiming 6th and 8th places respectively.

Finally, a year on from a sharp decline, certain London postcodes are showing recovery. South East London climbed from number 79, where it placed in June 2017, to number 33.

Sales Director at LendInvest, Ian Boden, said: ‘It’d be so easy to look at the underlying data that tells us transactions volumes are down and make dire predictions about the health and wealth of the rental market. Instead, what our Index proves once again is that looking at one metric in the housing market is never enough. One metric on its own can’t clearly define the performance of a city’s property market.’

He continued: ‘Each of the very top performing BTL locations this quarter is experiencing a slowdown in transactions – substantial falls in places, dips in others. But, the best places this quarter continue to outperform the competition well thanks to strong performances on other, equally important metrics like rental yield, capital gains and rental price growth. Data from the BTL Index, UK Finance and our own experience as a mortgage lender strongly suggests that right now a ‘buy, hold and remortgage’ strategy is some investors’ preference while the market works through a possible slowdown.’

Source: Residential Landlord

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Housing market hits a brick wall as sales plunge across the UK by up to 29%

Property sales were down by a fifth across the UK during March, and plunged by almost 30% in London.

New Land Registry data paints yet another gloomy picture of the market, showing that the number of transactions completed in March across the UK fell 20.3% annually to 73,977.

The biggest falls were in London where sales were down 29% annually to 6,180, and in the south-west with a 24% decline to 6,640.

Overall sales in England were down 21.8% to 58,203 on a yearly basis, while transactions in Scotland declined 16.1% to 7,861.

Northern Ireland recorded a 12.4% decline to 4,545 sales and the Welsh market fell 13.8% annually to 3,368 sales during March.

The Land Registry data also shows house prices growing at the slowest rate since August 2013, up 3% annually in May to £226,351.

This was a slowdown from the 3.5% annual growth recorded in April.

Average prices rose just 0.1% on a monthly basis to £226,351.

The largest annual growth was in the east midlands, with prices up 6.3% to £190,216 on average.

London saw the steepest annual fall with average prices down 0.4% to £478,853.

Commenting on the figures, Andy Sommerville, director at Search Acumen, said: “The slowing UK housing market has now effectively hit a brick wall.”

Jeremy Leaf, north London estate agent, said: “These figures are interesting, as this is the most comprehensive survey of UK house prices, and confirm what we have seen in others and on the ground.

“In other words, property prices cannot be sustained indefinitely by low stock and mortgage rates. Lower demand is forcing vendors to be more realistic, with fewer, more nervous buyers who are prepared to shrug off Brexit concerns.”

Source: Property Industry Eye

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Landlords nervous about adding to portfolios even in areas where rents are rising

Landlords are operating a “buy and hold” strategy with even areas with strong rental growth suffering from a dip in transactions, a proptech platform claims.

Online buy-to-let mortgage platform LendInvest’s second quarter Buy-to-let Index – which uses rental and house price data on Zoopla and transaction figures from the Land Registry – found that sales to landlords have slipped annually in all 105 postcodes it analyses.

This was despite annual rental growth being as high as 5.28% in areas such as Romford, Essex, and capital gains in Luton hitting 7.29% year-on-year.

The provider said its own data suggested landlords were focusing on remortgaging rather than adding to their portfolio with new buy-to-let mortgages.

However, LendInvest said many landlords will now be at the end of two-year fixed rate deals they took out ahead of the introduction of the extra Stamp Duty charge in April 2016, so are likely to be weighing up their options – which could boost transactions.

Ian Boden, sales director at LendInvest, said: “It’d be so easy to look at the underlying data that tells us transaction volumes are down and make dire predictions about the health and wealth of the rental market.

“Instead, what our index proves once again is that looking at one metric in the housing market is never enough. One metric on its own can’t clearly define the performance of a city’s property market.

“Each of the very top performing buy-to-let locations this quarter is experiencing a slowdown in transactions – substantial falls in places, dips in others.

“But the best places this quarter continue to outperform the competition well thanks to strong performances on other equally important metrics like rental yield, capital gains and rental price growth.

“Data from the index, UK Finance and our own experience as a mortgage lender strongly suggests that right now a ‘buy, hold and remortgage’ strategy is some investors’ preference while the market works through a possible slowdown.”

Top 10 buy-to-let postcodes

Yield Capital gains Rental price growth Transaction volume
Luton 3.91% 7.29% 3.70% -6.15%
Colchester 3.63% 6.33% 4.77% -6.73%
Romford 4.09% 4.99% 5.28% -7.84%
Birmingham 4.55% 5.00% 3.66% -6.46%
Manchester 5.36% 4.38% 3.71% -7.35%
Cambridge 3.26% 4.57% 4.76% -6.63%
Northampton 3.99% 6.59% 2.17% -7.36%
Bristol 3.83% 5.51% 2.75% -6.20%
Ipswich 3.42% 5.77% 2.76% -6.16%
Southend-on-Sea 3.62% 6.05% 2.53% -6.93%

Source: Property Industry Eye

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Northern Ireland set to enjoy strongest UK house prices growth

NORTHERN Ireland is set to enjoy the strongest growth in house prices in the UK over the next four years, with residential property prices predicted to lift from their current average value of around £128,000 to reach £154,000, according to PwC’s latest UK Economic Outlook (UKEO).

The report points to the local market being more resilient than the rest of the UK, where there will be some softening of national property price growth between now and 2022.

Data on annual property price growth reveals thatNorthern Ireland is currently the seventh highest among the UK regions, with PwC forecasting the region will rise to third in 2019 and will top the list by 2022.

But even if prices do increase at this rate, they will still be around 28 per cent lower than the 2007 pre-recession average.

The UKEO says the the Northern Ireland economy is set to growth by a mere 0.8 per cent in 2018 and around 1.2 per cent next year – still well below the forecast UK average of 1.3 per cent and 1.6 per cent, making it the slowest-growing of the UK’s 12 regions.

PwC NI chairman and UK head of regions Paul Terrington said: “The Northern Ireland property market continues to perform better than expected, with a positive balance between earnings and house prices. But prices remain well below their peak level in 2007, and this gap is unlikely to close in the near future.

“We have also considered the effect of future interest rate rises, and believe that only around 11 per cent of UK households would be immediately affected if rates increased.”

The PwC report also highlights the impact that artificial intelligence (AI) may have on UK employment in the two decades to 2037 and, while estimates suggest the overall net effect will be broadly neutral, this is not true for individual sectors.

The most positive effect is seen in the health and social work sector, where PwC expects the number of jobs to increase by nearly one million, equivalent to around 20 per cent of existing jobs in this sector.

On the other hand, the report estimates that the number of jobs in the manufacturing sector could be reduced by around 25 per cent due to AI and related technologies, representing a net loss of nearly 700,000 jobs.

Applying this formula across the UK regions suggests that the impact on Northern Ireland will be broadly neutral, amounting to a net loss of around 4,000 jobs by 2037, considerably less than other industrialised regions.

Mr Terrington said the overall outlook for 2019 was mixed, adding: “The UK economy held up well in the six months after the EU referendum, but growth slowed from early 2017 and continued into early 2018, while higher inflation has squeezed real household incomes, which has taken the edge off consumer-led growth.

“The stronger global economy should continue to have some offsetting benefits for net exports this year, although there are downside risks in 2019 and beyond if recent US tariff policy changes were to escalate into a wider international trade war.

“Brexit-related uncertainty and the absence of any UK-EU agreement may also continue to hold back business investment across the UK while the absence of an Executive and the continued uncertainty around post-Brexit border controls impacting inward and indigenous investment and general business confidence.”

He went on: “The next 12 months will be crucial for Northern Ireland’s medium-term growth, but as at today, the signs are not especially hopeful.”

Source: Irish News

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City of London records smashed as office investment soars to 28-year high

Investment in City of London office space has defied Brexit uncertainty to hit a record high as demand for real estate in the Square Mile soars, especially from Asia.

Despite the slowdown in other parts of the property sector such as the housing market, investment in City of London offices jumped to £3.6bn in the second quarter of this year, reaching a peak since global real estate advisor CBRE began records 28 years ago.

The elevated level of activity was led by the £1 billion sale of UBS headquarters at 5 Broadgate to Hong Kong-based investor CK Asset Holdings, according to the CBRE, which pointed out that it was the third £1bn-plus building to sell in the last 18 months.

The City figure was part of a total £5.3bn invested during the quarter in Central London as a whole, which represented an 85 per cent increase on the £2.8bn transacted in the first three months of the year, and a 67 per cent increase on the same period last year.

Thirteen deals over £100m were transacted over the course of the quarter, more than in any quarter since the first three months of 2016, as overseas investors dominated the market, representing 82 per cent of the quarterly figure.

Last year a series of landmark skyscrapers in the City were sold for record sums, such as the Walkie Talkie and the Cheesegrater, which were both snapped up by investors from Hong Kong.

As well as activity from Hong Kong, investors from Singapore and South Korea have also become more active.

“International investors remain hungry for real estate in London and we have seen a diversification in the origin of this capital, albeit the majority is still coming from Asia,” said James Beckham, who sold the Cheesegrater last year and is now head of London Investment Properties at CBRE. “The low level of investment seen in the first quarter of this year has proved to be an aberration.”

He added: “Even in the face of the continuing uncertainty surround Brexit outcome, we think we will continue to see investors coming into London market. Property fundamentals are good in London, with low vacancy rates, good resilient occupier take-up and stable rents.”

Nick Braybrook, a commercial property expert and head of City capital at Knight Frank, told City A.M: “London is still the gold bullion of real estate markets. Compared to other big cities, London has all the big attractions: a more attractive legal system, markets which are more liquid and transparent, and more favourable tax arrangements than quite a few overseas locations.”

Last year the level of overseas investment in commercial real estate in London was more than the next four global cities combined (New York, Frankfurt, Berlin and Paris), according to figures from Knight Frank.

Braybrook added: “Investors who have billions, if they want to buy in the West End they have to do a lot more deals, whereas in the City they could buy one big deal, let to one tenant, and boom! – you’ve spent your billion in a single deal.”

Source: City A.M.

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Property P2P lending: a new choice for investors

Whether fed up with the hassle of buy-to-let or nervous of the ups and downs of the stock market, peer-to-peer lending could help.

In today’s turbulent environment, it might seem like the trade-off between risk and return isn’t as favourable as it once was, with political and economic upheaval across the globe seeing volatility jump, according to Reuters.

Even for investors with a medium-term investment horizon of, say, five years, the risk of loss that the equity markets bring might be too much to bear.

It’s why many alternative and potentially more stable asset classes have proved popular with investors over the last few years, such as energy, infrastructure or property. Investors have been hesitant in the past to consider such investments, as returns are traditionally difficult to benchmark, and they can be less liquid than the likes of equities. However, new technology is managing to overcome these barriers to entry.

Take peer-to-peer (P2P) lending, for example. By connecting those with money to invest with those looking to borrow, it allows you to target what could amount to a healthy, inflation-beating return, with less of the ups and downs of the stock market. And transaction costs are often minimal, too, with many platforms totally free to use.

Property-backed P2P lending in particular has proven popular because the loans are secured on bricks and mortar. It means, should the borrower be unable to repay the loan, the property can be sold to help pay the debt, ultimately reducing the risk to the investor.

However, remember that your capital will still be at risk and investments in property can be affected by
market conditions.

The P2P sector came to being in 2005 and has seen dramatic growth since. In 2015, it was also approved to be included within the ISA wrapper, so interest earned through eligible P2P platforms can now be tax free. In 2016 alone, people in the UK invested £3 billion through P2P lending platforms, according to a 2017 report by MoneyWise.

Octopus Choice is one example. It enables everyday investors to invest their money in a diversified portfolio of property loans. To reduce the potential for downside, all loans are made with a maximum loan-to-value ratio of 76 per cent, although the current July 2018 average is closer to around 61 per cent. This means the value of the asset would need to fall quite some way before any capital would be lost.

What’s more, Octopus invests 5 per cent of its own money in every loan and this is put at risk ahead of an investor’s. It’s totally free to use, too, and you’re able to request a withdrawal at any time, but it’s important to note that with any of these sorts of offerings, instant access can’t
be guaranteed.

So far, Octopus Choice has helped more than 5,600 people invest more than £196 million, earning £5.27 million in the process. Although it must be noted that past performance is not a reliable indicator of future results. And P2P lending, like all investments, comes with risks. Octopus Choice is not a cash savings account; your capital is at risk and interest is not guaranteed. You may get back less than you put in.

Is the property ladder leading you nowhere?

P2P lenders are also expecting an influx of interest from the unsettled buy-to-let sector. A raft of new legislation introduced in 2016 may have dramatically reduced the appeal of being a landlord. Stamp duty was increased by 3 per cent for those buying second homes, while landlords were told they are no longer able to make tax deductions for wear and tear.

Furthermore, higher-rate taxpayers are now unable to offset their mortgage interest against rental income, when calculating the amount of tax to pay. The Financial Times reported in June that already buy-to-let is falling in popularity as a result of these tax changes.

And it’s not hard to see why. Research from Octopus in May shows that if house prices grow at 2 per cent a year and not 3 per cent, and the buy-to-let property in question is yielding 4.5 per cent, the investor could lose money after all costs are incurred. Whereas data from the Bank of England suggests yields are now at their lowest since records began in 2001.

With some buy-to-let investors beginning to see a strain on their returns and all the work that can come with being a landlord starting to feel like too much effort for too little reward, it might leave some asking the question: is there a better place for me to put my money?

New choice

So, whether you’re a buy-to-let landlord who has decided the returns are no longer worth the hassle of renting, or a stock market investor who’s tired of the heartache brought on by the volatile stock market, the growing P2P lending sector might finally have provided the alternative you’ve been looking for.

The growing P2P lending sector might finally have provided the alternative you’ve been looking for

Source: Raconteur

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Carney – no deal Brexit would prompt interest rate review

Bank of England Governor Mark Carney said on Tuesday that a no-deal Brexit would have “big” economic consequences, prompt a review of interest rates and leave many bankers idle.

Britain and the EU have negotiated a transition deal that would effectively keep Britain as non-voting member of the bloc from Brexit day next March until the end of 2020.

But it has not been ratified yet, meaning the UK could crash out and have to rely on WTO trading terms which, Carney said, would leave the country worse off.

“Our job is to make sure we are as prepared as possible,” Carney told MPs at a parliamentary hearing held at an air show in Farnborough, southern England.

Crashing out would prompt the Bank’s monetary policy committee to reassess the economic outlook and interest rates.

“It would be a material event. I wouldn’t prejudge in which direction, though,” Carney said.

“Speaking very narrowly about the financial services side, in the event of a no-deal scenario… there would be big economic consequences. We might have a lot of idle bankers as there is not a lot of demand for their services,” Carney said

Lenders, insurers and asset managers in Britain are playing safe and opening new EU hubs by March to maintain links with customers there irrespective of whether a transition deal of generous future trading terms are secured.

But they worry that without a transition deal, existing cross-border contracts such as derivatives and insurance policies would be disrupted, leaving consumers unable to make claims or companies not covered against adverse moves in currencies or borrowing costs.

Britain has said it will legislate to ensure “continuity” in contracts and that the EU must reciprocate, but the bloc says it was up to banks and not public authorities to get ready.

COLD COMFORT

“Yes, we are concerned that the EU has not yet indicated its solution. The private sector cannot solve these issues,” Carney said.

“This is fundamentally about taking responsibility to protect the financial system… It’s cold comfort, but it will be worse in Europe than it is here.”

Britain’s banks, however, hold enough capital and cash reserves to withstand a disorderly Brexit, Carney said.

Britain last week published its proposals for a future trading agreement with the EU after Brexit, saying it wanted close ties in goods, but with financial services having less access to the bloc than now.

The financial sector attacked the government for not backing the industry’s more ambitious proposals that seek to replicate existing market access.

The industry’s proposals, which the Bank had also backed, were rejected by EU officials in Brussels who say it would mean Britain getting all the benefits of EU membership without the costs and obligations.

Carney said it was too soon to judge what the government’s proposals meant for financial services or for the Bank’s ability to take all decisions necessary to keep the financial system and banks stable.

“It’s premature for us to make a judgement on the White Paper and the outcome of these negotiations. It’s also not clear which activities are going to be in scope,” Carney said.

The White Paper was a “first step” in a hugely important negotiation, he added.

Source: UK Reuters

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Luton is top location for buy-to-let

Luton has come out on top for capital value growth, transaction volumes, rental yields and rental price growth, LendInvest’s Buy-to-let Index has found.

Luton has finished top in the index for the third time in a row, Birmingham came fourth, ahead of Manhester at fifth, showing the Midlands cities as strong investment opportunities.

Regional capitals Cambridge and Bristol broke into the top 10 at sixth and eighth while South East rose from 79th in June 2017 to 33rd.

Ian Boden, sales director at LendInvest, said: “It’d be so easy to look at the underlying data that tells us transaction volumes are down and make dire predictions about the health and wealth of the rental market.

“Instead, what our Index proves once again is that looking at one metric in the housing market is never enough. One metric on its own can’t clearly define the performance of a city’s property market.

“Each of the very top performing buy-to-let locations this quarter is experiencing a slowdown in transactions – substantial falls in places, dips in others.”

Boden added: “But, the best places this quarter continue to outperform the competition well thanks to strong performances on other, equally important metrics like rental yield, capital gains and rental price growth.

“Data from the buy-to-let Index, UK Finance and our own experience as a mortgage lender strongly suggests that right now a ‘buy, hold and remortgage’ strategy is some investors’ preference while the market works through a possible slowdown.”

Source: Mortgage Introducer

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Sterling falls after May bows to Brexit pressure in parliament

The pound fell on Monday as a debate in Britain’s parliament exposed the level of dissatisfaction within British Prime Minister Theresa May’s governing Conservative Party over her plans for Brexit.

The pound fell to an intraday low of $1.3223 on news that May had bowed to pressure from Brexit supporters and accepted their changes to a customs bill that underpins Britain’s exit from the EU.

“The move in sterling is pretty contained at this point but this [accepting of amendments] is being viewed by the market as a step towards a leadership contest,” said Jordan Rochester, currencies strategist at Nomura.

Eurosceptics say May’s plan leaves Britain too close to the European Union and are trying to force her to change course, while pro-EU Conservative lawmakers say it leaves the country too distant from its biggest trading partner.

Sterling has struggled to capitalise in recent weeks on signs that the economy is improving because of mounting uncertainty over whether Britain can secure a trade deal with the EU before it leaves the bloc next March.

Markets expect the Bank of England to hike interest rates in August but the British currency has fallen 9 percent since April partly because of the wrangling within May’s party.

May is expected to survive Monday’s debate on a customs law but the debate risks undermining the government and increasing the chances of an early election which would hurt the pound.

“Political uncertainty helps to explain why the pound has not strengthened yet on the back of the government’s plans for a softer Brexit,” said analysts at MUFG.

At 1545 GMT the pound was down 0.1 percent versus the dollar at $1.3224 and down 0.3 percent against the euro at 88.52 pence..

Sterling finished last week down one percent against the dollar, its biggest weekly drop since late May.

President Donald Trump’s visit to the UK last week added to uncertainty about the Brexit talks and Britain’s trade relationship with the United States after the divorce. Trump criticised May’s handling of the Brexit talks.

May attempted to face down would-be eurosceptic rebels by warning on Sunday that if they sink her premiership then they risk squandering the victory of an EU exit that they have dreamed about for decades.

Meanwhile over the weekend, German business groups told members to prepare for a hard Brexit.

Long bets on sterling have been whittled down in recent days with overall net positions mildly bearish on the currency, positioning data shows.

Source: UK Reuters