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Haart Says Government Must Increase Buy To Let Support

The government needs to increase the support it extends to buy to let investors, according to Haart estate agents.

The government needs to begin supporting investors or it will see significant numbers of landlords exiting the buy to let market says Haart. This will lead to a sharp decline in rental property listings.

The call for further support comes amidst the government consultation for longer tenancies. Without greater incentives for buy to let landlords, many will not be prepared to offer longer tenancies. They will then leave the market. This will contribute towards the already-exiting supply and demand imbalance in the private rental sector that is beginning to push rental prices higher, adding more pressure on tenants.

Prospects for the sector without further incentives are looking worrying. The latest data from UK Finance found that gross mortgage lending rose by 7.6 per cent to £24.6 billion in July 2018 year on year. This was ahead of this month’s base rate rise.

However, activity in the buy to let sector did not grow. This is likely due to increasingly punitive tax measures levied by the government, such as reducing mortgage interest relief to the basic rate of income tax and adding a 3 per cent stamp duty surcharge to the purchase of additional homes.

12 per cent fewer landlords are purchasing properties in comparison to the same time last year.

CEO of Haart estate agents, Paul Smith, commented: ‘Mortgage lending jumped a huge 8 per cent on the year in July as existing homeowners sought to seal themselves into a lower rate ahead of the Bank of England’s interest rate hike. The buy to let sector is a fundamental part of the UK property market, and with fewer landlords, we are seeing rents rise. The government must stop penalising those who are willing to invest in the rental market and stop its needless crackdown on the sector.’

Source: Residential Landlord

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Rental supply fails to keep up with demand as landlords ‘are pushed out of the market’

Demand for rental property has hit its highest level so far this year, but supply has failed to keep up, letting agents report.

ARLA Propertymark’s July Private Rented Sector Report – based on responses from 191 members – shows that the number of new prospective tenants registered per branch increased from 71 in June to 79 in July, the highest level so far this year.

It matches the previous high reached last September.

However, the supply of available properties moved in the opposite direction to demand, falling from 191 in June to 184 last month.

There are also reports of fewer tenants experiencing rent increases, with the proportion of tenants seeing hikes falling from 35% to 31% between June and July.

David Cox, chief executive of ARLA Propertymark, said: “Buy-to-let investors are being pushed out of the market by increasing costs and continued regulatory change, and new landlords are being deterred from entering.

“Last month, an average of four landlords took their properties off the market per branch, up from three this time last year – and as supply falls, competition among tenants increases, which pushes up rent costs.

“Almost a third saw their rents rise last month, and although this figure was down from June, it’s still far too high. To put tenants back in the driving seat, we need more homes available to rent, and the only way this will be achieved is if the Government makes the market more attractive for buy-to-let investors.”

Source: Property Industry Eye

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Buy To Let Investors Encouraged To Remortgage Following Interest Rate Hike

Buy to let investors are being encouraged to remortgage following the decision from the Bank of England to raise interest rates.

The Bank of England has decided to raise interest rates by 0.25 per cent, meaning that many landlords could see their finances squeezed further. The change marks the highest interest rate rise since March 2009, with concerns posed that this could mean the Bank may begin increasing rates on a regular basis. Any landlords who are heavily geared could therefore be negatively affected by this and should look to remortgage.

Research from DJ Alexander Ltd has discovered that one in three landlords are already paying too much for their mortgage. An interest rate hike will further exacerbate this problem.

Head of financial services at DJ Alexander Ltd, Alan Kent, explained: ‘We have already seen landlords who have had the same mortgage for years and are experiencing falling yields and the likelihood of further interest rate rises will only compound this situation. If a landlord is on a lender’s standard variable rate, then it is highly likely that this will increase with each interest rate rise resulting in an erosion of the profitability of the property investment.’

He continued: ‘A decade ago the base rate was 5 per cent and lenders variable rates were typically 1-2 per cent higher, however through-out Q4 of 2008 and Q1 of 2009, there was a sharp reduction in the base rate but not a comparable reduction in rates charged to customers. It will be interesting to see whether lenders will be keener to pass on these interest rate increases in contrast to their reluctance to reduce rates ten years ago.

‘Consumers, and this includes landlords and property investors, must ensure that they shop around to get the best rate for themselves. This interest rate cut, and any subsequent ones may provide a source of competition between lenders who wish to attract new business. It is important that landlords monitor their borrowing costs closely and shift lenders and rates where possible to give themselves the greatest opportunity for an improved yield on their investment.’

Source: Residential Landlord

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Don’t hike stamp duty premium on buy-to-lets, Hammond urged

The annual round of what the chancellor should not include in his Budget – which typically precedes what he should – has started with calls to leave buy-to-let investors alone.

Two former Cabinet ministers have urged Philip Hammond not to raise investors’ tax liabilities, following reports that the Treasury will use Budget 2018 to hike their stamp duty premiums.

Sources told the Sun that putting up the 3%-15% SDLT surcharge on additional property purchases would be “sold” to the public as a measure to ease the housing crisis.

Tory policy advisers made a similar case last month, saying the party should ‘rebalance the housing market away from owning for a return and towards owning for a home.’

The advisers’ preferred means was to ratchet up curbs on mortgage relief interest, but it is another of ex-chancellor George Osborne’s creations, his 2016 levy, that is in the crosshairs.

“I understand one option being considered is a further increase in the Stamp Duty rate for buy-to-let properties,” revealed The Spectator’s political editor James Forsyth.

“This would, so the thinking goes, raise money for the Exchequer and help keep house prices down.”

John Redwood, former trade secretary, countered to the Daily Telegraph: “There is no need to increase taxes and if you carry on increasing them you’ll collect less money”.

However the subsequent comments of Lord Lilley, a former social security secretary, imply that the decision by Treasury officials may have been made already.

“The only two ways to get house prices down are to build more houses or prevent people buying them, by putting taxes on them. They’ve opted for the second one,” he said.

The comments come after contractors on social media said the ‘limited company workaround’ to the mortgage interest relief clawback could eventually be targeted with measures from HMRC, backdated to when landlords switched from individual to corporate form.

Source: Contractor

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Buy-to-let investors looking for cheaper higher yield properties

Buy-to-let investments will continue to offer attractive rates of return compared to other asset classes, but investors will increasingly search out cheaper and higher yielding properties, research commissioned by The Mortgage Lender has found.

The report, authored by the UK’s leading housing economist, Martin Ellis, also predicted that interest rates are set to rise by a quarter of a point in the next few months and that house price growth will have slowed to between two and three per cent a year by the end of 2018.

Peter Beaumont, The Mortgage Lender deputy chief executive, said: “Our special report on the buy-to-let market looks at the macro and micro economic environment for buy-to-let investors and the factors that are likely to influence landlords’ investment choices over the coming years.

“It also highlights the need for a flexible and competitive buy-to-let mortgage market to facilitate continuing investment in a sector of the housing market that has grown in significance as home ownership has declined and demand for good quality residential property has increased.”

The private rented sector has grown substantially in recent years. One in five (4.7 million) households in England now rent privately. Nearly half of 25 to 34 year olds live in the private rented sector (46%), almost double the percentage in 2006 (24%).

There has also been a considerable increase in the proportion of 35-44-year olds in the private rented sector over the past decade, rising from 11% to 29%.

Buy-to-let mortgages play a vital role in supporting housing supply in the private rented sector, with the market representing nearly 13% of new UK mortgage lending.

The market grew from 840,000 buy-to-let mortgages outstanding with a total balance of £93.2bn at the end of 2006, to 1.8 million buy-to-let mortgages with an aggregate balance of £214bn by the end of 2015; growth of 114% and 130% in the number and value of balances outstanding respectively.

In recent years, buy-to-let was typically the strongest performing sector of the mortgage market. There were annual increases in the number of buy-to-let loans to fund house purchase of 21% in 2014 and 17% in 2015.

New buy-to-let mortgages increased by nearly 200% between 2010 and 2016 with their share of all mortgages rising to 20% in 2015.

There was, however, a significant fall in the number of buy-to-let property sales following the introduction of the stamp duty charge for additional properties in April 2016.

Buy-to-let house purchase declined sharply immediately, but has remained broadly flat since then, albeit at a much lower level.

Buy-to-let house purchase activity in 2017 was more than a quarter (-27%) lower than in 2016, with buy-to-let purchases made with a mortgage averaging 6,240 a month in 2017 compared with 8,500 in 2016.

In value terms, buy-to-let house purchase lending fell by 28% in 2017, from £14.9bn in 2016 to £10.7bn. Despite this decline, the total for 2017 was still 67% higher than the annual average during the period from 2009 to 2013.

There has been a further weakening recently with the number of buy-to-let house purchase loans in the first three months of 2018 totalling 11% lower than in the same period of 2017.

In contrast to house purchase buy-to-let lending, buy-to-let remortgage activity has been very stable with the volume of lending in 2017 only 0.6% lower than in 2016. As a result, remortgages’ share of total buy-to-let mortgage lending rose from 60% in 2016 to 67% in 2017 in volume terms.

Source: Mortgage Introducer

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Think buy to let is dead, think again

As the UK government staggers from disaster to disaster in Brexit negotiations there seems to be a growing consensus that the buy to let market will suffer. Already we have seen some buy to let investors jettisoning their property assets amid concerns that demand could fall and prices/rental income follow. There is no doubt that the ongoing Brexit difficulties have created this mindset amongst some property investors but are they right? Is the buy to let market really on its knees?

TENANT DEMAND

Those who follow the housing market fairly closely in the UK will be well aware that the number of new build properties has for many years fell short of annual demand. As a consequence, the UK is literally hundreds of thousands of new build properties behind the curve and despite positive noises from the government this is not an issue which can be fixed overnight.

Starving the market of new build properties focuses the attention of buyers on the relatively small number of properties available thereby creating competition and pushing prices higher. Yes, in the short term it does look as though Brexit concerns will lead to softer prices but what about in the long term.

A GROWING POPULATION

Constant concerns that Brexit will lead to a significant reduction in the number of people moving to the UK has to a certain extent given the impression that the UK population will show very little if any growth in the short to medium term. The reality is that those looking to move to the UK from Europe will still be able to do so although the process will be the same as those moving from outside of Europe, free movement will disappear. So, as the UK population continues to grow and life expectancy increases this will place renewed pressure on the private rental sector.

BUY TO LET FINANCE

If you believe that the UK buy to let sector is under serious threat then just look at the specialist buy to let lending banks. There is growing competition amongst not only the traditional buy to let lending banks but finance platforms such as crowdfunding which are reducing costs for investors and increasing available funding. The new PRA rules on underwriting will ensure greater emphasis on affordability, especially amongst those with relatively large buy to let mortgage exposure, thereby adding a further layer of perceived security. That cannot be a bad thing for the market.

While those concerned about the short term prospects for the UK buy to let market may be happy to sell up and reduce their exposure, many experienced investors are more than happy to pick up the slack at lower levels.

ENTREPRENEURS APLENTY

While there has been a significant shift to the political left in many countries, in light of the 2008 US led economic crash, entrepreneurial spirit still lives on in the UK. Long-term income streams with potential for long-term capital growth offer a very useful backbone for many different types of investor. Even though the UK government has increased tax charges for buy to let investors they cannot keep on picking the pockets of property investors forever.

Once the smoke surrounding Brexit clears, whether or not a deal is agreed, the short, medium and long-term prospects for the UK housing market will become clearer. It is difficult to say with any great certainty what will happen in the short term but if, as expected, the UK population continues to grow, and social housing is unable to provide sufficient state funded accommodation, the private rental sector is certain to benefit.

Source: Property Forum

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Retirement Funded By Property Investments Could Be Jeopardised

Buy to let investors reliant on property to fund their retirement could face a ‘pension black hole’ as a result of increasing regulation.

Three quarters of the UK’s private landlords who invested in property solely to fund their retirement are currently considering selling their properties if additional costs levied on the sector begin to narrow their margins.

A number of changes to regulation have impacted the buy to let sector in recent years, including the phasing out of mortgage interest tax relief and increasingly tough criteria becoming placed upon portfolio landlords with four or more properties.

According to research from MakeUrMove, older landlords are disproportionately affected as they do not have sufficient time to make changes before they need to rely on their properties for a retirement income. Landlords aged over 55 were most concerned about making too small a profit on their investment.

In addition, smaller, casual landlords will be most impacted by the rising costs of managing properties. 38 per cent of this type of landlord said retirement was their biggest concern.

Managing director of MakeUrMove, Alexandra Morris, explained: ‘The problem impacts landlords with a buy to let mortgage the most severely, as these additional overheads, combined with recent changes to the private rental sector, mean smaller landlords hoping for a steady income in retirement are worrying that their properties won’t even cover their own costs.’

Eileen Cooper, a landlord with two properties, had been relying on her investments to fund her retirement. She said: ‘We planned to buy another property once the mortgages on our current rental properties are paid off, however we have now decided against this due to the new laws and regulations brought in by the Government, along with the ongoing changes to the tax system, which make it much less viable as a long-term investment. Due to the changes in law and regulation, the time required to manage the properties isn’t worth it.’

Source: Residential Landlord

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Family Tenants Favoured By Buy To Let Investors

Family tenants are the most favoured renter type by buy to let investors, according to recent research by the National Landlords Association (NLA).

It was revealed that properties rented to family tenants take up the least amount of property management time in comparison to homes let to other types of tenants.

The findings came from over 1000 responses to the NLA’s latest quarterly landlord research panel. The panel asked landlords to estimate how much time they spent on property management. This includes dealing with tenant queries and property maintenance requests, along with general business administration.

It was suggested in the study that landlords who let their properties to family tenants and young couples spend just one full working day a week, equating to eight hours, on property management. In contrast, landlords who let to those on benefits, migrant workers or landlords who have executive lets can expect to spend up to 12 hours per week.

Romans’ lettings managing director, Richard O’Neill, said: ‘Renting a home is a practical, flexible and beneficial option for thousands of families across the country. It offers a simple route for parents looking to live within a school’s catchment area or close to a support network of family and friends. Landlords should aim to appeal to this growing market by offering the type of homes families are demanding. Our evidence shows families are typically reliable, stable and long-term tenants – qualities that should make them highly desirable to landlords.’

However, this does not mean that the other groups of tenants who are more vulnerable should be discounted. In contrast, landlords simply need to prepare themselves for a heterogeneous tenant population with different groups requiring different needs.

O’Neil highlighted the following factors every landlord should consider if they still wish to let to families. The main consideration for families is location, with proximity to a good school a necessity along with access to local amenities such as parks or playgrounds. Secondly, landlords should think about the type of home a family would wish to rent, with factors such as parking and a garden important. Finally, flexibility should be prioritised, as to create a ‘family home’ tenants might wish to decorate the property and keep pets. Landlords should be open to this to attract families.

Source: Residential Landlord

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Buy-to-let investors told to widen search for yield

Buy-to-let investors may have to look to alternative regions if they want to secure a decent yield from their property.

Research by Direct Line for Business showed rental yields varied significantly depending on where investors bought.

Direct Line found that while house prices had risen 17 per cent over the past three years, rents were up just 4.7 per cent.

While the average yield achieved across the UK is 3.6 per cent, some buyers could earn as much as 7.1 per cent.

Burnley had the highest annualised rental yield in the country, according to the analysis. Average house prices in the town were £76,300 while the typical annual rent landlords could achieve was £5,388.

Making up the rest of the top three are the City of Glasgow and Belfast where yields were 6.9 per cent and 6.4 per cent respectively.

By comparison, homes in London, the south east and east of England had the poorest yields, largely because property prices were higher.

In London landlords achieve average annual rents of more than £20,000 but, with the average house price more than £480,000, the yield was 4.4 per cent.

In the east of England, where the typical property cost £289,000, the average rent was the lowest in the country at just 3.5 per cent.

Daniel Bailey, principal at Middleton Finance, said: “Most of my buy-to-let investors don’t tend to pay more than £125,000. If they go beyond that then the yield tends to not be as good.

“Purchase price is a major factor and some areas will attract a better monthly rent. I have some clients achieving yields of 7 to 10 per cent .

“There are still good yields to be achieved but it is important to speak to a broker and property tax expert to understand all of the implications.”

Direct Line said increased competition in the private rented sector was hitting yields.

Christina Dimitrov, business manager at Direct Line for Business, said: “While property prices have increased in recent years, it’s a different story for the rental markets where growth in rents in lower than wage growth.”

Source: FT Adviser

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Buy to let more profitable than two years ago

Tax relief on mortgage interest for buy to let investors is currently being phased down to the basic rate, with the changes predicted to leave some landlords struggling to earn as much from properties.

However, a sharp reduction in mortgage rates over the past couple of years means most landlords are now taking larger profits, even taking account of the erosion of tax benefits, according to Pantheon Macroeconomics.

The economists found the average two-year fixed-rate at 75% loan to value (LTV) on a buy-to-let mortgage fell to 2.37% in May, from 3.21% in May 2016.

Samuel Tombs, chief UK economist at Pantheon, said: “A buy-to-let investor refinancing a two-year fixed mortgage that they obtained in May 2016 will save £1,400 per year in interest payments, assuming that they have purchased a property of average value.

“After the tax reforms and the fall in mortgage rates, virtually all buy-to-let investors are better off.”

However, the market could take a turn if the Bank of England raises interest rates and mortgage costs increase.

Tombs added: “We do not expect the market to be hit suddenly by a wave of fire-sales by landlords this year.

“That could change as and when mortgage rates jump.”

Landlord sales could dampen house price growth

The economist noted that if only a small number of buy-to-let investors decide to put properties on the market, the balance between supply and demand could weigh on house prices – and this could be another prompt for selling.

It comes after the Royal Institution of Chartered Surveyors (RICS) last week noted a larger increase in supply versus demand, through the number of new estate agent sale instructions and new buyer enquiries.

Tombs added: “Many BTL investors purchased properties to benefit from capital appreciation, as well as to enjoy a steady income stream.

“The recent slowdown in house price growth might persuade them to liquidate their investments even though borrowing costs have fallen.”

The reduction of tax relief will most hurt landlords with high incomes and high ratios of interest payments to rental income, according to Pantheon.

Tombs predicts multi-unit investors are most likely to sell up, as their income could exceed the higher rate threshold.

Source: Your Money