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Buy-to-let property no longer a good punt, say more than half of investors

Over half of UK investors no longer see property as a good investment.

The finding comes from a survey of over 1,000 investors plus 500 high net worth individuals, and was commissioned by financial firm Rathbone Investment Management, which questioned whether the death of buy-to-let is now being witnessed.

It said that in view of recent tax changes, many investors are now re-evaluating the cost-effectiveness of property as an investment.

The richer investors were more upbeat about property. Of those high net worth individuals surveyed, a quarter owe their fortunes to property. The same proportion, 25%, currently own buy-to-let properties, but only 7% plan to increase their portfolios, and 38% view property as a poor investment.

Robert Szechenyi, investment director at Rathbones, said: “Recent changes to the tax and regulatory treatment of buy-to-let has caused investors to take a step back and assess the viability of these investments.”

“Whilst it’s understandable that property, and in particular residential property, has been a popular investment in the past, it’s now making less and less sense.

“Not only are the returns now being impacted by an increased rate of tax, but they can also prove high risk investments due to a lack of diversification.

“Property investments require a large amount of capital to be held in one single asset and landlords will often hold a number of properties within one region.

“Investors who are looking to invest in property, should make sure to assess their risk appetite, look at all alternative options and make sure this property is held within a well-diversified portfolio of investments.”

Source: Property Industry Eye

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New Homes To Flood The Market As Buy To Let Investors Sell Up

380,000 buy to let investors might be about to sell at least one investment property, bringing a potential flood of new homes to the sales market.

According to the National Landlords Association, 19 per cent of all landlords are considering selling a property. Of that number, almost half have stated that within a year they could be likely to sell a flat. Another third have said that they are likely to sell a terraced house.

Both of the aforementioned property types are typical homes of choice for first time buyers. According to the NLA, this is good news for these purchasers, although the influx of new homes on the market might reduce prices across the sector.

Significantly, a mere seven per cent of landlords who plan to sell have stated that they intend to sell to other landlords, suggesting that a large number of new homes might be leaving the sector in future.

NLA chief executive, Richard Lambert said: ‘These findings sound like positive news for potential new homeowners, but the reality is not everyone wants, or is in a position financially, to buy. In fact, if all these homes are sold as planned then it will lead to a significant fall in the supply of property available to those who choose to rent, or have no other option but to rent’

He continued, stating that the negative relationship between landlords and first time buyers is often misrepresented: ‘Everyone seems to have a gut instinct about the extent to which they feel landlords and first time buyers compete for homes in the UK, but homeownership is a highly emotive issue so the facts are often overlooked. There’s certainly no denying that competition exists, but the significant barriers to homeownership are more likely to be the high cost of a deposit or ability to access mortgage finance.’

Source: Residential Landlord

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Investors Cautious About Mitigating Regulatory Changes

Buy to let investors are planning to proceed with caution before putting in any measures to mitigate the impact of regulatory changes, according to new research from Shawbrook Bank.

Shawbrook Bank found that 49 per cent of landlords plan to wait six to twelve months before putting measures in place to prevent the impact of regulatory changes.

The Bank’s annual buy to let Barometer found that 22 per cent of landlords saw regulatory changes as possible threats. 21 per cent found interest rate movements particularly worrying, and 16 per cent were largely concerned about lending restrictions.

The regulatory change that has most affected landlords so far has been the reduction of mortgage interest tax relief for buy to let mortgages. 52 per cent of landlords stated that this had had the largest impact.

According to the landlords surveyed the extra 3 per cent stamp duty was also a significant issue, with 21 per cent feeling affected by this.

Managing director of Shawbrook Bank Commercial Mortgages, Karen Bennett, said: ‘Stricter affordability tests for portfolio landlords and interest rate rises will make it harder for some to get funding and this month will also see the next phase of reductions in tax relief for buy to let, further hitting landlords’ profits. It is encouraging to see professional landlords adapting their strategy in line with regulatory change, thereby helping to ensure the long-term sustainability of the industry.’

He continued: ‘We have seen a slight cooling as landlords evaluate their options, not rushing into purchases and holding existing property. It is important to recognise however, that buy-to-let remains a crucial component in the wider UK housing landscape, and data suggests that although investors may tread carefully throughout 2018, they retain confidence in the fundamentals of this market.’

In order to mitigate the regulatory changes some landlords were looking for ways to protect their portfolios. 33 per cent of landlords had already, or were planning to, set up a limited company. 18 per cent were planning to re-mortgage and 19 per cent are looking to sell their properties.

Senior mortgage technical manager at John Charcol, Ray Boulger, added: ‘Brexit uncertainly is really only a material factor at the top end of the London market. Mortgage lending figures demonstrate very clearly the impact of the various recent regulatory changes. In 2015 gross buy to let lending was 17.7 per cent of total mortgage lending but in 2017 had fallen sharply to only 12.8 per cent. A positive note for landlords is that the weaker demand for buy-to-let mortgages is incentivising lenders to improve criteria where they have identified there is scope to do so without compromising the quality of lending and strong lender competition is also reflected in the rates on offer’

Source: Residential Landlord

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Gearing A Priority For Buy To Let Investors

Buy to let investors are paying increasingly close attention to the gearing of their portfolio, according to Paragon’s latest PRS Trends research.

Paragon’s research, based on interviews with 203 experienced landlords, found that landlords of all sizes are looking to reshape their portfolios. The average portfolio gearing fell from 35 per cent in the final quarter of 2017 to 32 per cent in the first quarter of 2018. This figure falls significantly below the peak of 43 per cent in 2012 and marks the lowest point seen since Paragon began tracking gearing in 2001.

An effective use of gearing has been a way for many landlords to ensure that they get the best from their buy to let properties as the interest element of their mortgages as always qualified for tax relief, making paying this off less important. However, the rules enabling landlords to offset their mortgage interest against tax are being phased out. This will mean that landlords will only be able to claim back a basic tax rate reduction of 20 per cent off their bills.

Additionally, approximately a quarter of landlords (24 per cent) reported that they had increased rent in the last three months. They had also been spending an increasingly large proportion of their rental income on mortgage costs. Landlords spent up to 30 per cent of their income on mortgage costs in comparison to the 26 per cent at the end of 2017.

Managing director of mortgages at Paragon, John Heron, explained: ‘Our latest survey demonstrates how tax and regulatory changes are beginning to drive changes in landlord behaviour, with evidence of polarisation between small landlords and those with more substantial portfolios beginning to emerge. Our own experience highlights that landlords with larger portfolios need access to products that cater for landlords with more complex requirements and broader underwriting expertise, increasing the role for specialist lenders in the buy-to-let market.’

Source: Residential Landlord

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Is this the death of buy-to-let?

In one way or another, we all participate in the property market – whether that’s as renters or owners of our homes. But for two million people, the UK property market has also been an investment vehicle of tremendous wealth generation across recent years, with buy-to-let attracting £1.4 trillion in capital.

Buy-to-let has been a national obsession. In the past, it was an investment that seemed to require little in the way of privileged financial markets insight. It was simple to understand and manage, and boasted a steady (and in many cases heady) performance record – comfortably outstripping inflation and enriching those fortunate enough to participate.

Under scrutiny, the returns for many property investments have barely compensated for the hassle

That’s not to say there were never any downsides.

The hassles of managing tenants and maintaining properties have been routinely underestimated, typically to the detriment of tenants.

And though rental incomes ought to provide steady cashflows to defray ownership costs, the reality of buy-to-let has always been closer to running a business than sitting on a hands-off yielding investment.

Under scrutiny, the returns for many property investments have barely compensated for the hassle – let alone for the risks and costs of tying up so much capital in inflexible, undiversified assets.

Pressures on buy-to-let have intensified in recent years, particularly from HMRC.

A slew of changes to tax and lending rules and the prospect of tenant-focused legislation – which appears to have cross-party political support – have made direct investment more financially unattractive.

As tax returns are filled in and re-mortgage applications processed, landlords would be remiss not to consider whether the maths on their buy-to-let properties really adds up any more.

So where does this leave would-be investors?

Buy-to-let as an investment structure may be dying, but property as an asset class remains undeniably attractive.

In fact, recent data from the Office for National Statistics revealed that almost half the population think that property is the best way to save for retirement.

Sitting somewhere between cash savings and financial markets investments, bricks and mortar has proved its value and resilience.

Taking rental yields into consideration, UK-wide property market returns have only been negative in 23 quarters since 1980, and are down more than three per cent in only five quarters.

Compare that to the FTSE, which fell nine per cent between January and March of this year.

There’s simply a difference in volatility of performance and defensiveness of the asset class that makes residential property investment attractive.

Behind the sensationalist property market headlines of late, the fact remains that there’s a shortfall of somewhere between 50,000 and 100,000 houses built per year, adding to a standing deficit of more than one million, according to Yorkshire Building Society.

People will always need somewhere to live.

So how can you invest in property more flexibly and tax-efficiently, and minimise transaction and ownership costs?

Few other assets are traded as inefficiently as property is today, but technology has been slow to transform the market’s structure despite the clear market opportunity.

Options are beginning to appear, such as peer-to-peer or equity crowdfunding platforms that specialise in – and help finance – property.

There are now opportunities to lend to property developers and buy-to-let landlords, albeit some would question how close such a debt product is to property investment at all.

For true investment in bricks and mortar, there are a host of property crowdfunding sites offering fractional ownership of individual properties, as well as platforms offering tax-efficient investments in portfolios of residential property around the UK.

Whatever tomorrow’s property investors choose, they should be careful not to throw out the “common-sense” principles that abandoned the buy-to-let market a long time ago.

These principles include diversification, using Isa and Sipp allowances where possible, and a recognition that buy-to-let investors would rather not be called about a broken boiler at 3am.

Source: City A.M.

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UK buy-to-let investor count hits 2.5 million

The number of UK buy-to-let investors in the market reached 2.5 million in the latest tax year, an increase of 5% year-on-year, research by London estate agent ludlowthompson has found.

The number of investors in the market increased by 27% in the past five years, up from 1.97 million in 2011.

Stephen Ludlow, chairman at ludlowthompson, said: “Rising numbers of landlords shows the enduring appeal of buy-to-let, particularly in London.

“The long-term picture for the buy-to-let market remains strong. As a ‘London-leaning’ Brexit looks more likely, a final deal will focus on strengthening the appeal of the capital as a go-to destination for overseas professionals, graduates and students alike.

“Our own figures underline the strength of London’s attraction with a significant increase in rental applicant numbers since the start of 2018. In addition, job creation in the capital remains healthy, its social scene is world-class and new, better transport links continue to come online.”

Source: Mortgage Introducer

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Planning Required For Budget Reforms On Buy To Let Investments

Buy to let property investors have been warned that they must plan for the budget reforms coming into play regarding mortgage tax relief.

The budget reforms announced in 2015 phase out tax relief on mortgage payments in three stages, the first of which came into force in April 2017, meaning landlords will only be able to claim back 75 per cent of finance costs when they file their returns ahead of January 2019. By April 2020, landlords will no longer be able to deduct any of their mortgage expenses from their rental income when calculating their tax obligations.

Research carried out for Kent Reliance, by BDRC Continental, suggests that one in five (19 per cent) landlords have already moved properties into a limited company, or transferred ownership to a spouse, to mitigate higher tax bills, while a further one in six (13 per cent) plan to do so in the future.

However, the research also shows that 15 per cent of landlords still don’t fully understand the implications of taking this action and could be in for a rude awakening when they file taxes for the year 2017/18.

The research also found that 53 per cent of landlords do not think they would benefit from changing to a limited company or transferring ownership. However, this varied greatly between smaller and larger scale landlords, with 58 per cent of those investors holding up to five properties not seeing a benefit, compared to just 27 per cent for those with more than 20 properties in their portfolio.

Adrian Moloney, Sales and Marketing Director at OneSavings Bank who own Kent Reliance, said: ‘Landlords have had nearly three years to understand and prepare for the changes to the tax treatment of mortgage interest. Most have risen to the challenge, but a few might have quite the shock when they come to file this year’s tax return.

‘As the tax year draws to a close, brokers can use this opportunity to engage with their clients, make sure they’re aware of the potential impact on their finances. Many landlords have sought to move to a limited company structure or transferred ownership to a spouse but it’s not a one-size-fits-all solution so it’s vital that landlords affected seek professional tax advice.’

Source: Residential Landlord