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Younger landlords more pessimistic about Buy To Let, despite opportunities

UK landlords are divided along generational lines over the future of the buy-to-let sector and whether to stay the course or sellup, new research suggests.

Overall, some 56 per cent want to keep or buy more rental properties, but 44 per cent are looking to sell, according to data from investment firm Octopus Choice.

Millennial landlords are more inclined to sell than stay, with 65 per cent planning to sell one or more of their properties. This compares to 29 per cent of those aged 55 and over. Younger landlords are also more likely to admit that managing a buy to let has become a hassle with 81 per cent doing so compared to 39 per cent for investors over 55.

The biggest annoyance cited by millennials is dealing with onerous tax returns, while older generations blame high one-off costs.

Some 87 per cent of millennials admitted that they underestimated the costs involved, including repairs and upkeep, insurance and initial legal and conveyancing fees, compared to just a third for those over 55.

Among those looking to exit the market, some 24 per cent blame falling yields while 23 per cent say it is due to tax changes and 19 per cent are put off by cooling house prices.

Some 60 per cent say that property management had become a burden and 61 per cent had underestimated the costs involved.

Sam Handfield-Jones, head of Octopus Choice, said: “The hassle and cost of buy-to-let is a source of growing frustration, and some landlords may find that their once reliable day to day income is becoming harder and harder to come by.”

But this isn’t the case across all parts of the market, with money still to be made from the right property in the right location, he pointed out.

He added that London landlords face the toughest choice, with falling yields and slowing house price growth set to reduce profits.

An analysis by the firm shows that typical buy to let properties in London cost landlords over £1,250 per annum for the first five years and an average London house worth £475,000 would have to be sold for £590,000 eight years later, just to break even, even taking into account the income over that eight year period.

While London hotspots can still be found, such as Tower Hamlets, Barnets and Hackney, three quarters of landlords in the capital think investing in buy-to-let will be less worthwhile in five years time, more than any other area.

In Scotland and the East Midlands, it’s a different story with Scottish landlords enjoying average annual returns of 8.8 per cent on their investment over an eight year period, while those in the East Midlands only return 8.2 per cent.

Handfield-Jones added: ” Against this backdrop, its not surprising that some investors are seeking alternative ways to indirectly invest in the property market.”

“For those looking to leave, there are growing numbers of ways to keep one foot in the door”

Richard Truman, Head of Operations at Simple Landlords Insurance added ” Our own research into the ’emerging landlord’ sees landlords in general getting younger. Perhaps what were seeing here is the difference between the small, accidental landlords, and the larger professional landlords. And it;’s a gap thats widening.

Those getting into property investment to make a quick hassle-free buck, and who haven’t done the due diligence, research and number crunching , are going to find things tough in today’s market.

Those investing for the long term, clear on their strategy and goals, looking to grow, and savvy about the market challenges and opportunities- those are the landlords winning at property, and confident about the future.”

Source: Simple Landlords Insurance

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This is the best UK city to be a landlord, new research finds

If you’re considering buying property to rent it out for profit, it’s important to be aware of several factors that will affect how worthwhile the venture will be.

New research from GoCompare has revealed the best places to purchase property for buy-to-let across the UK, determined by comparing average property price and rental yields, the population under the age of 35 in the area, number of properties available, number of letting/maintenance agencies, number of new housing developments, properties currently available for rent and rental price growth.

The study showed Manchester as the best place in the UK for buy-to-let, with the highest average yield in the country at 5.55 per cent. Gaining the most profit is the prime concern for buy-to-let landlords and this northern city is the top location to have higher profits long term. Manchester has also seen the biggest rental price growth in the country with an increase of 5.76 per cent.

house-shaped key

Belfast is the worst city in the UK for renting property out, according to the research. Even though the average property price is one of the lowest in the country, average yield is low and there has only been a 2.19 per cent increase in rental prices over the last five years.

Find out the 31 best places for being a buy-to-let landlord in the infographic below…

GoCompare - Best City To Be A Landlord
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Rental property supply hits three-month low as landlords quit the market

The gap between supply and demand for rental properties widened in January with more prospective tenants than stock coming onto the market.

ARLA Propertymark members reported 70 prospective tenants per branch in January, compared to just 59 in December, but supply dropped from 200 to 184 over the same period.

The last time supply reached a level this low was October 2017, when it stood at 182.

The research, based on responses from 361 members, showed 19% of tenants experienced rent hikes in January, compared with 16% in December, but this is down from 23% in the same month of 2017.

David Cox, chief executive of ARLA Propertymark, said: “This month’s results indicate that renters are in for a rough ride in 2018.

“Housing stock is falling as rising taxes continue to force established landlords out of the market and deter entry into the sector – and the volume of renters is increasing as the cost of buying a home is moving further out of reach for many.

“The fact that one in five tenants are experiencing rent increases is just another blow. Ultimately, until the prospect of investing in the buy-to-let market is more attractive for prospective landlords, and stock subsequently increases, tenants will continue to feel the burn.”

The rising rents are reflected in data from Your Move.

The agent’s England & Wales Rental Tracker for February shows annual growth for rents increased from 2.3% in December to 2.5% in January.

The average rent in England and Wales was £829, with the north west and east midlands growing fastest, up 2.9% annually to £636 and £652 a month respectively.

London remained the most expensive part of the country to rent a property with rents at £1,276 a month on average, but this is down 0.8% annually.

The biggest percentage fall was in the north east, where rents declined by 2% in the 12 months to January to £534 per month. It remains the cheapest place to rent in the UK

Martyn Alderton, national lettings director at Your Move, said: “The new year has started in a positive fashion for the rental market in England and Wales.

“With more tenants seeing renting as a long-term option, landlords, with their letting agent’s support, should identify features to encourage longer tenancies.

“For example, our recent tenant survey has found that more than a quarter of tenants would pay on average £24 more a month to live with their pets.

“Tenants are also prepared to pay more for communal living extras, such as a shared garden, childcare facilities or a gym.”

Source: Property Industry Eye

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High yields still await savvy landlords

Landlords who let out property on a room-by-room basis last year enjoyed yields of 8.9 per cent on average, research from specialist buy-to-let mortgage broker Mortgages for Business shows .

This compares to a much lower, though still healthy, 5.6 per cent yield on ‘vanilla’ buy-to-lets where the whole property is let on one tenancy agreement.

Profit margins in the buy-to-let sector remain significant, and the firm attributes this  to landlords buying lower cost properties and renting them out for more.

The research found that the average value of a buy-to-let property in 2017 was £305,283 – a 19 per cent decrease on the average in 2016 when it was £375,409.

Jeni Browne, of Mortgages for Business, said: “These results suggest that landlords are seeking lower value properties and, anecdotally, we hear that they have been looking further north for their acquisitions where prices are cheaper.

“The benefits of this strategy include less stamp duty, future capital growth, and scope for rental increases which thus allow for slightly higher yields.”

The findings tally with separate research out last week revealing Nottingham and Liverpool as the best cities in the UK in which to be a landlord.

The Mortgages for Business research also showed the rising popularity of purchasing buy-to-lets through a limited company.

According to the firm, limited companies accounted for 49 per cent of all buy-to-let mortgage completions in the final three months of last year, compared to 31 per cent in Q4 2016.

Houses in multiple occupation – or HMOs – have become an increasingly popular option for landlords on the hunt for better returns after tax changes began to push up their costs.

Ms Browne said: “The attractiveness of HMOs as a buy-to-let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios.

“With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop.

“Although, I suspect that the granting of fewer new HMO licences is also having an impact.

“Savvy landlords like to have a good mix of properties. They like the consistency of vanilla buy-to-lets and the higher returns of more complex property types.

“Although lower than previously, 8.9 per cent is still an excellent return for HMOs, not only when compared to vanilla buy-to-lets but also other, non-property assets.”

Source: Simple Landlords Insurance

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UK landlords will claim £16.7bn back despite government tax changes

UK buy-to-let landlords will still benefit from £16.7bn worth of tax relief after the government’s changes to the system are fully implemented by 2020, analysis by London estate agent ludlowthompson shows.

The tax relief allows buy-to-let property landlords to offset against their rental income expenses like mortgage interest and other costs including property repairs, maintenance and renewals, legal costs, management and professional fees; and rates, insurance and ground rents.

Stephen Ludlow, chairman at ludlowthompson, said: “Despite tightening, buy-to-let tax breaks are still very valuable, highlighting that rental property remains a highly attractive investment vehicle.

“Those tax breaks are essential to ensure that landlords continue to invest in maintaining their properties. If the tax breaks are reduced further then landlords will cut their investment in the properties they own – reducing the standard of UK rental accommodation.”

The Treasury said it expects the amount of taxes it collects from landlords to rise by£840m a year by 2020-21 after its cuts in tax reliefs on interest payments and property maintenance.

Government data showed landlords claimed £17.5bn in property expenses in the last year.

Landlords claimed over £7bn in tax relief on mortgage interest and other financial costs, while £3.7bn was claimed for property repairs and maintenance.

After planned changes to tax relief are fully implemented, landlords will still be able to claim approximately £6.4bn on interest rate costs alone.

Ludlow added: “Labour mobility continues to be central to economic strength. However, if cities like London are to remain a magnet for home-grown and international talent, sustaining a vibrant, high quality rental market is essential.

“To do that, the system has to work well for both tenants and landlords.”

Source: Mortgage Introducer