Buy-to-let news to Friday, October 13, 2017

Buy-to-let news to Friday, October 13, 2017

Asking rents fell 0.2% in Q3

Despite an historical trend for increased demand in the third quarter of the year, asking rent prices fell 0.2%, a new report has revealed.

Asking rents are the published rental amount for a property, which may differ from the market average rent for an area.

The drop in rental prices has been largely attributed to a 2.3% price drop in the South East, where rents reduced annually for the first time over the past six years, at -1.9%, to an average of £789 per calendar month, the latest Rightmove Rental Trends Tracker reported.

Sam Mitchell, head of lettings at Rightmove, said:

"Since last April’s second home stamp duty changes came in the supply of new rental properties in the South East has been steadily increasing, up 5.5% on this time last year.

“Agents are reporting that some investors looking for better yields are shifting their focus from London to instead buy in the surrounding counties of Surrey, Berkshire and Buckinghamshire.

“The increase in stock in the South East has led to softening in rents in some areas where there is less competition among tenants, but they are holding up in key commuter areas where tenant demand is strong."

The data also revealed that in London, asking rents are at their lowest at this time of year, since 2013, while it is taking 8% longer for landlords or letting agents to find tenants outside of London and 5% longer in the capital than for the same period of last year.

Mitchell added: “Last year the supply of rental properties in London increased as much as 26% when investors rushed to buy ahead of the stamp duty changes, leading to cooling rents over the last 12 months in the capital.

“Now it appears that rental investors are starting to move their money away from London with a number of agents across London saying that investors are being replaced by first-time buyers. This is likely to constrict rental supply in the capital and lead to rents increasing again, so now would be a good time for prospective tenants to act, before this happens."

Stamp duty changes in Wales set to benefit first time buyers

">Property tax in Wales is set to undergo changes in 2018, with the introduction of a new Land Transaction Tax (LTT), which will replace the current Stamp Duty system.

The new system will leave 9 out of 10 homebuyers financially better off, the Welsh Government has announced.

The changes however will not affect the existing Stamp Duty legislation, as it is applied to those buying second homes or new property as part of an existing portfolio, so landlords will not benefit from this change.

From 1 April 2018, the new tax system will replace Stamp Duty Land Tax, with the new rates for LTT confirming that Wales will have the highest starting threshold for the property tax in the UK, with no tax payable on property up to £150,000.

New residential LTT rates from April 2018 and current Stamp Duty Land Tax rates and thresholds

Stamp Duty Land Tax Land Transaction Tax 
Threshold Rate Threshold Rate
Up to £125,000 Zero Up to £150,000 Zero
£125,001-£250,000 2% £150,000-£250,000 2.5%
£250,001-£925,000 5% £250,000-£400,000 5%
£925,001-£1.5 million 10% £400,000-£750,000 7.5%
Above £1.5 million 12% £750,000-£1.5 million 10%
Above £1.5 million 12%

According to the Welsh Government, the threshold increase will mean that most first-time buyers are likely to pay no tax at all, while those purchasing properties up to £400,000 will pay the same or less tax than under Stamp Duty Land Tax.

Higher value properties will attract higher rates of tax. For example, somebody purchasing a £400,001 property in Wales would currently pay 5% Stamp Duty, but this will rise to 7.5% next April under the new LTT rules – an extra £10,000.

Rent rises 2.1% across the UK in September

New data has revealed that rents rose around the UK in September, with the average cost of renting a property increasing by 2.1%.

The latest information from HomeLet, showed that tenants in London saw a 1.9% increase, where the average monthly rent is now £1,593.

The company’s index indicated that the average monthly rent in the UK is now £927.

Northern Ireland experienced the greatest annual rental price growth at 4.3%, followed by the West Midlands (3.9%) and the East Midlands (3.7%).

Only the South East saw a negative growth rate for rent during the period.

11 of the 12 regions reported an increase in new listings ‘to let’ as well as homes ‘let’, according to HomeLet’s rental index.

Andrew Turner, chief executive at Commercial Trust Limited, commented:

“From the outset of the Governments various proposals for buy-to-let, it was clear for those of us in the industry that, burdened with additional costs, landlords would be faced with no other logical solution than to pass on these expenses to tenants.

“For buy-to-let landlords, margins have become much tighter as a consequence of the loss of mortgage interest tax relief, the change to the ‘wear and tear’ allowance and the introduction of a stamp duty levy. In order to make their investment work, some will inevitably have to push up the cost of rent.

“It should also be noted that demand for rental homes continues to be greater than supply and that too might be a factor in rising rent.”

Signs of recovery for buy-to-let in prime central London

A new report shows a decline of just 0.1% in rental values in prime central London, in the third quarter of the year, hinting at a recovery in the buy-to-let market in the capital.

This change represented the smallest quarterly decline in almost two years. Knight Frank have suggested that a drop in the volume of residential letting stock in the heart of London is beginning to place upward pressure on rent prices, which have fallen 3% from the same period in 2016.

In fact, the report highlighted a sharp fall in the number of rental properties available between January and August, compared to the two previous years. In 2017, the volume rose just 2.2%, whilst it was 33% between 2015 and 2016.

It is felt that the higher supply in prime central London was the result of a sluggish market and pricing uncertainty in the sales market, with the Government changes to buy-to-let, in particular the tax implications, seeing more second homeowners electing to let properties rather than sell them.

However, demand for rental properties continues to increase and the availability of private rental homes is not keeping pace, resulting in rental asking prices starting to move upwards.

“The imbalance between new levels of supply and demand suggests the market balance is likely to tip back in the favour of landlords after a period when tenants have benefited from higher supply levels and falling rental values,” said Tom Bill, head of London residential research.

Andrew Turner, chief executive at Commercial Trust Limited, said:

“It appears that rents in prime central London are starting to level off now, with many tenants having moved to cheaper, commutable regions in recent times. This may be a new normal or we could see future increases, which would also offer encouragement for landlords.

“The sheer volume of employment opportunities in the capital means that there will always be plenty of demand for property to rent and this is good news for buy-to-let landlords.

“With the amount of available rental homes not keeping up to pace with the rate of demand, the prospects look good for would-be investors who choose London as a location to invest in buy-to-let.”

Clarity sought over new energy efficiency standards

Owners of listed and heritage buildings are seeking greater clarification from the Government, ahead of the deadline for landlords to meet new energy efficiency standards next April.

Buy-to-let landlords will be unable to let a property to a new tenant from that date, unless the home in question has an energy performance certificate (EPC) rating of E or better. The rules will apply to all tenancies from April 2020.

However, the Countryside Landowners Association (CLA) has declared that the regulations are impossible for old homes and is seeking greater clarification as it says many buy-to-let owners simply don’t understand whether the new rules apply to them and if so, how they can comply.

The CLA has a history of engaging with Ministers to address what it sees as fundamental flaws in regulation, which ambiguously exempt listed buildings from needing an EPC while at the same time requires an EPC to demonstrate that the installation of recommended energy efficiency measures would unacceptably alter the character or appearance of the building.

The CLA insists that all listed buildings to be exempt from EPC requirements. Instead property owners should be encouraged to achieve energy efficiency through means that are more appropriate to the building type and construction.

After more than two years of delay, new guidance published by the Department for Business, Energy and Industrial Strategy simply advises owners of heritage property to make their own assessment of whether they require an EPC, or to seek advice from Trading Standards.

“There are hundreds of thousands of concerned owners of listed buildings who face continuing ambiguity. Having promised guidance for more than a year, it has finally arrived and fails to give a clear message. This affects heritage in both town and country,” stated CLA president Ross Murray.

“The policy is fundamentally flawed due to an error made when the Government transposed the Energy Performance of Building Directive into UK law. Rather than admitting this and committing to doing something about it, the Government is essentially just passing the problem on to thousands of property owners,’ he pointed out.

“The result is endless confusion and potentially costly and unnecessary bills. Worse still, potential damage to good heritage buildings across the countryside as well as in towns and cities. This is a national issue which needs sorting,” he added.

Portfolio landlords downsizing according to new report

A new report has suggested that significant Government changes to the buy-to-let industry are resulting in more landlords with property portfolios looking to reduce the number of homes that they own.

Over the past couple of years, buy-to-let landlords have had to cope with the loss of mortgage interest tax relief, the ‘wear and tear’ allowance and the introduction of stamp duty levy on second homes.

Additionally, for many there have been added costs to ensure properties meet new Minimum Energy Efficiency Standards before April 2018, while new Prudential Regulatory Authority rules have impacted on lending.

As a consequence of these changes, some investors are looking to sell some of their property portfolio and look at alternative sources of investment, says Irwin Mitchell Private Wealth.

However, the firm’s report outlined that selling properties that have increased in value, carries the risk of attracting Capital Gains Tax (CGT).

“It’s understandable that landlords who have been hit with some difficult changes are now thinking of exiting the buy to let market in order to invest elsewhere. We’ve certainly seen an increase in enquires from landlords worried about the future market,” said Jeremy Raj, partner and head of London Residential Property at Irwin Mitchell.

“However, the CGT liability that will crystallise on each property sale must be factored in when weighing up whether it is best for landlords to divest of their property portfolio. Any restructuring of a portfolio should factor in the overall tax implications and a comparison of the costs of alternative investments, for which legal advice should be taken,” he explained.

Andrew Turner, chief executive at Commercial Trust Limited, commented:

“Those buy-to-let landlords holding a portfolio of properties are effectively running businesses. It is vital that they seek professional advice rather than selling property as a knee-jerk reaction, to ensure that any disposal is the right course of action for their circumstances.

“Whilst the Government’s changes have certainly had an impact on many landlords’ finances, demand for rental property remains high and the returns, whilst not guaranteed, can still be impressive and are perhaps less vulnerable to political uncertainty.”

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.