Buy-to-let news to Friday, September 22nd September, 2017.

Plastic houses sitting on pound coins

Rents rise 2.4% in August

The resilience of buy-to-let investment has been underlined once again as new data shows that average rents rose 2.4% year-on-year in August.

The latest figures from the HomeLet Rental Index showed that the average cost of a new tenancy in August reached £939 per calendar month. The same month in 2016 saw an average of £916.

11 of the 12 regions surveyed showed growth, the South West saw the biggest rise in rents year-on-year, with an increase of 3.9%, followed by Northern Ireland at 3.7%.

The South East was the only region to see a decline from August to August, with annual rents dropping 0.2%.

Unsurprisingly, London continued to see the highest rents in the UK, with an average of £1,609 per calendar month, the first time this has exceeded £1,600 a month.

Martin Totty, chief executive of Barbon Insurance Group, HomeLet’s parent company, said:

“Whilst we’ve often observed a seasonal uplift in average rents at this time of year, there’s evidence of a trend now emerging which points to a reversal of the declines seen over the early part of this year. This will be welcome relief to Landlords who have been battered by the perfect storm of tax changes and post-Brexit uncertainties. Whether the trend continues or represents only temporary relief from the headwinds faced by property owners, the remaining months of 2017 should provide the answer.”

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

This latest data is good news for buy-to-let landlords and underlines how rental income can withstand challenging times.

“Certainly the past 18 months have been just that for investors in rental properties; the Government has introduced a number of measures with have impacted landlord returns, including the 3% stamp duty surcharge and the phasing out of mortgage interest tax relief.

“Whether the increases in rent that we have seen in August are just a reaction to these taxes, or a reflection on demand outstripping supply and pushing prices up, remains to be seen.

“However, the bottom line with investments is always the return and if buy-to-let continues to yield strong return on investment, this will help to strengthen the market.

Buy-to-let complexity offers broker opportunity

Man smiling with wife looking onAmid concerns over the confusion created by the new PRA rules, an industry expert has suggested that the changes represent a golden opportunity for specialist brokers to showcase their talents.

Jeff Knight, marketing director at Foundation Home Loans said:

With less than a month until the changes are implemented, concerns are increasing about the impact on landlords, particularly those just within the classification of portfolio landlords. A lot of this is fear of the unknown: not knowing exactly what hoops will have to be jumped through to secure the required lending.

“It will certainly make the process more complex and time consuming but it is important not to get bogged down in the negative. I see it as good news for brokers because their skills will be in far greater demand. If we removed the complexity, lenders would all look the same, and what use would that be?

“There will be a teething period as landlords get to grip with the different approaches but the most important thing is communication. What will be an absolute requirement to get over the line and what would simply help? If lenders are to maintain their relationships with brokers, helping to clarify these finer details will enable a far easier conversation between adviser and client.

Knight’s comments come as the second phase of PRA changes approach their September 30th deadline, by which time lenders will have to change the way they underwrite applications from buy-to-let landlords who own three or more properties.

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

Where an investor has a number of properties, the full picture of their financial situation becomes more complex, but as a strongly service-led organisation we always seek to take the greatest of care to set up every application we make for success.

“For all broker firms, this will require an investment of extra time, consideration and certainly paperwork. However, there has arguably never been a better time for broker firms to demonstrate their expertise and illustrate exactly why landlords should talk to specialists.

“At Commercial Trust, keeping on top of which lenders are doing what, particularly when we work with over 40 different organisations, may not be straightforward, but it is part of the job and will soon become business as usual.

Nationwide launches private rental initiative

Houses of ParliamentIn an environment of change and confusion for many private rental landlords, Nationwide has announced a new initiative to help support the sector.

The launch of the Nationwide Partnership Board, which will be backed by the National Landlords Association (NLA), the Association of Residential Letting Agents (ARLA), Shelter, Countrywide and The Nationwide Foundation, is aimed at monitoring the performance and development of the buy-to-let sector and will meet to discuss topics of concern and to offer policy suggestions to the Government. It meets for the first time later this month.

The decision to form an alliance to meet the industry’s issues comes following a YouGov survey commissioned by Nationwide’s buy-to-let arm, The Mortgage Works. The survey found that, whilst many landlords have protected their tenants from the financial impacts of recent government changes by not increasing rents, this is expected to change. 44% of 1,000 landlords surveyed are now considering rent increases, with 10% intending to reduce the amount they spend on property maintenance.

The survey also reflected a lack of awareness of Government changes, 36% of landlords surveyed were not aware that mortgage tax relief is being phased out.

Joe Garner, Chief Executive of Nationwide Building Society, said,

Being able to find a decent affordable home is one of the most pressing issues many people face today. Landlords play a vital role in providing homes and choice, where they might not otherwise exist.

“Our research suggests most want to manage their property well and look after their tenants. However, because letting one or two properties is often not a landlord’s full-time job, many are left struggling to keep up with the ever-growing list of responsibilities, as well as the personal financial impact the recent changes may bring.

"It’s a tough ask to expect small landlords or their tenants to face these challenges alone – we must work together as an industry to better support and inform those providing housing and their tenants.

"With a Draft Bill on letting agent fees already in progress, and greater powers for local councils beginning to take effect, it is clear that reappraising the private rental sector is already firmly on the Government’s agenda and so we look forward to working with the Housing Minister to help influence a future that works for all. By coming together we can help deliver somewhere decent for everyone to call home.

Andrew Turner, chief executive at Commercial Trust, commented:

The buy-to-let market is going through unprecedented change at the moment and for many landlords it is difficult to keep up to date with what is happening and to understand how changes will affect them.

“At a time when there is enormous and sustained demand for rental properties, the government’s actions have acted as a disincentive to many investors, but the financial impact is also now starting to be passed on to tenants, making affordability of rental properties a concern.

“I warmly welcome any initiative that seeks to achieve more informed decision making regarding the private rental sector. Of late, the government has run roughshod over the PRS for political gain and to fill HMRC coffers. If they had had a better picture of the true outcome of their actions, tenants would not now be subject to the sort of rent rises that will be necessary for landlords to run their businesses profitably.

“I look forward to seeing what the Nationwide Partnership Board can achieve and will be monitoring the outcome of the first meeting with a great deal of interest.

Further calls for stamp duty reform

Old terraced houses with blue and green front doorsThe anti-stamp duty argument continues to gather momentum ahead of November’s Budget, but rather than scrapping the tax altogether, some are now calling for stamp duty to be applied to sellers, rather than buyers.

The Association of Accounting Technicians (AAT) has suggested that by switching the tax to the seller, the Treasury would still raise £11 billion each year, but that the onus would no longer be on first time buyers.

Phil Hall, AAT head of public affairs and public policy, stated:

“It’s widely accepted that stamp duty adds a burden to any home owners seeking to move, especially first time buyers, because they must pay the tax as an immediate upfront cost together with finding a deposit and paying surveyors and solicitors fees and so on.

“This stunts mobility, impacting on employment and productivity as well as reducing the supply of new homes, which adds to the affordability crisis. Switching liability to the seller would be a relatively simple way of solving these problems,” he explained.

The AAT has already discussed the idea of switching stamp duty tax to sellers with the Chancellor in its Budget submission, outlining how this will help to reduce upfront costs, enabling people to get on the property ladder, whilst other people will be able to move further up, by selling smaller properties for first time buyers.

Under the proposals, those selling smaller properties to move up the ladder, would be paying duty on the lower priced house that they are selling, not the higher price one they are buying therefore improving buyers ability to pay.

Andrew Turner, chief executive at Commercial Trust, said:

“The introduction of the 3% stamp duty surcharge has cost buy-to-let landlords thousands of pounds since April 2016.

“This has been most keenly felt in areas like London and the South East, where property prices are typically higher. We have consequently seen a slowing down in house purchases.

“By switching the onus to those selling properties, there will inevitably be greater affordability for those who want to purchase their own homes as first time buyers.

“Meanwhile, those looking to move up the property ladder and into bigger properties, will be able to do so, paying stamp duty on their smaller former homes, which will typically be less expensive.

“These suggestions are a welcome idea that would certainly help to inject some impetus into what has been a sluggish market for some time now. Of course we will have to wait until November to see whether the Chancellor takes on board these recommendations in his Budget.”

Landlords warned of potential for CGT liabilities

Coins and cashRecent tax changes have resulted in some buy-to-let landlords deciding to sell their properties. However, in so doing and particularly where landlords own multiple properties, the capital gains tax (CGT) liabilities are proving significant, experts are warning.

The introduction of stamp duty on second homes and the phasing out of mortgage interest tax relief has pushed many private rental landlords into selling-up and leaving the industry.

Under the new Prudential Regulation Authority rules, which must be fully rolled out by September 30th, the affordability of future borrowing for landlords with more than 3 properties will be assessed based on their whole portfolio.

This includes properties that are performing less well, which as a result, could influence their ability to take on further borrowing.

In instances where landlords are looking to dispose of properties not returning the best yields, CGT becomes payable.

CGT is assessed on the profits made by an individual selling an asset that has increased in value – and it is relevant not only to UK-based landlords, but also those based overseas, with UK property to sell.

Georgina Partridge, head of marketing and communications at London-based Plutus Wealth Management, said:

“It is certainly a conversation we have had with investors who are looking to go down the buy-to-let route.

"It seems a very romantic idea to hold a property as an investment, but you need to take into account taxation on disposal.

“There is no way to avoid capital gains tax. People often ask a question about putting properties into a company to avoid it, but it is not - because you have to sell the property to the company.

“If you are selling to a company, then the company will have to pay stamp duty again on that property. I don’t think non-professional investors consider that.”

Andrew Turner, chief executive at Commercial Trust, commented:

“It is vital for investors to take on board all relevant information, prior to changing an investment strategy, as clearly in this instance some landlords may be missing costs they do not foresee.

“Where an individual has any level of uncertainty over their tax situation, the best possible course of action is to seek professional tax advice and this is the recommendation we make to our clients.

“For our part, Commercial Trust works with landlords to find buy-to-let mortgage solutions that will achieve a profitable income. When it comes to the added complication of the new rules around portfolios, the help of a specialist such as ourselves can be absolutely invaluable.”

Could 'pension pot' landlords boost buy-to-let?

Man sitting reading a newspaperNew research suggests that there could be a boom in buy-to-let property investment over the coming years, as those approaching retirement age look to safeguard their future income through bricks and mortar.

A new generation of so-called ‘pension pot’ landlords could swell the private rental sector by as many as 1.3 million new investors if the details of a survey from Retirement Advantage are followed through.

The survey of 1,005 people aged 50 over older, who are approaching retirement age and have some form of private pension savings, indicated that 13% want to invest in property once they reach retirement age, with 50% looking to receive a regular income from rental property investment and 44% aiming to boost their retirement income.

With global political instability affecting stock markets around the world, 36% of people said they believed that property was a safer investment than stocks and shares, while 35% felt it offered better returns than a pension or bank.

22% of those questioned have already enjoyed success from private rental investment.

However, whilst the survey delivered much optimism, those looking to become buy-to-let landlords do so at a time of great change for the industry, which has seen financial returns hit by a number of government measures such as the reduction of mortgage interest tax relief and the introduction of a 3% stamp duty surcharge on investment properties.

Commenting on the survey, Andrew Turner, chief executive at Commercial Trust Limited, said:

“It is great to see people recognising the potential of buy-to-let investment and if the volume of would-be investors from this survey matches their intentions, this will give the industry a significant boost.

“At the moment there is huge demand for more private sector landlords in order to meet the demands of a growing number of tenants.

“Irrespective of recent changes, buy-to-let still offers an attractive rate of return compared to other forms of investment, but there are no guarantees for the future.

“Buy-to-let investment is essentially a form of business and should be treated as such. In all cases, I would urge prospective landlords to seek appropriate specialist financial, tax and legal advice to fully understand both the obligations and financial implications of being a landlord.

“At Commercial Trust Limited our specialism is finding buy-to-let solutions for our clients. We welcome the opportunity to help anyone who is has made an informed decision to invest in property. As a business customer service comes above all else, so if buy-to-let is a new venture you can expect to receive the very best of help and support from enquiry, right through to completion of a mortgage and beyond.”

New guidance aims to raise standards for Scottish landlords

Traditional terraced streetThe Scottish Government has released new guidance on the registration and regulation of private rental landlords, aimed at raising standards in what is a growing market.

The aim of this initiative is to better support local authorities involved more directly in the regulation of the landlord registration system, which requires councils to maintain a register of approved private landlords, but also to ensure that those listed are “fit and proper”.

The guidance provides examples of best practices, where local authorities have used their landlord registration powers to improve the local industry.

These include highlighting better communication with registered landlords and work with local police forces and other agencies to take action against landlords who fail to meet legal requirements.

Housing Minister Kevin Stewart indicated that approximately 760,000 people in Scotland live in privately rented homes, a figure which has doubled in the past decade.

“I want to see a sector that is characterised by more good quality homes, being managed professionally and where tenants feel secure. Where there are poor standards, local authorities should be taking tough, targeted enforcement to ensure every landlord is fit for purpose,” Stewart stated.

“I would like to encourage all local authorities to use this guidance and examples of best practice to raise standards in the sector and ensure greater consistency in enforcement across Scotland,” he added.

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

“Whilst the vast majority of landlords are good, law-abiding citizens, maintaining good living standards for tenants, any guidance on improving property standards can only be a good thing.

“The Scottish rental market continues to flourish and we have seen evidence of this recently with data from Your Move showing that landlords in Scotland are achieving an average annual yield of 4.9%, compared to 4.4% in England and Wales, as rents continue to rise.

“In a growing market, there is plenty of potential for investors to enjoy good returns from investing in buy-to-let, but it is absolutely imperative that new landlords adopt the right approach. Any guidance that can help to make this process as simple as possible should be applauded.”

More private renters than homeowners by 2025?

Yound couple, happy outside new homeA senior economist has predicted that there will be more private renters than homeowners in the UK by 2025, as affordability and stricter lending criteria will put home ownership further beyond the reach of many people.

At the moment there are less people taking out mortgages on account of the fact that wage growth has not kept pace with house price rises, while demand for housing continues to outstrip the volume of houses built each year.

At the same time, lending criteria has become much stricter since the economic crisis and many people are finding it much harder to qualify for mortgage lending, resulting in more people pushed into renting property.

Sebastian Burnside at NatWest said:

“We think it’s a fairly comfortable bet that by 2025 we will have more households renting privately than owning their homes with a mortgage, which is a big cultural shift for a country like the UK and something that’s being driven by those underlying demographics.”

If current trends are to continue, Burnside believes that the UK will need to review a repossession strategy, which currently shows more leniency to homeowners than it does buy-to-let landlords, who are unable to maintain mortgage payments.

He added: “As a private sector landlord if you stop paying that’s a matter of months [before the property is repossessed], not years, and that’s ‘okay’ if you’re talking about people who are fleet of foot and can move easily.

“It’s less obviously okay from a society perspective if you’ve got kids at school and ties with the community and we haven’t changed the way that works since the 70s.

“It doesn’t feel to me that just keeping everything the same and just carrying on is a very sustainable solution.”

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

“Rental demand continues to soar while successive governments have failed to keep their promises over the number of new homes built.

“With demand much greater than supply, house prices have grown at a much greater rate than wages over the past decade and this has resulted in fewer people being able to afford an initial deposit to get onto the housing ladder. These people have to live somewhere and in most cases, the most obvious alternative is to look to rent.

“In an environment which continues to preclude many people from borrowing, due to stricter lending criteria from the banks, the rental market does look set to continue to grow.

“For buy-to-let landlords, if Mr Burnside’s predictions are correct, then there will be a huge increase in opportunity over the coming years as demand within the rental market expands.”

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

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