Buy-to-let lending critera – and the Brexit

Brexit has sent shock waves throughout British industry, but even before Britain voted to leave the EU, tougher buy-to-let mortgage lending criteria had been announced.

Anne Wilson, senior tax manager of the tax department at Pierce Chartered Accountants, pointed out that that the rules will require lenders to carry out stricter stress tests on prospective borrowers or those wishing to re-mortgage to ensure that they have sufficient capital to cover repayments if interest rates increase to 5.5%.

In the future, there will also be changes to the way that tax relief for interest payments on the purchase of residential lettings will be given in the tax computation. This will affect individuals, partnerships and limited liability partnerships which let out residential properties. At present there are no proposals for this restriction to apply to furnished holiday lettings nor to companies with residential lettings.

Wilson explained that currently, rental profits are reduced by any loan interest paid and therefore a top rate taxpayer could receive tax relief at 45% on their finance costs. However, under new legislation the loan finance costs will be relieved by way of a reduction of the tax liability, rather than a reduction in the rental profits, and is restricted to relief at the basic rate of income tax.

Those with substantial rents and interest costs, thus with low net profits, who are currently basic rate taxpayers, could see their income pushed into the higher rate band as the interest costs will be added back to the rental income.

For example, an individual whose only income is rents of £50,000 and interest costs of £20,000 would have net income of £30,000, and so within the basic rate tax band. Under the new rules the same individual would be a higher rate taxpayer because their income would be £50,000 with a deduction for interest relief given at the basic rate only.

As a result of the way in which the net rent will be calculated those whose income is close to the £50,000 threshold for the withdrawal of child benefit, and those with income near £100,000 for the withdrawal of personal allowance could be adversely affected even though their income has not actually increased.

To ‘soften the blow’ these measures will be phased in gradually over four years and will apply to 25% of the interest costs in the 2017/2018 tax year, 50% in the 2018/2019 tax year and 75% in the 2019/2020 tax year before being implemented in full in the year to April 2021.

‘If you have a relatively modest portfolio of properties which are let out as residential lettings, it maybe that you will simply have to accept that your income tax liability in respect of those lettings may increase in future as taking any steps to mitigate the interest restriction could be costly. Sharing income with family members or family trusts may be worth considering but capital gains tax issues will need to be addressed,’ she explained.

She added that those with a substantial portfolio of residential lets may wish to consider incorporating their business, however, there could be a substantial capital gains tax liability if they incorporate their property portfolio because moving the properties into a company could trigger capital gains tax.

‘However, if you have a large property portfolio that you devote a substantial amount of time to managing, it may be possible to claim capital gains tax roll-over relief on incorporation of a business to mitigate the capital gains tax liability arising. If you have no gains in your property portfolio it may be possible to transfer the properties into a company without triggering capital gains tax,’ she explained.

But there is likely to be a substantial stamp duty liability on the property transfers to a company, unless specific reliefs are available, and she advises that incorporation of a property business should not be undertaken without specialist advice.

Source: Property Wire

Landlords in UK urged to stay calm in face of EU exit vote

Residential landlords in the UK are being urged not to read too much into the decision by the country to leave the European Union, having gone through a turbulent period recently.

Buy-to-let landlords are now paying a 3% surcharge in stamp duty on each additional property they buy to add to their portfolios and are also facing further tax changes. Now there are concerns that Brexit could affect their businesses.

However, according to Richard Lambert, chief executive officer of the National Landlords Association (NLA), while leaving the EU is completely unknown territory, jumping to conclusions isn’t going to help anyone.

‘We welcome governor Mark Carney’s steadying words and his reassurance that the Bank of England and the Treasury have extensive contingency plans in place to ensure the country’s financial stability,’ said Lambert.

‘Any knee-jerk reaction will have a real impact on our members’ mortgages, tenants’ rents and overall confidence in the market. So we would urge the policy as regards to interest rates should be, to continue the Prime Minister’s analogy, one of steady as she goes,’ he added.

In a joint statement, David Cox, managing director of Association of Residential Letting Agents (ARLA) and Mark Hayward, managing director of National Association of Estate Agents (NAEA), said that in the short term the market can weather the uncertainty.

‘The outcome of the EU referendum will create a period of uncertainty among home owners, buyers, investors, landlords and developers. We can expect international investors to look a lot harder at the UK as a market and this will have a consequential impact upon the house building sector as investment may be stalled,’ the statement said.

‘In the short term we believe that both prices, and rents, will remain stable, but we cannot be certain about the next quarter as political instability, and market unrest, could lead through into prices in the housing market,’ it pointed out.

‘We believe that the UK housing market is resilient, as is the supply chain that drives it.  But as we indicated in our Brexit report last month, the bigger impact may well be in the skills necessary to drive UK housing development, and this is now a major concern for UK buyers and renters,’ it added.

Source: Property Wire

Brexit has pros and cons for the property market

The decision to leave the European Union could adversely affect the construction of new homes as many workers are from other countries, it is suggested, but red tape will be reduced.

It seems that overall Brexit has potentially mixed effects for the home building industry. One the one hand many workers are from other EU countries, but on the plus side, builders would be free from red tape regarded as holding up construction.

According to Brian Berry, chief executive of the Federation of Master Builders, the UK construction industry has been heavily reliant on migrant workers from Europe for decades.

‘It is now the Government’s responsibility to ensure that the free-flowing tap of migrant workers from Europe is not turned off. If ministers want to meet their house building and infrastructure objectives, they have to ensure the new system of immigration is responsive to the needs of industry,’ he said.

He believes at the same time more must be put into training British people in the skills necessary for the construction industry and that should be done by investing in apprenticeship training.

‘We need to train more construction apprentices so we are not overly reliant on migrant workers from Europe or further afield. That’s why it’s so important the Government gets the funding framework right for apprenticeships,’ he explained.

‘When you consider that this whole policy area is currently in flux, and then you add Brexit into the mix, it’s no exaggeration to say that a few wrong moves by the government could result in the skills crisis becoming a skills catastrophe. It’s only through close collaboration between the government and industry that we’ll be able to overcome these challenges,’ he added.

John Elliott, managing director of Millwood Designer Homes, believes that Brexit could be good for the house building industry. ‘I am excited to get on with the New World and see the back of EU laws which have been detrimental to us for over 40 years,’ he said.

‘One of the UK’s biggest assets is our home grown housing market and this will now be much better off out of EU regulation. For many years, the EU Habitats Directive has had an unnecessary impact on house building,’ he explained.

‘The mere hint of great crested newts or slow worms on a site, which unlike in Northern Europe where they are rare and given special protection, are prolific in the South East of England can delay building for months as they have to be translocated and caught and taken somewhere else for release,’ he pointed out.

Jan Crosby, head of housing at KPMG UK, acknowledged that any labour constraints brought in could reduce the availability of foreign workers on construction sites, currently a relatively large source of labour for the industry.

But added; ‘Our exit from the EU will stop the continual flow of red tape and see our housing market grow and flourish without unnecessary constraints placed on building much needed new homes; working towards creating a better future for Britain’.

Source: Property Wire

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Retired renter numbers skyrocket

According to a new poll of private renters, the number of people living in private rented accommodation in retirement has soared by more than 200,000 in the last four years.

Overall, the poll shows that the proportion of retired private renters has grown by 13% since 2012 – approximately 220,000 – as more and more people turn to the private rented sector.

17% of the retired private renting population live in the South East – the area with the highest proportion across the UK. However, just 3% live in London – the area with the smallest proportion area across England and Wales for renting in retirement.

There are almost four times as many retired renters in the North West (15%) compared to the North East (4%), and twice as many retirees rent property in the West Midlands (8%) compared to the East Midlands (4%).

However, the proportion of landlords who let to retired renters has almost halved during the same timeframe, with 9% of landlords saying they currently let to retirees compared to 19% in 2012.

The findings suggest that it could become harder for those approaching retirement to find suitable rented accommodation in the future, especially in high demand areas.

Carolyn Uphill, Chairman of the NLA said: “More and more people are turning to private rented housing at every stage of their lives, including in retirement. Landlords appreciate the stability and assurances often provided by older households, but are finding it increasingly difficult to build businesses around the needs of potentially vulnerable tenants.

 

“Successive cuts to the welfare budget, uncertainty about pension provisions, and the devastating impact of the Government’s tax changes are likely to mean that private landlords will soon be unable provide homes in high cost areas like Central London for anyone without a well-paying job. As the proportion of retired renters continues to grow there’s a real worry that homes won’t be available in the private sector, forcing people to look further afield – leaving communities they have known and contributed to for decades,” said Uphill.

Positive sentiment on future house price growth in UK slips to three year low

Household sentiment on future house price growth in the UK has slipped to a three year low, with 23.7% believing that the value of their home has increased over the last month.
Some 4.4% believe that prices have fallen, according to the latest house price sentiment index from Knight Frank and Markit Economics with the reading falling from 61 to 59.7.
Households in the North East perceived that the value of their home fell in June, the first time that households in any English region perceived house prices had fallen since August 2013.
The future HPSI, which measures what households think will happen to the value of their property over the next year, fell to 67.7 in June from 70.3 in May. This is the lowest reading recorded by the index since August 2013.
The gap between sentiment in the North and South of the UK is now wider than at any time since the inception of the index. But some 6.5% of UK households said they planned to buy a property in the next 12 months, up from 5.4% in May and the highest number since August 2015.
‘The decline in the future household sentiment index to a near three-year low coincides with growing uncertainty over the result of next week’s European Union referendum as the debates over the UK’s future step up a gear,’ said Gráinne Gilmore, head of UK residential research at Knight Frank.
‘The proportion of households who expect the value of their home to fall over the next 12 months rose to the highest level in nearly two years, but overall households still expect the value of their property to continue rising in the coming year, despite the uncertainty about the result of the vote,’ she explained.

Source: Property Wire

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Average rents in England and Wales fall by 0.2% month on month

Average rents for homes to let across England and Wales fell 0.2% in May month on month and now stand at £792 per month, according to the latest index data.

This compares to a long term average monthly rise of 0.4% over every May since the recession but they are still up 1.8% over the last 12 months, the data from the buy to let index from Your Move and Reeds Rains shows.

However, on an annual basis, rents have seen half the annual rate of rental growth seen at the start of 2016, when in January this stood previously at 3.6%.

According to Adrian Gill, director of lettings agents Your Move and Reeds Rains, the number of properties to let coming on the rental market has disrupted the normal dynamics of supply and demand.

‘Landlords escaping a much larger stamp duty bill by completing their purchases before 1st April have now finished their repairs and paperwork, with these homes to let competing for tenants in May and into June. That short term mismatch has made May an exceptional month, with excellent deals available for some prospective tenants,’ he explained.

Gill believes that overall the tax changes to the buy-to-let industry will discourage some property investors, and most of the properties that became available to let in May will have been planned purchases brought forward from later in the year.

‘The net effect will not be more properties to let, quite the opposite. If new regulations and taxes produce a drought of homes to let, then the overall shortage of housing in the UK will only bite harder for tenants. Meanwhile, this heightened shortage and possibly higher rents as a result could also protect landlords somewhat from the financial effects of more punitive rules and regulations,’ Gill pointed out.

All 10 regions of England and Wales have seen rents in May higher than a year ago. However the joint slowest annual rent rises have been in Wales and the South East, both seeing rents rise just 0.5% over the last 12 months.

London also leads the negative trend on a monthly basis with average rents in the capital falling 0.7% between April and May, a faster drop compared to a more modest drop of 0.2% in the month before. London is followed by the East Midlands where rents are 0.6% lower than a month ago and Yorkshire and the Humber with a 0.3% month on month fall.

At the other end of the spectrum, Wales leads with a 1.4% month on month jump in rents. The North East and the South East follow with month on month rent growth of 0.6% and 0.5% respectively.

Taking into account both rental income and capital growth, but before property-specific costs such as maintenance, the average existing landlord in England and Wales has seen total returns of 10.2% over the year to May. This is slightly lower than 10.7% seen a month before, over the 12 months to April, as property price growth has abated.

However compared to the year ending May 2015, when this measure stood at 9.4%, landlords have seen stronger returns over the most recent 12 month period.

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Research reveals nearly five million renters at risk

Research reveals nearly five million renters at risk

Results from a survey by YouGov, commissioned by Royal London, reveal almost five million renters in the UK have no plans in place to cover their rent if they became too ill to earn for three months or more, even though recent cuts to housing benefits could leave them at risk.

This is despite the fact that over a quarter of renters in paid employment (27%) said they knew someone who had struggled in this situation.

More than one in three renters in paid employment (34%) admit they don’t know how long they could survive, and six in ten people (60%) who had some idea said they could only survive on their savings for three months or less.  Their first port of call would be to apply for state benefits (53%), followed by reducing their household expenses (47%) and then dipping into their savings (39%).

Worryingly, fewer than one in ten (7%) renters in paid employment have ever consulted a financial adviser. The most common place people turn to for financial advice is their family and friends.

Debbie Kennedy, Head of Protection for Royal London Intermediary, said:

“Renters who assume that housing benefit will be there when they need it could find the reality is very different.  A series of cuts to housing benefit means that more people would not get their rent paid in full if their income fell unexpectedly.

“It would be bad enough to be taken ill without the added anxiety of getting behind with the rent and facing possible eviction.  Income protection may be more affordable than people realise and can provide a financial safety net and enable people to focus on getting better.”

Economists predict over the next ten years the UK will experience falling levels of home ownership and rising levels of private renting.  In ten years’ time, 59% of 20-39 year olds will rent privately, up from 45% in 2013. A further 15% are in social housing, renting from housing associations or local authorities.

Source: Royal London

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Asking Prices Hit Record High Despite Looming EU Vote

  • Housing market momentum pushes price of property coming to market up by 0.8% (+£2,320) to new high of £310,471
  • Desire to buy and lack of supply lead to fall in time to sell to 57 days, the fastest ever measured by Rightmove
  • Some signs of referendum-associated uncertainty with fewer new sellers coming to market:
    • newly-marketed property numbers down 5.3% compared to average at this time of year
    • most reluctant are owners of larger homes (four or more bedrooms), down 6.6% on the average

The average price of property coming to market has hit a new high of £310,471 with a monthly rise of 0.8% (+£2,320). There have been price rises every month so far in 2016, showing that the uncertainty associated with the EU referendum has failed to halt this year’s upwards price momentum.

This is in contrast to the run-up to the May 2015 general election, when the electoral uncertainty resulted in a price fall of 0.1% in the month of the election. This year the first quarter buy-to-let surge has exacerbated the shortage of suitable property for sale, and with ongoing buyer demand fuelled by cheap mortgage money, there appears to be greater resilience. The result is that the average time it takes to sell a property is at its lowest level since Rightmove started monitoring it in 2010.

Miles Shipside, Rightmove director and housing market analyst commented:“In many parts of the country, the over-riding factor of supply outstripping demand has so far overcome buyers’ usual reluctance to make major financial decisions at times of political uncertainty. Most seem to be getting on with the certainties they can control, namely if you find a suitable property snap it up. Indeed the figures for average time to sell indicate that properties are being snapped up more quickly than ever.”

The average number of days to sell stands at 57 this month, down from 60 the previous month. At this time last year it was 65 days. While some prospective buyers are putting in offers within hours or days, this is an average for all properties and the timescale is from when a property is first marketed on Rightmove to when the estate agent marks it as “sold subject to contract”.

While most of these headline figures show few signs of pre-referendum distortion, there does appear to be uncertainty among those contemplating putting their properties up for sale. Fewer new sellers are coming to market, with this month’s numbers being 5.3% below the monthly average for this time of year since 2010. The most reluctant are owners of larger homes, those with four or more bedrooms, with 6.6% fewer sellers over the same time period. Given the well-documented structural shortages of housing supply any longer-term reluctance of owners to come to market would be a worrying trend.

Shipside observed: “If you’re debating whether to trade up and make a big financial commitment you naturally might hesitate before putting your property on the market just a few weeks before you know the vote outcome. With mere days to go the number of new listings is still about 95% of the norm for this time of year, so the drop-off is relatively small in spite of what many are calling the biggest vote of our generation. This could mean that people are struggling to assess what the impacts might be, or are choosing to ignore them until they become more apparent. A vote to Remain should mean that the housing market quickly returns to its previous norm, but a vote to Leave would create political and economic uncertainty, which historically has had more serious repercussions.”

Source: Rightmove

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Do you know your gas safety responsibilities?

The Gas Safe Register has put together a factsheet outlining a landlord’s gas safety responsibilities

This factsheet explains landlords’ gas safety responsibilities and is intended for both landlords and tenants.

Overview

If you live in rented accommodation, your landlord has legal responsibilities when it comes to gas safety.

Landlords have legal duties for gas safety. These are that gas pipework, gas appliances and chimneys’/flues are maintained in a safe condition. Gas appliances owned by your Landlord which are provided for your use must be checked annually by a Gas Safe registered engineer. These responsibilities are laid out in the relevant gas safety legislation, such as the Gas Safety (Installation and Use) Regulations 1998, in Great Britain.

Requirements

There are three specific duties to keep tenants safe.

Annual Gas safety checks

To make sure that any gas appliances and flue provided for tenants are safe for continued use. Landlords must arrange for them to be checked for safety every 12 months by a Gas Safe registered engineer.

Record

A record of this annual gas safety check will include specific information on the results of the tests carried out. A copy of the gas safety record must be provided to an existing tenant within 28 days of the check being completed or to new tenants before they move in. Landlords must keep copies of the record for two years.

Maintenance

Maintenance arrangements should normally involve a series of regular inspections and any necessary repairs. Landlords must ensure that gas pipework is maintained in a safe condition. Gas appliances and flues provided for the tenants use must also be maintained in a safe condition. Gas appliances and flues should be serviced in accordance with manufacturer’s instructions but if these are not available, annual servicing is recommended unless advised otherwise by a Gas Safe registered engineer.

There are no formal requirements for landlords to keep maintenance records. However, landlords will need to be able to show, if asked, that regular maintenance of the flues and appliances and any necessary repairs have been undertaken. Landlords do not have to provide maintenance records for tenants.

These duties do not extend to appliances in wholly non-residential buildings or parts of a building. For example, if you live in a rented flat over commercial premises, landlords’ duties will apply to the gas appliances, pipework and chimneys/flues serving the flat. Landlords duties will not apply to gas appliances, pipework or chimneys/flues used exclusively in the non-residential commercial premises below.

Landlords do not have an obligation to have any checks carried out on gas appliances owned by their tenant(s). Tenants are responsible for the maintenance and safety of their own gas appliances. Gas Safe Register recommends that tenants should have their own gas appliances serviced and checked for safety annually by a Gas Safe registered engineer.

What should I do to make sure my home is safe?

Access

Landlords need to ensure that they take reasonable steps to gain access to their properties in order to meet their legal responsibilities.

If you are a tenant you should allow the Gas Safe registered engineer appointed by your landlord access to your property to carry out maintenance or safety checks on appliances and/or chimneys/flues that the landlord provides for your use. Remember to ask to see the engineer’s Gas Safe register ID card to confirm they are registered and qualified to carry out the necessary work.

Tenants own appliances

You are responsible for the maintenance and safety of your own gas appliances. The landlord is still responsible for the maintenance of the gas pipework. However, if your Gas Safe registered engineer advises you of an issue with the chimney/flues in the property under other legal duties.

Remember whenever having any gas work carried out, always use a Gas Safe registered engineer holding the relevant qualifications for working on your gas appliance. To find or check a Gas Safe registered engineer go to GasSafeRegister.co.uk or call our free helpline on 0800 408 5500 or 01256 341514.

For more information click here

Surge in investors buying student property

New data has found that the first quarter of 2016 has seen a surge in investors acquiring student property, to beat the new stamp duty legislation, which comes into force in April 2016.

Research, conducted by The Mistoria Group – student property investment specialists, reveals investors have been flocking to complete their student property purchase by the end of this month, to avoid the 3% stamp duty surcharge coming in for second homes.

The research shows that sales of student property in the North West have leapt by over 30% between January-March 2016, compared with the first quarter of 2015.  More than 50% of student property investors are from the South, while a third are overseas investors.  The remaining 20% of investors are from the Midlands and the North.

Over the last few years, student housing has undergone a significant amount of change, with rising rents and a higher level of expectation from the occupying students, many of whom are looking for high-spec accommodation with luxuries like plasma TVs, Wi-Fi and built-in white goods.  The removal of the cap on student numbers have also triggered many universities to anticipate an increase in enrolment over the coming years, which is driving demand for more high quality, affordable student accommodation.

Mish Liyanage, managing director of The Mistoria Group comments: “We have seen a rush of investors wanting to purchase student property over the last quarter and we anticipate that demand for student property will continue to grow significantly in 2016 and beyond.

Since the birth of the buy-to-let mortgage 18 years ago, student accommodation has outperformed all other traditional property assets and has been the strongest growing investment property market in the UK.

Over the last five years, student properties in the North West have generated yields in excess of 13% and geared yield in excess of 35% in Salford and Liverpool.  Our research shows that the North West provides greater returns than any other city in the UK. This is fuelled by the massive regeneration taking place in Manchester, with the proposed High Speed 2 (HS2) high-speed railway between London Euston and the North West to be completed in the next 15-20 years.

A HMO (House in Multiple Occupation) property can provide an 8% minimum cash rental yield and a typical 13% total cash yield, including 5% capital appreciation.  The average gross cash rental yields for the student property sector in the North West of England were 8.1% for the 2015.”