Month: May 2017

With a general election looming and the housing market a hot topic commentators differ in their opinions as to the direction in which property prices will go in the coming years.

As always with the property market it is, to an extent, something of a guessing game as the direction of travel depends on a plethora of factors.

However with some predictors citing 50% of the population being in rented accommodation by 2050 and with the average age of a first time buyer in the UK now 35, as opposed to 24 a decade ago, the buy-to-let option still appeals to many investors.

Becoming a landlord can be a rewarding experience and, if done correctly, provide a steady and sustainable return as an income investment, especially compared to lower savings rates and stock market swings.

Investors are snapping up property in the hope that it will not only return a reliable yield but also a benefit from capital growth given enough time. Mortgage rates at record lows are helping buy-to-let investors make deals stack up.

But beware low rates. One day they must rise and you need to know your investment can stand that stress test, a criteria sought by many lenders recently.

There is also a tax rise coming, as buy-to-let mortgage interest relief is axed and replaced with a 20 per cent tax credit. Additionally, from April 2016 landlords now have to pay an extra 3% stamp duty on property purchases.

Recent history provides an important lesson in how returns can be hit. Many buy-to-let investors who bought in the boom years before 2007 struggled as mortgage rates rose. A sizeable number were thrown a lifeline when the base rate was slashed to 0.5 per cent. Rates stuck there until this summer and then were cut again after Brexit, but they will rise again.

Even considering the recent tax changes and potential for buy-to-let mortgage costs to rise, there are many positives. We are becoming a nation who sees renting as a flexible lifestyle choice and is far more sociably acceptable. With greater demand from tenants, rents that should rise with inflation and the long horizon for interest rate rises, mean many investors are still tempted by buy-to-let.

If you are planning on investing, or just want to know more, here at HM Lettings we will guide you through essential things to consider and help avoid the pitfalls for a successful buy-to-let investment.

Like any investment, buy-to-let comes with no guarantees, but for those who have more faith in bricks and mortar than stocks and shares the opportunities are out there.”

New research from IMLA has found that a record amount of cash was injected into residential property purchases in 2016.

According to IMLA, the total value of residential house purchases in the UK reached £261bn in 2016, with £152bn provided by mortgage finance and £109bn made up of cash funds including the proceeds of existing property sales.

Cash funds have risen by 12% from 2015 and 57% since 2013, far outpacing the growth of mortgage lending over the same periods. Growth of £6.8bn in house purchase mortgage lending from 2015 to 2016 was overshadowed by the extra £11.8bn in cash contributions. As a result, cash provided 41.8% of funds for residential house purchases.

Three-quarters of the annual growth in house purchase lending came from first-time buyers in 2016. However, the growing influence of cash in the house purchase market has potentially negative implications for aspiring homeowners and home-movers.

Analysis from the CML suggests that outright cash transactions (with no mortgage finance involved) continue to make up just over a third of all transactions.

Peter Williams, Executive Director of IMLA, commented: “The shift towards cash is partly a consequence of trying to manage housing demand by restricting mortgage supply, with Financial Policy Committee actions in 2014 quickly layered on top of the Mortgage Market Review affordability rules. With the market having cooled and interest rate expectations shifted since then, there is a legitimate case for asking whether current restrictions on lending are still appropriate or have become over-zealous.

In the meantime, rising house prices and stagnant incomes mean that access to wealth as well as mortgage finance will increasingly separate the ‘haves’ from the ‘have nots’ in the property market if the importance of cash continues to grow. The recent Housing White Paper was a missed opportunity to take strong action on housing supply, and we must hope that the upcoming election manifestos will be used as an opportunity to put that right.”

From April 2017, landlords’ ability to deduct mortgage interest payments from their rental income is gradually being phased out.

A recent study demonstrated that 47% of landlords did not know how the mortgage tax relief changes will affect them between now and 2020. The changes will be gradually phased in over the next four years so its important landlords review the changes and take action sooner rather than later.

Who the changes will effect

Any landlords who have a mortgage on a residential UK property. They do not apply to landlords of furnished holiday lets and commercial properties.

What the changes mean for landlords

Before April 2017, landlords were able to deduct both allowable expenses and mortgage interest costs from their rental income when declaring their profits to HMRC

The changes will be phased over the next 4 years:

By April 2020, landlords will not be able to claim tax relief on mortgage interest charges. Instead, landlords will receive a reduction on their final tax bill equating to 20% of the mortgage interest costs regardless of their tax bracket.

Some landlords who are currently on the threshold of a higher tax bracket may be forced into the next band and see an increase in their tax liability.

How landlords can negate the changes

The only way around these changes are to own your properties as part of a limited company. However, this can have implications in terms of national insurance tax and might not always be the most financially viable option.

These changes stress the importance of landlords ensuring they are making the maximum profit from their investment. The first step is to obtain an up-to-date, accurate rental valuation and, if demand is strong for similar properties in your local area, your letting agent will advise an increase in rent.

New analysis and research by Legal & General and the Centre for Economics & Business Research (Cebr) shows that, in 2016, home buyers will receive £5 billion of help from families’ and friends – equivalent to the annual lending of a top-ten mortgage business.

For many aspiring homeowners, it is impossible to buy without help from family and friends. On the other hand, recent decades have been much kinder to the baby boomers who now control the lion’s share of the nation’s wealth. Beneficiaries of the increase in the value of their homes and with good pensions and significant savings, many are in a strong position to help. And they are generous in doing so:

The latest research shows the Bank of Mum and Dad will help 305,900 of their loved ones buy a home in 2016, giving an average of £17,500 to each to fund the purchase of £77bn worth of property. This means the Bank of Mum and Dad will be involved in 25% of all mortgage transactions in 2016.

A quarter of all home owners, 32% in London, and 57% of the under 35s received help from friends and family to buy the home they live in. That proportion will grow in future: A third of all prospective home owners say they will get help when they buy.

As prices rise, wages trail and affordability worsens in coming years, an increasing number of house buyers across the country will rely on friends and family to plug the gap. How long they can do so is open to question.

There are opportunities for The Bank of Mum and Dad to expand. Releasing equity among the over 55s who already own their home is, at present, barely used. Only 3% in our survey had taken the opportunity, and another 3% said they were considering it. Even that represents a vast source of wealth, though, which could help house 413,000 more families. Lifetime mortgages would appear to be an ideal solution for many families looking to unlock their accumulated property wealth without having to move home. There might be opportunities in new solutions such as peer-to-peer lending, too.

Things are even worse for those families living elsewhere who try to finance their children buying in the capital or other property hot spot. Fundamentally, for all their generosity, our research shows that families and friends cannot solve a UK housing crisis caused by too few homes. It’s not fair on those without wealthy families, and it’s not sustainable in the future.

Nigel Wilson, CEO of Legal & General, said: “The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder. The intergenerational inequality that creates the demand for BoMaD funding continues to widen – younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education. Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.

This is the second year of our Bank of Mum and Dad research programme and the statistics show the problem is getting worse, not better. Transaction volumes are down in the housing market but BoMaD funding is growing exponentially. This is not a good thing, nor is it sustainable or equitable for our parents (the lenders) and young people (the borrowers). We need real action to fix the housing market and restore affordability for all.

A new survey has found that many home owners do not know who is responsible for advising on the physical condition of a property prior to purchase.

Additionally, they are unclear on the purpose of a mortgage lender’s property valuation report, suggesting a need for greater clarity within the home-buying process.

When asked who benefits from the data contained in a mortgage valuation, respondents were not clear with many opting to choose incorrect answers. 65% correctly stated that the valuation report is for the benefit of the mortgage lender, yet over a third (35%) thought it is for buyers to use to determine whether the property is worth the agreed purchase price.  Just over a quarter (26%) felt it is there to provide buyers with details on the condition of the home, while 15% of respondents directly stated that they did not know what the valuation report is for.

When asked what would help improve the current home-buying process;  

• Seven out of every 10 respondents said they would like to receive information upfront regarding the physical condition of a property
• 58% said it would be desirable to receive outline costs for specific repairs needed to a property prior to purchase,
• 45% felt that receiving upfront information relating to environmental issues connected to the property would be beneficial.

Paul Wareham from Countrywide Surveying Services, who commissioned the survey along with Landmark Valuation Services, said:
“The YouGov survey shows a general lack of understanding as to who people should turn to when looking for assistance with assessing the physical condition of a property, before they buy.

With seven out of every ten respondents saying they would like to receive information on the physical condition of a property upfront, it raises a number of questions, are we as an industry, meeting the needs of the consumer with our existing approach and products; plus with an election around the corner do we need to refresh our home-buying approach looking again at Home Reports as a mandatory step in the process, as per the current protocol in Scotland?

It’s clear that from the survey that consumers really do need better information to ensure that everyone is entering a property transaction ‘eyes wide open’ as to any potential issues or risks.”

Michael Holden, Head of Client Relationships at Landmark Valuation Services said: “A study by ComRes for RICS showed that, on average, homebuyers spend £5,750 on repairs once they have moved into their homes, which is often down to not getting the right survey done.  If the public were more aware of what surveys and reports are out there, there would be greater transparency for all involved. There is certainly an appetite for home owners to have an understanding of a property’s condition before they buy it however there certainly appears to be confusion as to how this can be achieved.”