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Warnings over impact of buy to let mortgage tax change announced in UK Budget
The UK property market is set to see a number of impacts as a result of a mini Budget announced in July aimed at stabilising the country’s economy. Perhaps the most controversial announcement by Chancellor of the Exchequer George Osborne was a cut in tax relief on mortgage interest payments for buy to let landlords which some believe will ultimately lead to higher rents. The Chancellor also, as expected, increased the rate at which inheritance tax will be paid on a home to £1 million and increased room rental tax relief to £7,500 per annum. Although phased in from 2017 to 2020, the buy to let tax change will make investment a less attractive proposition for landlords. Indeed, it will discourage investment in the sector which could lead to higher rents and less rental homes available, according to Graham Davidson, managing director of Sequre Property Investment. ‘This is an example of politicians not understanding how the market operates, directly contradicting their apparent goals for an improved private rented sector. Landlords should be free to deduct legitimate costs, just like any other business does,’ he pointed out. Gráinne Gilmore, head of UK residential research at Knight Frank, described it as ‘a significant change in tax status’ for those with a rental portfolio. ‘Those planning to purchase a buy to let property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make,’ she said. 'If the relatively low yield environment seen today, especially in the South of England, is still evident when these changes start to come into force, there could be upward pressure on rents. The need for rental accommodation is strong, and we expect this trend to continue, especially in city centre markets around the UK,’ she added. Jamie Morrison, private client partner at HW Fisher & Company, believes it will lead to higher rents. ‘It will cause many landlords increasing pain which will quickly be passed on to tenants in the form of higher rents. Highly leveraged landlords could pull out of the market too, reducing the supply of rental properties and ratcheting up rents even further,’ he said. According to Russell Quirk, chief executive officer of online estate agent eMoov, landlords are going to be up to 20% worse off as previously enjoyed tax relief rates of up to 45% disappear. ‘Based on the average rent they could be up to £2,000 worse off each year. I can only see the result being an increase in rental prices which in turn further hampers those trying to save to get on the property ladder,’ he explained. Henry Woodcock, Principal Mortgage Consultant at IRESS, pointed out that buy to let has been the key area of growth in the mortgage market and changing its tax treatment is likely to dampen mortgage activity and demand from property investors, which will hit overall lending figures. ‘Equally, we may see a number of landlords leave the… Continue reading
UK landlords seeing average yields falling, latest quarterly figures show
Average yields on residential rental properties in the UK have cooled across the board with landlords owning semi-commercial property sector the biggest losers, according to the latest buy to let index. Yields on semi commercial properties have fallen from 7.5% in the first quarter of 2015 to 5.9% in the second quarter, their lowest level in four quarters and a drop of 1.6%, the data from Mortgages for Business shows. Similarly, returns on houses in multiple occupation (HMOs) have dropped 1.3% to 9.3% between the first and second quarters of 2015 while average yields for standard buy to let have experienced a less marked decline, dipping from 6.4% to 5.8%. Multi-unit freehold blocks (MUFB) saw the only quarterly improvement with average returns up 0.8% to 7.1%. However, the second quarter MUFB yield rate is still below the 8.6% and 9.3% returns recorded in the third and fourth quarters of 2014 respectively. The data also shows that average loan to value (LTV) ratio has begun to fall. Average LTV rates for standard buy to let and multi-unit freehold blocks remained unchanged at 66% and 67% respectively between the first and second quarter of 2015. The LTV ratio for HMOs fell 1% over the quarter to 69% but the largest drop was in semi-commercial property, down from 65% to 54% over the first two quarters of this year, a drop of 11% and the lowest LTV rate for four quarters. ‘LTV ratios and yield rates have slid. While rental yields are still robust they seem to have lost the momentum they were gathering between the end of last year and the start of this one. That said, multi-unit freehold blocks seem to have avoided the yield downturn, demonstrating once again that complex property types produce higher yields because they offer tenants more features and facilities,’ said David Whittaker managing director of Mortgages for Business. ‘While many landlords had hoped that the improving economic climate may have pushed loan to value ratios even higher, the figures appear to have stalled. Property values dipped in the second quarter, but so did average loan amounts, suggesting lenders are waiting for more signs of economic improvement before they lend any more relative to the value of a property,’ he explained. He also pointed out that the General Election campaign impacted on LTV ratios. ‘With the pundits repeatedly predicting chaotic political horse trading after 07 May, many lenders thought it best to not give too much too early. They feared a change in the policy status quo that would hit BTL landlords and, with it, their ability to make mortgage repayments,’ he added. The report also shows that the proportion of HMO loans for remortgaging reached 90% in the second quarter of 2015, a 17% on the previous quarter and the largest proportion of any rental property type in four quarters. Conversely, the proportion of SCP loans for remortgaging has fallen back from 87% to… Continue reading
UK residential property prices showing steady growth, latest index shows
UK house prices increased by 3.3% in the second quarter of 2015 compared to the previous quarter taking the average price to £200,280, according to the latest property price index. It means that the quarterly rate of change has picked up following two successive falls and prices in the three months to June were 9.6% higher than in the same three months a year earlier, the data from the Halifax shows. This was higher than May’s 8.6% and the highest quarterly rise since September 2014 when it was 9.6%, and on a monthly basis prices increased 1.7% between May and June, the fourth consecutive monthly rise. The steady increase in prices comes as home sales remain steady. Data from HMRC shows UK home sales increased by 1% between April and May and sales in the three months from March to May were 0.5% higher than in the preceding three months, but were 4.2% lower than in the same period last year. According to Martin Ellis, Halifax housing economist, supply remains very tight with the stock of homes available for sale currently at record low levels. ‘This shortage has been a key factor maintaining house price growth at a robust pace so far in 2015,’ he explained. ‘Economic growth, higher employment, increasing real earnings growth and very low mortgage rates are all supporting housing demand with signs of a recent modest pick-up in demand,’ he added. Jonathan Samuels, chief executive officer of Dragonfly Property Finance, pointed out that there are a lot of mixed signals in the property market at the moment as the latest index from the Nationwide shows prices falling slightly. He also pointed out that while prices in London have slowed, house prices per square metre have risen by 45% since 2010, highlighting the extent of the growth in the capital in recent years. ‘With economic growth stronger than expected during the first quarter, a buoyant jobs market and people generally better off, you would expect the market to continue to improve throughout the rest of 2015, if at a more moderate rate compared to recent years,’ he said. There is also a potential effect from the current Euro crisis and how what happens in Greece could affect the UK property market. ‘We could see a flight away from equities into bricks and mortar, but at the same time if Europe as a whole is adversely affected then the UK economy will almost certainly suffer, too,’ he added. Thomas van Straubenzee of prime London prime property agency VanHan, is expecting to see an influx of enquiries from wealthy Europeans looking to move their assets off the Continent and into London as they seek to avoid the effects of the euro crisis. ‘We have seen interest from the Middle East and India pick up again, which is not surprising as we had noticed that these buyers were particularly affronted by the idea of a mansion tax. We do not see London… Continue reading
