Investment
Location is still the top consideration when buying a home in the UK
The old cliché location, location, location when it comes to buying a home is still relevant with new research showing it is the top reason for buyers making up their mind. More than half, 56% of British people make an offer on a home because they fall in love with it with location, price and garden the top three reasons for doing so. Being close to friends is the least important factor when choosing the location of a property with only 9% of buyers saying so, according to the research from conveyancing services firm My Home Move. Some 58% cited location as the top characteristic that made them fall in love with their home, 37% said it was price and 29% said it was the garden. When it comes to that all important location some 40% said transport links were important, 35% said a green area nearby and 32% said being near to shops, cafes and restaurants. Women are more likely to base their decision on being close to family at 32% compared to 26% of men yet both genders list being close to friends as the least important factor, shared by only 9%. For those in their 20s, having a nearby school and being in an up and coming area ranked in joint second place, with 34% saying these factors were important. This suggests that the younger age group are planning ahead, as well as looking to settle in an area that has investment potential as it shifts from being on the cusp of gentrification, to a sought after location. Location is also the most important factor in putting people off a property with 43% said a bad location would mean not buying a property. Some 40% would be put off a home that as too expensive and 34% by the appearance of the property. Younger home owners aged between 21 and 30 were less put off by the location, with only 37% citing this. However this age group tends to be more limited on choice due to job location and affordability issues than older Brits. ‘For most people, location is the secret ingredient that makes them fall in or out of love with their home. People also love a bargain, which explains why cost was the second most important factor in making someone fall in love with their home,’ said Doug Crawford, chief executive officer of My Home Move. ‘As house prices continue to climb and many first time buyers struggle to take their first step onto the property ladder, younger buyers are more willing to scout out up and coming areas to try and find a bargain to fall in love with,’ he explained. ‘Unfortunately, not all of those buying a home have the flexibility to pick and choose their ideal location or perfect interiors, especially as demand continues to outstrip supply. Compromise may have to become… Continue reading
CML warns of negative impact of new 3% tax on second homes on UK housing market
The UK property market is facing a slowdown in buy to let activity due to tax changes for private landlords, says a submission to the Treasury over the extra surcharge on second properties. The Council of Mortgage Lenders is urging reform of the plans to charge an extra 3% for buy to let landlords and second home buyers from April this year to mitigate potentially negative impacts on the housing market as a whole. It says in its submission that even without the new surcharge, the forthcoming adverse tax changes for private landlords and the potential macro prudential interventions in the buy to let market will result in a slowdown. It points out that there is a risk of overkill in dampening investor sentiment to the extent that the flow of available private rented property could be disrupted, without any necessarily corresponding increase in the ability of households to become home owners. In addition, with around a fifth of households currently renting in the private sector, there is the perverse risk that the stamp duty increase could cause landlords to charge higher rents, and so actually make it harder for tenants who want to buy to save the deposit needed to do so. Under current proposals, some people will be caught by the requirement to pay the 3% surcharge even when they are buying their main residence, for example, if they have a short term overlap between owning their previous home and acquiring their new one, perhaps as a result of problems in the housing chain, the CML points out. ‘It would be better to allow people to defer their payment of stamp duty for 18 months subject to conditions, rather than require them to pay it upfront and then potentially reclaim it in the form of a rebate. This would be both fairer and more efficient,’ the submission says. ‘The government should clarify whether its policy intention is to favour institutions facilitating new build activity, or new build activity more generally. If the policy focus is on the perceived benefit arising from the economic activity, then the proposal should recognise the potential for even small scale and individual investors to contribute to this through off-plan purchases, and should not discriminate against them,’ it adds. Director general Paul Smee said that the CML’s longstanding view is that stamp duty is a blunt policy lever. ‘Given the complexity of the proposals, we also suspect that in practical terms the surcharge could cause more problems than it solves,’ he pointed out. ‘We urge the government at least to move away from a position where people will have to pay and then potentially claim back to one where payment is deferred, and only triggered if the buyer genuinely falls into the intended target category,’ he explained. ‘If the surcharge proposal is designed to promote home ownership, we think that there should be better evidence as to why this requires a reversal of growth in the private rented sector,’… Continue reading
High supply level keeping rents on prime property in London down
Residential rents across the prime property market in London rose by just 1.3% on average in 2015, while those in the commuter zone increased marginally by 0.6%, new data shows. In London this reflects relatively high levels of supply coming into the market, not just from investment buyers of an increasing volume of new build stock but also from the re-emergence of accidental landlords, who reflect a more heavily taxed and generally less active sales market, says a new report from international real estate firm Savills. Behind the headline figures, however, there are a number of submarket trends seen in previous years, the report points out. In the prime housing markets of the commuter zone, rental values of prime properties in urban locations performed much more strongly than those in other locations, showing annual rental growth of 3.1%. In London smaller properties were by far the best performers. For example, while rents for one bedroom homes rose by 3% in the year, those for four bedroom houses barely increased at all rising by just 0.1% on average. ‘From an investment perspective, this meant smaller, less expensive properties clearly delivered the best returns. In addition to stronger rental growth, they offered better income yields and capital values proved more robust given less exposure to higher rates of stamp duty,’ said Lucian Cook, director of Savills residential research. He also pointed out that the impact of tax policy on the rental market has undoubtedly become a very hot topic. There is the progressive restriction of tax relief on mortgage interest payments meaning that by the 2020/2021 tax year, only basic rate tax relief will be given to private individuals, and more recently the imposition of a 3% stamp duty surcharge on the acquisition of so called additional homes, the purchase of which completes after 01 April 2016. Cook gave examples of how these changes will have an impact. He examined the economics behind the purchase of three different prime London properties in 2015; a one bedroom flat in the east of City market, a three bedroom house in south west London and a four bedroom house in central London. In each case it was assumed that 60% of the total purchase cost, including stamp duty and miscellaneous additional costs of purchase, is funded by cash and 40% by debt. At current interest rates, with full tax relief on the corresponding interest payments each makes a reasonable cash surplus for a private investor. That surplus varies between 21% of gross rent for the most expensive property in central London that has the highest stamp duty liability and delivers the lowest income return and 28% of gross rent for the smallest, highest yielding property in the east of City market that carries the lowest stamp duty liability. ‘In 2020, we expect the cost of mortgage debt to have risen, we have assumed a 4.5% mortgage interest rate, and income yields to have fallen because we expect price growth… Continue reading
