Investment
Buy let stamp duty could make investment unviable for new entrants in UK
The extra 3% stamp duty tax being levied on buy to let and second home buyers in April 2016 means that it may no longer be financially viable for new entrants to the lower end of the private landlord market, it is claimed. And the new tax band will have a disproportionate impact on pensioners looking to generate revenue in retirement, according to Chestertons, one of London's largest estate agents. The announcement of the additional levy on second homes and buy to let purchases came as a surprise announcement in the Chancellor's Autumn Statement, and initially caused some confusion across the industry as pundits disagreed on how the additional 3% would be applied. Chestertons has now calculated that the extra duty will hit the lower end of the market more heavily in terms of a percentage increase than it will the higher end. A buy to let property acquired for £150,000 attracts stamp duty of £500, but under the new regime it rises to £5,000, a tenfold increase. By comparison, an investor buying a property for £1 million currently pays £43,750 in stamp duty, while the new rate will be £73,750, less than double the original duty, although of course a larger amount in cash terms. ‘The Chancellor claimed that this change to stamp duty would prevent wealthy investors and overseas buyers from pricing first time buyers out of the market, but as usual the devil's in the detail,’ said Nick Barnes, head of research at Chestertons. ‘What we can now see is that this change is likely to completely deter many first time landlords from getting into the private rental market in the first place, including pensioners looking to wisely reinvest their precious pension pot,’ he pointed out. ‘ The obvious effect of this will be that there may well be a significant number of smaller landlords deterred from entering the sector altogether. Those who remain will have their margins slashed and, on top of the increasing regulatory burden and the planned reduction in mortgage interest relief, they may have to raise the rent in order to make the numbers stack up. Either way, the already highly competitive private rental market is about to get a whole lot more so,’ he added. According to Robert Bartlett, chief executive officer of Chestertons, the industry had hoped that the Chancellor might have announced stamp duty change that would have helped the current negative impact on sales above £1 million. ‘We'd hoped he might consider capping rates, or reducing them by 3%, so you can imagine the dismay when this extra surcharge was announced. The buy to let sector has become an essential part of the UK housing landscape and we urge the Chancellor to think clearly around the rules for when this is being introduced,’ he said. He pointed out that a number of key questions still need to be answered, for example whether a buy to let investor who has contracted… Continue reading
Higher rents and continued lack of supply set to dominate 2016 UK housing markets
Residential rents are set to go up in 2016 and in the home buying market there is likely to be a growing struggle for those seeking to get on the housing market, according to a joint report from agents. According to the Association of Residential Letting Agents (ARA) there are various pieces of legislation coming into play in 2016 which will result in increased compliance costs for landlords, and as a result push up rents for tenants. ‘We urge the Government to re-think its proposals around reducing Mortgage Interest Relief, scrapping the Wear and Tear Allowance and hiking up Stamp Duty by 3% on buy to let properties,’ said David Cox, ARLA managing director. ‘Whilst these remain, the Government’s goal of increasing the percentage of people in home ownership is getting further out of reach. The issue of supply and demand in the rental market will be increasingly pushed to its limit with rising demand outstripping supply,’ he added. He pointed out that the good news is that regulation in the industry looks like it will be tightening up in 2016. ‘We hope that the provisions of the Housing and Planning Bill, when brought into force, will give enforcing bodies and the courts more teeth in tackling rogue and criminal landlords and agents. This will develop in 2016 to enforce harsher penalties for landlords and unregulated agents that aren’t complying with basic laws,’ explained Cox. ‘The Right to Rent checks introduced in the Immigration Act 2014 will be rolled out nationally from 01 February 2016 following a successful pilot scheme in the West Midlands. However, we worry that the goodwill established towards the scheme may be tested by the increase in volume, disenfranchising landlords from the process,’ he added. Cox said that the industry is pleased that Rent Smart Wales will re-visit the Licensing Fee for agents in January. ‘We feel it is punitive and should be a graduated fee and not a flat rate. We also caution the Welsh Government to consider what resources are being put in place ahead of the enforcement roll out of Rent Smart Wales next November in order to achieve the stated aims of the Welsh Government,’ he pointed out. ARLA also backs recent plans from the Scottish Government for regulating the lettings industry which it described as ‘bold’. ‘We look forward to working with them during 2016 on the roll out of the proposals. However, we caution against the introduction of rent controls and the withdrawal of no-fault possession route for landlords as this will reduce investment in to the Scottish private rented sector at a time when rental housing is needed more than ever before,’ Cox added. Mark Hayward, managing director of the National Association of Estate Agents (NAEA), believed that next year we will see a growing struggle for those trying to get onto the home ownership ladder, with house prices further beyond the reach of low to middle earners… Continue reading
Surge in mortgages available in UK for small deposit buyers
A surge of product launches over recent months means the number of 95% loan to value (LTV) mortgage products available in the UK rose by 84% year on year, new research shows. In November some 260 different products in this range were available, the highest amount since the recession according to the latest Genworth/Moneyfacts Mortgage LTV Tracker. Analysis by Genworth, a mortgage insurer, reveals the number of mortgage products available to buyers with a 5% deposit has risen by 119 over the last year, from 141 in November 2014 to 260 last month. There are now more than six times as many 95% LTV loans available compared to September 2013 at 260 compared to 43, before the Government’s Help to Buy mortgage guarantee scheme launched. It means there are more deals available for home buyers with a 5% deposit than at any other time since the recession as the number of available products has surged in recent months, rising by 68 in the last three months alone. In comparison, competition in other areas of the market has stayed relatively stable or, in some cases, even declined. The number of 75% LTV products fell by 38 between August and November this year. The number of 90% LTV loans fell by one, while 80% LTV products rose by just nine in the same period. 85% LTV loans remained constant, with 669 products available. The tracker report also shows the average rate of a 95% LTV mortgage fell 1.15% from 5.27% in November 2014 to 4.12% last month, also the lowest amount since the recession. Average 75% LTV mortgages also fell by 0.27% annually to 1.90% in November from 2.17% at the same point last year. However, this was 0.07% higher than the record low of 1.83% seen in June 2015. Nevertheless, this means the price gap between 95% and 75% LTV decreased year on year by 0.88% to 2.22%, the smallest since the recession. Off the back of low rates, the number of first time buyers has also increased. Indeed, the third quarter of 2015 saw the highest number of loans to first time buyers so far this year at 86,800, up by 13% from the second quarter of 2015 and 6% more than the 82,100 loans made in the third quarter of 2014. The average first time buyer LTV in the third quarter rose from 82% in the first quarter of the year and the second quarter to 84%, giving the average first time buyer a deposit of 16%, down from 18%, unchanged from the third quarter of 2014. However, Genworth’s analysis raises concerns that lending at 90 to 95% LTV is actually in decline. There was £1.61 billion lent through 90% to 95% LTV loans in the third quarter of 2015, down by 27% from the £2.20 billion lent in the third quarter of 2014. This means… Continue reading
