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UK landlords cautious over investment due to buy to let changes
Government policies aimed at cooling the UK’s buy to let market are making landlords cautious about their future investment plans for 2016, increasing pressure on the private rental sector, research shows. Although 68% of landlords surveyed by lettings agency Belvoir had not raised their rent in the last 12 months, some 86% believe that increased purchasing costs for investment properties will inevitably lead to increased rents. The majority of landlords who responded to the survey were investment landlords with one to 10 properties and 93% of these rental properties were located in England. They were asked how changes to stamp duty and taxation were likely to influence their investment plans for the next 12 months and 44% said they will be adopting a cautious approach to further investment. Some 68% of landlords had not increased their rents at all in the last 12 months, and almost half of those surveyed have no plans to increase rents in the next 12 months. However 88% believe that increased purchasing costs for investment properties, due to a rise in stamp duty and lack of buy to let mortgage tax relief, will ultimately lead to increased rents. Landlords are almost equally divided in their views as to whether they think buy to let remains a good investment for new people coming into the market. A total of 46% thought it would still be a good investment and 40% thought it would not, with 14% undecided. When asked what effect on the rental sector the Government’s drive on home ownership will have, the results were varied, with some landlords predicting a slowdown and others predicting minimal effect, as so many people are not in a position to buy their own homes or prefer the freedom of renting. There were also concerns that many landlords would get rid of potentially uneconomic property portfolios, resulting in a shortage of rental property and large rent rises. ‘The majority of landlords named George Osborne’s anti-landlord policies as the single largest challenge that landlords will face in 2016. This is entirely in line with our prediction that increased Government interference in the buy to let market will put a real squeeze on the supply of property in the rental market in 2016 and beyond,’ said Belvoir managing director Dorian Gonsalves. Meanwhile, the firm’s rental index shows that in the fourth quarter of 2015 many of their lettings agents across the country are not reporting a mass exodus of rental properties from the market. Of those that are leaving, many are accidental landlords who are anticipating being hit by the impending loss of mortgage interest relief. Indeed, in many areas, including Wales, there has been increased activity with landlords looking for advice to buy further properties before the stamp duty increase kicks in. In cities such as Cambridge, where the population is increasing, there are… Continue reading
Home owners in London more confident about house price increases than rest of UK
Households across the UK believe that the value of their home increased this month with people in London more so than the rest of the country, says the latest house price sentiment index. Households in all of the 11 regions covered by the index reported that prices rose in February, led by households in London at 68.1 and the East of England at 62.3. Households in Scotland reported the most modest rate of growth at 51.7 followed by the North East at 53. The data from the Knight Frank/Markit index also shows that households expect house prices to rise over the next 12 months, with the strongest growth expected by households in the South East. However, the rate of growth expected over the next year eased compared to January and while 23.2% of the 1,500 households surveyed said that the value of their home had risen some 4.1% said that prices had fallen. This resulted in a HPSI reading of 59.6, the 35th month in a row that the reading has been above 50. Any figure over 50 indicates that prices are rising, and the higher the figure, the stronger the increase. Any figure below 50 indicates that prices are falling. Indeed, February’s reading was the highest recorded by the index since October 2014, indicating that households perceive that the value of their home rose at its strongest rate since then. However, February’s reading remains well below the peak of 63.2 reached in May 2014, reflecting the easing in average UK house price growth seen since then. The future House Price Sentiment Index (HPSI), which measures what households think will happen to the value of their property over the next year, fell in February to 69.8, from 70.5 in January. While still indicating that households across the UK expect the value of their home to rise over the next 12 months, the future HPSI remains below its peak of 75.1 reached in May 2014. There remains a clear north-south divide in terms of the outlook for house prices, with households in Southern England more confident about future growth over the coming 12 months. Indeed, households in the South East were the most confident that prices will rise at 78.7, followed by Londoners at 77.8 and those in the South West at 74.1. In Scotland, the North East and Wales expectations for future price growth remain positive, but are more subdued at 62, 60.6 and 62.5 respectively and the data also show that those who own their home outright are the most confident that prices will rise over the next year at 75.4, followed by mortgage borrowers at 75.2. ‘The HPSI indicates that house prices are set to continue to tick up modestly in the coming months. The market is being underpinned by the solid economic recovery and ultra-low interest rates which now look as if they will stay put for some time to come,’ said Gráinne Gilmore, head of UK residential research at… Continue reading
High proportion of UK landlords considering ways to combat tax change
Some 40% of landlords in the UK are either seriously considering forming a limited company in order to limit their exposure to changes that will restrict mortgage interest or will be looking into the option in the coming months, according to new research. However, the research from the National Landlords Association (NLA) found that so far only 1% had actually incorporated, which the NLA says can be explained by the high cost of transferring property held personally into a company. The findings also show that 31% have no intention of moving their portfolio to a limited company and that 29% are still unsure about whether they will incorporate or not. Mortgage interest relief for individual residential landlords, which will be restricted to the basic rate of income tax of 20% by 2021, will begin to be phased back from April 2017. The changes will mean that landlords will no longer be able to deduct the cost of mortgage interest before declaring their taxable profit, and will instead receive a tax credit of 20% of their mortgage interest costs. The NLA has labelled the changes the Turnover Tax, because landlords’ tax will be calculated on rental income they earn, rather than their profits, forcing many basic rate payers into a higher bracket and leaving higher and additional rate payers with considerably bigger tax bills. Landlords structured as companies will be exempt from the changes, instead paying corporation tax, currently 20%, on their profits alone. ‘Transferring personally held property to a limited company isn’t a straightforward process, so it’s not surprising that so few have taken this action so far. Landlords need to do their research but many will realise that incorporating simply doesn’t stack up financially; doing so will incur capital gains and potential stamp duty charges, which means the process may be prohibitively expensive,’ said Richard Lambert, NLA chief executive officer. According to Richard Price, executive director of the UK Association of Letting Agents (UKALA), if landlords follow through with these intentions then it’s likely that more and more will take a hands on approach to managing their portfolios in the future, which would mean less business to go around for agents, and certainly less of a need for full service offerings. ‘The changes to taxation are forcing landlords to re-evaluate their businesses and their place in the market, so our advice for agents is to begin talking to your clients about their intentions over the next few years, and consider how you’ll meet their changing needs in a way that is distinct from your rivals,’ he pointed out. Continue reading
