Tag Archives: landlord

The Buy-To-Let Boom Is Over

To Let 3The conditions are right for a ‘perfect storm’ for buy-to-let landlords. Higher taxation will reduce net rental yields, new statutory regulations will add to costs and the imminent increase in interest rates will lead to falling property prices, creating a stampede of landlords desperate to sell, forcing prices even lower.

One in ten people over 50 now own a buy-to-let property, bringing in an average “profit” of £700 a month. A third of these became a landlord during the last five years with one in seven inheriting and 7% buying a home for one of their children or grandchild to live in, according to a survey of more than 10,000 landlords by Saga Landlord Insurance.

But a buy-to-let investment is not all it is cracked up to be?
The Saga survey also revealed that:
– One in ten over-50s landlords are only just breaking even or are actually losing money every month.
– Over 30% of those surveyed feared renting to bad tenants.
– Around 20% are worried about managing their rental property as they get older.
– Over 30% had issues with unpaid rent, a quarter had suffered damage to their property and one in ten are taking legal action against tenants.

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Summer Budget – Buy-To-let Landlords To Lose Their Tax Breaks

Budget2015Boost for first-time buyers as buy-to-let landlords’ profits are slashed in crackdown on mortgage interest tax relief. Thousands of buy-to-let landlords will see their earnings hit after George Osborne cracked down on mortgage interest tax relief in his summer Budget. These were the headlines but the reality is a bit different.

Whilst the proposals are a welcome start to end the unfair tax relief enjoyed by buy to let landlords, nothing is going to change any time soon. The Mañana Chancellor ,George Osborne hits buy to let landlords in his latest Budget – but not until April 2017 and even then the measure will be phased in over four years! This is to give landlords time to “sort out their affairs.” More likely, it will enable many UK landlords to side-step the new measure by choosing to own properties through corporate structures to continue to benefit from relief on mortgage interest payments with lower corporation tax, cut to 18% by 2020, another incentive according to mortgage brokers.

In the budget, tax relief for landlords on mortgage interest payments is to fall and they will only be able to claim the basic rate 20% tax relief on mortgage interest payments rather than 45%, or their highest rate. The Chancellor said the move will “level the playing field for homebuyers and investors”. The current tax break for landlords is estimated to cost the Treasury £6.3billion every year a Freedom of Information request revealed.

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Blame the rich and housebuilders for rising house prices

The highest paid 1% receives around 8% of the national income. The wealthiest 1% owns 23% of the national wealth. It is in property where greatest inequalities lie, not income.

Most people are in favour of higher wages and benefits for the poor, higher taxes on the rich 1% and the provision of food, clothing, shelter and health care for all. Who are against this?  The rich.   Even though the vast majority of our population is in favour of progressive and fairer policies, the rich are better placed to influence politics. Why else do wealthy individuals give so generously to political parties? The rich have always prioritised their own self-interests above the needs of the many.

The UK residential market is a prime example. The rich have squeezed out any resemblance of affordability for the many, through ever-higher house prices and declining real term wages. Demand from private buy-to let landlords, who have the benefit of generous tax breaks that homebuyers do not, have helped force house prices ever higher at the expense of working first-time buyers.

Policies such as ‘Right to Buy’ have reduced the amount of affordable, state-owned homes for rent by people on low wages or benefits. The result, those that need to rent are being forced into the private rental sector, with higher demand from those receiving housing benefit resulting in the rich landlords increasing rents ever higher, when rents can be covered by taxpayers to the tune of up to £15,000 a year, irrespective of what is considered a ‘reasonable’ or ‘affordable’ rent.

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Labour To Abolish Stamp Duty For First-Time Buyers

Ed Miliband ElectionEd Milband announced this week, that if Labour triumph in next weeks’ election, he will abolish stamp duty for three years to help first time buyers buying homes costing up to £300,000. At this level, the maximum saving in stamp duty land tax will be £5,000. It is being claimed that 90% of first time buyers will benefit.

But you read it here first!
On 20 March after the Conservatives announced their Help to Buy ISA in the Budget speech, I suggested it would be fairer, easier to implement and more help right now, to abolish stamp duty on all first time buyer homes up to £260,000. I also called for an end to the lucrative tax breaks enjoyed by Buy to Let landlords such as ending tax relief on mortgage interest to facilitate a flood of properties to the market, the very properties usually bought by first-timers.

Whilst welcome, and a much better and effective measure than the Conservatives’ own election bribe for first time buyers – the ill-thought out Help to Buy ISA (Bisa), it will also not make homes more affordable. When stamp duty was abolished in March 210 on homes up to £250,000, treasury analysts discovered that it actually facilitated a 0.7% increase in house prices.

In his speech in Stockton on Monday, Mr Miliband said:     “There’s nothing more British than the dream of home-ownership, starting out in a place of your own. But for so many young people today that dream is fading with more people than ever renting when they want to buy, new properties being snapped up before local people get a look-in, young families wondering if this country will ever work for them. That is the condition of Britain today, a modern housing crisis which only a Labour government will tackle.”

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The ‘Buy to Let’ boom ends as new rules come into force

‘Buy to Regret’ as Landlords face even more red tape

The popularity of Buy to Let may be coming to an end as new rules and regulations come in force and rental yields and property prices stagnate.  Add in the increasing numbers of tenants “misbehaving” and many landlords may soon decide enough is enough.

Landlords are being forced to delay rent increases:   Until recently, rents were rising by as much as 8% a year in London. But now across most parts of the country rent increases are being either reduced or postponed as achievable affordable rents have now reached a peak. However, attractive homes in areas of high demand do still command high rental yields.

Property prices rises levelling out:   Recent monthly reports of property prices show that rises are slowing down. This means landlords’ easy paper profits on their property portfolios are coming to an end and may even go into reverse when (not if) the property market falls.

Large fines for not checking tenants are legally allowed to be in the country:   The Immigration Bill 2014 which comes into force next month, means landlords must check that their tenants have a legal right to be in the country before giving them the keys. If they do not, landlords can face fines of up to £3,000.

Problem tenants on the increase:   The number of “tenants behaving badly” is on the increase.  Insurer AXA reports that a number of tenants are making life difficult for landlords.  Nearly 20% of tenants admit they have kept pets in the property and broken the terms of their leases.  A third regularly pay their rent late and one in ten do a moonlight flit at the end of their tenancy to skip paying any final bills.  Nearly one in six tenants has had noise complaints made against them, with 10% of tenants having had the police called to the property.  Landlords can even face prosecution if their tenants are producing cannabis or any other banned substances in their property under the Misuse of Drugs Act 1971.

Other regulations and red tape landlords are now required to do:

  • Comply with fire prevention rules on the type and standard of furniture.
  • Carry out Annual gas safety checks on boilers and gas appliances.
  • Test electrical appliances.
  • Supply an Energy Performance Certificate if a tenant requests one.
  • Landlords must use a government-backed deposit protection scheme within 30 days of receiving it from the tenant. Failure to do so could result in a fine of up to three times the value of the deposit.
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Advice On Becoming A Landlord

With nine million people caught by the double-whammy of soaring house prices and stagnant wages, landlords have a ready supply of lifelong tenants. Even with the government’s Help to Buy subsidies, many are still struggling to save the required 5% deposit and face renting for the foreseeable future. 

To Let boards Residential landlords are also able to take advantage of various tax breaks that are not available to owner-occupiers. The main break being that all costs for owner-occupiers are paid out of income after it has been taxed, whereas landlords can claim generous allowances via self-assessment to offset their tax bill. The generous tax treatment of landlords equates to a total subsidy of £5bn a year from every taxpayer. It is no surprise therefore; that around 4% of UK adults are landlords and 17% of our MPs are landlords, meaning it is unlikely the landlord’s current tax breaks will change anytime soon! 

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Why Britain has become a nation of renters

Britain has become a nation of renters. This is demonstrated by figures showing home ownership is now at its lowest level since 1987, at 65%. Correspondingly, the number of families living in rented accommodation has risen 126% since 2006, with 874,000 families now renting their home.

Buy to Let

To Let 3With strong demand from tenants, rents are high and rising and the cost of a buy-to-let loan is low. With most other investment yields at an all time low it is unsurprising that more people are becoming landlords. In the second three months of 2013, 40,000 buy-to-let mortgages were approved, a 21% rise on the previous quarter. Over 17% of the population now live in private rented accommodation, mostly provided by small landlords.

Saving a 5% deposit

It is becoming more difficult for first time buyers to save for a deposit, especially as many may also end up paying stamp duty as well. The combination of rising living costs and negligible pay rises is making it even harder. The ONS say that real wages are now at 2003 levels. In addition, all savings rates are below inflation so any money saved for a deposit is losing its real value. For the current UK average house price, a 5% increase in house prices means buyers need to save an extra £450 deposit.

The increased demand for rental properties has resulted in ever-higher rents. The average rent in England and Wales is now £738 a month, in London it is more than £1,100. For those on the national average wage (£26,500), rent consumes half their monthly take home pay. In addition to rent, letting agents often charge tenants high fees in some cases up-front fees can amount to £2,000 to cover the deposit and various administration fees for credit checks, inventory and contract paperwork.

Different attitudes towards saving

Whilst it is hard to save a deposit, it is not impossible. For the average UK house price of £170.500 a 5% deposit would be just £8,500. If people cannot save this over a few years, they are likely to be ill equipped to manage their finances to meet mortgage payments and the bills that come with home ownership. The problem is that the UK has a ‘want now – pay later’ generation who are not prepared to wait and sacrifice their overseas holidays, new cars and designer clothes to save a deposit for a home. It is not uncommon for this new generation to get through £100 on a ‘night out’ (£5,200 a year) even a modest four or five pints of beer a week amount to £750 and going without that morning coffee would save another £750 a year. A 20-a-day smoker is spending around £3,000 a year.

Government interference

Low interest rates and government taxpayer subsidies are pushing houses prices ever higher, improving mortgage availability for some, whilst making owning your own home ever more difficult for many. House prices are now increasing at pre 2007 rates, rising around £500 a month during this summer.

help to buyThe Government’s Help to Buy scheme has resulted in new home prices increasing 7% over the last 12 months, along with huge increases in house builder’s profits – Barratt’s profits are up over 70%! In the five months to the end of August, a total of 12,500 reservations have been made using Help To Buy.

Housing Minister Mark Prisk said this week: “The housing market has turned a corner since the end of the unsustainable housing boom. There are more first time buyers than at any time since 2007, while housing supply is at its highest level since 2008 and growing at the fastest rate for three years.”

This would appear to be at odds with the huge increase in demand from families renting a home. There is too much emphasis on making buying a home affordable by increasing the availability of low cost loans. Most people would prefer to own their own home, but until enough new homes are built to increase supply and drive prices down, which house builders are unlikely to do voluntarily, priority should be given to building decent homes at rents people can afford rather than subsiding house builders.

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