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Budget Targets Landlords

Budget Targets Landlords

Was The Budget Really That Much Of A Surprise?

The first Conservative budget for 20 years was expected to be good for Britain; however, the reality was not what many landlords wanted to hear.

The decision to target private rental sector landlords and property investors wasn’t too much of a surprise, as the Government can plainly see where the profits are being made and they, like all the rest of the political parties, want a slice.

On the run up to the general election in May 2015 every other political party openly stated that they intended to target landlords, whilst the conservatives remained quiet, prompting a few political commentators to predict that policies would be introduced surreptitiously that would effectively put money into Government coffers.

That’s exactly what we got last week!

The key points that affect landlords from George Osborne’s budget statement include:

Benefit Cap Lowered To £20,000 (GBP)

The total amount of benefits a family can receive over the course of a year has been reduced from £26,000 (GBP) to £20,000 (GBP) – (£23,000 in London).

This is a particular concern for landlords as any loss of income from the reduced benefit cap will hit tenants’ housing benefit first.

Many private rental sector landlords are now worried about increased rent arrears and the probability that many areas of the UK will become unaffordable for large families to live in.

The Government have said that they will allocate £800 Million (GBP) of discretionary housing payments for councils to help affected tenants.

Housing Benefit Abolished For Under-21s

From April 2017 the automatic entitlement to housing benefit for 18- to 21-year-olds will be scrapped for new claimants.

Exceptions will be made for vulnerable young people, including those unable to return to their family home and claimants who were in work for six months prior to making a claim.

Working-Age Benefits Frozen For Four Years

The freeze means Local Housing Allowance (LHA) will fall further behind inflation as the chancellor seeks to stop the housing benefit bill soaring with increasing rents.

Buy To Let Landlord Mortgage Relief Cut

In a £2bn tax bombshell, from April 2017 landlords will no longer be able to claim tax reliefs worth 40% or 45% of the interest payments on their buy-to-let mortgages. Instead, the maximum tax relief will be set at 20%, although the change will be introduced over a four-year period.

Effectively it looks as though 40%/45% taxpayers will only get around half of their mortgage interest (and arrangement fees) offset against their rental income.

20% taxpayers shouldn’t see much change as all mortgage relief will be limited to the basic rate of income tax.

The effect of this will be staged meaning that

  • 25% of this extra tax will be payable on profits made in the April 2017 – April 2018 tax year,
  • 50% in April 2018 – April 2019,
  • 75% in April 2019 – April 2020
  • 100% in April 2020 – April 2021 meaning that the full effect of this change won’t be felt until the January 2022 personal tax bill is due.

Despite the staged introduction many PRS landlords have warned that this could see costs passed on to tenants in the form of higher rents.

Wear And Tear Allowance Tightened

Landlords will have to prove they have improved or maintained their rental property before they can deduct the costs from their taxed profits.

Currently, landlords can deduct 10% of the rent from their profits to account for wear and tear regardless of whether they have improved the property or not.

From April 2016 this is set to be replaced by a new system that only allows landlords to get tax relief when they replace furnishings.

Changes To Non-Domicile Rules

This change in entitlement could affect property investment and buy to let, particularly in London as people born in the UK to parents domiciled here will not be able to inherit non-dom status and people will not be able to have permanent non-dom status.

Anyone resident in the UK for 15 of the last 20 years will have to pay full UK tax.

Rent A Room Tax Free Income Threshold Raised

After 18 years, the Rent A Room tax free income threshold is being raised to £7,000 (GBP) per year. There are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just 5% of those rooms would accommodate 1 million people. This move will also fuel the growth in short, informal lets such as the type offered by Airbnb and the like.

The tax reliefs that have been cut by Mr Osborne were hugely important for landlords in being able to offset other astronomic property costs such as lettings agent fees, landlord insurance, maintenance and repairs costs, as well as council tax.

It is still early days and we need to see how HMRC will implement some of these changes, because they may also try to find additional ways to stop property investors and landlords from profiting from property, however, there are ways to get around some of the changes introduced, including:

Tax Relief

Limited (Ltd) companies appear to be excluded from the mortgage relief cuts meaning that property investors and landlords could potentially look to purchase their future investment properties through Ltd companies.

Buy To Let mortgage lenders could become more open to this method of purchasing properties similar to the way that commercial lenders already facilitate.

Landlords who already own properties personally or in a Limited Liability Partnership (LLP) may want to transfer them to a Limited (Ltd) company; however, they will be subject to capital gains tax and stamp duty.

An alternative method to transfer property ownership whilst retaining the current mortgage would be by using a deed of trust, which would transfer the beneficial ownership to a Ltd company. A good solicitor can draw one of these up for you.

Property investors and landlords could also switch their focus slightly and purchase more properties that need refurbishments.

As long as the property is in a habitable condition when purchased but still needs redecoration and comes into the lettings market before the refurb is done, most repairs such as kitchens, bathrooms, paint etc can be offset against all property income from a whole rental portfolio.

Bird_OldLadyWe will always try to keep our sector alive and rents affordable as we are providing services to people who need them, we don’t set out to rip people off, we’re not politicians, we are the ones who take the financial risks, we’re the people who provide housing and it’s our name on the deeds not yours.

You see Mr Osborne, whilst you may think that you are being clever and are tapping in to wealth generated by other people’s hard work and risk taking, well, we as landlords won’t be beaten!

How Landlords Are Affected By 2015 Pre-Election Budget

How Landlords Are Affected By 2015 Pre-Election Budget

How Landlords Are Affected By 2015 Pre-Election Budget

During the pre-election budget last week, Chancellor of the Exchequer, George Osborne MP announced some significant changes that could have a detrimental impact on landlords the UK’s private rental sector (PRS) and residential property owners.

Below are the highlights of the pre-election budget that are of relevance to landlords and property owners:

  • £13 Billion (GBP) sale announced of the mortgages of UKAR – Northern Rock and Bradford and Bingley (Mortgage Express) to reduce national debt which followed the bailing out of the banks.
  • Introduction of 20 new housing zones.
  • The economy of the North grew faster than the South during 2014.
  • The UK has the highest rate of employment in its history!
    Employment is growing fastest in the North West, Yorkshire having the biggest employment.
  • Living standards are higher in 2015 than 2010.
  • Inflation forecast downgraded to 0.2%.
  • Low interest rates to be “locked in”.
  • Original target of debt reduction set in 2010 budget has been met.
  • 13 years of rising national debt has now been stopped.
  • UK achieved the largest and most sustained debt reduction of any major economy according to the IMF.
  • Government borrowing is falling.
  • The wealthy are making the biggest contributions to reduce debt.
  • End of austerity in 2019.
  • The annual tax return is to be abolished. New digital tax accounts to be created.
  • The personal tax free allowance has been raised to £10,600 (GBP) and will be raised to £11,000 (GBP) in 2017.
  • The higher rate tax threshold will rise to £43,300 (GBP) by 2018.
  • Class 2 national insurance contributions abolished for self-employed.
  • Stronger measures against tax avoidance and tax evasion.
  • Review of avoidance of inheritance tax through deeds of variation.
  • New penalties for tax evasion and those professionals who assist them.
  • Crime down 20%.

There was some good news contained in the 2015 pre-election budget too:

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UKAR Chief Executive Warns That Over 20,000 Customers Could Face Mortgage Arrears If Interest Rates Rise This YearUKAR Chief Executive Warns That Over 20,000 Customers Could Face Mortgage Arrears If Interest Rates Rise This Year

The chief executive of UK Asset Resolution (UKAR), who are winding down the loans of Northern Rock and Bradford & Bingley, affectionately known as “Britain’s Bad Banks”, has warned that thousands of its customers could be pushed back into arrears if there is a rise in Bank of England (BoE) interest rates.

UK Asset Resolution (UKAR), seventh-biggest mortgage lender said last week that they had repaid £6.2 Billion (GBP) to the UK Government in the 15 months to the end of March 2014, meaning it had so far paid back £10.4 Billion (GBP) of the £48.7 Billion (GBP) it owed.

However, if there is a rate rise it could potentially make it harder for taxpayers to get their money back after bailing out the bad banks.

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Help-To-Buy Scheme Could Threaten UK Housing Market

Help-To-Buy Scheme Could Threaten UK Housing Market

The Help To Buy Scheme Could Be Scaled Back Amid Concerns That The UK Property Market Could Be Heading
For Another Property Bubble

George Osborne, the Chancellor of the Exchequer has said that the Bank of England are being vigilant on UK house price rises and they would intervene if the situation becomes necessary.

The Chancellor’s comments come after the Organisation for Economic Co-operation and Development (OECD) warned that the booming UK property market could threaten the economic recovery of the country.

Possible action could include reigning back the Government’s Help-To-Buy scheme, which enables people with only a small deposit to take out a mortgage.

In a report the OECD said that “The UK should introduce measures to address the risks of excessive house price inflation, as property values now significantly exceed long-term averages relative to rents and household incomes. Access to the Help to Buy scheme should be tightened, and buyers should be required to put down bigger deposits for mortgages”.

In response to the report, Mr Osborne said: “I’ve said we should be vigilant about the housing market and this Government has given the Bank of England the power and the tools to do what they felt needed to be done to help to contribute to building a resilient economy in an independent way”.

The Help to Buy scheme enables the Government to place a second charge on properties purchased under the scheme, allowing them to have some degree of profitability and allow them a small degree of control over the UK property market.

People buying property worth up to £600,000 (GBP) using a deposit of just 5% may be grateful of the Government’s help but many fail to realise the full implications of the scheme, or spot the Government tactic of controlling properties.

The Government either top up the purchasers 5% deposit with 20% of the property’s value or it will underwrite a portion of the debt allowing lenders to advance purchasers with high loan-to-value mortgages that the Government guarantee.

The £600,000 (GBP) upper limit of the Help-To-Buy scheme has been widely criticised for being too high, however, recent figures show that the average cost of a property bought using the scheme was just £148,000 (GBP).

Concerns are rife that another property bubble may be formed in the UK property market following a continuing run of positive house price trends.

Mortgage lender, Nationwide recently reported that property values had risen by 10.9% during the last 12 months, the first time annual house price inflation has reached double figures since April 2010.

Data from the Land Registry also shows that average property prices in London have already surpassed the previous 2007 peak.

Recent property price increases have caused the typical average cost of residential property in the UK to rise to £262,770 (GBP), according to Zoopla.

New regulations to control borrowing were introduced at the end of April 2014 to ensure prospective property owners are not risking taking on too much debt.

Under the Mortgage Market Review, lenders are required to carry out stringent affordability checks, including making sure borrowers can continue to meet the mortgage repayments if and when interest rates rise.

However, data on the number of mortgage approvals for residential property purchases appear to suggest that the market may be moderating, with the Bank of England reporting a dip in loan approvals for the second consecutive month during March 2014.

New Affordable Housing Guarantees Funding Is Intended To Deliver

New Affordable Housing Guarantees Funding Is Intended To Deliver
Thousands Of Affordable Properties

New Affordable Housing Guarantee Funding Is Intended To Deliver Thousands
Of Affordable Properties

On the 24th July 2013, Government ministers announced a multi-million pound boost to build thousands of new and affordable residential properties in the UK.

69 different housing associations and developers will each receive a share of £220 million (GBP) to deliver almost 14,000 new and affordable residential properties outside of the London area.

Work on the new residential properties will be started by March 2015 and will be expected to be completed by 2017.

The move is part of wider government efforts to get Britain building, which will lead to the fastest annual rate of affordable house building for over 2 decades.

The increased funding is part of the expanded £450 million (GBP) Affordable Housing Guarantees which will support up to £3.5 Billion (GBP) in government debt guarantees to deliver thousands of new homes.

Of the almost 14,000 homes this money will help deliver, the majority will be available at an affordable rent with 2,000 of those available to buy through shared ownership.

Housing associations and developers who plan to use the guarantee scheme will now work with the Affordable Housing Finance to finalise the details of the loan funding that will work alongside today’s grant allocations.

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Confidence in the UK’s commercial property sector has fallen for the first time in almost a year amid fears about the economic fallout of the Eurozone crisis.

According to survey data released last Friday by Lloyds Banking Group, the UK’s largest commercial lender, confidence in the prospects of the industry are being pushed lower by fund managers, only 10% of whom expect activity to increase within the next six months.

Large businesses were more positive, however, with more than two-thirds intending to increase their exposure to the sector.

Lloyds is well placed to gauge industry sentiment, having inherited a large loan book from its takeover of HBOS.

The group owns more than £60 Billion (GBP) or $93 Billion (USD) of commercial property loans.

Lloyds’ Managing Director of Corporate Real Estate, Lynda Shillaw said: “This quarter’s market overview suggests that weakening prospects for the world economy, turbulence in global financial markets and Europe’s sovereign debt crisis are impacting negatively on UK commercial property confidence.”

Added to the news that UK retail surveyors are reporting an increase in vacant retail units and the picture becomes even gloomier for landlords with commercial premises on the British high street.

According to the Royal Institute of Chartered Surveyors, (RICS), the number of retail surveyors who saw an increase in available shop space rose 14% during the three months to September,

The 29% net balance of those seeing a rise in availability, up from 15% in the last quarter, is a worrying omen for the retail property sector, which is suffering from falling consumer confidence as well as a massive tightening in lending from UK banks.

The number of respondents reporting increased demand for shop space fell, with the net balance declining from 12% in the second quarter to -19% during the three months to October.

Simon Rubinsohn, RICS chief economist said; “There is a suspicion that the recovery that was expected is no longer coming, and with more stock coming through and demand falling, rents are going to come under pressure. The resolution of the sovereign debt crisis in Europe would go some way to alleviating the concerns, but confidence is crucial to the retail sector and at the moment it is hard to see where the good news story is coming from”.

Across the wider commercial property sector, demand levels slipped back for the first time since last year, with a net balance of surveyors seeing demand among tenants falling to -11% from a 10 % positive balance during the last quarter.

Landlords across the sector also offered special deals and discounts to encourage retail tenants to take up commercial property rental agreements.

Over the last three months, 20% of commercial landlords said the need for inducements had been increasing and many felt that landlords were under increasing pressure to incorporate more flexibility into their leases.

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