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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!

Looking For A Buy To Let Mortgage?

Quarter Of Potential Property Investors Don’t Know How To Apply For Buy To Let Mortgages

New Research Discovers That Quarter Of Potential Property Investors Don’t Even Know How To Apply For Buy To Let Mortgages

New research by a specialist mortgage lender has discovered that an amazing 28% of would-be property investors don’t know how to apply for a buy to let mortgage in order to finance their property purchases.

The figures show that 1 in 4 potential property investors considering investing in property to boost their retirement income don’t know how to apply for a buy-to-let mortgage to get started on their property investment journey.

The research, conducted by specialist mortgage lender Kensington, also found that 54% of people approaching retirement age would consider investing in property using buy-to-let mortgages in order to help increase their income in retirement, but many didn’t know what they needed to do or what evidence to provide in order to apply for the correct type of mortgage.

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Politicians Want PRS Control

Politicians Want PRS Control

Labour Announces Further PRS Controls

The Labour party leader, Ed Miliband, has announced his party’s plans to reform the private rented sector (PRS), with longer term tenancies and rent cap proposals, should they win the May general election.

Labour have been at the forefront of the PRS reform movement for some time, campaigning for longer term tenancies for tenants in the private sector and now the political party leaders want to introduce even more legislation that would effectively cap rental prices so they cannot be increased by more than the rate of inflation (CPI) during the proposed secure three-year tenancies.

The PRS control proposals were supposed to win the hearts and minds of the 9.1 Million households currently living in private rented sector properties, however even tenant campaign groups can see that these new proposals have more holes in them than an old Swiss cheese.

The introduction of new legislation that Labour are proposing would require landlords and letting agents to disclose the rental prices charged to any previous rented property occupants, allowing tenants to have the upper hand in negotiating the best possible rental price with landlords, before the start of a new tenancy.

Do TESCO provide customers with information concerning the actual purchase price that they pay for items before they sell them on at a huge profit, do they reveal operational profit margins – No they don’t!
Prices fluctuate as do operational costs, why should landlords be singled out for special measures when other business sectors are left alone?

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UK Property Investment Increases 8% In A Year

UK Property Investment Increases 8% In A Year

UK Property Investments Rise By 8% During 2014

UK property investment is booming again, thanks in part to the Government changes to the way pensions are controlled. The changes allow interested property investors to release pension funds for property purchases early, because bricks and mortar continue to offer a greater return than pension funds currently provide.

Property investment in the UK is becoming even more popular with the number of property investors increasing by 8% during the past year, according to data recently released by letting agent, Ludlow Thompson, with landlord numbers rising to approximately 1.63 million controlling approximately 3.1 million private rental sector (PRS) properties in the UK. 

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UK Rental Properties Must Have EPC Above “Band E” By 2018

UK Rental Properties Must Have EPC Above “Band E” By 2018

Rental Properties Must Have EPC
Above “Band E” By 2018

The Department of Energy and Climate Change (DECC) says that from April 2018, UK private rented sector (PRS) landlords will become legally required to raise the energy efficiency of rental properties in the private sector to at least “Band E” in energy efficiency standards.

From April 2016, landlords in the private rented sector (PRS) will also be required to accept reasonable requests from tenants for energy efficiency measures to be installed in rented properties.

EPC formatThis means that hundreds of thousands of landlords with buy-to-let mortgages could be hit with bills of up to £9,000 (GBP) under the new green targets set out to make rental properties more energy efficient.

The Energy Performance Certificate (EPC) ranks a property’s energy efficiency from A for the most well-insulated and energy-saving properties, to G for the worst.

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Increase In Mortgage Lending Reported By CML

Increase In Mortgage Lending Reported By CML

Property Market Remains Healthy As Gross Mortgage Lending Rise Reported By UK Council Of Mortgage Lenders

There are plenty of media reports suggesting that the UK property market may have stalled and some economists have even gone so far as to predict another property price crash may be on the cards.

However new figures published by the CML show that these statements are far from true as there has been a considerable rise in the value of gross mortgage lending recorded in the UK over the last month.

Figures published by the Council of Mortgage Lenders (CML) highlight a significant rise in mortgage lending volume during October 2014, with gross mortgage borrowing increasing by 5% from September this year to £19 Billion (GBP) making the total gross lending value 8% higher than during October 2013.

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Mortgage Market Review Already Causing Delays For Borrowers

Mortgage Market Review Already Causing Delays For Borrowers

Mortgage Market Review Already Causing Delays For Borrowers

Would be residential property buyers are dismayed about the change of the rules on residential mortgages, with strict lending criteria tightened following the introduction of the Mortgage Market Review (MMR).

Since 26th April 2014, mortgage lenders have been required to carry out much more detailed checks of a borrower’s financial situation to be sure that they can truly afford to purchase and continue to afford the property, both now and in the future.

The introduction of the MMR is supposed to help regulate the residential property purchase market and does not yet apply to buy to let mortgages, but that could happen in time.

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Mortgage Market Review Hits UK Property Market

Mortgage Market Review Hits UK Property Market

Mortgage Market Review Affected Housing Market Before Launch

The new regime for the approval of mortgages came into force over the weekend (26th April 2014) but even before it was officially launched it was having a dramatic effect on applications, with loan offers being carefully scrutinised and the impending process had lenders asking even more questions before approving any mortgage offer.

I experienced the vagaries of the system myself, when taking a call from a lender the day before funds were due to be released, I was asked to provide even more details than ever before on a loan application, culminating in further delay to purchasing, and the details I had to provide and verify could have been done weeks before.

The lender said the additional information was in order to comply with MMR and this was before the official launch date. The property I was purchasing should have completed last week, before the MMR introduction date, but the delays caused by the lender requesting verification of the additional information required to process my loan meant that the loan process was delayed and resulted in dragging things out, until 9am today, when my solicitor called me to say that the purchased had finally completed.

The additional requirements of the MMR will result in the death of quick purchasing by property investors, however, I now know that in order for loans to be agreed that I have to provide extremely detailed accounts, financial projections, and provide verified proof of everything I have ever done in order to prove affordability.

The personal finance industry publication Mortgage Strategy says 7 out of 10 mortgage brokers reckon that it will be harder and slower for prospective purchasers to get a mortgage loan under the new MMR regulations.

For all new mortgage applicants it means not only providing evidence to the lender of all income and earnings including payslips or audited and verified accounts for the self-employed, but also requires providing details of all spending, too.

Mortgage applicants must itemise and cost spending on things they cannot do without, as set out in a list provided by the Financial Conduct Authority (FCA), including food, household cleaning and laundry, all heating costs, water bills, telephone, essential travel and existing property charges such as council tax, buildings insurance, ground rent and service charges for leasehold apartments.

Applicants must also disclose discretionary spending on clothes, household goods, personal goods such as toiletries or leisure activities.

The FCA says mortgage applicants must itemise other debts such as credit card bills, outstanding loans, child maintenance and alimony payments.

Mortgage lenders and finance providers must consider how interest rates are predicted to change over the next five years, to gauge the affect on borrower’s mortgage repayments. If payments are likely to go up then the lender will check that the borrower can afford it based on disclosed financial commitments.

And if mortgage terms extend into a borrower’s retirement, the lender has to check on pension income predictions too, in order to judge continued affordability.

Buy-To-Let Mortgage Lenders Reducing Rates As Demand Soars

Buy-To-Let Mortgage Lenders Reducing Rates As Demand Soars

Buy-To-Let Mortgages Improving To Meet Increased Demand

UK mortgage lenders are offering more Buy-To-Let mortgages, with better rates on smaller deposits, in response to soaring demand from property investors and portfolio landlords over the past year.

Buy-To-Let mortgage lending increased by 18.6% in 2013 compared to 2012, according to the latest figures from the Council of Mortgage Lenders (CML).

The last quarter of 2013 also saw Buy-To-Let mortgage lending finish strongly, despite a predictable seasonal dip in December, with lending up 20% against the same period of 2012.

Demand for Buy-To-Let mortgage loans is picking up as landlords in the UK seek to expand their rental property portfolios, with over 30% aiming to buy more properties in the next 12 months and more than 80% of UK private rental sector (PRS) landlords are making a full-time living from their lettings activity according to the latest BM Solutions/BDRC Continental Landlord Panel.

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Interest Rate Rises Could Stall UK Rental Property Market

Interest Rate Rises Could Stall UK Rental Property Market

Interest Rate Rises Could Decimate
UK Rental Property Market

The recent changes in the dynamics of the UK property market are forcing a number of mortgage lenders and property investment specialists to advise clients how they can better protect themselves.

The Governor of the Bank of England, Mark Carney, has claimed that the BoE has no immediate plans to increase the base interest rate, currently remaining at the 0.5% record low, however this situation could change within the next twelve months.

The UK property market remains in a fairly delicate state and affordable residential properties are being bought with amazing speed, as the UK economy continues to improve but property prices are predicted to rise considerably over the next few months.

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