Buy-to-let mortgage crackdown by the Bank of England

The Bank of England is concerned about an overheating buy-to-let market so is introducing stricter controls.....

http://www.martinco.com/news/2016/03/30/bank-of-england-announces-buy-to-let-mortgage-crackdown/#.Vvvja_krKUk

Investment Opportunity

Buying new build properties has many advantages, especially for landlords.  There are low maintenance costs, generally located in popular positions and resell well.  We have just listed a nearly 4 bedroom house at Cranbrook for sale, and it is cheaper that buying a brand new one.

http://www.martinco.com/property/for-sale/234029

Brexit is creating uncertainty in the housing market

I'm sure it will be of little surprise to learn that Brexit is causing uncertainty in the property market.  There have also been a number of other contributing factors that should also be taken into consideration...http://www.martinco.com/news/2016/02/29/brexit-adds-to-housing-market-uncertainty/#.Vt2qIvmLSUk

Should I do an inventory?

I see many landlords who have been managing their properties themselves for years, who say "I've never done an inventory, I can't see the point, there is nothing in the property and when there has been damage I have just repaired it"......http://www.martinco.com/estate-agents-and-letting-agents/branch/exeter/news/the_importance_of_having_an_inventory-7759

This months’ investment tips

Buy to Let Mortgages

·         I’ve come across one or two Estate Agents that insist that you take out your mortgage through them as a condition of you buying one of their properties. This practice is illegal and you would be well advised to avoid this unscrupulous practice. In fact please report any offending estate agents/brokers  to the Property Ombudsman   https://www.tpos.co.uk/

·         Always ask if your mortgage broker / advisor is looking at the whole market for the best and most suitable deals. Some estate agents and mortgage providers will only promote the mortgages they get the most commission on resulting in you not getting the best and most suitable deal available 

·         Some estate agents will charge you for mortgage advice. Don’t deal with them as free advice is available from a number of other companies

Have your business plan figures to hand when talking to your preferred mortgage provider. Details such as your available deposit, monthly rental income forecast, details of any other mortgages you have. A summary of any other income and expenditure you have.

The following formula is used by a number of lenders to calculate your affordability rating:  

·         Loan Amount x Stress Rate x 125% divided by 12 – the result must generally be less than the monthly rental yield.

o    So as an example, the majority of lenders use a stress rate of 5.99%, so assuming a loan amount of £100,000, the formula is as follows:

o    £100,000 x 5.99% x 125% divided by 12 = £623.95 (Minimum monthly rental yield)

Note - Always talk to your preferred mortgage provider as they may have deals that allow some flexibility in the above calculation

 (Information kindly provided by South West Mortgage Brokers)     

To calculate a gross yield, calculate the annual income, e.g £700pcm x 12 = £8400.  Divide this by the property value, e.g £150,000; 8400/150,000 = 0.056.  Finally, times this figure by 100 = 5.6%.  To work out a net yield, deduct your expenses from the annual income at the start.

Welcome to 2016 by Chris Perring

I thought I would start this year by updating you on why Exeter and the surrounding areas continue to be a good place to invest in property.

Firstly some statistics: Devon, with an overall average house price of £236,191, was similar in terms of sold prices to nearby Cornwall (£239,572), but was cheaper than Somerset (£252,023) and Dorset (£286,108).

In the past year house prices in Devon were 4% up on the year before and 7% up on 2007 when they averaged at £220,043. (Source Rightmove)

 

House prices in Exeter during the past decade have grown almost 49% more than the rest of the region.  Average yields for the Exeter area generally vary between 3.7% and 6%+.

Exeter is the capital city of Devon and provides the county with a central base for education, medicine, religion, commerce and culture.

The city is also home to the Met Office and one of the country’s top ten Universities.

Prices in the city picked up last year, in part spurred on by the shortage of houses for sale in the region. Apart from being a good growth area to invest in, buyers and tenants benefit from the excellent national / international transport links and the growth of available employment from existing businesses expansion and the reallocation of business to the area from other parts of the country.

We have a number of owners and tenants who regularly commute outside Devon to work. Mainline rail connections allow you to be in central London by 9.00 am and back again for an evening meal. From Exeter International Airport you can fly to most British and European cities.

Over recent times Exeter has seen major growth in employment the building of the Peninsula Medical School, the first new medical school for 30 years, and the Meteorological Office relocating its entire operation to Exeter from Berkshire – the largest IT move in Europe at the time. Expansion of Exeter International Airport and the development of a major new science park which has already attracted new and existing businesses relocating to the area such as the blur Group.

Exeter’s retail, shopping and food outlets continue to grow and provide for greater employment opportunities with recent opening of a new John Lewis store and projects like the refurbished Princesshay shopping area which has recently been given a £133 million revamp, the Award winning Gidleigh Park chef Michael Caines opening the restaurant Michael Caines at nearby Abode Hotel and Jamie Oliver recently opening his “Jamie's Italian” restaurant.

Further developments include the Guildhall shopping centre which is currently undergoing a £12 million upgrade to include the creation of a brand new dining destination in the heart of Exeter. Scheduled to open in May this year, and the £26 million pound planned development of the current bus station area into a new swimming pool and leisure complex, due to open in 2018.

Clearly to support the increase in employment opportunities Exeter has a number of new housing developments in planning or in progress. The biggest development is Cranbrook, a New Town sited on the eastern boundary of Exeter.

With 2000 new homes, shops and two new schools already built and a further 6000 homes being completed by 2031, Cranbrook is fast becoming a thriving community. The new Cranbrook rail station is now open, providing direct rail links to London.

Offering yields from around 4.5%, Cranbrook has been and still is a favorite for Buy to Let investors. The new properties are so popular some are being let off plan as prospective tenants look to secure a new home. The recent stamp duty changes have not so far put off investors as the developers look to “do deals” to ensure their houses keep selling.  We continue to see a high demand for these properties.

This is just a brief taste of how Exeter is growing both in employment and property investment opportunities. During 2016 we will be looking at how the Exeter property market is expanding and highlighting the ups (and downs).

In this year’s newsletters we will continue to keep you up to date on property investment legislative changes and opportunities. We will also be featuring case studies from landlords and investors looking at their investment experiences and specific housing topics starting next month with student accommodation and how this is changing.

I hope you will continue to find theses newsletters informative, please feel free to contact me with your own stories good (and bad).

Chris Perring Managing Director Martin & Co (Exeter) 

Renting: Tips for Tenants

With ever-soaring house prices, renting has become a viable – and common – option for many people across the UK. The Telegraph website states that 3.9 million people in the UK rent their property. Since the process of renting is becoming more mainstream, many tenants fail to properly read their tenancy agreements and can find themselves caught short if they aren’t fully informed.

We’ve pulled together some top tips for tenants, so that you can get the most from your tenancy.

Know your Tenancy Agreement

When signing a tenancy agreement, as a tenant you have legal safeguards to protect you, including your right to:

• Live in a well-maintained property; safe and in a good state of repair.
• Have “quiet enjoyment” of the property.
• Have your deposit registered in a Government approved scheme, which assures you that your money is held safely during the tenancy and gives you of the right to agree to any deductions requested at the end.
• Be protected from unfair eviction.

There is a lot of Government guidance available to you including a Right to Rent Guide which your Landlord or Letting Agent is now legally obliged to provide to you.  A link to the guide is here: 

Your Responsibilities

You also have responsibilities as a tenant, to protect yourself, the landlord and the property. Some of your responsibilities include:

• Access – You must allow your landlord access to carry out repairs – they must give you 24hours notice and the time must be reasonable unless in a state of emergency.
• Pay the agreed rent – even if you are in a dispute with your landlord over repairs etc.
• Damages  - Cover the cost of any damages incurred by yourself, family, friends or visitors to the property.
• Safety – You must replace batteries in carbon monoxide and smoke alarms and report to the landlord/managing agent if they become faulty.
• General repairs – You must also report any other repairs which fall under your Landlord’s obligations and become apparent during the Tenancy.   All repairs necessary should be reported in writing.
• Lodgers – You must not sublet, assign or permit anyone to live in your property without express permission from your Landlord.
• Right to rent checks – in addition to the usual reference checks, under new Immigration legislation you will need to provide original copies of documentation which proves your nationality and your right to remain in the UK.  If you have a time limited right to remain then you will need to comply with further follow up checks.

It is important to uphold your responsibilities as a tenant, as your landlord may take legal action to evict you – and cover costs where appropriate – should you fail to comply. You can read more about how to be a model tenant.

A combination of rights and responsibilities ensures a harmonious and protected tenancy for both the tenant and landlord.

Landlord Maintenance Responsibilities

As part of your Landlord’s obligations to you he/she should ensure that your property is well maintained, safe and in a good state of repair.

The legislation covering safety in rented accommodation includes the following:

• Gas safety – All gas equipment must be fitted and checked by a Gas Safe registered engineer, including boilers, gas stoves etc.  The landlord must provide a gas safety check record before you move in and further annual checks must be carried out.
• Electrical safety – your landlord must ensure that the electrics and all sockets and electrical equipment that comes with the property (i.e. ovens, kettles etc) are safe.
• Smoke alarms and Carbon Monoxide Detectors – Your landlord must provide a smoke alarm on each storey of the property and a carbon monoxide detector in rooms with a solid fuel burning appliance, such as a wood burner.
• Furnishings –  If furnishings are provided they must be fire safe
• Legionella’s Disease – your Landlord must carry out a risk assessment and, if a risk is identified, take appropriate steps to minimise or remove the risk.

Deposits

A deposit is usually paid prior to moving into a property. Since April 6th 2007 landlords and letting agents have been required to register tenants’ deposits in a Government approved scheme, if you have an Assured Shorthold Tenancy.

You should get your deposit back if you:

• Meet the terms of your tenancy agreement
• Don’t damage the property
• Pay your rent and bills

Your landlord or letting agent must put your deposit in the scheme within 30 days of receiving it.

You can rest assured, Martin & Co. are members of the largest approved scheme, the Deposit Protection Service (DPS).

If you have problems getting your deposit back, please contact the deposit protection scheme. Here are our top 10 tips on keeping your deposit at the end of a tenancy.

Assured Shorthold Tenancy

This is the most common type of tenancy agreement used in England and Wales.  It is also referred to as an ‘AST’.

The agreement sets out tenant and landlord obligations and all terms which have been agreed between them including the rent payable, length of tenancy, any special clauses agreed etc.

How Do You Know if you have an Assured Shorthold Tenancy Agreement?

You will have an AST if:

• You moved into the property on or after 28th February 1997
• You have exclusive possession of the property
• The landlord does not live at the property with you (or within the same building as it was originally built)
• You are paying less than £100,000 a year in rent.
• You are an individual
• You use the property as your only or principal home.

For more information contact your local Martin & Co office. You can also visit the Martin and Co blog, where we have a range of news and articles, specifically for tenants.

Stock of homes on sale halves in 10 years according to NAEA

The supply of available housing on sale has almost halved in the past 10 years according to the National Association of Estate Agents.

The average number of properties available per member branch in December 2015 fell to 37 properties. This was one of the lowest monthly figures for 2015 and almost half the number available in December 2005 when there were an average 72 houses per branch. 

Even as recently as December 2014 there were 45 houses available.

While the number of house hunters registered per branch fell to 374 in December from 403 last month - an expected seasonal trend - the number of house hunters per branch has gradually increased year on year. 

In December 2014, there were 360 potential buyers registered at each branch, up from 302 in December 2005.

“Whilst we expect figures for supply and demand to be seasonally low in December, the year 2015 overall does not paint a positive picture for the housing market. Supply of housing is half of what it was 10 years ago, yet the number of home buyers on the books has been gradually increasing. When there is such a huge and widening gap between supply anddemand, a level playing field seems further out of reach for many would be house buyers” says NAEA managing director Mark Hayward.

He says government efforts to help first time buyers enter the property market via Help to Buy and plans to build new starter homes are yet to take effect. The number of sales to FTBs stands at 24 per cent, a two per cent drop from December 2014. 

Some 44 per cent of NAEA member agents canvassed have reported seeing buyers seeking to beat the April 1 additional homes stamp duty surcharge deadline. 

“The issue of lack of supply needs to be solved, but it isn’t going to be done anytime soon. We are still waiting to see new homes being built; and whilst we wait, house prices continue to rise.  There is some potential light for first time buyers however, once the new tax rate increase in April is in place we may see less investment from buy-to-let or second home investors, which may mean less competition for first time buyers” says Hayward.

Written by Estate Agent Today

10 March – Half Day CPD Legal Updates

RICS Exeter and Stephens Scown invite you to attend this afternoon CPD session which will be commencing with a buffet lunch and followed by speakers from Stephens Scown and from Exeter City Council covering topics including: Construction Disputes, Planning Law, Development/lease issues, the Bus Station Development.

http://www.rics.org/uk/training-events/conferences-seminars/half-day-cpd-legal-updates/exeter/

28 January - Drones & InfraRed Technology

Join RICS Exeter for this foray into the future with speakers from IRT Surveyors talking about drones and infra red technology. Stuart Macrostie and his colleague Stephen Carrington are presenting this interesting and informative presentation covering the use of infra-red for identifying building defects, Quantified energy loss and predictive maintenance and the also covering a whole range of uses of drones.The event includes refreshments and the opportunity to network

http://www.rics.org/uk/training-events/conferences-seminars/flying-saucers--infrared-technology/exeter/

The Buy-To-Let Landlord Loophole

Since George Osborne’s announcement that Stamp Duty is set to be increased for landlords buying second homes, the buy-to-let industry has reeled.

The industry expects many landlords to accelerate their deals to completion before the new tax surcharge goes live in April.

However, more pragmatic investors have scrutinised the legislation and found their silver lining – corporations are exempt from paying extra.

Landlords who are seriously considering further expansions to their property portfolios can look at flipping their properties into a privately owned business, therefore swapping landlord taxes for corporation taxes.

The number of mortgages approved for companies has gone up more than 200pc since the Chancellor’s first wave of tax relief changes in July 2015. This isn’t a coincidence.

The benefits are two-fold. Firstly, you get to avoid the disappointing Stamp Duty surcharge of 3pc on top of your current rate, making purchases cheaper. Secondly, landlords with corporations will be subject to corporation tax, which is set to reduce to 18pc (currently 20pc) by 2020. Meanwhile, landlord taxes will increase to over 100pc of profit for some.

Furthermore, and perhaps more importantly, landlords will get increased security against further legislative interference into the property sector in future budgets. The Chancellor has already made significant changes to property in the past two budgets, there’s no reason to believe he won’t target it again in 2016.

Turning your portfolio into a company may seem a no-brainer, but things aren’t as straightforward as that. Landlords will only be exempt from the surcharge if they have a portfolio of more than 15 properties, therefore incentivising only those who have smaller-scale portfolios.

Also, setting up as a corporation isn’t easy, there is no guarantee that flipping your portfolio into a business will make you significantly more money, especially given the cost of start-up. Moreover, the Chancellor’s recent trend of targeting the sector may result in a focused move to punish property corporations.

Nevertheless, smaller landlords will be enticed – especially if they have the means of going into business with other small landlords. By combining two or three portfolios into one larger one, landlords will mutually benefit from smaller surcharges and also be able to build a foundation for the future – removing themselves from the bracket of ‘small’ landlord which seem to be the main target in the Chancellor’s plans.

The logic behind the move is understandable – get the accidental landlords to sell up, while also giving first-time buyers the initiative to purchase the property; landlords will pay more tax on a property even if they’ve made an identical offer to a non-landlord!

Furthermore, flushing out one section of the landlord demographic will create a more centralised and balanced private rental sector, with substantially fewer players in the buy-to-let game.

The feasibility of buy-to-let was put into question by the Chancellor’s budgets this year, but there is no reason to think that the industry is on its knees. There is plenty of leeway for landlords to adapt their portfolios in the immediate and distant future, plus the long-term benefits of buy-to-let are the same as ever.

To find out more about how you can shift your portfolio to your advantage in the coming months and years, please contact our office on 01392 254488.

Legislation & Buy-to-let Review

So, 2015 is over and if the last year is anything to go by, we can all look forward to a prosperous and eventful 2016.  If you are an Exeter homeowner, you will be pleased to hear that property prices increased by £314.77 per week in 2015*.  I always find that satisfying to hear, knowing that while having a week holiday sitting on a beach or on the moors, my property is busy earning money.  On the flip side however, for the people not yet on the housing ladder, this is making their aspirations of homeownership a distant dream.

For landlords, 2016 is going to see some tough new changes.  We have already seen in 2015 the introduction of new section 21 notices, smoke & carbon monoxide regulations, ‘how to rent’ checklists and the Deregulation Act.  2016 is set to bring the ‘right to rent’ regulations, introduced in the Immigration Act, which will require all tenants to be checked for immigration status and hefty civil fines on landlords for non-compliance, this could even be increased to prison sentences under the Immigration Bill 2015. So called ‘revenge evictions’ are now a thing of the past and landlords will have to ensure they deal with maintenance issues quickly and efficiently if they wish to serve notice.

Currently, a wear and tear allowance is available to landlords who let furnished residential accommodation. The allowance is designed to cover the cost of replacing furniture and furnishings and is available regardless of whether the landlord has actually spent any money on replacements in the tax year.

However, in the summer 2015 Budget the Chancellor announced plans to replace the allowance with a deduction for the actual costs of replacement. The new rules will apply from 1 April 2016 for corporation tax purposes and 6 April 2016 for income tax purposes.

In the Autumn Statement, the Chancellor announced that buy-to-let landlords and people buying second homes will face an additional 3% surcharge on each band of their stamp duty land tax bill, commencing from April 2016. The rate of duty will be as follows: 

Property value	Standard rate(currently)	Buy-to-let/second home rate (from April 2016)
0 -£125,000	0%	3%
£125 – £250,000	2%	5%
£250 – £925,000	5%	8%
£925 – £1.5m	10%	13%
over £1.5m	12%	15%

If you are lucky enough to be in a position to own one or more investment properties, you will have benefitted from the property value increases and rising rents, which should more than cover the expense of the extra due diligence, loss of the wear and tear allowance and extra stamp duty.  

For tenants, it is likely that rents will rise as demand continues to outstrip supply, even with the many properties that are being built at Cranbrook and other new developments.  These rises will ensure that a higher standard of property is available however, as landlords will have to make sure their properties are safe, well maintained and only let to people who are allowed to live there.

Similarly for buyers, it is likely that prices will continue to rise throughout the year.  Like I mentioned in last months’ column, this is good if you are downsizing and maybe even if you are upsizing in certain circumstances, however first time buyers will need to save longer to build the required deposit and fees.

The Help to Buy ISA has been introduced by the government to help first time buyers put money aside for that all important first property purchase. They can save up to £200 a month, which the government will then top up by 25%, up to a maximum of £3,000. For couples, this could mean a considerable £6000 towards their first home together.  

Well, that’s a bit of a mixed bag, but in general I believe most of these points will be good for the property market and will raise the quality of accommodation.  The property market continues to throw curve balls so watch this space for what’s to come in 2016!

  

*Data taken from Zoopla on 09/12/2015