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BTL stamp duty changes: the industry reacts

Landlords and property experts have continued to express their anger at changes to the stamp duty regime announced in the Autumn Statement. Some warned that rents will increase as a result of the changes.

Chancellor George Osborne announced on Wednesday that buy-to-let and second home properties will be subject to an additional 3% stamp duty from next April.

Jeremy Leaf, former RICS chairman and north London estate agent, described the move as “demonstrating practical naivety”. 

“Many buy-to-let investors underpin some of the bigger developments in particular. There is a danger that it will kill the market and result in some developments not happening at all,” he said, “Landlords will either sell or not add to their portfolios at a time when we need more affordable accommodation. Such a move inevitably puts extra upward pressure on rents.”

Jamie Lester, head of Haus Properties, agreed that the stamp duty hike could have a negative effect on the rental market.

“This may ultimately lead to a shortage of good quality properties or an increase in rent, which could make it much more difficult for tenants,” he explained.

The 3% surcharge charge on all stamp duty bands above a £40,000 starting level will more than treble the bill for landlords buying a £275,000 rental property – hiking it from £3,750 to £12,000. 

Some industry pundits have warned that the move could distort the housing market, with a rush of buy-to-let and second home purchases before the start of April – pushing up prices.

Doug Crawford, CEO of My Home Move, said: “The stamp duty changes will turbo-charge the housing market over the next four months as buy-to-let landlords and holiday home buyers race to beat the deadline before the changes bite in April. This will inevitably push up property prices in the short term, especially in locations popular with buy-to-let investors, such as London.”

Budget small print revealed another attack on landlords: From April 2019 any Capital Gains Tax due on the sale of a residential property will need to be paid within one month of completion.

Ray Boulger, senior technical manager at mortgage broker John Charcol, described the CGT change as a “small, but additional, attack targeted at BTL landlords”.

Boulger warned the “triple whammy” of income tax changes announces in the last budget, SDLT increases announced in the Autumn statement and expected lending restrictions from the Prudential Regulation Authority next year, will result in less landlord purchases and more landlord sales of existing buy-to-let properties. He said that unless enough tenants can afford to buy a home this will push up rents.


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London Help To Buy scheme launched

The Autumn Statement also saw the Help To Buy scheme tweaked to help first-time buyers purchasing property in London.

The scheme is the same as the government's existing help to buy equity loan scheme except "twice as generous" because those buying in the capital can borrow up to 40% of the home's value, instead of 20% under the current scheme.

London Help To Buy will apply to new homes worth up to £600,000 in any of the London boroughs and the City of London.

Applicants  must be eligible for a mortgage to qualify for the scheme and the mortgage must be for at least 25% of the property's value.

Adrian Anderson, director of mortgage broker Anderson Harris, said: “Help to Buy has been hugely successful across the country but hasn’t had such a big impact in the capital because property prices are that much higher. Offering a 40% interest-free loan to London buyers will make a huge difference, enabling many to get on the housing ladder when they simply couldn’t before.

“Take the example of a one-bed flat in Camberwell on the market at £360,000. A 5% deposit works out at £18,000 but if you don’t buy via Help to Buy, you then need to raise a mortgage for the remainder, which requires earnings of circa £85,000, pricing out many buyers. Under London Help to Buy, a 40% interest-free loan would be available, leaving you with a mortgage of just £198,000 to raise. This could be done with an income of £50,000, which is much more achievable in the capital.”

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Surge in buy-to-let lending for Paragon as stamp duty bombshell is announced

The Paragon Group of Companies has released its results for the year ending 30 September 2015, reporting that buy-to-let lending has increased by over 100% to £1.33 billion when compared to 2014.

The Group also reports a 10.2% increase in underlying profit for the period, reaching £134.7 million (2014: £122.2 million).

The pipeline of new applications further demonstrated the growth in business and at 30 September stood at £713.7 million – up 72.1% compared with the same period last year (2014: £414.8 million).

John Heron, Director of Mortgages, said: “It has been a fantastic year for the Group overall and with our acquisition of Five Arrows Leasing through Paragon Bank, there will be more exciting opportunities to come.”

Paragon's news comes as buy-to-let investors were dealt another blow in yesterday's spending review.

As well as budgeting for the government's housebuilding programme, the chancellor announced that from April 2016 purchasers of buy-to-let properties or second homes are to be hit with a 3% increase in Stamp Duty Land Tax. 

The money raised by the initiative – predicted to be around £1 billion by 2021 – will be reinvested into new homes and the extension of the Right to Buy scheme.

Combined with the tax changes announced in July's Summer Budget, this new charge is expected to deter prospective buy-to-let investors over the next few years and reduce market competition for first-time buyers.

“The extra stamp duty on buy to lets will exacerbate an already serious shortage of properties in many areas reducing choice and driving up rents,” says Alan Ward, Chairman of the Residential Landlords Association.

“The government should be encouraging landlords to invest, not doing everything they can to discourage them.”

Richard Lambert, Chief Executive of the National Landlords Association, shares a similar sentiment.

“The Chancellor’s political intention is crystal clear; he wants to choke off future investment in private properties to rent,” he says.

“The exemption for corporate investment makes this effectively an attack on the small private landlords who responded to the housing crisis by putting their own money into providing homes by the party that they put their faith in at the election.”

“If it’s the Chancellor’s intention to completely eradicate buy to let in the UK then it’s a mystery to us why he doesn’t just come out and say so.”

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Is new housing legislation doing more harm than good?

The government will be extending mandatory licensing of Houses in Multiple Occupation (HMOs) in order to raise the standards in the private rented sector in England from 2016 onwards, and is welcoming views from individuals and organisations on the proposals it has outlined.

Many proposals have been introduced in this consultation and there are some welcome changes including the introduction of clearly defined minimum space requirements, as well as simplifying the licensing application process, particularly for landlords with multiple properties.

Although the government believes the current threshold of five people per property from two separate households is correct, it has put forward the case for extending licensing to two storey and possibly one storey buildings, and is also revoking the exemption for HMOs let to family members.

Raising standards is a worthy goal, but the means must be justified

There was a clear rationale for introducing mandatory licensing in 2006 to cover larger HMOs, and on the face of it, there is a clear rationale for ensuring smaller HMOs are also adequately protected and properly managed. The market has changed over the past decade. In fact, it has been estimated that there are approximately 463,000 HMOs in England. This not only highlights how booming prices and restricted affordability are necessitating the growth of single-room lets, but also how the rented housing sector is an absolutely crucial part of the UK’s housing market. 

Certain types of private rental accommodation including HMO, tend to be the only housing option for some of the most vulnerable people in society who do not have access to alternative housing. Therefore, regulators have a clear motive for ensuring that legislation is to the benefit of both landlords and tenants, because by deterring investment in the sector, they risk displacing the thousands of tenants who rely on it.

New legislation must be thought through

New regulation therefore needs to be thought through and subject to scrutiny. Will new licensing laws succeed in their aim to support good landlords who provide well-maintained properties, or will it simply penalise law-abiding landlords while the rogues continue to fly under the radar? Will it make it easier for local authorities to raise standards in smaller HMOs where there is a legitimate need for improvement, or will it result in a number of frivolous prosecutions for minor infractions simply as an excuse to raise revenue?

Property is usually a long-term investment, with many landlords managing properties for three decades or more before exiting. Redefining how a property should be built every five to ten years may do no more than either turn currently compliant landlords into criminals, or force them to invest further money in bringing a previously perfectly habitable home up to the new standards.

In addition, cuts to local government spending have left many local authorities with insufficient resources to cope with any additional licensing burden. If poorly administered, any additional mandatory licensing scheme is even more likely to have a deleterious effect. Local authorities already have the ability to extend ‘additional licensing’ if there is a perceived local need to do so – but will there really be a benefit to mandating it nationally?

Staying ahead of the compliance curve

It is of course important to have rules in place to ensure both landlords and tenants are fully aware of their rights and responsibilities. However, too much regulation can stifle future growth. With the government introducing new housing legislation at a startling rate, many good landlords are simply unable to keep up with the volume and speed of these regulatory changes – particularly when, as we have seen with other developments such as Right to Rent checks and Rent Smart Wales, little is done to adequately communicate to landlords the full extent of their changing obligations.

Tackling the minority of landlords who abuse the system and provide substandard accommodation is an admirable aim.  However, the usual questions apply. Will these changes actually serve to bring so-called rogues within the boundaries of compliance, or will they add a further regulatory burden to the majority of landlords who provide decent homes to their tenants? How will the government fulfil its obligation to communicate these changes to the landlord population before they take effect so we avoid a situation where landlords who are compliant with current laws but unaware of the changes are not punished unnecessarily?

If the government recognises, as it claims to, the important part landlords play in providing housing for the UK, it should strongly consider whether legislating with such frequency might be doing more harm than good.

This article was written by Andrew Turner, director at Commercial Trust.

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Rents slow, but not in the East

Rents across England and Wales dipped on a monthly basis between September and October, according to the latest Buy-to-Let index from Your Move and Reeds Rains.

The average rent in October stood at £806, down from September’s record high of £816.

However the annual rent figures made for more optimistic reading. In the last 12 months, average UK rents rose by 4.7%.

Landlords are able to charge tenants a higher rent as the private rented sector has grown rapidly. This has been driven by incredibly high demand, meaning that any new property coming to the market is being let quickly.

However, four out of the 10 regions in England and Wales defied the slowing monthly rent growth trend.

Taking top spot was the East of England, which saw rents rise 0.7% from September to October. Rents in this region reached a high of £604pcm, while Yorkshire and Humber also witnessed a new record, as rents reached £552pcm.

Adrian Gill, director of estate agents Reeds Rains and Your Move, comments: “Rents are beginning to cool off for the year in the large and important rental markets of London, the South East, West Midlands and the North West. But an interesting split has developed this month. All along the eastern edge of the country, there has been a sustained upwards trend in rents.”

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Strongest November price growth in the South East

Households in all UK regions perceived that the value of their home increased in value in November, with those in the South East and London noticing the largest increase.

Out of 1,500 households surveyed by Knight Frank, 21% said the value of their home had increased over the last month, with only 4% claiming their property’s price had fallen.

It has also been revealed that households in every UK region expected their property’s value to rise further in the next 12 months.

In the survey, it was mortgage borrowers who were the most confident about house prises rising in the coming year.

This strong housing market has been aided by continually low interest rates, good economic fundamentals, and pricing in some areas being underpinned by a shortage of stock.

Gráinne Gilmore, Head of UK Residential Research at Knight Frank, said: “Households across all tenures expect house prices to continue to rise over the next year”

“The survey also highlights the regional variations in future house price expectations, with the future HPSI for households in the South East overtaking London by the largest margin in more than a year,” she added.

The data also revealed that homeowners in the South East are more likely to expect their property’s value to rise in the year ahead than at any other time since the survey began back in 2009.

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Survey highlights the importance of good mobile phone signal

Good mobile phone signal is now more important for buyers than the quality and performance of local schools. This is according to findings from the second annual house purchasing decision survey by RootMetrics.

The independent mobile analytics company's research found that 83% of people have experienced poor mobile phone signal at their home, while just over half (54%) have had issues with their mobile internet. With the use of landlines becoming increasingly rare, 47% of people have experienced poor call quality at home. As such, the desire of buyers to move somewhere with excellent, reliable phone signal is high.

30% of people would have thought twice about buying or renting a home if they had known about the poor mobile performance before moving in, while 66% have considered switching providers just so they can use their phone properly indoors.

As a result of this, more sellers are starting to realise the benefits of good signal at their home in the same way they currently promote fast broadband speeds and local utilities. In fact, 41% of people said they would now promote having good mobile phone signal as part of their overall strategy to find a buyer.

“We now rely on our mobiles as much as our TVs and computers at home, and we are seeing the importance of having good mobile experience shoot up the list of priorities,” Scott Stonham, General Manager or RootMetrics Europe, said.

“It seems many have moved to a property and found they are having recurring problems with their current operator. The property market has rarely been more heated and the shortage of homes is only heightening people’s desire to move up the ladder, but buyers and renters should be taking into consideration every factor before making a decision, including the quality of their mobile signal at home.”

He concluded: “A very simple way of doing this is by remembering to run a quick test on the mobile performance whilst viewing a property, just as you would check the broadband speeds.”

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Landlords targeting cheaper properties

Buy-to-let landlords are increasingly searching for lower-priced properties in a bid to secure higher yields, new research suggests.

Seven in 10 landlords are now searching for a mortgage on properties valued below £250,000, up sharply from just five out of 10 one year earlier.

And one in three are looking for mortgages on properties costing less than £150,000, according to the latest Mortgage Search Tracker from Mortgage Advice Bureau.

More landlords are opting for higher loan-to-value (LTV) mortgages as interest rates continue to fall.

The trend towards looking for cheaper investment properties comes as average UK house prices continue to rise, up by 5.2% in the past year.

London, the South East, South West and East of England all have average prices of more than £250,000.

Brian Murphy, head of lending at Mortgage Advice Bureau, said: “As rental demand remains strong nationwide, opting for a cheaper property can result in more attractive yields.

“It appears many landlords are looking to invest in areas outside the South of England, where property prices won’t hold them back from making a profit.”

Murphy said buy-to-let investors are benefiting from competitive pricing. "Although higher LTVs generally mean more costly monthly repayments, falling rates mean landlords may find they can now afford higher-LTV products.”

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Landlord tax changes will lead to rent increases, says survey

More than two thirds of landlords say that changes to buy-to-let mortgage tax relief will lead to increased rents, according to a survey conducted by The Deposit Protection Service (The DPS).

In July, Chancellor George Osborne, announced that the government would reduce the amount of tax relief available for interest on buy-to-let mortgages. 

Of the 4,480 landlords who responded to a recent survey issued by The DPS, 69% said that they believed that the changes would lead to increased rents, with more than a third saying they are considering leaving the rental market or selling their property as a result of buy-to-let mortgage relief changes (35%).

Julian Foster, TDS managing director, said: “Many landlords are currently facing a double-whammy of tax changes that could lead to increased rents for tenants – forcing them to sell or leave the rental market.

“Many landlords are small businessmen and women or ‘accidental’ landlords, and taxation increases can affect their livelihoods and financial wellbeing.

“With many commentators predicting an interest rate rise next year, landlords are facing a series of financial challenges over the next few years.”

Any future interest rate rise is likely to have financial consequences for landlords with mortgages, and 33% of respondents to The DPS’ survey said that they intend to pass on the costs of any interest rate rises to tenants.

Almost two thirds of respondents also said that they would be worse off over changes to wear and tear tax relief (62%).

From April 2016, an ‘automatic’ 10% tax break for wear and tear at a property will be replaced with tax deductions covering the actual cost of replacing or repairing its contents. 

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Anger from landlords at Osborne’s move to impose extra 3% buy to let stamp duty

There has been an angry reaction from landlord organisations and others to the news that buy to let and second home properties will be subject to an additional 3.0 per cent stamp duty from next April.

The announcement, in the Chancellor’s Autumn Statement, is expected to generate around £1 billion, much of which will be spent on new homes as part of an extensive programme announced by George Osborne.

The chief executive of the National Landlords Association, Richard Lambert, says: “The Chancellor’s political intention is crystal clear; he wants to choke off future investment in private properties to rent. If it’s the Chancellor’s intention to completely eradicate buy to let in the UK then it’s a mystery to us why he doesn’t just come out and say so”.

As a result of Osborne's July Budget, buy to let landlords are already due to get a lower rate of tax relief on mortgage payments, and a less generous interpretation of the annual wear and tear allowance.

“The buy to let investor should not be blamed for house price rises, rather, this is down to the chronic shortage of housebuilding in this country which is compounded by population growth. We would therefore advise caution against penalising this group of investors when actually other policy areas hold the key to unlock the solution” says Stuart Law, chief executive of Assetz for Investors, a pro-buy to let organisation.

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