Monday, 1 August 2016

Brexit Britain's House Prices grew last year

Houses in Britain grew in value by £2,400 in the month to June 2016, despite EU referendum jitters and the stamp duty levy.

The added value equated to 8.1pc in the year up to an average of £211,230

The figures, released by the ONS, will reassure those in the property market, who can take solace in the fact that property held up in the face of adversity in the lead up to significant changes in the sector.

The increase of £2,400 (1.1pc growth) was bigger than in both April and March, though it was understandably driven by price growth in the South East and London.

The new ONS figures - released in partnership with the Land Registry - is a month behind other leading indices like Halifax and Nationwide. Therefore, the EU referendum result will only likely be documented and realised in results published later in the year.

Source: This is Money

Sunday, 24 July 2016

More Cheap Mortgages on the way

Moneyfacts have reported that mortgage rates are fell in the first half of the year and will continue to do so.

Their figures also show that more people are relying on private landlords to rent a property.

Moneyfacts said that those looking for a mortgage now would be substantially better off than they would have been if they had searched for a mortgage six months ago.

David Hollingworth at Mortgage broker London & Country said: "Mortgage rates are astonishingly low at the moment. Anyone that has failed to review their mortgage recently should really take another look as there could be an opportunity to slash their mortgage payments by switching to a new deal."

However, first-time buyers are still struggling to raise the funds required. The government's recent housing survey supports this, showing that the number of first-time buyers has fallen from 857,000 in 1995 to 564,000 in 2015. The average first-time buyer's age has increased from 30 to 33 in that time.

Source: BBC

Wednesday, 20 July 2016

Centre for Economics and Business Research - "Prices will rise in 2017"

The Centre for Economics and Business Research has said that houses will increase in value by roughly £40,000 by 2021.

They also forecasted that house price growth in 2016 will reach 5.7%, and will rise a further 2.2% in 2017.

This will take average house price to £234,000 by 2021, with a 3.9% growth that year, according to Nationwide.

Robert Gardner, Nationwide's chief economist, said: "Housing market transactions were always likely to soften over the summer after the surge in activity in March. Determining how much of the [end-of-year] fall-back in activity is the result of the Stamp Duty levy, and how much is due to the referendum, will be difficult."

The CEBR forecasted a big decline in London prices - down 5.6% in 2017, but recovering to annual growth of 6% by 2021.

Source: This is Money

Friday, 15 July 2016

Buy-to-let a better option than downsizing

Older homeowners who plan on downsizing to fund their retirement could look to buy-to-let instead.

Royal London, the pensions and investments company, has released a report claiming up to three million people of working age are planning to use the value of their home to fund retirement.

However, the report claims that downsizing from an average detached house (£310,000) to a semi-detached (£197,000) and using the proceeds to buy an annuity would result in a very poor yield of £13,700 - exactly half the national salary of £27,400.

The report also said downsizing is harder in practice - young people are living at home for longer, limiting the flexibility of their parents to move. Furthermore, mortgages are taking longer to pay off, so homeowners will need income to support mortgage repayments in the longer term.

Steve Webb, director of policy at Royal London, said: "Hoping to live off the value of your home could be a 'downsizing delusion' for millions of people. In most of Britain, the money freed up by trading down at retirement would generate a very modest income."

An alternative would be a buy-to-let investment. By using pension funds already saved, plus any other disposable income, a property investment could generate an immediate, sustainable income for the long term, and also give you the ability to earn capital gains on your home plus the investment property - plenty for a retirement income, and giving you a legacy for your family.

Since April 2015, those from the age of 55 have been able to access their entire pension pot in one lump sum, with a 25% of any withdrawal tax-free - this has given far more freedom to those who wish to invest in retirement income schemes other than pension annuities. One of the notable investment options is a buy-to-let property.

Initial costs would be for the deposit, plus letting agent fees and refurbishment. You could soon generate yields of up to 13% depending on location of investment.

This option would be particularly useful in the north, where the percentage of income downsizing would leave you with becomes lower - 51% in the North West, 49% in Yorkshire and the Humber, and 47% in the North East.

David Hollingworth, of mortgage broker London & Country, said: "Whilst downsizing is likely to remain part of a homeowner's strategy post-retirement it's not the only role that property may play.

"Many landlords will build a portfolio earlier in life as a long term investment for their retirement. In addition, the pension freedoms may also see some decide to purchase buy-to-let properties to generate an income in retirement. There can still be limits on maximum age for mortgage borrowers but some lenders have become more flexible in an effort to accommodate older landlords."

Friday, 8 July 2016

Landlord Interest Relief Restrictions

In his July 2015 Budget, the Chancellor dealt a blow to landlords with his announcement that from April 2017 relief for finance costs would be progressively restricted. In giving effect to the restriction, landlords would move from the current position where they are able to deduct finance costs, such as mortgage interest, in full when computing their rental profits, to one where relief is given as a basic rate tax reduction.

Phased in
The switch from deduction to interest rate reduction is to be phased in over four years, with a gradual shift away from deducting property finance costs from property income.

Deduction v basic rate tax reduction
Where relief is given by deduction, the landlord obtains tax relief at his marginal rate of tax. The property finance costs are deducted in arriving at the taxable profit and that profit is taxed at the landlord's marginal rate of tax.

By contrast, where relief is given as a tax reduction, the rental profit is first calculated without taking account of the finance costs relieved by tax deduction and the tax is worked out on those profits. Effect is given to the basic rate tax reduction by deducting an amount equal to the finance costs x the basic rate of tax from the tax figure initially computed on the profits.

Ian is a landlord. In each year from 2016/17 to 2020/21 inclusive, he has property income of £30,000. He pays mortgage interest costs of £6000 and incurs other expenses of £2000. He also has a salary £60,000 and pays tax on his property income at the higher rate of 40%.

His tax position for each of the years is as follows:

As a result of the shift from relief by deduction for 100% of property finance costs to relief by basic rate reduction for 100% of finance costs, Ian's retained profit is reduced by £1,200.

Sting in the tail
Moving from deduction to tax reduction has hidden costs. The relief is given later in the calculation, which has the effect of increasing the taxpayer's taxable income. This may move him into a higher tax bracket or trigger the high income child benefit charge or the abatement of the personal allowance.

Friday, 1 July 2016

Substantial Increase in Mortgages for Buy to Let Investors via Limited Companies

According to a recent industry survey, there has been a substantial increase in lending over the last six months to investors who are purchasing properties as a company.

The specialist broker, ‘Mortgages for Business’, who conducted the survey discovered that buy to let mortgage applications completed by limited companies rose to 30% of all buy to let transactions in the first half of 2016. This is up from 21% in the second half of 2015 and just 18% in the first half of 2015 respectively.

The amount of mortgage lenders offering products to limited company borrowers increased to 14 from 2 six months ago, with total products available from lenders rising to 154 from 147 over the same period.

There have been varying suggestions, although expressed with caution, that landlords could incorporate to minimise the effects of recent buy to let tax changes, especially the new stamp duty levy for second properties and the phasing out of individual landlords’ mortgage interest tax relief.

“Applications and completions for limited company borrowers appear to have stabilised at around one third of all buy to let business. However, this masks a dramatic change in the investment pattern for new purchases where the proportion investing through limited companies has risen from less than 20 per cent by number - or 25 per cent by value - in the first half of 2015 to over 50 per cent in 2016” said David Whittaker, Managing Director of Mortgages for Business.

The Chancellor has also announced that he intends to lower corporation tax to 15% following the Brexit result. This could lead to even more landlords incorporating shortly.
“Clearly, the trend for limited company buy to let represents a real step change in behaviour as landlords adapt their investment strategies to mitigate the increased costs brought about by recent changes in the tax regime” said Whittaker.

Friday, 24 June 2016

50.9% of Chichester Voters voted to leave the EU – What now for the 39,837 Chichester Landlords and Homeowners?

It’s 5.50am as I start to type this article and David Dimbleby has just announced the UK will be leaving the EU as the final votes are counted.

As most of the polls suggested a Remain Vote, it came as a surprise to most people, including the City. The Pound has dropped 6% this morning after the City Whiz kids got their predictions wrong and MP’s from the Remain camp are using words like “challenging times ahead”.

.. and now the vote has been made, what next for the 33,481 Chichester homeowners, especially the 13,271 with a mortgage?

The Chancellor in the campaign suggested property prices would drop by 18%. Using Treasury estimates, their method of calculating this was tenuous at best, but focused around the abrupt and hasty increase in UK interest rates, which in turn would raise the cost of mortgages, and therefore lower demand for property, causing a drop in property prices.… and I would say, yes, that will probably happen.

Chichester Property Values

Chichester Property values will probably drop in the coming 12 to 18 months – but by 18% - I am sorry I find that a little pessimistic and believe that figure was rhetoric to get homeowners and landlords to vote in a particular way. But the UK property market is quite a monster.

Since the last In/Out EU Referendum in June 1975, property values in Chichester have risen by 2089.7% (That isn’t a typo) and whilst property prices did drop nationally by 18.7% between the peak of 2007 and bottom of the market in 2009, when one compares property values today in the country, compared to that all-time high of 2007, (the period before the financial crisis of the Credit Crunch of 2008/9), they are still up 10.14% higher.

Another Credit Crunch?

And so, notwithstanding the Credit Crunch, the worst global economic outlook since the 1930s and the recession it brought us, a matter of a few years later, the Government were panicking in 2012/3/4 that the housing market was a runaway train.

Now the same Credit Crunch doom-mongers and Sooth-Sayers that predicted soup kitchens in 2008/9 are predicting Brexit meltdown. Bad news sells newspapers. Stock markets may rise, stock markets may fall, yet the British public continued to buy property in 2009/10 and beyond. Aspiring first time buyers and buy to let landlords dusted themselves down, took a deep breath and carried on buying… because us Brit’s love our Bricks and Mortar - we need a roof over our head. 

However, as mentioned previously, if the value of the pound drops, in the past UK Interest Rates have risen to reverse that drop. However, whilst a cheaper pound will make your pint of Sangria a little more expensive on your Spanish holiday this year and make your brand new BMW pricier, it will make British export cheaper! Which is great for the economy.

Interest rates

… and what of interest rates? Since 2009, interest rates have been at 0.5% and lots of people have become accustomed to those sorts of levels. So what if interest rates rise - end of the world? Interest rates in the 1986/88 property boom were on average 9.25%, the 1990’s they were on average around 6.5% and uber-boom years (when UK property values were rising by 20% a year for three or four straight years across the UK) - 4.5%. Many of you reading this who are in their 50’s and older will remember interest rates at 15%.

But I suspect interest rates won’t rise that much anyway, as Mark Carney (Chief of the Bank Of England) knows, raising interest rates causes deflation – which is the last thing the British economy needs at the moment. In fact, they have been printing money (aka Quantitative Easing) for the last few years (which causes inflation) to the tune of £375bn a month. A bit of inflation because the pound has slipped on the money markets (not too much mind you) might be a good thing?

.. because whilst property values might drop in the country, they will bounce back. It’s only a paper loss... because it only becomes real if you sell. And if you have to sell, again as most people move up market when they sell, whilst your property might have dropped by 5% or 10%, the one you want to buy would have dropped by the same 5% to 10% ... and here is the best part – (and work your sums out) you would actually be better off because the more expensive property you would be purchasing would have come down in value (in actual pound notes) more than the one you are selling.

The Chichester buy to let landlords have nothing to fear either, nor do the 6,356 tenant households living in their properties.

Buy to let is a long term investment. I think there might even be some buy to let bargains in the coming months as some people, irrespective of evidence, panic.  Even if we pull up the drawbridge at Chichester and immigration stopped today, the British population will still increase at a rate that will exceed the current property building level. Britain is building 139,600 properties a year, but needs according to the eminent ‘Barker Review of Housing Supply Report’, about 250,000 properties a year to even stand still, and as the birth rate is increasing, the population is living longer and just under a quarter of all UK households now are occupied by a single person, demand is only going up whilst supply is stifled. Greater demand than supply equals higher prices. That is definitely a fact.

So, what will happen next?

Well, there are many challenges ahead. The country has spoken and we are now in unchartered territory – but we have been through a couple of World Wars, an Oil Crisis, Black Monday, Black Wednesday, 15% interest rates and a Credit Crunch … and we survived!

And the value of your Chichester property? It might have a short term wobble… but in the long term - it’s safe as houses regardless.