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.

Capital Gains Tax and mortgage interest relief are top worries for landlords

The exemption of residential property from the new Capital Gains Tax cuts tops the list of concerns expressed by professional landlords for the health of the sector over the next 12 months, according to new research.

Some 63 per cent of landlords surveyed by lender Amicus cited the chancellor George Osborne's decision to maintain existing CGT rates on residential property sales while reducing them by eight per cent on assets, as their biggest challenge. 

In a close second place, on 61 per cent, is the abolition of tax relief on mortgage interest, which means that landlords will no longer be able to claim tax relief worth 40 or 45 per cent of the interest payments on their buy-to-let mortgages. 

Instead, the maximum tax relief will be set at 20 per cent with the change being introduced over a four-year period. 

This was followed by the tax changes to maintenance and improvements (57 per cent), whereby landlords will only be able to claim for 'wear and tear' costs actually incurred on replacing furnishings when calculating taxable profits.   

Increasing costs being passed on from the Right to Rent legislation (53 per cent) and rising legal and accountancy fees (52 per cent) were in fourth and fifth places respectively.

Fewer than half (44 per cent) of landlords expressed concern about the impact of Brexit and only a third (34 per cent) are worried about accessing long term finance to grow their portfolios. 

However, the survey was conducted across a small sample - just 187 landlords, in April.

(Article courtesy of Letting Agent Today)

Mortgage 'windfall pay-outs' likely to be around £4,300 per buy to let borrower

It is now thought that the likely average payout to each buy to let borrower affected by this week's court decision regarding the West Bromwich building society will be around £4,300.

Around 6,500 landlords are likely to receive payments after a class action against the society for increasing its tracker mortgage rates in December 2013. 

The Court of Appeal ruled this week that the building society was not, after all, allowed to break the terms that said the mortgages would track the Bank of England's base rate.

"Landlords could simply never believe that a lender would try to hike mortgage rates on what were tracker mortgages, that were supposed to only move in line with and track at a set margin over Bank of England base rate" according to David Lawrenson of LettingsFocus.

The mortgages contained a clause allowing the lender, under certain circumstances, to change the agreed interest rate - even though the landlords who took out the mortgages believed they would be 'tracking' the Bank of England's base rate.

Base rate has been just 0.5 per cent since March 2009 but the West Bromwich pushed up the rates on its buy to let mortgage product by two percentage points in 2013, to any borrower who had three or more BTL properties. 

Some landlords found their monthly payments doubled as a result.

The West Brom says it is likely to incur a loss this year because of the decision

(Article Courtesy of Letting Agent Today)

Landmark court ruling comes down in favour of buy to let investors

A landmark court ruling against the West Bromwich building society has come down in favour of buy to let investors. 

The case centres on mortgages issued up to 2008 to around 6,500 investors and landlords with three or more properties. 

The mortgages contained a clause allowing the lender, under certain circumstances, to change the agreed interest rate - even though the landlords who took out the mortgages believed they would be 'tracking' the Bank of England's base rate.

Base rate has been just 0.5 per cent since March 2009 but the West Bromwich pushed up the rates on its buy to let mortgage product by two percentage points in 2013, to any borrower who had three or more BTL properties. Some landlords found their monthly payments doubled as a result.

The Financial Ombudsman, when the issue was referred, found in favour of the building society but now a court has ruled in favour of a class action brought by around 400 landlords.

The case was led by the property118 website; yesterday's decision by the Court of Appeal was in favour of landlords who were appealing against an earlier judgement - in favour of the West Bromwich - by the commercial division of the High Court. 

Some 6,250 landlords are now expected to receive a refund which the building society says will cost about £27.5m.

(Article courtesy of Letting Agent Today)

Buy-to-Let Deal of the Day - Substantial Four Bedroom Family Home Offering 4.3% Gross Yield AND Capital Growth

Landlords will often approach us looking for buy-to-let investments and one of their first questions often is "how long would it take to find tenants?"

Well, in the case of this four bedroom house in Stockbridge Road, the answer is "no time at all!". That's because this property currently has an excellent set of long-term tenants in situ at a rent of £1250pcm.

http://www.rightmove.co.uk/property-for-sale/property-41329899.html?premiumA=true

As well as providing the new purchaser with an income stream from 'Day 1' this also saves money in terms of letting agents fees for finding new tenants.

Further still, property prices in Stockbridge Road have risen by £4681 over the last 6 months (that's over £180 a week!) due to it's ever popular location to Chichester City Centre, railway station and Chichester Gate Leisure Complex. Couple this with a 4.3% gross yield make this property, in my opinion, an excellent buy-to-let investment proposition. 

Buy-To-Let Deal of the Day - Two Bedroom Flat Offering 5.1% Gross Yield

Looking through Rightmove this lunchtime and noticed a two bedroom apartment which has recently come to market in Whyke Marsh, Chichester.

http://www.rightmove.co.uk/property-for-sale/property-58822799.html

Located towards the south of the city, this development was build by Persimmon Homes around 4 years ago and comprises of around 60 purpose built apartments, maisonettes and houses.

With a property of this age you are less likely to inherit the maintenance problems you can encounter with older investments which can have an impact on the rental return. You would also have the remainder of the NHBC warranty should there be any serious issues with the property.

In terms of tenant profile we would expect the property to attract a working couple, or perhaps professional sharers due to its proximity to the city centre and railway station. 

Modern and up-together properties normally command a solid rent and similar flats have let for around £850pcm.

This could net an investor a healthy 5.1% gross yield based on a £200,000 purchase price, however, as with all leasehold properties, please remember to enquire about leasehold costs and ground rent before committing to an offer!

Tax increases may drive landlords out of the buy-to-let sector, say London School of Economics

Tax increases for private landlords could result in some leaving the sector, while others may pass the costs onto the tenants via rent increases, therefore stretching household budgets and putting home ownership further out of reach.

This warning comes from a new report written by the London School of Economics, “Taking Stock” which analyses the private rental sector and its importance to the UK housing mix.

Despite the Government’s efforts to introduce institutional investment in the form of ‘build-to-rent’, the majority of private rented stock is made up from small private landlords with 2 or 3 properties.

The report also says that demand for rental accommodation is set to grow and that to match this demand there needs to be investment in the sector.

However, it points out that small private landlords are already treated less favourably in terms of tax, compared to landlords in many other countries. These include a surcharge on Stamp Duty Land Tax, removal of wear and tear allowance and reducing the amount of mortgage interest eligible for tax relief.

The authors of the report, Kath Scanlon, Christine Whitehead and Peter Williams highlight that the private rented sector has more than doubled in the last 15 years and now accounts for almost one-fifth of all dwellings.

The report also states that the growth of buy-to-let is, in part, a product of the low returns available to investors elsewhere in the market. High house prices and the need for large deposits make it unlikely that younger household will enter owner-occupation to the extent they did in the last four decades – increasing the reliance on a strong private rented sector.

By hindering landlords via new tax treatments this could damage returns and create disincentives to invest in the sector.

Kate Scanlon concluded: “The current Government favours institutional landlords, but even if that part of the sector were to grow rapidly, small landlords would still be the backbone of the industry"

“We need a private rented sector that works for the long term, with policies that reflect the housing challenges the UK faces”