brexit uk property market

#Brexit Impact on UK Property Market

In light of the LEAVE decision from the EU referendum there may be effects on the UK property market.

The headlines:

The immediate impact has been market uncertainty, the FTSE has dropped approx. 10% since the decision was announced and major house builders like Taylor Wimpey, Permission, Barratts, and Berkley Homes have all lost between a third and half their value.

Further the sterling has dropped against the dollar from 1.50 to 1.30 and that is still falling.

Interest Rates

The EuroZone base rate is already negative and some experts are expecting the Bank of England to drop the UK base rate to zero to boost the economy and this may be further pushed in order to keep inflation low in the light of the currency falls which will impact the cost of imports.

The Bank of England will want to encourage investment in the economy therefore rates will remain low.

Supply

There has been an increase in construction activity over the past 24 months, buoyed by relaxation of some planning laws and extension of permitted development rights.

Although the market impact on large house builders, they will still want to complete projects, even if new project starts are delayed.

Demand

There are many factors that influence demand and attractiveness for housing in the UK that are not EU related, such as depth of skills, education, lifestyle and language. Further to this, supply is always below demand with an increase in the number of households and smaller family units. The affordable end of the market will continue to have the highest demand.

High end property, in particular may see an increase in demand as Dollar based Middle east and Asian investors will now consider the short term buying opportunities within the property market and look to acquire residential property priced above £1million. The currency correction more than compensates for the changes in stamp duty which had previously discouraged high value property transactions.

House Prices

House prices will depend on regional factors and differences. Some regions may see a correction some may stagnate; however it is too early to speculate specifics.

Rental Market

Rental market is linked to employment as well as affordability and ability of renters to become home owners. The rental market especially in London and the South East is also heavily influenced by migrant workers and students, depending on how working rights and students will be impacted will determine long term effects.

Lending

The measures in the budget in April already discourage buy to let purchases, therefore banks currently have more than the usual surplus to lend, this is reflective in the record low rates on the market.

Lenders may tighten criteria especially on rental expectation but overall lending should not be adversely effected in the short run.

Investment

Investment especially in buy to let has slowed since the introduction of measures in the budget, however with lower interest rates expected, as well as the drop in sterling, investing in the UK is now cheaper, together with the low savings rates in banks, property investment is by far the better investment.

Conclusion

Overall Article 50 will only be exercised after a new leader is elected and then after 24 months will Britain actually leave, therefore uncertainty may remain till then end of 2018, however not much else will change.

The UK Property market will remain resilient and still a strong place to invest.

How the Budget 2016 affects property investors

With the Stamp Duty surcharge coming into effect today, we look back at the key points from the Budget 2016 affecting the UK property market.

  • The planned stamp duty surcharge on purchases of additional property, to include those who buy more than 15 properties. Previously if you owned more than 15 properties you were exempt from the surcharge.
  • An 3% surcharge will be applied to residential stamp duty rates on all purchases of property not intended as the buyer’s main residence, from today, 1st April 2016.
    stampduty
  • The threshold at which people pay 40% tax will rise from £42,385 to £45,000 in April 2017 and personal allowance up to £11,500.
  • 0.5% rise in insurance premium tax.
  • Commercial stamp duty
    0% rate on purchases up to £150,000,
    2% on next £100,000 and
    5% top rate above £250,000.
    New 2% rate for high-value leases with net present value above £5m

Other issues to consider from previous budgets

  • Withdrawal of interest relief

Under current rules, taxable profits are reduced by interest on money borrowed for the purposes of the letting business.  Phased in over a four year period starting with the 2017/18 tax year, UK taxpayers will no longer be able to deduct interest in calculating taxable rental profits.  Instead, landlords will obtain a reduction in tax equal to basic rate tax on any interest borrowed.

The changes will be introduced gradually, so that the amount of interest which is deducted from rental profits is 75% from 6 April 2017, 50% from 6 April 2018, 25% from 6 April 2019 and 100% from 2020/21.

On the same dates, a reduction in tax will be given for the interest which has been disallowed.  The tax reducer is the basic rate tax (currently 20%) multiplied by the disallowed interest.  In practice the tax reducer will be 20% of 25% of interest for 2017/18, 20% of 50% of interest for 2018/19, 20% of 75% of interest for 2019/20 and 20% of the whole interest from 2020/21.

By 2020/21, a landlord who is a higher rate taxpayer will effectively only receive basic rate tax relief on mortgage interest payments.

Conclusion

Overall the positives for the Budget 2016 are a few; higher income tax thresholds and allowances and lower corporation tax.

The negatives are greater with the surcharges on Stamp Duty, higher insurance, and removal of interest relief.

The impact of new investors is much higher with the increases upfront Stamp Duty expense, and for those who are heavily mortgaged on their buy to let investments.

However it will take some time to effect rents and house prices, these may balance some of the additional costs for buy to let and property investors.

With interest rates still so low, property investment still out weighs leaving your money in the bank.

 

Sources:

LRS Forum

Coman & Co

Stamp Duty rise won’t kill property investment

On the 1st of April 2016, the “Landlord Tax” or stamp duty surcharge comes into affect of a 3% surcharge for anyone buying a second home or an investment or buy to let property.

However what will be the impact for the property investor? Will it reduce prices or first time buyers? Will the extra cost be passed on to renters? Will the UK property market crash?

Today the ONS released statistics that property prices are rising 6.7% year on year in 2015, and that is 9.4% in the UK. So in effect and extra 3% is the same as if you delay the purchase of your property in London by 4 months, or alternatively you will cover the cost by the increase in prices within 4 months.

Stamp duty increaseWell this is not exactly the case as usually a buy to let investor puts in about 25% deposit, and stamp duty is not covered by the mortgage value, so really the buyer needs that much extra cash available.

In this case an investor may try to pass on the additional cost to the renter. This will be a completely possible strategy and the property market will allow it. However will this make up the difference. For example a residential property yielding 6%, there for a 3% stamp duty surcharge would mean 6 months rent. If the Landlord increases rents by say 10% then it will take 5 years to recover the surcharge.

But, and its a big but, with the FTSE being volatile and the interest rates not likely to rise anywhere near enough to compete with property, an investors best place to invest is still property.

In conclusion the stamp duty surcharge will not really put investors off, it will just increase rents and increase the tax revenue.  

Stamp duty

Do you want to avoid the stamp duty surcharge?

Look into other options for property investment. Contact us we have a number of opportunities where you can invest in property development deals, with profit shares or fixed incomes. Contact info@propvestment.com

 

Sources:

BBC Article

 

Office to residential conversionx

Office to Residential Conversion made permanent

The Prime Minister announced today that the Permitted Development Rights that enabled office to residential conversion without full planning permission is set to be made permanent. The scheme with initially ran from 2013 to May 2016 will be extended indefinitely.

In other boosts for house building today, the PM is also announcing that a temporary rule introduced in May 2013 allowing people to convert disused offices into homes without applying for planning permission will be made a permanent change – after almost 4,000 conversions were given the go ahead between April 2014 to June this year.

This is great news for potential buyers of homes as well as property developers and all professionals connected to the industry. It will mean an flood of new development sites to the market and an increase in available housing stock. This should start to be realised within 12 to 18 months, the usual length of time required to convert a building.

Office blocks are usually in inner city location or near transport links making them ideal locations for residential units. Perfect for young buyers who rely on these links. Furthermore converted building are typically cheaper than new builds and many often come with a character that new builds just do not.

We at PropVestment are actively looking for office sites to convert into residential units, please email nirav@propvestment.com.

Office to residential conversionx

London Property

Is the London property market slowing?

Property Investor LondonWednesday 3rd December was the last McHugh & Co auction of 2014. Focusing on residential property in London this auction gives a good indication of the state of the London property market.

PropVestment attended the auction on the instruction of client’s interested in some of the lots on offer. Here is how it went:

Key observations:

  • Only 50% of the lots sold
  • Development lots sold the best, 5 of the 8 sold, at an average of £1.865m which was on average 55% above the guide price.
  • Houses did not sell well, only 3 of 9 selling, at an average of £499k, on average 17% above guide price. For the ones that did not sell, reserves were not met at an average of 3% above guide price.
  • Flats sold fairly well, 6 out of 10, at an average of 34% over guide price.
  • Lots in Zone 1 & 2 sold well and above guide, however many outside central areas did not sell.
  • Lots sold by councils, or trusts sold well, where as private sellers seemed to keep high reserves.

London property analysis

Developers were hungry for prime development lots in good locations, where there is confidence that final products will sell and where there is potential to achieve higher values. However locations away from prime residence or commercial zones did not fair so well. Some lots were offered by London Borough of Camden, the ones on normal residential streets sold well, but ones in proximity to estates and tower blocks did not. Council are cashing in.

Flats sold well, these are properties that are more affordable and hence there is greater demand.

Luxury houses suffered, where sellers are anticipating very high prices. The irony is that with the Stamp Duty announcement in the Autumn Statment these properties will be less desirable and therefore sellers will not achieve the prices they want.

Another factor that may contribute to slower sales is the up coming holiday season, with many auction lots requiring 4 week completions it is not desirable or possible to complete. Auction purchases require greater legal scrutiny and finance is still difficult.

For advise, appraisals or general consultancy on London property feel free to get in touch: info@PropVestment.com

London Property

 Note: PropVestment only attended the first 30 lots on offer, data is from first hand observation, although we aim to provide accurate information this information is not verified with McHugh and Co.
Mortgage Market Review

#MMR : How will the Mortgage Market Review affect you?

The Mortgage Market Review (MMR) was brought in by the FCA and is in practice from 26th April 2014. The aim is to avoid a repeat credit crunch caused by over and responsible lending in the mortgage market.

What is the Mortgage Market Review?

It means that Financial Advisers will not be able to provide services on a Non-Advise basis. All IFAs will need to hold a relevant qualification. This means there will be better qualified IFAs, and the lack of competition should make this service profitable and worth it for the best IFAs. Overall this is better for people buying property as they will get better advise.

For Lenders: They are now fully responsible for assessing someones ability to pay back a mortgage and affordability. Therefore they will scrutinise income and expenditure to the finest detail.

Mortgage Market ReviewFrom the FCA:

They will look at your spending in three categories:

Essential expenses

This is what you regularly spend on the things you cannot do without, such as:

  • food
  • household cleaning and laundry
  • gas, electricity and other heating costs
  • water bills
  • telephone
  • essential travel (such as travel to work or school)
  • council tax
  • buildings insurance (it is usually a condition of your mortgage that the building must be insured)
  • ground rent and service charges (for leasehold properties)

Basic quality of living costs

This is what you need to spend on occasional essentials, with some allowance for leisure costs, including:

  • clothes
  • household goods (such as furniture and appliances) and repairs
  • personal goods such as toiletries
  • basic leisure costs, including non-essential transport
  • TV licence
  • childcare

Repayments and other commitments

This covers other payments you know you will have to make, including:

  • debts you are paying off, like credit card bills, loans or hire purchase payments
  • child maintenance and alimony payments

The exact details you are asked for will vary between lenders, but you should expect to discuss your regular spending in all these areas.

MMR could be responsible for the surge in the housing market in recent months. Due to the fact that the lending process will be longer and more indepth, potential buyer will have rushed buying to get their transactions complete prior to these new rules coming in place.

What does MMR mean for Buy to Let?

It is still unclear if these rules are applicable for Buy to Let investments, especially as in most cases the loan to value is lower and mortgage payments are intended to be paid with the rental income.

Please comment if you have any further information in relation to Buy to Let impact.

Property Tribes has some interesting points here:
http://www.propertytribes.com/start-preparing-now-big-changes-coming-btl-lending-t-9621.html 

– Thanks Vanessa Warwick

Conclusion

Although the point of MMR from the FCA is to make sure mistakes of the past do not happen again it will damage the property market especially for those responsible lenders, IFAs and investors.

Immediately we will see a drop in market transactions and decrease in first time buyers on the market. The seasoned investors should remain mostly unaffected.

UK Property - Budget 2014

#Budget2014 – impact on UK property market

Chancellor George Osborne today showcased the UK Budget for 2014. The main question is how will it impact the UK property market and effect you, the investor. Points of interest are Stamp Duty, Help to Buy, new housing, savings and taxes.

 

Stamp Duty

Stamp Duty Budget 2014Nothing much changes for the average private homeowner, or small time landlord. The big announcement and change comes to close a loophole that many foreign investors used to avoid stamp duty by buying their properties through company ownership. Now there is a 15% stamp duty on purchases over £500,000. This will severely target foreign owned properties in particular in London and South East.

THOUGHTS – Will foreign investors now just flood the UK commercial property market? So is it a good time to get in now and sell in the near future?

Help to Buy

The equity loan scheme known as Help to Buy has been extended on new homes until 2020, with the aim to fill the shortfall in housing and encourage lending from banks and building societies.

In reality this will mean that the construction industry will be boosted until 2020 at the expense of young buyers, who end up buying an inflated prices, and find themselves in a lot of debt. This will keep pressures on house prices up until 2020 too. For the investor it means, get on the property ladder today or expand your portfolio, and if you want an exit do it before 2020. It also means new builds that are eligible for the scheme will be considerably higher priced than old builds, however this will drag the prices of old builds along too.

No mention of any extension to Help to Buy 2, the scheme that was available for non new builds up to £600k.

Housing supply

Ebbsfleet Garden City – 15,000 new homes to be built near the Ebbsfleet international rail terminal, to create a commuting hub. As PropVestment advised a few years ago Ebbsfleet was an investment hot spot and it will only increase more now. With great transport links it will become a thriving part of Kent. However we think the area will now be priced in.

Brent Cross and Barking Riverside in London will also receive new developments and improvements to help aid the capitals housing problems.
UPDATE – There will be 11,000 new homes in Barking Riverside and up to 10,000 in Brent Cross. The regeneration of the infamous Grahame Park estate near Brent Cross will also be brought forward. 

Right to build – New scheme to help people build their own homes. £1.5m allocated, that is pittance really, how many can be supported through this? Although it does sound like an interesting concept.

The chancellor’s target is 200,000 new homes to be built, however many critic suggest that this is still not enough and the housing supply deficit will keep growing. This means by simple economics demand will continue to out strip supply and prices will keep on rising.

Savings & Taxes

A few points are that the zero rate and 40p rate thresholds will rise, increasing affordability. ISA thresholds are increased to £15,000 per person and there are a few other measures to encourage savings. This could have impacts either way, one way is that it will encourage savings so people will be able to build up deposits for buying a property. On the counter if they have saved into ISAs that they do not want to break, it could mean that people will be more reluctant to invest into property. It will depend on person to person.

How will #Budget2014 impact the PropVestor?

UK Property - Budget 2014For the traditional investor it is a fairly positive budget and it will help discourage corporates and foreign investors with the Stamp duty ruling. This will leave more opportunities for private UK based investors.

Help to Buy is contentious but it will keep pressures on house prices until the end of the decade.

PropVestment’s top tip

Get on the property ladder today, do not wait until tomorrow

The rise of online estate agents

How important is the Estate Agent?

Is the role of the Estate Agent changing?

Over the last few years since the bursting of the property bubble in 2007 to now the role and business model of the estate agent has changed dramatically. We will discuss a few themes from the rise and reliance of the internet in property. Most prominently the rise and almost necessity of agents to list upon Rightmove and Zoopla. Are relationships with your agent still as important? The rise of volume of estate agents on every high street? Is it different if you are a buyer or a seller.

Internet-Only Agents, Rightmove & Zoopla

The rise of online estate agentsA few years ago there was a giant called Findaproperty.com, which has now disappeared after a merger with Zoopla in 2012. The giants are now Rightmove and Zoopla. Nearly every high street agent must now list on these two giants to get the exposure to potential buyers or letters.

In times gone by majority of the advertising for property was in the freely distributed local newspapers, and newspaper could get a large amount of their revenues from estate agents. Now many papers exist in only online form or only sold in selected stores. This has meant that all that revenue is diverted to these online property listing sites. Within minutes of receiving new properties agents are able to list them online and mailshot them to potentials. As a buyer this means you have quick access but also quick competition.

DID YOU KNOW: 95% property searches are done online!

There are now a rise of many online only estate agents such as such as eMoov.co.ukHousesimple.co.uk and Hatched.co.uk. Zoopla and Rightmove online allow estate agents to advertise, not private clients. Hence their is a market for online only agents. With minimal costs they can operate, some only charging £500 commission on property sales. Compared to the 2% average of traditional agents and London average house prices hitting almost £350,000. That’s a comparison of £500 vs £7000? What would you choose?

Are relationships with your estate agent important?

This question goes hand in hand with the debate of using online only estate agents or not. In years gone by your relationship with your local agents were of prime importance. Whether you were a seller or a buyer your agent could significantly improve your chances of succeeding in a transaction or even giving you first option ahead of others.

Recently working on a deal for a client we realised the importance of this relationship is still as valid as ever. You pay a price but you get that call ahead of a property being listed online. Or as a seller they personally take care of negotiations and vetting to squeeze every penny from the prospective buyer. It brings about a personal touch an art that is often lost in today’s technologically reliant world.

Spoilt for choice? But which one?

Spoilt for choice for estate agentsSince the before the bubble burst till now there have been more and more new estate agents cropping up on every high street in the country. Even when the market for buying and selling was stagnant they were opening. Mainly for the high demand for lettings and the quick 6-10% that they could make by flooding landlords with sub standard tenants and then in an few months they disappeared. Estate agency requires no qualifications to open, so there is easy entry. But do not discount them all the new boys on the market. There are some very good ones. Best advise is to go and have a conversation, you very easily can weed out the all talkers and the ones with extensive local knowledge.

The best agents we find are ones that have been in an area for a while, they get the best properties first and they also have the ready clients who are looking.

Difference for Buyers and Sellers

For buyers:
Walk around the area you are looking and register interest with the local estate agents. They will give you inside knowledge of the happenings and developments locally and can give you first option. You are not generally paying anything so it makes no difference to you.

For sellers:
You are the one paying fees so this is the big dilemma. Also it depends on your circumstances, how long you can wait to find a buyer, can you handle viewings. A good agent can vet out prospects so there is less hassle for you, especially if you are selling your residential home and do not want hoards of random people turning up to see.

Conclusion

Estate Agents are massively important for the buyer and seller, however each situation is different. On the whole good relationships enable you to get preferential and personal service that can help you beat the market.

#AutumnStatement : UK Property Market

Property Highlights

  • Capital Gains Tax loophole closed

From April 2015, overseas investors will face a capital gains tax bill on any profits they make from UK property. It is only fair to make overseas investors pay capital gains tax (28%) on the profit they make when they sell their UK properties. That is what British second homeowners are required to do, so why not foreign investors too.

  • £1bn made available for property development loans

£1 billion of loan money is to be made available to councils wanting to fund new housing developments in Manchester, Leeds and elsewhere (expected to create 250,000 homes). House building is up by 29% on last year. It is a figure warmly welcomed by construction firms such as Persimmon, Barratt and Taylor Wimpey, though many large financial firms such as L&G insist house building should be a much higher and more urgent priority.

For Help to Buy, Virgin and Aldermore will be offering mortgages too.

  • Aim to keep interest rates low

The aim of many tight regulations in banking and financial industries is to encourage responsible lending and so it is possible to maintain low interest rates. This is vital to the general economy and must be fought against rising house prices. So house prices will need to be kept under control.

 What does this mean for a property investor?

Autumn Statement UK Property Capital Gains TaxFirstly if you are a foreign investor then much of the benefit you got have been diminished. However if you are not, this is great news. It will mean that foreign investors may start to put there money else where. This means there will be less competition from “Cash Oversea’s buyers” when you are after a property. Prices should also correct accordingly. Overall a good policy for UK property buyers and also the increased tax revenue will help the public too.

Funding for house building and developments will increase housing supply and keep construction jobs strong. However will this only benefit the house builders who sell at inflated prices? Possibly. The impact on the normal UK property investor will be minimal.

Low interest rates are welcome for investors, however it depends if new finance is available. Overall it will at least mean that investors’ current mortgage payments stay low.

Overall a good Autumn Statement for the UK Property investor.

 

 

Buy to Let mortgages

UK Property Market Update – Winter 2013

The UK property bubble is building

  • The average family home is up £5,583 and London properties have increased by more than £7,000.UK property prices went up by £7,430 in October
  • Average sale price in London is now £404,199
  • Help to Buy scheme is inflating prices
  • Rents increase 11% to £785pm, 41% of the average UK wage.

UK rents

UK property Sale prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average UK Property Prices In London, where the average sale price is higher than ever, 14 people compete for every property.

Mortgage applications rose by 6% in October, and almost double 2012 numbers. It comes as the Council of Mortgage Lenders said last week the number of homes sold this year will be more than one million for the first time since the financial crisis began in 2007.

The government Help to Buy scheme is pushing prices up.

Out of the 5,375 sold so far, the highest number of Help to Buy sales have been in Leeds, Wiltshire, Milton Keynes and Reading.

The average price of a UK property bought under the Help to Buy scheme was £194,167, with an average equity loan of £38,703.

UK property transactions

Critics warned the UK-wide second phase of the scheme, which began last month and is not restricted to new-builds, would cause a housing bubble.

It guarantees 15 % of the value of the home loan.

After almost coming off the market, Buy to Let mortgages are also being approved strongly. Landlords and investors are buying up and completing deals to keep up with the increasing rent demand and to cash in on the rental increases. This is a very encouraging sign for property investment.

However as the final graphic shows there is still not enough supply in the market, especially in London where there are almost 3 offers for every sale.

PropVestment’s thoughts

Offers and Sales

Yes the UK property market is picking up and in fact picking up a little too fast. But this is mainly due to the Help to Buy scheme which is resulting in unrealistic implications on price and the market. The only ones to benefit are the banks and house builders. First time buyers, buying under the scheme face higher interest rates compared to traditional mortgage products.   
The market right now is too competitive and sellers can take advantage. We do however have concerns that many first time buyers under Help to Buy will suffer from negative equity in years to come once the Government pulls the plug on the scheme and prices fall back to their realistic, natural and sustainable level.

Buy to Let mortgages

Source: Daily Mail