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

UK Student Housing has better returns than residential & commercial

Student Housing: Is it a good investment?

This week Savills published their student housing report. Here are some key findings from that report and some of personal experience and observations from working with our clients.

“Student housing continues to perform well as an asset class with higher yields than both residential and commercial property” – Savills

In the past the student market has been steered clear by investors due to the reputation of how students treat your property. However in recent years and the massive influx of students, the shortage in student housing has created a market where the returns are far higher and secure than residential and commercial property.

According to HESA between 1999 and 2012 the number of full-time students in higher education grew by 540,000, an increase of 46%.

With university halls of residence just about able to cope with the increasing numbers of first year students and private sector student accommodation operators racing to scale up, most students ended up in the private rented sector.

Average student housing rents by rightmove

Many landlords ceased the opportunity, some to accommodate for their own children and their friends. The use and availability of Buy to Let mortgages made it even easier.

Where to invest in Student Housing?

According to Savills, Bath, Brighton, Bristol, Cambridge, Cardiff, Edinburgh, London, Oxford and St Andrews are at the top of the list for investors.

Where to invest in student housing

 PropVestment’s clients have shown interests in south coast universities like Southampton and Portsmouth. In the past favourites have included Manchester and Nottingham and of course London, with investments south of the river.

 Demand for Student Housing & increase in Fees?

It was thought that student numbers would fall after the fees jumped to a maximum of £9,000 from 2012. But this only applied to domestic students.
In 2013 demand from within fell by 2.7%, However, demand from outside of Europe has continued to grow during this period, particularly from the Far East, which has seen average annual growth of 8.5% over the last 6 years.

The overall 0.4% fall in domestic student numbers between 2010-11 and 2011-12 was counterbalanced by a 1.7% increase in international students keeping student numbers
fairly stable.

Is London still the place to invest?

London Student Housing Market

London has 300,000 full-time students, and 110,000 part-time students. It is the student
accommodation market is both the largest and most active in the country.

With private sector rents forecast to continue growing, affordability for domestic students,
who make up 75% of the student body, will continue to be stretched and drive demand
into surrounding more affordable markets.

Therefore there is much opportunity in Zone 1 and Zone 2 areas of London. However in London there are many other factors that also effect the market.

PropVestment Top Tips

Invest and convert larger properties into HMOs to house multiple students. The returns are higher for the landlord, and the greater space can provide more affordable alternatives for students rather than renting a studio on Oxford Street.

PropVestment 2013 – UK Property Market Outlook

UK Property 2013 – House Prices, Lending, Supply, Rents…

There is always much speculation about how the UK property market will fair when we start a new year. How will the market correlate to the economy as a whole, and the biggest question of all is whether its recovering from the credit crunch?

  • House Prices
  • Lending
  • Supply
  • Rents

UK House Prices in 2013

House prices are low currently and the advise from PropVestment is that property prices will not stay low forever. Simple demand and supply, population is growing faster than new supply, together with smaller family units means shortage. Further lending is still tight but there is major pressure to improve. If you can afford to buy now, do it.

Today Rightmove are claiming that sellers are pricing 0.2% higher in 2013

UK Property Lending in 2013

Investment property services

Lending to first time home buyers in the UK increased 11% in 2012 compared to 2011, however this is still considerably lower than pre credit crunch. There is constant pressure on lenders to lend more but the criteria remains tight. Hopefully 2013 will mean more realistic and universal schemes rolled out by lenders, with more scope than last years NewBuy and FirstBuy.

Read more

Allsop Residential Auction February 2012: Results, Analysis & Conclusions – PropVestment

PropVestment provides a brief but insightful analysis of the results from Allsop Residential Auction in February 2012. We spent some time attending on behalf of a client looking to make a cash investment.

Allsop Residential Auction Headlines

  • 90% success for all lots in London and South East.
  • AST (Assured Shorthold Tenancy) yields over 10% 
  • Northern England struggling
Allsop Residential Auction

90% success rate at Allsop Residential Auction for London and South East

As you can see with the above chart, London as shown by the M25 statistics shows that over 90% auction success with an average price of £324,074. South East and South West also sold well with almost similar success rates however the values were significantly lower.

The worst success was the North East and Northern Ireland. The North East had the lowest success and the lowest average value for the Mainland. This means that this part of the country is the worst effected and the limited activity shows that even bargain hunting investors are staying well way.
The Northern Ireland results could be attributed to problems in mainland Ireland, however with only 6 lots that all sold, the data set is very limited.

Rental yields above 10% , investors market

The main information to be taken from these statistics is that most sales are investments for rental yields, with ASTs demanding lower prices but therefore higher yields. This can be attributed to risk factors.

An interesting stat is that sites with planning permission had a very low success rate, there are buyers there but sellers are keeping a high reserve on these.

CONCLUSIONS

As with previous auction articles like Auctions are for sellers we see similar stats here, majority of lots in London and South East sell well at high prices, however the rest of the market is struggling.
Auctions are for experienced investors and sellers, and not currently for first time buyers. 

*Graphics from www.allsops.co.uk Allsops Residential Auction

Auctions are now for selling rather than buying property

On Monday 6th February 2012 PropVestment paid a visit to Barnard Marcus residential property auction at Grand Connaught Rooms in London. We were in for a surprise as we were there as a buyer but soon found auctions are now for selling.
This was the first major property auction of 2012 in London. Thus it was pack out, many experienced and new property buyers in the hall.

Auctions are for buying not selling now

Lot 1 had guide of £800,000, a four bed house in Battersea, it went for £1.28m + 2.75% fees. This was the story of all the first twenty or so lots.
All the first 23 lots were in London, the average winning bid was over 30% above the guide price, taking out 5 where even at this level the Reserve was not met, the other 18 properties sold at over 36% above guide price.

A few other key high lights from this auction:

  • Most land only deals did not sell, reserve not met
  • A piece of land without planning permission for a possible 8 units went for £860k, that’s insane for the area, almost £110k land cost then planning then construction.
  • Most of the lots on by order of Mortgage companies got bids over guide however did not sell due to Reserve Not Met (RNM). This can only be the case as the lenders have over valued in the past and now face negative equity. Failures.
  • Properties in North England and Wales were the hardest sale, many RNM and a few with highest bids well under guide prices.

PropVestment Conclusions: Auctions are now for selling

Property Auctions have changed now, its a much more public affair and it seems that its no longer a place where you can pick up a bargain. The sellers use it to sell properties that otherwise will not fetch a similar price through traditional means such as local agents. This tell us something about the quality of the properties and legalities of them. There were many amendments to the information provided with particular importance on certain higher rentals, those properties were on the day changed to vacant possession. Therefore the guide rental was incorrect, how is one to know what the real rentability of a property is without doing thorough research.
Due to these pit fall, an auction is no longer a place for inexperienced or first time buyers to find a property to buy. Auction are now for selling.
Rather it is a place where landlords can easily offload not so good properties and rely on the ignorance or lack of research of bidders.

PropVestment Auction Advice
Buyers – Do your thorough research and get someone to look at the legal documents prior to bidding.
Sellers – Use auctions to sell unwanted properties, especially in London, everything sells

Have a read of our observations last year at Savills here

Stagnant UK Property Market: Sellers’ Perspective

It has been widely reported that the current market conditions are such with very low volume of transactions, falls in mortgage approvals, and an overall stagnation in the UK property market.

House Price Crash shows very clearly the levels of mortgage approvals and the graph illustrates this with fine detail. Click on the link.

The amount of new mortgage approvals for house purchase, (but not yet lent), rose to 45,940 in May 2011 from 45,447 in April. However May’s approval figure was lower than the average for the previous six months despite the slight increase, according to figures released by the Bank of England.

Nationwide’s index has prices remaining stagnant since May, and down 1.1% annually, while Halifax has prices up 0.1 % in the same month and down 4.2% annually, while the Land Registry has prices down 2.3% annually. Overall there is clear evidence of stagnation in the market.

It is important to analyse the factors causing this and the mind set of Sellers’ and what is causing them difficulties.

Once again today the UK Base rate was held again at 0.5% for the 28th month running. It will be interesting to see the divide in the Bank of England committee when the minutes are released.

Lending to individuals

At PropVestment we sight two major problems causing this stagnation. Firstly Sellers are too over optimistic, thinking that their property should have risen along the same rise levels as seen before the credit crunch, and cannot come to terms with a possible drop in value, so they set their asking price above what is realistically achievable and representive of their property.
This means that many properties stay on the market longer, the few that are closer to realistic values and are lucky enough to attract attention of the buyers suffer from a secondary factor. Price agreed, next step acquire a mortgage approval.
When the bank valuer goes to value the property, its significantly undervalued relative to the asking price, the mortgage offer comes at a LTV of this valuation, leaving the buyer with a shortage to complete. Result, the deal falls through.

Why should a seller sell? Well with current interest rates, many PropVestors have mortgages around the 1-2% mark, they are enjoying a healthy surplus on rents and selling just means, realising Capital Gains Tax.

Therefore if one does not need funds else where, logic says to stay put, not sell and lose a chunk to the tax man and instead enjoy the cake of higher rental yields to mortgage installments.

Further as stated in our last article, it has been stated that rents, in particular in Central London, are expected to rise 8-10% in the year to come. Investors are well placed to get great returns. Especially where the mortgage costs are not looking to rise due to the base rate on hold.

The UK mortgage market is still quite inactive, even though data is showing an recent increase, from our personal experience and that of our clients, the lending criteria is very strict and stringent and only those that fall into a model profile, income base, age and credit history are the ones where mortgages are being approved. Further to this the LTV (Loan to Value) is still surprisingly low in comparison to boom times. Sellers do not want to accept the lower valuations and feel their properties hold more value so will not sell at current market prices.

PropVestment concludes that from a sellers’ perspective the primary factor why sellers are not as active as they would like to be is simply that the returns are just too good, and staying put is the best option. Even those looking to sell, find the potential buyers are not capable of securing the finance to meet asking prices.

LENDERS START LENDING, SELLERS & VALUERS GET REALISTIC

Last Month : Buyers’ Perspective
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Stagnant UK Property Market: Buyers Perspective

It has been widely reported that the current market conditions are such with very low volume of transactions, falls in mortgage approvals, and an overall stagnation in the UK property market.

Stagnant

Nationwide reported that house prices rose 0.3% in April but are still down 1.2% on last year.

The number of houses sold in May was up 4.7% on the previous month’s figures and reached the highest level seen since May last year.
House sales were 2.0% fewer than May 2010 but significantly up 14.7% on May 2009 and 18.6% up on May 2008. The recovery was led mainly by activity recorded in the North of England and the Midlands. This is very encouraging.
There was positive news for the number of new ‘For Sale’ instructions received in May. In the UK they were up 1.7% eradicating the -0.5% drop seen in April.

It is important to analyse the factors causing this and the mind set of Buyers, and there finally seems some light at the end of the tunnel.

Just today the UK Base rate was held again at 0.5% for yet another month, all indications suggest that there will be no drastic upwards movement. Therefore many home owners and investors are content with staying with existing properties where they are enjoying very low interest rates often just a fraction over the base rate, if they were to sell off current properties and find new ones, it is almost impossible that they will be able to gain similar rates. They conclude it is better to stay put and use the extra savings to pay off capital rather than buy or sell into new properties.
However with such a low base rate saving rates are also very low, which with current inflation figures mean that real return is actually negative.

PropVestors are better placed to either put extra cash into paying off capital or reinvesting in property rather than having money thats losing money in ISAs or savings accounts.

Investors are seeing much better returns on rentals rather than the negative real return of having money in a savings account.

In other property news today it has been stated that rents in particular in Central London are expected to rise 8-10% in the year to come. Investors are well placed to get great returns. Current renters should also think about becoming FTBs (First Time Buyers)  to avoid high rent increases and instead use the low base rate to get on the property ladder. With these factors there should be upwards pressure on demand and property prices, so what is holding back the market?

The UK mortgage market is still very inactive, even though data is showing a recent increase, from our personal experience and that of our clients the lending criteria is very strict and stringent and only those that fall into a model profile, income base, age, and credit history are the ones where mortgages are being approved. Further to this the LTV (Loan to Value) is still surprisingly low in comparison to boom times.

PropVestment concludes that from a buyers perspective the primary factor why buyers are not as active as they would like to be is simply that the lending is just not available and with prices especially in the South East remaining so high. Even those lucky enough to secure finance, they just can not make the deposits needed to buy when the LTV offered is as low as it is.

LENDERS START LENDINGNext Week : Sellers Perspective
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Impact of University Fees on your PropVestment

Tuition Fees

Since the announcement some time ago about raising of tuition fees up to £9,000, the pros and cons have been weighed up by the media, but mostly from the perspective of the students and their overall cost of university. At PropVestment we like to consider you, the Property Investors perspective or the “PropVestor” as we like to refer to you.

A recent report by Centre for Cities shows the economic impact of the rise in UK university fees. They suggest that some local economies will be seriously hit by the rise in student fees and the loss of student numbers.

In 2007/08,  the mean total expenditure of full-time English-domiciled undergraduates was £12,254 per student across the three terms.
If this held  true in 2008/09 for the 50,100 undergraduates in Leeds, then their total spending would have been around £624 million; while the spending of the 21,800 undergraduates in Stoke would have amounted to £267 million.
Undergraduate consumer spending alone accounts for up to 10% of the total economic activity of some cities and some of this, the report says, will definitely be lost.The impact will obviously differ across cities. Even though it is estimated for Oxford and Cambridge where students account for 8-10% of economic activity, the institutes will have full admission and places will not be lost therefore the volumes will not suffer. Other cities may fair much worse.
In terms of rental demand, this will change proportional to university places, students need a place to stay regardless. However the amount that students can budget for rents will be much lower and there will be a battle similar to the one with house prices at the moment, where landlords hold out too high rents and affordability is low, this could result in the most stubborn Landlords left with vacant properties, and students out of accommodation.Rising student numbers has been one of the reasons why the buy-to-let market has boomed in recent years, but will pricey tuition fees be damaging to landlords?Whilst the majority of students have historically moved away from home to study, will this practice continue in light of tuition fee increases?
The student population in major university towns could plummet, leading to a catastrophic decline in demand for student housing. Many Landlords have their portfolios quite concentrated on student housing and may suffer with lack of diversification across their portfolio in terms of property type and geographical locations.
Many student properties could be made available for the standard private rented sector, however, the yields on student properties do tend to be higher. Student landlords need to be aware of changing market conditions and to regularly review their business strategies in order that they do not get caught with a glut of unwanted property.

Students staying close to home

Home insurance company LV thinks that there could be flash selling of investment properties in university towns.
The UK university fee increase, together with declining numbers of 18 to 24-year-olds in the general population, will see a 14% fall in higher education numbers over the next decade.
They forecast that the number of students living in the city of Newcastle will slump by 52% in the next nine years – a loss of 15,000 students. It also predicts the student population of Sunderland will fall by 35%.
Other cities which will feel the impact include Swansea, Portsmouth, Stoke-on-Trent and Nottingham, with university student population forecast to decline by 40% in these areas.
Student life is set to be transformed over the next decade, as the impact of rising tuition fees forces university students to reassess their finances and living arrangements.
LV suggests that by 2020, 52% of students will choose a local university and stay with their parents. Only twenty-one per cent of UK full time students currently live at home.

PropVestment conclusion

Overall the rise in tuition fees will impact student landlords, and we are not here to argue the righteousness of university decisions. Like all the best in business landlords much take precautions and adapt their strategies according to changes in the market. In all fairness many landlords, our clients included have enjoyed the student boom and milked rents well, in particular those using HMOs. We advice landlord over exposed to certain geographical areas to research and find the up to date information about the universities future plans, fee charges and expansions. Being ahead of the game and well informed is the fore most priority to be successful. Use this information to adapt your target, maybe start advertising earlier or more strongly for the 2012 intake of students.

If the university has a high percentage of foreign students, circumstances may not change as much as they will still be paying the same higher fees. Alternatively if its one of the top universities or around London, there is so much demand for student living and also young professionals, the impact will be less extensive.
There may be a greater demand for less exclusive or ex-local rental properties and as students budget and trade down to affordable or larger properties with higher occupancy possibilities. From our experience these can be the most appropriate properties for students.
The impact on the whole UK property market will not be much and if anything may help local people afford rentals more, where in recent years they may have been out priced by the influx of students.

We at PropVestment are experienced in Buy To Let and Student rentals so for any advise do not hesitate to contact us, for a no obligation consultation. We have great means to advertise to students, manage lets, legal matters and HMO regulations as well as a tight network of letting agents. Read our buy to let blog.

Have a read of our other articles on Student Housing:

PropVestment in Daily Mail: Wise councils: Spacious and solid, ex-local authority houses can be a very good deal
PropVestment Guide: Top Tips for Property Listings
Today: New Laws for Landlords, All Tenancy agreements upto £100k become ASTs
HMO: Huge Money Opportunity
Landlords : How to protect against bad tenants

Sources:
http://www.centreforcities.org/assets/files/2011%20Research/11-05-05%20Starter%20for%20ten.pdf
http://planetproperty.wordpress.com/2011/04/19/university-fees-the-end-of-buy-to-let/
http://planetproperty.wordpress.com/2011/05/05/university-cities-will-be-hit-hard-by-student-fee-rises/

What does 2011 have in store for the PropVestor: Part one – House Prices

Happy New Year PropVestors

As the new year has arrived, its only fitting that we start analysing the market and try to figure out what we are to expect from the market in the year to come and then we may be able to form a suitable strategy to make it a successful year. There are a few conflicting opinions in the the media and altogether many factors that need to be considered. Here is a few main ones covered from sources and opinions in the media, let’s try detangle and make sense of the information.

House Prices

Hometrack:

House prices to drop 2% in 2011 on ‘weak demand’,  UK house prices fell for a sixth month in December and will extend their decline in 2011 on “weak” demand and tighter mortgage-lending conditions.
The average cost of a home in England and Wales dropped by 0.4% during December , according to the housing intelligence group.
The drop was driven by the ongoing shortage of buyers, with estate agents reporting a further 4.8% fall in the number of people registering with them in December, the sixth consecutive monthly decline.

Capital Economics:

The major lenders’ indexes are likely to end up showing house prices dropped between 1% and 2% in 2010,  how severe the drop will be – they put it at a whopping 10% next year.

Chesterton Humberts:

prices will manage to rise slightly as the wider economic recovery continues, up 1.2% in London and 0.8% elsewhere. They are also more positive about the past year, calculating prices were up 1.8% by mid-December.

Office for Budget Responsibility (OBR):

The independent fiscal watchdog predicts that prices will fall 2.7% in the coming financial year.

PropVestment:

In London and the South East it is difficult to agree to major price drops, sellers will hold out at higher prices, suggesting activity will stagnate however prices won’t drop significantly, especially due to continual foreign buyers in the market. However in the wider country as people get desperate to sell or move due to new jobs etc…prices will inevitably drop.

Look out for the the rest of this series of article: Rentals, Lending, Market Activity, Interest rates

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A new rental concept: SpareRoom+eBay= airbnb

the eBay of rentals

Airbnb is a fresh concept at the rental market, an innovative service that brings the industry in line with the world of Facebook, eBay and YouTube.  What does this kind of service mean for the real property investor and how does is change the industry? Is it applicable to a major portfolio or just limited to the vocational landlord with a spare room under the room? In this article I’d like to introduce this innovative service and discuss the implications for landlords and how best to make use of such a service and adapt it to your investments and property portfolio.

apps are the new way

Airbnb was founded in August 2008 and based in San Francisco, California. Airbnb is a trusted community marketplace for people to list, discover, and book unique spaces around the world online or from an iPhone device.  In April 2009 it received $600k from Angel investors and has now raised $7.8m through venture capital.

It brings the Ebay concept of how to monetise items in your house, airbnb aims to help people monetise space in their property. Whether the available space is a castle for a night, a sailboat for a week, or an apartment for a month, Airbnb is the easiest way for people to showcase these distinctive spaces to an audience of millions. By facilitating bookings and financial transactions, Airbnb makes the process of listing or booking a space effortless and efficient. With 50,000 unique listings available in more than 8,000 cities and 167 countries, Airbnb offers the widest variety of unique spaces for everyone, at any price point around the globe. One founder Mr Chesky has no permanent home, instead is a client of his own business, moving from property to property.

Airbnb requires compulsory reviews, this ensures people respect the system and builds a profile; one bad review can damage your reputation so one must have trust and respect and be honest. It helps create a social network style environment.

The procedure

The procedure

  1. Sign up, create a profile and list
  2. Get booking
  3. Airbnb takes credit card payment in advance and releases to hosts a day after client checks in, to ensure quality assurance and make sure client is happy with the condition. Airbnb charges a 6-12% commission.
  4. Compulsory review

The more reviews the better your profile and more prospective business.

It is clearly a promising option, nearly 100 hosts made $50k last year, so it is a viable alternative. A couple in California rents out their tree house, and made $29k in one year. They never got a good response from traditional listings to fill their property.

Listings for host and clients are getting even easier with the launch of mobile phone apps for the site.

But now back to the serious property investor, is this a viable approach and alternative?

I think it comes down to the type of property and location. It is very appropriate for spare rooms and extensions to existing owner occupied properties where the landlord can host and provide the hospitality. Also the higher premium for the short term lets is a great option for exclusive spots, say in city areas, or areas where there is a short-term explosion in demand. It is clearly not worth it for your suburban apartment; one must remember the type of client searching on this site and the other options available to them. To be successful the property has to offer something different, a unique experience that another hotel or bed and breakfast does not.  Competing on price alone will not be sufficient especially as it is a new way and will be perceived riskier.

Some research and data that can be collected over time as this service becomes more prominent, and then we will be able to analyse with empirical evidence.

For the time being watch the space www.airbnb.com . It is going to have some impact on the industry and may just spring a new range of innovative services and companies that take the market into a new dimension, for the traditional market I do not feel it is a threat yet.