Mark Lawrinson, Regional Sales Director of Portico London estate agents, has spoken out about the possible effects of Brexit, saying, “I don’t think the triggering of Article 50 will affect the property market directly from today. In one sense it removes the uncertainty surrounding when Britain’s withdrawal process from the EU will start, but in another way it will create economic uncertainty until we know what deal we will strike and therefore what Brexit actually means for our country. Mark continues, “Brexit will no doubt mean a turbulent two years for the London market as we begin to hear what negotiations and proposed deals are being put forward for our exit of Europe and the single market. I think we will see a continued slowdown or lethargic London market when it comes to sales volumes, and as we reported toward the end of last year, transaction volumes across London are already more than half of what they were before the 2008 crash. London has a significant part to play in businesses who trade and operate across Europe and the world, and a buoyant property market relies on the UK’s economic health. If Brexit negotiations go well this could cause further price growth as the economy grows and we see the nation’s confidence lifted, but equally, if a good deal isn’t reached then the international companies who operate here or look to relocate here might change their minds, reducing the number of residents who live in the capital and again further reducing the transaction levels, which could ultimately lead to price decreases.” It’s therefore important that you make property decisions based on your personal situation and what you want to do, rather than gambling on how the market will play out. Many are also speculating that today’s events will mean that the Bank of England will be hesitant to increase their interest rates, in spite of the recent inflation increase. This will it will remain cheaper than ever to borrow and get on to the property ladder.
There was a time when property investment was less risky, offered easier returns and was much less regulated.
But increased taxes, greater regulation and higher costs mean anyone starting or enlarging a buy to let portfolio must be cannier about their investment goals. Here we explore some of the key questions we urge our landlords to consider before diving in.
Hands on or off?
The landlords we look after fall into two approximate categories – active, hands-on types who keep a close eye on their property, tenants and the nitty gritty of the financials. Or there are the pure investors who want a return at the end of each year, trust us to do the rest and often live overseas or elsewhere in the UK. Which one would you like to be?
Income growth or capital gain?
You’d assume landlords would like both, but often we find it’s one or the other. Landlords looking at the long-term focus on how much the property may rise in value and use the rent to keep the show on the road. Those looking at the shorter term often want to create income as soon as possible, often because they’re about to retire. It’s important therefore to think about the time-frame of your investment, and whether your property is an accelerator (capital gain machine) or a generator (a rent producing one).
How much risk can you afford?
Halifax figures show £100,000 invested in property during 2000 would have increased in value on average by 132% by 2014. This sounds great, but on the ground our landlords know that the riskier their investment strategy, the greater returns might be. Buying a property in an as-yet undiscovered area may help increase the capital value of it when local prices increase, but it’s a risk. Many landlords prefer to buy in more established areas.
Which tenants are you chasing?
Tenants come in many flavours including students, professionals, temporary foreign workers, low income, high income, families, short-term renters and corporate renters. Each has distinct upsides and downsides and we’re here to help identify which one best fits your investment approach.
Do you have an exit strategy?
Are you going to own your investment property for ever or will you want to sell up one day? Or perhaps you want to leave it all to your children? Whichever, there are both capital gains tax and inheritance tax rules that you’ll need to consider.
We suggest speaking to our in-house financial advisor to discuss tax rules and implications.
It’s safe to say that Chancellor, Philip Hammond’s Spring Budget is unlikely to go down in the history books. But with so much going on already in the UK housing market, it’s a great opportunity to take stock.
The good news? The Budget held no further bad news for buy-to-let investors who have already felt the screws turning on profits.
As planned, mortgage interest tax relief will be gradually cut back to the basic rate of 20% between April 2017 and April 2020. Higher rate (40%) and additional rate (45%) taxpayers will stand to lose the most.
Wear and tear relief has already been capped at a rate of 10%.
However, the amount you can earn in rental profits before tax is payable will soon nudge upwards as the personal tax-free allowance – currently £11,000 – will rise to £11,500 from 6 April. And the Chancellor confirmed it would stand at £12,500 by 2020.
There was no change of heart on the 3% stamp duty loading already payable on the purchase of additional homes either. The premium has caused confusion as well controversy.
The real property focus in the Budget was on the non-residential sector.
Business rates will undergo a revaluation on 1 April, 2017 for the first time in seven years, which could see many businesses paying more.
But if your business will be one of the hardest hit by rises, the Chancellor unveiled three measures designed to cushion the impact.
- If you lose small business rate relief as a result of the revaluation, any increase in your bill next year will be capped at £50 a month. Subsequent increases will either be in line with the transitional relief cap or £50 a month, whichever is higher.
- There’s also a £1,000 discount on business rates bills (in the next financial year only) for all pubs with a rateable value of less than £100,000. That’s 90% of the country’s pubs (or around 25,000).
- Hammond ring-fenced £300m until 2022 for councils to offer business rates relief to hard-hit cases in local areas.
Businesses hoping for a wider overhaul of the business rates system, will be disappointed. The Chancellor, pledged to consult on reform of the revaluation process – before the next revaluation is due in five years.
With rental incomes steadily rising and demand outstripping supply, investing in a buy-to-let property can be a good way to increase your monthly income.
As one of the fastest growing cities in the UK and with an influx of new property developments, Manchester provides the perfect opportunity for anyone looking to invest in property.
Buying a property to rent out in Manchester can often deliver between 5-8% yield depending on the location and the type of investment you’re searching for.
Compare this against a 4 year fixed-rate bond at 1.85%* or a high-interest Cash ISA at 1.05%* and investing in property looks an interesting proposition. If you also compare this with London that most of the time will require a minimum 50% deposit and will offer a 3% return.
Property should always be looked at as a long-term investment to maximise returns, but not only will an investor receive regular income, they can also benefit from increases in capital value.
Like any investment, buy-to-let comes with no guarantees and always carries an element of risk. But with the help of a professional agency like Best of Buy To Let, you can find the right property and increase its potential for a great rental yield.
Our professionals can help identify which properties are most suitable for your budget, predict your expected return and even manage the property for you. With the help of our expertise, many of our existing landlords benefit from consistently high yielding returns on their properties across Manchester.
Liverpool: the place to invest
As the buy to let market in the UK continues to grow, Best of Buy to Let are excellently placed to help you find your next investment property. Whether it’s your first time as a landlord, or you are looking to expand your existing portfolio, our team of experts can help you to find the property that’s right for you.
One of the areas that has particularly caught our eye is Liverpool. Liverpool is one of the UK’s fastest growing cities. With a thriving economy which has seen an 8.1% increase in private sector employment coupled with a growing professional population. Buy to let investments In Liverpool continue to outperform most asset classes. With the rise of the Northern powerhouse, Liverpool is quickly becoming an attractive proposition for large companies to set up shop and further drive employment and economic growth.
Liverpool is currently undergoing major regeneration with large parts of the city being transformed into vibrant communities for people to live, work and play. This inward investment is fuelled by growth in population and the demand for quality private rental accommodation in key locations.
Many investors, both UK based and from overseas are taking advantage of the strong private rented sector within Liverpool. Many of the new build developments throughout Liverpool offer low entry prices into the buy to let market resulting in high yielding opportunities for investors.
The majority of our buy to let investments in Liverpool come with a guaranteed yield for a 2 year period backed by the developer.
Our property sourcing service for those looking for a buy to let property is truly second to none, and just some of the reasons our clients choose to work with us include:
- Access to properties that are not yet on the open market
- Access to properties that are being sold below market value (BMV)
- Expert in depth knowledge of the local investment & buy to let market
- Great contacts to help you grow your property portfolio and achieve buy to let success
What is a buy-to-let Investment?
Buy-to-let is purchasing a property with the intention of letting it out. As with most investments, it is a case of putting your capital in to something with the idea of getting a return or a steady income. Basically, you are after a rental return, capital growth or a combination of the two. There are a number of ways a buy-to-let investment varies to your standard investment in stocks or shares:
- You can’t just sell a property and get your money out instantly. It takes time to sell and also time to go through the legal work.
- There are a number of legal responsibilities as a landlord.
- There are a number of new tax implications being phased in over the next few years. This doesn’t make property a bad investment, but you need to be aware of what they are.
- You can leverage your initial investment by getting a mortgage. This is also known as gearing.
Aims of buy-to-let investing?
Rental return: This is quite often the primary goal of most investors with the rent covering the mortgage as well as all other costs and still providing a profit.
Capital growth: If you are clever with where you invest then you can achieve the rental return as well as get the capital growth. This quite often comes down to location!
Risks of buy-to-let investing
As with most investments, your asset can go up as well as down.
Along with the property value going up, but also potentially down, the rent can also do the same. For the most part, rents do tend to go up although you need to be aware that this isn’t always the case.
At the end of the tenancy, it can potentially take time to find another tenant and there could be a void period.
You will have responsibilities as a landlord and therefore should something go wrong with the property, it is your responsibility to fix it.
Costs of buy-to-let investing
Stamp duty: this is usually the largest cost involved with buying a property and since April 2016, will cost you an extra 3% to purchase a property if it isn’t your primary residence.
Conveyancing and surveyor fees: These vary depending on the size and location of the property but can quite easily add up to several thousand pounds. The survey you should get will depend on the type of property, although it is worth getting some advice which one is best for you.
Mortgage fees: To get the best mortgage product on the market, you will quite often need to pay an arrangement fee for the mortgage to be set up.
Property maintenance: from time to time, things do break so you will need some funds put away for when this happens.
Insurance: You will have building and landlord. Again, these vary in cost depending on the size and location of the property
Service charge: if you own a freehold house, then it is quite possible that you won’t have one of these although if you own a flat then you will. The service charge will vary from flat to flat although covers the upkeep of the building as well as various other things.
Lettings agent fees: These can be up to 15% of the annual rent if the property is being managed. You can quite often find a cheaper agent, so it is worth looking around.
How to choose the right buy-to-let property
There are two key things to take in to consideration when choosing a buy-to-let property:
Your target market: Who is likely to rent your property? Is it going to be a family and therefore schools are important? Or is it young professionals where proximity to transport and amenities are important?
Supply and demand: What kind of property are the target market looking to rent in the area you’ve chosen and how quickly is it likely to rent? Also, how many of them are currently on the rental market. Also, if you wanted to sell the property quickly, could you, if you needed to. It is imperative you do all of your research beforehand.
Buy-let-let and tax
Before investing in a buy-to-let property, you will need to consider how tax will affect you. Some of the above costs can be used to reduce your tax bill, softening the blow on your returns. There are new tax laws coming in from April 2017 that will affect most landlords – it is worth getting some expert advice to know what your responsibilities are.
How to calculate your returns
This very much depends on what your need is from the investment and whether you are primarily after an income or capital growth.
The main way to calculate your return is by working out the yield. This is done by dividing the net income by the property value.
So the initial pandemonium of Brexit is slowly starting to simmer down as the repercussions of a nations decision begins to settle in. With still a degree of uncertainty lingering in the air, it is easy to allow the voices sceptics to dictate the potential mood and activity of investors, shooting down potential opportunities as they arise. But those savvy investors would have more recently spotted a glaring opportunity which has been birthed from the economic happenings of late. And although there are plenty of prospective ventures which could be perused within the area of London, it is the more recently formed ‘Northern Powerhouse’ exciting both local and foreign investors.
So the question now arises, what is this ‘northern powerhouse’ the Chancellor and many ministers have been promoting of late? – And what will it actually mean for the rest of the country?
Well, it can be duly noted that as opposed to being a newly formed specific region of the UK – the powerhouse is more a concept which brings together cities and counties up north as a means to stimulate economic activity outside London. The aim being to address the north-south economic imbalance in the UK by redirecting investment and creating greater level of activities in other sectors. Capital is perceived to be driven by financial services, northern economies boast strong manufacturing, science, technology and service sectors.
Of late, economic specialists have been predicating close to 1.56 million new jobs in the Northern Powerhouse by 2050, with England’s North already being crowned “The Brexit Winner” already.
It is no secret that London is more than just the capital, but the central hub for all economic activity in Britain, thus creating a strong need to provide even more confidence to businesses and investors to go outside of the capital, encouraging the government also to invest in the infrastructure to grow our economy
These recent views being shared by many timely coincide with the recently published Northern Powerhouse Independent Economic Review. The report has a closer look at the major gap in productivity through generating more jobs and enhancing competitiveness.
From the report Digital technologies, health innovation, energy and advanced manufacturing are the sectors celebrated to have the biggest potential to transform the North for good. Forecasts even predict them adding £97 billion and 850,000 jobs to the region.
The chancellor said: “One clear message from the referendum was that there were parts of our country which felt left behind and one of the reasons that I said two years ago that we needed to build a Northern Powerhouse was to make sure the whole country shares in our economic prosperity.”
As part of the report, the Manifesto for transforming the northern powerhouses focuses on removing the disparity and with the aims of progressively moving things forward. One of the more stand out focal points was the aim to create private rented sector funds. The North’s great cities – Manchester, Liverpool, Newcastle – need a high quality, thriving private rented sector to attract and retain the highly skilled workforce they need to flourish. Retention of the Government’s new stamp duty levy for Buy to Let would provide seed funding to attract institutional investment to boost quality and supply in this vital part of the housing market.
So what does this mean for investors, there is something exciting happening up north, and those who are in the south need to jump on the opportunity train before it leaves the station.
Off-plan investing refers to the process of purchasing a property from a developer before it is built, or during the build process. Hence, the term ‘off-plan’ refers to the decision being made solely by looking at the plans.
Off-plan investing can be a very lucrative way of investing, certainly in times of strong property market price growth.
At Best of Buy to Let we assist many investors with off-plan investing, and it is an area that we can add a lot of value providing the research and due diligence on the area, developer and development.
Summary of Benefits
Lower Purchase Price – Often developers will price the off-plan investments very competitively because they want the development to hit the market well and sell quickly. It is also sometimes feasible to negotiate further discounts, especially if you are purchasing more than one unit. This also provides you with a safety net, in that if the property price falls you are still in a reasonable position because of the discounted price.
Less competition – you are mainly competing with investors, as owner occupiers often prefer to see a property before they buy.
Property selection – With Off-plan investing we have the ability to select the best units within a development. This insures that we are investing in the most desirable properties, and also the properties that make most sense from an investment perspective.
Lower amount of funds tied up – As you only put down a deposit (ranging from around 15% – 30%) less of your funds are tied up in the investment compared to a completed property. This allows you to use the left over funds to make further investments, or possible go away on a holiday!
No Interest – You do not need to take a mortgage until completion. Therefore you are in the market for capital gain (on the purchase price!) with only a deposit down, and without having to pay any interest.
Options upon completion – Upon completion off-plan investors have various options available to them. You have the option to sell to another investor or an owner-occupier just after completion to release your capital and profit. Alternative you can take a mortgage (or not if you want to use cash) and rent the property out.
Incentives – Developers often offer various incentives to ‘sweeten the deal’. Best of Buy to Let will always look to negotiate the best deal for our investors.
Warranties on completion – Once the development is complete, if you decide to keep the it you have a brand new property and therefore you would expect maintenance to be very low. You are also usually covered by various warranties such as; 10 year structural warrantee, builders defect warrantee, manufacturers warranties on white goods etc. This ensures that we can have a lot more confidence in the outcomes of an investment.
The majority of the potential pitfalls with investing off-plan are related to the developer. Doing due diligence on developer is the best way to mitigate the risks and this is an area we spend significant time on at Best of Buy to Let. The sorts of things we look at include:
Financial strength of the developer – Making sure the developer is in a sound financial position is obviously very important and is a great place to start.
Developers track record – We like to see a strong track record from developers of delivering quality properties and also delivering them on time. This gives us much more confidence that they will deliver quality units and also deliver them on time.
Structure of the development – We make sure that the development is structure as it should be. Often if a developer has a corporate master to answer to they will often have sales targets to hit. If the sales targets are not met then funds for the development can sometimes be held back, leading to a delay in development. This is an example of the sort of things we look into to ensure we can have as much confidence in the outcomes of a development
Delay in cash flow – During the build period there is no cash flow from the property as it is not complete. Therefore if you are looking for cash flow in the very short-term off-plan may not make sense for your situation. However if you are looking at the investment longer term then the short term lack of cash flow if far outweighed by the benefits.
We would certainly recommend that if you are considering investing off-plan you get in touch with Best of Buy to Let as well have help many people invest off-plan and the service we provide will give you much more confidence in the investment you make.