Month: November 2021

There’s no denying that recent tax changes have made the buy-to-let market less attractive for investors. Yet it’s still a tempting option with the potential for excellent financial returns. Donna McCreadie, partner and property specialist at Perrys Chartered Accountants, looks at the current landscape and explains why buy-to-let is still a viable investment.

The demise of the buy-to-let market has been much predicted over recent years. Major tax changes, a 3 per cent stamp duty surcharge, and increasing regulation have undoubtedly deterred some from entering the market.

Existing landlords have questioned the viability of their portfolio, and some have made the decision to sell up while house prices are on the increase. Indeed, a recent survey by Nottingham Building Society found that a fifth (20%) of landlords are considering selling all, or part, of their portfolios.

Yet this means that 80% are still keen to retain their assets, suggesting that predictions of a mass exodus of landlords is highly unlikely to happen any time soon. So what are the continuing benefits of investing in buy-to-let property?

Competitive mortgage deals

After a Covid-induced lull, summer 2021 saw a surge of competitive buy-to-let mortgage deals, with many lenders increasing maximum loan to value (LTV) amounts from 75% to 80%. This means that potential investors do not have to raise quite such a hefty deposit to secure a mortgage. For example, on a purchase price of £300,000, the deposit at 75% LTV would be £75,000, while at 80% LTV it would be a more attractive £60,000.

Despite talk of inflation and a potential increase in the Bank of England base rate, interest rates on all mortgages remain historically low. In the buy-to-let arena, lenders have started to reduce interest rates and offer fee-free options.

Rise in rental demand

Buying an investment property is the first step, but how can you be sure of finding a tenant? The good news is that rental demand has picked up significantly since the last UK lockdown ended in spring 2021.

The estate agency trade body Propertymark reported a record number of new prospective tenants registering for homes in May. In June this year, there was an average number of five viewings before a property was let, indicating strong demand and confirming that landlords are generally able to choose the most suitable tenant for their property.

According to the English Housing Survey, nearly one in five households in England live in the private rented sector – that equates to over 4.4 million households nationwide. 17% live in the social rented sector and 65% are owner-occupiers.

With property prices continuing to rise, homeownership is becoming increasingly unrealistic for many. Some experts predict that the UK will become a nation of predominantly renters by 2045, with 55% per cent of the population living in the rental sector.

Increased regulation – a recipe for happier tenants?

It’s fair to say that most landlords will greet news of extra regulation with a groan rather than a cheer. In recent years the number of regulations has increased, with myriad laws and obligations that every landlord must abide by. These include anything from fitting smoke alarms and carbon monoxide detectors to issuing annual gas safety certificates and ensuring that electrical devices are safe to use.

While these measures may eat into a landlord’s time and profit, it should never be forgotten that they have been introduced for a good reason. Landlords have a responsibility to ensure tenant safety and rectify any repairs or faults within a reasonable time frame.

In the long term, this can only be a benefit: recent data from the English Housing Survey shows that 83% of private renters are very or fairly satisfied with their accommodation. Happy tenants can lead to longer-term lets, thereby minimising the risk of missed rental income while a flat or house is left empty.

Your investment has the power to grow

With interest rates continuing to remain so low, cash kept in savings accounts has little or no return. Historically, property in the UK has proved a sound investment. Despite a property value crash at the start of the 1990s and another slump following the 2008 global financial crisis, house prices have risen astronomically over the long term, with current property prices at an all-time high.

In 1980 the average property cost was around £20,000 and today it is just over £250,000. This means there are two potential profit channels when you enter the buy-to-let market: rental yield and the chance to make a good return if property prices go up and the decision is made to sell.

Discuss the pros and cons with an expert

It’s clear there are still many reasons why property investment remains a sensible financial move. There’s much to consider, however, including the tax implications, upfront stamp duty costs and letting agent fees if you decide to outsource the management of the property.

Speaking to an accountant with expertise in the buy-to-let market is always advisable before committing to a purchase. As a potential landlord, it’s important to carefully consider your current income position, future financial goals, and your obligations towards your tenants.

For anyone just starting out, it can seem a daunting landscape. But with the right advice and realistic expectations, the rewards could easily outweigh the challenges.

Source: Property Reporter, 17^th November 2021

 

As we see many world leaders, delegates and famous faces jet in and jet out, stay awake and fall asleep at the COP26 summit in Glasgow, this continues to generate a huge amount of column inches and debate.

The question of whether any real solutions will emerge is anyone’s guess but, if nothing else, it’s encouraging to see such widespread coverage of this event and the awareness being raised around the huge climate-related challenges which impact us all.

The environmental fallout is certainly not lost on the buy-to-let sector as a raft of lenders have entered the green space in recent times and/or reshaped their product ranges accordingly. In recent weeks, we’ve seen Paragon Bank reintroduce its green buy-to-let product range. The lender has also extended its green offering to all property types, including single self-contained properties (SSC), houses in multiple occupation (HMO) and multi-unit blocks (MUBs), having previously been restricted to SSCs.

Foundation Home Loans also launched ‘Green ABC+’ fixed-rate products for both buy-to-let and owner-occupied mortgages, with rates and cashback based on the property’s energy performance rating. In addition, LendInvest has released a green mortgage range that is designed to incentivise landlords to bring up their properties to an energy performance rating of C and above.

The aim of such mortgages is to reward landlords and investors who have made a conscious choice to buy energy-efficient properties or improve those which they currently own. As outlined many times by various lenders operating across the mortgage market, whilst energy efficiency levels for a variety of properties have improved in recent times, there is still a huge amount of progress to be made before the UK can get anywhere near its carbon zero target.

The push for greater energy efficiency in the UK’s housing stock is only likely to continue and whilst it’s great to see so many lenders providing a green offering, greater education is required amongst consumers around this product type. This was evident in a new poll conducted by Countrywide Surveying Services, which suggested that an overwhelming 94% of brokers are yet to ‘sell’ a green mortgage product. In addition, 92% of surveyors reported that they are still yet to value a property with an EPC rating of A.

With mortgage brokers heavily involved in the vast majority of property purchases, this is a statistic that really hits home just how far we still have to go for the green mortgage revolution to have any major influence. That’s not to say that demand and appetite for increased energy efficiency are not out there, it is.

However, for any real impact to be made, we need volumes of green mortgages to dramatically improve from a residential and BTL perspective and for real competition to emerge within this product type. I am optimistic that green mortgages will play a vital role in our property-related future but, as with the general combatting of carbon emissions and greenhouses gases, change needs to come sooner rather than later.

Source: Property Reporter, 9^th November 2021

From Greta to Glasgow, all eyes are on environmental issues. Currently underway, COP26 is expected to produce a string of commitments relating to reducing emissions, with 200 countries laying out their plans to do so by 2030.

The UK has already committed to a wide range of targets designed to cut its greenhouse-gas emissions to net-zero by 2050. But organisations such as Extinction Rebellion say this isn’t enough, demanding the immediate cessation of the use of fossil fuels rather than a plan that spans decades. Insulate Britain, meanwhile, has resorted to headline-grabbing tactics over the last few weeks to flag up the direct impact that housing in the UK is having on emissions.

According to the Committee on Climate Change, housing is responsible for 14% of the country’s greenhouse-gas emissions. Poor insulation and gas-boiler heating systems are the main culprits – hence Insulate Britain’s demands for the government to insulate all social housing by 2025 and retrofit all homes in Britain to be low-energy and low-carbon by 2030.

So, what does all this mean for housing trends in 2022?

Clearly, heating will be a major issue. The government’s long-awaited Heat and Buildings Strategy presented heat pumps as a key feature as they heat homes with warmth from the air, water or ground rather than using fossil fuels. The government has pledged to install 600,000 heat pumps per year by 2028. In 2019, a total of 35,000 were installed (versus around 1.7 million gas boilers). In 2020, around 36,000 were installed – just 6% of the target.

Insulation, too, will be high up on the housing sector’s priority list. The Committee on Climate Change points out that insulation rates are currently around a third of what they need to be to cut energy consumption. The Green Homes Grant scheme launched in September 2020 to help people insulate their homes and introduce other energy-efficiency measures. However, it was scrapped in March 2021 after reaching just 6,000 of the 600,000 homes for which it was intended, with the National Audit Office accusing the government of botching its delivery. Apparently, a new scheme is to be launched. No details are available yet.

Of course, property isn’t just about residential houses. The Heat and Buildings Strategy applies to business premises too, and we can expect sectors such as Build to Rent and Purpose Built Student Accommodation to play their part as well, though many of these newer properties already perform better than older houses in terms of their energy-efficiency credentials. Homeowners, though, will be at its core, with legal commitments likely to be imposed to ensure that they make their homes more energy-efficient.

What will homeowners be expected to do? Essentially, they are likely to need to insulate their homes and introduce low-carbon heating systems (heat pumps are one such example, as are biomass boilers). We’ve already seen a move towards this with the Energy Performance Certificate (EPC) regulation changes.

Currently, if you rent out a property, you need an EPC with a rating of ‘E’ or above. That is expected to change to ‘C’ or above for new tenancies from 2025 and to all tenancies from 2028. Any landlord found to be in breach of the requirement could be fined £30,000 per property. The change means that landlords of lower-rated properties will need to make changes such as insulating them, installing double-glazed or triple-glazed windows and installing more energy-efficient boilers, heat pumps or solar panels. At present, there are no plans to make financial support available to help landlords cover the cost of the required changes.

For newly built properties, the horizon is looking a little brighter. Major lenders are backing the green agenda, with momentum for this among both borrowers and lenders building, according to JLL. Aviva Investors, for example, is making £1 billion available over the next four years to lend for sustainable real estate. Globally, more than $700 billion of sustainable and green debt was issued in 2020.

All of this points to green thinking needing to be at the core of the property sector in 2022. Sustainable homes aren’t a ‘nice to have’ anymore. They are a key priority for homeowners, investors, developers and lenders alike.

Thankfully, technology is opening up the industry in terms of finding new solutions and innovative new ways to address property owners’ green needs. For example, houzen’s sustainability reports collect data about how properties across the country perform on 27 key issues impacting our climate. Homeowners can quickly and easily see how their properties compare before receiving an action-focused report that helps them move towards enhanced sustainability.

Source: Property Reporter, 8^th November 2021