Sunday 24 July 2016

More Cheap Mortgages on the way

Moneyfacts have reported that mortgage rates are fell in the first half of the year and will continue to do so.

Their figures also show that more people are relying on private landlords to rent a property.

Moneyfacts said that those looking for a mortgage now would be substantially better off than they would have been if they had searched for a mortgage six months ago.



David Hollingworth at Mortgage broker London & Country said: "Mortgage rates are astonishingly low at the moment. Anyone that has failed to review their mortgage recently should really take another look as there could be an opportunity to slash their mortgage payments by switching to a new deal."

However, first-time buyers are still struggling to raise the funds required. The government's recent housing survey supports this, showing that the number of first-time buyers has fallen from 857,000 in 1995 to 564,000 in 2015. The average first-time buyer's age has increased from 30 to 33 in that time.

Source: BBC

Wednesday 20 July 2016

Centre for Economics and Business Research - "Prices will rise in 2017"

The Centre for Economics and Business Research has said that houses will increase in value by roughly £40,000 by 2021.

They also forecasted that house price growth in 2016 will reach 5.7%, and will rise a further 2.2% in 2017.

This will take average house price to £234,000 by 2021, with a 3.9% growth that year, according to Nationwide.

Robert Gardner, Nationwide's chief economist, said: "Housing market transactions were always likely to soften over the summer after the surge in activity in March. Determining how much of the [end-of-year] fall-back in activity is the result of the Stamp Duty levy, and how much is due to the referendum, will be difficult."

The CEBR forecasted a big decline in London prices - down 5.6% in 2017, but recovering to annual growth of 6% by 2021.

Source: This is Money

Friday 15 July 2016

Buy-to-let a better option than downsizing

Older homeowners who plan on downsizing to fund their retirement could look to buy-to-let instead.

Royal London, the pensions and investments company, has released a report claiming up to three million people of working age are planning to use the value of their home to fund retirement.

However, the report claims that downsizing from an average detached house (£310,000) to a semi-detached (£197,000) and using the proceeds to buy an annuity would result in a very poor yield of £13,700 - exactly half the national salary of £27,400.

The report also said downsizing is harder in practice - young people are living at home for longer, limiting the flexibility of their parents to move. Furthermore, mortgages are taking longer to pay off, so homeowners will need income to support mortgage repayments in the longer term.

Steve Webb, director of policy at Royal London, said: "Hoping to live off the value of your home could be a 'downsizing delusion' for millions of people. In most of Britain, the money freed up by trading down at retirement would generate a very modest income."


An alternative would be a buy-to-let investment. By using pension funds already saved, plus any other disposable income, a property investment could generate an immediate, sustainable income for the long term, and also give you the ability to earn capital gains on your home plus the investment property - plenty for a retirement income, and giving you a legacy for your family.

Since April 2015, those from the age of 55 have been able to access their entire pension pot in one lump sum, with a 25% of any withdrawal tax-free - this has given far more freedom to those who wish to invest in retirement income schemes other than pension annuities. One of the notable investment options is a buy-to-let property.

Initial costs would be for the deposit, plus letting agent fees and refurbishment. You could soon generate yields of up to 13% depending on location of investment.

This option would be particularly useful in the north, where the percentage of income downsizing would leave you with becomes lower - 51% in the North West, 49% in Yorkshire and the Humber, and 47% in the North East.

David Hollingworth, of mortgage broker London & Country, said: "Whilst downsizing is likely to remain part of a homeowner's strategy post-retirement it's not the only role that property may play.

"Many landlords will build a portfolio earlier in life as a long term investment for their retirement. In addition, the pension freedoms may also see some decide to purchase buy-to-let properties to generate an income in retirement. There can still be limits on maximum age for mortgage borrowers but some lenders have become more flexible in an effort to accommodate older landlords."

Friday 8 July 2016

Landlord Interest Relief Restrictions

In his July 2015 Budget, the Chancellor dealt a blow to landlords with his announcement that from April 2017 relief for finance costs would be progressively restricted. In giving effect to the restriction, landlords would move from the current position where they are able to deduct finance costs, such as mortgage interest, in full when computing their rental profits, to one where relief is given as a basic rate tax reduction.

Phased in
The switch from deduction to interest rate reduction is to be phased in over four years, with a gradual shift away from deducting property finance costs from property income.


Deduction v basic rate tax reduction
Where relief is given by deduction, the landlord obtains tax relief at his marginal rate of tax. The property finance costs are deducted in arriving at the taxable profit and that profit is taxed at the landlord's marginal rate of tax.

By contrast, where relief is given as a tax reduction, the rental profit is first calculated without taking account of the finance costs relieved by tax deduction and the tax is worked out on those profits. Effect is given to the basic rate tax reduction by deducting an amount equal to the finance costs x the basic rate of tax from the tax figure initially computed on the profits.

Example
Ian is a landlord. In each year from 2016/17 to 2020/21 inclusive, he has property income of £30,000. He pays mortgage interest costs of £6000 and incurs other expenses of £2000. He also has a salary £60,000 and pays tax on his property income at the higher rate of 40%.

His tax position for each of the years is as follows:

As a result of the shift from relief by deduction for 100% of property finance costs to relief by basic rate reduction for 100% of finance costs, Ian's retained profit is reduced by £1,200.

Sting in the tail
Moving from deduction to tax reduction has hidden costs. The relief is given later in the calculation, which has the effect of increasing the taxpayer's taxable income. This may move him into a higher tax bracket or trigger the high income child benefit charge or the abatement of the personal allowance.

Friday 1 July 2016

Substantial Increase in Mortgages for Buy to Let Investors via Limited Companies

According to a recent industry survey, there has been a substantial increase in lending over the last six months to investors who are purchasing properties as a company.

The specialist broker, ‘Mortgages for Business’, who conducted the survey discovered that buy to let mortgage applications completed by limited companies rose to 30% of all buy to let transactions in the first half of 2016. This is up from 21% in the second half of 2015 and just 18% in the first half of 2015 respectively.

The amount of mortgage lenders offering products to limited company borrowers increased to 14 from 2 six months ago, with total products available from lenders rising to 154 from 147 over the same period.

There have been varying suggestions, although expressed with caution, that landlords could incorporate to minimise the effects of recent buy to let tax changes, especially the new stamp duty levy for second properties and the phasing out of individual landlords’ mortgage interest tax relief.


“Applications and completions for limited company borrowers appear to have stabilised at around one third of all buy to let business. However, this masks a dramatic change in the investment pattern for new purchases where the proportion investing through limited companies has risen from less than 20 per cent by number - or 25 per cent by value - in the first half of 2015 to over 50 per cent in 2016” said David Whittaker, Managing Director of Mortgages for Business.

The Chancellor has also announced that he intends to lower corporation tax to 15% following the Brexit result. This could lead to even more landlords incorporating shortly.
“Clearly, the trend for limited company buy to let represents a real step change in behaviour as landlords adapt their investment strategies to mitigate the increased costs brought about by recent changes in the tax regime” said Whittaker.