Wednesday 30 March 2016

Details of stricter buy to let mortgage criteria released

The Bank of England has released new buy to let mortgage underwriting standards which are expected to set out stricter borrowing criteria to be met by landlord.

Just before the Easter break Chancellor George Osborne said it was “very likely” that there would be a further clampdown on the availability of buy to let mortgages.

Speaking to the Commons Treasury Committee Osborne admitted it was not a coincidence that the clampdown was coming just after the stamp duty surcharge and change in landlords’ mortgage interest tax relief - but was instead part of a wider package to restrict the lettings sector’s impact on the economy.

“The measures I have taken in the last couple of fiscal events - on additional stamp duty and on changes to mortgage interest relief - have been done in the knowledge that the Bank of England has concerns about a bubble emerging in this market” he told MPs.

“So in that sense, I am not saying there has been any collaboration - because they [the Bank] are entirely independent - but I have informed the Bank’s governor in advance of steps I have decided to take in this space, so I think we have a coherent approach” he said.

The Bank’s Financial Policy Committee is likely to take action, as soon as this year, to restrict buy to let mortgages, Osborne told MPs.

A Financial Stability Report from the FPC towards the end of 2015 warned that in the first nine months of 2015, buy-to-let lending rose by 10 per cent - for owner occupiers it rose by less than half a per cent. In 2014 the FPC introduced regulations limiting the number of owner-occupier mortgages worth more than 4.5 times the borrower's income and implementing stress tests on the borrower's ability to repay - but these rules do not apply to buy to let, at least yet.

Financial commentators have in recent days speculated that the biggest change may be around the affordability tests for BTL borrowers. Currently affordability is typically tested by ensuring that rental income exceeds 125 per cent of loan interest, assuming mortgage rates in the range of five to six per cent - far higher than it actually is currently - whereas owner occupiers affordability is typically tested at seven per cent.

Wednesday 23 March 2016

6 property-related takeaways from the 2016 Budget



From a boost in flood defences and savings pots, to the final details of the controversial 3% Stamp Duty surcharge, we’ve pulled out six of the most important property-related takeaways from his speech.

1. First-time buyers saving for a deposit given a boost

The Chancellor announced a new Lifetime ISA which will be available from April 2017 for savers who are aged under 40. Holders of the Help to Buy ISA, which launched last December, will be able to roll up any savings into the Lifetime ISA without losing their tax-free benefits.

Total savings into ISAs each tax year – whether used to buy your first home, move up the property ladder or other purposes – will leap from £15,240 to £20,000 from April 2017.

2. Osborne's 3% Stamp Duty surcharge pressing ahead from April

The Chancellor stuck to his guns on implementing a 3% Stamp Duty surcharge on the purchase of additional properties – the loading will come into effect from 1 April as planned.

Did you know?: The 3% surcharge won’t apply to property priced under £40,000.

The Chancellor confirmed in his Budget that larger residential property investors will be liable for the 3% surcharge – in the Government’s initial consultation, investors ‘bulk buying’ 15 or more residential homes had been earmarked for exemption.

The 18-month window during which time those buying a new main residence but unable to sell their previous one, could claim a refund of the 3% surcharge, will be doubled to 36 months. The same grace period will apply if a main residence is sold but there is a delay on the purchase of a new one.

Osborne said he will use the additional tax raised to support community-led housing developments, such as a £20m project to help young families onto the housing ladder in the South West of England.

He also announced a major new package of support worth over £115 million to support those who are homeless and reduce rough sleeping.

3. Stamp Duty slashed on commercial property

Buyers of commercial property will benefit from a cut in Stamp Duty rates. This includes a zero band on purchase prices of up to £150,000; a 2% rate on the next £100,000; and a 5% top rate above £250,000.

4. More investment for homes in high flood-risk areas

Osborne pledged to provide a £700m boost to flood defences for the UK’s homes and businesses. He will use funds raised from hiking Insurance Premium Tax by half a percentage point – a move he estimates will only translate into an extra £1 a year on the average home insurance bill.

Flood defence schemes have been given the go-ahead in York, Leeds, Calder Valley, Carlisle and across Cumbria.

5. High speed rail links are full steam ahead

The Chancellor gave the green light to the High Speed 3 rail service between Leeds and Manchester. This will reduce journey times by 40% and – according to Jonny Reynolds, the MP for Stalybridge and Hyde – will allow people to live easily in one northern city and work in another, a pivotal factor when it comes to where to buy a home.

Osborne is taking recommendations from the National Infrastructure Commission on northern connectivity and committing £300m towards High Speed 3 and road upgrades. This includes a new Trans-Pennine tunnel under the Peak District, running between Sheffield and Manchester.

He also commissioned Crossrail 2, which will connect south west and north east London, while reducing congestion on the Tube network and pressure on Victoria and Waterloo stations. The government will be putting £80m towards the project.

The first Crossrail – or the Elizabeth Line as it’s now known – has already had a dramatic impact on the property prices along the route (see below for our infographic) and Crossrail 2 could have a similar effect.


Capital Gains Tax reductions – but not for residential property

The Chancellor slashed the rate of Capital Gains Tax from 28% to 20% for higher-rate taxpayers, and 18% to 10% for basic-rate taxpayers. But buy-to-let investors won't benefit, as the reduced rate will not apply to residential property. 


Monday 21 March 2016

Buy-to-Let Lender Encourages Landlord Incorporation

Kent Reliance and InterBay Commercial, both part of OneSavings Bank, have launched a new policy to encourage landlords to incorporate their buy-to-let loans.

The new policy allows buy-to-let landlords to transfer their existing property from their individual name into a company or limited liability partnership structure.

A key feature of the new policy is that it will accept directors’ loans of gifted equity, subject to an insolvency indemnity policy.

After the Chancellor’s announcement in last year’s summer Budget that mortgage interest tax relief on buy-to-let loans will be gradually reduced from 2017, many have viewed incorporation of a limited company as the preferred means of holding investment property.

The Kent Reliance Buy-to-Let Britain report (from November), suggests that limited company lending could exceed 56,000 in 2016, up from 30,000 in 2014.

An estimated 40% of buy-to-let landlords are considering forming a limited company.

Responding to this demand, the new policy will allow both new and existing customers to transfer a property from their individual name into a limited company or limited liability partnership, subject to current policy requirements being satisfied.

Borrowers are instructed to seek professional advice from a qualified professional prior to entering into any transaction.

The policy will be even more popular after last Wednesday’s Budget announcement that corporate landlords will now be subject to the 3% Stamp Duty surcharge, due to be enforced on 1st April.

The Sales Director at OneSavings Bank, Adrian Moloney, says: “The Chancellor’s changes introduced a clear need for products designed specifically for property investors who were moving their investments into a limited company, and needed their mortgage finance to reflect this.

“Our new criteria provide a solution for professional investors who wish to manage their portfolios through a limited company structure. We’ve also made sure that the process is as quick and efficient as possible for brokers and their clients.”

 

Electoral Registration and why it's important for tenants

For tenants, informing the Local Electoral Registration Officer that they have moved home is probably not top of their list when dealing with the challenges and demands of a house move. However it is important for a number of reasons, not just voting - and it is a requirement in law. 

Research by the independent Electoral Commission indicates that across Great Britain, recent home movers are far less likely to be registered than those that have lived at the same address for a long time. The research showed that 94 % of people who have been at their property for more than sixteen years will be registered compared to 40% of people who have lived at an address for less than one year. In addition the same research indicates that only 63% of private renters are registered.

So why should you encourage your tenants to be part of the electoral register?
 
Of course being on the Electoral Register enables you to vote in local and UK elections and referendums. However as well as being able to vote, there are other reasons why it’s important to be on the electoral register:

  • Credit checks - credit reference agencies and banks use the electoral register to check an individual’s identity when they apply for credit. If they are not on the register they may be refused a bank account, loan, credit card or mortgage
  • Proof of address
So it's not just being able to vote that being on the electoral register is vital for, it may also improve the individual’s chances of getting credit, and don’t forget if they fail to provide their registration details they could be fined up to a £1000!

The following people can register to vote:
  • Anyone aged 16 or over can register to vote but you cannot vote until they are 18
  • British citizens or qualifying Commonwealth countries
  • Citizens of other EU member states resident in the UK can vote in local government elections but cannot vote in UK Parliamentary elections
Registering online is easy

Go to www.gov.uk/register-to-vote to register online. It's straightforward and only takes a couple of minutes. Your tenants will just need their date of birth and national insurance number. Alternatively they can contact their Local Authority Registration Officer.

Wednesday 16 March 2016

Budget 2016 - Key Points

The economy

  • The economy is expected to grow by 2.2pc this year, down from a previous forecast of 2.4pc.
  • Growth has been revised down for every year thereafter, with GDP expected to rise by 2pc in 2016, then by 2.2pc in 2017, and by 2.1pc in each year from 2018 to 2020.
  • The OBR has downgraded potential UK productivity growth, this revision is a "highly uncertain judgement call"
  • When Mr Osborne assumed his position, the Government "borrowed £1 in every £4 we spent, next year it will be £1 in every £14".

The European Union

  • OBR says that a vote to leave the EU "could have negative implications for activity via business and consumer confidence, and might result in greater volatility in asset and financial markets".
  • There appears to be consensus that a vote for Brexit would result in "disruptive uncertainty", the OBR says.

Borrowing

  • In cash terms the national debt is lower, but so too is the nominal size of our economy.
  • Debt as a percentage of GDP is accordingly above target, but the level of national debt is in cash terms £9bn lower than predicted.
  • The deficit - government borrowing - is forecast to fall to 2.9pc of GDP in the next financial year, dropping to 1.9pc in 2017-18, and to 1pc in 2018-19.

Personal taxes

  • Fuel duty will be frozen for a sixth year in a row. 
  • The tax free personal allowance will increase to £11,500 next year, in excess of the £11,000 planned. The higher 40pc rate threshold will increase to £45,000.
Capital Gains Tax
  • The Chancellor said Capital Gains Tax would be cut from 28 per cent to 20 per cent, with the rate paid by basic rate taxpayers down from 18 per cent to 10 per cent.
  • The new rates will come into effect in three weeks' time The old rates will be kept in place for gains on residential property and carried interest.
  • A new 10 per cent rate will be applied to long-term investments in unlisted companies. 
 Business taxes
  • Corporation tax will be cut to 17pc by 2020, from 20pc now.
  • Capital gains tax slashed from 28pc to 20pc for top rate taxpayers, and from 18pc to 10pc for basic rate taxpayers.
  • New threshold for small business rate relief will increase from £6,000 to £15,000, and higher rate will be increased also.
  • Business rates will also be linked to CPI, the official measure of inflation which has historically been lower than the RPI rate rates are currently linked to.
  • Tax on North Sea oil is being cut, and will be backdated, effective from the start of the year.
  • The Chancellor will introduce a sugar levy on the soft drinks industry, assessed by volume and introduced in two years' time. The proceeds will fund school sports.

Savings

  • The ISA limit will be raised to £20,000 from around £15,000.
  • New Lifetime ISAs for those under 40, offering £1 from the government each year for every £4 saved.

Infrastructure

  • £700m will be spent on flood defences, paid for by a 0.5pp insurance premium tax increase.
  • The Government is committing to building Crossrail 2.

Education

  • Extra funding to mean that every primary and secondary school will be in the process of becoming an academy by 2020.
  • Government will look at teaching maths to 18 for all pupils.

And the rest

  • £100m from Libor fines will be given to air ambulances.
  • There will be a new tax break for museum and galleries which take their exhibitions on tour.

Mortgage lending rockets at its fastest pace in 8 years

Mortgage lending rose at its fastest pace for nearly eight years in January as investors rushed to beat the Government’s Stamp Duty hike.

Total lending hit £13.6bn during the month – that’s 38% more than in January 2015 AND the highest monthly increase since July 2008, according to the British Bankers’ Association (BBA).

Lending levels look set to remain strong going forward, with approvals for house purchase rising 27% year-on-year. Meanwhile, loans in the pipeline for remortgaging and buy-to-let soared by 42% and 43% respectively.

Concerns that interest rates may start to rise soon are also ensuring a steady stream of remortgaging business.

The fact that mortgage lending is rising at such a fast rate shows the market is continuing to recover after the financial crisis.

But the rush is bad news for people looking to purchase a property, as it increases competition at a time when the number of homes for sale is already at a record low.

The ongoing mismatch between supply and demand is continuing to push property prices higher, making affordability become increasingly stretched.

Research by the Council of Mortgage Lenders (CML) found that 60% of first-time buyers now take out a mortgage for a term that is longer than the traditional 25 years - roughly DOUBLE the number who did so a decade ago.

The group attributed the sharp increase to mounting affordability pressures.

Regional figures released by the CML today showed a fall in first-time buyer numbers in both London and Scotland between October and December 2015, compared with the previous three months.

But those buying their first home are receiving some relief from lower mortgage rates.

The average cost of a two-year fixed rate loan for borrowers with just a 10% deposit has fallen to 2.99%, the first time it has ever dipped below 3%, and significantly lower than the 4.27% it averaged two years ago..

Thursday 10 March 2016

MPs want more energy info given to renters before tenancies are signed

MPs and members of the House of Lords want private sector tenants to be given clearer up-front information on the cost of all utility bills before signing a tenancy agreement, as well as about their right to change energy suppliers

Schemes to improve the energy efficiency of private rented housing are too complex leading to a large number of properties unlikely to meet energy rating requirements by the 2018 deadline according to the All Party Parliamentary Group for the private rented sector. 

From April 2018, all privately rented properties will be required to have a minimum energy performance rating of E on an Energy Performance Certificate. This is likely to pose significant challenges given that privately rented homes are generally older and harder to treat than properties in other tenures.

The report concludes that landlords, local authorities and energy companies need to better co-ordinate their efforts to identify vulnerable tenants who will most benefit from energy efficiency improvements.

To tackle the problem the group is calling for incentives for landlords to implement energy efficiency improvements through being able to offset costs against rental income.

It also says that prospective tenants should be given clearer up-front information on the likely cost of all utility bills prior to entering a tenancy agreement as well as about their right to change energy suppliers.

Energy companies, according to the MPs and Peers, should also look at establishing new tariffs targeted at those less well-off customers.

YOUR AGENT COMMENT

As qualified Energy Assessors YOUR AGENT will work with all our clients to ensure thier rental properties meet the required standard that result from in any change in legislation.