Post-Brexit binge in commercial property?

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Pent up demand could see a boost to the commercial property market post-Brexit, according to new analysis of the commercial property market from Shawbrook Bank.

The ‘UK Commercial Property Market Report‘1, produced by Shawbrook Bank and compiled by the Centre for Economics and Business Research (CEBR) assesses the state of the current commercial property market

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Shelter’s call to adopt Scottish indefinite tenancies model criticised

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Responding to a report published today by Shelter which calls for England to adopt Scotland’s model of indefinite tenancies in the private rented sector, David Smith, Policy Director for the Residential Landlords Association said: “Shelter fails to recognise key differences between England and Scotland.

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Taxation and mortgage rates weigh on incorporation decision

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Buy-to-Let Taxation:

Announced in the Summer Budget of 2015, and first introduced
on 6th April 2017, the Section 24 tax amendment represented a sea change in
buy-to-let taxation.

It meant the amount of mortgage interest relief landlords
receive for residential property finance costs would be restricted to the basic
rate of tax. The changes are being phased in tax relief on mortgage interest
payments eliminated on an annual 25% reduction until April 2020, when the
relief will be zero, replaced by a basic rate (20%) tax credit.

Since April 1, 2016, there is another tax consideration when
buying a property to let. There is a 3% surcharge on stamp duty which adds several
thousand pounds to the cost of an average rental property purchase when bought
by an individual as opposed to a company.

Section 24 applies to landlords who are UK residents with
residential rental properties, regardless of location. Also non-UK resident
landlords with residential rentals based in the UK, partnerships and trusts owning
residential rental properties are affected. It is a particularly onerous tax on
high rate taxpayers, many of whom will struggle to show a profit after 2020 if
they have substantial mortgage funding.

The perceived Government objectives of introducing the Section
24 tax ruling would be (1) to reduce the number of ‘accidental’ landlords
operating and professionalise the UK letting market, and (2) to stem the
buy-to-let borrowing bonanza and encourage home ownership, thereby helping
first time buyers onto the housing ladder.

It is though the Government wants to encouraging more professional
landlords (including build-to-let and portfolio landlords), driving out the
rouges and improving the stability and profitability of the sector “to the
benefit of landlords and tenants�.

One way larger landlords can achieved this is by operating
as a limited company, thereby avoiding the Section 24 rules.

However, there are pros and cons for operating as a
small-scale owner or as incorporated landlords, and the benefits of either
depend on many factors including the size of the operation, whether the
business is a new one or an existing portfolio, and the personal circumstances
of the owners.

Before making any
changes to the ownership structure of a property investment business landlords
should seek professional tax advice.

Buy-to-let mortgage deals are now more readily available for
companies, since the Advent of Section 24, but they carry an interest rate
premium.

Writing for the Sunday
Times James Coney says that landlords who borrow to buy a property through
a limited company will pay “substantially higher mortgage rates� compared to
those who take out a mortgage as an individual.

Cony quotes individual buy-to-let mortgage rates being available
as low as 1.81% on a two-year fixed rate offered by the Post Office, whereas a
comparable deal when buying as a limited company is around 2.99% with Nationwide’s
Mortgage Works. In both cases the deals are based on a 25% deposit and a set-up
fee of £995.

Securing a mortgage for a new company with no trading record
can sometimes be problematic without being backed with a personal guarantees,
and transferring an existing property into a company tax shelter may involve
capital gains and stamp duty liabilities.

David Hollingworth of brokers London & Country is quoted
in the Sunday Times article as
saying:  

“For landlords with maybe one or two properties who are not
thinking of adding to their portfolios, starting a company is not really being
considered. Where we are seeing it is with landlords who have a number of
properties already and are looking to expand. However, there are substantial
costs. It is vital to get tax advice before taking any steps.�

Other mortgage deals currently available include:

3.15% two-year fix deal from Ipswich Building Society, with
a 20% deposit and a £1,149 fee.

2.16% deal with a 40% deposit from Virgin Money, fixed for
five years, and a £995 fee.

Company deals to compare:

Paragon offer a company deal at 3.45% fixed for two years, a
20% deposit and a fee of 0.5% of the sum borrowed.

Brokers are finding that the small-scale landlords with perhaps
one or two properties are resisting incorporations, whereas those with many
properties are embracing the idea.

A company is subject to corporation tax as opposed to
individual income tax rates (20%, 40% or 45%). Corporation tax rates are lower currently
at 19% and 17% from April next. However, withdrawing money from the limited
company then incurs further taxation on the individual and dividend tax relief
has been reduced (April 2018) from £5,000 of dividends per year tax-free, to £2,000.
 

Paul Falvey of advisers BDO told the Sunday Times journalist: “Tax alone is rarely a good enough reason
for holding property through a company,�

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Taxation and mortgage rates weigh on incorporation decision | LandlordZONE.

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Resolution Foundation – 11.2% of population own multiple homes

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The Resoluion Foundation have published a report titled: “Game of Homes: The rise of multiple property ownership in Great Britain.” Click here to download the full publication.

The report finds in summary that:

Additional property wealth was worth £941bn in 2014-16 with 5.5 million adults equating to 11.2% of the population owning multiple properties.

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Mark Smith (Barrister-At-Law) Landlord tax planning strategies – Leeds

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Our Hon. Legal Counsel, Mark Smith, Head of Chambers at Cotswold Barristers will be presenting an overview of several landlords tax strategies at the pin Leeds Meeting property networking event Wednesday 26th June 2019.

The event will start at 6:00pm until 9:00pm and will be free for guests of Mark Smith that have not previously attended a pin meeting.

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Nottingham – These words are not nice

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Letter I sent back responding to Nottingham council Selective Licencing demands:

I’m still getting these and I don’t know if they automated or not. As it’s a Sunday, so is someone doing some overtime pushing them out manually?

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Politicians need to focus on consumers when it comes to housing

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There are times you think ‘be careful what you wish for’. I
remember working hard some years ago (with others) to try and raise the
importance of housing on the political agenda.

Now it is high on every MPs political agenda and I feel we’re
heading for a real mess in the housing market. Unfortunately, the changes
coming through from the current government and the latest announcements from
Labour, leave me feeling that while politics in the past wasn’t helping put a
roof over people’s heads, now they are focused on it, rather than deliver what
people need, they are seriously going to reduce the opportunity of putting a
decent, affordable roof over people’s heads.

The problem is, the politicians don’t seem to understand
housing from a consumer’s perspective at all, rather they focus on ‘what will make people vote for me’ and
unfortunately what may ‘win votes’ in the short term, won’t deliver the homes
people need in the long run. The main reason for this is current housing
politics is focused on prejudice and winning votes through a “blame game� against
the private housing sector – be it landowners, developers and landlords – as
opposed to really understanding the problems people have and then working with
the social and private sector to fix it.  

Wages and a benefits
squeeze is the real cause of the ‘housing crisis’
The word ‘crisis’ is banded around about our sector a lot. This is then instantly
linked to ‘who is to blame’ rather than focusing on understanding what is the
current problem and then working out how to solve it. 

The key problem to me is pretty obvious. House prices and,
in some areas rents, have increased faster than people’s wages. Developers,
landlords and land owners don’t influence what people are paid; the private
sector and indeed the government do that. For example, ‘austerity’ resulted in
a pay freezes for civil servants followed by a 1% cap on any wage increases
thereafter, but this is rarely cited as one of the reasons why housing
affordability is now so hard in the likes of London, Cambridge, Bristol and Oxford
which have grown by far more than this.

So the real problem surely is that the social sector and companies
aren’t paying people enough to live on in the area they want and need them to
work. For some wages aren’t even rising in line with inflation ie the cost of
living and is falling in ‘real terms’. Surely this is a critical issue to
challenge?

I do find it very odd that the government don’t link their
wage restrictions to issues with housing affordability. And when you have a
situation when Shelter, who regularly report about rents rising faster than
wages (https://blog.shelter.org.uk/2018/08/flatlining-wages-surging-rents-and-a-national-affordability-crisis/)
become ‘part of the problem’ you wonder if this will ever be tackled. Last
year, Shelter’s staff threatened to strike due to a low wage increase offer. In
a report from Employee Benefits “According
to Unite, the organisation’s 1,300-strong workforce has experienced a
real-terms pay cut of 11% since 2010, due to a series of below-inflation pay
increases.� https://www.employeebenefits.co.uk/shelter-strike-off-pay-increase/
Eventually, Shelter did increase their offer to a 4% rise and the strike was
called off, but if they aren’t giving staff rises in line with inflation let
alone their housing costs, they are still potentially out of pocket.  

For me, the key to start solving the ‘housing crisis’ and really
helping buyers and renters is to make sure there is a roof over everyone’s
heads that they can afford. Secondly, we have to give someone, be it the MPs or
Local Authorities the responsibility to deliver. Currently it seems to be
no-one.

We know what wages people earn at a local level and we know how
much they get in benefits. We know what the population and housing need is now
and we even know what it is going to be in the future. All this is supposed to
be mapped out at a regional level via local plans for the next 5 years.

We then need to focus on which areas across the country cost
more to buy land and build or buy an existing home or rent than people earn in
benefits/are on the lowest pay. This will give the government and local
authority an idea of how many homes they need to provide – because it’s not
profitable for the private sector to deliver. The alternative is to work out what
subsidy they want to give to the private sector, so they can deliver instead.

For some areas, this won’t actually be a big problem. We
focus so much on where it is expensive to buy and rent, that we rarely
highlight the many areas across the country where both the social and private
sector can deliver homes versus the wages and benefits people are paid.

Its areas that are highly successfully economically that
have not focused on delivering affordable housing for their community that are
suffering a crisis. This includes the likes of Edinburgh, London, Oxford,
Cambridge, Bristol. Their problem is actually one of success. Many people in
these areas are earning huge amounts of money – we all know the wage and wealth
disparity is a lot bigger today than it was in the past. And, due to a lack of
housing provision, this results in any property coming onto the market being ‘auctioned’
to the highest bidder, driving prices and rents up further. At the lower end of
the market, this then leaves those on low wages and benefits highly vulnerable
to rogues or homeless.

The reality is that between the social and private sector,
we can fix the housing crisis in the country if we identify what the real
issues are from the ‘consumers perspective’ ie their affordability. Instead
current policies are trying to ‘squeeze’ the existing private sector to meet
social need and this isn’t working.

A good example of how housing policy is causing more problems than its fixing is the recent issues caused by Universal credit, followed by the ‘attack’ on landlords. Firstly the disastrous introduction of Universal Credit ie what and how people are being paid in benefits, led to many tenants defaulting – not just to private landlords but to social landlords too. This has led to many landlords not wanting to let to those on benefits. What happens next? Landlords and agents are then vilified for not wanting to let to people on UC. I’m sure if people started walking into retailers and saying ‘sorry, not paying for this food I’m taking today as I haven’t been paid my UC’, no-one would think that was right, but somehow if a landlord isn’t paid it’s ‘acceptable’. However, no-one can force a private landlord to take to someone on benefits if it doesn’t cover their costs, worst case they sell up!

Next, landlords were hit with an additional 3% stamp duty
and secondly the mortgage tax relief is reducing. This has clearly caused a lot
of landlords to exit the market. The government’s own figures from MHCLG
suggest that 3,800 landlords are selling up a month. I am guessing that means
evictions will be rising? I’m guessing that if the tenant of this home is on
benefits, in somewhere like London, the likelihood of the Local Authority being
able to find a roof over their head which isn’t a B&B will be tough. So
surely evictions and homelessness rising shouldn’t be a surprise – it’s most
likely to be a result of government policy.

But, instead of solving the real problem, people on benefits
and low pay need a decent roof over their head, the government are tackling rising
evictions by reducing the landlord’s ability to evict tenants.

Genius!

What people really need is a home they can afford based on
their pay and benefits. For me it’s the governments, MPs and Local Authorities
jobs to deliver this, as much as it is to provide a decent education, NHS and
other emergency services. But the irony of not paying the people who take these
jobs enough to put a roof over their head, or provide the roofs they need themselves,
just seems daft.

So if politicians really want to solve the
housing crisis, work with the industry and social sector to focus on delivering
to consumers rather than blaming everyone else for problems and penalising them
for reacting to successive government policies which are now helping to
continue the crisis – not solve it.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Politicians need to focus on consumers when it comes to housing | LandlordZONE.

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Service charge hike?

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I own a couple of properties where First Port are the property managers, but they seem to be raising service charges at an incredible rate.

As an example over the last 2 years the annual charge has gone from circa £1,100

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Tenants “homeless” if rent is unaffordable? – new caselaw

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The important case of Samuels v Birmingham City Council was decided by The Supreme Court on 12th June 2019. This case decided that a person who had been evicted for rent arrears, as the Housing Benefit did not cover the full rent (£151.49 pcm shortfall)

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Renting cheaper than buying over a ten year period

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Renting v Buying:

Renting can typically work out as an option that is cheaper than
buying over a 10 year-period, that’s according to research carried out by rentBunk.com and reported by Mortgage Introducer.

When all other costs are taken into account, such as upfront
and monthly payments, the Bristol based lettings platform says:

“Across the UK the average monthly rent is £676. With the
newly introduced five-week cap, that means a rental deposit costs an average of
£845 and renting at this average monthly rate over a 10-year period would cost
a total £81,120 – a total cost of £81,965 when including the deposit.

“The current average UK house price is £226,798 and so a 10%
deposit would set you back £22,680. This leaves a loan amount of £204,118 and
at a 10-year fixed rate of 2.58% would mean a total repayment of £231,798, a
total of £254,478 including the deposit,� says Mortgage Introducer.

The conclusion is that renting works out £172,513 cheaper on
average across the UK over 10 years, but the big difference of course is that
there’s no long-term benefit of the terminal bricks and mortar investment
secured buy buyers.

Renters benefit from a cheaper deal over the short term, if
you can call 10 years short term, and they have the freedom of the landlord
being responsible for everything, all repairs and emergency problems with the
property, plus renters have the flexibility of mobility, if job opportunities
arise elsewhere. Renters also have the opportunity to invest the savings into other
types of investment which, who knows, my even out-perform property long-term.

Co-founder of rentBunk.com, Tom Woolard says:

“Of course the big difference between renting and buying is
that one leaves you with a sizable financial asset as a reward for your years
of hard work making mortgage payments.

“However, more and more of us are opting to rent long-term
and what we wanted to highlight is that while the rental market is generally
viewed in a negative light due to high rental costs, it is actually a
considerably cheaper option when compared to homeownership, even with almost
record low-interest rates.

“Not only this but those that feel resigned to renting due
to the high financial barrier of buying actually have a much better opportunity
to save compared to those paying a mortgage.

“Whether they choose to use this for a deposit further down
the road or simply to enjoy a better quality of life is up to them.�

This saving, says Woolard, is greatest in Cambridge, the difference
being £341,090 over 10-years, with the comparable figure for London at
£316,247.

Bournemouth, comes in at £183,376 cheaper, Bristol
(£177,613), Edinburgh (£166,547), Cardiff (£143,984), Southampton (£138,617),
Portsmouth (£137,240) and Plymouth (£128,480).

Glasgow is the lowest city at a saving of renting over
buying in 10-years at £43,145.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Renting cheaper than buying over a ten year period | LandlordZONE.

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