Office of Tax Simplification – Landlords Survey

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The government department Office of Tax Simplification (OTS) is seeking views on tax reporting and payment arrangements for self employed people and landlords of residential property owned in their personal names (not for company owned property) to inform its work.

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RLA Training Academy marks first birthday

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The RLA’s Training Academy marks its first birthday this week. The RLA has been running training courses for more than ten years, and last September last year the Training Academy was launched – giving members access to a wider range of courses and brand new features. To mark the Academy’s first birthday, the RLA is […]

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Manchester is a “test-bed� for build-to-rent apartments

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Build to Rent:

In the Manchester and Salford area there are over 5,500
Build-to-Rent (BTR) apartments currently under construction, that’s according
to a report by the British Property Federation and Savills. Travel into
Manchester by car or public transport and you see a skyline awash with cranes
and high rise blocks under construction, or nearing completion. Where is the
demand for all this new accommodation in the city, one might well ask?

Manchester and Salford are providing the UK’s second-biggest
commitment to new rentals outside of London, and according to BPF the biggest
overall commitment on a per-capita basis. It’s perhaps no surprise given
Manchester’s continuing popularity as a centre for growing employment (firms
moving in especially in the tech, banking and hospitality sectors) and inner
city living, with a growing renting population and still a chronic lack of
supply in some parts of the city.

Some in the city are hailing this a revolution in renting and
a test-bed for the rent of the country. Some argue that the new supply of
rented accommodation will ease housing shortages and provide greater long-term
security for those tenants who want extended leases and improved management of their
rental properties.

Speaking at Insider Media’s (publisher of North West Business Insider) Residential
Property Conference, which took place on 5 September in Manchester, Ian Scott,
Lambert Smith Hampton’s national head of build to rent and PRS, said the
lessons investors are learning in Manchester are informing new built-to-rent
(BTR) schemes in cities like Birmingham and Bristol.

Scott referred to the city developments as “the BTR learning
curve� and said that one of the key lessons was that there is much more demand
than initially expected.  He gave the
example of the new Anaconda Cut development on Greengate where the premium
offer rents for a two-bedroom apartment can hit £1,350 per month, and where
“about 300 units have been let in six months”.

Scott also said that, contrary to the generally touted maxim
that tenants desire long-term security above everything else, the people living
in BTR apartments in Manchester were “transient” and wanted an
“easy in, easy out” route. He said, “furniture packs and bonds
instead of deposits were proving popular.� Andrew Cook of M&G Real Estate, one
of the main investor managers in these schemes, said that “although this
institutional funder offers tenants three-year leases at its properties, the
take-up of longer terms at the outset is still low.�

The developers in these schemes are finding that bin storage
needs to be larger than originally thought in the designs, and larger parcel
rooms were another consideration said Mr Scott. “We think drones will
deliver Amazon parcels to the roofs of build-to-rent buildings and the parcel
room will be at the top of the building.”

The owners of these schemes tend to be large companies, so
what could this mean for small-scale landlords and tenants in and around
Manchester and Salford?

These new units offer premium professionally managed accommodation
at premium rents. Not all tenants will be in a position to afford these rents
so there’s still a healthy markets for individual lets elsewhere.

However, Scott says:

“…it’s likely that the housing market will be turned on its
head, with many more rental properties becoming available. Given the laws of
supply and demand, this should have an impact on property rents: if more
properties are available, then rents should stop increasing exponentially like
they have in recent years.

“It may all be swings and roundabouts, however, as the
scrapping of tenants’ fees… may push up rents, to an extent. But this is all
guesswork, of course – the real test will come when this influx of rental
property hits the market in the coming years. As agents, it is our duty to
watch these developments and react accordingly to ensure that we continue to
please our clients.

At the least, “we’ll continue to see very strong competition in the rentals market – the best properties are snapped up in days or even hours, and would-be renters need to be quick off the mark to find the crash pads that they really want.�

Build to rent

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Manchester is a “test-bedâ€� for build-to-rent apartments | LandlordZONE.

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Rents will rise as supply shrinks, says expert

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The government’s approach to the private rented sector is “incoherentâ€� according for a former member of the Bank of England’s Monetary Policy Committee. David Miles, now a Professor of Financial Economics at Imperial College London, has argued that contrary to the government’s stated aims, there are “few signsâ€� that tax increases on the sector have […]

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BLOG: The war on the rental sector has no winners

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War was declared on those who supply properties to the private rented sector back in 2015. Stamp duty is now being levied at a higher rate on properties bought to be rented; most properties bought by private buy-to-let investors pay an extra 3% in tax. From 2017 the rate at which interest on mortgages used […]

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Former MPC member says government approach to the PRS is “incoherent”

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THE Government’s approach to the private rented sector is “incoherent� according for a former member of the Bank of England’s Monetary Policy Committee (MPC).

David Miles, now a Professor of Financial Economics at Imperial College London, has argued that contrary to the Government’s stated aims

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Do the council have the right to check all of my property?

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I bought a property divided into 3 self-contained flats. I have a tenant in one, but she is not paying rent or energy since l bought it 8 weeks ago. I have decided to sell it as l don’t have any idea of how to produce so many papers and the stress that the Council is using with the power it has is just too much.

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Do I have to supply the boiler room key?

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Please help me. I bought a property with a tenant and I had no idea what being a landlord meant!

The tenant is really making my life miserable. She did not sign the new contract and Nottingham council is doing everything to keep her in.

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Refinancing buy to let properties – Section 24 issues

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Before we go into the
details please allow me to point out that Simon Misiewicz nor Optimise
Accountants are financial advisors or mortgage brokers. The information
provided below is for educational purposes from a tax perspective. The
information contained in this article does not constitute as financial advice.

1. Can
you remortgage on a buy to let?

It is entirely
possible that a property may be refinanced. An extra amount of equity will have
been built up if the property increased in value. A property may have increased
in value for a number of reasons:

– Property values in
the area have increased over time

– The property owner
added value to the property (more bedrooms, extensions, additional garages etc)

– The property may
have originally been purchased below market value

Data from UK Finance
shows that landlords remortgaged 14,700 properties in July.

A buy to let landlord
may be able to pull more money out of their existing mortgage provided that
there is equity in the property and the mortgage holder has a good credit
rating.

The
stress test criteria when refinancing your buy to let mortgages

The last thing to
consider is the % of mortgage interest repayment rate. Some lenders wish to see
an interest cover (stress testing) of 145%. This means that your net rent needs
to be 1.45 times more than the mortgage interest charges. Lenders may not lend
to you if the net rent does not meet or exceed their % criteria.

£10,000 net rent

£6,000 mortgage
interest costs

The above shows that
there is 1.67 times cover to meet the stress test condition of 145%. A buy to
let landlord wanted to increase the mortgage and the interest charges increase
as shown below:

£10,000 net rent

£7,500 interest rate

The stress test
criteria is no longer met. This is because the cover is reduced from 1.67 to
1.33 (£10,000 divided by £7,500). It is unlikely that the lender would approve
the remortgage application.

2. 
Do I need a deposit for a remortgage?

You will need to find
a deposit on any property that you pay. The amount of deposit that you require
will be from 10% to 50% (or even more) based on the below

– Your credit report
and credit rating, which you can investigate using Experian or Equifax

– The condition of the
property. The greater the disrepair the greater reassurances bank will require

– The risk profile of
the investment. The greater risk to the banks will mean more deposit

– How you are going to
buy the property. If the property is in your name or in a company with other
Joint Venture partners. The amount of deposit needed may be less if the buy to
let property is purchased in your own name.

– The age of the
mortgage holder. The greater the age the more equity the banks will want to
see.

Refinancing
a buy to let mortgage to release cash for a deposit on a property
investment 

Let us look at an
example. John has identified a property in Birmingham. It is a four-bedroom
house and is near the university. The property will be rented out to students.
There is a high demand so renting the property that is refurbished to a high
standard should not be a problem.

£200,000 house price

£50,000 deposit being
25% of the property value

The £50,000 can come
out of John’s savings account. John could refinance an existing buy to let
property that is just down the road in Birmingham, which is also let out to
students. He purchased the property 8 years ago when the house price was
£140,000. John knows that the property is in even better condition than the one
he is looking to buy. He speaks with his mortgage broker and they agree to
re-finance the existing property

£140,000 original
house purchase

£200,000 latest valuation on the
property

£60,000 increased the
value of the property.

The £60,000 allows him
to take out 75% as a re-mortgage. John decides to proceed with this
re-mortgage. John is now able to use the £45,000 for the deposit on the new
house.

£50,000 deposit
required

£45,000 released as a remortgage in
the existing buy to let property

£5,000 more required
for John to complete the purchase

John now only needs to
pull out £5,000 from his savings account to buy the new property because he
refinanced the existing Birmingham buy to let property.

The mortgage interest
cost associated with the refinancing is allowed to be offset against his
property income as it is used for investment/business purposes. 

3. What
are the implications of refinancing a buy to let property because of Section 24
mortgage interest relief cap?

Landlords from 2020/21
will not be able to offset the mortgage interest costs against their property
income. From 6th April 2020, buy to let property investors will only receive a
tax reducer of 20% of the mortgage interest costs. This means that high rate
taxpayers will lose 20% tax relief on mortgage interest costs. Additional rate
taxpayers will lose 25% tax relief on the mortgage interest costs.

You may not be able to
offset the full amount of mortgage interest costs if you refinance a property
and a high rate / additional rate taxpayer.

From the above
example, we could see that John already has one property in Birmingham and
looking to buy another. The first property had the following characteristics

£140,000 property
value

£105,000 mortgage

The mortgage had an
interest rate of 2%. This means that the mortgage interest costs per year were
£2,100. In 2016/17 John’s tax return looked like this from the one property in
Birmingham.

£15,000 income

£2,100 mortgage
interest costs

£5,000 other costs

£7,900 profit

As a high rate
taxpayer, he knew that 40% of the profits would be paid to HMRC. The amount of
tax that John had to pay on his Birmingham property was £3,160. This leaves
John with £4,740

6th
April 2020 mortgage interest relief cap impact in John’s property

If we roll forward a
few years we will see that the mortgage interest costs will not be allowed to
be offset against his property income.

£15,000 income

£5,000 other costs

£10,000 profit

£4,000 tax

(£420) tax reducer at 20% of the
mortgage interest costs of £2,100

£3,580 net tax to pay

We can see that John
now has £420 more tax to pay.

If John were to
refinance the original property and increase the buy to let mortgage by £50,000
the following would apply

£1,500 additional
interest because of the remortgage.

£300 tax relief

£300 lost tax relief
because of the tax changes

In this instance, John
is paying more tax as a result of the original mortgage. He is also paying more
interest on the remortgage without the benefit of the full tax reliefs.

To read more property tax saving ideas visit Optimise
Accountants blog page

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Refinancing buy to let properties – Section 24 issues | LandlordZONE.

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ARLA – Do not charge tenants for arranging repairs

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ARLA Propertymark has sought Counsel’s Opinion from housing barrister Erol Topal to clarify for it’s agent members if the tenant fees ban allows for a charge or commission to be made for arranging repair works. This has been a common and frequently asked question by agents since the legislation came into force on the 1st June 2019.

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