Friday, 23 October 2015

Has Osborne killed buy to let in Leeds?

Well George Osborne, in his Autumn statement, caused Leeds landlords to ask whether buy to let is a viable investment option, when he announced that landlords, when buying another buy to let property from April 2016 will have to pay an additional 3% stamp duty on top of the standard rate. So for example, it means that the stamp duty bill for a £285,000 buy to let home will rise from the current £4,250 to £12,800 from April next year. 

Some say property in Leeds will be worth less because potential landlords will not be willing to pay as much for them, and if house builders or existing homeowners don't feel they are going to get as much for them , then there is less motivation to build / sell them?... and the person we can blame for this is George himself. Back in 2012, he choose to utilise the British housing market to kick start the UK economy, with  subsidies, Funding for Lending and Help to Buy. However, whilst that helped the Tory’s get back into power in 2015, some say this impressive growth in the UK property market has been at the expense of pricing out young people wanting to buy their first home.

Others say this is the straw that breaks the camels back as over the next four years Landlords will slowly lose the ability to offset all their mortgage interest against tax on rental income, after changes announced in the Summer Budget. At the moment, landlords can claim tax relief on buy to let mortgage monthly interest repayments at the top level of tax they pay (i.e. 40% or 45%). However, over the next four years this will reduced slowly to the basic rate of tax – currently 20%.

But before we all run to the hills panicking .... let me give you another thought.

Stamp Duty rules were changed in December 2014. Before then, landlords were eagerly buying up properties under the ‘old slab style Stamp Duty’ system. For example, the stamp duty bill on that £285,000 property was lower on the old slab style duty (pre Dec 2014), at £8,550, yet it isn't a million miles away from new £12,800 stamp duty bill. Interestingly though, George has left a legal loophole in the new rules, because when it comes to selling up, they can offset purchase costs against any eventual capital gains tax, including stamp duty.

I believe that total returns from buy to let will continue to outpace other investments, such as the stock market, gilts, bonds and even pensions. Also, the best part about investing in property is that it is bricks and mortar. You can touch it, you can feel it, and it isn't controlled by some City whiz kid in Canary Wharf ... the British understand property and that goes a long way!

Buy to let has enough impetus behind it that prospective landlords will continue to buy even with a larger stamp duty bill. Leeds landlords will need to be savvy with what property they buy to ensure the extra stamp duty costs are mitigated. Buying buy to let property is a long term venture. In the past, it didn't matter what property you bought in Leeds or at what price – you would always make money. Now with these extra taxes, the adage of ‘any old Leeds house will make money’ has gone out the window. You wouldn't dream of investing in the stock market without at least looking in the newspapers or taking advice and opinion from others, so why would you take the same advice and opinion about buying a buy to let property in Leeds?

With the right advice and making the right decisions, buy to lets are still a very wise choice. 

If you're interested in getting any advice on what what might be a good investment in the Headingley and Burley are then I'm happy to help; just contact me at our Burley office. 

Fantastic 'ready to go' 4 bed house in Burley with 9.7% yield

This four bed terraced house on Beechwood Mount in Burley is in an ideal location as it will appeal both to professional renters and students so as an investment it offers the chance to broaden your potential market. It's situated just next to Headingley so it's close to all the shops, bars and all things good about Headingley but is just out the way of the 'student noise' that you can come across in the centre of Headingley which often final year students and professionals tend to prefer. It's also situated a stones throw away from Burley Park train station. 

From the looks of things it looks to have had a recent refurb and looks ready to rent so there would be no need to spend time and money on it to get it rented out. All the rooms look to be decent sizes and it boasts two bathrooms which for a 4 bed is a often a rarity so that will help it stand out to potential renters. 

A house of this standard in this area is likely to achieve around £13,936 so if you managed to get it for around £140,000 you'd then be looking at healthy 9.7% return. 

Monday, 12 October 2015

Are 'would be' Headingley homeowners warming to the idea of renting?

I was reading a report the other day produced by the Halifax, about the UK property market and why more and more of the younger generation seem to be renting rather than buying. I find it fascinating that over the last ten years, the British obsession of buying a house almost as soon as you left school, and the fact that if you rented you were seen as a second class citizen, has turned on its head to a point where the hopes and dreams to own a nice home will be replaced by the ambition simply to live in one.

In the latter half of the 20th Century, you left school, got a job, bought a small house and kept buying and selling property, constantly upgrading until eventually they carried you out in a box. However, the perceived shame and stigma of renting is no longer the case, as it seems that the British are now beginning to accept a lifetime of renting. This is a very important consideration for both Headingley homeowners and Headingley landlords as it will transform the way the Headingley property ladder looks in the future and I might ask whether or not it will exist at all for some people? The make up of households is one important factor, especially in the Headingley property market. The normal stereotypical married couple, two kids and dog of the 1970’s and 80’s has changed.  At one end of the spectrum there is a need for larger houses where two families come together after divorces (+ kids) and need a property to house everyone.  At the other end there is an increase in the number of one person households. 

Looking at the data for Headingley, of the 4,142 private rental properties in the Headingley area, 23.53% of those rented properties are one person households (975 properties). However, when we compare the number of one person Headingley households who have bought their own property with a mortgage (ie therefore they are still in work), of the 1,267 owner occupied households in the area, 180 of those properties are a one person household (ie 14.2%).

Compared to a decade ago, this explosion in demand for decent high quality rental properties that one person households require has not been met with an increase in supply of such properties.  More and more I believe Headingley landlords need to consider this change in the make up of Headingley households, as I believe this could be an opportunity. As an aside, another interesting stat that raised an eyebrow was that 1% of those 4,142 rental properties (41 properties) are lone parents households as well. Again, another possible opportunity that Headingley landlords might want to consider in their future investment plans. 

It is true that the Governments introduction in 2013 of the Help to Buy scheme, where first time buyers only needed a 5% deposit, changed the perception of peoples’ ability to buy without having to save ten’s of thousands of pounds for a deposit. However, it might surprise you, 95% mortgages were re-introduced within six months of the Credit Crunch in late 2009, so again it comes down to people’s own perception. Many youngsters think they won’t get a mortgage, so don’t even bother trying.

Coming back to the deposit, it’s still a fact that once you start renting it becomes that much harder to save for a deposit, regardless of the size. Interestingly, 7 out of 8 renters polled by the Halifax (86% to be exact) refuse to sacrifice the quality of accommodation they currently live in to reduce the amount of rent they pay in order to save for a deposit.  This is the crux and the real reason why people aren’t buying but renting... and why demand for renting will continue to grow in the future (ie good news for landlords). Headingley tenants can upgrade the quality and size of the property they live in for a minimal rent increase. The average rent of a two bed property in Headingley is £629pm, a three bed is £217pm more at £846pm, whilst the average four bed rent is £1,114pm. If you had to make that jump when buying, the monthly mortgage payments would be stratospherically more than that!   

Without any social pressure and better quality rental properties compared to a decade ago, we will become a nation of renters within the next generation, as the UK is becoming more like Europe, where renting is ‘the norm’. 

And who is going to supply all these properties to rent?  Landlords of course! 

Whether you are an existing landlord looking to grow your portfolio or looking to become a ‘first time landlord’, my thoughts are take advice from as many people as possible. However, as the majority of landlords buy their buy to let properties in the same town they live, you will need specific advice about Headingley itself. If you fancy a chat, then please either give me a call or pop into our office on Burley Road.