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FSE Manchester: Experts see HMOs as growth area for buy-to-let

Buy-to-let experts at the buy-to-let panel at FSE Manchester recommended intermediaries to do more HMO deals.

Adrian Moloney, sales director at OneSavings Bank, said “We’re seeing more commercial properties because it’s outside of the tax rules and landlords look at more HMO student accommodations because of greater returns.”

He added that with new rules coming into force in October that’ll potentially create 170,000 HMOs in the country, it’s an area advisers need to engage with.

He said: “Are you engaging with your landlords? Do you know it’s coming? Part of the journey the PRA has to do is assess this.”

Moloney warned though that if a landlord develops and lets out a HMO, they are limited because a family probably wouldn’t move into it.

He added: “I think it’s an ongoing discussion that will go on the next few months.”

David Whittaker, managing director at Mortgages For Business and Keystone Buy to Let Mortgages, said that if the new rules say a property with seven rooms has six due to how the new measurements work, he will have to follow that and underwrite for six rooms.

That’s not the only new rules since from April landlords can only let out properties with an energy rating of E or above.

Whittaker found in the county of Lincolnshire 26.4% of properties in 2014 that were rented out to landlords lacked basic EPC requirements.

He added: “So anyone that sends me a portfolio for Lincolnshire, I’ll look at each property more closely and I think every lender will too.”

With many rule changes such as these and mortgage tax relief reductions, Whittaker argued that brokers should be paid more in proc fees.

He said: “They will stay up. From 1 September we did it with Keystone because we recognise the world has become more complicated.

“I welcome everything that puts something back on our side of the table for all the extra work you have to do before you even decide which lender to use.”

Source: Mortgage Introducer

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How buy-to-let landlords can stay profitable in 2018

A casual observer may be forgiven for regarding buy-to-let as a poor investment right now thanks to new taxes, increasing regulation and rising interest rates.

But think again – in reality, it still provides strong returns for those who research what to buy and where.

Undeniably, the sector is tougher than before but one truth should guide investors: demand for homes to rent is growing faster than the supply of homes to let.

Research based on the government’s English Housing Survey and other reports shows there are now 4.5 million privately rented homes making up 20% of UK households; the estate agency Knight Frank suggests this will hit 24% by 2021.

High house prices (first-time buyers now pay £409,975 in London or £207,693 across the rest of the UK, says the Halifax bank) mean growing numbers have no alternative but to rent privately.

With demand high and growing, how do landlords optimise profits in the current climate?

Consider incorporation

Changes to mortgage interest tax relief are underway and once completed in 2021 will prevent landlords with buy-to-let mortgages from deducting interest payments or other finance-related costs from their turnover before declaring their taxable income. The result could be significantly higher tax payments.

However, landlords who own properties as a limited company will instead pay corporation tax – currently 20% – on their profits alone.

Additionally there may be a capital gains tax benefit. Currently individual landlords with buy-to-let properties pay 40% capital gains tax on their total capital appreciation when they sell them.

Many companies, however, are not taxed on the share of the appreciation that is due to inflation, currently running at 2-3% annually – that could save thousands.

But there are pitfalls too; company set-up costs may be based on current market values of properties, so some experts suggest corporate structures work best for future investments, not existing ones.

Always seek out an independent financial adviser or accountant to help.

Switching properties to high-yield areas

Many surveys show the best yields are now in the north of England, with its low capital values and reliably strong rents.

TotallyMoney recently analysed over 500,000 homes across 2,700 postcodes, finding the bulk of the 25 highest yields (ranging up to 12.63%) in the north; none was in London or the south east.

If you do sell to buy elsewhere, remember some evergreen rules: locations with strong employment stats and transport links and substantial student populations, typically provide the best returns.

But always check local agents to assess on-the-spot market conditions.

Consider short-term lets

Letting out a property Airbnb-style for a few nights at a time can be an excellent income supplement if done between longer-term tenants.

On a rent-per-day basis returns are higher than for traditional buy-to-let but you must inform lenders and insurers and arrange someone to hand over keys, clean the property, provide fresh linen as appropriate and be on call in the event of emergencies.

Remember most local authorities have a maximum – usually 90 nights per year – that homes can be used for short lets before they require planning consent for this kind of use.

Remodel to become a home in multiple occupation

If your property permits and the local market shows demand from young renters in particular, seek planning consent to turn it into a home in multiple occupation (HMO) delivering larger monthly returns from a greater number of tenants.

An HMO is rented by at least three people who are not from one household and who share facilities like the bathroom and kitchen.

A large HMO is defined as one let to five or more people who form more than one household in a building with three or more storeys.

HMOs involve strict licensing and safety regulations and much greater maintenance in addition to the costs of conversion. Nonetheless, this is regarded as the most profitable buy-to-let investment; using a lettings agent means they (not you) have to know the regulations and manage tenants. And agents’ charges to landlords are tax-deductible too.

Optimise your borrowing

The total you can borrow is linked to a property’s value so if older buy-to-lets are revalued you may be entitled to a higher loan-to-value with a wider choice of products – and at better rates.

Monitor the mortgage rate for each buy-to-let loan you have and check how far through the initial deal you are.

If you have finished the initial deal you will be free to switch, probably at no cost – this is particularly sensible if you have fallen on to your lender’s standard variable rate, which often happens automatically.

With more interest rate rises likely, a move to a fixed rate may be best. Again, an independent financial adviser is a good idea.

Source: Mortgage Introducer

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Demand for buy-to-let property in North West is soaring

Demand for buy-to-let property in the North West has soared by 38 per cent year on year, according to the Mistoria Group.

Cities and towns are proving to offer the best opportunities, with yields of 7.08 per cent in Salford, 5.96 per cent in Leeds and 5.79 per cent in Manchester, new research by the specialists in investment property shows.

Manchester is in the Top 10 buy-to-let postcodes in the UK, with rental price growth of 7.53 per cent and yields of 6.11 per cent.

The resilience of the property market in the North West has been boosted by regeneration which has bought new jobs, transport links and a range of large housing projects.

Mish Liyanage, managing director of the Mistoria Group, said: “The housing market in the North West is stable, proving the strength of the property market and economy as a whole, in this region.

“The Northern Powerhouse offers investors unbeatable buy-to-let opportunities, way ahead of London and the South East. Affordable property prices and a booming economy is drawing students, families and professionals to the region.”

HMOs in Liverpool and Salford are proving popular with investors, as both cities have a high population of students and young professionals.

Because Article 4 is not in operation in these cities, investors are able  convert a family home, or a home used by a single person (C3 -dwelling house/flat) to a small shared house of up to six unrelated individuals (C4 –HMO), without any planning permission.

A HMO property can deliver landlords an average gross rental yield of 13 per cent before any charges and voids.

A three bed HMO for three students, which can be bought from £120,000 in Liverpool, will see gross rent on the property in excess of £1,235 pcm.

Source: Simple Landlords