Surge in Buy-to-Let Lending

To LetFigures recently show a significant surge in buy-to-let lending in the late stages of 2015. Mortgages granted to buyers of residential investment properties in November were up by more than a third compared to the same time in 2014.

Buy-to-let lending in November was down 6% on the previous month, but still up by 35% on November of the previous year, compared to 9.3% for the mortgage market as a whole. In total, 23,300 loans were granted to fund buy-to-let investment. This may come as a surprise to many, given the number of tax reforms announced last summer that will constitute a crackdown on the buy-to-let sector over the next few years.

In the July budget, George Osborne announced a number of measures and changes affecting the way second homes and property investments are taxed. These were designed to tackle what the government perceives as a property market that favours landlords over owner-occupiers. The changes, due to be rolled out in stages and should be fully in force by 2020, will severely impact the profitability of buy-to-let for many investors, primarily those who are higher rate taxpayers, and could leave some with unprofitable or even loss-making properties. Naturally, this led to predictions that existing landlords may cease buying additional properties, and that both established investors and would-be new landlords will be put off of making further investment purchases.

The fact that the number of buy-to-let loans advanced in November showed such a significant year-on-year increase seems at first to run contrary to such predictions. However, the rise in activity may be partially a result of the changes. A separate, more recent measure announced is an imminent increase in stamp duty on second home purchases. Investors who fall outside the scope of the other reforms or who have a strategy to weather them may be rushing to get purchases completed before this takes effect.

Perhaps more significantly, it is reported that the larger part of buy-to-let lending activity is made up of landlords remortgaging properties they already hold. This could be a direct response to one of the biggest and most impactful of the impending reforms. For many landlords, the most costly tax change due to be rolled out is the loss of mortgage interest relief. In order to reduce the impact of such a change, many landlords are looking to take out new mortgages, taking advantage of continued low rates and locking themselves into such a rate for a longer period in order to keep their mortgage as manageable as possible.

Continue Reading

Inflation Stalls in February

Official figures have revealed that February saw UK inflation come to a complete standstill. Last month, the overall inflation rate dropped to 0%, marking the first time since records began that inflation in the UK stood completely still.

In January, inflation had progressed 0.3% compared to the same period in 2014. However, in February the year-on-year inflation rate had fallen to zero, leaving inflation at a net standstill compared to a year ago. The drop to zero was facilitated by price changes in a number of key sectors, including furniture and furnishings, food, and recreational products.

The Consumer Prices Index (CPI), which tracks inflation, has kept records since 1988. In the 27 years since the CPI began, this is the first time that the UK inflation rate has been shown to have dropped to zero and remained unchanged overall across a one year period.

The difference between January’s 0.3% figure and February’s 0% was also much more stark than most forecasters expected. The majority of experts predicted a drop in the region of just 0.1%. The actual fall in the inflation rate exceeded this estimate three times over.

An alternative measure of inflation, the Retail Prices Index (RPI), saw the UK inflation rate drop from 1.1% in January to just 1% in February. The RPI, which almost always gives a higher inflation figure than the CPI, works in essentially the same way as its counterpart but with some key differences. Both examine a set variety of goods, compare their prices at present to their cost one year ago, and use the difference to work out the rate of inflation. However, the CPI essentially looks at the cost of retail goods rather than household costs. The RPI includes things like council tax, rental rates, and mortgage repayments which are not used by the CPI, and this is why the figures are usually different.

According to the CBI, a prominent business lobby group, the effect of the inflation standstill is not likely to be a significant reduction in the cost of living. The group’s director of economics, Rain Newton-Smith, said “Despite inflation dropping to zero, it is unlikely we will see falling prices for a prolonged period, particularly as the pressure from lower oil prices fades.”

However, Newton-Smith noted that there were some decided consequences to this development. In particular, he said, “With the Monetary Policy Committee still alert to the risk of very low inflation becoming entrenched, a rise in interest rates anytime soon seems off the cards.”

Continue Reading

Slowdown Hits UK Housing Market

Recent months have been a period of slowdown for the UK housing market, and this has been further illustrated by the latest mortgage lending figures. According to newly-released data from the Band of England, August saw the number of mortgage approvals drop by almost 1900.

Altogether, August saw 64,212 mortgage approvals for the purchase of a residential house. This was down from July’s figure of 66,100, which itself represented a drop compared to the 66,923 approvals seen in the month of June.

These  figures back up the belief that many experts already had that the UK housing market is not going to keep up the pace it has recently displayed. According to HIS Global Insight’s chief UK and European economist, Howard Archer, “With housing market activity moderating from its early 2014 highs, we believe house prices are likely to generally rise at a more restrained rate over the coming months.”

This news comes soon after the revelation that this month has seen growth in house prices come to a stop. For the first time in a year and a half, according to Hometrack, house prices did not rise in September. Hometrack’s survey also identified the fact that more and more potential buyers are expressing concerns about the potential of a price bubble, as well as the fact that an increase in interest rates could be on the horizon.

The release of the Bank of England’s figures is also timely in coming shortly before new mortgage lending restrictions are due to take effect. Designed to cool off lending in the mortgage market, banks and building societies will be limited in their ability to lend to people who borrow more than 4.5 times their annual income.  Institutions will now be able to provide no more than 15% of new mortgages to customers within this group.

On the general sentiment among borrowers at present, Archer said: “While markedly improved consumer confidence – currently at the highest level for more than nine years – means people have become more prepared to borrow in recent months, they still appear wary of taking on a large amount of new debt.”

Mark Harris from SPF Private Clients, a mortgage broker, took a comparatively optimistic view. Harris pointed out that according to the figures, the remortgage market is in comparatively good health. This is largely thanks to homeowners switching onto better deals as lenders cut fixed rates.  However, Harris also warned about the possibility of interest rate rises in the near future. “While the governor of the Bank of England pledged that increases would be limited and gradual,” Harris said, “borrowers must still plan ahead and ensure they can afford their mortgage now and in the future.”

Continue Reading

The Benefits of the Help to buy scheme for Britain

In today’s market buying a house is not easy.  Not only are we currently trying to recover from the recession and having to live on less money but also we have a recurrent situation where we see house prices rising and falling! At present there seems to be a sudden increase again which may be a good thing for the home owner wishing to sell, however this only adds to the angst and distress for those looking to buy.

So how can we get onto the property ladder and what options are available to help and support us when it comes to buying a home in Britain?

Britain introduced the ‘Help to Buy Scheme’ recently to support those trying to get onto the ladder. As the market saw a sudden rise in house prices and a recurrent growth in property prices, many believed we would be destined for another housing crisis but thanks to the government’s plans to get bankers to support ‘state backed mortgages’ we are now seeing a light at the end of this long and perplexing tunnel.

What are the benefits?

Thanks to this new scheme, buyers can get onto the property ladder by putting down a small deposit of as little as 5 percent. For most buyers finding a hefty deposit is without a doubt one of the most difficult things to accomplish and within a situation where banks were simply ‘not lending’ it was almost impossible. This scheme will come as a warm welcome for many and not only is it a great thing for buyers but also a positive way of pushing forward bankers into building relationships with lenders again, ultimately building the trust between the two and helping to restore people’s faith in the banks.

Why now?

This new scheme was pushed forward by the prime Minister and chancellor George Osborne to help boost the already recovering economy and many believe that this is a desperate attempt at boosting the Conservatives appeal ahead of the 2015 general election, as similar situations have been apparent in the past – we once saw Conservative Prime Minister Margaret Thatcher push forward the scheme which allowed people to buy their rented accommodation from their local authorities in a similar manner. Either way, this new scheme is set to increase and guarantee mortgages by up to 15 percent which can only be a good thing.

Who can benefit?

Aimed at helping to support the low income or middle class working families, this new government backed scheme comes as a breath of fresh air. Not everybody is born into wealth, so to be able to easily buy a home should help alleviate one of the major burdens in most people’s financial lives. While there is a rush to get these state back mortgages, and some critics are saying that this influx of buyers who would not have traditionally qualified for a mortgage is a replication of the behaviour that caused the economic crises, most people should see this as a step forward. For those people who still find it difficult to raise the 5% deposit, or are unable to show the proof of work required for this scheme – renting through a company like Rentify continued to make the best sense in the London area. A company like this can act as a broker between the tenant and landlord, making for a smoother renting experience.

Continue Reading

Should everyone have a mortgage?

Jumping on the property ladder is a dream for many would-be first-time mortgage buyers who want a slice of bricks and mortar success. Fresh statistics from the Council of Mortgage Lenders have found that the amount of mortgages have increased by 12%. This shows the appetite for first-time mortgages in the UK as lenders start to come back to the industry after the belt-tightening of the recession where consumers looked for cash from sources like payday loan providers. Let’s look at the advantages and disadvantages of first-time buyers in the mortgage market:

Pros

  • Mortgages make everyone investors: Property is an investment in the same way that art is. It’s really important for people to have the chance to own a slice of property to protect them in the future and to get on the property ladder. The positive effects of mortgages are that it allows everyone the chance to be investors in their own financial portfolio and to take control of their ability to shelter themselves.
  • It’s better to do it now: Time plays a huge factor in the success of first-time buyers and it’s really important to get in on the act before prices for homes rise and the effect of inflation affects your ability to get on the ladder. Many people subscribe to this way of thinking and this is why many first-time buyers look for additional help from family to get a mortgage.

Cons

  • It can be expensive: Being a first-time buyer is not necessarily cheap regardless of how small the deposit can seem especially coupled with savings and money from inheritances. You need to consider if you can afford having a mortgage. If you lose your job or you become sick, you should look at whether you can pay your mortgage to avoid getting into debt.
  • It eats into savings: Paying off a mortgage for a set amount of years means that it can be more difficult for you to save especially if you have dependants that you need to pay for. Always have emergency savings in place before you jump onto the property ladder in case times get difficult, you then know you are not eating into your personal finances.

A mortgage is seen as a right that everyone is entitled to. In the UK we love property, and mortgages come as the glossy packaging to dream properties for first-time buyers. Ensure that you can financially afford the mortgage and start your property journey today with thorough planning.

Continue Reading

Government Proposes to Discontinue Tax Breaks on Second Homes

As part of its financial reform initiatives, the government has called to end tax breaks on second homes.Currently, wealthy citizens can discount up to half of their council tax bill. This new policy will help councils raise hundreds of pounds more each year from council taxes.

Local councils will have the final discretion as to whether or not wealthy citizens will have to pay additional taxes on their second homes. However, since most politicians from every major party have been lobbying for these changes for a long time, it is unlikely many of them are going to allow these citizens to continue collecting the discount on their second homes.

Political Positions on the Bill

However, it may take some work getting the bill through. Even though many members of the conservative party agree with most of its premises, they are likely to argue a few elements of the bill. Namely, they feel that many of the people who are going to get hammered by it are members of the middle class who have worked hard to save for a second home.

The truth is, not only the privileged own more than one home. In fact, over the past 20 years, many middle class families have been trying to diversify their financial portfolios by purchasing real estate. After watching their home values plummet, paying extra taxes may just add insult to the injury.

The liberal parties may acknowledge these facts, but do not agree with the argument. They will most likely contend that the tax breaks on second homes have forced many people out of the housing market altogether.

Politicians are struggling to find ways to increase tax revenues. As the prices for homes have dropped in every region except London, they aren’t going to try to squeeze any more tax revenue out of citizens who are already struggling to get by. Instead, they are going to go after those who own houses that are sitting unoccupied.

A number of prominent politicians are moving to support the bill. Most notably is Prime Minister Cameron himself. Many people were disappointed with the prime minister’s attitude towards citizens in the lower tiers of society since he took office in 2010.

Guardian reporters interviewed one of their sources near Parliament. This source stated that wealthy citizens owning two homes was terrible for the middle class for several reasons. Essentially, the middle class is already struggling to pay their own taxes, using free tax software whenever they can to save money, while being forced to subsidize the elite who own two homes. The councils inability to collect taxes from second home owners has already cost them nearly 100 million pounds since the month before Cameron took office. Prime Minister Cameron was willing to acknowledge that citizens owning multiple homes was not good for the nation’s economy and wants to rectify that.

The new changes may help councils overcome some of the debt problems they are currently facing without having to target the lower and middle class. However, there is still the possibility that those groups will be hurt as well. Only time will tell how these decisions will affect them.

 

Continue Reading