Long-Term Rental Sector

Legislation has had an impact on the buy to let sector over the last decade. It is still a strong market to be in though and I am still getting plenty of enquires from both experienced and new landlords. This article looks at some of the changes that have taken place. 

Landlords still positive following recent and proposed legislative and tax changes

The government published its long-awaited rental reform white paper on 16 June 2022, which included measures to encourage pet ownership and scrap Section 21 evictions.

Buy-to-let landlords across the country are getting their heads around recent and proposed legislative and tax changes, but many are still positive about finding attractive returns in the long-term rental sector. However, the picture is still somewhat mixed over whether buy-to-let landlords are staying or leaving the sector right now.

Property investment 

Research looking at the mortgage market has revealed that the number of buy-to-let mortgages issued in the year to February reached 275,600 – the highest figure since 2016[1]. 

New mortgages taken out by buy-to-let landlords – either those new to the property investment world or those buying additional properties – was up to 110,000. This compares to just 75,800 taken out in the 12 months to February 2020, according to the research. 

Raised rents

But more than a third of landlords have considered selling rental properties due to the loss of the buy-to-let mortgage interest tax relief, while one in four have raised rents[2].

Landlords could previously deduct mortgage expenses from their rental income in order to help reduce their tax bill. However, this started to be phased out in 2017 before being stopped in April 2020. 

Rental properties 

Now landlords receive a tax credit, based on 20% of their mortgage interest payments, which is less generous for higher rate taxpayers, who previously received 40% tax relief on mortgage payments.

The findings reveal that 37% of landlords have considered selling rental properties as a result of the recent changes. Nearly eight in ten landlords (77%) feel the changes unfairly punish them, with the same percentage (77%) saying there should be more support for landlords, especially post-pandemic, leading to many considering selling their properties. 

Legislative changes

More than a quarter (26%) of landlords with larger portfolios (20 plus properties) have reduced their portfolios to reduce the tax impact, compared to 13% of those with between two to five properties. 

Over half (55%) of those landlords planning to sell up identified recent legislative changes, followed by forthcoming legislative alterations, such as the scrapping of Section 21 (the first step a landlord currently has to take to make a tenant leave their property).

Tax changes 

The changes, however, may also be forcing up costs for some tenants, with one in four landlords (25%) having raised rents to cover the increased tax burden. This figure jumps considerably to 58% for landlords with 20 or more properties on their books.

In recent years, there have been numerous regulatory and tax changes for landlords to deal with. The loss of the mortgage interest tax relief and other legislative changes are causing some to question whether to leave the sector altogether by selling some or even all of their properties in order to help reduce their tax burden. Rental increases are also a reality, with one in four landlords recouping losses from tenants, many of whom will be struggling with the rising cost of living.

Rental income 

The survey also reveals that the average total gross rental income is £17,200, which is up on the £15,000 calculated in 2018. More than half (56%) of landlords have a rental income of less than £20,000 and 29% bring in between £20,000 and £49,999. Landlords earning more than £50,000 from their portfolio account for 15% of the survey participants.

The government estimates that, on average, landlords earn 47% of their total income from property – an increase on the 42% recorded in 2018.

Getting ready to make your next buy-to-let move?

It’s a complex time to be a landlord. We can help you get your head around the rules when investing in buy-to-let property, managing your portfolio and looking to raise mortgage finance. For more information, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data:  [1] https://www.knightfrank.com/wealthreport

[2] Research conducted by BVA BDRC with 796 UK landlords between 5–21 December 2021

'It's a sprint, not a marathon'

This has some interesting information about the house buying process. Gazumping is a thing, although in my experience it is pretty rare, if there’s a lot of interest then in my experience it goes to sealed bids.

31% of homeowners gazumped at least once while trying to buy their property

Four-fifths of homebuyers are in favour of banning gazumping in England and Wales, new research revealed[1]. It found that 31% were gazumped at least once while trying to buy their property, with the figure rising to 52% among those who bought in London.

Gazumping occurs when a property seller accepts an offer from a buyer, only to then accept a higher offer from another buyer. This can happen at any stage of the sale process, from when an offer is first made, to just before exchange of contracts.

Move to exchange contracts quickly

It’s worth noting that gazumping isn’t currently illegal in England and Wales, so if you’re involved in a property sale, it’s something you need to be aware of.

If you’re the buyer who has had their offer accepted, then had the rug pulled out from under you by a higher offer, it can be hugely frustrating and expensive. The best way to avoid this happening is to move quickly once your offer has been accepted, and try to exchange contracts as soon as possible.

It could come back to bite you

As a seller you can accept an offer, but it isn’t legally binding and you could then subsequently accept another, higher offer from a different buyer, right up until the point of exchange. However, if you do choose to gazump a prospective buyer in this way, it’s worth bearing in mind that it could come back to bite you – if they eventually decide to pull out of the sale.

While 79% are in favour of the government introducing laws to ban gazumping in England and Wales, 47% admitted they would consider gazumping a rival buyer themselves in the future if it meant getting the property they wanted.

High demand and limited supply 

The research found that 68% of homeowners feel the property market is too competitive, with 79% believing that gazumping and gazundering have become more common in recent years due to high demand and limited supply.

Of those who have been gazumped, 17% said they ended up buying a property they liked less.

Elsewhere, the study found that a quarter (25%) of homebuyers were gazumped because they were stuck in a long property chain and took too long to complete the purchase. 

Property purchase falls through

Another 20% admitted that they were gazumped due to delays and long waiting times in getting a mortgage. Almost a quarter (23%) said that they lost money in intermediary fees as a result of being gazumped. This is noteworthy, given it is estimated that homebuyers lose an average of £2,700 when a purchase falls through.

The research shows that long property chains and time-consuming mortgage applications often leave homebuyers open to gazumping. So, preparation is key – sourcing the right lender and product ahead of time, and working with service providers who can act quickly, could prove crucial in ensuring a deal is completed with no complications.

What kind of mortgage do you need?

We want to help get any generation on the property ladder, from the first-time buyer to the last-time buyer. We’ll help you to speed up the process to find a mortgage that’s right for your specific needs. To discuss your options, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data: [1]  Market Financial Solutions survey of more than 500 people who have bought a home in England or Wales since 2012.

Why Are Mortgage Rates so High?

In this blog I am going to attempt to explain why current mortgage rates are so much higher than they were a year ago. The obvious answer is that the Bank of England have raised rates for the historic low of 0.1% to 2.25% over the course of the last few months. That is only part of the equation though as the level of the Bank base rate is still historically quite low and mortgage rates are significantly higher than this.

This time last year it was possible, with the right amount of equity, to secure a fixed rate for five years at under 1%. Today you will be lucky to get near 5%. Its even higher if you are looking for a shorter term fixed rate, according to Moneyfacts the average two year fixed rate (as of 4th October) was 5.97%

The cost of borrowing has been historically low since the financial crisis in the late 2000’s. Since that time there has been widespread quantitive easing, or money printing, particularly in the 18 months from March 2023 during the Covid lockdowns. The greater supply of money has contributed to the high rates of inflation we are now seeing. On top of this there is a labour shortage, a supply shortage and now a war in Europe making matters worse.

Bank of England

The inflation alone will lead to the Bank of England raising rates as it is pretty much the only tool they have to combat this. They are guilty of saying the inflation was transitory last year, clearly not the case and so have had to raise rates quicker than they may have liked in order to try and kerb this inflation. Another problem they have is that the inflation seems to be linked more to the supply issues and costs of materials and fuel. None of which can be controlled by raising interest rates.

However I’m digressing as the issue we have is why are the mortgage rates on the high street so much higher than prevailing Bank of England rate?

Lenders’ funding comes from various sources, customers’ savings, government funding schemes and wholesale markets. These wholesale markets can change quickly depending on the wider economic context. Right now that context includes an energy crisis, high inflation and a war!

For fixed rate lenders use swap rates where, as the name suggests, two different parties swap interest rates, this means the price of your fixed rate mortgage is based on what the lender can borrow in the swap market. During the time the Bank of England has raised rates from 0.1% to 2.25% two year swap rates have gone from 0.44% to 5.56% (as of 26th September).

This rapid change in the rates has led to lenders reacting very quickly and withdrawing products after them only being available for a few days, thus leading to quite a bit of panic buying and lenders being swamped with applications. This then forces them to withdraw deals to maintain service levels as well so it is a bit of a vicious circle.

Simon Gammon, managing partner at Knight Frank Finance, observed “Inflation is climbing rapidly and rates are going to rise as a result. Swap rates suggest that investors believe we’re going to see a spike in costs and rates over the next 12 months to two years before markets start to normalise.” What “normal” is though was not discussed but I think things will settle around the 3-4% mark in a year or so.

I hope this has helped explain some of what is going on at the moment. I am not an economist but I have been a mortgage broker for over 20 years so have a bit of experience.

I love getting feedback so if you would like to talk about this article or any other mortgage related area, please get in touch.

First-Time Buyers

Probably the most common call I get is from first time buyers. They always are hungry for knowledge and it is one of the most pleasurable aspects of the business to help them onto the property ladder. Obviously my advice is very mortgage focused but this article has a few tips on the house buying process that you might find useful.

House-viewing checklist: questions you should ask

When you’re buying a property for the first time, there are certain questions you need to ask yourself in order to make the right decision. From the sellers to estate agents to solicitors, you’re bound to deal with a wide range of people on your journey to buying your first home. But what should you be asking yourself and these people? 

Here are some questions you should consider asking if you are not planning to buy a new build property:

Have you considered where you want to live?

You might already have an idea of where you want to live but try not to discount certain areas. Areas that are not great now might be on the brink of change. Look for signs like new shops or cafés appearing and other businesses investing in the area. Think about how much space you could get for your money in one area compared to another (if a spare room or a garden is a priority for you).

Consider how near you will be to family, friends and the amenities you need. How far will you have to travel to work? Is there frequent public transport if you need it?

It is a good idea to walk around an area to get a feel for the neighbours and the local community. You will also be able to spot ‘For Sale’ signs and might find a property that you have missed online.

Why are the current owners looking to sell the property?

This information will help when it comes to putting in an offer. It’s good to find out if they are very motivated sellers who may need to move quickly, or if they’ve just put their home on the market to see what kind of interest it gets.

If they’re looking for a quick sale there could be an opportunity to offer a lower price, especially if you’re in a good position with no chain and a Mortgage in Principle already sorted.

How long has the property been on the market?

The time it takes to sell a property varies depending on local market demand, the price and the type of property, so it shouldn’t put you off if it’s been on for a few months.

Normally, if it’s been on for longer than six months there could be an opportunity to negotiate on the asking price, unless it’s already been reduced recently.

Has the property had any major building work done recently?

It’s recommended that you have a full structural survey on a property you’d like to buy, but you can ask some questions before then as well.

You could ask on the viewing if the house has been extended and how long ago that was. It’s also worth asking if there’s any potential to extend the property, but bear in mind this will need to go through planning permission so may not be approved.

What’s the parking situation?

If your property doesn’t come with a garage or parking space, you’ll have to work out where you can park.

Do you need a disabled parking spot on a main road, for instance? Contact the local council to find out how you can get a designated space.

How much will the bills be?

Ask the estate agent if they know how much the Council Tax is for the area, and also have a look at the Energy Performance Certificate (EPC), available on the property listing, to see how energy efficient the house is.

The EPC will tell you the current rating from A – G and the potential rating it could be if the energy efficiency is improved.

Is the property part of a chain?

This may give you a little bargaining power. If a seller has already found their next property, they may be willing to accept a lower offer to ensure that a move happens quickly.

However, if they haven’t, you might become part of a longer chain, so you need to think about how long you’re willing to wait.

Does the local area have any issues to be aware of?

Investigating the location properly is massively important. Do your research. Visit the house and ask neighbours what they think of the area.

Also, if you’re new to the area and will be commuting by train or bus, try and visit the area both during the day and also at night.

What’s included in the sale?

Get as much information as you can here. For example, will any white goods, such as a dishwasher or washing machine, be included in the price?

Having these essentials already in the property will make the move feel a lot smoother as you spend the following days and weeks unpacking. If you already have your own white goods you may even be able to make some money by selling what’s been left behind.

Who are the neighbours?

How much this answer affects your decision will vary from buyer to buyer. Noisy neighbours who party all night long could be a massive turn-off for some people.

But for others, it might not be such a big deal. Alternatively, a community with really friendly neighbours may make up for any negatives a property has.

Ready to get your foot on the property ladder? 

Thinking about buying your first home? Getting onto the property ladder can be a big step. To discuss how we could help you through the mortgage process, speak to The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Energy Efficiency

Having recently taken the plunge and had solar panels installed I thought this article on Energy Efficiency would be worth sharing.

Guiding the way many Britons are making home-moving decisions

It’s no secret that energy prices have been on the rise in recent months, and this is something that is now having a big impact on the way people live their lives. One way that people are reacting to increasing energy costs is by making decisions about where they live based on how energy efficient the property is.

In the wake of the current energy crisis and growing general awareness of our individual carbon footprints, new research highlights that around three in four homeowners (73%) [1] say they are worried about the energy performance of their current home, with around a quarter (24%) saying energy efficiency will be ‘crucial’ to their next home move.

Emitting less carbon

The research has revealed the extent to which energy efficiency is now guiding the way many Britons are making home-moving decisions. Buyers of new-build homes are saving more than £400 per household on their energy bills, and emitting almost 600,000 tonnes less carbon than if last year’s new-build homebuyers had chosen an older property.

If you’re in the market for a new home, be sure to consider energy efficiency as a top priority. You may have to spend a bit more money at first, but you’ll save in the long run. And who doesn’t want to save money?

’Eco friendly’ and ‘Having a good Energy Performance Certificate (EPC)’ were rated as the second and third most important factors respectively, behind ‘Private outdoor space’

Generating valuable savings 

Homeowners of new-build houses and flats will save an average of £435 a year, rising to £555. The average new-build home emits 2.38 tonnes less carbon each year, around one-third of the carbon produced by the average older property.

The research shows that despite new-build homes being, on average, 7.4% larger than older properties, new homebuyers are still generating valuable savings every month. And with more lenders beginning to offer green mortgages – such as lower interest rates for buyers of more energy efficient homes – and stricter requirements for landlords renting out domestic properties, home builders are urging lenders to go further and faster to assist homebuyers in making the right environmental choice.

New-build developments 

Factoring in mortgage calculations, the lower bills paid by new-build buyers should enable even further savings to be made by buyers. The research revealed the pivotal relationship that the new homes industry can play in driving the UK’s burgeoning electric vehicle industry, as 71% of people responded that they would be more persuaded to buy an electric car if their house came with an electric vehicle charging station, which are becoming prevalent on new-build developments throughout the country.

The energy efficiency of homes has become increasingly important in recent years, amid the ongoing crisis surrounding rising energy prices and an enhanced focus on environmental issues. Builders of new-build homes are able to adapt to new technologies, materials and regulations to embed energy efficiency at the point of construction, while owners of existing properties will often find themselves facing disruptive, extensive and costly retrofit works to bring their homes to the same standard.

Energy-efficient home

There are a number of reasons why people might want to live in an energy-efficient home. For some, it’s about saving money on their energy bills; for others, it’s about doing their part to reduce their environmental impact. Whatever the reason, it’s clear that more and more people are making energy efficiency a key factor when choosing where to live.

This trend is likely to continue in the years ahead, as energy prices continue to rise and people become increasingly aware of the benefits of living in an energy-efficient home. So if you’re thinking of moving in the near future, be sure to consider how energy efficient your potential new home is – you might be surprised at just how much of a difference it can make.

Want help with making greener choices?

Increasingly more lenders will reward you with a lower mortgage rate on certain deals when you buy an energy-efficient home. To find out how we can help you with greener choices, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data: [1] https://www.hbf.co.uk/news/location-location-insulation-new-homes-week-research-shows-desire-sustainability