Biggleswade Buy-to-Let Return / Yields – 2.4% to 6% a year

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The mind-set and tactics you employ to buy your first Biggleswade buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!).

Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Biggleswade properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Biggleswade buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Biggleswade…

 

186 Biggleswade table

 

186 Biggleswade Graph

 

Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Biggleswade area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.

However, before everyone in Biggleswade starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Biggleswade buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Biggleswade landlords who are looking for capital growth, an altered investment strategy may be required.

In Biggleswade, for example, over the last 20 years, this is how the average price paid for the four different types of Biggleswade property have changed…

  • Biggleswade Detached Properties have increased in value by 199.4%
  • Biggleswade Semi-Detached Properties have increased in value by 413.8%
  • Biggleswade Terraced Properties have increased in value by 371.9%
  • Biggleswade Apartments have increased in value by 403.8%

It is very much a balancing act of yield, capital growth and void periods when buying in Biggleswade. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!

 

11.98% Drop in Biggleswade People Moving Home in the Last 10 Years

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I was having a lazy Saturday morning, reading through the newspapers.  I find the most interesting bits are their commentaries on the British Housing Market.  Some talk about property prices, whilst others discuss the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit.  Others feature articles about the severe lack of new homes being built.  A group of people that don’t often get any column inches however are those existing homeowners who can’t move!

Back in the early 2000’s, between 1 million and 1.3 million people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then this has steadily recovered, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the “noughties”.  The question is … why are there fewer house sales?

 

185 Eng and Wales Moving Graph FIXED

 

To answer that, we need to go back 50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised interest rates to a high level in a bid to lower inflation.  Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news since inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages.  At the same time their mortgage debt was decreasing, therefore allowing them to move up the property ladder quicker.

Roll the clock on to the late 1990’s and the early Noughties, and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect of significant numbers moving house continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You will probably remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This meant home movers could borrow even more to move up the property ladder.

So, now it’s 2017 and things have changed yet again!

You would think that with ultra-low interest rates at 0.25% (a 320-year low) the number of people moving would be booming – wouldn’t you?  However, this has not been the case.  Less people are moving because:

(1) low wage growth of 1.1% per annum

(2) the tougher mortgage rules since 2014

(3) sporadic property price growth in the last few years

(4) high property values comparative to salaries (I talked about this a couple of months ago)

 

What does thistranslate to in pure numbers locally?

 

185 graph Central Bedfordshire

 

In 2007, 6,528 properties sold in the Central Bedfordshire District Council area and last year, in 2016 only 5,746 properties sold – a drop of 11.98%.

 

Therefore, we have just over 782 less households moving in the Biggleswade and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 626 mortgaged households a year (fourth fifths of the figure of 782) in the Biggleswade and surrounding council area that would have moved 10 years ago, but won’t this year.

The reason they can’t/won’t move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 626 annual Biggleswade (and surrounding area) non-movers, based on that CML report –

 

  1. There are around 225 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).

 

  1. I then estimate another 88 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).

 

  1. Then, I estimate 37 households of our Biggleswade (and surrounding area) annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).

 

  1. I believe there are 276 Biggleswade (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

 

The first three above are beyond the Government or Bank of England control.  However could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If Biggleswade property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

Then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy mortgages 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s … available at a drop of hat and three tokens from a cereal packet?

We all know what happened with Northern Rock …. Your thoughts would be welcome on this topic.

Decreasing Numbers of Younger Homeowners in Biggleswade

184 graphic twoJustin Mitchell, 37-year-old father of two from Biggleswade, was out house hunting. It was a pleasant August Saturday afternoon, and our man cycles along on his bike. He cycles up a street of suburban semis, where he spots a few retired mature neighbours, chatting to each other over the garden fence. He leans his bicycle against a lamppost and launches softly into his property search.

Anyone on the road contemplating moving?” Justin asks, “I am not a landlord or developer, I’m just a Biggleswade bloke trying to get out of renting, buy a house, do it up and live in it with my wife and two children

The only way I will leave here is in a box”, answers an 80-something lady, wearing her fading Paisley patterned housecoat from the 1970’s.

I‘ve lived here since before you were born, its lovely up here .. we aren’t moving, are we Doris?” (as her neighbour sagely shook his head at his wife).

Justin, like many Biggleswade people born in the late 1970’s to the early 1990’s, is keen to get a slice of prime Biggleswade real estate. Yet people like Justin in Generation Y (or the Millennials as some people call them i.e. born between 1977 and 1994 and needing family housing now) are discovering, as each year passes by, they are becoming more neglected and ignored when it comes to moving up the property ladder.

Looking at the graph for the UK as whole …

 

184 FIXED GRAPH.png

 

Over 75 percent of Brits aged 65 and above (the baby boomers) are owner-occupiers, the biggest share since records began and a proportional rise of over 48.3% since the early 1980’s. Looking at those Baby Boomers (the current 65+year olds)  .. and roll the clock back 36 years (to when they were in their 30’s and 40’s and two thirds (65.6%) of them owned their own home.

Whilst today, just under a half of 25 to 49 year olds (47.3%) own their own home.

However, the biggest drop has been in the 18 to 24-year old’s, where homeownership has dropped from a third (32%) in the 1980’s to less than one in ten (8.9%) today. Looking at the Biggleswade statistics, the numbers make even more interesting reading.

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Government policy contributes to the generational stalemate. Stamp Duty rules prevent older Brits from moving as the price of land and planning rules make it harder to build affordable bungalows that are attractive to members of the older generation who want to move.

The average value of an acre of prime building land in the UK is between £750,000 and £800,000 per acre. Bungalows are the favoured option for the older generation, but the problem is bungalows take up too much land to make them profitable for new homes builders. The housing market is gridlocked with youngsters wanting to get on (then move up) the property ladder whilst the older generation, who want to move from their larger houses to smaller, more modern bungalows, can’t. The problem is – there simply aren’t enough bungalows being built and the high price of land, means they are prohibitive to build.

So, what is my point? Well, all I would say to the homeowners of Biggleswade is that one solution could be to start to talk to your local councillors, so they can mould the planners’ thoughts and the local authority thinking in setting land aside for bungalows instead of two up two down starter homes? That would free the impasse at the top of the property ladder (i.e. mature people living in big houses but unable to move anywhere), releasing the middle aged gridlocked people in the ladder to move up, thus releasing more existing starter homes for the younger generation.

To Justin … the wandering new home searcher – if things are going to change, it will be years before they do .. so keep going out and spreading the word of your search for a new home for your family.

 

Supply and Demand Issues mean Biggleswade Property Values Rise by 9.23% in the Last 12 Months

Supply and demand

The most recent set of data from the Land Registry has stated that property values in Biggleswade and the surrounding area were 9.23% higher than 12 months ago and 31.21% higher than January 2015.

Despite the uncertainty over Brexit as Biggleswade (and most of the UK’s) property values continue their medium and long-term upward trajectory. As economics is about supply and demand, the story behind the Biggleswade property market can also be seen from those two sides of the story.

Looking at the supply issues of the Biggleswade property market, putting aside the short-term dearth of property on the market, one of the main reasons of this sustained house price growth has been down to of the lack of building new homes.

The draconian planning laws, that over the last 70 years (starting with The Town and Country Planning Act 1947) has meant the amount of land built on in the UK today, only stands at 1.8% (no, that’s not a typo – its one point eight percent) and that is made up of 1.1% with residential property and 0.7% for commercial property. Now I am not advocating building modern ugly carbuncles and high-rise flats in the Cotswolds, nor blot the landscape with the building of massive out of place ugly 1,000 home housing estates around the beautiful countryside of such villages as Broom, Southill and Northill.

 

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The facts are, with the restrictions on building homes for people to live in, because of these 70-year-old restrictive planning regulations, homes that the youngsters of Biggleswade badly need, aren’t being built. Adding fuel to that fire, there has been a large dose of nimby-ism and landowners deliberately sitting on land, which has kept land values high and from that keeps house prices high.

Looking at the demand side of the equation, one might have thought property values would drop because of Brexit and buyers uncertainty. However, certain commentators now believe property values might rise because of Brexit. Many people are risk adverse, especially with their hard-earned savings. The stock market is at an all-time high (ready to pop again?) and many people don’t trust the money markets. The thing about property is its tangible, bricks and mortar, you can touch it and you can easily understand it.

The Brits have historically put their faith in bricks and mortar, which they expect to rise in value, in numerical terms, at least. Nationally, the value of property has risen by 635.4% since 1984 whilst the stock market has risen by a very similar 593.1%. However, the stock market has had a roller coaster of a ride to get to those figures. For example, in the dot com bubble of the early 2000’s, the FTSE100 dropped 126.3% in two years and it dropped again by 44.6% in 9 months in 2007… the worst drop Biggleswade saw in property values was just 16.73% in the 2008/9 credit crunch.

Despite the slowdown in the rate of annual property value growth in Biggleswade to the current 9.23%, from the heady days of 13.88% annual increases seen in mid 2015, it can be argued the headline rate of Biggleswade property price inflation is holding up well, especially with the squeeze on real incomes, new taxation rules for landlords and the slight ambiguity around Brexit. With mortgage rates at an all-time low and tumbling unemployment, all these factors are largely continuing to help support property values in Biggleswade (and the UK).

For more thoughts on the Biggleswade Property Market, please visit the Biggleswade Property Market Blog: http://www.biggleswadepropertyblog.co.uk

Biggleswade – Mortgages Ticking Time-Bomb?

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According to my research, of the 10,005 properties in Biggleswade, 3,903 of those properties have mortgages on them.  87.1% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

However, this is the concerning part, 843 of those Biggleswade mortgages are interest only. My research also shows that, each year between 2017 and 2022, 12 of those households with interest only mortgages will mature, and of those, 3 households a year will either have a shortfall or no way of paying the mortgage off. Now that might not sound a lot – but it is still someone’s home that is potentially at risk.

 

Biggleswade 178 Graph 1

 

Theoretically this is an enormous problem for anyone in this situation as their home is at risk of repossession if they don’t have some means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building Societies are under no obligation to lengthen the term of the mortgage and, when deciding whether they are prepared to do so or not, will look at it in the same way as someone coming to them for a new mortgage.

Back in the 1970’s and 1980’s, when endowment mortgages were all the rage, having an endowment meant you were taking out an interest only mortgage and then paying into an endowment policy which would pay the mortgage off (plus hopefully leave some profit) at the end of the 25/35-year term. There were advantages to that type of mortgage as the monthly repayments were lower than with a traditional capital repayment and interest mortgage. Only the interest, rather than any capital, is paid to the mortgage company – but the full debt must be cleared at the end of the 25/35-year term.

Historically plenty of Biggleswade homeowners bought an endowment policy to run alongside their interest only mortgage. However, because the endowment policy was a stock market linked investment plan and the stock market poorly performed between 1999 and 2003 (when the FTSE dropped 49.72%), the endowments of many of these homeowners didn’t cover the shortfall. Indeed, it left them significantly in debt!

Nonetheless, in the mid 2000’s, when the word endowment had become a dirty word, the banks still sold ‘interest only’ mortgages, but this time with no savings plan, endowment or investment product to pay the mortgage off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as property prices were on the rampage in an upwards direction!

Thankfully, the proportion of interest only mortgages sold started to decline after the Credit Crunch, as you can see looking at the graph below, from a peak of 43.81% of all mortgages to the current 8.71%.

 

178 fixed graph - just cut and paste in

 

Increasing the length of the mortgage to obtain more time to raise the money has gradually become more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers considered too old for a mortgage extension.

Biggleswade people who took out interest only mortgages years ago and do not have a strategy to pay back the mortgage face a ticking time bomb. It would either be a choice of hastily scraping the money together to pay off their mortgage, selling their property or the possibility of repossession (which to be frank is a disturbing prospect).

I want to stress to all existing and future homeowners who use mortgages to go in to them with your eyes open. You must understand, whilst the banks and building societies could do more to help, you too have personal responsibility in understanding what you are signing yourself up to. It’s not just the monthly repayments, but the whole picture in the short and long term. Many of you reading my blog ask why I say these things. I want to share my thoughts and opinions on the real issues affecting the Biggleswade property market, warts and all. If you want fluffy clouds and rose tinted glasses articles – then my articles are not for you. However, if you want someone to tell you the real story about the Biggleswade property market, be it good, bad or indifferent, then maybe you should start reading my blog regularly.

For more thoughts on the Biggleswade Property Market – visit the Biggleswade Property Blog on: http://www.biggleswadepropertyblog.co.uk

 

Biggleswade Buy-To-Let Predictions up to 2037

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On several occasions over the last few months, in my Biggleswade Property Blog, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.

Rents in Biggleswade for new tenancies only grew by 0.7% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Biggleswade, an interesting pattern emerges ..

  • 2016 – Rental Inflation in Biggleswade was 4.3%
  • 2015 – Rental Inflation in Biggleswade was 6.4%
  • 2014 – Rental Inflation in Biggleswade was 0.7%

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House).

On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Biggleswade property prices has compounded this.  Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty. So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Biggleswade, the East and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics.

174 Table - Bedfordshire

174 graph Bedfordshire

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Biggleswade, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up!

The fact is that I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.

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I’m off now on annual leave for a couple of weeks – hoping for some UK sunshine!  Will be back to blogging again in mid-August.

In the meantime, please give us a call or pop in to the Letchworth office to discuss any aspect of the Biggleswade property market and lettings in general.  We don’t bite and happy to provide any advice we can.

 

 

Biggleswade First Time Buyers Mortgages taking 33.9% of their Wages

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I have heard from a number of older mortgage free Biggleswade homeowners worried about how unaffordable Biggleswade’s rising property prices are and they are concerned about how the younger generation of Biggleswade could ever afford to buy.  They often ask if it is right for landlords to make money on the inability of others to buy property and if, by buying a buy to let property, Biggleswade landlords are denying the younger generation the ability to in fact buy their own home.

Whilst doing my research for my many blog posts on the Biggleswade property market, I know that a third of 25 to 30 year olds still live at home. It’s no wonder people are kicking out against buy to let landlords as they are the greedy bad people who are cashing in on a social woe.  In fact, most people believe the high increases in Biggleswade’s (and the rest of the UK’s) house prices are the very reason owning a home is outside the grasp of these younger would be property owners.

However, the numbers tell a different story.  Looking at the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market.  In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31.

171 - fixed Graph showing Average Age of First time buyers

Nevertheless, the average age doesn’t tell the whole story.  In the early 1990’s, 26.7% of first time buyers were under 25, while in the last five years just 14.9% were.  In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.

171 - fixed graph Age Distribution of First Time Buyers in UK since 1990 .png

Although, there are also indications of how unaffordable housing is, the house price to earnings ratio has almost doubled for first time buyers in the past 30 years.  In 1983, the average Biggleswade home cost a first-time buyer (or buyers in the case of joint mortgages), the equivalent of 2.8 times their total annual earnings, whilst today, that has escalated to 5.4 times their income.

Again, those figures don’t tell the whole story.  Back in 1983, the mortgage payments as percentage of take home pay for a Biggleswade first time buyer was 29.4%.  In 1989, that had risen to a staggering 75.9%.  Today, it’s 33.9%, and no that’s not a typo, 33.9% is the correct figure.

Biggleswade 171

To answer the questions about the younger generation of Biggleswade being able to afford to buy and if it was right for landlords to make money on the inability of others to buy property, it isn’t all to do with affordability as the numbers show.

What of the landlords?  Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households.  That would be the equivalent of raising income tax by 4p in the pound and I don’t think UK tax payers would swallow that.

If the Government haven’t got the money, who else will house these people?  Private sector landlords will and thankfully they have taken up the slack over the last 15 years.

Some say there is a tendency to equate property ownership with national prosperity but this isn’t necessarily the case.  The youngsters of Biggleswade are buying houses, but buying later in life. Also, many Biggleswade youngsters are actively choosing to rent for the long term, as it gives them flexibility, something our 21st Century society craves more than ever.

917 Biggleswade Landlords – Is This a Legal Tax Loop-Hole?

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In November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market.  One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017.  Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic / 40% higher rate and 45% additional rate).

For example, let’s say we have a Biggleswade landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (2016/17), assuming no other costs or allowable items, the figures are below:

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  • Annual rental income £10,800.
  • Taxable rental income would be £3,600 after tax relief from mortgage relief

This means they would pay £1,440 in income tax on the rental income and assuming no other changes, the landlord would have income tax liabilities (at the time of writing June 2017) in the tax years of:

  • (2017/18) £1,800
  • (2018/19) £2,160
  • (2019/20) £2,520
  • (2020/21) £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability.  However, there is another option for landlords.

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The Biggleswade landlords who own the 917 rental properties

in the town could set up a Limited Company and sell their

property personally to that Limited Company

In fact, looking at the numbers from Companies House, many landlords are doing this.  In the UK, there are 93,262 buy-to-let limited companies, and since the announcement in November 2015, the numbers have seen a massive rise.

  • Q2 2015 / Q3 2015 – 4,193 BTL limited companies set up
  • Q4 2015 / Q1 2016 – 5,403 BTL limited companies set up
  • Q2 2016 / Q3 2016 – 3,007 BTL limited companies set up
  • Q4 2016 / Q1 2017 – 7,149 BTL limited companies set up

 

173 Biggleswade

By selling their buy to let investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL’s as an ‘allowable expense’ – effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.

I am undeniably seeing more Biggleswade landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company?

In fact, I have done some extensive research with companies house and in the fifteen months between 1st January 2016 – 31st March 2017, 67 BTL limited companies have been set up in the SG postcode alone.

If you are looking to hold your BTL investments for a long time, it could be very favourable to take the short-term pain of putting your BTL’s in a limited company for a long-term gain.  You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.

As the law sees the new limited company as a separate entity to yourself, you are legally selling your BTL property to your limited company, just like you would be selling it on the open market.  Your limited company would have to pay stamp duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated too and this could come with exit charges.

On a more positive note, what I have seen by incorporating (setting up the limited company) is landlords can roll up all their little BTL mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital.  Finally, if the tax liability is too high to swap to a limited company, some savvy BTL investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company, just an idea, not advice!

It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance.  Whatever you do, always get the opinions from these tax consultants in writing and you shouldn’t hurry into making any hasty decisions.  The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation.  With decent tax planning from a tax consultant and good rental / BTL portfolio management (which I can help you with), whatever you do, let’s keep you the right side of the line!

Council House Waiting List in Biggleswade Drops by 78% in last 3 years

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Should you buy or rent a house?  Buying your own home can be expensive but could save you money over the years.  Renting a property through a letting agent or private landlord offers less autonomy to live by your own rules, with more flexibility if you need to move.

Yet, there is a third way that many people seem to forget, but it plays an important role in the housing of Biggleswade people.  Collectively known as social housing, it is affordable housing, which is let by either Central Bedfordshire District Council or a housing association to those considered to be in specific need, at rents below those characteristic in the private rental market.

In Biggleswade, there are 1,072 social housing households, which represent 15.50% of all the households in Biggleswade.  There are a further 741 families in the Central Bedfordshire District Council area on their waiting list, which is similar to the figures in the late 1990’s. The numbers peaked in 2013, when it stood at 3,371 families, so today’s numbers represent a drop of 78%.

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Nevertheless, this doesn’t necessarily mean that more families are being supplied with their own council house or housing association property.  Six years ago, Westminster gave local authorities the authority to limit entitlement for social housing, quite conspicuously dismissing those that did not have an association or link to the locality.

Interestingly, the rents in the social rented segment have also been growing at a faster rate than they have for private tenants.  In the South Bedfordshire District Council area, the average rent in 1998 for a council house / housing association property was £200.94 a month.  Whilst we have no up to date figures, because of the ‘Large Scale Voluntary Transfer’ of all or most of the local authority’s stock was transferred to a Private Registered Provider sector, so the average rent is no longer applicable.  Therefore, using the average rent increase for England of 108% (England’s average rent being £183.08 a month in 1998 and £381.03 a month today) we can guesstimate an average of approximately £415.

When comparing social housing rents against private rents, the stats don’t go back to the late 1990’s for private renting, so to ensure we compare like for like, we can only go back to 2005.  Over the last 12 years, private rents have increased nationally by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%.

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What does this all mean for the homeowners, landlords and tenants of Biggleswade?

Rents in the private rental sector in Biggleswade will increase sharply during the next five years.  Even though the council house waiting list has decreased, the number of new council and housing association properties being built is at a seventy year low.  The government crusade against buy-to-let landlords together with the increased taxation and the banning of tenant fees to agents will restrict the supply of private rental property, which in turn using simple supply and demand economics, will mean private rents will rise.  This makes buy to let investment a good choice of investment again (irrespective of the increased fees and taxation laid at the door of landlords).  It will also mean property values will remain strong and stable as the number of people moving to a new house (and selling their old property) will continue to remain restricted and hence, due to lack of choice and supply, buyers will have to pay decent money for any property they wish to buy.

Interesting times ahead for the Biggleswade property market!

Looking to invest in Biggleswade?

Take a look at this video of a property that has just come to the market with our sales team in Biggleswade.  In a prominent high street position and with an asking price of £190,000 this property would provide a return of 5%.  The size of the property means you could also rent rooms individually and command a yield of around 10%.   Click here to see the rightmove advert and call Satchells in Biggleswade ASAP on 01767 313256 to view!