George Osborne – The Solihull landlord’s friend?

Well the last few weeks have been rather hectic, Solihull landlords have been sending emails or picking up the phone to me regarding the new rules on buy to let taxation announced in the recent budget. George Osborne confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments for their buy to let properties would be reduced over the coming years for higher rate income tax payers. The Chancellor said the current 40%-45% tax relief that private buy to let landlords (who pay the higher rate of income tax) now get would change in 2017 and would steadily reduce over the following four years to 20% by 2020.

With 10.3% of residential property in Solihull being privately rented (5,242 rental properties in total), these changes are potentially something that will not only affect most Solihull landlords, but also the tenants and the wider property market as a whole. The choice of rental properties could decrease, especially at the top end of the market, which could increase rents.

However, Solihull landlords could protect themselves by reassigning one or more rental properties into a company structure (e.g. a Limited Company, Partnership or Sole Trader) and by doing so, the total tax paid is greatly reduced because a company only pays tax on the profit. Nonetheless before everyone goes off setting up companies for their buy to let portfolios, it must also be noted if a sole trader firm is started stamp duty needs to be paid, yet if the owner is in business with a partner they could enjoy some stamp duty relief.  The biggest tax variation is Capital Gains Tax where the tax bill will be much higher when you come to sell your portfolio. In essence by going into business with your buy to let properties, you will potentially have a modest stamp duty to pay when you start but you will have a lot less monthly tax to pay. Irrespective of the interest rate, the Capital Gains Tax bill will be much higher when you come to sell ... as you can see, it is not a ‘get out of jail card’. Now it must be remembered, I am not a tax advisor, so you must take advice from a qualified person.

Those planning to purchase a Buy to let property will have to factor these new rules into their calculations and this could affect the offers they are willing to make. However, I am not that concerned, as the scaremonger reports fail to see the fact that two out of three Buy to let properties that have been bought since 2007 have been purchased without the support of a Buy to let mortgage. With those two thirds of landlords paying cash for the purchase of their rental properties, this means two thirds of landlords will be totally unaffected by the changes.

So what will happen in the future? The British love their Bricks and Mortar, it’s an asset that they can touch and feel and has a 70 year track record of capital growth that has out stripped inflation. Buy to let will still be attractive to Solihull investors and let me explain why. If you invested £40,000 into Solihull property in September 1987, today it would be worth £176,785. If you had invested the same £40,000 into the London Stock Market, it would be only be worth £114,506 today. Whilst inflation would have taken the original £40,000 and pushed it up to £83,127.

It’s true that some central London landlords rely solely on the tax breaks rather than high yields and may be forced out of the market, but even those landlords could seek to recoup any losses by increasing rents. However, those landlords may leave the market, constricting the availability of rented houses even more than it is already, increasing rents and thus pushing yields even higher for landlords and BTL investors still in the market... thus attracting new landlords into the market because of those higher yields.

The reality is that there is too much demand and not enough supply of homes, for people to live in in the town. This sets up the Solihull and UK property market to continue creating strong and steady returns, irrespective of any tax loophole being there (or not as the case maybe).

For further information and advice on the Solihull property market, feel free to pop into our property lounge or visit my property blog http://solihullpropertyblog.blogspot.co.uk/

Solihull Landlord’s mortgages top £293 million!

The Brits can’t stop talking about property. The hot topic of discussion at dinner parties of  Solihull’s movers and shakers is the subject of the Solihull property market but in particular, buy to let. These people are buying up buy to let properties quicker than an ace Monopoly player ... or so it would seem if you read the Sunday papers. So is the buy to let market a sure fire way to make money?  Is it something everyone should be jumping into? Is it a sure fire way to make money? The answer is ‘Yes’ and ‘No’ to all those questions!

 A landlord has to flick through Rightmove or Zoopla, pick the property of their choice and agree a price. Then find a modest deposit of 25% (often by re-mortgaging their own home) which for an average Solihull terraced house, would mean finding £59,925 for the deposit (as the average Solihull terraced house is currently worth £239,700) and borrow the rest with a low interest rate buy to let mortgage.  Then the final step, rent out the property in a matter of hours for a high price, sit back and live comfortably. The rent will cover the mortgage payments, with an amount of money to spare and come retirement have a portfolio of property that would have quadrupled in value in fifteen years. Sounds wonderful – doesn't it? Or does it?

Let us not forgot that the half of one per cent Bank of England base rate is artificially low. The international money markets can be fickle and if interest rates do rise quicker and higher than expected because of some unforeseen global economic situation, that monthly profit will soon turn into a loss as the mortgage will be more than the rent. Even though tenants are staying longer in their rental property, tenants still come and go and my guidance to landlords is they should allow for void periods, plus the maintenance costs of a rental property and of course agents fees... all things that eat into that profit.

Interestingly by my calculations, there are approximately 1,569 Solihull landlords owing in excess of £293 million in mortgages on those Solihull buy to let properties.  An impressive amount when you consider Solihull only has 0.147% of all the rental properties in the country. It really does come down to a number of important factors going forward to ensure you are water tight for the future. A lot of my existing landlords are fixing their mortgage rates. One told me that the Metro Bank are currently offering a five year fixed BTL re mortgage rate at 3.79% for 5 years (based on a 75% loan). I don’t give financial advice, so you must speak with a qualified mortgage advisor… but that sounds very fair!

However, one thing I do know, is that buy to let is a long term investment it’s a ten, fifteen, twenty year plan and property prices will go down as well as up. You wouldn't dream of investing in the stock market without advice, so why invest in the Solihull Property Market without advice? We give bespoke detailed advice to our landlords to enable them to spot trends in the Solihull Property Market before others, enabling them to buy better properties at better prices. For example, did you know that semi-detached houses are selling for around 7% lower than 12 months ago in Solihull yet detached properties are selling for 24% more (with every other type in between). This means we can advise on which properties will go up in value better (or lose less if property prices drop), we can also advise which have lower voids and which properties have higher maintenance issues.  

Information on the local property market and ability to process it is the strongest asset we can give you. As Lois Horowitz, the famous author says, ”Not having the information you need when you need it leaves you wanting. Not knowing where to look for that information leaves you powerless. In a society where information is king, none of us can afford that”. For further advice on the Solihull property market, please email me on jane.morcom@centrickproperty.co.uk

The ‘Liquorice Allsorts’ Solihull Property market

Despite the UK economy heading in the right direction with record low mortgage rates and unemployment  figures dropping,  the rate of property prices rising in Solihull have tempered since the start of the year. This slow but sure downward trend in the rate of growth has been in evidence since mid-2014.  Property value increases continue to outpace the growth in salaries, however the gap is closing, helped by a lift in salaries over the last 6 months.  Property values in the West Midlands region as a whole are 3.5% higher than a year ago.  Compare this to the neighbouring regions of the East at 2.9% higher and the North West at 3.4%, the majority of the country continue to see annual house price gains - the exception being Wales which recorded a slight decline of -0.6%.

Even with the tempering in house price inflation, it does not necessarily change my outlook that property prices are likely to be firmer over the second half of 2015 amid heightening activity in the Solihull property market.  As I've mentioned before, there is a current shortage of properties on the market, restricting supply, which in turn will provide stability and support to property prices. My overall opinion, therefore, is that Solihull prices will rise by 5% over 2015 and roughly the same in 2016.

Property investment is a long term business, buying the right sort of property is vital. I have recently been speaking with a number of Solihull landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns but quite often offer poor capital growth. Verses properties that do go up in value quicker but often offer a lower yield.  So, what type of properties have performed best over the last few years in Solihull, especially in terms of their capital growth?

When comparing what the average price of detached, semi detached, terraced and flats were selling for back at the start of the Millennium to the present in Solihull,  the results are quite remarkably different. Almost like a bag of Liquorice Allsorts, as the different types of property have performed poles apart over the last 15 years:

• ·         Detached Houses were selling on average for £193,184 in 2000, but so far in 2015, they have been selling for approximately £449,514 showing a rise of 133%.
• ·         Semi -Detached Houses were selling on an average of £117.033 in 2000 however, in 2015 figures suggest that they have been selling for close to £285,221 with a rise of 144%.
• ·         Terraced Houses were selling on average for £99,525 in 2000, currently in 2015, they have been selling on average for £218,077 suggesting a rise of 119%.
• ·        Flats and Apartments were selling on average for £115,806 in 2000 however, at this present time they are selling on an average of £220,550 giving a rise of 90%.

Moving forward, what should new and existing buy to let landlords do with this information?  Well, the questions I seem to be asked on an almost daily basis by landlords are:

·         “Should I sell my property in Solihull?”

·         “Is the time right to buy another buy to let property in Solihull and if not Solihull, where?”

·         “Are there any property bargains out there in Solihull to be had?”

Many other landlords, who are with both us and other letting agents in Solihull, like to pop in for a coffee,  pick up the phone or email us to  discuss the property market, how it compares with its closest rivals (Birmingham, Sutton Coldfield and Coventry) and hopefully answer the three questions above.  I don’t bite, I don’t do hard sell and I will just give you my honest and straight talking opinion and look forward to hearing from you.

Solihull Property Market – Bricks and Mortar!

The Land Registry has just released the latest set of figures for the Solihull Property market. It makes interesting reading, as average property values in Solihull rose by just 0.6% in May. The average property values are 3.9% higher than 12 months ago, meaning the annual rate of growth in the town fell to its lowest level since April 2014. However looking at the regional picture, West Midlands’ property values only rose by 0.1% which means they are 3.5% higher than a year ago.

This is a far cry from the price rises we were experiencing in Solihull throughout 2014. In August 2014 property values were rising by 9.1% a year. All the same, even with the tempering of the Solihull property values in 2015, they are still higher. This is good news for local homeowners who had been affected by the downturn after 2007 and still find themselves in negative equity.

However, the thing that concerns me is that the average number of properties selling has dropped substantially over the last 12 months in the town. In April 2014, 118 properties sold in Solihull but in April 2015, that figure dropped to 62.  I have been in the Solihull property market for quite a while now and the one thing I have noticed over the last few years has been the subtle change in the traditional seasonality of the Solihull property market. It has been particularly noticeable by its absence this year, the normal post Easter flood of properties coming onto the market did not happen. This has made an imbalance between supply and demand, with less houses coming onto the market there is simply not as much choice of properties to buy in Solihull and with the population of Solihull ever increasing, this will generally strengthen growth for the foreseeable and have a positive impact future house prices.

So what does all this mean for Solihull landlords or those considering dipping their toe into the buy to let market for the first time? For many people, buy to let looks appear to be a good investment, providing landlords with a decent income at a time of low interest rate as the stock market remains unpredictable.

However if you are thinking of investing in bricks and mortar in Solihull, it is important to do things correctly; buy property as an investment to provide you with income.   For those with enough savings to raise a big deposit, buy to let looks particularly good, especially compared to low savings rates and stock market yo-yo’s. I must also remind readers, landlords have two opportunities to make money from property, not only is there the rental income; with the property market bouncing back over the last few years, property value increases have spurred on more investors to buy property in the hope of its value continuing to rise.

Savvy landlords with decent deposits can fix their mortgages at just over 3% for five years, making many deals stack up. Nevertheless low rates cannot stay ‘low’ forever, at some point in the future they must rise and you need to know your property can stand that test. Some Solihull landlords struggled, when interest rates rose from 3.5% in July 2003 to 5.75% in July 2007. These figures may not sound a lot, but this was the difference of making a £100 a month profit in 2003 to having to make up a shortfall in the mortgage payments of £100 per month in 2007.

It’s true that many landlords were thrown a life raft when the base rate dropped to 0.5% in March 2009. Although interest rates have remained there since, I believe they will rise again in the future. However, even with the potential for costs to rise, demand for decent rental properties remains high as there are ever more tenants in the market, driving up demand and thus rents. The British love of bricks and mortar plus improving mortgage deals also helps to fuel the buoyant Solihull property market.

If you are planning on investing in the Solihull property market, or just want to know more, things to consider for a successful buy to let investment, one source of information is the Solihull Property Blog (www.solihullpropertyblog.com)