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).

So, for example, let’s say we have a Locks Heath 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 (16/17), assuming no other costs or allowable items …

• Annual rental income £10,800.
• Taxable rental income would be £3600 after tax relief from mortgage relief
• Meaning they would pay £1,440 in income tax on the rental income

And assuming no other changes … the Landlord would have income tax liability’s (at the time of writing) in the tax years of …

• (17/18) £1,800
• (18/19) £2,160
• (19/20) £2,520
• (20/21) £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.

The Locks Heath Landlords who own the 2,299 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 Buy to Let Limited Companies Set Up
• Q4 2015 / Q1 2016 – 5,403 Buy to Let Limited Companies Set Up
• Q2 2016 / Q3 2016 – 3,007 Buy to Let Limited Companies Set Up
• Q4 2016 / Q1 2017 – 7,149 Buy to Let Limited Companies Set Up

So, 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 Locks Heath 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 in the 15 months 1^st January 2016 to 31^st March 2017 and 145 Buy To Let Limited Companies have been set up in the SO postcode alone.

Well, 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 (with appropriate exit charges).

On a more positive note, what I have seen though by setting up the Limited Company is Landlords can roll up all their little buy to let 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 buy to let 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, because 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!

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.

There is third way that many people seem to forget, yet it plays an important role in the housing of Locks Heath people.  Collectively known as social housing, it is affordable housing, which is let by either Fareham Borough Council or a housing association to those considered to be in specific need, at rents below those characteristic in the private rental market.

In Locks Heath, there are 1120 social housing households, which represent 6.42% of all the households in Locks Heath.  There are a further 1,134 families in the Fareham Borough 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 2,450 families, so today’s numbers represent a drop of 53.7%.

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 Fareham Borough Council area, the average rent in 1998 for a council house/housing association property was £196.21 a month, whilst today it is £402.39, a rise of 105% in 19 years.

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%.

So, what does this all mean for the homeowners, Landlords and Tenants of Locks Heath?

Rents in the private rental sector in Locks Heath 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 70 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 – making 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 Locks Heath Property Market!

I had a very interesting conversation the other day with a Locks Heath resident.  He is a Locks Heath homeowner, retired and mortgage free.  He stated how un-affordable Locks Heath’s rising property prices were and that he worried how the younger generation of Locks Heath could ever afford to buy.  He went on to ask if it was right for Landlords to make money on the inability of others to buy property and if, by buying a buy to let property, Locks Heath Landlords are denying the younger generation the ability to buy their own home.

Whilst doing my research for my many blog posts on the Locks Heath 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 Locks Heath’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.

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.

Although there are also indications of how un-affordable housing is, the house price-to-earnings ratio has almost doubled for first-time buyers in the past 30 years.  In 1983 the average Locks Heath home cost a first-time buyer (or buyers in the case of joint mortgages) the equivalent of 3.0 times their total annual earnings, whilst today, that has escalated to 6.1 times their income.

Again, those figures don’t tell the whole story.  Back in 1983, the mortgage payments as percentage of mean take home pay for a Locks Heath first time buyer was 31.2%.  In 1989, that had risen to 78.6%.  Today it is 38.6%… and no that’s not a typo… 38.6% is the correct figure.

So, to answer the gentleman’s questions about the younger generation of Locks Heath 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.

And 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.  I don’t think UK tax payers would swallow that.

So, if the Government haven’t got the money who else will house these people?  Private Sector Landlords 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 Locks Heath are buying houses, but buying later in life.  Also, many Locks Heath youngsters are actively choosing to rent for the long term, as it gives them flexibility – something our 21^st Century society craves more than ever.

For more articles like this and all of the latest Buy to Let Deals please visit The Locks Heath Property Blog.

There are 23.36 million properties in England and Wales with 64% being owner occupied and 36% being rented either from a private landlord, local authority or housing association.

Over nine out of ten of those English and Welsh owner-occupied properties are a whole house or bungalow.  Now, most people would assume they would be freehold – however, of those renting nearly half of rental properties, 44% to be precise, lived in other leasehold apartments and flats.

It might be wise to quickly explain the difference between freehold and leasehold.  When someone owns the freehold of a property they own it outright, including the land it is built on, whilst with a leasehold property the leaseholder owns the property for the length of their lease agreement.  Leaseholders must pay the person who owns land (the freeholder) ground rent and other fees.  When the leasehold ends ownership returns to the freeholder, although the leaseholder can extend the lease or they can buy the freeholder out, but there are rules and regulations with regards to doing that.

Therefore, it would be safe to assume that houses are freehold and flats are leasehold wouldn’t it…..?  Not necessarily!  Most houses are freehold but some might be leasehold, usually through shared-ownership schemes.  But more and more new homes builders are selling houses on a leasehold as well.  The protection of the law afforded to leaseholders who own a flat is massive, but sadly lacking to leasehold houses sold privately.

Looking specifically at the figures for Locks Heath, at the last count in SO31 there were 19,768 properties.  Since 1995, 21,209 properties in SO31 have changed hands and have been sold.  Looking further at those 21,209 transactions in SO31 since 1995, using data from Land Registry and solicitors practice My-Home-Move, 10.56% have been leasehold (lower than the national average of 15%).

However, I am concerned about a few new homes builders selling new houses (not flats – houses) as leasehold.  There has been a growing (yet small) trend for new-build houses to be sold as leasehold in recent years.  While not all house builders use this model, those that do maintain it helps make developments financially viable.

The issue comes when builders sell the freehold separately to an investment company without informing the lease holder  – which they are legally allowed to do without telling the leaseholder.  In England and Wales the “right of first refusal” to buy the freehold is written in law to leaseholders of flats i.e. the freeholder must offer it to the leaseholders of all the flats of the building first), but not leaseholders of houses.

This is the point I am trying to get across.  If you are buying a new home and it is a house (i.e. not a flat) please check very carefully indeed whether its freehold or leasehold.  If it is a leasehold, whilst you do have rights, they are not as strong as for those people buying a leasehold flat.  I appreciate I am only talking about a very small percentage of the property market, but potentially this could end up costing thousands of pounds to those affected.

In Locks Heath, of the 17,423 households, 5,718 homes are owned without a mortgage and 8,190 homes are owned by a mortgage.  Many homeowners have made contact with me asking what the General Election will do to the Locks Heath property market?  The best way to tell the future is to look at the past.

I have looked over the last five general elections and analysed in detail what happened to the property market on the lead up to and after each general election.  Some very interesting information has come to light.

Of the last five general elections (1997, 2001, 2005, 2010 and 2015), the two elections that weren’t certain were the last two (2010 with the collation and 2015 with unexpected Tory majority).  Therefore, I wanted to compare what happened in 1997, 2001 and 2005 when Tony Blair was guaranteed to be elected/re-elected versus the last knife edge uncertain votes of 2010 and 2015 in terms of the number of houses sold and the prices achieved.

Look at the first graph below comparing the number of properties sold and the dates of the general elections.

It is clear, looking at the number of monthly transactions (the blue line), there is a certain rhythm or seasonality to the housing market.  That rhythm/seasonality has never changed since 1995 (seasonality meaning the periodic fluctuations that occur regularly based on a season – i.e. you can see how the number of properties sold dips around Christmas, rises in Spring and Summer and drops again at the end of the year).

To remove that seasonality, I have introduced the red line.  The red line is a 12 month ‘moving average’ trend line which enables us to look at the ‘de-seasonalised’ housing transaction numbers, whilst the yellow arrows denote the times of the general elections.  It is clear to see that after the 1997, 2001 and 2005 elections, there was significant uplift in number of households sold, whilst in 2010 and 2015, there was slight drop in house transactions (i.e. number of properties sold).

Next, I wanted to consider what happened to property prices.  In the graph below, I have used that same 12-month average, housing transactions numbers (in red) and yellow arrows for the dates of the general elections but this time compared that to what happened to property values (pink line).

It is quite clear none of the general elections had any effect on the property values.  Also, the timescales between the calling of the election and the date itself also means that any property buyer’s indecisiveness and indecision before the election will have less of an impact on the market.

So finally, what does this mean for the landlords of the 2,104 private rented properties in Locks Heath?  Well, as I have discussed in previous articles (and just as relevant for homeowners as well) property value growth in Locks Heath will be more subdued in the coming few years for reasons other than the general election.  The growth of rents has taken a slight hit in the last few months as there has been a slight over supply of rental property in Locks Heath, making it imperative that Locks Heath landlords are realistic with their market rents.  But in the long term, as the younger generation still choose to rent rather than buy, the prospects, even with the changes in taxation, mean investing in buy-to-let still looks a good bet.  If you want to read more about the Locks Heath property market – then why not visit The Locks Heath Property Blog for more information.