Category: (4)

The Financial Times ran a feature on Saturday 26th June on the future of the Buy-to-let market in the UK in light of the recent Budget.

The main points were as follows:

In the last property boom, buy-to-let was essentially a bet on house prices, funded by cheap mortgage debt. Today’s investors need to have a lot more capital to get past go – buy-to-let mortgages typically require a minimum deposit of 25 per cent. This has kept many wannabe landlords off the buy-to-let ladder in recent years. But for cash-rich investors with gumption, all the indicators suggest now’s a great time to invest. The key attraction? Rising rents, which are improving rental yields across the country.

“There’s going to be a massive supply shortage of property to rent or buy over the next 10 years, which means rents will rocket,” argues Kate Faulkner, founder of consultancy Designs on Property.co.uk.

“The coalition government has done buy-to-let landlords far bigger favours with the cuts it has already made,” says Faulkner. Scrapping regional housing targets and ending the practice of “garden grabbing” means the number of new homes brought to market will dwindle – and in affluent areas of the south-east, prices and rents could soar.

This trend is supported by listed estate agency chain Winkworth, which registered a 40 per cent drop in the availability of rental property on its books in April and May. “There’s massive demand for rental property but no new rental stock being brought on to the market by landlords,” reports chief executive Dominic Agace. “In general, rents have gone up by 10 per cent but the cost of mortgage finance is still around 4.5 per cent,” he says. “The more equity you have, the better return you’re going to get – but rental yields are starting to look attractive.”

As the area of greatest rental demand, London is set to lead the way. One investor has already banked a 25 per cent annual rent rise on a London buy-to-let investment. Neil Young, chief executive of property investment firm the Young Group, says: “That’s not the norm but it’s not an isolated example. Typically we’re increasing rents between 5-10 per cent on renewals.”

Source: FT.com

Following the emergency budget, the Centre for Economics and Business Research (CEBR) predicts that interest rates will remain stable at 0.5% until the end of 2012.

Douglas McWIlliams, chief executive of CEBR, says: “The chancellor noted Mervyn King’s remark at the Mansion House dinner that if growth was slower interest rates would be lower.

“We agree and – with our lower growth forecast we now think that base rates will be stable at 0.5% until the end of 2012 and the 10 year bond yield will fall to 3%. With base rates lower for longer, we also expect mortgage rates to fall from around 4% at present to 3% by early next year.”

Source: mortgagestrategy.co.uk & cebr.com

From January 4 2011, the main rate of VAT will rise from 17.5% to 20%. Current zero-rated items like children’s clothes and magazines will remain exempt.

Corporation Tax will be cut next year to 27%, and by 1% annually for the next three years, until it reaches 24%. The small companies’ tax rate will be cut to 20%.

The government will help low-spending councils in England to freeze council tax for one year from April 2011.

Capital Gains Tax remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.

The Irish Sunday Times interviewed Simon McDonnell for his thoughts on the forthcoming UK budget and how it will affect investors. Here is an excerpt from Sunday’s article:

WATERLOO SUNRISE

Simon McDonnell, a Dublin director of Findlay Property (127.0.0.1/oldfind), which specialises in finding and managing investment properties for Irish clients in London, says: “Irish tax residents will not be affected, because they are exempt from capital gains tax in the UK. This could give Irish buy-to-let investors the edge over their UK counterparts.

“I’m not sure whether an increase in capital gains tax will be as significant as some sections of the British media expect. Interest rates, unemployment and availability and flow of credit are going to be far more important.”

The proposed tax increases and last month’s scrapping of Home Information Packs — reports which vendors had to provide at their own expense — made experts wonder what was in store for the
residential market.

“These dual factors will bring more property to the market and with it a little nervousness,” says McDonnell, adding that uncertainty could be played to Irish buyers’ advantage.

“Uncertainty in the market will throw up opportunities for investors. There could also be an increase in rents and yields, as investor presence in the market becomes much more income driven
rather than led by capital gains.”

McDonnell says that London has been traditionally strong with Irish investors and landlords because of its rental record. “The continued net migration of people into London, the challenges in the planning system and the lack of green- or brown-field sites to develop limit the supply of property and will continue to exert upward pressure on rents in central London,” he says.

SOURCE: Irish Sunday Times