Outlook for buy to let in UK looking rosy despite Brexit

With the predicted shock of Brexit so far not having a major impact on the UK property market the outlook for buy to let is not looking too bad with the lowest ever interest rates a potential boost.

So it is interesting to see that most landlords in the UK still consider renting out a property to be a part time activity and the majority own just one property and manage their portfolio as private individuals.

Indeed, the research commissioned by the Council of Mortgage Lenders (CML) found that rents make up less than half of a landlord's total income. But it is important to also note that there is evidence that rent is increasingly becoming a significant income stream for part time landlords.

And while most landlords still own just one property, there is an apparent trend towards larger portfolios. Between 2010 and 2016, the proportion who manage only one property fell from 78% to 63%. At the same time, the share managing two to four properties rose from 17% to 30%.

This does reinforce that part time landlords are an important part of the private rented sector in the UK and we all know those seeking to increase their portfolios have had a hard time with the extra 3% stamp duty surcharge being imposed in April and tax relief changes on the horizon.

With the current lack of housing to buy the rental sector is going to remain significant for some time and specialist lenders have been increasing the number of buy to let products available. But jumping into a buy to let portfolio needs careful consideration at a time when rental growth is slowing.

The latest lettings index from Countrywide, for example, shows that rents in London fell by 0.5% in July compared to the same month in 2015 but they increased across the UK by 1.5%, the latest index shows.

It is important to realise that there are considerable regional variations and the drop in London was the first annual fall in rents for six years and in the North of England and the Midlands the rate of rental growth hit the highest level for two years.

The most up to date index from HomeLet also shows rents still rising but this growth is slowing. In London rents were up 4% year on year and excluding the capital up 2.3%. The index report suggests that the outlook remains strong despite the growth slowing. It even adds that landlords have been able to continue securing higher rents on new tenancies.

On top of this the student rental market has been given a complete revamp in recent years with the latest research naming Edinburgh, Bristol and Brighton as the best university cities to invest in student property in the UK, with Oxford further down the list in fifth place and Cambridge seventh.

Looking forward, the fundamental forces in the private rental sector remain unchanged despite Brexit and key fundamentals could well keep it rosy, including Britain's growing population, the relative unaffordability of house prices, and the lack of new homes being built combined with the reduction in social housing.

3 Costly Defects to Look For When Viewing Properties

It’s a disappointing fact that approximately 80% of buyers don’t commission a survey before making a commitment to purchase.

Article written by Justin Burns BSc MRICS of Peter Barry Surveyors.

As a Chartered Surveyor I would obviously advocate the benefits of having a detailed survey prepared but I accept that with some properties it’s more necessary than with others; the problem is that most buyers don’t know which. I therefore thought it would be useful to come up with a list of 3 defects that are relatively easy to identify but potentially costly to repair.

1.       Roof coverings

If you have a pair of binoculars in the house, take them with you when viewing properties; that’s how surveyors do it! Missing tiles or slates will be easy to spot but general unevenness is also a sign of trouble ahead.

You’ll often learn more from inside the roof space so don’t be shy about asking to go in to the loft. If there’s sarking felt present then you can assume that the tiles or slates have been renewed in the last 40 years or so and should have plenty of life left in it yet. If that felt is breathable (smoother in appearance and thinner) then the roof covering is probably less than 20 years old.

Flat roofs can often be seen from the upper windows. Felt is the most common covering and has a lifespan of around 15 years or 25 if it is the modern ‘high performance’ type. Any bitumen type repair, creasing or tearing to the edges will indicate that the covering should be replaced. Pooling of water or a build-up of moss are signs that the surface is not draining properly and more expensive reconstruction work may be necessary.

2.       Chimneys

The first thing to check is whether they are plumb. Chimneys can start to lean as the bricks to the side that gets the brunt of the weather become frost damaged and expand. Stand in line with the stack and sight it though, a very slight lean is not a cause for concern but anything more than about 5% and you’re looking at re-building in the medium term.

Get your binoculars out again and take a close look at the brickwork. Has the pointing eroded or the bricks spalled? Spalling is the term used when the outer face of a brick comes away after suffering frost damage and is difficult to repair; patching up, even with colour matched mortar, will look terrible so you are looking at chopping out and replacing individual bricks.

The cost of doing any work at roof level is significantly increased due to the difficulty of access

3.       Dampness

Surveyors will test with a damp meter but there are signs that you can look for during a viewing.

All properties built since Victorian times will have a damp-proof course present to resist dampness rising from the ground. DPCs in older properties will normally consist of a bed of slate and can fracture and fail over time but the cause normally lies elsewhere.

High external paving levels are a common culprit. The surface of any paving that abuts an external wall should be at least 6 inches below the DPC to prevent rainwater penetrating through. Often we’ll see DPCs that are bridged, either by very high external paving, or the later application of render to the outside face of the wall. Both will allow dampness to pass around the DPC.

The most common cause of dampness is defective rainwater goods. A leaking gutter that is left unchecked can saturate a wall within a short period of time and if that wall belongs to an older style property and is solid the internal surface will also be wet.

Dampness often leads to other defects, such as deterioration to adjacent timbers, so the problem may be more widespread than is immediately apparent.

If you find any of the defects outlined above you will want to make allowance for the necessary remedial works when negotiating.

An RICS Homebuyer Report will flag up all such defects and could be a useful tool when re-negotiating the price. Most surveyors will also be happy to provide costings as part of a more detailed building survey. The alternative method is to arrange estimates from suitable qualified tradespeople.

 

Bychoice ask where next for the housing market?

One month since the historic Brexit vote, Jason Hydes, Branch Manager of Bychoice takes a look at how the local market is shaping up.

The market in Bury St Edmunds continues to remain buoyant with many new houses coming to the market and no shortage of buyers registering their interest in them.

One of the significant benefits is that Interest rates are expected to remain below 2% for the next 18 months, and with 10 year fixed deals available at under 3%, there is a ‘once in a lifetime’ opportunity for homeowners to secure exceptional deals, reducing inherent risk. Upsizing is also more attractive, especially if prices are expected to nudge upwards at faster rates than mortgage interest. If you’re a first-time buyer or looking to upsize, this could be the perfect time, contact Bychoice on 01284 769598 to find out how this market could be ideal for you. 

Marcus Whewell, CEO of The Guild of Professional Estate agents, comments, ‘The market (outside of London) actually looks steady and predictable. Prices are holding up, properties are selling (on average) for at least 99% of the asking price and withdrawals are no higher than pre-referendum. Mortgage rates continue to be the most competitive in history.’

London is a slightly different story, as Marcus Whewell, CEO of The Guild of Professional Estate Agents, explains: ‘Brexit essentially acted as a catalyst to the inevitable correction to the overheated prices present in the Spring. Offers, prices achieved and completions all adversely affected at least in the short term. The London market has always fluctuated more than the rest of the UK as overseas and speculative investments help drive activity. However, recent sterling growth should help restore some confidence, as should the early political appointments and the conciliatory tone being adopted from Downing Street.’

Marcus comments, ‘Looking at the bigger picture, there are strong reasons to believe the residential market will remain healthy for the next few years’.

Supply and demand remains high; the UK population is expected to continue growing by up to 50,000 per annum and to meet demand this the UK needs at least 200,000 new homes every year. Currently less than half of this number are being built. This is only amplified by the changes in trends and demographics such as more single-person households.

If you are interested in selling your home contact Bychoice on 01284 769598.

Is Buying Cheaper Than Renting?

Work out your rental costs for a full 12 months, including renewing your contract
Calculate other bills you pay eg contents insurance, utility, council tax
Find a property you would like to own
Search ‘house prices sold’ information eg mouseprice.com to find out what it might sell for
Calculate how much deposit you would have to put down on the property, eg 5% or 25%?
Work out what the monthly mortgage would be now and when interest rates increase to 5%, eg you can use a mortgage calculator such as the BBC
Write down all of the costs you don’t pay now which you would pay if you owned a property:-
Water bills
Buildings insurance
Other utility bills (especially if you rent a room with all bills included)
Service and ground rent charges if a flat or new build
Renovation costs
On-going maintenance eg £1,000 a year for a house more than 25 years old
Safety checks eg gas and/or electrics
New appliances which the landlord would have previously replaced
Compare the upfront costs of buying including a deposit with the upfront costs of renting
Compare the on-going costs of buying versus renting

Choosing A Surveyor

There are two types of surveyor. One belongs to the Royal Institution of Chartered Surveyors the other to the Residential Property Surveyors Association. Some belong to both.
Understand there are four types of survey:-
Mortgage valuation – for the lender
Home condition survey – for most properties
Homebuyers report   – includes a valuation
Building survey  – for old or non-standard properties
Make sure you have a mortgage valuation AND either a home condition, homebuyers or building survey report
The mortgage valuation is just for the lender, if there is anything wrong with the property you cannot claim against the surveyor
If your property was built post 1930s and there are no obvious faults, your mortgage valuation and a home condition report should suffice
Check if the report comes with any guarantees or insurance For example, if the SurveyMyHome condition report does not pick up something which becomes a problem, you can claim on the surveyors professional indemnity insurance
Ask the surveyor if they just send a report or talk over the phone or face to face to go through any problems
Check whether the survey can be accessed on-going or if you have the only copy
Write down a list of issues you are worried about with the property so the surveyor can check them for you
Organise your survey
If you can, request a visit to the property and surveyor at the end of the appointment to go through problems, a Home Condition survey will highlight legalities of alterations
Send your report to your legal company or conveyancer
Check what the costs will be to fix any existing problems
Work out what costs you will incur for future fixes, for example, the flat roof may be 10 years old and need replacing in five years
Negotiate any monies off the price of the property to pay for existing and potentially part of the future works. For example, if a flat roof is at the end of its life, you may ask for some money off to contribute to a new one.
Organise your change of address
Complete your purchase and move in!
Pay any Stamp Duty (if required) and check the SDLT forms have been filed with the Land Registry.

Shared Equity

Beware that even if the developer is offering a shared equity scheme they may only offer the scheme on certain plots or properties, not every property on every site
Find out what level of shared equity the developer will offer you. Typically they are around 85%. So if the property is being sold for £200,000, you will initially only have to pay for £170,000
Find out how quickly the balance owed will need be paid. Some offers only extend to one year, then you have to start paying back the money as a loan. Other deals may require nothing for the next 5 or even 10 years
Once you have found shared equity deals, it is important to make sure you don't compromise on quality to get the deal. You will need to maintain the property and live in it, so for example, you don't want paper walls or poor quality window fittings
Always ask to see a copy of gas and ideally electrical safety certificates, the EPC will tell you how much your running will be (eg gas/water/electrics)
Find a good legal company who will look after your interests. Sometimes this will be someone recommended by the developer, but sometimes their business relies on the deveoper, so they might not 'fight your corner' as hard as an independent solicitor would
Find a good broker who has dealt with shared equity cases before, ideally with the same developer, this will help make sure they have the experience to find you the right mortgage deal. Ideally you should NOT have to pay a broker unless you take up their recommendation.
Just because you are getting a shared equity deal, doesn't mean you can't negotiate extras, like landscaping the garden, better kitchen appliances etc
Always check carefully the paperwork from lenders/brokers and your legal company. Make sure the price is as agreed on the contract and make sure the date for your completion is right too - developers can change this if they haven't completed yet, so check by how many months they can bring the sale forward - or delay it
Ensure in your contract to exchange it allows you to have a 'snagging survey' just prior to completion so any problems with the property can be highlighted - and more importantly fixed - before you move in
You can move in on completion day, but make sure you budget to pay back the developer and don't rely on house price growth to increase the equity in your home to secure a higher mortgage in the future. Make sure you can afford both the mortgage and any  repayments required by the developer

Help To Buy - New Build

Find out which developers are offering the Help to Buy Scheme in your local area   Make sure you have a 5% deposit available. For example, if the property is being sold for £100,000, you will need £5,000, plus your buying and moving costs.   The Help to Buy Scheme is available to all developers, small and large, so make sure you check out all your local developments   If you have found a new build scheme you like which offers the Help to Buy Scheme, visit www.helptobuy.org.uk   Read the Help to Buy Guide so you understand whether you are eligible for some help to buy a new build home   Once you have found a property you want to buy through the Help to Buy Scheme, you can make an offer to the developer. Please note, you do not have to offer the full asking price.   Once your offer is accepted, the developer will reserve the property for you at a cost of no more than £500   You will need to find a mortgage lender and legal company that can support your purchase. Ideally, make sure the lender and legal company has worked with this or similar schemes, eg. FirstBuy in the past.   Your application will be made which the mortgage lender and legal company will handle for you   You will need to complete the Help to Buy Property Information Form, which the developer will give to you, this form confirms your agreement to the scheme funds.   You will need to confirm that the Help to Buy home will be your only residence. You will not be allowed to sub-let your property.   Your local HomeBuy agent will give you an Authority to Proceed along with instructions for your legal company   To enable you to exchange contracts, you will need to have your deposit monies ready   When all the finances and legal paperwork have been completed, you will be ready to exchange contracts   Once you have exchanged, you can organise your move either using a 'man with a van' or a removals company, or if moving yourself, hiring a van   Make sure you organise your change of address and consider using the Post Office redirection service for three to six months   On completion, your legal company and lender will organise for the developer to be paid for the property   The Homes and Communities Agency, on instruction from your legal company, will release their funding to the developer   You will not fully own the property until the loan is repaid, although you won't have to make any interest payments on the loan for the first five years   A 'second charge' will be placed on the property at the Land Registry so that if you sell the property, you will have to pay back the percentage of the property's value you have been loaned. For example:-   If you bought a property for £100,000 The HCA loan is 20% ie £100,000 x 20% = £20,000 If you sell the property for £120,000The HCA loan to pay back is 20% ie £120,000 x 20% = £24,000 You must repay the percentage contribution when you sell your home or after 25 years, whichever is the earlier

Help To Buy - Exisiting Home

Visit helptobuy.org.uk and arrange to talk or meet with a Help to Buy agent prior to going to a lender, as they will discuss ALL your buying options
Make sure you have a 5% deposit available. For example, if the property is being sold for £100,000, you will need £5,000, plus your buying and moving costs.
Find out which lenders are offering Help to Buy, at the time of launch this was NatWest, RBS and Halifax
Check the lender will allow you to withdraw funds prior to 2nd January 2014
Compare the Help to Buy mortgage rates and costs against the cost of other 95% mortgage rates as they may be cheaper, ideally use a mortgage broker eg Coreco
Work out which is the right scheme for your circumstances. For example, is it Help to Buy an existing home or a new build? Shared Ownership? NewBuy? Buy 70%?
View different properties and schemes – take your time, don’t rush, and find the property which is right for you, especially so you aren’t overstretching your finances
Make sure you understand what happens to your mortgage payments if interest rates go up 1%, 2% or more. Make sure you can afford them.
Ensure you have identified a legal company to use who knows how to buy through Help to Buy and is on the lender’s panel of conveyancers
Once you have found a property you want, advise your broker/lender. Please note, you do not have to offer the full asking price for ANY property under Help to Buy
Make your offer based on the recent sold prices of similar properties nearby and include the details of your legal company
Make your offer conditional on an RICS condition, homebuyer or structural survey
If your offer is accepted, ask for this in writing by the estate agent or vendor
Ask the agent (in writing) as part of the offer to take the property off the market for four weeks – secure their acceptance in writing.
Your application for monies will be made which the mortgage lender and legal company will handle for you
You will need to complete the Help to Buy Property Information Form, which the lender will give to you, this form confirms your agreement to the scheme funds
You will need to confirm that the Help to Buy home will be your only residence.You will not be allowed to sub-let your property.
To enable you to exchange contracts, you will need to have your deposit monies ready in the legal company's bank account
When all the finances and legal paperwork have been completed, you will be ready to exchange contracts
Once you have exchanged, you can organise your move either using a 'man with a van' or a removals company, or if moving yourself, hiring a van
Make sure you organise your change of addresses and consider using the Post Office redirection service for three to six months
On completion, your legal company and lender will organise for the vendor to be paid for the property and you can pick up the keys

Buying a Property Checklist

Carry out your mortgage research and find out how much you can borrow
Write a list of your property ‘needs’ as well as a ‘wish’ list (you are likely to have to compromise on something!
Research the market to find areas and property types you can afford/you like
Budget for the cost of your move AND for the costs of living in your new home (offer to email a budget sheet)
Make sure you have enough saved for your deposit and moving costs
Choose a legal company that will help you through the purchasing process (and not ignore your calls!)
Research the local Estate Agents, newspapers and walk around different streets/areas to find properties you might like to view
Identify and brief the agents about the property you want to buy
Carry out viewings, making sure you check on the property’s condition as well as working out how much you would like to live there.
Visit the property several times, taking notes of things that need doing, from sorting any bare wires, to having any cracks checked out
Work out what you think is a fair offer for the property
Make an offer via the estate agent, you can call, email or pop into the agent
Contact us to find out what to do if your offer is rejected
Offer accepted, this needs to be followed up via a letter from the agent
Organise an independent survey, ie not one offered by the mortgage lender
Finalise your mortgage offer and insurance so your buildings insurance is in place by exchange of contracts
Manage the purchase of your property via the agent and your legal company
File all the paperwork carefully - you'll need the paperwork when you come to sell
Organise your removals/packaging subject to exchange
Exchange contracts via your legal company
Organise your change of address
Complete your purchase and move in!
Pay any Stamp Duty (if required) and check the SDLT forms have been filed with the Land Registry.