Property Investment Seminar Witney Blanket Hall Wednesday 2 nd March 2016
Agenda Funding Your Investment Laura Lamb – The Mortgage Company Property Update Brendan Kay – Martin & Co Maximising Your Returns Darren Green – The M Group Legal Update Geoffrey Cotterill – Everyman Legal **this will follow as a separate blog post**
Property Investment Seminar Mortgages
Buy to Let Buy to Let Regulated Non Regulated Let to Buy Holiday Lets Ltd Company BTL
Why are Buy to let mortgages different? Regulation Affordability Deposit Assessment Age
Basic Lender Requirements Minimum income - £25,000 for most lenders Minimum Deposit 25% in Oxfordshire Rental cover – 125% requirement at 5, 5.5% or 6% Example – Mortgage rate 3.29% (payment £300) - lender assessment rate = mortgage at 5% (payment £450) + 125% rent cover - Required rental £563 Maximum Age 75-90 AST
Purchase Costs Valuation costs £300-600 Lender booking fee - £1000-£2000 average Solicitor costs Stamp Duty rates - Normal vs BTL 0-125K – 3% vs 0% 125k – 250k – 5% vs 2% 250k – 950k – 8% vs 5% 950k – 1.5 Mil – 13% vs 10% Extra 3% on all BTL,LTB, Second homes £250,000 house currently = £6250 New Rules = £10,000
Types of Mortgages • Fixed rates • Trackers • Discounted rates
Repayment methods • Interest Only • Capital Growth only • Consider overpaying • Capital Repayment • Capital Growth • Possible income in retirement • Eventually unencumbered property
Purchasing your property Timescales Get mortgage advice Put in your offer Complete a mortgage application – with The Mortgage Company! Receive an offer within 2-3 weeks Arrange to market the property with a letting agent. Exchange and complete within 8 -10 weeks
Why use The Mortgage Company? Tailored advice Simplified processes Dedicated Updates Better rates on Buy to Let vs highstreet Mortgage Management Most of our clients don’t pay a fee
Will the type of Tenancy affect your mortgage? • Single Tenancy • Multiple let (Different tenancy agreements) • Student let (One tenancy but potentially 3-4 individuals) • DSS Let (Guaranteed payments but most lenders don’t like DSS. (Department of social security) • Company Let
Examples....
2 Bed Property • Purchase Price £250,000 • Deposit 25% (£62,500) • Mortgage £ 187500 – 2 year fixed 2.74, lender fee £1000, £350 valuation. • Monthly payment £428. • Rent £1000
3 bed property • Purchase price £250000 • Deposit 35% (£87500) • Mortgage £162500 - 2 year fixed 2.39%, lender fee £800 . Monthly payment £323 • Rent £1000
Property Update Brendan Kay MARLA
West Oxfordshire Local Knowledge WODC Plan - 10500 2011-2031 Witney - 3700 Carterton - 2600 Ch. Norton - 1800 Eynsham - 1600 Burford - 800 2015 Values UK +6.2% Oxon +6.9% Witney +9%
Buy-to-Let Sector Update Political Professionalization Trends Tax Changes Retaliatory Evictions Over 55’s Stamp Duty New Section Notices BTL Mortgage Availability Fee Transparency Legionella FTB Affordability Wales & Scotland Smoke & CO Alarms More Tenants! Energy Ratings Deposit Protection Right to Rent Tenant Checks & Guarantees
Buy to Let – Asset Class The average UK house price is expected to rise from just under £250,000 (2014) to £385,000 by 2025 (NAEA Housing 2025 Report )
Number of properties 1,000,000 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 0 Oct-09 Dec-09 Feb-10 Limited Availability of Stock Apr-10 Number of properties Rightmove Stock - Sales Jun-10 100,000 200,000 300,000 400,000 500,000 600,000 Aug-10 Oct-10 0 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Rightmove Stock - Lets Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Source: FCA 23
Housing Gap Increasing 400,000 350,000 Oxfordshire 300,000 +6,000 pa 250,000 200,000 2/3 From 150,000 Overseas 100,000 50,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net migration Permanent dwellings completed Sources: Office of National Statistics; Department of Communities and Local Government 24
Impact of Tax Changes £2,000 £1,750 £1,500 £1,250 No Rental Growth £1,000 2% Rent Growth £750 £500 5% Rent Growth £250 +6.6% £0 2016/17 2017/18 2018/19 2019/20 2020/21 Source: ONS 5% rental growth still delivers an improvement in net of tax income by 2017/18, significantly better by 2020/21 25
Tenants – Who Are They? • Increasing number of smaller households • Choice / mobility • Tenant incomes up 14.9% West Oxon • Witney Rent £931.93 pcm Annual Variance 7.2% Average Rent £933 PCM
What to Buy? • Demand • Purchase Price • Yield • Costs • Preparation • Exit Strategy • Legislative Compliance www.witneypropertynews.com
Maximising your returns Darren Green, BA(Hons), FCCA
Keep on right side of HMRC • Notify HMRC • Complete tax return each year • Keep suitable records – letting agents help • Know what type of property you are letting – Unfurnished – Furnished – Holiday let – Commercial
What taxes will I have to pay • Income tax at 20%,40% or 45% - based on rent receivable • No National Insurance • Stamp duty land tax on purchases • Capital Gains Tax on disposals
What expenses can I offset? Letting agents fees • Maintenance and repairs • • Buildings and contents Insurance Interest and finance costs (more on this later!) • • Accountancy fees Utility bills (if paid by landlord) • Ground rent, services charges (if paid by Landlord) • • Gardening, cleaning etc Legal fees if short term let • Other direct costs of letting the property – telephone, advertising • • Furnished properties – 10% Wear and Tear allowance (Until 5 April 2016)
The changing landscape • Changes from April 2016 – Increased SDLT • Example £200,000 purchase – NOW:£1500, April: £7500 – (NB: will not impact on companies that own 15 or more properties) – Removal of the Wear & Tear Allowance • TIP: Delay any replacement white goods etc until 2016/17 – Increase in rent a room relief
Interest changes from April 2017 Reduction phased in over 4 years from April 2017:- • 16/17 17/18 18/19 19/20 20/21 % of interest allowed as a deduction 100% 75% 50% 25% 0% % of interest given as 20% relief N/A 25% 50% 75% 100% Effective interest deduction will be:- 100% 80% 60% 40% 20% Beware also the ‘Stealth tax’ • Basic rate payers into Higher rate tax payers and Higher rate into Additional rate payers • Restriction in child benefit • • Increased student loan repayments Will have greatest impact on higher rate tax payers, highly geared • landlords and particularly those with large portfolios
Some examples • Example 1: Higher rate tax payer - Low geared, single property 2016/17 2020/21 Rent £7,200 £7,200 Repairs (£1,000) (£1,000) Interest (£2,500) - Net profit for tax purposes £3,700 £6,200 Tax at 40% £1,480 £2,480 Interest relief at 20% of £2500 - (£500) Total Tax liability £1,480 £1,980 After tax income £2,220 profit £1,720 profit STILL PROFITABLE
Some examples • Example 2: Higher rate tax payer - High geared, single property 2016/17 2020/21 Rent £7,200 £7,200 Repairs (£1,000) (£1,000) Interest (£5,000) - Net profit for tax purposes £1,200 £6,200 Tax at 40% £480 £2,480 Interest relief at 20% of £5000 - (£1,000) Total Tax liability £480 £1,480 After tax income £720 profit (£280 loss) NO LONGER PROFITABLE!
Some examples • Example 3: Basic rate tax payer with other income 2016/17 2020/21 Other income £38,000 £38,000 Rent £8,500 £8,500 Interest cost (£4,000) - Total income £42,500 £46,500 Personal allowance (£11,000) (£11,000) Net profit for tax purposes £31,500 £35,500 Tax at 20% £6,300 £6,400 Tax at 40% - £1,400 Interest relief at 20% of £4,000 - (£800) Total Tax liability £6,300 £7,000 EXTRA £700 of tax due to being pushed into Higher rate!
Some examples • Example 4: Substantial property portfolio (jointly owned) 2016/17 2020/21 Rent £600,000 £600,000 Repairs and other costs (£200,000) (£200,000) Interest cost (£350,000) - Total income £50,000 £400,000 Personal allowance x 2 (£22,000) Net profit for tax purposes £28,000 £400,000 Tax at 20% £5,600 £12,800 Tax at 40% - £94,400 Tax at 45% - £45,000 Interest relief at 20% of £350,000 - (£70,000) Total Tax liability £5,600 £82,200 After tax income £44,400 (£32,200 loss) NO LONGER A SUSTAINABLE PROPERTY BUSINESS!
What options can I consider? • Transfer property into Spouses / Civil partner – if Tenants in Common then can alter split • Increase profitability – Higher rents – Protect rents – Lower costs • Review borrowing arrangements – Best rates / Can borrowing be restructured i.e. business borrowing? • Incorporation ……..
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