Landlords advised to wait until April to replace furniture

Landlords should wait to replace furniture in let properties until 6 April 2016 when the 10% wear and tear allowance is replaced and such costs become deductible under a new tax relief, according to accountants Blick Rothenberg LLP.

Robert Pullen, personal tax manager at Blick Rothenberg, said: “From 6 April 2016, the favourable 10% wear and tear allowance for fully furnished residential properties will no longer be available.

“Instead, only the actual costs incurred in replacing furniture, furnishings, appliances and kitchenware provided for the tenants’ use will be deductible. Initial costs are not allowed, only the replacement of such items. The Government expects this measure will bring in around £165 million/year from 2017 onwards.

“This is a significant step away from the wear and tear allowance, bringing the position more in line with the general deductibility of repair costs or replacing toilets, boilers, etc. Landlords of fully furnished properties will feel this change adds additional complexity to an increasingly complicated area of deductible costs, following closely on the heels of the restriction to finance cost expenditure.”

Pullen said the change is good news for landlords of part or unfurnished properties, who will be eligible to claim this new relief. Currently such landlords do not generally receive any relief for such costs following the changes brought in from 6 April 2014.

HMRC have promised to provide ‘comprehensive guidance’ on the thorny areas of whether a replacement is an ‘improvement’ or not. Where the asset is replaced to its nearest modern equivalent, the ‘improvement’ as a result of technological upgrades should be ignored so that the cost is still allowed in full.

Qualifying furnished holiday lets and commercial properties are outside of these rules and relief on the initial cost of such items, as well as replacements, remain allowable.

https://www.landlordtoday.co.uk/breaking-news/2016/2/landlords-advised-to-wait-until-april-to-replace-furniture

Lifetime cost of rent exceeds £50,000

A first-time buyer purchasing their first house this year will have spent £52,900 on rent by the time they get on the first rung of the ladder, and future first-time buyers can expect to spend 22% more, according to Association of Residential Letting Agents (ARLA) Cost of Renting report. 
 
Compiled with the Centre for Economics and Business Research (Cebr), the report reveals the average FTB in England in 2016 will have spent 16.4% of their total lifetime earnings on rent for all the years they were a tenant.
 
Those buying a property for the first time this year in the North East will have spent £31,300 on rent – the lowest amount in England. Whereas in London, the average amount spent is more than double that, at £68,300. The South East is the only region other than London where the total lifetime rent spent is above the English average – where the total rent expenditure equates to £55,900. 
 
Last year alone, on average people in the UK spent 22% of their wages on rent, increasing to 30% in London. Those living in the East enjoyed the most affordable rents due to relatively high earnings in the region, yet rent still accounted for 18.9% of their disposable income.

Brits that move out of their family home at the age of 18, will typically rent for 13 years before buying their first property. The Cost of Renting report found those leaving home and starting to rent this year, will spend an average of £64,400 before they are able to buy their first property – one fifth (22%) more than current first-time buyers getting on the housing ladder this year will be spending. 

Those leaving home and starting to live independently in London will continue to be worse off, as they will spend an average of £91,500 on rent before they can buy their first home – £23,100 more than those buying in the capital this year.
 
ARLA managing director David Cox said: “The rising cost of rent in this country is a huge issue, and is preventing tenants from being able to save to buy a home. Our Cost of Renting report reveals that tenants are already spending a significant proportion of their income on rent, and therefore struggling to save any money. However, as house price affordability worsens and interest rates start rising, more pressure will be put on renting with weekly rent likely to rise, so home ownership will remain out of reach for many.
 
“Rents are becoming alarmingly unaffordable due to the lack of available housing; the North-South divide we’re currently seeing in the UK is a clear illustration of this. The London rental market is competitive, with far more prospective tenants looking for properties than actual houses available. This is pushing up rents in the capital, which will continue to put pressure on surrounding areas, including the South East, as Londoners relocate to avoid high rent costs.”

https://www.landlordtoday.co.uk/breaking-news/2016/2/lifetime-cost-of-rent-exceeds-50-000
  

How will Southampton landlords deal with 2016

Belvoir have recently published a Landlord Survey which asked a series of questions to landlords from across the UK (not necessarily Belvoir landlords) to help build a projection of where they believe the market has shifted to, their plans for 2016 and the challenges they believe landlords will face in the next 12 months.

When asked what their investment objectives are, 43% of landlords answered to say that they would describe themselves as investment landlords, the smallest percentage of just 3% said they were investing in property to help prepare for their children’s future. Interestingly, 10% of landlords have invested in property to help pay off their residential mortgage with a further 16% investing as a scheme to help them to save for their retirement, a method that is becoming ever popular within the rental marketplace.

There is a clear theme of discomfort when asked what the largest challenge for landlords will be in 2016. The recent announcement of new taxation and stamp duty entering the market has clearly led to some worry and doubt within the market, many landlords admitted to us that the government’s new plans have left them feeling uneasy about investing. 44% of landlords say that they will be watching the market closely before deciding to invest within the next 12 months with some even expressing that if they were to invest in 2016, it may even be as a limited company.  

In our 2016 Predictions, we projected that there would be a rental increase in 2016 of around the 3% mark – this is reflected by landlords who completed our survey with well over half confirming they have not put rents up in the last 12 months and many intending to raise rents by 3% - 5% in the next 12 months. Some landlords, however, confirm they will maintain current rents with 46% planning no rental increase in 2016, this is a relatively surprising result and could be interesting to watch.

In 2015 we saw city centres become a real hotspot for rented property, with the prices of rent within city centres reaching new heights, many landlords are anticipating a shift to cheaper areas towards the outside of cities and a shift further towards towns.

Overall we can see there’s definite links between the predictions we have made and the predictions and thoughts that landlords have shared with us. There’s an element of uncertainty with many landlords currently, however we are well placed to offer the best advice on the current marketplace and will be able to help guide you in the right direction to make the very best of your property investments over the next 12 months.

Ltd Co buy 2 let transactions rise again in January

Applications made by limited companies accounted for 43% of all buy-to-let transactions in January, analysis from broker Mortgages for Business has revealed, up from 38% in December 2014.

The total number of buy-to-let mortgage applications (made by both individuals and limited companies) rose by 27% in January compared to December 2015. 

Managing director of Mortgages for Business David Whittaker said: “Landlords have woken up to the fact that transacting via a corporate vehicle is a feasible option and in many cases, the most prudent route going forward. I wouldn't be surprised if the percentage continues to rise as landlords, especially the higher tax rate-paying ones, prepare for the forthcoming changes to relief on finance costs.

“The increase is due to landlords trying to get as many purchases as they can complete before the stamp duty surcharge comes into effect on 1 April, after which I would expect transactions to return to more considered levels.”

https://www.landlordtoday.co.uk/breaking-news/2016/2/ltd-co-btl-transactions-rise-again-in-january

Demand for rented homes to grow by one million

Savills have just produced an interesting report which indicates demand for rental homes will continue to rise despite Government policies.

Summary

■ The rental market will still expand by more than one million households over the next five years despite measures to turn “generation rent into generation buy”.

■ The supply of rental homes is set to be constrained by the introduction of a Stamp Duty surcharge of 3% on buy-to-let properties and the restriction on tax relief on mortgage interest payments. Both measures are likely to limit the ability of private investors to expand their portfolios. This presents a major opportunity for large-scale investors to step into the gap created by a fall in off-plan sales to buy-to-let investors.

■ Mismatch between supply and demand will continue to underpin rental growth and attract increasing numbers of institutional investment at scale. We recorded investment deals worth a total of £2.6 billion in 2015 – a third of which was supported by institutional investment.

■ The lack of available stock is prompting an increase in deals to forward fund development for rent. We outline some of the routes to market that large-scale investors are using.

■ Investors are looking beyond London to cities with concentrations of households in the rental market. Our investment matrix highlights the cities with the best investment potential. Manchester, Reading, Edinburgh and Bristol top the chart.

 http://www.savills.co.uk/research_articles/141285/198804-0

80,000 council homes could be lost by 2020

At least 80,000 social rented homes could be lost by 2020 unless councils are given greater powers to build new homes, new analysis from the Local Government Association reveals today.

The LGA estimates this drop in affordable council rented housing would shift spending from bricks to benefits by driving up the housing benefit bill by £210 million by the end of the decade as more families move into the more expensive private rented sector.

Town hall leaders forecast that 66,000 council homes will be sold to tenants under the existing Right to Buy (RTB) scheme by the end of the decade with current complex rules and restrictions making it difficult for councils to rapidly replace the majority of these homes sold. Councils only keep a third of sale receipts to build new homes and have long argued for the ability to retain 100 per cent of receipts locally.

The LGA predicts councils could then be forced to sell a further 22,000 "high value" homes in order to fund plans to extend the scheme to housing association tenants, although this number could be higher depending on how government chooses to define "high value".

The LGA is warning that some new housing measures, such as the loss of £2.2 billion from council housing budgets by 2020 as a result of social housing rent cuts, risk making building any replacements all but impossible.

It estimates that 80,000 of these 88,000 homes sold under Right to Buy by 2020 will not be replaced as a result.

This fall would also increase rents across housing markets making it more difficult for working families to save for a deposit to buy their first home. Separate new research for the LGA by Savills shows the average first time buyer now needs a deposit equal to 116 per cent of their annual income to get on the housing ladder.

The LGA, which represents more than 370 councils in England and Wales, believes the extension of RTB to housing association tenants should not be funded by forcing councils to sell-off their social housing. Councils should retain 100 per cent of receipts from any council homes they sell and Right to Buy discounts should be set locally to reflect local house prices, it said.

Local government leaders insist this is the only way to ensure councils can replace vital homes and reinvest in building more of the genuine affordable homes our communities desperately need and which are crucial to keeping rents low, reducing homelessness and tackling council waiting lists.

http://www.local.gov.uk/web/guest/media-releases/-/journal_content/56/10180/7668062/NEWS

Right to Rent hits Southampton today... are you ready?

As you are no doubt aware Right to Rent comes into effect today, this places requirements on landlords and their agents to check documents of prospective tenants before issuing a tenancy agreement, listed below is a brief outline of what you must do and the relevant link to Government websites to assist you.

Right to Rent checks should be carried out on all adult tenants for new tenancy agreements in England from 1^st February 2016. Landlords/Agents, could face a financial penalty of up to £3,000 per tenant if they are found to be letting property to someone who has no right to stay in the UK.

The checks must be carried out on all adult occupants proposing to occupy the premises whether or not they are named on the tenancy. The rules apply to new tenancy agreements from February 1^st onwards, with existing tenancy agreements unaffected.

The basic steps are:

1      Establish who will live at the property as their only or main home.

2      Obtain a tenant’s original versions of one or more acceptable documents for adult occupiers.

3      Check the documents with the tenant present

4      Copy and keep the copied documents on file and record the date of the check

Ø  A record must be kept of every document checked, a hard copy or scanned copy saved as a pdf is acceptable. These must be retained for the duration of the tenancy and a further 12 months after the tenancy ends. You must also make a record of the date you conducted the check. The documents should be destroyed after the 12 months in line with the Data Protection Act.

Ø  If the prospective tenant presents a passport then copy any page with the expiry date, nationality, date of birth, signature, leave expiry date, biometric details and any page containing the information indicating the holder has permission to enter or remain in the UK.

Ø  If they present something other than a passport the whole document must be copied including front and back pages.

5      Any person in occupancy pre 1^st February 2016, as a named tenant, authorised or unauthorised permitted occupier, licensee, and lodger has a pre-existing right of occupancy and are therefore exempt from Right to Rent checks but only as long as they sit tight, and don’t relocate, and they don’t bring anyone else into the property authorised or unauthorised, and after 1^st February 2016 and there is no new AST agreement with different names either Tenant or Landlord.

6      If the Tenant brings an authorised occupier into the property aged over 18, post 1^st February 2016, the Landlord/Agent is responsible for the checks. If post 1^st February 2016 the Tenant brings in an unauthorised occupier then the tenant is responsible for the checks. (As long as you can show the Landlord /Agent did not know of the unauthorised occupier).

7      Children in the property once attaining 18yrs are ignored until they move and occupy another property.

8      Any Tenant or occupier who has right of occupation and is not time limited can be forgotten about until they change property.

9      Any Tenant or occupier with Right to Rent but time limited must be checked again either just before the expiry date of the Right to Rent, or 12 months from the initial check date, whichever is longer.

10   Any Tenant or occupier found not to have Right to Rent must be reported to the Home Office. 

If the tenant is only allowed to be in the UK for a limited period of time, Landlords/Agents will have to carry out follow-up checks at a later date.

The Home Office has produced a new guide to checking immigration documents which is attached for your information. 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/496578/landlords_on_right_to_rent_civil_penalties_guidance.pdf

https://www.gov.uk/government/publications/right-to-rent-document-checks-a-user-guide