Buy-to-let: A bright outlook? Ian Boden, Aldermore Mortgages April 2016 FOR INTERMEDIARY USE ONLY Aldermore Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. (Financial Services Register number: 204503). Registered office: 1 st Floor, Block B, Western House, Lynch Wood, Peterborough, PE2 6FZ. Registered in England No. 947662.
Agenda A changing picture: • Key drivers and trends within the Private Rented Sector • The changing housing market • Buy-to-let in perspective • BTL taxation changes and new regulations coming in 2016 • How Aldermore can help landlords • Questions
The challenge to keep up with UK housing demand UK population One person households Projected to rise to 70m by 2027, Projected to equal two-thirds of from 64.6m in 2014 (will top 74.3m by 2039) the future increase in households UK housebuilding supply since 2010 UK housing demand forecast to 2020 260 260 Started Housing 240 240 need Completed Thousands 220 predicted by Thousands 220 experts 200 200 Government 180 180 target 160 160 140 140 120 120 2015-16 2016-17 2017-18 2018-19 2019-20 2010-11 2011-12 2012-13 2013-14 2014-15 Source: Various: ONS, Paragon, Graph data from gov.uk Live tables on house building (as at 05/04/16) and KPMG in partnership wit h Shelter ‘Building the homes we need’ report
How the value of UK housing stock has heated up The value of UK The 28% increase in housing stock housing stock value attributed by area has risen 28% (£1.3 trillion) 7% 8% Central London since 2009. Rest of London It’s now reached South of England 42% 43% its highest ever Rest of England level of £6.17 trillion . Source: Savills – Residential Property Focus Feb 2016
2016 outlook is bright for the mainstream UK housing market Predicted house Region price rise in 2016 5% rise London 5.5% predicted for UK South East 7.0% house prices in South West 6.0% 2016 East of England 6.5% East Midlands 5.0% West Midlands 4.5% North East 2.5% North West 3.0% Yorks and Humber 3.5% Wales 4.0% Scotland 3.0% Source: Savills – Residential Property Focus Feb 2016 *NB: these forecasts apply to average prices in the second hand market. New build values may not move at the same rate
Buy-to-let in perspective over a decade UK gross annual mortgage lending (£bn) 400 350 Predicted increase 300 62% decrease 19% 250 Total gross annual lending 64% increase Total Buy-to-let lending 200 150 Predicted increase 100 26% 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: CML figures March 2016 (2016 and 2017 forecast as at mid-2015), Council of Mortgage Lenders Gross advances and IMLA predictions
Buy-to-let and the Private Rental Sector Over 1 million new households expected to join the Private Rental Sector in next 5 years 1 in 5 1 in 4 homes 1 in 3 homes in the UK are in the UK are homes predicted to predicted to in the UK be owned by be owned by are now a landlord a landlord owned by 2020 by 2032 by a landlord Source: Various; Paragon Report 18 Years of Buy to Let, government figures, and Mortgage Strategy
Buy-to-let: Reasons for renting Why do people rent? Doesn’t meet lending criteria Flexibility Can’t afford mortgage repayments Can’t raise a deposit Source: YouGov/Savills research – Spring 2014
International comparison of the Private Rented Sector % of households in Private Rented Sector by country 57% 60% 47% 50% 40% 32% 30% 25% 22% 18% 20% 10% 10% 0% Switzerland Germany United Australia France UK Netherlands States Source: Various: IMLA Reshaping housing tenure in the UK the role of buy to let May 2014, Paragon PRS Report 2015, Cambridge University report ‘The Private Rented Sector in the new century’ (latest figures available)
How UK landlord portfolios stack up Over three quarters of How many rental properties do UK landlords landlords (76%) expect typically own? to have the same number of rental 10% 1 properties in 2017. 8% 2 45% of UK landlords 19% have previously lived in 63% 3 at least one of their 4 or more buy-to-let properties. Only 4% of landlords currently hold their properties in a limited company. Source: Buy-to-let YouGov Survey Report in association with Aldermore Unweighted base: All UK landlords (1006)
Recent and upcoming changes in buy-to-let • 3% Stamp Duty Land Tax premium now payable on the purchase of second homes above £40,000, this change also 1 applies to Land and Building Transaction Tax (LBTT) in Scotland. • Currently, when landlords pay tax on their rental profits, they can generally deduct the cost of mortgage interest as part of their finance costs before arriving at profit. • From April 2017, tax relief on mortgage interest will be gradually reduced and will replaced with a tax relief allowance that will partly offset the tax calculated on rental income. Remember: i t’s important for your clients to get advice on their portfolio plans from a qualified tax expert
How will the government’s buy -to-let policy changes effect landlords? In which, if any, of the following ways will these announced changes directly affect plans that you may have regarding the property/ properties in the UK that you rent out? I shall increase rents to cover these increased costs 14% I shall consider setting up a limited company 11% I shall reduce the value of my buy-to-let mortgage(s)/ borrow less 4% % of landlords I shall sell my property/ some of my properties 9% I shall buy fewer/ no further buy-to-let properties 13% I shall move completely/ move more into commercial property 1% It will directly affect my plans in other ways 6% Don't know 11% Not applicable - the announced changes will have no real effect on me 52% 0% 10% 20% 30% 40% 50% 60% Source: Buy-to-let YouGov Survey Report in association with Aldermore. Unweighted base: All UK landlords (1006)
Tax changes example – how portfolio plans could shift Combined “ We want to Meet Ron and Should we portfolio Debbie, a pair Approx. purchase up to 10 set up a of experienced properties in the rental value of limited next 12- 18months” landlords. over £5m income company? £350k Portfolio Other income geared at Approx. £120k around each 58% They purchased their first buy-to-let property in 1998. Now, 18 years later, the couple have 16 properties between them, all in London and in their personal names. They want to continue buying properties and refurbishing them. They’ve talked to a qualified tax adviser and their accountant about what the buy -to-let tax changes mean for them and are now considering restructuring their portfolio. They may set up a limited company and gradually phase the transfer of their existing properties to manage the Capital Gains Tax impact and re-establish their return on equity.
More change? The PRA’s consultation proposals The proposals largely focus on underwriting standards, not on curtailing growth in the buy-to-let market. The Prudential Regulation Authority’s main proposals include: • Affordability testing • Interest rate affordability stress test • ‘Portfolio landlords’ should follow a “specialist” underwriting process ‘Portfolio landlords’ are described by the PRA as borrowers with four or more properties are deemed to be “landlords” (and not just investors ). Investec’s view : “ The UK has a housing crisis. BTL is part of the solution, not the problem !”
Aldermore annual results • Aldermore continues to challenge the established view of what banking should be. • We’re a specialist lender and we support UK small businesses, homeowners and landlords. • Our expert underwriters are able to make considered decisions rather than adopting a “computer says yes or no” approach. • We provide financing to customers who are often under or poorly served by the wider market. Aldermore's lending: a breakdown (total of £6.1bn) How Aldermore's deposits look (total of 5.7bn) Asset Finance 23% 13% 25% Invoice Finance Personal Savings 3% 62% SME Commercial Business (Total lending to mortgages Savings homeowners and 39% Residential mortgages residential 75% 22% landlords) Buy-to-let mortgages Source: Aldermore full year results 2015
What do Aldermore offer in the buy-to-let market? The same rates for individual and limited company buy-to-let mortgages No portfolio limits Mortgages up to 80% of the property value No minimum income for experienced landlords Max age at end of mortgage term is 85 We underwrite each application by considering all the facts and taking individual circumstances into account Mortgages for Houses in Multiple Occupation (HMOs) and multi-freehold units Re-mortgages to raise capital for any legal purpose including expanding your portfolio Bridging finance A broker hub with sales aids and useful tools Market insight
Buy-to-let in summary The tax changes won’t have any real affect on the majority of landlords The Private Rental Sector continues to grow and UK house prices continue to rise Aldermore have: No portfolio limits Aldermore cater for: All types of landlord, including Limited companies Aldermore accept: Simple to complex applications
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