Property Investment Seminar Witney Blanket Hall Wednesday 2 nd March - PowerPoint PPT Presentation

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 ……..