Buy to Let is not Dead says David Lawrenson of LettingFocus.com

Come to Our Next Evening Property Event in London Evening
I’m afraid the public have a very warped perception of buy to let which is to some extent a direct result of the way the media has reported it.
Clearly there has been a true story about how various property clubs and developers persuaded hapless new would-be landlords to invest in flats in massive developments consisting of hundreds of other me-too flats.
At the turn of the millennium tapping this new investor class was an easy way to raise money to finance the development of many an identikit block. The promoters churned out smart marketing brochures which neatly tapped into the UK public’s hunger to “be in” on the buy to let boom and to make money as easily as other landlords already had in the mid to late 90s.
Of course, far too many of these flats were built and sold to too many would-be landlords and with not enough tenants around wanting to rent them the prices of the flats and the rents have since been flat at best or falling at worst.
Naturally, the media have (eventually!) rightly picked up on this as a story - in some cases a bit of fraud was involved on the new builds too to spiece it up - and it has coloured the public’s perceptions of the returns that can be made from residential letting.
The reality is, however, that the typical landlord of whatever size has none or very few new build flats in their portfolio. They also often have a low loan to value on their mortgage borrowings and are therefore often able to access extra funding relatively easily if they need to in order to snap up the bargain properties that are increasingly now appearing.

FALLING INTEREST RATES
Right now they are also enjoying the fruits of falling interest rates and relatively strong demand from tenants (although this has been tempered somewhat recently by a rise in the amount of stock due to many accidental landlords who are letting their property as they cant sell it.)
And demand from tenants will stay strong as long as mortgage lenders demand high deposits and high product fees from first time buyer mortgages.
Longer term, a demand for a more flexible lifestyle will also increase the demand for renting.
Certainly, house prices are falling but many landlords, both large and small, are in property letting for the long term. And as long as they are generating cash on their existing property portfolios they will be happy. Many are now using that better cash flow to dip their toes in the water to buy cheaply – if you don’t think so, just go to any auction room.
True, things look very dark today but the credit shortage will eventually end and when it does there will be lots of money chasing very little available property - a direct consequence of the lack of new house building today.
And with the ability to set off interest against rental income and reasonably generous CGT breaks residential property looks a good bet from the tax perspective too.
Come to Our Next Evening Property Event in London Evening of 18th March

BECOME AN AFFILIATE OR ADVERTISE ON OUR SITE
We will soon be taking advertising at our site.
If you would like to advertise here or have a product to offer our readers on an affiliate basis, please Contact Us button at our main site http://www.lettingfocus.com/
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord and property letting advice experts. Read More Articles on Property by David Lawrenson.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer and property speaker - and I run the well known property investment blog that you are reading now.
Come to Our Next Evening Property Event in London Evening of 18th March
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for a fee to anyone looking to buy property for themselves or to let out. I can help private individuals with any aspect of buying property or buy to let.
What’s unique about lettingfocus.com is that we are independent property investment advisors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2009. This blog is updated once a week.
WANT TO BE KEPT UPDATED WITH OUR LATEST BLOGS?
It’s easy.
If you are on the home page of our blog, go to the bottom of any post, and click on “LINK TO THIS POST” to bring up the page for a specific post, then hit END …and on the right you’ll see “Site feed.”
If you are already on a specific post page, just hit END and you will see the site feed.
You then just copy the link that comes up into your News Reader or News Aggregator. Even a non techie like me managed to do all this.
Please note if you have a website & are thinking of reproducing material here - that’s fine but we DO require the full links shown in each blog to be included, including also the links in this section. The full article including all links must be available to ALL VIEWERS of your site and not restricted to members.

Landlords are not selling because of reduced Capital Gains Tax CGT says Lawrenson of LettingFocus.com

The doomsayers and those who would love to see the demise of buy to let said that the new tax year would see lots of landlords selling their investments.
Well sorry folks, as I predicted we now have new evidence that this does not appear to be happening.
In fact, the Royal Institution of Chartered Surveyors (RICS) has just found that just two per cent of landlords are playing to sell property when current tenancy agreements expire. This is down from the 4.6 per cent of landlords planning to sell in the three months to the end of January, and the 6.5 per cent in the three months prior to this.
There had been fears the restructuring of capital gains tax could see most landlords face a rush to the exit. However, this is clearly not the case.
"Fears landlords would take advantage of the more favourable capital gains tax regime to bail out of the buy-to-let market appear misplaced," commented Simon Rubinsohn, Rics chief economist.
He went on to add, "Significantly, with the reduction in loan-to-value (LTV) ratios by lenders leaving first-time buyers struggling to access the housing market, rents are now rising sharply and the expectation is that this trend will continue. The incentive to cash in on the lower tax rate is being outweighed by attractive yields."
I cannot say I am surprised.

WHAT JOINT AND SEVERAL LIABILITY MEANS
Here is my tip of the week.
If you let to people who are unrelated and on a single tenancy agreement, it is best if you must make clear to them what joint and several liability means. To make it crystal clear, I send this email to all my tenants.
“Please note in case of any doubt, and as explained on your tenancy agreement that you are both jointly and severally liable for the whole rent. This means the tenancy is made with both of you as one party and with me as the other party.
It therefore means that you must usually BOTH give notice of your wish to terminate the tenancy at the same time and give me the due notice in writing.
Of course, when one of you leaves, the other could stay on but only if they notify me in writing of that fact and be prepared to pay the full rent on their own.
Also, jointly and severally liable, means that each of you is liable for the whole rent and in full for all moneys owing as a result of this tenancy agreement”
That usually does the trick but it is amazing how often tenants, especially student tenants fail to understand or check the meanings of terms like these when they sign an agreement.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson from property consultants lettingfocus.com.
I’m the author of “Successful Property Letting - How to Make Money in Buy to Let” the UK’s top selling property title buy the book
It is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying below market value. I’m an expert property public speaker and a well known property investment blogger and I contribute to newspapers and a host of property websites, write a property investment blog, a number of columns in the press and I run a landlords help service.
I also work as a consultant helping banks, building societies, housing associations and web portals with their buy to let and property products and services and am a regular speaker at property shows.
You can read more of my blog & find details of my networking, advice, property investors networking programme at my website.What’s unique about lettingfocus.com is that we offer independent property mentoring because unlike most people in the buy to let and property “advice” business we are not linked to a property company, a developer, an agent or bridging loan financier and do not receive commissions from any of these sources.If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2008. This blog is updated once a week. Permission must be sought before using the material in the blog.

Capital gains tax changes who wins and who loses by Letting Focus

At a recent speaking engagement to a professional group of property investors I was asked who wins and who loses from Capital Gains tax Changes?
Well, let’s see.
Currently CGT for most investors is levied at 100% of any net gain they make after deducting buying and selling costs after deducting their £9,200 allowance if they sell within 3 years.
The charged rate is then 40% if they are higher rate taxpayers and 20% if basic rate taxpayers. However, something called Non Business Asset Taper Relief then came into play which means that after the first three years of owning a buy to let you get to effectively knock off 5% of any net gain.

Taper Relief
This then “tapers down” by further lumps of 5% each year, up to the 10th year of ownership so that by year 10, a maximum 40% taper is applied.
So, when you get to the maximum taper relief available of 40%, this means you would only be taxed at 60% of the capital gain.
If you are a higher rate taxpayer and pay 40% capital gains tax rate, the “effective” rate of tax you would pay on the gain after 10 years would be 60% X 40% = 24%.
If you are lower rate taxpayer you pay 60% x 20% = 12%
(To complicate matters, you should note also, that if you owned the property before 1998, for any period up to march 1998, you benefit from another sliding scale called “indexation allowance” which reduces the taxable gain by the rate of inflation up to 1998 but let’s not go there!)
That's the hard bit. Now to the easy bit!

New Regime for CGT
With Darling’s changes, (which take effect for asset sales after 5th April 2008) both these sliding scale CGT rates are to be abolished and replaced with a single CGT rate of 18% no matter how long you owned the property.
So, if you are an investor and pay tax at the higher rate of 40%, you are a clear winner as 18% is always less than the best rate you could have got under the old regime (i.e. where the property was held for 10 years or more) of 24%.
The biggest gainers of all are higher rate taxpayers who have held property for less than 3 years whose “effective” CGT rate will drop from 40% to 18%.
Even if you are a basic rate taxpayer, any significant gains you make could push you into the top rate of tax, thus meaning that the new regime may be better for you too.
If, however, you are a lower rate taxpayer and your gains would not push you into the 40% tax bracket, then you would be worse off under the new system only if you have held the property for more than 4 years. If you are one of these and you are thinking of selling, then do so now as you will pay more after April.

Second Home Owners
Second home owners – most of whom are higher rate taxpayers - are also big winners of course - and this change could make prices of properties in coastal and rural areas, particularly go up further.
Since most UK buy to let investors and second home owners are higher rate taxpayers, there will be a lot of people waiting until April before they complete on second property sales.
Of course, in general this change will make buy to let and second home owning more attractive still - and attract entrants into the market, thus possibly buoying up the housing market at a time when it looks shaky.
Judging by the amount of enquiries I now get from banks and building societies interested in my consulting services to help them improve their buy to let mortgage products, I think the buy to let arena is surely set to grow -and this fillip to tax will only help matters.

Furnished Holiday Lets
Finally, a footnote, the tax changes are not so good, however, for owners of furnished holiday lets. They will be worse off and I will look at this in the next blog.
Finally, tax is complicated, so if you are considering what to do, take advice from a financial adviser familiar with residential property taxes.

ABOUT LETTINGFOCUS.COM
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased
seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
Unlike many in the still largely unregulated and shark infested buy to let and property “advice” business I am not linked to a property company, developer, estate agency or bridging loan provider.
As such I am able to give honest, unbiased independent advice on where to buy (which areas), what type of property to buy, when to buy and how to buy property at a low price. I can also explain how to reduce the risk of getting a bad tenant.

CHECK OUT THESE PAGES AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!

IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?

Have you seen this useful article on lease extensions and buying freeholds.... http://www.lettingfocus.com/pages/myarticles_leaseextensions.html

WANT TO BE KEPT UPDATED WITH OUR LATEST BLOGS?
Simply copy the site feed link into your News Reader or News Aggregator.
If you have a website & are thinking of reproducing material here, that’s fine but we DO require a link to the blog to be included, including also all the links in this section. (The full article including all links must be available to ALL VIEWERS of your site and not restricted.)
TO VIEW RELATED POSTS select a “Category” at the bottom of this page.

WANT TO ADD A COMMENT OR VIEW OLD COMMENTS?
To add a comment to this post, simply click on “link to this post” to add your comment and to view comments of other people.
Copyright: David Lawrenson 2007. This blog is updated at least once a week