Foreign Investors to Pay Higher Stamp Duty on UK Purchases

Property website showing higher prices for investors from abroad

Investors from abroad who are looking to buy properties in the UK will be hit with higher charges in the form of stamp duty according to the current government. The change was announced by Prime Minister Theresa May at the beginning of October and is a response that is designed to address the current housing crisis.

It’s generally believed that foreign investors looking to buy a property in areas like London are driving up house prices, something that is putting them out of reach of many UK citizens. The market in the Capital may be currently experiencing a dip, but the average cost of a semi-detached property is still over £580,000, way beyond the means of many first time buyers.

While May cited the new tax as a way of creating a more level playing field, the building industry reacted by saying that it would put the brakes on an already stalling house market. That’s because fewer new properties would be built with less investment coming in from overseas, something which many developers depend on.

What is the Stamp Duty Increase?

The increase will be 1% but could rise to 3% later. If it comes into effect, it is expected to raise tens of millions for the UK government. That means, of course, for each property, an overseas entity or individual will pay more. The details have yet to be thrashed out, however, and a date has not yet been set for when it will come into effect.

There will be a consultation period during which interested bodies, including those from the building industry, will be able to put their points of view across.

Why has the Government Announced It?

There has long been a feeling that the current government in the UK has been swamped by the Brexit issue, with many domestic changes and policies getting lost in the drama and turmoil of leaving the EU. The announcement came as the Conservative government was about to start their party conference at the end of September.

Foreign Investors to Pay Higher Stamp Duty on UK Purchases Aspen Woolf

A number of factors have driven the proposed increase in stamp duty. Two years ago the stamp duty rate for second home buyers was increased in an attempt to give more opportunity to first time buyers who now pay no tax below a certain threshold.

In other countries, levies on foreign investors have already been introduced, including in Australia and Canada. The UK government seems to be following the same model in the hope that it will make the market more equitable for local home buyers.

There’s also an increasing crisis of homelessness in the UK’s capital city. It’s estimated that the tax levy will deliver £40 million that could be invested in providing homes and accommodation to this neglected section of society. If the government then decided to boost the stamp duty to 3% later, it would potentially bring £120 million to the chancery.

The major reason is equity. According to Theresa May:

“It cannot be right that it is as easy for individuals who don’t live in the UK, as well as foreign-based companies, to buy homes as hardworking British residents. For too many people the dream of home ownership has become all too distant and the indignity of rough sleeping remains all too real.”

What Does It Mean for Foreign Property Investors?

While the proposed change to stamp duty was broadly welcomed in political circles, the actual impact on the long-term housing market is uncertain. With Brexit looming large, by the time the consultation takes place, we could even be looking at a change of government and a major change of opinion.

Foreign Investors to Pay Higher Stamp Duty on UK Purchases Aspen Woolf

The Labour opposition’s approach to overseas property speculators say could well be a lot harsher. While putting in measures to collect more tax from companies that do business in the UK, they’re also planning to ensure that overseas property investment becomes less attractive across the board. That political socialism may well have much bigger consequences for those who choose to buy properties in the UK.

The major issue for foreign investors is not necessarily the extra cost in purchasing a property either but the potential impact it could have on the housing market. If builders are no longer getting foreign investment coming in, they may cut their own activity and put up fewer houses, flats, and offices. That could, in turn, put property prices at a premium for overseas cash investors – especially in lucrative areas like London – as well as local buyers.

The big issue is whether it will actually work to make the housing market more viable for local residents. The building industry and developers, in particular, understand that the overseas market provides an important source of funding. At the same time, the government announced that they would remove the cap on how much local councils can borrow to build new housing – that may balance the equation but it’s by no means assured.

There’s also no guarantee that lifting the cost of buying a property will bring the prices of homes down within reach of national home buyers. While the extra money raised by a 1% increase would be welcome, £40 million is still a drop in the ocean when put against the growing housing crisis and homelessness and what it actually takes to solve this problem.

For the moment, overseas property investors will have to wait and see when it comes to the stamp duty increase. The consultation is expected to be completed and delivered by the end of January 2019. In the recent budget, Chancellor Phillip Hammond also appeared to climb down from a future 3% hike in the stamp duty.

Before the consultation, however, you might expect to see a flurry of purchases by overseas investors attempting to get ahead of the game. If that sounds like you, or you’d like some further information about investing in property in the UK, our team can advise you on the most lucrative investments.

When Is The Best Time To Invest In Property?

When it comes to property investment, while the old adage goes, “location, location, location”, there’s actually a lot more to a successful investment.  As well as location, timing is also key as during the course of a year, the real estate market can change dramatically – making a wise investment a poor one if taken at the wrong time.

The best time of the year to invest in property can be determined by a number of different factors such as demand and supply, median price of properties and if the market is a buyer’s or seller’s market. These factors seem to all be intertwined and can affect each other in the market.

Buyer’s Market Or Seller’s Market

The prime time to buy property in the real estate market is during the winter months. During this time, most people are busy preparing for the holidays and the kids are still at school. Therefore, there are very few people willing to part with money and buy investment property. These conditions make it hard to make a major move and this pushes most people out of the market. The fewer the people interested in buying the property, the less the competition.

When there is minimal competition then this is what is referred to as a buyer’s market. For example, if an investor finds the ideal property to invest in, and has done all the necessary homework he may view this an opportune time to invest. However, if other investors have done their homework, they too will show their interest in the property and there will be a number of bids to contend with.

When there is this kind of a bidding war, it becomes much harder and the investor may end up losing out or paying exorbitant prices for property that could have been purchased much more cheaply. This scenario is not ideal for buyers, therefore, it’s not a buyer’s market and it would not be ideal to make an investment during this time.

In most cases, it would be advisable to purchase a house during the Christmas period because competition is at its minimum and sellers are generous with pricing during the holidays. Choosing to invest in property through a company such as Aspen Woolf gives you the upper hand as our team can advise you of new investment opportunities, often with a small initial deposit.

When Is The Best Time To Invest In Property? Aspen Woolf

Price Of Investment Properties

When looking to invest in income generating assets, then the price of the properties is a very important factor. When the price is lower, a lower amount of money will be required to invest in the market. During a buyer’s market, market prices are lower as compared to a seller’s market. Different organisations give information about the price of investment properties, the median days in a month that are good for the market as well as the proportion of properties sold above the stated price. Over the past eight years data has been collected and compiled to come up with figures that indicate the specific aspects of the market. The data between October and March has the following figures:

  • The median number of days in the market is 104
  • The median price of sales is £193,735
  • The percentage above median price of investment properties sold is 23%

The data above supports the fact that from October to March is the best time to invest in property. The data also reveals that January is the opportune time to make a move on property because the sale price is at its minimum during this time. There are some properties that will sell above the median price but the percentage is very low as compared to the other months. This particular time is very bad for those seeking to sell while it is the best time for those people wishing to purchase property because they have the negotiating power. Sellers are more likely to be desperate when the deal lags behind in the market and they will most likely sell on the cheap to recoup the money that they had initially invested.

When Is The Best Time To Invest In Property? Aspen Woolf

There is also a bad time to invest in the property market. Between April and August have the following figures:

  • The median number of days in the market is 67
  • The price of median sales is £233,895
  • The percentage above median price of investment property sold is 24%

According to the data above these are the worst months to invest in due to the higher prices. June specifically is the worst month during which to invest because the price of property is about £38,000 above that of property in January. The number of days property is on the market is relatively shorter by about a month, which significantly reduces the negotiating power of investors. The aspects that are in play during these months are characteristic of a seller’s market. However, there is a time during April and August window where investors can get a good deal for property.

The days surrounding Easter Sunday are quite ideal for any purchasing. If one does not do the proper research, then they might end up making a loss. For example, if during the month of August an investor purchases a property, then they will most likely get it at a very high price due to the median price during this time as a well as the shortage of days for property to stray on the market. However, if the same investor does wait a few months up to October or November, they will get the a similar type of property in the market and it will cost less due to the median price during this time and the number of days that property is available on the market.

When Is The Best Time To Invest In Property? Aspen Woolf

Supply And Demand In The Market

A buyer’s market and a seller’s market are defined by the supply and the demand in the real estate market. However, supply and demand in this market is not as obvious as it seems. People looking to sell their houses will look for the opportune time to sell their property because their aim is to generate income. This means that the demand for purchasing property might be lower in the winter months, which is good for people looking to invest in property but the supply will not be as high. Those looking to sell may wait till the summer when the demand is higher for them to sell their properties. At this time, an investor may find it hard to get what they are looking for and this may result into a problem for the buyer.

During the winter months demand is on the low and hence, people wishing to buy property and resell it immediately may be at a loss due to the limited number of people that are willing to buy the property at their asking price. For the investors that are looking to get a good investment deal, then it would be advisable to purchase property that will be used for rental because they will earn income off it. For those who want to have an income generating asset then buying during the summer and spring months would be ideal since you can buy an asset and resell it in the short term because demand is on the rise.

 

Short Term Lets Could Boost Your Rental Income

short terms lets include utilities furniture

Short term lets can offer a remarkable return on investment. More and more entrepreneurs are feeling the benefits of buy to let investment in the UK and cities like London, Manchester, Birmingham, Glasgow, Newcastle, Cardiff and Liverpool. The short-term let is becoming one of the hottest trends in the property investment sector.

Lucrative opportunities

In the past, most landlords gravitated towards long-term lets due to the security on offer. However, growing numbers of tenants are now showing more enthusiasm for short-term lets. This trend is delivering more lucrative opportunities for landlords wishing to take advantage of the Buy-to-Let market.

The difference between long and short-term lets

The definition of a long-term let is generally one that lasts for at least 12 months. Short-term lets commonly involve contracts of less than six months. Things like internet access, TV and utilities will normally be covered by the rent. The increased popularity of short-term lets can be linked to a range of factors. Today’s world is regarded is regarded as more transient than ever, with many young professionals eager to relocate frequently. There is a growing appetite for cheaper alternatives to hotels that still offer all-inclusive living.

Why opt for a short-term let?

Individuals may decide to rent out properties on a short-term basis for many different reasons. Some people require accommodation whilst their main home is being renovated or refurbished, whilst others look for short-term lets to deliver accommodation during temporary work contracts. Short-term lets can be advantageous for buyers who wish to get a taste of a specific area before they commit to a purchase, as well as people on extended holidays and those in need of temporary homes whilst they are in the process of buying and selling a property.

Other benefits of short-term lets

Landlords drawn to the short-term lettings market often include those that spend extended periods away from home and wish to monetise their property whilst they are elsewhere. The market is also attractive for landlords who live in popular tourist spots as well as those that are renting out a property for the first time and wish to see how they fare before they commit to a long-term let.

Reduced waiting times and administration

The amount of administration attached to a short-term let is much more modest compared to the paperwork involved in a long-term let. This delivers welcome flexibility and frees up valuable time. In a short-term let, the application process will normally be shorter, and all the rent will be paid upfront, in advance. This is another reason why the short-term let is so popular amongst those who need to secure accommodation quickly. Many people choose to opt for short-term lets as a stepping stone to finding a long-term home, either to rent or to buy. When tenants don’t know exactly how long they wish to stay for, they can sign up for the minimum period then ask for more time later. The popularity of Airbnb and other sites shows us just how big a force the short-term let has become in recent years.

Short Term Lets Could Boost Your Rental Income Aspen Woolf

Short term lets vs hotel stays

With short-term lets, bills are normally covered by rent. This provides tenants with greater clarity and makes it far easier to budget. Rents will be higher than those charged for properties where bills aren’t covered, but it may still be possible to make savings. In any case, the figure paid will normally be much cheaper than the cost of staying in a hotel for the same period of time. Tenants can also expect to enjoy more freedom and privacy than they would in a hotel, not to mention more space. It is generally much easier for tenants to make themselves feel at home when they opt for a short-term let rather than an extended stay in a hotel.

Is a short-term let right for you?

If you have a vacant property or expect that you will in the near future, you may well wish to opt for a short-term let. Short-term lets are generally better suited to landlords with more than one buy-to-let property, especially if this is their only or main source of income and the property still has a mortgage left on it. Should you expand your portfolio in future, it may well make sense to enter the short-term let market.

Charging a premium

You may be able to charge more than 50% more for a short-term let than you would for a longer-term tenancy. The extra cost is justified by the flexibility, convenience and inclusive bills offered by a short-term let, and many tenants are more than happy to pay this. You do need to ensure you have a plan in place for when the tenancy comes to an end and may need to start looking for new tenants quickly. When your property becomes empty, it will stop generating cash for you. Make sure the cost of offering the tenancy is covered by the rent that you charge.

A hands-on approach

You may need to adopt a more involved, hands-on strategy for dealing with problems when they arise. Short-term tenants are less likely to be patient when repairs and maintenance work are needed, and you will normally be expected to take action within 24 hours. This means you will have less time to source tradespeople to deal with the work if you are not carrying out yourself and may need to pay more as a result. Your reputation will hinge on the reviews that your tenants leave you, so expect to go the extra mile to keep them happy if you do wish to cement your status as a trustworthy, reputable landlord.

Is your property right for short-term lets?

Make sure your property adheres to all health and safety regulations, has suitable insurance cover and has undergone a fire risk assessment. Check your mortgage agreement permits you to let out your property on a short-term basis. Your short-term let plans are more likely to pay off if your property is located within a mile of public transport links and venues such as shops, bars and restaurants.

Buying A New-Build Property Could Pay in the Long Run

New-build properties offer investors a low cost, modern opportunity.

A study by the Home Builders Federation (HBF) has found the cost of upgrading an older property to the same standard of a new-build could be as much as £50,000! Therefore, on top of the initial property purchase, the overall cost may exceed what you’d pay for a new-build in itself.

With this in mind, investors should consider purchasing a new-build outright, especially if the location is desirable and there’s potential for long term capital gains.

Renovation Costs

Buying A New-Build Property Could Pay in the Long Run Aspen Woolf

Image credit: Nolan Issac via Unsplash

The Home Builders Federation survey looked at refurbishment work that is often required when people move into a new home. Estimates of these potential costs are listed below, although some prices may of course differ depending on the size of the property:

  • Fitted kitchen – £7,900
  • House re-wiring – £8,850
  • New bathroom – £3,800
  • New central heating system – £6,185
  • Roofing – £4,000
  • Doors and windows – £4,900
  • Guttering and insulation – £1,000
  • Utility appliances and electrical equipment – £1,000

If looking to refurbish, one should really take these potential costs into consideration. If they begin to add up significantly, then it’ll make more financial sense to invest in a new-build. Add to this the energy savings you’re also likely to make. Plus the added bonus of having a new-build warranty, which is usually set at 10 years.

Energy Savings

Buying A New-Build Property Could Pay in the Long Run Aspen Woolf

Image credit: Matthew Hamilton via Unsplash

Buyers are often drawn to new-build homes because of their increased energy efficiency. Compared with Victorian-style properties, they could be up to 65% more effective in preserving heat due to fitted airtight doors, insulated roofs and double-glazing.

The HBF study shows that 94% of homes built in 2016/2017 can boast an A-C energy efficiency rating –  this is just a quarter in second-hand properties. New-build homeowners will therefore save hundreds, and sometimes thousands, of pounds in utility bills alone each year.

New-Build Advantages

Buying A New-Build Property Could Pay in the Long Run Aspen Woolf

Image credit: Echo Grid via Unsplash

Some older buildings in the UK may simply not meet the standards required for 21st century living. Remodelling them completely may take up too much time and money for it to be considered financially viable. Usually something done out of a labour of love rather than investment purposes.

On the other hand, new-builds are always constructed to modern standards and have to pass multiple council planning, build, and health and safety requirements. They’ll be equipped with energy-efficient boilers and vacuum insulation panels, not just saving you money on bills, but also meaning replacements won’t be needed any time soon.

You’re also likely to experience long-term capital appreciation as new-builds are often hand picked in areas with high social and economic growth potential.Some buyers may not be aware that new-builds are zero rated from VAT. As the buyer, these savings will be passed onto you, helping reduce your overall costs. As briefly mentioned before, fittings in a new property are covered by a 10-year NHBC warranty protection on structural defects. So if anything does go wrong, you won’t have to worry about footing the bill.

Deciding between a large-scale renovation or a new-build property depends on the property itself, as well as your personal circumstances and goals. However, as refurbishment can cost as much as £50,000 as noted in the Home Builders Federation study, it would make more financial sense to plump for a new-build instead.

 

If you’re looking for ideas on where you should buy your investment property, take a look at The UK’s Top Buy-To-Let Hotspots in 2017 Revealed!

For more advice and information on where you can invest in property, get in touch for a chat.

Forget London – Commuter Towns are the Hottest Places for Property Investment!

Forget London, Commuter Towns are the Hottest Places for Property Investment!

London has been a global beacon for finance and investment for decades, growing from strength to strength. However, with the eye-watering increase in property prices in recent years within the capital, many workers find themselves unable to afford to live comfortably in the city. The potential gains for buy-to-let investors have also been significantly hampered, with average rental yields for London homes being as low as 3.2% in February 2017.

For several years now, young professionals have been moving out of London and into towns within an easy commuting distance in order to find a home to buy or rent at a price that doesn’t break the bank. And this is exactly where savvy investors should be looking.

Whilst the prestige of owning a London property might be appealing, when you compare the ROI to investing in commuter towns, there’s no question as to where you’ll get more for you money. After all, isn’t that the whole point of investing in the first place?

Take Luton for example, where you are just 23 minutes from London by train. But for that small distance of just 30 miles, buyers can save an impressive 65% on property prices! While the average price of property in London is currently £685,877, in Luton it is just £239,618, a massive £446,259 less! And with a 10.4% increase in average rents in Luton since 2014 (the highest in the UK, by the way), investors can achieve rental yields of 6% (double that of London) making Luton one of the most profitable places in the UK to be a landlord.

 

So what should you look for when considering investing in a key commuter town?

 

Forget London – Commuter Towns are the Hottest Places for Property Investment! Aspen Woolf

Travel Time

Obviously the time it takes to travel into the capital (usually by train) is a key factor in a commuter town’s appeal – hence the epithet ‘commuter town’. Ideally you would want to keep this under 45 minutes.

 

Forget London – Commuter Towns are the Hottest Places for Property Investment! Aspen Woolf

House Prices and Rental Yields

Of course the difference in property prices and relative rental yields you could achieve compared to the capital will always be top of your list of things to take into account as an investor. Make sure the cost of the property is in line with the yield you want to achieve. Just because a property is expensive doesn’t guarantee it will yield higher rents.

 

Forget London – Commuter Towns are the Hottest Places for Property Investment! Aspen Woolf

Commuter Travel Costs

Any savings that residents make on the cost of buying or renting a home in a commuter town is also impacted by the cost of their commute into London. Every Londoner is very aware of this. With some similar length routes costing more than others, it’s worth checking the prices for season tickets from the town you’re exploring. This is key in determining the commuter appeal.

 

Forget London – Commuter Towns are the Hottest Places for Property Investment! Aspen Woolf

Local Amenities

Whilst those living in commuter town will still look to the city for some of their more ostentatious entertainment (with it being easy to travel to), you still want to be comfortable in the town you’re living in, so easy access to shops, good schools, bars and restaurants, etc are an important consideration. Pay attention to development in the area as well as this often brings in new amenities. By noticing small improvements in the town and investing earlier, you could gain even more in capital growth just a year or two down the line.

 

Forget London – Commuter Towns are the Hottest Places for Property Investment! Aspen Woolf

Upcoming Investment in the Area

This brings us to our last major point, which we just touched on. Any large-scale investment projects, such as town centre regeneration, in areas within the commuter belt are worth taking note of – and for towns that may previously have been thought of as a little too far out, transport infrastructure developments like Crossrail and can provide a huge boost. This is very fundamental when looking for new commuter towns to invest in. When the government is investing in the local transport system or even upgrading the train stations, that is usually followed by increases in house prices as well as more residents moving in due to the improved networks.

These factors all combine to provide the perfect enticement to potential residents and investors. With all this knowledge fresh in mind, now is a great time to look at potential property investments in commuter towns.

 

If you want to know what other factors to consider for your property investment then take a look at What Size Property Should You Buy for the Best Investment, or check out our Six Surprising Things That Affect Property Prices.

And if you’re already looking to start your investment journey, then take a look at the property we currently have available.

Landlords! Here’s What You Need to Know About Right to Rent

An agency can handle these checks and legislation for you.

One of your responsibilities as a private landlord is to check if prospective tenants have the ‘right to rent’ in the UK. It stems from the Immigration Act of 2014, a measure designed to make it difficult for illegal migrants to remain here undetected.

The 2015 Immigration Bill builds on this, granting increased eviction powers for authorities and criminal penalties for non-compliance.

Landlords! Here's What You Need to Know About Right to Rent Aspen Woolf

As a landlord, these ‘right to rent’ responsibilities can only add extra weight to an already stressful workload. In addition, some tenants make it difficult to obtain their personal information or simply produce fake documents.

This is why we recommend making your investment through a professional lettings agent such as Aspen Woolf. We’ll take care of these requirements on your behalf, using a team of legal specialists to verify documents and even take liability if financial penalties do arise.

By doing so, this will help secure your investment and maximise its potential earnings.

 

Official Legislation

Landlords! Here's What You Need to Know About Right to Rent Aspen Woolf

Details of the ruling can be found under Section 22 of the Immigration Act 2014, which declares that landlords: “must not authorise an adult to occupy premises under a residential tenancy agreement if the adult is disqualified as a result of their immigration status.”

To comply with these requirements, you must view original immigration documents, make copies and keep them for 12 months after the tenancy expires. If these documents are held by the Home Office, a landlord’s checking service can be accessed online here.

If you’ve made these checks and discover your current tenant is living in the UK illegally, you must report this as soon as possible. Once this has been done, the process falls out of your hands and you’re under no obligation to force an eviction.

However, if you don’t make sufficient effort to report a tenant without the right to rent, you may face a civil penalty up to £3,000.

Although there are various stipulations to adhere to, the legislation does not apply to the under 18s or those not renting the property as their main home. If you’re unsure of anything, additional details can be found on the official government website here.

 

Managed Lets

Landlords! Here's What You Need to Know About Right to Rent Aspen Woolf

One useful aspect of the legislation is that an external agency can carry out these ‘right to rent’ checks on your behalf.

Aspen Woolf can recommend fully licensed companies to do so and can draw up a written agreement which passes responsibility onto them. We can also recommend the correct due diligence platform that will perform detailed background checks and credit reports on all potential tenants before they move in.

This is of great help to landlords who don’t always appreciate the extra hassle that comes with some independent buy-to-let investments. If you need any further information regarding our ‘right to rent’ compliance, please feel free to get in touch today.

As a landlord, you may be interested in whether Build-to-Rent is the future of property investment.