Thinking about becoming a landlord in the UK for the first time this year? Never has it been more important to do your homework. Here are some timely pros and cons to digest before taking another step.
PRO: Property prices are coming off the boil (UK)
-UK: If you’ve been waiting for house prices to take a breather before making your debut into the world of buy-to-let, now’s the time to sit up and take notice.
While average property values edged up by 1.1% in June, according to the latest data from Nationwide Building Society, for the three consecutive months prior (May, April and March), they fell. And that’s the first time this has happened since the ‘credit crunch’ days of 2009.
You can use the ‘most reduced’ filter in your property search to find homes that have been slashed in price.
-French Alps: in a reduced property market like the French Alps and the reduced availability of plots to build new homes, prices increase steadily for well-positioned properties (close to lifts and ski resort centre + good ski area and altitude to guarantee snow coverage + decent price per m2 at purchase + ski resort with good summer activities)
PRO: Affordable locations are tipped for growth (UK)
UK: There may still be opportunities to profit from property, although they are increasingly being found outside of London.
The latest UK Cities House Price Index from Hometrack revealed that Birmingham is now the number one city in terms of house price growth, reporting rises of 7.7% over the past 12 months. It was followed by Manchester which saw rises of 6.8%. By contrast, price rises in the capital over the past year stood at 3.3%.
Separate data from Nationwide revealed East Anglia to be the top-performing of all UK regions. The annual rate of house price growth there stood at 5% during the second quarter of the year. This compares to 1.25% in London.
-French Alps: At Findhomeabroad we have new-build ski properties for all budgets from lower than 100,000 euros and we pay great attention to price per sqm/location before taking on a new ski property development on our books. Growth for ski properties in good to excellent French Alpine resorts as been sustained for many years now.
CON: Extra stamp duty is payable on additional homes (UK)
-UK: Since April 2016, if you’re buying an additional property that is not replacing your main residence – a buy-to-let or holiday home for example – you’ll face a 3% loading on your stamp duty bill.
Unlike regular stamp duty, the extra 3% is charged as a flat rate on the entire cost of the property. For example, this would amount to an extra £9,000 on a £300,000 home, bringing the total stamp duty payable to £14,000.
-French Alps (France): Stamp duty on new-build properties is reduced and varies between 2-3% of property price and that includes solicitor’s fees as well.
PRO: Property is a long-term investment winner
UK: House prices fluctuate and are regionally varied. But history has shown that the long-term trend is up. According to Zoopla data, property values are 18% higher than 10 years ago and a staggering 258% higher than 20 years ago.
Throw into the mix dismal pensions and rock-bottom savings rates, and property could prove a reliable retirement plan.
-French Alps: crisis or no crisis the ski property market in France gains value steadily over the years thanks mainly to the lifestyle & exclusive appeal but also due to the shortage of land to build and strict building permit laws. Someone who purchased in Val d’Isere or Courchevel 20 years ago is probably just as happy as someone who purchased a flat in Notting Hill then… +2-4% year on year has been the norm in most of the best French Alpine resorts.
CON: HMRC, mortgage lenders AND the Government are turning the screws (UK)
-UK: Right now, however, landlord profits are being squeezed. From April this year, the relief available on mortgage interest started to be capped at the basic rate of 20%. Previously, reliefs of 40% or even 45% were available for higher earners. By April 2020 all landlords will be affected.
-French Alps: French Revenue is extremely generous on mortgage interest relief with 100% of the French mortgage interest which can be offset against the rental income when letting a furnished property (LMNP). Contact us for full investment profile of any given French investment property (happy to also analyse properties offered by other agents), we have the most precise tools for analysing French buy-to-let properties (French leaseback or not).
-UK: The standard 10% tax relief on ‘wear and tear’ costs for landlords letting furnished homes was already scrapped in April 2016.
And last month, Insurance Premium Tax (IPT) rates were hiked from 10% to 12%. IPT is payable on all general insurance policies which include buildings insurance for which landlords are responsible.
-French Alps: this is in our opinion the single-handedly main advantage of a French property investment compared to a UK buy-to-let: in France on top of the mortgage interest which you can offset against the rental income, you can offset each year over 30 years (property amortisation) 1/30th of the property price (based on 90% of property value as 10% is accepted as land value).
For example, if you buy a 300,000€ ski apartment (270,000€ base) and let it, you will be able to offset 9,000€/year against your received income so if you make 3% return this is wiped out entirely only with the amortisation allowance and pay no tax (your furniture pack is also amortised over 7 years (1/7th offset each year of your full furniture pack cost). If you add the mortgage interests and general rental management costs you generate a non-taxable deficit.
-French Alps VAT: when you in a buy-to-let in France you benefit from the full 20% VAT rebate which is a huge discount on the purchase price (mostly on French leaseback properties)
-UK: you pay the full property price
-French Alps Buy-to-let with personal use: not only can you invest in a nice little tax-free earner in the French Alps but the cherry on the cake is that you can even stay in your property one or several weeks a year (do take into account though that this reduces your rental income logically but if you actually rent a place when you go skiing to France it might actually save you further money…).
-Uk: A buy-to-let in the UK is just that…you buy a property that you let year-round with no possibility of staying when you wish and book a Christmas week in your London or Edinburgh property investment.
Landlords could also find it tougher to borrow on the back of new tighter lending rules set down by the Prudential Regulation Authority (PRA) which kicked in at the back end of last year.
Previously, so-called ‘rental coverage’ (the percentage of rental income lenders require versus the cost of monthly mortgage interest) stood at around 125%. This meant if mortgage interest was £1,000 a month, you’d need to show rental income of £1,250.
Now, rental coverage requirements have been raised to between 140% and 145%. This means for the same £1,000 mortgage interest, you’d need to show rental income of between £1,400 and £1,450. Furthermore, interest rates on which these calculations are based (known as ‘stress testing’) have been raised. “For example, whereas lenders may have stress-tested at a rate of 5%, they now might use 5.5%,” explains David Hollingworth from London & Country mortgage brokers. “It means the sums are generally harder to stack up.”
French Alps: French mortgages (capital and interest repayment) are available for French buy-to-lets usually up to 80% of the property price.
-UK: Finally, lettings agency fees to tenants are set to be banned from as early as 2018. So, landlords will need to find other means of funding costs such as credit reference checks and inventories – or foot the bill themselves.
-French Alps: on French leaseback properties expect around 400€/year in service/management fees and this also covers the payment of the council tax (taxe d’habitation)