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Buy-to-let landlords see surging mortgage costs

Archive for the ‘Commentary’ Category

Buy-to-let landlords see surging mortgage costs

Friday, May 20th, 2022

The buy-to-let market has made a strong bounceback from the pandemic, with demand for rental accommodation soaring in many parts of the country, in particular student hotspots such as Manchester.

But while investing in buy-to-let still offers attractive returns, landlords are still facing rising costs, especially when it comes to paying mortgages.

According to new figures from Property Master, monthly costs on a typical five-year fixed rate buy-to-let mortgage for £160,000 with a Loan to Value (LTV) of 60 per cent have increased from £346 to £359 since the start of 2022, or £13 a month.

Meanwhile, monthly costs on a typical two-year fixed rate mortgage for £160,000 with a Loan to Value (LTV) of 60 per cent have increased from £351 to £365, or £14 a month.

Angus Stewart, Chief Executive of Property Master, described the increase in the cost of buy-to-let mortgages as “relentless”, and warned the current “turbulence in the money markets” is making it harder for some lenders to raise the funds.

This, he said, means there is “a fear that as well as higher mortgage costs, landlords may also face reduced choice”.

“Whilst it is true that buy-to-let mortgage costs may look low from an historical point of view, the increases we are seeing now come at a very bad time,” Mr Stewart commented.

“Increased taxes and regulation have already chipped away in recent years on the returns landlords can hope to make.”

But while the prospect of higher mortgage repayments lies in store for rental landlords, it’s far from doom and gloom in the buy-to-let mortgage market.

Number of BTL mortgages being issued is rising

Despite increases in the cost of buy-to-let mortgages over the last few months, it’s clear that people investing in rental property continue to see the market as a strong investment option.

According to new data from Knight Frank, 275,600 buy-to-let mortgages were issued in the year to February 2022. This includes 159,100 remortgages and means the number now stands at a six-year high.

Figures also showed that the number of new mortgages taken out by buy-to-let landlords rose to 110,000 during this period, up from 75,8000 in the year to February 2020. These were taken out both by investors expanding their portfolio and those entering the buy-to-let market for the first time.

The attractiveness of the market to new and existing investors has been fuelled partly by increasing rental rents, which have outpaced house price increases in some parts of the country.

In fact, Knight Frank has estimated that rental values across the country could go up by more than 17 per cent over the next five years, and the rate of increase could be higher still in the main hotspots of activity.

Meanwhile, latest figures from Hamptons show that more than one in ten properties sold across Great Britain between January and March 2022 were purchased by buy-to-let investors.

Landlords bought 42,980 homes during the first quarter of the year, which equates to 13.9 per cent of properties purchased during this period.

Nevertheless, Hamptons pointed out that tax and regulatory changes have prompted more landlords to sell up in recent years, and that there are now around 300,000 fewer privately rented homes in Great Britain today than in 2017.

So while the picture in the buy-to-let market is clearly mixed, it’s apparent that savvy investors can still earn healthy returns on the right properties in the right areas, which could more than make up for rising mortgage costs.

How bad could it be for UK Businesses?

Friday, May 20th, 2022

We all know that there are only two certainties in life – but at the moment there appears to be a third: negative stories in the media about the outlook for UK businesses. 

Clearly times are difficult at the moment. The pandemic has been followed by supply chain issues and inflationary pressure, both compounded by the war in Ukraine. It has certainly given the headline writers plenty of ammunition, with City AM forecasting a ‘profit squeeze as inflation bites’ and following that by suggesting that small firms face a cost ‘assault’. 

Not to be outdone, the BBC declared there was a ‘big jump in the number of firms at risk’ and that UK businesses faced a ‘perfect storm’ as the recent tax rises kicked in. Even the CBI joined in, saying that firms would ‘need help to make it through the summer’. 

At this point any right-thinking businessman or woman would surely take the only logical step – pull down the shutters and put the business up for sale. 

It is worth pointing out though, that journalists are not entrepreneurs. They do not see the world in the same way. As the old cliché has it, the Chinese character for crisis is made up of two other characters – danger and opportunity. 

That’s not correct but, like all clichés, it carries an element of truth. Yes, there are supply chain problems – but does that represent an opportunity to bring manufacturing back to the UK? ‘Re-shoring’ as the management term has it. 

Yes, there are cost pressures on profits – but entrepreneurs won’t be writing articles about it, they’ll be looking at their budgeting and their key performance indicators and taking whatever action is necessary. 

It’s interesting to note that the FTSE-100 index of leading shares has proved resilient to the bad news, both about the war in Ukraine and the stories in the media. In April, major stock markets in Europe, the US and the Far East all fell: the FTSE held its own, with a small gain of 29 points in the month. 

So maybe the news isn’t quite as bad as the media likes to portray. We have some brilliant businesses in our client bank and we’re proud to be financial planners for both limited companies and sole traders. Anecdotally, many of our SME and self-employed clients are positive and optimistic about the future. They’re certainly working hard and – as we have always done – we’ll do everything in our power to support them. 

Leave a Gift to Charity to Reduce Your Inheritance Tax Bill

Monday, April 25th, 2022

As the saying goes, you can’t take your money with you when you die, so it’s only natural that you might want to leave your wealth to those people closest to your heart, such as your children.

But this isn’t the only option open to you, as you can leave your money to a cause that means a great deal to you – and this can have significant benefits when it comes to inheritance tax.

Any gifts you make to charity are exempt from inheritance tax, so if you leave everything to a good cause, your estate wouldn’t have to pay it at all. However, very few people take up this option, as many will still want to leave a generous amount to loved ones.

But even in that case, there are still inheritance tax benefits to be had. If you bequeath more than a tenth of your estate to charity, the total amount of inheritance tax the estate pays will be 36 per cent, lower than the standard rate of 40 per cent on everything over £325,000, or £650,000 for a married couple.

Support a Cause You Care About

Donations made from people’s Wills can be a valuable source of income for countless charitable bodies, so if you want to explore this option, it’s worth spending time thinking about what cause or causes matter to you.

If you’re an animal lover, maybe a national or local animal charity could be a good option.

If you or a loved one has struggled with a long-term illness, such as cancer, you might want to donate to a charity that helps others with that condition, or perhaps a hospice that cares for those with terminal illnesses.

You might even want to support a museum or another cultural institution, or maybe a local community group.

The choice is yours, which means that your Will gives you a great opportunity to leave a positive legacy in an area you care about, or say thank you to a charity that has helped you personally or supported a loved one.

Speak to Your Family and Get Financial Advice

Before you write or update your Will with a view to leaving a gift to a charity, it might be worth speaking with members of your family beforehand.

Many of your family members might be hoping or expecting to receive an inheritance from you, so explaining the reasons behind your decision can help to prevent any upset or family disputes further down the line.

You should also consider speaking to a financial adviser if you are thinking of gifting to charity as part of your estate planning, so they can discuss the inheritance tax implications with you.

A regulated, professional adviser will also be able to talk you through other ways of making sure your estate planning is more tax-efficient.

What Can I Leave to Charity?

You can leave either a set amount of money or a particular item to your charity of choice. Alternatively, you can ask the executor of your estate to take care of awarding a set sum to a charity after other costs have been paid out and gifts to family members distributed.

It’s often said that the only two certainties in life are death and taxes, but with careful planning, there’s no reason why you can’t reduce your inheritance tax bill and leave a positive legacy behind. Please don’t hesitate to get in touch with us if you have any questions about making your estate more tax-efficient.

The Amazon Brushing Scam. And Friends…

Thursday, November 18th, 2021

Have you been ‘brushed’ yet? If not, it’s quite possible that you soon will be…

What are we talking about? The latest in a seemingly never-ending series of scams to hit people.

According to consumer group Which?, hundreds of thousands of people up and down the UK have received mystery parcels from Amazon, containing goods that they didn’t order, in a scam known as ‘brushing’.

Which? says that the sellers of these unwanted items are looking to exploit Amazon’s ranking system – which favours items with high sales volumes and good reviews – by sending items to people who simply didn’t order them. They will then often take the scam a stage further by creating a fake Amazon account linked to the recipient’s address, and leave a glowing review of the product that’s just been ‘ordered.’ 

At this point you may be thinking, ‘what’s it matter if I receive something I didn’t order? I’ll just keep it (according to Which? 63% of people do just that) or throw it away’.

…Except that someone has found your address – and created a fake account linked to that address. They’re clearly unscrupulous, so are they going to think twice about selling the personal details they have? Of course not. 

We have written about scams previously and no doubt we will do so again. The pandemic – and the subsequent lockdowns – brought out the very best in millions of people. Sadly it also had the opposite effect, as the number of scams and frauds exploded. 

It is hard to put a figure on how much is lost through fraud each year, simply because so many victims are too frightened or embarrassed to report it. This may be especially true in areas like romance scams, with people simply too ashamed to admit that they have been duped. 

As long ago as 2017, the National Crime Agency put the total figure lost to fraud at £140bn a year, and credit agency Experian suggested it was even higher, at £193bn. Whatever the true figure, what cannot be under-estimated, is the human cost of fraud, and the erosion of trust it causes. 

Which? tried to put a figure on it, suggesting the costs to victims’ wellbeing could be as high as £9.3bn a year – the equivalent of £2,500 for every victim. They suggest that while the typical amount lost is around £600, the emotional cost is much higher, with many victims suffering from anxiety and ill-health after being scammed. 

Clearly something like this is difficult to quantify, and the impact will vary considerably with individual people. What is undeniable though, is that scams and fraud will only go on increasing, and that they will continue to target the most vulnerable. 

Whether it is the text telling us that the post office couldn’t deliver a parcel, the Inland Revenue supposedly threatening us with prosecution or ‘track and trace’ asking for our details, we all need to be permanently alert – and suspicious. And as we start to do our Christmas shopping online, it is perhaps time to update the old maxim. If it seems too good to be true, it is too good to be true – and if the reviews seem too good to be true, they almost certainly are too good to be true…

Will COP26 Affect my Savings?

Wednesday, November 10th, 2021

There cannot be anyone reading this article who hasn’t heard of COP26, the conference on climate change and global warming which is taking place in Glasgow in the first two weeks of November. (If you didn’t know, COP stands for Conference of the Parties – those countries which signed the original UN Convention on Climate Change in 1994). 

All our clients will have their own views on climate change and the Conference. Some will agree with Boris Johnson’s assertion that it is “one minute to midnight” for the planet: others may be slightly more sceptical, wondering why attendance at a conference on climate change needs 400 private jets – between five and 14 times more polluting than commercial airliners – flying in and out of Glasgow. 

This is not the place to discuss the merits of those arguments – but perhaps it is the place to ask another question. What effect – if any – will COP26 have on my savings and investments? 

Three days into the Conference, it was widely reported that most big UK companies and financial institutions will soon be required to show how they will hit climate change targets. “The rule book will be re-written for net zero,” said Chancellor Rishi Sunak, referring to the UK’s stated aim of reaching ‘net zero’ (a balance between the carbon a country or business is emitting and the carbon it is removing from the atmosphere) by 2050. 

By 2023, companies will need to set out detailed plans for how they will move to ‘a low carbon future’. “The aim is to increase transparency and accountability,” said the Government, adding that it was not “making firm-level net zero commitments mandatory”.

…Not yet, anyway. You suspect that in the future that may very well be a piece of legislation that finds its way onto the statute books. Add in the increasing pressure on companies to comply with ESG (environmental, social and governance) requirements and you suspect that in the future, a company’s results may be reviewed for a great deal more than the bottom line. 

‘Impact Investing’ – investments made with the intention of generating positive environmental and societal change alongside a financial return – is growing rapidly, especially among younger investors. Whatever their feelings about the environment, companies may well find themselves with little choice other than to meet the demands of legislative change and/or pressure from potential investors. 

The simple answer to the question we posed is that COP26 – or even COP27, which will be in Egypt’s Sharm El Sheikh – may have little immediate effect on your savings and investments. But the mood of legislators and campaigners is clear: companies will need to change what they do and how they report results to investors. 

That will be a challenge for the companies – as well as fund managers and investment managers. They’ll need to consider a lot more than profitability, market share and future growth prospects. But as all our clients know, we work with some of the very best fund managers there are, and we’re in regular contact with them, making sure that your savings and investments stay on track to meet your long term financial planning goals. 

The Budget: Marks out of Ten…

Wednesday, November 10th, 2021

Rishi Sunak, the Chancellor of the Exchequer, delivered his second Budget speech of the year on Wednesday October 27th. It was, he declared at the start of the speech, “a Budget for a new age of optimism”. He sat down an hour later with Conservative backbenchers furiously waving their order papers as he promised “a stronger economy for the British people” and even – despite committing to an extra £150bn of spending – promising to cut taxes in the future. 

As always with a Budget, the immediate reaction was mixed. The phrase ‘did not go far enough’ was never far from the lips of the special-interest spokesmen. The New West End Company – a partnership of more than 600 businesses around Bond Street and Oxford Street – welcomed the moves on business rates, but complained that they went “nowhere near” meeting manifesto commitments. 

The hospitality industry welcomed the cut in beer duty and the simplification of alcohol taxes – but worried about the increase in the National Living Wage and its impact on staffing costs. 

Gradually, though, the criticism became more detailed. Paul Johnson, Director of the Institute of Fiscal Studies (IFS), said that “deep in the bowels” of the Budget was an expectation that household disposable income would be “almost stagnant” over the next five years, growing by just 0.8% each year. The tax burden would continue to increase, said the IFS, stating that there was now “clear blue water between now and any time in the past”.

The headline writers put it in rather more simple terms, with many pointing out the increased tax burden on the average family.  

There was criticism of the tax burden even from within the Conservative party. Former minister Michael Portillo said: “This is not Conservative philosophy. This is what Conservatives absolutely do not believe in. It is, I think, a bit of an identity crisis for the Conservative party.” 

Neither was business happy: ‘a Budget packed to the rafters with promises and light on the means to pay for them’ was one verdict quoted by City AM. Tony Danker of the CBI said that the Budget “did not go far enough to deliver the high investment, high productivity economy the Government wants.” An article in Spiked accused the Chancellor of ‘ducking the challenge entirely,’ and concluded: “The Chancellor has neither the plan nor the willingness to get [the UK] to the high-wage, high-productivity economy we so desperately need.” 

There was plenty more along the same lines: a general feeling that the Chancellor was simply ‘muddling through.’ So should our clients worry? There is no question that the UK is facing some serious challenges at the moment, with energy costs seemingly increasing every week and a forecast from the Bank of England’s new chief economist that inflation could reach 5% next year. No-one would bet against the Chancellor being back in March with a new set of figures and forecasts. 

So now, more than ever, it is the time for good, consistent, long-term financial planning and regular contact with your financial advisers. Rest assured that we will always keep you up to date with whatever happens in the national and global economies, and that we are always here to answer any questions you might have.

How long until we’re paying with Britcoin?

Wednesday, October 13th, 2021

In the first week of September, El Salvador, a Central American country with a population of just under 7m and ranked 101st in the world according to GDP, created history. It became the first country to accept the cryptocurrency Bitcoin as legal tender. 

Millions of people downloaded the government’s new digital wallet which gave away $30 (£22) in Bitcoin to every citizen. Businesses became obliged to accept Bitcoin as payment. 

It now looks likely that Ukraine will follow suit, with President Volodymyr Zelensky aiming to create a ‘dual-currency’ country by the start of 2023. Zelensky is a vocal Bitcoin supporter, and intends to initially introduce Bitcoin alongside the current currency, the hryvnia, with the intention that it will eventually become the dominant means of exchange. “The people of the Ukraine are prepared for it and they expect it,” he said. 

Ukraine ranks 56th in the world by GDP: with the greatest respect, neither it nor El Salvador are major economic powers. But it now seems inevitable that other, larger economies will follow their lead and introduce a digital currency. This might be Bitcoin – but it seems increasingly likely that a digital version of their current currency will be used. 

China has already tested its digital yuan currency. Earlier this year 181,000 consumers in Suzhou City (near Shanghai) were given the yuan equivalent of £6 to spend at participating outlets in a local shopping festival. Like other consumers who have taken part in Chinese trials, all they had to do was download the Bank of China app. 

…At which point those of you with privacy concerns might start to be worried. “Does this mean the Government could track whatever I spend?” Yes – and for Governments that is one of the huge advantages of a digital currency. Imagine if digital transactions became the norm – all fully trackable and traceable. As cash is used less and less often, and is perhaps even actively discouraged, the unknown economy withers and dies. Rishi Sunak can only dream of what that might be worth to him in tax receipts.

So are we on the way to ‘Britcoin?’ Will we see a digital pound? The Chancellor has already asked the Bank of England to look at the case for a central bank-backed digital currency, allowing businesses and consumers to hold accounts directly with the bank (meaning an account would not be with say, Barclays or HSBC, but with the Bank of England). 

Such a move seems inevitable in the long run. Back in El Salvador they are “excited and worried” in equal measure by the move to Bitcoin, with many people wondering just how stable savings and/or earnings would be in such a notoriously volatile currency. 

Presumably central bank-backed digital currencies like ‘Britcoin’ and the digital yuan would alleviate such worries, but you do wonder how long it would take for another, ‘unofficial’ currency to become established. There will always be people who would rather their transactions weren’t tracked by the authorities.

Is China heading for a Junk Bond Crisis?

Wednesday, October 13th, 2021

It has been 14 years now, but many of our clients will remember the collapse of Lehman Brothers. 

The collapse of Lehmans, a global financial empire founded in 1847, happened in September 2008 and was the climax of the subprime mortgage crisis. Lehman Brothers was notified of a pending downgrade in its credit rating, due to its heavy exposure to subprime mortgages. The US Federal Reserve failed in its efforts to re-negotiate financing for Lehman, which subsequently filed the largest bankruptcy in US history, involving more than $600bn, at the time approximately £333bn. 

Lehman Brothers’ bankruptcy triggered a 4.5% one-day drop in the US Dow Jones index, similar falls around the world and a general financial panic. Fourteen years on, the question is now being asked, could the same thing be about to happen in China? 

Originally called the Hengda Group, the Chinese company Evergrande was founded in the southern city of Guangzhou in 1996, during a period of mass urbanisation in China. In 2009 it raised approximately £400m in an initial public offering on the Hong Kong stock exchange. 

Its principal business is selling apartments, mostly to middle and upper income buyers, and in 2018 it was ranked the most valuable real estate company in the world. It also has interests in any number of other companies from tourism to health to a large investment in electric cars and the Guangzhou Evergrande football team. 

However, Evergrande has hundreds of billions of dollars in debt, and there are increasing concerns over whether the company will be able to service the debt. As long ago as 2012 Andrew Left, a well-known short-seller in the US, was highlighting concerns about the company. In 2016 Left was suspended by the Hong Kong stock exchange, due to his publication of a highly critical report on Evergrande, a company he has labelled “insolvent.” 

More recently many stock markets fell on September 20th of this year, over fears that Evergrande would not be able to meet debt payments that had become due. Earlier in the month the Shanghai Stock Exchange temporarily suspended trading in the company’s bonds (specifically, its 6.98% July 2022 Corporate Bond) over what it called “abnormal fluctuations” following a ratings downgrade. 

Evergrande has been dubbed “China’s Lehman” and supposedly has more than $300bn (£219bn) of debt. If the company were unable to service this debt and subsequently collapsed then the fallout could spread throughout the Chinese property sector and, indeed, the wider Chinese economy. 

Would the Chinese authorities allow such a big company to fail? The answer is, “quite possibly” as there are clear signs Beijing wants to rein in excessive corporate borrowing. According to a report in the Guardian, Evergrande owes money to 171 domestic banks and 121 other financial firms. Bankers UBS also estimate that there are ten property developers in China with combined debt nearly three times the size of Evergrande. In other words, if Evergrande defaults other companies could quickly follow, which would be bad news for China and the wider global economy.

Could Tiny Homes be the future?

Wednesday, October 6th, 2021

If you want to frighten yourself, type “world population clock” into Google. The figures go up with terrifying speed: the number (as this article was started) was 7,894,590,038 – rapidly approaching 8bn. 

In the UK, the latest population figure is 68.32m, but wherever people live, one thing is self-evident: we are going to need more homes in the future. Increasingly, what are known as “tiny homes” are being seen as the answer – not just to ever-increasing populations, but to more people living alone, and the finite amount of space that is available. 

First things first. What is a tiny home? According to the tiny house movement a tiny home is defined as a “dwelling unit with a maximum of 37 square metres (400 square feet) of floor area, excluding lofts. Your first thought might be: ‘Six metres by six? That’s bigger than my lounge. Not so tiny after all…’ 

Then you consider that it has to cover a kitchen, a bathroom, somewhere to live, somewhere to sleep – and maybe it is not so big after all. 

Another key element of the tiny house movement, which goes some way to explaining its growing popularity, is its commitment to sustainability. Many people opting to live in tiny homes, especially post-pandemic,  have reassessed what they want from life and want a more eco-friendly solution to their housing needs. Built with eco-friendly materials almost always including high-quality insulation and only needing a very small plot of land, tiny homes exactly tick this box. 

The other huge advantage of a tiny house is, of course, affordability. Depending on which source you use the average price of a house in the UK is a little over £250,000. According to the Tiny Housing Co. the average price of a tiny house is just £55,000. 

As we noted above, virtually all countries face the problem of an increasing population. What they also face is a big demand for housing in certain regions – in the UK London and the South East is the obvious example. In areas like this even traditional “affordable housing” (defined by the Government as houses sold at 80% of average market value) may not be that affordable. If the average price in your area is £300,000 then an ‘affordable home’ at £240,000 could still be a long way out of your price range. 

All this goes a long way towards explaining the ever increasing popularity of tiny homes. When you factor in the number of people re-assessing what they want from work and life in the wake of the pandemic, we’re certain to see far more tiny homes in the future as populations continue to increase. 

…Speaking of which, the population of the world is now 7,894,593,888. In the time it took to write this article, the population of our planet increased by 3,850.

The Pensions Triple Lock: broken promises!

Wednesday, October 6th, 2021

At the last General Election the Conservative Government made a promise, a so-called “manifesto commitment.” That pledge is commonly known as the “pensions triple lock:” that the state pension will be increased each year by annual price inflation, average earnings growth or a guaranteed 2.5%, whichever is the greater. 

For pensioners this has been good news. It meant that pensions would keep pace with wage growth and inflation and, if both those were low in one particular year, pensioners would be a little better off. 

That, of course, was before the pandemic, the enormous cost of it and the financial juggling the Chancellor will need to do to pay for all the support measures put in place, and the consequent sharp rise in Government borrowing. 

In early September, as had been widely rumoured, the Government broke not one, but two manifesto pledges. It increased national insurance to pay for social care and, crucially for pensioners, it suspended the triple lock for a year. 

This was obviously bad news, and the move begs an immediate question. If the Government has suspended it for one year, could it do it for another year? After all, the bill for Covid-19 is not going to be paid any time soon. 

Unsurprisingly, a poll showed that two-thirds of pensioners were against the suspension. Interestingly though, the research carried out by ComRes suggested that the move would be largely forgiven by the next General Election. 

In this instance the triple lock has been watered down and become a “double lock,” with the wages element removed. But as we hinted above, we might well see other elements removed in the future, now that the precedent has been set. Many commentators expect inflation to hit 4% by the end of the year, could the Government remove that element in the future, too? 

It will be interesting to see what Chancellor Rishi Sunak has to say when he delivers his Budget speech on October 27th. He will presumably be setting out plans for starting to repay the enormous cost of the pandemic. Given the cost of servicing all the new borrowing the Government is vulnerable to a rise in interest rates, and nothing, including the triple lock, can be ruled out. The next Election is not due until December 2024 and the Government may gamble on the pandemic and the measures taken to counter it being a distant memory by then. 

The uncertainty for pensioners means that your ongoing financial planning becomes more important than ever. It is important that your existing savings and investments are arranged as tax-efficiently as possible and that you make use of all your available allowances. All this is an integral part of our regular review meetings with you, but any clients with immediate questions on the ending of the triple lock should not hesitate to get in touch with us.