The latest news from Rubicon Estates

Welcome to the January edition of the Rubicon Estates newsletter, where we bring you the latest news about property, as well as providing you with some helpful tips and insights.

 

We start this month by sharing our How To Buy Forum which will be held at our office on 27 February 2020. Next we share some current property market news including: buy to let landlords, positive borrowing conditions, and our 2020 market predictions! 

What to consider when becoming a landlord

The process of becoming a Buy-to-Let landlord may not seem straightforward, with a complex set of regulations understandably a deterrent for investors and letters looking to jump into the market. But a look beyond the paperwork and red tape provides clear benefits for anyone wishing to invest and let out their own property in 2020.

The benefits are there to reaped, however; BTL mortgage rates fell in the third quarter of 2019, with the interest on both two-year and five-year fixed loans both cheaper for buyers; £144 less than it was in June for the former and an attractive £324 cheaper than 12 months ago for the latter, respectively.

Lenders are keen to massage the market and offer lower rates in an effort to encourage landlords both old and new back to market due to tighter rules and fears over the effect that Brexit could have on house prices. But caution must still be preached, as you’ll find in our tips below:

Invest carefully
It might seem obvious, but your rental income has to be enough to pay your buy-to-let mortgage. Lenders will use stress rates to help to calculate affordability, which covers the following aspects; the ability of a landlord to pay a higher rate of interest on the borrowed money, the cover ratio of interest, minimum income requirements and the rental cover rate.

With this in mind, researching in your local area is vital. Using the nation’s capital as an example, London Money broker Catherine Beaumont offers the following advice: “Research the area in which you are investing. Currently for many properties in London, the rental income isn’t enough to service the mortgage.”

Stamp duty also comes into the equation, with the purchase of a second property incurring a charge of 3%. This must all be taken into account when it comes to choosing to invest.

Tax breaks will soften financial blows
Whilst the aforementioned stamp duty charge, designed to stall the market and make buyers reconsider their purchases, has acted as a deterrent to some due to the requirement of a larger outlay of cash, there is some relief for potential and current landlords in the form of tax breaks.

“Repairs, service charges, utilities paid by the landlord, and letting agent fees are all claimable against your taxes,” advises Gorge Parker, assistant manager at Blick Rothenburg. “Likewise, the cost of replacing items, such as sofas, beds, tables and any moveable items, is allowable, but, importantly for first-time landlords, the initial outlay on new items is not.”

Thankfully, cuts to mortgage interest tax relief will occur in 2020, with a 20% income tax deduction added instead.

To go fully managed or go solo?
This is always a big question for first-time landlords and a huge factor can be the time you have available to manage your rental property. Many taking their first steps into letting a property may benefit from hiring an agent to manage their home and deal with the tenant directly while others living closer to the property in question may be perfectly placed to manage things themselves.

“For a fully managed service expect to pay between 8 per cent and 20 per cent of the rental income plus VAT,” offers Jeni Brown, sales director for Mortgages for Business. “In my experience, the fee feels very expensive until you have an issue, and then the ability to leave it to the agent becomes priceless.”
Weigh up your options; if you cannot afford the cost of a fully-managed letting service then you need confidence in your rental agreements and plans with your tenants to make sure you don’t miss out on any mortgage payments.

As with taking any big step in the property market, the key is to property educate yourself prior to making a decision about becoming a Buy-to-Let landlord. Research your local options, get the lowdown on the local market, get your finances in order and if you have tenants ready to move in, make sure you’re prepared to deal with any potential bumps in the road.

How good was 2019 for borrowers?

It might be easy to assume that the property market experienced a deeply difficult 2019, what with the seemingly unending political upheaval only recently subsiding thanks to December’s general election. But with increasing numbers of first-time buyers and continued high-demand for rental properties, it’s clear that there have been positive signs for those wishing to complete transactions, and nowhere has that been more apparent than for borrowers.

A most competitive market
Fierce competition between lenders has resulted in falling rates across all loan-to-value levels, which has certainly caused a headache for providers such as AA, Secure Trust Bank and Sainsbury’s. Indeed, all three lenders exited the sector during the course of 2019, but the increased competition has provided borrowers with a raft of options at competitive prices.

Exciting rates on offer
Two-year and five-year average fixed mortgage rates have seen notable falls throughout the year, with the former decreasing from 2.69% in January to 2.59% in November for 95% loan-to-value (LTV) rates and the latter dropping from 3.37% to 2.75% in the same timeframe. Interestingly, the lowest average rate across the year for both came as the year drew to a close.

Is now the time to enter the market?
Whether you’re looking to seal a home or merely remortgage your current property, it’s clear from the market’s health this year that conditions are positive for lending. Those looking to apply for a mortgage will benefit from competitive rates and will have options aplenty, whilst those looking to remortgage can also reap the rewards of the market’s current position.

For instance, anyone who took out a two-year fixed rate mortgage in December 2019 at what was then an average rate of 2.35% would benefit from a new average rate of 4.89%, according to data provided by Moneyfacts.co.uk. This would provide anyone with a £100,000 repayment mortgage over a 25-year term with a repayment close to £130.

Property market predictions for 2020

Now that 2019 is over, it is time to look to the year ahead and what is expected to be a strong year for property. Now that there is a majority government and uncertainty around Brexit seems to be assuaged, the outlook for 2020 is strong – read on to see what’s in store.

2019 proved to be a year of resilience for the property market, with prices maintaining steady growth, and a resurgence in the first-time buyer market evident for all to see.

The first key factor in property and the wider general economy for 2020 is, of course, Brexit. With the Prime Minister’s Brexit deal now passed by MPs, the UK is due to leave the EU at the end of the month with a withdrawal agreement – effectively meaning there will be a transition period as the UK truly cuts its European ties until 31st December this year. For property, this means additional certainty – with a majority government and a conclusion to the Brexit saga, buyers and sellers who have been hesitant to enter the market are predicted to jump in, creating something of a surge.

Kate Faulkner, housing expert and founder of propertychecklists.co.uk, says: ‘One of the things that has held the market back over the last 12 months is the uncertainty of Brexit and latterly the election.

‘Now both of these questions are settled and as people have ‘hung on’ for some time, it is likely there will be a bit of a Brexit bounce in activity at the start of 2020. As a result, I would expect more people to put properties up for sale and more buyers coming into the market. In some areas this may result in a short term rise in prices as people compete for quality properties in good locations which are likely to still remain in short supply.’

Widely predicted to be announced next month, the government’s Budget statement will have a steer on the property market for both sales and lettings. We have already had an idea of what is in store thanks to the Queen’s speech in which there were allusions to a stamp duty surcharge to overseas buyers, first-time buyer incentives and further lettings legislation reforms. With the Budget predicted to be announced in February, this could be a catalyst to further spring activity in the property market.

In terms of the lettings market, 2019 proved to be a key year with new legislation introduced, most notably the Tenant Fee Act. Throughout last year we saw the demand for rental properties growing, however the supply being somewhat limited which presented landlords with the ideal opportunity, as long as they are adhere to the new legislation.

David Cox, chief executive of ARLA Propertymark, said “Looking ahead to 2020, we hope the Government recognises the importance of increasing supply for tenants and uses it as an opportunity to make the market more attractive for landlords. This will encourage more landlords back into the market as well as ensure that tenants, including those who are most vulnerable, are not at a disadvantage in being able to find a suitable and affordable home to rent.”

Another key player in the health of the property market this year will be mortgage rates – in 2019 we saw record levels of first-time buyer mortgages thanks to a greater selection of available mortgages and rife competition amongst lenders. If we see these favourable rates continue this year, then the first-time buyer sector can be expected to endure and potentially even grow thanks to the forecast influx of available properties, providing more choice.

Overall, 2020 is set to be a more fruitful year for property thanks to the greater levels of political stability and the continuing favourable mortgage rates and saving schemes.