There was a very interesting article that I came across in the telegraph recently. It was particularly of interest to me as I am one of the fortunate investors who have mortgage deals that are currently 0.79% below the base rate!

Yes! You read correctly – 0.79% below base rate!

The article said that if interest rates continue to fall (and it seems very likely that they will do so) without any changes to the terms of the loans/mortgages, then a bizarre situation could arise where the banks could end up paying the loan.
 
It will affect those who have tracker mortgages that are below the base rate. Whenever the base rate changes, so do the repayments on the tracker mortgages as well. This is because they are linked directly to the base rate.

Most of those with this type of mortgage pay the bank’s base rate and also a percentage on top. But in some cases (such as mine) the borrower pays the bank base rate minus a certain percentage.
  (more…)

An appeal has been made by the National Landlords’ Association to allow buy-to-let investors to also benefit from the two year moratorium on mortgage payments.

It does seem a little unfair that this two year mortgage break is only being allowed for homeowners who are struggling with their main residence mortgage repayments.

The NLA are putting forward the argument that the purpose of the temporary relief is to allow more people to stay in properties. Landlords are providing houses for tenants who can’t afford, or don’t want, to buy in the current economic crisis, and therefore they should not be excluded from this scheme.

The NLA argued that by allowing buy-to-let landlords time to improve their property cashflow the benefit would automatically be extended to their tenants. There is an increasing number of defaulting tenants so maybe the landlords would be able to pass on some kind of help to the tenants to help them stay in the property.

If those landlords can be helped to stay afloat then, of course, it will mean less repossessions. In a recent survey an increasing number of landlords stressed that they would experience cashflow difficulties in 2009. (more…)

It will come as no surprise that those who previously had plans to buy their first home have been doing a lot of rethinking over the past few months. Faced with the continuing impact of the credit crunch and the falling house prices, more and more tenants are deciding to extend their existing tenancy agreements.

Seems quite a sensible choice given that even more people are now having difficulty in finding funds to make down-payments that many mortgage lenders are now asking for.

This is not only happening in the UK, but is the trend in the rest of Europe and America as well. Tenants are calculating that by extending their existing agreements they will be able to save money while waiting for the health of the economy to improve, and more affordable mortgage products come on the market.

It is the first-time buyers who are choosing to opt-out of buying properties and going for tenancy extensions. Many are still struggling with student loans and cannot raise the down payments that are now demanded by the mortgage lenders. (more…)

As of April this year, the Local Housing Allowance (LHA) is being paid directly to tenants. Previously it was paid to landlords. Unfortunately this change is causing landlords to lose out on rent collection, especially with the worsening economic climate.

As a result more and more landlords are now reluctant to rent properties to tenants who receive housing benefits.

My good friend, Paul Shamplina, from Landlord Action feels that the change in the way the housing allowance is paid has been a mistake and he is therefore asking for an immediate review.

The housing benefit is being given directly to the tenants to enable them to be financially independent and become capable of handling their own funds. But the reality is that when times get tough (i.e. like the current economic climate) the tenant no longer feels that paying the rent is the top priority on the agenda.

As the economic climate has worsened there has been a sharp increase in the number of landlords seeking help due to unpaid rents. The rules state that a landlord can appeal to the local authorities to have the rent paid, but in reality this takes time. Whilst the outstanding rents are being chased the landlord’s pockets are empty as the arrears pile up. (more…)

The question about whether you can offset costs that you have made before you purchased a property is an interesting one. Unfortunately it is also a bit of a grey area as far as taxation goes.

The rules for pre-trading expenditure are quite complex, but in theory you can claim expenses incurred in the seven years before commencement of the rental ‘business’.

The expenses are treated as incurred on the first day the rental ‘business’ starts.

Having said that, HMRC will want to examine these property expenses closely with a view to establishing whether they were incurred ‘wholly and exclusively’ for the purposes of the ‘trade’ i.e. your property business.

Again in theory HMRC can disallow any expense which has a duality of purpose, but in practice they will usually allow a split to be made.

They will also examine the expenses to see whether they are capital or
revenue in nature. (more…)

The decision by the Bank of England to reduce the base rate to 2% last Thursday will prop up the treasury coffers with an additional £400million. This was the findings of the Young Group, a company providing a service to landlords.

The firm estimates that each reduction of 0.5% in the base rate will enrich the Chancellors coffers by an extra £80 million coming from taxes paid by landlords.

Landlords profit on rental income in most cases is taxed at the rate of 40%. This means that the drop from 5.5% to the current 2% rate will generate an additional £1billion of income for landlords. And this could ultimately result in an additional £400 million in taxes for the government.
 
Young Group has calculated that about £136 billion of the outstanding buy-to-let mortgages, 30% being tracker products have seen interest rates drop automatically with the lowering of Bank of England’s base rate.  (more…)

(more…)

One of the checks that landlords sometimes make when vetting tenants is to ask the tenant to get their bank to provide a bank reference.

These typically cost around £10.

However as my good friend Paul Shamplina (from Landlord Action) says ‘they are not worth the paper they are written on’.

Why?

Well this is because they give very little information. In fact it is true to say they hardly give any information at all.

What is much better than asking for a bank reference is to ask the tenant to provide the last three months of bank statements.

Now, these statements will tell you everything that you want to know as a landlord !

This is not an unreasonable request and if a tenant declines to provide these then I would simply say that they cannot be considered for renting the property until these are provided. (more…)

The Bank of England has today cut interest rates by a further 1%. This means that the base rate of interest is now at 2%, which is the lowest level it has been since 1951.

So, for anybody who is on a base rate tracker/discounted mortgage then you will start to see even further reductions in the amount of interest you are paying on your mortgages.

Let’s hope that the banks also apply the 1% reduction to their standard variable rates as well, passing on the benefit to a much wider audience.

Those who won’t benefit from this interest rate reduction are the ones who are on fixed rate deals and, of course, the savers who are debt free. Any interest rate deduction for savers means they earn less on their money. (more…)

Serious landlords are always looking for deals, especially in the current market

When one comes their way, it is sometimes not feasible to apply for finance. This is because the administration and paperwork will take too long, and this is likely to result in the investor losing out on the deal.

In such scenarios the landlord will end up buying the property using their cash reserves, and they will then re-mortgage the property to release the invested funds.

The question then arises as to whether the interest charged on the re-mortgage is tax deductible.

In Arthur Weller’s opinion, the mortgage interest is tax deductible in such scenarios. This is because the property was bought with the intention to take out the mortgage soon afterward.In such scenarios the purchaser will only pay cash originally because this is a better way to execute the purchase. (more…)