29 Sep Professional, Amateur or Overseas Landlord
The advantages of being an amateur or overseas landlord over being a professional
Professional landlords usually rely on the income they receive from property. In order to increase income they tend to borrow significant amounts and do what they can to maximise rents. We find that many amateur landlords have different motives. They prefer to take a low risk approach to borrowing and often prefer to buy with cash. This is the same for overseas landlords who may not have access to mortgages in the UK. For amateur investors property investment is usually a supplement to their income and retirement plan.
UK Buy to let investment for professional landlords has changed significantly in the last couple of years. There are many ways in which the UK market has become more challenging for professional landlords this opens doors for the amateur and overseas investors who are new to buy to let.
The problem for professional investors with the removal of mortgage rate relief
Professional landlords have traditionally borrowed a large percentage of a property’s value, when it has gone up in value they have borrowed even more and used it to buy more property. The problem with this strategy is that now, if they take out a big loan they can’t offset all the loan repayments against their income like they used to be able to. This means that professional investors must borrow less and because of this they are buying less.
The advantage of the removal of mortgage rate relief for amateur and overseas investors
If you are an amateur investor not looking to borrow, if you are on the basic tax rate or if you are an overseas investor who is only subject to income tax in your home country, this problem will not concern you. With less professional landlords buying there are less properties available for people to rent. This will cause rents to increase faster and improve the income that landlords receive in coming years. It also means that there is less competition from professional landlords when buying properties.
The problem for professional investors with stricter borrowing criteria
It is harder than ever for professional landlords to borrow the majority of a property’s value. They are subject to strict affordability tests which weren’t available previously. In the past landlords could borrow up to 90% of the value of a home. This is no longer the case so it restricts the amount of properties professional landlords can buy.
The advantage of stricter borrowing criteria for amateur and overseas investors
The advantages are the same as above, if you are not looking to borrow a large percentage of the property’s value, with less professional landlords buying there are less properties available for people to rent. This will cause rents to increase faster and improve the income that landlords receive in coming years. It also means that there is less competition from professional landlords when buying properties.
The problem for professional investors of The Energy Efficiency Act
The energy efficiency act means that in future, landlords will no longer be able to rent out the least energy efficient properties. These will usually be older properties where nothing has been done to improve their efficiency. Recent surveys suggest that over 10% of rented properties in the UK fall into this category. Most of the landlords who own these properties will need to spend significant amounts to make their properties energy compliant.
The advantage of The Energy Efficiency Act for amateur and overseas landlords
Check a properties energy performance certificate before you buy. Amateur and overseas landlords are more likely to buy newer properties requiring less maintenance because they often have a day job and they prefer less maintenance issues. Newer properties will have been subject to modern building regulations and will have been built with energy efficiency in mind. Therefore they will not face the same problems with The Energy Efficiency Act.
The problem for professional landlords with competition from institutional investors
Institutional investors have started to invest heavily into high quality property developments. These developments may have wifi included, gyms etc. Professional investors will not traditionally have bought into high end developments such as these.
The advantage of competition from institutional investors for amateur and overseas landlords
High-end developments have historically been restricted to London. They have also been very expensive to buy into for investors. Over the last 18 months however, Broadgate have launched a number of developments with high quality communal facilities for the residents in regional cities around the UK and they have been extremely popular with investors from the UK and overseas. Because they are outside of London, they are more affordable, offer higher yields and face less competition for tenants. Studio apartments in these developments have been priced as low as £80,000 and student accommodation apartments with no stamp duty payable have been priced even lower with new build properties priced from £50,000.
The problem for professional landlords with a more diligent HMRC
For those of you based overseas, this is the government department responsible for the collection of taxes. HMRC has started to be more aggressive with chasing landlords who do not declare their rental income on their properties and therefore don’t pay any tax on their income. There are still too many professional landlords out there not declaring.
The advantages for amateur and overseas investors of a more diligent HMRC
A more diligent HMRC helps prevent unscrupulous landlords from expanding and giving the industry a bad name, it also means less competition for properties for investors looking to buy. Amateur landlords, we hope, would always ensure they do a tax return each year, either themselves or with the help of an accountant. If you are an overseas investor, you are known to HMRC as a non-resident landlord. You are a nonresident landlord if you spend more than 6 months per year outside of the UK. If you are a Nonresident landlord, you need to ensure that you complete a NRL1i form from HMRC when you buy a UK investment property. If you don’t complete one of these forms your letting agent is obliged to withhold rent. If a non-resident landlord completes one of these forms, the letting agent can pay rent in full and in most cases any income tax payable is due in your country of residence.