North Manchester Lettings: Advice for First-time Landlords

The decision to enter the property market as a landlord is not one to be taken lightly, but if you’ve been thinking about it for a while, there’s no time like the present to set the ball rolling on your new venture. Manchester is a great spot for property investors – one of the UK’s major cities, it is well connected to the rest of the country by road, rail and air, and has a large student population. Both these factors mean there is always a steady stream of renters looking for the perfect property. If you choose wisely and research your target rental market, you should have no trouble generating interest in you property (or properties).

This article aims to provide practical North Manchester landlord advice for those who are new to the area, or new to the property market.

Decide What Type of Tenant You Want

You might not have any firm ideas of what type of tenant you would like to rent out your property to, but it’s very helpful to know who your market is. North Manchester is popular with a wide variety of renters – including students, young professionals, families and older couples – but not all groups will want to rent the same types of property. Students have become increasingly demanding in the last couple of decades, and the traditional cramped, damp, run-down red brick terraced student properties of the past will no longer cut it. Many students prefer to live in designated student apartments with all mod cons, excellent facilities and good transport links. It’s still possible to rent private properties to groups of students, but students tend to congregate in certain areas, particularly to the south of Manchester, so are unlikely to want to live in a district that is predominantly home to families.

If you want to target families, you will need to think about the proximity of schools. North Manchester has a large number of primary and secondary schools, some more popular with parents than others. Proximity to a good school can have an impact on house prices, but you might also be able to command a higher rental fee if you are in a catchment area of a top school, so you should bear this in mind if your target renters have children.

Young professionals are likely to want a property that’s close to nightlife and shops, or at least has excellent transport links to the nearest decent nightlife. In the case of North Manchester, this is likely to mean excellent links to the city centre – so look for good train, bus or tram links, or at least somewhere that is a short and affordable taxi ride away. North Manchester’s Metrolink tram system is very popular with commuters, so properties near a tramline are always a good bet.

Don’t Over-estimate the Market

As an investor, you have the advantage that you are not part of a chain and you do not need to wait for your own property to sell before you complete. This can be a big attraction to vendors, and may allow you to drive down the price on your chosen property. Emphasise your ability to commit and proceed with the sale immediately when you make an offer, but don’t get carried away and be tempted to pay more than you can realistically afford, or more than makes sense given your likely return on investment. While North Manchester has some highly desirable areas, many districts – such as Harpurhey and Moston – are known for their affordable housing and tend to have something of a rough reputation. No matter how desirable or modern any property you purchase in areas like these, you will struggle to attract renters prepared to pay premium level rents.

Seek Professional Advice

If you have never let out a property before, you will need to ensure you fulfill all your legal obligations. There have been moves to clamp down on unscrupulous and negligent landlords in recent years, and tenants have a number of rights you will need to be aware of. If you are not entirely sure of all your responsibilities as a landlord, seek advice from a professional who can ensure you don’t fall foul of the law. There are numerous agencies with specialist knowledge of the North Manchester rental market and these can help you target the right renters for your property, and help ensure a mutually beneficial relationship for both you and your tenants.

What does the Budget Mean For Us?

What does the Budget Mean For Us?

Earlier this week we met as a team and were notably hawkish about what may come to light this week in the the budget. The chancellor told us what we all already knew, the future is indeed uncertain. In this, the so-called “budget for the next generation” we have a number of key takeaways and thoughts.

Keeping politics and personal opinions out of the blog, we have included below just the facts as we see them, and the major factors that will cause an impact to the people we work with on a day to day basis. We are happy to discuss any of the key points here and how they will affect you. Either call us on 0161 681 3724, or leave a note in the comments section at the end of the blog and we’ll respond and open up the debate.

 

Landlords and second homeowners

Stamp Duty

A 3% Stamp Duty surcharge on second homes and Buy to Let properties from 01 April 2016 will be introduced and larger investors will not be exempt as previously thought from the stamp duty charges, meaning all purchasers of Buy to Let properties will pay the additional tax. This was expected not to be of concern to people owning 15 or more houses however this isn’t the case it applies to everyone.

 

21st March – Mortgage Credit Directive

From 21st March consumer buy-to-let mortgages (on rented properties that are not being used as part of a business) will be regulated by the Financial Conduct Authority (FCA). Second charge mortgages (also known as secured loans) will also come under regulation. This could mean that financing deals become a little harder

 

Taxation

Capital Gains Tax (CGT) will be cut from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers. Residential property sales and carried interest will be exempt from Capital Gains Tax (CGT) being introduced on 06 April 2016.

There will be an 8% surcharge to landlords selling a buy to let property meaning this benefit is not being passed onto landlords. We consider the reason behind this that because of recent tax changes in stamp duty and also the clause 24 meaning less tax relief on mortgages of BTL property’s (unless held in a ltd Company) many landlords are already considering selling if they were to benefit from the CGT reduction this would encourage more meaning an increased amount of property to the market that may create a crash in prices.

 

Rents

We consider all the recent changes in tax and legislation on current landlords will increase the rents. There will be more landlords moving out of the market along with no large increase in building will increase demand. As LHA rates are frozen for the next 4 years this will mean either attracting working tenants or expecting LHA tenants to top up their rents.

 

THE NOTHERN POWER HOUSE

We all have our own views on the current effectiveness of the Northern Powerhouse, or lack thereof, but the budget statement did have some promising news for our region, my key takeaways were:

Homelessness

A major issue for Manchester – and one the government has been under pressure to address.In response the Chancellor strayed out of his usual territory to set up a £115m fund to help tackle rough sleeping. Most of that will be used to provide ‘low cost’ accommodation for people leaving hostels before they get into regular housing, creating 2,000 new beds.

It is also delaying a planned cap to local housing allowance by a year – and getting immigration officials to work more closely with local authorities to send back EU migrants who end up sleeping rough, a significant problem in Manchester.

The city has seen rough sleeping rise tenfold since 2010 and there is no sign of that rise slowing.

It is so far unclear how that money will be allocated – whether it will be done according to population size or the current rough sleeping figures.

Nevertheless the big structural problems that underpin our rising homelessness still remain: cuts to benefits and a chronic housing shortage but this is only expected to get worse by the unfair taxing of landlords

Buisness Rates

Greater Manchester has been handed control of all its business rates in replacement of its main central government grant.

Along with Liverpool and London, the area will move towards a model where it is far more reliant on the taxes it raises from local firms going forward.

At first sight the figures for 2016 would suggest Greater Manchester as a whole will be £80m better off as a result.

However there are all sorts of unknowns – including what happens if a huge economic downturn hits the region, such as when the steel industry collapsed in the north east.

There are currently revaluations taking place across the country, due to come in in 2017, that will be used to reset the amount paid by businesses in rates – so that could dramatically alter the amount of income available to councils.

Within Greater Manchester there is the issue of how the money will be redistributed, given that as it stands areas such as Rochdale and Oldham would lose out significantly compared to those such as Manchester and Trafford, which would gain enormously.

But perhaps the biggest danger is also contained within the Budget: thousands of small businesses – 90,000 across the north west – being taken out of business rates altogether.

That looks dangerously close to making a very generous tax cut – and making town halls pay the price.

Transport

High Speed III train between Manchester and Leeds has been given the green light. This will only help as increased infrastructure and improved transport can only help house pricesProbably the most significant part is £161m for the Highways Agency to speed up improvements to the M62 on both sides of Manchester , but money was also committed towards bringing town train journeys between the two cities to half an hour.

He also found £4m towards the eventual transformation of Manchester Piccadilly – and other northern stations – ahead of HS2’s arrival in more than a decade’s time.

CRIMINAL JUSTICE

Greater Manchester is to become the first English region to get new powers over the criminal justice system.

Chancellor George Osborne used the Budget to announce further devolution of powers to the area.

The change means decisions on offender management, education in prisons and work with youth offenders will be made locally.

The region’s Labour mayor, Tony Lloyd, said “we will have to read the fine print” to make sure there is “no loss”.

The Chancellor also announced the region will get a new prison and will keep 100% of business rates, beginning next year. Greater Manchester Combined Authority, which comprises the region’s 10 councils, said it will have more control of funding to support both offenders and victims of crime.

It is proposing devolving other budgets, including for female offenders, young offenders and those sentenced to fewer than two years in prison, which would mark a major change to the current system.

Announcing the change, Mr Osborne said: “This is the kind of progressive social policy that this government is proud to pioneer”

 

Clause 24 Calculator

In the Summer Budget on 08 July 2015 the Chancellor of the Exchequer George Osborne announced the proposal to remove full mortgage interest relief on qualifying BTL interest and finance costs (which includes costs such as lender application fees) and instead to limit the relief to the basic rate of tax only. This would mean that, when calculating your annual profits for tax purposes you would NOT deduct loan interest and other finance costs to arrive at your nett trading profit. Obviously, the result of this would be to distort the true income derived from letting property and to dramatically increase landlords’ tax bills.

The Chancellor stated that this measure would affect only higher rate taxpayers, but you will see that it would, in effect, turn the majority of BTL landlords into higher rate taxpayers. In calculating your adjusted annual income, all BTL rent (after other qualifying deductions) would count as income, as would any income from employment, dividends, etc. You would then only receive relief at the basic rate (currently 20%) on your loan interest. The way this was announced by the Chancellor made it appear that the relief from 2020/21 onwards would only reduce from 40% or 45% to 20%, but it actually reduces from 100% to 20%.

The actual effect of these measures would be to reduce the nett, take home income for a significant proportion of landlords, whether they are full time professional landlords, or part time landlords, like school teachers, nurses, fire fighters, etc.

The illustrations here calculate the effect of these proposals when they are fully implemented in 2020/21, although during the preceding three years there is a ‘tapered’ introduction of the measures. The illustrations use the current personal allowance, tax rates and tax bands for 2015/16, although you can change them. The illustrations are based purely upon my own interpretation of the proposed new tax rules provided by HMRC, which can be seen in more detail here >>

The HMRC guide above, under the title “Impact on individuals, households and families” states, “It is expected that 1 in 5 individual landlords will receive less relief as a result of this measure.” However, the HMRC have neglected to understand that the top 20% of private landlords own as much as 80% of the housing stock in the private rented sector. Therefore, the impact of these changes in terms of rent increases to offset the tax hike could be widespread.

At this stage these proposals are not yet law, not until they are approved in the Summer Finance Bill 2015 and there is sure to be considerable debate with interested parties before that happens. Even then, the measures will not come into force until April 2017, so there may still be time to influence the Chancellor.

I urge you to use this calculator to demonstrate the effects of the full implementation of these proposals (which for the majority of landlords will be drastic) and to visit your MP to make him/her aware of the crippling effect on your personal finances and to insist that he/she makes the Chancellor aware of these effects publicly in the House of Commons, where it will be officially recorded and come to the attention of the public.

 

Example 1.

Victor runs a carpet fitting business, which is successful, but the workload can be up and down. He also owns 5 buy to let properties, but he wants to grow his portfolio to provide an alternative and stable means of income to supplement the lean times in his carpet business and to provide an income for his retirement.

Tax
Rate
Tax
Band
Current
Rules
2020 Budget
Proposals
£ Tax   Tax
Salary 40,000 40,000
Nett rental income before loan interest & finance costs 50,000 50,000
Interest & finance costs 38,500 38,500
Taxable income / profit 51,500 90,000
Personal allowance 0% 10,600 10,600 0 10,600 0
Basic rate tax 20% 31,785 31,785 6,357 31,785 6,357
Higher rate tax 40% 118,215 9,115 3,646 47,615 19,046
Additional rate tax 45% 10,000,000 0 0 0 0
Loss of personal allowance 40% 10,600 0 0 0 0
Tax relief on interest 20% 38,500 -7,700
Total tax 10,003 17,703
Total nett income (take home)     41,497 33,797
Effective tax rate over personal allowance 24% 43%
Percentage change to effective tax rate 177% Greater than 100% is an increase in effective tax rate.
Less than 100% is a decrease in effective tax rate.
100% means no change to effective tax rate.

 

 

Example 2

John is retired and owns a portfolio of 14 buy to let properties jointly with his wife that they grew over 25 working years as a pension, so they have no other source of income in their retirement. John’s share of the rental income is £70,000 per year and his share of the interest and finance costs is £54,000 per year.

Tax
Rate
Tax
Band
Current
Rules
2020 Budget
Proposals
      £ Tax   Tax
Salary 0 0
Nett rental income before loan interest & finance costs 70,000 70,000
Interest & finance costs 54,000 54,000
Taxable income / profit 16,000 70,000
Personal allowance 0% 10,600 10,600 0 10,600 0
Basic rate tax 20% 31,785 5,400 1,080 31,785 6,357
Higher rate tax 40% 118,215 0 0 27,615 11,046
Additional rate tax 45% 10,000,000 0 0 0 0
Loss of personal allowance 40% 10,600 0 0 0 0
Tax relief on interest 20% 54,000 -10,800
Total tax 1,080 6,603
Total nett income (take home)     14,920 9,397
Effective tax rate over personal allowance 20% 122%
Percentage change to effective tax rate 611% Greater than 100% is an increase in effective tax rate.
Less than 100% is a decrease in effective tax rate.
100% means no change to effective tax rate.

 

Example 3

Mary is a primary school teacher. She inherited the family home after her parents passed away and refinanced it to raise the money for deposits on 4 small buy to let properties. Her salary is £25,000, she receives £24,000 of rental income per year and her interest and finance costs are £15,000 per year.

Tax
Rate
Tax
Band
Current
Rules
2020 Budget
Proposals
      £ Tax   Tax
Salary 25,000 25,000
Nett rental income before loan interest & finance costs 24,000 24,000
Interest & finance costs 15,000 15,000
Taxable income / profit 34,000 49,000
Personal allowance 0% 10,600 10,600 0 10,600 0
Basic rate tax 20% 31,785 23,400 4,680 31,785 6,357
Higher rate tax 40% 118,215 0 0 6,615 2,646
Additional rate tax 45% 10,000,000 0 0 0 0
Loss of personal allowance 40% 10,600 0 0 0 0
Tax relief on interest 20% 15,000 -3,000
Total tax 4,680 6,003
Total nett income (take home)     29,320 27,997
Effective tax rate over personal allowance 20% 26%
Percentage change to effective tax rate 128% Greater than 100% is an increase in effective tax rate.
Less than 100% is a decrease in effective tax rate.
100% means no change to effective tax rate.

 

Example 4

Janet is a professional landlord and has been for the last 25 years. Her family owns and manages a large portfolio of properties that provides an income for Janet, her husband, her two grown up children and their families They house 32 families and 9 single adults and they employ a small team of maintenance staff.

Tax
Rate
Tax
Band
Current
Rules
2020 Budget
Proposals
      £ Tax   Tax
Salary 0 0
Nett rental income before loan interest & finance costs 125,000 125,000
Interest & finance costs 50,000 50,000
Taxable income / profit 75,000 125,000
Personal allowance 0% 10,600 10,600 0 10,600 0
Basic rate tax 20% 31,785 31,785 6,357 31,785 6,357
Higher rate tax 40% 118,215 32,615 13,046 82,615 33,046
Additional rate tax 45% 10,000,000 0 0 0 0
Loss of personal allowance 40% 10,600 0 0 10,600 4,240
Tax relief on interest 20% 50,000 -10,000
Total tax 19,403 33,643
Total nett income (take home)     55,597 41,357
Effective tax rate over personal allowance 30% 52%
Percentage change to effective tax rate 173% Greater than 100% is an increase in effective tax rate.
Less than 100% is a decrease in effective tax rate.
100% means no change to effective tax rate.

 

Example 5

 

You! Use this calculator and tell us in the comments what affect the 2020 proposals will have on your take home income.

 

Access the Sheet here

 



			
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