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The British public has taken the monumental decision to leave the European Union. What does that mean for those looking to invest in the UK’s property market?

An Opportunity for Overseas Investors to Take Advantage of the Pound Sterling’s Short Term Weakness

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The 3% stamp duty increase came into effect on the 1st April 2016, however it was announced in George Osborne’s Autumn 2015 Budget

The increase in stamp duty came as a massive blow to buy to let landlords and many thought it would dampen investors’ spirits and discourage people from property investment. Here, we present alternative options that can reduce the impact of the increase in stamp duty.

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Best places to invest in property

The North West of England tops the charts as the best place to invest for high annual rental yields, whereas the South East benefits from huge increases in house prices

Despite George Osborne announcing an additional 3% Stamp Duty to be levied on the purchase of additional properties in his 2016 Budget, investing in property can still be profitable, and here are the most lucrative areas to invest.

The North West of England topped the tables as the most lucrative area to invest in property to achieve high rental yields; and with four renters vying for each property, there’s no shortage of demand. Conversely, those who have invested in the South East and London would benefit from the increase in house prices. So, where exactly are the best places to invest in property in the UK?

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Was George Osborne’s 2016 Budget completely bad news for buy-to-let investors?

Last week, George Osborne announced his 2016 Budget, and it’s safe to say that buy-to-let investors were once again disappointed with its ramifications.  It was announced that capital gains on buy-to-let will still be taxed at 28%, and an additional 3% Stamp Duty Land Tax (SDLT) will be levied on purchases of additional properties. The higher rate of Stamp Duty Land Tax will also apply to companies that buy residential property. The 3% rise in Stamp Duty will come into place on the 1st April 2016 and apply to those purchasing additional properties in England, Wales and Northern Ireland. The majority of transactions where people are buying their first home or moving house, will be unaffected.

Why is the government penalising buy-to-let investors?

Last year a Five Point Plan for housing was announced at the Spending Review and Autumn Statement 2015. The aim was to increase support for first time buyers and low-cost home ownership, in line with the government’s overall vision to encourage aspirations of home ownership. To do this, the government pledged to:

  • Deliver 400,000 affordable housing starts by 2020-21.
  • Extend Right to Buy to Housing Association tenants.
  • Charge higher rates of Stamp Duty Land Tax on purchases of additional homes, including buy-to-let properties and second homes.
  • Create a London Help-to-Buy scheme, offering a 40% equity loan.

The government will use a proportion of the additional revenue raised through the Stamp Duty Land Tax to invest £60 million into communities in England where the impact of second homes is particularly pronounced. The money raised will also go towards doubling the affordable housing budget.

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Could Britain leaving the EU cause a house price crash, or will the lack of EU regulations attract investors?

On the 23rd June 2016 the British electorate will be able to decide whether the UK will remain part of the EU. The prospect of Britain leaving the EU will affect the general economy, although there is much dispute as to whether the impact will be positive or negative. Furthermore, the prospect of Britain leaving the EU is predicted to have a massive effect on the UK’s property market and possibly cause a house price crash.

KPMG has recently published the results from a survey conducted by their accountants, which found that 66% of real estate experts believed that if Britain was to leave the EU, it would have a “negative impact on cross-border investment”. London is predicted to be the worst affected area due to the sheer number of foreign investors and workers from inside the EU. Similarly, in an annual poll of 100 leading thinkers conducted by the Financial Times, not one thought that leaving the EU would have a positive influence on economic growth within the UK in 2016. This is partly due to all the uncertainty it would cause if Britain then has to negotiate new trading deals with other countries, which would then dissuade – even if only temporarily – company investment and spending.

Surveyors have already admitted that they expect a drop in house prices in the next month due to tax changes, and anecdotal evidence has also suggested that fears over a Brexit could also lead to a house price crash.

What positive impact on the property market could Brexit have?

Some believe that the above is simply “scaremongering” and that leaving the EU will have little effect on the UK’s property market and that there isn’t a possibility of a house price crash. It was predicted that if Britain decided not to adopt the euro as its currency, businesses would move elsewhere within the EU. That didn’t happen, so why naturally assume businesses would move offshore should Britain decide to leave the EU? Of course, property prices in London have surged due to demand from non-British investors, but the link between the demand and Britain’s membership of the EU is tenuous at best. Just 16.5% of buyers are EU members, yet 49% of all prime central London property bought was by non-British buyers.

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The launch of student property investments for individual buyers started back in October 2011. Buyers were attracted to the high yield returns from fully managed properties.

Instead of investing £125,000 is a student property fund, like Coral Student Portfolio, private investors preferred to purchase a studio or en-suite student room. They liked the fact that they owned the leasehold property and did not have to pay a performance fee to the fund manger, thereby keeping more of the Net rental income.

According to Trustnet data, an investment in the Coral Student Portfolio has increased in value by 46.4% over 5 years (at the time of publishing). That is an annual return of 9.28% (before fees).

The high yields of student property have attracted institutional investors. Portfolio purchases have totalled £820 million over the past 12 months according to GVA Student report (Nov 2014).

New funds have been created such as publicly listed and newly established REIT Empiric raised £85million and has been one of the most acquisitive over the past year. Empiric “focuses on acquiring (or developing) assets in target towns and cities with high-quality HEIs, an attractive imbalance of supply and demand in existing student accommodation and a student profile (typically with numerous overseas and graduate students) that supports the strategy of targeting higher rental rates.”

There has been some concern about the impact of the increase in student fees and the potential clampdown on immigration. Nevertheless across the UK, there were a total of 499,370 applications for university places at the end of September 2014 that was a 3.9% increase year on year.

The limit of the number of overseas students that universities can accept has been removed and this should continue to have a positive impact on the demand side of student accommodation.

In a CBRE study of the investment intensions of Pension Funds, High Net worth Investors and Sovereign Wealth Funds; twenty seven percent (27%) had indicated that they planned to invest in student property investment.

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Individual buyers have continued to seek out opportunities that generate high yields. “Our greatest interest is coming from investors of 55 years or age or more,” says One Touch Investment Director Arran Kerkvliet. “Those people that are nearing retirement are seeking steady income that does not require a great deal of management. They are hard pressed to find higher yielding property investments that requires very little time or effort”.

 “The Lightbox” Liverpool boutique student accommodation investment of only 34 units that are located within 2 minutes walk from Campus. The projected Net Income of 9% is underwritten by a developers’ rental assurance for a period of three years and will be managed by an award-winning student lettings company Golding Estates.

The Lightbox Communal Lounge

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An annuity is an income stream that a UK taxpayer buys from an insurance company with funds in their pension pot. From 6th April 2015, new pension freedom reforms come into place whereby a UK taxpayer can now have greater flexibility on how they would like to invest their pension funds.

Previously, UK pensioners had to buy an annuity and at the age of 55 they could spend 25% of their pension pot tax-free. The remaining balance would be taxed at a rate based on their annual income tax threshold.

Annuity rates have decreased from almost 11% in 1990 to as low as 4.5% in 2014. Investors certainly could be better off in exploring other investment opportunities.

The worry is that people may squander their pension funds on holidays and luxury goods. In the short term the spending may give the economy a welcome boost however, it could leave pensioners dependent on family to survive.

The government has set up a free and objective pension advise service called Pension Wise. There have been rouge traders that have set up pages to mimic the Government website and have swiftly been brought down.

Investors should assess their options carefully and look at fundamentals of the markets or assets in which they choose to invest. There is no hurry, it is important to make the right choice. It is not only the steady income stream which people are being mindful of but also considering how the asset can be passed on to beneficiaries and the tax implications.

Annuities are guaranteed income streams and they certainly have their downfalls. A single-life annuity will provide a fixed regular payment at the highest starting rate but once deceased the payments will stop so if you have a partner or dependents they will not receive anything. Guaranteed annuities only pay an income for a certain time, in most cases up to ten years. If you pass away during the guarantee period income is paid to your dependents or can be converted into a lump sum and inherited along with the rest of your estate.

Investors are opening their eyes to opportunities in property investment because it can provide a steady income over an investors’ lifetime and the asset can passed on to dependents with capital growth (unlike annuities).

What investors do not want it is the inconvenience of managing properties during retirement. Buy-to-let properties can be quite time consuming to manage and the repair costs can eat away at the yield. Mortgage rates are at an all time low and the UK is on the verge of deflation but rates will increase at some point and the burden of having a mortgage in retirement is not that appealing.

Income Investment Ideas

Care Home Investments

The UK is facing a serious shortage of care facilities for the ageing population. Britain’s over-65’s now outnumber people under the age of 16 and there is a desperate need for more assisted living developments for the ageing population.

There is a particular scarcity of specialist care homes for dementia patients. The government is making cutbacks on NHS spending and privatising parts of the NHS.

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With £50,000, investors can purchase leasehold care home investments  that will provide care to elderly mentally infirm patients with a 10 year income stream of 10% Net after all management costs.

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Capital growth figures in Manchester outstripped London in 2013 according to Nationwide, the building society. The annual growth rate of twenty one percent (21%) was achieved and it seems hard to repeat. However, when one considers the £800 million pound rejuvenation of central Manchester, attractive growth rates are bound to continue.

The particular area of redevelopment is located only 6 minutes walk from Victoria Station. Known as NOMA, it is a 20-acre regeneration of urban land owned by The Co-operative Group and Hermes Real Estate.

With both beautiful heritage buildings and state-of the-art new structures, NOMA encapsulates the rich history of the city as well as the new focus of a digital economy. Federation House was transformed from a bank head office into New Art Spaces and the flagship of the Castlefield Gallery

Noma regeneration area

Iconic new developments are being built to accommodate the swelling demand from under thirty five year olds who work and live in Manchester.

Angelgate, Manchester buy-to-let property is an original and inspiring development by Pinnacle MC Global. Comprised of 344 luxury apartments in a highly desirable location that will boast views of the Northern Quarter and City Scape.

Market prices start from £108,795.

According to the latest research from Totally Money: Manchester Ranks 4th in terms of rental yields on buy-to-let property.

Housing supply at a 100 year low: 2013 was the lowest level of house building since 1920s – leading to extreme shortage. 29% of Manchester tenants are 27 years of age and they will be buying property in years to come – thereby driving up demand. With supply being so low, prices are set to rise dramatically.

There are more single person households; the demands of the global economy in terms of workplace mobility and a lack of affordability further exacerbating the housing shortage.

Manchester’s potential has already been identified 65 of the FTSE 100 companies now having a presence in Greater Manchester.

Job created by the inward investment in the NOMA regeneration zone through new business and leisure spaces are captivating reasons for outstanding occupancy rates and long-term security of income for investors.

For further information regarding the Angelgate, Manchester Development contact: One Touch Property +44 203 709 4275 or enquire@investmentrentalproperty.co.uk

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