Manchester property auction - 16th March

The Edward Mellor property auction is due to take place on the 16th of March up at the AJ Stadium in Salford.

The auction current has 64 properties, largely 2/3 bedroom terraced houses located across the north west.

For more information Tel: 0161 443 4740

The catalogue for the Edward Mellor property auction, 16th March 

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If rates rise by 2.5% landlords will be in jeopardy

Forget rental profits, many landlords could soon be running their rental businesses at a loss, reliant on capital growth to off-set an otherwise unsustainable situation according to research by property crowdfunding platform Property Partner.

If interest rates rise by 2.5%, it will push the average UK BTL property into a loss, with an estimated  annual loss of £325 by 2020 and the introduction of Osborne’s mortgage tax relief changes.

They predict that Salisbury, would be the worst hit region - with a prospective loss of £2,984 per year if rates rose 2.5% by the time Osborne’s mortgage tax relief changes came into full effect.

Just 19% of UK towns and cities will see their average BTL property continue to make a net rental profit of more than £100 a month, in the event of a 2.5% rise.

Instead of rental profits, from 2020 onwards, buy-to-let returns would be reliant on capital growth.

The chancellors mortgage interest tax changes could affect 1.7m mortgaged BTL properties.



London, 29th February 2016 -- If interest rates rise by just 2.5% over the next four years, traditional buy-to-let could become unprofitable in seven out of ten UK towns and cities and the average investment property would be making an annual loss of £325, according to research by property crowdfunding platform Property Partner.

Property Partner looked at more than 100 of the largest towns and cities in the UK, to see what impact interest rate rises, coupled with the changes to mortgage interest tax relief, would have on local buy-to-let markets. By 2020, buy-to-let investors will have lost higher rate tax relief on their mortgage interest payments.

Property Partner’s researchers took an average property, let out at a rent typical of the area in each of the towns and cities studied. They then assumed the property was mortgaged with a 60% LTV buy-to-let loan, fixed for three years at 3%**.

Taking the country as a whole, the average annual net profit would be £3,419 today, but would fall to £2,555 by 2020, even if rates remained at 3%, as a result of the phasing out of mortgage interest tax relief. That’s an average drop of £864. But the figures are even starker if interest rates were to rise 2.5% by 2020, with the same average buy-to-let making a loss in more than two thirds (69.8%) of towns and cities, with an average loss of £325 per year.

Which towns and cities will fare the worst? In Salisbury, buy-to-let landlords currently make an average annual profit of £2,200. By 2020, with both a cut in mortgage tax relief and a modest 2.5% rise, they will feel the full impact with debts mounting to £2,984 per year - that is a swing in fortune of £5,184. In Cambridge and Winchester, the reverse in fortune would be even greater, with healthy profits turning into hefty losses. In Cambridge, the average profit today is £4,257 but would plummet into the red with a £2,418 annual loss in 2020. Similarly, in Winchester, an annual profit today of £5,835 would be wiped out, and landlords would be facing an annual debt of £2,169.

The figures also reveal that 11 out of the 20 towns and cities worst hit by the changes to mortgage interest tax relief and a 2.5% rise in interest rates are in southern England. Also, less than one in five (19%) UK towns and cities will make a net rental profit of more than £100 per month.

The following table shows the 20 worst hit towns and cities in the UK in the event of a 2.5% interest rate rise

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Regional tenant percentages by 2025

Ain't nothing going on but the rent. How Britain's housing market will look in 2025 https://t.co/pO4ccz7eqi pic.twitter.com/kOzsyAFGq9

— Mark Doyle (@markdoyle71) February 26, 2016

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London - a city of renters by 2025

London set to become a city of renters by 2025 https://t.co/h1UAcEqOBC pic.twitter.com/Uemi4uRY85

— ES Homes & Property (@HomesProperty) February 29, 2016

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Small scale developers need cash

I've carried out a fair few property refurbishments in my time. Everything from a total refurbishment of a 4 bed derelict property to a quick refurb and refresh of a small one bed apartment. I was reminded of some landlords looking to make a quick development property following a chance meeting at the gym with an old friend who was asking me about raising property finance trough his bank.  Small cost developers need to remember that obtaining finance rarely works out as being cheap.  By the time, bridging finance, set up fees and high levels of interest are factored in then even a small loan can have set you back £5-10 k.

Property development strategy

 Partly because of the above, my strategy apart from one failed attempt has always been to refurb to let. The reason been that for this is that for a small scale developer there rarely is enough in the project to make all the hard work worth it. For instance if you take the hypothetical project of a 2 bed apartment which costs £200,000 a reasonable development profit would be between 10 and 15% generating a net profit of between £20,000 and £30,000. For most people the thought of a even £20,000 for 6 months extra work sounds very attractive and well worth doing with an average wage probably being £25k.  Those who remember the charismatic Sarah Beeney and Property Ladder will recall how time after time some hapless amateur developer would make a fortune from doing up a property wreck.  However the reality is that most would have made money because of the rising market and would have often made more by buying an empty property and sitting on it (without the associated work and hassle).

Finance for small scaled property developments

The route for many small scale property developers is to fund the purchase and development through a bank.  This involves obtaining the approval of your bank manager, the payment of a setting fee and then the ongoing premium interest rates whilst the project continues.  As well as the finance fees you will have the usual legal and associated purchase costs.  For 2nd home and buy-to-let purchasers they will face a 3 % surcharge from April 2016.  All these additional purchase and finance costs not to mention the legal costs when selling (estate agent say 1.25% of the selling cost along with legal fees) all mean that to make money from small scale property development without the tailwinds of a rapid rising house prices mean that genuine opportunities are few and far between.  Having said that I'm currently undergoing one myself but with the benefit of cash I'm not under the pressure of having to pay the interest costs on a loan, bridging loan or mortgage whilst the property is empty.  I have also avoided the sizable upfront set up finance fees and any redemption charges.

In the current climate with competition for property development projects being as intense as ever I cannot imagine what it would be like trying to make money without the luxury of having cash to purchase and then refurbish the property.  Cash for small scale single developments is king.  Without it I would not hope to make a reasonable return unless a landlord was looking at the long-term as is the case in a refurbish to let project.

For more advice on other BTL finance

Net immigration of 323k

Net migration was 323k in the year ending Sept 15, Immigration = 617k and Emigration = 294k https://t.co/EH3m2GS0hp pic.twitter.com/e2lrCFhgQx

— ONS (@ONS) February 25, 2016

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