Property Wire debate – The Future of UK Buy to Let - Nova

Property Wire debate – The Future of UK Buy to Let

Our Managing Director, Paul Mahoney, takes part in a debate on the Future of UK Buy to Let.


Moderator: We’re here today to debate, to find out more, and to learn. I’d like to say a thank you to everyone who’s come today. Oh, my voice is getting lighter here. I’d like to say thank you to the sponsors. Without them, it wouldn’t be possible to accommodate everyone. I’d like to say thank you to the panel. We will have ten minutes on six different topics. I will be asking the panel a series of questions. Then after that, we will have about 20, 25 minutes where the audience can ask questions to the panel. I would ask you please not to ask questions of a personal nature relating to your own personal circumstances, and to remember that the panel are not here to give facts or financial advice. If you would like to speak to a particular member of the panel on a particular subject related to your own circumstances, then you may do afterwards during the networking session. I’d appreciate your help on that. Thank you very much. I’d like to introduce the panel. First of all, we have Paul Mahoney from Nova Financial. Over to you, Paul.


Paul Mahoney: Hello, I’m Paul Mahoney. I’m the founder, manager, and director at Nova Financial. We’re a property-investment and finance advisory company. We essentially advise people on how to achieve financial freedom through property investment.


Moderator: Now over to Tony Gimple, Less Tax for Landlords.


Tony Gimple: Hi, my name is Tony Gimple. I’m one of the owners of a company called Less Tax for Landlords, which surprisingly does what it says on the tin. Our role is to help landlords run highly tax-efficient, professional property businesses in order to achieve their personal family wealth goals.


Moderator: Thank you, Tony. I’d like to introduce Richard Blanco, who is a landlord himself, an expert, and here also representing the National Landlords Association.


Richard Blanco: Thank you very much. Yes, my name is Richard Blanco. I am the London representative for the National Landlords Association. I’m also a landlord with properties across six London boroughs. What else to say? Yes, I talk at lots of events like this and I’ve got a blog. We also have the NLA podcast that we publish once a month as well. Up to various things. Happy to be there, thank you.


Moderator: Also Andy [Witten Johns 00:02:31] from Simple Landlords Insurance.


Andy: Hi, I’m Andy. I’m senior underwriter from Simple Landlords Insurance. We specialize in landlords, whether you’re individual properties or multi-portfolio investors. Been doing this three years. Prior to that, I was head of product development at Home Let for about ten years. I have a portfolio of six properties myself.


Moderator: Thank you very much. Now, as time is fairly tight, we will go on to our first major topic. Tax relief and stamp duty. I’m sure these are two points that concern most people in the room. I’d like to start off by asking our panel about the additional home stamp duty that landlords who’ve bought new properties or adding to their portfolios now have to pay. We thought that the Chancellor might do something about this in the budget, he didn’t. The big question of course is is it here to stay. Paul, what do you think?


Paul Mahoney: I hope not. Although it’s here to stay for now, so we can only work with what the current rules are. If it is here to stay, I suppose we just need to deal with it. Those that it’s going to effect most is high-value properties, given the current thresholds are already higher for higher-value properties whereas lower-value properties are less effected.


Moderator: Tony, can you tell us your perspective on this tax?


Tony Gimple: Yeah, suck it up. It’s here. It’s not going to go. It’s a transactional tax. You’ll get it back when you sell it. It’s just the cost of doing business. Is the Chancellor going to make a U-turn on it? Fat chance. The same with section 24. You’ve just got to pay it.


Moderator: Thank you every much. Richard? A landlord yourself, have you paid this tax?


Richard Blanco: I haven’t, no. In fact, I bought my last property just before it came in, so I was feeling a bit smug about that. In fact, there was that small window between when stamp duty was changed from that previous slap system before the three percent surcharge came in was a quite nice time to buy something under a million, and I was very lucky with that. What I would say on the three percent surcharge is in the first six months, the Chancellor collected 670 million. The target was 625 million for the whole year. You can see that it’s been very successful from the Chancellor’s perspective, so I think he’s pretty, or very unlikely really, to not continue with it.


  860,400 people paid the surcharge in the first six months, 60% of which were landlords. It’s not deterring people as much as we thought it might do, although of course the volumes certainly of landing have dropped a lot. There is a general unhappiness about it, lots of lobbying to get rid of it. There doesn’t seem to be much interest in getting rid of it. It particularly adversely effects London of course, because 45% of stamp duty comes from London. It’s really effecting the properties at the top end as well.


Moderator: Thank you. Have you got anything you’d like to add to that, Andy?


Andy: Yes. It’s not really an insurance issue, but we do periodically survey our landlords. The last survey we carried out a few months ago showed that about 32% of them were still planning to increase their portfolios. I think to echo Richard’s comments, I think it’s not going to have a huge impact, I don’t think.


Moderator: That’s an interesting point, because I’ve been rating a property where recently there was some very extensive [research 00:06:08] done by the council of mortgage lenders. In fact, it was the most extensive research they’ve done by the Council of Mortgage Lenders poll. They found it had a similar result to Simple Landlords. They found that the majority of landlords have not been put off extending their portfolio by this additional tax. It’s a little bit of a good news there. Of course, as well as the additional tax, we’ve got the starting in a couple weeks’ time the fact that mortgage tax relief will start reducing. What’s your take on that, Paul?


Paul Mahoney: My take on that. Again, we need to deal with it. Understand how it’s going to effect you, and understand what the strategies are that you can do to mitigate it. I think just finishing off on that final point, that Tony raised a good point there. We found that a lot of people don’t realize that the extra stamp duty is a capital cost, so you will actually get between 18 and 28% of it back depending on your tax position. You know, when you look at the fact that property’s grown in value by an average of around five and a half percent over the past 20 years, you’re getting it back in half a year anyway on average.


  As far as the tax relief goes with mortgage interest, you know, they’ve made it a little bit complicated in my view. Again, there’s a lot of misunderstanding associated with it. A lot of people aren’t really sure how it’s going to effect them or if it’s going to effect them. Also a lot of people think that they’re not going to be able to offset any of the mortgage interest anymore when in actual fact there is a tax credit, so you do get some of it back in some way, shape, or form. I suppose understanding how it effects you, understanding the strategy you can utilize to mitigate it, or to avoid it altogether through various different vehicles.


Moderator: Would you agree, Tony?


Tony Gimple: In a word, yes. Section 24, the removal of mortgage interest relief is yes, it’s an attack on landlords. However, it’s not an insurmountable problem. It is a fact of business an will only effect you if you are either an already higher rate tax payer or as a result in the change in the way the calculation is done, will push you in to a higher rate tax payer. Whatever you do however, do not incorporate your portfolio solely as a means of getting over section 24. On the one hand, yes it gets rid of it completely. On the other hand, you will put yourself in a significantly worse financial position, a highly restricted financial position, and you will pay more and more and more and more simply by being a limited company.


Moderator: Could that also be effected by the dividend change that the Chancellor announced?


Tony Gimple: Well, the dividend change is clearing up some old-fashioned tax law. Dividend income, what part of income don’t you understand? Therefore, shall be taxed as income. In a couple of years also, you know, the whole thing about tax-free dividends will likely disappear altogether. The one thing about being in limited companies, they are totally visible to HMRC. They see every penny in, every penny out, and how it got there and will tax you every stage. Corporation tax. By the way, if you’re holding Buy to Let for the sole purpose of collecting rent for 12 months or more, you’re running an investment company, and it’s beyond the wit of any Chancellor to introduce differential rates of corporation tax for investment companies. You will have dividend tax. You will have income tax, and you will have national insurance. Worst of all, because it is an investment company, it doesn’t qualify for what’s called business relief, and is 100% subject to inheritance tax.


Moderator: Very good, thank you Tony. Richard, what’s your take on this one?


Richard Blanco: Yes, I mean, we shouldn’t forget from a campaigning perspective that the new tax regime is very unfair. It’s very unfair for us to be taxed on our turnover and not on our profits. The NLA wants landlords to be seen as running businesses, and to be taxed fairly as businesses. We’re a bit more pessimistic about the implications. From our research, 65% of landlords say it will decrease their profitability, and it will particularly effect landlords with larger portfolios, so 11 or more properties. There’s also concern about the lack of understanding out there. 52% of landlords anticipate that there will be no change to their business from the tax changes, but of those only 57% say they fully understand the tax changes. We’re concerned there’s a lot of misunderstanding out there, and you know, I’ve certainly spoken to my accountant, and we’ve worked out what my tax bill is going to be on the 31st of January, 2021. I recommend that you do that as much as you can.


  Our latest research says that one in five landlords are thinking of incorporating. I personally wouldn’t recommend it. I’m very pleased to hear what you were saying, Tony. I mean, if you just look at a 300,000 pound mortgage, on Buy To Let, you know, the best rates are 1.59% at the moment, you’d be paying 4,700 a year in interest. If you had to move that to commercial mortgage, because you’ve incorporated, then you’re looking at a rate of around about four percent. Okay, you can get a bit lower, 3.2 I think is the lowest. At four percent, you’d be looking at 12,000 pounds a year. That’s not including the arrangement fee. You know, you’d be paying so much more interest on a commercial mortgage that you might as well just kind of suck up the extra tax. Also, everyone could rush around and get incorporated only for the government to suddenly change the goal post on tax surrounding corporations. It doesn’t feel like the right thing to do to me.


Moderator: Thank you, Richard. Yes, Andy?


Andy: Sorry, yeah. On that whole business, if you’ve got an existing portfolio, you will have to re-mortgage when you move it into a limited company. Things like beneficial company, interest trusts are not the flavor of the month for lenders because they cannot perfect their security. Apart from the transactional cost of re-mortgaging, once you do it in the name of a limited company, a lot of lenders, commercial lenders, will put a de-bencher, a charge on your balance sheet. That will do two things. One, it will make it very difficult for you to use your director’s loan account without consent. Secondly, it ties you to that lender. Because if they lose their appetite, you won’t be able to get a second charge. If you want to buy more property, you’ve got to repeat the whole exercise again. New company, new lender, new de-bencher, and so on. I’m pleased to say there are ways where you can legitimately not suffer from section 24, reduce the overall taxation across the board, and grow your portfolio very successfully as a result.


Moderator: Who are they consulting to get advice on that? From their accountant, or a tax lawyer?


Andy: Okay, all right. Without-


Moderator: It’s quite clear that incorporation is not a coping strategy for this.


Andy: It is definitely not a corporate.


Moderator: Where does a landlord go to get the right advice?


Andy: You’re between a rock and a hard place on this on, and you can very easily end up as a victim. The vast majority of accountants are A, backward-looking, and two are not entrepreneurs. Sorry, and three, haven’t got a clue about running a professional property business. They’re great for your box standard limited company accounts or personal tax returns, but running a professional property business is a highly specialized subject. There are only a handful of firms in the country who can pull everything together to give you what you want.


Moderator: Thank you very much, Tony. Now, in a word, if I could ask each of you, is this going to have an effect on future investment? In a word, Paul?


Paul Mahoney: Yes. It will have an effect. I think all of these changes, you combine the stamp duty with the mortgage interest relief, and then you combine that further with the way that lenders are now looking at how much you can borrow for a buy-to-let property and the rents you need to cover that. It increases the importance of yields, you know, the age-old strategy of buying and just breaking even for the purpose of growth. You know, that’s being put into question.


Moderator: We’ll come on to you later, so-


Paul Mahoney: Sorry, I won’t go to much on that. I suppose I think the effect is that the strategy needs to change slightly. It’s going to effect mostly higher-value, lower-yielding properties.


Moderator: Thank you. You agree, Tony?


Tony Gimple: Actually, no I don’t. Sorry, Paul.


Paul Mahoney: That’s all right.


Tony Gimple: At the end of the day, if you’re running a proper business, it won’t make a blind bit of difference. You mustn’t let the tax tail wag the planning dog.


Moderator: Richard, you’re nodding there.


Richard Blanco: Yes, I am. Because I worry about people organizing their business around today’s tax regime, because it may well change tomorrow. You need to have some sound business principles in place there for your business. You need to know what your business model is, where you’re investing, why, what your product is, have plenty of spreadsheets that show the whole thing adds up. I think that tax changes will effect levels of investment, and the research suggests that 16% of landlords are planning to sell. 16% of landlords are also planning to expand, so there’s a kind of mixed picture there. There’s no doubt that if you are expanding you need to be a much more savvy investor now than you could be ten years ago. You really need to think about buying in areas of infrastructure improvement to try and be more secure about any capital growth. The focus must be on yields, and I’m sure we’re going to talk about that more. You need to really know about licensing and article four directions, and this plethora of regulation that we’ve had over the last few years. It’s a very different business really that people are coming into now than it would have been a few years back.


Moderator: Any last word there, Andy?


Andy: Yes, I guess just to echo some of the comments we’ve already seen. From our survey, almost 90% of landlords did expect to be a landlord in two years’ time. We’re not seeing a plethora of people looking to sell out. In fact, we’ve seen a 25% reduction in people canceling policies over the last 12 months because they’re selling the properties. I think what we’re seeing is investors are sort of sitting tight, and they’re waiting to see what happens next.


Moderator: Thank you, Andy. I’d like to go on to our next major topic, which is the B word. Brexit. Right. Paul, is this good or bad news for landlords, or indifferent?


Paul Mahoney: Well, I suppose similar to all the other changes we’ve already discussed, it’s about working out a way of dealing with it. Obviously, the impact will all be determined by the terms of what Brexit actually is. I don’t think anyone knows what that actually is at the moment. I suppose echoing some of the words that were just mentioned, it’s basing your investment on solid fundamentals that will stay solid regardless of changes with Brexit is probably the wisest move.


Moderator: Tony, what are your thoughts on this one?


Tony Gimple: Welcome to a free and independent Britain.


Richard Blanco: You’re in the wrong region, I think.


Tony Gimple: Ah. I come from immigrant stock, so I’ve got brown on me. My lot came from eastern Europe. When they dig it up cross rail, they found an old cemetery, did DNA analysis, and the ethnic mix was no different 500 years ago as it is now, and we fought the same battle then when Henry kicked out the Pope. We’ve been fighting ever since. Truth of the matter is, London, Britain is the center of the known universe. We are all here for a reason, yeah? I was asking my Bulgarian dentist why he came here, and he said, “Money.” Bingo. Apart from Iceland and the Galapagos, they’ve stopped making land. We, on the other hand, have not stopped making people, all right? Brexit, at the end of the day, won’t make a blind bit of difference. You still need a roof over your head, not everybody wants to buy, not everybody can afford to buy. The market’s here.


Moderator: Richard, have you-


Richard Blanco: Is Brexit good or bad for landlords? Well, it’s definitely hit the market, and uncertainty isn’t good for the market, is it? We’re definitely seeing a fall in tenet demand. In our research, 14% of landlords reported a decrease in demand, and 43% in central London. It’s falling at its highest level for over five years. I’d had two properties on the market in the last few months for rental, and it’s certainly been a lot slower than I’ve known it for some time. We’re also seeing a rebalance between first-time buyers and landlords. According to countrywide research, in 2015 only 16% of first-time buyers, oh I’ve got this the wrong way around. 11% of first-time buyers were beaten by, oh no, that’s it. 16% of first-time buyers were beaten by landlords when they were trying to buy, and only 11% were beaten in 2016. The idea is that there’s a rebalance that’s making it easier for first-time buyers to beat landlords, which of course is what the governments wants.


  I think probably what’s a bit more interesting than the impact of Brexit is where we are in the house price cycle. If you think the recession began in 2008, we’re nine years on now. When is the next recession going to be? You know, when is the next peak of the cycle going to be? Are we already at the peak? Have we already seen prices start to drop? That’s what I’m most interested in, because I think I will probably start selling at the next peak, at the peak of the next cycle, which I think will probably be sort of somewhere in the middle of the 20s. That’s something that I’m trying to get my head around at the moment. It’s very hard to get a sense of that, because of course we’ve never had a Brexit before, we’ve never had a Scottish referendum with a Brexit. It’s really hard to know what’s going to happen. Uncertainty, I think, is the name of the game at the moment.


Moderator: Andy, also if I could direct you to the issue of regulation. We’re all banged by a massive EU regulation, which I think if you read the headlines, are all going to melt away. How are landlords, with their insurance and that aspect of their business, going to cope with Brexit?


Andy: It’s an interesting question. I think uncertainty’s probably the key word. Our research indicates that people are sitting tight, and they’re going to wait to see what happens. From an insurance perspective, I don’t see the landscape changing dramatically over the next few years. Capacity will still be there, landlords business for insurance is good business. I don’t see the rates changing at all purely because of Brexit, but uncertainty does carry a little bit of risk, a bit of the unknown.


Moderator: Demand post-Brexit. Anything there, Paul?


Paul Mahoney: I think if you look at the demand at the moment, you know, we have a requirement for 300,000 new units per anum, and we’re building around 150 to 170,000. Only about half of what’s required, and that’s UK-wide. You look at London, there’s about 50,000 we require and we’re building about 20,000. There’s a huge imbalance there. I think that’s one of the major concerns with Brexit, that imbalance is going to change. It will have to change very significantly for it to have a major impact on the market, which I don’t think it will.


Moderator: What do you think about it, Tony?


Tony Gimple: I’ve probably been seeing about five new people a day every day for the last six months. All pretty much existing landlords and some new. Yes, people were concerned about Brexit, but at the end of the day, they’re actually more concerned about making money for themselves. What it has shown is that you need to concentrate on yields and not on capital growth. That can be a real recipe for disaster.


Moderator: We’ll talk about yields in coming up, yes.


Tony Gimple: Ultimately will Brexit made a difference? Maybe. Who knows? We’re back to that same basic fact, there are more people needing homes than there are homes available. Whilst demand exceeds supply, the economics will speak for itself.


Moderator: Would you agree, Richard?


Richard Blanco: A lot of what’s driven demand, particularly London, has been EU migration of course. I think there are a lot of unknowns here. We were expecting the population in London to increase by one million over the next ten years. Does that still hold true? Certainly the birth rate is very high in London, so there are lots of new people being created by the existing population. Anecdotally, it feels like, you know, I house quite a lot of eastern Europeans, and it feels like people are less willing to commit to new 12-month contracts- a last few people’s cousins coming over and so on before Brexit. I feel like there’s a lot of uncertainty really. There’s the whole question over whether landlords with larger portfolios will sell off some of the properties because it just simply won’t be profitable to keep them all. Certainly, I’m at a point with my portfolio size where there’s absolutely no point in me buying any more properties, because any additional profit would just get eaten up by tax.


Moderator: Andy, post-Brexit, hunky dory?


Andy: I think we’re just going to have to wait and see. It’s uncertain. Certainly from an insurance perspective, we don’t see much change coming in that respect.


Moderator: That’s lovely, thank you very much. I’d like to move on now to the big one, yields and costs. It’s been mentioned already from the panelists that yields will need to be looked at. Ignore where your figures are in order to survive in this post-tax change Brexit world. How are yields going to be impacted, Paul, by all this change?


Paul Mahoney: I don’t necessarily … Well, if we’re talking net yields, of course any increased cost would reduce the yields. I think the common theme throughout the panel is more so that as a landlord, yields are becoming more important, and making sure you’re assessing your current portfolio and any future investments on a yield basis more so potentially than you would have before. Especially if generally in the past, when you’re looking to create wealth, the main focus would have been just capital growth. That’s all well and good, but if you can’t support your portfolio, especially in a higher-interest rate environment, then you’re not going to get there. Making sure you’re putting enough emphasis on that, that you can support your portfolio and continue to grow it, but if you’re an existing landlord then understanding how these changes might effect your net outcomes.


Moderator: Is the key. Anything to add to that, Tony?


Tony Gimple: Show me the money, and pay me before I start, and let the cash register ring whilst I’m on the beach or asleep. Relying upon capital growth is something over which you have zero control. Because the growth in property values is largely based on sentiment. A bit like equities. Rents, however, yields, you can control. Our feeling is anecdotally, observationally, practically, that if you’re a landlord how much can you sweat that particular asset to get the income you want? Once you’ve got the income, you can turn that into capital 40 ways from Sunday. Simply relying on the capital growth in order to create your wealth is outside your control, and if you get unlucky like I did when we came out of the ERM back in the 90s, you end up with mega negative equity and real pain. Our advice is borrow as little as you can, maximize the rents as much as you can. If it’s worth anything as a capital value when you get up to sell it, whoopee do. You’ve already had the money beforehand.


Moderator: Thank you. Richard, how are important are yields from your perspective as a landlord?


Richard Blanco: Yes, from my perspective as a landlord, my minimum yield was always six percent when I bought. I’ve always bought at auction and sort of bought wrecks and refurbished them and tried to add value to the property. Yields are very important to me, and they’ve been really important in terms of buy-to-let mortgages because I’ve then been able to add value, refinance, buy more properties, and so on. I’ve always been a bit shocked where people buy properties with yields of three and four percent, you know, and only just make the thing work. The NLA research tell us that the average yield is 5.8%, and that’s rental yield, and 84% of landlords currently make a profit. Most of us are making a decent profit.


  I think yields are going to come much more into focus this year with the change in buy-to-let lending rules, because you know, where currently it was probably pretty easy to get a 75% mortgage, certainly in London, I’ve gone back and recalculated some of my loans and I would have got 58% loan-to-value on the new criteria that the Bank of England is forcing lenders to use. I think landlords are going to be chasing much higher yields, and possibly looking in areas where they’re not used to looking, and trying to rent HMOs, et cetera. Getting harder though of course with article four directions, so you really need to get on top of that sort of regulation and make sure you don’t write a business plan that means buying lots of HMOs in Newham because you’ll never get a license for them.


Moderator: Thank you. Andy, how does yield impact when you deal with people related to their insurance?


Andy: Well, yield’s obviously key to this market. The cost of insurance would have to come out of that. What we’re expecting to see at Simple Landlords is people diversifying portfolios. We’re investing in that part of our infrastructure, so we’re looking at HMOs as Richard mentioned, we’re looking at people insuring mixed commercial, potentially even going into holiday lets. Areas that typically generate greater yields, but do carry more risk.


Moderator: Thank you very much. Now, I’m just going to be very naughty and ask you for a prediction. We’ve been lucky to have rock-bottom interest rates. There’s still no signs the Bank of England kept them the same again. Paul, who are they going to start going after? Very briefly.


Paul Mahoney: Well, I think the best way to determine any … The financial market in general, just obviously different things determine impacts, but if you have a look at the interest rates, how they’ve worked in the past, generally they’ll move in one general direction for some period of time. They’ll then plateau, and because monetary policy is a slow fix, it takes at least two to three years for a change in interest rates to work its way through the economy. Generally what will happen is they’ll move in one direction, they’ll plateau, it’ll take some time for them to have their impact, and then they’ll move in the other direction. I think we’re at that plateau. Although inflation’s rising, I think with things like Brexit and uncertainty, the interest rates won’t go anywhere anytime soon. If I’m to put a date on it, I’d say they’ll probably stay where they are until around 2019.


Moderator: What do you think? When are they going to start going up, Tony?


Tony Gimple: Yes.


Moderator: When?


Tony Gimple: Sorry, I’ve got two eyes. I’m not the cyclops. I don’t have the gift of foresight, nor do I have a crystal ball, which is ever clear. Interest rates will rise. When? I don’t know. Does anybody actually know? Make hay while the sun shines. Keep it fixed rates. Don’t over leverage. I’ve seen interest rates back to the ERM days go from four percent to 15% pretty much overnight. As long as you don’t overextend, as long as you don’t over leverage, when they go up, it won’t come as a shock. Once they’ve gone up, given time, they’ll come down again. When? I’ll give you some kind of prediction, since that’s what you want. The next time we get a labor government, interest rates will rise.


Moderator: Richard?


Richard Blanco: I’m always a bit shocked at how nervous people are about interest rates. You know, I hear people say, “I’m going to get a five-year fixed because we have no idea where interest rates are going.” I think it’s important to make sort of evidence-based decisions on interest rates and look at the economic factors as Paul has suggested. I don’t think we’re going to see an interest rate rise before Brexit, because I think although inflation is going to go up, the Chancellor thinks it’s going to peak, or the OBR think it’s going to peak at 2.4%, which is not a big issue. Interest rates could go up to try and bring inflation down, but I don’t think they’ll need to.


  The EU euro zone is still pretty fragile economically, and so I think we’re looking at a good two years of having interest rates more or less where they are. I suspect we’ll see rises start some point thereafter, maybe three plus years on. They’re going to be gradual when they eventually go up. Don’t forget that people have been saying interest rates are going to rise in two or three years for the past five or six years haven’t they? You know, there’s lots of unknowns still.


Moderator: Any thoughts on that one, Andy?


Andy: I think I’m going to have to bow down to my colleagues expertise in this area. Personal opinion, I’m with Richard. I can’t see anything happening pre-Brexit or even post-Brexit for another year or so.


Moderator: That seems pretty [concise-ive 00:33:09]. Thank you very much, gentlemen. I’d like to move now onto insurance. We’ll start with you on this one, Andy. Again, looking at stability of costs and in the insurance sector, what’s your view on that?


Andy: Well, there is uncertainty, as we’ve mentioned. Insurers obviously see that as well. Their return on investment is being squeezed, as is everybody’s. Generally, you can probably expect to see costs start to creep up. The flip side to this is we’re going through a relatively benign weather period, so from an insurer perspective, the last sort of 18 to 12 months have been quite good. There’s been no significant weather events, so that helps rates stay low. Buy-to-let is good insurance business, especially investors portfolio business again. I think that will temper the rates that insurers try to put in, but what I would say is that there is something, because insurance premium tax, which is being crept up steadily over the last few years. 18 months ago, it was at five percent. It’s currently at 10%, going up to 12% in June. Probably going to go up to 20% at some point. I think-


Moderator: That’s a pretty steep rise.


Andy: It is a steep rise, and it’s a little bit under the radar, so I think the increase in insurance costs you’re likely to see will be predominately IPT related.


Moderator: Thank you. Richard, obviously you have insurance.


Richard Blanco: Yes, I have lots and lots of insurance policies. My advice on this is don’t be too passive as a consumer, because you get that renewal form through, and it sounds about right, so you just pay it. You know, I would say don’t do that. I keep a spreadsheet of all of my insurance premiums. I know what they’ve been for the last four or five years on each property. I have a look at whether it’s gone up much, and if it has, then I call the insurer and see if we can look at another underwriter and get it down. It’s one of those things where you need to make sure you apply some pressure on the cost, I think.


Moderator: Do you track with this with landlords who need advice, Tony?


Tony Gimple: Yeah, I mean insurance is always on the agenda. Most people don’t actually understand how insurance works. It’s the second largest capital market in the world. It’s got very little to do whatsoever with risk transfer at all. It’s can I get a return on my capital. That’s what underwriters and the people who fund them actually do. The other great influence on it is the weather. If there’s a particularly bad hurricane season, everyone at Lloyd’s goes, “Ouch.” They have to get the money back, so premium rises. The trick with insurance to get the best possible rates, taxes to one side, is to act as if you weren’t insured.


  Manage your affairs in such a way that you minimize the risk. You know, better quality appliances, better quality labor. Have stuff that doesn’t break. Have stuff that you maintain regularly. Ultimately, it’s what are known as the forced majeure events. The bloody house burning down, the lighting hitting it, the flood that you can’t control. Those are the bits that you really need to insure. Don’t look around for the cheapest. The lowest price typically gets you the worst cover. Speak to somebody who knows what they’re doing. Get the right cover for the right risk. If you pay a bit more, you pay a bit more. What you want is when the worst does happen, they send you a check and not a loss adjuster who’s going to beat you down.


Moderator: Paul, all investments need to be insured?


Paul Mahoney: Well, they should be. They don’t necessarily need to be. We advise on insurance. I agree with Richard. Insurance is a lot like finance. It’s worth reviewing all the time. Often you get the best deal at the point of putting it in place. If you forget about it, you’ll often notice that the prices are increasing, and that you can get a better deal elsewhere. Reviewing it constantly, making sure you’re not overpaying, reviewing what it includes, and that you have in place the inclusions that you want or need and that are relevant to your property or to your portfolio, and balancing costs with benefit.


Moderator: Thank you very much. I think we’ve covered the value of it. Can I ask you each for a top tip on insurance? Andy?


Andy: Yeah, I’ve got a couple actually. I think just to go back on some of those comments, I would absolutely agree that the cheapest is not always the best. Make sure you have the right levels of cover, make sure you’re not overpaying. Certainly do not see insurance as an area where you can cut back, and do not intentionally under insure. I think those are false economies, which may hurt you in the long term. Top tips, as Tony says, risk management. Inspect your properties, especially if they’re void, escapable to claims, devastating for an empty property. They’re our second-highest claims at Simple Landlords. We’re also seeing an increase in cannabis factories, so reference your tenets. Drive past your properties. If the windows are boarded up, shuttered, if it doesn’t look right, get friendly with the neighbors. Just become more aware of what’s going on in the properties.


  As far as tips in terms of cover are concerned, something that’s often overlooked is your voluntary excess. This is where you take on an element of the risk yourself. 95% of Simple Landlord customers have an excess of 300 pounds or less. That accounts for portfolio landlords as well. I have a very small portfolio, but I have a network of contacts in building, plumbing, decorating trades. For a relatively small increase in your excess, so you could go up to 500 or a thousand pounds, you can get actually quite significant decreases in premium. You could be looking at over 20% reduction in premium for a relatively small increase in excess. One of the reasons being is insurers, it costs money to handle claims, obviously. The smaller claims are the claims that cost quite a lot of money to handle relative to their value. From an insurer perspective, you can cut out the low value claims, you can actually make quite good savings on your portfolio. I think my top tip would be look at your excesses and see if you’re willing to take on an element of that risk yourself.


Moderator: Thank you. One quick top tip, Richard, please.


Richard Blanco: Well mine would be don’t claim unless it’s something really major. Avoid anything to do with subsidence like the plague, because it’s been a complete kiss of death insurance wise. Inspections of properties, make sure you do regular inspections to see if they’re any actual houses, et cetera, et cetera, and also when the property’s empty you need to do regular inspections these days as well for lots of insurers. You will often just end up on flea cover, so you need to kind of learn about that and what that is and what the best insurers are around empty properties.


Moderator: Thank you. Tony?


Tony Gimple: To tell the truth. Nondisclosure of a material fact will invalidate your claim. Keep it straight, and you’ll have the coverage you want.


Moderator: Paul, quick top tip?


Paul Mahoney: Assess your options through independent advice unless you’re particularly savvy with insurance yourself. Speak with someone who knows what they’re talking about that isn’t just trying to sell you something.


Moderator: Thank you. I’d like to move on to your next topic, which is build-to-rent. The government seems to have something discovered, build-to-rent. Let’s put lots of money into it, let’s put lots of big, mega developments on the goal. Let’s start another dig at an ordinary landlord. Anyway, it’s difficult to work out what’s going to happen. I certainly struggle with it. Is it going to have an impact on smaller landlords? Paul? With the big developments planning mega tower blocks, and renting them out to young professionals.


Paul Mahoney: Potentially. I think in my opinion when you’ve got a big development office, arrange your facilities, it is going to be more attractive than the stocks down in residential property around the corner that doesn’t offer those things. Again in my opinion, it’s a bit of if you can’t beat them, join them type of situation. You know, you can invest in those similar-type properties, and you can offer those facilities, and you can compete with these big funds that are also building these developments because that’s what young professionals want these days. If that’s your target market, you need to make sure you’re offering what the target market wants.


Moderator: What’s your take on this one, Tony?


Tony Gimple: Pretty much the same. It’s just another manifestation of a current market. Actually, it’s a really good idea, build-to-rent. It’s a way of dealing with some of the social housing crisis. Property development, either in terms of flipping or keeping them yourself and managing those rented properties, is a perfectly good business strategy and should be part of how you diversify your portfolio. Will it kill the individual buy-to-let? Probably not. Once again, demand exceeds supply. There will always be the right property for the right person in the right area.


Moderator: Are you ready to invest, Richard?


Richard Blanco: No, not in build-to-rent. It seems to be the sort of fatty, fledgling business up until recently. I think something like 15 housing associations have got involved in build-to-rent. Four percent of new starts in 15, 16 were build-to-rent. In London, 25% of new starts last year were build-to-rent. That’s still a drop in the ocean really. The Greater London Authority thinks that most of the properties being built are serving those upper echelons of the market. If you think about all of those student new builds that are put up in places like Nottingham and the northeast and so on, the other landlords who provide terrace housing and et cetera still survive. There’s still demand for both types of property. Hopefully we will be able to survive alongside one another.


Moderator: Andy, would Simple Landlord look to this area?


Andy: It’s not an area that’s really on our radar yet. We’re keeping a watching brief on it. We’ve not had much feedback from our landlords on build-to-rent, so I think it’s watch this space. It may be one of those things that actually it’s quite a good sound bite, and so it sounds a lot more impressive. It was interesting to hear Richard’s stats, because they’re actually, in the big scheme of things, not that much.


Moderator: Has anybody got any thoughts on how this will effect rental rates in the buy to let sector, if at all?


Paul Mahoney: I think it depends on the types of properties you’re investing or that you have. If you’re investing in a 20-year-old apartment in a city center, and a nice new build-to-rent development opens up across the road, then I think there’s no doubt that it could potentially effect you. It does all tie back to the supply and demand. You know, if in most of the cities UK-wide, predominately for the past sort of 10 to 15 years there’s been a major under supply, so there’s a huge backlog. We’re still under supplying year on year. The demand is quite strong, however we certainly encourage our clients to be investing in properties that are going to be most desirable to the target market, because that’s what’s going to drive rents and that’s what will also drive your resale values.


Moderator: Tony, is there going to be an impact on rents?


Tony Gimple: Not a clue. Do you want an honest answer? I don’t know, you know? It may in some areas, but overall it will balance out. Even if it does have an impact on rents, as long as you’re not over leveraged, it won’t make a great deal of difference. You will make money.


Moderator: Richard, are you worried by build-to-rent?


Richard Blanco: Not really, no. I think London’s rent market is dysfunctional. You can rent absolutely grotesque properties, because there’s so much demand. If build-to-rent improves standards, it means that that lower end of the market drops out, then that will be all to the good I think. The government’s quite confused in terms of policy around this, because you know, stamp duty-


Moderator: I’m glad I’m not the only one that’s confused.


Richard Blanco: Because actually, if developers want to buy land to build build-to-rent, if it’s over more than 1.5 million then they’re paying those higher rates of stamp duty, so it’s a kind of built-in deterrent there. I think a lot of it’s due to as well investors as well are put off by these constant layers of regulation that keep coming out, and also the shifting tax environment. What institutional investors need is long-term certainty, and I’m not sure the government’s creating the right environment for that.


Moderator: That’s very kind. I’d like to move on to our final topic, which is letting fees. I get confused about this as well, because I come from Scotland, where we don’t have letting fees. I think they’re going to be interesting in England, and I don’t know what’s happening in Wales, so I’m going to go over to the panel. Letting fees. The government wants to abandon them. What will this mean for rent, for agents, for cost?


Paul Mahoney: Well, Richard might disagree with me on this one, but I don’t think that landlords determine rents. You know, a lot of people talk about landlords needing to increase rents to account for these new costs that they’re going to have to pay. My view is that the reality is landlords aren’t that organized. They don’t all meet every Friday and say, “Let’s increase rents.” Which means rents are determined by the market. We’ve spoken about supply and demand so much today, that’s what it’s determined by. If you increase your rent, your property just won’t rent. It might rent. You might rent it for a year, but it won’t rent as readily as if you were renting in competition with the rest of the properties in the market. You know, I suppose if it does result in the cost being passed over to landlords, it’s another cost which ties in again with what we’ve been discussing. It’s going to hit your net yield, and again increases the reason to be looking at yield more closely.


Moderator: Tony, what’s your take on this one?


Tony Gimple: Suck it up. Forget it. It doesn’t make a blind bit of difference. It’s yet another transactional cost of doing business. If there is a letting fee, if there is no letting fee, do I care? No. As long as the portfolio that I run yields the amount I want it to yield, that’s just the cost of doing business. It’s like VAT or window tax or an estate agent’s fee when I sell my property. Immaterial at the end of the day.


Moderator: What’s your experience of letting fees, Richard?


Richard Blanco: Yes. My experience is that I use, in common with lots of landlords, I use letting agents occasionally on a let-only basis, and I usually try to negotiate the fee down. I’m not happy at all with renewal fees, which we have in London, which I think are just money for old ropes. It’s very important to negotiate that out of the transaction. We’ve been doing some research on it at the NLA, and eight in ten landlords think that their charges from agents will go up, interestingly. 40% of those said that they would pass those on in rent increases, although I agree with what Paul’s saying. I don’t think landlords control rents, I think the market does. This idea that you know, we can just shove up the rents, I think it is ridiculous.


  I don’t see letting agent fees going up as a response. I think there’ll be too much competition. I think there are too many letting agents. I think we’re going to see an erosion of the number of letting agents because of what’s going on online, and I think there are too many ropy agents out there as well that need to up their game. We’ve seen some good work in east London where Newham for example is with their 190 agents in the borough are introducing naught to five sort of numbering scheme, a bit like the environmental health thing, you know, the numbers on the doors, scores on the doors thing where they’re going to rate all of their agents. I think we’re going to see increasing pressure on agents to up their game and improve.


Moderator: You’re in favor of more regulation of letting agents?


Richard Blanco: I absolutely am. I think it is. I agree with, I can’t remember who coined the phrase, that is a bit of the wild west really of the rental market. It angers me that landlords get blamed for what is often the fault of agents. There are some very good agents out there of course, but there a lot of ropy ones. This whole business of shelter campaigning for three year mandatory tenancy agreements is because, you know, agents want churn, and they want to move tenets on every 12 months. As a landlord, I don’ want that. I want my tenants to stay as long as possible.


  In fact, on average, tenets stay for over four years. You know, it’s a bit of a love-hate relationship, I think, between letting agents and landlords. I personally don’t think it’s fair for them to charge tenants fees. The NLA’s view on this is that it’s reasonable for them to charge fees where they incur costs. The devil will be in the detail on this. For example, referencing fees. If there isn’t a reference fee to the tenants, then the tenant could just say, “Go on. Reference me.” Even though they know they’ve got a CCJ and they might ask four or five different agents to reference them at the same time. There could be kind of a lot of wasting of money going on there that wouldn’t happen if the tenant had to pay the fee.


Moderator: Does this impact on your business at all?


Andy: Slightly, I think. I mean, I completely agree with the panel that the market will dictate rental prices. I think impact on insurance is if a landlord does look to increase rent, you might see more void periods, so you need to be aware of that. If you decide not to reference because of the fees, then you might invalidate some legal or rate guarantee policies, so you need to be aware of your terms and conditions. Other than that, I don’t think it will be a huge impact.


Moderator: It’s just another cost, isn’t it, that we could do without.


Andy: Yes, of course you can do without another cost, but it is another cost. It’s a fact of business. It costs to do business. Whether you’re a landlord or a corner shop or anything else, you have to pay to trade.


Richard Blanco: It’s the tenets here that are benefiting, don’t forget. I think, you know, they’re often paying … I had a tenant who rents one of my properties and they’ve decided to rent another one for some family that are coming over. They’re saying, “The great things for us is we’re saving 700 pounds in fees from a letting agent.” It shocks me that they’re having to pay that much. I personally don’t feel very comfortable with that. I think the argument is quite strong actually in favor of tenants not having to pay these fees. I don’t think it’s going to effect us very much as landlords.


Moderator: Thank you very much. I’d like to thank the panel. I’m able to move on to open questions from the audience. If I could just say, if you would like to ask the question, if you could stand up, say who you are, if you’re from a company if you could say which company you’re from, and also which panelist you’d like to address your question to. I’d like to open it up. Who’s got a question please? Don’t be shy. Yes, this lady in the front here.


Angela: Angela, Alice Jones. I’m wondering if you could explain the ways in which one can get around the restrictions introduced in his budget by George Osborne and enable people nevertheless to make money out of buy-to-let.


Paul Mahoney: I assume you’re referring to mortgage interest and the way it’s treated from a tax perspective?


Angela: Yes.


Paul Mahoney: The ways of getting around it … As Tony quite rightly mentioned, the change doesn’t actually effect anybody who’s on the basic rate of tax, which is a common misconception we find. Something you do need to be careful of is that the way the changes have been done, you can be pushed up. That generally happens if you’re borderline anyway which means that as of April this year if you’re earning less than 50,000 pounds per anum, the changes won’t actually effect you at all. I suppose one way of taking advantage of that is we find that most of our clients are couples, and one is earning more than the other. Having an investment in the lower-earning person’s name is one way around the change.


Tony Gimple: It’s not quite as simple as that in that below the 50,000 threshold, but as a result of the way the calculation is done you can end up being over the 50,000-pound threshold. At the moment, you would deduct … You’ve got gross rental income, minus expenses, minus mortgage interest gives you effectively the pre-tax profit. From the sixth of April, it’s gross rental income minus expenses gives you your pre-tax profit, and then you’ll get a tax credit on the remaining sum. That can easily be enough to push you into the higher rates. Is there any way around it? Well, it comes down to structure. Probably the most effective way of owning property is using a hybrid, which is a combination of personal ownership, limited liability partnerships, and limited companies all in conjunction. Providing that you’re running this as a business, you don’t fall foul of the mixed partnership rules, and effectively at that point, section 24 or any of the other nasties like inheritance tax will cease to effect you.  That’s a very simple answer, simulated for the more complex one.


Moderator: What about inheritance tax? Are there changes coming to that that may effect landlords? Something on the pipeline?


Tony Gimple: Inheritance tax is state-sponsored grave robbery. It’s been around forever, you know. Bear in mind, it’s the state protection racket. That’s how it works everywhere in the world, it always has. I hate inheritance tax. It’s the most pernicious of all taxes. Investment properties, investment businesses, non-trading businesses are all fully subject to inheritance tax at 40%. The only way that you can deal with this is either to run a trading business, which is properly constructed, a property business can be. My favorite solution for inheritance tax is die with [throp-ance 00:56:33]. A penny for each eye, and one for the ferryman, and have some fun. Don’t worry about leaving it to the kids. You’ve had them, fed them, clothed them, educated them, what more do they want for goodness’ sake? Sex and drugs and rock and roll is much underrated, okay? Enjoy yourself.


Moderator: I’m glad you’re not my dad then.


Tony Gimple: Give it away during your lifetime. At least you get the warm, cuddly feeling of somebody saying, “Thank you.” However, all right, you know, you can deal with IHT in a number of ways other than spending it. You can pay it in advance at a discount, you can insure it, and in most cases the premiums work out significantly less than the tax bill would be. The premiums themselves are deductible for IHT purposes under the normal income and expenditure rules. If the policy is written in the right kind of simple discretion we trust, it pays out free of tax to pay the tax bill. There are structural ways in which you can build with it within property.


Moderator: Richard, do you have anything to add to that?


Richard Blanco: Probably not, because obviously [crosstalk 00:57:43].


Moderator: Could I have another question, please? This gentleman at the front, please.


Speaker 7: Hi, this one’s to Richard. You touched on the property cycle, and peak can run about 2025. Do you actually follow the 18-year property cycle? If you do, whereabouts do you think we are in the cycle at the moment?


Richard Blanco: Oh gosh, this is really Richard Blanco and his crystal ball here. I guess yeah, I bought my first property in 1995, so you know, just looking back at the graph of when prices went up and when they came down again and so on, I’m afraid I haven’t done anything any more technical than that really, and just observing the economics and so on and just going from my gut feeling. Really that’s all I’m doing. I’m sure lots of other people have done a lot more technical stuff around it than I have. My gut feeling is that, and given that, I’d quite like to start selling in about ten years time. It all kind of fits together for me really. I don’t want to say it’s totally unsophisticated and just me licking my finger and sticking it in the air. That’s my considered opinion, I guess really.


Moderator: Yes, this lady in the second row please.


Speaker 8: Hello. I’m drawn to the question that you had about what can we do to cut or mitigate against all these taxes, particularly the mortgage relief. I was surprised that none of you mentioned this, but maybe that’s because this is what I’ve decided to do, and I thought a lot of people had, and maybe it’s actually a stupid thing to do. Anyway, if I can just make the comment, and I get what you’re saying Tony, suck this, suck that, suck something else, won’t make much difference. However, even when you’ve got a portfolio, which probably quite a lot of us have, that we’ve done our homework, we’ve got our yields, looking at yields is a bit of a stupid thing because you do that when you buy.


Moderator: Do we have a question here?


Speaker 8: Yeah, the question one is a lot of things will start making a loss, people want to sell, I see the only forward, and I want to know what you think, is to start Airbnb-ing them rather than because you do not have to pay the … You get the mortgage interest relief that you always had. I know the government doesn’t want us to do that, but I see that as the simplest solution.


Tony Gimple: You hit the 90 days limit though, that’s the thing.


Moderator: There’s restrictions on that, isn’t there?


Speaker 8: There’s ways around it.


Richard Blanco: In London, there’s a 90-day limit because of bylaws that you can’t let on a short-term for more than 90 days. If you want to become kind of service apartments, et cetera, then you have to apply for planning permission or holiday lets. It’s quite complicate in London. I don’t know what it’s like elsewhere, but do you want to talk about it from a tax perspective?


Tony Gimple: Don’t let the tax tail wag the planning dog. Coming at this from a tax perspective is fundamentally flawed. You’ll drive yourself nuts. You have to look at this as a business. I have a sum of capital, either my own or which I’ve leveraged, how can I best apply that capital to get the maximum amount of wealth in your pocket? I know my business is called Less Tax for Landlords, and yes it does do what it says on the tin, but the truth of the matter is I don’t care if any of our clients save a penny piece in tax. What I really care about more than anything is that they have enough money in the first place to pay tax and that they meet their wealth creation goals. Whether that’s Airbnb, whether it’s buy-to-let, whether it’s development, whether it’s commercial, whether it’s refurb, whether it’s flip, whether it’s equities, or running a corner shop, it’s how do I get the return on my capital is the most effective way to plan. Admittedly, how much tax you pay can effect that ROI.


  The first thing you have to work out is why am I doing this. What do I want for myself? None of you here set out to be a landlord. You set out to make some money. What you didn’t set out to do is know how much of what by when by whom and why. Before anyone can answer that question, let alone yourself, you would answer why am I doing it. Tenants are toilets are bloody hard work. There’s no question about it. There are easier ways of earning a living. Why are you doing it? Once you know why, and how much you need in order to achieve that why, then you can start to look at Airbnb or X or Y or Z in order to make your money. Don’t sweat the tax. The tax is a byproduct of being wealthy. Concentrate on that first.


Moderator: Thank you.


Paul Mahoney: I’d just like to  comment on that. Just from a finance perspective as well, we need to be a bit careful with the Airbnb or service accommodation model is a lot of people don’t realize that in a lot of cases that will break the terms of your mortgage. The lender could recall your mortgage on the spot so you could find yourself in quite a lot of hot water by short-term letting your property, whether it be them just discovering on an Airbnb, which is probably less likely, but certainly when it comes time to re-mortgage you just won’t get a mortgage unless it’s a commercial mortgage.


Moderator: Anybody? Is that it? Okay, gentleman with his hand in the back, please.


Speaker 9: We certainly see what George Osborne attitude was towards the buy to let market but we haven’t seen Phillip Hammond fully yet. Phillip Hammond hasn’t put his cards on the table yet. What is your gut instinct about his attitude to buy-to-let?


Richard Blanco: He has, hasn’t he? I think he has.


Speaker 9: You think he has?


Richard Blanco: Yes, I know people are campaigning around the tax changes. Had a ten-minute meeting with Phillip Hammond and a ten-minute meeting with the Prime Minister.


Moderator: About 20 minutes altogether then?


Richard Blanco: Yes. It was on separate days. My understanding of Phillip Hammond’s attitude was my civil servants have given me the stats. It’s only going to effect 20% of landlords. It’s going to have a marginal impact on everyone, and you know, as far as I’m concerned that’s not very much collateral damage. What he’s now persuaded by is the unfairness of being taxed on turnover. He probably doesn’t understand it. Of course, landlords are very unpopular amongst the public, so changing taxes in our favor is not a vote-winner.


  I think it’s we’re in danger of these tax changes just being there until the next generation really unless what happens is what I understand happened in Ireland, where there was quite a negative impact on the market and changes were made thereafter. It’s difficult since in some ways we don’t want anything in the budget on us, we want to just be forgotten about in a way really. Because when they start thinking about us, they start coming up with really stupid ideas. It’s tricky, and yet we want them to think about us, try and change stuff. I don’t get the sense that the government’s particularly on our side really. They’re certainly very enthusiastic about regulation at the moment.


Speaker 9: What I was thinking is do you think they’re going to be as aggressive as George Osborne was against the BTL market? They seem a little bit more circumspect.


Richard Blanco: Just to add one more thing, I think the tragedy really was that Brexit happened when it did. If it had happened a year earlier, I think we wouldn’t have had these changes because they would have been too worried about the impact on the housing market. Of course, Phillip Hammond isn’t such a political Chancellor. For some reason, George Osborne sort of got the bit between his teeth, didn’t he really, on this matter. Generation rent won the day really. I think it was a coming together of a number of factors that was very unfortunate for us.


Tony Gimple: All landlords particularly on Phillip’s agenda, not especially. He probably doesn’t give a stuff one way or the other. What he really wants to do is raise revenue for the UK PLC to pay off debt and hopefully make our lives, you know, make this a good place to live. That’s the whole point of taxation. Landlord and tax collector are the two oldest insults, okay? Landlords are a highly visible, easy target. If you start to peel it back even to Osborne’s time, one of the key, at least stated drivers, was to remove the accidental landlord and have a much better run, much more regulated professional sector.


  The bugger was really clever. He was trying to do what HMRC tried to do 20 years ago, get rid of self-employment, make everybody limited companies. Why? Because limited companies are easy to tax. Once again, I’ll come back to it, politicians of every color will try and put their hand as far down their trouser pocket or in your purses they can legally reach. Thanks to the Duke of Westminster in 1936, you’re entitled to do exactly the same, but in opposite to try and stop them. Don’t worry about the tax, don’t worry about the Chancellor. Make money. Become financially independent, use it wisely.


Moderator: Thank you. I think this lady here has got a question, thank you.


Speaker 10: Sorry but banging on the same theme here about withdrawal of mortgage tax relief. One of the solutions that the panel have said is that if a property is owned jointly between a married couple to transfer the interest in the property to the lesser-earning individual. What is the effect on the mortgage? You can gain the maximum tax relief by doing that, if you’re transferring it to the lower-rate tax earner, but what’s the effect on the mortgage? Can you still jointly, 50-50 have the mortgage, but the only ship be in the lower-earning person’s name? Does the whole of the mortgage then have to be reassessed in terms of affordability based on the lower-earning person?


Paul Mahoney: Just on the mortgages, mortgages are wholly and severally … You’re liable for the whole mortgage if you’re on a mortgage. Even if you only own one percent of a property, if you are one of the mortgagees, then you are liable for 100% of the mortgage. They don’t split percentages between mortgages. You can obviously split percentages between ownership, but my understanding of that is that doesn’t necessarily determine the beneficiary of that income. I’ll pass you over to Tony, because he’s probably better to comment.


Speaker 10: Sorry, does that mean that you can therefore transfer the ownership, 99% to the lower-earning person, but still have the same responsibility on the higher-earner, the one percent owner, to honor the whole of the mortgage. Therefore it wouldn’t have to be reassessed for affordability?


Tony Gimple: Hang on, you’re conflating different things.


Speaker 10: No, I’m just trying to summarize my understanding of the statement there, if that’s okay.


Tony Gimple: That’s fine. In law, you can separate ownership from enjoyment from control. You know, I own this microphone, I give the enjoyment of it to Paul to use, and I give the control of it, the power socket, to somebody else. Because of that, you can play around with the taxation. You can have the mortgage solely in your name, and you can elect to have the income paid to somebody else. I think it’s form 17, I can’t remember offhand, if they’re a low-rate tax payer and you’re a high-rate tax payer. Who’s name on the mortgage deed, who the actual owner is, is immaterial when it comes to the income it generates and the tax that’s paid on it because you’re allowed to separate the ownership from the payment of the rents. You can.


Moderator: Does that mean that somebody could receive the rent and not actually own the property?


Tony Gimple: Yes. Totally. If you’ve got a lower-rate tax payer in the equation, you pay them as much of the rent as you can until it takes them to the higher rate, and there’s an HMRC form that you can complete. Your day-to-day high street accountant should have advised you on that one a long time ago.


Speaker 10: Do you have to complete that form to formally do that, or can you just change the apportionment in the tax returns?


Tony Gimple: I think you can change the apportionment in the tax return.


Speaker 10: Without formally going through a … ?


Tony Gimple: Yeah, but personally I’m not a charter accountant, my business partner is. I decrypt crossword puzzles for a living. That’s, I believe, perfectly acceptable.


Moderator: Interesting thought. Can I have another question, please? Yes, this gentleman here please. Thank you.


Speaker 11: You need to fill that form every year? The form 17 you said?


Tony Gimple: I think it may be a once of election, but the truth of the answer is I can’t tell you offhand.


Speaker 11: Is it form 17? 1-7?


Paul Mahoney: It’s something that we’ve looked into quite a bit, and so far as everything goes with tax, it’s a bit of a gray area. HMRC can challenge anything, you know, you could not fill in the form, you could fill in the form. Regardless of whether you do or you don’t, HMRC can still challenge it, and you need to be able to justify the way you’ve allocated the income.


Moderator: How about another subject, please? This gentleman. Thank you.


Speaker 12: This is again for Tony. Now, your strategy is very complex, is for multi-millionaires.


Moderator: Could I ask just is that a question?


Speaker 12: Yes, yes.


Moderator: Thank you.


Speaker 12: I am presenting the strategy first. For Duke of Westminster and other people. What about the spoiled landlords? Can we reduce this lone artificial personalities to just a limited company? Now, more clear. Money in, money out, and limited company. You have your properties-


Moderator: Excuse me-


Speaker 12: … Money in, money out to your companies.


Moderator: You need to ask your question clearly, please. We can’t quite understand what you’re asking. Are you asking about limited companies?


Speaker 12: Madam, before making the question you need to make clear what is the question about.


Moderator: I’d just like the question please.


Speaker 12: Can I ask the question or not?


Moderator: The question, please.


Speaker 12: Yes. Can you advise this strategy, LLP, limited company, and personal name. To personal name, limited company, and the ownership is personal, limited company is managing, and yes money in, money out. Can we, or not?


Tony Gimple: No. A wholly artificial relationship there. It’s verging on avoidance. Organizing your property affairs comes down to what the economics of your property affairs are. If you’re not going to be effected by section 24, then actually from that perspective there’s no need to do anything. You may not be effected by section 24 but still have a humongous inheritance tax problem. Sorry you won’t, your children will. In which case, a structural change will come about. Running your properties through your own letting agency and charging fees in itself is perfectly fine as long as you don’t take the mick about how much those fees are.


  I only think about 17, 20% is probably pushing it to the limit. Regardless, the minute you’re in a limited company, you’re subject to double taxation. You’ve got corporation tax on profit and then income or dividend income on national insurance, and any money that you take out. There is no one-size-fits-all. You have to do the detail, you have to work the math. Am I going to get a return on investment? Am I doing this purely to save tax? Am I doing it because it’s a great way of growing my portfolio? Sorry I can’t be more exact, but that’s just the way it is, I’m afraid.


Moderator: Thank you. Have we got any more questions from the audience please? We cannot have answered all your questions. Yes?


Speaker 13: Hi, Ashwin Panchaal here. You mentioned that the additional three percent tax that you pay, you claim it back anyway. Are you talking about it by way of an expense, or otherwise?


Paul Mahoney: It’s a capital cost. You claim it back when you sell.


Speaker 13: As a capital cost.


Paul Mahoney: As a capital cost.


Moderator: Okay. We’ve got some questions for the panel. Where’s the best place to buy on the market at the moment? Paul?


Paul Mahoney: Well, this is our very specialty really, so hopefully I can answer the question. Most of our clients have been investing in the northwest. We’ve noticed a big shift away from what was in the past the safe haven, London, you simply can’t lose money. That’s both domestic buys and overseas buys. We deal with both. Obviously, with the way that London prices have gone and the fact that yields haven’t kept up, that’s becoming less of a viable option. It’s great for people that have already got portfolios, but for those who are looking to build a portfolio, it’s more difficult unless you’re buying and renovating or something like that, and adding value.


  When you can buy good quality properties in good areas at much lower values and achieve seven, eight percent yields whilst borrowing at two or three percent, you know, it’s almost a no-brainer to be looking at those types of options. Obviously, all the same fundamentals apply. I suppose broadening your horizon … I assume most people here are from London, broadening your horizons beyond the five miles around your own home, which is where most people tend to invest, to looking at new options I think is the best way to go.


Tony Gimple: On the one hand, you can say, “Yeah, buy in low capital value areas, get maximum yield.” I mean, my business partner, and some of the things we do, we buy properties not in the northwest but in the northeast. You know, we never pay more than 50,000 pounds for an oven-ready buy-to-let, and we consistently get a minimum of 110 pound a week rent. Thank you. Marvelous yield. Crap capital values. It will never increase, but we’re making our money as we go. Generally though, it’s not really about geography. My own strategy has been to always buy the cheapest house on the dearest road. Do it up to the highest possible standard, and rent it so the richest tenants are confined. It works for me.


Richard Blanco: I used to love playing Monopoly when I was a kid. Being a landlord isn’t Monopoly of course, because you’re dealing with people’s lives, tenants, et cetera, and so there’s a lot more responsibility involved, but I always used to buy the White Chapels and the Lewisham roads, you know, the cheaper end there. Because I started from scratch, I just happened to buy a property in Hackney that went up lots and then I re-mortgaged it to take capital out. I’ve tended to buy wrecks at auction and refurbish. I think that you probably still can do that in London in the sense that you can buy in areas where we’re expecting, as I said before, infrastructure improvements.


  Along those cross rail too coming of course, which is something to keep an eye on, and all those sorts of areas where there are developments going on in London, Croydon and Brent Cross, and Old Oak Common, and all of those sorts of areas are worth looking at still. London seems to be a series of micro markets at the moment whilst Hackney, where I live, seems to have really hit the doldrums. Someone was telling me yesterday that Waltham Stone has gone completely bonkers, which seems quite odd. I guess it’s because prices there are still quite a bit lower than in zone two, sort of Lewisham and the Hither Greens, and Waltham Stones, and so on. We’re getting a bit of a boom from the fact that people are stopping out to buy in those places like Hackney.


  I would worry about, I would never buy outside of London actually. I’m quite traditional in the sense that I buy close to home. I want to be within half an hour of the property. I want to keep an eye on it. I also really value that relationship I have with my tenants, because it means that they look after the property, they’re less likely to fall into arrears because they know me, and you know, I think that personal interaction and that relationship between me and the tenant is incredibly valuable. I have a property up in Newark, it didn’t go up at all, the rent never went up. It just felt like a complete waste of time. I’m very much wedded to sticking to my local area, I think.


Moderator: Thank you. Any thoughts, Andy?


Andy: The only thing I would add is do your research. If it’s not an area you’re that familiar with, check. Flooding’s probably the big issue from an insurer perspective. It’s probably going to get worse as spending on flood defenses has decreased over time. It’s probably going to get harder to insure, or at least more expensive to insure. If it’s not an area you’re familiar with, do your research on it. Look for flooding, look for subsidence issues, just be aware.


Moderator: Paul, are any investors favoring particular types of property and if so, why?


Paul Mahoney: I can only comment from our experience, and where our clients are investing. I’d say predominately our clients have been investing in sort of city center locations. Tony commented on sort of the northeast lower value properties haven’t really moved in value, that’s not really our approach. We’re looking at kind of city center, Manchester, Liverpool, Leeds, Birmingham, places where you can still get a really good two-bed, two-bath for less than 200 grand and it’s yielding seven or eight percent.


Moderator: That’s with HS2 coming up.


Paul Mahoney: HS2, so yeah, there’s over 12 billion pounds of infrastructure project in Liverpool at the moment, which might seem like an oxymoron, but there’s lots happening in that city. Which we’ve found that most people don’t know about. London tends to be very London-centric. That’s our approach, and our clients are doing well from it.


Moderator: What about types of properties?


Paul Mahoney: Mostly flats. Both work, it’s just about I suppose we focus for as much depth, focus on as much depth in the market as possible. Large tenant pools, a broad range of industries, therefore employment, areas with facilities, infrastructure, amenities and those things are growing. You know, I talk two or three times a month at seminars and things. Something I often say is that property doesn’t just grow in value. People look at me like I’m stupid, but it doesn’t. There needs to be change in the market for prices to change. Targeting all those fundamentals and all those things tend to result in better socioeconomic levels, lower vacancy rates, and therefore less risk.


Moderator: What have you found about types of properties are popular to invest in?


Tony Gimple: Probably the biggest single trend we’ve seen is with high-end HMOs. Larger properties designed for family living kitted out and refurbed to really high standards. In that there’s been a sub-market of actually people developing them as HMOs and then selling them on for return or managing them on behalf of other investors. That would be about the only clear trend that we’ve seen. Overall, the market is still very mixed.


Richard Blanco: I would say I’ve seen a trend in people going to mixed commercial residential because of the lower stamp duty rates, and it’s more favorable tax wise now within the new regime. The most, in NLA research, the most popular properties are terraced houses. I must admit I’m not a fan of new builds because of course you then have management charges and you’re also buying the property as a premium because it is a new build. You know, this current point in the cycle I would be quite wary of buying new builds, particularly outside of London because it just brings back too many memories of 2006, 7 and when we hit the peak then. I would tread very carefully around that sort of proposition at the moment personally. Sorry to be controversial.


Moderator: Andy, have you noticed anything research-wise on this?


Andy: We have, yeah. 87% of our customer base have detached houses or bungalows. We haven’t really seen that shift yet. We are expecting to see more diversification in terms of HMOs, mixed use commercial, but one thing I would say on the new builds, and probably to reinforce Richard’s concerns, we are seeing an increase in water damage claims for newer properties, 1990 onwards. Possibly linked to on suites, and more likely linked to this push-fit plumbing that’s the norm nowadays.


Andy: Be aware.


Moderator: Thank you very much. We’ve come to the end of our time. I’d like to say a thank you to everybody in the audience for coming along today. We really appreciate that you came along to find out more. Buy-to-let is something that Property Wise will be continuing to inform you about through our daily news service and also through our weekly newsletter. If you don’t get our weekly newsletter, please go onto the website and sign up. Thank you again to our panelists. You’ve been absolutely super. They will be available for further chatting during our networking session. Thank you to our sponsors because we wouldn’t be here without you.

Video Blog

Government Panel Debate | Landlord Investment Show March 2019
Government Panel Debate | Landlord Investment Show March 2019
read more
Due Diligence on Developers & Investing Off Plan
Due Diligence on Developers & Investing Off Plan
read more
Is Advice a legal requirement when investing in a buy to let property?
Is Advice a legal requirement when investing in a buy to let property?
read more
Effect of the recent bank rate on the UK property market
Effect of the recent bank rate on the UK property market
read more
Book Your Free Consultation Today With Nova Financial
Book Your Free Consultation Today With Nova Financial
read more
Want to be the first to know what’s going on in the world of property investment? Subscribe to our newsletter below.
The property pension plan book icon

Take Control Of Your Future With Buy To Let Investment, get The Property Pension Plan for Free!

Find Out More
Get in Touch

Book a complimentary property and/or finance consultation


You are now leaving Nova Financial

Please be aware that by clicking onto the below link you are leaving the Nova Financial Group Website. Please note that neither Nova Financial Group or Connect IFA Ltd are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.

You will be redirected to

Click the link above to continue or CANCEL