Welcome to the August edition of ‘How’s the Market?’, the monthly article designed to answer the question I’m most frequently asked. The events of last month have provided a new question and the platform for a blog that many people will want answers to – what effect will the new Prime Minister of the United Kingdom have on the property market? This article will provide an insight into Boris Johnson’s policies on housing, based on previous experience as Mayor of London to his more recent battles in a Conservative Leadership campaign that he dominated from start to finish.
During his first speech as PM, Boris promised to ‘Deliver Brexit and unite the Country.’ It’s completely understandable that this tops the list of priorities and will do for most of the remaining months of 2019. However, this is less a political article and more a focus on the issue you all care about – Housing. For the duration of his political career, Boris has appeared very pro-homeownership and we’re likely to see this continue. The last few years of hurdles in front of private landlords are unlikely to be lifted any time soon, with second home stamp duty and Section 24 (cuts to mortgage tax relief) appearing to have caused a significant reduction in the number of people seeking to invest their capital in property, subsequently freeing up large numbers of smaller properties for first time buyers.
Boris has previously shown his lack of commitment to affordable housing; in 2015, the Mount Pleasant former Post Office site in Islington in 2015 provided just 98 of the 681 units for affordable housing when he pushed the application through as Mayor of London, although his positive stance on the Right-to-Buy Scheme would have him suggest that this further his pro-homeownership mentality. More recently, there have been mentions of Boris channelling funding to part-buy/part-rent plans – another scheme designed to benefit those looking to take their first steps on the ladder.
One policy that has received a lot of attention is the removal of the bottom stamp duty tier. Despite the Conservative party falling victim of their own policy with the 20% annual decline in stamp duty, Boris has suggested further cuts be made meaning no stamp duty paid on first home purchases up to the value of £250,000. Fortunately, first time buyers are already SDLT-exempt up to a purchase price of £300,000, so this won’t impact them, but could free up some lost capital for private landlords, slightly counteracting the impact of Section 24 and possibly making the prospect of buying investment properties a little more enticing. Couple this with the suggestion of planning reforms to ease change of usage and the suggestions of the 50% tax bracket being raised from £40,000 to £80,000 and the prospect of owning investment properties becomes a much more profitable prospect.
I’m sure nobody is expecting all of the above to come to fruition, particularly as much will rely on the overall effect of Brexit on the economy, but it seems apparent that Boris will look to continue with the work of recent prime ministers in the housing sector with very little change in the immediate pipeline.
One area that has, and will continue to change, is the Buy-To-Let market – is the system too archaic for the modern, innovative property investor? Many different concepts are coming into play, many of which completely turn the typical BTL concept on its heard. The May edition of ‘How’s the Market?’ covered Rent-To-Rent, so as promised, this month we have a thorough explanation of Serviced Accommodation from – somebody a little less important that Boris Johnson – Jon Woodman of SAJO Properties –
Serviced accommodation is a hot topic in property circles at the moment, with more and more investors looking for ways to benefit from the lucrative rental yields and tax-free income. As such, many investors are now looking at their portfolio of buy-to-let properties and wondering how they can turn them into serviced accommodation. Unfortunately, turning a buy-to-let property into serviced accommodation is not as simple as just putting it on a hosting website like Airbnb. Instead, there are a number of key elements of your property that you’ll need to change.
A ‘serviced accommodation’ is a fully furnished apartment or house that is used for short-term and long-term accommodation stays. It has amenities that are the same as those offered in hotels. It can be booked by local and international tourists or by companies with travelling executives and teams on a work-related trip.
What are the differences between serviced apartments and buy-to-let?
Length of stays – Serviced apartments are for short-term and extended stays. Because of this, they are meant to be for temporary visits that can range from as little as one night up to a few months.
Earning potential. – Serviced apartments generate higher rental returns – potentially 400% more than a buy-to-let.
Amenities. – Serviced residences are already fully stocked with everything guests need. They have bedrooms, bathrooms, showers, free parking space (if available), and high-speed Wi-Fi. They even have living rooms with TV, DVDs, sofa as well as kitchens.
Costs. – The running costs within a serviced accommodation are higher. They generally factor in bills and services. Tenants generally pay these costs under a buy-to-let.
What are the benefits of Serviced Accommodation?
Increased Rental Yields – When talking about the benefits of serviced accommodation, it’s hard to start anywhere other than the excellent rental yields it can offer. A typical buy-to-let (BTL) to property will provide a rental yield of around 3-4%, according to research from JLL. Comparatively, serviced apartments average a rental yield of 6.5-9% and can reach upwards of 12%. This even outperforms hotel rooms, which average a yield of around 5-6.5%.
Tax-Free Income – The fact that serviced accommodation can produce increased cash flow for investors is great, but even better is the tax advantages that come with this type of investment. While you may think of serviced accommodation being similar to traditional buy-to-let property, it is actually closer to a seaside holiday home when it comes to the law. What we mean by this is that serviced accommodation can qualify as a Furnished Holiday Let (FHL), so long as it meets the following criteria:
· The property must be furnished;
· It must be let on a commercial basis with a view to making profit;
· It must be available to let for 210 days a year;
· It must be let as a holiday let for 105 days*.
*If you let the property for a single period of more than 31 days, only these first 31 days will contribute to the letting condition. This means you couldn’t let the property once for 105 days straight to one person to qualify as an FHL.
Reduced Maintenance Fees – Logic may tell you that the more people you have coming in and out of your property, the more you’re going to spend on maintenance, but this is not necessarily the case. This system means you can keep an eye on your investment and spot any minor maintenance items before they mutate into something much worse. As such, you may find yourself spending more regularly on maintenance, but you should avoid large, unexpected costs.
Things you need to know!
Leases – Leasehold restrictions vary from property to property but the ones you’ll want to keep a careful eye on are:
· Restrictions on who you can let to.
· Restrictions on the length of lease.
If you do find restrictions in your lease that will stop you using the property as serviced accommodation, you can speak to your landlord to negotiate a change of terms, also known as “varying the lease”. This will likely result in some expense. In the event that your freeholder will not change the terms of the lease, you may have to accept that you won’t be able to use the property as serviced accommodation. If you do, you could find yourself facing legal action or even forfeiture of the lease.
Mortgage – Alongside leasehold restrictions, it’s more than likely that the terms of your buy-to-let mortgage will not allow you to use the property as serviced accommodation. This can be particularly daunting if you’re new to serviced accommodation, so ensure you use a specialist broker to guide you through the process or work with a company who has the experience and can operate it for you.
Insurance – Insurance may mean another monthly cost but it’s important if you want to protect your investment. Just as we’ve seen with mortgages, the standard insurance you use for a buy-to-let property won’t cover you for the short-term lets of serviced accommodation.
Planning Permission – The final major consideration when turning a buy-to-let property into serviced accommodation is whether you’ll need to apply for planning permission. A typical residential dwelling is known as a C3, signifying that it’s to be used by an owner-occupier or rented out. In contrast, a hotel or serviced apartment which offers no “significant element of care” is categorised as a C1.
Therefore, you may need to apply for planning permission to change from a C3 to C1.
Serviced accommodation can provide an exceptional return for investors, but it’s not without its complexities, especially if you want to convert an existing buy-to-let property. For more information, feel free to contact SAJO Properties on 01489893280/07768661606 or firstname.lastname@example.org
Once again, another great insight into a modern twist on property investment by an expert in his field. Jon is a great source of knowledge in this field and somebody who I’d have no hesitation in recommending a discussion with should you be keen to understand more about his work. Thank you for your time, Jon.
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