HMRC crackdown on buy-to-let tax dodgers

Accountancy firm, Wilkins Kennedy, has warned that HM Revenue & Customs (HMRC) has begun a long-awaited investigation into buy-to-let investors.

HMRC is in the process of sending out letters to individuals it believes own buy-to-let properties and have failed to declare their investments in their self-assessment returns.

The letters are reported to ask for details of property investment activity over the past six years and request a detailed breakdown of costs, such as repairs and professional fees.

According to Wilkins Kennedy, HMRC has been compiling its list of landlords from lettings agencies over a number of years, but a concerted compliance campaign has only just begun.

Peter Goodman, Senior Tax Partner, of Wilkins Kennedy says: “There has often been speculation that HMRC would start a compliance drive against landlords but up until now enquiries have been pretty piecemeal. This is a real change in tactics for HMRC.”

Adding: “Individuals who receive these letters need to take them seriously. If they do owe tax they should consider early disclosure as part of a negotiated settlement. This may reduce the penalties they incur. People who refuse to cooperate with HMRC on this could ultimately face criminal prosecution.”

http://www.homemove.co.uk/news/22-02-2008/hmrc-crackdown-on-buy-to-let-tax-dodgers.html

Bridging Loans Could Provide The Solution For Struggling Businesses

How bridging finance gives businesses a short-term cash injection when it’s needed most

Every year throughout the UK, many businesses large or small find themselves in troubled waters. This is not something new, and will remain a challenge associated with running a business in this country. The recent rise in interest rates – the fifth in the space of a year – is likely to exacerbate this problem, with many businesses likely to fall slightly short of their monthly commitments.

An inability to pay invoices, a delayed shipment or unforeseen natural events can all result in the end of your business.

In these situations, short-term financing solutions can be the saviour of a business, because they provide valuable time for these organisations to re-group, take stock and formulate recovery plans, or simply for expected incomings to be gathered. Companies should always be aiming to achieve long-term, sustainable solutions, but sometimes, short-term action is needed.

In 2002, Network Rail secured a £9 billion pound bridging loan to buy out the shareholders and bondholders of the rail infrastructure company, Railtrack, which was in administration at the time. This loan kept the UK rail network in full operation, and gave it a new breathe of life. It was able to create timetables for bringing the ailing network out of the red and into the black.

More recently in 2004, MG Rover went through a period of tremendous financial adversity, when it was reported to be losing £25 million per month. Threatened with immediate closure, MG Rover found a short-term solution through the UK Government, which put forward a £6.5 million bridging loan. This enabled the ailing car manufacturer to cover workers’ salaries, and keep the business going for longer, giving it more opportunity to draw up emergency recovery plans.

Many of the commercial uses for bridging loans are for the acquisition of properties and/or other companies, however, they also have a wide range of purposes for those organisations needing a quick-fix. Businesses that require a short-term cash injection can access bridging finance quickly and easily, and use the loan to re-invigorate their organisation and set it on the road to recovery.

Bridgingloans.com is the new public face for Bristol & West Investments Plc which has been helping businesses with their short-term loan requirements for over 25 years. As a principal lender of short-term financing, it has the flexibility to listen to proposals from any organisation. A bridging loan is secured against property, but can be granted for any purpose. Bridgingloans.com recently raised its maximum loan amount to £10 million, and increased its Loan to Value ratios on commercial properties to 75 per cent – this means that Bridgingloans.com can assist more and more businesses in their time of need.

Bridgingloans.com offers a unique combination of market leading rates, quick turnaround times and a friendly, experienced team of advisors.

This makes the company easy to deal with for a first-time or experienced borrower in the short-term finance market. Visit www.bridgingloans.com for more information or advice on short-term financing options.

Lenders call for buy-to-let mortgage regulation

According to research by legal firm and repossession specialists, Moore Blatch, almost nine out of ten mortgage lenders want to see regulation introduced specifically for buy-to-let mortgage advice.

The results of a recent survey suggest that some new buy-to-let investors are ill prepared for the financial implications of their investment, prompting lenders to call on the Government to regulate buy-to-let mortgage advice as if it were an investment product.

In its research, Moore Blatch found that 68% of lenders expect buy-to-let repossession to increase, while 50% of respondents thought buy-to-let borrowers were extremely vulnerable to repossession.

Eighty-one per cent of respondents agreed that repossessions will increase overall in 2008, while 31% expect to see shortfalls increase following sales of repossessed properties.

Of the 68% of respondents who agreed that buy-to-let repossessions would increase, 38% expect this to be by up to 10%; a further 31% predicted a rise of between 10% and 15%.

Thirty-five per cent of lenders questioned believe that void periods (periods when a property is unoccupied) will be the most likely reason for repossession; 27% expect the rise to be fuelled by landlords’ inability to subsidise their mortgages.

Finally, the survey found that 54% of lenders expect an increase in litigation against mortgage brokers by landlords claiming they were not given risk-based advice.

The Government, which is responsible for determining the scope of regulation by the Financial Services Authority, has not yet indicated that it will consider regulating buy-to-let mortgage advice.

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Price correction will not be major

UK house prices will continue to fall in 2008 but not at the rate that some analysts are predicting.

That is according to Stephen Nickell, former Bank of England policy maker, who told Bloomberg that he does not expect a major price correction.

Mr Nickell admitted that house prices are currently falling and conceded that the market prospects do not look good.

However, he ruled out a major correction and said that he would still feel confident investing in the UK property market.

“The actual size of the downturn is minute. How big is it going to be? I don’t know, but it won’t be very big,” he told Bloomberg.

“If you’ve got half a million to invest, I could well imagine buying some property. It’s still not entirely clear you’d be better off putting it in the stock market.

“And if you’re a sensible person with half a million pounds, you want to spread your portfolio,” continued Mr Nickell.

The latest figures from Nationwide revealed that house prices fell by 0.1 per cent in January.

British Land asset values fall

British Land posted a 1.3 billion pound quarterly markdown in its asset values on Thursday, and urged reluctant fund managers, property firms and valuers to cut portfolio values to reflect the malaise in the property market.“There’s nothing more damaging to markets than not believing the numbers,” said Stephen Hester, chief executive of British Land (BLND.L: Quote, Profile, Research), the UK’s second-largest property firm.

“We encouraged our valuers to mark down because we felt it was better to get the pain over quickly … Not everyone will have followed that approach,” he said.

While British Land admitted it was still nursing wounds inflicted by the credit crunch and financial market volatility, Chairman Chris Gibson-Smith said he hoped “the worst was now behind us”.

Analysts took comfort from Gibson-Smith’s words.

“This is a much more comprehensive and useful comment on the market correction than the Land Securities third-quarter result. British Land is fully recognising the correction consistent with the property bull market and the poor availability of debt,” KBC Peel Hunt property analyst Keith Crawford said.

By 10:20 a.m., British Land shares, which have fallen 42 percent in the last 12 months, were up 0.21 percent at 964 pence, outperforming FTSE 350 Real Estate Index, which was down 0.4 percent.

Survey reveals Manchester is debt blackspot

Manchester has been branded a debt blackspot according to a survey by Experian, Europe’s biggest credit reference agency.

The survey ranked areas of the UK using information on mortgages, credit and store cards, personal loans and payment behaviour. It also took into account information on previous bad debt, such as county court judgments.

The city, renowned for rock band Oasis and TV drama Shameless, had the highest percentage of households in financial stress.

It came ahead of Glasgow and Nottingham, with 28.7% of households suffering high or very high levels of financial concern.

Liverpool was also listed as a debt blackspot, as well as Hull, Middlesbrough and the London boroughs of Southwark and Tower Hamlets.

The survey was compiled for ITV1 programme Repossession, Repossession, Repossession. The documentary investigates how and why so many Britons got hooked on spending cash they didn’t have and examines the consequences.

Part of the programme was filmed at Manchester’s Citizens Advice Bureau. Marsha Healy, debt service manager, said debt has overtaken welfare as the biggest single area of enquiry. The pressure on our service is enormous.

The survey follows concerns about household finances being hit as bills and taxes increase faster than earnings. Approximately 10% of adults are spending more than they earn each month.

Accountancy firm Grant Thornton estimates that 28,000 people will declare themselves insolvent in the first quarter of 2008.

The report comes after estate agents Savills tipped Manchester as a property hotspot with potential for first-time buyers to get a foot on the property ladder.

Buy to let in the UK raises house prices by only 7%.

The boom in buy-to-let investing has had only a moderate impact on rising house prices, new research has found, challenging the belief that buy-to-let investors have priced first-time buyers out of the housing market.

The rush of buy-to-let investors on to the housing market, particularly since 2003, pushed up house prices by an additional 7 per cent, according to an independent body that advises government on housing market affordability.

The study, from the National Housing and Planning Advice Unit, suggests the flood of new buy-to-let mortgage issuance in the past five years is not responsible for the sharp drop in first-time buyers over the same period.

Buyers of an average house today who took out a 100 per cent mortgage are making monthly payments just £90 higher than if there had been no buy-to-let investment, the NHPAU says. If buy-to-let lending is stripped out, the average house price in the second quarter of 2007 would have been £169,000 rather than £183,000. Interest rates, the rising number of households and constrained supply have been far greater contributors to house price inflation, the study concludes.

Analysts Capital Economics agreed in a report last week that the impact of buy-to-let investors had only been one factor pushing up house prices, but suggested that buy-to-let investors had prevented the market softening sufficiently to allow new buyers on to the housing ladder. Capital Economics found that buy-to-let now accounted for one in every 13 mortgages; at the end of 2003 the ratio was one in 27 loans.

The findings suggest that the key for first-time buyers was affordability, defined as the proportion of national average take-home earnings absorbed by a new mortgage. In 2003, rising interest rates and declining affordability led to a drop in first-time buyers, as it had in previous cycles. But unlike previous cycles house prices continued to rise, a trend that Capital Economics believes was strengthened by the presence of buy-to-let investors.

However, both Capital Economics and the NHPAU conclude that buy-to-let investors had on balance made substantial contributions to the quantity and quality of the private rental sector in Britain.

“In any analysis of BTL, it is important to consider the wider benefits [to the economy],” said Stephen Nickell, chairman of the NHPAU. “Together with the regulatory changes in the 1980s, the expansion of BTL lending has supported growth of the private rented sector, which now provides homes for 3m households. Increased competition has kept rents low relative to house prices.”

The studies also examine how buy-to-let investors might behave if house prices start to fall. Without the assumption of continued increases, investors may chose to sell.

“Given that BTL investors have boosted house prices during the boom, the likely drying-up of new investor demand is another reason to expect house prices to fall back in the coming years,” Capital Economics said.

Weakening market for homes

UK house prices were unchanged in January and 1 per cent lower than they were in the previous quarter, according to the Halifax House Price Index, in yet another sign of a weakening market for homes, writes Norma Cohen.

On an annual basis compared with the same quarter a year ago, prices were 4.5 per cent higher to the end of January – the lowest annual rate of inflation since late 2005. This compares with an annual rate of 5.2 percent in the three months to December and a peak of 11.4 percent in the three months to August.

Halifax said its forecast for 2008 was for house prices to remain flat, rather than slumping. It noted that the number of people in employment – a key driver of housing demand – had risen to a record 29.36m over the past year.

Martin Ellis, chief economist, said: “We expect sound economic fundamentals and lower interest rates to support house prices,” adding that he expected the Bank of England’s monetary policy committee to cut rates twice in the coming year.

Foreign mortgages

Borrowers prepared to take a high-risk approach to cutting their monthly mortgage repayments could consider switching to a foreign currency loan.

These specialist mortgages are aimed at high earners who are willing to ride exchange rate fluctuations to secure a foreign currency loan against their UK property. But be warned, you could get your fingers badly burned if the currency swings the wrong way, so these loans are not for the faint-hearted.

And the current turmoil in money markets has shaken the confidence of many investors who chose the foreign currency route to lower repayments.

Mike Boles, director of Savills Private Finance, which deals in foreign currency mortgages, says: “A number of people have faced a reality check as currencies have not behaved as well recently as in previous years. Some professionals and private individuals got it wrong, so people must fully understand the risks.” The appeal of these mortgages lies in the low overseas interest rates to which borrowers have access. Lower rates mean lower mortgage repayments.

Several private banks and brokers offer mortgages in foreign currencies, where your repayments cover only the interest and the aim is for foreign-exchange movements to cut the value of your debt. But these loans are really available only to those borrowing above a certain level. And if you need the security of knowing what your monthly repayments will be, they aren’t for you.

The minimum loan size tends to be at least £250,000 and sometimes £500,000, and providers require borrowers to have significant amounts of equity in their property – typically about 50 per cent. Investec Private Bank offers a foreign currency mortgage service, but restricts it to people borrowing at least £1million, and insists that customers have experience of trading in the market. ECU Group, the currency mortgage manager, also stipulates that borrowers have an income of more than £100,000 a year.

Experts say borrowers should consider a foreign currency mortgage only if they can afford to take a 15 per cent loss – or increase in the size of their debt – due to currency volatility.

Cormac Naughten, head of private clients at ECU Group, says: “Anyone for whom a 15 per cent increase in the size of their loan would materially affect their standard of living or the viability of their property investment shouldn’t use this facility.”

As our table shows, borrowers could reduce their monthly interest-only payments from about £1,400 to £500 if they take out a yen-based mortgage rather than a sterling-based one. This is because borrowers benefit from interbank interest rates – the rate at which banks lend to each other – of 2.4 per cent in Japan compared with the London Interbank Offered Rate (Libor) of 6.78 per cent in the UK. Most foreign currency mortgages are linked to the Libor or the local currency equivalent. Among the deals available through Savills Private Finance are a Swiss franc mortgage starting at 3.6 per cent and a Japanese yen one at 2 per cent.

One option for borrowers looking to obtain a foreign currency mortgage is to approach a mortgage broker like Charcol for access to specialist lenders, such as Fortis, which offers multi-currency loans, enabling borrowers to switch between currencies.

Borrowers also need to take into account the costs of arranging a mortgage. The costs include arrangement, valuation and solicitors’ fees, as well as stamp duty and land registry fees, which could add more than £12,000 on a £250,000 foreign currency mortgage.

Mike Boles, of Savills, says: “These products are offered by more specialist banks, with higher fees.” What is really different is the risk that currency volatility can wipe out, in a matter of days, any savings you make in interest over the course of a year.

If you are making regular mortgage payments on a foreign currency mortgage, you need to ensure that you are getting the best exchange rates. Specialist foreign exchange providers, such as MoneyCorp and HiFX, can help you access competitive exchange rates that you may not find on the high street.

Katie Tucker, of Charcol, says: “It is vital that borrowers take advice from the bank that’s providing the currency switching facility, as well as investment and currency market experts. You need some knowledge of the markets to take on a loan like this.”

Foreign mortgage tips

 

Make sure you understand the pitfalls of exchange rate fluctuations Consider your position carefully: these are specialist loans for high-net-worth clients Make sure you can afford an increase in your debt if currency swings go against you Some prior knowledge of the currency markets is required by many lenders Consider a multi-currency loan to switch between different currencies

 

Housing market slump won’t last

by Kay Murchie

The UK housing market slump won’t last long. Furthermore, it is unlikely that interest rates will fall quickly.

This is the view of Stephen Nickell, former Bank of England policy maker and who now advises the government on the residential property market. He added that the actual size of the downturn is very small.

In an interview in London earlier this week, Mr Nickell said while economists are forecasting that the Bank of England will cut interest rates today, there is little room to cut as much as the US Federal Reserve, which eased policy at the fastest rate since 1990 last month, added Mr Nickell. He continued that a slowdown in the British economy won’t be that slow.

Mr Nickell’s opinion on the scope of rate cuts mirrors that of Richard Lambert, another former policy maker who is now the country’s chief business lobbyist as director general of the Confederation of British Industry (CBI). Last month, he said the Bank of England should avoid ‘steep’ cuts.

Last month, the US Federal Reserve lowered interest rates by 1.25 percentage points to 3% to fend off a recession in the world’s largest economy. Stephen Nickell said US slowdowns are short and dramatic. Recently, UK slowdowns have been gentle and fair.’

Mr Nickell said that a rate cut to 5.25% is today is ‘quite likely’. When questioned if UK interest rates should fall, he said, ‘yes, absolutely’.

Mr Nickell aged 63, served on the rate-setting Monetary Policy Committee from 2000 to 2006. He is now a professor at Oxford University and chairman of the National Housing and Planning Advice Unit, a group set up to counsel government ministers on how to protect the interests of people priced out of the property market.

Neil Woodford, head of investment house, Invesco Perpetual, recently said property prices will fall by 10% during 2008.

Mr Woodford, one of Britain’s most powerful fund managers said house prices are too high and the average home will fall by £18,500 by the end of the year – the equivalent of £50 a day.

Property auctions: Going, going… gone to pick up a bargain

Property auctions are booming, with an increasingly wide range of homes for sale. Hazel Davis gives the lowdown on how to start bidding – and when to stop

When Claire Shorrock gazed at the handsome detached Georgian house in Fenny Drayton, Warwickshire, one Sunday two months ago, she had little idea that it would be hers just 24 hours later.

	‘When the hammer falls, it’s yours and you must pay up’

Claire and her husband, Mark, had been looking for houses after putting their own five-bedroom coach-house on the market, but had not happened upon their perfect home.

“Then, quite by chance, a newspaper was delivered to our house,” says Claire, a soft-furnishings maker and interior designer. “I opened it and there was the house of our dreams.” The only downside was that it was for sale by auction in Uttoxeter just a few days later. “The earliest we could get a viewing was on Sunday,” she recalls, “whereupon we decided to bid for it the following day.” An auction virgin, Claire had to attend the sale on her own as Mark, the managing director of local firm Tecroc Products, was away on business. An auction can be a heady mix of bewilderment and excitement – and if you are bidding alone, it can be terrifying. “It did seem quite daunting,” she says. “It was mostly men in suits and what looked like dodgy characters hanging around. I was out of my depth.” Having originally been on the market for £950,000, the house went into the auction with Newcastle-based auctioneers Baxtons with a guide price of £800,000. However, she says, “It all happened so quickly that Mark and I hadn’t even agreed on a highest bid. So I just decided to end when it stopped being sensible.” Claire eventually bagged the house at £875,000 but, she says, that was with pressure from another bidder. “You never know whether they are genuine buyers or a plant on the vendor’s behalf,” she points out. “But that’s just one of the risks you take. You do need to be careful.” There used to be a time when the only people who went to auctions were builders or fools with little money but lots of time. “Real people” bought their homes from an estate agent. But these days everybody’s at it.

The total turnover at property auctions has doubled in five years to £5.9billion in 2007. Now, with a flood of repossessions being put up for auction, the number of properties for sale has never been higher. At the same time, the credit crunch has made it harder to get a mortgage, so the most recent auction sales are down. It really is a buyer’s market.

The Council of Mortgage Lenders predicts that 45,000 homes will be repossessed in 2008, an average of 124 per day. They account for 40 per cent of the homes being auctioned this month by Allsop, Europe’s biggest property auction house. “A large proportion are buy-to-let investors who failed to appreciate the pitfalls of property investment,” says auctioneer Gary Murphy.

The number of residential properties offered at auction last year rose by 5.7 per cent, from 18,525 to 21,528. Of these, 15,378 were sold, according to the Essential Information Group (EIG), whose website lists every lot in every UK property auction, past and future.

The Royal Institution of Chartered Surveyors suggests that the increase was caused by repossessions following interest rate rises.

EIG statistics show that 7,561 homes were sold at auction in the Midlands and North last year, with a value of £890million.

There are more novice buyers than ever before, says EIG managing director David Sandeman: “Because of eBay and numerous TV programmes, people aren’t so scared of the idea of bidding any more.

“It’s also now much easier to find details on a property before you attend an auction. Years ago, you used to have to wait for the catalogue to arrive but now you can pretty much get everything online.” But still very few owner-occupied properties are sold at auction. “The main reason for selling at an auction is to get a quick sale at a reasonable price without aggravation. But most people just can’t get their head round the prices.

“Auctioneers get tens of hundreds of calls every day from people who want to sell a property. They usually say they tried to sell it through an estate agent but haven’t had any decent offers. The auctioneer asks them how much they’re expecting and the vendor says £195,000. So the auctioneer suggests a guide price of £160,000 and the vendor puts the phone down.” But there is no such fear when it comes to buying. “People are now much more aware of the marketplace,” says Martin Murtagh, business development director of Baxtons. “Buyers can conduct their own research on properties and prices and feel more confident about buying at an auction.

“In 1998, fewer than 15,000 properties changed hands at auction, but by 2006 that figure had more than doubled. Auctions now account for 8 per cent of all houses bought in the UK.” With the increasing popularity of auctions, it is crucial to go prepared. “The best advice is to exercise diligence,” says Sandeman. “It’s entirely possible to get a bargain – but make sure you’re happy. If you are prepared to go to £110,000 and you pay £100,000, then that’s a bargain.” The main disadvantage to buying at auction, says Sandeman, is that “when the hammer falls, that property is yours and you have to pay for it. This puts off the vast majority of people.

“However, competition might not be as much as via the estate agent – and you’re buying a property at the maximum price you would like to pay for it, as opposed to starting at the top and working down.” A fair percentage of auction properties have structural problems, so it is wise to have a survey. Claire did what no buyer should do and skipped the survey. “There just wasn’t time,” she says, “though I would not do that again.” Luckily, the Shorrocks have got away with minimal work but the extra money you shell out could save you hassle in the long run. Properties for auction are required to have a Home Information Pack but a Home Condition Report is not obligatory, so arranging a survey is crucial. As it is likely to cost up to £500, you need to be sure you want the property – be prepared to forfeit the cost of the survey if you are outbid.

In one respect individuals can have an advantage over the pros. “The private buyer looking to buy a property to live in can often do much better than a businessperson as they don’t have the overheads of an office or capital gains tax to pay,” says Sandeman. “So don’t be intimidated by the idea that you’re competing against professionals.” Despite being a novice, Claire was pleased with the way her auction experience turned out. “I would definitely do it again,” she says, “but I’m not sure I would go alone…”

Expert tips on preparing for auction

David Sandeman, of the Essential Information Group, recommends

	Come prepared: a little research can greatly improve your auction experience

Do a dry run
Find a property you might like but aren’t going to buy. Book a viewing, estimate what you think it will go for and ignore the guide price. Then go to the auction and imagine you are bidding for it.

Don’t underestimate the power of a survey
Look for adverse covenants and ensure the property is mortgageable if you are intending to seek finance. This usually means making sure there is a kitchen and lavatory in place.

Read the catalogue from cover to cover
It’s the property as described in the catalogue that you’re buying. Nothing else. If a website has different information on it, then that’s tough. All the rules of engagement will also be in the catalogue. Ensure you have read these thoroughly.

Take along ID and a personal cheque
You will usually need to pay a 10 per cent deposit on the day. You will also need to supply solicitor details.

Sort out your finances
You usually have around four weeks after the auction date to complete the purchase. This differs from auction house to auction house and you are advised to check beforehand.