Is it the right time to buy?


auction 2

An investor that I have been advising over the last few years who herself lives in London has remained interested in the derby property market, because of the success she has had over the last few years.  She is a huge fan of the Graham Penny Auctions in derby, so when she asked me for advice over a few properties she has seen at the current auction this month I gave her my honest opinion, I advised her not to expect too many bargains, I asked her to wait until the next auction to get a better idea of how the property market will react to the new regulations, I predicted that with the new regulations on stamp duty coming in April, people may panic buy which will push the prices up, I explained how that combined with stricter lending rules the price in property can’t change for the better in the coming months.

So it was no surprise to me this morning I received an email from the investor saying ‘thank you, you were right’. The auction was a great success for sellers and the team at graham penny, no doubt they have invested heavily in the auctions and have worked hard to build their incredible brand, the auction had an unbelievable turnout and for sellers it was probably the auction they should have had their property listed.

The table below shows us how this auction compares with the previous two and the same month last year (only comparing properties in derby):

  Feb 2016 Dec 2015 Oct 2015 Feb 2015
Average selling guide price £77905 £66385 £60300 £73450
Actual Average selling price £99048 £78615 £72150 £90175
Increase 27% 18% 20% 22%


Now considering stamp duty tax is set at 3% from April, the price increase when comparing actual selling price to guide price was 9% more than the previous auction, 7% more than the auction before, and when comparing to last year’s figures it was 5% more.  So as you can see the inevitable happened, the prices did fluctuate and the houses did sell an average 27% over the guide price, we know how smart marketing and very low guide prices by the team at graham penny auctions in derby is the key to what has attracted such large crowds. But the prices of actual houses sold and guide prices should not be as high when comparing to previous auctions and future events. So in theory have buyers actually paid the stamp duty tax without knowing.

I know some of you are shaking your head and probably thinking these are only averages of all the properties in Derby and for investors these figures don’t mean anything, well just to put it into perspective I have created another table which will give you a better indication. Now terraced houses are the largest percentage of houses let on most landlords’ portfolios specifically two bed terraces, and in derby the most popular areas are DE22 and DE23 for these types of properties let. So I will compare two bedroom terraces in these areas this auction to previous auctions.

The table below compares the price change of the average two bed terraces in derby, comparing the current auction with previous auctions.

  Feb 2016 Dec 2015 Oct 2015 Feb 2015
Average Guide Price £54000 £55600 £51800 £54000
Average Sold Price £72300 £63800 £65400 £66000
Increase 33.89% 14.75% 26.25% 22.23%


Again you can see from the table above, when comparing average guide price to actual selling prices this auction shows the largest percentage difference, but this is not the most significant figure. When comparing the average sold price between December and October 2015 the difference was 2% which is expected, but when you compare that of December 2015 to February 2016 the average sold price increased to 12%. This figure to me is an anomaly when comparing with previous auctions a result of people panicking as surely house prices have not increased by 12% over the last 3 months, but if they have only time will tell.

Overall I believe when investing in a buy to let property the right price is one that is following current and past trends, I believe the 12% increase was a reflection of people buying with the 3% stamp duty tax coming this April in mind, but without knowing they have actually paid more then what the stamp duty tax will amount to. The future looks bright for investors with capital as I think the market will stall for a while. The house prices won’t fall, but I do think they will increase at a slower rate over the next 6 months when comparing them to last couple of years giving you extra time to save up for a deposit. As always Derby still is one of the most lucrative property markets and there are always properties giving you a healthy return on your investment even at the current sold prices the returns on some of the properties are still around 7%. If you would like to discuss any opportunities further I will happily give my opinion.

Call: 07542 801474

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Buy to let Tax changes explained and their implications

stampdutychangesAfter meeting a landlord for coffee this morning we began to discuss the 2015 Summer Budget and Autumn Statement. The Chancellor who we have all grown to dislike introduced several changes that will affect anyone buying or owning a buy-to-let property in the UK. It is important that landlords understand these changes because they may affect the profitability of many buy-to-let portfolios, however small or large they are.

Below is a table summarising these changes

Property Value Current From April 2016
Up to £125,000 0% 3%
£125,000 – £250,000 2% 5%
£250,000 – £925,000 5% 8%
£925,000 – £1.5m 10% 13%
£1.5m + 12% 15%


From 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) (3% above the current rates) will be charged on the purchase of additional UK residential properties. This means in derby where majority of buy to let investments which were under £125,000 that were attracting no stamp duty will have a 3% SDLT added to it. Terraced houses are the largest percentage of types properties purchased to let in derby, in 2015 the average value of terraced properties sold in derby was £115,000 approximately, these investments had no SDLT, but after April this year you will have to fund an extra £3450 on average to make this purchase in the future.

For example, a property bought now for £500,000 would attract an SDLT rate of 5% or £25,000. But after 1 April it will be 8% or £40,000 if the purchaser already owns one or more UK residential properties.

Also, from 2017 the amount that some landlords can claim in tax relief on their finance costs (such as mortgage interest payments, interest on loans to buy furnishings and fees incurred on taking out and repaying mortgages) is being gradually reduced over 4 years.

When the new restrictions are fully in force from the beginning of the 2020/21 tax year, landlords will be only be able to claim tax relief at the basic tax rate of 20%, instead of 40% or 45% for those in higher or top rate income tax brackets respectively.


How the current rules work


At the moment, you can claim all of the annual mortgage interest you pay against your income from a property, and then only pay tax on the difference. So if your income tax rate is 40% then your tax bill is 40% of this difference.
Here’s an example. Let’s say your buy-to-let property generates a rental income of £10,000 a year, while you pay £9,000 interest on your annual mortgage payments. At the moment, you only pay income tax on the £1,000 difference between the rental income and the mortgage interest.

If you pay the basic rate of tax (20%), you’ll owe £200. Those who pay the higher rate of tax (40%) will owe £400, and if you pay the top tax rate of 45%, it would be £450. In another example, if you receive £15,000 in rent annually and pay mortgage interest payments of £10,000 a year, a basic-rate taxpayer will owe £1,000 under the current rules, while a higher-rate taxpayer will owe £2,000 and a top-rate taxpayer would owe £2,250. These examples assume there are no other deductible expenses for tax purposes.


The new rules explained


From 2017, the way the tax relief is calculated is going to change. Under the new rules, you will owe tax at your personal tax rate on the entire income from a property. From 2020/21, when the rules are fully in force, you will only be able to deduct a maximum of 20% of your mortgage interest payments from this tax liability to calculate the amount of tax due.

This means that if you pay income tax at the basic rate of 20%, you won’t see any change in the amount you owe.

Imagine that your buy-to-let property generates a rental income of £10,000 a year with mortgage interest paid of £9,000. In 2020, when the new rules are introduced in full, you will be taxed at 20% of £10,000 (or £2,000). Then 20% of your £9,000 mortgage interest payments (or £1,800) can be deducted, leaving you with a tax bill of £200, the same as before.

But higher and top-rate taxpayers will pay more. Based on the same scenario, in 2020, higher-rate taxpayers will be taxed at 40% of £10,000 (or £4,000), but will only be able to deduct 20% of their £9,000 mortgage interest payments (or £1,800).

This will leave higher-rate taxpayers with a tax bill of £2,200, compared to £400 under the current system. Those paying the 45% tax rate will owe £2,700, compared to £450 today.

Looking at the example where the annual rent received is £15,000 and mortgage interest payments are £10,000 a year, basic-rate taxpayers would still owe £1,000 under the new rules, the same as before. However, higher-rate taxpayers will owe £4,000 from 2020, compared to £2,000 under current rules, and top-rate taxpayers will owe £4,750, rather than £2,250.

So as landlords around derby are searching for answers, I have a few suggestions, what probably won’t work is simply hiking up your rents to compensate, as most tenants are already paying as much as they can afford. If you think you might be affected, there are a few other things you can try:

  1. You could switch to shorter-term fixed rate deals to get lower rates of interest, although these mortgages carry more risk.
  2. You could place your property portfolio in a limited company structure. You would then pay corporation tax (which is lower) rather than income tax on your profits. A drawback is that your mortgage options will narrow as fewer providers will lend to a company. However I predict these options will open up as most portfolio landlords will turn to this method.
  3. If your spouse pays a lower rate of tax, you could transfer ownership of one or more properties to them (taking care this does not lift them into a higher tax band).

As with most clouds, there is a silver lining. If you’re a landlord with a lower income, you’re no longer at such a disadvantage to those in the big league. This level playing field may in fact help the new wave of ‘silver landlords’ hoping to use their pension pots to buy rental property. Also, if you’re a homebuyer, you may find prices becoming more affordable as the competition from buy-to-let decreases.

Overall, landlords I can’t emphasise enough how important it is to do your research, and to speak to professionals around you for simple advise. It is important to do the math before you begin to search for a property to invest in. As always I’m here to discuss this or any other subject with you, you could either call or email me, or simply follow us at the derby city property blog to stay informed.

Call me on: 07542 801474

Proof2         Or email:


The extra bedroom conundrum!

derby 1

If only I had a penny for every time a landlord asked me this question, as a landlord your nature is to explore ways you could increase the return on your investment and to add value to it.

Having extra room in a property is seen as a luxury by the occupier, it is directly correlated with tenants who are willing to pay higher rent and homeowners who are willing to spend more on their home. I am always wary of quoting figures, but for the purpose of this article I am using a survey carried out by the building society and lender nationwide. According to the research conducted by the team at nationwide, if you were to convert a two bedroom terraced house to a three bed the property would increase by 10 percent in value. Whereas, a two bedroom semi-detached house transformed into a three bed would add an impressive 12 percent. Furthermore, to convert a three bedroom terraced property to a four bed would increase the value by 9 percent. Similarly a semi-detached conversion from a three bed to a four would increase the value by 9 percent, and this figure remains the same when comparing detached properties too.

Now these figures do sound impressive, however with a actual example we will explainextension how this method is not worth your time neither your effort. Currently in derby the average two bed terraced in the city centre is marketed at £92000, if I was to add an additional bedroom by means of an extension the price would rise by 10 percent in accordance to the national average to £101,200 approx, a increase of £9200. But as you start to look at planning costs and building costs involved, I think you get the point and I’ll save you the time, you’re not going to get an extension built for £9200, and this doesn’t even consider all the time and effort you put in yourself.

As an investor this got me thinking about rental figures so I decided to delve further into how the rental figures vary between such properties. Does an extra bedroom affect the rent in a way which is worth going through all that hassle?

The table below gives us an indication of the average cost of properties to rent in derby. (Averages taken from properties currently on the market using rightmove and zoopla)

Type of property  2 bedroom 3 bedroom
Terraced 465 525
Semi-detached 550 600
Detached 600 695

As you can see the average two bed terraced house around the city centre has an asking rent of £465, whereas a three bed terraced is asking an average of £525 a difference of 12 percent. So, if an extension costs £20000 and as a result we received an extra £720 a year that would give us a return of 3 percent per year on the £20000 investment. A mere 3 percent is definitely not worth going through all that trouble when you could use that money as a deposit to purchase a additional property and receive up to a 6 percent return on that.

In conclusion, there are various methods you could adopt to improve, add value, and increase the rental income of your property.  From giving the property a paint over, tidying up the gardens, laying down new floors and carpets, a new kitchen is always a key selling point, all means in which you could improve and all costing a fraction of the price of a extension.

As always I am available for any questions or comments you have regarding this topic or anything related to residential lettings in derby, so ask away as I am eager to discuss this topic or any other topic further


Call me on: 07542 801474

Or email