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Good News from the City for Property Investors

Despite the uncertainty over Brexit, foreign investors are still keen to invest in the City. We take a look at the latest property investment deals and what it means for its neighbours.

Whichever paper you read the outlook for the economy looks uncertain. However, and possibly due in part to a weakened pound, the commercial property market in central London has defied expectations of a Brexit downturn and has attracted a good level of investment.

Savills noted at the end of August that over £2.4bn was invested in commercial property in July. Total turnover for the year to the end of July was £11.5bn.

Real estate consultancy Cushman Wakefield reported an increase of £1.38bn in commercial property investment in central London in the first half of 2017, compared to the same period in 2016. Much of this has been from overseas, with Asian investment in central London being at its highest since 2012.” Investment has in fact reached £4.07bn – making up 46% of the central London market.

Notable acquisitions in the city include The Cheesegrater and Walkie Talkie building on Fenchurch Street, which was sold to a Hong Kong-based company.

James Beckham, Head of London Capital Markets at Cushman Wakefield Asia Pacific said “investors are set to continue with strong ongoing interest in assets right across the risk spectrum.”
There has also been an increasing interest from European investors. Four deals valued at over £200m in the City were by European investors, of which three were German including the acquisition by Deutsche Asset Management of 2 & 3 Bankside.

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Changes to Buy-To-Let Lending Criteria

The world of property investment and buy-to-let properties is due another shake-up with the Prudential Regulation Authority setting a timeline for further changes.

Since the government announced changes to tax reliefs available to professional landlords in the Finance Act 2015 (as amended), the Prudential Regulation Authority has set a timeline for changes to be made to underwriting criteria for their 1,500 banking, building society and investment firm members.  Implementation of those changes is due to be effected before 30 September 2017.

From April 2017 professional landlords can no longer deduct all of their mortgage interest when calculating property profit costs to assess their tax liability. For the year 2017/18, only 75% of mortgage interest can be taken into account; this is set to reduce again in 2018/19 down to 50% and again in 2019/20 to 25%.  By April 6, 2020, there will be 0% finance costs deduction for mortgage interest when assessing income earned from property.    

Lenders regulated by the Financial Conduct Authority and the Prudential Regulation Authority are required to review and align their lending criteria to ensure that professional landlords are aware of the regulatory changes and that they have assessed how these changes affect their investments. 

Affordability testing is now more stringent; lenders are required to assess whether the rental income from the property will support the monthly interest cost of the mortgage payments and they are no longer permitted to base their assessment of affordability on the equity in the property or take account of future capital growth.  Stress testing is incorporated into buy-to-let portfolio lending to take into consideration potential rises in interest rates with a recommended minimum assumption of a borrower interest rate of 5.5%.

Professional landlords with four or more distinct mortgaged buy-to-let properties are identified as Portfolio Landlords and lenders are required to operate different underwriting standards for these types of landlord, taking into account the complexity of the portfolio, cash flow and costs associated with multiple tenancies, and the landlords experience in the buy-to-let market. 

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