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Good News from the City for Property Investors

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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

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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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Lower Thames Crossing – your property and blight

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A tunnel beneath the River Thames has been announced by the Government, linking Gravesend, Kent with Tilbury, Essex. We look at the impact on local properties and blight.
 
The planned route set out by the Government will run from the M25 near North Ockendon, cross the A13 at Orsett before crossing under the Thames east of Tilbury and Gravesend.

A public consultation about the crossing commenced in January 2016, with Highways England favouring the chosen route. A red-line boundary map highlighting the exact areas in which the new trunk road will be placed can be viewed here (via Highways England website).

However, opponents raised objections to the fact it would cut through greenbelt land, its proximity to schools and the fact that neighbouring properties in Essex and Kent would be blighted by the development.

Highways England rejected a shortlisted option to build a bridge or tunnel next to the existing Dartford Crossing and said the chosen route would reduce pressure on the Dartford Crossing whilst also offering a shorter route to and from the Port of Dover and the Channel Tunnel – sure to be favoured with articulated lorry drivers.

It is estimated that up to 77,000 vehicles would use the new road link each day in its first year, which now raises fears for the local Essex community that their properties will be blighted as a result of this development.

What is property blight?

Blight is when the value of a property is reduced as a result of major public works, such as new trunk road proposals or improvements. It makes it difficult for homeowners in the local area to sell their properties at the current market value; as a result, they often have to sell at a much lower price.

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