Category Archives: Property Finance

Landlord’s Support Review of Water Debt

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As most landlords are no doubt aware, disconnection of water for non-payment has not been an option in this country for over a decade now. While most of us understand why that is the case, there is no doubt that this law has led to a massive rise in bad water debts. The figures are in the region of a rise from £684 million to a whopping £1.2 billion.

No wonder then that The Residential Landlords Association is backing the Walker Review’s proposal for sanctions against non-payers. They are also vocal in their support of changing the rules so that water users are obliged to give their personal details when applying to be supplied.

“The statistics show the ridiculous state we have reached,” says Richard Jones – lawyer for the Residential Landlords Association

The RLA are, however, quite concerned as to how the new sanctions will be implemented. Though delighted that the Walker Review listened to the many recommendations of the RLA and most significantly agreed that landlords should not be held responsible for water charges in shared houses, they are concerned that the Government is taking the wrong tact with the sanctions.

The Walker Review indicated that non-paying tenants could be pursued and ultimately jailed for failure to pay for their water. This has met with disapproval from the RLA.

“At the moment our prisons are overflowing so it does not seem a good idea to add to the prison population when there is a far better alternative. It is possible to install trickle valves to reduce the water supply to a property while still allowing a sufficient supply for hygiene purposes.” Mr Jones said.

It will be interesting to see how this progresses.

Government’s Lack of Empathy for Tenants

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A spokesperson for the ARLA (Associate of Residential Letting Agents) this week accused the housing minister of lacking empathy with those people living in the private rental sector. Ian Potter did not mince his words when referring to the Housing Minister’s recent statement in a debate.

“In a recent debate the Housing Minister displayed a lack of empathy with those living in the PRS when he argued that it consists of three million households, when it in fact consists of eight million people. Perhaps we should question why he seems to have depersonalised the PRS, as the Government continues to evade implementing measures to help the sector.”

It is a fairly common theme right now, the idea that the Government is not doing enough to help the rental sector. Even the most basic of measures to improve things seem to go ignored as the Government continues to focus elsewhere.

Many experts agree that if unemployment continues to rise then we could soon be facing a crisis where people are unable to pay their rent, and the knock on effect of that will be more landlords failing to honor their mortgage commitments.

You have only to look at the Government’s failure to include rental properties in the boiler scrapage scheme to begin questioning their commitment to supporting the rental sector.

End to Stamp Duty Holiday May Cause Disaster!

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Many people give at least some of the credit for the UK property revival to the Government’s decision to lower the stamp duty threshold from £175 000 to £125 000 but this stamp duty holiday is about to come to an end and it could spell disaster.

Surveys carried out by leading mortgage lenders seem to indicate that the end of this arrangement could well see tens of thousands of sales fall through.

Many experts are criticising the Government on this one as they believe that they have missed a golden opportunity to reform this tax. The stamp duty tax is seen as distorting the property market because of the huge increase from 1% to 4% on properties in the £125 000 to £500 000 bracket. Experts also believe that the tax should only be applied to the excess rather than to the whole purchase price.

This planned reversion to the old level of stamp duty is causing deep concern in the property industry. James Thomas, head of residential investment at property consultants Jones Lang LaSalle, has expressed a worry that this move could cause drops in property prices across the board.

‘There are already signs of the recent resurgence in house price growth slowing and our latest Residential Market Forecast anticipates a fall in average UK house prices of around 7% in 2010,’ he explained.

As usual, however, this kind of news could prove to be a double edged sword. Buy to let buyers may well benefit from the knock on effect of a rise in tenant demand.

Fewer Landlords Remortgaging Properties

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The number of landlords choosing to remortgage their investment properties has fallen to its lowest level in two years according to a survey by Paragon Mortgages.

The survey Paragon carried out revealed that only 39 percent of landlords chose to take out a remortgage in the third quarter of this year. Combined with this is the fact that the borrowing of money for portfolio extension purposes is at its highest level since 2001. Figures indicate this is now 48 percent.

John Heron, managing director of Paragon Mortgages, said:

“Landlords are not remortgaging for two reasons – they cannot because of the low number of mortgages available, and there is little incentive to do so because the reversion rates when coming off an introductory deal are so attractive due to the low Bank of England base rate and Libor.”

“We have not experienced the massive sell off of buy-to-let property during the recession that some were predicting, but buying activity has been subdued. As house prices have stabilised, landlords now obviously believe that it is a good time to start expanding before house price inflation starts up again.”

This is good news but a note of caution is clearly being sounded of the lack of availability of buy to let loan products available in the market at the moment. This really does continue to be of grave concern.

Overseas Property Reaps Rewards

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Four years ago buying property overseas was all the rage and a lot of lucky people were able to do so without getting a foreign mortgage. According to the merchant bank, Close Brothers, these investors are now reaping the rewards of their investment.

For example, if you purchased an Italian property in Euros 4 years ago you will have seen the real value of your investment rise by approximately sixty five percent. The reason this is the case is a combination of a rise in property value of thirty percent and an increase in the value of the Euro in comparison to Sterling.

Close Treasury’s head of foreign exchange, Mark Taylor, comments:

“When British investors calculate the value of an overseas property they bought a few years ago, they not only need to look at how real estate prices have changed, but also what has happened to the exchange rate between Sterling and the local currency.”

He adds:

“Even though overseas property prices tend to have fallen in the last year, in many cases the fall in the value of Sterling will have offset this, and many people may still have seen the value of their homes increase in Sterling terms.”

The report goes on to add that a lot of Britons are taking advantage of this and selling up to realise the profits that are sitting on due to the weaker pound.

Agency Collapses: Deposits Vanish!

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We all understand that there were some rogue landlords that made things tricky for tenants regarding their deposits. We even kind of understand why the government intervened with its approved tenant deposit scheme but it is interesting to see that even they do not get it right all of the time.

Last month, one of the governments approved agencies collapsed and went into liquidation owing a whopping 382,000 pounds, largely made up of tenants’ deposits.

Stephen Greenwood had apparently been in business 36 years prior to this fall from grace. The company gave the recession and the failure of a large Spanish investment as reasons for their liquidisation.

Of course, we all have a lot of sympathy for this as many of us have experienced the hardships that have come with this recession. We wish the Rugby estate agency firm that has taken over his properties,  Craig Walford, the best of luck.

He seems to be doing the best he can by the existing tenants, having worked 23 hours day in the initial stages to get things up and running and has now opened the doors to the former Greenwood’s office to accommodate the extra business.

Paragon’s Success Indicates Buy to Let Surge

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Paragon are the UK’s biggest player in the buy to let sector and it appears from figures released this week that their figures are on the up!

2008 bought in figures of 53.7 million pounds and it appears likely that the figures for 2009 will top that by 1.1 percent. The group is putting their success down to very careful mortgage book management.
 
Paragon chief executive, Nigel Terrington, can be forgiven for sounding a little smug when he  says “In a year which has seen a deep UK recession and continuing turmoil in credit and banking markets, Paragon has fared well, significantly strengthening its position at a time when many of its competitors have failed.”

Despite the fact that the group’s loss provisions showed an increase in this time they are clearly making enough in other areas to offset this and show an improvement in their overall figures.

According to analysts, this is a good sign for the market in general. Galvan Research head of trading, Ed Woolfitt, says “As the property market firms up and starts to improve, niche sector operators like Paragon are set to benefit substantially. We believe the improving prospects and strong cash position puts Paragon into pole position as a recovery play.”

And paragon themselves have indicated that as the market firms up and profits start to improve, they hope to be able to go back to supporting the new lenders in the market.

Regulations to Protect Buy to Let Borrowers

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In a move that many have been calling for and predicting for a very long time now, the Government has announced that the buy to let sector will now be regulated to protect the borrower.

This follows a comprehensive investigation by the government into the causes of the latest financial crisis, and means that people entering into a BTL agreement can now do so with some sense of security.

Exchequer Secretary, Sarah McCarthy-Fry, says “We are determined to reform the system for the future, to offer both stronger protection for consumers and greater stability in the housing market.” And most of us can only say “about time!”

Apparently, the sticking point regarding the regulation of the BTL industry involved the fact that expenditure in this area was regarded as investment finance. Many have rightly pointed out though that given the huge number of amateur landlords involved in BTL this is a bit of a misnomer.

The bad news about this regulation is that some mortgage lenders have issued a thinly veiled threat about how it will affect the number of BLT loans available. Anyone involved in this area knows that it is very hard to secure this kind of mortgage at the moment and it seems that mortgage lenders are saying that this regulation will make it even harder.

I am not sure why this should follow. If the regulations are designed to protect the consumer then surely only those loans that were abusing the rights of the consumer will disappear. The mortgage industry must agree that those should never have existed in the first place?

Property Prices to Fall in 2010

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According to Bloomingberg, UK house prices are more likely than not to fall next year. Furthermore they state that it will be 2014 before house prices get back to the highs of 2007 when the UK was at the peak of its housing boom.

The economists and estate experts surveyed say that the rebound of 2009 was as surprise and highly unlikely to continue into the following year.

Most predict, on average, a 1.6 percent fall in UK house prices:

“The market is still overvalued, whichever measure you use, prices need to fall a further 20 percent to 25 percent to get back their long-term trend.” said Seema Shah of Capital Economics Ltd.

This was quite an extreme view for the survey with this group being the most bearish in their predictions but there is definitely a trend in the report towards thinking property is still well over valued in the UK.

In terms of what this means for landlords, it could be seen as a mixed blessing. While we all like to see the value of our investments growing, a lower price on property gives many a chance to further add to their portfolio. This means that in the long term they will find themselves with a much more valuable collection of property.

In the end it probably comes down to whether you are in property for the long haul. This research once again enforces the point that property is not necessarily the way to go if you are after making a quick buck. Most of us knew that anyway.

UK House Sales Remarkably Stable

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As I ended the last blog with some of the bad news floating around regarding the property sector, I have decided to begin this one with some more upbeat news.

It appears that house sales in the UK have been holding very well in last financial year. According to construction companies such as Redrow, UK house sales are very stable at the moment.  A spokesperson for Redrow had this to say this week after the company’s general meeting.

“Home sales in the financial year to date have been remarkably stable with net private reservations averaging 45 homes per week, including the normally seasonally weaker months of July and August,” the company said.

“Total net private reservations achieved in the first 18 weeks are 47 per cent ahead of the same period last year with cancellation rates having returned to historic norms.”

This is a very encouraging sign of renewed growth in the housing sector that can only benefit the entire economy.
 
On the down side the same companies were quick to point out that the lack of mortgages available from the banks is still a matter for concern. As we know, that concern is twice as relevant in the buy to let sector as banks seem determined to keep options very limited in this area. We can only hope that banks see the error of their ways and loosen their purse strings sometime in the near future.