Tag Archives: economics
UK vote on future in EU could have major impact on housing markets
If the UK leaves the European Union there is a risk that the move could have a long last and damaging effect on the country’s residential property markets, according to a new report. It could affect current plans to build hundreds of thousands of new homes, compromise London’s position as a safe haven for property investment, but could also have positive effects for first time buyers. The report from the National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA) compiled with the Centre for Economics and Business Research (Cebr), highlights a number of short and long term implications potentially arising from the upcoming vote. While the impact Brexit will have on migration policies is unconfirmed, imposing greater restrictions on foreign workers coming into the UK may compromise the UK’s ability to build homes with the Government having pledged to build one million new homes by 2020. It points out that construction based jobs are decreasing in popularity among UK nationals, and as 5% of current construction workers were born in other EU countries and workers from the are becoming more important than ever in filling the skills gap to boost housing stock. A leave vote could mean that in 10 years’ time there would be a severe skills shortage of construction workers, according to Mark Hayward, NAEA managing director. ‘Even if we then had planning permission, investment and materials to build more housing, we simply wouldn’t have the resource to put the bricks and mortar together. It has the potential to have a very damaging effect on the future housing market,’ he explained. But he added that a leave vote could provide first time-buyers with breathing space as demand for housing would be expected to ease off. The report also says that non EU businesses are currently attracted to the UK’s status as a gateway to the single market as it allows them to establish and grow their presence across Europe. In 2014 some 19% or £5.3 billion) of total FDI inflow into the UK came from EU sources and in 2013 some 17% of sales in London’s prime property market made to non-UK buyers were to European nationals. It suggests that in the event of Brexit, a portion of FDI would be re-directed to EU countries, freeing up housing units, particularly in London, previously purchased through FDI for British buyers. Also, if the UK does not maintain free movement of labour, the total population of the UK could decrease by 1.06 million and the report argues that with fewer people, demand will ease, making the market more accessible for first time buyers, as well as second steppers and last and last time buyers and this is will be especially apparent in London. Reduced migration would also affect the private rental sector. Currently, private renting is a more… Continue reading
Research shows hundreds of thousands of UK landlords are not protecting tenant deposits
Some 284,000 residential landlords in the UK have failed to protect renters’ deposits despite the fact that it is a legal requirement to do so, new research has found. A report from the Centre for Economics and Business Research (Cebr) for financial comparison website money.co.uk says that these landlords are sitting on £514 million of deposits that should be protected by an official third party service. With 4.6 million households privately rented and the average protected deposit at £1,040, the total value of deposits paid by tenants and placed in protection schemes by landlords has now reached £3.2 billion, the report claims. Despite the risk of fines for landlords who fail to protect their tenants’ deposits, 15% are still failing to do so running the risk of a £2,400 penalty and the report adds that landlords that flout the rules could together be earning up to £8.5 million a year in interest on unprotected money, while leaving themselves and their tenants with no third party protection when their agreement comes to an end. The government imposed deposit protection schemes to stop landlords unfairly taking money out of deposits for things such as wear and tear or pre-existing damage when tenants move on. With this protection in place, an alternative dispute resolution scheme will step in and assess the case and make sure any money held back by the landlord is a fair deal for both the tenant and the landlord. However, compliance with these rules are not being monitored effectively and the onus to report and take action against the landlord lies with the tenant, the report also explains. ‘While many landlords are doing the right thing and protecting deposits in one of the official government backed schemes, a worrying amount of money is falling through the cracks and far too many tenants are being left vulnerable,’ said Hannah Maundrell, editor in chief of money.co.uk. ‘It’s not right that tenants are left responsible for taking their landlord to court if their deposit hasn’t been protected. The government needs to step in and take decisive action. Introducing a compulsory register listing every landlord that rents out property in England and Wales would be a start. This works for Scotland and Northern Ireland and it seems crazy this hasn’t been brought in across the UK,’ she explained. ‘Add in tenants’ ratings and reviews to this too and you have both the beginnings of a solution that helps renters make an informed choice about who they’re handing over buckets of cash to; and the foundation for policing landlords that are currently going unchecked,’ she added. Maundrell also pointed out that it is not just renters that stand to benefit from deposits being protected. ‘Landlords need a safeguard against renters that misbehave too. I can’t understand why any landlord wouldn’t do this. It doesn’t have to cost anything to place money with a tenancy deposit scheme and could save so much hassle later on,’ she added. Continue reading
High supply level keeping rents on prime property in London down
Residential rents across the prime property market in London rose by just 1.3% on average in 2015, while those in the commuter zone increased marginally by 0.6%, new data shows. In London this reflects relatively high levels of supply coming into the market, not just from investment buyers of an increasing volume of new build stock but also from the re-emergence of accidental landlords, who reflect a more heavily taxed and generally less active sales market, says a new report from international real estate firm Savills. Behind the headline figures, however, there are a number of submarket trends seen in previous years, the report points out. In the prime housing markets of the commuter zone, rental values of prime properties in urban locations performed much more strongly than those in other locations, showing annual rental growth of 3.1%. In London smaller properties were by far the best performers. For example, while rents for one bedroom homes rose by 3% in the year, those for four bedroom houses barely increased at all rising by just 0.1% on average. ‘From an investment perspective, this meant smaller, less expensive properties clearly delivered the best returns. In addition to stronger rental growth, they offered better income yields and capital values proved more robust given less exposure to higher rates of stamp duty,’ said Lucian Cook, director of Savills residential research. He also pointed out that the impact of tax policy on the rental market has undoubtedly become a very hot topic. There is the progressive restriction of tax relief on mortgage interest payments meaning that by the 2020/2021 tax year, only basic rate tax relief will be given to private individuals, and more recently the imposition of a 3% stamp duty surcharge on the acquisition of so called additional homes, the purchase of which completes after 01 April 2016. Cook gave examples of how these changes will have an impact. He examined the economics behind the purchase of three different prime London properties in 2015; a one bedroom flat in the east of City market, a three bedroom house in south west London and a four bedroom house in central London. In each case it was assumed that 60% of the total purchase cost, including stamp duty and miscellaneous additional costs of purchase, is funded by cash and 40% by debt. At current interest rates, with full tax relief on the corresponding interest payments each makes a reasonable cash surplus for a private investor. That surplus varies between 21% of gross rent for the most expensive property in central London that has the highest stamp duty liability and delivers the lowest income return and 28% of gross rent for the smallest, highest yielding property in the east of City market that carries the lowest stamp duty liability. ‘In 2020, we expect the cost of mortgage debt to have risen, we have assumed a 4.5% mortgage interest rate, and income yields to have fallen because we expect price growth… Continue reading
