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New Report Backs Welfare Reforms

New Report Backs Welfare Reforms

Research from an independent consortium led by the Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University covering the impact of recent Housing Benefit reform in the private rented sector was published on Monday 13th May.

The report examined the attitudes of tenant claimants and private rented sector buy-to-let landlords in 19 areas across the UK, following the Housing Benefit and Welfare Reforms that were ordered by the coalition Government in April 2011.

Lord Freud, minister for welfare reform said:”Reform of Housing Benefit in the private rented sector was absolutely necessary to control a system that saw spending double over a decade to more than £20 Billion (GBP) a year. However, it is also necessary to monitor and follow the reforms to help us build and learn for the future”.

Ian Cole, Professor of Housing Studies at the Centre for Regional Economic and Social Research (CRESR), said:”This report provides findings from in-depth interviews undertaken with tenant claimants, landlords and housing advisors in early stages of the implementation of the reforms.

The CRESR also conducted separate analysis of all UK Housing Benefit claims to provide an insight to the initial impacts of the welfare reforms across the UK.

The CRESR report finds:

  • Large numbers of tenants claiming benefits have not been forced to move out of rental properties during the study
  • In 120 UK local authority areas, overall reductions to a tenant’s Housing Benefit / Local Housing Allowance (LHA) have been averaged at £5 (GBP) or less
  • The extra £130 Million (GBP) of support from the Department of Work and Pensions (DWP) to local authorities to help tenant claimants with Discretionary Housing Payment (DHP) has assisted tenant claimants well where Housing Benefit / LHA reductions have been greater than the national average.

The consortium is led by Ian Cole, Professor of Housing Studies, from the Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University. Other key team members included Peter Kemp of Oxford Institute of Social Policy, Carl Emmerson of the Institute for Fiscal Studies (IFS) and Ben Marshall from IPSOS-MORI.

The Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University is one of the UK’s leading academic research centres specialising in social and economic regeneration, housing and labour market analysis.

The consortium’s research started in April 2011 and will run until this Autumn (2013) and covers the effects of:

  • Setting Local Housing Allowance (LHA) rates from the median to the 30th percentile of local market rents from April 2011
  • Capping Local Housing Allowance rates by property size from April 2011 to:
    • £250 per week for 1 bed
    • £290 per week for two bed
    • £340 per week for three bed
    • £400 per week for four bed or more
  • The increased Government contribution to the Discretionary Housing Payment (DHP) budget
  • Increased powers of local authorities to make direct payments to landlords to support tenant claimants in order to retain and secure tenancies in the private rental sector.
  • Allowing an additional bedroom within the size criteria used to assess Housing Benefit claims in the Private Rented Sector where a disabled person, or someone with a long-term health condition, has a proven need for overnight care and it is provided by a non-resident carer who requires a bedroom.

The full research ‘Monitoring the impact of changes to the Local Housing Allowance system of Housing Benefit: Interim report’ is available here: Monitoring the impact of changes to the Local Housing Allowance system of Housing Benefit: Interim report

The Scottish Government along with the Department of Communities and Local Government (CLG) and Welsh Assembly Government are working in close partnership with the DWP and each contributing to the costs of the review.

Further CRESR reports are expected to be published in early 2014.

Europe want control of UK mortgage lending

European Union Want To Regulate UK Buy To Let Mortgages

Eurocrats no longer concerned with the current Eurozone financial crisis, are sticking their noses into the UK Buy-To-Let mortgage market, with the proposal of a new EU Directive on credit agreements relating to residential property, formerly known as responsible lending and borrowing.

UK Landlords who had been investing in property prior to the 2007 credit crunch have witnessed the dramatic fall in the number of buy-to-let mortgage products made available since the peak of the market in July 2007.

Today (NOV 2011), investors only have access to a paltry 15% of the 3648 buy-to-let mortgage products that were available before the full impact of the credit crunch.

Now, to make matters worse, the European Union want some form of control for the UK Buy-To-Let mortgage market, as part of their proposed directive on credit agreements, reducing the already limited range of UK BTL mortgage products available still further.

The EU has set out plans to include UK Buy-To-Let mortgages with this regulation, changing the way property investors and landlords are assessed by lenders for their BTL mortgage loan.

Currently in the UK, the affordability of a Buy-To-Let mortgage is measured individually, by assessing the rent generated by each property against financing costs.

Typically a mortgage would be considered affordable by the lender if the gross rent covered between 120 – 135% of the finance cost of the mortgage.

This excess cover is meant to ensure that even if the interest rate rises or the landlord suffers a rental void they are still be able meet their mortgage obligations in the medium term.

In general it is a sensible system that aligns the affordability of the finance to the cash generative qualities of each investment property.

It also allows landlords on modest incomes to be able to purchase a property without having to rely on a substantial personal income to prove they can manage their investment.

This method of measuring affordability was only introduced in the mid 1990’s thanks to a number of lenders getting together to introduce the Buy-To-Let initiative to the property investing public.

Now, Europe wants us thrown back into the pre BTL lending dark ages.

The European Directive proposes that BTL lending will be regulated in the same way that residential lending is at present.

Under the new proposals, lenders will no longer be allowed to take into account rental income when assessing the affordability of a buy-to-let loan. This would have massive implications for the 1.3 million small landlords, many of which could face difficulties in refinancing their loans under the revised criteria.

The proposals are to be voted on in early 2012 and would become law by 2013 but who is the legislation trying to protect?

The latest figures from the UK buy-to-let mortgage market show that the current system is actually resulting in a lower rate of arrears on buy-to-let loans than on residential loans. (Currently 2.14% compared to 1.91% for buy-to-let loans).

These new European directives go against current UK thinking, with the Council of Mortgage Lenders, (CML) against regulation and institutions such as the Building Society Association are completely against the new European proposals. Even the UK Treasury examined the need for Buy To Let regulation 2 years ago and decided against taking any action.

The new European Union mortgage directive is primarily concerned with the protection of consumers and including buy-to-let is unjustified.

A buy-to-let mortgage is a commercial transaction and most landlords have enough knowledge and experience to make business decisions without protection from the law and without evidence of detriment to the consumer it is unnecessary to impose such a limiting European regulation.

 

With the turmoil created by the Billions wiped off global share prices over the last week or so, I wondered how it would affect the UK property investor?

Italian and Spanish investors have seen money market interest rates shoot beyond 6%, amid fears that their respective economies are about to crash into recession. Meanwhile the reverse is happening in the UK, even though some tipsters are still predicting that the UK is facing a “Double Dip” recession of our own.

Short-term money has become cheaper to obtain, as markets now think the Bank of England won’t raise interest rates until well into 2012. This is great news for investors who are using bridging finance in order to complete property purchases.

In the past few days UK banks and building societies have been rushing out rate cuts on nearly all their deals, so if you’re coming off an expensive fixed-rate mortgage you are one lucky investor!

However, the new financial crisis is more bad news for first-time buyers, effectively they are being shut out of the market by lenders demands for substantial deposits.

This is unlikely to ease any time soon due to the continuing uncertainty over the state of Eurozone finances and globally banks are trying  everything they can to preserve their capital.

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