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Reducing PRS Rental Prices Could Kick Start The UK Economy

Reducing PRS Rental Prices Could Kick Start The UK Economy

Whilst the UK Government have presented the nation with the idea of building more affordable homes in the social sector and promises of further regulation, licensing and reform of the private rented sector, there is still a case that lower rental prices are vital for economic recovery.

Pete Jefferys, part of the policy team at Shelter stated that lower PRS rent is vital for the UK’s economic recovery, if average PRS rents in the UK had risen in line with the rate of inflation since the year 2000, rather than well above, then tenants would have an extra £8 Billion (GBP) per year of disposable income.

Increasing rents for private rental sector tenants are beginning to become a sensitive political issue, especially in areas of high demand including London and the South East.

Private sector tenants are trapped between the expense of renting and unobtainable or unaffordable mortgages, with banks and mortgage lenders tightening lending criteria and demanding larger deposits for property purchases than they were prior to the financial crisis.

While this trap is frustrating for those who want to buy and devastating for low-income families with few other options, it may also be having an impact on the economic recovery of the UK.

Tenants renting property in the private rental sector are increasingly paying more in housing costs than those buying a property with a mortgage.

For some low-income tenant renters, the proportion of their wage going towards rent can be over 70%, especially in London.

Lower PRS Rent Vital To UK Economy

Lower PRS Rent Vital To UK Economy

The homeless charity, Shelter say they have collected evidence that increasing housing costs and financial uncertainties mean that tenants are attempting to reduce spending on many consumer goods and services, and due to falling household incomes, increasing numbers of tenants are being forced to use high cost credit to make up any rental shortfall, incurring high repayment charges and eating up even more disposable income.

The cumulative gap between rental costs and wages was growing in London before the 2007/8 financial crisis but now in 2012 it has grown even wider.

There are 8.5 Million tenants renting property in the UK, in London tenants pay on average, between 42 – 46% of their income on rent and economists say that there is a strong case that a lot of potential consumer spending is being lost and that the UK faces a demand crisis because there isn’t enough being spent on British products in shops to get people back into work.

Many landlords rent out just one or two properties and are using the rental income to pay off mortgages and earn a small yield. The result is that the amount of money being paid in rent is financing mortgage debt and not being re-circulated into the country’s economy. If banks were re-lending this money, again it might not be a problem. But, as we’re constantly hearing – bank lending has dropped massively since 2008.

Even if all rent went straight into the pockets of landlords there would still be a case that this is reducing spending in the economy. Higher earners spend proportionately less of their income compared to lower earners and on average landlords have higher incomes.

If average PRS rents in the UK had risen in line with the rate of inflation since the start of the new millennia rather than well above it, renters would have more than *£2,000 (GBP) extra per household per year

That would have meant far more going directly into the pockets of those on a lower income to be spent within the UK economy than the proposed VAT cut (offered by the Labour opposition and would cost the Treasury £12 Billion (GBP) per year).

High price rents in the PRS increase the housing benefit bill, which currently costs the government more than £20 Billion (GBP) per year, having doubled over the last decade.

The balance of UK Government spending on housing has shifted away from house building to covering housing benefits.

If 8% of private rental sector tenants moved to more affordable social homes, the UK Government would save up to £200 Million (GBP) per year.

Building more affordable council houses has the advantage of reducing pressure on the private rented sector and would increase spending power dramatically for those families who are in social rented properties.

A recent Shelter report stated the case for reform of the UK private rental sector proposing five year, inflation linked tenancies with two month break clauses for tenants.

The benefits of the Shelter proposition include stability for tenant families, more disposable income over the long term and are even supposed to be beneficial for many landlords’ business models.

Building more affordable social homes and reform of the private rented sector would help millions of tenants, currently struggling with the third highest housing costs in Europe, it would also put enough cash back into people’s pockets to sustain an increase in consumer demand that is not reliant on personal debt nor expensive tax cuts.

*3.62 million tenant households in 2010/11 paid on average £95 rent per week, if the median of £78 per week average rent from 2000/01 had risen with CPI inflation, rather than the actual 2010/11 median figure of £137 per week. Across the UK this equates to £7.9 Billion (GBP) extra rent paid per year, so on average a renting family would have £42 per week extra disposable income, or £2,184 (GBP) per year.

(*Figures from the English Housing Survey and Office for National Statistics).

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UK residential mortgage lending made a dramatic recovery in May 2012 after the sharp decline caused by the end of the stamp duty concession at the end of March.

The Council for Mortgage Lenders (CML) claimed that the amount of residential mortgage loans advanced to property buyers increased by 33% from in April 2012 to 48,300 in May 2012 resulting in overall mortgage lending being 25% higher than at the same point in 2011

The CML put the rise in first-time buyer activity down to the market bouncing back from the temporary slump that came with the reintroduction of 1% stamp duty at the end of March 2012.

CML’s Director General, Paul Smee, said: “The slump following the end of the stamp duty concession seems to have been short-lived. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year.”

Despite some 18,100 first-time buyer mortgage loans worth £2.3 Billion (GBP) increasing by more than 20% compared with May 2011.

Mr Smee urged caution amid the ongoing Eurozone crisis stating “Economic uncertainty could affect both the supply of mortgage lending and consumer confidence and we still anticipate a challenging lending environment for the rest of the year.”

Gross mortgage lending declined to an estimated £10.2 Billion (GBP) in April 2012.

Mortgage lending fell by 19% from £12.6 Billion (GBP) in March 2012 but was 2% higher than the total of £10.0 Billion (GBP) in April 2011, according to the Council of Mortgage Lenders.

CML chief economist Bob Pannell comments:“Mortgage lending activity has been relatively buoyant in recent months, with stronger lending for house purchase underpinning the more upbeat lending picture. The underlying picture is likely to be a bit stronger than the April figure suggests, because some first-time buyers are likely to have brought forward their transactions to March 2012 to take advantage of the stamp duty concession that was coming to an end in March 2012. Eurozone developments remain highly uncertain and have the potential to undermine UK economic prospects and conditions in our housing and mortgage markets. The underlying picture is likely to be one of easing momentum in the housing market, but with potential for a sharper downwards correction on bad Eurozone news.”

Housing charity Shelter has made the news headlines again, after launching another attack on private renting, this time attacking letting agents in Wales over their up-front fees.

Shelter launched a verbal tirade on fees charged by lettings agents in Wales and already has an active campaign under way in Scotland, where upfront fees are illegal, but the timing of the stinging attack coincides with a move by the Welsh government to introduce compulsory licensing for both agents and landlords, a move that could set a precedent in the rest of the UK.

Shelter Cymru carried out a mystery-shopping exercise with letting agents across Wales to investigate fees and charges and how they vary between agents.

Agents were asked about the costs of setting up a tenancy, deposits required, the upfront costs of renewing a tenancy, charges for credit checks, late payment charges and any other fees or charges.

Researchers found that some tenants could be charged as much as £594 in set-up fees for a property at the average market rent.

It means that as well as finding one month’s rent in advance and a deposit usually totalling a month’s rent, prospective tenants needed to find additional fees and charges of around 45% of the monthly rent. With some agents, this sum could be as high as 120%, say Shelter.

Additional charges included fees to renew contracts, check-in and check-out fees to hand over keys and check inventories, and non-refundable pre-contract administration fees for everyone who applied for a tenancy regardless of whether their application was successful.

John Puzey, director of Shelter Cymru, said: “You have to question how reasonable these charges are when credit checks can be carried out online for £20 and tenancy agreements are usually standard template contracts. These kinds of unregulated charges, which are now actually illegal in Scotland, are making the private rented sector even more unaffordable at a time when many people in Wales are already struggling to find and keep accommodation. In addition, we found that most charges were not well advertised so prospective tenants are often unable to discover the true cost of setting up a tenancy until they are well into the process of making an application, by which time they may already have handed over some non-refundable payments. Some agents charged a flat administration fee to all tenants, while others varied the fee depending on the rent level, raising the question of why the amount of administration work should depend on the tenant’s choice of home. This lack of transparency traps people into paying additional fees as it is almost impossible for them to make an informed choice when they start the process of renting a home”.

While a minority of agents published the costs of setting up a tenancy on their websites, the researchers found that with the majority this information was very difficult to obtain without asking very specific questions of the salespeople.

The Property Ombudsman’s Code of Practice for Residential Letting Agents states that agents should flag up any potential liability for fees, charges and penalties ‘prior to an applicant’s offer being formally accepted’.

But Shelter said that this is a very late stage in the process, by which time many tenants may have already committed money in the form of administration charges or holding deposits. The charity says that disclosure of fees post-application means that tenants are unable to exercise consumer choice in this area, which removes any incentive among agents for competitive price-setting.

Mr Puzey highlighted the proposals in the Welsh Government’s Housing White Paper for the compulsory accreditation of private landlords and letting agents in Wales and urged the Government to ensure that the forthcoming Code of Practice includes clear standards on transparency in agents’ fees and charges.

He said: “The private rented sector is a significant and growing element of the housing market in Wales and so we need to ensure that agents operate to the highest standards. We hope that accreditation will lead to greater transparency and a more efficient rental market for tenants, but if this does not happen then maybe a total ban on premium charges should be considered.”

The Shelter research in Wales showed that two adults renting a three-bed property pays a total of £1,448 in upfront fees on average, while two adults in a two-bed property pay £1,295 and one adult in a one-bed property pays £1,054.

Plaid Cymru’s housing spokesperson, Llyr Gruffydd AM, said: “Shelter Cymru’s research highlights some very serious concerns about the hidden charges people can face when renting a home. Plaid Cymru now wants to see some swift action on this issue from the Labour Welsh Government.

“At a time when the Westminster government is reforming housing benefit in a manner that will increase the amount of families looking for a new home, it is crucial that the Welsh government mitigates this by tackling the excessive hidden charges that tenants in the private sector face. While we welcome the Welsh government’s promise to tackle these hidden charges through new legislation on tenancy reform, we are concerned at the apparent lack of urgency. For many Welsh families, action needs to happen now. Bringing forward their proposed legislation on tenancy reform, rather than delaying, is an example of practical action they could take now to stand up for Welsh families. I urge the Labour Welsh government to stand up for Welsh families by taking swift action to tackle this problem.”

Institutional Investment is needed in UK Buy To Let Sector

Institutional Investment is needed in UK Buy To Let Sector

The Council of Mortgage Lenders, (CML), think the coalition Government’s Chancellor of the Exchequer, George Osborne should be doing more to encourage institutional investors to take a stake in Buy To Let property in the upcoming Budget.

The Council of Mortgage Lenders are the trade body for all the UK’s major bank and building society residential mortgage lenders.

The CML claim encouraging pension funds and corporate investors is a neglected policy that could provide the cash for more UK homes that can be made available to rent.

The suggestion is part of a wide-ranging Budget review aimed at influencing the Chancellor to ease the mortgage market. The submission also criticises current housing policies, including:

• Stamp duty holidays for first time buyers, which the CML claims creates a boom and bust market around deadline dates
• Paying housing benefits direct to claimants may damage landlord cash flows and lead to unnecessary mortgage arrears and repossessions
• Making better use of housing stock as, the CML states, most of the homes available over the next 20 years have already been built

The CML has told the Chancellor that given the vulnerabilities and uncertainties, it is important to make sure that all avenues, for strengthening and diversifying funding structures, have been explored.

The CML have also noted that the government continues to explore the obstacles to greater institutional investment in the supply of private rental property, but, strangely, the further scope for promoting domestic institutional investor interest in mortgage assets seems to be a neglected area of policy.

The Budget report also points out that UK banks and building societies rely heavily on raising funds from wholesale markets which are currently challenged by the Eurozone debt problems.

“Funding costs remain higher than a year ago, and the UK remains vulnerable to future eurozone developments. Given that current market conditions are somewhat fragile, it is very important that other government policies do not undermine housing market sentiment more generally. We believe that there are a few areas where policies are not as well aligned as they could be.” says the CML.

The CML’s calls echo the sentiment of many existing UK landlords who have had to search for a variety of additional landlord services such as insurance, tenant referencing and tenant eviction services from private sector specialist suppliers, in order to remain in a profitable situation.

With institutional investment into the UK private rented sector (PRS) specialist products and services for landlords will be enhanced for the corporate market and derivatives would be more affordable and even more readily available.

More than 66% UK property owners believe the value of their home will stay the same in 2012.

New research from Clydesdale and Yorkshire Banks has found that the majority of the UK public believe the value of their home will stay the same over the next 12 months.

The study revealed 66% of homeowners do not expect UK residential property prices to change considerably in either direction.

Only 16% of respondents anticipate that the value of their property will fall again this year, with the remainder expecting the costs to rise.

Retail Director for Clydesdale Bank, Steve Reid stated: “It is encouraging that such a high percentage of people have confidence in the property market and the value of their home.”

The research also revealed property owners in London are the most positive about the prospects of their property prices this year, with 39% believing the value of property is likely to escalate.

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Buy-To-Let is Booming in the UK

Buy-To-Let property is Booming in the UK

The Council of Mortgage Lenders (CML), have revealed that the UK is in the grip of a Buy-To-Let boom that shows no signs of stopping, as property investors snap up UK property worth £160 Billion (GBP).

The CML state that there are a record 1.4 Million Landlord loans, valued at almost £160 Billion (GBP), currently invested into UK Private Rented Sector (PRS), residential properties.

It appears that property investors have been keen to cash in on the soaring PRS rental demand and have been snapping up large quantities of residential properties.

The rental demand exists because many people still feel that they can’t afford to buy a home of their own and those who want to buy, are forced to rent whilst saving huge cash amounts required for the deposit for a property purchase.

With income from savings wiped out by low interest rates, mortgage repayments have become cheaper and landlord numbers have increased.

With Private Rented Sector (PRS), rents close to all-time highs across the country, there has never been a better time to get into Buy-To-Let!

Owning a residential property that is suitable for buy-to-let (BTL), that produces a regular rental income can be a real money-spinner for both amateur and professional landlords.

In London the average rent is approximately £1000 pcm, however in the rest of the UK, the average rent is only £711 per month.

According to the CML, in 2001, when the UK Buy-To-Let market was still in its infancy, landlords had obtained 185,000 loans to invest in rental properties.

Today, landlords have taken out 1.39 Million loans, worth about £160 Billion (GBP), to spend on their property empires, with an estimated 84,000 homes bought using specialist Buy-To-Let mortgages last year alone.

Critics have claimed that the UK buy-to-let market has forced property prices up to levels which many first-time buyers cannot afford.

Although buy-to-let loan numbers have ballooned, the number of mortgages to first-time buyers has taken a dramatic nose-dive.

Last year, according to lettings agent Countrywide, about 275,000 new tenants registered their interest in private rental accommodation – a 24 per cent increase on the previous year.

It said that a typical tenant is a couple under the age of 35, although the number of families is rising.

During the past ten years, the number of young people getting on the property ladder has collapsed from about 500,000 each year to just 200,000 and the lack of available finance, high deposits and employment stability being blamed for the fall in applicants .

Read the full Daily Mail article here

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According to the Council of Mortgage Lenders, (CML) gross mortgage lending in December 2011 was an estimated £11.7 Billion (GBP).

That is still 12% short of the £13.2 Billion (GBP) recorded in November 2011 but is actually up 12% when viewed on a year-on-year basis.

In fact UK mortgage lending increased to around £140 Billion (GBP) in 2011, compared with £136 Billion in 2010 and December 2011 was the fifth month in a row to show annual growth in mortgage lending, with 2011′s fourth quarter total of £37.3 Billion (GBP) up 11% on the final 3 months of 2010.

However, the CML expects the UK housing market to experience a weak first half of 2012 and warns that the increase is from a low base with challenging economic prospects,.

The Eurozone crisis, higher funding costs for lenders and the troubled state of household finances are all likely to impact on the UK housing market.

Bob Pannell, CML’s Chief Economist, said “There is a glimmer of light ahead for households in that real incomes could stabilise and perhaps even start rising by the end of the year. But, continuing Eurozone problems mean that mortgage funding prospects are uncertain, so overall UK mortgage market conditions for the year ahead remain difficult to call.”

Tenant Damage can be costly

Tenants may cause serious damage to rental property

Who pays for repairing the damage at a rental property can depend on what exactly has gone wrong.

Landlords are responsible for damage to the fabric of the property, such as, missing roof slates causing damp, broken down boilers and leaks and all landlords should have suitable Buy-To-Let insurance in place to cover the costs of repairs.

Tenants may also have to put their hands in their pockets if the landlord considers damage to fixtures and fittings is beyond normal wear and tear. Ie. The day-to-day deterioration of a property, like scuffs to the decor, carpets wearing and screws coming loose. There are suitable insurance policies out there specifically for tenants.

A fairly high proportion of Tenancy Deposit disputes relate to disagreements about what exactly comes under the definition of normal wear and tear.

Landlords need to make this call, and be prepared to back their judgment with evidence if required to do so at independent adjudication should a tenant lodge a complaint against having money deducted from the deposit.

Normal wear and tear is not defined in law, but the definition comes from years of rulings in disputed cases before the courts.

A judge or adjudicator is likely to consider normal wear and tear as damage or deterioration to a property arising from normal usage.

That triggers a debate about normal usage, which varies from case to case. For example, normal usage in a family home with a couple of toddlers is vastly different to that in a property lived in by a single pensioner.

• Normal wear and tear may include – finger marks near electrical sockets and switches; scuffs on doors and walls; tack holes; faded or peeling paint or faded soft furnishings
• Damage may include – writing or drawing on walls; holes in walls or woodwork; nail holes that need filling and repainting; carpet stains; burn marks; ripped soft furnishings or missing fittings.

Problems arise if the tenant’s deposit is not enough to cover the landlords cost of cleaning and repairs.

Often a tenant who mistreats a buy to let property is likely to have rent arrears as well and the landlord may be forced to go through the eviction process and get the tenant out before repairs can be started .

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