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Help To Buy Could Boost UK Property Market

Help To Buy Could Boost UK Property Market

The Help To Buy mortgage indemnity scheme proposed by Chancellor of the Exchequer, George Osborne, in the budget announcement made last week is expected to raise both property transaction levels and property prices.

The Help To Buy mortgage indemnity scheme which kicks in next January is designed to generate £3.5 Billion (GBP) of new lending, could be administered by ‘bad banks’ Northern Rock Asset Management and Bradford & Bingley, now in the umbrella of UK Asset Resolution.

Lenders would have to pay to participate in the scheme, but the price has not yet been set.

Estate agents expect Help to Buy to enable people to buy both existing properties and new build homes with 95% mortgages.

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UK Double Dip Recession Gets Worse

UK Double Dip Recession Gets Worse

The UK economy has slumped to its longest double-dip recession for more than 50 years after shock figures revealed by the Office for National Statistics (ONS) showed that the British economy shrank by a worse-than-expected 0.7% between April and June 2012.

Gross domestic product (GDP) fell, by much more than the 0.2% expected by forecasters, for the third quarter in a row.

The economy’s poor performance has been blamed on the extra bank holiday for the Queen’s Diamond Jubilee and the good old British weather, with the wettest April to June period ever according to the Met office.

The ONS’s estimate for the UK economy may yet be revised but it does suggest that the UK is in the midst of the longest double-dip recession since the Second World War.

The last double-dip recession was in the 1970s, when the economy was hampered by rising oil prices, a 3 day working week and miner’s strikes.

The grim economic forecast puts further pressure on the UK coalition Government, who will face even more criticism about the austerity measures that appear to be choking any chance of economic recovery.

The UK economy is currently 0.3% smaller than when the coalition came to power in the second quarter of 2010.

Chancellor of the Exchequer, George Osborne said: “We all know the country has deep-rooted economic problems and these disappointing figures confirm that. We’re dealing with our debts at home and the debt crisis abroad. We’ve made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs. But given what’s happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that’s exactly what we’re doing.”

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.”

The Chancellor, George Osborne has used the budget to drop a huge bombshell on the UK mortgage industry.

Buying UK residential properties through a company or offshore trust has been actively promoted by intermediaries, as this helps their clients avoid large stamp duty bills, particularly when using bridging finance or making cash purchases. This practice has been perfectly legal and acceptable…until now!

During yesterday’s budget the chancellor announced a 15% rate of stamp duty applied to residential properties over £2 Million (GBP) bought under a corporate envelope ; a consultation on the introduction of a large annual charge on those £2 Million (GBP) residential properties which are already contained in corporate envelopes; and, to ensure that wealthy non-residents are also caught by these changes, a capital gains tax on residential property held in overseas envelopes.

Mr Osborne confirmed that the government will consult on the details of a general anti-avoidance rule and legislate for it in next year’s Finance Bill. Stating that he found “…tax evasion and aggressive tax avoidance…morally repugnant”.

The chancellor also signalled that the government may even act retrospectively on avoidance measures including the use of companies and offshore trusts to avoid stamp duty.

He said: “A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop. Now I’m taking action.”

The chancellor’s move is reported to have come about following a recommendation by Graham Aaronson QC that such a rule would improve the government’s ability to deal with tax avoidance without damaging the competitiveness of the UK as a place to do business.

Mr Osborne added: “I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned.”

Director of the Association of Mortgage Intermediaries, Robert Sinclair, said: “I’ve been saying for a long time that those promoting this avoidance will get us into trouble. But most worrying is that this is the first time I’ve ever heard government say that they’ll come and do you for something retrospectively. I think the move from avoidance being acceptable to morally repugnant is probably the single biggest shift in the British tax system I’ve seen in my lifetime. The question will be where we draw the line given that there are schemes that actively promote avoidance such as the ISA.”

Miranda Cass, tax partner at Bristows, said the introduction of a general anti-avoidance rule should be welcomed by all but the most aggressive of tax planners provided that legitimate tax arrangements are not affected. The full implications of the rule have not been analysed yet but any risk that this rule will make transactions more difficult or more costly to plan for or to carry out will be a serious impediment to any growth in the economy. For the Chancellor to be introducing new and complex rules at the same time as drastically cutting the number of staff at HMRC does not make for a happy combination. Advisers are bound to be concerned that for every aggressive tax scheme this rule defeats, it will hinder or prevent two or three perfectly innocent transactions.”

ARLA calls for more investment in UK buy to let

ARLA Calls For More Investment In UK Buy-To-Let Property Rental Market

The Association of Residential Letting Agents, (ARLA), have urged the Chancellor of the Exchequer, George Osborne, to use the forthcoming Budget to encourage more investment into the UK’s Private Rented Sector, (PRS).

ARLA have called on the UK coalition Government to support the observed growth in the UK Buy-To-Let sector and remove many of the prohibitive barriers to further investment.

ARLA’s Budget submission calls for landlords to be treated as running businesses for Capital Gains Tax purposes, for the introduction of roll-over relief for landlords looking to reinvest, and for UK Stamp Duty to be made fairer.

UK landlords currently have to shop around for a wide range of landlord services in order to help them save money and operate as a business. The emergence of Tenant Referencing and Tenant Eviction services and the development of specialist Landlord Insurance products have ensured that there is still money to be made, by UK landlords, from the UK PRS rental market.

ARLA’s Operations Manager Ian Potter, said: “Buy To Let landlords must be treated as the entrepreneurial businesses they have now become. Supporting growth and encouraging greater investment into the private rented sector will help boost our economy and is an open goal for the Chancellor. Demand for private rented housing continues to grow, with 3.4 Million tenants living in the private rented sector – an increase of over 1 Million tenants since 2005. The tax system can be used by the Government to incentivise investment in housing stock in the PRS, and therefore improve the conditions in which those 3.4 Million tenants live. Some landlords face tax bills of up to 28% when selling a property, preventing them from reinvesting in the market.”

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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.

UK Chancellor of the Exchequer George Osborne has decided not to extend the Stamp Duty holiday for First Time Buyers, (FTB)  provoking fury from critics with accusations of undermining the Government’s attempt to kick start the UK housing market.

The Government decision comes despite massive lobbying from the mortgage and estate agency industries and various organisations, including the Council of Mortgage Lenders, Nationwide, Legal & General.

The Government, however, says the Stamp Duty break has proved to be ineffective and it will end on March 24th 2012 as planned.

The Government has stated that they intend to produce proof of how the Stamp Duty holiday has not worked and will instead concentrate on other measures announced in its new housing strategy, notably its controversial mortgage indemnity scheme on which it has now unveiled a few more details.

The Chancellor revealed that the Government will underwrite the 95% mortgage scheme, which is available only for new-build purchases, by up to £1bn.

The Autumn Statement said: “The Government will take on a contingent liability which will build up in line with purchases under the scheme, to a maximum of £1bn.”

Under the scheme, taxpayers will be responsible for 5.5% of the value of each home purchased. Builders will put 3.5% of the value of each home sold under the scheme into a funding pot, which will be called upon by lenders if the properties are repossessed at a loss.

The initiative aims to help 100,000 households purchase a new-build home with a 5% deposit.

It is unclear how many first-time buyers have succeeded in getting on to the housing ladder because of the current Stamp Duty holiday, although evidence is that they have melted away.

The Royal Institute of Chartered Surveyors (RICS) warned that ending the Stamp Duty holiday could distort the market with a mini boom and bust.

A RICS spokesman said: “By choosing to end the relief in four months rather than immediately, there is a clear risk that there will be a spike followed by a dip in the housing market as buyers rush to take advantage of the relief before March. It was hardly surprising that the Stamp Duty break had failed to help first-time buyers, given the lack of affordable mortgages and homes on the market”.

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