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Property industry reaction to 2013 budget

Property industry reaction to 2013 budget

George Osborne’s spring 2013 budget included new measures to help more people purchase their own homes and this news has been generally welcomed by property industry professionals.

The Chancellor of the Exchequer firmly believes that the measures announced in the spring budget will provide a major boost for the UK economy, despite calls for an economic U-turn from the Labour opposition.

Mr Osborne told the press that there were far more difficult decisions still to be made regarding the nation’s spending in order to get the overall deficit down, however, the government are taking measures to help people buy their own home.

The Chancellor announced that the FirstBuy scheme which was aimed at First-Time Buyers (FTB) on an income of up to £60,000 (GBP) per year, is being replaced with a ‘Help to Buy’ equity loan scheme available to all buyers looking to purchase a new build home up to a value of £600,000 (GBP), with a deposit of just 5%.

A new mortgage guarantee scheme was also announced during the spring budget, which extends the previous NewBuy Guarantee initiative to include older residential properties as well as new-build homes, which he hopes will result in a sharp rise in lending to potential homebuyers, thus kick starting an upturn in the UK property market. The new scheme will start in January 2014.

Buy to let mortgages are not going to be included under the new scheme, however it remains unclear if existing property owners will be able to purchase property without selling leaving them with an income producing property asset when they offer their old home for rental.

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UK Needs To Build Its Way Out Of Recession

UK Needs To Build Its Way Out Of Recession

The UK Government must do more to help stimulate the country’s economic growth, to boost the supply of new residential properties and build its way out of a potential triple-dip recession.

This is the view of the Federation of Master Builders (FMB), as the latest ONS GDP figures released showed output in the sector rose by just 0.3% in the final months of 2012.

The FMB point out that overall the UK economy shrank by 0.3%, keeping the country still struggling to escape the grip of recession, while there was a small increase in construction output.

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Council of Mortgage Lenders Give Reasons For Optimism In 2013

CML Give Reasons To Stay Positive About UK Property Market In 2013

CML Give Reasons To Stay Positive About UK Property Market In 2013

The UK Council of Mortgage Lenders (CML) are more positive about the UK housing market and the wider economy than they were a year ago, despite economic headwinds and downside risks.

A key reason is that mortgage lenders currently face few funding pressures, in part reflecting the governments funding for lending scheme.

Property purchasing activity was more robust than expected in the last quarter of 2012, on the back of better mortgage availability and more realistic property pricing, and the CML expect this to continue over the coming months.

2013 started on a more positive note than a year ago, even though the UK economy has barely grown.

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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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Homelessness is a real threat for young families in the UK

Homelessness is a real threat for young families in the UK

An extra 1.5 million 18 to 30-year-olds are expected to apply for private rented sector (PRS) properties over the next eight years.

The influential Joseph Rowntree Foundation says that one risk is that pressures on private rental accommodation could force young families out of the sector and into homelessness. The foundation forecasts that around 310,000 more young families will be looking for private rented housing in 2020 compared with today.

In a new report, ‘Housing options and solutions for young people in 2020’, it warns that the influx of youngsters chasing a private rental home will see young families, poorer and vulnerable people finding it hardest to compete for tenancies.

As previously reported by Legal 4 Landlords News on Friday 15th June 2012, an additional 500,000 young people will be forced to stay with their parents into their thirties, taking the total number of young people still at home to 3.7 Million by 2020.

Read the full story here http://blog.legal4landlords.com/index.php/property-renting-set-to-be-way-of-life-for-young-families/

The report is just the latest in a series of similar documents warning of the growing pressures on the private rented sector as increasing numbers of people are locked out of residential property ownership.

It warns of a three-tier race to find rented accommodation, with those at the top who can afford to pay rents, a ‘squeezed middle’ group who struggle to pay, and a bottom rung of 400,000 who risk being excluded completely.

However, there is hope for the lower tiers as leading landlord services provider Legal 4 Landlords can offer Rent Guarantee Insurance to landlords and tenants providing that the applicants pass the L4L Tenant Referencing criteria.

Kathleen Kelly, programme manager at the Foundation, said: “Our badly functioning housing system will see those on the lowest incomes really struggling to compete in the competitive rental market of 2020. Renting is likely to be the only game in town and young people are facing fierce competition to secure a home in what is an already diminished supply of housing. With 400,000 vulnerable young people, including families, on the bottom rung of a three-tier private renting system, we need to avoid turning a housing crisis into a homelessness disaster.”

The Foundation wants to see more homes built, longer tenancies at affordable rents – with the incentive of tax breaks for landlords – and the expansion of local letting agencies to find suitable homes for vulnerable young people.

David Clapham, lead author of the report, added: “With 1.5 million more young people no longer able to become home owners by 2020, it’s vital we take the opportunity to make renting work better.”

The latest Bank of England survey of households concludes that the UK’s recovery from the recession of 2009 has been slowed by falling consumption reflecting the challenging environment facing households.

The BoE data suggests most households have experienced an income squeeze over the past year, with many responding by looking for a new job or simply working longer hours.

The survey was conducted on 1,985 households and undertaken 23rd – 29th of September (before the worst period of the Eurozone crisis), using computer assisted personal interviewing.

The BoE survey showed 48% of respondents felt the UK government’s budget cuts have affected household income, 34% said they were not “heavily affected” while 18% hadn’t thought about it.

Some 69% of respondents felt government cuts would impact them in the future.

The biggest impact appears to have been from higher taxes, which 23% of people said they had noticed, while 19% mentioned lower income. 7% said they had lost their job although 19% said they expected to lose their job in the future.

The Bank of England noted in their report that: “Unemployment has remained higher than before the recession, and credit conditions are still tight.”

The BoE says its response has been to maintain interest rates at their record low of 0.5% since March 2009 and, as a further stimulus, it has purchased £275 Billion (GBP) in government debt in the process known as Quantative Easing, (QE).

The Chancellor of the Exchequer, George Osborne, believes the UK economy will grow 0.9% by the end of this year, (2011) and just 0.7% in 2012

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Bank of England Look to the Private Rented Sector

David Miles, A member of the Bank of England’s MPC has suggested that the housing market will never go back to what it was and the private rental sector is key to Britain’s changed housing market.

Home ownership is beginning to take the back seat as more and more people choose to rent property. This is in part blamed on high deposits required for property purchases due to UK banks limiting their risk elements, refusing to offer larger mortgages and introducing much stricter lending criteria.

David Miles is of the opinion that the UK’s economy might stablise if Britons were less dependent on changes in house prices and mortgage rates.

Mr Miles said “The credit crunch has created a new world where there will be a lower rate of owner occupation and a bigger rental sector.  I don’t think we should regret the fundamental change in the housing market caused by the credit crisis, and renting property could be of benefit to the overall UK economy.

Mr Miles had previously led an official inquiry into the UK mortgage market, and he also cautioned against a return to banks offering mortgages to borrowers with small deposits, saying “Housing markets and mortgage markets have been close to the centre of the economic and financial turmoil we have lived through over the past four years. I do not believe that the housing market or the mortgage market will get back to where we were in the years leading up to the crisis. I also do not think we should regret that.”

David Miles also highlighted the benefits to the economy of renting property, rather than buying homes and reckoned that tenants in rented property could move more easily for new jobs, thus lowering the risks of structural unemployment. “It will take time for first-time buyers to accumulate larger deposits, so they will typically buy later and the share of home ownership will be lower. But in the longer run, it is not at all clear that a lower rate of home ownership represents a big loss to society.”

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