Month: January 2020

Home ownership among young people rises after decade of decline

Help-to-buy scheme has helped 25- to 34-year-olds get on property ladder, say analysts

Joanna Partridge The Guardian

Thu 23 Jan 2020 18.12 GMT Last modified on Thu 23 Jan 2020 19.35 GMT

The proportion of 25- to 34-year-olds who own their own home in England has increased for the first time in over a decade, according to official figures.

The latest English Housing Survey found that 41% of people in the age bracket live in a home they own, with the same proportion living in private rented accommodation. This is the reversal of the trend seen in the decade after 2003-04, during which the number of young owner occupiers fell from 59% to 36%.
the annual report from the Office for National Statistics found that the overall number of homeowners remained the same for the past six years. Home ownership peaked at 71% in 2003 and has steadily declined to 64% since then, which equates to 15m owner-occupier households of an estimated total of 23.5m.

Housing analysts said the government’s help-to-buy scheme, which launched in 2013 and gave financial support to homebuyers, had contributed to the increase in young people getting on the property ladder, along with stamp duty relief for some first-time buyers.

“Help-to-buy and stamp duty relief are behind the march of the first-time buyers, who will be powering a recovery in home ownership in this age bracket,” said Joseph Daniels, the founder of Project Etopia, which develops modular homes.

“Falling home ownership among the young still threatens to become a national crisis rooted in high property prices and stretched affordability but the tide has finally started to turn,” he said.

“It will take considerable time and momentum until owner occupancy among younger people returns to the 59% seen in 2003-04.”

Privately rented accommodation now accounts for 4.6m households, or 19%, which has remained unchanged for six years. But this sector is double the size it was in 2002.

The housing secretary, Robert Jenrick, welcomed the rise in the proportion of young people owning their home. However, the figures also showed an increase in overcrowding in the social rented sector, where people rent largely from councils or housing associations at a rate pegged to local incomes.

Overcrowding, which is measured by whether households have fewer bedrooms than notionally needed for its occupants, remains at its highest rate in the social rented sector, with 8% of that group living in overcrowded accommodation.

Polly Neate, the chief executive of the housing charity Shelter, said: “More and more families are crammed like sardines into homes that are too small for them because they can’t afford to rent anywhere bigger.

“The odds are stacked against struggling families. What this country desperately needs is an alternative to private renting, which is why Shelter is urging the government to build a new generation of genuinely affordable social homes.”

First-time buyer guide: how to get a mortgage and buy a house

Whether you’re still saving a deposit or have started viewing, here’s everything you need to know about getting on to the property ladder, says Ruth Jackson-Kirby

The Sunday Times, January 26 2020, 12:01am

If you’re finding it hard to get onto the property ladder, you are not alone. Government stats show that the average first-time buyer is 33 years old and the biggest hurdle is saving for a deposit — which on average now exceeds £50,000, according to Moneysupermarket.com. While that is a lot of money, don’t abandon hope: there is a lot of help available if you know where to look.
From parental help to government schemes to buying with friends, this guide outlines the ways you can finance your first home, as well as giving you some helpful tips for viewings and conveyancing.

I need help saving for a deposit

Nearly a quarter of first-time buyers surveyed by the online broker Habito said a family member provided more than 80% of their deposit. The Bank of Mum and Dad, as it is dubbed, is expected to have provided £6bn this year to help with deposits, according to Legal & General.

“For many first-time buyers, parental help is crucial,” says David Hollingworth, from the broker L&C Mortgages. “In many cases that will be in the form of a cash gift to boost their deposit funds.” Be aware that lenders prefer it to be given as a gift rather than a loan. “If a lender accepts parental loans, it will factor any monthly repayments into the affordability assessment, which could put a dent in the amount you can borrow.”

Patrick Connolly, a financial planner at Chase de Vere, recommends using the government’s help to boost your deposit. “The Lifetime Isa can play a valuable role for those who are trying to get on the property ladder,” he says. “They can be opened by people aged between 18 and 39, who can save up to £4,000 each year, benefit from a 25% government bonus and access their money tax-free.”

You can use a Lifetime Isa towards a home as long as the property costs £450,000 or less, you have been saving into the account for at least 12 months and you are buying with a mortgage. A couple who saved up £20,000 each in Lifetime Isas would get a government bonus of £10,000. Save £330 a month and you’d have a £50,000 deposit between you in less than five years.

If your property’s total value is less than £300,000, remember that you won’t have to save up extra to pay stamp duty, as first-time buyers are exempt up to this amount.

Myth buster: You can’t buy a home unless you have a huge deposit. Several lenders offer 95% mortgages meaning you only need a 5% deposit – that’s £9,888 for the average first home.
By numbers
£197,760
The average cost of a first home, according to HM Treasury
£50,174
The average deposit buyers put down on their first home. (Moneysupermarket.com)
33
The average age of a first-time buyer. (Government figures)

I only have a small deposit and I can’t borrow much

If this is the case, there are a number of government schemes that could work for you, of which Help to Buy is the best known. This is where the government lends you up to 20% of the value of the home you want to buy (40% if you are buying in London). You need to have a 5% deposit, you cannot own another property and the house must be worth less than £600,000.

The loan is interest-free for the first five years, but after that you’ll pay 1.75% interest that increases with RPI plus 1% every year. You only repay the interest on the loan – the equity is repaid when you sell your home or after 25 years. “It’s important that those using the scheme consider whether or not they can afford the loan repayments on top of their mortgage when the interest-free period comes to an end,” says Rob Houghton from Reallymoving.com.

Help to Buy can only be used on new-build homes, which are usually more expensive than buying a resale. Reallymoving.com says Help to Buy properties tend to sell at a 10% premium.
Another option is shared ownership. This is where you buy a portion of a property and rent the rest from your local authority or a housing association. You buy a stake in the property — usually 25% to 75% — then pay a reduced rent on the rest.

For example, £56,000 will buy you a 40% share in a two-bedroom penthouse in central Newcastle, according to Sharetobuy.com. It calculates that you would need a £2,800 deposit, then your monthly costs would be £618: £270 for your mortgage, £219 rent and a £129 service charge to maintain the communal areas.

“For many, it makes financial sense as it reduces the size of a deposit, purchasers own a share of their home and they can build up equity if they wish, while the monthly cost can be cheaper than an equivalent privately rented home,” says Matt Bartle, director of products at Leeds Building Society.

Each housing association has different eligibility criteria for shared ownership. They are usually restricted to people with a household income of less than £80,000 (£90,000 in London).

The drawback with shared ownership is the ongoing costs. While you may only own a share of the property, you are liable for the full maintenance and repair costs. You can gradually buy more of the property until you eventually own it outright through a process called “staircasing”, but you will need to pay fees each time you increase your share for things such as conveyancing and valuations.

“First-time buyers need to go in with their eyes open,” says Paula Higgins, chief executive of the HomeOwners Alliance. “For example, selling a shared ownership property is not straightforward and subletting is usually forbidden, even if you just want to let out the spare room.”

Alternatively, you could opt for a Rent to Buy property. You pay a subsidised rent (typically about 80% of the market rate) for up to five years with the option to buy the property, but you are meant to use the cut-price rent as an opportunity to save for a deposit.
“None of the government schemes is perfect,” says Angela Kerr, director of the HomeOwners Alliance. “Buying on the open market is always the preferred option if you can.”

Myth buster: Help to Buy is for first-time buyers only. Until April 2021 you can use a Help to Buy equity loan even if you have owned property before.
By numbers
£12,800
The average deposit paid for shared ownership (MHCLG)
221,405
The number of properties bought using Help to Buy equity loans up to March last year, with an average loan of £56,300 (MHCLG)
£2,360

The average amount first-time buyers save from avoiding stamp duty (AJ Bell)

Can I buy with a friend or family member?

If your family don’t want to hand their savings over, or can’t afford to, you could look at family mortgages. Offered by several lenders including Barclays, Lloyds and Halifax, these are linked with a family member’s savings account, which acts as a deposit so you can get a mortgage. The money is still theirs and they will get it back with interest as long as you make all your repayments on time over a few years.

You could also consider buying a home with a friend. Typically, mortgages can be taken out by up to two people, but more lenders are allowing mortgage applications from up to four people. By pooling your deposit and including more incomes on your application, you could borrow more to get a home.

Just make sure you consider the legal implications of buying a property with friends. During the buying process, ask your solicitor to draw up a Declaration of Trust. This will reflect how much you each put into the property and what you will each get back if and when it is sold.

How do I get a mortgage?

A mortgage, or home loan, is the biggest financial commitment you are ever likely to make and it typically lasts for 25 to 35 years. How do you make sure you are able to borrow the amount you need at the best possible rate?

This will depend on how much you earn. There are numerous online calculators that will give you an idea of the amount you can borrow. “A rule of thumb for borrowing amounts is likely to be around 4 to 4.5 times your income,” Hollingworth says.

Start thinking about your mortgage application at least six months before you apply. Check your credit score at Experian, Equifax or TransUnion. If it’s low, take some simple steps to improve it: check and correct any mistakes; reduce the amount of credit you have access to if you aren’t using it; and register to vote, as this can add 50 points to your credit score, according to Experian.

Lenders are looking to see that you have reliably repaid debt in the past. “If you don’t have a credit card, apply for one, make at least one purchase a month and set up a direct debit to pay the account in full each month,” says Raymond Boulger, senior mortgage technical manager at John Charcol.

Also, go through your statements and take an axe to your spending. When you apply for a mortgage your lender will assess how much you can afford to repay each month by studying your outgoings. Cancel that expensive gym membership, shop around for cheaper insurance and curb your shopping.

When it is time to apply, speak to a mortgage broker. Over a five-year period, a 2% mortgage rate on a £200,000 25-year mortgage would cost you £1,750 more than a 1.7% rate, so getting help finding the best deal will pay off. Some brokers are free and make a commission, but others will charge a fee, usually about 1% of the mortgage value.

Myth buster: LTV stands for long-term value
A survey by the Home Owners Alliance found that 76% of buyers thought LTV stood for long-term value, meaning the expected property value increase over time. It is actually an acronym for loan to value and represents the percentage of the home’s value that is borrowed. For example, an 80% LTV mortgage means you’ve put down a 20% deposit and the mortgage is covering the other 80% of the price.

By numbers
£145,702
The average amount borrowed by a first-time buyer (UK Finance)
80%
The average loan to value for a first-time buyer’s mortgage (UK Finance)
£723

The average monthly mortgage repayment (Santander)

How do I start the buying process?

It is finally time to start viewing properties. This is the fun part, but don’t get carried away. “Having waited so long to save a deposit, it’s important not to rush the final decision — take your time when viewing a house and try to resist the pressure to commit before you’re ready,” says Ben Leonard, chief executive of FirstHomeCoach.

“The more information you have on the property, the better equipped you are to make an offer. Don’t be shy: ask as many questions as you like, view the house more than once and at different times of the day, take pictures on your phone and make notes as you go.”

Before you make an offer, ask the agent whether they recommended the guide price or the vendor. “You might not get an answer, but their response will be a sure indication as to whether the agent has confidence in the price being asked,” says James Mackenzie, head of Strutt & Parker’s country department.

Once you’ve had an offer accepted, the legal process takes over. “Do not sit back and assume it will all be taken care of by your solicitor,” says Carol Peett, managing director of West Wales

Property Finders. Contact them once a week for an update; if they are waiting for anything from the vendor, urge the estate agent to chase them up. “Nearly a third of purchases fall through between an offer being accepted and exchange, and this will help ensure yours is not part of this statistic.”

Make sure you carefully read through all the documents your solicitor sends you. A lot of first-time buyers purchase leasehold properties, which adds an extra dimension to the legal work. “Don’t rely on your solicitor to check the length of the lease,” Kerr says. “Leases below 80 years are a problem and they can be costly to extend. You also need to have owned the property for two years before you are eligible to do so. Leases under 60 years are best avoided.”

Myth buster: You don’t need a survey if the mortgage company is doing one
When mortgage lenders carry out a survey on a property, it is simply a valuation survey. This means it is merely checking the property is worth what you are paying for it, and may not spot problems.

By numbers
6
The number of months it takes on average to buy your first home (Reallymoving.com)
£850–£1,500
The average legal fees for buying a property (Home Owners Alliance)
4%

The average amount below asking price that properties end up selling for (Zoopla)

Fall in inflation raises prospects of interest rate cut

BBC News 15 January 2020

The UK’s inflation rate fell to its lowest for more than three years in December, increasing speculation that interest rates could be cut.

The rate dropped to 1.3% last month, down from 1.5% in November, partly due to a fall in the price of women’s clothes and hotel room costs.

December’s inflation rate was the lowest since November 2016.

Analysts said it raised the chances of a rate cut, with inflation below the Bank of England’s target of 2%.

“Very soft UK inflation data for December leaves the door wide open for a Bank of England rate cut on 30 January,” said Melissa Davies, an economist at stock broker Redburn.

The Bank’s main interest rate is used by banks and other lenders who set borrowing costs. It affects everything from mortgages to business loans and has a big effect on the finances of individuals and companies.

City traders who spend their working lives trying to anticipate moves in interest rates are convinced of it today: the Bank of England is likely to cut the official interest rate when it meets later this month. Market indicators suggest a 60% chance of it happening.

Here’s the thinking: at 1.3%, the official measure of consumer price inflation in the year to December was lower than expected and well below the 2% target. With the economy barely growing (even shrinking if you are prepared to rely on the official November estimate of a 0.3% contraction) there’s little sign of inflationary pressure in the near future.

Granted, there was a sharp rise in the price of crude oil – a barrel was up 4.9% in the month and 17.4% on the year. But in spite of that, producers were still paying slightly less for their raw materials and supplies than they were last year.

The assumption has been that the November contraction was a temporary period of weakness induced by pre-election political uncertainty – and that there will be a recovery as businesses and consumers regain a new-found confidence to spend and invest.

The risk the MPC will have to contend with is that that hoped-for post-election recovery does not materialise.

Earlier on Wednesday, Michael Saunders, one of the rate setters on the Bank’s Monetary Policy Committee (MPC), reiterated his view that borrowing costs should be lowered.
“It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target,” he said.

Last week, two other rate setters and Bank governor Mark Carney also suggested that rates could be cut, depending on how the economy performs.

On Sunday, MPC member Gertjan Vlieghe told the Financial Times he would consider voting for a rate cut depending on how the economy has performed since the December election.

However, members of the MPC could take the latest inflation figure with a pinch of salt, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“Half of the decline in the headline rate was driven by a sharp fall in volatile airline fares inflation,” he said.

He expects inflation to rise to 1.6% in the first three months of 2020, and this could mean enough MPC members will decide to wait rather than voting to cut rates.

Emma-Lou Montgomery, associate director for personal investing at money manager Fidelity International, said the inflation data painted a bleaker picture for the UK economy than before.

“Today’s UK CPI figures simply add to the growing sense of unease many feel when considering the outlook for the UK economy, with the rate of inflation continuing to lag well below the Bank of England’s target of 2%.”

A cut would ease the finances of borrowers, but create a tougher environment for savers, she added.

15 things buy-to-let landlords need to know in 2020

The key rules for buy-to-let property investors and owners, from the letting fees ban to Section 21
By Stephen Maunder Which? 2 Jan 2020

As we head into a new year, buy-to-let landlords face another swathe of complications, from an overhaul of the eviction process to confusion over local licensing.
It’s a tricky time to be a landlord, but Which? Can help you get your head around the various regulations you’ll need to be aware of when investing in buy-to-let.

Here are our 15 top tips on what to watch out for in 2020.

1. Mortgage interest tax relief changes

The government has been phasing out tax relief on mortgage interest since April 2017, with the proportion you’re allowed to deduct slowly being reduced each tax year.

This will come to a head in April, at the start of the 2020-21 tax year.
From then, you’ll only be able to subtract a flat credit of 20% of your mortgage expenses from your rental income when filing your tax return.

These changes to tax relief are controversial, and have long been cited as one of the primary reasons landlords are selling their buy-to-let.

2. Letting fees ban

In 2019, letting agents in England and Wales were banned from charging fees to tenants. In England, the changes also involved deposits being capped at five weeks’ rent, or six weeks’ on tenancies where the annual rent is more than £50,000.

While these moves were designed to crack down on letting agents overcharging, they’ve had a knock-on effect on landlords, who now face the burden of paying for processes such as referencing and inventory checks.

Letting agent fees are already banned in Scotland. Northern Ireland hasn’t introduced an outright ban, but tenants can formally complain if they’re asked to pay fees that solely ‘benefit the landlord’.

3. Section 21 evictions

‘No fault’ evictions were a major topic of debate towards the end of 2019, with the government consulting on repealing Section 21 of the Housing Act.
Section 21 allows landlords to end a ‘rolling’ tenancy with two months’ notice, without giving any reason for doing so. T

The government believes repealing Section 21 will offer tenants greater security, but landlords fear the proposed changes could mean they have to take troublesome tenants to court to repossess homes.

The National Landlords Association says the proposals are ‘ill thought through’ and that Section 21 should remain unless the rules around evicting problematic tenants are reviewed.

4. Local licensing

Landlords operating Houses in Multiple Occupation (HMOs) are likely to be up to speed with the licensing rules adopted in October 2018, but confusion remains around other local licensing schemes.

More than 60 councils in England operate ‘additional’ or ‘selective’ schemes. The former adds extra stipulations to the mandatory HMO rules, while the latter can apply to every landlord within the area.

Local licensing schemes have faced significant criticism, with some councils failing to make landlords aware of the requirements and suffering huge processing delays.

In November 2019, data from Nottingham City Council showed it had only successfully issued 472 licences, despite receiving 17,523 applications from landlords.

The Residential Landlords Association described Nottingham’s scheme as ‘a farce’ and a ‘purely money-making bureaucratic exercise’. Find out more: the areas where landlords need licences

5. Changes to private residence relief

An overhaul of property residence relief rules could hit smaller landlords with higher capital gains tax bills when they sell their property.

Currently, you can claim up to £40,000 in capital gains tax relief if you let a property that is, or has been, your main home – even if you haven’t lived in it for a long time.

From April, this loophole will be closed, and landlords will need to actually be living in the property at the time of the sale to claim the relief.

6. Energy efficiency rules

From April 2020, more landlords will need to meet the new Minimum Energy Efficiency Standard (MEES) regulations, which require rented homes to have a minimum Energy Performance Certificate (EPC) rating of E.

Landlords with properties that don’t meet the regulations must carry out energy efficiency measures on their homes, up to a cap of £3,500 a property.

The rules were first introduced in 2018, but originally only covered new tenancies and renewals. From April, however, they’ll apply to all existing tenancies.

7. Electrical checks

In July 2018, the government announced plans to make landlords carry out electrical safety checks on their homes every five years.

So far, however, it has yet to set a start date for these checks to be introduced. This could happen in 2020, but it’s likely that landlords and managing agents will be given at least six months’ notice before implementation.

After implementation, a two-year transitional period will apply, with new tenancies being brought under the regulations first, followed by existing tenancies a year later.

8. Client money protection schemes

New rules introduced in April 2019 mean that all letting agents in England must belong to a client money protection scheme.

This provides insurance to landlords and tenants alike against malpractice from agents. Agents in Wales and Scotland also need to belong to a scheme as part of the Rent Smart Wales and Letting Agent Code of Practice respectively.

9. Rogue landlord database

The rogue landlord database has been something of a damp squib so far. A Freedom of Information request by the Guardian found that only four landlords were added to the database in its first year.

In July, the government said it plans to open up the database to tenants, allowing them to check whether their landlord or managing agent was included.

Following this, it launched a consultation into reforming the database, which closed in October. It is currently analysing the responses.

10. Stamp duty

Stamp duty has been towards the top of the list of landlord gripes since 2016, when the government introduced a 3% buy-to-let stamp duty surcharge for property investors.

Now, the latest rumours are that a new stamp duty surcharge could be brought in for foreign buyers investing in UK property.

Whatever happens, stamp duty is always an area of political interest and is certainly something landlords should keep an eye on.

11. Right to Rent

The government’s Right to rent initiative has provoked much debate since being launched in 2016, and that’s unlikely to change this year.

Right to Rent requires landlords to check whether tenants have the right to live in the UK, with the threat of criminal sanctions for those who fail to adhere.

In March 2019, the policy was ruled incompatible with human rights law by the High Court after an immigrant welfare group raised a legal challenge.

As part of the ruling, Right to rent cannot be rolled out in Scotland, Wales or Northern Ireland without further evaluation.

12. Leasehold reforms

The government’s attempts to stop unfair leasehold practices – such as spiralling ground rent clauses and high ‘permission fees’ – could finally come to fruition in 2020.

This is likely to involve the banning of new houses being sold as leasehold, and the possibility of caps on service charges, permission fees and ground rents.

The Competition and Markets Authority is currently investigating whether existing leasehold homeowners were mis-sold their properties.

The uncertainty in this area means landlords should pay particular attention to the tenure of properties if they plan to expand their portfolios in 2020. Find out more: buying a leasehold property

13. Property prices

Last year was a slow one for the property market, with the most recent Land Registry data showing that UK prices increased by just 1.3% year-on-year.

With this in mind, landlords can’t rely as heavily on property price growth as they once might have done.

This has resulted in some investors looking to cheaper markets in the north of the country in search of better rental yields.

If you’re thinking of expanding your portfolio in 2020, it’s especially important to conduct thorough research before investing.

14. Mortgage rates

Buy-to-let mortgage rates fell steadily over the course of 2019, to reach an average of 3% in December.

With the price war between lenders likely to continue early in 2020, it’s a great opportunity to consider refinancing your portfolio and lock in a great rate.

One word of advice: always price up the full cost of the deal rather than focusing on the initial rate and any incentives such as cashback.

For example, cashback of £1,000 might sound great on paper but set against a large upfront fee or higher interest rate it’ll quickly lose any attraction.

15. The economy, Brexit and government intervention

Last but certainly not least, landlords will need to ready themselves for more economic peaks and troughs in 2020.

Depending on the outcome of Brexit, the Bank of England base rate could shift in either direction, having an effect on mortgage rates.

In addition, any further economic uncertainty could mean this slower property market continues through 2020.

And with a new government sure to impose its own plans on the buy-to-let industry, it’s more important than ever for landlords to keep an eye on the latest developments.