Lenders welcome housing benefit statement

Reports that the government does not intend to move towards paying housing benefit directly to social housing tenants will be welcomed by lenders.

Council of Mortgage Lenders Press Release - 1 Dec 08

According to a recent report in the Financial Times, the minister responsible for housing benefit, Kitty Ussher, gave a firm re-assurance that housing associations (HAs) and other registered social landlords would continue to have a guaranteed stream of income in the form of benefit paid directly to them.

Following a meeting with the minister earlier this autumn, we wrote to her expressing “very serious concern” about any measures that could disrupt the income stream and therefore jeopardise the contribution lenders make towards funding social housing.

Housing benefit typically provides 60% to 70% of the income of HAs and most of this is received directly by landlords. This guarantees a strong and reliable cash flow, and is cost-effective for landlords. That income is ultimately a source from which HAs repay the funds they have borrowed to build and improve affordable housing.

However, the possibility of paying housing benefit not to landlords but to tenants – who would then use it pay rent to their landlord – emerged as part of a package of measures intended to improve financial capability among tenants and their overall ability to manage money

The reality is, however, that any decision to pay housing benefit directly to tenants would expose the funding of the social housing sector to greater risk. That would have serious implications for HAs, lenders and other investors. Full Article

Pre-Budget Review, Housing & Crosby Report

Building on the September Housing Package, the Government is providing additional support in order to help people and households in financial difficulty through:

* establishing a Lending Panel to monitor lending to both businesses and households. Reporting to the Chancellor of the Exchequer and the Secretary of State, BERR, the Panel will bring together lenders, trade bodies, consumer groups, and the Government, regulators and the Bank of England;

* a commitment for the coming year by the major mortgage lenders, not to repossess homes within three months of the owner occupier going into arrears;

* protecting more vulnerable homeowners in financial difficulty by extending the Mortgage Rescue scheme to cover second charge lending; and

* increasing the generosity of the Support for Mortgage Interest scheme for homeowners who lose their jobs.

The Government is also supporting housing supply and affordability through:

* as part of the broader fiscal stimulus package, bringing forward a further £775m of housing and regeneration investment including £575m to provide additional support for social rented homes;

* helping more people get on the property ladder by assessing the need for further tax-relieved savings options for first time buyers saving for their first home;

* welcoming Sir James Crosby’s report published alongside PBR, and proceeding to work up a detailed scheme based on Sir James’ recommendation of a government guarantee, for a temporary period, on the interest and principal of high quality mortgage-backed bonds, and seeking State Aid approval to proceed.

The Government will take into consideration the interaction between this recommendation and the Credit Guarantee Scheme, and update on its position by the Budget. It will continue to keep under review what more can be done to ensure the continued supply of secured and unsecured credit in the economy. Full Article

Crosby Report

Empty Rating - Temporary Relief

The Government is temporarily increasing the threshold at which an empty property becomes liable for business rates. For financial year 2009-10 empty properties with a rateable value of less than £15,000 will be exempt from business rates - exempting an estimated 70 per cent of empty properties.

See details more of the Pre-Budget Review Nov 2008

UK house prices ‘to plunge like US’

Robert Shiller, the Yale economist who forecast both the bursting of the dotcom bubble and America’s property crash, is warning Britain’s homeowners to expect things to get every bit as bad on this side of the Atlantic.

Heather Stewart, economics editor, guardian.co.uk, Sunday 30 Nov 2008

In London to promote his new book, The Subprime Solution, Shiller told The Observer that consumers should be wary of the comforting excuses many analysts find for explaining why Britain’s housing market will be hit less hard than America’s, where prices have already fallen by more than a quarter, and repossessions are rife.

‘A lot of people say that in the UK we haven’t seen so many defaults on mortgages - but we’re just earlier in the cycle,’ he said.

‘These housing cycles go for a long time. Real estate markets are very different from liquid financial markets, in that they have a lot of momentum, and they continue in the same direction for a long time.’ He pointed out that during the last housing boom and bust, in the 1980s and early 1990s, prices in London more than doubled, in inflation-adjusted terms, ‘and then they came almost all the way back down again. That’s certainly a possibility now, and that would be huge. Think of all the balance-sheet problems that would cause, for banks and for households.’ Full Article

Five ways to take advantage of the credit crunch

The turmoil in the financial markets over the last year or so, and particularly over the last couple of weeks, added to falls in the housing market will have significantly reduced the value of many people’s estates.

Charles Hutton, CityWire - 01 December 2008

But what is a time of concern for many might also be an opportunity for some – not just for picking up bargains.

In terms of tax-planning, there are potentially significant advantages in taking action while values are low, especially for those able and prepared to take a long-term view. Here are some ideas for consideration.

Low Value Gifts

Assets given away within the preceding seven years are of course taken into account for inheritance tax (IHT) purposes on death. The value taken into account is the value at the date of the gift; any increase in value between the gift and the death is immediately free of IHT.

So, if Andrew gives an investment property now worth £400,000 to his children and then dies in five years’ time when it has increased in value to £500,000, the value for IHT is capped at £300,000. The £100,000 of growth is protected even though he dies during the seven year period. This amounts to a saving of £40,000.

But what if the bottom of the market has not yet been reached and the property has gone down in value to £350,000 by the time he dies five years later? In fact his family would be no worse off because a special rule allows the lower value of £350,000 to be substituted in calculating the IHT bill. Full Article

Property prices have further to fall yet

For this week’s biggest proposal for propping up the property market, forget Tuesday’s Pre-Budget Report. It was contained instead in a report commissioned by the Government and written by Sir James Crosby, the former head of HBOS.

Property Week - 28 Nov 2008

This recommends, says The Guardian’s Jill Treanor, that the Government kick-starts the property market by guaranteeing “the moribund market for mortgage-backed securities” using £100bn of taxpayers’ money.

That’s (yet another) eye-watering number, but will the scheme work? No one disputes that the property market is on its knees. Net mortgage lending has more than halved this year, and could even fall to zero in 2009 if people start paying off loans faster than they are being granted.

And sure, part of the problem is banks are finding it tough to raise money by selling mortgage-backed bonds that other banks won’t touch. In theory, therefore, a Government seal on mortgage-backed securities might get banks lending to each other, and us, again.

As Paragon CEO Nigel Terrington tells the Daily Mail, “Before the credit crunch, 80% of net lending was coming from capital markets”, so it is “absolutely fundamental to get this market going… for the mortgage industry in the UK as a whole”. Full Article

LandlordZONE Newsletter - November 2008

November 2008 edition of the LandlordZONE Newsletter.

Energy Performance Certificate Review

Download the Full Newsletter

Welcome to the November 2008 Issue,

I don’t need to tell you things are bad—the 1.5% rate cut says it all and although the feeling is that the banking situation is solved, this cannot be taken for granted.

The banks & building societies are not out of the woods yet, and the overspill to other industries and financial institutions is only just beginning.

The question we must ask now is not how much more pain a government devoid of reserves and totally reliant on borrowing can take—it’s how the knock on effects will hit us and the economy as a whole.

With house prices set to fall further, and inflation heading to zero, and perhaps below, interest rates could fall to 2% or less in the coming months.

Fortunately for landlords the rental market has held up very well, though increasingly unsold houses are adding to the supply, with the danger that rents will be pushed down.

On the commercial scene, increasing business failures will lead to more voids, and it absolutely beggars belief that a government should impose full empty rating charges at a time like this—when these properties, if vacant, will be very hard to re-let.

The policy is already resulting in landlords and developers demolishing perfectly good buildings, moth-balling developments and in extremis—going bankrupt.

Astute investors should be planning their recovery strategy now, looking to allocate their assets sensibly and safely in the meantime while looking to take advantage of opportunities in the bounce back when it comes.

Something investor landlords would do well to factor in for the future is the energy situation and environmental measures: increasing problems with oil and gas supplies and higher prices will inevitably lead to scarcity and possible power shortages in the UK.

Alternative energy sources such as wind farms will not make up for this and improved technologies such as clean coal and nuclear have very long lead times.

Increasingly landlords will be asked to invest in energy saving measures and meet demanding new standards for energy efficiency.

Continue reading LandlordZONE Newsletter - November 2008…

Housing benefit tenants face homelessness

FAMILIES on housing benefit face homelessness as private landlords shun them following changes to the law.

Since the introduction of the Local Housing Allowance (LHA) in April growing numbers of landlords are losing out on rent; and the situation is worsening as the credit crunch takes hold.

Landlord Action director Paul Shamplina, who helps landlords recover their properties from bad tenants, believes LHA is a mistake and has called for an urgent review. “The government idea was to make private sector tenants more financially independent and learn to manage their own money, so the housing benefit is now paid directly to them. But the simple truth is, when times are bad paying the rent is not a priority for many tenants and there are many now who are just not passing it on to their landlord.”

Previously, tenants could elect to have the council pay their rent directly to the landlord but this is no longer an option unless the tenant falls behind with the rent or is identified through representation as being unlikely to pay it.

Shamplina has seen a huge increase in the number of landlords coming to him for help in the last two months. He explains: “The rules say that if tenants withhold their rent landlords can apply to the local authority to have it paid to them, but by then it can be months in arrears.”

Providing evidence isn’t always straightforward. Parmi Janagle from Sutton Coldfield near Birmingham is a property portfolio manager and approached Landlord Action for help after experiencing first hand problems with LHA.

He says: “This was not a well thought out idea. The government wanted to empower tenants but it has had a counter effect. To assist local authorities identify cases where direct payment should be made there has to be evidence, by for example showing there is a County Court Judgement against the tenant or that the tenant has addiction issues backed up by a doctor’s letter.”

Things like this all take time and meanwhile the rent arrears continue to build up.

“The reality of the situation is that many landlords who used to let to housing benefit tenants are thinking twice and now will not make their properties available to them,” says Mr Janagle.

“This is a problem of the government’s own making,” says Mr Shamplina. “And both tenants and landlords are suffering as a result. Things can only get worse now because of the credit crunch. There should be an urgent review of LHA.”

Landlord Action, founded in 1999, is the original and longest-serving fixed fee tenant eviction service in Great Britain. Landlords with problem tenants can find professional advice fast on the website www.landlordaction.co.uk or by calling 0845 8110011.

Landlord Action, founded in 1999, is the original and longest-serving fixed fee tenant eviction service in Great Britain. www.landlordaction.co.uk

House price heresy - Crosby Mortgage Report

The UK is a country with a state religion: the housing market. One of its former high priests, Sir James Crosby, a former chief executive of the mortgage bank HBOS, has delivered a report on how to reform the mortgage market. His main proposal aims to prevent a necessary downward adjustment in house prices from turning into a collapse. The plan is well-designed but its objective is doubtful, and it risks distracting the UK government from more important objectives.

FT.com - 25 Nov 2008

The most significant measure suggested in the Crosby report is that the government should sell £100bn of guarantees on mortgage-backed securities for new mortgages issued over the next two years. Should any of the guarantees be called on, however, the government would charge the mortgage lender for the expense.

This is not an attempt to return to the reckless lending of previous years. Sir James proposed that guarantees should be sold only for high-grade, low loan-to-value ratio mortgage securities and covered bonds. Investors would have cast-iron guarantees that mortgages will be repaid, but his scheme would also keep the mortgage issuer liable for the repayment of the mortgages, thereby reducing incentives for it to be careless. Full Article

The Crosby Report

Fears of knock-on effects as housing demand slumps in China

If there is one indicator that will determine just how long the Chinese slowdown lasts, it is property prices.

Geoff Dyer, FT.com - 24 Nov 2008

Property has been one of the pillars of China’s boom.

Not only does real estate account for about a quarter of all investment, but there have been huge spillovers into the rest of the economy.

Hundreds of millions of Chinese bought their first home over the past decade, sparking spending on televisions, washing machines and air conditioners.

Yet it is property that has also led to the current uncertainty.

Housing markets in southern China started to weaken at the beginning of the year and the process has spread. There have been periodic bubbles in house prices in individual cities or provinces but, for the first time since private property markets took off a decade ago, prices are falling. Full Article