More personal debt is not the answer

Economic policy based on rising house prices and the availability of consumer credit is doomed to failure

Chris Payne, guardian.co.uk - 11 November 2008

So far the financial crisis seems to have been about big investment banks and complex derivative financial instruments that no one, often including the people who were trading them, understood. Even the woes of the US housing market are being blamed on financial “innovation” that enabled far too much money to be borrowed. But what about the real economy? Politicians are so worried that they are trying to outdo each other by offering tax cuts, and certainly these cuts are worth a try.

But the task being given to tax cuts is herculean if they are meant to offset consumers’ lack of willingness to use their credit cards to spend, and lenders’ lack of willingness to lend. The real issue is that resuming “spending as normal” is almost impossible.

The problem is that it is not just the financial world that is over-extended, it is consumers too. Yesterday, little noticed, American Express joined the long line of once-great financial institutions that have gone to the Federal Reserve of the United States cap in hand, desperate for money. Full Article

Gordon Brown hits out at repossession ruling

The Prime Minister Gordon Brown today hit out at a high court ruling that a lender was legally correct to sell the property of a buy-to-let borrower who was in arrears without a repossession order.

PropertyWire.com - 11 November 2008

Yesterday’s landmark high court ruling means that property owners could see their homes sold from under them by mortgage lenders after just two missed repayments.

The ruling, based on a 1925 law, flies in the face of new guidance that is being drawn up by the Civil Justice Council on repossessions and at his monthly news conference Mr Brown condemned the decision.

‘This is not an acceptable situation. We have said very clearly there were rules for banks to go through,’ Mr Brown said.

He said the government was calling on lenders to offer borrowers the option of extending the length of their mortgages if they are in trouble and allow them to switch to interest-only mortgages. Full Article

A plan to rebuild the housing market

The US Congress and the Bush administration are considering ways to prevent mortgage defaults. Attractive for humanitarian reasons, it is a second or third best option to reduce or eliminate the housing problem.

Allan Meltzer, FT.com - 11 November 2008

The main problem in Britain and the US is an excess supply of unsold houses. As long as the large unsold supply remains, housing prices will continue to fall. The high risk in bundles of mortgages will remain until the market believes it knows how far housing prices will fall. The reason is clear. Falling housing prices increase mortgage defaults. Anyone buying a bundle of mortgages must anticipate that part of the bundle is now worthless and, as prices fall, more will become worthless. Currently, the forward market estimates that US housing prices will fall 11 per cent in 2009, in all a decline of 33 per cent from the peak in 2005.

Contrary to common belief and repeated misstatement, the mortgage market functions. Bundles are bought and sold daily. The price is around 40 to 50 cents on the dollar. This price allows the buyers to discount the loss they will take if prices continue to fall. Prudent buyers are unlikely to fail to take the discount.

The seller’s problem is that selling most of his mortgage inventory will wipe out his equity. Purchases by the Treasury will not help. Unless the Treasury decides to “stick it” to the taxpayers by paying much more than the market price, the seller is no better off than if he sold in the market. That is one flaw in the Paulson plan. Full Article

Supplying the Landlord’s Name and Address?

My tenant is telling me – through my agent – that he has a right to my name and address – otherwise, he claims, he is legally entitled to withhold rent. Can this be right? Surely, if I employ and agent or solicitor to manage my property I have a right to remain anonymous?

Some landlords like to keep their distance and remain anonymous as far as their tenants are concerned and they do this by having a property agent or even their solicitor or accountant take care of their lettings.

This can be achieved to some extent providing you comply with the legal requirements, but if the tenant insists on knowing the identity and address of their landlord the laws says otherwise.

An important aspect of residential letting in England & Wales is the necessity to supply the tenant with an address for service of notices, the payment of rent and service charges and for the reporting of defects and repairs etc.

Under the requirements of section 48 of the Landlord & Tenant Act 1987 rent or service charges are not lawfully due unless the tenant has been given, in writing, an address in England and Wales at which notices can be served.

It is usual that the tenancy agreement clearly states such an address for service of notices.
Where the tenancy agreement clearly states the landlord’s address, then there is no need for the serving of a separate notice containing these details and this therefore eliminates future problems with proof of service.

Continue reading Supplying the Landlord’s Name and Address?…

Written Evidence and Documentation in Rental Agreements

My tenant entered the property last month and she promised to sign the agreement later. Despite several attempts, I have still not got her to sign 3 weeks later. What can I do?

I never cease to be amazed at the number of times this happens. Some landlords (and I must say most of these are new to landlording) are so trusting and are willing to create a legal tenancy on the most casual of bases.

An agreement that’s not signed is pretty much the same as a verbal agreement when it comes to enforcement – both are virtually useless. One man’s word against another, who is the judge likely to believe?

Any landlord without a written tenancy agreement is in a very weak position if a dispute arises. For a start, the landlord cannot use the Accelerated Possession procedure – he must go to court and explain.

But how do you explain that your tenant is in breach of the contract terms when in effect there are no contract terms? How do you prove when the tenancy started, how long the fixed-term is or what the rent payments should be?

Once a tenant enters a property a legal tenancy is created purely by the action of the parties - keys handed over and rent/deposit accepted. There does not have to be a written tenancy agreement to give that tenant security of tenure. Getting an agreement signed later is, more often than not, impossible.

Experienced landlords / agents know how important it is to get signatures BEFORE the tenant is allowed access to the property.

Continue reading Written Evidence and Documentation in Rental Agreements…

Watershed Rugg review sets out new vision for landlords.

Oliver Romain of Landlord Magazine reports exclusively from the launch of the Rugg review by Dave Rhodes and Julie.

Major reforms of the Private Rented Sector(PRS), including a drivers’ style licence for landlords and new tax breaks, have been recommended in a comprehensive review of the PRS. The independent, government commissioned review published by Julie Rugg and David Rhodes of the University of York has been welcomed by industry experts.

The National Landlords Association (NLA) said the review ‘marks a major watershed in attitudes to the PRS.’ The report recognised the positive role the vast majority of private landlords play and called for more support for landlords, compulsory light-touch licensing, tougher enforcement against rogue landlords and strong mandatory licensing for letting agents.

The Association of Residential Letting Agents(ARLA) welcomed the review. “The Private Rented Sector has been well served by the small landlord. Without this backbone, the sector would never have been revitalised and the housing market would be having even more problems,” commented Ian Potter, ARLA’s Head of Operations. “Professor Rugg’s comments are very welcome. Stimulating the sector will do much to help us through the difficult times ahead, and at very little cost to the exchequer.”

Agreeing with Rugg’s call for licensing, ARLA pointed out that the Association has been calling for the licensing of all letting agents for more than a decade and is pleased that this demand has now been backed up.

Continue reading Watershed Rugg review sets out new vision for landlords….

CML welcomes report on private renting

Small landlords deliver real value to the private rented sector by achieving lower costs than institutional providers and offering a service that is at least as likely to promote tenant satisfaction, according to the Rugg review published last month. We welcome the review, which helps dispel some of the myths about the private rented sector and injects an element of common sense into the policy debate.

CML Press Release - 4th November 2008

The review, written by Julie Rugg and David Rhodes, of York University’s centre for housing studies, argues for a policy approach that concentrates “on helping good landlords of all sizes to expand their portfolios.” It also calls specifically for measures to encourage small landlords “since the larger landlords generally grow through portfolio acquisition.”

Many smaller landlords are in a strong financial position, with a majority having low loan-to-value ratios and many having unmortgaged properties. They also often “sweat equity” into property by failing to pass on the costs of managing it. Larger landlords, by contrast, often recover these costs in higher rental charges. “Satisfaction levels are not necessarily higher amongst tenants of larger landlords,” the review says.

The review identifies tenants benefiting from private renting in a wide variety of different circumstances, including as young professionals, students, high-income renters, immigrants and those needing temporary accommodation. The authors say they want to see private renting emerge from its current status as a marginal, poorly regarded “third” option, where it sits behind owner-occupation and social renting.

Continue reading CML welcomes report on private renting…

Deep and lengthy recession takes shape

The threat of a deep and prolonged recession mounted yesterday as bleak figures showed services industries shrinking at a record rate and manufacturing suffering its longest stretch of falling output since 1980.

Gary Duncan, Economics Editor, The Tmes - 6th November 2008

Expectations that the Bank of England could take drastic action today to fend off the danger of an economic slump with a big cut in interest rates rose after the dire news indicating that recession is tightening its grip on Britain.

Most City economists expect the Bank’s Monetary Policy Committee to cut rates by at least a half-point but pressure for a bolder move was ratcheted up by the latest grave figures showing rapidly deteriorating economic conditions.

The services sector, which accounts for more than half the economy, shrank last month at its fastest pace for at least 12 years, the latest purchasing managers’ survey of its conditions from CIPS/Markit revealed. Its headline index of services activity plummeted to 42.4 last month, on a scale where any figure under 50 indicates contraction. Full Article

Bank Reduces Rate by 1.5% to 3%

Bank of England Reduces Bank Rate by 1.5 Percentage Points to 3%

6 November 2008

The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 1.5 percentage points to 3%.

The past two months have seen a substantial downward shift in the prospects for inflation in the United Kingdom. There has been a very marked deterioration in the outlook for economic activity at home and abroad. Moreover, commodity prices have fallen sharply.

Since mid-September, the global banking system has experienced its most serious disruption for almost a century. While the measures taken on bank capital, funding and liquidity in several countries, including our own, have begun to ease the situation, the availability of credit to households and businesses is likely to remain restricted for some time. As a consequence, money and credit conditions have tightened sharply. Equity prices have fallen substantially in many countries.

Continue reading Bank Reduces Rate by 1.5% to 3%…

VAT traps for residential property developers

The lack of mortgage finance and a lack of confidence in the pricing of UK homes over the next twelve months means that residential property developers are looking at all options to stay afloat.

Two key options being considered by many developers as a way of generating some cash flow are:-

1. Letting of new homes

2. Taking homes in ?part exchange? when selling new homes

Whilst both of these options can ease cash flow and help a developer survive there are pitfalls for the unwary which can result of significant repayments of VAT ? just when a developer wishes to avoid all such liabilities.

Continue reading VAT traps for residential property developers…