Welcome to the April 2008 edition of the LandlordZONE® Newsletter.
Newsletter – The 2008 Budget Review – April 2008 Issue 29
The gloom, it seems, continues. A downbeat IMF report out last week concludes that the financial market crisis has developed into the biggest shock to the system since the 1930s Great Depression and predicts 1 trillion $ total losses (around £500 billion)
With oil and food price inflation rising, the report warns of a one-in-four chance of a global recession, with the world economy trapped between fire and ice—between slumping growth and rising inflation—the dreaded stagflation of the 1970s.
A vicious circle could be set in train: lack of confidence by the financial markets, lack of funds for investment leading to falling property and asset vales, reduced economic output, leading to job losses in turn leading to lack of investment—lasting for years.
But there are now some signs that the credit crunch may be contained and although the 1/4% cut in in Bank Rate this week to 5% has had little initial impact, analysts are predicting that the rate is headed to 4% in the next 12 months. The BOE could also do more to stimulate confidence & growth, helping borrowers.
The problem at the moment is that the cost of money (the wholesale interbank lending rate (LIBOR) is around 1 percentage point above Bank Rate, which means that mortgage rates are stubbornly refusing to come down quickly.
Previous house price crashes have only occurred in serious recessions, so it remains to be seen if this scenario is enough to precipitate one in the UK.
With house prices up around 180% in 10 years, 300% over 20 years and 9,000% over 50 years, owners should have some room for manoeuvre, though overstretched newcomers who have paid over the odds are already feeling pain.
Currently, average house prices are around 6 times male average earnings, a traditional guide, though some experts now argue the measure is obsolete with 2-earner couples.
Average house prices could fall by around 10% this year with commercial values expected to correct by between 20 & 30%, hopefully before picking up again in 2 years or so.
Given this background and despite evidence of a relatively strong economy in the UK, it brings into question our government’s handling of first the Northern Rock crisis (vis-à-vis Bear Stearns), the recent budget and it’s room for manoeuvre in a crisis because of government debt.
In this issue Maurice Patry FCA, of Landlords Tax Services Limited reviews some of last month’s budget measures with particular reference to landlords.
Maurice says, “the 2008 Budget is wide ranging, and this summary deals only with key points. It is not an exhaustive review. Whatever is contained in the Budget should be treated with caution; the final version that becomes law may differ significantly from the Budget. You should not rely on summaries. Use it as a guide only and take professional taxation advice which takes into account your personal circumstances.”
This issue is wholly sponsored by Coverlet one of the leading providers of insurance for the rental property market.
One major change affecting landlords is the abolition of taper relief and the introduction of a unified CGT rate of 18%.
This caused consternation in the small business community until the Chancellor introduced some special exemptions.
It could be a windfall for some short-term BTL investors wanting to get out quickly, but it could also have an adverse effect on an already shaky property market if too many investors rush for the exit.
The Landlord & Buy-to-Let Show this week is one of the highlights of the year for Landlords—18-19 April 2008 at London Olympia.
Over 80 exhibitors—sold out—& a comprehensive seminar programme:
-Friday, 16.30 & Saturday, 16.00 Tom Entwistle, LandlordZONE—Selecting & Managing Your Tenants:
The Key to Success in the Rentals Business
-Friday, 15.30—The BBC’s Sarah Walker will outline how to Present your Property for Quick Rental at the Best Possible Price, and Adding Value to Your Investment
-Friday, 14.30—Keep up-to-date with the law: Landlord Law’s Tessa Shepperson looks at Essential Legal Points for Landlords
-Saturday, 12.00 Leaseholder Rights from ALEP (The Association of Leasehold Enfranchisement Practitioners) as they explain How to Negotiate the Minefield of Owning a Flat…
Hope to see you there,
Tom Entwistle, Editor
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