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And how new Gov’t rules will mean draughty low-eco Luton homes will drop in value

 

‘It’s Not Easy Being Green’, was the song that Kermit sang on Sesame Street.

 

Yet now being green is a normal way of life for most of us. Walking or cycling places instead of taking the car, recycling and even shunning meat are some of the things most Luton households are trying to do their ‘bit’ for going green.

 

Our conduct may have improved but when it comes to our Luton homes, there is still a long way to go. It is estimated around a fifth of carbon emissions come from home energy usage (nearly three quarters from heating and lighting). The country is releasing 37% less carbon into the atmosphere than in 1990, yet we have legally binding targets to hit 100% by 2050 — and the Committee on Climate Change has stated the UK will need to eradicate greenhouse gas emissions from homes to meet that target.

 

Landlords were hit first because since April 2018, the Minimum Energy Efficiency Standards (MEES) regulations with regards to eco-friendliness of the rental properties have required all rental properties to have a minimum Energy Performance Certificate (EPC) rating of ‘E’ or above otherwise it is illegal to let out a property, bar a couple of exceptions. This has meant Luton landlords have had to spend many thousands of pounds to improve their rental property’s EPC rating (an EPC rating ofA’ being the best eco rating through to a ‘G’ for the worst – just like washing machine or fridge ratings).

 

But new Government plans could hit Luton homeowners in the pocket as well.

 

The Government is planning to force banks and building societies to penalise people wanting a mortgage of draughty low-eco homes with an energy performance certificate (EPC) rating of D or lower. For those properties not hitting the correct level of EPC rating, it is suggested some form of levy will be placed on the mortgage provider, who in turn will pass that on to the home buyers in the form of higher mortgage payments. Some are describing this charge as an ‘eco-mortgage levy’.

 

Just under 7 in 10 (66%) homes in Luton would be hit by this ‘eco-mortgage levy’, thus potentially reducing the value of those homes

 

Interesting when you compare this with the national average of 60.6%.

 

In real numbers, 44,104 homeowners and landlords in our local authority area would either struggle to get a mortgage from a bank or building society or it would cost them more because they were a ‘D’ rating on their EPC or below.

 

 

Looking at the stats broken down for Luton:

 

  • 44 properties are classified as A on the EPC register
  • 4,185 properties are classified as B on the EPC register
  • 18,457 properties are classified as C on the EPC register
  • 28,145 properties are classified as D on the EPC register
  • 13,071 properties are classified as E on the EPC register
  • 2,395 properties are classified as F on the EPC register
  • 493 properties are classified as G on the EPC register

 

 

So, what can Luton homeowners and landlords do to improve their EPC rating?

 

Well surprisingly, it need not cost a lot to improve the EPC rating of your Luton home. One of the most inexpensive ways to help improve your Luton home’s energy efficiency is low energy light bulbs with an estimated cost of just under £40 per UK property. Other efficiencies can be gained by insulating your hot water cylinder, draught proofing any single glazed windows, increasing your loft insulation and upgrading your central heating controls, all of which can be done for a total of around £750 to £850 per property.

 

If you want to know the EPC rating of your home, either google the phrase ‘EPC register’ or send me a message and I will find out for you.

 

Finally, as Kermit famously also said, “Life's like a movie. Write your own ending”. If you are a Luton homeowner or Luton landlord, why not look at your property’s EPC rating and look at the recommendations. You are going to have to spend the money sometime, so why not do it now and enjoy lower energy bills and when you come to sell, you won’t be penalised ... a win-win situation for you and the planet?

 

 

… whilst possible new mortgage rules for Luton homeowners would make it harder to sell their draughty old properties

 

As the UK has committed to a legally binding target to be carbon neutral by 2050, one of the biggest producers of greenhouse gasses are residential properties. To hit that target, every UK property will need to achieve a minimum grade of C on their Energy Performance Certificate (EPC) by 2035. The issue is that two thirds of UK’s homes (around 19 million households) are rated D or below.

 

To help the country hit its targets, in 2018 and again in 2020, the EPC requirements altered for buy-to-let landlords, meaning they couldn’t rent their property unless it had a minimum energy rating of ‘E’ or above.

 

And now for homeowners, the Government are considering forcing banks and building societies to publish the average EPC rating for all the homes they lend money on and if the banks and building societies don’t hit the Government EPC targets, they will be fined (meaning those homeowners with low energy efficient properties will have to pay much more for their mortgages).

 

So, let’s look at these two issues, first regarding Luton landlords and their EPC’s, so you know what your lawful responsibilities are and what else Luton landlords can expect in the future.

 

Since October 2008, all UK rental properties have required an EPC, yet from April 2018, the Minimum Energy Efficiency Standards (MEES) regulations regarding EPCs have also required all rental properties’ new tenancies and renewals to have a minimum EPC rating of ‘E’ or above. However, since April 2020, the MEES regulations have applied to all existing tenancies as well, meaning if your Luton rental property doesn’t have a valid EPC rating of ‘E’ (or above), it is illegal to let out.

 

571 rental properties in Luton are currently let out with a ‘F’ or ‘G’ EPC rating, making them illegal to rent out and each landlord liable for a £5,000 fine – they just don’t know it

 

The EPC lasts for 10 years and gives an energy rating of between A - very energy efficient to G - very energy inefficient. So, if you find yourself, as a Luton landlord, with a rental property that has an EPC rating of below ‘E’, what are your options?

 

To start with, you have a responsibility by law to carry out the changes suggested in your EPC report to improve the energy rating of your property. The law states that landlords should spend up to a maximum of £3,500 on the energy efficiency improvements set out in the EPC. Yet, if by spending £3,500, that improves your EPC rating but doesn’t mean you reach the ‘E’ rating, whilst you will still be expected to improve the rental property and spend the money, you will be able to apply for a high-cost exemption via the PRS Exemptions Register and still let the property (even though you will have an EPC rating of F or G).

 

It must be noted that some properties are exempt from the MEES legislation. If your property is listed or protected and the improvements would unacceptably alter it, it is exempt from EPC requirements.

Once your EPC has been registered, it is then valid for ten years. Because the EPC regulations came into force in 2008, there will be some rental properties that had their initial EPC but not had it renewed on its 10th birthday. Now as a Luton landlord, you do not need to get a new EPC if your EPC reaches its 10th birthday, unless that is, you are starting a new tenancy with new tenants. The issue is …

 

of 16,816 rental properties in Luton, 4,730 of them

have an EPC that is 10 years or older which has not been renewed.

 

If you are a Luton landlord, your EPC is 10 years old (or older) and your tenant leaves, you will require a new EPC, because if you don’t, you will be fined £5,000. If all those buy-to-let landlords in our local authority area ignored that law, accumulatively they could be fined £23.7m.

 

Secondly, what about Luton homeowners and the mortgage companies?

 

Under new legislation being considered, homeowners living in poorly insulated and draughty homes (meaning they would have a low EPC rating) could pay more for their mortgages and lose value from their Luton homes under Government plans to prioritise mortgages on properties with high energy-efficiency ratings.

 

There are 15,665 properties in Luton with

a rating of ‘E’ or below

 

The Department of Business (DoB) wants to force mortgage providers to classify the energy ratings of their borrowers’ homes and put the average into a Government league table, which will be presented on the DoB’s website. Mortgage providers will then get time sensitive targets to improve their average EPC scores, punishable by fines, meaning this would increase the mortgage costs for those with low energy efficient homes.

 

Maybe it’s time you looked at your EPC certificate and find out how you can improve your rating? If you are a Luton landlord or Luton homeowner, and would like to chat about your legal position or would like a copy of your EPC emailing to you, don’t hesitate to drop me a line and I will be more than happy to discuss your personal circumstances further, without obligation.

 

So, is it right Luton landlords should have to fork out to improve the energy performance of their rental property, yet they aren’t the ones benefiting? Also, should Luton homeowners have to have higher mortgage payments in the future because they have a low energy efficient home?

 

Let me know your thoughts.

 

Author: Taylor Kay

 

 

All the signs are that the Luton housing market is sat on good foundations, yet one key hazard could still scupper the market.

 

‘UK Property Prices Rising at Record Levels’ is the headline of many newspapers. In the last few weeks, the Halifax reported they had grown by 6.5% in the last 12 months, whilst the Nationwide said 7.1% and not to be outdone, the Government’s own Land Registry said 8.6%. Nothing new there then you might think, don’t UK house prices always increase?

 

Actually, they don’t, as many Luton homeowners will remember 2009, when they dropped by 19%. Also, some more mature Luton homeowners will remember the early 1990’s where house prices dropped just over 40% over 4 years (after the 1989 property crash). So, the increase in UK house prices over the last 12 months has mystified all the forecasts made by most economists as…

 

house prices were forecast to drop during the pandemic because during the previous six UK recessions experienced since WW2, house prices have always fallen sharply in real terms.

 

Yet 2020 was different with house price growth increasing at its highest rate since 2014 as the substantial Government support programmes (including Bounce Back Loans, grants and furlough) has mollified the hit to household incomes. Add to that the pent-up demand from the Boris Bounce, all the people working from home wanting an extra room for an office and therefore needing to move, plus the stamp duty tax holiday, with the cherry on the cake of 0.1% Bank of England interest rates keeping borrowing affordable. This has meant…

 

Luton property values are 5.1% higher than a year ago.

 

Yet the affordability of property is a big issue going forward. By the time of the height of the last property boom in 2008, the national ratio of average property values to earnings had risen from 5.1 in 2000 to 8.8 (i.e. the average house price was 8.8 times the size of the UK’s average person’s annual earnings). We then had the property crash in the proceeding years, and the ratio dropped to around late six’s/early sevens. However, over the last few years, the ratio has been steadily rising and now with the recent growth in demand for property (the five reasons mentioned in the previous paragraph), the ratio has now smashed past nine. Looking locally…

 

the ratio of average property values to earnings in Luton as a comparison was 3.3 in 2000, rising to 6.1 in 2008, dropping to 5.3 the year later when the Credit Crunch hit, and now currently

stands at 7.4.

 

 

 

 

So, are we heading for another house price crash? Maybe, maybe not - because the House Price to Earnings ratio only tells us part of the story. Another indicator of the property market is mortgage affordability, which measures the proportion of mortgage payments to average incomes. For all mortgage holders, in 2015, this stood at 24.13% and today it is only just above the national long-term average of 25%, demonstrating that property is still affordable.

 

Yet, the life blood of the property market are first-time buyers. The long-term average percentage of income which goes on mortgage payments for first-time buyers is 33%. Just before the 1989 property market crash, this stood at 54%. Whilst just before the 2008 property crash, it reached 49%. Today, it stands at 31.7% (and the reason it’s so low even with record high property prices is low interest rates, because when mortgage interest rates are low, this permits people to afford larger mortgages, which enables them to bid up house prices).

 

 

 

 

 

 

So why aren’t more first-time buyers buying more homes? Well in fact they are buying more homes. At the turn of the Millennium, just over half of 25yo to 35yo were homeowners and by 2014, this had dropped to just a third, although since then it has increased to 41%. Now with the reintroduction of the Government backed 95% mortgages in April, this demand will continue further.

 

Once furlough ends, unemployment will doubtless rise in the following 12 months, yet the economy is more than likely to be in a boom phase, so by the spring/summer of 2021, the unemployment rate should start to fall.

 

So, does everything look great for the Luton property market?

 

Before you get the Champagne out, there is a cloud on the horizon - the possibility of higher interest rates.

 

Undoubtedly, for the next few years, interest rates will not go up (and if they do – it will only be nominally). However, down the line it may be a different tale. Interest rates are used to control a number of economic factors, one being the currency and secondly inflation.

 

As many suggest, if we get an economic boom in the next 12 to 18 months, as we come out of lockdown, this will put upward pressure on the price of goods and services. Normally, when prices go up (inflation), to ensure that inflation doesn’t get out of control, interest rates are normally increased to dampen down the inflation.

 

So, will interest rates rise? Undoubtably they will. Luton homeowners and buy-to-let landlords should seriously consider protecting themselves with fixed rate mortgages (yet 3 in 10 mortgagees are still on variable rate mortgages!). I believe we will see some inflation in the order of 3% to 5% in the coming 24 to 36 months, yet the interest rates won’t be enabled to bring it down. We had a similar case in the early 2010’s when we had a mis-match of demand and supply of goods, and inflation spiked to 5%, before returning back to its long term 2% average quite quickly thereafter.

 

The Chancellor will also encourage some inflation to reduce the ‘real’ cost of the Billions he has borrowed because of the pandemic, yet won’t want to see interest rates increase to take the cost of the borrowing upwards.

 

If you are considering moving home or buying/selling a buy-to-let property in Luton in the next 12 to 18 months, and want a chat about your options, don’t hesitate to drop me a line.

 

Finally, these are interesting times ahead – I would love your thoughts on this matter. Please do share them in the comments.

 

 Author: Taylor Kay

 

 

… as Luton first-time buyers now only need a 5% deposit for a mortgage.

 

Luton landlords, sell your property portfolios, your tenants will soon be leaving in droves as they buy their first home with the new 5% deposit mortgages backed by the Government’s new mortgage-guarantee scheme revealed in March’s budget! These 95% mortgages are to be supported by the Treasury, lessening losses for mortgage lenders should the borrower be incapable of repaying and get repossessed, as the Government want Generation Rent to turn into Generation Buy.

 

This sounds like the death knell for buy-to-let investment in Luton as many tenants will soon be buying their first home

– or is it?

 

It’s true that on first impressions it might look like many Luton first-time buyers will now be leaving their rental properties in their droves with this new low deposit mortgage scheme. However, these potential Luton first-time buyers are facing four big issues which will inhibit their ability to take advantage of the mortgage scheme, meaning many will continue to rent.

 

Firstly, the mortgage rate for 95% mortgages has increased. The lowest five-year fixed-rate mortgage with a 5% deposit today (with Barclays) is 3.45%, up from 2019’s best rate of 2.75%. That doesn’t sound a lot, yet it makes a massive difference to the monthly mortgage payments (as you will see below).

 

Secondly, due to pent-up demand post lockdown and the stamp duty holiday, this has increased demand for Luton property, placing upward pressure on Luton property prices which has made it problematic for first-time buyers to get on the Luton property ladder. This has meant ...

 

the average price of a Luton first-time buyer property has

risen from £238,494 to £257,946 in the last 12 months …

in turn this means, Luton first-time buyers have had to save an additional £972.60 for their deposit to keep up with the house price increase. That means …

 

the monthly payment on a 30-year mortgage for a Luton first-time buyer has jumped from £924.95 per month in 2019 to £1,093.55 a month today, an increase of £168.60 per month.

 

The third issue is demand for Luton first-time property from buy-to-let landlords is surpassing supply, adding further fuel to the fire of driving up prices. Finally, the fact that most Luton first-time buyers are of the younger generation and it’s the younger workers that have been most at risk of unemployment or salary cuts during the economic crisis.

 

 

5 Year Fixed Rate - 2019

5 Year Fixed Rate - 2021

Purchase Price

£238,494

£257,946

5% Deposit Required

£11,925

£12,897

95% Mortgage Borrowed

£226,569

£245,049

Annual Interest Rate

2.75%

3.45%

Mortgage Length (in years)

30

30

Mortgage Payment per Month

£924.95

£1,093.55

Sum of Mortgage Payments over whole mortgage term

£332,982

£393,678

Total Interest Cost over the whole mortgage term

£106,412

£148,629

 

 

You might say things will change in 2022 but would it surprise you that 95% mortgages have been available to first time buyers since the summer of 2010 and were only withdrawn during the first lockdown in 2020?

 

Since 2010, even with ultra-low interest rates, the number of private rented properties in the UK has grown by 580,000 households from 3.8m households to 4.4m households and will continue to grow, let me explain why.

 

The notion that buy-to-let property is a strong long-term investment has not altered with the pandemic. Since 1930 with the all the crises we have had with WW2, the Oil Crisis, 3 day week and hyper-inflation in the 1970’s, Luton property has been a hedge against inflation and in addition, delivers a decent income yield of 4% and upwards. Not bad when compared to the 0.5% with a savings account (if you are lucky).

 

It is a fact that those landlords that see buy-to-let investment

in Luton as a long-term strategy will win.

 

It is certainly the case that I am starting to see an exodus of the ‘amateur landlord’, leaving more professional landlords who see ‘landlord-ing’ as a business, not a game. Those long-term Luton landlords can see through the present predicament as they have a long-term buy-to-let investment mindset.

 

Many Luton landlords are intensely aware that demand for high quality private rental properties in Luton is only going to flourish as a consequence of the pandemic; whilst not forgetting that demand presently exceeds supply. Also, those same Luton landlords know that a responsible approach to their tenants with regard to condition and repairs is a key to ensuring the rent keeps flowing in with minimal void periods.

 

Finally, even though Luton house prices are, on average, on the up, there are still some bargains even in this market. By doing their homework and working with an agent like myself, these savvy Luton landlords are paying reasonable prices, thus giving them a sturdier rental yield and the ability for future capital growth.

 

If you are a Luton landlord, as my clients all know, I am here to help and guide landlords on their long-term investment strategy. I therefore extend this offer to all Luton landlords, irrespective of whether you manage your property yourself, or use one of my excellent competitor agents in Luton, I am here to help.  

 

Author: Taylor Kay

 

 

 

As 1 in 5 Luton homes are selling within a fortnight of coming to market.

 

One of the most astounding things that has happened in the last 12 months was something that did not happen. Even after the country saw the deepest recession since the Great Freeze of 1709 with GDP dropping 28% in one quarter, one would have expected a large fall in Luton house prices would follow. Yet…

 

Luton house prices are 5.1% higher than 12 months ago.

 

Even though buying and selling Luton property was put on ice for the first time in the history of the Luton property market last spring due to the Covid 19 outbreak, as the Luton property market wobbled on the edge of deep recession, it stepped back in early summer and now it is rocketing upwards as…

 

20.9% of Luton homes are selling within a fortnight of coming to market.

 

Some commentators have suggested the end of the Stamp Duty holiday together with the ending of the furlough scheme on the 30th September 2021 could be the catalyst for a drop in house prices. Even the Government’s own regulator of finances expects UK house prices to fall around a couple of percentage points in 2022 whilst some others have predicted around a 5% drop as unemployment levels increase post furlough.

 

However, other property market forecasters believe that property values in 2022 won’t drop against the background of robust British economic recovery in Q3 and Q4 of 2021.

 

What do I think will happen to the Luton property market in the next 12 months?

 

On the positive side, what I do know is the Stamp Duty holiday enabled Luton homebuyers to spend those tax savings on the price paid for their Luton home and that certainly accounts for some of the uplift in house prices mentioned above.

 

Also, the historically low interest rates that have supported Luton homebuyers’ affordability for the last 13 years since the Credit Crunch has continued. Secondly, with people spending many months working from home, this has seemed to have polarised people’s inclination to make lifestyle changes. Finally, the Government has recently introduced 5% deposit mortgages for first-time buyers. All these factors will fuel demand and hence may cause house prices to rise.

 

On a more cautious note, I do not believe these very sturdy Luton house value rises of the past year will persist at these levels for the next 12 months. With buyers having to use many thousands of pounds on Stamp Duty, the price they pay for their Luton home will be curtailed, meaning property values by definition will ease. 

 

The simple fact is the British economy has yet to feel the full effect of its largest recession since 1709, and we must remain considerate about the long-term effects of the economy (and unemployment levels) on the property market.

 

These are interesting times for the Luton property market. If the price you want to achieve for your Luton home is the most important thing, now as opposed to 2022 might be a good time to consider placing your property on the market.

 

Don’t forget, you can still put your Luton property on the market, find a buyer and then go and see what is available to buy. Many buyers will wait for you to find a property, yet if they can’t/won’t – you won’t be made homeless. English property law means you can still come away from the sale and you won’t be forced to sell. If you would like to know a bit more about that or any aspect of buying or selling property in Luton, drop me a message or call me.

 

Author: Taylor Kay 

 

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