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The last three or four weeks, unquestionably, have been one of the most life-changing times we have seen since WW2. The imminent threat of the Coronavirus has taken over the world, the UK and Luton and will challenge you, our families, our relationships and test us all.
The drive of this worldwide action of social distancing is not just to stop you from getting ill with the virus; the bigger drive is to slow down the development of this virus so the NHS will not become overwhelmed with those who are most likely to need hospital care. Yet the issue of social distancing has certainly raised many questions around the landlord/tenant/agent relationship, so in this article I wanted to share with all the 6,965 Luton landlords their rights, obligations and responsibilities to their Luton tenants. I also wanted to highlight the rights, obligations and responsibilities of the 17,203 Luton tenants in return.
These will be trying times for Luton landlords and Luton tenants alike, so let’s start…
A landlord has the responsibility to ensure the property is fit for habitation, so what if the Luton landlord/agent is incapable of undertaking an emergency repair (or say the annual gas safety check) because the tenant is self-isolating or actually has the virus? The answer is the landlord should use their best efforts to fix the problem if it’s an urgent repair, yet if the landlord/agent are unable to do so they should record this fact and that it is related to the Coronavirus epidemic. One should then re-try as soon as is possible and appropriate, having full respect for information on self-isolation, personal-safety and social-distancing and ensure that you make a written note for future issue. My advice is that you or your agent (as we are with our Luton tenants) need to uphold good lines of communication with the tenants touched by these current circumstances, so they are clear on what action you are taking and the timescales for this.
Yet at the same time, there will be very few situations in the coming weeks when the contractors who the landlord/agent use will also be in self-isolation, meaning a handful of the 17,203 Luton tenants might have to wait for repairs to be sorted. We have some excellent Luton contractors with their own backup plans and so together we will use our best endeavours to find an alternative contractor to fix any issues. If your agent has issues, then maybe we can help – do call me. Yet whatever you do, if this occurs, document everything and that it is related to the Coronavirus epidemic.
The total rent paid by Luton tenants
each month is £13,814,000
It’s true the UK government has demanded that building societies and banks give a three-month mortgage holiday to those landlords that are unable to make mortgage payments. This is not free cash, the mortgage payments are basically postponed with interest to be collected at the end of this crisis, meaning your obligation as a Luton tenant to pay the rent still exists. HM Government is offering employers an 80% wage support with the furloughing to avoid having to make people redundant and the rent for your Luton rental home will be treated in the same way as the landlord’s mortgage.
The average Luton rental payment currently
stands at £803 per month
Therefore, if you are incapable of being able to pay your rent, it will still build up and accumulate during this virus predicament and you will need to start a payment plan to pay it back on top of your normal monthly rent. So if your rent is £803pm and you have already been living there for 2 months into a 12 month tenancy, there is still £8,030 to be paid over the next 10 months, so should you not pay anything for 3 months your rent would increase by 43% a month for the last seven months or you face eviction due to arrears (remember arrears have been put on hold – not removed during the virus outbreak). One option, subject to status and agreement by all parties, could be to renegotiate a new longer lease to pay off the arrears over a longer period. Again, the point here is communication from all sides – making sure there are no nasty surprises.
So, if you are in this predicament, there is a lot of help accessible from the HM Government including Universal Credit or Employment Support as soon as possible to escape any interruptions to your payments. Remember, your Luton landlord will need proof of your Universal Credit or Employment Support claims to give to their mortgage company to be able to start the mortgage holiday, so my advice to all the 17,203 Luton tenants is keep in contact with your agent to ensure your Luton landlord doesn’t suffer any avoidable hardship (which ultimately may end up with your home being repossessed because the mortgage payments were missed because you were unable to furnish the landlord with your own claim documents).
Communication is the #1 priority here. Whilst most agent’s premises are closed including our own, all are open for telephone and email enquiries, with staff working from home. This is a fast-changing time for everybody, for the 6,965 Luton landlords and 17,203 Luton tenants correspondingly and we will be ever vigilant to oversee the financial and monetary backdrop in the coming months.
These are going to be tough times for the people of Luton (and the world), financially and mentally; yet together we will come out of this stronger. By working together, working in partnership, again keeping lines of communication open with regards to your finances and your housing, by keeping safe and protecting our families and most of all by being kind to each other ... we will get through this, a little battered and bruised – yet hopefully better human beings for it?
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In the latest, and most recently published, set of UK mortgage data (for the month of November 2019) 18,470 pound-for-pound re-mortgages were made (i.e. the borrower went from one rate to another with no additional borrowing).
However, since the 1970’s, the British have seen their homes as cash cows and cash machines, with many homeowners re-mortgaging at the end of their mortgage’s introductory term (usually after the initial two, three or five years) to avoid being passed on to their mortgage lender’s more expensive standard variable rate.
For some borrowers re-mortgaging allows them an opportunity of raising additional cash whilst for others it enables them to follow interests and activities; such as big holidays, home improvements, new cars, debt consolidation or financially helping family members (e.g. paying off credit cards or helping with house deposits).
Interestingly, in November 2019 alone (the most recent figures) an eye watering £957,856,700 was borrowed on top of existing mortgages by 18,610 UK homeowners re-mortgaging and borrowing, on average, an additional £51,470. Therefore, one has to ask, are we borrowing too much? Looking at these numbers, one might think we are over-extending ourselves, yet as regular readers of my blog about the Luton property market will know – I like to drill down and look at the historical figures. Back in 2006, just before the crash, British homeowners were actually borrowing in excess of £5bn per month over and above the re-mortgage amount – much more than the £1bn we experienced in November!
Looking at statistics from the Bank of England for the UK as a whole, even with the data mentioned above, British property owners have increased the equity in their homes by just over £270 billion since 2010 compared with a £275 billion withdrawal during the 2000s. This reveals that the last decade (the 2010’s) is the first since records began in which Brits have increased their equity. This is partly due to the fact that the number of housing transactions crumpled during the Credit Crunch, and many homeowners chose to reduce their mortgages, rather than continually increasing them - even if their property started going up in value after 2013.
So, what has happened in Luton regarding mortgages and does it match the national picture? Well interestingly…
Luton homeowners have injected over three billion pounds into their Luton properties over the last six years; overturning a trend stretching back to the 1970s.
Considering the exact figures, it can be seen whilst the total value of mortgages has increased since 2014, as a percentage this has gone down, meaning Luton homeowners and Luton landlords have increased their equity since 2014 by £3,296,152,600 (one might call it a windfall?).
It can quite clearly be seen that the financial insecurity sparked by the Credit Crunch crisis has created a generation of Luton homeowners/landlords who are savers and improvers rather than movers and excessive borrowers, using excess cash to invest in their property and pay down debt or to excessively borrow on their equity growth, as can be seen on the graphs and table.
As the percentage of mortgages (the loan to value) has decreased since 2014 from 19.12% to 17.52% in Luton, this is good news for every Luton homeowner and Luton landlord because, irrespective of whether the ‘Boris Bounce’ is short or long lived, it shows the Luton property market is in a better state than ever before to ride out any storm that it might encounter because less people will be in negative equity or have prohibitively high mortgages.
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Luton Landlord’s £25.2m Tax Bill
I am asking Sarah Owen and Rachel Hopkins the Labour MP’s for Luton North and Luton South to remind the Chancellor Sajid Javid and Prime Minster Boris Johnson to use their persuasive skills to highlight and take a more holistic approach and attitude to the private rented sector and tackle issues which affect a Luton landlords’ capability and capacity to strategically run an effective buy-to-let business.
For the last thirty years, the Government have passed responsibility of housing the masses from local authorities (i.e. council housing) to the estimated 1.5 million British buy-to-let landlords.
However, since 2015/16, Luton landlords have faced increasing tax burdens as each year goes by, with the removal of mortgage interest rate relief on income tax (Section 24), the introduction of the 3 percent surcharge on stamp duty, and the reduction of the letting relief on capital gains tax.
My research has calculated the total income tax contribution by 6,617 Luton private landlords in the tax year 2015/16 was £17,269,165
However, the eradication of higher rate mortgage interest relief (also known as Section 24) announced in 2015 by George Osborne has been estimated to add a further £1.9 billion nationally to landlord’s tax liability. Whilst raising money from landlords is an easy target, and the tax receipts attractive, it does make the landlords financial burden even heavier.
And by 2021/2, when the full extent of the Section 24 relief kicks in, that income tax liability will rise to £25,212,981
for those Luton landlords
This doesn’t even take into account additional liabilities such as Capital Gains Tax, the 3% additional duty on top of the prevailing Stamp Duty Land Tax and VAT.
Ambiguity and a lack of certainty is the foe of all investment, which has been seen with Brexit. Now, just as things are starting to get rosy in Q1 with the pent-up demand released with the ‘Boris Bounce’, the last thing we need as a ‘collective’ property industry is for the Government to see us landlords as a constant cash cow. This new Tory government must acknowledge the value the majority of private landlords offer by housing in excess of 9.45 million people in the country.
Westminster needs to take a balanced approach to the significant issues of possession (especially with the impeding removal of section 21 evictions), taxation and all rental properties needing to be at least an ‘E’ energy efficiency rating, to connect the value the private rented sector offers the country by effectively housing over a fifth of the population and avoid unintentional consequences by making renting a private rented property harder for tenants … because, it’s not financially viable to buy (or retain) a buy-to-let property with the way things are going against the landlord.
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Ah the 2010’s, the tens, the teens - I am not sure what we are supposed to call the decade that has just gone. No matter what it was called, the last decade was a tough one, so does it really matter that we never really got around to giving it a name? Some might say, whatever one calls it, coming to an end is the most fundamental job any teen (and I refer to all humans) could possibly do!
The last two decades have certainly been tumultuous. At least for this decade we have just started we can say, in a few decades time, things like “That style is so ’20s” and fellow humans will essentially know what you are talking about. If you come of age in this decade, you will be a ’20s child and we will discuss ’20s politics and ’20s style and all the things that hadn’t been created on the 31st December 2019; the time that two nameless decades ended and how finally there was something everyone in the UK could agree on: the name of the decade. Hey - it’s a start!
So, what has happened to the local Luton property market in the last nameless decade?
The average Luton property has risen in
value from £163,600 to £265,400 in the last 10 years
… meaning each Luton homeowner has seen a profit of £195.77 per week for those last ten years. Rolling the clock back to the start of the last decade January 2010, and the economy (and housing market) were recovering from the Credit Crunch and the worldwide financial crisis. A decade on and things feel a little different. If you bought a Luton home over the past 10 years, things have certainly changed.
Luton property values rose 62.3% on
average over the last decade
yet taking inflation into account, they only rose in real terms by 29.2 per cent.
Compare that to a 42.5% rise in the ‘80s, a 13.2% drop in the ‘90s and rise of 62.8% in the 2000s in real terms. So, in real terms after inflation, there has been less of a house price growth in Luton in the past decade than the previous one.
On average, 1.12 million homes were sold each year last decade, although that was 26.4% less than the decade before (the noughties) when an average of 1.52 million properties were sold annually.
So, what are the underlying issues in the Luton (and wider UK) property market when, in real terms, property is 29.2% more expensive than a decade ago? Whilst the newspapers tell us first time buyers can’t get on the housing ladder and the housing market is in gridlock - what is the problem? Well I am a firm believer in the adage ‘bad news sells newspapers’ because the truth is something completely different as 32.7% of homes last year were bought by first time buyers compared with only 22.8% in 2009.
Yet, there are still issues; mainly a persistent lack of not building enough new homes which curtails the supply and choice of property; but stagnated wages, stiffer mortgage rules and homeowners not moving as much as previous generations are all contributing to the problem. In the UK, the number of homeowners who moved in 2019 was around 14% higher than in 2009, yet this was still just under 50% lower than the average for the noughties. It’s all up and down like a rollercoaster!
My thoughts for the future are based primarily on what will happen to interest rates. Throughout the last decade, the Bank of England base rate was 0.5% at the start and was cut to 0.25% in the Summer of 2016. Even with the increase to its current level of 0.75% in the Summer of 2019, it has made borrowing money on a mortgage very cheap indeed. Nonetheless, bank/mortgage rates will rise again and I am concerned about the effect upon the housing market. Now it won’t be as bad as previous times when mortgage rates went up in the 1970’s and 1980’s (with mass repossession) because the tougher mortgage rules introduced in April 2014 will have ensured borrowers were stress tested on their affordability if interest rates shot up. Most borrowers have been stress tested on their affordability to mortgage rates of up to 6% - 6.5%, which would obviously squeeze household disposable incomes yet stop people losing their homes due to repossession. Whilst I am not giving advice, just personal opinion, if you are one of the 29.3% of homeowners who isn’t on a fixed rate – maybe you should seriously consider doing so?
The 2020’s will be an interesting decade – and if you want to be kept up to date with what is happening in the Luton (and wider UK) housing market – follow me and this blog to read similar articles to this one.
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The Halifax announced in early January that there was a Boris Bounce in the national property market as they stated national property values soared 1.7% in December 2019 - the biggest rise since the 1.9% month on month rise in February 2007 (a few months before the Global Financial Crisis aka the Credit Crunch).
Get the flags out - all hail Boris as the Conservatives gain their landslide general election triumph - the Boris Bounce is here … or is it?
The Halifax (as well as the Land Registry and other house price indexes) use data of property that has sold and completed (completion being when monies and keys of homes sold are transferred). The Halifax data was based on properties that completed in December 2019, and as anyone who has sold or bought a Luton property in the last 10 years knows, the time it takes from agreeing a buying price to handing over the money is many weeks. In fact, the average length of time between sale agreed and completion in the country is running at 19 weeks, meaning the figures mentioned by the Halifax are for sales agreed in July / August 2019. This growth relates to what was happening to the property market in Summer 2019.
One of the most important things for the property market is confidence. Interestingly, Rightmove reported a 28% surge in buyer enquiries between the 13th December and 18th December. After a couple of years of Parliamentary hold-up, the confidence following this general election is unquestionably a much needed boost for the economy (and ultimately confidence), so much so, shares in the new homes builders Barratt jumped 14% and Persimmon 12% the day after the election, showing a property sector anticipation that the property market is about to move forward as suppressed demand for people moving home is liberated.
Looking at the previous elections, I decided to look at what happened to property values in Luton in the 12 months after each election, with some interesting results.
So, with past experience, a general election generally has a good effect rather than a worse effect on the Luton property market.
Looking at the rest of 2020, my intuition tells me in the better areas of Luton, it will likely be a seller’s market, as they will have more influence to ask for higher asking prices from Luton property buyers that have placed plans to move on hold for far too long - and this could push up Luton property values more promptly in the short term.
Yet, as more Luton properties come on to the market in the usual spring rush, we could see Luton home buyers having more choice and thus, as supply increases yet demand remains the same, buyers will get more power to negotiate a better deal. Irrespective of that, there is still the all-encompassing issue that I have spoken about many times in my blog of not enough homes being built to keep up with the number required, meaning negotiating power and prices being inflated.
The bottom line is, the Luton housing market will get a slight boost from the general election. The threat of a Jeremy Corbyn government obstructed some Luton landlords to build their buy to let portfolio in the later parts of 2019, so as long as sellers remain realistic with their pricing and present their properties in the best light, 2020 in the Luton property market should be a year of ‘steady as she goes’.
P.S .One final thought - remember what I said about the Halifax price Index being 5/6 months behind the times - don’t be alarmed when they announce in the March/April/May a reduction in property values - like I said before - this will be the prices achieved in the later parts of 2019 i.e. not what is happening right now.