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The 1st July 1948 heralded a new dawn in how property was built, as the Town & Country Planning Act 1947 came into force, meaning no property could be built without the say so of the local authority. Now, Boris Johnson has announced a substantial change to that, by in effect, ending planning permission.
The decision of what gets built (and what doesn’t) will be removed from Luton Borough Council and replaced by Westminster governed ‘Zoning Commissions’. The anticipated reform will give presumptive building rights to any piece of land outside areas of outstanding natural beauty, green belt and national parks, although in the press release there was mention of protection for the countryside.
Travel to Europe and it’s common to see out of place haphazard development of new households or commercial buildings, surrounded by open countryside ... so, I hope these new regulations protect us against that.
The principles of the planning rule changes are a departure away from looking at each planning application as a standalone application to a ‘zone-system’ of planning. Land will be divided into three classes: 1st for growth, 2nd for protection and 3rd for renewal. Anyone applying for planning permission to develop homes, offices and shops on land zoned for growth, will automatically be granted planning permission; whilst land zoned for renewal planning permission will be granted in principle while Government officers perform checks. Local authorities have until 2024 to designate areas for the three classes and once agreed, planning departments will have little or no say over individual applications that fit the rules.
Interestingly, these changes come on top of new planning regulations coming into force this September which gives implied rights to demolish any office building and replace with a block of flats, and the right to build extra floors/storeys on your home.
The Housing Secretary has specified the motive behind the changes to the planning system is not to make planning permissions easier to get (although 88% of planning applications are approved by local authority’s already). Instead, they have been done to make the planning process quicker, less expensive and less likely to be held up by special ‘interest’ groups.
78% of planning permissions in Luton Borough Council
were approved last year (compared to the national average of 88%)
Noteworthy, the planning rules were changed in 2016 to turn disused shops and office space into residential homes (called ‘permitted development’ rights), yet these new regulations about to be announced by Boris will take that right even further. This is important because in 2019, there were 241,340 new households created in the country, yet 29,260 of those households came from turning disused shops and office space into residential homes (i.e. the planning permission rule changes made in 2016).
My concern is that the new planning rule changes do not make shop or redundant space into the new 21st Century ghettos. An RICS report in 2018 showed a massive difference between the conversion of office blocks with planning permission and those without (i.e. permitted development). What was interesting is that only 1 in 5 properties met the national space standards, a non-legally binding suggestion on the minimum size of home, minimum dimensions of bedrooms, natural light, storage & floor to ceiling height, whilst 3 in 4 of office block conversions that did obtain planning permission met the standard.
These planning changes cannot be a charter for cowboy builders or developers, otherwise your children or grandchildren could end up renting one of these sub-standard homes, thus stealing human dignity from thousands of youngsters who will end up renting these homes.
So, what does this all mean to Luton homeowners and Luton landlords? If you have been reading my articles you will know that one of the most important factors holding back the Luton property market is the lack of new properties being constructed and when they are, the lack of infrastructure surrounding them.
Since 1995, only 3,742 properties have been built in LU1 to LU4
Yet, these new planning changes will also introduce a new method of taking a lot more money off landowners and builders, as the Government will take a larger share of uplift in land value (i.e. the increase in value from farmland to building land) to finance infrastructure around the development. This would mean new housing developments would come with upgraded roads, GP surgeries, primary schools and shops that these new communities need to be viable. Also, communities will be asked to decide on their own standards on style and design for new developments in their area, allowing residents a greater say on the development in their locality.
Like all things, the devil is in the detail. All of us in Luton cannot deny that we need to build more homes to keep up with the ever-growing population and the fact that people are living longer. This new planning system should lead to more housebuilding, which in turn would increase the supply of property for those trying to get on the property ladder. Also, in the proposed legislation is the new ‘First Homes’ scheme, which would allow key workers, first time buyers and people who live or work in the Luton area to purchase their new home at 30% less than its market value and when they come to sell it, that 30% discount would be passed on to the new buyer (if they also met the criteria).
With regard to what can be built and where, Luton people will have a say upfront (i.e. between now and 2024 when the zoning rules are drawn up) but once the zoning has been established, then ‘nimbyism’ will become a thing of the past and hopefully we can construct the Luton homes we are proud of for our children and for Luton generations to come.
Please do let me have your thoughts on this matter.
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The Government is on track to borrow £400bn because of Coronavirus and that needs to be paid back at some stage. Last year alone, before Coronavirus, the Government brought in £824 billion in taxes whilst they spent £887 billion, meaning they had to borrow £63 billion. In fact, the last time taxes were higher than spending in the UK was 1998, meaning since then the country has been living beyond its means.
Interestingly, whilst these are certainly eye watering numbers (£400bn is a lot of money in anyone’s book) most people aren’t too concerned in the short term. Because interest rates are so low, the Government are able to borrow this money at 0.39 percent per annum over a 10-year period on the Gilt Markets. There are even 3-year Government gilts at a negative interest rate. This is because the UK has been considered (and still is considered to be) a monetary sanctuary/safe haven for the last 20 years because of the country’s robust credit worthiness. Cheap money – yet it still needs paying back in the years to come and that can only be funded by taxpayers.
Ultimately, the Government will have to try to balance the books and that means increasing taxation. I know many will say there is waste in the NHS and MoD procurement, but that has already been squeezed quite hard during the Credit Crunch crisis and years of austerity. Some have suggested stopping the triple lock on pensions, which costs the Exchequer £6bn a year more than if pensions had risen at pre triple lock rates, so that isn’t going to make much of a dent in the debt. Some have suggested we could enter into a second wave of austerity, like we saw from 2010, yet neither the voters nor the wage frozen public sector would accept that. That leaves tax rises as the only option for leaders who claim to take a responsible long-term view of the economy.
The Government could raise tax on spending with VAT increases, but they did that in 2011 when it rose to 20% (from 17.5%). Also, increases in VAT affect the poor more than the rich. Then they could raise it from earnings (Corporation Tax, Income Tax and National Insurance) yet it’s been proved raising these ‘earning taxes’ ends up being counter-productive to the economy, resulting in tax receipts going down (even though the tax rate went up). Both are unsatisfactory, not least because big rises end up being unfair to someone.
So, some ‘think tank’ groups have suggested that we look to unearned wealth and the equity people, especially the older generation are sitting on in their homes, to pay for Coronavirus. Whilst I am in no way promoting and advocating that idea, I thought it was a fascinating suggestion and wanted to know what that would mean for Luton homeowners if such a fanciful idea took hold?
OAPs in Britain sit on £1.425 trillion in
housing equity in their own homes
The average length of time an OAP homeowner has been in their property, according to official figures, is 24.7 years, meaning on average, 75.8% of that equity is profit. So, if say a capital gains tax of 10% was placed on any profit, it would raise £107.84bn over the next 20 to 25 years. So, what would that mean to Luton OAP homeowners?
Luton OAP homeowners own £4.086bn
worth of property
Taking into account the average length of time those homeowners have been in their Luton home, that is an ‘unearned’ profit of £3.092bn, or £1.636bn after inflation. Some ‘think tanks’ have said that should be taxed as some form of capital gains tax.
To give you an idea, if every OAP homeowner in Luton had to pay a 10% capital gains tax when they (or their descendants) sold their Luton home, that would cost them £15,722 each (or a total of £309.17m).
So, is this the answer to pay for Coronavirus? There needs to be tax reforms to protect the public finances yet is it fair to tax previous capital gains? Many people say no. Let’s not forget people buy their homes out of taxed income, then pay Stamp Duty, VAT on any improvements and inheritance tax if the property value is more than £675,000, so is it fair the Government want another slice of pie?
The older generation who bought these homes saw mortgage rates of 19% in the late 1970’s and 16%+ in the early 1990’s, meaning for every pound borrowed, they ended paying back £3 to £4 when you added up the interest. Also, let’s not forget all the money spent on keeping up the maintenance - money that has already been taxed. The upshot will be this would stop OAP’s selling their homes because it would discourage older people from trading down to a smaller home in retirement, making it even harder for younger families to find a big enough home to live in. Also, many people use the equity in their home to pay for retirement care, so if some of that is going to keep the debts down, that means the Government will have a larger social care bill in future years.
One school of thought could be taxing future tax-free gains for ALL homeowners, although given the Tory’s dependence on the more mature middle class (homeowning) voters, this might be a step too far for the Conservatives, so some have said this will be kicked down the road for Labour to sort. Sir Keir Starmer, who appears to be quite a straight-talking and even monetarily responsible Labour leader, is certainly a lot more voter friendly to the British electorate than Corbyn.
At the 2024 General Election, he could introduce what appeared to be a smart agenda of tax increases on unearned property capital gains and as long as it was presented in a clearly defined way, maybe turning the tables on the famous Tory General Election poster from 2010, when the Tory’s mocked Gordon Brown for doubling the national debt, implying it was Labour’s fault for the increase in national debt when in fact it was the Credit Crunch that caused it.
Starmer could soberly state Labour were the only party that could be trusted to make hard decisions to avoid burdening future generations with the £400bn ‘Tory’ coronavirus debt
One way or another, this £400bn (or £14,440.43 per household) is going to need to be paid back eventually; that means a rise in taxes. Nobody likes paying more tax - yet the truth of the matter is there is a lot of wealth tied up in property, especially with the older generation and so I suppose its introduction is inevitable in the future.
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The British are infatuated with owning their own property and politicians know that. Margaret Thatcher used it as a vote winner in 1979 when she allowed council house tenants to buy their own home. Coming to the present day, Boris Johnson’s Conservative government have anxieties that the Brits have not been buying nearly enough homes lately and, as with all countries in the world, the British property market was put ‘on ice’ for several months to help contain the Coronavirus, exacerbating the problem.
The Chancellor, Rishi Sunak, announced on Wednesday plans to boost the property market by momentarily scrapping Stamp Duty Tax (a tax paid by homebuyers) when they buy a property that costs less than £500,000.
Interestingly, Stamp Duty was originally introduced in 1694 as a way to raise funds for The Nine Years' War (1688–1697) against Louis XIV of France and applied to property and some legal documents.
Why is this important? Well the Government recognise that when the property market is working well, the economy also tends to work well, yet one of the barriers to people moving home is Stamp Duty. Even before Coronavirus, Brits were moving 40.21% less than they were at the start of the millennium, and now with this dreadful situation, the natural reaction is for people to stay put in their own homes, meaning another potential nail in the coffin for the economy.
Stamp Duty has raised not an insignificant £166.53bn since 1998, impressive when you consider the NHS costs £129bn per annum. Looking at more recent figures, the Government currently raise £1.045bn per month from Stamp Duty Tax and this statement will remove a good chunk of that from the Chancellors coffers each month, yet the Government knows a healthy property market will help the wider economy.
As Stamp Duty is a transaction tax, it restricts labour market mobility, making people who are thinking of switching jobs think twice before moving. Stamp Duty also holds back elderly homeowners from downsizing to smaller homes, which is an issue for the UK, as we don’t have enough homes to meet supply and also curtails first time buyers as it forces them to use some of the savings on the tax, as opposed to using for a deposit.
Before the changes, the Stamp Duty thresholds were as follows:
- Zero percent up to £125,000
- Two percent of the next £125,000 (the portion from £125,001 to £250,000)
- Five percent of the next £675,000 (the portion from £250,001 to £925,000)
- Ten percent of the next £575,000 (the portion from £925,001 to £1.5 million)
- 12% of the remaining amount (the portion above £1.5 million)
and between the 8th July 2020 and 31st March 2021
- Zero percent up to £500,000
- Five percent of the next £425,000 (the portion from £500,001 to £925,000)
- Ten percent of the next £575,000 (the portion from £925,001 to £1.5 million)
- 12% of the remaining amount (the portion above £1.5 million)
Landlords and buy to let landlords will also benefit from these reduced rates yet will still have to pay their additional premium for second homes (as they have since April 2016).
To give you an idea how significant this is, if these rules had been in place exactly a year ago for Luton properties purchased under £500,000 (i.e. between the 8th July 2019 and 31st March 2020).
Stamp Duty would not have been paid on 1,413
Luton properties, worth in total £376,669,700
Anyone buying any home in Luton over £500,000 are also winners in this, as they will save having to pay the first £15,000 in stamp duty (under the old scheme). This is because during these 9 months, stamp duty is only paid on the difference over £500,000 (so if you buy a property for say £620,000 – one only pays the stamp duty on the difference between £620,000 and £500,000 i.e. £120,000).
I’m all for reducing Stamp Duty, which is imposed progressively at higher rates the higher a property costs (as you can see from the tables above). Yet, short-lived changes to property taxation risk warping the property market and generating a ‘property market hangover’ in Spring 2021. I am part of a group of 2,500 estate and letting agents from the UK, and most of us were running at 150% speed before this announcement, coping with the post Coronavirus explosion in demand.
Now it seems that the ‘feast’ will continue until the end of March 2021 as many more people will move to take advantage of the cut in tax. However, some are suggesting this could lead to ‘famine’ down the line as it will stop people moving into the late spring and summer of 2021.
History tells us different stories on the influence on transaction volumes from changing Stamp Duty rates. In 1991 the Tory’s raised the Stamp Duty threshold at which house buyers started paying and Gordon Brown did so in 2008 when we went into the Credit Crunch. More recently, both George Osborne and Philip Hammond fine-tuned Stamp Duty so that landlords had to pay an additional Stamp Duty Premium after March 2016 whilst first-time buyers pay less Stamp Duty and the purchasers of more expensive homes (over £1.5m) pay more.
The Stamp Duty changes for landlords in 2016 affected the property market only for a short while and by the autumn, transactions levels had returned to normal. However, in 1991, John Major’s Stamp Duty change encouraged home buyers to bring forward home purchases but nevertheless the property market ground to a standstill again once the benefit ended (although the steps up the 1990’s Stamp Duty levels were much harsher as the tax applied to the whole purchase price, not the margin steps as it had in the 1990’s).
So how much money will Luton people save when buying a home under £500k?
The average Stamp Duty paid by those Luton home buyers in the 9 months between the 8th July 2019 and 31st March 2020 was £3,329
Being objective, I can see why the Chancellor could see this as a suitable way to motivate spending because when people move home, they are more inclined to spend comprehensively on property renovations and the services of solicitors, home removal people, tradesmen and estate agents. So, drastically reducing Stamp Duty will undoubtedly help the UK economy, or at least contain some of the damage from the Coronavirus.
Also, the experience of being in lockdown will have confirmed to many Luton people that they need a bigger home or one with a bigger garden. I also suspect other people may be able to work from home on a more long-lasting basis, meaning there could be a shift from the larger cities to outlying towns and even a move to the countryside.
So, these are my thoughts, what are yours?
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One of my Luton landlords contacted me last week from Breachwood Green, after he had spoken to a landlord friend of his from Chalton. He told me they were deliberating the Luton property market and neither of them could make their mind up if it was time to either sell or buy property following Covid-19. His friend said he would wait to see what would happen to property prices following Covid-19, yet my landlord wanted to pick my brain in order to help him decide what to do.
I said the press are aware bad news sells newspapers and the doom mongers are plying their trade on uncertainty in the world economic situation. Roll the clock back to the Credit Crunch of 2008/9, and there were quite a few landlords in Luton who had overexposed themselves with high percentage loan to value buy to let mortgages, backing the hope they would make their money on the capital growth, yet fell foul of a drop in rents and thus got bankrupted (but who could blame them when the property market was rising at 15% to 20% a year in the early 2000’s and banks like Northern Rock were giving mortgages out to anyone with a pulse and note from their Mum).
Thankfully the Bank of England changed the rules on all mortgages in 2014 banning self-certification mortgages, tightening the rules around interest-only mortgages and the requirement around affordability to be checked, plus a tough stress test if interest rates rose. It’s obvious we are going to enter into a recession because of Covid-19, yet this time the Luton property market is better placed to weather the storm.
However, gone are the days when you could buy any old house in Luton and it would make money. Yes, in the past, anything in Luton that had four walls and a roof would make you money because since World War 2, property prices doubled every seven years … it was like having a free cash machine.
If a landlord bought a Luton terraced / town house in the summer of 2000, he or she would have seen a profit of £136,200 to its current value of £205,400, a rise of 196.9%
Nonetheless, if that landlord had bought the same property in 2010, the Luton landlord would have only made £51,900 profit (a 33.8% increase). Yet since 2010, the country has experienced 31.5% inflation, meaning our Luton landlord has seen the ‘real’ value of their Luton property increase by only 2.3% (i.e. 33.8% less 31.5% inflation).
And this is my point. Nobody has been complaining about the property market in the last ten years, yet even after inflation, landlords are still making only the smallest of profits. If we do see a slight dip in property prices because of Covid-19 (looking at the market at the moment I haven’t seen any indication of its slowing down from its post lockdown takeoff), but if we do, Luton landlords need to realise property values aren’t the only indicator of whether the property market is good or not.
The reality is, since around the early 2000’s we haven’t seen anything like the capital growth in property we have seen in the past and it’s not predicted to grow at the rates it has previously done either. So, I believe it is high time for any Luton landlord, pondering investing in Luton property to stop believing the hype and do some serious research using independent investment expertise. You can still make money by buying the right Luton property at the right price and finding the right tenant.
Think about it, properties in real terms are only 2.3% higher than a decade ago, so investing in Luton property is not only about capital growth, but also about the yield (the return from the rent). It’s also about having a balanced property portfolio that will match what you want from your investment – and what is a ‘balanced property portfolio’? Well we discuss such matters on the Luton Property Blog ... if you haven’t seen the articles, then it might be worth a few minutes of your time?
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…. and should Luton landlords & Luton homeowners be worried?
In 2019, the private rented sector accounted for just over four and a half million households or 19.9% of UK households, no change from the year before. Interesting, when compared to the proportion of private rented households in the 1980’s and 1990’s, when the proportion of private rented households was stable at around 9.5% to 10.8%.
Most of that growth in the private rented sector came in three main spurts. The first growth spurt was between 1999 and 2003 and that was caused when property values were increasing at 20% per annum, the second came from the migration of 1.69m people from the EU8 countries after 2004 and the final growth spurt came about because of the property crash of 2008/9. When I look at the local stats…
8.2% of Luton properties in 1991 were privately rented,
whilst the most recent stats stand at 22.2%
Apart from social housing, the other pillar of home tenure is owner occupation. Owner occupation is made up of two separate groups: outright owners and those who own their home yet are buying the property with a mortgage.
In 1991, 19.9% of Luton households owned their property outright and 54.2% of Luton households were buying with a mortgage, whilst current stats show 25.6% of Luton households are outright owners and only 35.5% are buying their Luton home with a mortgage
Looking at these numbers, two things are clear-
- The increase in the proportion and number of Luton outright owners is at least somewhat caused by Luton’s baby-boomer population retiring, being able to pay off their mortgages and thus going into outright homeownership.
- Overall homeownership is down. These figures will be of no surprise to many readers with heightened barriers to home ownership, as saving for the deposit became the prevailing hurdle to getting on the housing ladder together with a substantial increase in the amount of private rented accommodation, provided by an ostensibly ever-growing cohort of buy to let investors.
So, on the face of it, everything looks rosy for Luton buy to let landlords with the private rented sector growing ever upwards.
This is not the case though, because these stats on private rented and homeownership on Luton are from the last census. However, the Government have a number of in-depth annual surveys on the property market and since 2016, the proportion of privately rented properties has remained stagnant at between 19% and 20%. Also, over the same time frame, the proportion of homebuyers with a mortgage has increased quite considerably from 30.7% of all households nationally to 35.5% last year. This increase is mainly attributed to an increase in first time buyers.
So, why have we seen an increase in the number of first time buyers?
Firstly, the government introduced their Help to Buy Scheme in 2013 helping first time buyers get on the property ladder with interest free loans and mortgage guarantees. Secondly, the wide availability of 95% mortgages since the mid 2010’s (meaning first time buyers only need to find a 5% deposit), and finally the continued increasing reliance of deposits from the ‘Bank of Mum and Dad’ have helped to support this growth.
Interestingly, age is an important factor in these stats, as it’s the 25 to 35-year olds that have seen the biggest increase in home ownership, yet it’s decreased for those in the 35 to 45-year old bracket.
So, what does all this mean for Luton landlords and Luton homeowners?
In the next six months, I believe the growth in first time buyer numbers will ease slightly. The pent-up demand of the Boris Bounce in January and February has now been released, and whilst the early signs are very good, we are still to see the effects of the curtailing of the furlough scheme on the people’s ability to move home.
Many doom-mongers were predicting the banks would remove 95% mortgages after Covid-19, yet looking on a well-known comparison website, at the time of writing, there were 183 ‘95% mortgages’ available to first time buyers, with eye watering low rates of 1.53% with the Halifax on a 2 year fixed rate and 5 year fixed rate with the Skipton at 1.83%. The Bank of Mum and Dad might be a tougher nut to crack for first time buyers’ deposits - the fall in the FTSE and the repercussions this will certainly have on older households’ pensions income may restrict its availability.
This means even though the Luton property market is doing reasonably well, Luton homeowners wanting to sell shouldn’t get carried away and ‘over-egg’ their asking prices. The information available today at all buyers’ fingertips means your property can so easily be overlooked as being overpriced, and thus become ignored.
My advice to Luton landlords is, even though the proportion of private rented properties isn’t growing, in real numbers it is, as we created 230,000 residential homes in the country last year alone, so we aren’t seeing a mass exodus out of private renting.
Yet, now might be the time to consider spending money on upgrading what you already own instead of buying another property. Depending on the type and location of your Luton rental property, the return on investment of certain upgrades can be in the order of 20% to 30% per annum. Don’t fall for the trap many Luton landlords fall into and upgrade without speaking to a property professional. Whether you are a client or not, I am always here at the end of the phone to give you my advice and opinion.
Please do let me have your thoughts on the matter – thank you in advance.