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If the proposals were adopted in full, some Luton landlords would pay £10,000 less Capital Gains Tax than they would currently

 

The government borrowed £394bn this financial year (April ‘20 to April ‘21). This figure does not include the cost of November lockdowns and support measures, which means the final bill will probably be over half a trillion pounds. Ultimately these billions will need to be paid back to cover the cost of Coronavirus.

 

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Taxation (CGT) rates with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.

 

This has led to many Luton buy-to-let landlords contacting me in the last few weeks, wondering if this is the time to exit the Luton buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.

With tax bills about to go through the roof, is this the time to leave the Luton buy to let property market?

 

Yet, like all things, the devil is in the detail as Luton 2nd homeowners and Luton landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government.

 

Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.

 

So, what would that actually look like for a Luton landlord? Let us assume we have a Luton landlord who bought a Luton buy to let property in 2000.

 

Under the current CGT rules

 

  • The average value of a Luton property in 2000 was £85,400

 

  • Today, that same Luton property has increased in value to £270,300

 

  • Meaning a profit of £184,900

 

  • As our Luton landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill after the annual allowance would be £48,328

 

Under the new proposed CGT rules

 

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same Luton landlord would only pay £38,608 – a saving of almost £10,000.

 

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.

 

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen.

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide their income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa … where else are you going to invest to get the income Luton property investments provide?

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your Luton buy to let investments? Many Luton landlords do so, whether they use our agency, another Luton agency or you manage your property yourself. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear - not what you want to hear ... what do you have to lose?

 

Looking back at the Luton property market for 2020, it can certainly be seen as a frenetic game of two halves, albeit with a very long half time in the spring. Between the General Election in mid-December and Christmas, many Luton agents saw an unusually higher uplift in activity in the property market just as we were getting ready for Christmas 2019. Yet once the New Year festivities were out of the way, that pre-Christmas uplift in the local property market was nothing when compared to the bang on Monday 6th January 2020 with the fabled ‘Boris Bounce’ of the Luton property market. January, February and most of March were amazing months, with the pent up demand from people wanting to move from the Brexit uncertainty of 2018/9 being released in the first few months of 2020.

 

The pandemic hit mid-March, and the Luton property market was put on ice for nearly three months (as was almost everyone else’s lives). Yet at the end of spring, the property market was one of the first sectors of the economy to be re-opened. Every economist predicted house price drops in the order of 10% in the best-case scenario and 25% in the worst yet nothing could be further from the truth.

 

When the lockdown restrictions were lifted from the property market, those three months allowed Luton homeowners to re-evaluate their relationships with their homes. The true worth of an extra bedroom (for an office) became priceless, as people working from home were having to take calls and work from the dining room table. Luton properties with gardens and/or close to green spaces all of a sudden became even more desirable. More fuel was put on the fire of the Luton property market with the introduction of the Stamp Duty Holiday, meaning buyers could save thousands of pounds in tax if they moved before the end of March 2021. This changed the local property market and now …

 

Property values in Luton are set at 0.8% lower today compared to a year ago.

 

The fallout of that increased demand for a new home meant those Luton properties on the market coming out of lockdown in early summer with those extra rooms and gardens were snapped up in days for ‘full’ price. Luton buyers were having to spend their Stamp Duty savings on paying top dollar for the home of their dreams. Yet the increased number of properties coming onto the market in the late Summer quenched a lot of that demand and the prices being achieved became a little more reasonable and realistic. This increased the number of properties sold (stc), so much so that, nationally, almost two thirds more homes have been sold (stc) than would be expected at this time of year!

 

However, as we all know, just because a property is sold (stc), it doesn’t mean the property is actually sold. The number of people who have moved home in the last 12 months in Luton, is as you would expect, much lower. Over the last 10 years, on average 2,159 Luton homes have changed hands per year, compared to only 897 Luton homes in the last 12 months.

 

So, what is a Luton property worth today? Drilling down to the four types of homes locally, some interesting numbers appear. Looking at the table, you can see what the average property types are worth locally, and within each type, the average price paid in the last 12 months. (So, if the average price paid for the last 12 months is higher than the overall average, that means more higher priced property in that type has sold in the last year compared to the overall average – and vice versa). 

 

 

Average Overall Value Today

Average Price Paid in the Last Year

Luton Detached

£439,170

£392,080

Luton Semi-Detached

£284,540

£285,770

Luton Town House/Terraced

£223,160

£224,750

Luton Apartments/Flats

£149,180

£157,000

 

Of course, these are overall average values. To give you an idea what Luton properties are selling for by their square footage, these are those averages …

 

 

Average Value per sq. ft. (internal)

Luton Detached

£278.19

Luton Semi-Detached

£289.43

Luton Town House/Terraced

£258.99

Luton Apartments/Flats

£231.80

 

So, what about 2021? Well normally when the country’s GDP drops like a stone (as it did in the Summer of 2020), the property market follows in unison. Yet as the economy went south, the house price growth and activity in the property market went north. This would appear to be a quite remarkable outcome given that economic framework, but it is gradually becoming clear that, as far as the Luton property market is concerned, people’s time in lockdown has been spent reflecting on what they really wanted from their home and has meant that the normal rules of the game simply do not apply…. for now.

 

As Luton First-time Buyers are Being Locked Out of the Luton Property Market – Rents Have Risen

by 4.1%

 

With the banks reducing the number of low deposit mortgages (i.e. deposit of 10% and below) since Covid-19 hit in the spring, this has meant that the number of Luton first-time buyers has been decreasing quickly, meaning many of those would-be Luton buyers wanting to make the first step on the Luton property ladder will stay in the Luton rental sector.

 

This has caused demand to grow amongst Luton renters for larger homes to ride out Covid, as they hunker down for the long haul to wait for normality to return to the property market. This has caused

 

Luton rents to rise from £743 to the current £773 per month over the last 12 months, an increase of 4.1%.

 

Interestingly, the opposite is happening in Central London, where the rents tenants are having to pay have dropped by 3.8% in the last 12 months, as demand has dropped like a stone. It appears Central London tenants are looking to move out to the suburbs, in search of bigger homes, gardens and green open spaces. For example, the average rent for a 1-bed apartment in St. John’s Wood currently stands at a very reasonable £1,817 per month whilst a 2-bed apartment in Kensington and Chelsea is currently at an average bargain rent of £3,715 per month (yes, they might be low compared to last year, yet for us in Luton, that still seems like a lot of money!). Also, there has been further downward pressure on Central London rents, as many Airbnb landlords have dumped their short-term holiday let properties onto the long-term rental market as the tourism in the capital has dwindled because of the pandemic.

 

This has been the sharpest drop in Central London rents since the summer of 2009, when the property market was still stumbling from the Credit Crunch.

 

This means there is a reverse of the trend of the 2010’s (2010 to 2018 to be exact), when initially the London property market was shooting up whilst the rest of the country was in the doldrums. Then, when the rest of the UK did start to rise slowly in 2013, London kicked on even further like a rocket … yet now it appears the opposite is happening.

 

Getting back to Luton, according to the Land Registry property values currently stand 0.8% lower than a year ago; this is split down as follows:

 

  • Detached Luton homes 0.6% higher
  • Semi-detached Luton homes 1.1% higher
  • Townhouse/terraced Luton homes 0.0%
  • Luton apartments/flats 5.6% lower

Yet, do remember, these figures do NOT take into account the prices paid by desperate Luton buyers this summer, often paying top dollar to secure the property. This will only filter through in the figures released in the spring.

 

So, why are the banks curtailing the number of low deposit mortgages, meaning that first-time buyers must find a much larger down payment before they are able to buy their first Luton property?

 

The reason is the banks are fearful of a house price crash in 2021 (although if you recall I wrote about that a few weeks ago and the reasons why that is less likely to happen). They too are afraid of the frothy nature of the property market since the end of the first lockdown in late spring. The bank is lending its own money to buyers and no mortgage lender wants to be holding an enormous amount of these types of high percentage mortgages if house prices fall in 2021, because the bank would be saddled with negative equity and repossession on their hands (and we all know what that did to the housing market in the late 1980’s and early 1990’s as repossessions rocketed).

 

This can quite clearly be seen in the pricing and availability of low deposit mortgages. As the Bank of England has reduced its base rate to 0.1%, in the last 12 months 10% deposit mortgages rates have actually increased from 2% to 2.8%. Also, when lenders have been offering 10% mortgages throughout the summer, borrowers have had only a 24-hour window to commit before the lender withdraws the mortgage product from the market because of over subscription. As with all economics, if demand is greater than supply, the price goes up. That extra 0.8% doesn’t sound a lot until you realise a first-time buyer would have to pay an additional £167 per month in interest payments on a 10% deposit mortgage, assuming they borrowed £250,000.

 

However, it’s not all doom and gloom for first-time buyers as there are embryonic signs that the 10% deposit mortgage market could gradually be returning to normal, as I have recently heard some lenders taking up to a week for their 10% deposit mortgage offers to run out. Fingers crossed!

 

So, what does all this mean for Luton landlords? Those Luton landlords with properties with gardens and larger rooms will be seeing increased demand. The ability to have pets in the rental property is also an advantage, and depending on the property, can add a decent premium to the rent that can be charged.

 

One final thought though for all homebuyers in Luton, be aware it’s going to be very challenging to get your house purchase through in time to meet the 31st March 2021 stamp duty holiday cut off if you are starting the process in November. Make sure your lender and solicitor have the capacity to meet that deadline and when you are asked for information, you drop everything to provide it. The odd days’ delay here and there will mean the difference between you getting the keys for your new Luton home before the end of March 2021 and saving thousands of pounds in Stamp Duty Tax … or feeling a fool from the 1st April 2021 and having to pay the tax!

...and the 5 ways on how all Luton landlords can escape the worst of the coronavirus downturn on their Luton rental property.

 

With the second lockdown starting on the 5th November 2020, does this mean Luton landlords can wave goodbye to their Luton buy-to-let investment and see it go up in smoke on the bonfire of buy-to-let dreams, like a Guy Fawkes puppet?

 

With many Luton tenants at risk of losing their jobs after the furlough scheme ends next March and as the reverberations of the coronavirus recession hit this winter, what does this all mean for Luton landlords and what can they do to mitigate the risks?

 

Since the spring, most Luton tenants and buy-to-let landlords have been protected from the coronavirus crisis thanks to the banks with their mortgage payment holidays and job support schemes.

 

Before the second lockdown was announced on the 31st October, it was expected, that as the furlough and mortgage payment holidays were due to finish on Halloween, there would be some serious fallout from those schemes finishing. One silver lining from the lockdown (if you can call it that) is that mortgage payment holidays and furlough have been extended, yet does all that just kick the can down the road?

 

The question is, what can Luton landlords do to mitigate the financial risk on their Luton buy-to-let investment?

 

  1. Help Your Luton Tenants Get the Financial Support They Are Entitled To 

Billions of pounds are being spent by the Government to help those people whose income has been hit by coronavirus. The better Luton letting agents and self-managing landlords are supporting, guiding and helping those Luton tenants in financial difficulty to gain a better understanding of the Universal Credit (UC) processes, systems and payment levels, to enable their tenants to pay the rent and ultimately indirectly, help their Luton landlord. Also, if you are a Luton tenant, and that support isn’t given when you ask, don’t forget Luton Borough Council do hold special cash reserves for discretionary housing payments, which can be utilised to close the gap in rent between what UC pays and your current rental commitments. Also, the Government’s Money Advice Service and Citizens Advice are a good online resource for you to find out what you are entitled to.

 

  1. Adopting, Adapting & Improving Your Luton Buy-to-Let Property

Demand for gardens or office space means Luton landlords will need to think outside the box. Those Luton homes with tenants sharing (e.g. HMO’s and shared houses) might need to price their pre-coronavirus 4 bed sharing house to say maybe a 3 bed sharing house plus a work/office room and, if you haven’t already, installing a top of the range, fast and dependable internet connection could be the thing that swings it. Outdoor space and gardens are really high on Luton housebound tenant’s wish lists, in fact I have come across some Luton tenants demanding that new rental properties have a landscaped garden or those that bought a dog or cat for company during the first lockdown, are looking for their Luton landlords to relax their ‘no pets policy’.

 

  1. Hold On to Your Good Luton Tenants

Those Luton buy-to-let landlords with decent tenants, who find themselves in financial dire straits should consider attempting to keep them, even if their own monetary circumstances mean they have to decrease their rent somewhat over the short term. Now of course, I would expect tenants need to prove their circumstances, yet if their plight was real, surely it would be a wise choice to reduce the rent by perhaps £50 a month and support your tenants? You know they are taking great care of your Luton rental property and rather than risk the issue of advertising your empty buy-to-let property  – particularly when there is no assurance you will achieve your existing rent and ultimately risk drawn-out void periods with no rent coming in at all. What I would suggest therefore,  in such circumstances, is that you create a new Assured Shorthold Tenancy agreement with a longer term with your existing tenant at a lower rent – a temporary measure but with peace of mind for both parties which can then be reviewed once that tenancy is up for renewal.

 

  1. Carry out Firmer Checks on Your Prospective Luton Tenants 

Many private Luton landlords and a few slipshod Luton letting agents tenant checks are somewhat lacking in their depth. Trust me, there is tenant referencing … and then there is ‘proper’ forensic tenant referencing. As certain parts of the British economy have been hit harder than others, Luton landlords must consider when choosing their new tenants, the type of work they do or who their employer may be, to enable them to decide on their future capacity to meet their rental commitments.

 

  1. Rent Guarantee Insurance for Your Luton Rental 

There are still insurance companies offering landlord rent guarantee insurance if your tenants become unable to pay the rent. Many insurance firms removed these insurance products in the first lockdown, yet some have returned to the insurance market although insurance premiums have gone up in price. Remember to check the small print of the insurance, although you will get a lower insurance premium if you can show stringent tenant referencing (as per the previous point). 

 

The Nuclear Option - Eviction

 

Luton landlords need to be conscious that, should their tenancy run into trouble, the Government have changed the rules when it comes to eviction during the coronavirus pandemic. Going into the first lockdown, there was already a backlog in the courts and now, just before going into the second lockdown, bailiffs have been instructed not to enter rental properties in high risk Tier-2 and Tier-3 Covid-19 areas.

 

Eviction really does have to be the very last option. Negotiation or arbitration will nearly always deliver quicker and improved outcomes for both parties. Luton landlords who do come to mutually agreeable arrangements with their tenants by briefly reducing the rent, or allowing payment holidays with legally enforceable pay back schedules should ensure they get the agreed terms in writing and run by a solicitor or their agent (feel free to drop me a note if you need advice).

 

However, if eviction is required, it doesn’t mean the tenant gets off ‘scot free’. Evicted tenants, depending on their circumstances, will either be placed temporarily into an inexpensive B&B, asked to move in with family or given one of the local authorities temporary accommodation properties, with the goal to then move them into long term council accommodation (as the chances of obtaining private rented accommodation would be slim with agent’s heightened reference checks – more of that at the end).

 

The Potential Cost of Evicting a Problem Luton Tenant

 

The average rent for a Luton property currently stands at £773 per calendar month.

 

Thankfully, evictions are very rare. Last year before lockdown, tenants from 201.4 rental properties were evicted each working day in the UK ... but if yours was one of those, that is still a potentially large cost.

 

Working on the basis that most evictions from the first rent not being paid, through to eviction, refurbishment of the kitchen, bathroom, carpets and décor (because often these do need sorting/replacing) were taking on average between eight to nine months before coronavirus hit, (plus the mortgage payments), this means a Luton landlord could be hit by a £25,652 bill, broken down as follows:

 

Missing rent (8½ months)

£6,571

New kitchen

£4,146

Bathroom

£2,354

Carpets

£2,096

Redecorate

£1,893

Agents fees

£690

Legal fees & court fees

£3,500

Mortgage payments

£4,402

Total

£25,652

 

What that would be now is anyone’s guess – yet it could be a lot more.

 

This is why it is so important to get the best tenant from day one. Many Luton tenants, who know they wouldn’t pass the references of letting agents, are attracted to those private landlords who don’t use a letting agency, as they know their referencing checks are not as strict and may be a softer touch. That’s not to say going with a letting agent is a guarantee you won’t need to evict; it just means the chances are much, much smaller. Like anything in life - it’s a choice.

 

Whether you are a Luton landlord who uses a letting agent or not and feels their reference checks are not to the standard or level you might hope or if you want a chat about the best rental guarantee insurance, then give me a call ... what have you got to lose?

 

What will a no deal Brexit on the horizon, the end of the stamp duty holiday in March, mortgage payment holidays coming to an end, unemployment set to rise after furlough and ongoing on/off coronavirus restrictions do to the Luton property market and the value of your Luton home?

 

In the late spring of 2020, every man and his dog were forecasting impending doom on the British property market. Drops of 10% were considered optimistic as we all held our breath  after lockdown was relaxed. Yet, the property market didn’t listen to the forecasters. UK property values today are 2.5% higher than they were a year ago, and more locally,

 

Luton house prices are only 0.8% lower than a year ago

(and most of that loss occurred at the back of 2019)

 

So, what exactly is going to happen to the Luton property market in 2021?

 

Well, with the end of furlough and 1.7m people still on the furlough scheme at the start of October, a number of economists are saying that unfortunately many of those furloughed will become unemployed. Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019). The Government’s independent Office for Budget Responsibility believes the unemployment rate will peak at 9.7% in early 2021, and then return to pre-coronavirus  levels in 2022. In the past recessions of the early 1980’s, early 1990’s and Credit Crunch of 2009, when unemployment went up, the property market went down.

 

Yet, in this recession, the link between unemployment and property values may not be so direct.

 

So why is the link between unemployment and house prices potentially broken? It comes down to interest rates.

 

The reason Luton house prices have gone up by 425% since the middle of the 1990’s isn’t because the labour market has got so much sturdier, nor that the economy has outperformed every G8 country, or that the UK has had less boom and bust economic cycles than the previous decades. Instead, it’s because of the fundamental and underlying decline in the Bank of England (BoE) interest rates.

 

High BoE interest rates equal high mortgage payments which holds everything back regarding the property market. In the 1980’s, the average BoE interest rate was just over 11%, making mortgage payments very expensive and keeping property prices dampened. In the 1990’s, the average BoE interest rate was a little over 6%, in the 2000’s just over 4%. However, in the 2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1% because of coronavirus and the BoE threatening negative interest rates, there appears little threat of an eruption in mortgage repayment costs.

 

With mortgage payments at an all-time low of just under 30% homeowners' disposable income (compared to 48% in 2007), those middle-aged people lucky enough to still be in a job (who are mainly made up of workers whom are spending a lot more time working from home), they could be more inclined to dedicate more of their monthly income to mortgage payments than they did pre-coronavirus for a bigger garden or a move out of the big cities?

 

So, if unemployment isn’t going to make a huge difference to the Luton property market, what is?

 

Most commentators believe a no deal Brexit will have hardly any short-term effect on the property market (apart from certain upmarket parts of central London).

 

The stamp duty holiday ends at the end of March 2021 and that certainly will reduce the number of Luton people moving (as many moved their plans forward to beat the deadline) meaning there will be less Luton people moving in 2021, yet that will curtail the supply of property for sale and hence keep Luton property prices higher.

 

Next, the Help to Buy scheme, (started in 2013 and where the Government underwrites part of the mortgage for the first time buyer, meaning they can obtain a 95% mortgage) ends in April next year, yet the Tories indicated at their conference last month they would probably create ‘Help to Buy – Part 2’.

 

The bottom line is in the early 1980’s and 1990’s recessions, when interest rates were over 15%, obviously home owners couldn’t afford to keep up the mortgage payments when made redundant or on reduced wages, so many handed in their keys to the bank and homes got repossessed, thus exacerbating the issue with falling property values.

 

However, with interest rates so low, this will not be the case. I envisage that UK property prices will be between 4% to 5% higher by December and Luton values just behind that at 2% to 3% higher, before levelling out in 2021 (although we might see a modest dip in certain sectors and types of Luton homes depending on location and condition).

 

My advice to Luton buy to let landlords is to wait on the subs bench until April 2021. Something tells me there will be some Luton landlords who will be looking to exit the rental market after having their fingers burnt after the eviction ban has been lifted.

 

I also suspect those Luton first time buyers, eager (and able) to break free the rental-rat-race will want to take up the anticipated ‘Help to Buy – Part 2’ scheme, particularly if the BoE base rate stays low. The other winners in 2021 will be low mortgage/equity rich households upsizing to the countryside or leafy suburbs to test out their boss’s promise of ‘flexible-working’.

 

Yet the losers will be the 18yo to 29yo renters … most likely to be made redundant and least likely to buy a home.

 

My advice to the Government for this cohort is to not ignore them once the country is out of this coronavirus situation. It’s all very good keeping the Home Counties Tory voting Baby Boomers happy with green belt policies and other policies to keep their property values higher, yet as the Generation X and Millennials get older and take over as the largest demographic to keep happy (for the polls), the hitherto inconceivable action of the Government levying Capital Gains Tax on your main home may come to fruition.

 

I mean, we have £400bn to pay back because of coronavirus … it has to be repaid and it has to come from somewhere. Those denied real access to buying their own home in the last 10 years, because of massive house price gains over the last 25 years, could vent their anger via the ballot box — if not at the 2024 General Election, maybe in 2029, when they realise that the futile housing policies of both Labour and Tories of the last 23 years have left them with enduring financial diffidence.

 

Maybe we should all look to the grocer’s daughter from Lincolnshire who in 1979 set out a bold vision of home ownership for everybody. Whichever political party truly picks up the batten and reframes it for the current 2020’s generation and comes up with the goods, will be the ultimate winner in this game.

 

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