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Sadiq Khan asks LSE to investigate London housing market

sadiq_khan

London mayor, Sadiq Khan, has asked the London School of Economics to carry out a comprehensive inquiry into the impact of foreign investment on London’s housing market.

The inquiry which is expected to report back to the Mayor in the spring will investigate the dependence of property developers on foreign buyers and the number of properties kept empty.

Sadiq Khan is keen however to stress that the report is not intended to provide material which might be used to curtail the rights of overseas buyers in London.  Announcing the study, the Mayor underlined the importance of foreign investment in London but also noted that further study was needed to understand the connection between London’s property affordability crisis and foreign investment. The Mayor added that many Londoners were concerned about the number of homes left empty and the link between empty properties and overseas investors.

The current study follows numerous reports that London is being used as a safe-haven for Russian Oligarchs, Chinese Princelings and Middle Eastern Sheikhs.  Many properties in the capital are held by companies in offshore tax havens and many are unoccupied. Khan’s predecessor in City Hall, Boris Johnson, notably called for property developers to market new homes “first or equal first” to Londoners rather than to overseas buyers.

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Renters may face higher lettings fees under right to rent rules

Right to Rent

Last week the government tightened its Right to Rent rules, making it a criminal offence for a landlord to let to anyone they know, or have reasonable cause to believe, is an illegal immigrant. Previously breaches of this law were sanctioned by civil penalties. However as of 1st December the penalty for failing to check a tenant’s right to rent is a criminal offense which may risk a prison sentence. 

Under the Rent to Right policy, landlords must check that their tenants can legally rent a property. Tenants must produce a document, such as a passport or a certificate of naturalisation, to prove their Right to Rent.Under the new rules, landlords could also receive government notices to terminate tenancies for people disqualified from renting. In such circumstances renters may face eviction without a court order.

This policy has serious ramifications for renters. According to a survey conducted by the housing charity Shelter, 44% of landlords said the policy would make them less likely to rent to people who appear to be immigrants, with similar numbers saying the same about people without a British passport.

In addition to potential discrimination , reports exist of letting agents charging prospective tenants additional agency fees to conduct Right to Rent checks.

In 2015 a Home Office evaluation of the Right to Rent scheme  found that some landlords were charging a fee which ranged from £10 to £120 to carry out immigration checks which the government estimates would take around five minutes to complete.  The Right to Rent policy must be applied to all tenants and by law, landlords must check that every tenant has the right to rent in the UK which could lead to increased lettings fees for tenants.

Although the Chancellor Philip Hammond’s Autumn Statement announced plans to ban lettings agent fees, there is an important window where landlords and letting agents can pass on the enhanced Right to Rent checks to tenants.  Renters should therefore be vigilant that they check the amount charged by landlords for administration fees before the letting fee ban officially comes into force.

 

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Chancellor announces plans to ban letting agent fees in England “as soon as possible”

Letting Agent Fees
Letting Agent Fees

In his Autumn Statement today the Chancellor Philip Hammond announced plans to ban letting agent fees in England “as soon as possible” which may be save 4.3 million households hundreds of pounds. 

Currently many tenants face charges to draw up tenancy agreements, conduct immigration and credit reference checks  in addition to the payment of a non-refundable holding deposit paid before signing up to the deal.

The move comes as numerous reports have indicated that many tenants living in sub-standard housing are discouraged from moving out because of extra fee charges.  A report published by the English Housing Survey covering April 2014 to March 2015 found that 69% of tenants living in poor quality homes are discouraged from moving out because of agent fees.

Nonetheless, landlords groups have claimed that banning letting fees will not necessarily reduce rental costs with landlords and letting agents increasing rental values to offset loss of income. However, renters groups assert that the ban will make it easier for tenants to compare the cost of different properties and reduce the incentive for letting agents to replace tenants.

The move is a culmination of greater regulation of the letting market and will move England further in line with  Scotland where lettings agency fees to tenants have already been banned.  Since 2015 lettings and managing agents in England and Wales have legally been obliged to clearly publicize their fees.

 

 

 

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Buy to let landlords exploiting tax loophole to invest in property

landlords-continue-fight-against-george-osborne-rental-tax-changes

Increasing numbers of landlords are using a tax loophole to avoid buy-to-let tax changes announced by former Chancellor George Osborne in 2015.  Under the rules set to be introduced next year, private landlords face restrictions on their ability to offset mortgage  interest payments against tax bills.

However, the new rules will not apply to landlords who invest through a company rather than as an individual.  Accordingly in anticipation of the changes, 63 per cent of applications for landlord loans are now being made through limited companies, up from 21 per cent before the announcement was made. Many landlords are also setting up companies and selling their existing properties to them.

According to Chief Operating Officer Steve Olejnik of the mortgage brokering firm, Mortgages for Business, the number of landlords using limited companies will rise since it will be  “more tax efficient for the majority to buy property.”  Investors who hold properties in limited companies will continue to benefit from tax relief and will be able to write off all costs of running buy-to-let properties (including mortgages) as  ‘allowable expenses.’ Incorporation would therefore effectively circumvent the rate relief restrictions.

Furthermore, despite having to pay stamp duty at the increased rate, incorporated landlords would be eligible to pay just 20 per cent corporation tax on profit as opposed to up to 45 per cent income tax if the buy-to-let were operated by an individual.  Incorporated landlords would also benefit from more relaxed affordability checks compared with individual landlords since since lenders will take into account the fact they will still benefit from tax relief.

The increase in landlords registering as companies comes following the successive failure of legal and Parliamentary challenges against former Chancellor George Osborne’s restrictions on the amount of tax relief private landlords will be able to claim on mortgage interest outlined in last year’s summer budget.

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House Prices in Chelsea fall 9.8% annually in September

London House Prices Fall

House prices in Chelsea have fallen by 9.8 per cent annually with prices for high-end homes in central London falling by 2.6 per cent in September.

Property consultants Knight Frank claims that changes in stamp duty rather than the effects of the Brexit vote in the EU referendum is the main factor for the house price decline. The firm also claims that the Brexit vote may have been “a catalyst for overdue price reductions” in the sector.

Overall the picture across London as a whole has been mixed. Some parts of prime north London have seen price falls of 7.5 for Hyde Park and 5.3 per cent for Notting Hill.  Islington on the other hand witnessed an increase in prices by 3.6 per cent. In the high-end rental sector the picture has been similarly varied with rental values for prime central London properties falling by 4.7 per cent on an annual basis with rent falls of 9.9 per cent in Marylebone and 8.3 per cent in Chelsea.

Properties are also spending more time on the market with the average number of days taken for a property to sell increasing by 14 per cent between January and August compared with the same period last year.

There are also advantages for renters in the capital with rental values also falling for high-end homes. In September, rental values for prime central London fell by 4.7 per cent on an annualized measure.

Chelsea and Marylebone notably saw rents falling by 8.3 per cent and 9.9 per cent annually.  The picture for areas further out was quite different with Areas further out saw less dramatic rent falls with King’s Cross and the City Fringe seeing average rents rise by 1.9 per cent and one per cent respectively.

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Buy-to-let landlord group represented by Cherie Blair loses court tax challenge

Cherie Blair Royal Court Justice landlord group

A landlord lobby group represented by Cherie Blair have seen a legal challenge to restrictions on buy-to-let tax relief dismissed at the Royal Courts of Justice today.

The landlord coalition called “Axe the Tenant Tax” was refused permission by a senior judge to seek a judicial review of tax changes announced by former Chancellor George Osborne in 2015 which are set to be introduced in April 2017. Under the proposed tax changes (Section 24 of the Finance (No 2) Act 2015) individual landlords with mortgages will be required to pay tax on turnover rather than the profit.

Represented by Omnia Strategy LLP,  the law firm  founded chaired by Cherie Blair in 2011, the group claimed that the tax changes were “unlawful, unreasonable and discriminatory” because they did not also apply to corporate landlords.

Mrs. Blair has previously claimed that the proposed tax changes would be challenged since they would “discriminate against landlords according to the European Convention on Human rights.” Speaking during today’s hearing, Mrs. Blair stated that the tax proposals would “unfairly result in cuts in income for ‘hard-working members of the public’ who had bought properties to rent in order to supplement their savings at a time when interest rates were low.”

Mr Justice Dingemans ruled that the legal challenge would fail rejecting claims that the changes would be contrary to EU legislation and anti-discrimination laws.  The judge added that the extent to which corporate bodies should be treated differently to individuals when it came to tax laws “raises political and economic questions, but not in this instance a legal one.”

In response to today’s court defeat, the landlord group remained defiant. In a joint statement lead claimants Steve Bolton, founder of Platinum Property Partners, and fellow landlord Chris Cooper claimed that the extra costs incurred by landlord due to the tax changes would be passed on to tenants through higher rents.

“We are outraged by the court’s decision. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of Section 24. From April 2017 the negative impact of this previously failed tax experiment from Ireland, where rents increased by 50% over a three year period, will be felt far and wide. Sadly it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.”

Despite the failure of a previous Parliamentary petition and today’s defeat, Mrs. Blair said that the coalition would fight on and “engage with the Government” more directly over the issue.

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170 tenants evicted per day as evictions rise 53% in five years

Eviction Notice
Evictions up 53% in 5 years

More than 170 tenants are being evicted every day according to 2015 Ministry of Justice figures.  

More than half of the 42,728 evictions recorded in England and Wales last year were attributable to private landlords with rent arrears being cited as one of the most common factors.  Retaliatory evictions of tenants who complain about poor property standards was also a factor in a significant number of the eviction cases.  Many such evictions may have been brought forward in anticipation of laws against revenge evictions which entered into force on 1st October 2015.

It is believed that a significant fraction of the rise in evictions originated from the private rather than the social rental sector.  Ministry of Justice figures show that the majority of evictions in 2015 resulted from a section 21 accelerated procedure which are usually a feature of private landlord evictions.

This situation is set to deteriorate as increasing numbers of people are forced into the rental sector due to the housing affordability crisis.  According to information from the Association of Residential Letting Agents (ARLA), home ownership is expected to be permanently out of reach of around a fifth of people in the UK.  Property unaffordability is exacerbated by rising rents with an average renter in the North East and London estimated to spend around £31,300 and £68,300 respectively on rent over a decade.  To compound this situation further, rents are forecast to climb at a faster rate than house prices in future.

 

 

 

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Buy-to-let landlord court date set for 6th October

cherie-blair-changes-to-taxes-on-landlords-breach-human-rights

Buy-to-let Landlords taking the government to court to challenge tax relief restrictions will have their hearing at the Royal Courts of Justice on Thursday 6th October.

The group, led by the founder and chairman of Platinum Property Partners, Steve Bolton, and landlord Chris Cooper, seek to overturn former chancellor George Osborne’s decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest outlined in last year’s summer Budget.

The judicial review of Osborne’s proposals was financed by a crowdfunding campaign which followed a failed parliamentary petition to challenge the proposed tax changes.

Over £100,000 was raised by the pair who hired Omnia Strategy LLP,  the law firm  founded chaired by Cherie Blair in 2011, to act for them. At the landlord conference named the “Tenant Tax Summit” held in June to discuss the case,  Blair claimed that the former Chancellor’s tax changes warrant a judicial review since they “discriminate against landlords according to the European Convention on Human rights.”  Also speaking at the event was the Conservative Life Peer and former MP Lord Howard Flight who had written a letter to the Government “Why the Government is wrong to attack buy-to-let.”

Unless the legal challenge is successful, the government’s tax changes will come into effect in April 2017.

 

 

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High Letting Agent Fees Stopping Tenants Moving out of Sub-Standard Homes

letting_fees

High agent fees are discouraging tenants living in unsatisfactory housing conditions from finding alternative accommodation according to the latest report on the Private Rented Sector.

The report published by the English Housing Survey covering April 2014 to March 2015 found that 69% of tenants living in poor quality homes are discouraged from moving out because of agent fees. In addition to complaints about fees, the report also found that private sector renters are less satisfied with their tenure than owner-occupiers and council housing tenants:  overall 65% of private renters reported being satisfied with their current tenure compared to 98% of owner occupiers and 82%  of social renters.

Important findings of the report include:

  • 40% of private rented sector households were charged agency fees in 2014-2015, up from 34% in 2009-2010.
  • 18% of private renters said that they felt some of the fees charged were hidden. 65% of private renters reported paying an administration fee
  • 33% paid a finders’ fee, 7% of tenants paid a non-returnable holding fee, 5% paid a returnable holding fee and 4% paid an ‘other fee.’
  • The number of private renters who lived in non-decent dwellings rose from 1.1 million households in 2006 to 1.2 million households in 2014.

Surprisingly, despite the entry into force of deposit protection legislation in 2007 as part of the 2004 Housing Act, the Housing Survey found that only sixty four per cent of renters with a Assured Shorthold Tenancy reported that their deposit had been protected despite penalties existing for non-compliance with deposit protection rules.

Under deposit protection legislation, landlords must place tenancy deposits in one of three government-backed deposit protection schemes within thirty days of receipt or face a penalty of between one to three times the deposit amount with the penalty value determined by the seriousness and intent of the landlord’s non-compliance deposit rules. In general greater penalties for failing to protect deposits are awarded against experienced landlords or against landlords who have attempted to avoid protecting deposits for financial gain.

Despite charging  for protecting deposits being against the spirit of the deposit protection legislation the Renters Alliance has encountered numerous examples of landlords and letting agents charging renters extra fees to protect their deposits. In one landlord’s forum for example, one landlord reported charging £120 for protecting tenants’ deposits recommending to other landlords that they call similar fees “Admin fees” rather than “deposit fees” for legal reasons.

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Private landlords receive £9.3bn in housing benefit

 

housing_benefit

Private landlords received £9.3bn in housing benefit payments, almost double the amount a decade ago according to a study published by the National Housing Federation.

This situation is set to deteriorate with the decades long trend of decrease home ownership exemplified by a House of Commons research report published earlier this year which reported that 48 per cent of 25-34 year-olds in England now rent,  up from 21 per cent in 2003-04.

The National Housing Federation report found an increase of 42% in the the number of households using housing benefit to pay rent to private landlords since 2008.  Housing benefit is paid to households that cannot afford to cover rental costs in addition to essentials such as food, clothes, heating and lighting.

This situation has been exacerbated by stagnation in real middle-income household earnings with the greatest increase in housing benefit claims coming from households with net incomes between £20,000 to £28,000 per year.  Furthermore, in 2008 around a quarter of private sector tenants in receipt of housing benefit were in employment, a figure which has risen to almost a half today.

In order to address the crisis in property ownership in the UK both parties have adopted standard policy positions.  The Conservatives  have signaled a preference for supply-side solutions to improve housing affordability with little detail on easing planning restrictions and tackling construction sector skills shortages.  Labour on the other hand have suggested a combination of rent-controls and investment in social housing with few details on the practicability of such proposals.

The National Housing Federation claims that if all those housed in the private rented sector lived in affordable housing, taxpayers would save £1.5bn a year in housing benefit payments. The federation’s chief executive, David Orr has said, “It is madness to spend £9bn of taxpayers’ money lining the pockets of private landlords, rather than investing in affordable homes. Housing associations want to build the homes the nation needs. By loosening restrictions on existing funding, the government can free up housing associations to build more affordable housing at better value to the taxpayer and directly address the housing crisis.”

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