Property News
Bank of England holds interest rates as UK economy suffers biggest drop in growth since Lehman collapse
The Bank of England has held rates at their historic low of 0.5pc for the 27th consecutive month amid mounting evidence that the recovery is stalling.
Key data on the UK's dominant services sector, taken together with the downbeat manufacturing and construction figures earlier this week, suggests the economy has suffered the biggest fall in growth since the collapse of Lehman Brothers.
The Markit/CIPS headline services PMI index fell to 54.3 in April from 57.1 in March. While still indicating growth, it was below forecasts of 55.7.
Following PMIs on manufacturing and construction earlier this week, the services sector survey indicated "the largest loss of growth momentum seen since just after the collapse of Lehmans" in September 2008, said Markit's chief economist Chris Williamson.
This signalled that GDP growth was running at a quarterly rate of just 0.4pc, he said, which is lower than the 0.5pc first quarter growth rate seen after a shock contraction late in 2010.
Just a few months ago, strong economic indicators and rising inflation had convinced markets that the Bank would begin increasing rates today. At one point, the markets were pointing to a nine in 10 chance of a rate rise. However, recent economic data has been weak - vindicating the Bank's decision to hold rates.
Economists have pushed back their expectations of a rate rise to the end of the year - many had thought this month could be the turning point for the Bank of England's Monetary Policy Committee (MPC).
Ray Boulger of independent mortgage adviser John Charcol said: "The City has belatedly recognised that there are far too many problems in the economy for the MPC to increase Bank Rate in the next few months and for the second time in as many months the majority of economists have yet again put back by a further three months their expectation as to when Bank Rate will increase. November now appears to be the majority view, but with an increasing number acknowledging the year may well end with Bank Rate still at 0.5pc."
The PMI survey cautioned that a "myriad of factors is causing an unusually high degree of uncertainty in relation to gauging the strength of economic growth" in the second quarter. These included the performance of the construction sector, signs of order book growth slowing rapidly in manufacturing, the impact of government spending cuts, plus unusual weather and public holidays."
Howard Archer of IHS Glogal Insight said: "Given the dominant role of the services sector, the survey fuels concerns over the fragility of the economy and its ability to withstand the fiscal tightening that increasingly kicked in from April.
"The survey reinforces the case for the Bank of England to keep interest rates down at 0.5pc, for some months to come, even though it does reveal higher prices charged by services companies."
"If we get another couple of months of weakness, it's entirely possible a rate hike will be postponed until the year-end or possibly early 2012," said Peter Dixon, an economist at Commerzbank.
PMI surveys this week showed manufacturing grew at its slowest pace in 7 months in April and construction eased after two strong months.
Stipping out December's snow-related drop, the services PMI headline index for April saw its largest decline since October 2008 and was blamed mainly on UK government spending cuts.
Rising inflationary pressure saw average prices charged by the services sector rise in April, with the index jumping to 53.8 from 52.2 in March - the strongest reading since September 2008.
The breakdown of the Markit/CIPS PMI survey gave a mixed picture for the service sector at a time of weak consumer confidence, government cuts and worries about the outlook.
New business grew at its fastest pace since March 2010 and the rise in input prices eased to its lowest in four months.
However, the business expectations index - which measures the outlook for a year's time -- eased for a second consecutive month in April to reach its lowest since December. Firms gave government cuts and weaker public sector demand as the reason for their less optimistic outlook.
The British Chambers of Commerce and the Institute of Directors (IoD) have urged policy-makers to keep interest rates at the historically low level of 0.5pc, claiming any increase this month would damage economic recovery.
Mortgage lending 'at eight-month high'
The number of mortgages approved for house purchase rose to an eight-month high during March as activity in the property market showed signs of picking up, figures revealed today.
A total of 31,660 loans were approved for people buying a new home, 5% more than during the previous month and the highest level since July last year, according to the British Bankers' Association.
The data backs up anecdotal evidence from estate agents that potential buyers are beginning to return to the market ahead of the traditional spring bounce.
But despite the improvement, the figure is still down on the 35,124 mortgages for house purchase that were in the pipeline in March last year, while it is significantly below the 70,000 to 80,000 approvals a month that are considered to be consistent with a stable housing market.
Mortgage advances continued to be subdued in March, with total lending of £7.75 billion, below both February's figure and the recent six-month average of £7.9 billion.
Net lending, which strips out redemptions and repayments, also dropped to a three-month low of £846 billion, well down on March 2010's figure of £2.62 billion.
The BBA attributed some of the weakness to the fact that households remained focused on paying down debt, leading to people overpaying their mortgages.
The number of loans approved for remortgaging was slightly down on the six-month average at 24,764, but remained up on the levels seen during the first half of last year, as talk of future interest rate rises caused homeowners to review their mortgages.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "Despite the modest pick up in mortgage approvals reported by the BBA in March, housing market activity is still weak and far from supportive to house prices.
"Mortgage approvals were still down 9.9% year-on-year in March and were still essentially only just above half the average monthly level of 57,824 seen since 1997.
"This is consistent with our view that house prices are likely to trend down gradually further over the coming months."
Unsecured borrowing remained negative in March, as consumers repaid £38 million more on credit cards, loans and overdrafts than they took on in new debt.
Within the total, credit card debt rose by £149 million in the month, as a result of interest and charges, with repayments continuing to outstrip new spending.
Borrowing through loans and overdrafts contracted for the 20th consecutive month, with people repaying £187 million more than was advanced in new debt.
Savings levels bounced back in March, with consumers increasing the amount they have deposited by £2.38 billion, more than double February's £746 million rise.
Ed Stansfield, chief property economist at Capital Economics, said: "The mortgage market remained in the doldrums in March.
"Approvals for house purchase data suggest that buyers remained largely inactive in the face of the growing squeeze on household incomes, fragile consumer confidence and recent speculation about the prospect of higher interest rates."
Banks expect increase in repossessions
They told home owners they were "not confident" that they could lower arrears and repossessions as successfully as last year.
In 2010, the number of repossessions dropped to 36,300 compared with 47,700 the previous year, according to the Council of Mortgage Lenders.
Measures taken by banks and the Government to ensure people were only evicted from their homes as 'a last resort' ensured levels for 2010 were lower than forecast amid the fallout from the recession.
But lenders expect numbers to increase again this year to 40,000, the same level as 2008 during the height of the credit crisis.
The CML blamed the expected rise on a weak economy, Government cuts, the rising cost of living and possible interest rate rises.
In its 2010 Annual Report, the CML said: "We are not confident that arrears and possessions will be countered so successfully in 2011.
"The outlook for economic recovery remains weak, and planned cuts in government spending, tax increases, higher inflation and the prospect of rising interest rates are all likely to bear down on borrowers' finances."
"Additionally, the government has cut directly support for borrowers."
Under the Government's Homeowner Mortgage Support Scheme, home owners facing a loss of income were able to reduce their monthly mortgage payment for up to two years, but it was closed on April 21.
Meanwhile, the Government's Mortgage Rescue scheme allows families to either get an equity loan to reduce their mortgage, or sell their home and remain as tenants.
The CML also expects a rise in the number of home owners who fall behind with their monthly mortgage payments from 169,000 in 2010 to 180,000 this year.
The CML added: "On behalf of lenders, we remain committed to working with borrowers, advice agencies and the government to minimize mortgage arrears and possessions in the challenging times ahead."
A spokesman for the Department for Communities and Local Government said: "Ministers believe that the most effective thing the Government can do for homeowners is to tackle the record Budget deficit and avoid the need for rapid increases in interest rates, but that effective help must still be available for those struggling to pay their mortgages.
"That's why the Mortgage Rescue Scheme is still available as a last resort to homeowners facing the real threat of repossession."
The best buy-to-let mortgages
As rental demand in some cities means that nine prospective tenants are chasing each room, the Daily Telegraph lists the best mortgages for buy-to-let investors.
- BM Solutions 2.75pc (Bank Rate plus 2.25pc for one year). Up to 60pc loan-to-value (LTV; in other words 40pc deposit) with 3pc fee
- Principality Building Society 3.19pc (Bank Rate plus 2.69pc for two years). Up to 60pc LTV with £3,750 fee.
- Coventry Building Society 4.49pc (two year fix). Up to 60pc LTV with £1,249 fee.
- Coventry Building Society 4.75pc (three year fix). Up to 65pc LTV with £1,249 fee.
- Paragon 5.50pc (two year fix). Up to 75pc LTV with 2pc fee.
- Leeds Building Society 5.69pc (five year fix). Up to 60pc LTV with £1,549 fee.
Melanie Bien, director of mortgage broker Private Finance, said:
"With rental demand strong, yields good and more products coming to the market, buy-to-let has become more accessible for a wider number of people, not just professional landlords.
"As would-be first-time buyers are forced to rent for longer because they can't afford to get on the housing ladder, landlords are snapping up properties they would normally have bought and raising rents.
"For those who are fed up with their savings earning poor rates of interest, or who are mistrustful of stock market investments, property is once again looking like a solid prospect. Although an increase in capital values is no longer guaranteed, as in the past, rental incomes are more than making up for it. While interest rates are low, landlords are enjoying cheap mortgage rates and ever-increasing rents - a fantastic combination for the investor.
"The important thing to look for is bargain properties with potential for high yields and capital appreciation. Although capital growth is harder to find in this market, it is good from the investor's perspective as it enables landlords to refinance their properties at a later date, enabling them to expand their portfolios."
People may want to consider renting, rather than buying, following the comments of one expert
Renting could prove a more sensible option than buying property for many in the UK at present, if the comments of one expert are anything to go by.
Tim Lambert, head of consulting at Ducalian, said this could be the best route to take due to the current economic climate.
The industry figure explained that rents are likely to stay the same month-in, month-out, while mortgages have the potential to increase significantly across the next few years.
He observed: "Buying may look attractive now, but it may not be the case in three or four years and buyers need to be aware of what they may be paying then."
Unexpected repair bills and the like could provide further financial headaches for those who choose to purchase property rather than rent, Mr Lambert pointed out.
David Lawrenson, private renting sector expert at LettingFocus.com, recently claimed the rental market appears to be fairly strong at present.
Landlord convicted of repeated gas inspection failure
A Nuneaton landlord has been given a suspended six-month prison sentence for repeatedly failing to carry out annual gas inspections on one of his properties.
Steven James Boote, of Rock Close, Galley Common, Nuneaton, was found guilty of breaching Regulation 33(1)(g) of the Health and Safety at Work etc Act 1974 and Regulation 36(3) of the Gas Safety (Installation and use) Regulations 1998. He was sentenced to six months in prison, suspended for a year, and 200 hours' community service, and was ordered to pay £30,000 in costs.
Coventry Magistrates' Court heard how in October 2009 the Health and Safety Executive (HSE) discovered that Mr Boote had failed to carry out annual gas safety checks since 2005 at a property he owned on Rothesay Avenue, Tile Hill, Coventry. This meant he did not provide a legally required gas safety certificate for the property.
The court heard the tenant had also not had heating or hot water for two years due to the condition of the gas appliances and of the property itself.
Mr Boote was issued with an Improvement Notice, ordering him to carry out the required checks and to provide the gas safety certificate. He failed to comply with it.
Following the case, HSE inspector Gareth Langston said:
"Mr Boote completely disregarded the warnings about the state of his property - and showed an appalling lack of concern for the safety of his tenant. All he seemed to care about was money.
"All landlords must have a valid gas safety certificate in place. A gas leak or faulty appliance can cause an explosion or lead to carbon monoxide poisoning, potentially killing their tenants.
"Tenants have the right to check the gas certification when they move in to rented accommodation. Landlords have an obligation to make the certificates freely available to tenants who ask for them, and if they don't they should be reported to the authorities."
- The Health and Safety Executive is Britain’s national regulator for workplace health and safety. It aims to reduce death, injury and ill health. It does so through research, information and advice, promoting training, new or revised regulations and codes of practice, and working with local authority partners by inspection, investigation and enforcement.
- 2.Regulation 33(1)(g) of the Health and Safety at Work etc. Act 1974 states: "It is an offence for a person to contravene any requirement or prohibition imposed by an improvement notice or a prohibition notice (including any such notice as modified on appeal)."
- 3.Regulation 36(3) of the Gas Safety (Installation and use) Regulations 1998 states: "A landlord shall…
(a) ensure that each appliance and flue to which that duty extends is checked for safety within 12 months of being installed and at intervals of not more than 12 months since it was last checked for safety (whether such check was made pursuant to these Regulations or not);
(b) in the case of a lease commencing after the coming into force of these Regulations, ensure that each appliance and flue to which the duty extends has been checked for safety within a period of 12 months before the lease commences or has been or is so checked within 12 months after the appliance or flue has been installed, whichever is later; and
(c) ensure that a record in respect of any appliance or flue so checked is made and retained for a period of 2 years from the date of that check, which record shall include the following information:
i.the date on which the appliance or flue was checked;
ii.the address of the premises at which the appliance or flue is installed;
iii.the name and address of the landlord of the premises (or, where appropriate, his agent) at which the appliance or flue is installed;
iv.a description of and the location of each appliance or flue checked;
v.any defect identified;
vi.any remedial action taken;
vii.confirmation that the check undertaken complies with the requirements of paragraph (9) below;
viii.the name and signature of the individual carrying out the check; and
ix.the registration number with which that individual, or his employer, is registered with a body approved by the Executive for the purposes of regulation 3(3) of these Regulations."
New Holiday Let EPC Legislation
The Department for Communities and Local Government (CLG) has announced that all holiday let properties will require an Energy Performance Certificate (EPC) as from 30th June 2011.
The new legislation will affect permanent buildings that do not constitute the main residence of a household or individual; properties which are not occupied all year round and are occupied as a result of short-term letting arrangements typically not exceeding four weeks.
The EPC was introduced in 2008 and is currently a legal requirement for residential and commercial dwellings being bought, sold or rented. An EPC provides information about the energy efficiency and environmental impact of the property and recommendations on how to improve the efficiency and steps to reduce carbon dioxide emissions.
The format of a holiday let EPC will be the same as current Domestic EPC, with a scale of A-G showing its energy rating and potential energy rating and likewise they need to be undertaken by a qualified Level 3 Diploma Domestic Energy Assessor (DEA).
The option to extend EPCs to short term holiday lets was seen as a measure to significantly reduce carbon emissions.
According to the CLG, there are currently between 55,000-70,000 properties let out on a short-term basis in England every year, and by obtaining an EPC for properties in this sector, will provide information about its energy performance and cost-effective measures that could be taken to improve energy performance and carbon emissions. It will also help to reduce utility bills if the recommendations are taken up and this is ultimately beneficial to the owner.
By Daniel Fong, Enviro Estates
RICS has submitted its recommendations to HM Treasury ahead of the UK Budget 2011
The submission recognises that significant cuts were needed in the Comprehensive Spending Review to help reduce the deficit and calls on the UK Government to now use the property and construction sectors to support the wider economy. The axe has now been wielded and the Budget provides an opportunity to support innovation and growth in the economy to ensure an effective and sustainable recovery.
Measures such as cutting VAT on repair and refurbishment of buildings, supporting investment in carbon reduction measures, reinstating empty commercial property rate relief and changes to the tax system to support greater investment in residential property would be supported by the property sector.
Property and construction act as significant drivers of growth in the wider economy. Every £1 spent on construction contributes £2.84 to economic activity and the industry employs around 900,000 people. The value of all property in the UK is over £4500bn and this sector employs some 500,000 people. Encouraging activity in these sectors will promote economic recovery and provide sustainable growth in the long term.
As a professional body acting in the public interest, RICS is able to offer informed and impartial advice on the ways in which the land, property and construction sector can significantly contribute to economic growth. In the submission we propose a package of measures designed to encourage growth in the housing and commercial property sectors.
Key points
- Empty property rates and the 20% VAT rate currently act as barriers to activity in commercial property and construction. Reform of these two taxes, including an extension of empty property rate relief and a reduction in VAT for repair and maintenance activity, would provide a significant economic boost. As well as increasing activity, changes would support regeneration, provide new property for growing businesses and help meet carbon reduction targets.
- Changes should be made to the tax regime and Real Estate Investment Trust (REIT) structure to encourage institutional investment in residential property and encourage additional housing supply.
- Forthcoming RICS-commissioned research will examine the UK land and property tax system as a whole; and the impact of the recession on PFI/PPP and implications for the future, drawing on international experience. We will be happy to share emerging findings with HM Treasury in due course.
Property top performer - Datastream, Halifax
Investing in UK’s residential property is still proving to be the most profitable.
One of the most fascinating things about residential property is it’s ability to outgrow the other investment asset class decade after decade. You look in history and compare the main asset classes, Property, Commodities, Cash, Equities and Fixed Interests… and the only one that comes close to competing is commodities.
What is it that gives property the advantage over other investments
1. It's most basic advantage is "need"
We need, must live somewhere, while we do not "need" in such a great way any other asset. It’s only when you breakdown the asset classes that residential property has a competitor. This competitor is precious metal from the commodities class and it too has an advantage "desire"…and looking at the results, desire is a strong advantage!
2. You gain with two rather than one potential profit streams.
The rental income combined with capital growth has most of the other investments beaten, simply because they only make capital gains so you are solely dependent on the value you sell them at to make money. (There are a few exceptions, one being stocks and shares where on some you can receive dividends while you own the shares).
The results are:
| Asset class returns over 1 and 10 years As at December 2009 | 1 year % | 10 year % | 10 year average % pa |
| Precious Metals | 42.4% | 242% | 13.1% |
| UK Residential Property | 8.7% | 187% | 11.1% |
| Commodities | 33.4% | 137% | 9.0% |
| UK Commercial Property | -1.4% | 75% | 5.8% |
| UK Bonds | 3.7% | 70% | 5.5% |
| Cash | 1.0% | 57% | 4.6% |
| International Bonds | 1.0% | 57% | 4.6% |
| UK Shares | 30.1% | 18% | 1.6% |
| International Shares | 26.5% | -8% | -0.8% |
| Average | 16.2% | 93% | 6.1% |
Source: Datastream, Halifax. Click here for full details
Landlords - Does the new legislation mean that your tenant's deposit needs to be registered
Any property bringing in an annual rental income of between £25,000 and £100,000 will be affected. The original threshold was introduced in order to exclude 'luxury lets', however the limit has not been looked at since 1990 (and has not taken into account inflation since this time). The Government have taken the view that the threshold should reflect changes in market rents and to ensure minimum requirements in tenancy agreements are met. Also, the change should improve transparency in the lettings market.
This change has a number of implications for both tenants and landlords. All new tenancies formed with rent of £25,000 to £100,000 per annum will default to Assured Shorthold Tenancy (AST) status. This will apply to existing tenancies with annual rent between £25,000 and £100,000 that are already in place and over night from the beginning of October 2010 they have become an AST.
For landlords, any deposits for tenancies brought within the new threshold entered into on or after the 6th April 2007 will need to be protected with one of the three government-approved tenancy deposit schemes. This is a must. If landlords do not have these deposits protected they are in breach of Tenancy Deposit Protection (TDP) legislation.
If you are a tenant, you have the benefit of having your deposit protected in a recognised scheme.
Please note: This new legislation only applies in England & Wales.
For more information please contact LentinSmith who will be able to provide you with more details.
Private Landlords need protection from anti-social tenants thrown out of social housing
The Government’s announcement that it is to introduce tougher action against anti-social tenants in social housing has raised fears that they will simply move into the private rented sector (PRS).
The Residential Landlords Association (RLA) says private landlords could unknowingly take on tenants kicked out of social housing because of anti-social behaviour.
The organisation claims private landlords will not have the same degree of control over tenant behaviour and don't always have the means to check tenant records because of data protection measures.
RLA Chairman, Alan Ward said: "The RLA strongly supports efforts to combat anti-social behaviour by tenants who blight communities across the country.
"However, by addressing the behaviour of tenants in the social rented sector alone, such tenants will simply find themselves with no alternatives but to seek private rented accommodation. Data Protection laws make it difficult for landlords to properly reference the behaviour of new tenants.
"The Government is once again looking to the PRS to meet the UK's housing needs. What landlords require is a reformed court system that enables a quicker, more effective response to tenants causing anti-social behaviour, without the current delays of up to eight months to regain possession.
"Anti-social tenants affect both the private and social rented sector and the RLA is writing to Housing Minister, Grant Shapps MP, to outline its concerns and calling on the Government to work with the sector to combat anti-social behaviour in all its forms."
Buy to let landlords see average rents rise but total returns fall
Rents rose for the 10th consecutive month but growth is slowed in the run-up to Christmas, according to a recent Buy to Let Index from LSL Property Services plc.
In November, the average UK rent rose to £692 per month, squeaking ahead of October’s record high of £691.
The growth of 0.1 percent represents the smallest increase since rents began to rise in February.
However, recent rent increases seem to have ended in several parts of the country. The east of England and the east midlands reported falls of 3.1 percent and 2.4 percent in November, whilst rents dropped by 1.9 percent in the south east and by 0.6 percent in the north west.
The marginal monthly national gain was largely driven by rents rising by 1.8 percent in London, where they hit £992 per month, an increase of 9.2 percent in the last year.
The average yield rose slightly to 5 percent in November, thanks to increasing rents, contrasting with a slight decline in the value of an average rental property.
David Brown, commercial director of LSL Property Services plc, said: "In the run-up to Christmas, we tend to see the rental market slowdown somewhat. Tenants prioritise Christmas spending over setting aside money for moving home.
"But with the limitations placed on the supply of rental property by the lack of mortgage finance, rents have continued to increase, even though the rental market’s peak season is behind us.
"Nevertheless, rent increases have begun to slow in several regions, and we expect this trend to continue across the country in December and January. However, the UK's buy to let market still faces a shortage in the supply of rental properties and we don't anticipate that the slowdown in rent rises will last long into 2011."
Following a slowdown in the annual growth of rental property prices, the total annual return on a property has fallen from its peak of 13.4 percent in May to 7.3 percent in November.
This is now the equivalent to £11,857 - £7,359 in rent, and £4,498 in capital gains.
According to LSL, an investor entering the market now could expect to make a total annual return of £3,433
Brown continued: "Returns are slowing as annual house price growth steadies. But investors are faced with a fantastic opportunity. With property prices beginning to dip, and yields improving, it is a great time for landlords to expand their portfolios and lock-in high rents. "Even off-peak, tenant demand has remained robust enough to lift rents and the chronic lack of affordable housing and mortgage finance for first-timers will continue to augment demand from tenants, keeping rents high in the long-term."
However, tenant arrears provided less positive news for landlords in November. Tenant finances were in worse shape than October, with 9.7 percent of all UK rent unpaid, rising from 9.3 percent in the previous month.
Unpaid rent totaled £231m across the UK in November, up from £221m in the previous month.
Brown concluded: "The one cloud on the horizon for landlords is tenant arrears. Without the timely cheque from tenants each month, landlords cannot pay their mortgages, and risk dipping into rainy-day funds or falling into mortgage arrears. And with public sector spending cuts set to take their toll on employment and tenant finances in the next year, it's crucial that landlords act quickly to nip potential issues with rent payment in the bud before they escalate."
The LSL Buy to Let index was compiled by analysing 18,000 rental properties and tenancies from around the UK to determine rents, arrears and voids. Figures for the whole country were inferred by scaling up from LSL's market share.
Value Added Tax (VAT)
The PRS has made great improvements in relation to improving the quality and condition of its housing stock, but still has some way to go in order to provide parity with other tenures. Unfortunately private landlords do not benefit from the same funding provisions as social housing providers in order to meet decent homes, and related, targets and face additional hurdles.
One of these hurdles is the additional expense of VAT in relation to efforts to renovate and refurbish private-rented properties.
VAT is charged when an appropriately registered business sells to either another business or to a non-business customer. VAT registered businesses can generally reclaim the VAT they've paid. There are three rates of VAT, depending on the goods or services the business provides.
From January 2011 these rates will be:
Standard - 20 per cent - this is the default rate applied to all goods and services unless they are specifically designated as reduced or zero rate.
Reduced - 5 per cent - certain goods and services may be subject to a reduced rate, for example domestic fuel charges, children's car seats and installation of energy-saving materials.
Zero - 0 per cent - some goods and services may be zero rated. These include; food (not including restaurant meals or takeaways), books, newspapers, public transport and children's clothes.
Goods and services which qualify for reduced or zero rate VAT are restricted by legislation.
However, VAT rate reductions could still be used as a fiscal stimulus to encourage investment in the housing market. In particular reducing the rate of VAT chargeable in connection with services and supplies would significantly reduce the cost of carrying out repair and maintenance work across tenure. This in turn would help to incentivise improvements and lead to greater investment in housing stock - helping to achieve decent homes targets in the private sector.
Furthermore, reducing the rate of chargeable VAT would reduce the price advantage tradesman operating in the black economy may have over legitimate businesses which charge VAT, and therefore drive down potential tax evasion.
The EU 'experimented in 1999 with reduced VAT rates for labour intensive services involving nine countries: Belgium, Luxembourg, Italy, France, Spain, Netherlands, Portugal, Greece, and the UK, represented by the Isle of Man. These countries were permitted to reduce VAT within certain categories including renovation and repairing of private dwellings.
As a result of this initiative we know that a reduced rate of VAT can reap economic benefits. In December 2007, the Isle of Man Treasury reported on the impact of a reduced rate of VAT and concluded that, "The actual tax take increased despite the 12.5 per cent differential in VAT for the comparable organisations"[2] and that, "The experiment had been a fiscal success on the Island."
The Belgian Government saw the measure increase both turnover and employment within the relevant sectors. While the French Government saw the creation of approximately 43,000 new jobs in the construction industry and a 5.6 per cent increase in turnover in the construction industry equating to around €1.4 billion. In Italy, the measure saw the creation of between 65,000 to 75,000 new jobs in the construction industry and 35,000 enterprises emerged from the informal economy and started paying VAT for the first time. And Portugal's construction industry, which enjoyed 20 to 25 per cent growth, well above average, and created many thousands of new jobs.
A number of associations and bodies supporting the PRS are therefore lobbying to see the VAT rate for renovation and home improvements reduced to the minimum allowable 5%.
This would remove many of the cost barriers to improving quality standards, help to modernise aging housing stock and also remove much of the advantage traders currently operating in the 'black market' have over legitimate tradesman who charge the appropriate VAT.
The business case for lets with pets
Latest research suggests that 47 per cent of households in the UK own a pet, so any landlord wanting to appeal to the largest possible group of potential tenants will want to consider whether letting to pet owners makes good business sense for them.
As with any business choice, landlords need to weigh up the pros and cons of taking on a household that includes domestic pets. Mark Garner of online letting portal LettingZone remarks: "Simply stating 'no pets' when looking for a new tenant can be a big barrier to entry and can severely restrict your potential tenant demand."
That said, pets can increase the likelihood of damage being done to the property. And noisy dogs could make you as a landlord unpopular with neighbours, especially if the tenancy is in a flat where noise insulation is not of high standard.
"Removal of pet hair is essential before re-letting a property to new tenants," says Sandy Unwin of Spick & Span cleaning."This is particularly important as your next tenants may be allergic to a particular animal." Mark recommends first of all gauging whether your property is suitable for pets. "For example, a sixth floor flat may not be really suitable for a tenant with a dog, whereas a garden flat may be more suitable," he says. "Normally I ask for £200 per pet extra deposit and ask that all carpets are steam cleaned at the end of tenancy. In my experience over the last 15 years I find pet owners tend to stay longer and so make good tenants."
Advantages of lets with domestic pets
Dogs Trust, the UK's largest dog welfare charity, and a strong advocate for lets with pets, endorses Mark Garner’s business approach towards keeping an open mind to the merits of lets with pets. According to the Trust, a 'No Pets' policy drastically limits landlords' rental market which it considers "makes no business sense."
In spite of this, a survey carried out by Dogs Trust revealed that 78 per cent of pet owners looking for privately rented accommodation had experienced difficulties finding a landlord who would accept their pets. And 54 per cent of pet owners were unable to find any suitable rented accommodation. Clare Kivlehan, Lets with Pets Campaign Manager, believes this demonstrates that "pet owners are a largely untapped market, which landlords cannot afford to overlook in the current unstable property market." This argument becomes even more persuasive when you consider that pet owners who find a suitable property tend to stay longer as they 25 know how hard it is to find a pet-friendly landlord. They are also often willing to pay a higher deposit to cover any damage their pets may cause. Many will also accept a clause in the tenancy agreement that requires them to pay for the property to be professionally cleaned when they move out.
Pet Clauses
The Office of Fair Trading considers a blanket ban on keeping pets in a property to be unfair under the Unfair Terms in Consumer Contracts Regulations 1999. The OFT suggests that a fair clause in a tenancy agreement would require the tenant to get the landlord’s consent before they bring pets into the property but the landlord should not unreasonably withhold their consent.
What is fair wear and tear?
Many costly landlord-tenant disputes have arisen as a result of differing interpretations of what is fair wear and tear. Knowing what is reasonable is, of course, critical when it comes to returning a tenant's deposit.
According to Eddie Hooker, Chief Executive of my|deposits, "Wear and tear is always a hot topic of debate and is very much situation-dependent. We have worked with landlords and our in-house disputes team to compile the guide, which is by no means definitive, but hopefully gives landlords some benchmarks and examples to consider when checking out their tenants."
Nine Guiding Principles
Unlike office leases which can require tenants to leave the property as they found it, often involving complete redecoration, domestic tenancies must allow for reasonable wear and tear.
Unfortunately, but perhaps unsurprisingly, there are no precise rules on what is 'reasonably acceptable'. Is that carpet just well used or irretrievably stained? What about picture hooks left on the sitting room wall? Or the cooker that looks as if it has produced a good three meals a day, every day?
The House of Lords defines fair wear and tear as: "Reasonable use of the premises by the Tenant and the ordinary operation of natural forces." When do 'natural forces' become 'extreme heavy use' or worse?
To help fill the gap left by current legislation, my|deposits offers the following nine pointers to help landlords decide what's fair and what's not. Clearly there are financial consequences when it comes to returning all or only part of a tenant's deposit, so they should be viewed in the context of each particular tenancy.
1. Length of tenancy
The longer the tenancy, the more natural wear and tear will occur. Common sense questions you should ask before you decide a deduction, for example in the case of a carpet, include:
- how much wear does a carpet in your own home show after one, two or three years?
- what was its condition in the first place? Was it brand new or has it already seen a few tenancies come and go? Take account of all these factors before you decide what is fair.
2. Number and age of occupiers
The more bedrooms and occupants, the higher the wear and tear in all the common parts (sitting room, passages, stairs, bathrooms and kitchen). If some of the occupants are children, factor that in too. Scuffs and scrapes are unavoidable in normal family life. A property occupied by a single person will see far less wear than a family of four, so bear this in mind when it's time for tenants to check out.
3. Wear and tear versus actual damage
When is deterioration in the property classified as damage rather than normal wear? If something has been broken, then that is certainly damage and would require either replacement or repair by a specialist. Light marks on the carpet might have to be viewed as unavoidable: fist marks in the plaster would not be. Equally, damage such as nail varnish spills on the floor or iron burns that have occurred due to negligence could see the tenant liable for repair. Certan bodies advise landlords to consider whether the item has been damaged or worn out through natural use versus sheer negligence when making a judgement call. In a dispute about whether cleaning/repair is necessary versus complete replacement at the end of the tenancy, an adjudicator will examine the Check-in/out report, Statement of condition and any photos/videos in order to make an assessment of the condition of the property in relation to the original condition.
4. Quality of the accommodation
Another consideration is the quality or fabric of the property itself. Many new builds tend not to be quite as robust as older properties or conversions. Walls, partitions and internal painted surfaces tend to be thinner and therefore likely to suffer more stress, particularly in higher footfall areas of the property. This inevitably means that there is a greater need for redecoration at the end of the tenancy period.
5. Prevention
There are a number of ways in which wear and tear can be kept to a minimum.
Firstly, keeping tenants happy so that they choose to extend their tenancies means you will reduce tenant turnover and will not be redecorating/renewing the property as frequently as you would for shorter tenancies.
Secondly, if tenants are in for longer periods of time, say two years plus, try to freshen up the property at regular intervals. For example, you could replace the carpet or paint a room. Strategic upgrades or enhancement of the property on a regular basis help to maintain the standard of the property and reduce the need for refurbishment at the end of the tenancy period. Treating the property as an owner-occupier means that you are ultimately minimising the wear and tear and need for redecoration when the tenant moves out.
Finally, set your expectations of the tenants from the outset. Remind them that regular cleaning and maintenance can keep a property in good condition. Perhaps conduct a regular check every three months or so, particularly early on in the tenancy, to check that everything is in order.
6. Photo and Video evidence
Photo and video inventories are a helpful means of recording the condition of the property pre and post the tenancy and should provide a clear record of the property prior to its occupation. Equally, being able to document and provide photographic/video evidence to support a claim against a tenant will help everyone know where they stand. Make sure all photographic and video evidence is clearly dated.
You should, for example, try to capture photos/video footage of burn marks/permanent carpet stains, damage to flooring, scratches/damage to woodwork, tears and rips in furniture. Photos and video evidence on their own may not be sufficient, so support this with a comprehensive, detailed inventory.
If you are preparing the inventory yourself, rather than using an independent specialist, ensure that the tenant is provided with a copy, both at the Check-in/Check-out stage, and signs a copy so that they understand, and have a chance to discuss with you, what deductions you are proposing to take from the deposit.
Ultimately, the more evidence you have the better, so keep the inventory, photos, video, receipts and correspondence safe.
7. Common sense
It is important to correctly describe the condition of items when listing them e.g. if something is down as 'brand new' it needs supporting bills/receipts to prove this.
8. The adjudication process
Remember that the adjudication process in the event of a dispute, is independent and like a court of law, evidence based. An adjudicator cannot 'assume' and can only make a decision based on the evidence provided to him/her. You cannot challenge an adjudication decision unless it is via a court of law. The more evidence you produce and the more transparent you are with the tenant the higher your chance of success if a dispute is brought against you. my|deposits cannot interfere or ‘review’ any decision made by the adjudicator and cannot tell you what evidence will be acceptable to the adjudicator and what will not.
9. Best Pactice
Wear and tear is a topic that is open to interpretation. Ultimately, as a landlord, your aim is firstly to minimise the level of wear and tear in your properties and secondly to ensure that you have covered all bases in the unlikely event of a dispute with your tenant over the return of the deposit.
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