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What’s In Store For The Rental Market?

What’s In Store For The Rental Market?

The arrival of both spring and a new financial year is a good time to consider what lies ahead for the property market.  In particular, it’s a good time to assess the investment property market since property investors need to think about how best to use their tax allowances.  With that in mind, here are some of the key factors that may influence the rental market in 2022.

New working practices

If remote-/hybrid-work continues to be a mainstay of the employment market then it could have significant implications for the property market.  If positions go fully remote then, in principle, they can be done from, literally, anywhere.  In practice, employees may still have a preference for being near major employment centres in case they want to change jobs later.

Hybrid work requires people to be within commuting distance of their employer.  What that means in practice, however, could be due for a major shake-up.  Even if employees are going into the office three days a week, they are still going to be at home more than half the week.  Some hybrid employees may spend fewer days in the office.

On the one hand, this could allow them to look for properties further outside of cities and hence with longer commutes.  This would increase their travel time (and costs) but this would be counterbalanced by the fact that they would be going to work less frequently.

In reality, how attractive a prospect this would be might depend largely on how the sums worked out.  If property outside cities (and commuter belts) becomes more expensive and/or property in cities (and commuter belts) becomes more affordable, there could be a shift back to the cities.

Limited home-building

The combination of Brexit and COVID19 has created major challenges for homebuilders.  Even when construction was, technically, allowed to continue, home-builders had to deal with the effects of the “pingdemic”.  They also had to deal with the impact on the global supply chain.  At present, neither of these issues is fully resolved.

Fewer new homes being built means lower supply.  If demand remains the same (or increases), then it seems reasonable to assume that house prices will also increase.  This could lead to increased demand for rental properties.

It is, however, unclear how long this demand would last.  It’s also unclear whether it would actually translate into higher profits for landlords.  Potentially it could if landlords are simply maintaining existing portfolios.  If, however, landlords want to expand their portfolios, they could be looking at a very competitive housing market.

The direction of interest rates

If interest rates go up, then costs may increase for landlords.  On the other hand, they may not.  Firstly, landlords may own their portfolio outright.  Secondly, even if they don’t, they may have a fixed-rate mortgage.  It may, therefore, be more accurate to say that costs may go up for some landlords.  This may, however, be enough to influence the market as a whole.

In simple terms, if costs go up for landlords, then they have three options.  They can increase their rents (when legally allowed to do so).  They can absorb the costs or they can exit the market.  This raises the question of how much landlords will be able and willing to absorb any increased costs.  It also raises the question of how much landlords will compete with each other.

While the potential for increased rents is, of course, bad news for renters, there is a potential flip side.  If interest rates go up, then savings accounts should start to pay more interest.  This means that renters should find their savings appreciate at a faster rate.  With that said, however, what that means in practice will depend on the overall direction of the housing market.

For advice on buy to let mortgages, please get in touch.

Is Help To Buy Actually Helping?

Is Help To Buy Actually Helping?

Currently, the UK has two official Help to Buy schemes plus the Lifetime ISA (LISA).  Additionally, there are various other schemes to help people get “on the housing ladder”.  For example, there is shared ownership and the Stamp Duty discount offered to first-time buyers.  Despite this, the UK’s housing market remains notoriously challenging.

The old rule of supply and demand

Ultimately, the challenges of the UK’s housing market all boil down to the age-old issue of supply and demand.  The UK is a densely-populated country.  This means that there are a lot of people needing to be housed in a relatively small space.  While this overarching concept is simple to grasp, there is a lot of nuance to it.  There are also a lot of contradictions.

For example, the recent mass adoption of home working led some people to flee the cities.  By encouraging remote-/hybrid-working to continue, the government could help to reduce the demand for housing in and around cities.  On the other hand, it would also reduce the demand for services provided by businesses located in cities.

In principle, the government could alleviate the pressure on city housing by building more of it.  To what extent this would work in practice is another question.  In any case, it would only succeed as long as the supply of housing was at least roughly equivalent to the demand for it.  If the development of new homes triggered an influx of new buyers/renters, then it would, at best, be net-zero.

The issue of affordability

Given that the UK has limited housing stock, there is a strong argument for prioritizing access to it on the basis of need.  This is exactly why so many housing-related measures are targeted at specific demographic groups.

For example, the Help-to-Buy Equity Loan scheme, the LISA and the Stamp Duty discount are all targeted at first-time buyers.  By contrast, investment buyers pay a Stamp Duty surcharge.  They also pay Capital Gains Tax on the disposal of their investment properties as well as tax on the income from them.

It is, however, fair to ask, just how effective these measures are in the real world over the long term.  For example, any costs levied on landlords will either have to be recouped from tenants or absorbed by landlords.

In the former case, they reduce the amount of funds tenants have to save for deposits.  In the latter, they reduce the profitability of being a landlord.  This can encourage landlords to leave the market.  One way or another, this reduces the options for tenants.  Fewer options can lead to increased costs and hence less money to save for a deposit.

Does “Help to Buy” really help?

The various Help-to-Buy schemes may make it possible for people to buy houses they might not otherwise have been able to afford.  It is, however, still fair to ask whether or not it constitutes an overall benefit.  In fact, more specifically, it is fair to ask whether or not it delivers enough benefit to justify its costs and risks.

In principle, the direct cost of the Help-to-Buy schemes should be minimal.  Both the Help to Buy Equity Loan scheme and the Help to Buy Mortgage Guarantee scheme give assistance in the form of loans.  Only the LISA gives direct financial support and that is capped at a maximum of £1000 per year for a maximum of 32 years.

This leaves indirect costs and risks.  The indirect cost of these schemes is their overall impact on house prices.  In other words, are these schemes allowing sellers to set higher prices than they otherwise would have?  If so, are they actually creating more problems than they solve?  Then there is the risk of the UK taxpayer being left on the hook for defaults.

With COVID19 and Brexit still the UK’s main priorities, it seems likely that these questions will remain on the back burner for some time to come.  They will, however, need to be addressed at some point.  Sooner would be preferable to later.

A beginners guide to mortgages

A beginners guide to mortgages

For many people buying a house means getting a mortgage of some description.  At a basic level, a mortgage is just a loan secured against a property, however, once you dive a little deeper there is a level of detail which it can be helpful to understand.  With this in mind, here is a beginner’s guide to mortgages.

Residential mortgages and buy-to-let mortgages are very different

Although the basic principle behind them is the same, they work to very different sets of regulations.  This means that if you buy a house with the intention of living it and then decide you wish to let it out in its entirety, you may well have to change your mortgage unless you are letting it out to a close family member, in which case your mortgage lender may permit it.  Taking in lodgers is more of a grey area and will come down to a lender’s individual policy.

Residential mortgages typically require the property to be occupied

The basic idea behind residential mortgages is that you are buying a property in which to live, rather than one to let out or one to leave empty, both of which carry additional risks.  Obviously, lenders are aware that homeowners are going to leave their property empty some of the time, e.g. to go on holiday, but there will typically be limits to this, again, check your lender’s policy.

Residential mortgage lenders have to abide by the rules of the Mortgage Market Review

In very simple terms, mortgage lenders used to be able to work on rules of thumb based on multiples of income.  These days, however, (post the Mortgage Market Review), multiples of income may still be a handy guideline as to what level of mortgage you could be offered, but always keep in mind that post the MMR, lenders are obliged to look past headline income figures and look into the details of where your money is going now and where it is likely to end up going in the future.  There are two points to take away from this.  One is that you may find yourself being offered less of a mortgage than you expected and the other is that you may have to accept your (financial) life being scrutinized in detail.  Remember, this is nothing about you personally, it’s just the way the rules work these days.

Interest-only mortgages have basically disappeared from the residential market

While making predictions is always dangerous, it’s hard to see how interest-only mortgages could make a comeback to the residential market any time soon.

Offset mortgages are still fairly niche but available

The basic idea behind offset mortgages is that you hold your cash savings with your mortgage lender and these are used to offset the balance on your mortgage.  This means that although you lose out on interest income, you also pay less in interest expense, which should work out as a net financial win for you, especially for higher earners, who will need to pay tax on their interest income.

Fixed-rate mortgages offer security, but usually at a price

The key point to understand about fixed-rate mortgages is that they are priced so that the lender still has a decent chance of making a profit.  They are also time-limited, so the lender has a floor to their potential loss (or even just their loss of profit).  This means that they can actually work out more expensive than variable-rate mortgages (depending on circumstances and whether the fix is absolute or allows you to benefit from reductions in interest rates while capping the extent to which your repayments can be increased in response to them).  The benefit of fixed-rate mortgages is that they offer stability and security.  It is up to each individual to decide if this benefit is worth the price.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

The FCA does not regulate some forms of buy to let mortgages.

How To Save For A Deposit In The Shortest Possible Time

How To Save For A Deposit In The Shortest Possible Time

There are all kinds of reasons why saving for a deposit is harder than ever before.  The Stamp Duty holiday propelled the housing market to massive (albeit uneven) growth.  Interest rates are low.  COVID19 and Brexit both created uncertainty.  Saving for a deposit is, however, still possible.  Here are some tips on how to do it in the shortest possible time.

Use the LISA if you qualify

The Lifetime ISA allows you to save up to £4000 per (tax) year.  This is then boosted with a 25% government bonus.  You must use your LISA towards the purchase of your first home or to fund your retirement.  Under current rules, you can have a LISA and a regular ISA.  This means that your savings and/or investments will get even more protection from tax.

See if you qualify for further help

The central government has various schemes to help would-be housing buyers, especially first-time buyers.  Local authorities may also have their own schemes.  You would need to check the availability of and rules on these in the location where you wanted to buy.

Be flexible about your exact location

If you’re still working on-site, you will need to stay within reasonable commuting distance of your office.  Even if you’re not, you might still want to stay within reasonable commuting distance of the main business areas to keep your options open.

What “reasonable” means in practice depends partly on your outlook and lifestyle, partly on your transport options and partly on how often you have to go on-site.  If you’re fully or largely remote, it may be worth looking at areas with limited transport options.  This could mean that commuting is a pain but you’ll only have to do it occasionally.

If you’re fully or mostly on-site, you might want to check if there’s any flexibility for more remote work.  If the answer is no, then you still have a couple of options.

Option one is to look for another job, either internally or externally.  Option two is to look for more affordable areas within commuting distance.  Even the most desirable neighbourhoods tend to have areas that are more affordable than average.

Buy a property in need of upgrading

Looking for a property in need of upgrading is a bit like thrifting in charity shops.  There are definitely bargains to be had but you need to be alert and quick.  You also need to be realistic about your goals.  Firstly you need to be totally honest about what you can and can’t do yourself.

Secondly, you need to be clear about how long it will take you to make the necessary changes.  Necessary changes are anything you need to make the property decently habitable.  This would typically mean ensuring that it was structurally sound (wind and watertight) and had essential utilities.  You might be able to live without heating in summer but you will need it in winter.

Thirdly, you need a realistic budget for the updates.  Buying a “fixer-upper” isn’t necessarily more affordable overall than buying a home in pristine condition.  It just means that you can pay a lower upfront cost, thus making your deposit savings go further.  You can then do upgrades yourself or pay for someone else to do them out of your ongoing income.

Consider downsizing while you save

If you can “make do and mend” with a smaller property while you save then you may be able to build a deposit more quickly.  Similarly, you might want to consider moving to a more affordable location.

You would need to make sure that this move didn’t excessively increase your costs in other ways such as transport.  This is, however, often less of an issue than it used to be due to the increase in remote working.

For help and advice, please get in touch.

For investments we act as introducers only

Are You Paying Too Much For Protection?

Are You Paying Too Much For Protection?

It is very possible to be too careful.  At the same time, the cost of not being careful enough can, literally, be ruinous.  You, therefore, need to use protection mindfully.  In particular, you need to review it regularly so that your cover is always meeting your needs.  Here are some tips to help.

Medical bills can be extremely high

Even though the UK has the NHS, it can still be worth looking at medical insurance.  This may allow you to bypass NHS waiting lists.  It can also get you access to treatments that might not be available on the NHS.  Dental insurance might also be worth considering for essentially the same reasons.

If you have pets, then any medical treatment they need will need to be funded privately.  Insurance can help a lot here.  Keep in mind, however, that insurers may decline to cover pets for conditions that are known to be a common risk for their breed.

They may also decline to cover chronic medical conditions (beyond the initial treatment).  This is another good reason to make sure you either buy a pet from a reputable source or adopt one from a shelter.

Legal bills can be crippling

One of the harsh realities of life is that it is entirely possible to be blamed for something that wasn’t your fault.  An even harsher reality is that defending yourself can be very expensive.  In fact, without insurance, it can be too expensive to be practical.

That means, any time you have legal exposure, you should definitely think seriously about covering yourself with insurance.  Drivers are required to have insurance.  Cyclists and pet owners are not but could benefit greatly from it.

Homeowners should take the issue of legal exposure particularly seriously.  Quite bluntly, if you own a home you have an asset.  More specifically, you have a valuable fixed asset that can be sold to pay compensation and/or legal costs.  That can make it worthwhile for someone to pursue a case they might otherwise have ignored.

You may need multiple policies for your home

Assuming you’re a homeowner, you’ll almost certainly need at least two home-related insurance policies.  Usually, the building itself is covered separately from its contents.  Both policies may (or may not) be issued by the same company but they will be issued and treated separately.

Buildings insurance

Buildings insurance can be more complicated than you might initially think.  For example, if you live in a flat, you would need to check your liability (if any) for communal areas.  You’d then have to make sure that this was covered by your insurance.  This might involve having a standard policy extended.

One of the key points to remember about buildings insurance is that you should insure your home for what it would cost to rebuild, not what it would cost to rebuy.  This is because you already own the land.  That often accounts for a substantial portion of the purchase price.  Insuring your home for more will increase your costs without any gain.

Another point to note is that standard buildings insurance may not cover damage you caused by accident (for example when doing DIY).  You may need to extend your policy or take out separate cover

Contents insurance

When taking out contents insurance, you need to check for categories of items that are excluded or limited.  For example, an insurer may only cover a certain quantity of cash.  They may also restrict cover on items such as jewellery and electronics unless the items you own are individually registered with them.

Home-contents policies may also not automatically cover outbuildings such as garages and sheds.  Again, you may need to extend your policy if you want to have these protected.

For building, content, and pet insurance we act as introducers only

Which 2022 Decorating Trends Should You Buy Into?

Which 2022 Decorating Trends Should You Buy Into?

The start of a new year (or a new season) always sees a bunch of predictions about the trends “everybody” will be following.  It’s always best to take these predictions with a pinch of salt.  They can, however, be a useful inspiration.  With that in mind, here’s a quick guide to the main decorating trends for 2022 so you can decide which ones you might want to buy into.

Colour

Over recent years, colour has been drained out of homes.  Floors, walls and investment pieces (like upholstery) were kept in safe neutrals.  Colour was reserved for small areas such as accent walls, rugs and cushions.  This is a very safe approach and it does make for cohesion, especially in small spaces.  It can also make small spaces appear bigger.

At the same time, colour really does bring a lot of people joy.  It’s therefore hardly a surprise that it’s finally making a comeback.  In fact, it’s making its way into places it hasn’t really been used before, such as kitchens. Keep an eye out for 60’s and 70’s schemes if you like bright and bold.

The colour trend is an easy one to buy into, you can do it with just paint.  Keep in mind, however, that some surfaces are much easier to paint than others.  Walls are usually very straightforward.  Kitchen cabinets and appliances are a lot harder.  If you want to bring some colour into these areas, it might be better to invest in contact paper/peel-and-stick wallpaper.

Cottagecore

Cottagecore brings together a lot of other key trends including DIYing, upcycling, sustainability and getting back to nature.  It’s hugely popular on social media.  That’s great for inspiration.  These internet images do, however, often need to be scaled back somewhat to work in real life.

At its heart, cottagecore is essentially a celebration of the natural world and the joys of being a part of it.  You can reference that however suits your taste, your budget and your home.  One of the great benefits of the cottagecore aesthetic is that it’s pretty much made for thrifting, DIYing and upcycling.  That means there are loads of ways to buy into the trend for minimal outlay.

Sanctuary bedrooms

Last year was the year of sanctuary bathrooms.  If you haven’t yet brought that trend into your bathroom, then it’s not too late.  That trend became popular precisely because people needed a way and a place to relax, recuperate and rejuvenate.  Having spa treatments at home fulfilled all of those needs to perfection.  This encouraged people to turn their bathrooms into “home spas”.

This year, it’s the turn of the bedroom.  Obviously, bedrooms can’t become spas but they can become sanctuaries.  This is a trend that might actually help you to make some money.  The key to getting an aura of Zen-like calm is to make sure that your space is free of clutter.  If you don’t have the energy to sell it, consider registering for Gift Aid and donating it to charity.

Apart from this, as with cottagecore, you can interpret the term “sanctuary” however you want.  If whites and light woods aren’t for you, you absolutely can have colour and dark tones.  You just need to avoid strong, bold colours, particularly warm ones as these are full of energy.  They can be great in some places but not (usually) in your sleeping area.

If you are going for colour, especially darker colours, then it’s particularly important to make sure that you do have plenty of light where you need it.  Light won’t naturally bounce around dark-coloured walls the same way it does with paler ones.  You can counterbalance this by using mirrors but this can get expensive.  It can also eat up valuable vertical real estate.

If you’re updating your lighting, you might be interested to know that statement lighting is set to be a major trend in 2022.  If, however, you don’t fancy this, then you might want to consider adding colour-changing bulbs to your regular lights.  That way you can add interest whenever you fancy without any commitment.