Housing Needs For The Forthcoming Year

The snap election seems to have taken many people by surprise, including, it would appear, the Prime Minister who called it. Having been deprived of her last minister for housing, Gavin Barwell, who lost his seat, she has recently appointed a replacement in the form of Alok Sharma. Given that he is the 6th housing minister to be appointed in roughly as many years (since 2010), it is an open question as to how long he will stay in post, but assuming he makes it to this time next year, what are his priorities likely to be?

Housing refurbishment

While many newspaper headlines have been devoted to the overall shortage of housing and the corresponding difficulty of “getting on the housing ladder”, the tragic events at Grenfell Tower have brutally highlighted the fact that some of the UK’s existing housing stock is in drastic need of refurbishment. What form this will take will depend on just how bad its condition is. In some cases, it may be possible simply to update and upgrade existing buildings. In other cases, the only realistic option may be to demolish the existing structure and start again.   In either case, it is very possible that the high-profile nature of the Grenfell Tower fire will mean that the refurbishment of existing properties goes to the top of the political agenda.

Home-building

The Conservative manifesto promise was to build a total of 1.5 million new homes by 2022, of which 1 million were to be delivered by 2020 (this total including houses built as a result of actions taken by the last parliament). It will be interesting to see whether or not the Conservatives will be able to make good on this pledge. The simple fact of the matter is that government support for home building is dependant upon tax revenues and the uncertainty around Brexit may make it rather difficult to forecast how many people are going to be in the UK to pay taxes, let alone how many of them will be in work and what level of tax they will pay. Added to this, there is a large question mark hanging over the availability of labour for the construction industry, which has long relied on trades people from eastern Europe, which makes it difficult to predict the cost and schedule of housing projects and that is without taking into account the fact that the weakness of Sterling may well continue for the foreseeable future and while this is good news for exporters (and inbound tourism), it is bad news for anyone who needs to import either materials or labour (or encourage labourers already in the country to stay here instead of taking their skills elsewhere). Notwithstanding all this, it is to be hoped that the government will do all it can to support home building as the UK has long suffered from a shortage of housing stock.

Improving the situation for renters

Previous housing minister Gavin Barwell pledged to ban lettings agencies charging fees to tenants. This change has yet to be implemented, although given the amount of press coverage it received, it would probably be politically-challenging for the Conservatives to reverse the decision. While this pledge was welcomed by tenants, landlords and lettings agencies commented that any fees charged to landlords would have to be passed on to tenants. Those in favour of the change, countered that this does not appear to have been the case in Scotland. This, however, is a bit of an open question. Rents have risen in Scotland since the ban on letting agent fees (to tenants) was introduced in 2012 and although a 2013 study found that only 2% of landlords raised rents specifically because of this, it is still entirely possible that the change factored into the calculations of the other 98%. Ultimately the issues in the rental market reflect overall lack of supply and the only meaningful way to address this is to improve the supply, for example by encouraging build-to-rent schemes.

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It’s Not Grim Up North

Data from peer-to-peer lender Kuflink shows that rental yields in the North of England and Scotland have been comfortably beating rental yields in London at 4.3% and 3.2% respectively. While this is, of course, interesting news for (potential) buy-to-let investors, it’s still useful market intelligence for those who prefer to avoid the politics of buy-to-let and invest in the property market through other channels, for example property development.

Takeaway point 1 – There’s a difference between price and value

London and the South East is an expensive place and hence landlords are likely to be able to charge higher rents than they would for equivalent properties in other parts of the country. The flip side of this, however, is that buying the rental property is likely to have cost them more than an equivalent property in another part of the country. There are still plenty of reasons why the Thames Valley area could be a good place to invest in property in some way, but it’s worth remembering that there is strong demand for property in other parts of the UK as well and hence opportunities for investors.

Takeaway point 2 – It’s always worth looking out for up-and-coming areas

According to Kuflink, Manchester and Salford provided rental yields of 6.7% and 6.6% respectively whereas Cambridge was a mere 2.7%. The data did not analyse why this was so, but one very feasible explanation is that Manchester and its neighbour Salford have both been in a process of regeneration over recent years, with the BBC making news itself by moving some of its production to Salford back in 2012. The availability of work attracts people to an area, particularly young adults, for whom renting is likely to be the most appropriate option, even if they have the funds to buy. The combination of relatively low house prices (compared to London) and increased demand for rental properties makes for good rental yield. It also offers good opportunities for other forms of property investment since many of the people who arrive as renters will ultimately settle down and buy property in the area. Cambridge, by contrast, is a mature market. As a University town, it has a pretty much guaranteed market for rental properties and as a research centre it also has a demand for property to buy, but there is nothing new about any of this and so the opportunity to invest at the start of an upward trend is really long gone. The North of England and Scotland have both been benefitting from improved infrastructure (particularly transport links and broadband internet) and as they are outside the “city” zone, they have less reason to be concerned about the prospect of some financial service roles being moved out of the UK due to Brexit.

Takeaway point 3 – Quality matters

The fact that in the UK there is always a strong demand for housing is hardly a secret and a quick scan of a newspaper website will probably reveal plenty of articles about landlords and home builders taking advantage of desperate renters or buyers. While there is certainly an element of truth in this, the simple fact is that the fundamentals of business also apply to the property market, even though it generally moves at a slower pace. Companies (or individuals) who supply shoddy goods and/or poor customer service may make a quick short-term profit, but over the long term they tend to get found out and weeded out. Because of this, anyone looking to make meaningful, long-term returns from property, whether that’s as a landlord or as an investor in property development, is well advised to be very selective about their purchases and only put money into high-quality builds.

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How Will Stamp Duty Affect Buy To Let?

April 2016 saw the introduction of a 3% stamp duty levy charged on purchases where the purchaser already owned a property. There were a few exceptions to this and certain circumstances in which the levy could be refunded (e.g. if people were moving from one property to another and only had two properties temporarily). Buy-to-let landlords, however, essentially pay 3% more for a property than a first-time buyer would.

The Theory

Home buyers and buy-to-let landlords are in direct competition for properties. Competition increases prices and higher-priced houses require larger mortgages and hence higher incomes and bigger deposits. If higher house prices mean that people are unable to afford to buy, then these people are, effectively, forced to rent and as renters they have to pay their landlord while saving for a deposit. This puts them at a disadvantage in the property market. The 3% surcharge is, therefore, intended to level the playing field.

The Reality

Given that the 3% surcharge was introduced just a few months before the Brexit vote, with all the turbulence that has caused, it is difficult to impossible to determine what specific impact the surcharge has had by itself. What is, however, possible, is to look at recent history and see what indicators it may give for the future. Home ownership has long been a central plank of government strategy (at least since the days of Margaret Thatcher). Over recent years, various governments have introduced a range of schemes to make it easier for first-time buyers to get on the housing ladder. These have included: shared ownership, equity loan, mortgage guarantee and the help-to-buy ISA. For want of a better term, these schemes can be seen as carrots to help home buyers. The government’s new stamp duty surcharge, therefore, can be seen as a stick with which to beat BTL landlords. The fact that the government is now using sticks as well as carrots raises the question of what other action might be taken to make life more difficult for BTL investors if the current measures fail to have the desired effect.

Moving Forward

The BTL market, for the moment, still seems very much alive and well and there has already been extensive discussion about the action(s) landlords could take to minimise (or eliminate) the effect of these charges. Suggestions have varied from passing the costs on to tenants to moving properties into a limited company, whereupon different tax rules apply. The challenge facing BTL investors is that if they find themselves locked into a battle with government policy any move they make, even if it is legal at the time, can be rendered ineffective at a later point through a change in the law or the tax system. On the one hand, there are many reasons why the BTL market could and should offer attractive returns in a country like the UK, on the other hand some investors may be feeling uncomfortable about the prospect of being in the government spotlight and may be looking for alternative ways to profit from the UK’s thriving property market.

Is property development the new BTL?

One point on which there is broad consensus is that building new homes is crucial to the UK’s future, partly because the population is increasing and partly because existing, lower-grade housing stock needs to be replaced. Because of this, high-quality property development is actively encouraged, for example, the 2016 autumn statement included a specific commitment to building new homes. Hence investors who want to enjoy the returns from property without the risk (and effort) involved in buy-to-let, might find investing in property development is the perfect solution.

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New Build Concerns

Cowboy builders have long been fodder for the press (as well as various industry bodies and occasionally the police), but a quick look at press headlines about new build properties (and by extension, the companies which build them), could leave some home buyers with serious concerns about buying one.

What the headlines say

Some headlines point to developments which do have serious flaws in workmanship ranging from structural issues to problems with facilities such as heating or windows to more significant cosmetic flaws such as badly applied plaster. In many cases, however, the issues with new builds ultimately boil down to a mismatch between the buyer’s expectations and the reality of what they have been sold, which may have been brought about by some degree of misrepresentation. For example, a purchase contract may specify the exact dimensions of a room, but if the buyer takes a trip around a show home to help them to translate these figures into practical terms, the unwary may well find themselves caught out by the use of cut-down versions of standard household furniture, which gives the impression that the rooms are more spacious than the actually are. In fact space and the way it is used is a key issue with many new build homes.

The reality

The UK needs more new build homes. In addition to a growing population, existing low-grade housing needs to be removed and updated to meet modern requirements. This means that home builders know that there is generally an eager market waiting for any new development and, once that is sold, plenty more home buyers desperate for them to complete their next project. It’s therefore an unfortunate fact of life that some builders will look to maximise their profits by completing developments as quickly as possible and to the minimum acceptable standard. They may further resort to “tricks of the trade” to mislead buyers into thinking they are getting a higher-quality property than is actually the case.

Making a successful new build purchase

 

Understand the law

At present time, property is excluded from the Sale of Goods Act. Instead, there is an industry watchdog called the National House Building Council (NHBC). If the home owner identifies a defect within the first two years after purchase, the builder will be obliged to rectify it. After this period, structural issues will be covered for a further 8 years (making 10 years in total).

Check the credentials of your developer

In addition to speaking to the developers themselves, see what other people are saying about them. Go on to relevant internet forums and see where their name has come up in threads and what has been said about them. Be aware that even the best developers can trigger some complaints, but overall the comments should be far more positive than negative. Ask around the neighbourhood to see if you can find anyone who has already bought a property in the development which interests you. See what they have to say about their experience. If you can’t find anyone in person, try heading back online and seeing what you can learn there. Look up previous developments by that developer and either visit them in person or head back to the net to see what kind of reputation they have and how people feel about living in them now. Remember to be clear about the difference between issues which may have been caused by the developer (e.g. misrepresenting the amount of available space) and issues outside of their control (such as general changes in the local area). Check the developer’s promotional material against outside sources. For example, you could use a design tool such as SketchUp to see whether standard-size furniture will fit in a room in the same way as you saw in the show home. In other words, do thorough research on your developer before you commit to a purchase so that you can be confident that you are buying into the best that new build homes have to offer.

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5 Ways to Invest £50,000

It’s been a long time since savings offered any sort of meaningful return, which means that those who wish to grow their cash need to look at alternatives. With that in mind, here’s a look at where you could put a £50K investment.

The Stock Market

The stock market is a big place and the companies in it perform very differently, which is understandable given that the term “the stock market” includes everything from high-tech start ups to established blue-chip companies with little in the way of growth in their share prices but great dividends. This is why there is generally at least one stock-market investment to suit anyone of any age, appetite for risk or preference for capital growth versus income yield. The stock market can provide good returns, investors just have to place their money with care and accept the fact that both individual companies and the market in general can go down as well as up.

The Property Market

The property market has long been popular with investors seeking good returns on their money with minimal risk. There are some places where £50K could buy you a feasible buy-to-let property although you might need to budget a little extra on top for sales costs, e.g. surveys, but realistically in most parts of the country and for most properties, £50K is a deposit, albeit a very substantial one in some locations. On the other hand, buy to let has become something of a contentious topic over recent years and landlords have become an easy target for government revenue collecting, with changes to stamp duty and mortgage tax relief both benefiting the exchequer at the expense of landlords. Little wonder, then, that even though BTL remains popular, some investors are looking at alternative options.

For example that same £50K could be invested in a property development thereby benefiting from property without the hassle of managing tenants and properties within the law. Obviously this is an area in which we may seem to be biased but the ROI specks for itself and with a UK investment you can literally see your investment developing..

Invest in Companies Which Qualify for Business Property Relief

This is an option which may have particular appeal to older investors, since these investments are excluded from inheritance tax calculations after two years of ownership, whereas gifts need to be given at least 7 years prior to the individual’s death to qualify for full IHT exemption. In addition to this, the holder can continue to benefit from their interest in the company up to the point of their death, whereas they must give up any and all beneficial interest in any gift they give for it to be exempt from IHT. At the same time, however, it is usually best if the investment in question actually makes sense as an investment rather than simply, or even, primarily being a means to reduce IHT liability.

Given that companies which qualify for BPR are, by definition, small and are particularly likely to be family-run firms or start-ups, finding the right vehicle for your money can be complex. You also have to remember that as firms grow, they can stop qualifying for BPR although in this case, you may seal in a profit by selling your investment (or indeed choose to hold on to it anyway).

The State Pension Top Up Scheme

If you have already reached state pension age, you have until 5th April 2017 to make a lump-sum contribution to get as much state pension as you possibly can for the rest of your life. How much this will costs depends on various factors, particularly your age and the amount of extra pension you want to receive. The clock is now ticking on this one, so you’ll need to make a quick decision as to whether this option is for you.

As with all investments it’s best to seek financial advice and always bear in mind the caveat that investments can go down as well as up!

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What is Sustainable Housing?

Sustainability has become a huge topic over recent years and has started to impact many areas of our lives, from the food we eat to the transport we use and the homes in which we live. While the word “sustainability” may have passed into common usage, it’s worth taking a little time out to try to grasp what it means with regards to property in general and housing in particular. In general terms, the concept of sustainability refers to housing which is in harmony with its environment and ideally should have either zero environmental impact or, if at all possible, a beneficial environmental impact.

Sustainability starts with construction

One of the reasons why it’s important to replace existing “low grade” housing with a modern equivalent is that the concept of sustainability starts with the construction of the house. As time has gone by, not only have home builders gained a better idea of how to build in a sustainable manner, but they have also started to integrate more sustainable features into the fabric of the house, for example, in the UK’s climate, buildings which are created with insulating qualities are inherently more sustainable than those without.

Sustainability is closely linked to suitability for the local environment

While the basic concept of sustainability is universal and many of its general principles (such as minimising carbon emissions) also hold throughout the world, translating these principles into practice means taking into account the practical realities of any given local environment. For example, cities with high population densities, such as London and New York have been experimenting with enhancing sustainability through the use of higher-density housing, which is often closely linked with developments in technology. In simple terms, reducing the amount of housing space per head reduces the amount of materials and labour required to create it and therefore the environmental impact of its construction, plus it effectively makes for a more efficient use of resources. For example it takes the same amount of energy to heat an entire building regardless of whether it is used by 1 person, 10 people or 100 people. This approach has been yielding very positive results in the cities where it has been tried but is clearly useless in a rural environment, where dwellings can be literally miles apart from each other. In these cases, sustainability may relate more to making such dwellings “passive” in the sense that any resources they use either come from renewable sources (such as solar panels) or are replaced in some way, such as by planting trees for those cut down for wood.

Sustainable housing is dependent on sustainable infrastructure

Housing is, of course, a place for people to live and these days it’s also increasingly used as a place to work as well. Humans do not, however, spend all their lives in their homes. They need to go out to grow food or buy it, meet people, go to work, use services and do all kinds of other things. This means that developing sustainable housing needs the support of sustainable infrastructure. Again, what this means in practice depends on the local environment. In the city, where distances are relatively short, it may mean encouraging “zero-carbon” modes of transport such as cycling, by making them safe in every sense of the phrase and also providing effective public-transport for those for whom activities such as cycling are impractical (e.g. those with disabilities). In the countryside, however, the population spread can make it extremely challenging to develop a meaningful public transport network, so again sustainability returns to the concept of using renewable resources and/or replacing any resources used. In terms of transport this could mean making the switch to electric cars powered by solar energy as opposed to petrol ones.

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Saxley Court, Horley update – February 16

The team are now pleased to confirm we have the necessary Party Wall Licences and Access agreements to allow us to demolish part of the existing structure and commence the development at Saxley Court. We have also secured sales for 31 apartments and the legal exchanges will be sealed over the next couple of weeks.

It has been necessary to have lead in period for this project. In the past Bastien Jack developments have been smaller and work has started on site as soon we have legally completed. Saxley Court is a lot larger and more complex meaning we couldn’t have started this site as soon as we purchased it. We have tenants in five existing and trading retail units which we need to accommodate throughout the project.

The design also fills the whole site, therefore building up the to the curtilage requires license awards form our neighbours both freehold and leasehold before we can begin. After we bought the site last year, we embarked on the process of obtaining the necessary licenses/agreements. Unfortunately, there is no time limit for a neighbour to agree or disagree to the licenses, it’s down to the appointed surveyors to carefully negotiate and agree consideration payments. It is therefore difficult to account for a timeframe and include this into a lead in programme. For simple non contentious requests it takes three months to agree an award from the point of issuing the request, however Saxley Court was not a straightforward application.

As well as the Party Wall Awards, the project was further complicated by initial requests to develop in two phases. This created more planning considerations and practical methodology to ensure the build was achievable. We are now able to consider the conversion of the existing building and new build section in one phase, which will assist us in practical construction and successfully accommodate the existing retail units.

Bastien Jack has the experience to alter its entity, we have split up the development into separate Sub Contractor packages where Bastien Jack takes the role of Main Contractor and we’ll drive the project with a full time Site Manager and site staff, overseen and supported by our Project Manager. Firm labour and material prices for the defined sub-contractor works are being gained, we’ll award accordingly and commence on site with the knowledge the project will deliver all the objectives previously communicated.

With the benefit of this knowledge, we projected to commence on site in January 2016, we will now look to commence as soon as Sub Contractors have been appointed and conclude by September 2017.

Regards

Rick.

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Saxley Court, Horley update – Nov 15

 

The Design Team Meetings are now over, we have been able to solve many issues to reduce overall risk and prepare the project for a great start.  We are out to tender and have been able to provide our contractors with robust and comprehensive design drawings and specification to assist in an accurate price and programme.

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Our surveyors are in their final stages of negotiating Party Wall Agreements with our neighbours which will allow us to commence with the construction phase once a suitable Main Contractor has been selected.

Regards

Rick

 

 

 

 

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Phoenix House Phase 2 update – November 15

We are in the final stages of Phase 2 Phoenix House and delighted to confirm we are on programme despite some awful unseasonal weather for the South East.  The Townhouses have 1st fix electrics completed while plumbing is nearing the end of its 2nd fix.  Externally we are well on with the external finishes and will be aided further when the scaffold is removed.

The penthouses are also well on with the separating wall and internal partitions in place.  1st fix electrics are also complete and plumbing as the townhouses nearing 2nd fix completion.  We are ready to commence skimming and plastering!

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The site has evolved significantly as we fully engage with new build and conversion around already completed and occupied Phase 1.  Careful consideration has been given to our new occupiers as we co habit the site, daily briefings are  provided via notices in the lobby and daily due diligence and Health & Safety risk analysis is conducted by our Site Manager.

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Regards

Rick Nicholls

Operations Manager

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