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ARLA Property reveals its wish list for landlords and tenants

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The housing market has been on a rollercoaster in the pandemic this year, even briefly closing amid the first lockdown.

It has been particularly tough on landlords and tenants, who were already facing increasing amounts of pressure due to tighter regulation and costs.

The Government stepped in during March with a ban on tenant evictions to help protect tenants and mortgage payment holiday for landlords. But the sector still remains in a fragile position as the end of the year draws to a close.

We spoke to the chief policy adviser at the lettings industry body ARLA Propertymark, Mark Hayward, about what he would like to see introduced next year to help improve the situation for both landlords and tenants.

Buy-to-let wish lish: ARLA Propertymark is calling for some changes to the rental sector

Buy-to-let wish lish: ARLA Propertymark is calling for some changes to the rental sector

Mr Hayward said: ‘It’s been an unprecedented year for not just the buy-to-let sector, but the housing sector as a whole and we’re now sat in a very different place to this time last year.

‘The Government has acknowledged the important role the buy-to-let sector plays in driving forward the economy, so we’re hopeful that our wish list for the sector will come to fruition.’

The wish list includes calls for the Government to pay the rent of tenants affected by coronavirus direct to landlords and a request for no more tax increases.

Mr Hayward added: ‘It is vital the negative impacts of further taxes on an already penalised sector are considered and the Government must introduce initiatives to help tenants keep the rent flowing and the courts handle eviction cases.

‘Additionally, new buy-to-let landlords should be encouraged through build-to-rent schemes. All of this will help boost the sector, encourage new landlords and help the private rented sector thrive in 2021.’

Keep rents flowing

Unemployment has hit some tenants amid the pandemic, restricting their ability to pay their rent.

It has left some of their landlords facing rental arrears and an inability to make their mortgage payments.

Both parties have been encouraged to communicate a smooth path through these challenging times, and the Government has assisted with a ban on evictions and mortgage payment holidays.

However, tenants must still eventually cover the rental payments that have accrued in the same way that landlords must still repay their mortgage at the end of the loan term, even if they take a payment holiday.

ARLA Propertymark is calling on the Government to pay a tenant’s rent in full if they have lost their income due to coronavirus – either through falling ill or being made redundant.

It would require tenants to send evidence that they had been affected to the Department of Work and Pensions, with their rent being paid directly to landlords.

ARLA Propertymark suggests that the evidence could include a sick note issued by calling 111, a P45, or confirmation from their former employer that they had been laid off.

Support the courts on the evictions backlog

The ban on tenant evictions was introduced to protect tenants during the coronavirus.

It meant that while a landlord could still serve a Section 21 notice, they could not begin court proceedings to physically remove a tenant from a property.

The moratorium on evictions which was introduced early in 2020 due to the financial implications of the Covid-19 pandemic has meant that courts are facing a huge backlog of cases.

With few evictions able to take place until late January next year, ARLA Propertymark is calling for further support to be given to the courts so that the courts can cope with the number of cases.

Don’t stage a tax raid on landlords

There is speculation that landlords could be hit by another massive tax raid next year, amid recommendations for an overhaul of capital gains tax.

Capital gains tax is levied on the profit when an asset is sold. It is the gain that is taxed rather than the total sum received.

The tax is levied on gains made from the sale of second homes and buy-to-let properties – but not main residences, which are exempt.

It affects profits above the annual capital gains tax allowance of £12,300. Crucially, capital gains are added to an individual’s income to decide the rate they pay. 

This means those with income from employment, or elsewhere, who make a profit of tens of thousands of pounds on a property are likely to be pushed above the £50,000 higher rate tax threshold and pay capital gains tax at the top 28 per cent rate. 

The proposals to align it with income tax would push up the rate further. They could see the tax rate on capital gains made on buy-to-let properties rise from the current 18 per cent to 20 per cent for basic rate taxpayers.

For higher rate taxpayers, it would see the rate on residential property that is not their main home rise from the current 28 per cent to 40 per cent.

ARLA Propertymark says that any changes to increase capital gains tax will have a ‘considerable negative impact’ on existing and prospective landlords.

It suggested that it would also contribute to a dwindling supply of rental properties if people won’t go into buy-to-let due to the tax hit.

It called on the Government to avoid introducing any further penalties next year to ‘an already heavily penalised sector’.

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Could equity release be used to help more younger homebuyers?

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Younger first-time buyers could be given more financial help from the Bank of Grandma and Grandad, through the use of improved equity release products, a new report suggests.

The document written by Tom McPhail, of consultancy The Lang Cat, claimed that younger buyers are missing out because older members of their family are unable to satisfactorily tap into their property wealth.

Mr McPhail said: ‘Releasing some of the equity in a property means older homeowners can choose when and how they share their wealth with younger generations.

‘An equity release by grandparents of say £20,000 now, could be transformational for a 20 something struggling to raise a deposit and get on the housing ladder but would make only a very modest dent to the value of the grandparent’s house.’

Releasing some of the equity in a property means older homeowners can choose when and how they share their wealth with younger generations, says new report

Releasing some of the equity in a property means older homeowners can choose when and how they share their wealth with younger generations, says new report

The report acknowledged that equity release has endured a poor reputation in the past after customers suffered ‘severe’ financial knocks.

The sector has been criticised for encouraging people to take on debt, particularly later on in life.

There has also been other concerns about equity release, such as customers falling into negative equity where the value of a property is less than the loan taken out against it when house prices fall.

The report suggested that while the equity release sector has since begun to put ‘its house in order’, it is ‘still not perfect’ and some regulatory safeguards need to be strengthened.

It called for several issues to be looked at, including early redemption charges on equity release products.

It said that most providers apply a simple sliding scale of charges, for example 10 per cent in year on to 1 per cent in year 10.

However, it claimed that some providers apply an early redemption charge based on prevailing gilt rates at that time, putting customers at an ‘unfair disadvantage’.

This is because the fees are not transparent as there is no way a customer can know in advance whether they’d be liable for a charge and if so, how much. 

In the past, customers have also fallen foul of the small print on their equity release loans when it comes to early-redemption penalties – such as couples who must pay an exit fee unless both of them need to go into care.

The report also raised questions about interest rates on equity release products. It said providers should be consistent with their lending criteria and not move the goalposts after customers have taken out a loan, as this can make it harder for them to access a top-up loan in the future, potentially forcing them to remortgage. 

Equity release products could help people access their property wealth to help younger members of their family onto the property ladder

Equity release products could help people access their property wealth to help younger members of their family onto the property ladder

The report argued that equity release products could help people access their property wealth to help younger members of their family onto the property ladder.

Mr McPhail added: ‘Raising a deposit has become an increasingly significant barrier to getting on the housing ladder, with increasing numbers of first-time buyers having to rely on financial help from older generations.

‘Releasing some of the equity in a property allows older homeowners to choose when and how they share their wealth with the younger generation.

‘This more targeted approach gives them greater control to use their assets to the maximum benefit at the point of need.’

Raising a deposit is a barrier to getting on the housing ladder, with increasing numbers of first-time buyers having to rely on financial help from older generations, says the report's author Tom McPhail

Raising a deposit is a barrier to getting on the housing ladder, with increasing numbers of first-time buyers having to rely on financial help from older generations, says the report’s author Tom McPhail

Equity release: How it works and advice

To help readers considering equity release, This is Money has partnered with Age Partnership+, independent advisers who specialise in retirement mortgages and equity release. 

Age Partnership+ compares deals across the whole of the market and their advisers can help you work out whether equity release is right for you – or whether there are better options, such as downsizing. 

Age Partnership+ advisers can also see if those with existing equity release deals can save money by switching. 

You can compare equity release rates and work out how much you could potentially borrow with This is Money’s new calculator powered by broker Age Partnership+.* 

 * Partner link

Jonathan Harris, of mortgage broker Forensic Property Finance, said: ‘Equity release has historically been viewed as a ‘murky’, high-risk sector, fuelled by minimal regulation, poorly-qualified advisers, only a handful of lenders and extortionately high interest rates.

‘Fast forward to today and we see a dramatically transformed sector, benefiting from strict regulation, highly-qualified advisers, multiple lenders and access to very competitive interest rates. 

‘Not surprisingly, equity release is now a viable and growing market for older borrowers looking to utilise the gains seen on property prices to bolster lifestyles, as well as pass on wealth to children when they need it.

‘Those considering equity release should make sure they understand the implications and involve family in any decision-making. It is always important to seek advice from suitably-qualified advisers.’

It comes as a separate report by Legal & General suggested that one in every £90 spent by retired Britons is funded by equity release.

It said that equity release funded an estimated £3billion in retirement spending last year, although it didn’t mentioned the money going to younger generations towards buying a property.

Instead, the report’s survey of 2,000 homeowners found that those with equity release have most frequently used the product to finance home improvements, at 26 per cent.

It said equity release is also being used to support costs such as medical expenses at 17 per cent, maintaining living standards in retirement at 16 per cent, and paying off personal debt at 16 per cent, for example paying off interest-only mortgages. 

It suggested that equity release is likely to play an increasingly important role in financing care-related expenses, with 19 per cent of prospective homeowners citing it as a consideration.

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Allianz Real Estate buys prime office building in Rome (IT)

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Allianz Real Estate, advised by Dils, has acquired an office property in the centre of Rome. The transaction, worth circa €175m, is one of the most important to have been carried out on the real estate market in Rome in recent years.

 

The building, consisting of eleven storeys, comprising nine above-ground and two underground, has a gross lettable area of circa 22,000m² and has undergone a major refurbishment, offering the highest environmental sustainability and energy efficiency standards (LEED Gold Certification). The strategic location, between the CBD and Termini Station, is enjoying great success, especially among corporate occupiers. 

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NCC sells Valby office scheme (DK)

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NCC is selling Kontorværket 1 office project in Valby, Copenhagen to Industriens Pension. The building will become biotech company Genmab’s new headquarters and will meet high environmental standards for both the building and the area. The transaction will be conducted as a company divestment, based on an underlying property value of approximately €81.9m (SEK875m). Transfer of the project and payment of the purchase consideration is expected to result in a positive earnings effect in the NCC Property Development business area in the first quarter of 2023.

 

“We are now selling Kontorværket 1, the first phase of our development project in Valby in the central parts of Copenhagen. Here we have developed property with an optimal infrastructure and appealing architecture, and I am pleased that Industriens Pension is now taking over,” said Joachim Holmberg, Business Area Manager, NCC Property Development.

 

Kontorværket 1 encompasses 16,000m² of lettable area and also includes a basement featuring a parking garage next to the building, with space for 280 vehicles and facilities for parking bicycles.

 

“This is an attractive and future-proof office property, located in an area with very good infrastructure, a motorway, a nearby metro and S-train station. The 15-year lease with Genmab fits well with our strategy as a long-term owner, and we expect the property to contribute a stable return for our members for many years to come. We look forward to welcoming Genmab’s experts in biotechnology,” said Soren Tang Kristensen, Head of Real Estate Investments, Industriens Pension.

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