Newsletter April 06

New stamp duty barrier broken

The average price of a detached house has passed the £250,000 barrier in half of the UK's regions, meaning buyers have to pay stamp duty at 3%, research has shown.
A detached home now costs more than the £250,000 threshold at which the 3% stamp duty rate applies in the North West, West Midlands, East of England, South East, South West and London, according to Halifax.  At the same time the average cost of any property in London is now £257,120, meaning buyers would have to pay stamp duty at the 3% rate, handing over an average of £7,714, compared with £1,535 five years ago.
Halifax said five years ago the only place where the average cost of a detached home was above £250,000 was London, but now the average detached property in the city cost more than £500,000, meaning buyers would have to pay stamp duty at 4% of the property's purchase price.
The group said there had been a three-fold increase in the amount of stamp duty the government received since 1999/2000, with the figure soaring from £1.8 billion to £5.5 billion in 2004/2005.
It said the main reason for the increase was that more and more properties were falling into the higher thresholds at which stamp duty is paid at 3% or 4% as these thresholds had not been increased for more than eight years.
During the past five years there has been a 364% rise in stamp duty revenues from properties in the 3% band and a 246% rise in money from ones in the 4% band.
It added that nearly two-thirds of the extra revenue had been raised from southern England, with London and the South East accounting for 40% of the total.  Last year the government doubled the threshold at which stamp duty kicks in from £60,000 to £120,000. People buying a property for between £120,000 and £250,000 pay stamp duty of 1% of the property's price, rising to 3% for homes worth more than £250,000 but less than £500,000, while for ones worth more than £500,000 it is charged at 4%.

REITs to be established by next year’s budget

Gordon Brown’s budget revealed more details on government plans to create real estate investment trusts (REITs) to boost housing supply and regeneration. The reform was recommended by the Barker Review and is designed encourage increased institutional and professional investment to support the growth of new housing, as well as the government's wider objectives for raising productivity.
Chancellor Gordon Brown said that the government would legislate in the 2006 Finance Bill to create the new vehicles at the start of 2007. The Royal Institution of Chartered Surveyors welcomed the news and said these investment vehicles should help the government achieve their aim of improving the efficiency of both the commercial and residential property investment markets and open them to individual investors.
"The government has listened to industry concerns regarding restrictions on gearing, effectively doubling the borrowing thresholds," said a RICS spokesperson. "Also, basing the conversion charge at 2% of total gross asset values will mean a lower tax charge than a model based upon capital gains. These welcome amendments should facilitate an easier transition to REIT status for many listed property companies." RICS believes that REITs will help facilitate the development of a high quality residential lettings market.

Pitiful increase in stamp duty threshold

Housing industry professionals were downbeat over the Chancellors ‘pitiful’ rise of £5,000 in the stamp duty threshold. RICS said it was extremely disappointed that the Chancellor had not gone further and raised the threshold to £150,000.
Peter Bolton King, chief executive at the National Association of Estate Agents said: "The £5,000 raise in the minimum stamp duty threshold is pitiful. The government argues this exempts an additional 40,000 homebuyers each year."
"However the focus should be on helping first-time buyers rather than buyers in general. Stamp duty presents the one of the largest barriers to first-time wanting to purchase property. Yet again the Chancellor has let this important group down."
"As first-time buyers often compete with Buy-to-Let landlords, there is an argument that says the Chancellor is simply creating greater competition for this type of property, making it even harder for first-time buyers to purchase a home of their own."

Good landlords have nothing to fear from HMOs 

Landlords and property managing agents letting reasonable/good quality houses in multiple occupation have nothing to fear from HMO licensing, housing minister Baroness Andrews has said.  "Landlords with HMOs that are well managed and provide decent quality accommodation should face a straightforward licensing process," she said.
Licensing is part of a nationwide drive to improve standards in private rented accommodation. Landlords with licensable properties can apply from 6 April 2006. Properties of three or more floors, with five or more tenants belonging to two or more households, by law, will require a licence from the Local Authority. Some Local Authorities may also licence smaller private rented properties or properties in areas with low housing demand or significant problems of anti-social behaviour. Baroness Andrews explained: "HMOs provide much needed affordable housing, particularly for younger people. However, tenants in larger shared properties are often vulnerable to poor housing conditions. Fewer than 5% of landlords are members of an association and increasing numbers of private individuals are operating with just one rental property."
Mandatory licensing standardises existing registration schemes across England, making the process simpler for landlords and tenants to understand.
Stringent enforcement will also make it difficult for landlords to evade licensing. Those who fail to comply before 3 July 2006 may face fines of up to £20,000, a criminal record and potentially, rent repayment orders.  Whilst legislation is unlikely to significantly raise tenants' awareness of environmental health and safety requirements, it will enforce the implementation of regulations on their behalf. To grant a licence the local authority must be satisfied that:
• The proposed licence holder, the landlord or managing agent, are 'fit and proper' people
• Properties and tenancies are managed appropriately.
• The accommodation meets all minimum standards such as sufficient number of toilets, kitchens and bathrooms for the number of residents.
• Local authorities can attach additional conditions when issuing licences The costs of licences vary and are determined by local authorities.

For more information on mandatory HMO licensing and to identify whether you have a property that needs licensing, visit www.propertylicence.gov.uk

London’s Motoring – Prime rental market returns

Probably for the first time since the Dot Com bubble burst and the shock effects of 9/11, the rental market in prime central London is starting to motor.  This has been welcomed as an expression of confidence in London's financial sector and for the positive ripple-effect it will have on the rental markets outside London.
According to the latest quarterly survey of its members published today, London's most expensive areas have seen a tenfold increase in the balance of demand. From a low point in 2002, when only 5% of ARLA agents believed there were more tenants than properties, an astonishing 48% report more tenants than properties during the first quarter of 2006. In the last six months, achievable rent levels have also risen significantly. Up to 55% of all ARLA member letting agents report rent levels are on the increase across all types of property. Flats have shown the biggest rise.  Average weekly rents in prime central London are £602 (£2,610 per month) for a house and £405 a week for a flat (£1,754 for a flat). This is a third higher than the rest of London and more than double the rest of the South East.
It falls to the South West to have the most expensive rentals outside Greater London, with average weekly rents for a house reported at £261 (£1,132 per month) and for flat at £172 per week (£743 a month). The lowest rentals are to be found in Scotland, Wales and Northern Ireland, where rent for a house averages £152 per week (£657 per month) and £127 (£552) for flats. 
Welcoming the prime central London turnaround, ARLA Chief Executive Adrian Turner, said, "Much of this London market is driven by the financial sector, so not only is this a sign of confidence in London but the ripple effect should have a major impact on rental markets away from London."
Reflecting the rental turnaround, in prime central London the average capital asset values for rental properties have fallen by 4.8%, although flats have risen in value by 1.7%. However, values for both are higher than they were in the spring of last year.
The average value of rental houses in prime central London is nearly two thirds of a million, £652,400. It is less than half that at £283,100 in the rest of the South East and just £226,400 in the rest of the UK. Flats range from £412,600 in London to an average of £152,100 away from London and the South East.
Rental returns during the first quarter of the year are reported at 4.8% for houses in prime central London and 5.1% for flats. In the South East returns are 5% and 5.4% for houses and flats respectively and a 5% return is the average for both types of property throughout the rest of the UK.
It is notable that, in London and the South East, flats appear to earn a higher gross return than houses. Said Adrian Turner, "The differences in achievable rents and asset values reported this quarter rental demonstrate precisely the balance between the two that is at the heart of an investment in residential property. This is important as, on average, more than half of the property portfolios managed by ARLA members are investment properties."
This latest survey reveals that the ARLA total of 1,700 member offices probably accounts for two thirds of all lettings through agents. Extrapolated figures show these offices currently arrange 628,700 tenancies. The quarterly survey of ARLA member letting agents is the largest of its kind in the private rented sector with over 400 respondents. The survey can be viewed in full on www.arla.co.uk