Predictions for 2010, ALL Change on Housing Benefit and the Pre Budget Report. News from LettingFocus

‘Tis the time of year to make predictions about house prices and the like.
As I have said before there are so many different micro markets in UK property market, it is more or less impossible to make a sweeping forecast about house prices which will apply in every locality.
However, my general view is that the story of increasing population / increasing number of households combined with a lack of housing supply is more important than the opposing factors constraining growth in property prices - like unemployment, debt and lack of mortgage finance.
And because of this I expect prices to increase overall in 2010.
However, there will undoubtedly be areas of the UK where local unemployment and business failures will mean house prices will fall.

Local Housing Allowance – All Change

The Conservatives have said they will reinstate direct rent payments to landlords (where housing benefit tenants choose it) if they should become the next Government.
And now the current Government has put it under review too.
Local Housing Allowance (LHA) came in for new tenancies in April 2008 when it replaced the old housing benefit system.
With the old system where rent could be paid straight to landlords in the private sector, it now goes direct to the tenants who are then responsible for passing on the rent money to their landlord. (Only in special circumstances like where the tenant is deemed vulnerable or if the payments to the landlord are over two months behind can rent be paid direct to the landlord – but even then it can take longer than two months before LHA is paid direct by some councils.)

Big Sums of Money

Faced with a big wodge of money which they are not used to having, some tenants spend the money on other things and often fail to make their rent payments - so increasing numbers of landlords are now refusing to let to tenants who are in receipt of Housing Benefit.
According to research from the National Landlords Association (NLA) of 1,000 landlords operating 13,000 LHA tenancies, the total rent arrears bill accumulated by these landlords since LHA started is a whopping £4,400 per landlord.
It is thought there are about 675,000 LHA tenancies which means that total rent arrears across the UK could be in excess of £220 million.

Temptation

It is claimed that many tenants would prefer not to be put in the way of temptation and would rather the LHA was paid direct to the landlord.
At LettingFocus.com, we have also been critical of the way the LHA is set – as it is based on very wide Broad Market Rental Areas.
This means that in some areas the rates of LHA are too high and in other areas they are too low – with knock on impacts for tenants who don’t qualify for LHA.
My old pal, Tom Entwistle of Landlord Zone has criticized the way landlords were used as guinea pigs in the current system - which does not apply to council tenants.
Check out the Government’s consultation document for more on this….…www.dwp.gov.uk/docs/hb-consultation.pdf

Pre Budget Report

No real news here.
Stamp Duty Land Tax went back to being applied for all properties over £125K
And there is so some money to replace old inefficient boilers – but not a lot – and we don’t know if it will be available for let properties yet.

Merry Christmas to all our readers.

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LettingFocus.com is the home of landlord information.

Hello, I’m David Lawrenson.
I have been a landlord and property investor myself for over 25 years and am author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.

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Buy to Mortgage Rates Deviod of Competition as Lloyds and Nationwide Clean up says Letting Focus

Whilst a little bit of competition is slowly creeping into residential mortgage lending for owner occupation, buy to let mortgage rates and fees are still as high as ever and showing no signs of coming down.
No surprise there because buy to let mortgage lending is now dominated by Lloyds Group (now the lucky owners of the old Halifax Bank of Scotland brands) and Nationwide (via the Mortgage Works brand) and they are keeping rates high.
There is hardly any competition that they face so they can charge pretty well what they like.
It means buying property with a buy to let mortgage is still very expensive, even despite the low BOE base rate.
We are now typically seeing mortgage fees of at least 3% and a margin over base of around 4%. Maximum loan to values are 75%.
Hopefully competition will come soon, but as usual the other mainstream lenders (the likes of Woowlch and the Chelsea BS) are all too terrified to be in buy to let mortgaes just at the time when they perhaps should be lending.
But surely, they could afford to lend up to 75% loan to value without any undue risk.
The centralised lenders – the likes of Paragon - who require wholesale funds to re-lend to Joe Public are not lending new money because the market for wholesale money has died along with the credit crunch and it will be a very long time until it starts again.

HARDER TO MAKE PROPERTY DEALS STACK UP
All this is blowing away deals that were doable 3 years ago out of the water, unless you are a landlord who is really gung ho about capital growth and happy to put up with low or even negative cash flow in the interim.
Of course, if you don’t need a mortgage for cash to buy, you are sitting very pretty right now.
As Lloyds and Nationwide are heavily dominant in buy to let, they are cleaning up (and no doubt making a healthy profit too) that should easily outwieght the minimal risk they can be taking if the borrower is putting up 25% of the equity.
I would say that this could be a good time to buy Lloyds shares but after the disaster of Lloyds’ purchase of HBOS, I’m not saying you should even go there.

STRESS TEST YOUR PROPERTY INVESTMENTS
Linked to all this talk about mortgage rates, you really should occasionally stress test the financing of your buy to let portfolio – even if you only have one or two properties.
Adjust the numbers on a spreadsheet and see how your income from your properties would look if mortgage rates were to go up.
Find out at what point (what rate) you would actually be losing money on your portfolio.

LOCAL HOUSING ALLOWANCE RATES (LHA)
Following on from a recent blog post, I see in the excellent “Letting Update” journal published by The Letting Centre that a landlord in Acton is making hay having bought a property in Acton for £1.2 million and letting for £144,000 a year - all rent paid for by the LHA.
A tidy yield of 12% gross I think.
This is a good example of the daftness of the way the Rent Service sets LHA rates.
Here it is a high rate because it is worked out on the BMRA rate for the whole of Westminster, a considerably more expensive area overall than Acton.
The same thing applies in mnay areas where BMRA are too widely defined.
Well done that landlord for sniffing out a good deal but what a waste of taxpayers’ money. The people in government and in the Valuation Office and Rent Service who set this up should answer some tough questions from said taxpayers.
To find information on local housing allowance rates and areas, go to this website and follow the prompts under "Find your LHA" at https://lha-direct.voa.gov.uk/
To find great buy to let mortgages, try Mortgagesforbusiness.co.uk. Click on http://www.lettingfocusbtl.co.uk/ and quote LettingFocus for their special offer of £250 brokerage on buy to let mortgages - set up especially for us.
Click on Local Housing Allowance to read up more on how LHA works.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord experts. Read Property Articles.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - buy Property Investment Book. The new edition is for accidental and experienced landlords and is fully up to date with all the recent changes to tenancy deposit schemes, landlord registration and capital gains taxes.
I’m a property expert and property speaker - and I run the well known property blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general advice on property letting to anyone looking to buy property for themselves or to let.
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