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249 Crediton Homeowners to be ‘Unchained’ from Toxic Leasehold Agreements in Biggest Shake-up of Property Law in Decades

When William the Conqueror invaded our fair shores in 1066, like all good kings, he needed to buy loyalty and raise cash to build his castles and armies. He did this by feudal law system and granted all the faithful nobles and aristocrats with land. In return, the nobles and aristocrats would give the King money and the promise of men for his army (this payment of money and men was called a ‘Fief’ in Latin, which when translated into English it becomes the word ‘Fee’… as in ‘to pay’).

These nobles and aristocrats would then rent the land to peasants in return for more money (making sure they made a profit of course) and the promise to enlist themselves and their peasants into the Kings Army (when requested during times of war). The more entrepreneurial peasants would then ‘sublet’ some of their land to poorer peasants to farm and so on and so forth.

The nobles and aristocrats owned the land, which could be passed on to their family (free from a fee i.e. freehold), while the peasants had the leasehold because, whilst they paid to use the land (i.e. they ‘leased it’ which is French for ‘paid for it’) they could never own it. Thus, Freehold and Leasehold were born (you will be pleased to know that in 1660 the Tenures Abolition Act removed the need of freeholders to provide Armies for the Crown!).

4.3 million properties in the UK are leasehold…

and 249 properties in Crediton are leasehold. By definition, even when you have the leasehold, you don’t own the property (the freeholder does). Leasehold simply grants the leaseholder the right to live in a property for 99 to 999 years. Apart from a handful of properties in the USA and Australia, England and Wales are the only countries of the world adhering to this feudal system style tenure. In Europe you own your apartment/flat by using a different type of tenure called Commonhold.

The average price paid for leasehold properties in Crediton is

over the last year £139,654.

The two biggest issues with leasehold are firstly, as each year goes by and the length of lease dwindles, so does the value of the property (particularly when it gets below 80 years). The second is the payment of ‘ground rent’ – an annual payment to the freeholder.

Looking at the first point of the length of lease, the Government brought in the Leasehold Reform Act 1967, which allowed tenants of such leasehold property to extend their lease by upwards of 50 years. However, this was very expensive and as such only kicked the can down the road for half a century (when the owner would have to negotiate again to extend another 50 years – costing them more money, time and effort).

Ground rents on most older apartments are quite minimal and unobtrusive. The reason it has become an issue recently was the fact some (not all) new homes builders in the last decade started selling houses as leasehold with ground rents. The issue wasn’t the fact the property was sold as leasehold nor that it had a ground rent, it was that the ground rent increased at astronomical rates.

Many Crediton homeowners of leasehold houses are presently subject to ground rents that double every 10 years.

That’s okay if the ground rent is £200 a year today, yet by 2121, that would be £204,800 a year in ground rent, meaning the value of their property would almost be worthless in 100 years’ time. One might say it allows for inflation, yet to give you an example to compare this against, if a Crediton leasehold property in 1921 had a ground rent of £200 per annum, and it increased in line with inflation over the last 100 years, today that ground rent would be£9,864 a year.

This is important because the majority of leasehold properties sold in Crediton during the last 12 months were apartments, selling for an average price of £144,135.

So, without reforms, the value of these Crediton homes will slowly dwindle over the coming decades. That is why the Government reforms announced recently will tackle the problem in two parts.

Firstly, ground rents for new property will be effectively stopped under new plans to overhaul British Property Law. Under the new regulations, it will be made easier (and cheaper) for leaseholders to buy the freehold of their property and take control by allowing them the right to extend the lease of their property to a maximum term of 990 years with no ground rent.

Secondly, in the summer the Government will create a working group to prepare the property market for the transition to a different type of tenure. Last summer the Law Commission urged Westminster to adopt and adapt a better system of leasehold ownership – Commonhold. Commonhold rules allow residents in a block of apartments to own their apartment, whilst jointly owning the land the block is sitting on plus the communal areas with other apartment owners.

These potential leasehold rule changes will make no difference to those buying and selling second-hand Crediton leasehold property.

Yet, if you are buying a brand-new leasehold property, most builders are not selling them with ground rent (although do check with your solicitor). The only people that need to take any action on this now are people who are extending their lease. If you are thinking of extending the lease of your Crediton property before you sell to protect its value, your purchaser may prefer to buy on the existing terms and extend under the new (and better) ones later (meaning you lose out).

Like all things – it’s all about talking to your agent and negotiating the best deal for all parties. Should you have any questions or concerns, feel free to pick up the phone, message me or email me and let’s chat things through.

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How Will the Brexit Deal Affect Crediton House Prices and Your Mortgage Payments?

Christmas Eve brought the news that Boris Johnson had conclusively agreed on a Brexit deal for the UK with the European Union. This gave optimism that the economic turmoil of leaving the EU would be radically reduced, yet what will this ‘trade deal’ do to the value of your Crediton home and the mortgage payments you will have to make?

Since the summer, the Crediton property market has been booming, yet many commentators have cautioned that the momentum cannot last. With unemployment and the end of the Stamp Duty Holiday on 31st March, the Halifax reported last week that they believed UK house prices would drop by at least 2% (and in some areas 5%) in 2021.

I find it fascinating the Crediton property market has defied the doom and gloom swamping the wider British economy in the last seven months. The property market has profited from the large swell in demand from better-off existing Crediton households trying to buy larger houses (as they are required to work from home) together with the added benefit of saving money from the Stamp Duty Holiday.

Crediton house prices are 1.6% higher than a year ago, making our local authority area the 328th best performing (of the 396 local authorities) in the UK.

With the Brexit deal being voted through in the Commons on the 30th December, many say this will boost the property market just as the Government-backed measures supporting the property market come to an end. Yet, in the face of rising unemployment due to the pandemic, the Brexit deal may do little more than avoid uncertainty for the Crediton housing market.

What will happen to Crediton house prices?

The property market in 2019 was held back because of the uncertainty of the Brexit deal. In January 2020, we saw the demand released in the fabled ‘Boris Bounce’, only for buyer and seller activity to fall off a cliff in March during the first lockdown. It then took off like a rocket once lockdown was lifted. UK house prices are 4.19% higher today, year on year (although some areas are breaking the mould, like Aberdeen whose house prices have dropped by 5.1% and at the other end of the scale, Worcester’s house prices have increased by 11.9% year on year). A lot of that growth in UK property prices has been fuelled by buyers spending their stamp duty savings on the purchase price of their new home. Yet, it cannot be ignored.

Of the 36,300 workers in Mid Devon, 1,900 are still on furlough (although roughly 40% of those people are still only on part-time furlough).

When the furlough scheme ends in April 2021, unemployment is likely to rise to in excess of 11%, whilst the protection for the homeowners utilising mortgage holidays will finish. 

Piloting the rocky shoreline of the recession is more important than any Brexit deal for Crediton homeowners, buy-to-let landlords, buyers and sellers.

In April, the market will also be dealing with the end of the Stamp Duty Holiday, which is due to come to an abrupt halt on the 1st April 2021. Consequently, we will continue to see the house price index’s show growth in the first half of 2021. They will then recede as the prices of Crediton homes purchased after the 1st April 2021 reflect the lower price paid (because buyers would have had to pay for their stamp duty again). Therefore, probably by the end of 2021, the Halifax may be correct, and Crediton house prices will be 2% to 5% lower than they are today, simply because of the stamp duty.

What will happen to mortgage rates?

The real benefit from the Brexit deal is that there will be no tariffs on most goods coming into the UK. 52% of all goods imported into the UK are from the EU (totalling £374bn per annum). The UK Government were planning to add between 2% and 10% tariffs under World Trade Organisation rules on the vast majority of those goods. Price increases because of those tariffs would have fuelled inflation, meaning the Bank of England would have to increase interest rates. Although 77.2% of British mortgages are on fixed rates (paying an average of 2.16%), eventually those increased Bank of England rates would have fed through into higher mortgage payments. To show you how vital low interest rates are …

The average Crediton homeowners’ mortgage is £469.34 pm,

owing an average of £191,350.

Yet if interest rates rose only 1.5%, Crediton homeowners’ monthly mortgage payments would rise to £708.53 pm, and if interest rates were at their 50-year average, then the mortgages payments would be an eye-watering £1,379.85 pm (note all mortgage payment figures mentioned above are only for the interest element of the mortgage- the capital repayment element would be additional and variable depending on the length of mortgage).

As I have mentioned many times in the articles I have written about the Crediton property market, low interest rates are vital to ensure we don’t have a property market crash. That’s not to say just because they are at an all-time low of 0.1% to aid the economy that there won’t be some form of realignment of property prices later in the year (as mentioned above). Yet low interest rates mean people can still pay their mortgages, so there won’t be panic selling. That would mean there won’t be a flood of property come to the market (like there was in the 1988 and 2008 property crashes when interest rates were much higher), suggesting property prices should remain a lot more stable.

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No Deal Brexit – The prediction for Crediton house prices

Roll the clock back to April 2020, and major financial economists and property market commenters were sounding the alarm. The very best-case scenario was a 5% drop in property values by the end of the year, and most were in the 10% to 15% range. They forewarned the Covid-19 stimulated recession would trim tens of thousands of pounds off the value of homes.

Yet the Crediton property market seemed not to get the memo on that, and now as we find ourselves at the end of 2020 and the worst of lockdown restrictions appear to be passed, vaccinations on the way and economy starting to grow, Crediton property prices seem to be doing quite well.

What happened to the Crediton house price crash that wasn’t?

Before I answer that, it reminded me of what the Treasury said in 2016 about a leave vote on the Brexit referendum. The considered opinion of the Treasury was house prices would drop by 18% if the country voted to leave the EU, so let us see what that would have done to Crediton house prices if that had taken place and then what exactly has happened in the last four and half years …

 Average Value
2016
Predicted Drop by
The Treasury because
of Brexit
Average Value
Today
Uplift in Value
in last 4.5 years
% Increase since
Brexit Vote
Crediton
Detached
£350,300£287,200£413,600£63,30019.1%
Crediton
Semi-detached
£217,000£177,900£257,300£40,30017.6%
Crediton
Terraced / Town House
£177,400£145,500£206,400£29,00017.4%
Crediton
Apartments
£114,500£93,900£129,300£14,80011.9%

So why has the Crediton property market not matched the property pundits twice in the last five or so years?

Well for most of us, owning a property is about having somewhere to live rather than an investment (an Englishman’s home is his castle??). Nevertheless, once a homeowner is on the proverbial ‘property ladder’, it cannot be denied that it is eternally beneficial to know, as a homeowner, that you have made a healthy investment in your home and that the value will rise to alleviate the ache of trading up market – or down market when you retire.

Those Crediton homeowners who own detached homes would have made an average of £63,300 profit, a rise of 19.1% or a weekly profit of £243.46 – calculated between the price they would have paid in the summer of 2016 and the price they would sell for today. Looking at the weekly profit for all property types in Crediton since the Brexit vote…

  • Crediton detached homes weekly profit of £243.46 per week
  • Crediton semi-detached homes weekly profit of £155.00 per week
  • Crediton terraced homes/town homes weekly profit of £111.54 per week
  • Crediton apartments weekly profit of £56.92 per week

Whilst it is no surprise the property market boom was inspired by the Chancellor’s Stamp Duty holiday, this is not exclusively the Chancellor’s achievement. The three ‘D’s have been with us throughout 2020, Covid or no Covid (Debt, Divorce and Death), together with a huge shift in the way Crediton homeowners see their homes.  With us cooped up during the lockdown and working from our dining room tables, the want and need of people to have a home with an extra bedroom to work from, together with a garden, has been one of the most challenging this year… hence the rise in demand.

So, what of 2021? It’s true that the country will have high unemployment, yet at the same time, we have ultra-low interest rates and for the last 20 years, on average we have only built 150,000 households per year as a nation, but needed 300,000 per year to keep up with immigration, people living longer and changes in the way households are made up (compared to the Millennium).

Many people can predict what will happen – yet none of us really know what will actually happen to the Crediton property market in 2021.

Covid was a black swan event and the fallout from that, I believe, has changed Crediton peoples’ lives and their lifestyles, especially how they see their home. Instead of making predictions, nothing can get away from property market fundamentals, which have driven price booms on the back of high demand for homes and low supply (i.e. properties coming onto the market) and price crashes on the back of over-supply and low demand. Only time will tell if, in 2021, the Crediton property market will see a flood of properties coming to the market because of debt or the demand for larger homes continues to rise unabated.

Please do let me know your thoughts on the matter.

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Will the Crediton Property Market Crash in 2021?

…and the three reasons why it will not be the catastrophic scenario some are predicting.

In the last few months, the Crediton (and UK) property market has resisted and flouted every economist’s prediction. With the economy a shadow of its former self, unemployment set to hit 11.9%, the Government on track to borrow nearly half a trillion pounds to pay for Coronavirus support packages etc., all of this has had no effect on Crediton homeowners’ enthusiasm or capability to want to move home. It highlights the influence of both the emotional impact of lockdown and the enticing appeal of saving thousands of pounds on your Stamp Duty Tax bill.

For the last few months, the Crediton property market has been akin to a surfer, riding an unexpectedly large wave. The question is, will the surfer crash down (i.e. the property market) onto the rocks or will it calmly arrive at the beach unscathed? Well looking at house prices firstly …

UK house prices are 4.7% higher than they were 12 months ago according to the Land Registry, whilst in Crediton they are 2.7% higher

Looking at the data over the country, things overall are looking good for property prices. Yet it must be remembered the Land Registry data is on completed house sales and is always a couple of months behind, so this data is for house sales up to September that were agreed in the spring. Also, it does not take into account the prices being paid today on Crediton homes (as they will only show in statistics the Spring and Summer of 2021 when the sale completes).

Crediton house prices will inevitably ease in 2021

Anecdotal evidence over the last few months has suggested buyers are using their Stamp Duty savings on the price they are prepared to pay for the Crediton home of their dreams, so when the Stamp Duty holiday finishes in Spring 2021, we will see a reduction in the price Crediton properties sell for, as buyers will now have to hold back some of their cash to pay the Stamp Duty Tax.

Mortgage Approvals at a 13-year high

A better statistic to judge the property market by are the number of mortgage approvals. As the vast majority of house buyers need a mortgage, that is another good place to look at the numbers as they are much more up to date than the Land Registry figures. The Bank of England recently stated 97,500 mortgages were approved last month, up from the long-term average of just over 65,400 per month. This was the highest number of mortgage approvals since September 2007, and a whole third higher than mortgage approvals in February 2020 when we had the Boris Bounce in the property market.

As a country, we are due to smash through 2019’s 524,000 total number of mortgage approvals this month, despite the fact that the property market was closed for nearly three months in the spring. It’s vital to remember, that mortgage approvals do not equate to people moving home, as many of you reading this can attest to … property sales do fall through.

I do have apprehensions that many Crediton people, buying and selling their Crediton homes and in a chain, may not be able to realise the move before the Stamp Duty rules change at the end of March 2021, as there is a massive backlog with mortgage lenders, local authorities and the searches, chartered surveyors surveying the property and solicitors with the legal work, all combining to slow down the house selling and buying machine.

If you are in chain at the moment, you must constantly be talking to all the parties involved and ensuring everything is focused on getting the sale complete by the end of March. You have a responsibility to get information requested back in hours, not weeks … because if you don’t, you might not get your Crediton home move through before the end of the Stamp Duty holiday, and without that discount, someone in your chain may pull out of the sale altogether and the chain will break. 

The number of people moving home in Crediton is anticipated to drop sharply after the Stamp Duty holiday ends at the end of March 2021

And that is probably going to be the biggest impact on the Crediton property market in 2021. Yes, there will be a slight readjustment in the prices paid after March 2021 (as mentioned above) yet, a reduction in the number of people selling their Crediton home does not inevitably lead to a house price crash.

Yes, there will be a number of people who have to sell in 2021 because they have lost their jobs (i.e. ‘forced sales’). In the last two ‘Property Market Crashes’ of 1988 and 2008, there were a large number of forced sales in a short period of time (because business owners had to sell their home as their business had gone bankrupt because of the Credit Crunch, as well as people who had lost their job), increasing the supply of properties coming to the market in 1988 and 2008.

This in turn pushed Crediton house prices down as the property market was flooded with lots of property to sell in a short period of time. Yet this time, we have had the cushion/parachute of Bounce Back Loans, Furlough and Mortgage Holidays over the last 9 months.

Also, another important factor about the last property market crashes were the levels of interest rates and the amount borrowed.  

Interest Rates are the key to the future of the Crediton property market

In 1988, mortgage interest rates were an eye watering 11.5% and 6% in 2008, meaning mortgages were much more expensive compared to the 0.1% rate we have today. Also, with 77.2% of mortgagees with fixed rate mortgages, and only 1 in 21 mortgages owing more than 90% of the value of their home (and 1 in 303 mortgagees owing more than 95% of the value of their home), negative equity should not be so much an issue like it was in 1988.

This means most Crediton homeowners are in a much better place to weather the storm of 2021, than they were in 1988 and 2008

I foresee many Crediton sellers will simply wait until activity in the Crediton property market picks up again before placing their property on to the market. This means fewer properties will be placed on to the market for sale in the later part of 2021, meaning Crediton house prices will tend to hold up. The people that will be affected by less properties coming onto the market will be estate agents, solicitors and home removals people.

I also believe there will be ‘interesting investment opportunities’ to be had for Crediton buy to let in the latter half of 2021 with the potential changes in Capital Gains Tax regulations, although those won’t go on the open market, so do keep your ear to the ground and build relationships with all the letting agents in Crediton so you get to hear of the property portfolios coming up for sale (as they tend to sell ‘off market’). Again, if that’s something that interests you – do drop me a line.

So, where is the Crediton property market heading in 2021?

Well, the Crediton property market (aka our “surfer”) has seen a house price growth of 34.1% since 2009 … and this has been fuelled on the back of …

  1. Ultra-low interest rates mean money is cheap to borrow and so mortgage payments are low. With the Bank of England pumping £150bn into the economy in November with Quantitative Easing (QE) to add to the £725bn they have already spent on QE since 2009 – interest rates will continue to stay low for some time.
  2. There has been an increase in the demand for housing with annual net migration of 214,400 since 2009 (meaning 96,700 additional households per year have been required since 2009 just to house those people – a total of 1,063,700 households).
  3. The average age of death has risen by 2.1 years since 2008 in the UK. People living longer delays property from being released back onto the property ladder. For every extra year of life the average Brit lives, an extra 290,850 households are required in the UK.

None of these things have changed because of Covid.

As a country, we have only built on average 165,100 homes a year since 2009. Supply and demand shows that whilst we will probably have a turbulent choppy ride on the 2021 wave (because of the economy) our surfer (aka the property market), with long term demand for housing outstripping supply since the 1980’s, will continue to ride the wave (probably not as large as it has been in 2020) as the ultimate long-term outlook for the property market in Crediton looks good.

All this means demand for decent, private rented Crediton property will be good as long as the property ticks all the boxes of the tenants. If you are a Crediton landlord, whether you are a client of mine or not, feel free to drop me a line to pick my brain on the future of the buy to let market in Crediton.

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Crediton Landlords and Second Homeowners will probably save money from the proposed new Capital Gains Tax changes

Yet, if the proposals were adopted in full, some Crediton landlords would pay £13,000 less Capital Gains Tax than they would currently

The government borrowed £394bn this financial year (April ‘20 to April ‘21). This figure does not include the cost of November lockdowns and support measures, which means the final bill will probably be over half a trillion pounds, these billions will ultimately need to be paid back to cover the cost of Coronavirus.

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Tax (CGT) rates with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.

This has meant many Crediton buy to let landlords contacting me in the last few weeks, wondering if this is the time to exit the Crediton buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.

With tax bills about to go through the roof, is this the time to leave the Crediton buy to let property market?

Yet, like all things, the devil is in the detail as Crediton 2nd homeowners and Crediton landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government.

Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.

So, what would that actually look like for a Crediton landlord? Let us assume we have a landlord who bought a Crediton buy to let property in 2000.

Under the current CGT rules

  • The average value of a Crediton property in 2000 was £108,100
  • Today, that same Crediton property has increased in value to £304,200
  • Meaning a profit of £196,100
  • As our landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill would, after the annual allowance be £54,464

Under the new proposed CGT rules

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000), the same landlord would only pay £41,250– a saving of just over £13,000.

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen.

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide them with income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa … where else are you going to invest to get the income Crediton property investments provide?

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your buy to let investments? Many landlords do so, whether they use our agency, another agency or they manage their property themselves. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear – not what you want to hear … what do you have to lose?

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As First-time Buyers are Being Locked Out of the Crediton Property Market – Rents Have Risen by 6.2%

With the banks reducing the number of low deposit mortgages (i.e. deposit of 10% and below) since Covid-19 hit in the spring, this has meant that the number of Crediton first-time buyers has been decreasing quickly, meaning many of those would-be buyers wanting to make the first step on the property ladder are having to stay in the rental sector.

This has caused demand to grow amongst Crediton renters for larger homes to ride out Covid, as they hunker down for the long haul to wait for normality to return to the property market. This has caused…

Crediton rents to rise from £572 to the current £607 per month over the last 12 months, an increase of 6.2%.

Interestingly, the opposite is happening in Central London, where the rents tenants are having to pay has dropped by 3.8% in the last 12 months, as demand has dropped like a stone. It appears Central London tenants are looking to move out to the suburbs, in search of bigger homes, gardens and green open spaces. For example, the average rent for a 1-bed apartment in St. John’s Wood currently stands at a very reasonable £1,817 per month whilst a 2-bed apartment in Kensington and Chelsea is currently at an average bargain rent of £3,715 per month (yes, they might be low compared to last year, yet for us in Crediton, that still seems like a lot of money!). Also, there has been further downward pressure on Central London rents, as many Airbnb landlords have dumped their short-term holiday let properties onto the long-term rental market as the tourism in the capital has dwindled because of the pandemic.

This has been the sharpest drop in Central London rents since the summer of 2009, when the property market was still stumbling from the Credit Crunch.

This means there is a reverse of the trend of the 2010’s (2010 to 2018 to be exact), when initially the London property market was shooting up whilst the rest of the country was in the doldrums. Then, when the rest of the UK did start to rise slowly in 2013, London kicked on even further like a rocket … yet now it appears the opposite is happening.

Getting back to Crediton, according to the Land Registry property values currently stand 6.0% higher than a year ago, this is split down as follows:

  • Detached Crediton homes 6.0% higher
  • Semi-detached Crediton homes 7.0% higher
  • Townhouse / Terraced Crediton homes 5.8% higher
  • Crediton Apartments / Flats 2.2% higher

Yet, do remember, these figures do NOT take into account the prices paid by desperate buyers this summer, often paying top dollar to secure the property. This will only filter through in the figures released in the spring.

So, why are the banks curtailing the number of low deposit mortgages, meaning that first-time buyers must find a much larger down payment before they are able to buy their first Crediton property?

The reason is the banks are fearful of a house price crash in 2021 (although if you recall I wrote about that a few weeks ago and the reasons why that is less likely to happen). They too are afraid of the frothy nature of the property market since the end of the first lockdown in late spring. The bank is lending its own money to buyers and no mortgage lender wants to be holding an enormous amount of these types of high percentage mortgages if house prices fall in 2021, because the bank would be saddled with negative equity and repossession on their hands (and we all know what that did to the housing market in the late 1980’s and early 1990’s as repossessions rocketed).

This can quite clearly be seen in the pricing and availability of low deposit mortgages. As the Bank of England has reduced its base rate to 0.1%, in the last 12 months 10% deposit mortgages rates have actually increased from 2% to 2.8%. Also, when lenders have been offering 10% mortgages throughout the summer, borrowers have had only a 24-hour window to commit before the lender withdraws the mortgage product from the market because of over subscription. As with all economics, if demand is greater than supply, the price goes up. That extra 0.8% doesn’t sound a lot until you realise a first-time buyer would have to pay an additional £167 per month in interest payments on a 10% deposit mortgage, assuming they borrowed £250,000.

However, it’s not all doom and gloom for first-time buyers as there are embryonic signs that the 10% deposit mortgage market could gradually be returning to normal, as I have recently heard some lenders are taking up to a week for their 10% deposit mortgage offers to run out. Fingers crossed!

So, what does this all mean for Crediton landlords? Those Crediton landlords with properties with gardens and larger rooms will be seeing increased demand. The ability to have pets in the rental property is also an advantage, and depending on the property, can add a decent premium to the rent that can be charged.

One final thought though for all homebuyers in Crediton, be aware it’s going to be very challenging to get your house purchase through in time to meet the 31st March 2021 stamp duty holiday cut off if you are starting the process in November. Make sure your lender and solicitor have the capacity to meet that deadline and when you are asked for information, you drop everything to provide it. The odd day delay here and there will mean the difference between you getting the keys for your new Crediton home before the end of March 2021 and saving thousands of pounds in Stamp Duty Tax … or feeling a fool from the 1st of April 2021 and having to pay the tax!

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5 ways all Crediton landlords can escape the worst of the coronavirus downturn on their rental property.

Now the second lockdown started on the 5th November 2020, does this mean Mid Devon landlords can wave goodbye to their buy-to-let investment and see it go up in smoke on the bonfire of buy-to-let dreams, like a Guy Fawkes puppet?

With many Crediton tenants at risk of losing their jobs after the furlough scheme ends in March and as the reverberations of the Coronavirus recession hit this winter, what does this all mean for Mid Devon landlords and what can they do to mitigate the risks?

Since the spring, most tenants and buy-to-let landlords have been protected from the coronavirus crisis thanks to the banks with their mortgage payment holidays and job support schemes.

Before the second lockdown was announced on the 31st October, it was expected that as the furlough and mortgage payment holidays were due to end on Halloween, there would be some serious fallout from those schemes finishing. One silver lining from the lockdown (if you can call it that) is that mortgage payment holidays and furlough have been extended, yet does all that just kick the can down the road?

The question is, what can landlords do to mitigate the financial risk on their buy-to-let investment?

  1. Help Your Tenants Get the Financial Support They are Entitled To 

Billions of pounds are being spent by the Government to help those people whose income has been hit by coronavirus. The better letting agents and self-managing landlords are supporting, guiding and helping those tenants in financial difficulty to gain a better understanding of the Universal Credit (UC) processes, systems and payment levels, to enable their tenants to pay the rent and ultimately indirectly help their landlord. Also, if you are a tenant, and that support isn’t given when you ask, don’t forget Mid Devon District Council do hold special cash reserves for discretionary housing payments, which can be utilised to close the gap in rent between what UC pays and your current rental commitments. Also, the Government’s Money Advice Service & Citizens Advice are a good online resource for you to find out what you are entitled to.

  • Adopting, Adapting & Improving Your Crediton Buy-to-Let Property

Demand for gardens or office space means Mid Devon landlords will need to think outside the box. Those homes with tenants sharing (e.g. HMO’s and shared houses) might need to price their pre-coronavirus 4 bed sharing house to maybe a 3 bed sharing house plus a work/office room and, if you haven’t already, installing a top of the range, fast and dependable internet connection could be the thing that swings it. Outdoor space and gardens are really high on housebound tenant’s wish lists, in fact I have come across some Crediton tenants demanding that new rental properties have a landscaped garden or those that bought a dog or cat for company during the first lockdown, are looking for their landlords to relax their ‘no pets policy’.

  • Hold On to Your Good Tenants

Those buy-to-let landlords with decent tenants, who find themselves in financial dire straits should consider attempting to keep them, even if their own monetary circumstances mean they have to decrease their rent somewhat over the short term. Now of course, I would expect that tenants need to prove their circumstances, yet if their plight was real, surely it would be a wise choice to reduce the rent by perhaps £50 a month and support your tenants? You know they are taking great care of your rental property and rather than risk the issue of advertising your empty buy-to-let property – particularly when there is no assurance you will achieve your existing rent and ultimately risk drawn-out void periods with no rent coming in at all. What I would suggest therefore,  in such circumstances, is that you create a new Assured Shorthold Tenancy agreement with a longer term with your existing tenant at a lower rent – a temporary measure but with peace of mind for both parties which can then be reviewed once that tenancy is up for renewal.

  • Carry Out Firmer Checks on Your Prospective Tenants 

Many private landlords and a few slipshod letting agents tenant checks are somewhat lacking in their depth. Trust me, there is tenant referencing … and then there is ‘proper’ forensic tenant referencing. As certain parts of the British economy have been hit harder than others, landlords must consider when choosing their new tenants, the type of work they do or who their employer may be, to enable them to decide on their future capacity to meet their rental commitments.

  • Rent Guarantee Insurance for your Crediton Rental 

There are still insurance companies offering landlord rent guarantee insurance if your tenants become unable to pay the rent. Many insurance firms removed these insurance products in the first lockdown, yet some have returned to the insurance market although insurance premiums have gone up in price. Remember to check the small print of the insurance, although you will get a lower insurance premium if you can show stringent tenant referencing (as per the previous point). 

The Nuclear Option – Eviction

Landlords need to be conscious that, should their tenancy run into trouble, the Government have changed the rules when it comes to eviction during the coronavirus pandemic. Going into the first lockdown, there was already a backlog in the courts and now, just before going into the second lockdown, bailiffs have been instructed not to enter rental properties in high risk Tier-2 and Tier-3 Covid-19 areas.

Eviction really does have to be the very last option. Negotiation or arbitration will nearly always deliver quicker and improved outcomes for both parties. Landlords who do come to mutually agreeable arrangements with their tenants by briefly reducing the rent, or allowing payment holidays with legally enforceable pay back schedules should ensure they get the agreed terms in writing and run by a solicitor or their agent (feel free to drop us a note if you need advice).

However, if eviction is required, it doesn’t mean the tenant gets off ‘scot free’. Evicted tenants, depending on their circumstances, will either be placed temporarily into an inexpensive B&B, asked to move in with family or given one of the local authority’s temporary accommodation properties, with the goal to then move them into long term council accommodation (as the chances of obtaining private rented accommodation would be slim with agent’s heightened reference checks – more of that at the end).

The Potential Cost of Evicting a Problem Tenant

The average rent for a Crediton property currently stands at £607 per calendar month.

Thankfully, evictions are very rare. Last year before lockdown, tenants from 201.4 rental properties were evicted each working day in the UK … but if yours was one of those, that is still a potentially large cost.

Working on the basis that most evictions from the first rent not being paid, through to eviction, refurbishment of the kitchen, bathroom, carpets and décor (because often these do need sorting/replacing) were taking on average between eight to nine months before Coronavirus hit, (plus the mortgage payments), this means a Crediton landlord could be hit by a £23,617 bill, broken down as follows:

Missing rent (8½ months)£5,160
New kitchen£3,853
Bathroom£2,812
Carpets£2,286
Redecorate£2,008
Agents fees£542
Legal fees & court fees£3,500
Mortgage payments£3,457
Total£23,617

What that would be now is anyone’s guess – it could be a lot more.

This is why it is so important to get the best tenant from day one. Many tenants, who know they wouldn’t pass the references of letting agents, are attracted to those private landlords who don’t use a letting agency, as they know their referencing checks are not as strict and may be a softer touch. That’s not to say going with a letting agent is a guarantee you won’t need to evict; it just means the chances are much, much smaller. Like anything in life – it’s a choice.

Whether you are a landlord who uses a letting agent or not, and feels their reference checks are not to the standard or level you might hope or if you just want a chat about the best rental guarantee insurance, then give us a call what have you got to lose?

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Crediton House Prices 2021: What will happen to the value of your Crediton home next year?

What will a no deal Brexit on the horizon, the end of the stamp duty holiday in March, mortgage payment holidays coming to an end, unemployment set to rise after furlough and ongoing on/off coronavirus restrictions do to the Crediton property market and the value of your home?

In the late spring of 2020, every man and his dog were forecasting impending doom on the British property market. Drops of 10% were considered optimistic as we all held our breath after lockdown was relaxed. Yet, the property market didn’t listen to the forecasters. UK property values today are 2.5% higher than they were a year ago, and more locally,

Crediton house prices are 6.0% higher than a year ago.

So, what exactly is going to happen to the Crediton property market in 2021?

Well, with the end of furlough and 1.7m people still on the furlough scheme at the start of October, a number of economists are saying that unfortunately many of those furloughed will become unemployed. Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019). The Government’s independent Office for Budget Responsibility believes the unemployment rate will peak at 9.7% in early 2021, and then return to pre-coronavirus  levels in 2022. In the past recessions of the early 1980’s, early 1990’s and Credit Crunch of 2009, when unemployment went up, the property market went down.

Yet, in this recession, the link between unemployment and property values may not be so direct.

So why is the link between unemployment and house prices potentially broken? It comes down to interest rates.

The reason Crediton house prices have gone up by 306.76% since the middle of the 1990’s isn’t because the labour market has got so much sturdier, nor that the economy has outperformed every G8 country, or that the UK has had less boom and bust economic cycles than the previous decades. Instead, it’s because of the fundamental and underlying decline in the Bank of England (BoE) interest rates.

High BoE interest rates equal high mortgage payments which holds everything back regarding the property market. In the 1980’s, the average BoE interest rate was just over 11%, making mortgage payments very expensive and keeping property prices dampened. In the 1990’s, the average BoE interest rate was a little over 6%, in the 2000’s just over 4%. However, in the 2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1% because of coronavirus and the BoE threatening negative interest rates, there appears little threat of an eruption in mortgage repayment costs.

With mortgage payments at an all-time low of just under 30% homeowners’ disposable income (compared to 48% in 2007), those middle-aged people lucky enough to still be in a job (who are mainly made up of workers whom are spending a lot more time working from home), they could be more inclined to dedicate more of their monthly income to mortgage payments than they did pre-coronavirus for a bigger garden or a move out of the big cities?

So, if unemployment isn’t going to make a huge difference to the Crediton property market, what is?

Most commentators believe a no deal Brexit will have hardly any short-term effect on the property market (apart from certain upmarket parts of central London).

The stamp duty holiday ends at the end of March 2021 and that certainly will reduce the number of Crediton people moving (as many moved their plans forward to beat the deadline) meaning there will be less Crediton people moving in 2021, yet that will curtail the supply of property for sale and hence keep Crediton property prices higher.

Next, the Help to Buy scheme (started in 2013 and where the Government underwrites part of the mortgage for the first time buyer, meaning they can obtain a 95% mortgage) ends in April next year, yet the Tories indicated at their conference last month they would probably create ‘Help to Buy – Part 2’.

The bottom line is in the early 1980’s and 1990’s recessions, when interest rates were over 15%, obviously homeowners couldn’t afford to keep up the mortgage payments when made redundant or on lower wages, so many handed in their keys to the banks and got their homes repossessed, thus exacerbating the issue with falling property values.

However, with interest rates so low, this will not be the case. I envisage that UK property prices will be between 4% to 5% higher by December and Crediton values just behind that at 2% to 3% higher, before levelling out in 2021 (although we might see a modest dip in certain sectors and types of Crediton homes depending on location and condition).

I suspect those Crediton first time buyers, eager (and able) to break free the rental-rat-race will want to take up the anticipated ‘Help to Buy – Part 2’ scheme, particularly if the BoE base rate stays low. The other winners in 2021 will be low mortgage/equity rich households upsizing to the countryside or leafy suburbs to test out their boss’s promise of ‘flexible-working’.

Yet the losers will be the 18yo to 29yo renters … most likely to be made redundant and least likely to buy a home.

My advice to the Government for this cohort is to not ignore them once the country is out of this coronavirus situation. It’s all very good keeping the Home Counties Tory voting Baby Boomers happy with green belt policies and other policies to keep their property values higher, yet as the Generation X and Millennials get older and take over as the largest demographic to keep happy (for the polls), the hitherto inconceivable action of the Government levying Capital Gains Tax on your main home may come to fruition.

I mean, we have £400bn to pay back because of coronavirus … it has to be repaid and it has to come from somewhere. Those denied real access to buying their own home in the last 10 years, because of massive house price gains over the last 25 years, could vent their anger via the ballot box — if not at the 2024 General Election, maybe in 2029, when they realise that the futile housing policies of both Labour and Tories of the last 23 years have left them with enduring financial diffidence.

Maybe we should all look to the grocer’s daughter from Lincolnshire who in 1979 set out a bold vision of home ownership for everybody. Whichever political party truly picks up the batten and reframes it for the current 2020’s generation and comes up with the goods, will be the ultimate winner in this game.

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Crediton Homebuyers Have Saved £34,380 Thanks to the Stamp Duty Holiday – Yet Many Could Miss Out

Crediton homebuyers and Crediton landlords purchasing residential property have saved £34,380 since the Chancellor reduced stamp duty on 8th July 2020, yet many more Crediton homebuyers could miss out.

My analysis of properties sold in the area from the Land Registry between the introduction of the stamp duty holiday on 8th July 2020 and 14th August 2020 (which is the most up to date sales data), reveals that many Crediton homeowners have saved a considerable amount of money in stamp duty. According to my research…

Since the stamp duty holiday was launched 5 Crediton homeowners have saved on average £6,875 each.

That’s a total Crediton property value of £1,687,500.

Mind you, it’s not all good news as I estimate 11 Crediton homebuyers risk missing out on the stamp duty savings (worth as much as £15,000 each) due to solicitors/conveyancers and mortgage lenders struggling with demand and failing to hit the 31st March 2021 deadline.

The short-term tax relief, together with the easing of lockdown restrictions, has seen demand for Crediton property soar this summer as Crediton property buyers race to move home.

Chancellor Rishi Sunak introduced a stamp duty holiday in the summer, with the stamp duty holiday due to end on 31st March 2021. Yet, I fear the combined pent-up demand caused by…

  • the post Boris Bounce
  • people wanting to leave their metropolitan city centres for homes in the countryside
  • property with gardens
  • property with extra rooms for working from home
  • the stamp duty savings

…has created a certain amount of constipation and backlog in the Crediton property market.

I know 31st March 2021 seems an age away, however nothing could be further from the truth. The average Crediton property sale was taking 19 weeks between the offer price being agreed and the keys/monies handed over BEFORE THE POST-LOCKDOWN. So with as many as 40% to 50% more Crediton homeowners in that same sales pipeline of agreeing the offer and the legal and finance to be sorted as we speak, solicitors/conveyancers and mortgage lenders are really struggling with demand for their services, meaning the average time will increase. Hence, I believe as many as…

11 Crediton people could miss out on the £75,630 stamp duty tax savings.

There is time left to sell and legally complete your Crediton property sale before 31st March stamp duty deadline if you put the property on the market now with a realistic asking price, a decent marketing plan, and razor sharp reflexes when it comes to the legal and mortgage work.

Yet with 40% to 50% more home movers in the system, those looking to sell their Crediton home should be very suspicious of agents being too optimistic on their initial asking price (many estate agents get a commission to put a property on the market, meaning they over- egg the pudding on the suggested asking price to flatter you, only to badger you to reduce the asking price weeks later).

Those wasted weeks at an inflated asking price will mean the difference of between you securing a buyer and you then buying your next Crediton home with or without the stamp duty savings, which are up to £15,000 per home move.

And whilst many Crediton buyers seem ready, willing and able to pay top dollar prices for Crediton properties that match their changed post-lockdown home needs, speaking privately to many Crediton agents, some Crediton homeowners’ price expectations for their Crediton homes are now becoming too optimistic, meaning they will undoubtedly lose out.

We also can’t forget as many as 1 in 5 mortgage surveys are being down valued by the surveyor, meaning unless all parties are willing to negotiate, the sale falls through and the homeowner has to go back to ‘Square One’.

My best piece of advice for those currently sold and in the sales systems with lawyers and mortgage brokers is to speak to your solicitor and mortgage broker every single week and ask if there is anything you need to do to ensure the sale proceeds smoothly and expediently. Also, if you are asked for any information from your solicitor or mortgage broker in between times, drop everything and respond quickly to their request. The odd day here and there will make all the difference.

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Lockdown Update for Sellers and Buyers in Devon

In this two-minute read, we look at what the announcement on Saturday by Prime Minister Boris Johnson means to home sellers and buyers in Crediton and surrounding areas.

On Saturday we received confirmation England will go into lockdown from Thursday, November 5 until at least December 2.

So, how will this affect people in the process of moving or thinking about selling in mid Devon?

Well, firstly it’s good news from a property moving perspective because the Housing Minister Robert Jenrick confirmed in a tweet on Saturday evening that the market was still very much open for business.

QUESTION:

‘Can I still move home?’

ANSWER:

Absolutely Yes – the housing market will remain open throughout this period. Everyone should continue to play their part in reducing the spread of the virus by following the current guidance.

The Minister’s tweet linked to an information guide about the new lockdown which you can find at the bottom of this article.

At Helmores we continue to work hard for our sellers and buyers in a Covid-19 secure way, while strictly following the regulations laid out by the Government.

Yes!

We offer virtual tours and carry out video valuations.  Most of our properties already have interactive digital tours.

We will still conduct safety first viewings using PPE, hand sanitisers and social distancing.

We will continue to progress all current and new sales as per usual.

And we will keep everyone we work with updated about any changes that may happen.

Here for YOU

We appreciate this is an anxious time for many of our clients and that’s why we want you to contact us if you have any questions, concerns or need to get a better understanding of what’s happening.

As we were in the first lockdown, we are 100 per cent committed and focussed on doing the right things for our clients, our colleagues, and our community.

Thanks for reading.

PS: Here’s the Government article:

https://www.gov.uk/guidance/new-national-restrictions-from-5-november

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