London Property

Leasehold Reform, BTL Financing, BTR Growth, EPC Regs, Planning Decline - 9th May Property Bulletin

Leasehold Reform, BTL Financing, BTR Growth, EPC Regs, Planning Decline – 9th May Property Bulletin

Blog Post No. 158

Leasehold Reform, BTL Financing, BTR Growth, EPC Regs, Planning Decline – 9th May Property Bulletin


Pending changes to the Leasehold Reform Act

The UK government has committed to introducing further reforms to the Leasehold Reform Act, which will be addressed in the upcoming parliamentary session. These sessions typically take place from spring to spring, and for the 2023-24 session, announcements are likely to be made in November’s King’s speech.

The proposed changes aim to simplify and reduce the cost of enfranchisement for leaseholders.

The reforms will include the abolition of marriage value, the capping of ground rents at 0.1% of the freehold value, and the introduction of prescribed rates based on market value to calculate the cost of extending a lease or buying the freehold.

An online calculator will also be introduced to make the enfranchisement process easier for leaseholders.

Additionally, leaseholders of flats and houses will have the same right to extend their lease agreements as often as they wish, at zero ground rent, for a term of 990 years. Leaseholders with long leases will also be able to buy out their ground rent without having to extend their lease term.

Although it is unclear whether the new protections will apply retrospectively, Lord Young of Cookham, a former Conservative minister and leader of the Commons, has asked for clarification on this matter.

Given the pending changes, many leaseholders are waiting for confirmation before making any decisions. It is recommended to weigh the costs of extending a lease versus waiting for the new act to pass. It is also advisable to seek professional advice before making any decisions regarding lease extension or freehold purchase.

Banks put their money behind Buy to Let

LendInvest has secured £200 million in financing for its buy-to-let proposition, with Wells Fargo joining the funding syndicate that includes National Australia Bank. LendInvest’s mortgage products are also supported by other global financial institutions such as Lloyds, JP Morgan, HSBC, Barclays, and Citi. The buy-to-let platform has grown to £1.8 billion in assets under management, representing 75% of total platform assets under management since launching its first buy-to-let mortgage product five years ago.

Having recently entered the residential mortgage market with a new range of products, Landinvest targets homeowners with complex sources of income, such as self-employed or contract workers, who are currently underserved by many lenders. The launch was in response to the growing number of such homeowners.

This partnership shows that global financial institutions continue to have a strong interest in investing in the buy-to-let sector.

Surprise price increase

UK house prices unexpectedly rose by 0.5% in April, following seven months of falls, according to Nationwide building society.

Economists were predicting a decrease in average prices during the month. Nationwide predicts a modest recovery in the housing market as mortgage rates start to decrease, but any improvement will be slighy due to household finances remaining under pressure and average earnings failing to keep pace with inflation.

It was reported by Bloomberg, that the recent rebound in house prices in the UK may be due to delayed transactions following a mini-credit crunch in Q4 2022, which pushed activity into Q1 2023. As delayed transactions clear, market may level out. Additionally, demand for cheaper properties may be driving the market as demand over a certain price point declines.

Comparisons with other countries, suggests that pausing interest rate hikes can ease the decline in housing markets.

However, it’s unlikely that the boost will continue due to the unlikelihood of a drastic dip in mortgage rates. There are a few ways in which the government could intervene to boost prices, such as relaunching the “help-to-buy” scheme or increasing mortgage terms. However, these solutions could lead to other problems. 

Has the growth of Build to rent slowed down? 

According to a study commissioned by BusinessLDN, the British Property Federation, Dataloft, and the UK Apartment Association, and with research by Savills, the build-to-rent sector’s growth in the UK was slower in Q1 2023 compared to the same period in 2022.

The report showed that completed or pipeline homes in the sector increased by 9%, however, it was slower than the 19% increase in Q1 2022.

Growth rate in the regions was twice as fast as in London, with the number of build-to-rent homes in the regions rising by 12% and 6% in London.

The report’s authors believe that decreased grant funding, rising construction costs, and building safety issues have hampered the residential development industry’s ability to deliver the 66,000 new homes per year needed to house current and future Londoners.

According to Guy Whittaker, an associate at Savills, despite the slower pace of growth, the pipeline for the build-to-rent sector is at an all-time high. Growth is expected to continue as European investment community report that half of all investors expect over 25% of their assets under management to be allocated to the ‘living’ sector by 2025. The living sector includes Build to rent, student housing, co-living, residential, senior living and affordable housing.

The new EPC regulations delayed but they are coming

New eco-rules in England and Wales will require landlords to upgrade their properties to an Energy Performance Certificate (EPC) rating of C or higher before letting them out. Those who fail to do so will face a £30,000 fine.

However, experts are warning that the costs of upgrading could be as high as £20,000 per property, which may lead to higher rents for tenants and could cause some landlords to sell their buy-to-let properties. The new rules are part of the government’s energy-efficiency drive to reduce carbon emissions and cut household bills. Reported The Daily Mail.

However, industry experts have warned that the new standards are unattainable for many and that a rush of buy-to-let owners trying to upgrade their homes at the same time could lead to labour shortages and higher prices. Some critics say that the government’s criteria for funding under the £1bn ECO+ scheme, which aims to insulate the country’s draughtiest homes, are “perverse” as they favour larger properties.

Landlords in England and Wales are concerned that they will be unable to meet the government’s new energy performance certificate (EPC) standard, which will bar them from letting out properties unless they have a rating of C or higher. The rules are due to come into force in 2028, but EPC assessors have warned that achieving a C rating would be prohibitively expensive for many landlords. The cost of internal wall insulation could be up to £15,000 and there are concerns over finding enough workers to carry out the work. Those who fail to comply with the new regulations face a fine of £30,000.

A Significant drop in new planning applications

According to a report by CBRE, planning activity for new-build homes in Prime Central London (PCL) has seen a significant drop, with applications, permissions, and construction starts falling by more than 50% between 2018 and 2022 compared to the preceding five years.

Furthermore, new construction applications across London fell by 28% year-on-year in 2022, with a peak decline of 50% from 2014. CBRE suggests that developers and house builders now have a clear opportunity in an undersupplied market, where demand remains strong. The report also highlights the growing importance of the Build-to-Rent sector in London, with BTR homes making up 35% of private homes in London in 2022.

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