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Landlords on a Cliff Edge with Covid-19 Rental Debt on the Increase
A statement from the NRLA (National Residents Landlords Association) has been published, highlighting the lack of government action to address the increasing COVID-19 rental debt for private landlords and renters across the nation. With the end of furlough and the recent benefit cuts, thousands of renters and landlords are finding themselves in a very bleak place, with many renters facing redundancy and landlords unable to keep up with mortgage payments.
A warning from the Bank of England states that renters are the most likely candidates for post-furlough redundancy, leaving them unable to pay their rent and facing mounting debt, thereby increasing the probability that many landlords will be forced to default on their BTL mortgages.
According to a report by the NRLA and acknowledged by the government, the number of renters finding themselves unable to pay their rent has tripled from 3% to 9% from 2019 to the end of 2020. Now that furlough has come to an end alongside the universal benefit cut, the expected number of people in rental arrears is expected to rise significantly.
The report strongly recommends that the government take decisive action by offering what the NLRA is calling an interest-free “hardship loan” to assist renters who are at risk of accruing unsustainable debt. The funds would allow the renter to clear rental arrears and would follow similar schemes already introduced in Scotland and Wales. The report also calls for the government to scrap the £20 a week cut to Universal Credit, pointing out the inevitable devastating consequences it will have on renters across the UK.
The needs of landlords have often been overlooked, with them not having the value attached to them that by rights they should, considering the importance of maintaining a healthy private rental sector. With many businesses and individuals across the UK suffering financially in one way or another due to the pandemic, little thought has been given to the plight of landlords. The NRLA is using its influence to try to get much-needed help for landlords, not just tenants, voicing the importance of helping them deal with non-payment of rent arrears.
Landlords would be wise to take advantage of the advice and support available to them in regard to BTL (buy-to-lead) products, refinancing options, and evaluating their current situation. It is vital that the support is there, with many lenders doing their bit by offering competitive loan products and relaxing criteria. It is, however, ultimately up to the government to provide the bulk of this much-needed support in the wake of the COVID-19 crisis.
Average Outstanding Rent Reaches Four-Year Low
Thousands of private landlords across the UK were the silent victims of COVID-19’s economic impact on the country. With millions suddenly facing the prospect of not being able to pay their rent, landlords found their income severely or completely drying up.
Consequently, countless buy-to-let landlords fell into arrears with their own lenders as their tenants stacked up what, in many cases, proved to be insurmountable debts.
Thankfully, it is looking like there is at least a little light at the end of the tunnel for landlords and tenants. According to the latest figures published by Paragon Bank, there was a major decline in the number of private tenants in arrears by the halfway point of 2021.
Specifically, the figures indicate that buy-to-let landlords in the UK had an average of 1.3 tenants with outstanding rent payments at the end of the second quarter. This equates to the lowest number of tenants in arrears since the first three months of 2011.
The figure had previously stood at 1.6 tenants with outstanding rent on average in Q1, which was also significantly down from the 2.1 average recorded in the second quarter of last year.
In monetary terms, the data published by Paragon Bank suggested that the average amount of outstanding rent had fallen to £1,781 in the second quarter of this year, down from £2,376 during the first quarter. This represents a reduction of £595 and is the lowest figure recorded in four years.
Signs of an improving economy
Positive movement like this provides reassurance of relatively early signs of economic improvement, benefiting both the private renting community and BTL landlords across the UK. The survey, which took into account the financial situations of around 750 landlords, found that 18% had received requests for rent payment holidays from their tenants.
A huge 36% had received at least one request from a tenant looking to change their monthly rent obligations, while 14% had asked for their rent to be reduced by as much as 20 per cent.
The vast majority of landlords reached agreements with struggling tenants to enable them to continue making payments and keep living in their homes. Approximately 36% said that they had agreed to change the rent obligations of their tenants in some way due to difficulties encountered during the pandemic.
The figures published by Paragon Bank also indicate that requests for rent changes, holidays, and reductions are also on the decline and have been for several months. Compared to the same time last year, landlords are receiving, on average, 7% fewer requests to amend or suspend rental payments from their tenants.
Experts are warning the BTL community that there may be further turbulence ahead, should it be necessary for the government to impose further restrictions throughout the autumn and winter of 2021–2022.
Stamp Duty Holiday Set to Expire Fully Next Week
The gradual phasing out of the government’s temporary stamp duty holiday began on July 1. Following a period during which transactions valued at £500,000 or less were exempt from stamp duty liability, this threshold was cut in half to £250,000.
From July 1 to September 30, these are the stamp duty rates payable for property purchases in England and Northern Ireland:
- £0-£250,000 = 0%
- £250,001-£925,000 = 5%
- £925,001-£1,500,000 = 10%
- £1,500,000+ = 12%
However, the transition back to standard stamp duty thresholds is set to happen next week, on October 1. Unless the government introduces a surprise extension to the scheme at the last minute, these are the tax bands that will apply for purchasing homes in England and Northern Ireland:
- £0-£125,000 = 0%
- £125,001-£250,000 = 2%
- £250,001-£925,000 = 5%
- £925,000-£1,500,000 = 10%
- £1,500,000+ = 12%
Meanwhile, the equivalent tax in Scotland, the Land and Buildings Transaction Tax, now stands as follows, based on property values:
- 0% on £0-£145,000
- 2% on £145,001-£250,000
- 5% on £250,001-£325,000
- 10% on £325,001-£750,000
- 12% on any value above £750,000
Landlords in Scotland also face an additional 4% Land and Buildings Transaction Tax on top of standard rates.
In Wales, the threshold for its land transaction tax (LTT) was increased in July last year to £250,000 to mirror the stamp duty holiday in England and Northern Ireland. As of July 1, normal land transaction tax rates once again resumed, as follows:
- 0% on £0-£180,000
- 5% on £180,001-£250,000
- 5% on £250,001-£400,000
- 5% on £400,001-£750,000
- 10% on £750,001-£1.5m
- 12% on any value above £1.5m
The same 4% additional premium payable by landlords also applies in Wales, on top of standard rates.
How will the stamp duty expiration affect the property market?
There has been widespread speculation that the initial pushback towards normal stamp duty thresholds in July would have a detrimental impact on the real estate sector. The vast majority of analysts predicted a major slowdown in mortgage applications and home purchases when stamp duty rates returned to normal in October.
Many are now questioning whether the alteration will have any real impact at all. With UK real estate market activity at an all-time high, it is becoming increasingly unlikely that the end of the incentive will trigger a sudden slowdown in transactions.
“The final closure of the Stamp Duty scheme at the end of September may have no impact at all,” commented Nicky Stevenson, managing director at Fine and Country estate agents.
“Other factors are so much more important, namely the race for space, low supply, accidental savings, and low-interest rates.”
Instead, the performance of the sector is expected to be fuelled by the ongoing exemption of stamp duty liability for all first-time buyers purchasing properties valued at £300,000 or less.
The return of the 95% LTV mortgage to the UK High Street is expected to motivate more buyers to take action before average property prices climb even higher.
How Can I Boost My Chances of Getting a Self-Employed Mortgage?
Self-employed workers have always been given the short end of the stick where mortgages are concerned. For the UK’s approximately 4.3 million self-employed workers, getting on the housing ladder can be a challenge.
Major banks and high-street lenders in particular often want nothing to do with self-employed applicants. Elsewhere, those who consider applications from self-employed workers show no mercy where interest rates or overall borrowing costs are concerned.
Particularly in the wake of COVID-19, qualifying for a self-employed mortgage via conventional channels has never been more difficult.
Why is getting a mortgage as a self-employed worker so hard?
The process of applying for a mortgage as a self-employed worker via conventional channels can be complex and frustrating for three main reasons:
- Most lenders instinctively see self-employed workers as higher-risk applicants. Even if their job is stable and their take-home pay is high, they are still considered risky on the part of the provider.
- There are still no specialist self-employed mortgages available from most lenders. The overwhelming majority of mortgages on the High Street are designed with conventionally employed people in mind, making it difficult to qualify.
- Lenders have very different policies where proof of income is concerned. What you may consider to be concrete and irrefutable proof of your financial status may be worth nothing in the eyes of many conventional lenders.
All of which paints a pretty gloomy picture for self-employed workers looking to buy their own homes. But this does not necessarily mean that you are completely out of luck.
Essential tips
As is the case when applying for any type of mortgage, it is essential to adopt a strategic approach. There are steps any self-employed person can take to significantly boost their likelihood of qualifying for a mortgage.
The most prominent examples are as follows:
- Prove your income beyond a reasonable doubt.
Copies of bank account statements and such are of no consequence when applying for a self-employed mortgage. Instead, your lender will expect to see proof of your earnings in the form of your tax returns and general financial projections.
You should be looking to provide evidence of income from at least the past few years. You can get copies of your tax returns from HRMC online or request that they be posted to your registered address.
- Get yourself a good accountant.
Having a chartered accountant on board as a self-employed business owner is highly recommended. This alone can open a lot of doors on the High Street and elsewhere, as small businesses represented by reputable accountants are always considered safer.
There are many lenders who only consider applications from self-employed workers that are formally stamped and signed by a registered accountant. This can be the best way of adding weight to your application and showing the lender that the figures on your documents are complete and accurate.
- Work on your credit score.
While this can be effective in supporting your application, it is rarely a short-term solution. Instead, it may take weeks or months to begin steering your credit score in the right direction. Something that can be done by paying off existing debts, tidying up your old bank accounts, ensuring you do not go overdrawn, and so on.
Before applying, check your credit score with the major credit agencies and make as many quick fixes as you can.
- Offer a larger deposit.
Offering the lender a larger deposit is also guaranteed to work in your favour. Along with boosting your likelihood of being accepted for a mortgage, a larger deposit can also pave the way for lower interest rates and more competitive borrowing costs.
Most major lenders will only accept self-employed applicants who are able to provide at least 15% or 20% by way of a deposit. If you are able to increase this to 25% or 30%, your application is far more likely to be accepted.
If you would like to learn more about self-employed mortgages or have any questions regarding your eligibility, we would be delighted to hear from you. Call or e-mail anytime for an obligation-free consultation with a member of our team.
Rural Property Prices up a Staggering 30% Year on Year
Nowhere is the pandemic price boom more evident than in some of the UK’s most picturesque and desirable rural locations. A recent BBC expose examined the effects of the pandemic on the Yorkshire Dales housing market, where desirable properties continue to attract dozens of offers within days.
Demand for such homes continues to outstrip supply by a significant margin, making it difficult for those residing within the region to relocate locally.
“We enjoy country life. We already live in one of the villages and would like to stay, but there is a lot of demand for village properties, and we are increasingly finding ourselves priced out,” Jonathan and Sarah Ratcliffe told the BBC, explaining that they would like to purchase a bigger home but simply cannot afford to do so.
Official Land Registry figures indicate that average property prices in Richmondshire are up almost 30% since the same time last year. This represents the most explosive growth anywhere in the UK, followed by other rural locations like the Cotswolds and North Norfolk, both of which have seen gains in excess of 20%.
Remarkable figures considering the turbulent events of the past 18 months, but a clear indication of shifting priorities among movers and first-time buyers.
All eyes on the countryside
The COVID-19 pandemic triggered a major rethink among prospective homebuyers with regard to where they want to live and how they see their ideal lifestyle. More people are working from home than ever before, meaning millions no longer need to live in proximity to their previous workplace.
Combined with the temporary stamp duty holiday and the lowest mortgage rates in recorded history, a frenzy of buyer interest was directed at desirable rural properties throughout the first half of 2021.
Consequently, house prices in rural regions skyrocketed. According to the latest figures from the Royal Institution of Chartered Surveyors (RICS), available inventory across most of the country’s most popular areas is close to or at a record low.
“Anything we listed [from last summer] flew out of the door. Richmondshire property has always been where we don’t get too high on the highs and low on the lows. It was a massive change from what we had seen previously. This is unprecedented,” commented Irving’s Property Estate and Lettings Agents’ director, Margi Irving.
“We have definitely got a supply-and-demand issue. We have gone weeks, just like other agents, listing just one or two. People are reluctant to put their house on the market because they have nowhere to buy,” she added, explaining that the 100+ homes she had on her books a year ago had declined to little over 30.
“We were Britain’s best-kept secret, evidently. Just recently, people have realised you get perfect value for money. It is a beautiful town. It has lovely villages surrounding it. The services and schools are very, very good.”
Overhaul of Planning Laws Abandoned by Ministers Following Criticisms
Reports from Westminster suggest that an overhaul of planning laws to speed up the construction of new homes in England is set to be abandoned by the government. In the face of strong criticism from a number of influential figures, the “Project Speed” reforms could either be scaled down or reversed entirely.
The proposed planning laws were outlined in the Queen’s speech earlier this year as part of the government’s pledge to hit a new target of 300,000 homes built annually in England. With other measures to go ahead, they would speed up and simplify the system for obtaining planning permission for new developments, with the potential to increase the number of homes being built by more than 30%.
Campaigners and critics hit back at the controversial proposals, which they said would result in the “suburbanization” of important green areas of the country. All while failing to make an impact on the UK’s affordable housing shortage, which is already making it impossible for most private renters to get on the housing ladder.
A victory for common sense
While the government has yet to confirm the rumours, speculation is rife that the proposals will be abandoned due to strong resistance from MPs and voters in the South of England. If the proposals were to go ahead, they would prevent homeowners from formally objecting to planning applications while giving councils mandatory house-building targets.
Speaking on behalf of CPRE, deputy chief executive Tom Fyans called the expected reversal “a victory for common sense”, stating that all indications suggest “some of the most damaging proposals of what was a top-down developers’ charter have been rightly binned” and dubbed the move a “victory for common sense”.
“The government must not shy away from overhauling a tired planning system to make it fit for the multiple challenges of the 21st century,” he continued.
“Local communities need a stronger right to be heard in local decisions; brownfield sites must automatically be developed first to help protect local green spaces and our green belts in the fight against climate change, and young people and key workers desperately need more funding for rural affordable homes.”
Refusing to confirm or refute the rumours, the Ministry of Housing, Communities, and Local Government simply stated that further information would be published “in due course”.
Concerns for green space development
When the government first announced the initiative, it was stated that the overhaul would lead to “simpler, faster procedures for producing local development plans, approving major schemes, assessing environmental impacts, and negotiating affordable housing and infrastructure contributions”.
However, critics quickly hit back by labelling the potential reforms an “utter disaster” in the making, warning that the impact on green spaces around England could be devastating.
“We will see a lot more houses on greenfield land and in areas of outstanding natural beauty. The people in the north of England need these green spaces for their wellbeing,” said Debra McConnell, CPRE chair.
According to Shelter, there are now more than 1.1 million people on waiting lists for social housing in England alone.
Bank Statements Not Mandatory for Some Lenders
One of the most important forms of financial evidence required for a mortgage application is the bank statement. As part of the application process, it has been a standard requirement to provide at least three months’ worth of bank statements for the lender to scrutinise.
Bank statements are inspected and analysed by lenders to get an idea of an applicant’s outgoings and general financial activities, though experts have often argued that this is technically inconsequential as what matters most is how much they earn and their creditworthiness.
Having apparently seen sense after so many years, several of the UK’s biggest lenders have now said they no longer need to see bank statements to support mortgage applications. Santander, Halifax, and Virgin Money are instead placing heavy emphasis on applicants’ credit scores along with formal proof of their salary and employment status.
This is a move that is likely to come as welcome news to many, who, despite being in comfortable financial positions, may not be able to produce the most attractive bank statements.
Priorities differ for bridging loan specialists
Many of the UK’s most prominent specialist lenders have entirely different priorities. When considering loan applications, bridging finance specialists are likewise uninterested in bank statements.
As far as bridging finance is concerned, the applicant’s credit score is also unimportant, as is their ability to provide proof of income.
With bridging finance and many similar forms of commercial finance, what matters most to the lender is the applicant’s exit strategy. This means their ability to provide a full disclosure of how and when they intend to repay the loan, verifying that the lender will get back their capital in full and on time.
This can make bridging finance a particularly useful facility for applicants with a poor credit history or the inability to provide formal proof of income at the time. Issues that often prevent private applicants and business borrowers from accessing the financial support they need despite their strong financial position and capacity to repay the loan in a timely manner
The benefits of independent broker support
Working with an independent broker is highly recommended to anyone who may struggle to meet the standard qualification criteria of any lender. Irrespective of financial history, credit score, proof of income, and so on, there are specialist financial products available to suit all requirements.
Many of the UK’s leading specialist lenders offer their products and services exclusively via broker introductions. These are not available on High Street, nor are they offered directly to the applicant.
Consulting with a broker can help you gain a better understanding of the options available while ensuring you get the best possible deal on your chosen loan.
For more information on any of the above or to discuss your eligibility for a mortgage in more detail, contact a member of the team at UK Property Finance today.
Mortgage Processing Times Pushed to 16 weeks
As demand for desirable properties continues to outstrip supply in all regions of the UK, mortgage processing times have been increasing for several months. According to the latest figures from Property Mark, a leading UK estate agency body, the average property transaction completion time has now reached between 13 and 16 weeks.
Commenting on the growing bottleneck, the company’s CEO, Nathan Emerson, said that current mortgage processing times were exponentially longer than the typical 6 to 8-week norm. He also attributed much of the backlog to the rush that preceded the partial withdrawal of the stamp duty holiday, which saw lenders and brokers inundated with hurried mortgage applications.
Reports suggest that many prospective buyers who wanted to take advantage of the temporary stamp duty suspension were unable to do so due to slow mortgage processing times. Even those who believed they were getting their applications underway at an early juncture found there was insufficient time to complete the process before the offer was withdrawn.
Bridging loans proves popular to prevent delays
The more difficult it becomes to arrange a mortgage quickly and efficiently on the High Street, the more attention the UK’s specialist lending sector is attracting. Bridging finance in particular is proving a popular option among movers, looking to ‘bridge’ the gap between the purchase of their new property and the sale of their current home.
With bridging finance, it is possible to reduce the lengthy processing time of a typical mortgage to less than two weeks. In some instances, the funds provided by way of a bridging loan can be accessed within a matter of days. For time-critical property purchases and investments, bridging loans can be uniquely flexible and accessible.
Put into context, a homeowner looking to relocate may find their dream home at an unbeatable price in the perfect location. However, their current home has only recently been put on the market, and a buyer is yet to be found.
A bridging loan secured against their current home could provide them with the funds they need to pay for their new home outright. After which, the bridging loan is repaid several weeks or months later, just as soon as their previous property is sold.
Bridging finance attaches a monthly rate of interest, often lower than 0.5%, along with minimal borrowing costs where the balance is repaid promptly.
Assessing suitability for bridging finance
Prior to applying for a bridging loan for any purpose, it is advisable to speak to an independent broker to discuss all the alternative options available. Bridging finance is offered exclusively with short-term applications in mind and should never be seen as a viable alternative to a conventional long-term mortgage.
As a way to bypass mortgage processing times and ensure your dream home does not slip through your fingers, bridging finance can be an unbeatable facility.
For more information on bridging loans or to discuss bridging finance qualification criteria in more detail, contact a member of the team at UK Property Finance today.