The new Housing Bill which has just been announced has massive implications for the property market – and for individuals whether you are a buyer, investor, seller or renter. Most of the policies should be helpful, if they work, but as we know, housing provision in the UK has been a disaster so far, under all governments since the late 1980s.
Unfortunately we are at a stage whereby if we don’t start increasing the provision of housing much more soon, then we could literally run out of stock.
The biggest news in this Bill is that although it’s not enough, for the first time in years, the Conservatives have committed to building 1 million new homes by 2020, which is at least a start!
Any new Bill needs to pass a series of stages before it can be adopted and become law. At the moment, the Bill needs to go through its ‘second reading’. This basically means they get to chat it through with all the other MPs in parliament, so some may object and this may result in changes being made.
The MPs all vote and if it goes through - which it is likely to do with a Conservatory majority.
It then goes to a ‘committee stage’ and a ‘report’ stage which basically means lots of people have read, including the House of Lords and those who the Bill will affect. Amendments can be made to the Bill which may or may not be adopted.
After it’s read out for a third reading some other amendments could be made before it becomes an Act ie law, but this can get complicated and time consuming if there are more amends as it has to go back to being read etc.
If the Bill is accepted by most MPs or it needs to go through as an emergency, then it can take a matter of days, but if it’s controversial, it could take up to a year.
So, it’s important that we consider the implications of this Bill now, but bear in mind that it’ll take time to have any impact and some of the ideas/plans may not happen.
How will the Housing and Planning Bill affect first time buyers?
From a first time buyer perspective, if you already have a deposit there are lots of thing that you can do to help yourself onto the ladder including:-
If you haven’t yet saved for a deposit, there is help on its way from the ‘Help to Buy’ ISA which is well worth considering.
Despite everything you hear in the press, in the main it IS possible to get on the housing ladder:-
There are plenty of mortgages available with only require a 5% deposit.
The average First Time Buyer buys a property worth just over £150,000, but this is skewed with FTBs in London spending around £300,000, so for many FTBs they pay a lot less (CML data)
More properties were sold in England and Wales at £125,000 than any other price (Source: LSL)
Will the starter homes help?
Well if the discount was off the 20% average £150,000 purchase would mean properties available for £120,000 or less, which is below the stamp duty threshold (£300,000 as of November 2017) and at 3.5x income requires a JOINT income of £43,000 and a 5% deposit of £7,500.
So if the discount is based on this price, then it would definitely be a help to current FTBs, but what’s not clear is what happens when they move on, do they have to keep the discount and sell for the next generation of FTBs?
How many people might it help?
There are about 300,000 FTBs buying in the UK now and these policies will only apply to those living in England. So by committing to 200,000 starter homes, say over the next five years, so lets say this policy provides around 40,000 starter homes a year, that’s around 13% of FTB purchase.
The downside of the policy is it won’t help people living in unaffordable areas such as London
The problem with the policy though is the same as the Help to Buy new build one which gives you a free 20% loan for five years, in that it only really works in areas which are, to some extent, more affordable anyway.
A 20% discount on a £300,000 average home bought in London for FTBs, means it will still cost £240,000 to buy the property and so far the Help to Buy Scheme in London has been pretty useless.
Government stats shows that “in the first 27 months (to 30 June 2015), 56,402 properties were bought (legal completions) with the support of the Help to Buy: equity loan scheme” Of these, most were bought between £150,000 and £200,000 and over half were below £250,000 and with very few, if any, new builds being available at this price in London, it’s clearly not helping.
So far the latest stats suggest that since the scheme was started in 2013, there have only been around 3,000 sales of the Help to Buy equity scheme, 95% of which have gone to first time buyers with areas such as Bromley, Bexley and Havering being the biggest beneficiaries.
The biggest take up of Help to Buy is in areas such as Milton Keynes, Wiltshire, Leeds, Central Bedfordshire, Peterborough and County Durham, areas which are pretty affordable for most people anyway.
What does the Housing and Planning Bill mean for renters and tenants?
The Bill does propose some good ideas which will help tenants indirectly but isn’t great news for those who have high incomes of £30,000 and above outside of London and £40,000 and above within the capital.
For these tenants, they will now end up now paying a ‘fair rent’ instead of benefiting from rents which are typically half that of the private rented sector. The additional rent earned will be kept by housing associations, but go towards reducing the deficit if it’s a council property.
The reason the Bill is good news for tenants is that they have the chance to advise the Local Authority, at no cost to them or the landlord, that they are renting privately. The reason this is important is that many rogue landlords or those that are breaking the law often do so by not letting the authorities know they are renting a property.
With this data and the data that they can secure from tenancy deposit schemes, it makes it a lot cheaper and easier for Local Authorities and HMRC to find the ‘bad landlords’ because they can cross reference taxes with properties rented and see who is being honest, clamping down on those that aren’t.
In addition, bad landlords could be named and shamed amongst Local Authorities, so prolific naughty landlords can be curbed very quickly even if they own property across the country.
New stock especially for rent
In addition to better regulation of rented properties, it is also possible that for those who want long term rental contracts (and this has yet to be proven as a need) the government is behind build to rent projects and aims to extend the right to convert offices which aren’t being used (and some that are) to homes for sale or rent.
This will help to bring lots of new properties provided by compliant large landlords and potentially for sale too. So a big boost to potential stock available.
Will the Housing and Planning Bill impact positively or negatively on investors?
From an investor’s perspective, there isn’t really much in the Housing Bill for you to benefit from – or to worry too much about, as long as you are legally letting and property investing and making sure you pay the tax you owe!
The main downside now for investors is that making money in the future is going to get harder as the government:-
Is very keen to curb house price rises
Wants to encourage institutional investment which can cause a problem if 100+ properties come onto the market to rent at the same time you are advertising yours
Is subsidising tenants to buy as opposed to rent
Although the PRS is taking the burden of providing social homes, the amount the government is willing to fund those on benefits is being reduced
The more properties they build, the more likely demand will match supply, making it tougher to benefit from natural capital growth. So you HAVE to make your money at the start, which with a shortage of stock currently on the market in many places, is tough to do.
And of course, future buy to let investment is now being discouraged by taking away higher tax rate relief on mortgages, making it tougher to cash flow positive properties and the increased legal burden on landlords such as the Right to Rent which makes you responsible for checking your tenants are in this country legally.
The big worry now is whether the government will be forced to match Capital Gains Tax (CGT) rates with income rates. This would mean CGT of 20%; 40% and 45% as opposed to 18% for lower rate tax payers and 28% for higher rate tax payers.
Read our tax checklist to make sure you are doing what you can to mitigate relief.