FSA looks to regulate BTL market

Stamp duty exemption to end, but NAEA demand an extension

Kent’s property market exceeds expectations

Investor confidence returning

Guarantee your rent to prevent loss of income

The Financial Services Authority (FSA) has released a paper setting out its proposals for the major reforms which it believes is needed to refine and regulate the current mortgage market.

It stated within the report that because the buy-to-let sector is currently unregulated it has, as a result, been the root cause of its downfall as there are no specific standards for lenders to adhere to. However, the report did acknowledge that it has proved very beneficial to the mortgage market.

Subsequently, un-regulation has resulted in an increase in both arrears and repossessions of buy-to-let property with consumers having been attracted to the unending appreciation of property prices and not the rental income that would be achieved by them. It stated that with the current low interest rates, which should be raising the affordability of interest-only loans, buy-to-let arrears are increasing, displaying a clear indication that the sales did not adequately take into account consumers’ best interests.

Jon Pain, the FSA’s managing director of supervision, said: “The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.

“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”

According to the report, regulation of the buy-to-let market will improve the quality of mortgage products and aid in the lending decisions made, thus improving the sustainability of the market.

Michael Coogan, CML’s director general, added: "We agree with the FSA that regulation in itself cannot resolve the problems of the recent market. However, we also agree that clearly delineated responsibilities, which remove regulatory ambivalence, will help lenders, intermediaries and consumers to know where they stand, and to accept the consequences of their actions.

"As always with regulatory change, the devil may be in the detail. But we welcome the consultative approach, and look forward to working with the FSA to ensure that the objective of regulatory fairness between lenders, intermediaries and consumers is achieved in practice."

Stamp duty exemption to end, but NAEA demand an extension

With the stamp duty ‘holiday’ due to finish at the end of this year, there have been calls from the property industry for it to be extended indefinitely and for the threshold to be raised above the £175,000 limit currently in place.

Since September 2008 the Government allowed properties worth between £125-175,000 to be exempt from the normal tax of 1% in order to help boost the flagging housing market and aid first-time buyers. The ‘holiday’, which was only supposed to last for one year, has already been extended once, to 31 st December 2009.

However, the National Association of Estate Agents (NAEA) and the Association of Residential Lettings Agents (ARLA) have formed a coalition called the 1808 Coalition, and it believes that stamp duty should be reformed as it’s ‘a barrier to entry for first-time buyers and “unfairly penalised” people investing in buy-to-let portfolios’.

Its research revealed that 865 of the UK’s estate agents believe the tax is unfair, with a further 81% stating that if the Government were to reform Stamp Duty it would have an encouraging effect on the property market.

Peter Bolton-King, chief executive of the NAEA, said: “Stamp Duty unfairly penalises those investing in buy-to-let portfolios who have to pay Stamp Duty on the bulk price when individual buy-to-let investors pay a lower rate on the individual unit price.

“The time has come to re-assess Britain’s most unpopular tax, which is a levy on those aspiring to own their own homes and is manifestly perceived by all those who pay it as being unfair and punitive.”

With the end of the exemption in sight, prospective buyers have been advised to act quickly in order to take advantage before it runs out, investors and first-time buyers have already reaped the benefits over the past year.

Bolton-King continued: “Stamp Duty has failed to evolve and is an unwelcome burden for anyone seeking to buy a new home. As lenders demand even greater deposits, buyers are going to struggle to stump up the huge capital outlay that Stamp Duty demands. Now is the perfect time to seek change and produce a fairer tax that recognises the challenges that modern house buyers face.”

Kent’s property market exceeds expectations

A report by Kent County Council and Cluttons LLP, the 2009 Kent Property Market Report, has revealed that the Kent commercial property market has exceeded expectations by recording a positive and encouraging performance in the financial year between April 2008 and March 2009.

The report reviews property performance and major deals in Kent and provides insight on residential, retail, tourism and regeneration programmes and for the first time, the rural property market. It revealed that office rentals have grown by +0.4% compared to the UK average which fell -3.8%, whilst retail rental values increased by +0.9%, despite a challenging economic climate. As Kent does not depend on a single sector but has a wide-ranging property market, the economy has also benefited.

Paul Carter, leader of Kent County Council, said: "This report shows that Kent is resilient and is coming out of this recession fighting as Kent has fared well in comparison to the rest of the UK. At Kent County Council we see regeneration as a major responsibility. We will continue to invest in roads, schools and major regeneration schemes such as those in Kent Thameside. And, as a county, we must take full advantage of the opportunities presented by the arrival of high speed rail services to Kent."

The report stated that the launch of Southeastern’s high speed rail link to London from December, in conjunction with a variety of regeneration projects such as Kent Thameside, part of Thames Gateway, the county has a positive future ahead. These will further fuel investment and growth on top of the 6,900 companies currently operating in the area, with the 25,000 new homes and 50,000 jobs to be created in the next 25 years.

Investor confidence returning

A survey by the Property Investor Show, taking place from 22-24 October at Excel London, has discovered that investor confidence in both the UK and overseas property markets has increased considerably in the last three months.

The research revealed that 43% of investors are more confident in the market, with 32% attributing it to a more positive outlook from the media and 20.7% putting it down to a wider range of finance options, with 17.7% stating they are still able to obtain bank loans for their investments and have enough liquid assets to meet the current loan-to-value (LTV) ratios. Some 32.4% of investors accessed savings and 32.5% have used equity from existing assets to aid them in obtaining finance.

Nick Clark, managing director of the Property Investor Show, said: ‘The boost in confidence and renewed hunger in UK and overseas property has been signalled by reports that UK property prices have stabilised and the first signs of permanent job rises being reported.

‘There has also been a strong shift in the market with savvy UK investors beginning to re-explore overseas opportunities as they search for sound investments with better returns than the other poor performing investment vehicles such as bank savings and the stock market.’

This year at the Property Investor Show and OPP Live, Richard Bowser, PIN editor, will be hosting three seminars and chairing two panel discussions over the three-day event.

Guarantee your rent to prevent loss of income

Research from the National Landlords Association (NLA) has revealed that almost three quarters of landlords have suffered rental arrears, with 43% having occurred in the last 12 months.

As a result, the NLA has introduced rent guarantee insurance with the intention of helping landlords minimise their risk of a loss of rent. The insurance covers legal expenses and a 24-hour helpline and is available to all residential property landlords.

David Salusbury, NLA’s chairman, said: “Landlords may not realise they can protect themselves against rental arrears, but our research clearly shows there is a need to safeguard your rental income. Unfortunately we aren’t out the woods with the economy just yet, and thanks to redundancy and unemployment some tenants are struggling to pay their rent.

“While it is wise to take out insurance, landlords should not forget the importance of also taking full references and making checks at the outset of a tenancy. Keep in touch with your tenants too. If they feel they can come to you if they are facing difficulties, you may be able to come to an arrangement before rental arrears become more serious.”

PIN’s latest mortgage recap