Month: August 2023

Landlords in the capital’s prime rental sector are facing a stark choice between topping up a rent shortfall or selling up.

Luxury residential property expert, Jo Eccles, reports that highly leveraged landlords are coming under serious cost pressures as fixed rate mortgage deals come to an end. Stress testing by lenders means some are finding they can borrow 30% less than before, forcing them to make up the shortfall or sell.

The founder and MD of Eccord, which manages £1.5 billion worth of residential property in prime central London for portfolio and individual landlords, says: “Those with the financial flexibility are reorganising their finances to pay down debt and raising rents by an average of 15% at renewal, but it isn’t always enough to meet their increased borrowing and service charge costs – which are up 30% in some buildings.”

One landlord has seen his mortgage repayments more than double from £4,000 a month to £9,000 a month and can’t sell due to cladding issues.

Rent increase

“We’ve secured him a significant rent increase of 19% but he has still swung from a monthly surplus to a £2,000 shortfall, which he’s having to personally top up each month.

“This illustrates that the challenges landlords are facing can’t always be resolved with rent increases alone.”

Some now have no choice but to exit the market which will further diminish supply and cause more hardship for tenants, believes Eccord.

“For landlords who are able and committed to remaining in the market long term, we are seeing them review their existing arrangements,” she adds.

“Many are choosing to move away from underperforming letting agents or property managers with high staff turnover, as they recognise the importance of tenant experience now more than ever, if they’re to achieve high rent increases.”

Original Post from  landlordzone.co.uk

Insolvencies rocket as army of small firms – seen as backbone of the sector – struggle with falling demand, rising interest rates and higher costs.

It’s tough out there,” says Steve Midgley, the managing director of Fairgrove Homes. His east Midlands firm, which builds about 50 homes a year, is one of Britain’s army of small housebuilders that are struggling with falling demand, rising interest rates, labour shortages, and high material and wage costs.

“It’s taking longer for people to sell their own house,” says Midgley. “So it’s taking vastly longer to exchange contracts. After the reservation, we’re talking three or four months, whereas at one time we’d have had that down to four to six weeks. And that all puts stress on the working capital, the work in progress and everything.”

Cracks in the housebuilding market – a key barometer of consumer confidence – are growing by the day. Barratt Developments, one of the largest housebuilders in the UK, recently said it would build 20% fewer homes this year. Taylor Wimpey, another big builder, has said the share of its first-time buyers taking on mortgages of more than 36 years has almost quadrupled since 2021 to 27%.

Cameron Homes, a family-owned firm based in Staffordshire, is offering discounts and free extras, such as carpets and upgrades, to persuade hesitant buyers.

“We are having to negotiate with purchasers,” says Kate Tait, the firm’s land and planning director who previously worked at the much bigger builder Persimmon. “People are taking quite a lot longer to commit to the purchase of a house because of the uncertainty around what it’s going to cost on interest rates. Not just for the first two years, but what’s going to happen beyond that.”

The Bank of England’s sharp hike in rates since December 2021’s record lows – increasing them to a 15-year-high of 5.25% last week – has sent shockwaves through the housebuilding industry.

Midgley says: “People are much more risk averse and they want to see a house nearly finished before they commit. In the last few years we’ve been selling plots at a very early build stage and in some cases before they were started and that has been a real shift change.”

House prices across the UK fell at the fastest annual pace in 14 years last month, the Nationwide building society said recently. Prices have declined by 4% since the peak last summer, and economists say they have further to fall. However, a full-blown housing crash – during which prices fall by 20% or more – looks unlikely to happen, with unemployment low and more people on fixed-mortgage deals than during the financial crisis.

The downturn has forced the big housebuilders to drastically scale back their projects and land-buying, and sales and profits have taken a big hit. Barratt is on course for a double-digit fall in annual profits, while Taylor Wimpey’s are expected to halve.

Cameron expects to deliver between 200 and 220 homes this year, down from the 250 to 300 it usually builds in a year. But Tait says newbuilds are still popular as they are cheaper to run, with lower energy bills and fewer home improvements needed than older properties.

Midgley says: “We still have demand. As always, good locations are key and correct pricing.” Fairgrove’s biggest project is at a former brewery site in Kimberley, Nottingham, where a two-bedroom apartment costs £195,000.

According to Aynsley Lammin, a building analyst at the banking and wealth management group Investec, the total number of UK homes completed in 2023 could be down by 25% on last year’s figure of 177,400 before recovering slightly to 135,700 in 2024.

He expects “this downturn to be very painful but not as bad as during the financial crisis of 2007-08”, when housebuilding slumped 40% from peak to trough and prices fell by 20%.

The latest housing downturn will feed into weakness in the wider economy. Housebuilding is worth about 3% of the UK’s economic output and Charlie Campbell, an analyst at stockbrokers Liberum, expects newbuild completions to fall by about 20%, resulting in a 0.6% hit to gross domestic product this year – with smaller firms feeling the pain more than bigger ones.

“The big builders in the UK have got lots of cash on the balance sheet,” he says. “Smaller builders tend to run for debt and they have the problem that debt’s costing them more and more and is probably less and less available. The other problem is that the large ones have lots of land. Therefore, delays are not a huge problem. But for some of the smaller ones planning and other delays really make it pretty difficult.”

While the large builders dominate the headlines, Britain’s 342,000 small and medium-sized construction firms are regarded as the backbone of the industry. The problems are mounting: construction has had more insolvencies than any other sector in the past year and accounted for almost one in five of all business failures in recent months. Between April and June, 1,122 construction firms went bust, the most since spring 2009, according to the Insolvency Service.

The construction industry suffered more insolvencies than any other sector in April-June 2023

Quarterly insolvencies in England and Wales, top five sectors

The effects are being felt at the building materials suppliers Travis Perkins and Marshalls, which have both warned of lower profits in recent months. Marshalls is making further job cuts and is closing a factory.

Nick Roberts, the chief executive of Travis Perkins, says: “We’ve seen some customers hold back because they are concerned about their mortgage rates. They are just not confident to press ‘go’ on a home improvement project.”

The cost of building materials rocketed after Russia’s invasion of Ukraine in February last year, but has eased in recent months. Prices for timber and steel are falling, but those for concrete and related products are still rising.

The number of small housebuilders has plummeted from about 12,000 in the 1980s to just over 1,000 today, according to the Federation of Master Builders. Back then, it took six to eight weeks from submitting a planning application to getting the first spade in the ground, according to Steve Morgan, who founded the housebuilder Redrow as a small firm in the 1980s. Today, it takes months or years until everything is approved.

Jennie Daly, the chief executive of Taylor Wimpey, describes the planning system as “extremely challenging”, saying that while requirements for housebuilders have become more complex, local authority planning resources have more than halved since 2010.

The UK has long had a housing shortage as the population has grown faster than homes have been built, sending rents and house prices soaring. According to the Centre for Cities thinktank, the housing market is missing 4.3m homes that could have been built since the 1950s, but were not because of outdated planning regulations.

Tait thinks the planning system is too politicised. “In the UK, it’s become such a political hot potato, the location of new housing, that we’re simply failing to deliver anywhere near the amount of housing that we need,” she says.

Shortages of bricklayers, plasterers and other construction workers – caused in part by Brexit and an ageing workforce – have also hampered the sector. The government recently added them to its “shortage occupation list”, making it easier for foreign builders to come to Britain.

“It’s a year too late. We needed that a year ago. They’re doing that just as people are slowing down,” says Midgley.

Original Post from theguardian.com

A well-known lettings agency has made the shocking move of asking a landlord to be a guarantor for their own tenants, it has been revealed.

Julie Ford, who is a mediator at PRS Mediation, says a female landlord has been in touch with her to ask her for help with a problem and during the discussions revealed she was named as guarantor for her own tenants.

This highly unusual situation means that, should the tenants stop paying the rent, it will be her who covers their payments.

The landlord was asked by her lettings agency to be the guarantor after it was recommended that she take out rent guarantee insurance as one of the two people renting the property had an insecture job and therefore the insurance company involved asked that they provide a guarantor, paperwork for which Ford has been shown.

The situation came to Ford’s attention after the landlord had requested vacant possession of the property when her circumstnaces changed and she needed to move back in. But her lettings agency had already renewed the rental contract without telling her – which led Ford to look at the paperwork more closely.

The landlord has been advised to seek specialist legal counsel to effect an eviction, and is expected to report the lettings agency to the relevant redress scheme and/or Trading Standards.

Baffled

“I am baffled by this and am don’t even understand how the rent guarantee insurance company could have allowed this to go through,” says Ford in a video that has gone viral. “Someone clearly isn’t looking at the admin.”

She also suggests that using landlords as guarantors for their own tenants may be a new ruse used by some lettings agencies during the cost of living crisis to fill properties when tenants fail referencing or rent guarantees insurance is required but the tenants cannot provide a guarantor.

It’s certainly a loophole – the various industry codes of conduct make no reference to the practice and for example both the PRS redress schemes make it clear in their codes of conduct that guarantors are separate to landlords and tenants, but don’t exclude a landlord being the guarantor.

But as Ford points out, most landlords would not want to end up paying the rent for their own tenants and should refuse such a request.

Original Post from landlordzone.co.uk

If you live in a flat, or are considering buying one, your mortgage lender may ask to see the building’s EWS1 form. Here’s everything you need to know about EWS1 forms, who needs one, how to get one, who pays and the associated issues.

In the wake of the Grenfell Tower fire disaster new fire safety regulations were brought in for cladding on residential buildings. To ensure external wall systems (EWS) were properly assessed for fire safety, the EWS1 form was introduced in 2018.

The form is evidence that a building with potentially combustible cladding has had a fire safety assessment. When first introduced, they were only required for buildings over 18m or six storeys in height. But, in 2020, the rules were changed to include all residential buildings of any height. Then, in August 2021, the rules changed again so an EWS1 is not required for buildings under 18m.

To get an EWS1 certificate, a qualified professional will conduct a fire-risk appraisal of the external wall system, or cladding. They will then sign the EWS1 form. One EWS1 form covers the whole building and is valid for five years in England and Wales. In Scotland, separate EWS1 certificates may be needed for each flat.

The EWS1 form, also known as an EWS1 certificate, was intended to reassure lenders so that mortgages can be offered on flats within a building that has cladding.

The EWS1 form isn’t the same as a fire safety assessment of the building. It is a report for valuers and lenders conducted by a specialist fire engineer of the external wall construction.

Based on that assessment, the building will be assigned one of the following ratings:

Option A – External wall materials are unlikely to support combustion. Split into:

• A1 – There is no cladding that contains significant quantities of combustible material
• A2 – A risk assessment of cladding has taken place and no remedial works are required
• A3 – Cladding is unlikely to support combustion but remedial works may still be needed

Option B – The cladding contains combustible materials. Then your building can be:

• B1 – The fire risk is low enough that remedial works are not required
• B2 – The fire risk is high enough to require remedial work

EWS1 and mortgages – what’s the latest?

Six of the UK’s biggest banks have updated their policies following new guidance published in December 2022 by RICS, which guides valuers on how to take into account any agreed remediation funding and timelines when forming an opinion on the value of properties in blocks of flats with cladding.

The lenders said they would offer mortgages on properties in blocks above 11 metres where there are safety issues providing an agreed remediation plan funded by either the government or a developer is in place. While some lenders may lend to leaseholders who are covered by protections in the Building Safety Act, even where a plan is not in place.

However, there are some variations in banks’ policies. For example, Santander will reportedly consider mortgage applications in England on properties in buildings ‘irrespective of the building’s height or whether remediation work has commenced, provided the correct evidence is shared’. And that it won’t require an EWS1 form ‘unless specifically requested’. While Lloyds Banking Group said it updated its position on 19 December stating it will no longer require an EWS1 form to ‘progress applications’ for properties in England that are in buildings five storeys or higher.

While this is hopefully positive news for some people living or wanting to sell homes that may be affected by this issue, time will tell how it works in practice. And if this does impact you it’s a good idea to chat it through with a fee-free mortgage broker who will be able to give you the run down on each lender’s positions.

My building does not have cladding, do I need an EWS1 form?

If your building doesn’t have cladding, or a wooden balcony, then it should not require an EWS1 form. However, don’t assume you don’t have cladding. Buildings can look as if they are built from traditional materials, but it is actually a brick or stone slip external wall system which is classed as cladding. Even some brick or stone-built properties may need an EWS1 form if they have decorative panels that require a fire assessment.

When do I need an EWS1 form?

If you are the leaseholder or freeholder of a property in a building that requires an EWS1 form, then you may need it when you are dealing with mortgage valuers ie when it comes to selling your home or remortgaging with a new mortgage provider. EWS1 certificates are not a legal requirement but mortgage lenders may require an EWS1 for them to offer a mortgage on properties within that building.

An EWS1 certificate allows valuers to know that your building has undergone a fire safety assessment and helps them to put a value on the property that considers whether remedial works are needed.

Which lenders don’t require an EWS1 form?

Lloyds Banking Group has stated it will no longer require an EWS1 form to ‘progress applications’ for properties in England that are in buildings five storeys or higher. But for the most up to date information on which lender don’t require an EWS1 form it’s a good idea to speak to an expert fee-free mortgage broker.

Who arranges an EWS1 certificate?

It is the building owner’s responsibility to arrange the fire safety assessment and subsequent EWS1 certificate. Leaseholders, valuers and lenders cannot arrange for an EWS1, only the legal owner of the building can do so.

The Fire Safety Act 2021 stipulates that a Fire Risk Assessment of a residential building must now include any cladding. This means if your building’s Fire Risk Assessment is several years old it won’t have included the external wall system. It is the owner of the building’s legal duty to have an up-to-date Fire Risk Assessment.

If the freeholder of your building is refusing to arrange everything for an EWS1 form, your first step should be to get together with other leaseholders in your building and write to the owner as a group. That will add additional pressure and hopefully resolve the problem. If not, you can approach your local council for assistance.

How do I get hold of my building’s EWS1 form?

If your building has an EWS1 form, you should be able to get it from the owner of your building. Alternatively, you may be able to find it on the Building Safety Information Portal, but there have been delays in getting all existing EWS1 forms uploaded onto the website.

How much does an EWS1 form cost?

The cost of the initial fire risk assessment (needed before an EWS1 certificate is produced) varies depending on the size of your building and the amount of cladding that needs to be assessed. Typically, it costs at least £6,000 but can rise to over £20,000 if the situation is particularly complex.

It is the freeholder’s responsibility to pay the bill, but they could pass a portion of those costs onto the leaseholders. It will typically depend on the terms of the lease between the building owner (the freeholder) and the leaseholders as to who pays for specific maintenance or safety works.

If there is no specific mention of fire risk assessments in the lease, the freeholder may still be able to use other wording in the lease (for example, in a ‘sweeping up’ clause) to justify passing on the cost to leaseholders.

If leaseholders are asked to pay, the cost is usually included in the annual service charge.

It shouldn’t cost you anything to get hold of a copy of your building’s EWS1 form.

Do I need an EWS1 to remortgage?

If the property you want to remortgage is in a building with cladding your lender may ask to see the EWS1 form – but this varies by lender and also on factors like how tall your building is and how much of it is covered in cladding. 

If there is unsafe cladding on my building what then?

If your building has unsafe cladding it will be marked on the EWS1 form as either B1 or B2. B1 means that the risk isn’t significant to require remedial work. B2 means the cladding needs remedial work to make it safe.

If your building is over 11m tall, the government will pay for the unsafe cladding to be removed. The cost is being covered by a fund which major housing developers are paying into.

A new Residential Property Developers Tax was announced in February 2021 to raise funds to help cover the cost of making cladding safe.

At present, it is still the leaseholders who will foot the bill for remedial works on buildings that are under 11m in height. However, the government has announced that it doesn’t want leaseholders to be liable and is working on plans to help residents of lower-rise buildings.

Original Post from hoa.org.uk