Latoyer HA Property Blog

The Battle of the UK Affordable Housing Crisis Oct 2024

The UK is currently facing a critical affordable housing crisis, with millions of people unable to find homes they can afford to either rent or buy. For many, the dream of owning a home is becoming increasingly out of reach due to a combination of high mortgage rates, rising house prices, and stagnant wages. These challenges, alongside the insufficient construction of new housing, have created a widening gap between supply and demand, leaving prospective homeowners at a loss.

Barriers to Homeownership

A range of factors are contributing to the growing unaffordability of homeownership:

• Rising Interest Rates: The Bank of England’s efforts to control inflation by raising interest rates have driven up mortgage costs, making monthly payments less affordable for buyers, even those who have managed to save for a deposit.

• High House Prices: Although house prices are stabilizing in some regions, they remain well above the level that many people can afford, making homeownership out of reach for many, even those with savings.

• Stricter Lending Requirements: Banks have tightened their lending criteria, making it more difficult for prospective homeowners to qualify for mortgages, even if they have adequate savings.

• Cost of Living Crisis: Rising inflation has stretched household budgets, leaving little disposable income to save for a deposit or afford mortgage payments.

• Shortage of New Homes: The pace of new home construction hasn’t kept up with population growth, leading to a critical shortage of affordable homes and intensifying competition in the housing market.

These factors have created significant hurdles for aspiring homeowners, trapping many in the rental sector with limited options.

High Rent Prices

House prices could rise significantly in 2025 from a combination of rising wages, lower mortgage stress testing and reduced rates. If this happens, Landlords would benefit from the combination of lower interest rates and higher rents, meaning their profits could be set to increase.

Section 106 Homes: A Potential Solution at Risk?

Section 106 agreements are designed to ensure that developers provide a portion of affordable housing in larger developments. However, this system is facing challenges.

For instance, Bristol City Council recently withdrew from plans to build 171 new homes, redirecting funds to improve existing housing stock. As a result, these homes will now be delivered by a housing association instead of the council. Although they will remain available for social rent, this shift reflects the mounting financial pressures on local councils.

Adding to the problem, housing associations in many parts of the country are no longer bidding for Section 106 homes, causing delays in developments. Developers, who rely on the sale of affordable homes to fund construction projects, are seeing their projects stall. Anthony Lee, from BNP Paribas, estimates that around a third of current developments are facing this issue, preventing much-needed homes from being built.

The Need for Greater Investment in Social Housing

A recent report by Savills, the National Housing Federation, and the Home Builders Federation warns that Labour is on course to miss its housebuilding target by up to 475,000 homes unless more grant funding is allocated to social housing. The research shows that private developers build homes to match market demand, while affordable and social housing caters to underlying needs, which means they can be absorbed more rapidly by local markets.

Without a substantial increase in social housing development, the country could face a shortfall of 95,000 homes each year, compounding the existing housing shortage and pushing more people into unaffordable living conditions.

HMO landlords in High Demand

Landlords are increasingly transforming their properties into HMOs (Houses in Multiple Occupation) to maximize rental yields and meet the rising demand for affordable, shared housing. Local councils and housing associations are increasingly partnering with HMO landlords to provide longer-term accommodation for vulnerable individuals, creating a more stable living environment than emergency shelters. By meeting demand for affordable, quality housing, HMOs contribute to tackling the housing crisis and offer a more sustainable pathway out of homelessness.

Crowdfunding and Private Investment: A Growing Trend

While homebuyers face an uphill battle, private investors are finding new ways to succeed in the property market. Crowdfunding has emerged as an increasingly popular solution, allowing investors to pool resources to purchase buy-to-let properties. This reduces individual risk and offers a way to tap into the growing rental market, where demand is high due to the housing shortage.

At the same time, Barclays’ Property Insights Index suggests that right-sizing—moving into smaller homes—could also help alleviate some of the pressure in the housing market. With an estimated 85% of owner-occupied homes in England and Wales under-occupied, encouraging homeowners to downsize could free up larger properties for families and younger buyers.

Tax benefits for companies not individual homeowners

Amid rising tax burdens for individual homeowners, many property investors are managing their portfolios through limited companies to reduce their tax liabilities. Unlike individual homeowners who face a potential £15,000 Capital Gains Tax (CGT) hike under Labour’s plans, landlords operating through limited companies benefit from a lower corporation tax rate of 19%, compared to the 24% CGT rate for higher-rate individual taxpayers.

Stamp duty Increase for individual homeowners

Data provided to the Times by Savills showed first-time buyers in London would pay an additional £6,250 from 1 April 2025, on average, when the tax-free threshold reduces.

This would be an increase from the current average level of stamp duty of £2,752 up to £9,002. The average property price for new homeowners in the capital is £480,040.

In the South East, where the average first-time buyer price is £314,675, first-time buyers would pay £734 in stamp duty, on average, after the discount expires.

The average first-time buyer in the South East does not currently pay stamp duty.

Across the whole UK, the ending of the temporary stamp duty discount will see an extra £2,500 paid on the average home purchase.

The Risk of Zero Equity

• Early 1990s Recession: High-interest rates and a deep recession led to a significant drop in property prices. Many landlords and homeowners saw their property values plummet, leading to situations where the loan-to-value ratio exceeded the property’s worth, leaving them with little to no equity.

• 2008 Financial Crisis: The global financial crisis caused a major downturn in the UK property market. Property prices dropped by over 15% between 2008 and 2009 in some regions, pushing many landlords, particularly those who had purchased at peak prices, into a zero or even negative equity position.

• Recent Economic Challenges (2022-2024): With rising interest rates and inflation since 2022, some landlords have found it challenging to maintain equity. High-interest rates have increased mortgage costs, which, coupled with falling property prices in certain areas, has led to equity erosion, particularly for those with high loan-to-value ratios.

A combination of rising interest rates and falling house prices can severely impact landlords’ portfolios. Imagine a landlord with a property valued at £300,000 and a mortgage of £270,000. If property prices fall by 10% (to £270,000), any remaining equity is erased. With rising interest rates, the landlord is not only paying more monthly but may also have no equity left to refinance or sell without incurring a loss.

Conclusion: A Complex and Ongoing Crisis

The UK’s affordable housing crisis is a multifaceted issue that demands urgent attention from all sectors—government, developers, and investors alike. For many, the dream of homeownership remains elusive, but innovative solutions such as property crowdfunding and right-sizing offer some potential relief. However, without significant investment in social and affordable housing, the gap between supply and demand will continue to grow, leaving more people struggling to secure a home.

New era of Business Pension Sept 2024

Shojin has announce that it has partnered with Killik & Co to facilitate SIPP investments into Shojin’s real estate investment opportunities.

Useing their SIPP to purchase premises for their company, allow them to pay rent back into their own pension fund. This approach can provide significant tax advantages, including relief on contributions and capital gains, while helping secure a physical asset for the business.

Shojin's SIPP provides them with the flexibility to invest in a wide array of assets, from stocks and shares to corporate bonds, funds, and even niche investments like crowdfunding or peer-to-peer lending. This diversity can help Shojin grow their wealth in line with their financial goals while retaining more control over their investment strategies.

Contributions made to Shojin's SIPP are eligible for tax relief, providing the businesses with a way to reduce their tax liabilities. This tax efficiency can free up additional resources that can be reinvested into the company, fostering growth and sustainability.

Acorn Sponsor Fairford Town FC Aug 2024

We are delighted to share that we are sponsoring Fairford Town FC. As a result, the club’s Cinder Lane ground will now be known as the Acorn Property Group Stadium. “We’re thrilled to have the opportunity to sponsor Fairford Town FC and be part of the community. The redevelopment of the former Coln House School is an exciting project for us and we are delighted to be able to bring these wonderful buildings back to life for the people of Fairford.” – James Groomsbridge, Acorn.

Acorn News

Cash home buyer at record rise Sept 2024

Leading cash home buying company Quick Move Now has reported a 60 percent rise in enquiries from struggling landlords who are looking to sell.

The company, which offers a quick sale alternative to selling on the open market, says the increase has been recorded over the last three months as a result of increased financial pressure caused by unpaid rent.

Danny Luke, managing director at Quick Move Now, explains: “Many landlords are experiencing financial difficult as a result of tenants being unable to pay their rent. Due to government restrictions, however, they are unable to give notice to their tenants. They find themselves in a very challenging position. It has been reported that as many as half of all landlords are currently dealing with rent arrears.

“Sitting tenants in rent arrears make it incredibly difficult to sell investment properties and many landlords are unsure where to turn.

“We have also observed a 23 percent increase in the number of landlords wanting to sell flats. A greater number of people working from home means more tenants are choosing suburban homes with outdoor space over inner city apartments, leading to a significant drop in demand and surplus stock. We have also, of course, seen the cladding used on apartments becoming a growing issue. Without correct certification, many mortgage companies are refusing to lend on any apartment blocks with cladding. There is currently a big backlog in testing capacity, which means many property investors are only able to sell to cash buyers, which severely limits saleability.”

Landlord TODAY

National Landlord Investment Show 2024

FREE Admission and Dates to Remember

Wed 25 Sept, 10:00-18:00

Ashton Gate Stadium, Ashton Rd, Bristol

--------------------------------------------

Tue 15 Oct, 09:00-15:30

Manchester United Football Ticket Office, Sir Matt Busby Way, Old Trafford Manchester

--------------------------------------------

Wed 30 Oct, 09:00-17:00

Old Billingsgate, 1 Old Billingsgate Walk (Riverside, 16Lower Thames st London