UK Property News Week 29

Welcome to NestInsights, your guide to the evolving UK property market. In this blog series, we explore the latest property news and developments that shape the sector, offering you the insights needed to navigate and thrive. Our goal is to provide a comprehensive overview that empowers you to make well-informed decisions in this dynamic market.

Table of Contents

• King’s Speech Reforms and the Rental Crisis

• Victory in £47k Stamp Duty Dispute

• Landlord Fined for Tenant Harassment and Illegal Eviction

• Labour's Housebuilding Target at Risk

• Government's Opportunity to Support Leaseholders

• Increase in Former Rental Properties for Sale

UK Property News Week 29

King’s Speech Reforms and the Rental Crisis

The recent King's Speech has introduced several reforms aimed at addressing the issues within the UK's rental market, but there are growing concerns that these measures might exacerbate the rental crisis rather than alleviate it.

The average UK private rent has increased significantly over the past year.

In the 12 months leading up to June 2024, rents in England rose by 8.6% to an average of £1,310. Wales and Scotland saw increases of 8.2% and 8.4%, respectively, while Northern Ireland experienced a 10.3% rise​​.

This upward trend is largely driven by the widening supply-demand imbalance in the rental market.

The government’s proposal to abolish Assured Shorthold Tenancies and no-fault evictions, while well-intentioned, poses significant risks. Amanda McNeil, head of real estate dispute resolution at Howard Kennedy, points out that over 20% of properties in the private rented sector do not meet the Decent Homes Standard. The cost and effort required to upgrade these properties could drive many private landlords out of the market​​.

The plan to scrap Section 21 evictions is a central aspect of the reform. Currently, landlords can reclaim possession of their properties at the end of a tenancy through an accelerated possession procedure.

Abolishing Section 21 will necessitate a court hearing for all possession cases, further straining an already backlogged court system. This change could make it commercially unviable for landlords to continue letting their properties, leading to a reduction in the housing supply and potentially higher rents​​.

Chris Norris, policy director for the National Residential Landlords Association, highlights that with an average of 15 households chasing every available rental property, any reduction in supply due to these reforms will exacerbate the current crisis.

Effective reforms need to create a fair, workable, and sustainable system for both landlords and tenants, which includes fixing the broken justice system that currently delays possession orders​​.

For these reforms to be successful, there must be a significant investment in the court system. Digitalisation and increased resources are essential to handle the anticipated increase in court cases. Without this, landlords may find it more challenging and costly to recover their properties, further discouraging investment in the rental market​​.

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Victory in £47k Stamp Duty Dispute

In a landmark ruling, Anne-Marie Hurst, the owner of a 16th-century Grade II listed manor house, successfully contested an additional stamp duty charge of £47,750 imposed by HMRC.

This case underscores the complexities and nuances of Stamp Duty Land Tax (SDLT) regulations, particularly when dealing with mixed-use properties.

The dispute centered on Sortridge Manor, a historic property in Devon valued at £1.8 million. HMRC contended that the residential rate of SDLT should apply to the entire property, rejecting Hurst's claim that part of the property was used for commercial purposes, specifically as holiday accommodation.

Initially, Hurst had paid the non-residential rate of SDLT when she purchased the property in August 2021​​.

Hurst argued that approximately 30% of the manor was used for self-catering holiday accommodation, marketed under the name Leat House. The holiday let included three bedrooms, a living and dining room, a kitchen, and a bathroom, and was promoted on various websites.

Despite these arrangements, HMRC maintained that there was insufficient evidence to classify the property as partly commercial, especially citing the limited number of online reviews and sporadic bookings as evidence against its commercial use​​.

Additionally, Hurst had formalized a lease agreement with a local farmer for grazing rights on a meadow included in the property, charging £500 annually. HMRC disputed this, arguing that the meadow did not constitute grounds for a mixed-use classification​​.

The First Tier Tribunal (FTT) ultimately ruled in favor of Hurst, albeit by a narrow margin. Tribunal Judge Amanda Brown KC noted that the activities associated with the holiday accommodation were sufficient to qualify as a commercial use under the relevant tax legislation. This decision hinged on the continuity and permanence of the commercial activities, rather than just the scale or financial turnover​​.

Landlord Fined for Tenant Harassment and Illegal Eviction

Olufemi Forseythe, a buy-to-let landlord in Hatfield, was fined for harassing and illegally evicting a tenant. This case, overseen by St Albans Magistrates' Court, highlights the severe repercussions landlords can face for violating tenants' rights.

Forseythe was fined £1,800, ordered to pay £750 in costs to Welwyn Hatfield Borough Council, and a £72 victim surcharge.

The court found that Forseythe harassed his tenant through repeated messages threatening to move into the property and change the locks without her consent. Additionally, he threatened to call bailiffs to evict her without any legal basis and sent her numerous insulting and aggressive messages.

Beyond harassment, Forseythe also failed to address critical maintenance issues, such as a defective boiler. The council had to intervene to reinstate heating and hot water for the tenant, further underscoring the landlord's neglect of his legal responsibilities.

This case marks the first successful prosecution for illegal eviction and harassment by Welwyn Hatfield Borough Council. Cllr Gemma Moore emphasized the council's commitment to protecting tenants and holding rogue landlords accountable. She stated:

Our message to rogue landlords and agents is very clear. We will work tirelessly together with our partners to locate and crack down on unscrupulous landlords and managers who fail in their duty to support tenants, treat them with respect, and keep them safe.

Labour's Housebuilding Target at Risk

The Labour government has pledged an ambitious target of delivering 1.5 million new homes during this parliament. However, this goal is now under threat without a substantial injection of emergency funding into the affordable housing sector.

Recent data reveals a concerning trend in the affordable housing sector.

In the fiscal year 2023-24, housing associations and councils started just 32,705 homes, a significant 30% decline compared to the previous year.

This drop is primarily attributed to financial constraints faced by housing providers, including capped income, damaging cuts, and soaring costs. The figures underscore the urgent need for government intervention to stabilize and boost housing production.

An open letter from major housing associations and councils, including the National Housing Federation (NHF) and the Local Government Association (LGA), has highlighted the pressing need for an emergency cash injection. The letter emphasizes that the current financial pressures have decimated the budgets of housing providers, significantly limiting their ability to build new homes. With rental income down 15% in real terms compared to 2015, councils are projected to face a £2.2 billion shortfall in housing budgets by 2028.

Labour’s commitment to the largest boost in affordable and social housing in a generation is at risk.

The number of affordable home starts fell by 22% to 30,631 in the year ending March 2024, with only 7,179 homes designated for social rent, the most affordable tenure model.

This decline illustrates the broader challenges within the housing sector, where financial viability is increasingly under threat.

Paul Hackett, CEO of Southern Housing, which manages 70,000 homes, articulated the financial strain on housing associations. Hackett noted that the revenue from rents is insufficient to cover operational costs, leading his association to halt the purchase of new sites. He highlighted the unprecedented financial challenges facing housing associations, which have severely limited their capacity to develop new homes.

In response to these challenges, the LGA and NHF have called on the government to expand the building safety fund, which finances the removal of dangerous cladding, to include social housing providers.

Additionally, they are demanding emergency funding to be added to the current £11.5 billion affordable homes programme. The Ministry of Housing, Communities and Local Government has reaffirmed its commitment to delivering 1.5 million new homes, promising to work in partnership with councils, housing associations, and the broader sector to achieve this target.

Government's Opportunity to Support Leaseholders

The new government has a critical opportunity to implement meaningful reforms for the millions of leaseholders in England and Wales. As the Leasehold and Freehold Reform Act left significant gaps, there is a pressing need to address the issues surrounding service charges, transparency, and accountability.

According to the government's data, the average service charge for leaseholders has surged to £3,634, marking a 41% increase over the past five years.

Despite the substantial financial burden these charges represent, the Leasehold and Freehold Reform Act failed to provide adequate measures to control or regulate them​​.

It is essential to dispel common misconceptions about service charges. Firstly, service charges are not exclusive to the leasehold system; all multi-occupancy buildings require contributions for maintenance, regardless of tenure. Secondly, service charges are designed as cost recovery mechanisms, meaning any unspent funds should be returned to leaseholders. Lastly, professional freeholders play a crucial role in managing these funds and ensuring that maintenance responsibilities do not fall solely on individual homeowners​​.

The previous government's focus on ground rent, while ignoring the pressing issue of service charge regulation, was a missed opportunity. Effective regulation of service charges would be straightforward and popular among leaseholders. The Property Ombudsman's review indicates that complaints from leaseholders predominantly revolve around service charges.

Addressing this issue would not only improve standards but also demonstrate the value of professional freeholders who procure services like building insurance on a large scale and provide essential management expertise.

Increase in Former Rental Properties for Sale

The buy-to-let (BTL) sector is witnessing a significant shift as more landlords choose to sell their rental properties, leading to a notable increase in the number of former rental homes hitting the market. This trend is driven by a combination of economic pressures and regulatory changes, creating a challenging environment for landlords and tenants alike.

Recent analysis by TwentyEA highlights a dramatic rise in the number of properties listed for sale that were previously available for rent.

In June 2024, 18.4% of all properties listed for sale had also been listed for rent within the past three years.

This equates to over 28,000 properties, marking a 100.6% increase from June 2023 and a 34.6% rise from June 2019. The figure also represents a 27.4% increase from May 2024, the month preceding the general election called by Rishi Sunak.

Several factors contribute to this exodus from the BTL market:

• Interest Rate Hikes: Rising interest rates have increased the cost of borrowing, putting pressure on landlords with variable rate mortgages. This has reduced profitability and made it more challenging to manage mortgage payments, prompting many to sell off properties.

• Regulatory Changes: The introduction of stricter regulations and the anticipated abolition of Section 21 evictions have created uncertainty. Landlords are concerned about the increased difficulty in repossessing properties and the potential for higher costs associated with tenant disputes.

• Cost of Living Crisis: The overall rise in living costs, including energy prices and maintenance costs, has further strained the financial viability of managing rental properties. This has led some landlords to reassess the attractiveness of retaining their BTL investments.

The increase in former rental properties for sale is likely to have several impacts on the rental market:

• Supply Reduction: With many landlords exiting the market, the supply of rental properties is decreasing. This exacerbates the existing supply-demand imbalance, potentially driving up rental prices.

• Tenant Displacement: As properties are sold, tenants are often forced to find new accommodations, adding to the instability in the rental market.

• Market Opportunities: For prospective buyers, particularly first-time homebuyers, the influx of properties may provide opportunities to enter the housing market at more competitive prices.

Conclusion

The UK property market continues to evolve, presenting both challenges and opportunities for stakeholders. This week's insights underscore the complexity and dynamism of the sector:

• The King's Speech reforms, while aiming to improve the rental market, may inadvertently exacerbate the rental crisis if not carefully managed.

• The landmark ruling in the £47k stamp duty dispute highlights the intricacies of tax regulations for mixed-use properties.

• The case of a landlord fined for harassment and illegal eviction serves as a stark reminder of the legal obligations landlords must uphold.

• Labour's ambitious housebuilding targets are at risk without urgent financial intervention to support the affordable housing sector.

• The government's opportunity to reform leasehold regulations could bring much-needed transparency and fairness to millions of leaseholders.

• The sharp increase in former rental properties for sale reflects broader economic and regulatory pressures reshaping the buy-to-let market.

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