UK Property News Week 9

Welcome to NestInsights, where we delve into the currents shaping the UK property market. Our focus extends across a spectrum of issues and developments that are pivotal to understanding the dynamics at play within the property sector.

From regulatory changes and market trends to significant legal actions and innovative growth sectors, we aim to provide a overview of what matters most to homeowners, investors, tenants, and industry professionals alike.

Our goal is to offer a comprehensive overview that informs and empowers our audience to make informed decisions in a dynamic market.

Table of Contents

• Severe Maladministration by Birmingham Council Exposed by Housing Ombudsman

• Investigation into Major Housebuilders by Competition Watchdog

• London Mayor's Call to Seize £1.1bn of Russian-owned Property

• Director Banned Following £57m Loss in Unlawful Care Home Scheme

• Record Low Buy-to-Let Mortgage Rates According to Moneyfacts

• Growth of Build To Rent Sector in London as Reported by Foxtons

UK Property News Week 9

Severe Maladministration by Birmingham Council Exposed by Housing Ombudsman

In a significant development impacting the housing sector, the Housing Ombudsman has disclosed six instances of severe maladministration by Birmingham City Council concerning its handling of leaks, damp, and mould issues, along with associated complaint management procedures.

These findings underscore the crucial role social housing plays in providing safe and secure residences to millions and emphasize the importance of landlords offering effective services that protect this fundamental aspiration.

The cases highlighted include situations where residents, including a disabled mother, were left in conditions worsened by damp and mould, with complaint responses reduced to informal emails from contractors.

This revelation followed the Ombudsman's Special Investigation Report into Birmingham City Council, which related to events occurring before the report's publication. In response, the Council has shown a positive attitude towards the Ombudsman's recommendations, undertaking service improvements.

Case Summaries:

• Case A: Featured severe maladministration due to the Council's failure to perform necessary damp and mould remediation work, impacting the resident's health and rendering a room uninhabitable. Despite the resident's reports, the repairs were delayed and inadequately documented, suggesting unsuccessful remediation efforts.

• Case B: Highlighted the Council's negligence towards a resident and her vulnerable mother living in a severely damp and mould-infested home. The Council failed to conduct a damp survey or engage a specialist promptly, leading to prolonged suffering for the residents.

• Case C: Exposed the Council's wholly unreasonable complaint handling following a flood that damaged a resident's ceiling. The Council's reliance on unverified contractor updates for their complaint responses added to the resident's distress.

• Case D: Concerned the Council's handling of a persistent leak over three years, demonstrating a failure to diagnose and repair the issue effectively, alongside poor communication.

The Ombudsman's findings prompted orders for the Council to undertake full investigations, issue apologies, and compensate the affected residents.

Moreover, the Council has committed to introducing a new Damp and Mould strategy, alongside implementing new Complaints and Compensation Policies, aiming to address the highlighted issues comprehensively.

Richard Blakeway, the Housing Ombudsman, stressed the learning opportunities these cases present for landlords, particularly in improving complaint handling and service delivery.

The Council's acknowledgment of its failures and commitment to service enhancement reflects a constructive approach towards rectifying the identified issues and enhancing resident experiences in social housing.

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Investigation into Major Housebuilders by Competition Watchdog

The UK's Competition and Markets Authority (CMA) has initiated an investigation into some of the country's largest housebuilders, probing whether there has been illicit sharing of information that could potentially influence house prices.

This move comes on the heels of a year-long in-depth study into the housebuilding sector across England, Wales, and Scotland, highlighting a need for "significant intervention" to ensure the construction of a sufficient number of homes to meet growing demand.

This investigation by the CMA has also brought to light concerns regarding the quality of newly built homes, suggesting that the issues within the sector extend beyond just the availability of housing.

According to Sarah Cardell, CMA Chief Executive, the investigation has uncovered potential exchanges of confidential, commercially sensitive information relating to sales prices and sale rates amongst major UK housebuilders.

This revelation has raised questions about the compliance of these companies with competition law, prompting the launch of a new Competition Act investigation to delve deeper into these practices.

The housebuilders under scrutiny include prominent names such as Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey, and Vistry.

The CMA has clarified that it has not yet concluded whether competition law has been violated but noted that any non-public information sharing among housebuilders regarding house prices, buying incentives, and sales rates could restrict competition and potentially harm consumer interests.

The investigation's findings have had immediate repercussions in the market, with share prices of some of the implicated companies experiencing drops.

For instance, Persimmon shares fell by 2.8%, while Taylor Wimpey saw a 2.7% decrease in its share value. The companies have responded to the investigation with commitments to full cooperation with the CMA, emphasizing their intent to comply with the regulatory examination.

Beyond the specific allegations of information sharing, the CMA's broader report on the housebuilding market has identified "persistent shortfalls" in the number of homes being constructed. This shortfall is particularly acute in areas where housing is most needed, adversely affecting affordability and accessibility for many potential homeowners. The report critiques the current planning system as a significant barrier to construction, labeling it as "complex and unpredictable."

In response, the CMA has recommended measures to streamline the planning process and other actions to facilitate the construction of more homes each year, thereby making housing more affordable and accessible. However, the authority also cautions that even with these measures, further action may be necessary to meet the substantial housing needs across Great Britain.

This investigation into major housebuilders by the CMA marks a critical step in addressing both the competitive practices within the housebuilding industry and the broader challenges facing the UK's housing market.

London Mayor's Call to Seize £1.1bn of Russian-owned Property

In a bold move reflecting the intertwining of international geopolitics with local housing policy, London Mayor Sadiq Khan has issued a call for the UK government to seize properties owned by individuals linked to Vladimir Putin. This unprecedented suggestion comes as a response to the continued geopolitical tensions following Russia's invasion of Ukraine, highlighting a unique approach to both sanctioning those associated with the Kremlin and addressing London's housing crisis.

The Mayor's proposal specifically targets properties owned by "Putin's cronies," advocating for their sale to fund the construction of affordable homes in London.

According to City Hall's analysis, the proceeds from selling these Kremlin-linked properties, valued at approximately £1.1 billion, could potentially finance the construction of up to 4000 new homes in the capital.

This approach not only aims to penalize those implicated in supporting Putin's regime but also proposes a pragmatic solution to the city's housing shortage.

The government has already sanctioned 1700 individuals and entities in response to the invasion, but Khan's suggestion adds a new dimension to the use of sanctions as a tool against foreign political figures. By reallocating the seized assets towards housing, the Mayor envisions providing much-needed relief to Londoners, including offering affordable accommodation to Ukrainian refugees who have sought sanctuary in the city.

This initiative underscores the complexities of property ownership in London, where international investments have significant implications for the local housing market. The Mayor's letter to Housing Secretary Michael Gove expressed concerns over the use of financial trusts to obscure property ownership, indicating a broader issue of transparency in the UK's property market.

The government's response to Khan's proposal includes an emphasis on the extensive sanctions already imposed and the ongoing efforts to enhance the transparency of property-owning trusts. These measures aim to illuminate the true ownership of properties in the UK, ensuring that those with links to the Putin regime cannot exploit the UK property market for their benefit.

Director Banned Following £57m Loss in Unlawful Care Home Scheme

The UK's Insolvency Service has imposed a 14-year ban on Robin Forster, the director behind a Ponzi-style, unlawful care home investment scheme that resulted in a staggering £57 million loss for investors.

This significant action comes after Forster, at 42 years of age, misled investors into pouring funds into an unauthorized care home investment endeavor, demonstrating a clear breach of trust and legal standards.

Forster's companies, which took the £57m from investors by convincing them to invest in this unapproved scheme, also deprived creditors of more than £2 million through interconnected business transfers just days before entering administration. This maneuver further illustrates the deliberate attempts to mislead and defraud investors and creditors alike.

The scheme, operated by Forster's Qualia Care Properties Ltd and Qualia Care Developments Ltd, promised investors annual returns of between 8% to 10% on the purchase price over the sublease period, with leases costing between £50,000 and £75,000.

Based in Leeds, Qualia at its peak owned 10 care homes and employed nearly 900 staff across the North and North East of England. However, the High Court ruled these operations constituted an unlawful investment fund, leading to the disqualification order against Forster, effective from 26 February 2038.

The High Court's previous ruling, aligning with the Financial Conduct Authority (FCA), declared the scheme as an Unauthorised Collective Investment Scheme (UCIS). It was determined that the returns promised to investors were unrealistic and that Forster had made false and misleading statements regarding the scheme's sustainability. This has led to the Qualia companies entering administration, with the main sales agent for the scheme, Fortem Global Limited, also owned by Forster and Richard Tasker, being liquidated.

Forster's previous involvement with MBI companies, operating a similar investment scheme, highlights a pattern of creating and managing unauthorized investment schemes without FCA authorization. Mike Smith, chief investigator at the Insolvency Service, condemned Forster's actions for putting investor funds at significant risk and making promises that were never likely to be fulfilled.

Investors incurred losses estimated at £57,834,900 through the scheme, with the FCA currently seeking recovery of the funds.

The case of Robin Forster serves as a cautionary tale about the critical need for due diligence and the potential risks associated with investment schemes that promise high returns without proper authorization and oversight.

Record Low Buy-to-Let Mortgage Rates According to Moneyfacts

In a remarkable turn of events for the buy-to-let sector, the latest analysis by Moneyfactscompare.co.uk has revealed that fixed mortgage rates have plummeted to their lowest point since September 2022. This development represents a significant shift from just six months ago, when these rates peaked at the highest levels recorded on Moneyfacts' electronic records, dating back to November 2011.

The decline in average fixed rates, both over two-year and five-year fixed terms, marks a welcome change for borrowers, especially landlords who have been anxiously waiting for an opportunity to secure more favorable lending rates. This downward trend has brought the buy-to-let product availability, encompassing both fixed and variable options, to a diversified state with approximately 250 more options available compared to six months ago.

Rachel Springall, a finance expert at Moneyfacts, expressed optimism about this development, noting that landlords concerned about interest rates would find the current scenario particularly pleasing.

The drop to record low points since September 2022 signifies a positive outlook for borrowers.

However, Springall cautioned that due to the volatile nature of swap rates, a slight increase in fixed rates in the forthcoming weeks is a possibility.

Therefore, those looking to refinance are advised to act swiftly to secure a deal.

The fluctuating product choice in the market has seen a month-on-month decline in overall count, yet an increase in the availability of deals compared to six months prior. This inconsistency underscores the importance of seeking professional advice for prospective borrowers to navigate through the myriad of options effectively.

Moreover, the analysis suggests a resilience in two-year fixed offers, despite a decline in five-year fixed options. This resilience, coupled with an 8.3% year-on-year rental growth on newly let properties across the UK (as per a study by Hamptons), albeit at the slowest pace in 13 months, indicates a potential for landlords to capitalize on rental incomes. Despite the slow pace, rental growth is expected to outpace inflation for the remainder of 2024.

Nonetheless, existing landlords may harbor concerns over the ongoing profitability of their buy-to-let portfolios. Factors such as the reduction in mortgage rate tax relief, tax changes for Capital Gains Tax (CGT) and holiday lets, along with new Energy Performance Certificate (EPC) requirements, have impacted profit margins.

Springall's conclusion emphasizes the necessity for investors to seek advice before committing to investments. Additionally, it highlights the need for providers to diligently encourage borrowers to refinance and attract new business amidst the evolving market dynamics. This period represents a potentially lucrative window for landlords to reassess their portfolios and strategies in the face of record low buy-to-let mortgage rates.

Growth of Build To Rent Sector in London as Reported by Foxtons

The Build To Rent (BTR) sector in London is experiencing unprecedented growth, marking a significant shift in the city's housing landscape. According to Foxtons, a leading estate agency, the BTR sector, though still in its nascent stages, is witnessing its fastest growth rate within the capital.

As of the latest analysis, BTR homes now constitute almost 2.0% of all privately rented properties in the UK, with a notable increase to 4.2% in London.

This surge in the BTR market share is a testament to the evolving preferences and expectations of tenants, particularly as they lean towards longer-term renting options. The increase from just 1.8% of the private rental stock in 2018 to 4.2% today, with completions in the capital increasing by 61%, underscores the sector's growing appeal and potential for further expansion.

Sarah Tonkinson, Foxtons' BTR Managing Director, emphasized the phenomenal growth observed in the sector, especially within London. This trend is driven by tenants' demand for higher quality rental accommodation and the security that long-term tenancy agreements provide.

The BTR sector's ability to meet these needs positions it for vast growth opportunities, anticipating an increase in demand and subsequent rise in stock levels to satisfy the evolving needs of renters.

The BTR sector's growth is not just a reflection of changing tenant preferences but also signals a shift in the housing market towards more sustainable and tenant-friendly living arrangements. With the sector still in its infancy, the potential for further expansion is vast, offering a new dimension to London's rental market that caters to the modern tenant's lifestyle and expectations.

Conclusion

This edition of Nest Insights reveals significant transformations in the UK property market, driven by both domestic and international factors. Issues range from social housing challenges and the need for transparency in home construction and sales, to innovative approaches to the housing crisis and risks in property investment.

Developments like low mortgage rates and the expanding Build To Rent sector indicate market adaptation. These changes underscore the importance of staying informed and engaged with the market's evolution to ensure the sector's growth and sustainability.

Thank you for reading, and we look forward to sharing more insights in future editions!

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