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Archive for the ‘Conveyancing’ Category

Stamp Duty Land Tax – 2016 Upate

Wednesday, January 27th, 2016

In November 2015 the Government announced that as from 1st April 2016 higher rates of SDLT will be charged on purchases of additional residential properties that cost £40,000 or more.

It was announced that a consultation would take place to decide the nitty gritty of the policy detail including whether there would be an exemption for corporates and funds owning more than 15 residential properties.

With only 9 weeks left for anxious buyers to complete their purchases before the new Stamp Duty regulations come into force we still await the finer policy detail.

At CMS we speak to hundreds of property buyers every month and wonder whether the Government is aware of how many ordinary people this onerous 3% hike in stamp duty will hit.  Here are some of the recent scenarios we have come across that would mean ordinary people would be hit with an additional 3% property tax charge whilst large, wealthy corporations and business would be exempt:

  • Adult children purchasing a property for their parents to live in. Mum and dad are in rented social housing and need to move to be near family. No council exchange is possible so the children, who already own their own homes, take out a mortgage to buy a property for their parents to live nearby.
  • Mum and Dad buy a flat in a University town for a child about to start University. Child is not old enough, nor earning enough to warrant a mortgage.
  • Family move across country because of a job change.  They need to move quickly so decide to rent their existing home out and buy another near the new job.
  • A property owner is made redundant and decides to use their redundancy pay out to buy a couple of buy to let properties to run as part of a small business.
  • A couple, with their own home, cash in their pensions and want to use the proceeds to buy and let out a property to supplement their income.
  • A small builder has spent his life buying property, renovating it and selling it on for a profit. He already owns his own house.
  • A couple who work and live in a city centre decide to buy a small flat near the coast as a bolt hole from city life

These are all true examples of recent transactions we have been involved in. None of the people involved are greedy landlords buying up property from under the noses of hapless first time buyers.  They are ordinary families trying to do the best for their family, people who are trying to preserve their savings and income into later life, small builders who stop property from crumbling into disrepair and provide homes for the next generation.

At CMS we hope that the Government takes these examples into consideration and that appropriate exemptions are made for ordinary people as well as the big corporates.

Meanwhile, if you are buying a second property and need it to be pushed through for a fast completion at a competitive conveyancing fee please give us a call on 01638 576478

What Happened To The Housing Ladder?

Monday, May 11th, 2015

It is with relief that we welcome the stability of a majority government, especially one that believes in the concept of home ownership.

The raft of proposals that has been promised to help first time buyers onto the housing ladder is to be applauded.  The Help to Buy 2 Scheme, The Help to Buy ISA, discounts on new homes of up to 20%, more Social Housing being released under the Right to Buy Scheme, the building of 200,000 new homes on Brownfield sites.

However, solving the problems of first time buyers is not the total solution to solving the problem of the property market. Helping First Time Buyers provides a popular ‘sound-bite’ but no-one seems to be looking at the bigger picture as to why there continues to be a lack of new property coming onto the market.

Could it be that many couples who have saved hard and sacrificed much to get onto that first rung are simply stuck there? Typically, young couples move up the housing ladder as their families grow and their careers progress.  But with wages growing by just 1 or 2% per year – if at all – and property prices growing currently at 8.4%* house prices rises easily outstrip any increase in earnings.  Add to this the cost of moving, with estate agents fees at 1-3%, stamp duty, legal fees and removals the cost of moving that one step up the ladder is prohibitively expensive.

Is it feasible for the average first time home owner to pay the bills, start a family and manage to save towards the cost of a larger home? Probably not!

Strict lending criteria means that most lenders use a multiple of income criteria at 3 x salary and since the Mortgage Market Review (MMR) in 2012 lenders now take into account the borrowers monthly expenses to ensure the borrowing is affordable.

Example: Assuming the average couple own a property worth £185,000 and they have 25% equity in the property,  this gives them £46,250 to put down on their next house at say £215,000, leaving them with a deficit of £168,750 + moving expenses of just over £8,000 (agents fees, stamp duty, legal expenses, survey and moving expenses) they would need a mortgage of £176,750. Using the lender’s calculation of dividing by 3 this means our average couple would need a joint income of approximately £58,900 to move just one step up the ladder.

The simple truth is that income does not grow in proportion to property prices. Property prices will not, in the long term, come down and income cannot rise to the levels that lenders currently require to comfortably repay the amount of mortgage needed.

The answer must be a concerted effort by Government and the Council for Mortgage Lenders (CLC) to make mortgage borrowing more affordable for everyone on the property ladder and not just first time buyers.

There are three potential solutions that Government and the CLC could consider:-

  1. The re-introduction of Mortgage Interest Relief at Source (MIRAS). This tax incentive provides borrowers with tax relief on the interest payments of their mortgage. As the interest is deducted at source it means that the monthly mortgage payment is reduced – meaning that the lender can lend more.
  2. Longer term mortgages. Traditionally the term of a mortgage has been 25 years however, with people living and working longer there is no reason why this could not be extended to a term of 40 – 50 years – this would halve the monthly repayments and mean that the lender could lend much more.
  1. Longer fixed rates. As the lender is duty bound to ensure that the mortgage is affordable they currently have to calculate the loan on the basis of future interest rate rises. With a long term fixed interest rate this ceases to be a problem. We are currently seeing longer fixed term interest rates – but why not for the entire length of the mortgage?

Sharon Buthlay

Property Lawyer

Director of Conveyancing Marketing Services Ltd

* House price index January 2015

First time buyers in despair as house prices continue to spiral ever further out of reach

Thursday, May 7th, 2015

With house prices continuing to rise and salaries stuck it is no wonder that ‘generation rent’ are despairing at ever being able to save enough deposit to buy their own home.

The divide in house price affordability and pay has never been greater and as fast as they try to save, our younger generation can see their dream of home ownership slipping ever further away.

It takes the average first time buyer 5 years to save the 15-25% deposit lenders require for home ownership.  By which time property prices have increased again and again – meaning that hapless home owner wannabees are caught in a vicious circle.

None of the current Government backed schemes answers the problem of home ownership affordability in the long-term.  Prices won’t come down and salaries won’t rise to the level they need to.

The simple reality is that the amount of mortgage available to buyers needs to be higher but the monthly repayments still need to be affordable.  This could be achieved in a number of ways:

Increase the term of mortgages – traditionally 25 years – by increasing the term to 40 or even 50 years monthly repayments could be halved. Build in an option for early repayment as salaries rise and equity in the property is achieved.

  • Offer longer fixed rate mortgages.  The amount of lending is currently curbed because lenders have a duty to ensure that borrowers can afford to repay their loans even if rates rise.  If rates were fixed for the term of the mortgage this would provide more security for the lender and the borrower and lead to higher lending.
  • Bring back Mortgage Interest Relief at Source (MIRAS). One of the more popular tax breaks, originally introduced in 1969 by Roy Jenkins to encourage home ownership, MIRAS allowed borrowers tax relief on the interest on their mortgages. It was abolished in the year 2000 by Gordon Brown as a ‘middle-class’ perk. The tax relief is given at source (i.e. it is deducted from the monthly mortgage payment) making mortgage payments more affordable. This in turn means that lenders could be more generous in the amount they are prepared to lend, thus decreasing the amount of initial deposit our first time buyers would need to find.

The mortgage industry need to work with the Government to provide better, more affordable mortgage lending to produce a long term solution to this knotty problem.