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Leasehold Reform – What’s it all about?

Leasehold reform – what’s it all about ?

There has been significant press coverage relating to an ongoing leasehold reform. Alan Collett, residential property adviser to the TM home investor fund at Hearthstone Investments explains it all.

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The UK Budget and residential property

The UK Budget and residential property.

Overall, we believe the Budget proposals offer a promising mix of measures to stimulate much needed new housing supply, and a package of infrastructure improvements, without creating obstacles to increased institutional investment in the sector.

Despite a confident dispatch box performance, the Chancellor may be regretting his decision to reschedule the Budget to fall in the autumn rather than the spring, starting from this year. It was meant to give him the opportunity to chart a course for a smooth Brexit transition, against a background of a broadly agreed deal. The latest OBR forecasts, on which the Budget proposals are based, assume a Brexit deal is achieved. There is a risk, with the format of Brexit still unresolved, that some of the plans set now may have to be torn up in the months ahead if negotiations founder. Furthermore, the turbulent political climate means the necessary post-Budget legislation could face a choppy passage through parliament.

All this increases the likelihood that next year’s Spring Statement may prove a more meaningful guide to post-Brexit policy than the current Budget itself. This has been tacitly acknowledged with the promise of a full strategic spending review in 2019.

That said, record high levels of employment have supported higher than forecast tax receipts, giving Mr Hammond some welcome ammunition to boost public spending. However, he faces conflicting priorities: squaring the government’s manifesto pledge to eliminate the deficit by the mid-2020s, with the Prime Minister’s recent promise of an end to austerity. Lacklustre GDP growth, forecast to average an annual 1.5% over the next five years, will not make either task easy.

For the time being though, the government has sought to signal a change of direction from the sustained squeeze on public finances, with a larger than expected package of spending commitments. Politics has trumped prudence. In the process, the Chancellor may have exuded enough optimism in his speech to fend off a revolt from the critics in his own party.

The Budget confirmed a widely trailed increase in funding for social care, a less anticipated additional £1 billion for defence, an additional £400 million for schools and an additional £1 billion to ease hardship during the transition to the new Universal Credit benefits system. There was a re-announcement of the £20.5 billion commitment to increase NHS funding over the next five years, already agreed in June, and promises of additional funding were made to the Welsh and Scottish governments, and to the Northern Ireland Assembly.

Infrastructure investment is to be stimulated through an additional £7 billion pledged for the National Productivity Investment Fund to boost strategic road improvements, £675 million was set aside for high street improvements, and development funding commitments were made for the Northern Powerhouse and East West (Oxford – Milton Keynes – Cambridge) rail projects. Another eye-catching measure was a business rate cut of one third over two years, targeted at small retailers. The government has also moved to end the Private Finance Initiative – a Blair-era Labour initiative to promote public-private partnerships for major public projects, aligning the government with a current Labour Party policy.

A planned new source of revenue is a 2% Digital Services Tax on large technology companies, but only after a period of consultation.

Personal finances will receive a modest boost through the implementation of the increased Personal Allowance and higher rate tax thresholds a year earlier than previously planned.

While the main Budget measures will be widely covered in the press, those with most direct relevance to the residential property market include the following:

 

  • Stamp Duty Land Tax will be abolished in England and Northern Ireland for all first-time buyers of shared ownership properties valued up to £500,000. The change is backdated to 22 November 2017, at a (small) cost of £5 million.
  • The government will consult on a 1% SDLT surcharge for overseas buyers of residential property, also in England and Northern Ireland.
  • £500 million will go to the Housing Infrastructure Fund, to support the development of an estimated 650,000 new homes.
  • Local authorities will be able to borrow more to build council housing after abolition of the cap on their housing revenue accounts.
  • It is planned to remove lettings tax relief from absentee landlords, so that it only applies where property owners share a home with their tenants.
  • £291 million from the Housing Infrastructure Fund is targeted at unlocking 18,000 new homes in east London through improvements to the Docklands Light Railway.
  • £653m is allocated for strategic partnerships with nine housing associations to deliver 13,000 new homes to 2022.
  • An additional £2 billion funding has been allocated for the Affordable Homes Programme, also targeted at housing associations.
  • Reforms are to be made to the framework for developer contributions to local services and infrastructure and affordable housing, to capture a greater share in the uplift in land values.
  • Funding will be offered for “ambitious” strategic housing deals in areas of high demand.
  • The “Help to Buy” scheme for first time buyers in England is to be extended from 2021to 2023, with regional price caps ranging from £186,000 in the North East to £600,000 in London. This time it is stated that no further extensions are planned.

 

 

Investing involves risk. Investors should be aware that the value of an investment and the income from it can fall as well as rise, and they may not receive back the full amount they invest. Past performance is not a reliable indicator of future results.

The Authorised Fund Manager is Thesis Unit Trust Management Limited, Exchange Building, St John’s Street, Chichester, West Sussex, PO19 1UP. Authorised and regulated by the Financial Conduct Authority.

Hearthstone Investments PLC is the parent company of the Hearthstone Investments Group. Regulated business is carried out by Hearthstone Asset Management Limited. Hearthstone Asset Management Limited is an appointed representative of Thesis Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (114354).

Property of the Month – October 2018

Quadrant Court, Wembley Park

Why I like Wembley Park

A large-scale regeneration project is generally a good place to invest, especially if you get in early. There are few larger regeneration sites in

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The current state of the residential property market

The party conference season has underlined the deep differences of political opinion on how to approach Brexit and the strategy for managing the UK economy. Despite record high levels of employment, the climate of uncertainty is affecting business and consumer confidence, and UK growth has slowed, counter to the trend for other major global economies.

The recent performance of the housing market is similarly divided. Slower growth and hikes in stamp duty rates for more expensive properties have meant turnover has declined, as people stay longer between house moves.  House price growth has stalled or reversed in more expensive parts of London and its commuter belt, where the rebound in prices since the financial crisis has reached limits of affordability, and where recent tax changes have hit hardest.  By contrast, outside London, prices have continued to rise across every region, with the Midlands, northern England and Scotland still seeing year-on-year increases of 5% or more.

Tax changes have also combined to make buy-to-let property a less attractive option for private investors, prompting a spate of selling by private landlords across the country.  This is eroding the supply of rental stock, although demand is continuing to increase.  The resulting shortfall is pushing rents higher, and is creating opportunities for institutional investors to enter the sector.

Looking ahead, whatever happens with a Brexit deal (or not), we face a prolonged period of economic and political uncertainty, not just confined to the UK.  No one is sure what they are planning for, so contingency planning and forecasts are likely to err on the side of gloom.

That said, we are probably close the point of maximum uncertainty now.  One way or another, as the shape of a deal emerges, or conversely the prospect of “no deal” becomes a reality, some of the fog will clear, and decision-making will start to adjust to the new climate.

Accordingly, it is quite possible that business sentiment and investment activity will pick up faster than most people currently expect as we adjust to the new reality – whatever it is.  Although the confusion over Brexit is currently dominating the assessment of risks to the UK’s prospects, a lot of that will pass.  The wider global threats from protectionism and political polarisation may well prove more significant for investment markets in the long run.
Despite the uncertainties, it is interesting to note that none of the independent forecasters polled in the Treasury’s latest (September) survey expected a general decline in house prices for 2019.  The 16 forecasts in the survey ranged from 0.3% to 4%, around an average of 2.7%.  While property prices fluctuate with economic fortunes, the residential market, underpinned by the steadily growing demand for housing, has shown through successive cycles that it can be more resilient to downside risks than many other forms of investment.

Risk Warning

Investing involves risk. Investors should be aware that the value of an investment and the income from it can fall as well as rise, and they may not receive back the full amount they invest. Past performance is not a reliable indicator of future results.
The Authorised Fund Manager is Thesis Unit Trust Management Limited, Exchange Building, St John’s Street, Chichester, West Sussex, PO19 1UP. Authorised and regulated by the Financial Conduct Authority.

Hearthstone Investments PLC is the parent company of the Hearthstone Investments Group. Regulated business is carried out by Hearthstone Asset Management Limited. Hearthstone Asset Management Limited is an appointed representative of Thesis Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (114354).

Property of the Month – September 2018

The Limes, Nottingham

Given our partners WealthKernel are partially based in Nottingham, it is only fitting that we start our “Property of the Month” series with one of our most recent acquisitions, The Limes in Nottingham.

Why I liked the City ?

The Investment Plan demonstrated that the Fund should invest in the East Midlands and that either Leicester or Nottingham would be suitable. Both have their strong points, but the two Universities and University Hospital, when combined with the public transport, especially the tram system (NET) just made Nottingham our choice.

Nottingham has good railway services, easy access to the M1 and a good selection of both City centre and edge of city shopping.

What I liked about the properties?

We have worked with Bellway, the parent company of the developer, and know that they build a good product. The Limes is in a convenient, but quiet location to the North West of the City Centre, with good access to university and hospital campuses.

Buying early we were able to choose house types that we thought would be good for letting, and an attractive specification.

How has it done so far?

Most importantly the houses have proved very popular with tenants and have let quickly. We hope that with good service from us and our property managers our tenants will make these great houses their homes for many years.

A quick look at the property

Investing in The Limes, Nottingham

 

Risk Warning

Investing involves risk. Investors should be aware that the value of an investment and the income from it can fall as well as rise, and they may not receive back the full amount they invest. Past performance is not a reliable indicator of future results.
The Authorised Fund Manager is Thesis Unit Trust Management Limited, Exchange Building, St John’s Street, Chichester, West Sussex, PO19 1UP. Authorised and regulated by the Financial Conduct Authority.

Hearthstone Investments PLC is the parent company of the Hearthstone Investments Group. Regulated business is carried out by Hearthstone Asset Management Limited. Hearthstone Asset Management Limited is an appointed representative of Thesis Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (114354).

Meet the team behind the fund

The team behind the TM home investor fund are passionate about residential property investment and most of us have been working in the sector for many years.

 

 

Alan Collett

Alan Collett

The lead fund manager of the TM home investor fund and is ultimately responsible for selecting the flats and houses within the portfolio. He has managed the fund since March 2017 and brings a lifetime of residential property expertise as a Chartered Surveyor, investment consultant and senior partner at independent property consultancy Allsop LLP. Alan is also a Past President of the Royal Institution of Chartered Surveyors, the global professional body promoting and enforcing the highest international standards in the valuation, management and development of land, real estate, construction and infrastructure. Finally, Alan is also Chair of the Hyde Group, the housing association.

 

 

Andrew Smith

Andrew Smith

Andrew is responsible for our top down quarterly Investment Plan, which provides insight into which UK regions are likely to provide the best return on investment, and what types of properties our fund should invest in. Andrew’s 30-year property investment career has included roles at fund management houses Aberdeen Asset Management, where he was Global Head of Property, and Henderson Global Investors.

 

 

 

 

Cedric Bucher

Cedric Bucher

Hearthstone is led by its chief executive Cedric Bucher who is responsible for overall strategy of the business and day to day execution, including servicing of existing and new clients, whether they are advised or invest directly on homeinvestor.fund.

 

 

 

Investing involves risk. Investors should be aware that the value of an investment and the income from it can fall as well as rise, and they may not receive back the full amount they invest. Past performance is not a reliable indicator of future results.
The Authorised Fund Manager is Thesis Unit Trust Management Limited, Exchange Building, St John’s Street, Chichester, West Sussex, PO19 1UP. Authorised and regulated by the Financial Conduct Authority.
Hearthstone Investments PLC is the parent company of the Hearthstone Investments Group. Regulated business is carried out by Hearthstone Asset Management Limited. Hearthstone Asset Management Limited is an appointed representative of Thesis Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (114354).

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