Peter Girling's Blog

There has been a flurry of bad economic news recently. Inflation rose to 4.5% in April and the Bank of England downgraded its economic report and predicted that inflation will rise this year to 5%. The Governor of the Bank of England, Mervyn King, stressed that the UK faces uncertain and difficult times ahead and blamed the rise in inflation on the increase in VAT to 20% in January, as well as higher energy prices and increases in import prices.

For the majority of people and in particular the retired population, these economic reports will make uncomfortable and worrying reading. The elderly population has been hit already with high cost of food and rising energy prices. The continued low interest rates have also ensured that interest on any savings in recent months has been negligible. To add to the gloom, Centrica, the owner of British Gas, stated that the rising price of wholesale gas will result in price hikes in customer bills next winter.

The cost of energy is becoming an increasingly important issue for buyers and tenants. Energy Saving Trust last week criticised the government’s Energy Performance Certificates for being complex and urged Estate agents to display a property’s annual energy bill on its particulars when it is advertised. The Trust wants home energy consumption to be as transparent and easily understood as miles-per-gallon for cars so consumers can choose properties with the lowest bills. It highlighted the huge variations in energy bill prices on properties of similar sizes, depending on factors such as insulation and boiler efficiency. It said that the combined gas and electricity bill for a four-bedroom house ranged from £700 to £2,300 a year.

I agree with the Trust. There needs to be greater transparency in the housing industry about energy efficiency levels. The rising energy prices will mean that energy efficiency will inevitably become a factor in the negotiations of buyers and tenants in the future. We know this is a major issue already for our tenants. For the past few years, we have taken various steps to reduce their utility bills by making our rental properties as energy efficient as possible. A number of developments have received energy efficient makeovers with lofts and in some cases cavity walls insulated and energy efficient light bulbs and draught excluders installed. Our tenants can rest assured that we will be continuing to invest in energy efficient initiatives ahead of next winter. Let’s hope this will provide a little respite from all this bad news.

It was clear from yesterday’s budget that Mr Osborne has taken note of the urgent need to boost the UK’s stagnating property market.

Several of his announcements will bring some relief to different first time buyers, home owners with mortgages and potentially, private landlords.

The announcement of a £250m FirstBuy programme will see the government and house builders jointly offer loan help for first-time buyers purchasing newly-built homes. Buyers will need to save a deposit worth 5% of their property’s value, with the government and house builders putting up 10% each through an equity loan, enabling people to qualify for 75% loan-to-value mortgage. The equity loan would be interest-free for the first five years, with interest charged at 1.75% in year six, and at inflation plus 1% thereafter.

Whilst this is good news for first time buyers, the scheme will only help an estimated 10,000 buyers as it is focuses on new builds only, the scheme is open for a year only and most importantly, depends on the banks’ willingness to offer credit to first time buyers something which hasn’t been forthcoming in recent months.

Homeowners struggling with mortgage repayments will have some relief too as government will extend support for mortgage interest payments for another year.

There was some good news on planning with the government announcing it will pilot land auctions, which will incentivise local authorities to release land for development. But this will take time and is dependent on local authorities agreeing to release land at affordable rates.

Finally, there was an effort to improve the availability of good-quality, privately rented properties with the announcement of a reform of the process for calculating stamp duty payments. Rather than using the existing method, stamp duty on bulk purchases of multiple homes will now be based on the average cost, potentially allowing professional landlords to invest in a greater number of properties to rent out to tenants.

However, whilst these moves will undoubtedly help some people, the measures are modest and selective. The government’s housing crisis was not just caused by a market that was inaccessible for first time buyers; there is an urgent need for good quality housing in the UK for families and the retired, amongst others. Missing from the budget were any targeted measures to encourage the growth of the UK’s Private Rented Sector to accommodate these people.

Such measures might include a reduced and flat rate of stamp duty on acquisitions regardless of the size of the transaction, or a beneficial rate of CGT for individual tax payers if their investment property is available for letting for more than three years.

So whilst there were concessions to the housing industry, there weren’t enough. The Chancellor has only scratched the surface and until other problems are addressed, the housing crisis will not be solved.

It has been a grim start to the New Year for the housing industry, with Housing Minister Grant Shapps admitting a housing crisis exists in the UK. And with five million people on waiting lists for social housing, the number of homeless set to rise and a shortage of affordable housing, it does appears that UK housing is in chaos and the coalition government is short of ideas.

The government wants to build more affordable homes with affordable rents, but land prices are prohibitive. The Department for Communities and local government has pledged to spend £4.5bn to deliver 150,000 new affordable homes over the next four years. But is this really the only and most cost effective solution to the crisis?

I approached Grant Shapps and several of his predecessors with a workable formula that would solve the crisis. I suggested that Local Authorities should release land in their ownership to companies with the experience of building appropriate housing. This land should remain in Local Authority ownership and then be leased at a peppercorn rent to keep costs down and rents affordable. Only with the land cost removed would rents be affordable.

There is also an obvious solution to the shortage of family homes in the UK. Currently, a growing number of retired people live in large under occupied housing that would make perfect family homes. If these people were able to sell their homes and rent suitable and affordable retirement housing they would free up much needed family housing. In addition, they would release capital which could be invested and help fund their retirement, which would also help solve the government’s growing pensions crisis.

But there is also a huge shortage of suitable retirement housing, so why would they move? To overcome this problem, a government-backed programme is needed to build purpose built retirement homes for rent. Brownfield land in inner cities and towns should be developed which would be perfect for this age group who need to be near shops, medical facilities, libraries, bus routes and local amenities. If this happened, many of them would be tempted to move from their under-occupied homes.

One thing is clear; this problem isn’t going to go away. The waiting lists for housing are increasing and the retired population is increasing year on year with the numbers of people over 55 years old forecast to reach 20 million in the next 25 years. My solution would help the housing needs of both groups of people.

The above formula was discussed and/or presented to, in written form to many persons including Sir George Young, Senior Civil Servants in John Prescott’s Office, seven years ago, and other Minister of Housing, too numerous to mention in the last New Labour administration and more recently Eric Pickles and Grant Shapps; all of them with the exception of Sir George Young who when he was Minister of Housing, encouraged me to prove the concept works, have failed to address the housing needs of the country. What does it take to convince these people a solution exists, but it needs a responsible approach and a firm understanding of the problems?

Financial Institutions are interested in investing in the housing market they just need to be satisfied that the funds they are responsible for are invested wisely. Come on the Coalition, you need to take action to solve this crisis.

There has been much speculation in the press in recent weeks based upon the ‘renting vs buying’ debate following a report from the Chartered Institute of Housing (CIH). The report states that the era of the owner-occupier may be in decline, with millions facing a lifetime as tenants rather than freeholders and urges the government to turn its attention to the needs of those in the private rented sector.

Many of the press articles that followed focused on the plight of first time buyers, who now have to amass a deposit of around £35,000 to climb onto the ladder, and therefore, renting has become the norm for 30-somethings who simply can’t raise the funds to buy.

But what about the other end of the property ‘ladder’? Renting has also become another option when the time comes to downsize, however for those who have owned a property for 30-40 years, renting may seem quite alien- home ownership has become ingrained in the British psyche. Yet renting in retirement can make perfect financial sense; keeping your capital flexible, allowing you access to cash when you might need it – for example in the event of illness – and easing the burden of inheritance tax.

One of the other concerns for those changing from owning to renting is security – no one wants to feel that they could be on notice to leave, particularly in their later years. Girlings offer life-long assured tenancies for retiree renters, which mean that the tenant can stay in their rented home for as long as they like. An Assured tenancy eliminates many of the stresses associated with renting, which is important in the precious years of retirement.

When it comes to deciding where to live, what’s important is that it feels like home and is safe and secure, and perhaps if there was more emphasis on long term renting, it would become more of the norm as it is in many of our European counterpart countries. We certainly think that long term tenancies should become the norm in all private rented accommodation.

The emergency budget brought mixed blessings for the property industry. The rise in capital gains tax (CGT) from 18% to 28% will hit buy to let landlords hard if they decide to sell in the next few years, but not if they are looking at property as a long term investment. And, things could have been far worse. In the run up to the budget experts had predicted CGT rises of 40 or 50%.

Let’s not forget too that Landlords received a boost earlier this month when Housing Minister, Grant Shapps, announced he will be scrapping plans to introduce a national register for private landlords and regulate managing and lettings agents. However, this news was dampened somewhat this week when over 25 MPs signed an Early Day Motion calling for the private rented sector to be fully regulated, despite Shapps’s announcement.

More regulation and red tape is exactly what we don’t need right now. The majority of lettings agents are regulated already by industry bodies including the Association of Residential Lettings Agents (ARLA) and the Property Ombudsman and licensed by bodies such as the National Approved Letting Scheme. Such accreditations demonstrate the quality of service letting agents provide to their tenants and it is a shame that a few rogue landlords are giving the rest of the industry a bad name.

Strikingly, the budget did not really contain any positive news for the private rental industry. In many UK areas there is a real shortage of good quality housing for many groups of people, including the retired, and we would like to see the government introduce targeted measures to encourage the growth of the Private Rented Sector in these regions to accommodate these people.

Such measures might include a reduced and flat rate of stamp duty on investment property acquisitions regardless of the size of the transaction. This would help to encourage institutional and corporate investment in the sector. We would also like to see a beneficial rate of CGT for individual tax payers if they make their investment property available for letting for more than, say, three years.

The budget also lacked imaginative thinking about ways to encourage investment in the Private Rented Sector. This will be particularly important over the next few years as we will see continued growth in demand for properties from groups of people including the retired and also possibly from people working in the public sector given the planned pay freezes and anticipated job cuts.