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Bank of England hints at faster hikes, but says Brexit options wide open

The Bank of England said on Thursday that interest rates might need to rise a bit faster than investors expect, but it warned that all bets would be off if Britain leaves the European Union without a deal in less than five months.

The BoE’s nine rate-setters all voted to hold rates at 0.75 percent, as expected in a Reuters poll of economists, after raising them in August for only the second time in a decade.

Governor Mark Carney said the BoE did not expect a disruptive no-deal Brexit, but if it happened, the central bank would be in uncharted territory and it was not possible to predict if rates would need to rise or fall in response.

Brexit is dominating the outlook for the world’s fifth-largest economy which has slowed since 2016’s referendum.

“Since the nature of EU withdrawal is not known at present, and its impact on the balance of demand, supply and the exchange rate cannot be determined in advance, the monetary policy response will not be automatic and could be in either direction,” Carney told a news conference.

The BoE cut rates and ramped up its bond-buying program after the shock referendum vote. Carney cautioned against assuming it would do the same in the event of a no-deal Brexit.

Unlike 2016, inflation is above target and the BoE would be responding to actual economic damage, not a fall in confidence.

Sterling would probably fall and push up inflation. Combined with a hit to supply chains and possible trade tariffs, that would argue for raising rates, Carney said.

On the other hand, policymakers would need to balance the hit to growth from lost trade, uncertainty and tighter financial conditions. That would normally make a case for lower rates.

Sterling briefly edged up against the dollar GBP= after the BoE policy announcement and was on track for one its biggest daily gains this year due to optimism about Brexit talks and broader dollar weakness.

The BoE penciled into its forecasts the bets in financial markets that there will be almost three quarter-point rate rises over the next three years. That compared with just over one in the forecasts that accompanied August’s rate rise.

Asked whether investors were pricing in enough rate hikes, Carney pointed to the BoE’s forecast that inflation would still be above its target in two years’ time, suggesting he thought investors were being a bit too cautious about the pace of hikes.

“November’s statement makes it pretty clear the Bank of England would like to be hiking rates further,” ING economist James Smith said.

“But given that it may be quite some time before we know for sure that a no-deal Brexit has been avoided, we suspect policymakers will struggle to hike rates before May 2019 at the earliest.”

Most economists do not expect rates to rise again until the middle of next year.

CONSUMERS RESILIENT, BUSINESSES NERVOUS

The BoE said consumer spending had beaten its expectations but businesses were holding back on investment.

Prime Minister Theresa May has yet to secure a transition deal to ease Britain’s exit from the EU.

Assuming Brexit goes smoothly, the economy was likely to continue to grow by around 1.75 percent a year, the BoE said, below the rate of above 2 percent before the Brexit vote.

But the BoE said the economy was at full capacity and inflation would take three years to drop from 2.4 percent now to its 2 percent target.

The economy was expected to start running above capacity in late 2019, sooner than the BoE previously forecast, creating inflation pressure.

The forecasts did not include the stimulus from higher public spending and tax cuts in finance minister Philip Hammond’s Oct. 29 budget. Like Carney, Hammond has said he might need to review his plans after Brexit.

“The (BoE) would be minded to offset such additional demand by raising interest rates a little more rapidly than the ‘one hike per annum’ over the next three years, which it is guiding toward,” Investec economist Philip Shaw said.

Source: UK Reuters

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House prices fall across half of London

House price inflation in UK cities hit 3.2 per cent in September, down from 3.8 per cent a year ago. Latest figures from Hometrack showed that 54 per cent of London City postcodes are registering annual price falls.

This is more than the 45 per cent reported six months ago but less than in June as more areas start to register monthly price increases.

However it wasn’t all bad news across the country with house prices in five UK cities increasing by more than 6 per cent a year.

Liverpool recorded annual inflation at 6.9 per cent, followed by Birmingham (6.5 per cent) and Leicester (6.4 per cent).

Danny Belton, head of lender relationships at Legal & General Mortgage Club, said: “The North/South divide has truly been turned on its head, as more and more first-time buyers and homemovers turn towards regional cities for better value for money.

‘Strong economic hubs in the Northern powerhouses are making bricks and mortar in these locations particularly attractive to younger generations here and buy-to-let landlords.

“However, with rising living costs, saving for a deposit remains one of the biggest challenges for potential buyers. Affordability challenges remain, which means that speaking to a mortgage adviser is still a sensible first step.”

City Average price Trough-current Peak-current Last 12 months Last 3 months Last month
Aberdeen £163,200 6.50% -5.50% -4.40% 0.50% 0.30%
Belfast £129,700 28.40% -41.90% 3.80% 0.50% -0.90%
Birmingham £163,500 41.30% 19.40% 6.50% 2.60% 0.50%
Bournemouth £290,400 52.00% 25.00% 3.20% 0.00% -0.20%
Bristol £277,600 71.60% 39.20% 1.20% -0.50% -0.50%
Cambridge £435,500 88.30% 56.60% 0.40% 1.30% -0.30%
Cardiff £206,200 39.90% 16.80% 4.50% 1.00% 0.20%
Edinburgh £231,700 29.80% 9.10% 4.70% 1.60% -0.20%
Glasgow £122,800 22.60% -0.40% 6.20% 1.40% 0.20%
Leeds £164,900 31.40% 8.60% 4.30% 1.00% 0.10%
Leicester £174,800 46.60% 23.40% 6.40% 1.90% 0.50%
Liverpool £120,500 22.70% -3.80% 6.90% 2.80% 0.70%
London £484,400 84.80% 56.10% -0.40% 0.40% 0.10%
Manchester £167,800 39.60% 17.10% 6.20% 1.90% 0.40%
Newcastle £129,300 17.10% -2.20% 2.80% 1.30% 0.40%
Nottingham £152,300 41.50% 19.00% 5.40% 1.30% 0.00%
Oxford £423,300 75.70% 49.80% 5.50% 2.30% 0.60%
Portsmouth £240,600 53.20% 30.30% 2.90% 0.60% 0.30%
Sheffield £139,500 28.50% 10.10% 5.80% 3.30% 1.10%
Southampton £228,200 48.60% 24.50% 1.90% 0.40% 0.00%
UK £217,400 41.40% 20.20% 3.40% 1.40% 0.30%

In chancellor Philip Hammond’s Budget on Monday (October 29) there was good news for first-time buyers.

The Help to Buy equity loan scheme was extended by two years, now running until 2023 rather than 2021.

Additionally, the new scheme will be for first-time buyers only and a new regional property price cap will be applied to the scheme from April 2021 onwards.

The chancellor also announced that stamp duty relief will be extended to those who purchase properties up to a value of £500,000 through the shared ownership scheme.

This policy will be backdated to the last budget so that anyone who has purchased a property through the scheme since 22 November 2017 will be entitled a refund.

Source: FT Adviser

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Returns from peer-to-peer lending look attractive, but is it a sensible sector to invest for retirement?

Peer-to-peer lending (P2P) has long been deemed by many professionals in the conventional investment industry as too risky for retail investors.

And yet, this technology driven form of lending has surged in popularity over the past decade, which is largely a result of the sector offering a decent return where other asset classes have struggled.

According to research from AltFi published last month, the UK P2P lending market has outperformed more than 90 per cent of UK funds investing in bond and direct property over the past three years.

But while potential returns from P2P lending look attractive, is it a good place to invest for your pension?

Game-changer

Before the pension freedoms were introduced in 2015, savers had to buy an annuity, which pays a fixed sum of money throughout retirement.

“Historically, planning for retirement was relatively simple,” says Michael Lynn, chief executive at P2P lender Relendex. Now people have more choice, they are turning away from the traditional annuity, which Lynn says is because savers have been bitten by traditional pension schemes, and are being badly let down by off-the-shelf products.

Throw into the mix the concerns about an end to the equity bull market, and it’s not really surprising that people are looking to alternative sectors like P2P and crowdfunding to provide extra income in retirement and see their savings grow above inflation. In fact, Crowd for Angels says more than 20 per cent of its investors use the platform to save for pension growth.

And indeed, Relendex’s Lynn says that looking outside the box has become a “necessity” for retirement savings to flourish. He even argues that P2P investments need not be risky, provided the loans are secured against assets and the lender platform is regulated by the Financial Conduct Authority.

Structurally sound

The government’s launch of the Innovative Finance Isa in 2016 has also given people more faith in the sector, offering savers a tax-free wrapper for alternative investments.

Of course, if you’re investing through the Innovative Finance Isa, this should act as a supplement to your retirement income, rather than a replacement for a pension.

Whether you’re saving for retirement or not, it’s never a good idea to invest in one asset class. But there’s certainly something to be said for allocating a small portion of your pension savings to authorised P2P lending firms.

As Folk2Folk chief executive Giles Cross puts it: “Returns from the right P2P platform can be a great way of bolstering retirement income, and should be considered as part of a balanced portfolio of investments.”

As well as the Isa, you can also invest in P2P loans through a DIY-style pension wrapper, such as a self-invested personal pension scheme (Sipp).

One of the benefits of the pension wrapper over the Isa is that you can invest through several different P2P lending sites, rather than just one, which in turn spreads some of the risk.

However, also bear in mind that most Sipp operators will only have a limited number of P2P providers to choose from – if any at all.

The chief executive of Goji, Jake Wombwell-Povey, warns that investing in debt products through Sipps is difficult. One problem is that some platforms don’t have the processes in place to make sure that money invested through a Sipp is not lent to a connected party.

“HMRC levies a tax charge against the Sipp trustee for breaking the rules; this means that Sipp administrators are understandably risk-averse to ensure that they don’t incur those charges – and this manifests in restricted investment lists.”

Wombwell-Povey also points out that Sipp managers need more regulatory capital if they allow investors to hold P2P loans and crowd bonds, which ultimately means higher costs for investors.

“All of these well-intentioned challenges have essentially relegated these investments into the ‘too difficult’ bucket for many of the less innovative Sipp managers, or into the ‘too expensive’ bucket for other investors, despite soaring popularity among retail investors.”

So if you’re looking to tap this market through a Sipp, look at the range of P2P providers available, and weigh up whether you think the extra costs are worth it.

Risk and reward

The proposition of each P2P lender varies so drastically and there are huge differences in the level of risk. This means there is no simple answer to whether the sector is suitable for your pension.

Just like any investment, it’s important to do your research when choosing where to allocate your money: make sure you understand the proposition, and are comfortable with the risks. Also find out the default rate, and whether the firm has a provision fund to compensate investors for poorly performing loans.

Richard Gill from Crowd for Angels says it’s important to know when you’ll receive income. “Some products, such as those offered by P2P providers, make consistent payments into your account as the loans are paid back. Others, like crowd bonds, may make monthly, quarterly, or semi-annual interest payments.”

Ultimately there’s a strong argument for allocating some of your pension savings into the P2P market, but make sure you understand what you’re signing up for.

Source: City A.M.

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UK house price growth slumps to five-year low in October

House prices grew at their slowest annual rate for five years in October, Nationwide data revealed today. House price growth slumped to 1.6 per cent last month, with prices flat month on month as the latest figures paint a miserable picture for housing activity across the UK.

October’s 1.6 per cent growth rate fell from two per cent growth in September, and is the lowest monthly rate since May 2013.

Meanwhile the average house price actually fell month on month, from £214,922 in September to £214,534 in October.

Robert Gardner, Nationwide’s chief economist, expects house prices to grow by just one per cent over 2018, saying squeezed household budgets and an uncertain economic outlook has dampened demand despite low borrowing costs and high employment.

“Looking further ahead, much will depend on how broader economic conditions evolve. If the uncertainty lifts in the months ahead, there is scope for activity to pick-up throughout next year,” he added.

“The squeeze on household incomes is already moderating and policymakers have signaled that interest rates are only expected to raise at a modest pace and to a limited extent in the years ahead.”

Yesterday City A.M.’s own shadow monetary policy committee unanimously voted to hold interest rates ahead of Brexit, with the Bank of England set to deliver its verdict later today.

Howard Archer, chief economic advisor at the EY ITEM Club, said August’s interest rate hike to 0.75 per cent meant house buyers would be more exposed to further rate rises, even if they prove to be incremental.

“Consumers have faced an extended serious squeeze on purchasing power, which is only gradually easing,” he added. “Additionally, housing market activity remains hampered by relatively fragile consumer confidence.”

However, against the background of a subdued housing market, activity among first-time buyers saw a small recovery, with Nationwide’s data showing purchases are roughly in line with pre-financial crisis levels.

“The improvement in credit availability, including the introduction of schemes such as Help To Buy, historically low interest rates, in particular fixed rate deals, together with a steady improvement in labour market conditions in recent years have all helped boost activity,” Gardner said.

But the housing market as a whole remains soft – the 1.2m transactions in the 12 months to September were 30 per cent lower than the number in 2007.

Mortgages for house movers remains subdued while buy-to-let activity has seen a significant reduction since the government upped stamp duty on such purchases.

However, Nationwide’s measure of house price inflation is lower than Halifax’s measure of 2.5 per cent for the last quarter, while Office for National Statistics data pegged inflation at 3.2 per cent in August.

Ratings agency Moody’s said it still expects house price growth to soften in 2019, though.

“This reflects lower demand from Brexit-related uncertainty, weak consumer confidence, low wage growth and a recent pickup in consumer inflation,” said Rodrigo Conde, assistant vice president and analyst at Moody’s.

“Specifically, migratory and rental market changes expose London and the south east to greater house price deceleration, which will slow the most given the relatively large gains made over the last decade.

“In the event of a no-deal Brexit, the macroeconomic outlook for the UK would weaken, leading to outright declines in house prices nationally.”

Source: City A.M.

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Central London house prices set for sharp upturn on Brexit deal

Central London’s waning high-end property market could be set for a resurgence over the next five years, with a new report forecasting that prime house prices could rocket by more than 15 per cent if an expected bounce in confidence returns to the capital.

Despite stamp duty changes and political volatility causing a slowdown in demand for many of London’s most expensive properties in the last four years, figures today project a swift return to growth next year if Britain signs a trade deal with the EU.

Prime Central London price growth will rise to one per cent in 2019 and 2.5 per cent in 2020, before rising to four per cent in 202, according to real estate giant JLL’s latest residential report.

JLL, which is predicting a 90 per cent probability of a Brexit deal being negotiated, said greater certainty from a deal with Brussels would immediately boost demand from domestic and international buyers – the latter particularly keen to benefit from the short-term currency advantage.

“The expected upswing in the market over the next five years is predicted amidst a difficult era where uncertainty surrounding Brexit has dented consumer confidence, casting a shadow over personal finances and negatively impacting the UK housing market,” according to Adam Challis, head of UK residential research at JLL.

Fresh evidence of weaker growth in London’s prime housing market has been emerging within the last 12 months, with agents and experts reporting subdued activity since 2014.

According to Hometrack research out today, the borough of Kensington and Chelsea, which is home to some of the world’s most expensive residential property, saw the biggest UK price fall of 4.9 per cent to an average £1.17m over the past year.

Trevor Abrahmsohn, a luxury property agent in North West London, recently told City A.M. that he had seen transactions crash by 70 per cent since George Osborne introduced stamp duty four years ago.

Today’s report also projected overall house prices across the UK are set to grow by 11.4 per cent in the next five years, with London expected to see sharper growth on a post-Brexit deal than any other region in the UK.

Source: City A.M.

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Autumn Budget 2018: Industry pleased the Chancellor left buy-to-let alone

Some buy-to-let professionals were pleased Chancellor Philip Hammond didn’t introduce any further buy-to-let taxation changes in his Autumn Budget.

Andrew Turner, chief executive at specialist buy to let broker Commercial Trust, felt the move to raise income tax thresholds could be good news for some buy-to-let borrowers.

He said: “Certainly there had been speculation beforehand that the Chancellor might increase stamp duty on second homes, but in the event, these proved unfounded.

“There was very little mention of landlords at all and perhaps the most significant aspect of this Budget, was the raising of personal income tax allowances to £12,500 for basic rate and £50,000 for higher rate, from April 2019.

“This could represent good news for some landlords, who are borderline higher rate tax payers at the present threshold of £46,351. If these landlords suddenly find themselves in the lower tax bracket from next April, they might benefit from more generous borrowing calculations on some buy-to-let products.

“This is because some lenders apply less strenuous rates in their income calculation ratio (ICR) assessments for non-tax payers and basic rate tax payers.

“This could result in some formerly higher rate tax payers being able to borrow more money on selected buy-to-let mortgage products, if they do drop out of the higher rate tax bracket into the basic rate.”

Toni Smith, chief operating officer, PRIMIS and Personal Touch Financial Services (PTFS), said: “It will undoubtedly be a relief for many landlords that the Chancellor has moved his focus away from the buy-to-let market in this Budget – a sector which is still getting its head around recent regulatory updates.

“This decision will hopefully afford landlords the time they need to take stock of their positions, and work to consolidate, or potentially grow, their portfolios.”

Similarly Peter Izard, business development manager at Investec, agreed and also welcomed Hammond cutting stamp duty for shared ownership properties valued at up to £500,000.

He said:  “It was pleasing to see the Chancellor did not make any major changes to taxation in the buy-to-let sector or in stamp duty apart from the positive changes in shared ownership stamp duty.

“Investec considers the housing market requires a period of certainty and the lack of changes will be welcomed.

“The Chancellor announcements in the budget on the £500m increase to the housing infrastructure fund to support SME housebuilders are welcomed by Investec.

“The UK continues to suffer from a shortage of new housing to meet supply demands.”

Source: Mortgage Introducer

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House prices now ‘rising twice as fast as rate of wage inflation’ in one quarter of UK cities

House prices in five of the main UK cities are now rising twice as fast as wage inflation.

Figures from property data company Hometrack show average house prices in the top 20 biggest UK cities were up 3.2% annually in September to £217,500.

Prices are rising fastest on an annual basis in Liverpool (6.9%), followed by Birmingham (6.5%), Leicester (6.4%), Manchester and Glasgow (6.2%).

Hometrack said this level of growth has made it tougher for buyers as wage inflation is at just 2.7%.

Meanwhile, Hometrack analysis found prices in almost two-thirds (63%) of London local authorities have fallen annually, but the proportion of markets in the capital registering a decline in values is now lower on a monthly basis.

Average prices fell in 29 local authorities covering London and the commuter belt over the past 12 months, with the wealthy borough of Kensington & Chelsea suffering the worst year-on-year fall, down 4.9% to an average of £1.17m, Hometrack says.

However, the number of London postcodes registering month-on-month price falls has dropped to 44% from a peak of 70% in December 2017, meaning 56% are now registering gains.

Hometrack said this implies the proportion of markets registering annual price falls will slow further over the rest of the year.

Richard Donnell, insight director at Hometrack, said: “City level house price growth remains well above average in the most affordable cities.

“While the rate of growth has moderated slightly, prices in five cities are still rising twice as fast as the growth in earnings.

“We expect continued price growth in the most affordable markets over the remainder of the year.”

Source: Property Industry Eye

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Exit of landlords from market pushing up asking rents as stock drops

A drop in available properties is pushing asking price rents to record highs, Rightmove has reported.

The portal says that available stock has dropped 8.7%, exacerbated by a 19.4% fall in London.

National asking prices for new rents, excluding London, in the third quarter this year are £802.

It is the first time that average asking rents outside London have been over £800.

In London, the average asking price has included down, from £2,000 per month in the second quarter, to £1,992.

Rightmove commercial director Miles Shipside said: “Rental demand is currently outstripping supply in many locations, especially in the capital.

“The exit of more landlords from the buy-to-let market has been due to a raft of different factors.

“What we’re left with is a lack of available homes for tenants looking to find their next place to rent, meaning that when the right kind of property does come along it isn’t sticking around for very long before it’s snapped up.”

Source: Property Industry Eye

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How the Autumn Budget will affect SMEs

The Chancellor’s Budget announced earlier this week by Philip Hammond has promised an ‘end to austerity’ for Britain. With numerous policies to help first-time buyers, lower incomes and housing, we look at how the new Budget will impact the SME marketing in the UK.

A significant change will be the Chancellor’s attempt to help fledging high-street businesses, who have certainly felt the pinch over the last year, with noticeable casualties such as House of Fraser, BHS, Byron Burger and Jamie’s Italian.

In a move to better the current situation for high street businesses, Hammond has pledged to cut business rates by a third for all retailers with a rateable value of £51,000 or less for the next two years. This will help retailers save up to £8,000 per year and that includes high street shops, pubs, restaurants, cafes and other small business owners that are losing ground online.

A further £675m has been assigned as a Future High Streets Fund, to aid the transformation of the UK’s high streets, to improve footfall and regenerate areas in need of redevelopment.

For entrepreneurs, the start-up loan scheme originally founded by Rt Hon David Cameron will be backing a further 10,000 new businesses – this includes seed funding, start-up capital, merchant loans and business finance. A further £200m has been put aside by the British Business Bank to replace funding which they are likely to lose from the EU following the Brexit deadline in March 2019.

For SMEs that take on apprentices, the training bill will be reduced from 10% to 5%, and the government will pay the remaining 95%. Those apprentices aged 16 to 18 and working in companies of less than 50 will continue to have their training full funded.

Losing out from the Budget will be the powerhouse tech companies who started abroad but operate in the UK and use schemes to avoid paying tax. Pointing out the likes of Google, Facebook and Amazon, the tax will be imposed on those firms with a global revenue of £500 a year and the increase in tax will put £400 million back in the UK government, when it comes into place in April 2020.

Elsewhere, a scheme has been planned to offer interest free loans those struggling with debt caused by high cost credit – relating specifically to unauthorised overdrafts, rent to buy and payday products. This will be based on a consumer level and not impact businesses or sole traders using guarantor, personal or bridging loan products.

UK roads and infrastructure are expected to get a huge boost at just under £30bn in investment and first time buyers in shared ownership schemes will have their stamp duty scrapped – giving them a saving of £10,000.

Source: FinSMEs

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Nothing For The Buy To Let Landlord In Autumn Budget

In an Autumn Budget much anticipated by the property industry, the Chancellor of the Exchequer, Philip Hammond has given very little in the way of help.

The hoped-for announcements of waiving Capital Gains Tax for landlords who sell to first time buyer tenants, and also tax breaks and incentives for landlords who offer longer-term tenancies and various cuts to stamp duty have failed to materialise in the Autumn Budget.

Instead, token gestures towards fixing the UK property market seemed to be the order of the day.

£5.5 billion for the Housing Infrastructure Fund – in a move aimed at supporting the building of 650,000 new homes.

£1 billion to support SME housebuilders.

The abolition of Stamp Duty for all first-time buyers of shared ownership properties valued up to £500,000 – which will be backdated to the date of the last Budget.

The failure to introduce tax breaks for landlords prepared to offer longer tenancies seems a particularly missed opportunity, as industry research has shown that mandatory longer tenancies may cause some landlords to exit the sector, and that not all tenants are looking for long-term agreements.

The introduction of tax breaks for longer tenancies in the Autumn Budget would certainly have lessened the blow to many landlords of announced plans to introduce mandatory three-year tenancies.

Founder and CEO of Emoov, Russell Quirk, commented: ‘As expected, the Government has chosen to turn its back on addressing the current housing crisis and has instead deployed yet more cheap magic tricks and white rabbits in an attempt to divert our attention.

Retrospective stamp duty relief on shared ownership properties up to £500,000 is a very small give away and £500 million to help with an additional 650,000 homes will equate to nothing but rhetoric.

To say that the big developers are not land banking shows a completely naive disconnect from reality. Today absence of any meaningful housing announcements is disappointing, to say the least especially when housing is the second hottest political topic in this day and age.

We’ve been led to believe that this Government is serious about fixing Britain’s broken housing market, but so far their attempts equate to little more than plugging holes with PVC and sticky tape, rather than delivering a solution based on a watertight blueprint.’

Other property experts were equally disappointed by the Autumn Budget.

Rory O’Neill, Head of Residential, Carter Jonas, said: ‘The Chancellor has withheld much-needed support from landlords and tenants who are in a continuous state of flux over changes in fees and tax legislation. We would urge the Government to explore the correlation between financially squeezed landlords, many of whom struggle to invest in their properties, and tenants struggling to find homes that are fit for purpose.

‘In throttling landlords with the removal of taxation relief, many are vacating the market altogether, which is creating a shortage of good quality lettings properties in an affordable price bracket. Not ideal when so many tenants are already crippled by rents and unable to save for a deposit of their own.’

Source: Residential Landlord