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Parents Failing To Save For Their Children As Interest Rates Stay Low

From help with university living costs to a helpful leg up onto the housing ladder, the so-called ‘bank of Mum and Dad” is increasingly expected to do at least some of the financial heavy lifting when children leave home and begin to make their way in the world. But according to a new report from peer-to-peer lending platform, Zopa, many parents are failing to put money aside to help the next generation. Some because they find it impossible to save, others because they want to encourage self-reliance. But as the peer-to-peer lender sees it, low-interest rates are also acting as a disincentive.

The so-called millennial generation arguably faces a tougher set of financial challenges than their immediate predecessors – not least in terms of getting onto the property ladder. In the wake of the financial crisis, Mortgage lenders typically ask for a deposit of at least  5.0% and with the average price of a flat now standing at more than £200,000, that means a deposit in the region of £10,000. With wages remaining fairly stagnant and rents high, saving the initial amount required to purchase a home can be tough, especially for those who are also repaying student debt.

And as a report published in May by the Resolution Foundation think tank highlighted, the generation born since 1980 are decidedly gloomy about their financial prospects. Most expect to be worse off than their parents. That, in turn, puts pressure on previous generations to help out.

Can’t Save/Won’t Save

First the good news. A  majority of parents are making an effort to save and 62% have a long-term strategy stretching over four years or more.

But  Zopa’s research suggests that around 20% of parents are not saving, either for themselves or for their children. Out of that group, more than half say they simply can’t afford to set money aside.  Meanwhile a small but significant minority – one fifth – say they want their children to stand on their own two feet.

As Andrew Lawson, chief product officer at Zopa pointed out, low wage growth and high inflation have made it more difficult to put money aside. However, lack of cash is not the only factor. With interest rates still at very low levels, there is perhaps very little incentive to save.

“Unfortunately, the British public will struggle to find a savings account paying out interest higher than two per cent,” he said.  “And with the most recent UK inflation rate being posted at 2.4 per cent, anyone using one of these accounts as their primary “long term” savings vehicle can most definitely find a better route.”

The survey suggests that Most savers are not seeing their money grow. For instance, 50% of those questioned in the Zopa poll are using standard bank savings accounts. This compares with the 34% who use Junior ISAs (potentially offering better returns) and just 9% investing via Stocks and Shares ISAs.

Savings Options

So-called ‘Easy Access’ savings accounts are attractive to those who want to set money aside in a separate account while also keeping open the option to dip into the pot from time to time and get cash out immediately. However, the price for the convenience of having instant access to funds is low interest rates. Even the best performing easy access accounts offer an annual return of not much more than 1.3% and in many cases, it is lower.

“Notice Accounts”  tend to offer slightly higher rates (the best is currently) between 1.6% and 1.7% but savers can’t access their money immediately.

Despite the unexciting returns, bank accounts provide a great way to get adults and also children into the savings habit. Robert Gardner is the co-founder of RedStart, a charity set up to teach young children about money. He recommends that children have their own accounts.

“Shop around. Most banks and building societies have a children’s savings account. Again a child can learn that if they save £1 a week they can have over £50 at the end of the year to buy a bigger toy,” he says.

Gardner is also keen that children learn about the benefits of longer-term savings.

“If you want to teach your children how to ‘grow’ their money and benefit from compound interest then you should consider either a Junior ISA (JISA) and invest in stocks and shares and or a pension,” he adds.

It Pays to be Adventurous

Investing in the share and bond market takes savers away from the safe comfort zone of the bank account and into the rather more volatile world of the financial markets. But according to Ben Faulkner, Communications Director for wealth management company  EQ Investments, it pays to be adventurous.

“In almost all cases an investment for a child implies a long timescale. This situation is ideal for adopting an adventurous investment strategy, where you accept the greater volatility that comes with the potential for greater returns in the long term,” the spokesman says.

ISAs are an obvious first port of call. The Junior ISA (JISA) in particular has been designed to encourage young people between the age of five and eighteen (or more likely parents acting on their behalf) to save for the future. Under JISA rules, £4,260 can be saved every year and the returns are tax-free. There are risks, though. Returns on Stocks and Shares JISAs are not guaranteed and, in theory, any downturn in the stock market could mean the saver receiving less than has actually been put in. Alternatively, parents could invest in a standard Stocks and Shares or Cash ISA.

Robert Gardner urges parents not to forget pensions, which can provide huge benefits to children later in their lives.

“The advantage of a pension is you get tax relief. That’s free money from the government. Just 50p a week from birth until the age of 10 will grow to be worth over £100,000 by the time they retire. And they can’t access it and spend it when they turn 18,” he says.

There is also a new kid on the savings block in the shape of peer-to-peer lending platforms – of which Zopa is one. These platforms lend to individuals and businesses, with the money sourced from thousands of individual investors who are rewarded with returns that are higher than those offered by bank savings accounts. Zopa itself offers a fund with a 4.6% return to lenders.

So there are a lot of options to consider, each with their own characteristics in terms of the risk involved and the potential return. If the rate of return over a long timescale is the priority, Ben Faulkner says that evidence points to shares and property.

“A child’s portfolio should be invested largely in equities (shares in companies) and property, since these are the types of asset that, historically, have always produced the highest returns, over the long term.”

But the starting is a commitment to saving.

Source: Cash Lady

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UK house price growth slows to five-year low – Nationwide

British house prices rose at their slowest annual rate in five years this month and look set to remain subdued due to modest economic growth and squeezed household budgets, mortgage lender Nationwide said on Wednesday.

House prices across the United Kingdom were on average 2.0 percent higher this month than a year ago, slowing from 2.4 percent growth in May. This was the weakest in five years, though less of a slowdown than the drop to 1.7 percent forecast in a Reuters poll.

In June alone, prices rose 0.5 percent compared with a forecast rise of 0.3 percent.

 “There are few signs of an imminent change. Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent,” Nationwide economist Robert Gardner said.

Nationwide expects house price growth for 2018 as a whole to slow to around 1 percent – a view broadly shared by Pantheon Macroeconomics economist Samuel Tombs.

“Tight supply, a healthy labour market and a continued lengthening of mortgage terms … will help to prevent prices from falling outright. But it is inevitable that house prices will grow at a slower rate than households’ incomes during a period of rising mortgage rates,” he said.

Most economists polled by Reuters expect the Bank of England to raise interest rates by a quarter of a percentage point to 0.75 percent in August, only the second increase since the global financial crisis.

 The pace of increase after that is expected to be gradual, as the BoE assesses the effect of Britain’s departure from the European Union in March 2019.

London’s housing market was hardest hit by the June 2016 Brexit vote, due to reduced demand from foreign investors and fears for the city’s financial services industry.

Tuesday’s data showed London was the only region of the United Kingdom to record an annual price fall in the second quarter, with average prices 1.9 percent lower than a year earlier, compared with increases of 4 percent or more in Wales and central England.

But London property prices still remained 50 percent above their level before the financial crisis, while in much of northern England there had been no overall increase over the past decade, Nationwide said.

Source: UK Reuters

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Why the tenants are choosing private rented sector

With reports that a quarter of the population will be privately renting by the end of 2021, it is clear that the UK’s Private Rented Sector (PRS) is becoming an increasingly popular alternative to property ownership.

New data from insurers Direct Line for Business only goes to strengthen this argument, with a recent study revealing that 70% of UK renters have no intention of buying a home. The research supported the idea that the UK is moving toward a German Housing Model, where the majority of the population opt to rent, supported by government policy and encouraging attitudes toward long term renting.

In fact, further research shows that more people rent in Britain than almost anywhere else in Europe, with only Denmark, Austria and Germany having a lower percentage of home owners.

The reasons for this are varied but often come down to financial cost. With the average first-time buyer looking at prices double what they were just five years ago, it is understandable that home ownership is slipping through the fingers of younger generations, but interestingly that is not the only reason cited by responders for wanting to stay in the PRS.

The Direct Line for Business study shows that of the 12 million adults who said they don’t intent to buy property 22% said that the financial commitment of buying was a turn off, 9% said that they chose to rent so they could freely travel and 12% didn’t want to be tied to one place. An additional 22% commented that they didn’t want the hassle and cost of maintaining a property and would instead prefer a landlord to hold responsilbity for repairs.

Business manager at Direct Line for Business, Christina Dimitrov, said: “The UK housing market continues to change and we are seeing a major attitudinal shift when it comes to renting. While price is a factor, many people are increasingly comfortable with the flexibility afforded by renting a property rather than jumping into home ownership.”

The transition toward a new model of long-term renting is positive news for the future of the buy-to-let sector, with landlords able to support a growing pool of tenants and renters able to have greater choice in the market.

Source: Property Forum

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UK mortgage approvals hit four-month high in May

LONDON (Reuters) – The number of mortgages approved by British banks for home purchases hit a four-month high last month, according to industry figures that differed from other signs of weakness in the housing market.

Banks approved 39,244 mortgages in May, up from 38,327 in April but still down more than 4 percent compared with a year ago, seasonally-adjusted figures from trade body UK Finance said on Tuesday.

Britain’s housing market slowed after the 2016 referendum decision to take Britain out of the European Union, especially in London. The vote hit consumer confidence and spending as a fall in the pound that followed that vote pushed up inflation.

Gauges of house price growth remain muted.

UK Finance described modest growth in credit card spending, reflecting a recent boost to retail sales spurred by good weather and celebrations around the marriage of Prince Harry and Meghan Markle.

Source: Investing

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Agents warn on plummeting rental supply as number of landlords quitting sector hits a high

The number of landlords heading for the exit has hit a 12-month high.

Belvoir’s first quarter rental index, based on feedback from its franchisees, found that 5.6% of offices saw 11 or more landlords selling up – the highest percentage for over a year.

Almost a third, 31.5% of franchisees, also said they had seen four to five landlords deciding to quit, while 46.3% had seen up to three landlords selling up.

The main reasons given for selling properties were tax and regulatory changes.

The Belvoir index also showed a supply issue as these high numbers of landlords exits are not being replaced by a similar figure for new properties being added to portfolios.

Fewer offices saw landlords add significant numbers of properties in the first quarter, with just 3.7% seeing six to ten add to their portfolios and 1.9% saying 11 or more landlords had made additions. This was down from 9.6% and 5.8% respectively at the end of 2017.

There was some good news for landlords, with tenants continuing to stay in their properties for longer, with 33% preferring a tenancy of 13-18 months and 40% staying for 19-24 months – almost double the previous quarter and the highest percentage for the past two years.

Overall, average rents in the first quarter were flat on an annual basis at £784 per month.

Dorian Gonsalves, chief executive of Belvoir, said: “The trends that Belvoir is reporting are very much in line with our predictions at the beginning of this year.

“As 2018 progresses, there is no doubt that landlords and tenants will find themselves shouldered with an extra burden of cost due to continued government interference in the rental market, which includes the implementation of punitive tax changes.

“As more landlords see their profits eroded, and more legislation is in the pipeline, more landlords are likely to exit the market.

“We are still seeing new investment in the buy-to-let market, but the number of properties being bought has decreased.”

Source: Property Industry Eye

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Call to end mortgage tax relief on buy-to-lets

Two policy experts who have had the close ear of the prime minister are recommending the government entirely abandon mortgage interest relief for landlords.

Neil O’Brien and Will Tanner, both former advisers to Theresa May, endorse ending tax breaks for buy-to-let investors as one of 10 ways to stop people buying homes as investments.

This is despite the tax breaks being curtailed already, the duo acknowledges in their report — seen as an attempt to reinstate the Conservatives as the party of home-ownership.

But O’Brien wants to go further, saying mortgage interest deductions that can still be made should be abolished fully, for either new investors or new properties let-out after a fixed date.

While the government “should protect existing landlords” with active investments, the mortgage interest relief system should be reformed in the future, as should their other ‘perk.’

“On a grandfathered basis, end loopholes within the CGT exemption for the primary residence,” adds the report, referring to landlords’ avoiding CGT on residential property.

Mr Tanner reflected: “We should rebalance the housing market away from owning for a return and towards owning for a home.

“It is a sobering thought that if Britain had maintained the balance between privately-rented and owner-occupied properties since 2000, we would have two million more families owning their own home.”

Put another way, the growth of buy-to-let (helped by favourable tax treatment) has “locked 2.2 million families out of [home] ownership,” argues O’Brien, the Tory MP for Harborough.

He also wants the Treasury to review the tax treatment of ‘wear and tear,’ saying while the new system after 2015 is fairer, it still offers landlords an advantage over owner-occupiers.

“Ministers could also look again at the generosity of the relief,” the MP says.

“Taken together, the reforms to mortgage interest rate relief and wear and tear allowances announced in Summer Budget 2015 were scored as raising £835 million a year by 2020/21.”

The report says the evidence from the 2015 and 2016 changes for landlords is that tax reforms can have a “positive impact on homeownership,” but it notes that the “measures taken so far are not large enough to produce a step change in ownership.”

Source: Contractor

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Financial pressure on landlords is harming the PRS not improving it!

In a report published 25th June, property expert Kate Faulkner has claimed that while legislation has been introduced to improve the private rented sector (PRS), it is not being properly communicated to landlords, agents and tenants.

Writing in her seventh report funded by the TDS Charitable Foundation, Kate highlights the ever-increasing financial and administrative pressures on landlords and agents due to legislative changes.

Of over 147 new pieces of legislation, covering the sector, more than half have been introduced since buy-to-let mortgages were launched in 1996. While the percentage of homes in the PRS classed as ‘non-decent’ has reduced (47% in 2006 to 28% in 2015), there has been an increase in real terms as the sector has grown (1.2 million in 2006 to 1.3 million) over the same period.

Commenting on the report, Kate said: “Due to the rising costs to good landlords and a scant enforcement of PRS regulations, there is an incentive for some landlords and agents to act outside the law to increase their profit margins.

“The increased costs to landlords of buying a property, then letting it legally and safely, means that in some cases rents have increased beyond the means of some tenants. Reputable landlords and agents are being penalised financially for abiding by the law.

“It can create a vicious cycle and a two-tiered rental market, which the legislation was never intended to create.

“The problem, as I see it, is that bills are introduced on the sector all the time, but aren’t backed with a communications plan or funding for enforcement. As I wrote for a previous TDS Charitable Foundation report; legislation is meaningless without enforcement.

“Myriad legislation can be confusing for tenants and rogue landlords and agents often get away with offering sub-standard homes as tenants don’t know their rights. In reality, tenants hold the power in terms of accepting or rejecting poor or dangerous properties, although where supply is scant, this power disappears.

“I would like to see a more concerted approach to educating tenants on their rights. Nobody could have escaped hearing about the introduction of GDPR, but when rental laws are introduced, affecting millions of people across the country, there doesn’t appear to be the same public awareness campaign.

“That is not to say that legislation introduced has been wrong-headed or ineffectual, but it could have had a greater positive impact on the sector if it were backed with enforcement and communication.”

The TDS Charitable Foundation commissioned Kate Faulkner to produce research reports into the PRS to improve knowledge and educate landlords, agents and tenants, in line with the Foundation’s aims. Her latest report, What are the real legal requirements and costs of letting a property, and how can we communicate them better to landlords and tenants? Is now available to download as a PDF.

While the TDS Charitable Foundation funds the reports, Kate retains editorial control and the opinions expressed in the report do not necessarily reflect the views of Tenancy Deposit Scheme (TDS) or the TDS Charitable Foundation.

Source: Property118

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Can this solve the UK’s chronic housing shortage?

The growth of the buy to let market has locked over 2 million families out of homeownership, preventing younger generations the chance to become part of the property owning democracy, according to a new report by the campaigning think tank Onward.

The report authored by leading Conservative MP, Neil O’Brien, argues that the government should limit the demand for property as an investment with a crack down on landlords tax relief for future rented properties. The paper also calls for councils to be given more powers to limit overseas purchases of new homes. At the same time, the think tank calls for a radical set of policies need to be implemented to increase the supply of new homes.

 The report exposes the sheer scale of problems which have built up in Britain’s housing market, driving the decline in homeownership over the last 15 years. New analysis in the paper reveals that:

France has built roughly twice as many new homes each year as Britain since 1970. France built 7.8 million more homes than the UK between 1970 and 2015 – a difference equivalent to every home in Greater London, Scotland and Wales put together. As a result, real house price growth in France has been just half the rate the UK and the proportion of people who spend more than 40% of their income on housing is less than half the rate in Britain. Some densely populated countries like the Netherlands built at an even faster rate than France.

The cost of renting has risen dramatically and nearly half of young men are now forced to live with parents. New analysis from the House of Commons Library included in the report shows that from the 1960s to the early 1980s private renters spent on average around 10% of their income on rent in most of the country, and around 15% in London. Today they spend over 30% and nearly 40% respectively. Meanwhile between 2000 and 2017, the number of 18-30-year-olds living in their parents’ home increased by about 1.1 million. Nearly half (48%) of men aged 22-26 now live with their parents.

Developers and landowners are benefiting most from the current system. Between 1950 and 2012, 74% of the increase in Britain’s housing costs was accounted for by increases in the cost of land. The value created when planning permission is granted overwhelmingly accumulates to developers, meaning communities are missing out on up to £9 billion of land value uplift created each year. Meanwhile many large developments go ahead without anything being contributed anything to the wider community. 7% of developments of over 1,000 homes had no developer contributions charged on them in 2016/17. For developments of between 100 and 999 homes, 26% made no contributions.

The growth of buy to let has locked 2.2 million families out of ownership. If the ratio of privately rented to privately owned homes had remained the same between 2000-2015, and we had built the same number of homes, we would have ended up with 2.2 million more homes in owner-occupation.

The report argues that while building more homes is important, homeownership is unlikely to return to previous levels without action to stem further growth of the rented sector. It notes that while the number of privately-owned homes has grown by 165,000 a year over the last decade, ownership has still declined because this has been outweighed by the 195,000-a-year growth in the number of properties in the private-rented sector.

Source: London Loves Business

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Small landlords will dwindle away

The private rental sector of the future will be dominated by larger institutional landlords as the number of hobbyist landlords decreases.

This prediction is from Roma Finance, the specialist bridging finance and development lender, who reports that more and more landlords are using limited companies to maximise tax efficiencies on their investments – and this is set to continue.

Those landlords with fewer than five properties will disappear as the cost of managing their properties and keeping up with ever-changing legislation will prove to be prohibitive.

However, with the number of landlords reducing this won’t affect the number of buy-to-let properties available for rent, but extra administration costs could ultimately increase the rents charged to tenants.

Roma says that landlords are evolving in many different ways, from the legal structure of their holdings, the make-up of their portfolios, the quality requirements they will have to adhere to and the way they will finance properties going forward.

New HMO rules

An area of concern is the impact of the new Houses in Multiple Occupation (HMO) regulations coming into force on 1 October. The number of storeys will be removed from the definition of HMO and minimum room sizes will be set.

Those landlords with one or two storey HMOs will be subject to mandatory licencing requirements by their local council. The Residential Landlords Association estimates that in the UK this will affect an extra 177,000 properties.

EPC ratings

The new EPC ratings which came into force on 1 April mean that rental properties need to be rated as E or above, those rated F and G can’t be let to new tenants or have tenancies extended.

Roma says this provides bridging lenders with a new opportunity to back professional landlords to acquire ‘un-rentable’ properties with a view to improving their EPC rating, which in turn will make them eligible for longer term buy-to-let mortgages.

Opportunities for lenders

From a lending perspective, Roma predicts that more lenders will opt for unique or tailored rates and criteria for each transaction. There are big opportunities for innovative lenders willing to look at how they can provide funding for more complex cases and update their underwriting requirements to take the new legislation requirements into account.

Scott Marshall, managing director of Roma Finance, commented: “Clearly a barrage of regulation and legislation is moulding a new breed of landlords. The days of the hobbyist landlord are numbered as the upkeep and management of rental properties becomes more onerous.

“The private rental sector is due for another shake up in 2018, and beyond, and only the larger players will be able to cope, as they can benefit from their scale of operation.  With the HMO rules coming into force in October, maybe more affordable housing is needed more than ever as an alternative.

“However, as a lender we’re still experiencing a high level of finance demand for rental property, and in the wider market there are many product updates being introduced as lenders seek to adjust criteria to keep pace with a changing market. But it seems clear that the future will be driven by professional landlords rather than the armchair investors of the past.”

Source: Mortgage Finance Gazette

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First-time buyers need 10 and a half years to save for a deposit

In Q1 2018 the average single first-time buyer would have to save for 10 and a half years to raise a 15 per cent deposit on their first home.  This is slightly down on the 11 years recorded in Q1 2017 and reflects slower house price growth and a rise in incomes.

The average single first-time buyer who started saving in Q1 2018 would not be able to purchase a home until the autumn of 2028.

 Sharing rent and every day household costs such as food and bills means that a couple can save faster – under half the time of a single first-time buyer.  In Q1 2018 the average couple buying for the first time would need to save for five years – unchanged from 2016 (table 1).

This means that the average first-time buyer couple who started saving in Q1 2018 could set up home by the spring of 2023.

A single Londoner hoping to buy for the first time would need to save for 17 years to raise a 15 per cent deposit whereas a couple would need eight years (table 1).  It is now six months quicker for a couple to save up for a home in London than at the same period last year.  A slowdown in London house price growth and higher income growth explains the change.

In Q1 2018 a single first-time buyer in London would not be able to move into their new home until 2035.

The fastest place to save for a 15 per cent deposit is in the North East, where it takes a couple just under three years (two years nine months), and a single person six years and three months.

Saving for a 5 per cent rather than a 15 per cent deposit means first-time buyers can save faster.  Five per cent is the minimum deposit needed to qualify for Help to Buy.

For a single first-time buyer it would take three years and nine months to save up for a 5 per cent deposit (table 2).  This is over six and a half years faster than saving up for a 15 per cent deposit.

In Q1 2018 it would take a couple saving for a 5 per cent deposit on their first home one year and nine months, this compares to five years when saving for a 15 per cent deposit.

But in London the time to save for a 5 per cent deposit rises to three years for a couple and five years and nine months for a single first-time buyer (table 2).

Aneisha Beveridge, Analyst, Hamptons International said:

“Saving a deposit is still the biggest barrier to buying a first home.  It takes a single person more than a decade to save up in the current climate.  But the additional support from Help to Buy brings down the time it takes to raise a deposit by over six years for a single first-time buyer. 

 “Slower house price growth in the capital has meant that it’s now six months quicker for a couple, who share household spending, to save up for a 15 per cent deposit in London.  But it still takes a couple in London eight years to save up, twice as long as someone buying a home in the North.”

Source: London Loves Business