ROOF Blog

Cordea Savills, the funds arm of property services firm Savills, has launched the UK Income and Growth Fund to acquire prime assets in Britain’s recovering commercial property market. The fund is aiming to raise a total of 1 billion pounds over the next few years, and plans to deliver distributions to investors of over 5 per cent. ‘Despite uncertain prospects in the short term, we believe that UK prime commercial property is fairly priced and will perform well again once the occupational markets return to strength,’ fund director George Tindley said.

Britain’s leading economists are almost unanimous in their view that house prices are still too high. Of the 70 who answered the question, 13 believed residential property prices were now fairly valued, while 55 said they were not and two did not express a view. The judgment that the housing market remains overinflated sits uncomfortably alongside extensive evidence that prices are rising rapidly. But the general view is that the recent surge in prices reflects low interest rates and low levels of supply - a situation that cannot last for long. House prices are also likely to be hit by weak income growth and still weak bank lending, economists argue.

The recession’s toll on consumers will be laid bare today as Bank of England figures show that nearly a third of workers have had their household income drop by at least £1,200 a year amid soaring unemployment, shorter working hours and pay freezes.

About 30 per cent of manual workers and 27 per cent of office workers said that their disposable income – money left to spend each month after paying tax, housing costs, utility bills and loan payments – had fallen by £100 or more over the past 12 months, according to the Bank’s ‘Quarterly Bulletin’.

The monthly Halifax house price index shows that house prices jumped by a bigger than expected 1.4 per cent in November, spurred on by higher demand and a shortage of properties for sale.

The increase was the fifth successive monthly rise with prices more than four per cent higher over the first 11 months of the year. The average cost of a house in the UK is now £167,664.

However, that is still 1.6 per cent cheaper than this time last year, and the recovery in house prices that we’ve seen in the past six months is unlikely to be sustained next year, analysts warned.

Seema Shah, a property economist at Capital Economics, said: ‘With the economic recovery likely to be lacklustre, unemployment set to rise and household incomes likely to be under downward pressure from pay freezes, house price falls remain the most likely outcome next year.’

The Chancellor should double the tax relief on income made from renting out a spare room when he delivers his pre-Budget report on 9 December, according to the National Landlords Association.

The NLA hopes that Alistair Darling can be persuaded to raise the tax-free ‘rent-a-room’ threshold from its current level of only £4,250 – a level it has remained at since being introduced in 1997.

Since that time, rents have more than doubled in most parts of the country, shrinking the value of the original income threshold.

The NLA is one of several organisations supporting the Raise the Roof campaign, which is lobbying for an increase to £9,000 per year.

‘Raising the tax-free threshold for live-in landlords would provide an important boost to homeowners who are facing difficulties meeting their mortgage payments,’ said Chris Norris, NLA policy manager.

‘For many, the extra rental income really could mean the difference between paying the mortgage and losing their home.’

Shelter is calling for greater tax breaks for householders who rent a room to lodgers, because the tax threshold – the amount a person can receive in income before paying tax – is so low it puts people off from offering a room to potential renters.

The present threshold of £4,250 hasn’t changed since it was set in 1997, despite rent rises of more than 110 per cent since then.

But Shelter believes many more homeowners, especially those struggling with mortgage costs, would rent out a room if they didn’t have to worry about tax repercussions.

Shelter director of policy and campaigns Kay Boycott said:

‘In the current economic climate, many homeowners are battling to meet their mortgage payments and many are looking for options to maximise their income.

‘If the rent-a-room threshold was higher and the scheme better publicised, it could prove a real incentive for people to take in a lodger, and the take up of rent-a-room opportunities could increase.’

Shelter is calling for the threshold to be raised to £9,000 a year to reflect rising rents, which would cost the Treasury around £5 million per annum, plus a publicity drive to ensure greater take up of the scheme.

Government spending cuts on construction risk deepening the recession and making it harder for the economy to recover in future, the CBI employers’ organisation have warned.

Every £1 spent on construction generates a £2.84 increase in national income according to a report by the CBI’s UK Contractors’ Group, and cuts would diminish gross domestic product (GDP) to the same extent.

John McDonough, chief executive of Carillion and chairman of the CBI’s construction council, said the sector was likely to be in the line of fire when the government attempts to narrow its yawning budget deficit:

‘The public purse can’t afford what it has afforded in the past, but we need to be prepared for what’s going to happen in the next 12 months,’ he said.

‘Construction makes up around 8 per cent of UK GDP and a similar proportion of employment, but it has been hit hard by the recession.

‘Its rate of redundancy, at 28 per 1,000 employees is the highest of any sector, and the short-term nature of much construction work means that the true decline in employment is likely to be greater.’

Borrowers have been warned of soaring mortgage fees after the Financial Services Authority (FSA) called for lenders to assess income and spending in greater detail before approving loans.

Lenders are already under fire for introducing application charges of up to £1,000, which you lose if you back out or the loan offer is withdrawn – a problem not uncommon in today’s mortgage market.

Brokers say that plans by the Financial Services Authority (FSA) to make all borrowers pass an ‘affordability test’ that scrutinises their spending habits mean that fees could go even higher.

Savills Private Finance broker Melanie Bien said: ‘Any step-up in regulation means more cost, and higher costs tend to be passed on to consumers.

‘Lenders are likely to favour higher charges over the alternative option of increasing interest rates as it is a less visible way of raising costs.

‘This will be unhelpful, especially for first-time buyers, for whom every penny counts.’

Treasury figures show that welfare payments will exceed income tax receipts by almost £25 billion in 2009/10. Treasury is expecting to take in £140.5 billion on gross income tax receipts, and pay out £164.7 billion in social security benefits, growing to £170.9 billion in 2010/11, equal to government spend on the NHS, schools and universities combined. The Treasury has blamed the worsening state of public finances on the ‘global financial crisis and recession’. 

The level of fines levied against individuals for mortgage fraud so far this year has overtaken the number for the whole of 2008. The Financial Services Authority (FSA) said in the last 18 months it had stepped up pressure against fraudulent brokers who operated during the boom, with fines totalling £302,445 in the first quarter of the 2009, and nine order banning individuals and brokers from the mortgage industry being handed out. The most common form of mortgage fraud is inflating the income of the applicant.