The average UK household will lose over £2,000 in income this year

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According to a new report just out by the Resolution Foundation (RF), UK households face a torrid time in the coming months in what is going to be the worst cost-of-living crisis in living memory.

It’s the aftermath of a Covid pandemic that involved massive Government borrowing, compounded by an energy price hike brought about by first major European confrontation (the Russian invasion of Ukraine) since World War 2.

Inflation hit double digits for the first time since the 1970s, and following the abrupt shock to the financial system brought on by the Truss / Kwarteg mini-budget, mortgage rates went from less than 2 percent to plus 6 percent in a matter of days last November.

The respected research group’s findings puts the UK halfway through a credit squeeze that will shave £2,100 off the average household income, and this will be much higher in the case of some businesses, including landlord businesses.

Rent payment issues

Fortunately, in this recession, jobs are holding up well. Nevertheless, such an unprecedentedly high reduction in household incomes will have implications for rent payments – rent arrears will almost certainly increase over the period, until costs come down and peoples finance’s stabilise.

It is likely, says the RF, that the income squeeze will reduce disposable incomes faster and deeper than in the global financial crisis of 2007/8.

Lalitha Try, researcher at the Resolution Foundation says:

“Britain is only at the mid-point of a two-year income squeeze. The crisis is already taking its toll on families, with over 6 million adults reporting they are going hungry as a result.”

The foundation identified higher energy bills, mortgage costs, and personal taxes as the key drivers of the crisis reducing disposable incomes by an estimated 7 per cent over two years. Mortgage holders could be even the worst off, and that includes buy-to-let landlords where declines could be higher at an estimated 12 percent.

A small glimmer of light at the end of the tunnel stems from the Bank of England’s forecast that energy prices won’t continue to rise so quickly as they did last year, helped by the Government’s caps on energy bills for households and businesses over a further six months, but also a possible halving of inflation by the summer.

Supply problems that have been pushing up materials and finished goods prices will start to ease in the coming months. That’s because some of the pandemic induced production difficulties businesses have faced are starting to ease. At the same time, with recession looming, the demand for goods and services in the UK will likely fall off, helping prices to stabilise.

Interest rate hikes

Since the start of last year the Bank of England has raised its benchmark rate nine times to combat rising inflation which has the unfortunate effect of pushing up borrowing costs and boosting mortgage rates. The alternative would be to let inflation rip, and past experience has shown that that would be disastrous.

The lucky few

The only group set to increase its income over this troubled period is likely to be the richest 5 percent of UK households, in particular those without mortgages. For some in this fortunate position, rising interest rates will add to income.

Unfortunately for the others, as Jennifer Dixon, chief executive officer of the Health Foundation says:

“The cost of living crisis is disastrous for family finances, particularly for those on low incomes and families with more than two children. The crisis is causing immediate damage to the nation’s health.”

Particularly for those at the bottom end of the rental market, heating as well as eating becomes problematic. Living with insufficient heating not only produces health hazards such as condensation and mould, going without sufficient nutrition leaves those affected in a vulnerable state.

According to the Health Foundation, of the poorest 20 per cent of working families, more than one-third said their health had already suffered through the rising cost of living. On top of that nearly a third say they are worried about their finances over the coming months.

Though the immediate outlook remains uncertain, with a war that could go either way the hope is that wholesale natural gas prices will continue to fall, as other sources are found. This will have a dramatic effect on the inflation rate, bringing it down faster than expected and easing the strain on households.

Cliff-edge mortgage hikes

Meanwhile some landlords face a cliff-edge with their buy-to-let mortgages as investors brace for steep payment hikes. The end of cheap money means that landlords on variable rate and ending fixed rate mortgages are vulnerable to rates not seen in many years. Suddenly a minus 2 percent mortgage rate can jump to over 6 percent

Alejandro Tendero Delicado, an analyst at the financial services company, told BusinessTimes.com:

“Borrowers of loans whose fixed-rate periods end within the next two years will feel the pinch earlier and more significantly, as the loans move to a standard variable rate or are locked in at a higher interest rate, [they] may face the brunt of higher interest rates in the medium term once their fixed-rate periods end.”

Landlords are more exposed to rising mortgage rates than other borrowers, says Savills, because many have interest-only loans that feed through rate changes quickly. In January the average buy-to-let mortgage could be fixed for two years at just over 6 percent, down from nearly 7 percent last October, after the mini-budget. However, the rates are now coming down quite quickly again.

Daniel Chard, a conveyancing solicitor at Bird & Co Solicitors, told BusinessTimes.com:

“Over the last few months, we have witnessed a steep decline in the number of buy-to-let mortgage deals and have seen a number of landlords having to either sell up or raise rents.”

Some landlords will be looking to exit the market before April when Jeremy Hunt’s cut to capital gains tax allowances comes into effect. After April tax emptions will be more than halved, from £12,300 to £6,000 and then cut again to £3,000 after April 2024.

The exodus will only go to speed-up the short-term decline in propriety values while creating greater shortages of rental properties and increasing rents. However, increases in rents are unlikely to cover the full increased costs faced by the worst affected buy-to-let mortgage borrowers, especially as many tenants will be struggling to pay higher amounts.

These adverse conditions facing private landlords are only going to worsen the housing crisis facing a Government that has brought in measures over the last few years that make renting out property far less profitable – a crisis of its own making.

For those landlords who are mortgage free, or who own properties within a limited company, things could be far different. Many will be in a position to expand their portfolios at bargain prices soon.

View Full Article: The average UK household will lose over £2,000 in income this year

Greater Manchester plea to sort out broken housing system

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Housing groups across Greater Manchester have urged MPs and local policymakers to step in and protect tenants from eviction, warning that the system is now in crisis.

While rents are increasing, the boroughs’ local authority housing services are at breaking point with some of the highest numbers of people assessed as homeless in the UK. Government cuts to legal aid, alongside the reduced scope and eligibility requirements, mean that fewer people are eligible for free legal help.

Joint letter

In a letter signed by groups including Shelter, Greater Manchester Tenants Union and Citizen’s Advice, they call for a range of actions to protect tenants and make it less likely they will be evicted. “There is no doubt that tenants who might have a defence to their claim are being kicked out onto the streets because of the lack of advice available to them,” it explains.

It wants the government to restore Local Housing Allowance rates to account for rent increases, to bring forward the Renters Reform Bill to protect tenants from Section 21 evictions, introduce rent controls and an eviction ban. “There is no longer any time to delay changes, or defer responsibility,” it adds. “We are at crisis point.”

Improve standards

Meanwhile, Trafford Council has signed up to the Greater Manchester Good Landlord Scheme to take action against landlords who fail to maintain their properties. It aims to improve housing standards in the private rented sector, boost local enforcement, and improve access to advice and support for local residents, tenants and landlords.

Councillor James Wright, executive member for housing and neighbourhoods, says: “Landlords sometimes fail to carry out the necessary work and improvements and this can lead to huge problems for the tenants. That’s when housing enforcement officers can step in and take control by taking enforcement action.”

View Full Article: Greater Manchester plea to sort out broken housing system

Large fall in rent repayment cases as councils also scupper tenants’ chances

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Rent Repayment Order (RRO) applications dropped significantly last year as tenants were put off by more restrictive Upper Tribunal and Court of Appeal decisions.

Flat Justice, which represents tenants in these cases, reports that in 2021, the overall success rate for RRO applications was 84%; tenants won 207 out of 246 cases and were awarded an average of £4,500. However, there were only 120 cases last year, with the success rate dropping to 77%, with tenants being awarded an average of £4,136.

Superior landlords

The community interest company believes the dip is largely explained by the Court of Appeal’s reversal of the Rakusen v Jepsen decision, which stopped tenants from bringing RRO applications against superior landlords. “A lot of tenants may not know who their actual landlord is, while a change in fee structure means that every applicant now has to pay £100 instead of a flat fee of £100, which can add up when the case is being brought by multiple applicants,” director Guy Morris tells LandlordZONE.

Reasonable doubt

Cases fail for a variety of reasons, but it found that the most common was when a tenant failed to prove their case beyond reasonable doubt. Of the 68 RRO failures when this was the case, 13 were directly due to council errors. “They need to improve their systems,” says Morris. “We recently had to withdraw a case after we asked one council if a licence application had been made – it told us twice that it hadn’t but then admitted it had when we checked a third time.”

Property lawyer David Smith adds that it’s hard to understand the substantial drop in applications. “I doubt that there has been a massive increase in landlord compliance, although I expect things have improved there a bit. More cases are probably settling before proceedings, but it still shows a big drop.”

View Full Article: Large fall in rent repayment cases as councils also scupper tenants’ chances

Exodus of private landlords ‘exaggerated’ – claim

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A survey has revealed that landlord confidence is ‘robust’, though many worry about the government’s meddling in the private rented sector (PRS) and want changes to capital gains tax allowances reversed.

The findings from property lending experts, Octane Capital

View Full Article: Exodus of private landlords ‘exaggerated’ – claim

Rents are growing at fastest rate in seven years

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Tenants are seeing rents growing at their fastest rate since 2016 when records began, says the Office for National Statistics (ONS).

The data shows that 26% of tenants reported their rent had increased in the last six months with rents increasing by 4% in the year to November 2022.

View Full Article: Rents are growing at fastest rate in seven years