This week's series on Channel 4 called The Great British Property Scandal is by and large just another example of the "We own land! Give us money!" school of thought.
From Dash 24:
The programme also revealed the difficulties owners of empty homes face in bringing their properties back into use. A couple interviewed for the programme were stuck in negative equity and couldn't afford to sell their home - despite it costing them around £400 a month in mortgage payments, council tax and utility bills [what on earth relevance does this have to anything?].
But it's not just in the North, the programme revealed how in one area of Mayfair in London there are six £20 million properties lying empty.
Clarke called for a National Low-Cost Loan Fund to help owners bring their properties back into use and to help people buy empty homes. Mr Clarke has set up a petition calling on the Government and council leaders to make it easier for ordinary people to get empty homes back into use.
The programme revealed how Birmingham has one of the highest numbers of empty homes in Britain with 13,109, Leeds with 16,865, but adding up all its boroughs, London is the city with the most empties with 70,468 despite record numbers on waiting lists.
i. Why do these supposedly wealthy people need subsidies to discourage them from what is frankly anti-social behaviour? Building a new house from scratch, or buying an existing house in good repair shows (hopefully) a positive return on investment (i.e. the net rental income exceeds the mortgage payments) but the best investment of all, by several light years, is spending money on bringing a house back into use.
ii. The simplest form of measuring how worthwhile an investment is is "paypack period" - the shorter the period the better. So if you build (or buy) a house for £150,000 and you can rent it out for £7,500 a year net, your payback period is 20 years.
iii. If you happen to own a similar house that is derelict, it might be worth £100,000 at an auction. That is a sunk cost and your current income is £nil; if you spend (say) £30,000 to replace the roof, kitchen, bathroom and tart it up generally, then rent it out for £7,500 a year your payback period is only 4 years.
iv. Sure, banks are a bit sniffy about lending you money secured on derelict houses, but from personal experience (any of the IFAs who read this are free to correct me if I'm wrong) banks are reasonably happy to lend people money to carry out renovations, there's just a bit more paperwork and faff, because they'll want to see completion certificates, i.e. they lend you £5,000 to get the roof repaired, once you've done that, you trot back with a completion certificate, and then the bank lends you another £3,000 to install central heating, do the rewiring (or whatever) and so on.
UPDATE: FormerTory in the comments says that banks are now a lot stricter about this, but it's not insurmountable.
v. Hey presto, the bank has a £30,000 mortgage secured on what is now (hopefully) a £150,000 house and the owner can easily repay that mortgage within five to ten years.
vi. The same sort of principles apply to subsequent buyers. Getting a mortgage retrospectively for the above mentioned wreck which you have bought for £100,000 at an auction is a very fraught affair, but once you've overcome that hurdle, getting the additional £30,000 for the renovation is subject to the same rules as outlined above for the existing owner.
vii. As to "empty flats over shops", there has been a fantastic tax break since 2001 for people who renovate these, basically, you can claim the entire cost of the renovation (even the cost of 'capital' items) against income in the year it is incurred, so if our heroes spent £30,000 doing up two flats over a shop and get £7,500 a year net rental income, they don't pay a penny in tax for the first four years. But there are still hundreds of thousands of empty flats over shops (according to programme).
viii. So the 'carrot' just isn't working is it? Of course, the Land Value Tax 'stick' and a Citizen's Dividend would sort all this out in a twinkling, but hey...
Friday, 9 December 2011
The National Low-Cost Loan Fund
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20 comments:
banks are reasonably happy to lend people money to carry out renovations
Times change.
There are one or two specialists who'll lend for renovation projects but if it ain't habitable, it ain't mortgageable, generally speaking. Typically, the bank / lender will agree in principle to lend you money, when you've finished doing the renovations - which for most folk is a Catch-22. 'Course, if you have another house to capital-raise against, and can afford the mortgage, life would get much easier.
The "good old days" of going and having a cosy chat with the bank manager (in the days when bank managers tended to be middle-aged avuncular types who were allowed to make lending decisions, rather than being spotty youths reading scripts off computer screens) are long gone.
You're right, of course; LVT would sort out the problem. Nothing quite like focusing peoples' minds with a tax bill.
Your para IV sums up pretty well what the situation was when one of my brothers purchased what was essentially a wreck - the previous owner had been renting it out whilst buying it, shall we say "from a distance" and the last tenants had stopped paying rent and in fact paying any utility bills and then sat back and waited to be evicted, and in the rather long period between stopping paying rent and everything else, and disappearing overnight just before they were due to be ejected allowed/assisted the interior to fall into absolute decay, meaning no potential new tenants would look at the place, and not least because there was by then no gas or electricity supply. Then the owner defaulted on the mortgage and the place sat empty for long enough for problems to develop with the roof, guttering, and so on. Eventually the place was sold at an auction.
My reason for setting that all out is that, in addition to his lender indeed setting reservations on the mortgage he obtained for the purchase and renovation, holding back £x until the roof was repaired etc., is that he had a far far bigger problem persuading the utility companies to restore services, the electricity company insisting that the place be rewired and new meters etc installed before they would even think about restoring a supply. And then there were the fun and games with the local authority concerning what materials he was alloweed to use when dealing with the esterior problems, especially the roof repair. On balance, the attitude of his lender in terms of only releasing the mortgage in distinct tranches as specific repeairs etc. were completed was probably the least of his problems - persuading a utility company to restore a service it has disconnected can be a protracted, expensive, pain in the butt.
FT, OK, things have got trickier, but dealing with the local council bureaucrats dishing out the NLCLF won't be much better.
Now I think about, this could be quite a good niche market, if you have a bit of money to lend, you don't mind fighting bureaucrats and builders and you dangle the tax breaks in front of people.
Anon, indeed, there is loads of other crap, councils, planning department, utilities etc. So why just tackle one of them?
I'm familiar with the "getting gas reconnected nightmare". B Gas tell you go to Centrica and Centrica tell you to go to Transco and Transco tell you to go to B Gas. So you go round and round in circles, you can't get a new meter until you have a customer number and you can't get a customer number until you have a meter number etc.
In the end, I ground them down by ringing up every couple of days and reporting a gas leak (even though there wasn't one). Under their rules, they HAVE TO send somebody out if you report a gas leak. The first guy who turned up told me he had plenty of new meters in the van and could install one in half an hour if only he had the paperwork.
After he showed up the third time he said "F- it, I'll just install a meter for you, reconnect the gas and tell them it's been done". Which he did, problem solved :-)
You have to ask whether the owners of the £20Million Mayfair buildings are suffering from a lack of money and in need of a low cost loan...
Within a mile of my home there are two examples of long-term empty properties. It transpires in both cases it has been a conscious decision on the part of the owners (small-time developers) to leave them to rot to a dangerous condition. This then makes it easier to get planning permission for demolision and replacement with a larger building or three.
It is clear that the property "investment" is based on speculative capital gain rather than collecting a rent from a housing service. Despite what the programme argued, the costs of doing this are small (council tax and security which are low in a nice area) in comparison to the potential capital gain.
As you point out the carrot is not working and there is no stick at all.
QP, those £20m might be owned by Poor Widows, perhaps?
Good point on people deliberately leaving things to rot. In non-LVT world, if councils weren't so beholden to the NIMBYs, the property developer would be able to get planning for higher density much more quickly.
In LVT world, it would all level out. Even if the council refused all changes in planning, at least those buildings would be kept in good repair. And if the council wants to boost its LVT receipts, it would be a lot more liberal with planning.
MW - yes, your experiences are almost on a par with the bro's, although in his case there was an additional "just to show what complete and utter f-wits we are" the Gas supply company started isssuing bills, based on what they described as "estimated usage" from the date the bro' first enquired about having the supply reconnected, including provision of meter etc. The bro' declined to pay these bill, on the presumably reasonable basis that as there was no gas supply he couldn't be using any gas, and thus their "estimated usage figure" should of course be re-estimated to "zero" ... anyone who might think that cut any ice whatsoever would be sorely wrong ... despite sending people around to "read the meter that wasn't there" and said persons agreeing with the bro' that in the absence of a meter and a supply it was a bit much to be issuing bills for "gas used" this never impinged at all on the accounts department, who went as far as to threaten to issue a summons unless the bro' paid the bill, which needless to say had got bumped up to cover the costs of for example sending out as a special case a meter reader to read the meter that wasn't there. His letter to them about this, one of many and alongside numerous 'phone calls, saying basically "yes, ok, I am totally peed off now, so let's take this before a judge and I will of course be claiming all my expenses and wasted costs when I win" did the trick - the whole thing took about eight months - but they did eventually agree not to keep sending him the bills and threatening letters about him not paying them, without going to court. A couple of weeks after the dust had settled he got a further letter from the gas supply people asking him if he would like them to pop around, install a meter and connect him up. He wrote to thank them very kindly for their offer but, using language of a simple sort without too many big words, he explained that, as they would no doubt understand, because of the contretemps they had put him through and not being able to wait on them to get their act together and stop faffing about he'd opted to go "all electric".
Anon, that is a bitter experience.
I suppose in the light of that sort of shit storm I should count myself lucky. Your bro' suffered 8 months, I'm happy to say that my nightmare was over within two or three weeks. I vaguely remember that they generously knocked off £10 from my first bill as compensation, which works out at about 30p for every hour I wasted on the exercise.
Excellent work. Ive spent all week trying to cure George Clark, David Ireland CEO of Empty Homes Agency, Cambell Robb CEO of Shelter of their homeowner insanity. How far do you think I got?
They now have close to the 100,000 petitions to take it to parliament for the fund to be debated.
Tax payer funder land values. Mr Grant Shapps, Secretary of State for Homeownerism is right up for it too.
Higher taxes, higher house prices, more homeless, more unemployed. All to encourage the homeownerism industry where money grows on trees. A giant ponzi scheme.
Insanity.
The Robin Smith Institute - Real Reform: Shelter and the great property swindle 2nd try
On the leaving buildings to rot thing, this is a common occurence arond here when the historical buildings department lists a building. The thing is that these buildings are often late 19th century, are pretty sturdy, and can stand for a couple of decades and mature. Before suddenly the area is under development plans, and a surprising fire occurs. Sometimes these occurences are so blatantly obvious it's not even funny. Since there is no council tax and heavy undervaluation for other tax-purposes, it's the best long-term investment one could ever make.
-Kj
On the leaving buildings to rot thing, this is a common occurence arond here when the historical buildings department lists a building. The thing is that these buildings are often late 19th century, are pretty sturdy, and can stand for a couple of decades and mature. Before suddenly the area is under development plans, and a surprising fire occurs. Sometimes these occurences are so blatantly obvious it's not even funny. Since there is no council tax and heavy undervaluation for other tax-purposes, it's the best long-term investment one could ever make.
-Kj
My experience with utilities is rather different: perhaps because I wasn't trying to get gas connected. In my case the water company were quite happy to reconnect me after the previous owner had been disconnected for not paying the bill, the only trouble was that the property had been split and someone else was now using the pipework (although he did have a new meter).
I was under the impression that the reason why properties can be picked up so cheaply at auction is precisely because the inability to raise a mortgage on them limits the number of people who are potential buyers.
Also IIRC, there are tax breaks for renovating empty properties already in place in the form of only 5% VAT being payable on repairs.
FT, OK, things have got trickier, but dealing with the local council bureaucrats dishing out the NLCLF won't be much better.
Please don't imagine I'm remotely in favour of the NLCLF. No more than I'm in favour of taxpayer-subsidised loan schemes for house buyers. If someone owns a house they've put, or allowed to become, beyond use, that's fine with me; it belongs to them.
But LVT would be justice, personified.
Why go through hoops trying to get the 5% VAT on repairs, let the place rot bulldoze it and new build, it's cheaper and there is no VAT so it's a bit of a no brainer. But councils don't like you knocking down they want it renovated. All the local NIMBY's want it left alone so bingo leave it to rot/catch fire etc. Even if you had to pay full council tax it isn't a real deterent and usually you can get round that anyway, so sorry LVT would get missed out as well (obscure company ownership) also helps with stamp duty by the way
RS, I'd say thanks. As FT pointed out, getting bank loans is a bit tricky, it's not the interest rate that matters, so maybe they should have a "National High Cost But Easy To Get Loans Fund" and charge 10% a year interest.
Kj, the whole setting fire thing is mad, this only happens because of planning restrictions. So while setting fire to things is very naughty, the root cause is planning.
B, so what happened with the water? The 5% VAT is very restrictive, it only applies if you pay a builder and not if you just pop down B&Q and buy the stuff yourself.
FT, my thoughts exactly.
BTDT, LVT would never get "missed out". SDLT can only be avoided by using an overseas company because people no longer buy and sell the land (hence no trigger point for SDLT), instead, they buy and sell the overseas company which owns the land (no SD or SDLT on sales of shares in overseas company).
As I've mentioned before, the collection rates for Council Tax and Business Rates are about 97% or 98%, you cannot avoid these using an overseas company, and if you leave them unpaid for long enough, the council simply repo's the land.
MW. Dont get you.
BTW there are a million scams to get around planning:
From spiking ancient tress with copper nails and waiting for them to die(a year or so)
To buying cheap industrial permissions to build up a horrible ind estate that the surrounding community hates. Ask for permission upgrades for housing. NIMBY's prefer that. Bingo.
ROOT CAUSE:
Is speculation in land values. All other things are merely proximate causes, that is, politics. Free gifts for me me me.
RS, yes of course that's the root cause, I was merely trying to point out that availability of credit is the least of the hurdles facing owners of derelicts.
It was other people here who reminded me about all the other hassle, like reconnecting utilities, getting planning permission, not to mention the grief involved with making sure builders do their work properly (most do, but far too many don't).
Yes of course you are focusing on the little things. "Every little counts"
That is the politics of recession. Ignore it. Its a smoke screen.
Let be bold and do "Every BIG counts"
The politics of plenty for all. The real issue. Be bold.
RS, not really. I was merely pointing out that what they claim is a big thing and a brilliant idea is in fact a minor problem and irrelevant, and that their solution makes it worse anyway.
MW
My apologies thanks for doing that.
Trouble is these mentally ill leaders strugle more, the more detail.
"B, so what happened with the water? The 5% VAT is very restrictive, it only applies if you pay a builder and not if you just pop down B&Q and buy the stuff yourself."
I had to run a new pipe from the water main of course, GRRR. Yes, you have to be VAT registered to get the VAT back, or employ someone who is (which rules out a lot of small builders).
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