New builds and allowances

by , May 24th, 2012

You need to be careful if the developer offers to pay your stamp duty on a property worth £250,000 then that is a taxable benefit. So if they pay tax of £2,500 being 1% that is not correct as the taxable amount is £252,500 which is charged at 3% meaning you pay tax on a further £5,075!

Instead get the price reduced to £247,500. Otherwise it could cost you.

You also need to check out if other incentives are taxable if in doubt call the SDLT help line. Good luck getting through and getting a sensible answer!

Rhino

by , May 23rd, 2012

I could not cut this down to size to tweet but it amused me…..

I have a client who sent an email to me with a  copy to the agents which was a sort of rant for the agents benefit not mine. She emailed me to say she hoped I did not take offence as  it was to make various points to the agent.

My reply was along the lines of “not at all as I am like a Rhino…. thick skinned”

I get a reply back saying I also know how to ‘charge’.

Its always good to have a client with a sense of humour, especially in a tricky transaction such as this one.

The Euro and how it can affect us

by , May 22nd, 2012

The EU is in danger of becoming a sort of Eurovision song Contest with different blocks doing their own thing (and besides who decided Azerbaijan is in Europe!)

Personally I have never been pro EU but leaving that to one side (and never ask Mrs B for her view as she is only just to the left of Ghengis Khan) whether we like it or not the Euro crisis is going to affect us.

Putting it simply (i.e. so Mrs B can understand) lenders need money to lend they get this from deposits (but due to low interest rates and the encouragement to spend they are not getting large deposits – Mrs B needs no encouragement but is supporting the Greek economy in her spending) or they borrow it.

The cost of borrowing for lenders will increase because the cost of lending to Greece Spain and Italy will go up as they are riskier.

That means that the lenders will pass this cost on to us. However, for a lot of people this is not going to have an immediate effect. Most variable rate mortgages are based on x% above Base. So unless the Base rates go up which I think is very unlikely in the short to medium term you will not get an increase.

What will happen though is new loans will be at x+2-3% above base.

Now the problem is that this affects 2 types of people. One people whose existing fixed rate has expired and they re-mortgage or go onto a new variable rate. Those people may have an issue in that if the fixed rate was 3% they may now be paying 4% or more thus facing a 33% increase in payments. Given that in the fixed rate periods wages will not have increased by that much it may be an issue to some.

The second person is those moving and not porting a mortgage. In a way this is not so much of an issue as the people will know if they can afford the loan or not. The problem is that if they can not then this will lead to stagnation in the market as the number of buyers reduces and that in turn affects the entire economy and becomes a self fulfilling circle.

Having said that I am not sure that there is much that can be done.

The slightly good news from CML is that whilst lending was down 19% March to April this was mainly the SDLT spike we anticipated and new lending year on year was up 2%.

Also repossessions are down running at about 10,000 a month which is better and they seem very keen to keep the numbers low. Certainly the new code seems to be having an effect.

Likewise CML think interest Base rate will remain low for 3-5 years that I think will keep the pain of variable rates manageable.

The real danger is the 2nd buyer who is trapped not being able to afford a higher variable rate mortgage and the effect that will have on the market and economy. Hopefully the numbers will be small and the effect not dramatic.

You would think this was obvious but

by , May 21st, 2012

Mortgage lenders are being told by three different bodies

  1. The Financial Stability Board
  2. The Financial Services Authority and
  3. Some European directive on Credit

 That there should be

  • effective verification of income and other financial information upon which lending decisions are based;
  • lending based on “reasonable debt coverage,” taking into account borrowers’ credit commitments and non-discretionary spending, with adequate stress-testing for increases in interest rates;
  • lending based on appropriate loan-to-value ratios, with measures to stop underwriting standards being eroded in buoyant conditions (but without necessarily setting inflexible and inappropriate loan-to-value caps);
  • effective management of collateral, with measures to reinforce robust valuation;

 Fairly obvious I would say but this explains why they are being more restrictive in their lending policies.

Of course if they had behaved properly in the first place we would not be in the mess we are and this would be the norm in any event.

As an aside a lot of smaller solicitors firms are very worried about lenders conducting panel reviews (that means potentially they may decide not to let some firms act for them).  I understand,however,that they are being required to undertake these reviews by the FSA on the basis that just as we have to identify our clients they have to identify the people they deal with.  As part of that process they need to know that the firms they use meet certain criteria for sound risk and financial management.  This ought to hold no fears for a well run firm.  The issue I suspect is that smaller firms tend not to have the management procedures in place that larger firms do e.g. Lexcel and CQS.  They also suffer from a persecution complex which is understandable. 

Some lenders will use this to reduce the panels but getting rid of the risky firms or those that do only a few transactions has got to be better for them the profession and indeed the public (provided that access to other legal services is not affected).

Stamp Duty Land Tax

by , May 10th, 2012

Stamp dutyTodays exciting blog is about Stamp Duty Land Tax (SDLT). Try and stay awake until the end as we all know tax is really interesting (well if you are an accountant).

SDLT works as follows:

  •  up to 125K you pay nothing then
  •  up to 250K you pay 1%
  • 250K-500K 3% and
  • 500K – 2M 5% 2M plus 7%.

From the Governments point of view SDLT is a great tax. They do nothing to get it as we do all the work.

The problem has been, and indeed may still be, that the rich have been able to afford to get round SDLT by way of various schemes. This has always been so with any tax for example Apple and Amazons tax bills are only marginally higher than Mrs B expenditure on lunching for the year.

Know no one gets quite so excised (pun intended) about the rich mitigating their tax affairs in other areas eg CGT Flipping (de rigour if you are an MP) IHT planning etc. SDLT however seems to be different. Why is this I wonder?

Well I think that SDLT affects most people where as the other taxes are perceived to affect the better off.

SDLT mitigation is thought of as cheating.

SDLT is meant to be an anti avoidance tax so by avoiding it you must be doing something wrong.

To some extent I can empathise with those views but why not apply them to all taxes?

George Osborne has promised to crack down on property-owners who hire expensive lawyers (I thought we were all expensive) and accountants to avoid paying top stamp duty on £2mn-plus homes. Yesterday, it was revealed that property lawyers and tax accountants have come up with a way of buying property through a series of short-term leases. They would have a value far below the £2mn threshold – and would escape the 7% levy on transactions. I will not mention the idea but it is a fairly obvious one.

However we as lawyers find our regulator the SRA making quite nasty threats that if we are involved in SDLT schemes we can be severely spanked and make lose the ability to practice. Does the SRA tell my probate colleagues who mitigate IHT that? No they do not. The SRA needs consistency in its approach I think.

I have the problem where if I have a client paying £250,000 for a house and 1,000 for carpets and curtains is that a scheme? Can I agree to it having warned the client of the potential risk that if the value of the items is not £1,000 he is committing a fraud on the revenue? Clients think they can do this and save £5,000 they can not if the real value is not the sum stated.

So now we come to the controversial bit.

There is an argument to say that SDLT is unfair in that the rich pay more and I can see that to an extent. There is also an argument which I have much more sympathy with that states it depresses artificially the values of some properties (I would say a reasonably large %)

For example most property in the £250 – 265K price range are priced to sell at £250K so only 1% duty is payable this has a negative effect on the market as it produces a glut of properties in a price range and means that sellers may not be able to move as they are not getting full value. If SDLT was changed this would help.

So how could SDLT be changed?

1) We could all pay the same % based on value of the property as a freehold or if a flat a leasehold property. I can not do the maths but I understand 80% of SDLT is paid at 3% so I would presume we might have to have a rate of 3.5% to balance things out.

This is not a brilliant idea as it will stifle first time buyers which is not what we want. It is however fairer. If it was combined with a first time buyer discount or the threshold increased to come in line with inflation that would be sensible.

2) Make SDLT progressive so you pay 1% up to 250K then 3% on the amount between 250-500K (so that if the price was 265K you would pay 1% on 250 plus 15K at 3% ie a total of 2,950) etc again you would need to up the % paid in order to keep the total so you may find that the % in the 250-500 range was 5% meaning in the example the tax would be 2,500 plus 750.

This would seem to be fairer to all and avoid the large jump in price leading to properties obtaining a realistic market price and to more sellers being on the market. That in turn creates revenue with VAT on fees and goods purchased after moving. Have you purchased new curtains recently I had to have a lie down when Mrs B explained the cost of two bits of material she wanted

Trees

by , May 9th, 2012

Our house is called The Firs because it has fir trees.

Given the choice I would cut the damn things down and call it Firless but Mrs B likes them.

I think they block the light the roots make the drive (car park bit) buckle and they are very expensive to trim or whatever the correct expression is plus the birds next in the one I park my car under and as a result I have to remove guano on a regular basis.

Anyway at least these are not covered by Tree Preservation Orders which is todays exciting topic.

The TPO regime has been updated on the 6 April by the exceedingly well titled Town and Country Planning (Tree Preservation) (England) regulations 2012.

This is a consolidation set of regulations you could say it cuts out the dead wood. (took me ages to think of that)

So what does it all mean and are there major changes.

An order now provides immediate protection that lasts for 6 months and then long term protection once the Council has confirmed the order having considered objections and representations.

New orders have to be served on those that have the right to prune or fell the trees – others may be served but do not have to be. So a neighbour does not have to be served.

Trees that are dead or dangerous can be exempted from obtaining consent as can dead limbs of a living tree. (This is meant to avoid confusion over whether a tree is dying or not)

You must give 5 working days notice in writing to work on a dead tree (unless it is an “urgent” risk to safety.

If you get consent to do works the work must be done within 2 years.

If you have to replant the Council must include this as a condition.

The compensation framework applies to all orders.

Any work will need specific consent unless one of the exceptions above applies.

That is a simple overview. If you look at it in depth you may not see the woods for the trees.

The practical answer sometimes is have a hurricane it did wonders in 1987.

How to avoid repossession

by , May 4th, 2012

Repossessions are sadly still a fact of life and still affect many people. Levels of repossession are down which is good.

We used to do mortgage rescue work with various housing associations which was a good scheme the Government had in place which allowed housing associations to buy the property pay off the lender and the borrower could then rent the property from the housing association.  That scheme has ended in favour of the Newbuy scheme. In my view it is a shame as mortgage rescue did work well and enabled families to stay in their homes.  

I used to enjoy doing these as there was a greater sense of achievement.  The costs were rubbish and we lost money in theory on them all but you actually helped people which was nice.  The first one I did I had to walk 3 wiles through snow to get the documents signed which gave me a warm glow in more ways than one!  They could be stressful for us and the client as the lenders often dragged things out and we had to do simultaneous exchange and completions.

Priority has however shifted possibly because the Government feels that the mortgage pre-action protocol should reduce the number of repossessions.

However it would seem from recent articles that this may not be the case.  http://www.guardian.co.uk/housing-network/2012/may/01/repossessions-reveal-hidden-truth-housing shows that many lenders are not following the protocol.

The protocol states that lenders can only repossess as a last resort. I expect to many lenders that action is still their first step.

Threatening letters and phone calls follow which significantly add to the clients stress and these “tactics” are not allowed although they are often disguised as trying to help.

As a lawyer we do not get involved until normally it is too late and the client has to sell sometimes after the possession order.  Sometimes, if there is no or little or no equity, we have to agree to only repay a specific sum and get the client to sign a “shortfall” agreement.  That is they agree they owe the money and will make some payments over a period of time.  We have even agreed our fees can be payable over time we are not totally heartless.

These agreements vary from lender to lender some are very reasonable (C&G had a good one) and doubtless reflect the lenders more reasonable stance.  Others I think contain many terms that I feel would breach the Unfair Contract Terms Act and of course there is then a question of have they been signed under duress and are possibly void?

I was not aware lenders have to accept (until I read the above article) “The Norden Figure” which is a payment of the arrears divided by the number of months left in the term.  So for 10K over 10 years it is less than £85 which may be affordable.

I do not think Lawyers should be involved in dealing with these issues (for a start our CEOs would go mad at the costs written off) but I do think we need to be aware of these issues and point clients to local authority advisors who can assist or possibly CAB.  

The main lesson for anyone with mortgage problems is do not bury your head in the sand talk to CAB or another expert who does not charge and let them help you.  It may be “humiliating” but it’s a lot better than being homeless.

Flooding

by , May 3rd, 2012

Is your home at risk of flooding?Despite the the recent heavy downpours we are in the middle of a drought. This unseasonally high rainfall has meant that some parts of the UK are suffering from heavy flooding. We have been fortunate that most areas near Sussex have only had minor floods.

As mentioned in previous blog posts on environmental searches; flooding is a risk and a hot topic.

There are 3 main types of flood risk:

  1. Rivers – be it tidal or run off (i.e. the river bursts its banks).
  2. Coastal - being high tides combined with storms. 
  3. Surface water – where rainwater runs away for whatever reason and floods an area of land.

Rivers can be an issue as we see on the news either because the volume of water going into them is too much or and this happens more frequently property has been built on the flood plain. This is an area that was designed to flood normally low lying fields that were of limited value. In Tonbridge there are areas built on flood plains but as there are defences up river it is not an issue.

Coastal is normally not a major issue as where there are issues there are normally flood defences. Sovereign Harbour in Eastbourne is at risk but they have defences and these are well maintained.

Surface water flood is perhaps the biggest worry as it can affect anywhere and is again more prevalent as more and more areas that were grassed are concreted over. Unless rain water has ground it can soak into it will flow away to the lowest point and if you are the lowest point you have a problem.

The Government had a scheme in place with the insurers which meant they would cover properties but this runs out in June 2013 and will not be renewed. The idea was that in the previous 10 years the Government would put in place proper flood defences instead they spent the money on something else (not sure what).

So people in affected areas and in particular those with a higher than 1 in 75 years risk will have problems getting insurance or will get it with high premiums or high excesses. This of course may make the house difficult to sell or mortgage.

Now on a certain level we can say it does not affect us but it might. Firstly surface water risk is difficult to pin to a specific area as the flood can start a long way away so the insurers may play safe and put up premiums in certain areas just to be safe.

Second blighted properties mean there are less houses on the market and we need more houses on the market to help it recover.

Third lenders new responsible lending requirements mean they have to take into account your insurance premiums when deciding to lend. If it is costing £200 a month to insure they may not lend.

Fourth higher insurance and concerns about flooding may affect value meaning people may not be able to afford to move as their equity (as well as the foundations) has been eroded. Again this reduces demand in the market.

What can be done?

Government both local and national must invest in flood defences and/or assist with insurance for blighted property.

Make grants available to home owners for their own defences and encourage insurers to give discounts. Our old Lewes office had covers you could clip over air bricks and doors to keep out water. Sort of condoms for buildings but in reverse.

Planners need to consider the effects of development and in particular surface water disposal and consider excluding certain permitted development that adds to the risk of surface water flooding.

All of these things will help.

If you are buying an environmental search will give basic information and warn if a full flood risk search is sensible.

You should also check with your insurer if there is likely to be an issue based on past history in the area.

Communication is the name of the game

by , May 2nd, 2012

I thought for my younger readers I would give you an insight into communication when I first started – 32 years ago and how we communicate now.

Now when I started we had moved on from quills and inkwells (just). However most of our work was done by typists using manual typewriters bashing (quite literally in the case of Ms Barefield) out letters. Carbons were literally carbon copies.

I had to learn whole paragraphs of text and dictate them time and time again in fact I can still do some of these paragraphs from memory.

Leases were produced on 4 sided paper so you had to type it out so the pages followed using inserts one mistake and you started again. Copy typing had to be checked for errors there was no spell check or grammar check other than Ms Barefield who would hall you over the coals for any minor indiscretion.

Urgent letters would be sent by the new fangled fax machine.

Copies were done 1 page at a time on a domed copier so the distortion of the drum disappeared and it became a flat image.

Forms had to be typed with carbon copies and if you loaded them wrong the carbon would not work or came out on the top copy.

We used to have stick on seals and green tape to make documents look nice. (In theory then a client signing the transfer was meant to put his finger on the seal and say he signed sealed and delivered the deed.)

Then we got 2 major inventions – a memory type writer that held several paragraphs of text you put in a code and it would chug out a paragraph or two – slower than Ms Barefield could type but it was not as scary as she was.

Second a word processor. This had to be programmed by punching cards and then you fed in the card and it produced something. By the time you had done the card tried it corrected it etc Ms Barefield could have typed it 10 times over so it was not that good.

Slowly we got typewriters with bigger memory and then word processors that worked a bit like PCs do now.

In those days you could send off a letter and have at least a week before you got a reply. These days replies are often same day.

When I left school my mate doing computer studies had spent an entire year getting a dot to land on a line this represented the luna module landing on the moon. I never thought I would need a computer to do my job.

The web did not exist then. Can you imagine before google you had to look stuff up in books!

As time progressed we got bigger and better machines and then we got PCs and then they got net worked and then we got email and could do things in real time almost. Then there was the text messaging and PDFs and proper document and case management.

Today there is a lot more paper as always seems to be the case when you get computers involved. However we try and reduce it by using PDFs and storing documents electronically.

If we get searches in we email the results to the client which saves a lot of copies and postage as well as being quicker.

We do not do searches on the web they take us too long to complete but when we can do HTML exporting of data from our systems to the search providers.

We email clients and agents updates as certain key stages are reached this saves time and keeps everyone informed of progress.

Given we can do all these things quickly you may well be with some justification wondering why it takes so long. The answer is fairly simple.

  1. Chains for every link in a chain the potential for delays increases
  2. Lenders it takes normally several weeks to get a mortgage and then we have to do a report and wait for the lender to reply. Most lenders are incapable or replying within a week. They have computers but they tend to say ‘no’ and can not or will not receive or send emails.
  3. Getting information from third parties – again this is lender led we have to have information and it can take an age to get replies to management information from a landlords agent.

New Buy

by , April 27th, 2012

The NewBuy Scheme (see http://www.mayowynnebaxter.co.uk/blog/government-aid-to-first-time-buyers/) has been amended so it can assist people who want to sell and move up the ladder.

Whilst not brilliant, for the reasons stated in my earlier blog - i.e. the money disappears into developers pockets rather than moving into the general market,  it may help sellers who are unable to either raise the deposit lenders now need or have little equity available to move up the ladder.  This may free up more houses for first time buyers to buy which is also good.

The more property available then I think the more people will perceive a revival in the market and that will lead to increased activity.

What would be better still is if the scheme applied to any property as then the “boxed in” sellers would stimulate the whole market and the tax income received could then go to new builds.

All this could do is shift the boxed in sellers up one level of the property ladder.

 

Time will tell.