Budget 2013 - Help to Buy

You'll be able to read and hear about Budget 2013 ad nauseam elsewhere - but as it's relevant to property, here's a summary of the new "Help to Buy" scheme announced by the chancellor today.

It's made up of two key elements:

·         An “equity loan” - which is a shared equity scheme under which the government will loan buyers up to 20% of the value of a new-build home - available from 1 April 2013 and will run for 3 years.

·         A “mortgage guarantee” where lenders will be incentivised to make more mortgages available for people with small deposits to underpin £130bn of new mortgage lending - available from 1 January 2014 and again will run for 3 years.

Help to Buy

The shared equity scheme is restricted to new-builds; the mortgage guarantee scheme applies to all homes.

To access either Help to Buy product, buyers will need a minimum 5% deposit.

For both schemes, borrowers will need to meet "appropriate tests" to ensure they can pay back the mortgage, as well passing their chosen lender’s credit and affordability checks (which effectively means your income and credit history).

Subject to meeting the eligibility criteria and affordability checks, you’ll be able to use either Help to Buy scheme to purchase a property with a value up to £600,000.

Neither of the schemes is restricted to first-time buyers, so they're intended to help people to move up the housing ladder as well as get on to it in the first place.

The schemes are only available on capital repayment mortgages, not interest-only ones.

And they're only for owner-occupiers, not for the buy-to-let brigade; and not for corporate buyers either.

Here's some more of the detail.

Shared equity scheme

Remember it's for new-builds only.

You need a minimum 5% deposit and the government will lend you up to 20%; so you'll need to secure up to 75% lending from a bank or building society.

The government's loan is interest-free for the first 5 years, but from year 6  it's at 1.75% rising each year by RPI inflation plus 1% (so it could get expensive over time).

How do you get it?

Buyers will be able to access this through participating house builders and HomeBuy agents (from local housing associations).

Mortgage guarantee scheme

Here's how the mortgage guarantee is intended to work.

The buyer can't access the scheme itself.

The government will provide lenders with the option to purchase a guarantee on the high loan-to-value portion of the mortgage.

The government hopes this will incentivise lenders to offer a greater number of mortgages to buyers with small deposits.

It's up to lenders whether they choose to use the guarantee or not, and they set the price and the interest payable, not the government.

What it's not doing is guaranteeing your mortgage payments.

If a borrower’s property is repossessed, the government will cover some of the losses suffered by lenders.

It's only available for buyers who pay deposits of between 5% and 20% (not more, as the government says there are already sufficient mortgages in the market for those able to pay more of the equity themselves).

We'll have to wait and see how well "Help to Buy" really works in practice and whether it will herald an increase in housing development.

Other schemes, such as "Funding for Lending" have so far had only limited effect.

And there'll no doubt be plenty of debate over whether the government should be underpinning, in many areas, inflated property values with a policy that may see prices rise even further.

@afneil on twitter asks if it's a subsidy for sub-prime mortgages.

It's not without its risks.

The government also confirmed it would consult on enabling change of use from agriculture and retail uses to residential without the need for planning permission to “increase responsiveness within the planning system”.

There's little else for the commercial property world to cheer about however - nothing for instance on business rates or rates on empty property.

Here's another two headlines from the Budget related to environmental matters:

·         Pottery industry in Midlands to be exempt from climate change levy.

·         Tax allowances for investment in shale gas - the controversial process known as "fracking".

Finally, I don't do economic analysis - but if you're of a masochistic tendency, you could do a lot worse than have a look at this, this, this, this, this and this - a bunch of scary graphs circulated by @frasernelson on twitter.

Photo by RambergMediaImages via Flickr

Throwing the Book at Fly-Tippers

The Sentencing Council has, for the first time, produced draft guidelines for how environmental offenders like fly-tippers should be sentenced.

The Council has launched a consultation on its proposals which aim to provide clear guidance on sentencing these offences so there's a consistent approach in courts across England and Wales.

Magistrates will be encouraged to make full use of the highest levels of fines available to them for some of the more serious offences that come before the courts.

This is expected to lead to an increase in fines for those that cause the most damage or risk to health - up to £2 million for the most serious offences by big companies.

In extreme cases, individuals can be jailed - but the council predicts that the proportion of fines and imprisonments is unlikely to change and, for less serious offences, it's not expected that fines will rise from current levels.

The new guidelines cover a wide variety of offences governed by the Environmental Protection Act 1990 and the Environmental Permitting (England and Wales) Regulations 2010.

This includes fly-tipping, whether it's a company dumping a lorry-load of used tyres in a field or someone leaving an old mattress in an alleyway.

It also covers situations where waste has not been handled or disposed of correctly.

This could be a water company allowing untreated sewage to end up on a beach or a tip operator not storing barrels of chemicals properly so they leak into the surrounding area.

The guidelines will also apply to companies in breach of the waste permitting regime, and nuisance offenders who cause noise, smells, dust or health or pollution risks.

Katharine Rainsford, a magistrate and member of the Sentencing Council said: "These offences are normally motivated by making or saving money at the expense of the taxpayer. Our proposals aim to ensure that sentences hit offenders in their pocket."

The BBC reports that official figures show that fly-tipping has been decreasing for five years, but local authorities in England and Wales still had to clean up almost 800,000 incidents last year at a cost of almost £40m.

Companies are going to be hit much harder in future if they ignore environmental regulations.

The consultation on the draft guidelines runs until 6 June 2013.

CRC Unscrambled

DECC has issued a draft order aimed at simplifying the CRC Energy Efficiency Scheme, rather than replacing it with a more straightforward tax.

The new regulations, trailed in the Autumn Statement, are intended to reduce significantly the administrative cost of compliance - DECC believes by up to 55% overall - equating to an estimated saving to CRC participants of £272m by 2030.

The main changes are:

·         A big reduction in the number of fuels included in the CRC Scheme, from 29 to only 2 - electricity and gas.

·         Gas is only counted when used for heating purposes and if a participant's gas consumption is below 2% of its electricity consumption in the first annual reporting year of a phase, it won't have to report on gas at all.

·         The league table of CRC participants has been abolished.      

The regulations are still fairly complex however, and need to be studied in detail by anyone responsible for reporting, along with the official guidance on phase 1 and phase 2.

As expected, there's still no resolution of the difficulties that arise when attempting to allocate CRC costs in a landlord and tenant context - there’s no consensus on how to deal with this, and most leases just ignore the issue altogether.

The bill just covers the unusually specific situation making a tenant responsible under CRC where the landlord provides land on which the tenant builds its own building under a ground lease with a duration of at least 30 years and provides a building for the tenant to occupy.

The draft bill will soon be laid before parliament and is expected to become law on 1 June 2013.

The government plans to review the effectiveness of the whole scheme again in 2016, perhaps replacing it altogether with a simpler environmental tax, although of course we might have a different government by then.

Legends of the Guardians

If you own vacant property, one of the things you'll be most concerned about is security.

One way of tackling this problem which has evolved over the last few years is the use of property guardians - people who look after a property by living there.

The property might be residential or commercial.

Owners enter into an agreement with an agency who finds people to live in and look after the property on a short-term basis.

The guardians (usually individuals, not families) get somewhere to live temporarily in return for paying a rent below the market rate.

Sounds a good idea - but how safe are these agreements?

Recent articles by Giles Peaker of Anthony Gold solicitors and the nearlylegal blog and Tessa Shepperson on her Landlord-Law blog have called into question the legal status of property guardians - are they just licensees (as the agencies assure property owners), or are they really tenants?

Property owners will want to be certain they'll get their property back as soon as they need it, for example when they've found a new commercial tenant.

The contracts used by the agencies, analysed in Giles's piece, typically say the agencies will require a guardian to leave on short notice (two weeks), but the agency will usually agree to relocate the guardian to another property.

The reality of life at the hard-end of finding somewhere to live means that in practice, as Tessa points out, guardians may be unlikely to contest a notice to leave and risk antagonising an agency that's probably backed by expensive legal advice.

But that's not a guarantee - it's not hard to imagine circumstances where someone might want to fight eviction and so the legal status of the guardians could be important.

Whether or not the agreement amounts to a lease or licence is one issue (see Tessa's blog for more about that).

It's long been established in law that the label given to an agreement will not be decisive - it's for the courts to decide the status of an agreement.

The agencies go to great lengths to assure users that their agreements are licences, not leases, but the pieces by Tessa and Giles show there appears to be at least room for doubt over the status of guardian agreements.

And it's not only the form of the agreement that matters, but the conduct of the parties too.

Tessa comments:

"So if a kindly Property Guardian company employee says to a potential PG, worried that she will be moved on in a few weeks “Don’t worry love, you’ll be there for a long time”, that might be enough to give her tenant’s rights... it might not of course, it's hard to say – it would depend on what else happened. But I would not rule it out of court."

Even if the agreement is upheld as a licence, Giles Peaker points out there may still be a problem with eviction.

Licensees are entitled to a four week Notice to Quit under the Protection from Eviction Act 1977 and have the right to stay until evicted by a Court Order.

So if a guardian really doesn't want to move out, they could insist on remaining until evicted by court bailiffs.

If a guardian is forcibly removed, they would be able to sue for compensation.

There may be other things to consider too, such as the Housing Act 2004 regulations on property standards and Houses in Multiple Occupation.

Owners of commercial property in particular ought to ensure the premises are suitable for someone to live in them.

So does this mean owners of empty property should shy away from using guardians altogether?

I don't think it's in anyone's interests for the law to stand in the way of innovative solutions to problems caused by difficult economic circumstances, provided no one's being exploited.

If the practice is becoming more widespread, it may come under more scrutiny.

It seems to me that arrangements like this can be mutually beneficial, although I accept I come at this from the point of view of someone more used to advising owners than individuals who may be in difficult circumstances seeking somewhere to live.

In the light of the comments made by Tessa and Giles however, property owners would be wise to take independent advice on the legal status of a guardianship agreement (rather than just take the agency's word for it), and also on the terms the agency enters into with the guardians.

Owners should at least factor into their plans the possibility, however remote it might be in practice, that it might take a little longer and cost a little more to get their property back than advertised, and decide whether it's worth the risk.

Photo by Pedrog78 via Flickr