News Updates - August
27th August 2020
Eviction day looms
Government restrictions on tenant evictions by landlords are to be lifted on 23rd August. But experts say there is unlikely to be an immediate spike on evictions following new eviction protocols and a backlog of cases. The government introduced its moratorium on tenant evictions in March and extended it further in June. The moratorium expires on 23rd August, although we should not rule out a further extension. Once the moratorium expires it is unlikely that we will see an immediate spike in evictions and certainly not tenants kicked out onto the streets the following day. Landlords are bound by strict rules designed to slow the process down. Landlords that started eviction proceedings before the 3rd of August must now serve what is called a ‘reactivation notice’. If they do not, any claim will not be relisted by the courts or heard by a judge. And even when a reactivation notice is served, in fault-based evictions the courts will allow more time between the claim and hearing, typically eight weeks, and given the backlog of cases that is likely to be significantly longer. Eviction claims that started on or after the 3rd of August now require landlords to enter into what is called a ‘pre-action protocol’, with landlords needing to attempt to agree a resolution with their tenants before issuing a possession claim. Landlords will also need to provide the courts with information on what impact the coronavirus pandemic has had on a tenant, which may have an impact on how much time a tenant is given by the court to vacate a property. The guidance on what this means for landlords, what information is needed and what happens if it is not provided is unclear and could leave eviction claims stuck in the courts for many months to come, leaving landlords in limbo.
The end of the Bank of Mum & Dad?
Lenders are introducing new rules that mean first-time home buyers cannot rely on the “Bank of Mum and Dad” stumping up most of the cash for their deposit. The controversial new policy states that borrowers looking to get a mortgage that will cover 90% of the cost of their home must prove that no more than a quarter of their deposit was gifted to them. The rule does not apply to customers looking for deals at 85% loan-to-value or lower. With around 40% of first-time buyers thought to have received financial help from family members last year, the change could affect significant numbers of potential homeowners. According to estate agency Savills, gifts and loans from parents to help their children onto the property ladder totalled £5bn last year. Lenders have not commented on the reasons behind the rule but it comes as economic uncertainty has cast doubt on the future of Britain's housing market. A number of lenders removed their highest loan-to-value deals after the pandemic hit amid fears that property prices could fall, pushing many homeowners into negative equity. Nationwide tripled the minimum deposit it required from borrowers from 5% to 15%, before reducing it to 10% when the government announced last month that stamp duty would be suspended. Checking that buyers have saved money for their deposit themselves, rather than relying on their parents, is one way for banks to ensure they restrict lending to borrowers they consider to be less likely to experience problems in future paying back their debt. But some housing market analysts criticised the move, arguing that first-time buyers could still show that their monthly mortgage repayments even if they have accessed the “Bank of Mum and Dad”. Commentators believe that whilst commercial organisations should be allowed to set their own terms of business there must be some very serious questions asked as to why the Nationwide has decided to do this. The impact will be significant and it undermines most people’s understanding that they can and should be able to help their kids to scramble onto the lowest rungs of the housing ladder.
The end of peer-to-peer lending?
Last December, the chief executive of the peer-to-peer lending platform RateSetter, Rhydian Lewis, described new rules designed to better protect casual investors in the sector as 'a Darwinian process… that will lead to a stronger industry'. But just eight months later Lewis' platform, one of Britain's 'big three' in peer-to-peer investing, announced it had been snapped up by Metro Bank - one of the high street lenders P2P platforms were launched to take on - and that it would close its doors to everyday personal investors. Rather than emerging stronger, the world of casual peer-to-peer investing appears to have done nothing but shrink since those new rules were introduced late last year, with the 'big three' leading the way. While RateSetter has been picked up by a bank, Zopa, the UK's first ever peer-to-peer platform launched in 2005, in June finally secured the licence to become one. And publicly listed business lender Funding Circle has temporarily closed both the 'in' and 'out' doors to everyday investors, pausing the secondary market which lets investors sell off loans before they mature and barring savers from putting new money into the platform as a condition of being able to hand out government-backed loans. It insists it will reopen its doors to retail investors, but having originated £300million by the end of June and facilitated 16 per cent of all coronavirus business interruption loans, there is something of an irony in a platform which helped pioneer the model of matching borrowers with individual investors seeing so much business after the latter were no longer allowed to invest. Eight months on from the start of that 'Darwinian process', there is the question of whether casual peer-to-peer investing is an endangered species, or even already extinct. Big platforms have dealt with higher default rates, even before the coronavirus crisis, and struggled to hand anxious investors back their money. And the collapse of the platform Lendy has cast a shadow over an industry sometimes seen as the Wild West of investing, even if last year's regulations tightened things up.
Costly Fund Management practices
Fund managers have had to switch more than 320,000 customers on to cheaper versions of their products after failing to justify their fees. Analysis of the value assessment reports, which the Financial Conduct Authority (FCA) this year forced the industry to publish, shows the value to investors of the regulator’s action. These reports, which require investment companies to demonstrate how their funds provide value, were one of the FCA’s remedies introduced after its two-year market study of the asset management industry. It found that the industry was making excessive profits — nearing 40% compared with about 4% for energy firms — and said that the charges were not always clear to customers.
The motherhood penalty
When we look back on lockdown, there will doubtless be myriad lessons to be learned, but top of that list must be the cautionary tale of what happens when women aren’t in the room. Of what happens when we don’t see childcare as infrastructure and we don’t hear women’s voices. Or worse still, they are excluded entirely. So much so that we don’t even recognise the perfect storm of the collective “return to the office” bravado with the onset of summer holidays and a childcare sector on the brink of collapse. The motherhood penalty is having a devastating impact on women’s careers. Research across almost 20,000 women from Pregnant Then Screwed showed almost half (46%) of employed mothers who have been made redundant, or expect to be made redundant, said that a lack of childcare provision played a role in their redundancy, while 72% of mothers have had to work fewer hours because of childcare issues. In addition, 65% of mothers who have been furloughed said that a lack of childcare was the reason. Creative Equals and Campaign’s Covid-19 Inclusion Pulse shows that women and minority groups have reported higher levels of psychological stress and unfair treatment at work during the Covid-19 crisis. Women were also more likely than men to report unfair treatment, with 16% of women feeling this way – rising to 22% of working mothers – compared with only 7% of men. Percentages that are difficult to swallow but the stories behind them are harder still. From the new business director conducting a pitch from her kitchen, while her son, who has autism, proceeded to climb over her garden fence into her next-door neighbour’s garden, to the single mother whose back-to-back Zoom calls and boundary-free working days led to impending burnout and antidepressants, the crisis demands empathetic leadership, not lazy, masculine rhetoric.
House prices reach record highs
Rishi Sunak’s emergency stamp duty holiday has sent property prices soaring to an all-time high.
The average cost of a home in the UK jumped 1.6% in July alone to £241,604, according to latest figures from Halifax. That pushed the annual rate of gain to 3.8% after four months of falling prices. Britain’s biggest mortgage lender said the property was in the throes of a “surprising spike” driven by a wave of demand since the end of the lockdown. The Chancellor announced in early July that stamp duty will be waived on the first £500,000 of any transaction until March saving buyers up to £15,000 in tax. The Halifax figures came as property portal Rightmove said it has seen record levels of traffic on its website since estate agents were allowed to reopen on May 13. The company said in a statement: “Since 13 May we have recorded 65 days beating Rightmove’s previous traffic record set on 19 February 2020. Between 1 June and 31 July demand for sales properties has been 50% higher than the same period in 2019 with rental demand being over 20% higher. As pent-up demand from the period of lockdown is released into a largely open housing market, a low supply of available homes is helping to exert upwards pressure on house prices.Supported by the government’s initiative of a significant cut in stamp duty, and evidence from households and agents However, looking further ahead, there is still a great deal of uncertainty around the lasting impact of the pandemic. The key question now is whether the post-lockdown jump in buyer interest will translate into a steady stream of sales, and whether it will maintain the upward momentum on prices. As government support measures come to an end, the resulting impact on the macroeconomic environment, and in turn the housing market, will start to become more apparent. In particular, a weakening in labour market conditions would lead us to expect greater downward pressure on prices in the medium-term.
The cost of social care tax
Everyone over 40 would start contributing towards the cost of care in later life under radical plans being studied by ministers to finally end the crisis in social care. Under the plan over-40s would have to pay more in tax or national insurance, or be compelled to insure themselves against hefty bills for care when they are older. The money raised would then be used to pay for the help that frail elderly people need with washing, dressing and other activities if still at home, or to cover their stay in a care home. The plans are being examined by Boris Johnson’s new health and social care taskforce and the Department of Health and Social Care (DHSC). They are gaining support as the government’s answer to the politically perilous question of who should pay for social care. Sources say the principle of over-40s meeting the cost of a reformed system of care for the ageing population is emerging as the government’s preferred option for fulfilling the prime minister’s pledge just over a year ago to “fix the crisis in social care once and for all”. Social care is a devolved matter but the plans could apply to the whole of the UK as they may involve the tax system. Matt Hancock, the health and social care secretary, is a keen advocate of the plan. He has been championing it in discussions that have resumed recently about the government’s proposals to overhaul social care. Officials say there is a “renewed urgency” in Downing Street and the DHSC to come up with a solution. The system that officials are considering is a modified version of how Japan and Germany fund social care. Both are widely admired for having created a sustainable way of financing social care to deal with the rising needs an ageing population brings. In Japan everyone starts contributing once they reach 40. In Germany everyone pays something towards that cost from the time they start working, and pensioners contribute too. Currently 1.5% of every person’s salary, and a further 1.5% from employers or pension funds, are ringfenced to pay for care in later life. Adopting a similar approach would let Johnson say he has ended the situation whereby some pensioners deemed too wealthy to qualify for local council-funded care have to sell their homes to pay care home costs, which can exceed £1,400 a week.