UK Housing Market - Will 'Help to Buy' get the housing market moving?

Construction output, particularly in new build housing, is nowhere near the levels needed to have any significant impact on the shortage of housing in the UK.  Developers may be encouraged by the new 'help to buy' scheme as it should increase interest in new build housing, however it is unlikely that the current rate of completions will be sufficient to meet any increased demand. 

Source:http://www.98fm.com/2012/category-news-sport/budget-2013/

In his budget last week the Chancellor George Osborne outlined the Government’s latest attempt to get the UK housing market moving with an attempt to boost homeownership in an initiative they have tagged ‘help to buy’.  The first part of the initiative builds on the existing ‘first buy’ shared equity scheme for which the Government have allocated £3.5 billion for those who want to purchase a new house up to a maximum value of £600,000.  The second part, in simple terms, will see the Government act as guarantor for a percentage of the lender’s debt.  The difference with this new scheme is that the previous cap of a maximum £60,000 income has been removed. The new scheme is also being made available to existing homeowners, whereas the ‘first buy’, scheme was only available to first time buyers.

In order to use the first part of the scheme borrowers will first need to save a deposit of 5% of the value of the property they want to purchase.  They will then be able to apply for an interest free loan for a further 20% of the value of the property, to a maximum loan value of £120,000. Repayment of the loan will then be made when the property is eventually sold.  After five years the loan will start to attract what the government call a ‘fee’, which is basically interest at a rate 1.75% which will increase annually thereafter by the current Retail Price Index inflation plus 1%.  The loan is therefore interest free, but you need to read the small print to see that this only applies for five years. Borrowers can access the scheme from 1 April 2013 which is proposed to run for three years.

The question therefore is what impact is this likely to have on the housing market?  Historically, the housing market has been used by the government as a vehicle to kick start a slow or ailing economy and clearly this Government has the same view.  In 2007 The UK Government, (Labour, at the time) put affordable housing at the top of their agenda and set an ambitious target to build 3 million new homes by 2020 with other initiatives to bring vacant properties back into use.  Fast forward to 2013 and we now have a coalition Government who although you could say had inherited the problem, have little if any chance of achieving anywhere near the volume of new housing that is desperately needed.

Source:http://www.ge-construction.co.uk/services/sub-page-three/

It is ok introducing initiatives like ‘help to buy’ for new housing, but where do you find all of this housing to buy? The latest national statistics on house building in England, released on 21 February 2013 (www.gov.uk) state: ‘annual housing starts totalled 98,280 in 2012, down by 11% compared with 2011; annual housing completions in England totalled 115,620 in 2012, 1% higher than in 2011. It is very clear from these statistics that construction output, particularly in new build housing, is nowhere near the levels needed to have any significant impact on the shortage of housing in the UK.  Developers may be encouraged by the help to buy scheme as it should increase interest in new build housing, however it is unlikely that the current rate of completions will be sufficient to meet any increased demand.  In response to the Chancellors announcement, Chief Executive of the National Housing Federation, David Orr made the following statement about this very issue:

"We welcome the chancellor's realisation that people around the country are struggling to buy their own homes, and the measures introduced today may help a number of them. But the danger is that if we don't tackle the fact we're still not building enough homes, we'll just create another housing bubble that will continue to push house prices up and out of reach of the majority.

"Our housing market has long been weakened by the lack of new houses being built, which are forcing up rental and house prices – leaving millions of people struggling to get on the property ladder or pay their rent. The government should be focusing on unlocking investment to build more new homes as a way of managing down the housing benefit bill and boosting the economy”

The answer therefore seems simple; just build more houses!  The reality is that in a struggling economy, where we are all feeling the effects of cutbacks and austerity measures that developers will understandably be much more reluctant to build speculatively if they think they may struggle to sell.  This new scheme however may act as a positive catalyst, and result in developers revisiting mothballed schemes as well as those in planning, as they can now have more confidence that they are likely to be able to sell their houses.  This I am sure is one of the key objectives that the Government are trying to achieve.

From a purchaser’s perspective the help to buy scheme is again likely encourage many who are struggling to save large deposits onto the housing ladder, sooner than they would have expected.  As an example, if someone wants to purchase a new house for £180,000, they now only need to save a deposit of £9,000 and can apply for an interest free loan for a further 20% (£36,000).  The lender will then only need to borrow 75% of the purchase price, £135,000 thereby significantly reducing their risk.  The upshot of this is that the 20% interest free loan is underwritten by tax payers like you and I.  The risk is therefore much more evenly spread between the lender and the tax payer and will undoubtedly encourage lenders to loosen the purse strings.

In a time where many countries in Europe are self destructing, creating even greater uncertainty, it is my humble opinion that the ‘help to buy’ scheme together with planning reform, is a positive step in trying to prevent the UK going down a similar road as Greece, Ireland, Portugal, Cyprus and the like.  It is true that the housing market is only one sector of the economy, however it is a very important one, which has the potential of breathing life into the wider UK economy. The ‘help to buy’ initiative provides incentives for developers, lenders and purchasers and should be effective as long as we can build a sufficient amount of houses to meet demand.  I am sure that there will be many who will be very sceptical about this latest initiative given the inability of the Government in recent years to get our economy out of the doldrums. In this instance it might be worth reserving judgement as I think ‘help to buy’ has a real chance of kick starting the housing market, as long as output levels of new housing significantly increases, and increase quickly.  Time will tell, however given what is going on in other economies in Europe and around the World, time is a commodity in short supply, and unless we try to stabilise our own economy now, we may not have time in the future react to what is going on elsewhere, which will prove disastrous for us all.

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Why should we bother with Renewable Technologies?

If you are hoping that in the future fuel costs will reach a peak and then start to reduce then I am afraid you are going to be bitterly disappointed.  There may well be short term reductions, however  it is inevitable that fuel cost will not only continue to rise, but rise significantly.

Source: http://www.kilmacenergy.co.uk/Environmental+Impact+Assessment/

There is no shortage of media coverage in respect of the impact of global warming, climate change, energy conservation, sustainability, greenhouse gas emissions an so on... An individual’s understanding and concern about these issues will vary significantly from those who have a genuine concern about protecting our planet for future generations to those who’s work may be directly related to these issues, right through to those who know very little and even those who make a conscious choice to ignore them!   The problem is however that even if you are one of those who fall into the latter categories, it does not change the fact that you are effected in exactly the same way as everyone else.  This is no more starkly demonstrated than in the increased cost of energy over recent years, which have soared to record levels.

Over the last two hundred years we have become dependent on fossil fuels such as gas, oil and coal, which have allowed us to develop our world at a staggering pace.  All of this development in terms of infrastructure, buildings and the like requires large amount of energy, to heat, cool, ventilate, provide light and power etc.  If we are to maintain or more than likely going to increase the rate of development around the world then we also need to consider alternative ways of creating this energy.  The problem with fossil fuels is that it is a depleting resource and at some point in the future it will run out.  Now this is unlikely to be in our generation or possibly even a number of generations in the future, but one thing is for certain in that it will actually run out.  If you are under the impression that we should not be concerned about this now, as it will not have any major impact on us in our lifetime then think again!

The problem with anything that is in short supply is that basic economical principles come into play.  Fossil fuels are a prime example of this.  Remember they are a depleting resource and therefore a commodity in short supply.  The impact of this is that when demand is high (which it always is) and supply is limited (which it is), then market conditions allow energy providers to increase costs as they know that they are providing something that people actually need.  The market then adjusts to these increased costs.  The graph below demonstrates the cost increase of oil, gas and electricity over the next twenty years:

Source: http://www.castlecover.co.uk/historic-home-utility-prices/

‘Rather unsurprisingly, all four demonstrate price hikes over the period, though some are more dramatic than others. Electricity and gas - the two most-used household energies - have nearly doubled over the last seven years of the index, owing to their ties with oil prices, as well as a number of other factors. The industrialisation of foreign nations, plus growing international prices for the commodity, has forced coal costs higher for UK citizen’.

If you are hoping that in the future fuel costs will reach a peak and then start to reduce then I am afraid you are going to be bitterly disappointed.  There may well be short term reductions, however due to the economical principles described above it is inevitable that fuel cost will not only continue to rise, but rise significantly. Of course, the majority of articles that you will see in the media focus on the damage to the environment caused by greenhouse gas emissions, particularly carbon, from the burning of fossil fuels.  This is something that we need to deal with immediately, however I would suggest that if you were to talk to most people on the high street they would be more concerned about the increase in fuel cost rather than concerns about climate change and the need to reduce greenhouse gas emissions.  The positive thing however, is that if we can create energy by using alternative renewable technologies then we can deal with both issues at the same time!

Source: http://www.link2portal.com/no-more-pv-subsidy-energy-inefficient-buildings-greg-barker

In my next article I will discuss some of the difficulties in making energy efficient enhancements to our heritage buildings, however for the remainder of this article I will continue to discuss the financial effect of creating and using energy from fossil fuels, which is happening and impacting on us all right now!  The Fuel Property Advisory Group’s 2011-12 annual report, in its executive summary states (link): ‘The average domestic dual fuel bill is now at a record high of £1,365 per annum creating severe additional hardship for some six million UK fuel poor households. The problem is even more acute for many living off the gas grid using Oil or LPG, where average fuel bills are circa £2,100 per annum. The reference to ‘fuel poor’ is more widely described as fuel poverty, which is defined by Poverty.org.uk (Link) as: ‘Households are considered by the Government to be in 'fuel poverty' if they would have to spend more than 10% of their household income on fuel to keep their home in a 'satisfactory' condition.  It is thus a measure which compares income with what the fuel costs 'should be' rather than what they actually are.  Whether a household is in fuel poverty or not is determined by the interaction of a number of factors, but the three obvious ones are: The cost of energy, The energy efficiency of the property (and therefore, the energy required to heat and power the home) and Household income’

It is abundantly clear that many in the UK are already suffering financial hardship as a result of increasing energy costs, and unless we can find alternative ways of creating our energy, then this situation is likely to become critical.  Increased demand of a depleting resource is a recipe for disaster.  We therefore have to introduce alternatives, which is now a necessity not a choice.  If you are in one of those categories described at the beginning of this article who have not really paid much attention to these global issues, perhaps it is now time to think very carefully about how you individually and all of us collectively can save energy and also be open to new technologies. This will not only provide benefits from a financial viewpoint, which may not be immediate (although costs associated with enhancements is an article in its own right!), but also from an environmental viewpoint, where we can start to have a real impact on reducing greenhouse gas emissions. In next week's article I will focus discuss the difficulties in making energy efficient enhancements to heritage buildings.

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Climate Change & Energy Efficiency - The problem with older buildings

It is pointless improving thermal efficiency and installing new technologies into a building if the occupier continues to waste energy because they don’t understand how to use the system/technology correctly.  This emphasises the need for a holistic approach to dealing with energy efficiency in existing buildings rather than concentrating on the technologies alone

Source: http://www.zmescience.com/ecology/environmental-issues

Are you aware of the significant impact of climate change on our planet?  Are you aware of the major influence that those working in the built environment, could have in dealing with this very serious issue?  Or, like many do you really care at all?  The short video at the end of this article, produced by the Met Office provides a good explanation of climate changes and is well worth a look. We are already experiencing the impact of climate change as a result of the way that we have used our planet to a point where many of these changes are now irreversible.  The issue now is how we slow down the process and try to protect the environment for future generations.  The Environment Agency website (Link), emphasises the human impact on our climate, and portray some very stark and worrying facts:

‘There is a scientific consensus that the recent observed rise in global temperature can only be explained by the rise in greenhouse gas emissions caused by human activities.

Since the industrial revolution, human activity, mostly the burning of fossil fuels, has resulted in the release of large amounts of greenhouse gases into the atmosphere. This is enhancing the greenhouse effect and pushing up global temperatures.

Average global temperatures have already risen approximately one degree Celsius since pre-industrial levels, and even if we could stop emitting all greenhouse gases tomorrow, they would continue to rise by at least a further 0.6 degrees. Limiting temperature rise to below two degrees is the internationally agreed target to avert dangerous climate change.

There are clear signs that our world is warming. We’ve had markedly higher global average temperatures over the last decade, ice sheets and glaciers are melting and average river water temperatures are increasing. Globally, the hottest ten years on record have all been since 1990, and February 2010 was warmest on record for southern hemisphere’

It is therefore clear that action is needed now and whether we like it or not, we must all play our part.  Much of this action is actually imposed on us through legislation such as Building Regulations and other initiatives such Code for Sustainable Homes, BREEAM etc. which are primarily voluntary (although funding requirements may in effect make these mandatory). This is fine if we are dealing with new buildings, but how do we deal with the existing varied

and largely energy inefficient building stock we have in the UK?  These are the types of buildings that waste a great deal of energy through older inefficient elements and therefore readily lose heat through the building fabric, requiring additional heating and therefore more energy to try to achieve acceptable internal temperatures.  If we make our buildings more thermally efficient, this heat energy is retained longer in the building, therefore reducing the amount of additional heating we need and subsequently reduces our reliance on fossil fuels.

According to BBC News (2006), ‘Transport consistently grabs the headlines on climate change emissions but buildings pour out about half of the UK's CO2 - 30% from homes, 20% from commercial buildings’.  The Climate Change Risk Assessment (CCRA) completed an assessment of a variety of impacts of various sectors may need to prepare, which included the Built Environment: ‘The UK’s built environment includes: 27 million homes, commercial and industrial properties, hospitals, schools, other buildings and the wider urban environment. At the current replacement rate, around 70% of buildings that will be in use in the 2050s already exist.  It is clear therefore that those working in the built environment have the opportunity of influencing the impact of climate change in all sectors including both new build and existing buildings. This has also been emphasised by the UK government’s commitment to reducing greenhouse gas emissions by at least 80% (from the 1990 baseline) by 2050 under the Climate Change Act 2008. In order to achieve this it is necessary to significantly reduce our reliance on depleting resources such as fossil fuels (which emit high quantities of greenhouse gases, particularly carbon) and consider the use of more energy efficient and low carbon ways of creating energy (renewable technologies), making our buildings more thermally efficient in addition to educating people to operate and use buildings more efficiently. This is fundamental to achieving a significant reduction in greenhouse gas emissions and necessary if we are to stand any chance of meeting our targets.

Source: http://www.cjhole.co.uk/news.html

The government have set a strategy with the objective of achieving the targets set within the Climate Change Act 2008 (Link). Whether you have your own political views or are sceptical about government policy and initiatives it is important to embrace these policies as we only have the possibility of making a difference, if we are prepared ‘to give it a go’, after all, we have to start somewhere.  It is ok to be sceptical, however until policies and initiatives are introduced and tested we have no way of knowing whether they will work or not.  I along with many others have raised issues with the recently introduced Green Deal, however I have also gone onto state that I think in principle it is a good idea which will undoubtedly need some re-adjustment to make it more effective.  The important thing here is that the UK government have decided to tackle poor energy efficiency in existing buildings, however, trying to encourage people to incorporate energy efficient measures and renewable technologies into their buildings is always going to be difficult for a number of reasons. 

The Green Deal works on the basis of a low interest loan which is added to your fuel bills, for energy efficient enhancements recommended by a Green Deal Assessor. The ‘golden rule’ then assumes that the repayments on the loan will not exceed the savings made on your energy bills, therefore you should not notice any difference in the amount you are paying each month.  Although the Green Deal stays with the property in the event that the property is sold (and the Green Deal repayment obligation is then taken on by the new owner), most property owners will still see it as a debt.  Therefore, there may be a reluctance to enter into this debt on the basis that they do not see a particular building as a long term investment and feel that they will not be there long enough to reap the benefits of the investment.

There is also constructional detailing issues in respect of retrofitting existing and occupied buildings to increase thermal efficiency and also issues in respect of introducing and installing renewable technologies. Once installation of enhancements has been completed it is also necessary to ‘educate’ occupiers to help them to understand how to use them.  It is pointless improving thermal efficiency and installing new technologies into a building if the occupier continues to waste energy because they don’t understand how to use the system correctly.  Again, this emphasises the need for a holistic approach to dealing with energy efficiency in existing buildings rather than concentrating on the technologies alone. Next week I will discuss some of the renewable technologies that are becoming more widely installed in UK domestic dwellings.

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

How to avoid ‘Cowboy Builders’ - 5 Practical Tips

Trust is something in which we expect that services provided will be as advertised or discussed and that those who claimed to deliver such services will be competent to do so.   Unfortunately, there are endless examples where this trust has been mis-placed, as there are plenty of unscrupulous people out there who are waiting to exploit this situation. 

Source: http://www.couriermail.com.au

There are times when we need to engage the services of a builder, contractor, tradesperson, (call them what you will), when we are considering building work or indeed in the event of an emergency.  Selection of ‘the right person’ is often determined by random selection based upon a brief search through Yellow Pages, a quick internet search or a card displayed in a newsagent’s window.  This leads to us placing our trust in people we know very little about and allowing then access into our homes/buildings. Trust is something in which we expect that services provided will be as advertised/discussed and that those who claimed to deliver such services will be competent to do so.   Unfortunately, there are endless examples where this trust has been mis-placed, as there are plenty of unscrupulous people out there who are waiting to exploit this situation. 

Knowledge of home repairs and building works is something many people no little to nothing about and therefore prefer to pay to have these types of work carried out.  Therefore, if a ‘builder’ is invited to give advice and a quotation, most people will not have the expertise to assess whether the work they are proposing is appropriate or indeed necessary, or whether it represents good value for money or not.  So why do we seem to make these rash decisions?  This is likely to be due to the urgency of works, our trusting nature, confident and sometimes intimidating behaviour (from the 'builder'), cheap price etc.  It is decisions made on this basis that can lead to very significant problems and disputes, and this approach should be avoided at all costs.

In March 2012 the Office of Fair Trading (OFT) published their Home Repairs and Improvements Toolkit which in the introduction states: ‘In the 18 months from January 2009 to September 2010, advice service Consumer Direct received over 146,000 complaints from consumers about problems they had experienced with home repairs and home improvement projects’.  As a result the OFT together with the Citizen’s Advice Bureau, Trading Standards and Local Authority Building Control and Planning departments, launched a campaign to raise awareness amongst consumers around how to manage home repairs and building works.  The toolkit considered that raising public awareness through the media would be the most effective way of dealing with this issue, however, below I offer some practical suggestions that should be considered when engaging building and repair works:

1. Do your homework

Always take the time to do some research to find out about the people you are thinking of using.  How long have they been trading?, do they have a website, if so can they show you examples of their work?, are there previous customer reviews. Have they got a track record for the type of work you require? Do they have the accreditation they claim?  If you cannot find this information on-line, then ask for details of previous similar work that has been carried out and contact details.  Good builder/tradespeople are proud of their work and would be more than happy for you to talk to their ‘satisfied customers’.  If a builder/tradesperson is not willing to provide this information for you then do not employ them!

2. Obtain alternative quotations

Never appoint a builder/tradesperson on the basis of one quotation.  When you go to a supermarket you often have the choice of numerous similar products, which you will assess at in terms of quantity, quality and cost.  You will consider these factors and then make an informed choice.  This is exactly the same approach you should take when considering home improvements or building works. If you instruct building work from the first quotation you receive it is the same as going into to supermarket and picking up and paying for the first thing you see.  How can you be sure you have got good value for money.

3. Get things in writing

All quotations should be received in writing.  Failure to receive a written quotation can lead to disputes and misinterpretation in what you ‘thought’ you had been told and what is actually provided.  Legally, there is such thing as a verbal contract, the problem is, how can you prove someone had said something, if they are claiming otherwise?  Written quotations will avoid this, however it would also be wise to have the quotation broken down into as much detail as possible.  A detailed breakdown, with costs attached to each item, will reduce uncertainty, for yourself and the builder.  Also, do the costs include VAT?

4. Payment

It is common practice for a builder/tradesperson to request an upfront payment for ‘materials’. I would suggest that as part of accepting the quotation that you also agree a payment schedule, which will include any upfront payments (which should be limited).  Payments should be spread over the duration of the works and based on progress with a final payment held back until the work is complete.  Never pay large sums of the works cost upfront.  As works are progressing, only pay the builder/tradesperson for the work they have completed.  Always ensure that you are kept in a position that if the builder/tradesperson failed to complete the works (for whatever reason), have you got enough money left in the project to pay someone else to complete it?  If the answer is no then you have probably paid too much too soon.

5. Never accept cold callers

Never be tempted into considering ‘deals’ from cold callers.  Many of the horror stories we hear relate to those who have felt pressurised into paying for work they did not need, was far too expensive (sometimes extortionate), and completed to a very low standard (or sometimes not completed at all).  Avoid cold callers at all costs.  We have possibly all been in a situation where we open our front door and are greeted by someone who appears to be plausible and knowledgeable, however do not be fooled!  You will undoubtedly be offered the deal of the century, however in life you get what you pay for, so to quote a popular phrase, ‘if it appears to good to be true, it probably is’.

Typical ways in which you may be approached may include:

‘I am working over the road and noticed that you have some damaged tiles on your roof.  While I’m here, I’ve got my ladders and just happen to have some spare tiles, do you want me to take a look?.  Answer - NO!

‘I’ve just re-surfaced your neighbour’s driveway and I’ve got materials left over.  While I’m here I can do you’re drive for a really cheap price, but I can only do it today.  What do you think?  Answer – NO!

‘We are in the area today only and offering significant unrepeatable discounts for a small number of customers who agree for us to use their property for marketing purposes.  We will take pictures of the work we do and include it in our marketing literature’ – Answer – NO!

‘You will need to sign up now.  The manufactures price is increasing after today’ – Answer – NO!

‘I will give you a good deal for cash’ – Answer – NO! 

If this is suggested it should immediately raise alarm bells as, firstly it is illegal and will undoubtedly be work ‘off the books’, thereby avoiding tax and VAT payments. Anyone who is prepared to suggest work in this way is not the type of person you can have an faith or confidence in as their honesty is already compromised. 

For work that is not a 'one off repair', for your own protection I would always recommend that you obtain at least a basic building contract such as a JCT Homeowner or Minor Works Contract, and ensure that this is signed by yourself and the builder before works commence.  I will be discussing building contracts in more detail in a new article in the near future so be sure to take a look.

The video belcome (from You tube) gives an example of what can happen if you are not extremely vigilant when selecting 'builders' to carry out work for you.

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.