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The Risks of Under-insurance, the Rental Market, House Sales down, Unruly Tenants Can Be Evicted, Shrinking Prs a Treasury Loss

Numbers adding up to the risk of under-insurance
05 April 2023

By UKinsuranceNET In News

It’s a mixed bag of UK property news headlines this week. There’s a brief overview of the private rental market and rising interest rates force a decline in house sales. Landlords are to be given greater powers to evict unruly tenants, while changes to the tax regime for buy to let landlords have shrunk the private rented sector (PRS) and lost the Treasury valuable income.

A brief look behind those headlines may reveal more.

The Risks Of Under-insurance

BCIS – the Building Cost Information Service – has reported that while annual housebuilding cost inflation slowed slightly to 12.8% in quarter 4 of last year, costs were still up 1.7% on the previous quarter (3Q2022).

With the cost of housebuilding increasing, we would like to remind you of the importance of having the correct buildings sum insured.

You should envisage a worst-case scenario in which your home is completely destroyed. It is a total loss. The site must be cleared and your home rebuilt. The clearance and reconstruction costs involved – together with the host of professionals’ fees – must be accurately reflected in the total building sum insured.

But what if you have underestimated all the costs associated with rebuilding your home? You’d have to make good any shortfall from your own pocket. Without it, you could be without a home. That is the risk – and the cost – of under-insurance.

Rental Market Report: What’s Happening To Rents?

For some time, demand has starkly outstripped supply in the private rented sector (PRS). That has led to ever-increasing levels of rent.

A report by the online listings website Zoopla on the 29th of March, suggests a slightly improved balance between supply and demand. As a result, the rate of growth in levels of rent has reduced from 12.3% to 11.1%. The rate of increase could even fall to as low as just 4% to 5% by the end of the year, suggests the rental market report.

But an imbalance remains. The supply of rental accommodation is unlikely to grow much during 2023. It has grown by only 1% in the past six years. High mortgage rates deter many prospective landlords from investing in buy to let businesses. That lack of investment restricts any growth in the supply of let accommodation.

Yet demand remains high – even if it has fallen a little from its height in 2022. It continues to be fuelled by high employment and record levels of immigration.

UK Property Sales “Down By A Quarter” Since Interest Rate Hikes Started

On the 23rd of March, the Bank of England lifted the base lending rate from 4% to 4.25%.

With the next review due to be made on the 11th of May, Estate Agent Today on the 29th of March warns that further increases in the cost of borrowing are likely to depress the housing market.

The article referred to recent research showing that the number of house sales each month has fallen steadily since mortgage rates started to climb in December 2021. Transactions have fallen by “a quarter”. In some parts of the market, the reduction has been as much as 40%.

Some figures make the comparison. Between December 2020 and November 2021, an average of 96,732 homes were sold; in the period December 2021 to November 2022 that average had fallen to 72,785.

Landlords To Be Given More Powers To Evict Unruly Tenants

A posting by Propertymark on the 27th of March draws attention to plans to make it easier for landlords to evict tenants guilty of anti-social behaviour.

As part of the government’s package of renters’ reforms, the law will be changed to let landlords evict persistently unruly tenants faster and more easily. The aim is to include specific reference to a ban on anti-social behaviour in all tenancy agreements. The process of eviction will be easier and faster for landlords. Short-term lets will be specifically targeted to prevent the spread of anti-social behaviour.

Treasury Loses £1.5 Billion Since Hike In Rented Housing

A news release says that radical changes to the tax regime for landlords of buy to let property has resulted in far fewer homes to let. That also results in a corresponding fall in the revenue generated by the private rented sector for HM Treasury.

In a press release on the 23rd of March, the National Residential Landlords Association (NRLA) revealed that changes to the tax regime have resulted in the loss of an estimated 1.2 million properties that would otherwise have been available to rent. The exodus of tax-paying landlords has seen the Treasury’s revenue slashed by an estimated £1.5 billion.

The principal change followed the Treasury’s decision in 2015 to abolish the previous tax relief for landlords on mortgage interest repayments.

Radical changes to the tax rules for landlords have occurred while there has been a 38% reduction in the number of homes for rent in the private sector, while at the same time, that demand has grown by 46%.

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