Could census data be better used to determine housing supply? – Matthew Evans and Helen Streeton write for CoStar
29 August 2023
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Commercial Real Estate Partner and Head of Forsters’ Build to Rent group, Helen Streeton, and Planning Counsel, Matthew Evans, have written for CoStar on how the data is there to get new homes built, and why it is not currently being mined.
The pair write how the local plan-making process to deliver new homes was further complicated by Michael Gove’s announcement earlier in the year that the government is scrapping housebuilding targets.
Even before this decision, the delay in implementing planning reforms had been causing severe challenges to the delivery of these new homes.
Evans and Streeton explain that “although local authorities still need to update (or in some circumstances, create) local plans, many are still adopting a wait-and-see-approach while they wait for further clarity on legislative reform within the Levelling-up and Regeneration Bill and the government’s response to its recent consultation on the National Planning policy Framework.”
Resultantly, housing needs continue to go unmet and rental levels continue to rise. This is particularly pertinent for the rental market, with average prices nationwide rising 4.8% in the 12 months to April 2023, “the highest increase since the national data series began in 2016.”
Despite widespread focus on community opposition to new homes, and a strong anti-development rhetoric in mainstream media, Evans and Streeton say that the reality is very different.
There is a genuine appreciation for the need for new homes, but the underlying concern is around the demands an increased population would place on local infrastructure.
“Would top-down housing numbers solve the problem? Potentially, if they leaned on data that gives a true representation of housing need. Utilising census data could be a more effective way of identifying the tenure and size of homes needed, and in what locations.”
The pair add that even though the Build to Rent sector is projected to grow rapidly over the next decade or so, moving from 1.5% to 8% of the total rental market by 2032, there continues to be a lack of knowledge and expertise around its role in meeting housing need.
It is a similar case for the later living sector. There is an urgent need for sector growth but insufficient amounts of suitable housing. The pair suggest that creating a separate use class could be helpful in expediting planning applications, thus alleviating the strain on the sector.
Evans and Streeton conclude that: “The answer to meet housing need is not to scrap housing targets. It is to be smarter about how housing numbers are calculated and tap into the incredible wealth of data that already exists on our current and future population, in order to provide the right homes in the right places.”
This article was originally published by CoStar on 22 August 2023 and can be read here in full (behind their paywall).
Releasing 1.4% of greenbelt could deliver 1m homes – Matthew Evans quoted in Property Week
25 August 2023
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Planning Counsel, Matthew Evans, has been quoted by Property Week reacting to a recent report that has revealed that building on just 1.4% of the green belt, would accommodate the government’s target of 1m homes before the next general election.
The research, conducted by Wood Harwick, claims that only 8.7% of England’s land area is of development use, compared to 12.5% which is designated as green belt. They therefore believe that building on the green belt is a solution that has been largely overlooked.
In response to this, Matthew commented ‘We need to be looking at land across the board, considering and balancing its relative value and the potential contribution it can make to housing our growing population. Not all green belt is created equal, and we need to move to a place where the quality of greenbelt is graded.’
This article was first published in Property Week on 24 August 2023 and is available to read in full here, behind their paywall.
Experts call for Crooked House to be restored to former glory – Matthew Evans speaks to Property Week
24 August 2023
Views
Planning Counsel, Matthew Evans, has been quoted in Property Week’s latest piece on the ‘iconic’ Crooked House in Dudley following its recent demolition.
The demolition of the quirky British pub following a fire earlier this month has ignited public outrage and calls for it to be rebuilt. An investigation into arson in ongoing however locals want to know if it can ever stand again, and what a rebuild may look like.
Property Week noted that the solution may lie 120 miles away at a pub in Maida Vale, London. The Carlton Tavern was re-built following its demolition after locals campaigned for it to be reinstated. Matthew provided commentary on the options available to the local planning authority to try and ensure the Crooked House is rebuilt as quickly as possible – likely through the issue of an enforcement notice giving a definitive timescale for its reprovision. Although such notices can be appealed, it is assumed that with this level of public and political pressure, such an appeal should be determined swiftly.
This article was first published in Property Week on 24 August 2023 and is available to read in full here, behind their paywall.
Forsters advise SciBite on the renewal of their lease
24 August 2023
News
Forsters have provided advise to SciBite Limited on the renewal of their lease at Biodata Innovation Centre, Cambridge.
Part of the FTSE 100 RELX Group plc, SciBite is a developer of a suite of award-winning technology products for major pharmaceutical and life sciences companies.
Glenn Dunn, Head of Forsters’ Corporate Occupiers group, advised SciBite and was assisted by Owen Spencer.
Forsters Property Litigation and Private Client teams recognised at the British Legal Awards 2023
24 August 2023
News
Forsters have been shortlisted for two awards at the 14th annual British Legal Awards 2023:
Litigation, Arbitration and Dispute Resolution Team of the Year
Private Client Team of the Year
The shortlistings recognise the achievement of the Property Litigation team in relation to the Supreme Court appeal concerning the Tate Gallery, and our Private Client team’s extensive work on a multi-generational matter for an international ultra-high net worth family.
Forsters is proud to have received nominations at the British Legal Awards for five consecutive years. The awards represent the top advisors and firms within the UK’s legal community.
The full shortlist can be viewed here. The winners will be announced at the ceremony on Wednesday 29 November.
Developers get ready for BNG – Sophie Smith quoted in Property Week
24 August 2023
Views
Planning Associate, Sophie Smith, has been quoted in Property Week’s latest piece addressing biodiversity net gain (BNG) and the November deadline for developers.
From November, developers in England will have to ensure any projects they undertake produce a BNG of at least 10% – and put a plan in place to ensure the gain is maintained for 30 years or more.
Property Week highlighted that some developers will already have experience dealing with this as some councils have implemented such policies in local plans. However, for many others, BNG will be entirely new.
Sophie Smith shared her thoughts on the new guidance acknowledging that it does seem to indicate that the Government is ‘moving in the right direction’ to meet the November target but notes that there are still significant gaps in the regulation and that time is running out.
She goes on to comment “There are still fairly material points that remain to be dealt with via secondary legislation, particularly, for example, in relation to outline schemes or phased developments.”
“Where this information is not clear and local planning authorities are not prepared in advance for the requirements, this will inevitably lead to confusion in the planning system from all sides and delays to applications being progressed.”
“This will particularly be the case if the November target remains and the legislation is published fairly last minute.”
This article was first published in Property Week on 24 August 2023 and is available to read in full here, behind their paywall.
Forsters nominated for two awards at the Legal Business Awards 2023
18 August 2023
News
We are thrilled to announce that our two principal practice areas have been shortlisted for two awards at the Legal Business Awards 2023.
The 26th annual Legal Business Awards celebrates the very best in the legal profession and is one of the most prestigious events in the legal calendar.
Having been put forward in two categories, we are delighted to be recognised as finalists for:
Real Estate Team of the Year
Private Client Team of the Year
The shortlisting of our top-ranked teams is a demonstration of our market position as a leading cross-practice firm. It recognises the achievement of the Property Litigation team in relation to the Supreme Court appeal concerning the Tate Gallery and our Private Client Team’s work with a multi-generational ultra-high net worth family.
The full shortlist can be found here. The winners will be announced at the Awards Ceremony on Tuesday 19 September.
Following our recent firmwide survey, our diversity results are here, and we’re pleased to see that we’re making progress in becoming an environment where all of our people can flourish.
Notably, in an industry where those from a Black, Asian and minority ethnic (BAME) background are underrepresented, we are proud to report we’re more diverse than the UK population as a percentage of our workforce.
We’ve worked hard to cultivate an environment where LGBTQI+ individuals feel safe to be themselves, and this is reflected in our results which show that, as a percentage of our workplace, we are, again, more diverse than the UK population.
We don’t believe having a child should halt a person’s career, and we do our best to support those who want to become a parent. Whilst only 26.5% of our people are primary carers for a child or children under 18, the highest percentage group for primary carers is equity partners at 46.2%, showing our commitment to supporting parents and carers in achieving their career goals.
However, like many businesses, we recognise there are places we need to change, and these results will help guide us to make the necessary adaptations.
Whilst it’s promising to see that those who have a disability were comfortable to declare it (with twice as many people in our ‘other fee earning’ role group identifying as disabled compared to the average firm), we recognise that more needs to be done in the space to help people feel more comfortable sharing their needs. This is because apart from a few partners, none of those who find their daily activities are ‘limited a lot’ by their disability were willing to say their role. This is something we want to change so that we can offer the best possible support to our people.
We firmly believe that all people shouldn’t be limited by their education, which is why over half of our people went to state schools (58.5%). However, our partnership remains 65.4% independent school educated, and half of the partnership had a main breadwinner among their parents who was a professional. This figure confirms our need to do more for social mobility, and we will put plans in place to achieve this.
Student accommodation has proven to be a resilient sector in recent years even as other investment markets have struggled.
Despite the challenges arising from varying factors such as the difficulty in obtaining planning consent for suitable sites and economic factors such as interest rate rises and construction cost inflation, it is a sector that still attracts a great deal interest from both the domestic and international investment communities. This is largely driven by a surge in demand that continues to out-strip supply (and seemingly will for the foreseeable future).
In our #FORStudentAccommodation mini-series, we will explore and share with you some of the legal and topical issues we are encountering. In particular, you will hear from us on:
Building Safety
Planning
Residential Considerations
Development Funding
Corporate Considerations
Deb Financing
Tax
For further information on any of the topics covered, please contact our Head of Student Accommodation Ronan Ledwidge.
Next up in our series looking at key issues in the Student Accommodation sector, Anthony Goodmaker looks at HMO licenses and the hidden conditions we need to know about.
In the second of our #FORStudentAccommodation mini-series, we look at PBSA and the significant impact The Building Safety Act 2022 will have on all stakeholders in the design, construction and operations of purpose built student accommodation.
In the first of our #FORStudentAccommodation mini-series we provide a sector overview, an insight into some of our recent work and outline the topical issues that we’ll be covering in the following weeks.
A blend of features in vineyard planning – Victoria Du Croz writes for EG
16 August 2023
Views
Head of Planning, Victoria Du Croz, has written a piece for Estates Gazette on the important planning implications of the supply network involved in the UK’s wine production.
Many vineyards and wineries operate through a network of supply contracts. Grapes may be grown at one vineyard and processed on site. More commonly, grapes will be grown at a variety of locations and processed by a single winery, or a specific vineyard might contract with a winery to process their grapes. Many vineyards in the South East, for example, will grow their grapes, send them to be processed elsewhere, then bring the bottled wine back on site for tours, tastings, refreshments and sales. Furthermore, many vineyards and wineries are continuing to diversify, offering a range of experiences, including tours, tastings, overnight stays and the hosting of weddings and corporate events.
The practical realities of commercial operations of vineyards and wineries’ commercial operations means industry experience is needed to advise on the planning position and experience is critical. A vineyard with a commercial winery, tastings and tours, etc can look like a different business in each month of the year – the shape of the business will differ from season to season, much more than a traditional arable farm may do.
It is essential to understand what is actually happening on the ground when the year is viewed in the round and to map this on to the current planning framework. Many vineyards are located in designated areas of outstanding natural beauty, which have particular planning restrictions for their preservation. Most of these vineyards will be agricultural in nature, but can stray into commercial use classes if the commercial activity is not directly ancillary to the viticulture, leaving them open to enforcement action if they do not have the correct consents in place.
Full-bodied case
In a recent appeal in respect of the Cuxton Winery, in Kent, an inspector had to grapple with whether there was a material change in use at the vineyard if the grapes were taken off-site for wine production and then returned for storage and sale. Previously, Medway Council had granted a certificate of lawfulness for agricultural use that expressly permitted wine to be produced, stored and sold on site. The certificate made no express mention of the lawfulness of providing tours, tastings and refreshments, nor for selling wine produced elsewhere. The appellant sought revised wording in a certificate of lawfulness to cover these two points.
As noted by the inspector, in such applications the onus is on the applicant to provide sufficient evidence and accordingly the decision is fact-specific. However, it does raise an interesting point about what is “incidental” to the growing of grapes to produce wine, which is accepted as an agricultural activity. The inspector considered that wine production is a lengthy process to make a different product and is therefore akin to an industrial process (in contrast to simply crushing grapes). Previously, case law has held that the on-site production of wine is incidental to the primary use of that site for the growing of grapes.
The inspector considered that, based on the information before him, the appellant had failed to demonstrate that it would be ordinarily incidental and reasonably necessary to process up to 20,000 bottles of wine annually off-site as part of the primary agricultural use of the site. The inspector accepted that some off-site production could be regarded as incidental but, in this case, it appeared all the wine would be produced off site. While not entirely clear from the decision, it seems to be the return of the entirely different product from the off-site industrial process, ie the wine, for the subsequent storage and sale which meant there was a material change in use from the main agricultural use of the site.
The inspector also rejected the proposed wording in the certificate for the tours, tastings and refreshments, which did not seek to quantify the frequency and extent of such activities. The inspector considered that if the wine were to be produced on site, the scope and quantity of tours would potentially broaden, which may mean the tours, etc would cease to be incidental. Again, the inspector did not consider that the appellant had discharged the necessary burden of proof. Accordingly, the appeal was refused.
Endnote
The decision serves to highlight the importance of applicants discharging the burden of proof for certificates of lawfulness by providing sufficient evidence. It also demonstrates the potential pitfalls in seeking to diversify agricultural land against the backdrop of our historic and restrictive planning use class system.
The decision is one of many recent planning decisions affecting this industry. With WineGB reporting there are more than 940 vineyards and over 200 wineries in Britain and, as the industry is still expanding, there are likely to be more.
The matter is not helped by broader planning policy. Although the National Planning Policy Framework supports a prosperous rural economy, each local planning authority has its own local plan and it is rare for these to address diversification of vineyards and wineries adequately. Advice should be sought at the earliest opportunity on the scale and scope of any diversification plan including whether and what planning applications need to be made.
The diversification of vineyards is becoming increasingly important from a commercial standpoint and for the future-proofing of such businesses. Although seemingly welcomed in the UK, it requires careful thought and consideration from a planning perspective.
This article was originally published by EG on 15 August 2023 and can be read here in full (behind their paywall).
Ashleigh Carr to Chair the TL4 & ConTrA Private Client Summer School 2023
9 August 2023
News
Contentious Trusts and Estates Senior Associate and co-chair of the ConTrA Committee, Ashleigh Carr, is chairing TL4 & ConTrA’s Private Client Summer School: The Ultimate Insider’s Guide 2023.
The 3rd annual Summer School offers a programme for junior lawyers to broaden their knowledge of the Private Client practice area and refine their skills.
The full agenda and list of speakers can be viewed here.
The event will take place from 30 August to 1 September 2023 at Downing College, Cambridge. You can book your place here.
James Brockhurst to speak on Tax issues for Middle Eastern families at Informa Connect’s Cross-Border Planning Conference 2023
8 August 2023
News
Private Client Partner, James Brockhurst has been invited to speak at Informa Connect’s Conference ‘Cross-Border Planning: Wealth Management Solutions for the New Age Business Family’.
Taking place from the 25 – 26 October in Dubai, the programme will provide updates on key issues facing the internationally mobile private client, as well as provide opportunities to discuss succession planning, immigration, family governance and family offices, and business law developments.
James will be speaking at the panel discussion ‘Introduction to US, UK and Canadian Private Client Issues in the Middle East’, which will cover the following:
Case studies from each jurisdiction
Tax planning Issues with trusts
Residence and domicile issues
How do you expatriate and what is a US/UK/Canadian citizen?
Considerations for banking problems and FATCA/CRS
Joining James on the panel will be John Shoemaker, Partner at Butler Snow, and Reaz Jafri, Counsel at Withers.
For more information and to book a place at the event, please click here.
Logistics needs to reach a more diverse talent pool – Victoria Towers writes to Property Week Editor
4 August 2023
Views
Commercial Real Estate Partner and Co-Head of the Industrial and Logistics group, Victoria Towers, has written to the Editor of Property Week on how “the recent announcement that the Generation Logistics campaign, which aims to improve recruitment and retention in the logistics workforce, securing another year of government funding is welcome news for the sector, where there remains a critical need to expand the labour pool.”
Towers writes: “Based on independent research we recently commissioned, investors and developers active in industrial and logistics real estate cite availability of labour as the third most significant factor – close on the heels of connectivity and value – in deciding where to invest.
“Encouragingly, this year’s Department for Transport funding is to focus on raising the profile of logistics in schools and colleges, which chimes with the wishes of investors and developers, who responded to our survey calling for careers advice alongside talks in schools and the promotion of training.
“Our study found potential for the sector to make itself more attractive to a diverse talent pool, highlighting that the rise in last-mile logistics should support more part-time roles in daytime hours for those with family commitments. Automation was thought likely to lead to a gradual change in the nature of careers, increasing the need for engineers and technicians.
“The sector needs to both demystify its operations, promote the diversity of opportunities and reach a more diverse talent pool. Youngsters need to understand this isn’t simply an industry of long-distance lorry drivers, away from their families for days at a time.
“This is a truly nationwide sector, looking to be in easy reach of every home and business in the UK. The industry needs to reach a lot of schools and colleges. Even with contributions from industry, this year’s government funding of £300,000 will be stretched thin and more needs to be done to tackle the issue.”
To explore more of our ‘Outside the Box’ research, please click here.
This letter was first published by Property Week on 3 August 2023 and can be read here (behind their paywall).
The Lifecycle of a Business – Registers, Records and Filings
2 August 2023
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina.
On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
So, First Things First…..
Registers, Records and Filings
Depending on the type of entity that you’ve set up (for further information about the different options available in England and Wales, see here), you will need to make certain filings and maintain various records throughout the entity’s life. In this article, we focus on the principal corporate records and filings relevant to a private limited company incorporated in England and Wales. Bear in mind that other registrations and filings will or may be needed too, for example, with HM Revenue & Customs for tax purposes and HM Land Registry if property is held, but these are outside the scope of this note. Overseas entities may also be required to be listed on certain registers in the UK (the most notable currently being the Register of Overseas Entities if they own UK real estate) but again, this is outside the scope of this article.
The main corporate registers and records that are relevant for private limited companies incorporated in England and Wales fall within two categories – those maintained by Companies House and those maintained by the company itself.
Companies House
Companies House is the government body responsible for incorporating and dissolving companies in England and Wales, as well as for collating the various filings required by such companies and making the information available to the public. It also deals with the incorporation of limited liability partnerships (“LLPs“) and the filings required by LLPs and limited partnerships.
Searches of entities on the Companies House register can be made free of charge and certain information can be obtained within seconds, while some historical information can be obtained for a small fee. Companies House can be an incredibly useful source of information, although it must be considered that, unlike the Land Registry, it does not guarantee the accuracy of its contents, and not all of the information obtained from its registers will be up-to-date. For example, details of any share transfers will only appear on the public register when the next confirmation statement is filed – so the record could be a year out of date.
Companies House registers
Central public register
Companies House maintains a central public register of all companies incorporated in England and Wales. Incorporation of a company cannot take place without Companies House’s involvement and it is only when you have submitted an application for registration (on Companies Form IN01 ) to them, have paid the appropriate fee and they have provided you with a certificate of incorporation that your company will be in existence. This can be done on a same day basis, and in any case usually within a day or so.
Once incorporated, your company will be listed on the central public register at Companies House and searches can be made against it in respect of certain information – its registered office, names of directors and annual accounts, for example.
PSC register
A company is required to maintain a PSC (people with significant control) register and also to file the information publicly at Companies House.
Essentially, the PSC register is a record of the beneficial owners of the company. For more information about PSCs, see here.
It is important to bear in mind that a company’s PSC register must never be blank. If the company has no PSCs, it must make a statement to that effect. If a company is unable to complete the PSC register, official wording must be included depending on whether the company is still investigating whether it has any PSCs or knows it has a PSC and is trying to confirm their details.
If any details change about a company’s PSCs, the company has 14 days to update its own register and a further 14 days after that to update Companies House.
Companies House filings
Companies House filings are made using specified forms – for example, an appointment of a director is form AP01, a change of details is form CH01. The gov.uk website can be helpful if you are in doubt and of course, your legal or accountancy advisors will also be able to assist.
Most forms can be filed online, and this is always faster. Paper forms can still be used, but inevitably many are rejected for minor errors that are impossible with online filing (typos in the company name or number being the main culprit).
Certain filings, such as a change of company name, may incur a fee. While fees are small, the filing will not be processed unless it is paid.
Event-specific filings
Certain events during a company’s life will require filings to be made at Companies House so that the public register can be updated. This includes (among other matters) changes to the company’s officers, its constitutional documents, its share capital, and basic details such as address, principal activity or financial year end. The deadlines for making such notifications vary and so you should make sure that you are aware of, and comply with, the various time periods. Filings should be made as soon as possible (preferably immediately) after the change is effected to avoid any risk of missing the filing deadline.
Most filings are only notifications of events that have already taken place, but certain changes only take effect upon filing. For example, if a company wishes to change its name and passes a resolution accordingly, Companies House will need to check that the name is not the same as one already on the register and that it otherwise complies with the regulations. Only once it has done this will it issue a new certificate of incorporation on change of name. A change of the company’s registered office will also only take effect once the register has been updated.
Annual filings
Each year, a company must file a confirmation statement with Companies House which either confirms that all required changes have been filed or sets out any changes which have taken place since the last confirmation statement date.
Every company must also file annual accounts, whether or not the company has been active.
Company registers
The company is also required to maintain its own registers at its registered office, the majority of which must be available for public inspection. Such registers include (most importantly) the register of members, the PSC register, a register of directors (and company secretaries, if applicable), a register of the directors’ residential addresses (which remains private and is not available for public inspection) and a register of charges (if created before 6 April 2013).
The register of members is a crucial document as it provides key evidence as to who are the shareholders of the company. It is therefore extremely important that it is kept up-to-date. For private companies, this is not usually an onerous process as the shareholders are unlikely to change on a regular basis, but this does not mean that it can be ignored and company’s officers should not be blasé about its maintenance.
Copies of the directors’ service contracts, a record of resolutions and shareholder meetings and adequate accounting records must also be kept.
A company may also choose to maintain a register of applications and allotments, a register of transfers and/or a register of debenture holders, although these are not required by law.
There is an option for private companies to elect for the information contained in some of the above registers (the register of members, the register of directors, the register of directors’ residential addresses, the register of company secretaries and the PSC register) to instead only be available on the central public register maintained by Companies House, thereby avoiding the need to keep their own separate registers. However, few companies have chosen to use this system as it puts more information about the company’s shareholders into the public domain.
Failure to comply
A failure to comply with any of the various record and filing requirements, will constitute a criminal offence by the company, its directors or both, although prosecutions are rare. If a company fails to file its annual accounts, it will also be warned and eventually struck off the register and dissolved.
In addition, it is an offence for any person knowingly or recklessly either to deliver a document to Companies House or cause one to be delivered or to make a statement to Companies House that is misleading, false or deceptive in a material particular.
As such, to the extent that you are unclear as to any of these obligations, taking advice from your legal or accountancy advisors is recommended. The gov.uk website also provides guidance.
The future?
The Economic Crime and Corporate Transparency Bill (the “Bill”) is currently wending its way through Parliament. As currently drafted, the Bill could have quite a significant impact on Companies House processes and powers. It proposes requiring all directors and PSCs to have their identity verified before they can be appointed as such and also gives Companies House more power to decline and query information provided to it for inclusion on the register.
How far Companies House will take these powers remains to be seen although there has been some suggestion that it does not currently have sufficient resources to enforce the new powers as meticulously as the Bill permits and that it may be some time before we actually see an upsurge in investigative activity.
Disclaimer
This note reflects the law as at 2 August 2023. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Mortgages for Overseas Buyers of UK Residential Property – The Advantages and Disadvantages
1 August 2023
News
We are often asked by overseas clients buying UK property whether or not they should take out a loan secured against the house or flat they are buying. Quite often buyers have the financial means to complete the purchase without a loan of any kind but nevertheless there are good reasons why they might wish to consider taking out a loan.
In fact, it is increasingly common for overseas buyers to take out mortgages and it is now less likely that they would wish to purchase for cash than was the case a few years ago.
We summarise here the principal considerations to take into account and to outline the possible advantages and disadvantages of taking out a loan.
Types of mortgages
There are clearly a huge variety and number of financial products potentially available to overseas buyers. These are likely to be different products, and perhaps at less advantageous rates, than those available to UK resident buyers who wish to purchase a property as their principal residence. The first consideration is whether the loan will be to an owner-occupier or whether it will be for the purposes of buying an investment property that will be let. The rates available to owner- occupiers are generally better than those available to buyto-let purchasers and it is likely the bank or lender will offer entirely different products in each category. The loan to value ratios are likely to be different and for buy-to-let might be only 50% or 60% of the market value of the property.
Traditional mortgages are secured by a first legal charge over the property being acquired. The mortgage deed under which this is created is relatively straightforward and will refer to a set of mortgage conditions, which tend to be fairly standard, drawn up the lender. More recently a different type of mortgage product has emerged arising from religious considerations particularly those relating to Islamic law. The traditional type of mortgage may not be acceptable for religious reasons and, as a result, a number of alternatives have been drawn up which, for example, create lease and rental agreements so that interest is not payable to the bank. Some lenders only offer Sharia compliant finance and their products are therefore available not just to Muslims but to all applicants.
UK tax considerations
UK Inheritance Tax (“IHT”)
It is likely to be beneficial for IHT reasons for an overseas buyer to take out a mortgage when buying a UK property. IHT is payable at a rate of 40% on the value of assets situated in the UK worth over £325,000 (the “nil-rate band”). A mortgage which is taken out at the time of purchase is deductible against the value of the property. Therefore, taking a loan of, say, 60% of the value of the property could reduce the exposure to IHT considerably. The following example illustrates the differing IHT treatment for an overseas owner with only one asset in the UK, a property valued at £1 million at the date of death, which was purchased for £800,000:
IHT without mortgage
IHT with 60% mortgage
Gross value at date of death: £1,000,000
Gross value at date of death: £1,000,000
Less nil-rate band: (£325,000)
Less nil-rate band: (£325,000)
Taxable value: £675,000
Less 60% mortgage: (c.£480,000)
Taxable value: £195,000
IHT @ 40%: c. £270,000
IHT@ 40%: c. £78,000
Remittance basis of taxation
Buyers will also need to consider their UK tax status before importing funds into the UK for a property purchase. A remittance basis user who has to remit funds to the UK for a purchase may incur a tax charge if they do not have sufficient clean capital to bring in. In those circumstances, reducing the amount that needs to be remitted by taking out a loan would be a clear advantage (although the remittance basis user would require sufficient clean capital to service the interest on any mortgage).
Tax reliefs
While tax relief on buy-to-let properties has now been curtailed, there are still some advantages for landlords. Landlords can now claim a tax credit at 20% of the interest costs payable under their loan to set against the income tax due on the rent. A loan will make no difference to a buyer’s liability for Stamp Duty Land Tax (“SDLT”) on acquisition or Capital Gains Tax (“CGT”) on the disposal of the property.
Potential disadvantages
The most obvious potential disadvantage for an owner who is borrowing money when they do not really need to borrow it is that they will have to pay interest on the loan. As for all buyers, this may not be seen as a particular disadvantage when interest rates are low, but rates have risen considerably and it is not possible to predict how they will move in the future. Most loans have an initial fixed period at an advantageous rate but then, potentially, revert to a higher rate when that fixed period ends. There may also be penalties for redeeming a loan in an initial period.
The other main disadvantage is the potential increase in cost and delay at the time of purchase. The lender is likely to require a formal valuation of the property which it will expect the borrower to pay for and may wish to be separately legally represented.
Depending on the lender, legal fees might increase significantly particularly where a Sharia complaint mortgage is being used. There is typically a considerable delay in getting formal mortgage offers even sometimes after they have been agreed in principle, but this can vary considerably between lenders. It is worth checking at an early stage if the lender will want to use separate solicitors because this can also add considerably to delay. Sellers are generally aware of the delays and uncertainty that can be caused where a buyer requires finance and often they will prefer to accept an offer from a buyer who offers cash rather than requires finance.
A further point that should not ignored is that the lender may exert a level of control over the property during the period of a mortgage. If the buyer has taken out an owner-occupier mortgage then they will need to get the bank’s consent to then let the property; to do so without their consent is likely to be a breach of the loan conditions. Likewise, some products are specifically only for commercial letting arrangements and for the borrower to occupy the property will be not just a breach of the loan agreement but may breach the lender’s own lending licence. Borrowers are also under obligations to the lender to maintain the property, insure it, and to comply with any restrictions and with the lease terms if it is leasehold.
Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.
