House Price Growth – April 2018

House Price Growth - April 2018House prices are still edging up in most areas, albeit that the overall annualised increase over the last 12 months is lower than the equivalent rate of increase for March 2018 and indeed the lowest since March 2017. The average UK house price in April 2018 was £227,000. Overall, this is still £9,000 higher than the average for April 2017, but a look at the monthly average prices shows that things have been pretty stagnant since August 2017.

In the past year, average house prices across the UK have risen by 3.9%. The main contribution to the increase in UK house prices in value terms came from England, where house prices increased by 5.0% over the year to December 2017, with the average price in England now £244,000. Wales saw house prices increase by 5.4% over the latest 12 months to stand at £154,000. In Scotland, the average price increased by 7.7% over the year to stand at £149,000. The average price in Northern Ireland is currently £130,000, as the earlier strong growth has flattened out.

In the Regions

On a regional basis, London continues to be the region with the highest average house price at £484,500, but London still shows the lowest rate of growth in England, with an increase of 1.0% in the past year. London is followed by the South East and the East of England, which stand at £324,500 (+3.5% for the year) and £286,500 (+2.5% for the year) respectively. The lowest average mainland price continues to be in the North East, at £130,500 (+4.5% for the year).

Highest Growth

The South West is the region which showed the highest annual growth, with prices increasing by 6.1% in the year to April 2018, but this was closely followed by Scotland and the West Midlands, at 5.6% and 5.9% respectively.

The graphic below does show that prices were fairly flat for most regions in the month of April. There were a few areas that showed some reduction within the month – the green shaded areas below. Sales volumes were down in the year to February 2018 in all regions (-15.4% in England).

In terms of particular property types, semi-detached houses saw the largest percentage increase (5.3%), whilst flats and apartments showed the smallest rate of increase (1.0%).

If you would like to discuss this with us in more detail or if you would like to speak with a member of our Construction & Real Estate team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

This article featured in issue 9 of our construction and real estate newsletter series. Read the full newsletter here: Real Estate Matters Issue 9

Funding – Where do you go When the Banks say No?

Funding

Since November 2016, as part of the Small Business Enterprise and Employment Act 2015, the UK’s nine major banks are legally required to refer SMEs they refuse to finance to an alternative provider. The last figures published in August 2017 for the first nine months of the scheme were quite unimpressive: less than 3% of small businesses referred to alternative lenders via the bank referral scheme were funded. Therefore, only £4m worth of funding deals were completed in the first nine months of the scheme.

The funding gap is nowhere more evident than in the construction sector: according to a recent survey by the National Builders Association, availability of finance is the single greatest issue many SME property developers face. Bank of England data shows that bank lending to SME construction companies amounted to £6.6bn in 2017, only modestly up from £6bn in 2016. The government’s targets of building 300,000 new houses per year over the next five years, with an assumption of £80k per house, equates to circa £20bn per year needed to achieve the target. Current lending from mainstream banks leaves a big gap in the property finance market and traditional lenders cannot deliver. This is where the new breed of lenders and Fintech firms come into play.

Previously, everybody knew their local bank manager and scheduled a meeting when needed. Today the reality is rather different, with the bank manager on the verge of extinction. Business owners need other avenues to access the finance required to grow their businesses.

We have seen this across several of our recent cases. The borrower is an experienced developer operating in a niche market and traditional lenders are no longer active due to changes to their criteria. Peer-to-peer (P2P) lenders can successfully fill in the gap and support SMEs.

The key is to understand that both traditional lenders and P2P platforms have their own unique strengths and are better off working together as partners to deliver the products or services that meet that customer’s needs. As Helen Keller, the American author, political activist, and lecturer said, “alone we can do so little, together we can do so much”.

Being declined by the mainstream does not mean that the SME is too high-risk; it is likely that these lenders are merely changing their requirements. There is also an important message to peer-to-peer lenders: higher return does not always mean higher risk. Fintech has already been harnessing a force for good, enabling positive change in industries such as retail, banking, trade, health, employment and education. Now the establishment of a strong P2P investment framework and associated technological platforms is enabling a conductive environment for financial inclusion of SME property developers.

Using a commercial finance broker, like MHA Financial Solutions, is proving to be more of a successful avenue for businesses. According to the National Association of Commercial Finance Brokers (NACFB), business lending via brokers has increased by 20%.

Adam Tyler, Former Chief Executive of the NACFB, said “Availability of funds is no longer the issue, but there are still significant barriers facing SMEs who are looking for finance. Foremost among these is awareness. Small businesses don’t have to rely on their high street bank for credit, but few are aware of the full range of alternatives out there – or that an independent broker will be able to match them with the best lender for their needs.”

MHA Financial Solutions Ltd is authorised and regulated by the Financial Conduct Authority [FRN: 667874] and registered with the Information Commissioners’ Office (ICO), Reg No. ZA086744

For more information about how we could help you and your business access the right funding, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of the team.

This article featured in issue 9 of our construction and real estate newsletter series. Read the full newsletter here: Real Estate Matters Issue 9

Zero Rate VAT & Construction Services

Zero Rate VAT

Are you Sure the Law is on Your Side?

It’s fairly widely known that the VAT Zero Rate applies to a variety of construction works. However, like many areas where VAT liability is an issue, it pays to be very clear on the legal basis for the relief. Not only will this ensure your project is VAT efficient, it will ensure that you have peace of mind. By fully complying you avoid the risk of HMRC imposing penalties where errors are made.

Which Construction Works Qualify for Zero Rate VAT?

You may be able to zero-rate the supply of construction services if you are involved in constructing a ‘qualifying building’. A qualifying building can be:

  1. A building ‘designed as a dwelling’;
  2. A building that will be used solely for a ‘relevant residential purpose’;
  3. A building that will be used solely for a ‘relevant charitable purpose’.

Construction services in categories 2 & 3 (relevant residential or charitable use) require the final customer to give a certificate supporting that use, allowing the main contractor to zero-rate the work to the customer. However, subcontractors cannot obtain the certificate and therefore, they must charge VAT at the standard rate to their main contractor.

So far, so good. However, what happens if the works relate to the construction of student accommodation (a relevant residential purpose) which is also ‘designed as a dwelling’?

That was the question raised in a recent Upper Tribunal hearing, in a case taken by Glyn Edwards from our member firm MHA MacIntyre Hudson called Summit Electrical Installations Limited. The Tribunal found that the accommodation being built in Leicester met the test of a dwelling (defined below), as well as the relevant residential purpose test (also defined below).

The Tribunal held the view that the fact that the accommodation qualified as a dwelling in its own right took precedence over the relevant residential purpose point. That allowed Summit – and all other subcontractors – to zero rate their works on the building, without the need for a certificate from the final customer.

Dwelling Definition

A building is ‘designed as a dwelling or a number of dwellings’ where the building contains a dwelling or more than one dwelling and in relation to each dwelling the following conditions are satisfied:

  1. The dwelling consists of self-contained living accommodation;
  2. There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
  3. The separate use of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision;
  4. The separate disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision;
  5. Finally, statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

Relevant Residential Purpose Definition

A building is designated as relevant residential purpose when it is being used as:

  1. A home or other institution providing residential accommodation for children;
  2. A home or other institution providing residential accommodation with personal care for persons in need of care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder;
  3. A hospice;
  4. Residential accommodation for students or pupils;
  5. Residential accommodation for members of any of the armed forces;
  6. A monastery, nunnery or similar establishment;
  7. Or an institution which is the sole or main residence of at least 90% of its residents.

This article is based on general principles; you should always seek specific professional advice based on the fact pattern of your project. If you would like to discuss this with us in more detail or if you would like to speak with a member of our Construction & Real Estate team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

This article featured in issue 9 of our construction and real estate newsletter series. Read the full newsletter here: Real Estate Matters Issue 9

UK Manufacturing Still Growing Despite Cost Pressures

The UK manufacturing sector continued to grow in October, with the latest IHS Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) increasing from September’s figure of 55.9 to 56.3 and defying expectations. This marks the 15th consecutive month of growth for UK manufacturing and a welcome improvement on the previous month’s performance.

Despite increasing cost pressures on the sector, new orders and output growth remain strong and continue to grow. Growth has come in the form of increasing exports and domestic demand, supplying a steady stream of new orders to the sector.

Cross-Industry Growth

Growth has been consistent across the industry, including consumer, intermediate and investment goods. The intermediate and investment sectors have seen particular acceleration in production and new orders. The consumer sector seems to have had a more difficult time, as although still reporting growth, rates have slowed and business optimism is the lowest it has been for the year. Over 50% of the manufacturers surveyed expected higher output in the coming year, with only 8% expecting this to fall.

Rising Exports and Domestic Demand

While the bulk of new business came from domestic orders, exports continue to rise, albeit at a slower pace. More new work is coming through from the USA, South America, Australia and Europe. The weakness of the Pound will undoubtedly have an influence here. With Sterling regaining a degree of strength, there may be pressure on export growth in the months ahead.

Jobs Growth On the Up

With new business and production continuing to pick up the pace, employment growth is at a three-year high.

Cost Pressures

Despite a positive outlook and continued growth for UK manufacturing, cost pressures continue to build. Selling price inflation is now at the highest level for six months and input costs are rising at the fastest for seven months.

David Johnson, founding director at currency specialist, Halo Financial, commented on the latest index:

“It’s good to see increasing exports again this month, despite a slowing rate of growth in this area, which likely reflects an undervalued Pound and political uncertainty in the UK, Europe and US.

Once again, cost pressures are being felt across the industry, increasing at pace. It’s always important for manufacturing businesses to look at opportunities to mitigate the risks posed by these growing inflationary pressures. Factors that will continue to put these costs up include exchange rate volatility, overseas demand and a recovery in some areas of the commodity markets.

The strong performance of manufacturing businesses at the start of the final quarter of the year, measured alongside rising inflation in the sector, could add more impetus to the Bank of England decision and may tip the balance towards raising interest rates. That would strengthen Sterling and put pressure on export sales”

Atul Kariya, Manufacturing & Engineering Sector Head at our member firm MHA MacIntyre Hudson, said:

“Improving growth in the sector and an increase on last month’s figures demonstrate once again the continued resilience and drive of UK manufacturing. Overall, the sector has seen impressive performance to date, in the face of multiple economic and political pressures.

“With activity continuing to expand across the sector and steady domestic and international demand, there is still time to plan rising costs into the overall and ongoing strategy and to review potential efficiencies and savings across the business.”

Laurence Gavin, Partner at law firm, Irwin Mitchell, commented on the report:

“These latest results reflect a reasonably positive picture for the manufacturing sector and provide some grounds for optimism for the final quarter of 2017. There are however some concerns for 2018, with inflationary pressures and ongoing uncertainties about the direction of Brexit negotiations.

“The Government now has the opportunity to ensure the momentum in the sector isn’t lost. Greater clarity with regards to the UK’s industrial strategy is important and we also look forward to the Budget later this month where the Chancellor has the opportunity to encourage greater investment.”

If you have any questions or would like to discuss this in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Manufacturing team.

This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.

 

Autumn Statement – key announcements for the motor industry

Overall the Autumn Statement seemed to be a promising investment for the motor sector. See below for a summary of the key announcements made in George Osbourne’s speech which will impact the industry:

  • Company car tax: the three per cent diesel supplement will be retained in company car tax until 2021, when diesels are expected to meet EU air quality standards.
  • Boost to ultra-low emission vehicles: a further £600 million is to be made available to support the manufacturing of ULEVs. An announcement from the Department for Transport on the plans for the plug-in car grant is expected to be made in due course.
  • Car insurance: ending the right to claim cash compensation for minor whiplash injuries in order to crack down on claims could result in insurance policies falling by an average of 8% in price.
  • Road maintenance: £15.2 billion is to be spent on the Roads Investment Strategy over the next 5 years. A further £250 million is being pledged for a permanent pothole fund along with £5 billion for roads maintenance.
  • Fuel benefit charges: employees in receipt of company-funded fuel will see their benefit-in-kind tax bills rise from April 2016 for private use with the fuel benefit charge multiplier for cars to increase by £100 to £22,200. Between 2015-16 and 2016-17 the van multiplier is increasing by £5 with van benefit-in-kind tax rising by £20.
  • Salary sacrifice: the Government remains concerned about the growth of salary sacrifice and is in the process of gathering evidence of its use to inform what action (if any) they will take.

If you would like to discuss any of these issues in more detail or you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.