Residential Conveyancing: What can developers expect from the year ahead?

2020 was a difficult and challenging year for all of us but the housing market was surprisingly resilient. UK house prices increased by 7.5%, which was the highest growth rate for 6 years.

Whether due to the impact of Brexit, or Covid-19 pandemic, or simply through planned activity, the conveyancing process will continue to rapidly evolve in the coming months.

Here we look at five key areas that could impact you, taking into consideration the most important recent updates in each case and looking ahead to what the next year will hold in store.

Cladding and ESW1

Looking ahead

Labour have recently called for a National Cladding Taskforce and the RICS guidance note is expected to be published this Spring. Hopefully this will provide much needed clarity for Lenders and Conveyancers.

It is however unlikely to help those individual property owners who have received an unsatisfactory ESW1 on buildings who would now otherwise not qualify to require these forms. In many cases these individual Leaseholders are now responsible for the cost of remediation works and left unable to sell or remortgage.

Help to buy

  • 31 March 2021Deadline for plot sales to complete under the existing Help to Buy Scheme. Homes England has discretion to extend until 31 May 2021 where plots were reserved before 30 June 2020.
  • 1 April 2021 – The new Help to Buy Scheme will come in to place and run until March 2023.

Looking ahead

Buyers under the new scheme need to be first time buyers; this means a purchaser who has not (either alone or with others) previously acquired via purchase, gift, trust or inheritance a major interest in a dwelling or an equivalent interest in land situated anywhere in the world or benefited from any form of Sharia mortgage finance.

This is expected to decrease the number of Help to Buy instructions as currently many individuals use the Help to Buy scheme two or more times. Further, Developers cannot charge a ground rent under the new scheme.

We are already seeing the effect of this as many Developers are reducing to a peppercorn across the board to avoid a two-tier system which could be deemed to be unfair in the future and make managing a site more complicated.

Leasehold reforms

  • March 2019 – The government published a new industry pledge setting out an intention to help existing Leaseholders with onerous ground rent terms in their lease agreements. Many Developers including Bellway, Crest Nicholson and Persimmon have signed up to this.
  • July 2020 - Law Commission Report on leasehold reforms published. The report is in three parts and deals with Enfranchisement, the right to manage (RTM) and Commonhold. The report made over 100 recommendations for the government to consider.
  • January 2021 – The government announced what it described as the biggest plans for leasehold reform for a number of decades and which follows on from the Law Commission Report above.

Looking ahead

The latest government announcement is light on detail and did not give any timetable for implementation. Until parliament debate on the legislation it is impossible to say what the true impact will be.

It does however confirm that Leaseholders (of long-leases) will be given the right to extend their lease at zero ground rent by a maximum term of 990 years. The premium associated with such a lease extension has not yet been confirmed.

Modern methods of construction (MMC)

  • October 2016 – Industry report by the Construction Leadership Council at the request of the government concluded that the construction industry must "modernise or die".
  • 2019/20 – Housing stock in England grew by c. 244,000 homes. 1% higher than the year before but still below the estimate needed.
  • July 2020 – Houses built using off-site MMC Construction were at 8% and expected to rise "due to the cost and availability of labour, housing supply shortages and regulatory or government intervention".
  • January 2021 – Britain left the EU. 28% of the construction industry workforce originates from EU Member States and we also rely on imported materials.  The NHBC Foundation issued their MMC Report and stated that “as we navigate the Covid-19 pandemic and come out of the EU, there is an opportunity to innovate. This new report looks at the best features of homes from the past to inform the homes of the future."

Looking ahead

The government aims to build “300,000 homes a year by the mid-2020s” and to achieve zero carbon emissions by 2050.

Certainly, one way for Developers to have a real impact in this area is to move towards more MMC based development. Scotland is leading the way with 80% of new homes are constructed offsite using timber frame.

Stamp Duty Land Tax (SDLT)

  • July 2020 – The government announced SDLT holiday/temporary reduced rates until 31 March 2021.
  • January 2021 – The government amended the Stamp Duty Land Tax (Administration) Regulations 2003 (SI 2003/2837) to confirm a new 2% surcharge for non-UK resident purchasers of UK dwellings will apply from 1 April 2021.

Looking ahead

Parliament have recently debated whether to extend by 6 months but to date this has not been confirmed. There has also been calls to scrap SDLT altogether. The Treasury has confirmed it will maintain the stamp duty relief for first-time buyers for property purchases below £500,000.

With the SDLT holiday pushing up house prices it may therefore pay for first time buyers to put purchases on hold until April. Some lenders and conveyancers are no longer accepting cases which need to complete by the 31 March deadline.

We also have Developer clients who are choosing to focus on the conveyancing and construction for sales agreed rather than accepting new reservations for the end of March completions.

In summary

Whilst we wait for further clarity from the government on ESW1, leasehold form and SDLT, it is clear there are a lot of changes happening across conveyancing right now and scope for further changes on the horizon that we should be mindful of.

Our recent departure from the European Union combined with a need to build affordable homes at increased speed provides a real opportunity to become a more sustainable country. If you are looking at alternative ways of building properties and would like more information on modern methods of construction we will be happy to assist you and look at opportunities to bring our knowledge and client base together.

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