What has happened?
The effects of lockdown and the lack of garden space for some has led to the prediction that there will be a surge in demand of people seeking homes with gardens, but what are the wider reaching consequences of this?[1]
What does it mean?
With Covid-19 rendering many people unable to work there has been a consequence of households having less income. In order to help revitalise the economy, stamp duty on second homes has been cut. Furthermore, the mortgage interest rates have been cut by the monetary policy committee (MPC) from 0.75% to 0.25%.[2] As discussed by Kollewe, the demand for homes with gardens will lead to more sales which will subsequently help the economy. The expected popularity and effectiveness of working from home will cause many to abandon expensive city centre apartments and instead purchase a house further away from the office.
However, this will stop people from buying flats which may cause problems to arise for property investment companies like Sevencapital who are involved in the selling of new build flats in Birmingham. If more people are buying houses with gardens this results in these investment companies losing money as there is less of a demand for flats.
Furthermore, many houses are rented illegally due to the convenience for the landlord. With the rise in demand, landlords could evict these illegal renters from their homes and welcome people who are willing to pay more to live there, or even to purchase the house. This causes social housing problems as these illegal renters may not be able to afford new flats sold by companies such as Sevencapital.
How does this affect the legal industry?
The positives aspect of more people wanting houses with gardens includes more mortgages being taken out with lower interest rates, so it becomes affordable for first-time buyers. rates have declined due to the reduced wages of people in all industries, therefore the interest rate was reduced to make it more attractive to buy a home during this difficult time. Buying homes with a garden in the UK is more expensive than the average flat, the overall reduction in price may encourage sales. With these transactions, the banking and finance sectors may be involved to help as they arrange the loans for the person to be able to buy the house. This will be of particular importance to smaller, high street firms who specialise in property conveyancing and the sale and purchase of houses.
However, there are negative aspects to this situation as well. When property investment companies lose money because of the decline in demand for flats, they would have to either exit the market through declaring insolvency or be forced to sell a portion of their shares to survive in the market. When declaring insolvency, property investment companies will contact firms who will give legal advice and apply their negotiation strategies. For example, Sevencapital may go through an administrative procedure where as soon as the company declared administration, no company can litigate against them. During this time, Banking and Finance Lawyers arrange loans to buy other companies meaning they will play a role in potentially selling part of property investment companies (such as Sevencapital) in order to keep them operational.
Property investment companies may face claims from illegal renters. Illegal renters may refuse to leave the home and bring up a property litigation claim as the acting property owners removed the tenants unlawfully from the property.[3] Renters may take their tenancy agreement and refuse to leave the property. Firms may be asked to represent these investment companies to try an alternative approach to litigation. This may include mediation and negotiation to avoid the lengthy and expensive court process while perhaps, more importantly, ensuring there is no negative publicity surrounding the potential eviction of a family.
Written by Erona Kaciu
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#CliffordChance #Freshfields #BoodleHatfield #CharlesRussellSpeechlys #MisconDeReya
References:
[1] Julia Kollewe, ‘Covid-19 predicted to cause leap in demand for UK homes with gardens’, 11 June 2020, [https://www.theguardian.com/business/2020/jun/11/covid-19-predicted-to-cause-leap-in-demand-for-uk-homes-with-gardens].
[2] James Sillars, ‘Coronavirus: Bank of England cuts interest rates again and orders £200bn to be printed’, 19 March 2020, [https://news.sky.com/story/coronavirus-bank-of-england-cuts-base-rate-to-0-1-11960336].
[3] AxionStone Solicitors, “WHAT IS PROPERTY LITIGATION?”, (axionstone.uk, 18th November 2015)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.