Personal Account

The Government’s short-sighted solution to the cladding crisis puts flat owners on the hook and will leave many in negative equity

Earlier this month, Prime Minister Boris Johnson said: “No leaseholder should have to pay for the unaffordable costs of fixing safety defects that they didn’t cause and are no fault of their own.” It seems Robert Jenrick, the Housing Secretary, did not get the memo.

As he announced the Government’s new £3.5bn pot to deal with the cladding crisis, Mr Jenrick said that this “exceptional intervention” would “end the cladding scandal in a way that is fair to leaseholders”. But this isn’t over, and it won’t be for decades. The announcement gives more money for flat owners in tall blocks, but puts leaseholders in smaller buildings on the hook. They must pay for repairs themselves using Government loans, with repayments capped at £50 a month.

At this rate, it would take 66 years to pay off the average £40,000 debt (assuming no interest) – although many have been quoted a bill of double or even triple that amount.

The debt that the Government will provide in the form of “low-interest” loans will be attached to the flat, not the individual. Many will effectively go into negative equity, where the outstanding mortgage is bigger than the home’s value. This is on top of any other bills to fix a Pandora’s box of non- cladding related problems, such as insulation and fire breaks, which we report in today’s cover story. Even leaseholders in those blocks higher than 18m that are given funding could be hit with extra bills because these non- cladding repairs are not covered by it.

This will continue to weigh on the market. Who would buy a flat with such a debt attached? Sellers will either have to take huge price cuts or give up trying to sell them. You may ask why leaseholders should be footing the bill for problems that were not their fault. And you may also be wondering why taxpayers should pay up, too – after all, many of us don’t even own our own homes.

Housebuilders will top up the Government’s cash by £2bn through two new levies. But this really is small fry. The five biggest housebuilders have made £10bn in profits since the Grenfell disaster almost four years ago. They can certainly afford to pay more; after all, they have been lining their pockets with taxpayer money via the Help to Buy scheme for years.

Developers have long made hay thanks to the Government’s generosity, so why can’t they pay their way now? It’s clear ministers would rather leaseholders and taxpayers pay.

When Mr Jenrick announced the new money in Parliament, he added: “No doubt there will be leaseholders watching today that would like us to go even further. [ But] English property laws are based on caveat emptor – buyer beware… we have chosen to do this because we have immense sympathy for leaseholders affected.”

Yet there was no reasonable way to know that a brand new block would have to be taken apart years later – perhaps except from using a crystal ball.

Now, one in six cladding leaseholders are exploring bankruptcy, according to magazine Inside Housing. Hundreds of thousands are still unable to sell up and move on. The Government should heed its own advice. Its lowball offer and indecision may come back to bite it.

Why should taxpayers stump up the cash? After all, many of us don’t own our own homes

An inflation- beating income that you get even when financial markets crash is the golden ticket for investors. Rock- bottom returns on savings and the growing likelihood of negative interest rates make it even more appealing.

Higher incomes are meant to come with higher risk. But some investors think they have discovered a secret source of income that can give share dividends a run for their money with far less risk: buying the rights to the income generated by songs.

Depending on the type of song royalty, owners can receive a payment whenever a track is streamed amed or downloaded, played on the radio dio or in a public setting such as a restaurant, aurant, or used on television or in a film. m. They can be bought for limited terms s or “life of rights”, which means until 70 0 years after the original creator dies.

Investors can buy songs s from world-famous artists such as Coldplay, oldplay, Rihanna or Jay-Z and get paid d when their music gets played – and it t can be very lucrative.

Royalty Exchange, an online ne auction service for song royalties, lties, estimated that the average music usic investment had an annual yield eld of more than 10pc. It claims that at income is uncorrelated with h broader investment markets s as people will keep listening g to music no matter the state of the economy. It also said the growth owth of streaming services meant an artist’s entire catalogue was now available vailable for a small monthly fee with Spotify otify or Apple Music, so demand for music is actually increasing.

Don’t Stop The Music by Rihanna, hanna, which reached No 1 on the charts of nine countries, recently sold old for $ 203,000 (£ 146,000) for a 10- year ownership of its royalties. s. The 13-year-old song produced an income of $40,000 in the past year. Assuming that it holds its value and keeps getting played, investors will double their money over the length of their ownership.

Those with less deep pockets can still invest, as some songs cost in the low thousands of pounds. Tom DeClaro, a 44-year- old from Massachusetts, has been building his own portfolio of music royalty rights to generate a passive income outside his work as a real estate broker. Overall he has invested $75,000 in a range of genres from pop to country music.

“Song royalties are like having properties that you rent out – but without having to find new tenants or fix boilers. Music is timeless. It’s there in the best of times and worst of times. I

‘I am making more from song royalties than the stock market – with less risk’

started by paying $2,000 for a couple of unknown songs but have gradually been increasing my investment. I aim to get a minimum 10pc a year return on my money,” he said.

Mr DeClaro’s biggest investment was $25,000 for life of rights royalties for nine songs from an up-and- coming American country artist called Taylor Acorn.

“So far I’ve collected three quarterly payments: $479, $448 and $788. I’m certain those payments will increase and I fully expect to consistently receive $700-$1,000, four times a year,” he said.

If he is correct his initial investment could be paid back in around seven years and he could enjoy around $4,000 a year in “free” money for his entire life if the songs hold their value.

Another DIY investor who has taken the plunge into song rights is Joe Varlaro, 52, from California. He wanted to move his money out of the stock market because it was too volatile. He now has two thirds of his assets in music, with a portfolio of 1,000 songs, and said he was making more from them than from his shares – with less risk.

Four of them generate 80pc of his income. Christina Aguilera’s Ain’t No Other Man, a 2006 Grammy-winning song, and Crush On You, by Lil’ Kim, are the centrepieces

“I am not a fan of these artists personally, but I know they are valuable assets. I paid $ 32,000 in 2017 for Christina Aguilera’s song and now make $6,150 a year. I paid $27,000 for Lil’ Kim’s and now make $2,500 a year from it. I own both on a 10-year term and also got a package of other songs with the purchases,” he said.

However, Alistair Cunningham of Wingate Financial Planning said armchair investors should steer clear of buying song rights directly and stick to a diversified portfolio of stocks and bonds instead.

“Unless you are an expert in the music industry I would recommend you steer well clear. The immediate concern I have is that the person selling these assets knows more than the average DIY investor, and there will be a reason why they are getting rid of them,” he said.

British investors who want to build their own music portfolios can buy song rights on Royalty Exchange, but could be hit by taxes on the income. Robert Salter of Blick Rothenberg, the accountancy firm, said the income would be regarded as “royalties income” and would be taxable under the “other income” section of a tax return at regular income tax rates.

If investors sold the song rights, they would be subject to capital gains tax, he added.

However, investors can add music royalties to their Sipp or Isa and profit tax free by buying an investment trust that owns music rights. The largest is Hipgnosis Songs Fund, a £1.2bn trust with a 4pc yield that owns a large catalogue of songs, including classics such as Mariah Carey’s All I Want For

and Journey’s Don’t

Investors can snap up rights to songs through sites such as Royalty Exchange