Archive for July, 2009

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Temporary increase in poperty prices?

July 17th, 2009

According to a survey of Estate Agents it is expected to see property prices increase slightly during the third quarter of 2009.  The reason for this projected increase has been given as a shortage of properties listed on the market with Estate Agents.  Mind you, a cynic might say it is in the interest of Estate Agents to say this, simply to get more business, but then they might have a point.

The spring and summer periods are traditionally the most active time for buying and selling property.   But, as we are in the midst of a recession with depressed house prices many will be holding off from putting their property on the market, thus creating less choice for those looking to buy.  In effect this creates a temporary supply-demand imbalance thus giving a slight lift to sales prices. 

The research did not say how this all breaks down across the country, but with unemployment ballooning in some parts of the country, such as West Midlands which is already over 10%, then it is unlikely we will see these temporary rises across the board.

So why only temporary property price increases?  This is because the current increase in demand will fall as the seasonal buying period comes to an end in the autumn.  For long term sustainability of house prices we also need the banks to lend “normally”, e.g. not to ask for unrealistically high deposits or 100% perfect credit ratings.

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Posted in UK House Prices

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Fast Property Buyers

July 16th, 2009

In today’s property market it seems hard to believe that people can buy property fast without resorting to cash, but it really is possible, here is how they do it.

The first action taken by fast property buyers is to build a team, this comprises a specialist mortgage broker, solicitor, and a valuation surveyor.  With these 3 key team members it is relatively straightforward to make an offer to purchase and complete within 4 to 6 weeks.

The first step is valuation, this is normally done remotely, the valuer will obtain details from land registry and local estate agents.  So even without viewing your property, providing it is typical for the area, they can obtain a fairly accurate valuation figure.

The next step is financing.  Once the professional property buyer has the valuation and has agreed the purchase price they obtain a “DIP” (decision in principle) from the lender.  This usually takes up to one week, timing depends on how quickly a surveyor (on behalf of the lender) can get to view the property.

Once the DIP is in place its onto the solicitors.  By now around 7 to 8 days have elapsed.  It usually takes solicitors 14 to 21 days to complete the searches, clarify details of the sale, etc.  Once this is done contracts are exchanged and the purchase completed, often both on the same day. 

It really is a fast purchase process.  Timescales can be reduced with cash purchases, but this sometimes means that the buyer has to take shortcuts, consequently cash purchases have a higher risk to the buyer and thus a lower selling price for the vendor.

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Posted in Property Buyers

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Quick House Sales

July 16th, 2009

The term “Quick House Sales” seems unrealistic to most people in the current property market, but the fact is it really can happen.  Most people use the traditional method of selling a property with an estate agent, they sign the letting agent’s contract, pay out for the HIP, then wait for a potential buyer to ring on their doorbell.  The reality is very few buyers ring on the door bell and when they do that is the last you see of them.

For a quick house sale it means selling to a private investor or company. They will buy fast, usually an offer is made within a few days and the purchase completed a few weeks later, which is great, but you would have to sell below the current property valuation. So what are the costs?

For a quick house sale in today’s market you would expect to receive an offer of between 20% and 30% below the current market valuation.  Investment buyers make the lower offers for several reasons; clearly they want to make a profit, however they also have to pay around 4% in financing fees, stamp duty and legal fees, totalling to around 5% to 6% of the purchase price.  Then they also factor in that prices are still falling (at time of writing), so add in another 10% to allow for this.  Overall that leaves about 5% profit, which is a lot of money, but then they are taking some risk.

Let’s compare this with an estate agent sale.  Around 2% + VAT commission, legal fees, HIP cost, and say 6 months to sell.  In that 6 months, based on current market conditions, let’s say prices fall by 3%, then there is the cost of mortgage interest, lets say 2% over 6 months.  Also any buyer in today’s market is going to want at least 5% off the asking price.  Overall the cost is going to be around 13% of the selling price. 

So by comparison selling to a property investor will have a net cost of 7% to 17% compared to a private sale via an estate agent.  This is still a lot of money, but once you have sold the property you can then take advantage of market conditions to get a discount on the property you are buying.

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Lenders not playing fair on mortgages

July 16th, 2009

Today a report was published about the falling cost of money supply to banks which was not being passed on to property buyers seeking  mortgages. One of the key figures use to determine the interest rate at which a bank may borrow money in the markets is “3 month Libor (London Interbank Offered Rate), and this rate is now at a low of just 0.99%.  Whilst it is the bank base rate that normally catches the headlines it is Libor that has more influence on the cost of borrowing for banks.

So lets take a look at how much margin the banks are making from the homeowner struggling to pay their mortgage.  At the time of writing this article the lowest tracker rate available for mortgages was 3.25%, that is 2.26% above Libor, a much higher margin than was being charged pre-credit crunch.  And remember, the 3.25% was the lowest tracker rate we found for new mortgages.  But on average the tracker rates being offered by lenders is currently around 3.7%, and that is a huge 2.71% margin over Libor.

Overall at a time when the UK economy is in the midst of a severe recession banks need to be compelled to lend at fair and reasonable rates, not to take advantage of market conditions to maximise their profit margins. Lets hope our Government can bring some pressure to bear on lenders, which should not be too difficult with the very large tax-payer stakes held in some of the major high street banks.

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Posted in Mortgages

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House Buying Companies

July 15th, 2009

With the increase in the number of people facing difficulty in meeting mortgage and other financial commitments it is inevitable that repossessions increase as lenders refuse to help with refinancing.  For some lenders it is a case of survival, they need to reduce their riskier mortgage lending so that their overall risk enables them to secure funds in the market place, but in the short term it means much pain for many people with mortgages.

In extreme cases there are solutions, in effect handing over your property to a house buying company who will then rent the property back to you.  Historically this has been and issue as some of these companies have gone back on rental agreements, evicting the former house owner, and then selling on for a profit.  In some cases these companies have even gone bankrupt.

Step in the FSA (Financial Services Authority).  As of 1st July 2009 new regulations came into effect to help prevent vulnerable homeowners being mistreated by some of the “less honest” rent back companies.  Although to be fair, most of these companies did operate fairly, but for the homeowner wanting to sell and rent back it was a bit of a lottery as to who you sold to, so well done to the FSA for taking action to address this.

For those who just want to sell and move on there are also companies who will purchase property outright, in some cases “cash property buyers” who will purchase a property within days.  But as the property market is still falling don’t expect to get the maximum price, these companies are often traders who then sell on to private investors, there needs to be a discount to cover the cost of buying and re-selling.

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Posted in Fast House Sales

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Selling a house with little or no equity

July 15th, 2009

In today’s market it is very unlikely any buyer will pay the full market value for a property, in most cases buyers will seek discounts of 5% or 10%, even more if you need a very fast property sale.

But what if your property value is only a few thousand more than the mortgage, to sell at a price less than your mortgage you would need to find money from elsewhere to pay back the lender. Is there any way you can be assured for selling at a price equal to or great than your mortgage in such situations?  In short the answer is yes.

If your property is in the London / South East area there are buyers who will pay closer to the market valuation for your property and allow you to move on within just a few weeks.  So how does this work?

Briefly, the buyer will contract to purchase your property at an agreed price, equal to or higher than your mortgage, but the actual completion of the purchase will be a few years from now (typically 1 to 3 years).  So, in the mean time the buyer will also contract to pay your mortgage and maintain/insure your property.  In effect, you can just walk away from your property without worrying about paying your mortgage or maintaining the property.  Then after a year or two the purchase is completed and the buyer pays you and difference over your mortgage. 

If you know someone who wants to sell in this way then contact RepayMortgage, you can read more here  selling property with little or equity. This way of selling is not for everyone, but it is a way to sell and move on without remaining tied to a property and location where you no longer want to live.

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Posted in Fast House Sales, London Property

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Future house prices

July 15th, 2009

Today two very respected organisations published reports on the prospects for UK house prices.

Firstly RICS, the Royal Institute for Chartered Surveyors.  For those who do not know, when you get a mortgage on a property it needs to have a valuation by a surveyor who is a member of RICS, thus they have much knowledge on UK property prices.  RICS identified that the modest increases recently experienced have been primarily due to the lack of housing supply on the market, thus creating a shortage for the relatively few buying.  The bottom line form RICS was that they do not see a prospect of a sustained upturn in property prices until the availability of mortgages improves.

Then there was PwC, Price Waterhouse Coopers, a much respected consultancy company.  The PwC assessment of the UK property market was that they expected to see further falls in property prices in 2009 and 2010.  PwC also indicated that by 2020, even with subsequent growth in property prices, they may not reach 2008 levels, thus it could be well over 10 years for house prices to recover to their former peak.

The house4sale view is that PwC are being a little over-pessimistic, the detail of their analysis is not known, but whilst economic growth is challenging the UK population is growing at the rate of 1% p.a., this in itself would have an upward effect on house prices due to the current lack of supply.

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Posted in UK House Prices

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House prices fall again

July 14th, 2009

We blogged earlier the report from Nationwide that they recorded a 0.9% increase in house prices for June (you can read the post here http://www.repaymortgage.co.uk/blog/2009/07/03/house-prices-rise-again-in-june/ ).  But the Halifax have now published their data stating a FALL of 0.5% in June 2009.

Clearly there is a discrepancy in figures, but it is the trend that is key here.  Even though the Nationwide reported an increase, it was at a lower rate than May 2009.  So taking account that we are in the midst of the peak time of the year for house buying we could well see further falls in prices as the buying season slows down toward the last quarter of the year. 

As a property buyer then maybe you should be negotiating a discount on asking price reflecting the weak market.  As a property seller, unless you really do need to sell,  maybe you should take your property off the market until such time a it recovers – at the very least it will save you the cost of HIP fees.  If you really need to sell fast then you could also consider a cash property buyer, this way you can avoid HIP costs (as your property is off market) although you will get a lower price for the fast sale.

Overall its still a tough market for house sellers, hopefully the market will start to recover in spring 2010.

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Posted in Fast House Sales, Property Buyers, UK House Prices

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Mortgage interest rates increasing

July 14th, 2009

Many people take out fixed rate mortgages to help manage costs and avoid monthly changes in interest rates, those that get the timing right can also lock into low fixed-rate deals over a number of years.  But evidence now shows that the average fixed rate mortgages are increasing at a time when the cost of money has fallen, the banks are in effect increasing their profit margins on mortgages.

Taking a look at the actual numbers, the average fixed rate as of 13 July 2009 was 5.16 pc.  This compares to a fall in 2 year “swap rates” (effectively the cost to banks for borrowing over a 2 year period)  from their recent peak of 2.51 pc to 2.05 pc as of 13 July 2009.  Clearly the banks are increasing their margins on mortgages.

The bottom line is that borrowers need to think carefully when taking out a fixed rate mortgage, maybe now is not the best time.  Clearly the bank base rates will increase from their low of 0.5%, but the markets are reflecting their views on the future cost of money by the falling 2 year swap rates.

Please note, this blog does not provide financial advice, it only publishes views on what it sees happening in the market.  Before deciding on a mortgage speak to a financial or mortgage advisor.

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Posted in Mortgages

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Mortgage fraud rising

July 13th, 2009

The CML (Council of Mortgage Lenders) has published a report highlighting an increase in the number of fraudulent applications, mainly from buy-to-let property investors.

Prior to the credit crunch it was relatively easy for someone on no income to obtain a 100% mortgage for buy-to-let simply by stating what they expected their future income to be.  Now times have changed, anyone wanting a mortgage for buy-to-let needs at least 25% deposit and they have to have an income.

But, some investors seem to be making false statements on applications, either by “forgetting” to mention an outstanding loan or credit card balance, or incorrectly stating their self-employed income.

Many mortgage lenders are now investigating applications and carrying out more detailed checks to prevent the fraud.  In some cases the lenders will even employ third party companies to analyse the application and check against credit files for any discrepancies.

Overall this is good news in that it will reduce the number of risky mortgages, however there needs to be a balance.  Whilst credit needs to be carefully reviewed before approving an application, if lenders look for “any excuse” not to lend then it will depress house prices as there will be less buyers.  Another factor to consider is rental remand, as the UK population grows there will be an increased rental demand, if there are insufficient buy-to-let properties this will increase the cost of renting.

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Posted in Buy-to-Let, Mortgages

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