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Is your new build property a good investment?

August 12th, 2009

It is no surprise to many property buyers that new build homes sell at a premium to the equivalent “second hand home”.  Many are willing to pay a premium for the pristine property with its newly fitted kitchen, bathroom, flooring, etc.  But what about space, is there enough space to live in the new home?

Some recent research has identified that the average size of new build homes is shrinking.  In 2006, when statistics were last compiled, that average UK home measured 91 square metres, a lot less than in Australia where the average is 239 square metres, but relatively spacious compared with today’s average. 

So what is the average size of a home today, well it seems hard to believe but the survey has identified this to be just 76 square metres, that is down from 91 square metres just 3 years ago!

The main impact for the reduction in the average home size has been the proliferation of new build flats, most of the new build in recent years has been 1 and 2 bedroom flats, almost all of which are well below the average dwelling size of 76 square metres.

It seems that action is now being taken to address this problem.  Already Boris Johnson,Mayor of London, has stated his intent to take action to address the proliferation of “rabbit hutches” where studio flats are built with just 30 square metres of space.  But maybe the problem is more about freeing up land for new homes to be built on?

It is not possible to increase the average size of homes (effectively build more houses and less flats) if planning only focuses on existing urban areas, there needs to be far greater amounts of land made available for building.  Of course this then creates another issue, the environment, this seems like it is going to grow into quite a debate over the next year or so.

So back to the original question, is your new build property a good investment?  Well, apart from paying the correct price for the prevailing market you may want to consider the property’s overall proportions and market trends.  It is possible that more cramped new build properties may not turn out to be quite such a good investment in the longer term, especially if planning guidelines and future new build focus on increasing the size of properties.

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Posted in New Build

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House Price Forecasts

August 11th, 2009

It is becoming a topic of almost constant debate; Are we at the bottom of the market? Are prices now increasing? Will prices fall back again?

Yesterday a report was published by RICS, the Royal Institute of Chartered Surveyors. The report was generally positive but caution was noted. The view was that an increased number of RICS surveyors did see prices increasing, but, and there is a but, this was seen largely due to the shortage of property for sale. In effect the current price rises reported are to be taken with caution as this is not a normal market with both buyer and seller behaviour affected by the ongoing economic difficulties.

The Bank of England has also warned that the recession is not yet over, and that recovery could be protracted with slower growth over a number of years. Such comments do not indicate a boom in property prices any time soon.

At the end of July 2009 we also commented in our blog that caution needs to be exercised with regard to increasing property prices ( you can read our previous post on house prices here ).  The reports now coming from RICS support our previously published views, essentially we could see property prices ease back during the winter of 2009 / 2010, with a recovery later in 2010.

Our views are based on a number of factors:

  1. Unemployment will continue to rise in the first half of 2010, this will have a negative effect on property prices.
  2. Mortgage finance availability will continue to be challenging for much of 2009, this will have a negative impact on property prices.
  3. The shortage of properties for sale will have a positive impact on property prices in 2009, during the winter of 2009 / 2010 there will be less buyers (seasonal effect) and thus the positive impact on property prices will reduce.
  4. Population growth will create an increased demand producing a positive impact on property prices from 2011.

Of the 4 factors above the most uncertain is mortgage finance availability.  As soon as banks start to lend “normally” it will stabilise property prices, at least stop them from falling.  Overall the combination of these factors would suggest a recovery in property prices from the second half of 2010 with a sustained recovery in subsequent years.

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Posted in UK House Prices

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The buy-to-let market is tough going

August 8th, 2009

Whilst some may be talking of rising house prices (more on this later) the market is very tough going for everyone, and especially buy-to-let landlords.

For landlords with existing portfolios much depends on when their properties where acquired; how much equity they have in them; the rental yields; and the mortgage product. Each one of these 3 factors is going to have a big impact on the buy-to-let profitability and in some cases may even lead to property repossessions. Here is a brief summary of each of the 3 factors:

Equity – Prior to the credit crunch landlords could purchase with a 15% deposit, in some cases it was even possible to purchase with “zero deposit” using instant bridging and remortgaging (typical products available form Mortgage Express until early 2008). Many of the buy-to-let properties purchased with 15% deposits post 2005 will now have little or no equity, some will even have negative equity. This becomes a major issue when seeking to raise new finance / mortgages.

Rental yields – Many landlords have seen these falling in the last 12 months, in some cases by 15 to 20%. Additionally landlords have seen an increase in rental voids, thus the actual net yield allowing for the voids is down by up to 30% on the market peak. For most landlords they can only survive the reduced yields due to mortgages that have fallen in line with bank base rates.

Mortgage products – The days of 85% LTV mortgages seem to be “history”, today the norm is 70% LTV, thus landlords need to find 30% deposits. Lenders are also charging relatively higher rates of interest, typically at BBR + 3% along with arrangement fees of 2.5% to 3.5% typical. Whilst bank base rates are at 0.5% this may be OK, but what will bank base rates be in 12 months time? Some landlords taking out a mortgage product today could find themselves paying effective rates of 6% to 7% just 12 months from now.

Overall it is a very tough market for landlords, for many it will be a struggle to hold on to their properties as bank base rates start to rise, and for those entering the market it requires more cash than at anytime in the last 10 years. In time house prices and rental yields will improve for landlords, and mortgage funding will become more affordable, but for now it is a tough market for buy-to-let.

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Posted in Buy-to-Let

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How to stop house repossession

August 5th, 2009

Being faced with the prospect of losing your home is extremely stressful, so here are some tips on how to stop house repossession.

Do not ignore any communication from your lender.  Failure to respond to communication will go against you in any court hearing, that said it does not mean all is lost.

After failing to reach a solution with your lender they will apply to the courts.  The first stage is a court hearing to listen to the case from both borrower and lender.  At this first hearing the borrower has the opportunity to explain how they can repay the mortgage arrears and meet future mortgage payments.  Presenting your case will will buy you more time. possibly 4 to 6 weeks.

If you do not meet the promises made in the first court hearing the lender will again apply to the courts, you will then have a second hearing.  You will now require a very compelling case to win more time to resolve the mortgage arrears.  Failure to provide a compelling case will result in the court giving the lender the order for repossession.

Once a court provides a repossession order you will have about 2 weeks, some time a little more or less.  This time is given for the borrower to make arrangements to move out of their home.

So, in total, you could be looking at anything from 2 to 4 months from the first court hearing before actual repossession takes place.  Key throughout is communication (do not ignore letters) and action, you need to follow up on any promises made to the court.

Apart from paying off the debt and demonstrating the ability to pay mortgage interest going forward, the next most powerful argument for a borrower is to demonstrate that they have a buyer for their property. 

At anytime during the court process, if a property buyer is found,  an urgent hearing can be requested using an N244 form (obtained form the courts).  This should only be used when you have sufficient evidence to resolve the mortgage debt issue – e.g. a property buyer.

Once a court accepts that a property buyer has been found they will allow the borrower a period, normally 4 to 6 weeks, to complete an exchange of contracts.  Once contracts have been exchanged (with a defined completion date), the lenders right to repossess is virtually eliminated.

so, that is a very brief overview of how to stop repossession.  If you would like to find a property buyer you can contact RM Property buyers.

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Posted in Stop Repossession

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Not enough homes being built

August 3rd, 2009

The credit crunch has had a huge impact on building of new homes, recent reports suggest only 100,000 homes will be completed in 2009. Worse still is the lead time to build homes, this includes land acquisition, planning permission, and construction, from start to finish this can take several years. The result is that when the economy does recover and house building ramps up, it will be some time, possibly 2 to 3 years before sufficient numbers of new build homes are completed.

Some people may say that this is not such an issue as we already have spare housing capacity, this is true today, but the fact is the UK population is growing every year.

Recently published figures by the UK Government forecast a population growth of around 1% per year over the next decade. And 1% of UK population is around 600,000 people each year, assuming an average of 3 people per home that requires 200,000 new homes each year, double the number currently being completed.

But the future shortage of homes could be much worse, for example much of the new housing completed in recent years has been flats. This has created an imbalance suggesting whilst there will be an increased demand for all housing it could see a more acute shortage of houses.

So when will we start to see the effects of the housing shortage? The best guess is shortly after the economy recovers, so probably from 2011. The effect could see a higher rate of inflation in houses (compared with flats) from 2011 onward.

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Posted in UK House Prices

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