Archive for September, 2009

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Property sales still at historic low

September 30th, 2009

Yesterday reports were published on mortgage completions which fell very slightly from 52,404 in July 2009 to 52,317 in August 2009.  Commentators noted that this was the first monthly fall since November 2008, following which there had been steady monthly increases in mortgages completed. 

All well and good, but the facts are the number of completions are still at an historic low.  According to UK Government statistics there was an average of 136,000 completions per month during 2006 and 2007.  And since the late 1990s the normal level of completions has averaged over 100,000 per month. 

What this tells us is that we are still in a very abnormal property market, with mortgage completions at less than 50% of what is normal for this time of the year.  There are probably two main factors for this historically low level of mortgage completions:

1 – People do not want to buy right now.  Whilst this is difficult to determine without a large-scale survey, there may be some truth in this, whilst property prices may seem affordable to some, the worry of possible redundancy will clearly inhibit many from wanting to take on a new financial commitment.

2 – The banks simply are not lending to meet buyer demand.  There is plenty of anecdotal evidence of this, news articles are published almost daily about cases where applicants are denied mortgages.  With the high level of deposits required and increased “credit worthiness” requirements  it seems easier for the average person to run a marathon than it is to get a mortgage from a bank.

Whilst we could not find factual data to support our view it seems that the most significant factor preventing a recovery in the property market is the inability of banks to lend.

We found some other interesting data published by the Council of Mortgage Lenders (CML) which supports our views.  Each month the CML publishes figures on gross mortgage lending, in effect the total number of mortgages provided.  This is a better indicator to gauge banks performance in providing mortgages than the often published  “net lending”, as it is not distorted by the amount of debt repaid in any one month – gross lending = the total mortgages provided.

So what does the gross mortgage data tell us? Based on CML statistics gross mortgages advanced in the 2 years prior to the credit crunch were averaging £30 billion per month, but so far in 2009 mortgages are averaging just £11.8 billion per month. Perhaps even more surprisingly, for August 2009 gross mortgages totalled £12.6 billion compared with £19.9 billion in August 2008, that is over 36% down on the same month last year.

Overall there is some pretty compelling data that clearly shows the property market transactions and in particular bank lending is far below where it needs to be to support a healthy market … there are enough would-be property buyers, its just that they are finding is extraordinarily difficult to obtain a mortgage!

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Posted in UK House Prices

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Property prices, the confusion for buyers and sellers

September 29th, 2009

Whether you are a property buyer or a property seller it is confusing to hear the plethora of reports telling us what is happening to property prices.  Some of those publishing reports have a vested interest, for example those who represent banks and estate agencies.  To understand what is happening with property prices you need to be aware of some underlying factors to help interpret the reports published.

1 – The data set used.  Some examples are; the property valuations collated by new mortgage lending; the asking prices and agreed prices via estate agents; the land registry actual sold prices.  Each set of data will often provide a conflicting picture of what is happening with property prices.

2 – Timing of reports.  Data is often collated for the previous month, but in some cases it takes a longer period before historic data can be reported with any accuracy.  For example land registry updates after a purchase has completed, this can be weeks to many months.  Such delays make the accuracy of reporting on the “previous month” less accurate, it is only after a longer period has elapsed that more accurate reports can be produced.

3 – Sample size, e.g. how many sales are being completed.  With smaller volumes of transactions the accuracy of reports will reduce.  For example if 100 sales were completed across UK in September, then 200 in October, someone could report a 100% increase in house sales for October.  At the same time if the average sold price of the 100 properties in September was £150,000, then in October the average was £165,000, then someone could report prices had increased 10% in October!  These are clearly small numbers for the example, but they put the point across, until we reach a “normal” levels of sales activity the data will be less accurate.

To sum all of this up…

We will continue to see conflicting reports, some saying prices are increasing, others saying prices are falling.  The fact is that no one knows precisely what is happening with property prices.  Until market uncertainty reduces and banks provide a more “normal” level of lending there will continue to be a higher level of uncertainty about property prices. 

The best guess anyone can make is we are probably near the bottom of the market for residential properties, prices may fall a little further, especially in areas of the UK with poor local economies, but the worst is behind us.

If you are itnerested you can read more about what we think lies ahead for UK property prices in our blog here …. http://www.repaymortgage.co.uk/blog/2009/08/16/uk-house-price-predictions/

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Posted in UK House Prices

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Can’t find a property buyer?

September 28th, 2009

The property market continues to be slow in the UK, some increases in price have been reported in the summer months, but many analysts expect to see prices ease back a little over the winter. So how do you find a property buyer when the market is so slow?

One option is to sell your house as “half price”, no doubt you will get a queue of property buyers, but financially this would not be acceptable to most people, we all want to get the best possible price. However for those who are creative, and may be flexible in their approach to selling their property there are some solutions that may work, we outline two of them here.

Solution 1 – Sell your property fast but with part payment delayed

This works by selling your property at a price close to “today’s valuation”, let’s use a figure and assume the valuation is £200,000. The agreed sale price is £190,000, with £140,000 paid immediately, the balance of £50,000 in 3 to 5 years time. 

The balance payment of £50,000 is secured by placing a charge against the property immediately after the sale is completed, this ensures that the vendor’s final payment of £50,000 is registered against the property which cannot then be sold without being paid to the vendor.  Additionally there will be a legal agreement drawn up with the buyer and vendor outlining the terms and date for repaying the £50,000.

Advantages to the vendor, they get to sell their property fast at close to valuation, releasing the majority of the equity.  The vendor will also avoid paying any agent fees by selling in this way.  The only real disadvantage is the equity tied up, the vendor will have to wait for 3 to 5 years for the remaining equity.

… read more about fast property sales on our blog here

 

Solution 2 – Sell your property and move on with delayed completion

This will only be of interest where you do not have equity in the property that you need today, or may be no equity in the property.  The buyer will take out what is called a lease option on your property, they will agree a fixed price to buy your property at a future date.  In the mean time the buyer will take on legal responsibility for everything from your mortgage interest to property insurance and maintenance.

Depending on the timescales involved, which can be anything from one to five years or more, the price eventually paid can be anything from a little below the current valuation to a price higher than the current valuation.

The advantage to the vendor is they get to sell and move on right way, within weeks.  This could be an ideal solution if you are relocating overseas, moving back in with family, divorcing, etc. The main disadvantage is that you will have to wait for any equity you have in the property, which can be anything from one to 5 years or more depending on the terms you agree with the buyer.

… read more about selling property with delayed completion on our blog here

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Posted in Fast House Sales, Property Buyers

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Property Buyers Beware

September 24th, 2009

With the increase in identity fraud some property buyers run the risk of being scammed by bogus sellers, effectively people who have “assumed” the identity of the real property owner.  In the majority of cases a diligent solicitor will prevent such fraud, but it is still wise to take precautions and to be aware of the resolutions should this happen to you.

So how does someone sell a property they do not own?

Firstly they will tempt the property buyer with an amazing offer, perhaps a discount of 10%, 20%, sometimes more, below the current property valuation.  As mortgage companies will often carry out further checks to prevent fraud the bogus vendor will probably insist on cash payment. The bogus vendor will also use a small solicitors firm that may not be highly experienced in conveyancing, in the hope that some checks may not be so thorough.

The vendor solicitor is responsible for verifying the vendor’s identity, and also verifying the vendor’s title to the property ensuring they have full rights to sell a property.  If the vendor solicitor provides this acceptance, the sale can then proceed.

On completion of the sale the vendor solicitor will transfer funds to the buyer’s solicitors, and then update land registry to change the legal title of the property to reflect the new owner.  All of this relies on the vendor solicitor checking thoroughly to establish the title of the property and the vendor’s identity.

So what happens if the property buyer has been scammed?

This is where it gets interesting.  If the vendor solicitor has not updated land registry at the time the fraud is uncovered then the true owner can normally regain their property, leaving the buyer recourse to claim costs back from the vendor solicitor (who will be insured against such errors).

But, if the land registry has been updated then it becomes much more difficult for the original owner to regain the property, thus the property buyer would normally retain their property.  The original owner then has to seek compensation for their losses; this will be either from the land registry (if they were found to have made errors), or from the solicitor acting on behalf of the bogus vendor.

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Posted in Property Buyers

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Credit rating impact of buying a property

September 23rd, 2009

Following the onset of the credit crunch banks took on a far more selective approach to help ensure that the risk rating of a potential borrower was acceptable to them.  This involved the bank conducting what is known as a “hard search” to ascertain the suitability of a property buyer. The problem is that the credit rating of the property buyer is adversely affected with every “hard search” carried out. As a comparison, a credit check carried out to assess the risk of a tenant is a “soft search” which does not impact this credit rating of the tenant (source: Credit-Check-Services.co.uk).

Of course none of this matters too much if you get an acceptable mortgage offer from the first bank you approach.  But for many people the first bank approached may provide poor terms, or worse still they may even decline your application, so you then approach another bank.  Each time a bank is approached with a request to lend another “hard search” is carried out, and with it another detrimental impact to the property buyer’s credit rating. Very soon the applicant’s credit rating starts to impact the bank’s perceived risk, thus the terms offered are even less favourable, and the risk of rejecting an application is greater.  The overall result is that it becomes increasingly difficult to get a mortgage with every new application made.

Such practices by banks are now being investigated by the Treasury Select Committee as MPs agree to launch a probe into this practice – and about time!  Clearly the banks are being unfair to consumers in restricting their opportunity to find the best mortgage by “damaging” a person’s credit rating every time they submit an application. It is expected that the Treasury Select committee will report back later in 2009, when we find out we will provide an update in our blog.

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Posted in Mortgages, Property Buyers

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A quick house sale example

September 21st, 2009

On the 7th September 2009 an enquiry was received from someone in desperate need to sell fast, they needed to raise over £100,000 in 8 days.  OK, maybe we should have called this a quick flat sale rather than quick house sale, anyway, the property was a flat in East Croydon on Lower Addiscombe Road.  The flat needed some refurbishment work but otherwise it was structurally sound.

Within 24 hours we were on site appraising the property, we made an offer of £100,000 there and then.  It was a cash offer to ensure we could complete very quickly.  The next step was to instruct solicitors, we had ours appointed the same day, the vendor solicitors were appointed on 8th September.  The conveyancing work then got into gear.

The next steps was to transfer the funds into our solicitor’s account so that they would be ready the moment the contracts were ready to exchange.  There was a slight hiccup along the way, mainly getting the vendor identity documents verified (always ensure these documents are submitted to your solicitor for verification at the beginning).

We avoided many of the usual question and answers exchanged between solicitors and shortened the land registry enquiries by taking out insurance against any adverse checks, this enabled the conveyancing to be completed in 5 working days, which is pretty good considering the slight delay on vendor identity documents. 

By the 14th September we were ready to exchange and complete, the £100,000 was transferred to the vendor solicitor the same day, and by 15th September the funds were transferred on from the vendor solicitor to the vendor.  Overall that was a very quick house sale, just 8 days from offer to funds in the vendor’s bank account.

There was quite a discount on this property, in fact over 30%, because of this risks were taken with the purchase, full searches, structural surveys, etc, were not undertaken, had these thrown up any serious issues the property discount could have turned into a loss.  With a more “normal” process of 4 to 6 weeks for completion a much higher price could have been paid as full surveys would have been carried out.

If this type of quick house sale sounds like it may be of benefit to you call RM Properties on 0800 8600 285.

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Posted in Fast House Sales

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Rent to Homebuy and Rent to Buy are not the same

September 18th, 2009

The opportunity for renting a property with the option to buy at a later date is gathering more and more interest.  A multitude of businesses are now getting involved, some to help investors sell their properties to tenant-buyers, others to offer advice to the would-be property buyer.  Many terms are used for similar ways of making the transition from tenant to property owner, these include Rent to Own, Rent to Buy, and Rent to HomeBuy, however there are differences that you need to be aware of.

Rent to Homebuy

This is a “not for profit” scheme set up mainly for new-build properties.  Typically a Rent to Homebuy scheme may require rent to be paid at around 80% of the market rate, with a balance being accumulated toward a deposit for eventual purchase.  That said the organisations offering Homebuy have varying critieria in terms of rent and saving toward a deposit.

The Rent to Homebuy schemes may run for up to 5 years during which time you have the option to purchase the property at any time. Anyone wanting to buy a property in this way has to qualify first, this includes your level of income and also that you are able to demonstrate you cannot afford to buy a property on the “current” open market. 

Some Homebuy schemes will only provide an option to purchase a share of the property, others will allow you to buy a property outright.  This is a key factor to note, when you get into a position to afford a mortgage you need to ensure the lender will provide a mortgage on the basis being offered, e.g. a shared ownership mortgage. Many lenders will not offer this type of property mortgage.

Rent to Buy

This is also known as Rent to Own, it is a generic term that applies to the wider market for tenants wanting to rent then buy a property.  Rent to Buy/Own is global and a common purchase method in USA and Australia where the financial regulations make it easier for people to purchase in this way. 

An increasing number of companies in the UK are now providing services ranging from agents offering properties as “rent to own” through to legal and training services for those who want to build up an investment portfolio using lease options. 

Lease options is the generic term for the legal structure underpinning almost any type of rent to own scheme, it is absolutely essential that a solicitor is used to set up these agreements to help ensure that both the seller and tenant-buyer have a proper legal basis to transact.

Summary

Rent to Homebuy is a relatively small grouping of “not for profit” businesses providing the opportunity for a tenant to buy a “new build” property. Rent to Homebuy terms will vary according to the geographical location and the company providing the service.

Rent to Own (or Rent to Buy) is the more common commercial term used where any property can be purchased by a tenant using a legal document known as a lease option.

You can find out more about Rent ot Own here … Rent to Own resources

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Posted in Rent to Own / Buy

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Property repossessions falling

September 16th, 2009

At the depth of the property market crash in the early 1990s the number of repossessions peaked at over 70,000 per year, the good news for the current property market crash is that repossessions seems to be much less.

Data recently published by the FSA reported that the quarterly rate of repossessions is falling, the most recent figure was 13,610, a fall of 1,274 on the previous quarter.  Taking this on an annualised basis it would suggest that the total repossessions for 2009 are likely to be less than 60,000, well down on the 1990s property market crash.

The reported fall in repossessions is down to two key factors.  Firstly the banks and lenders have been under pressure to repossess as a last resort, to give every chance for the borrower to resolve their financial predicament.  Secondly, mortgage interest rates have been historically low, thus giving a lifeline to those who would otherwise have been unable to manage their payments at “normal” mortgage rates.

Overall this is great news, less repossessions means less disruption to the lives of families across the UK.  However going forward into 2010 and 2011 we probably still experience a significantly high number of repossessions, this is due to a combination of factors.  Firstly unemployment is rising and will peak in 2010, but due to the need for cutting public spending the rate of decline in unemployment is likely to be slow, thus making repossessions for many more likely.  Secondly the mortgage interest rates will start to rise from 2010 and gradually move back toward the “normal” rates where mortgage interest of 5% or 6% is typical.  For many the increase in mortgage rates will seem painful and difficult to manage after they have become used to the lower rates.

Our view of a protracted and significantly high number of repossessions over a number of years will have an impact on property prices, whilst these will increase over the next few years the gains are unlikely to be spectacular whilst many are still being repossessed.

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Posted in Stop Repossession, UK House Prices

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Lease Options – points to note for property buyers

September 15th, 2009

There is a lot of advertising saying you can “buy a house for £1”, the fact is YOU CAN NOT, it is just marketing hype.  The £1 will buy you an option agreement, this is an agreement that gives the holder the “right to buy” the asset (e.g. buy the property) for a pre-agreed price at a future date.

Lease options are not the same as “rent to own”, they are option agreements used as part of a solution for “rent to own”.  If you are a tenant who wants to become a property buyer (referred to as a tenant-buyer) you need to ensure a solicitor is used to draft the lease option agreement.

Sandwich options is another term often used, this is not the array of choices on display at Pret A Manger, the sandwich option is effectively two options agreements working together.  One agreement gives the holder the right to buy at a fixed price in the future, the second (subsequent) lease option agreement effectively passes on the right to buy to another. 

Why do sandwich options exist?  This allows the first option holder to have a right to buy (at say £100,000), the first holder then gives the second option holder the right to buy at a higher price (at say £110,000).  In this way the first option holder will make a profit of £10,000 when the property is purchased by the subsequent option holder.  This may all sound a little confusing, which is why you need a solicitor to draw up these agreements!

With mortgages harder to obtain some property investors are starting to “take control” of a property using a lease option.  These investors then effectively sell on their right to buy (using what is referred to as a sandwich option) to a tenant buyer.  Overall a win-win situation can be created here, both the property investor and the tenant-buyer win.

If you would like to know more about lease options and rent to own we suggest you visit a specialist forum, details found here http://www.repaymortgage.co.uk/blog/rent-to-own/

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Posted in Rent to Own / Buy

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Buy-to-let property investment: property buyers summary

September 14th, 2009

The short series of posts we have made are each just a brief overview for the small investor / property buyer seeking to build a portfolio of properties.  Whilst there is no doubt great potential for long-term gains equally losses can be made if there is inadequate preparation and focus on property management. Below is a brief summary of the points we have made in previous posts:

Property location

As a property buyer, select with care, consider areas where there is most likely to be a good tenant demand today, and in the future. Consider locations near public transport and a strong local economy not dependant on one employer with shaky future prospects.

Type of property

Choose a property most in demand for renting.  In some areas there may be an over-supply of flats, thus making the opportunity for letting a 2/3 bedroom house much more attractive.  If you choose a flat, remember that there are often high service charges to factor in to your profitability, but equally flats require less of your management time for property maintenance.

Financing

Apart from the property buyers credit rating there are two key measure used by lenders, one is the LTV (loan to valuation), the other is rental cover.  LTVs are currently at around 70% to 75% of valuation, and rental cover (a ratio of gross rent divided by mortgage interest payments) is around 125%.  Remember however that allowing for rental voids and other costs then rental cover of 130% or more maybe needed to ensure profitable letting.

Managing the property

Legal issues relating to gas safety, electrical safety, and tenant deposit protection must not be ignored, in particular ignoring safety issues could result in severe punishment (prison) if anyone is injured.  Managing the tenant is also key to profitable letting, maintain a good business relationship with them, and avoid being an absent landlord that never visits the property. 

Leveraging for growth

There are several approaches to raising funds to buy addition properties.  One is a straight re-mortgage of a property to release equity, another is mezzanine finance, and a third option is BMV properties.  The BMV (below market value) property approach can reduce the amount of deposit needed as well as providing a capital gain from day one.

Commercial property

Many residential landlords are attracted to commercial property, mainly due to the more hands-off nature of the investment, and also because tenants can be long term (5, 10 or more years).  However financing is a lot tougher to get with lower LTVs at around 60% meaning a higher deposit is needed.  A big issues to be aware of is tenancy voids, when these happen then can be years as opposed to months experienced for residential.  It is essential to have the cash flow to cover tenancy voids.

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Posted in Buy-to-Let

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