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Stamp Duty changes 31 December – Should you rush to buy a property?

November 3rd, 2009

On 31 December 2009 the threshold of 1% stamp duty will be reduced from £175,000 back to the previous £125,000 threshold.  Does this signal that property buyers should rush to complete purchases before the end of 2009?

If you are looking to buy and have made an offer then it makes sense to push the completion through before 31 December.  But what if you are only thinking about buying?  Our view is that if you have not found a property you want to buy then do not rush just to make a “potential” 1% saving on Stamp Duty, and here is why.

  1. In the current market it is much easier to negotiate a discount, just a 1% discount will offset the savings in Stamp Duty, so maybe the emphasis should be on negotiating the best possible price.  It is likely that a vendor may hold out for a higher price and use the 31 December to help negotiate this … e.g. if you pay their price they will do everything possible to support completion before 31 December.
  2. Property prices are still volatile, some analysts are suggesting prices might fall back over the winter, thus more than compensating for the 1% saving in Stamp Duty.  Clearly however property prices changes vary throughout the UK, you need to understand your local market.
  3. Purchasing a property is a huge financial commitment, rushing to purchase in order to save 1% Stamp Duty could actually result in a purchase you were not 100% committed to.

Overall our view is that if you have found the property you want and agreed the price then do everything possible to complete and save on Stamp Duty.  If you have not yet found a property then it is unlikely that you can complete in time (solicitors offices often close for 1 to 2 weeks over Christmas), you are better off taking your time to find the right property at the right price.

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Why banks are restricting lending to property buyers

October 6th, 2009

Put simply the banks still do not have enough money to lend, something many property buyers may have realised or at least suspected, but why is this so?

As at September 2009 it is estimated that banks operating in the UK had a combined liquidity of £280bn, this is liquid assets, as defined by the FSA, that a bank could readily call upon.  The total of £280bn may seem a large figure and in some respects it is, but it has been determined that the banking industry may need a total of £620bn in qualifying liquid assets, and at the very least £390bn giving an effective shortfall of £110bn.

The result of the shortfall means that banks must take action to increase their liquidity, such action not only restricts the amount banks can lend but it also impacts on their profitability.

The potential danger of the liquidity targets effectively imposed by the FSA is that bank lending will be restrained, both in the amounts lent and the cost of lending, to enable banks to put in place the liquidity targets. 

Some analysts are concerned that the targets imposed could restrict support for economic growth at a time when reduced public spending and potential tax rises will also start to impact the economy from 2010.  Potentially the combination of cut backs in government spending and restricted bank lending could have a double blow for the property market; which may result in a more protracted and “bumpy” recovery.

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Posted in Property Buyers, UK Economy

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Is now the time for property buyers?

October 5th, 2009

The summer months has seen many reports of house prices easing upwards, after the big falls in 2008 and early 2009 maybe this is the turning point, may be this is the time for property buyers to rush in and pick up some bargain properties?

The facts are that it is still not clear where we are in the property market cycle, as of October 2009 it could be that we have seen the start of the move toward a stable property market with increasing prices, but can we be confident of this?

We have already blogged in many posts about the uncertainties that lie ahead of us and in particular rising unemployment and the need for the UK to cut public spending.  This last point could be very significant.  When Canada had a similar problem of unsustainable public spending they chose to slash the public sector payroll, if this happened in the UK the consequences could be dramatic.

It is estimated the employment in the public sector has grown by over 0.5 million since the late 1990s when Labour came into power. What if the Conservatives win the next election and reverse this, e.g. reduce employment in the public sector by 0.5 million?  Even if Labour remained in power after the next election they may still have to make significant cuts in public sector employment.

The problem is no major political party will announce such cuts prior to being elected, otherwise they may lose too many votes.  But, if there is a major cut in public sector employees it will mean a prolonged higher level of unemployment and this will impact the UK property market by holding back or depressing property prices.

No one knows for certain what the future will hold.  If you are an investment property buyer then the safest bet is to buy on yield, e.g. a property that will make a rental profit on “real” market rents and “real” expected interest rates, e.g. at least 5 to 6% as the low rates of today will not last forever.  Perhaps the most risky decision of any investment property buyer is to purchase today hoping to make a capital gain.

In summary, consider buying for investment cash flow, and not for capital gain.

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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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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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More mortgages for property buyers?

July 23rd, 2009

Today it was announced by the British Bankers’ Association (BBA) that there was an increase in mortgages approved for property buyers, apparently the highest number of mortgages approved for over 12 months. But, is this just some PR on behalf of the banks to “improve their reputation”?

The fact is that there is normally an increase in buying activity as we move into the summer months, so it would be expected to see an increase in the number of mortgages approved.  So the totals of 35,235 mortgages approved in June versus 31,919 in May is normal, to be expected. 

The real test is how much is being lent versus the typical year prior to the credit crunch.  The BBA do not seem to publish this information as it will almost certainly show the mortgage lending to property buyers is still at a very low level.  You only have to look at the difficulties people are STILL experiencing in obtaining a mortgage with unrealistically high levels of deposit.  Why do banks need 15% to 25% deposits when based on the assumption property prices do not have much further to fall mortgages with just 10% deposit (which are hard to get approved) can be considered secure.

The bottom line is that although the banks are finding the market difficult for raising funds they are still not doing enough to improve mortgage borrowing, despite what the BBA may publish.

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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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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 debt is reducing

July 3rd, 2009

Two years ago equity withdrawal from re-mortgaging property was running at around £14 billion a quarter, a rate of over £55 billion per year.  But now the tide has turned, and by a massive amount.

In the first quarter of this year it was a net mortgage repayment, not withdrawal, we actually repaid over £8 billion in mortgage debt, at this rate it equates to over £36 billion per year “repaid”.  These are truly astonishing figures.

It is not difficult to see the effect this has on the UK economy, a swing from £55 billion potential spending (from mortgage withdrawal) to £36 billion cut-back in spending as mortgage debts are repaid.  No wonder our high street retailers report such declines in sales.

But perhaps more interestingly, with such large amounts of mortgage debt being repaid, why aren’t banks doing more to lend to people to buy their own home?  Surely the net repayment of mortgage debt would enable the banks to do more for those trying to buy their own home?  It would seem that the tax-payer-backed banks are having their cake and eating whilst we struggle to pick up a few crumbs.

Come on banks, help us property buyers!

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Posted in Mortgages, Property Buyers, UK Economy

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