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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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Property price increases reported by Nationwide

October 2nd, 2009

Nationwide have just reported a 0.9% increase in property prices for September 2009, the fifth month in a row that increases in property prices have been reported. Is it time for property buyers to move in?

Whilst it is comforting to many that the spiral of price falls seems to have abated and that maybe, just maybe, we are starting to see some upward movement there still needs to be caution applied by anyone looking to buy.

Firstly we have still to see further rises in unemployment, this will certainly have an effect on house prices, particularly in those areas that will be most affected by higher unemployment levels.

Secondly, we have some fairly significant budget cuts to feed through into the economy.  Whilst at the time of writing this blog there has not been any clear indication from the government on the severity of cuts, there seems to be almost a consensus amongst economists that significant cuts in spending will happen. The phasing and timing of these cuts will have an impact on property prices.

Thirdly, all of the data reported in 2009 on property price movements is based on an “abnormal market”, that is mortgage lending is over 50% down on the historical normal levels.  Until the market is more fluid we will not know the true effects of buyer and seller demand, and thus the impact on property prices. 

Overall there is no need for panic, but equally anyone who thinks prices are about to boom is very unlikely to realise this.  The facts are we are still in uncertain times, the property market has stabilised to some degree, but property prices are still vulnerable to many economic effects yet to unfold.

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Posted in Fast House Sales, UK House Prices

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How to sell London property quickly

October 1st, 2009

Whatever the property market is like it is always, always, possible to find a property buyer if you are selling in London.  It does not matter if the property is a studio flat, a huge mansion, or some land for development, within London there are property buyers for every type of property – at the right price of course.

There are many ways a property can be purchased, it may be a conventional transaction to a home buyer, or cash (or financed) purchase to a property investor, or a delayed completion purchase (more on this later).

Selling a property to someone buying as their home is usually going to achieve a higher price, not always, but usually.  The exceptions tend to be where a property has development potential. When an investor purchases they will be looking to make a profit, this may be by selling on the property, or developing the property.  That said much of this is irrelevant to the seller, they simply want the best possible price within the timescales they need to sell.

So, let’s assume you are selling a property within the M25, how much discount would you need to provide for a quick sale?   The answer may amaze you, it can be anything from 25% to +5%, yes, there are certain circumstances where an investment property buyer will pay a higher price than today’s valuation.  And no, we are not crazy, it is really true.

The way to achieve an above market price is to swell based on a delayed completion.  This is achieved by contracting the responsibility of your mortgage maintenance, insurance, etc, to a property investor for a period of time, for an above market sale price this may be 3 to 5 years.  The property buyer will pay all of the property’s associated costs, you can literally walk away from your property, move on with your life, and then collect the increased equity over your mortgage when the sale completes.

A delayed completion is ideal where the owner is emigrating overseas, wants to relocate and rent somewhere else, is divorcing, and generally does not have a lot of equity tied up in a property, so there are no real concerns about waiting for a delayed completion.

If this sounds like something your are interested in read more from “RM Properties” on our blog here …http://www.repaymortgage.co.uk/blog/sell-your-property-today/

That said if you want a straight sale, no delayed completion, and are prepared to sell at a discount, then RM Properties can make an offer for a quick property sale also.

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Posted in Fast House Sales, London Property

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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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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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