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Two weeks on, and the world (or at least the UK) seems to be getting to grips with the implications of our historic vote. The trains and buses are running as usual, cash dispensers are still working, and some of the frankly wild speculation is dying down (remember the talk of ‘emergency budgets’?). Marcus Whewell, CEO of The Guild, explores the uncharted territory and some of the more intelligent predictions that are emerging.
The Bank of England have taken early action to boost liquidity, ensuring that the banks can continue to lend. It is also quite likely that interest rates will fall to historically low levels over the next few weeks as they seek to retain consumer confidence and spending levels. This may not necessarily be passed on to mortgages in the short term, but it does suggest a continued period of very competitive lending for the next 12 months.
George Osborne has also relinquished his target of balancing the budget by 2020, and this is another clear indication that the Government will continue to ‘pump prime’ the economy to help stave off any recessionary influences.
As sterling falls, exports become cheaper, providing a valuable fillip to manufacturing, maybe boosting employment. However, the costs of imports will rise so there should be a gentle upward trend in inflation, meaning the Bank of England will need to maintain a careful watch. This, in turn, may put some upward pressure on interest rates from 2017 onwards (as this is the Bank’s main lever to influence its key objective – control of inflation).
Unusually, we are experiencing both inflationary and deflationary pressures simultaneously in the UK economy, and these should balance out to provide a steady state economy for the next 18 months.
I believe that we will see very different performances for residential and commercial property.
Commercial may suffer quite significantly, as businesses look to reduce risk and costs, and delay major new ventures. This is already being highlighted by several investment houses suspending their property funds, which are mainly vehicles for pooling commercial investments. Lease costs may well fall as owners, such as pension funds, try to prevent voids or empty buildings. Owners may also have to sell property below book value to meet other commitments, which might put pressure on commercial property prices across the UK. This is unlikely to adversely affect the major banks, as they have deliberately reduced their exposure to this sector over recent years.
In the case of residential property, we can expect further price rises as demand continues to outstrip supply, although maybe moderated downwards to between 2% and 5% p.a. If the larger developers delay some big projects (as they wait to assess future yields and construction costs rise with shortages in labour and increases in material prices), this will further restrict the number of homes and again tend to nudge prices up.
Having your own space is the ultimate luxury but, whether renting or buying, we don’t live in isolation: everybody needs good neighbours. Here are a few hints and tips it may be worth remembering to help live happily ever after.
Say hello! The proverbial, clichéd cup of sugar could in fact be the perfect ice-breaker. Often cited as a condition of modern life, it is now entirely possible to live next door to someone for months and never really know them. So make the effort to be friendly, a smile goes a long way and can be a great foundation – although it is never too late to start.
Being considerate will always help. Tell them if you are having a housewarming or perhaps just celebrating the end of the week. Even if you choose not to invite them, a note through their door may save an awkward late-night conversation. Likewise, let them know about renovations or building work, anything which will impinge upon them.
No one likes to admit it, but it’s worth acknowledging you too might upset your neighbours. Try as you might, it may be near impossible to quiet your teething child from screaming into the night. Be a little emphatic, in case you too need some sympathy one day.
Don’t judge too quickly. When the garden is a mess and the rubbish is piled high, it is irritating, but maybe there is a good reason. Circumstances from illness to bereavement, and everything in between, can stop us in our tracks and make cleaning a distant concern.
Think before you speak. When their cat likes to use your perfectly manicured grass as a lavatory, maybe they aren’t aware of how you feel? Perhaps they think you love their pet dearly and are happy to share your garden with them. Explaining how you feel is sometimes necessary, and the rule is to stay calm. This is a good example because it raises difficult questions: who is to blame? Are your protests reasonable? What can your neighbour really do? Using carefully considered words in a measured tone might just save you some strife.
Escalating the problem. Sometimes it is necessary to report incidents to landlords or authorities. Keeping a diary of what has happened will mean accuracy and detail, recording may benefit you in the long run, and you don’t need to use it if your issues are resolved.
Be prepared to seek advice. Sadly, friendly negotiations aren’t fool proof. There are mediation services available and the Citizens Advice Bureau would be a great starting point on how to escalate your concerns where necessary. At this point, being aware of your rights, boundary lines, tenancy agreement and so on would be very valuable.
After some extraordinary recent market valuations, some financial analysts, such as Jefferies, the firm that advised Zoopla on their flotation, have warned that online estate agent Purplebricks is set to underperform. In a note in early June, Jefferies noted that their business model was about listings, not sales, commenting: “The numbers in the business model look very attractive, however it is our view they don’t add up. With no reward for actually selling a home, all eyes are focused on winning instructions, especially if Local Property Experts want to get close to the advertised On Target Earnings.”
For those of us who are not professional investors, this is an important insight. Our touchpoints with estate agents are normally about moving home, and we select and employ them to secure us a positive result - not to flatter us and then fail to deliver what they promised.
Most experts in the property industry will tell you that marketing property on the major portals is relatively straightforward: the key skills of a successful agent focus around qualifying buyers, property presentation, constant re-assessment of local prices, understanding important local details such as school catchment areas, matching databases, managing chains of buyers and sellers, dealing with solicitors and surveyors, and literally holding together complex deals over the 18 weeks it currently takes on average to complete a transaction.
In the case of the so-called pure online agents, their model is that you pay a non-refundable sum (normally the best part of a thousand pounds) up-front, whatever the outcome. When you don’t sell or the offers secured seem very low, this may no longer look like such a good idea. Your potential saving has become a non-recoverable cost and valuable time may have been lost.
Like this post? Read more on the topic here.
The vast majority of ‘clicks and mortar’ agents (as in reality, all estate agents are online) receive a fee only when they find a buyer or tenant and complete the transaction, so their interests are entirely aligned and mutual with their client. They receive a higher fee for a better price achieved. You only pay them when they meet expectations, and as the vendor or landlord you can walk away at minimal or no cost, should you feel that they are not fully focused on your particular case. This ‘stacks the deck’ heavily in favour of the vendor, which should encourage and reward regular communication and good service.
So the two models actually start from completely different positions and motivations; if the new online websites can perform to the same high standard as their more established counterparts, then a revolution really is at hand. Unfortunately, many vendors who choose pure online as ‘a quick and easy option’ may find themselves wiser - but poorer and frustrated.
In the last budget George Osborne announced that tax relief for landlords is to be cut, limiting the amount of income they can offset against mortgage interest payments. While the detail is fairly convoluted the basic outcome is that many, if not most, let properties will be less profitable – or indeed make an annual loss (though it’s to be hoped property price growth will ultimately overcome this).
The change is to be phased in and won’t be fully in place for another four years but already landlords will be starting to feel the pinch.
In recent weeks lenders have started looking ahead to the full reduction in tax relief and tightening lending policy as a result: if the property will be less profitable in a few years time, they reason, we should assess it on those terms today.
The first and biggest name to go was The Mortgage Works, increasing their requirement from 125% coverage to 145%. So for example, under the previous policy a £150,000 loan at a notional rate of 5.50% would cost £687.50 per month.
The Mortgage Works wanted an extra 25% coverage of that, so to qualify for the £150,000 loan landlords needed £860 rent per month. Under the new policy they would need £997 per month – almost £140 more.
Other lenders have started to follow suit including Barclays, Keystone and Newcastle, and it’s certain all lenders are reviewing their stance though many have yet to make a move.
So how should landlords react to this?
While many lenders have yet to tighten policy, that’s not necessarily a signal to get in before they do – the driving force behind this is that, all other things being equal, most buy to lets will perform less well in the future.
But it does present an opportunity to review current properties and try to mitigate the impact: securing a low rate now could cut outgoings and help build up a reserve to either cover rental shortfalls or reduce the mortgage in future.
Increasing rent is an option too of course, and no doubt many will, but there’s naturally a limit to how far this can go, determined by local housing supply and incomes.
Clearly any planned purchase needs to be assessed on how it’s going to work in a few years time, not just at the outset.
If you are an existing landlord or are considering purchasing a Buy-to-Let property, and need mortgage advice, then please speak to the Guild Mortgage Service provided by fee free L&C Mortgages.
You can contact L&C mortgages on: 0800 073 1945
UK HOUSE PRICE INDEX: APRIL 2016 (released 14 June 2016)
[The new UK House Price Index comprises figures collated by the Office for National Statistics from data supplied by Land Registry, Register of Scotland, Land and Property Services, Northern Ireland and the Valuation Office Agency. In addition, there are separate detailed reports for England, Wales and Scotland. New statistics are included relating to the status of the building (new build or existing resold), the buyer (first time or repurchase) and the funding (cash or mortgage). The following summary looks at some aspects of the overall report for the UK and the detailed report for England]
The new April 2016 house price index data for the UK showed a monthly rise of 0.6 per cent in average house prices across England, Wales, Scotland and Northern Ireland, bringing the average house price to £209,054. In England the rise was slightly higher at 0.7 per cent and the average house price £224,731, while in London the monthly change was 0.6 per cent and the average house price £470,025.
However, most regions showed a higher monthly rise than London, including the North West at 2.3 per cent, the West Midlands at 2.2 per cent, the East Midlands and Yorkshire & The Humber both at 1.6 per cent, and the East of England at 1.2 per cent. The South East trailed behind London at 0.3 per cent while falls were seen in the North East at minus 0.9 per cent and the South West at minus 2.8 per cent.
On an annual basis the price change across the UK was 8.2 per cent and in England 9.1 per cent. London saw the highest annual change at 14.5 per cent, followed by the East of England at 13.6 per cent and the South East at 12.3 per cent. The lowest rise was seen in the North East at only 0.1 per cent. Detailed statistics for each local authority area show a wide spectrum of annual changes from minus 4 per cent in Hartlepool to increases of more than 20 per cent in Slough, Thurrock some London boroughs.
By property type, terraced properties saw the greatest annual increase of 9.0 per cent, followed by semi-detached properties at 8.8 per cent, while in terms of sales volumes the annual change from February 2015 to February 2016 was 1.1 per cent.
New figures are also reported for funding status, which compares average cash and mortgage prices. In England, the average cash price was £210,602 while the average mortgage price was £231,866. For cash purchases, the monthly change was 0.1 per cent and the annual change 8.1 per cent, while for mortgage purchases the monthly change was 1 per cent and the annual change 9.6 per cent.
New statistics relating to property status showed that the average price of a new build property in England was £275,487, up 4.9 per cent on the preceding month and up 11.2 per cent on a year ago. This contrasts with resold property, which has an average price of £221,315, only 0.4 per cent higher than a month earlier, and 9 per cent higher than a year ago.
New statistics on buyer status in England showed that the average price of a house sold to a first time buyer was £189,179 with a monthly change of 0.9 per cent and an annual change of 9.3 per cent. However, the average price of a house sold to a former owner occupier was £254,409, showing a monthly change of 0.5 per cent and an annual change of 9 per cent.
At the end of May, the Office of National Statistics (ONS) announced that their second estimate of the Gross Domestic Product (GDP) for the first quarter of 2016 would remain unrevised at 0.4 per cent. The report showed that the economy was strongly reliant on consumer spending, which increased by 0.7 per cent over the period, while companies had reduced investment owing to uncertainty over the outcome of the EU referendum. A trade deficit had also detracted from the GDP for the third consecutive quarter. The Bank of England revised its growth forecast for the second quarter of the year down to just 0.3 per cent.
Early in June, better news came with the announcement that the trade deficit in April had narrowed after goods exports rose to a near three-year high, while UK manufacturing output in the same month grew at the fastest pace for nearly four years at 2.3 per cent, the biggest monthly rise since July 2012. A significant contribution to manufacturing output was the 8.6 per cent increase in the pharmaceutical industry. The wider measure of industrial output saw an increase of 2 per cent, representing the biggest rise since July 2012.
Between February and April unemployment fell to 1.67 million, cutting the jobless rate to 5 per cent, the lowest since October 2005. At the same time, inflation as measured by the Consumer Prices Index was reported as unchanged in May at 0.3 per cent. The Retail Prices Index, which includes some housing costs, rose to 1.4 per cent in May from 1.3 per cent a month earlier. Following on, the Bank of England’s Monetary Policy Committee monthly meeting on 16th June unanimously agreed to maintain the interest rate at 0.5 per cent and the quantitative easing asset purchase programme at £375 billion.
With respect to housing, figures released by the Department for Communities and Local Government at the end of May showed that housing starts in England had collapsed in the first three months of the year to 35,530, down 9 per cent on a year ago and one of the steepest rates of decline in the last decade. The figure was also 3 per cent down on the previous three-month period. The total starts for the financial year were up by one per cent to 139,680, which is still way below the 250,000 needed according to experts. The Government had set itself a target of one million new homes by the end of its current parliamentary tenure.
The recent announcement of an undercutting fixed rate mortgage package from the Yorkshire Building Society is believed to reflect evidence that first time buyers have benefited from the introduction of higher stamp duty on buy-to-let in April. Estate agents have reported that more than 32,000 first-time transactions were completed in April, the highest monthly total for two years.
The release of the new monthly UK House Price Index, which is now collated by the ONS, showed that over the year to April, prices climbed by an average of 8.2 per cent across the UK and by 14.5 per cent in London, taking the average UK property value to £209,054.
95% loan-to-value mortgages improve
For today’s First Time Buyers, one of the biggest challenges involved in trying to get a foot on that elusive property ladder is raising the deposit.
With house prices seemingly on the increase all the time, even getting together 5% of a property’s value can equate to thousands of pounds, and securing a 95% mortgage has also traditionally meant having to accept considerably higher rates than borrowers at the other end of the market with plenty of equity.
Recent reports however have shown an almost five-fold increase in the number of deals available up to 95% loan-to-value over the last couple of years, helped in part by the introduction of the Government Help to Buy Mortgage Guarantee scheme in 2013.
This initiative is due to end this year, but certainly seems to have done its job in terms of reviving what has generally been considered an under-served area of the mortgage market. The range now on offer to borrowers is considerable, and is set to continue whether Help to Buy is extended or not.
Not only are there now more deals available for those with smaller deposits, but interest rates have also reduced over the last few months. Rates at lower loan-to-values have already hit rock bottom, and as a result lenders have begun to look at the ‘riskier’ end of the spectrum. With more lenders and more deals, comes greater competition, and this can only be welcome news for First Time Buyers.
Of course potential borrowers will still be required to demonstrate that a mortgage is affordable, and pass the necessary credit checks. The Mortgage Market Review has resulted in tougher lending criteria and underwriting procedures across the board, but this in itself has given lenders a greater level of confidence to compete more actively for business.
Saving for a deposit is still a difficult task, but with a greater number of deals and lower interest rates on offer, the boost from Help to Buy has been a noticeable one, leaving the higher LTV market in a much healthier place.
If you are considering a high loan-to-value mortgage and need mortgage advice, then please speak to the Guild Mortgage Service provided by fee free L&C Mortgages.
You can contact L&C mortgages on: 0800 073 1945
Yes, Wimbledon fortnight is now upon us, inspiring us all to dust off the tennis rackets and head off to the nearest courts for a knockabout with friends. There are many things synonymous with Wimbledon, such as the rain, Cliff Richard sing-a-longs, tears, tantrums, Pimms and of course, strawberries.
Wimbledon just wouldn't be Wimbledon, without the television coverage panning to adults and children alike, tucking into big bowls of strawberries and cream. According to the Wimbledon.com website, over 28 tons of strawberries (1.4 million berries to be precise) are consumed over the course of the tournament. Now that's a LOT of berry picking!
This month sees our beloved British strawberries come into season. Supermarket shelves heave with juicy punnets and 'Pick Your Own' farms are bustling full of people with red, stained mouths. So why not get picking (from a shelf or a farm - your choice!) and make the most of these beautiful berries whilst they're at their peak.
When you're picking strawberries, look for unblemished berries with bright green hulls; let them come to room temperature before eating and always wash gently before you tuck in. And if you're lucky enough to end up with a glut of strawberries, here are some berry tasty things to do with them. Simply visit your friend Google to learn the methods and enjoy the fruits of your labour.
Currently, the broadcast media are awash with new models that claim to sell your house for a fraction of the costs that you might pay using a more established route to market – such as an independent, bricks and mortar, high street estate agent. Calculations of the potential savings are being distributed with abandon – but the current statistics are that over 95% of current residential sales still use the tried and tested model. So are the new kids in town just starting to attract smarter consumers, or is the enticement of a potentially cheaper fee covering over ‘potholes in the road’ that carry potentially serious consequences for the vendor?
Putting aside that almost all estate agents are already online, and also that in many parts of the country the so-called modern, efficient models can actually cost more than the existing competition; Marcus Whewell, CEO of The Guild of Professional Estate Agents, explores some of the more important aspects of the debate – and ultimately who is more likely to deliver the best result for the client?
The first, crucial point is one of motivation. With a physical estate agent, you only pay a fee when they successfully sell your property; and the agent will usually earn more commission for achieving a higher price. Therefore, there is a key, mutual interest in securing the best possible commercial result according your preferences (such as your timescale for moving). With many of the new models, you pay a significant, up-front, non-refundable amount whatever happens – for example, even if you never receive a single offer on your home!
Secondly, selling a property is much more than just putting it on the internet. Markets are constantly changing, and a really good agent will be constantly evaluating the price and marketing it in the light of the latest conditions, such as what else is available to buy locally, and the mood of the market. He/she will also be utilising a wide variety of personalised tools, such as contacting their extensive database, distributing leaflets, communicating via social networking, and facilitating ‘open house’ events. These elements can be crucial in getting best offers, and yet very few, if any of the new models to date offer such services to their clients.
The next key stage in selling your home is qualifying the offer. Almost a third of agreed sales fail to complete, and one key reason is that the buyer may struggle to access the necessary finance. A local professional agent will have established the motivations and financial status of the applicant, thereby reducing the likelihood of disappointment and further delays and, therefore, also of losing other potential buyers who would have completed the purchase.
Negotiating for the sale of your own home can be a tricky business. This is a very important and emotive subject, and normally the intercession of a professional can turn an ‘insulting offer’ into an acceptable compromise. Again, you need the help of someone who can use local knowledge and experience, together with insights into the relative situations and of the parties involved, to craft a mutually acceptable position.
Currently, one of the biggest difficulties in moving is managing complicated chains, which require the involvement and sometimes coercion of many separate parties, such as other estate agents and their solicitors. Many leading agents now assign their most talented employees to progressing pending sales, even on behalf of the other agents in the chain who may not be so diligent. This can literally make or break a sale and again, it makes sense to seek out an estate agent who knows all the parties involved - and who is strongly financially motivated to complete the sale as quickly and efficiently as possible, not just move on to the next listing.
Selling and renting property has become increasingly regulated, and trust and confidence flows from dealing with an individual who can offer expert and appropriate advice. The best local agents will employ staff who have proven expertise and who have achieved recognised qualifications in their particular specialisms. They are, therefore, better able to manage the myriad of problems that normally accompany any potential sale or purchase – increasing the likelihood of success. Some of the newer models employ so-called local experts who are in truth, neither of the two, and so may fall short on offering the help when you most need it. Only a local expert could advise confidently on local schools and catchment areas, dentists and hospitals, commuting times, potential new developments in the area, or seasonal factors such as tourism and special events.
When it comes to the move itself, there are many other services that the purchaser or investor may require; the more obvious are a solicitor, a removals company, and maybe a mortgage provider, but you may also want specialist tax advice, the name of a trustworthy builder, plumber of electrician, gardener, or interior designer…or just a key holding service and a locksmith! The best agents will know just such local professionals who are proven and trustworthy. Their business is to a large part dependent on their local reputation, and so will have built up a network of similar experts who can work together to help their clients.
Many local agents will also be part of a national network such as the Guild of Professional Estate Agents, offering joint marketing for your property across up to a thousand other similar offices. Almost 10% of buyers come from out of area, and agents will have established this as part of their conversations and can, therefore, put together purchasers and sellers who otherwise may not have connected.
So the true points of difference are actually not technology or enticements of low fees, but a proven network of local professionals who are connected into their local communities, and are financially committed to successfully selling your property.
You won’t find this on the TV adverts, but the really smart money will look for strong personal commitment, experience and expertise, great levels of service, and consistent positive outcomes for clients.
‘He who serves best will profit most’.
You can achieve a far better result by choosing a member of The Guild of Professional Estate Agents.
We all think that we have the Best Dad for hundreds of different reasons, from picking us up in Dad's Taxi at silly o'clock in the morning, to standing in the rain cheering us on when we're trying our hardest to get that elusive equaliser. It’s safe to say that our dads will always be there for us just when we need them. With Father's Day fast approaching, now is our chance to make sure they know how much we love and appreciate them and so, we'd like to wish our Great British Dads a Very Happy Father's Day on Sunday 19th June 2016.
The Government has recently announced details of a consultation, which plans to make switching bank accounts, utilities, and even mortgages easier for consumers, by forcing providers to improve their procedures. L&C, the UK's award-winning fee-free mortgage and insurance expert, helps us understand the switching process within the mortgage industry.
Part of the consultation will involve gathering information to allow a better understanding of the switching process throughout different sectors – including broadband services and mobile phone contracts.
Within the mortgage industry however, experts have suggested that a 7-day turnaround is not currently a realistic target. Regulation requires that all borrowers are subject to affordability and credit checks, which must be established through the provision of documents such as banks statements and payslips.
More of this information is likely to become available digitally, which will speed up the process, however, the recent Mortgage Credit Directive introduced a 7-day reflection period for consumers, and the requirement for lenders to offer this is an immovable object.
A property must then be valued to ensure it can provide adequate security for the loan, and the timing of this can be dependent on the surveyor. There is also a certain amount of legal work required, and again the timing of this is down to the solicitor.
Mortgage deals often come with incentives such as a free valuation or legal fees, which help to reduce the actual cost of switching, and technological advances have also already improved the process considerably. For example, in most cases applications can be submitted on-line, and automated valuations have become more commonplace.
The process itself is not a difficult one, but homeowners are still encouraged to allow around 3 months before the end of their current deal to ensure a smooth transfer takes place. Getting all of this work done within 7 days is a difficult task, and possibly an impractical one.
The aim of the consultation, according to Business Secretary Sajid Javid, is to ‘give consumers more power over switching providers for the services they rely on, to make sure they are getting the best deals’.
Clearly, any improvements that can be made to the switching process and any barriers that can be removed for borrowers to prevent them from becoming ‘mortgage prisoners’ are always welcome. However, it is imperative that these important checks are not abandoned, and as a result, a 7-day turnaround is likely to be some way off yet.
If you are confused about your remortgage options or simply need mortgage advice, then please speak to the Guild Mortgage Service provided by Fee free L&C Mortgages.
You can contact L&C mortgages on: 0800 073 1945
Her Majesty Queen Elizabeth II reached her milestone 90th birthday in April this year, which has been marked with a number of high profile celebrations. With the final events, including Trooping the Colour and The Patrons Lunch for 10,000 guests, taking place this weekend, royal fans all over the country will be marking the occasion with fun-filled festivities too. So what better time is there for us to take a look at some of our favourite properties currently for sale within Britain's historic towns and boroughs with a royal connection?
Royal Wootton Bassett was the first town in over 100 years to be awarded the Royal title. If you would like to live here, this splendid four-bedroom detached residence is situated in one of the area’s most sought after tranquil cul-de-sac.
Other Royal towns include Leamington Spa and Tunbridge Wells, awarded by Queen Victoria (1838) and King Edward VII (1909) respectively, due to the recognition of their history and royal patronage of their facilities.
Time wasters. Carpet-traders. Voyeurs. Serial house-viewers with no intention of buying. It's a rising trend and so it's always a good idea to check the sincerity of potential buyers. We've put together 10 tell-tale signs you could be wasting your time with viewers that will never make an offer. Don't forget to ask questions, listen carefully and watch their body language.
1. Your best prospects will go through the house slowly, visualising themselves in each room. Listen to their comments carefully as they will imply if they can see themselves settling into your home.
2. Close study of family photographs or bookcases is simply voyeurism! Unfortunately, they're more interested in you, not your property.
3. Ask if they’ve been pre-approved for a mortgage that works with your asking price. Serious buyers would have already met with their lender and will be able to answer your question.
4. Over-complimenting the decor could mean a guilty conscience and subsequently, no offer.
5. Asking about the property's utility bills and council tax is an optimistic sign. The prospective buyer will be doing the maths, trying to find out how much will they have left once they have paid the mortgage and bills.
6. Requesting to arrange a second viewing before they leave is clearly a positive indicator.
7. Look out for signs of buyer attachment. 'Possessive comments' such as debating if their sofa will fit into an existing space implies that they feel like they already own the property.
8. Learning more about local amenities including parks or dog walking opportunities is a good sign. They're looking to see if the surrounding community meets their requirements too.
9. Try to get some background about why they're interested in your property. Working within the area or having family nearby supports their reasoning for buying locally.
10. It's safe to assume that your time has been wasted when it becomes apparent that they haven't studied your property details and make comments like: "It doesn't have enough bedrooms".
First time buyers still struggling
Rising rents are making it even harder for first time buyers to get on the property ladder these days.
Those who manage to buy their first home this year can have spent nearly £53,000 in rent, according to the Association of Residential Letting Agents. The costs vary in different parts of the country, of course, and Londoners buying this year can have paid £68,000 in rent.
It's the shortage of housing that is pushing up rents so the problem will only get worse.
Anyone who is starting to rent now, with the intention of saving for their own home, might pay out over £64,000 in rent before they have been able to get a deposit together.
Clearly finding the deposit is still the biggest hurdle for first time buyers though fortunately there is more help available for them these days.
With the Help to Buy Isa, savers earn an extra 25% paid for by the government - that's an extra £50 for every £200 they save, to a maximum bonus of £3,000.
There are other Help to Buy schemes for people who have saved just a 5% deposit - the Help to Buy mortgage guarantee, the Help to Buy equity loan, and, the most recent addition, the London Help to Buy scheme.
The equity loan is only for people buying new-build property. The government lends 20% of the cost of the house so buyers need a mortgage for the remaining 75%, after paying their deposit. The London Help to Buy scheme extends the help for Londoners to 40% of the house price.
The mortgage guarantee is for people buying both new-build homes and existing properties. With the government guarantee, lenders have more confidence to give them mortgages requiring only a small deposit.
It is clear lenders are responding and today there are plenty of 95% loan to value deals around to help people with only a 5% deposit. Mortgage rates have also come down recently, making this area of the market more competitive for borrowers.
Guild Mortgage Service, Provided by London & Country Mortgages
ECONOMIC NEWS MAY 2016
Newly released figures from the Office for National Statistics (ONS) show that industry in the UK has fallen back into recession. It shrank for the second quarter in a row from 0.6 per cent in the last three months of 2015 to 0.4 per cent in the first quarter of 2016. The ONS say that together, manufacturing and construction are the major components causing the overall slowdown in economic growth. Manufacturing production fell by 1.9 per cent in the first quarter compared to a year ago and is the largest fall since 2013, while construction output fell by 1.9 per cent over the same period and by 1.1 per cent from quarter four of 2015.
The ONS has also reported that the trade gap has widened to £13.3 billion in the first quarter of 2016, the deficit having increased by £1.1 billion from £12.2 billion the last three months of 2015. This was due to imports of mechanical machinery, cars, clothing, jewellery and footwear rising by £1.9 billion, while exports rose by only £500 million, led by chemical products. Analysts say that UK exports have been hampered by only moderate global demand, while sterling has been strong, particularly against the euro.
At its most recent meeting, the Bank of England’s Monetary Policy Committee (MPC) voted to maintain interest rates at their historic low of 0.5 per cent. In the Committee’s assessment of the health of the UK economy, it opined that a vote to leave the European Union (EU) would pose a significant risk. The Governor of the Bank of England, Mark Carney, has said that in the light of the Bank’s responsibility for the UK’s financial stability, it would be wrong for the Bank not to give its considered view.
Meanwhile, the Confederation of British Industry lobby group has cut its economic forecasts. It now says that the economy will grow by 2 per cent in 2016 and 2017, down from its previous forecast of 2.3 per cent and 2.1 per cent respectively. The cuts are a reaction to uncertainty over global growth and the outcome of the EU vote but the revised figures reflect an assumption that the UK will stay in the EU.
According to data from the website Rightmove, April saw an increase of 11.5 per cent in the number of rental properties being listed. This marked rise is believed to be due to the large number of landlords who scrambled to buy homes to let before the Stamp Duty deadline at the end of March. Research conducted by investment firm Property Partner, which looked at 90 towns and cities across the UK, showed that the supply of properties to let went up in 82 per cent of them, Worcester seeing a surge in rental properties of nearly 50 per cent.
Until recently, financial commentators had predicted that the UK was likely to see an increase in the Bank of England Base Rate this year. A combination of factors however (including weaker economic growth and some turbulent activity in the stock market) has resulted in a re-evaluation of the forecast, and expectations for the first hike have now been pushed back out.
This has provided some scope for fixed rate mortgages to come down a little further. For those that feel rates will stay low, or are looking for a greater degree of flexibility, it could also lead to more interest in tracker mortgages.
A tracker mortgage is a type of variable rate that follow the movements of another rate (usually the Bank of England Base Rate), typically for an initial period of 2-3 years, or even for the lifetime of the mortgage. The variable nature of the payable interest rate also means that monthly payments can go up and down, so it is not suitable for everyone.
Some analysts have even raised the question of a potential cut in the Bank of England Base Rate, but over recent years several lenders have applied a collar to their variable deals, so borrowers need to be aware that their payments might not fall if rates do come down any further.
Our client contacted the mortgage service for the Guild of Professional Estate Agents looking for advice when purchasing a new family home. Feeling that interest rates were unlikely to increase significantly over the next couple of years, but comfortable that he could afford the monthly payments if they did begin to rise, the client was interested in the most cost-effective tracker mortgage.
In addition to a competitive rate, flexibility was key, as the client intended to pay a lump sum off the mortgage in approximately 12 months time. After discussing these requirements, his mortgage adviser recommended a 2 year tracker deal with a major high street lender, which had no Early Repayment Charges at any time. This meant no restrictions on overpayments, and the freedom to move to a new deal if the client’s circumstances changed or rates began to increase.
Guild Mortgage Service, Provided by London & Country Mortgages
Is the 100% mortgage back?
One of the big challenges for first time buyers has been in pulling together a deposit, especially when facing rising house prices in many areas.
The credit crunch led to significant tightening in lending and as a result the number of deals on offer to those with a small deposit dropped dramatically. There was barely a handful available at one stage but that has improved in recent years, especially after the introduction of the Help to Buy guarantee.
As a result the range of options for those with a deposit of only 5% has improved but lenders have shown little appetite to offer 100% mortgages again.
Barclays caught the headlines recently with the launch of its new version of the Family Springboard mortgage. This extended the potential borrowing to as much as 100% of the purchase price but carries a crucial difference to the 100% mortgages (and even beyond 100%) of the peak of 2007.
The Barclays rate requires the parent or family member of the person buying the property to put 10% of the purchase price away in a separate savings account.
The savings will earn interest and importantly remain in the parent’s name rather than having to be gifted to the child. That could be of benefit to those that want to use the cash again at a later stage, perhaps to help a second child buy their first property.
However the savings act as additional security for the lender and the parents cannot draw on the funds for at least 3 years. In a worst case scenario the lender could use the parental savings to cover any loss it suffered, so there is a risk to the cash.
Other deals work in a similar way but can use spare equity in the parental property as the added security that the lender requires. That’s helpful where there isn’t a cash lump sum but does ultimately put the parental property at risk if things did go badly wrong.
Talk of a return to 100% lending is perhaps not quite the full story but these products do certainly show that lenders are trying to innovate in a competitive market. That can result in useful mortgage options as long as everyone understands the potential implications for them.
Guild Mortgage Service, Provided by London & Country Mortgages
LAND REGISTRY DATA: MARCH 2016 (released 28 April 2016)
The March 2016 Land Registry data showed a fall in average house prices across England and Wales for the second month in a row with a drop of minus 0.5 per cent. Regionally, while London and the East saw prices rise by 0.2 per cent over the monthly period, all other regions experienced falls ranging from minus 0.1 per cent in the North West to minus 2.6 per cent in Yorkshire & the Humber.
On an annual basis, house prices have risen by 6.7 per cent across England and Wales, bringing the average house price to £189,901. London saw the highest annual increase in prices at 13.9 per cent and the average house price in the capital now stands at £534,785. The East and the South East also saw an annual rise in double figures at 10.7 and 10.3 per cent respectively, while the North East saw a fall of minus 0.7 per cent. In terms of property type, flats and maisonettes showed the highest annual increase at 7.5 per cent and the lowest increase was seen in semi-detached properties at 6.1 per cent.
By county and unitary authority, the strongest monthly growth was experienced in Slough with an increase of 3.1 per cent, while the most significant monthly drop occurred in Redcar & Cleveland at minus 3.5 per cent. In total, 33 counties and unitary authorities showed a fall in prices over the month. On an annual basis, Slough also had the greatest increase in prices with a movement of 22.1 per cent, while ten counties and unitary authorities experienced a fall, the greatest being Neath Port Talbot at minus 4.3 per cent.
Of the 36 metropolitan districts, Sunderland saw the highest monthly price increase at 1.6 per cent, while 22 districts experienced a fall, the greatest being Liverpool and St Helens each with a movement of minus 1.7 per cent. Coventry saw the largest annual price increase at 8.5 per cent, while three districts experienced a fall, the greatest being North Tyneside at minus 2.3 per cent.
Of the London boroughs, Brent showed the highest monthly price increase at 2.8 per cent, while Hammersmith & Fulham saw the greatest monthly fall at minus 1.3 per cent. Lewisham had the highest annual price rise at 19.9 per cent, while Kensington & Chelsea experienced the smallest annual increase at 4.2 per cent.
The volume of properties sold in January 2016 was 5 per cent lower than a year earlier in England and Wales and 14 per cent lower in London. Over the same period, the number of properties sold for more than £1 million across England and Wales as a whole and in London rose by 2 per cent.
Month on month, the total number of properties sold across England and Wales fell from 73,326 in December 2015 to 54,254 in January 2016 – a drop of 26 per cent. However, the number of property transactions from October 2015 to January 2016 averaged 74,374 per month, compared to 73,744 over the same period a year earlier.
Good news for older borrowers
For older borrowers, securing a mortgage from a high street lender has become something of a challenge in recent years, following the Mortgage Market Review and subsequent tougher underwriting criteria.
With the population living longer however, and our working habits evolving as a result, there have been widespread calls for the mortgage industry to adapt their policies and do more to help what is considered to be a neglected area of the market.
Rising house prices have meant that First Time Buyers are buying later in life, often in their thirties, and taking longer mortgage terms of 30 years or more to make their loans more affordable, so the requirement for lending into retirement is set to continue.
The good news is that mainstream lenders have now begun to respond to the growing demand for change. In recent weeks Halifax has announced a lift in the maximum age at the end of the mortgage term from 75 to 80, a move which was followed by Nationwide, which plans to increase its limit by 10 years to 85.
There will of course be restrictions on lending – borrowers will have to prove that they have adequate income into retirement, and Nationwide has put a maximum loan of £150,000 in place, with equity of at least 40% required.
Changes like this could open up options for many borrowers who are considered to be ‘mortgage prisoners’ – for example homeowners with interest only mortgages who wish to switch to repayment and require a longer mortgage term to make their loan affordable.
Smaller building societies, such as National Counties – who can lend up to the age of 89, have had a more individual approach to lending for some time, but these most recent changes are being viewed by the industry as a step in the right direction for mainstream lending.
Guild Mortgage Service, Provided by London & Country Mortgages