eSmart Property Issue 7 by Steve Wright

eSmartproperty The electronic property magazine

OCTOBER/NOVEMBER/DECEMBER 2007

Government’s housing vision UK housing

ambitious targets aimed at making sure everyone has a place to live in the future

HIPS…

mandatory requirement for half the market!

Robust housing market…

UK house prices hold-up

UK property millionaires double…

buyers have it easy! Nine years’ salary earnings needed to buy a property

New-build property rights attacked… the average new home has 100 problems that need fixing

Exit fees… many mortgage payers could be due a refund

surge in demand for luxury homes

Also in this issue: Credit crunch…

Bank of England provides respite

On the move?

Pre-move checklist

The cost of moving…

calculating your outlay!

mo On rt e m ga in ge ut gu e id e

News in brief…

tenancy deposit scheme

PLUS: Private rental sector…investors remain confident • HIPs…will they make us more eco-conscious?

Include your own third party advert on this page... and every issue will pay for itself...

Want more information?

Contact Nat Harman, Business Marketing Adviser, telephone +44 (0) 2920 234904 or email nat@goldminepublishing.com

In this

Issue >> 04 Robust housing market…

UK house prices hold-up

04 UK property millionaires double…

surge in demand for luxury homes

04 Amateur landlords…

can they still make money in the current climate?

05 Mortgage exit fees…

many mortgage payers could be due a refund

05 HIPs…

will they make us more eco-conscious?

05 News in brief…

tenancy deposit scheme

06 New-build property rights attacked…

the average new home has 100 problems that need fixing

08 Taxing times ahead!

Planning to minimise the pain

10 Government’s housing vision…

ambitious targets aimed at making sure everyone has a place to live in the future

12 Home information packs…

mandatory requirement for half the market!

14 Higher interest rates…

improving rental yields is the key

16 University town sums add-up…

parents are being attracted by the numbers

18 One minute mortgage guide 19 Credit crunch…

Bank of England provides respite

20 Rents on UK residential property continue to rise…

news comes as a welcome boost to landlords

21 Private rental sector…

investors remain confident

The articles featured in this e-publication are for your general information and use only and are not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their

21 Snap decision or gut instinct?

The typical house-hunter takes just 17 minutes to make up their mind

22 Glossary…

making sense of the jargon

24 On the move?

Pre-move checklist

25 Retailer offers flat-pack homes 25 Parents DIY skills add value! 26 Generating green energy 27 Monopoly… location, location, location...

28 The cost of moving…

calculating your outlay!

29 Rental demands fuel buy-to-let 30 UK housing buyers have it easy!

Nine years’ salary earnings needed to buy a property

30 Paying less in inheritance tax… the basic rules

particular situation. Your home may be repossessed if you do not keep up repayments on your mortgage.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

UK house prices hold-up UK house prices are still continuing to rise despite the turmoil we have witnessed in the global financial markets and the crisis at mortgage lender, Northern Rock. The problems which began in early August resulted in higher wholesale funding costs that have lead to a reassessment of the pricing of credit in the mortgage market. The positive news is that there has been no immediate impact on house prices. Nationwide said that while some lenders are still willing to lend at cheap rates - Northern Rock will still give mortgages to borrowers at 5.9 times salary in exceptional circumstances – although other providers are now reassessing their position.

UK property millionaires double Surge in demand for luxury homes The number of properties changing hands for more than £1 million in the UK has doubled in the last year. In a report published by Halifax Estate Agents, there were some 7,076 homes sold for £1million or more last year, almost double the number sold in 2005. The figures showed that 1,055 of the homes sold were located in the north of England, compared to only 224 in 2004.

Amateur landlords Can they still make money in the current climate? The Council of Mortgage Lenders says that there are about 900,000 private landlords in the UK, with £95 billion of outstanding mortgage debt. Attracted by rising house prices and high rents these two key factors have encouraged almost one million Britons to start their own buy-to-let property empires. So what does the future hold? Interest rate rises, possible tax rule changes, more expensive and increased regulation, can a property investment still really make money?

Industry experts say that there is still good money to be made from the buy-to-let market, with the biggest challenge coming from rising interest rates. For the investor there are still plenty of solid arguments in favour of taking out a buy-to-let mortgage. A dwindling supply of new homes has fed a 20 per cent rise in rents in two years, while the latest survey by Nationwide found that house prices have yet to cool after the numerous interest rate rises. The mortgage price war over the past year or so has been more aggressive in the buyto-let market. It has got to the

point where the best buy-tolet mortgages are in line with mainstream rates. With so much competition on rates, lenders have looked at other ways to encourage borrowers. One is to cut the amount of “rental cover” the borrower needs. This is the expected rental income compared with the cost of the mortgage repayments. Borrowers have generally required rental cover of up to 150 per cent, but most deals are now on offer for 100 per cent cover. The key thing that borrowers need to address is that they require additional resources, such as savings, if their rental cover is only 100 per cent.

“

Robust housing market

A dwindling supply of new homes has fed a 20 per cent rise in rents in two years

Need more information? Please email or contact us with your query. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

HIPs

Will they make us more eco-conscious?

Mortgage Exit Fees Many mortgage payers could be due a refund If you have switched a mortgage deal or paid off your home loan in the past five years, you could be eligible for a refund following the intervention of the Financial Services Authority (FSA). A recent investigation has deemed many of the charges made by banks and building societies for exit fees illegal, meaning that many mortgage payers could be due a refund Exit fees are supposed to cover costs such as dealing with the Land Registry and other administrative work undertaken by the lender when a mortgage is redeemed in full, or when the customer switches to a better deal elsewhere. Over the past five years banks and building societies have been increasing the exit fees charged when borrowers redeem their mortgage. A few years ago the average fee was just £50, with some lenders not charging at all. In more recent times the

average fee has risen to around £180 and some lenders charge almost £300. The FSA investigated exit fees after industry experts claimed that lenders have unfairly increased these fees after the mortgages were taken out. This meant that borrowers were charged a higher fee for exiting the loan than they were told when they applied for it. So homeowners expecting to pay a £50 fee found they were being asked to pay far more when they

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

came to redeem their mortgage. The FSA has ruled that borrowers are entitled to a refund, and should pay only the exit fee stated in their original mortgage contract. With 2.5m mortgages redeemed every year, it is estimated that the banks may have to pay back around £2bn in refunds. Anyone who has redeemed a mortgage in the past few years could potentially claim, as most lenders have increased exit fees over this period. The FSA has also made it clear that these exit fees should reflect the actual cost to the lender. Although some lenders have stopped charging these fees to new borrowers, some have simply given the fee a new name.

The government says that the arrival of home information packs (HIPs) will have only a transitory effect on the market, but many industry commentators believe there is still widespread ignorance of the scheme. They claim that the energy performance certificate (EPC), an obligatory part of the HIP, should make us more eco-conscious, as it’s grading of a home’s energy efficiency will suggest ways to limit the burning of fossil fuels. Lower gas and electricity bills will be another plus. Among the few who are aware of HIPs, there is a keen interest in the EPC, which is set to become a cool badge of environmental awareness. Owners with no intention of selling will employ an energy inspector to complete an EPC for their home as proof of its eco-conscious credentials.

News in brief Tenancy deposit scheme The tenancy deposit scheme obliges all landlords who take deposits from tenants to join one of three deposit protection schemes. There are large fines for those who fail to comply; they also lose their right to evict. Many may be falling foul of rules, simply because they have failed to realise that letting a flat, even to a friend, makes them a landlord.

eSmartproperty

New-bu prope rig attac

The average ne 100 problems tha

eSmartproperty

OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

ew home has at need fixing eSmartproperty

The findings show that many people buying new homes face delays in moving in, while others are left with problems such as faulty wiring, poorly fitted doors and leaking windows. Typically the average new home has 100 problems that need fixing and many problems don’t become apparent until later. According to the NCC, outdated laws are not geared to helping homeowners get these problems put right and a radical shake-up of the way the new-build housing market is regulated is also needed to ensure homeowners got the protection they need. Late completion can be a nightmare for many families as they find themselves out of pocket, paying rent and storing furniture, while they wait to move into their new home. Others face a battle to sort out snagging problems, the faults that occur with all new properties. The NCC’s report, which comes in response to the Office of Fair Trading’s (OFT ) ongoing investigation into house builders, found that consumer satisfaction with new homes was declining. Around 29 per cent of new-build properties were deemed to be of poor quality,

OCTOBER/NOVEMBER/DECEMBER 2007

and one in four buyers said they would not recommend their builder to a friend. The NCC said recent mergers between house builders and developers had reduced both choice and competition in the market. The group is calling for statutory protection for homebuyers, similar to that offered under the Sale of Goods Act 1979, which states that goods must be of satisfactory quality, be

“

snagging problems would be fixed. In addition, an independent redress system should be set up to give consumers the option of complaining without having to start expensive legal proceedings. But the trade body for builders and developers, the Home Builders Federation (HBF), said the NCC’s claim that consumers had more protection when buying a kettle than a new home was “simply wrong”. They

“

uild erty ghts cked

People have more rights when they buy a kettle than they do when they buy a new-build home, according to the National Consumer Council (NCC) in a recently published report.

In the latest survey published by the HBF, it showed 76 per cent of purchasers were satisfied with the overall quality of their home. fit for purpose and correspond with their description. It said this should be coupled with the introduction of an OFT-approved code of conduct for builders and developers, which would give consumers clear information before they signed a contract. Builders would also have to ensure completion dates were accurate, and offer people a minimum period in which

responded that new home buyers enjoy a 10-year warranty, which ensures high standards of quality, remedy for any problems covered by the warranty and formal dispute resolution procedures. This is not the case for people purchasing second-hand homes. In the latest survey published by the HBF, it showed 76 per cent of purchasers were satisfied with the overall quality of their home.

eSmartproperty

Taxing times

ahead! Planning to minimise the pain

Owners of second properties could face sizable tax demands if they sell to try and cash in on increasing property prices. The good news is that with the appropriate planning a potentially high capital gains (CGT) tax bill could be reduced considerably.

eSmartproperty

OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

In the UK, no one pays tax on the sale of a main home, because it is exempt from CGT. If the value has increased since you bought, the profit is tax-free. Over the past few years, the number of people buying multiple homes has increased, as more families purchase holiday homes or student accommodation for their offspring to live in while at university. Others have turned to the buy-to-let market to help plan for their retirement. If you own more than one property either in the UK or abroad and the price goes up, you are taxed on any profit when you sell, currently up to 40 per cent. The Council of Mortgage Lenders estimates that more than 1m homes in the UK are now second homes or part of buy-to-let portfolios with a further 400,000 homes owned abroad. Specialist tax advisers are concerned that many owners are not getting the right advice about simple steps that could help mitigate this loss. It may be possible to reduce a tax bill of a few hundred thousand pounds to virtually zero. But it is complicated, and most people don’t know where to begin say PwC, the giant accountancy firm. Take a look at this 10-point plan amateur landlords should consider if appropriate to their situation.

1. Claim all allowable expenses Your taxable capital gain is the difference between what you buy and sell the property for. But you can add all professional estate agents and solicitor’s fees to the purchase price plus stamp duty and the cost of any money spent on improvements. Make sure you keep receipts for all these items.

2. Principal private residence Consider switching “principal private residence” exemptions between properties. All gains on property are taxable with the exception of the home you live in which the taxman calls your principal private residence. However, if you own more than one home you can elect which you wish classed as your primary residence, provided

eSmartproperty

there is some evidence that you have actually resided there, albeit shortly. If you live for even a matter of weeks at any stage in your “second” home, this could enable you to write off the last three years of capital gains when you come to sell. But the window for exploiting this loophole is tiny. You must elect which will be your primary residence within two years of the purchase of one of the various properties you own. Having made your choice, you can then change it. But if you fail to elect, the opportunity is lost.

3. Longevity gives longer relief Owners can also claim “taper” relief. If you have owned a property for three years, you cut the taxable gain by 5 per cent, and a further 5 per cent for each subsequent year, up to a maximum 40 per cent after 10 years.

4. Gain from indexation If the property was bought before 1982, then the revenue assumes you paid its value at April 1982, which wipes out any gains to that point. Between 1982 and 1998, a further indexation allowance is granted. As the retail prices doubled between these years, the revenue will write off that amount again for tax purposes.

5. Live in the property Any extended period you live in the property reduces the CGT bill accordingly. For example, if you own a property for 17 years and lived in it for 12 years you will be liable for 12/17th of the tax bill, plus a further three years exemption, wiping out 15 years worth of gain.

6. Move in before letting it out It makes sense to at some stage live in a property you buy-to-let out. Not only can you gain three years exemption, but you get a further £40,000 allowance to offset against any gain. A husband and wife both receive this allowance, allowing them to write off a further £80,000 of the gain provided they are joint owners. As with the election of a principal private residence, the length of time required to live there is not written in statute. Although

OCTOBER/NOVEMBER/DECEMBER 2007

there is a general consensus that three to four months or preferably six months is required.

7. Utilise personal allowances Once you have reduced the gain as far as you can, each spouse can claim a CGT allowance currently £9,200, allowing a married couple to realise £18,400 property profits tax-free. Tax is charged at your marginal rate, so make the most of any breaks available. Non-taxpayers, for example, pay no tax up to £5,225. They then pay 10 per cent tax on the first £2,230. Thereafter, they pay savings tax of 20 per cent (rather than basic rate of 22 per cent) up to £34,600, following which 40 per cent deductions.

8. Offset other losses If after these measures you are still facing a potential tax bill, take a look at your other assets, not least your share portfolio, to see if you are sitting on any losses. If you sell these shares in the same tax year and crystallise the loss, this could be offset against the property gain.

9. Offset local overseas taxes If you are one of the 400,000 Brits who own a property abroad but are resident for UK tax purposes, you are liable for CGT in exactly the same way as if the property was here, but you can claim the same exemptions. However, you may also find yourself liable for local property taxes. Where these have to be paid, they may be permitted to be deducted from the UK bill.

10. Getting married Tax bills can arise where a couple each has a property when they meet but decide to rent one out when they move in together. Until they marry, they can enjoy two lots of “principal primary residence” exemptions, which probably solves their problem. But once they tie the knot they only have one between them. Once married, they must rely on the other exemptions listed above. However it’s worth remembering that unmarried couples cannot transfer assets between each other free from CGT and capital gains tax as married couples can.

eSmartproperty

Government’s housing vision

Ambitious targets aimed at making sure everyone has a place to live in the future

The government’s green paper on housing issued recently unveiled plans to build 3m additional new homes by 2020, as well as other initiatives to help first-time buyers and mortgage borrowers. As part of the plans, the government will step up pressure on local councils to take control of unused empty properties. Under the existing Empty Dwelling Management Orders (EDMOs) legislation, councils are able to take over management of some residential properties that have been empty for more than six months. This does not necessarily apply to second homes, as the council needs to prove that it is in the public interest to take over the property. In effect, this means it only applies to dilapidated or long-term unused houses that are falling into disrepair. The government estimates there are currently more than 500,000 empty privatelyowned residential properties in England, half of which have been out of use for longer than six months. This equates to an average lost rental figure that owners could be missing of approximately £8,000 a year. The government estimates that nearly 150,000 properties have been empty for two years or more, and claims there is also evidence of homes being bought as a capital investment and then left empty on a ‘Buy to Leave’ rather than ‘Buy to Let’ basis. The government says councils will be expected to do more to bring these back into use, including using their powers of seizure more aggressively. The green paper also looked at ways of helping first-time buyers into affordable social and shared equity housing. Shared equity schemes will, in particular, now be a major focus for the government. This is where buyers

take a loan for a deposit from either private sector lenders or the government to get on the housing ladder. The loans are interest free but need to be paid back when the house is sold. The government has set a target of 25,000 shared equity or shared ownership homes to be funded by the Housing Corporation, and it has launched a 17.5 per cent government equity loan that can be used with any lender. The paper also confirms government plans to help lenders finance mortgages, including more affordable longer-term fixed-rate mortgages. There is also a plan for an initiative to establish a covered bonds regime in the UK to help finance mortgages, which will give lenders access to borrowing in the £1,500bn European covered bonds market. The problem for lenders offering longer-term fixedrate mortgages has been that they face the risk that borrowers may repay early, which means that they have had to charge borrowers a premium on their mortgage rate to help cover potential costs. The review will examine other ways for lenders to manage this risk, for example, by purchasing derivatives. The government will also look at whether house buyers themselves can use such alternative financing instruments. These plans are part of a wider package to meet the government’s new housing target of 240,000 new homes each year by 2016 – up from its previous target of 200,000 new homes.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

“

The government estimates there are currently more than 500,000 empty privatelyowned residential properties in England, half of which have been out of use for longer than six months.

“

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

HOME INFORMATION

PACKS

Mandatory requirement for half the market!

The government has now extended home information packs (HIPs) to three-bedroom properties and also announced that HIPs and energy performance certificates (EPCs) will become mandatory for all houses put up for sale with three bedrooms or more, covering half the market. No decision has been made about when they will be phased in for smaller homes. The government has said that HIPs and EPCs can help families to save hundreds of pounds off their fuel bills and cut a million tonnes of carbon every year. In addition having the potential to reduce the millions of pounds wasted by consumers when buying and selling a home. From 10 September 2007 all homeowners have to commission a HIP, giving details of land searches and title deeds, when they put their home on the market. In addition they will have to produce an energy performance certificate, which will rate their home on energy efficiency. Initially the packs were to include a home-condition report, but this element was dropped last year,

partly because of the extra cost. Then there was a further delay to bring in the policy in phases, because of a shortage of home inspectors.

Made to measure n All three-bedroom homes or larger on the market from 10 September 2007 will need a home information pack, containing title deeds, land searches and an energy performance certificate (EPC) n E PCs, which cost about ÂŁ100, rate the energy efficiency of a home on the scale AG, with band A having the lowest fuel bills. They also rate on a scale of AG the homeâ&#x20AC;&#x2122;s impact on the environment by measuring CO2 emissions

n Each rating is based on the performance of the building and fittings such as heating, lighting, insulation and double glazing. The certificate also takes into account the age, location, size and condition of the home n The average British home is in bands DE n The certificates are commissioned by the seller from an accredited energy assessor Source: Department of Communities and Local Government Source: Department of Communities and Local Government

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

“

eSmartproperty

From 10 September 2007 all homeowners have to commission a HIP, giving details of land searches and title deeds, when they put their home on the market.

“

Need more information?

Please email or contact us with your query. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

“

The problem for many private landlords without letting agents is that they simply don’t have access to the same amount of information.

“

Hi inte r eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

igher erest rates

Improving rental yields is the key Higher interest rates mean higher costs for buy-to-let landlords, many of whom will be considering raising rents to try to improve their yields. But setting the right rental rate is critical. Obtaining a higher return is desirable, but keeping periods when the property is empty to an absolute minimum should be the goal. Amateur landlords should not make the mistake of believing that, just because their costs have gone up, the tenant will make up the difference. Fortunately for investors, demand is strong with one in four people in the UK living in rented accommodation and two thirds of tenants saying that they do so because they cannot afford to buy. There are more students and more singletons now than ever before, and both groups are more likely to rent. Meanwhile, net immigration into the UK, and particularly into the South East, has kept rental demand high. Hence the prospects for landlords successfully

negotiating a rent rise looks good, although finding the right level is the key. Establishing the rental value is just another type of valuation, and all valuations are based on comparable evidence. The problem for many private landlords without letting agents is that they simply donâ&#x20AC;&#x2122;t have access to the same amount of information. Some contracts provide the tenant with an option to renew for two or three years based on the level of inflation. However, these contracts can often end up being a better deal for the tenant rather than the landlord.

Need more information?

Please email or contact us with your query. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and weâ&#x20AC;&#x2122;ll send them a copy.

eSmartproperty

OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

University town sums add-up

Parents are being attracted by the numbers Many families are offsetting the cost of sons and daughters attending university by giving them an early leg-up on to the property ladder as buy-to-let landlords. Both parents and undergraduates are increasingly prepared to take on buying a property and, with a son or daughter as landlord, renting rooms out to friends.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

“

More than 40 mainstream lenders now offer buy-to-let loans for student let properties and some lenders are now looking at allowing the student to have the property and loan in their own name.

eSmartproperty

OCTOBER/NOVEMBER/DECEMBER 2007

more than £81 a week in rent to be received from a lodger without any income tax needing to be paid. Other tax breaks are also attractive, for example when the child purchases the house in their name, with a parent as guarantor to the residential loan. This avoids any potential capital gains tax (CGT) liability for the parents who, assuming they have used up their main residence CGT exemption on their own home in the United Kingdom, would otherwise face potential liabilities at 40 per cent on gains exceeding £9,200 per person this year. A combination of a student son or daughter’s income tax allowance (£5,255 during the tax year which ends on April 5, 2008) and the renta-room allowance could potentially cover most, if not all, rental income and leave no income tax to pay. In addition you can offset rental income against the rent-a-room allowance or against maintenance expenditure including a claim of 10 per cent of the rental income as wear and tear, and most of the mortgage interest. You could also put the property into a trust where the trustee documentation allows you to retain control. This way, you can still get CGT relief on it as a principal private residence.

“

At graduation, the home can be sold, hopefully profiting from capital appreciation or kept on as an investment either if the child chooses to stay in their university town or let out to new tenants. According to the Halifax, all university towns saw an average increase in house prices of 14 per cent over the past year, well above the average for the UK as a whole. A quarter of the 80 surveyed university towns recorded price rises of at least 20 per cent over the past 12 months. A separate study by Landlord Mortgages (LM) suggested that buy-to-let investors in student towns could expect average returns of 7 per cent a year, using figures for a three-bedroom property costing an average £140,946 and an average weekly student rent of £60. More than 40 mainstream lenders now offer buy-to-let loans for student let properties and some lenders are now looking at allowing the student to have the property and loan in their own name. Also if somebody buys a property as a guarantor for their child with a residential loan and lets out one room under the government’s rent-a-room scheme, this allows up to £4,250 a year or

Do your homework Calculate and aim for room rents that cover mortgage repayments. With a larger deposit and interestonly loan, you may be able to spare your own child’s rent. Consider putting the house in your child’s name. Their income tax allowance and the government’s rent-a-room allowance will help to reduce any tax liabilities on rent. For homes with five students or more spread across three floors, you’ll usually need a “multiple occupancy” licence from the local council costing between £100 and £2,000. Although new rules on legal protection for deposits are in force, a student landlord letting out rooms to friends is exempt from needing an assured short-term tenancy agreement.

eSmartproperty

One minute mortgage

guide Fixed-rate Mortgages

ISA mortgages

These charge the same rate throughout the period of the fix. They are useful for people who want to know exactly how much they have to find over a given period.

ISA-backed mortgages have not yet caught the imagination of the mortgage consumer. The advantage of these packages is that you have the facility to choose your own ISA provider and you can, if you choose to, regularly review the performance and switch funds or change provider if the performance has not been satisfactory.

Tracker Mortgages Trackers are linked to base rates, and discount mortgages to standard variable rates, and both are particularly attractive when rates are falling. Tracker mortgages may also benefit those borrowers who reckon that interest rates will come down in the months ahead.

Capped Mortgages These put a ceiling on how high the interest rate can go, but you pay a lower rate if the standard variable rate drops below the level of the cap. They therefore offer the security of knowing that your monthly repayments are fixed at the top end, but will benefit from any falls in the standard variable rate. Capped loans have come under fire in the past for effectively being little more than fixed-rate loans that charge higher rates than conventional fixes.

Discount Mortgages Discounts peg rates at a set percentage below the lender’s standard variable rate (SVR). Many discount mortgages have no redemption penalties during the tie-in period, allowing you to remortgage if a better deal comes along.

Offset Mortgages Offset mortgages allow customers to combine their savings and debts, in order to reduce the amount of interest owed. Rather than being paid interest on their savings, the sums saved in these accounts will be used to reduce the interest owed on their mortgage and any other loans.

Current Account Mortgages Current account mortgages enable borrowers to combine mortgage and savings in a single account. Their main advantage is that money paid in, or interest earned on existing balances, is credited to the mortgage, reducing the debt and, consequently, interest charges.

Self-certification mortgages Self-cert mortgages ease the burden of proof. To qualify for a home loan borrowers just need to sign a statement of earnings, not provide actual proof. However, there

can be some catches. For instance, first-time buyers and new business owners may be turned away. Unless a self-employed person has been trading for at least one, usually two, years, they generally cannot just sign a statement of earnings. There is also a credit check, on which first-time buyers may score too low to qualify. The majority of selfcertified mortgage lenders demand a 25 per cent deposit; a small minority will accept a 15 per cent deposit, and an even smaller minority 10 per cent.

Sub Prime Mortgages These loans, also called credit repair mortgages, are sold to people who typically have a poor credit record and charge a higher rate of interest because the borrower is considered a more risky bet. There are different levels of sub-prime mortgage. Someone who has a very bad credit rating - they may be a discharged bankrupt or have a lot of county court judgements against them - will be sold a “heavier’’ version. Someone who has missed a couple of mortgage or loan payments in the past will often be sold a “near-prime’’ or “light’’ version of the mortgage. Sub-prime mortgages can charge as much as three percentage points more than an average standard variable rate mortgage, but it will depend on your credit rating.

eSmartproperty

OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

Credit crunch

Bank of England provides respite

The Bank of England took the unusual step of agreeing to provide emergency funding to Northern Rock to allow it to carry on funding, although the former building society has reassured its customers that their savings deposits are safe. Unlike many banks which raise most of their money from customer savings to fund its mortgages, Northern Rock raises money via the inter-bank market. But the credit crunch effectively closed this funding route, causing the bank extreme difficulty.

The events of the credit crunch hit mortgage market, witnessed other lenders move to increase rates as the money markets led them to tighten their lending policies. The rate increases were due to the soaring cost of money on the wholesale markets, as the threemonth Libor rate increased. This is the interest banks pay when they borrow from each other. Anyone coming off a fixed-rate or discounted-rate has found that the cheapest schemes are significantly higher than their previous rate. It is estimated that about 800,000 opted for fixed deals two years ago, when rates were historically low. At the time it was possible to secure a two-year deal for as little as 4.29 per cent.

Today new borrowers may have to pay more, particularly if they are asking for a loan which involves higher income multiples, or if they have a very small deposit. The Building Societies Association has said that different classes of borrowers could in the future find themselves paying different rates depending on their risk profile.

The basics If your mortgage offer is coming to an end, your first port of call is your existing lender. See what they will offer. If you have been meeting your mortgage repayments, they may not reassess your credit rating. Where your existing lender is no longer competitive, itâ&#x20AC;&#x2122;s time to move elsewhere. Do everything you can to improve your credit history, such as paying off any debts, or getting on the electoral register. Check your credit history regularly, so you become aware of and can challenge any unhelpful or incorrect entries If possible increase the equity in the property by using savings to reduce the size of the loan. Study the full cost of a mortgage, paying particular attention to arrangement and other fees when comparing deals.

Need more information?

eSmartproperty

OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

Rents on UK residential property continue to rise News comes as a welcome boost to landlords

Although the RICS survey does not provide accurate figures showing rent paid by tenants, it is the latest piece of evidence that the rental market is moving in the direction of the landlord. Residential rents fell in 2002 and 2003 but have since gathered momentum. In London, in particular, tenants in good areas are paying in the region of 12 per cent more than a year ago, according to figures from Knight Frank. This data will come as good news and a welcome boost to landlords, many of whom have seen their finances stretched after

â&#x20AC;&#x153;

A recent survey by the Royal Institution of Chartered Surveyors (RICS) showed that rents on UK residential property is rising strongly as potential first-time buyers find it difficult to get on the housing ladder. In addition the number of new landlord instructions has also hit its highest level for years.

According to RICS, the number of landlords selling their properties at the end of the lease has edged up to 6 per cent. the numerous interest rate rises. According to RICS, the number of landlords selling their properties at the end of the lease has edged up to 6 per cent. However, this is to be expected as interest rate rises may be having

a greater affect on the more novice landlords, but those who have a more comfortable equity cushion are likely to be riding out the rate increases and will be largely compensated by firmly rising rents.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

Snap decision or gut instinct? The typical househunter takes just 17 minutes to make up their mind

Private rental sector Investors remain confident This is buoyed by strong tenant demand and long-term growth in the private rental sector being underpinned by students and migrants who want high-quality, affordable housing over a shortterm period. The study also shows that the proportion of student and

“

migrant tenants has more than doubled since January and that the majority of small scale investors remain confident that they will be able to add significantly to their portfolios over the short and medium term.

“

Landlords are generally upbeat about the longterm outlook of the buy-to-let sector, a new study has revealed. New landlords expect their investment property portfolios to double over the next five years, rising from an average of 1.8 properties to 4 properties in 5 years’ time, according to Mortgage Trust.

Landlords are generally upbeat about the long-term outlook of the buy-to-let sector, a new study has revealed.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

The typical house-hunter takes just 17 minutes to make up their mind if a property is the home for them, according to a research from ING Direct. The report suggests that perceived pressure from rival buyers leads people to make snap decisions over the suitability of a house. Almost half of recent homebuyers said they believed the property would have been snapped up if they hadn’t made a quick decision. Gut instinct also plays a big factor in people’s decisions, with 38 per cent of homeowners stating that they “knew” within five minutes that they had found their future home. Conversely, the study claimed that the average deliberation of 17 minutes is less than the typical time spent choosing new curtains for the property, which is set at 54 minutes. The report concludes that with the pace of today’s housing market this puts a huge amount of stress on buyers, and the research shows this can lead to snap decisions being made when choosing a new home. The research was based on a survey of 1,000 homebuyers who had purchased their property over the past 12 months.

eSmartproperty

Glossary Making sense of the jargon 22

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty Advance The mortgage loan. Balance The loan outstanding, after taking payments (credits) and any debits into account. Buildings insurance Needed from exchange of contracts to cover the house you are buying against damage. Building survey A full inspection of the property by a surveyor on behalf of and paid for by the buyer. Capital The amount you owe, excluding costs and interest outstanding. Collateral/security The property which the lender can sell to repay the loan if the borrower does not keep up the mortgage payments.

Freehold Outright ownership of the property and the land on which it stands.

building, planning permission for any building work previously carried out, connection to the mains sewer, etc.

Gazumping When the seller accepts an offer in England and Wales but then, before contracts are exchanged, accepts another, higher offer from someone else.

Mortgage Has a specific meaning in law but has come to mean a loan with property as security.

Ground rent An annual charge payable by leaseholders to the freeholder. Guarantor A person who promises they will pay the borrower’s debt, usually if the borrower fails to. Home-buyer’s survey A surveyor’s report on a property which is less extensive than a building survey and is paid for by the purchaser.

Completion The final legal transfer of ownership of the property – when the property becomes yours. The start of the mortgage (also known as ‘drawdown’).

Home Information Packs (HIPs) All three-bedroom homes or larger on the market from 10 September 2007 require a home information pack (HIP), containing title deeds, land searches and an energy performance certificate (EPC). These sellers’ packs apply to approximately 20 per cent of the UK property market.

Contents insurance Cover for all your personal belongings against theft, damage etc.

Land Registry Certificate Provides details of the property, including a plan and, if the property is leasehold, a copy of the lease.

Contract/contract race A contract is the written agreement between the seller and the buyer of a property to transfer ownership. A contract race is where the seller has received two or more offers on the property and will sell to whoever is ready to exchange contracts first.

Land Registry fee A fee paid to the Land Registry to register ownership of the property.

Deposit Two deposits may be payable by the buyer: A reservation charge payable as sign of good faith to the seller when they initially agree to buy/sell to each other. The deposit paid towards the total price of the property, payable at exchange of contracts. Drawdown date/drawdown deadline Drawdown is the date when the mortgage starts. The drawdown deadline is the date that applies to some mortgages, by which the mortgage must start. Exchange of contracts In England and Wales (not Scotland), the point when both buyer and seller are legally bound to the transaction and at which point the buyer should take out buildings insurance on the property.

eSmartproperty

Leasehold The right to possession, but not ownership, of a property for an agreed period of time. Ultimate ownership remains with the freeholder. Lender The bank, building society or financial institution where you have your mortgage. Lessee/lessor The lessee is the person to whom a lease is granted – the tenant. The lessor is the person who grants a lease – the landlord. Life assurance An insurance policy that pays a lump sum on death. Often taken out with a mortgage to provide money for the loan to be repaid if the borrower dies during the term. Local authority search Questions your solicitor/conveyancer will ask the local authority regarding plans for new road

OCTOBER/NOVEMBER/DECEMBER 2007

Mortgagee/mortgagor The mortgagee is the lender who lends the money in return for the mortgage granted by the borrower, who is therefore the mortgagor. NHBC guarantee A 10-year guarantee, provided by the National House Building Council, that the builder will put right serious defects affecting a newly built property. Zurich Municipal and Premier Guarantee both offer similar guarantees. Specialist report A report required by the lender into particular defects discovered at the property to be purchased, such as serious structural movement or dry rot, before they will agree the mortgage. Stamp duty A government tax payable on exchange of contracts on properties over certain values. Subject to contract The phrase used before exchange of contracts which allows either party to withdraw without incurring a penalty. Surveyor/valuer The person qualified by the Royal Institution of Chartered Surveyors to carry out valuations and surveys of properties. Title deeds/title documents The legal documents which provide proof of ownership of a property. Transfer deeds A form which provides details of the transfer of ownership to be entered on the Land Registry register. Valuation An inspection of the property to ascertain its acceptability to the lender as security against the mortgage loan, for which the borrower may have to pay. Vendor The person(s) you are buying your new home from.

eSmartproperty

On the move? Pre-move checklist Removals Most professional removal firms are members of the British Association of Removers so they are protected by the Association’s code of practice. Charges can vary considerably. Ask a few firms to come to your home, assess what will be involved in the move and get a quote in writing. Arrange your move as far in advance as possible to ensure you can move when you want to and if you do use a professional removal firm, ask them for packing boxes before you move.

Don’t forget the obvious Arrange for your existing telephone line to be disconnected. Ask for this to happen at a specific

time on the day of the move and if possible request to have the telephone number transferred to the new property. Redirect your post. For a small charge, the Royal Mail will redirect your post to your new address. Run down your freezer so you can defrost it or, if you don’t want to defrost it, turn it up a couple of days before you move to freeze the contents as deeply as possible. Settle paper and milk bills.

The day you move: Read the meters at your old and new property. Don’t pack everything! Keep a few essentials handy – mugs, kettle and tea; washing-up bowl; vacuum cleaner; bin bags and light bulbs.

Check that you have let everyone know your new address nA ccountant/Financial adviser nB ank nB uilding Society nC atalogue companies nC lubs and societies nC redit card and store card companies nD entist nD octor/clinics nD VLA (driving licence) nD VLC (vehicle licence) n E lectoral role and council tax n E lectricity company n E mployer nG as company nG ym/leisure centre n I nland Revenue n I nsurance/pension companies

n Library n Loan providers n Motoring organisation/services n National Savings n Optician n Premium Bonds n Schools/colleges n Subscriptions including cable/ satellite TV, magazines and Internet provider n Telephone/mobile phone companies n Trade Unions and professional bodies n T V Licensing Authority n Vet n Water company nd don’t forget to tell your A family and friends!

Need more information?

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

Parents DIY skills add value!

Retailer offers flat-pack homes Home improvement enthusiasts, however, will be denied the ultimate DIY project since all the properties will already be assembled. Known as BoKlok, the flats and houses from IKEA will be eco-friendly, using renewable materials in the construction and featuring solar panels and geothermal equipment incorporated in the design. All the properties will be south-facing to catch as much sunlight as possible to warm the house. An area of land has already been set aside in the centre of Gateshead for an estate of around 90 of the DIY homes. Flats cost between £100,000 and £125,000, two-bedroom houses cost £132,500-£139,500 and three-bedroom houses are on sale for £150,000. The BoKlok offers new solutions to the problem because it concentrates much of the actual building work off-site and that substantially reduces the cost. It is the first time flat-pack homes have

been sold with their plots. First-time buyers earning between £15,000 and £35,000 will be prioritised in the allocation process. Ikea hopes to expand the project to 12 more sites over the next 18 months. Ikeas developers are also looking at sites in Glasgow, Edinburgh and also in London. Buyers will have to consult with Ikea before they can sell the houses, giving the company the chance to vet future owners. The first residents, expected to move in at the start of next year, will receive £250 worth of Ikea gift vouchers.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

British parents have used their DIY skills to add £33bn to the value of their children's homes over the past five years, according to a survey by Halifax Home Insurance. Parents have donated an average of eight days' labour to their offspring since 2001, with 30 per cent of those questioned admitting they would ask their parents for help to avoid paying for work to be done. The company said that as a nation parents had donated 167m days in total, saving their children £14bn in labour costs. Parents were most likely to get a call from offspring aged between 18-24, with 84 per cent of that group saying they had drafted in their mums and dads to help with home improvements in the past five years. Almost half of those surveyed said they asked their families to help because they didn't have the skills to do the work themselves, a figure that increased to 53 per cent among 18-35-year-olds. Only 31 per cent of this age group rated their DIY skills as being better than their parents', compared with 42 per cent of 35-54-year-olds and 63 per cent of over 55s. The top parental task was painting and wallpapering, followed by gardening, general DIY and building furniture. On average these jobs added £2,390 to the value of the property, or a total of £33.4bn across the nation as a whole. If done well, even basic cosmetic tasks such as redecorating can add significant value to a property, the insurer said.

eSmartproperty

Generating green energy! Under recent plans announced by the government, some homeowners will be able to install microgeneration equipment like solar panels and wind turbines without planning permission. The proposals, which are designed to encourage take-up of these green energy devices, cover installations that do not have an impact on neighbours' properties. Installations on listed buildings and in conservation areas and national parks where the devices can be seen from the road will still need planning permission.

What happens currently? Homeowners who want to install these types of technologies have to get planning approval, which involves applying to the local council. The process, which is the same as applying to do an extension or make structural changes to a property, can take months and cost hundreds of pounds.

Do I need planning permission now? You will need permission until the new rules have been consulted on and put into law, which the government hopes will be finalised shortly.

After this point you may still need permission if you live in a protected area, or your plans fall outside the government's proposed limits. If, for example, you are planning to install solar panels, they must be no higher than the highest part of your roof. If you are considering putting a wind turbine on your roof, you will need permission if it is taller than 3 metres or the blades are more than 2 metres in diameter. The government says it will issue guidance for householders on permitted development rights for microgeneration when the new rules are introduced.

Need more information?

What are the costs involved? A wind turbine typically costs £1,498, which would include a home survey, help with the planning application and installation. In the right location, the turbine could generate up to 1kw of electricity. Solar panels, designed to heat water rather than generate electricity, could cost in the region of between £1,798 for a one-panel unit and £2,498 for three panels. Installation would be is extra. Fitting a ground source heating pump may be a more costly business. The government estimates a total cost upwards of £6,500.

Will the government offer any financial assistance? There is very limited assistance. Strong demand for the £12.5m on offer led the government to offer the grants monthly rather than annually, but homeowners have still had to act fast to get their share of the cash. In March the £500,000 that was up for grabs through the low carbon building programme was snapped up in just 75 minutes.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

Monopoly…location, location, location

Prime locations

A new version of the Monopoly board has seen two historic market towns and a village ambush Britain's biggest cities by pushing them into lowly positions. St Albans, Colchester and Keele triumphed in an online poll to name the squares in the game. The poll, which attracted more than a million votes, excluded other big cities altogether, including Edinburgh, Glasgow and Newcastle upon Tyne. Instead of London, which would be a runaway winner on average property prices, the prime spot occupied by Mayfair on the standard board goes to St Albans. Exeter takes Park Lane, the second-ranking space, while London has to be content with replacing lowly Northumberland Avenue in the third cheapest property band.

Launched as a PR stunt, the competition developed earlier this year into a formidable marketing exercise for councils which suddenly realised its potential. Monopoly has consistently been a worldwide bestseller since its launch in 1935, and the town’s version will share equal billing with the standard game. Liverpool saw a belated surge of votes after its 2008 capital of culture planning committee was alerted to the potential PR damage of missing out in its year of glory. St Albans victory was overwhelming with 10.25 per cent of the 1,001,024 votes. Cardiff also managed a belated rally to get Wales its solitary place on the board, while in Scotland Dundee was the only major city to realise the possible benefits. Northern Ireland is absent, but communities there opted to go for the new All-Ireland Monopoly, also launched today as the equivalent of the town’s board.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

Mayfair - St Albans Park Lane - Exeter Bond Street - Nottingham Oxford Street - Cambridge Regent Street - Sheffield Piccadilly - Stoke-on-Trent Coventry Street - Oxford Leicester Square - Birmingham Trafalgar Square - Norwich Fleet Street - Keele Strand - Dundee Vine Street - Lincoln Marlborough Street - Plymouth Bow Street - Derby Northumberland Avenue - London Whitehall - Manchester Pall Mall - Colchester Pentonville Road - York Euston Road - Cardiff The Angel, Islington - Middlesbrough Whitechapel Road - Leeds Old Kent Road - Liverpool

eSmartproperty

The cost of moving

Calculating your outlay!

You can use this list to assess how much your total monthly outgoings are likely to be in your new property.

ITEM MONTHLY COST Mortgage payment

Other loans/hire purchase

Buildings and contents insurance

Life policies/health cover

Pension

Savings

Council tax

Gas/electricity/domestic fuel

Water

Telephone (landline/mobile/Internet)

TV licence

TV/Video rental

Car running costs

Food and groceries

Clubs/hobbies/memberships

School/nursery fees

Other

Total (A) Your monthly income (B) Balance (B-A)

£ £ £

Complete the table below and add up the costs for an idea of how much it will cost you to move.

If you are selling

If you are buying Initial deposit/ Holding charge

Legal fees (If not already entered under ‘buying’)

Legal fees

Estate Agent’s fee

Stamp Duty (if applicable)

Removal costs (If not already entered under ‘buying’)

Main deposit

Surveyor’s fees

Mortgage set-up charge

Removal costs

TOTAL

Total cost of buying and selling

22 28

eSmartproperty eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

eSmartproperty

Rental demands fuel buy-to-let

Buy-to-let investors are continuing to enter the property market in spite of rising interest rates, lured by strong rises in rents, the Royal Institution of Chartered Surveyors (RICS) said recently. Demand for rental property is being supported by the inability of many would-be first-time buyers to afford anything. It is also being fuelled by predictions that the housing market may slow down next year, which encourages potential buyers to hold off. The RICS said that new landlord instructions (an indicator of buy-

to-let activity) picked up sharply in the second quarter of the year, with 20 per cent more surveyors reported a rise rather than a fall in landlord instructions, up from 8 per cent in the previous quarter. 29 per cent more surveyors reported a rise than a fall in tenant lettings, up from 15 per cent in the last quarter.

eSmartproperty OCTOBER/NOVEMBER/DECEMBER 2007

The reasons the RICS gives for this include, deteriorating accessibility, tight supply and a slowing housing market has kept would-be home buyers in the rental sector, with many adopting a wait and see approach. Separate figures from the Association of Residential Letting Agents said tenant demand

outstripped supply in all areas of the market. The level of rents also rose in all areas to an all-time high, continuing a trend which started at the beginning of the year. The Council of Mortgage Lenders (CML) say the average mortgage multiple needed by a first-time buyer to secure a property continued to increase in July, rising to 3.39 times income, the highest figure on record and up from 3.23 times income in July last year.

eSmartproperty

UK housing buyers have it easy! Nine years’ salary earnings needed to buy a property The UK housing market may be at record levels but buyers have it easy compared to many other European countries. Research by Properazzi revealed that the average gross earnings needed to buy a property in the UK stands at the equivalent of nine years’ salary. Despite having one of the highest average property prices in Europe, the UK also enjoys strong salary levels and compares favourably to countries such as Ireland, Spain, Portugal, Belgium and Bulgaria. The nations where buying property is most affordable according to the index are Denmark, Sweden and Finland. It would take just 5.3 years’ salary to afford the average-priced house in Denmark, compared to 15.6 in Poland and 29.0 in Bulgaria.

Paying less in inheritance tax

The basic rules to paying less inheritance tax

Make a will. A will is crucial for anyone wanting to protect their family from a huge headache after they die but they also remain by far the best IHT avoidance tools. Give money away. You can make gifts to anyone of £3,000 a year free of IHT. Passing assets between spouses and civil partners. One of the main tax advantages of marriage or civil partnership is that spouses and civil partners

are allowed to pass as much as they want to each other on death without incurring IHT. Discretionary will trusts. By using a discretionary will trust the amount these couples can pass on to beneficiaries such as children or friends can be increased to £600,000 under today’s tax limits. Invest in non-quoted shares. Shares listed on the Alternative Investment Market, as well as shares

in privately owned companies, are free from IHT if held for two years. Make regular gifts from income. If your income exceeds your normal expenditure, you can use the excess to make gifts free of IHT, provided that you commit to doing so on a regular basis. Discounted gift trusts. These allow you to take capital from your estate straight away, while retaining the ability to receive income from it.

The articles featured in this publication are for your general information and use only and are not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Produced by Goldmine Publishing Limited • PO Box 5756 • Milton Keynes • Buckinghamshire • MK10 1AG

Articles are copyright protected by Goldmine Publishing Limited 2007. Terms and conditions apply. Unauthorised duplication or distribution is strictly forbidden.