A blog explaining the Pros and Cons of taking out a joint mortgage
With hit shows such as Homes Under the Hammer, buying property at auctions has grown in popularity over the last decade. This post will hopefully help you avoid sudden bankruptcy and help you buy objectively with confidence!
1. Familiarise yourself with an Auction House
An Auction house is a sales room, as such, it can be both intimidating and exciting. With so much to gain and lose, spur of the moment purchases are rarely successful. A winning bid can secure you your dream property, but at what cost? Knowledge of how the bidding unfolds, how prices rise and in what increments is essential.
Request the catalog and understand what properties going under the hammer. Once a property piques your interest, arrange with the auctioneer to view – before the auction. This is likely to be an accompanied viewing.
The auction listing in the catalog should guide you on the state of the property. Often, auctioned properties need work, so it might be wise to take your appointed surveyor with you.
3. Know the true market value
With guide prices set low at auctions, it’s important to research the property, the community and other properties that have sold previously in the region you are buying. Guide prices of properties are set low at auctions to entice in bidders. At this point, true market value means very little so knowledge of what the value of the property in peak condition is crucial.
4. Obtain legal advice
Get a legal team in place – a legal pack is issued by the auctioneers before each event. Key areas to cover are freehold, how long is the lease, is planning permission approved, other dwellings being built nearby?
Various things to consider - You will also need to make your financial arrangements known prior to the auction. You must have a 10% deposit ready on auction day, and you must deposit the remaining 90 per cent within 28 days. If you need a mortgage, it is prudent to have discussed all the financial implications with your lender, and have arranged a mortgage in principle. Therefore, as we mentioned before the surveyor will be important for the lender (if required) to agree to release funds.
Have a fee for the property you are bidding on in mind and stick to it. Remember auctioneer’s fees on top need to be added after the gavel drops. The fees vary from auctioneer to auctioneer, so have this in mind and ask what these are being bidding commences.
If the property meets and passes the figure you have in mind and have budgeted for, walk away.
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.
Written by @michaelanthony.co.uk
According to The Department for Communities and Local Government (DCLG) statistics, there were 4 million residential leasehold dwellings in England in the private sector in 2014-15 and of these 1.2 million were leasehold houses. With so much recent media publicity surrounding leaseholds, here is what you need to know about Leaseholds and Freeholds!
The majority of properties are either freehold or leasehold. Leasehold is a method of owning property by lease (usually a flat) this is likely to be the case even if you have a share in the building's freehold.
Characteristics of Leasehold Property
- You don’t own the land – you lease the land for a period of time. At the end of that time, it reverts back to the freeholder if you don’t renew
- Typically lease terms are anything from 100 to 999 years
- You pay ground rent every year as payment for the lease
- The lease has conditions about what you can and can’t do
- Most common for flats, increasingly new build houses too
Before you buy, get your solicitor to look over the lease agreement in detail it is important that you check the following;
- Length of remaining lease term
- The cost of Ground rent, and if it increases after a period of time at what rate?
- Any restrictions – i.e. not being able to sublet
- How service charges are calculated and paid
- Who is responsible for minor repair and major works
- How repairs are paid for
- When the freeholder's permission is needed for alterations
- Who is responsible for arranging buildings insurance
How to extend a lease
Lease extensions are always possible and follow a set formula – however, they get more expensive when it gets below 80 years– (marriage value). If the leasehold has less than 60 years left it becomes more difficult to obtain a mortgage.
- Get a specialist valuer to value the extension and a solicitor to serve notice on the landlord, offering terms and how much is required to pay. The landlord has 2 months to respond, either accepting or stating their own terms.
- After 2 months either party can apply to the tribunal for decision Wait for tribunal decision, which is final. This can take a year or more from start to finish by the time you’ve waited for various deadlines.
- If negotiations fail, you can take up the dispute with the Leasehold Valuation Tribunal (LVT). In cases where you feel your service charges are unreasonable, your buildings insurance is overpriced or the quality of services provided by the managing agent is poor, the LVT can arbitrate.
- Leaseholders can also go to the LVT if they want to extend their lease, or want to buy the freehold but aren’t able to agree on a price with the existing freeholder.
The other form of ownership is freehold. This is where you own the building and the land it stands on outright. It is your name in the land registry as “freeholder”, owning the “title absolute”.
- Won’t have to pay annual ground rent
- You don’t have a freeholder failing to maintain the building to a good standard or charging too much for it
- You have responsibility for maintaining the fabric of the building – the roof and the outside walls
- Whole houses are normally sold freehold – however, there is an increasing trend for leasehold houses, so check before you buy
The advantage of owning property freehold, or having a share in the freehold of a property, is that you are either totally in control or have a vote in what happens with the building and in the latter case any repairs or service charges. Leaseholds are not necessarily a bad way to own a property but stories abound of homeowners hit with big repair bills and high service charges that they struggle to challenge.
However, this trend is starting to change following the recent backlash against developers such as Taylor Wimpey who have recently agreed on a £130m deal to help distressed leaseholders. The communities secretary, Sajid Javid, recently announced plans to “ban new-build houses being sold as leasehold as well as restricting ground rents to as low as zero”. New legislation will close loopholes and protect buyers, some of whom have faced repossession orders after failing to keep up with ground rent increases. The government also plans to change the rules on help-to-buy equity loans so that the scheme can only be used to support new build houses on “acceptable terms”.
Freehold - Permanent and absolute tenure of land or property with freedom to dispose of it at will
Ground Rent - Rent paid under the terms of a lease by the owner of a building to the owner of the land on which it is built.
Leasehold - The holding of property by lease.
Leasehold Valuation Tribunal (LVT) - Effectively an informal 'Property Court' designed to settle disputes between leaseholders and freeholders.
Marriage Value - When you extend a lease that has less than 80 years to run, there is an additional fee to be paid to the landlord called a Marriage Fee.
Premium - The payment by the leaseholder to the freeholder when the lease is extended (or Enfranchised) is the Premium.
Revert/Reversion - When a lease comes to a natural end, e.g. after 99/125 years, ownership of the property reverts back to the landlord.
Service Charge - A charge made for maintenance on a property which has been leased.
Title Absolute - Gives the right of ownership to the owner, and cannot be disputed or challenged by anyone else.
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.
Moving into your new property can be both daunting and expensive. See below for our list of immediate costs that you should budget for when moving into a property.
The majority of properties will come unfurnished but if you’re lucky; the property you purchase may have built in kitchen appliances such as an oven, fridge/freezer and hob. Don't forget to consider the costs of basic furnishings such as a sofa, dining table, chairs, tv, bed. etc. (Hopefully you will already have the majority of these)
Consider websites/initiatives like Freecycle. Where you can get items for free no longer wanted by people in your local community.
PC Budget Tip: £500
Your mortgage will probably be your biggest monthly outgoing. The monthly cost of your mortgage is dependent on the overall size of your mortgage and interest rate you are paying.
PC Tip: Try and save the same amount that you expect your mortgage to be. The quicker you can get into the habit the better.
PC Tip: Your first mortgage payment may be more expensive than payments going forward. Your first mortgage payment may not be due for several weeks, depending on the date you move in and your regular repayment date, but you still have to pay interest from the date funds are released.
If you're living alone you can apply for a single persons discount of 25% from your local council. Council tax varies for borrowers depending on your local borough and yes it is compulsory. Properties are classified in bands ranging from A to H. You can have a look at your local councils website to determine how much you will have to pay.
PC Budget Tip: £80 + a month
The TV licence costs £147 a year, although you can pay in weekly, monthly or quarterly instalments. The annual fee will continue to rise in line with inflation for the next five years.
PC Budget Tip: £12.25 a month
Service Charge and Ground Rent
You will only have to pay the above if you are buying a leasehold property (commonly flats and some new build houses).
Service charges are used to pay for the management and maintenance of the building's communal areas.
PC Budget Tip: £100 - £200 a a month.
PC Note: Leasehold properties with additional services such as gym and concierge are likely to incur a higher service charge.
PC Case Study: I made the mistake of not making any service charge payments for a whole year. When it came to selling my property I had to clear a service charge bill of £1500, therefore, I would always recommend setting up a direct debit or paying the yearly amount in full at the start of your lease.
Bills (Water, Electricity, Gas, Broadband)
The amount you pay for your bills will vary. Naturally the bigger the property and more people in property the bigger your utility outgoings will be.
PC Tip: Now on Zoopla whilst you search, you can view the running costs of a property and get an idea of what you could expect to spend on monthly bills, including Water, Energy and Council Tax,
PC Case Study: I spent approximately £100 a month on utility bills (electricity, water, Broadband) when I had my one bedroom flat.
Naturally when you move into a property you will want to make it your own. The costs of redecorating a property can quickly build up if you do not manage your outgings.
PC Tip: Consider what decorating/refurbishing work needs to be done before you put an offer in. The amount of work that you feel needs to be done should be reflected in your offer.
PC Tip: Not all decorative works need to take place immediately. Write a list of what needs to be done immediately and what can be done in the future.
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.
1. Stamp duty
If you're not a First Time Buyer you must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price (£125,000). The amount of Stamp Duty you pay will be dependent on the price of the property.
On 22 November the chancellor abolished Stamp Duty for First Time Buyers purchasing properties up to £300,000.
Those buying a home worth up to £500,000 will not have to pay stamp duty on the first £300,000
PC Note: Anyone purchasing an additional home including buy to let properties will have to pay an extra 3% surcharge on top of each stamp duty band.
PC Budget Tip: £250 minimum if purchasing a property over £300,000.
2. Valuation fee
Mortgage valuations can give you a rough idea of whether you are paying too much for a property. The valuation is commissioned by your mortgage lender, and is for their benefit, however the cost is the responsibility of the buyer. The valuation is very limited in scope and is only likely to uncover obvious, visible defects as part of what is a brief inspection.
PC Note: Some lenders will allow you to add the fee to the cost of your mortgage, additionally some lenders may waive the fee as an incentive for you to use them as your mortgage provider.
PC budget Tip: £100 - £400.
The cost of surveys depend on the type of survey (if any) that you decide to carry out.
There are three main types of property surveys offered by the RICS
1 ) Survey Level One: RICS Home Condition Report (HCR)
A fast and comprehensive survey that provides an overview of the condition of the property and highlights anyway major defects/areas of concern. The conditions report uses simple ‘traffic light’ ratings to clearly identify the condition of the key elements of the property. Typically, the lowest priced of the surveys, it is aimed at conventional properties and newer homes.
PC Budget Tip: £100 - £200
2 ) Survey Level Two: RICS HomeBuyer Report (HBR)
This is most suitable for conventional properties which are in reasonable condition. The report specifies major defects and includes a roof inspection where possible, but does not detail remedial works. Advice can be given on specific items if required, and if further specialist investigation is thought necessary this will be stated in the report. These reports are most suitable for houses built during the last 80 years and up to approximately 2,000 square feet / 185 square metres.
PC Case Study: A Homebuyers `report at one of our current properties found there was damp in the property. We managed to renegotiate £10,000 off the price of the property (remedial works cost £3000), a saving of £7000 that we would have never achieved if we did not carry out the HomeBuyers Report.
PC Budget Tip: £250 - £500
3 ) Survey Level Three: RICS Building Survey
Essential for larger or older properties, or if you’re planning major works. The most comprehensive report provides you with an in-depth analysis of the property's condition and includes advice on defects, repairs and maintenance options. It is also highly advisable for older properties (pre 1900) or large or unusual buildings.
PC Budget Tip: £500 +
PC Note: You can often ask your lender to carry out a survey for you along with the valuation survey or can you do it independently.
PC Note: Depending on the seriousness of any defects and the cost of repair work, the buyer may be able to re-negotiate the purchase price or decide not to purchase the property at all.
This is the biggest of all the costs associated with buying a property. The amount of deposit you pay will vary depending on your individual circumstance.
As a minimum, you will have to put down at least 5% of the property price as a deposit.
PC Budget Tip: £10,000 minimum if purchasing a property over £200,000.
5. Mortgage broker fees
Mortgage advisers within banks/ building society's are generally free of charge. However, if you use an independent broker (who have access to a wide range of deals) there will be a charge. Once again; this price will vary from broker to broker.
PC budget Tip: Up to £400.
6. Conveyancer Fees
You'll need a solicitor or licensed conveyor to carry out all the legal work when purchasing a property. Conveyancing costs vary depending on the work involved and the value of the property, and normally range from £500 to £1500.
On top of your basic conveyancer fee, you will have to pay disbursement costs. These are fees that your conveyancer pays on your behalf through the selling process.
Conveyancing - Purchase Disbursements for Buying a Property
Bankruptcy Searches - Between £2 - £5 - This search will reveal if any of the buyers are currently bankrupt or are about to be made bankrupt by virtue of any pending court actions.
Office Copies & Title Plan (Official Land Registry Copies) - Between £6 - £10 - Your solicitor will obtain an official copy of the title deeds / title plan from HM Land Registry. These documents help to confirm details of the property you're looking to purchase
ID Check / AML Checks - Between £5 - £15 - Due to Anti Money Laundering (AML) Regulations, your conveyancer will need to verify the identity of all parties involved in the purchase of a property.
Telegraphic Transfer Fee (TT Fee) - Between £15 - £40 - Your solicitor will be responsible for the electronic transfer of any money from yourself to the lender and from the mortgage lender, to the seller's solicitors / conveyancing firm.
Property Searches - Between £150 - £280 - Your solicitor will conduct searches relating to the property you are looking to purchase. These searches are a combination of environmental reports, flood reports, water / drainage reports, local authority reports and chancel liability checks.
PC Note: This list is not exhaustive, and other fees may be payable for some properties.
So far in the way of living arrangements, you have experienced the works.
From the family home you grew up in, to living with a bunch of strangers in halls or off of campus, and now you are about to come face to face with a whole new chapter of living. Not as a student, but as a fully-fledged graduate.
You may have already started to consider your options and how to go about making your first steps, but it always pays off to receive some extra guidance when it comes to making the next big decision in your life. Everybody’s situations are different too. So in this post, we hope to provide a thorough breakdown for those considering solely buying, renting and for those stuck in the middle
As you approach the end of your academia, it is important to consider your spending and budgeting. Most students are blessed with a weighty student loan. If you are one of the lucky ones, allocate a small part of your time to sitting down and budgeting your remaining loan to enable yourself to put aside some of it for when you finish. This is important to do, buying or renting, as you will require a deposit for wherever you decide to move to and being strapped at the beginning of your move isn’t a position you want to be in. However, if your student loan wasn’t substantial, you can still be thrifty with your spending. It wouldn’t be unfair to sit out on a few student nights out so you can save up what you would have spent that night and also, make sure you budget your food shop by shopping at cheaper supermarkets to save extra pennies. The whole point of saving now is to make your money go as far as possible and to spend what you really need to live off. By getting into the habit of careful budgeting and regular saving now you will give yourself the best chance of staying on track and building up a sizeable savings for when you come to make your decision.
As well, getting a job, either on or off campus will help you to gain some extra money together and help boost your credit rating which will give you a head-start when it comes to applying for a mortgage, as you will need payslip evidence of a regular income to qualify for mortgage financing if you believe buying is a more suitable option for you.
Buying a house is a massive commitment but an amazing opportunity to get started on the property ladder sooner rather than later if you are in the position to do so. If you are seriously considering this option make sure to do your research. It is all too easy to fall in love with properties at first glance, but don’t rush into anything without seriously weighing up some other choices. Assess the market and the area you’re interested in. If you don’t have a car, are there shops and supermarkets nearby? Are you near to a train or bus station? These are aspects which need weighing up so the property matches your lifestyle.
If you’re looking to rent instead, the same applies in the way of suitability to your wants and requirements. If you use the gym, is there one within walking distance? Is the neighbourhood what you want? Additionally, with renting you will need to make sure that the property is within your budget, so you can afford to pay additional bills which you may incur such as gas and electricity, water and TV licence.
Being a graduate, you won’t have the years of experience that your parents have in buying and selling property, so you need to research the local property prices to spot any market fluctuations and to get the best possible deal when making an offer on a property.
Remember, if an advert seems too good to be true, make sure to do some homework. Identify where any hidden costs may catch you out down the line. If you decide to buy, you may need to deal with damp or structural repairs. If this is the case, you can make a low offer that takes into account the costs of putting things right. Alternatively, if a careful and objective appraisal of a property reveals significant issues, it might be best to walk away on that occasion, to continue searching elsewhere.
As a studious graduate, you are probably aware of how difficult it is to save money for property which continues to rise at an ever growing rate. But, where there is a will, there is a way. The government offer a variety of schemes to help you on the pathway to affording your very own home. It will pay off to work out the best loans, ISAs and deals available to you so that you know exactly the ins and outs of what you are being offered and how it will work in the long-run.
One of the most popular and successful options is the government’s Help to Buy ISA. What this entails is that if you put money into this ISA once a month at a maximum of £200, the Government will boost your savings by 25%. So, for every £200 you save, you will also receive a government bonus of £50. The maximum government bonus you can receive is £3,000 if you have savings of £12,000 or more.
Additionally, you could look into the Help to Buy loan, which provides a loan of up to 20% (up to 40% if in London) of the purchase price of a new-build home. This loan is also interest-free for five years. You can find out more information about the Help To Buy Scheme in our guide for first time buyers.
Many parents are also on hand to chip in with their children’s first home, but only consider this option if you are sure that your parents can do this without putting themselves into any financial difficulty.
Do make sure to research all of the peripheral costs of buying a property, such as stamp duty and valuation fees, as well as understanding how the process of buying a property works.
If you decide to rent for a while, give yourself this time to build up a deposit to buy in the future.
Both options need careful planning and organisation so find out what deposit you’ll need, what your monthly repayments will be, and what the other costs of owning a property are likely to be. Additionally, make sure you are clued up about renting your chosen property and the area you are looking at, so you don’t end up living somewhere you’re unhappy with.
So, to conclude, whether you end up buying or renting, make sure that your moving checklist is planned down to a ‘T’, so that your move from Uni to adulthood goes as smoothly possible.
Holly Barry - Twitter: @HJBarry
The first step for first-time buyers is no longer about choosing a mortgage that’s right for you. It’s about ensuring that you’ll even be chosen for a loan by a lender at a rate that is affordable. Prior to the 2007 credit crunch, you could borrow even more than the value of the property! Nowadays the criteria required to obtain a mortgage has increased significantly as a direct result of the reckless lending being practised pre-2007. As a result, the Government has launched a range of schemes such as Help to Buy to push lenders to offer more.
What will they lend to you?
On average lending multiples are 4.5x your taxable income per annum, however, some lenders can go up to 5x your income. However, it is important to note that the smaller the deposit the higher the interest rate which means higher monthly payments, so you need to ask yourself if you can afford this from your monthly disposable income?
In the past, lenders simply multiplied your income to work out how much to lend you, they would even lend up to 6x your income. Now affordability is key, lenders will look at your income compared to your outgoings (debts and bills) and work out how much disposable income you have each month. Lenders will also factor in all your credit card and loan repayments. Even once they’ve done the maths, they may want you to have a cushion in the event mortgage rates rise, and to ensure you’re not right on the edge of your finances. As a result, lenders may ‘stress test’ you on a higher mortgage rate, typically between 5-5.5%, to determine if you can still afford to repay. However, if you can evidence all of your spendings they may not stress test you at the higher rate.
Can you really afford a mortgage?
The key takeaway is to make sure you can afford the house. Think carefully about whether you can afford the mortgage repayments? What would happen if interest rates went up? I would recommend using our budgeting tool which you can download HERE. For further assistance complete this enquiry form and a member of the Arne Grey mortgage team will get in touch with you to discuss further.
Some brief savings tips to those of you saving for a property deposit for 2017/18
1) Set yourself a savings target
Start by working out the true cost of buying the property you desire.
Additional costs to bear in mind when saving for a deposit property include:
• Stamp duty
• Conveyance fees
• Mortgage product fees
• Mortgage adviser (if used)
• Removal hire
2) Calculate mortgage costs
After you have set your target, work out how the monthly repayment costs of a mortgage for your desired property (bear in mind possible increases in price) and try and save the equivalent on a monthly basis.
3) Set up a standing order
Set up a standing order to leave your account the same day as you get paid. Treat saving like a bill by setting up a regular payment and you'll soon get used to not having the extra cash in your bank account each month.
4) Use a budget spreadsheet
Make a yearly budget and review it on a monthly basis. Set out all income and expenditure and cut out any unnecessary expenditure. We have put together a Property Cohort Budget Template which you can download and use for free.
5) Don’t be scared to adjust.
Compare the monthly target from your savings spreadsheet to your current rate of savings. If you're not saving enough you can either:
- Increase how much you save by cutting monthly expenses.
- Adjust your saving goals, either by reducing the value of the property you want to buy less or by pushing back the target date for buying the property.
6) Save before you spend
This one is self-explanatory!
7) Fixed Rate Bonds
If you are early on in your saving journey Fixed rate bonds can be a great option. It pays a guaranteed amount of interest for a set length of time, however it is likely that you won’t be allowed to access your savings during the fixed term, so only invest money you can afford to lock away.
8) Help To Buy ISA
If you’re a first-time buyer, you could get up to £3,000 from the Government by saving with a Help to Buy ISA. (More information can be found on page 8 of our property guide. (www.propertycohort.co.uk)
9) Stop renting
Most people renting have very little spare money to save for a deposit. Think about whether you could survive without your own space for a short time.
Consider the following:
- Find somewhere cheaper to rent perhaps out of London
- Moving back home with parents
10) Do not dip into your savings
Only dip into your savings in case of an emergency.
PS. Dining at fancy restaurants, Holidays to Miami, designer clothes and new trainers are not emergencies!!
Bonus Tip: Don’t just say saving for a house is your priority, show it is!
Your credit history provides mortgage lenders with an indication of how financially responsible and reliable you; and helps lenders determine whether they will lend to you and at what interest rate.
Unfortunately; the importance of having good credit isn't highlighted from a young age which ultimately leaves many prospective buyers unable to get on the property ladder.
Here are Property Cohorts top 10 credit tips:
1. Check your credit
It may seem very simple but you'll be surprised how many people we speak to that have never checked their credit rating. It's the FIRST step to knowing what you need to improve and it's one of the first things that a lender will check when offering you a mortgage.
2. Use Experian or Clear Score
You only have to enter a few personal details and both will give you your credit score along with some tips on how you can improve your score. Clear Score is free and Experian offer a free 30 day trial.
PCTIP - See what you need to improve and cancel after the 30-day trial. You can always log back in at a later date if you want to check again. (It's very easy to fall into the trap of signing up to free trials then continuously forgetting to cancel the service when the direct debits start coming out.)
3. Plan in advance
If you're planning to buy a property, it's worth starting to manage your credit file at least a year in advance.Getting your credit up to scratch does not happen overnight!
4. Get yourself a credit card
If you've never had credit before, it's difficult for a lender to assess you. Consider taking out a credit card and making a couple of purchases on it each month and then repaying the balance in full at the end with a direct debit to build a good credit history. This will show that you can responsibly manage credit.
5. Never miss repayments
Always pay your direct debits and credit card bills on time, if possible pay off your credit card in full. (I am personally really against paying interest on credit cards, so I always pay off my full balance when it’s due as opposed to the minimum payment amount)
PCTIP - If you’ve made late payments in the past, set up a direct debit so you don’t miss them again.
6. Keep your credit card balances low
One major factor in your credit score is your credit utilisation. This is essentially how much you currently owe divided by your credit limit. E.g. If you have spent £8000 on a credit card with a limit of £10,000 then your credit utilisation is 80%. The smaller this percentage is, the better it is for your credit rating.To boost your score, pay down your balances, and keep your credit utilisation low.
7. Get on the electoral role
Your presence on the electoral roll provides valuable proof of your address to lenders. Electoral roll information is used to confirm your identity, which is then passed onto lenders when you apply for credit, to prevent fraud. Thus, if you're not on the roll when making an application it will appear that you don't exist, or you're starting afresh with no credit record; both will have a negative impact.Many people assume they're automatically registered, or don't bother doing it.
8. Be careful with your applications
Do not apply for lots of credit cards or loans at one time. Each time you apply for a financial product, a search will be recorded on your credit record (the so-called credit footprint). If you apply for lots of credit or are declined credit many times in a short period of time this will impact your credit rating.
9. You can get a mortgage if you have bad credit
There are specialists’ lenders who will lend to those with bad credit. For example, a company called the Mortgage Lender offer mortgages to the self-employed, older borrowers and those with poor credit.
PCTIP - Be aware that you may find yourself paying a higher interest rate due to poor credit.
10. Act on the above tips!
“To learn and not to do is really not to learn. To know and not to do is really not to know.”
― Stephen R. Covey, The 7 Habits of Highly Effective People
There were two significant influences on the housing market in 2016: stamp duty and the EU referendum result. Unfortunately, both have led to many contradictory stories regarding property prices and the 2017 outlook.
Following the decision to leave the EU there has been a lot of uncertainty in the UK housing market. Despite this uncertainty; house prices in the U.K have continued to grow. (Zoopla price data has revealed that the average property in the UK is currently worth £299,764.)
Paul and I have recently put one of our properties up for sale, and as a result I personally believe now is a good time to buy a property as there are plenty BMV (Below Market Value) deals available. It took me about 8 hours to sell my flat in 2015, I was inundated with offers in a matter of hours after carrying out an open house. Selling this property feels a lot different; offers and general interest have been much slower than they have been in the past.
I've listed some observations/personal opinions below:
- Recently, I have noticed that some properties have been on Rightmove and Zoopla for over 6 months. (A potential sign that the seller is probably getting desperate and will take a cheeky offer)
- I’ve also noticed a trend of property prices being reduced over the past two/three months, I get the impression that prospective buyers are being cautious and waiting to see what happens to the property market before buying ... Use this uncertainty to your advantage.
- I think this is a great opportunity to take advantage of seller’s uncertainty. If a property has been on the market for a long time I'd suggest putting in a BMV bid. Just because a property says £350,000 does not mean you can't offer £300,000. (Trust me it has worked for me)
- Nobody wants to buy a property and see a property crash three months later and likewise nobody wants to sell a property to then see that prices have risen three months later. This is the risk you take with property, however as a buyer this just highlights why it is important to buy BMV, that way if the market does crash at least you (hopefully) wouldn't have lost too much equity if any.
- The Office for National Statistics (ONS) have said that the typical property cost 7.6 times average annual earnings of employees in England and Wales. Considering that lenders do not tend to lend more than 5 times a salary; property prices are getting out of reach for many, maybe now is a good time to buy before prices become even more unaffordable.
- JLL has forecast that house price growth will be "subdued" and largely flat until 2019, with a slowdown in the number of new homes built. If this is the case then it can be argued that now is a good time to buy seeing as price growth is set to be minimal. On the other hand it can be argued that there’s no rush to get on the ladder as prices aren’t forecast to rise. Personally I’d aim to get on the ladder whilst prices are fairly stable.
- Many property experts argue that falling prices at the top end of the market and a slowdown among the rest has been caused primarily by changes to the stamp duty system, rather than Brexit. I believe this to be true. Figures by the Council of Mortgage Lenders (CML) showed would-be landlords borrowed £800m to buy new homes in January, down from £1.4bn the year before, and £900m in December. It seems there’s currently less landlords to compete with which can only be a good thing.
- I believe the slowdown in the property market we are now seeing is a price correction after the un-savvy investors rushed to buy before the stamp duty changes were implemented, this spike in activity led to many people purchasing property over the odds.
- Recent reports have claimed that 10 would-be buyers chase each home for sale in England and Wales. Whilst this may be true for some areas, I do not believe it is true for every area. It’s worth identifying areas with low demand. London is not the be all and end all!
- Interest rates are at a record low level. The average new mortgage loan in January 2017 came with an interest rate of just 2.05%, down from 2.49% a year ago and compared to 5.34% a decade ago. Now’s a great opportunity to find a mortgage with a low interest rate.
In conclusion, you don't need to wait for a property crash for you to get on the property ladder. If you can get a property significantly BMV then it can be the equivalent to buying a property during a crash.
Always remember, property is a long term investment. The recent Housing White Paper published by the Government states that the UK needs to build 250,000 homes a year to meet demand (last year it was 140,000) as long as the UK continues to struggle to meet this target; it is likely that prices will continue to rise as supply fails to meet demand.
Is now a good time to buy a property? I can't answer yes or no but I don't personally think there's a bad time to buy a BMV property.
1. The decision to leave the EU will most likely be felt in the central London housing market. House price growth is currently weak and we expect a modest price fall from current prices.
2. Due to the uncertainty of the impact on interest rates, inflation, house prices & buyer confidence there is likely to be a lack of investment and activity in the residential market, therefore buyer demand will fall resulting in a drop in property prices.
3. Foreign investors may be reluctant to invest in London property due to the uncertainty regarding the economic and political future of the UK, meaning once again that demand is likely to decrease and prices will drop.
4. Demand within the rental market will fall due to a reduced influx of EU citizens, meaning investors may choose to sell their properties or even lower rents.
Potential bad news for first time buyers
1. There may be more foreign investment as overseas buyers will see greater value in the London market due to the significant fall in the pound.
2. Plans to build more homes may have to be put on hold until the impact on interest rates, inflation, house prices & buyer confidence is known.
3. House builders will see their share prices slump, which may result in a reduction in the amount of homes being built.
Overall we believe any fall in prices will be limited. Due to the current uncertainty regarding prices, demand will reduce, however once there is more clarity regarding prices we believe property prices will settle down and property investment will be an attractive option once again.
All of the views above are assumptions based on our personal opinions, research and economic principles, there is no guarantee that any of the points mentioned above will take place.
For further information on getting on the property ladder you can download our first time buyer property guide here.
My last blog post regarding my first property has been retweeted a fair bit recently so I thought I would follow it up with an update on my property journey.
I recently sold my flat that I referred to in my previous post. A friend of mine that lived in the same block of flats as me told me that she had seen flats in the same block selling for about £36,000 more than I bought mine.
Ever the opportunist; I decided to put my flat up for sale, within one day of putting it on the market I had several offers on the table. Within one week I had accepted an offer, and by the time I knew it I had sold my flat for a handsome profit and was back looking for my next investment.
Throughout the selling process; there were a couple of moments where myself, friends and family questioned whether selling the flat was the right thing to do. However, in the end I went back to the age old mantra, “no risk no reward”.
As a result of taking that risk I turned my initial £6750 deposit into £36,000.
Owning a property at such a young age came with it’s trials and tribulations but I have learnt many lessons and I have some brilliant memories of that flat and I can genuinely say all the ups and downs have moved me a step in the right direction to becoming a man.
Following the sale of my flat, I have now embarked on my next property investment. I have just joint ventured with a good friend of mine and purchased a two bedroom detached house.
The plan is to develop the house into two two bedroom flats.
Similar to my first flat, this house has been purchased below market value (BMV)
Purchase Price: £245,000
Deposit: £24,500 (10%)
Cost of proposed work: approx £100,000
Forecasted selling price: £260,000 per flat. (Total £520,000)
I’m looking forward to embarking on this new journey with the hope that this will be one step toward my aim of rivalling organisations such as Berkeley Group and Barratt Developments.
A couple tips I picked up along the way:
- Move fast
- Don’t let people discourage you from taking risks
- Sometime it’s better to invest in an asset than contribute to an ISA
- Never get too comfortable with being in one place
- You don’t always need to know how you will achieve your goals, you just have to have the belief that you will achieve them
I’m 24 now and I can’t wait to see what God has in store for me when I reach 25.
I thought it was about time I followed up my 1st blog post with a 2nd one.
I managed to buy my 1st property in July so I've decided to provide a brief breakdown on what the costs were and some key lessons learnt along the way. Hopefully it will make young people realise that it is in fact feasible to get on the property ladder at a young age. (I did it at 22)
Property Price - £140,000
Initially I offered £130,000 which got rejected. In the end I negotiated for £135,000
I would advise buyers to speak to a mortgage consultant before you begin house hunting. It will give you a good idea on what you can afford and will help you understand what your monthly costs are likely to be.
Luckily I had an excellent mortgage adviser. I never had to speak with Halifax once as the mortgage adviser sorted everything for me and kept me updated with any information I needed to provide.
(My mortgage repayments are £700 a month) – (I was saving £700 prior to the mortgage)
- Communication with the sellers’ solicitor·
- Legal Work (I.e. Preparing contracts & searches)
- Registering new owners with the Land registry
- Exchange of Contracts
- All monies due I.e. mortgage loan, stamp duty & search fees are paid to your conveyancer who then pay all monies to the seller/HMRC
- My deposit was 5% - £6750
- Stamp Duty 1% - £1350*
- Conveyancing - £2352
- Mortgage adviser - £395
- Halifax Product Fee - £999
- Halifax Valuation Fee - £315
TOTAL** - £12,161
*Halifax were doing a deal at the time where they paid for stamp duty (I had to pay it first then they refunded me the money)
**This total doesn't include the cost of furnishing/refurbishing the property
How long did it take?
I think I was one of the lucky people as it only took me about two months to find a property that met my needs/wants. The whole process (from my initial offer to completion took about 3 months.)
1. It is important to have all paperwork to hand as lenders will want to see
- 3 months pay slips
- 3 months Bank statements
- Proof of deposit
2. Don't forget banks will only lend you approximately 4- 4.5 times your salary
3. Consider adding someone's name to the mortgage if you don't earn enough to get a suitable mortgage (however, please note that the banks have your best interest at heart so do not add someone's name to your mortgage if you know you can't afford the payments alone)
4. There are several monthly costs involved with owning a property that need to be considered e.g. mortgage, council tax, utility bills, service charge (if it’s a flat) My total costs for the month (including travel, food & phone & gym bill comes up to approximately £1300.(I think a good aim is to have at least £500 left after all costs)
5. 3 months prior to applying for a mortgage be frugal with your spending. Lender will want to see your spending habits and new rules coming in October mean your bank statements will be under even more scrutiny
6. A good conveyancer / solicitor with excellent communication is key. Ask for recommendations. Don't just go for the cheapest deal!
7. LOCATION ... Consider present & future transport links. I.e. Crossrail, local amenities etc.
In total I spent approximately £14,000. In my opinion that is affordable and achievable by many young people. (I have friends whose cars costs more than my deposit)
Remember you don't need to fully know how you're going to achieve something in order for it to happen.
I’m now 26 and this was the first blog I wrote regarding Property.
Inevitably property prices have increased since I got on the ladder however the obstacles faced haven’t.
I sold this property and made £40,000 in a year. I was 23 and naive and thought it was a lot of money, not knowing that I’d miss out on £120,000 a year after selling. Experience is really the best teacher. It‘s only recently that I’ve been able to laugh at the financial loss I took.
The saving grace was that I reinvested that £40,000 straight away into another business and another property so I didn’t lose out financially in the end. Nevertheless in hindsight I would have kept the place and remortgaged.
One tip I’d give anyone looking to invest in Property is to be patient and learn from others mistakes. And if you sell and make money make sure you reinvest straight away.
You shouldn’t see your age as a barrier to getting on the ladder. I know house prices aren’t the same now as when I initially got on but where there’s a will there’s a way.
NB. My 1st job out of uni was a £6.20 internship and I was still saving. Don’t let your current circumstance stop you from aiming high!
Disclaimer: THIS BLOG IS NOT ABOUT THE GOVERNMENTS HELP TO BUY SCHEMES. IT IS ABOUT THE LENDING CRITERIA THAT THEY CONVENIENTLY DON’T EXPLAIN
However, for those that are interested, this is a helpful link that explains help to buy schemes. http://www.helptobuy.org.uk
The current help to buy schemes put in place by the government are probably the best opportunity us (18-25 year olds) will have to get on to the property ladder.
The reintroduction of 95% mortgages is good news for the majority of the population as a 5% deposit is relatively easy to raise. e.g a £200,000 house would require a deposit of only £10,000. However, the difficult part is the outstanding £190,000 left to pay.
The government have window dressed their Help to Buy schemes to the extent that people do not realise that the criteria for lending is as strict as it has ever been.
Bank & building Societies generally lend anything up to 4.5 times your salary.
The average UK salary is approximately £26,000.
£26,000 x 4.5 = £117,000
Therefore, the best you could wish for is a mortgage of £117,000 (bare in mind this is the best case scenario.)
A quick search on Rightmove will show you that all you can get for that type of money is a one bed on top of a chicken and chip shop.
What about the new government initiatives that are supposed to help more first time buyers ?! Won’t that make things easier ??
EXAMPLE 1 with “Help To Buy Equity Loans”on a £200,000 property
5% Deposit: £10,000
20% Government Equity Loan: £40,000
Mortgage required: £167,000
Realistic Mortgage offer: £117,000
EXAMPLE 2 with “Help To Buy : Mortgage Guarantee” on a £200,000 property
5% Deposit: £10,000
Mortgage required: £190,000
Realistic Mortgage offer: £117,000
Looking at the example above : In the case of Help To Buy Equity Loans, a further £50,000 will be required to acquire a property. Likewise, in case of Help To Buy: Mortgage Guarantee, a further £73,000 will still be needed to acquire a property.
Hopefully you can see from this that the main factor when purchasing a property is your salary. If you’re not earning above the average salary then you can more or less wave goodbye to taking a step to owning your own property,
However, if you’re struggling to meet lenders salary criteria you do have three options;
1. Considering acquiring your mortgage with a friend, relative or spouse (Two salaries put together are better than one)
2. Go to the bank of Mum & Dad and ask for a substantial deposit
3. Lower your expectations and live on top of a chicken and chip shop
Equity - A stock or any other security representing an ownership interest.
Mortgage - A legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor's property