Buying, selling and letting - Thursday, December 13, 2001

Q I’m about to buy a property and was surprised when my solicitor mentioned something called an environmental report. It shows the property is in an area with a high risk of subsidence. I am tempted to ignore this as I know the house is located where London clay is prevalent and I believe this is what concerns my solicitor. What should I do?

A The Environment Agency of England and Wales, local and other authorities have begun to issue environmental reports to give buyers and sellers information about  land contamination, subsidence, flooding, industrial land use or other potential problems that may affect a property.

As you seem to realise, the environmental report’s findings don’t necessarily mean the property you hope to buy is itself in danger of subsiding. These reports usually cover an area, often a postcode sector, typically 250 to 500 metres around the property in question.

However, any potential dangers revealed by searches or enquiries must be looked into thoroughly so that you know as much as possible about what you’re getting into. It would be worth asking your surveyor whether the property has suffered foundation movement in the past. You should also arrange for a consulting engineer or structural surveyor to look into the possibility of subsidence and produce a report. This may delay the transaction and will probably cost you upwards of £700, but could avoid future problems. Additionally, you should explain the problem to whoever is to arrange the buildings insurance for you. It’s essential you obtain written confirmation from the insurer indicating they are aware of the threat and agree to continue cover.

If it looks like the property has suffered from subsidence or may do so in the future, the usual remedy is underpinning. If you still wish to proceed with the purchase, you should consider using this as a bargaining tool in seeking a price reduction.

Above all, make sure you take all the necessary precautions before and not after exchange of contracts, when it will be too late.

Q I recently decided to put a maisonette I own on the market. I bought it some years ago as a letting investment. My estate agent advises me the property is suffering from physical defects which may put some buyers off. These include damp walls, faulty electrical wiring, loose plastering and woodworm. Do I really have to sort these matters out before I can sell the property?

A Not necessarily – physical imperfections do not have to be remedied in order to put a property on the market. However, the problems you mention will almost certainly affect the ultimate selling price and possibly also the speed at which you can sell.

The law puts the onus on buyers to discover for themselves what kind of condition the property is in. You do have a duty to disclose hidden defects you are aware of, but it’s clear that you have been straightforward with the selling agents.

What you choose to do really depends on how quickly you want to sell the property. Consult at least two estate agents to compare the market value of the property in its present state with how much it might fetch in a better state of repair. This will help you to decide whether it’s more economical to sell the property in its present condition or make the repairs. The choice is yours.

There’s more to decorating a room than meets the eye. For inspiration and advice, take a look at show homes to get a host of ideas from traditional right through to retro chic.

When programmes such as Changing Rooms rule the airwaves, it is no wonder everyone thinks they can be an interior designer. But creating the right look – whether it is contemporary or traditional – is not as easy as the likes of Laurence Llewelyn-Bowen would have us believe.

Stacey Walker, a designer from Alexander James, believes that designing a home is all about stamping your own personality onto the property. ‘Decide what colours you want to use. Do you want to go for a cool, calm look using whites and blues or do you prefer pinks and purples that are a bit warmer,’ says Walker. ‘When considering furniture, the tip is to take your time and never overfill the room. If you can, go and measure up the furniture then draw a floor plan and move things around on paper to get the most out of the space available.’

Creating the look at Sunley Homes’ Port Regent development in Sovereign Harbour, Eastbourne, the team at Alexander James designed a very young and trendy theme using lots of warm colours. The town house show home has a calm aquamarine theme with rattan weave carpets, while the show apartment features the sharp lines of chrome, metal and glass. Customers can also upgrade via Sunley Select and choose Shaker-style moulded doors, matching ironmongery, sleek kitchen worktops and ceramic floor tiling.

The 69 new homes built on the West Harbour at Port Regent start at £125,000 for a two-bedroom apartment rising to £174,950 for a four-bedroom town house. Call Sunley on freephone 0800 085 2222 for more information.

One of the many advantages of buying a new home is that you don’t have to put up with anyone else’s taste. Bringing in the experts to personalise your space to suit your lifestyle and needs is a hassle-free way of creating your dream home. Developers Metropolis and Bryant Homes have created packages to allow the customer a chance to create the perfect home.

At Metropolis the customer can choose from the showrooms of cutting-edge kitchens and bathrooms to find everything from flooring and fittings, as well as consult the interior design team to get a home specifically tailored to the individual’s unique requirements. Call Metropolis on 020 7580 5563.

Bryant Design allows you to turn a standard house type into a home. The customer can browse through the on line catalogue to get a feel for what Bryant can do and sift through the range of products to decide what best suits. Call Bryant Homes on 0121 711 1212.

Ten years ago you couldn’t get a specific buy-to-let mortgage from a mainstream lender. Today, more than 40 lenders offer these mortgages. But, asks Andy Stuart, Editor-in-chief of Your Mortgage magazine, is buy-to-let a safe bet?

According to the Council of Mortgage Lenders there are currently more than 110,000 outstanding buy-to-let mortgages worth £8.3 billion in the UK. And with research from Bradford & Bingley Estate Agents revealing that some landlords are earning returns of up to 10 per cent a year, it appears that buy-to-let has been an unequivocal success for borrowers as well as lenders.

However, speculation about a possible recession means that the future may not be as rosy. After a disastrous first half-year for the stock market, the terrorist action in the United States threw the financial picture into even more disarray. In reponse to these events, the Bank of England’s Monetary Policy Committee (MPC) – concerned by the possible effects of a global slowdown – has cut interest rates six times this year. Fears of a recession in the US are very real and, as the saying goes, whenever our colleagues across the pond sneeze, we catch the cold. So is buy-to-let still a safe investment in the light of this uncertainty?

The stock market reacts more quickly than other economic indicators. So the frailty of the FTSE this year could result in a house market crash next year. ‘Property prices can move in the same way as the stock market, so there is every chance things could turn sour,’ says Mark Harris, director of Savills Private Finance. ‘If the market crashes, buy-to-let investors could be in trouble if they have not put something aside because their money is tied up in the property.’

But low-interest rates are actually very helpful for people who are looking to buy – and with mortgage rates at their lowest level for almost 40 years, shouldn’t now be the perfect time to enter the buy-to-let market?

‘Buying to let is still extremely popular and we expect this to continue,’ predicts Roger Hillier, product development manager at Mortgage Express. ‘Of course there have been noises about an economic downturn but if this happens I don’t think the market will be affected.

‘The demand for rental accommodation continues to outstrip the supply and with first-time buyers waiting longer before they get a mortgage, this also means that more people will continue to rent. Even if there is a recession and a landlord lost their job, a buy-to-let mortgage is assessed on the expected rental income, so as long as this covered the loan payments and maintenance costs there wouldn’t be a problem.’

For the right person in the right circumstances buying to let can be a good investment, but you have to be in it for the long term. Don’t expect instant returns – and bear in mind that the property market could turn and rental levels may fall as well as rise. These potential pitfalls might not suit those who are looking for security.

However, if you do take the necessary precautions, many of the everyday problems associated with a buy-to-let investment can be overcome. Before you plunge into this market make sure you research all your options thoroughly. There may be rough times ahead, but the long-term future could still be very profitable.

As property prices have gone sky-high, many in London and the South East have had to find unusual ways to become property owners. Shared ownership is one way to help those who have been priced out of the open market.

Shared ownership enables people to buy a significant share (typically between 30 and 50 per cent) in a home with the opportunity to purchase some or all of the remainder as and when they can afford it. Along with a monthly payment towards the share of the purchase, shared ownership buyers also pay a subsidised rent to the owner of the remaining share of the property, usually a housing association (also known as ‘registered social landlord’). The monthly costs are more affordable with shared ownership than with buying outright – and the buyer is able to enjoy the day-to-day benefits of owning immediately.

Housing associations offer shared ownership schemes on a variety of property types, both newly built and previously owned. New home builders routinely work alongside housing associations to provide homes, some of which are made available as part ownership schemes.

This type of scheme benefits not only those it enables to buy property; as people move from council tenancy on to the property ladder, local authorities are better able to keep up with demand for council-owned rented property by those who would not be able to afford even part ownership. In addition, the services a community relies on in turn relies on workers to deliver them. The lack of housing is a threat to the well-being of everyone, whatever their own financial situation.

A particularly inventive type of shared ownership helps people build a better future – literally. The self-build shared ownership scheme, as offered by the Boleyn & Forest Housing Society, aims to help people afford a home who otherwise would not have been able to – and to encourage those who are prepared to meet their housing needs through their own endeavours.

The scheme enables people to acquire an approximate 25 per cent share of a property through their own labours known as ‘sweat equity’. They may also need to obtain a mortgage or have sufficient savings to acquire a further approximate 25 per cent share of the property. They would pay a subsidised rent on the share of the property that they do not actually acquire, as they would then be a shared-ownership home owner.

The Boleyn & Forest Housing Society presently offer three self-build schemes in London – in Beckton, Docklands and Bow. Applicants must either be first-time buyers or must require alternative accommodation but not be able to afford to move without the assistance of shared ownership. Preference for these schemes will be given to residents of the borough where the scheme is located, and those with trade or DIY experience are also given priority.

Quick contacts

Housing Corporation
020 7292 4400 (London office)
020 8253 1400 (South East office)

Boleyn & Forest Housing Society Limited
020 8472 2233

Metropolitan Home Ownership
020 8920 4444

Acton Housing
020 8840 6262

What are the advantages of buying instead of renting? And what does a first-time buyer need to keep in mind when entering the property market? Paula John offers some tips

First of all, remember that this will most likely be the biggest financial commitment of your life, so don't buy half-heartedly. If you're going to do it, make sure you really want to and then do your homework. When it comes to getting the best house and the best mortgage deal you truly do reap what you sow.

There are those for whom owning a property is the be-all and end-all. The idea that an Englishman's home is his castle still rings true for many. But others think of buying their own home with a shudder. They see a mortgage as something you are saddled with, not a tool to enable you to get a home. And buying a home can sometimes mean shackling yourself to a property and an area, whereas when you rent you are a free spirit, bound to your dwelling only for as long as your notice period. Plus buyers are responsible for the upkeep of the property, another sizeable sum, and you’ll need to furnish the place – have you seen the price of washing machines, cookers and fridges recently?

Many people are more than happy renting. Students and young professionals account for a huge proportion of the rental population and it often benefits their lifestyles. Many want the flexibility that renting gives them, particularly when they’re not sure what type of work they’ll be in in a few years' time. Also, maintenance can be an expensive business, not to mention a time-consuming and irritating one.

The biggest argument in favour of buying is that you are paying for something that you own – and is yours to sell. In fact, the mortgage may well be cheaper than the rent on an equivalent property, especially if you buy with a partner. Owning is by far the preferred option of the British population. Despite the initial costs, 504,000 mortgages were taken out by first-time buyers in 2000 and, according to the Council of Mortgage Lenders, owner-occupied property accounts for approximately 68 per cent of all UK housing stock.

Owning your own home not only makes you feel secure, but also makes sound financial sense. Firstly, you are not wasting a significant sum on rent each month. Renting is dead money and when you add it up over a number of years it's a huge amount. Secondly, you could see capital growth on your property. Average property prices are around 15 per cent higher than this time last year and currently show no sign of a major drop, although many experts predict that the rises we have seen in the last year cannot continue. Having said this, experts agree that bricks and mortar remains the best option for long-term investment. When looking for a property, keep in mind not only what type of property and what location you feel comfortable living in, but also what is likely to appreciate in value in the medium-term.

And if you’re thinking of buying, it is a particularly good time to borrow. Mortgage rates are at their lowest in 40 years. Bank base rates, which influence mortgage rates, were cut by the Bank of England seven times last year and borrowing is particularly cheap. However, it's worth remembering when you work out how much you can afford to borrow that mortgage rates may rise again at some point – and your monthly repayments may increase. When calculating the monthly reqayments you can afford, it’s a good idea to do further ‘what-if’ calculations based on higher interest rates.

If you do choose to buy, make sure you find out what type of mortgage suits you – the choice of mortgages is bigger than ever and it’s easier to find a loan that matches your financial situation. Information is everywhere – avail yourself of it and do your research properly.

For help in finding and buying a property, visit www.hotproperty.co.uk.

Want to reduce your home loan by £50,000? Then making regular overpayments on a flexible mortgage should be your goal this season, writes Paula John of Your Mortgage magazine

Since they arrived from Australia six years ago flexible mortgages have transformed the UK property-purchasing market with consumer-friendly features such as overpayments, underpayments, payment holidays and the facility to borrow back overpayments. But it is really the option to overpay that makes most sense. For example, if you were to pay an additional £50 on top of your usual monthly payments with a £50,000 interest-only mortgage, at a rate of seven per cent, with Skipton Building Society, you would be able to pay your mortgage off six years and eight months in advance while saving £25,478 in interest. While if you were to pay an extra £100 a month you would be able to pay off your mortgage 10 years and three months ahead of schedule and save £45,510 in interest. Not a bad saving for paying just over £3 extra a day.

How you CAM save

Current Account Mortgages (CAMs) allow the borrower the same benefits as a flexible home loan but with one added extra. With a CAM you can combine your salary, savings and in some cases your credit cards and personal loans with your mortgage and run all your finances in a single account, which could be more convenient for you. As with an ordinary current account you can still withdraw money as and when you please. But at the same time your mortgage debt will be further reduced because instead of paying interest on the whole of your mortgage you only pay interest on the difference between your mortgage debt and your savings. Your savings will work harder for you saving money at the mortgage rate than they would earning money in a traditional savings account.

And if you pay your salary into your CAM each month the total amount you could reduce your mortgage by is particularly impressive. ‘By paying your salary into your CAM you can overpay by default,’ says Matt Smith, head of marketing at Britannic Money. ‘Instead of earning little or no interest the money that you would normally have left in your current account at the end of each month can have a dramatic effect on the amount that you owe on your mortgage. Choosing to pay your salary into a CAM is a painless way of reducing your mortgage debt and paying it off perhaps years in advance.’

Separately together

Another new type of flexible home loan, the offset mortgage, also allows the borrower to combine all their finances together. However, unlike a CAM, your mortgage, savings and salary all remain in separate accounts. At the end of the day a virtual sweep is done automatically to make sure your money earns the best rate of return. For some borrowers this method may be easier to follow than a CAM. ‘With an offset mortgage borrowers can adapt their budget and funds to suit changes in their circumstances,’ says Northern Rock spokesperson Ron Stout. ‘Basically they are a great way of making
your money work efficiently for you.’ Northern Rock's Together Connections offset mortgage allows you to make overpayments on both your mortgage and any personal loans you might have. For example if you paid £50 extra a month on a 25-year £65,000 repayment mortgage at 6.99 per cent combined with a personal loan of  £18,000 more you would reduce your mortgage and personal loan term by three years and six months and save £16,320 in interest.

The flexible future

Flexible mortgages, CAMs and offsets may be tipped to be the home loans of the future but with talk of a possible recession also looming on the horizon, is it really worth overpaying on your mortgage at this time? ‘If a recession is imminent it could be a good idea to overpay on your mortgage now because you will be minimising your debt,’ observes Britannic Money's Smith. ‘Flexible mortgages are just as relevant when times are bad as they are when they are good because you can borrow back any overpayments you have made and take a break from paying your mortgage if you need to.’ Although flexible mortgages may well be recession-proof it is important to remember that they are not suitable for everybody. This type of mortgage will be of little use to those borrowers who run their current account in the red every
month or have little or no savings.

As the boundaries between leisure and work time blur, the need for a home office grows and, as Karen Keeman discovers, becomes one of our main considerations when buying a new home.

About 7.5 million people now work from home and this figure is set to grow, suggests research from the Henley Centre. By 2006 more than 30 per cent of the UK workforce will have a home base.

The key to your success is to make sure you actually have the space for a home office. Carrie Bradshaw in Sex in the City may be able to turn out a weekly newspaper column perched on the end of her bed in her pyjamas, but for most of us finding the right space and filling it with the right equipment is imperative to our professional lives.

If you are going to work from home, you will need to have the latest technology to compete in the world of business. The developer behind the homes at the Greenwich Millennium Village has ensured that a structured cabling system is installed in all units. This allows residents support to computers, telephones, televisions, home entertainment systems, safety and security systems. Every home will have access to the internet through Greenwich Millennium Village’s own domain that will keep you up to date with local news and events on the community website.

Prices for the newly released homes start at £185,000 for a one-bedroom apartment and £195,000 for two-bedroom apartments. Call 020 8293 6900 for more information.

Gerard Hodges has been working from home for the last seven years. But as his property maintenance company grew even bigger he realised that he was going to have to find alternative accommodation.

Not wanting to take out a lease on an office, he thought about building on top of his double garage. This is when he found out about a new development by Bellway Homes. At Fennlands Down in South Woodham Ferrers, Essex the company is building homes with double and triple garages and studios – ideal for conversion into office space.

Gerard believes the development will be extremely popular with those running small businesses. ‘More and more people are working from home and this type of house is ideal,’ he says.

When completed, Fennlands Down will comprise 45 four- and five-bedroom houses. Prices start at £290,000. Call 01245 425120.

As working from home has become more popular, so has the boom in live/work units. Reflecting the changing requirements of today’s homebuyer, RLD has launched Orchard Wharf, minutes away from Canary Wharf. The minimalist loft-style apartments and duplexes can be arranged in a way to suit the needs of the home worker while retaining their riverside charm. Prices start at £210,000. Call 020 7538 1830.

At the moment, there’s every chance a mortgage adviser will offer you the option of a base rate tracker mortgage deal.

While it may sound like a technical term, the concept behind these loans is very simple.

A tracker mortgage is a variable rate loan, linked to the Bank base rate. The interest rate you pay on your loan goes up and down in line with the general interest rate, set by the Monetary Policy Committee of the Bank of England. Unlike a standard variable rate, a tracker mortgage promises to follow the base rate wherever it goes, no matter how low. The difference between the tracker and the base rate stays constant for the life of the loan.

Some people love the idea, as rate decisions are taken out of the lender’s hands. ‘People like to think the rate they’re being charged is in the hands of the Bank of England, rather than in the hands of a business which at the end of the day has to be looking at making money,’ explains Ian Giles, director of marketing at First Active.

But lenders like base rate tracker mortgages too, as they are guaranteed to make money from the margin built into the deal and there is no risk involved.

Watchers of the mortgage market will have noticed that a plethora of base rate trackers has sprung up since the middle of 1999. ‘In many cases it’s a reaction to the Government’s call for CAT standards – fair charges, access and terms,’ says Giles. ‘Tracker mortgages are squeaky-clean in these terms, as they are completely transparent to borrowers.’

Ian Darby, managing director of mortgage brokers John Charcol (recently acquired by Bradford & Bingley) agrees. ‘Trackers have come to the forefront in the last year because the Office of Fair Trading accused lenders of failing to pass on cuts in the bank base rate quickly enough to customers,’ he adds.

‘With a tracker, the interest rate changes are passed on immediately. Of course the irony is that since trackers took off last summer, interest rates have in fact been rising.’

This is a point any potential base rate tracker mortgage borrower must take on board: ‘When Bank base rates are going down, that’s great,’ observes a spokesperson from the Council of Mortgage Lenders. ‘But when they spiral upwards, the rate you pay will definitely go up too.’ So buyer beware.

The standard variable rate mortgage deals have never offered the best value for money. Selecting the right fixed or capped rate at the right time can save you a fortune in a rising interest rate environment.

That said, many borrowers seem wary of going for longer-term fixed and capped rates. ‘People seem to expect greater alignment with the rest of Europe to be a real possibility in years to come,’ observes Darby.

However, none of us know where Bank base rates, and hence base rate tracker mortgage interest movements, are headed. Much depends on politics – whether or not we move closer to the rest of Europe – as well as wider economic trends. We don’t know if or when rates will come down. So going for a tracker could be an unnecessary gamble, particularly in the short term, when base rates are tipped to continue rising. It could make sense to sign up for a fixed, capped or discounted rate with no tie-ins instead, and wait and see which way interest rates decide to head next year.

If you took out an endowment in the 1980s or '90s and now face a shortfall on your mortgage you are bound to be worried. Act now, says Andy Stuart, Editor-in-chief of Your Mortgage magazine, and you could solve the problem

The endowment-type mortgage was a favourite for many years. With an endowment you regularly invest money, in addition to the interest you pay to the lender, and hope it grows substantially to pay off the capital still owed on your mortgage by the end of the term and, maybe, even leave you with a bit on top. This was certainly the basis on which many policies used to be sold, as the idea of a surplus appealed to customers as a nest egg for later life. And so people signed up in their millions. By 1990 endowments accounted for over 80 per cent of mortgages sold.

Reality bites

But endowments have turned from friend to foe in recent years, as it has emerged that many are not on target to grow sufficiently to repay customers' mortgages. This could leave hundreds of thousands of borrowers facing a shortfall when they reach the end of their term and the endowment policy matures. And this shortfall could amount to thousands of pounds. If you have an endowment policy you should have received a letter from your provider at some point over the last year. This letter will tell you what your endowment policy is currently worth and if it is on track to repay your loan. Of course, there are no guarantees and your provider will give you three estimates of what your policy could be worth, assuming growth rates of four, six and eight per cent each year, and what the shortfall would be given each scenario. These are known as green, amber and red letters. A green letter means your policy should grow sufficiently to repay your loan in full even given a growth rate of four per cent - if this is the case all you need to do is continue your payments into the policy. An amber letter means that given the worst case scenario (four per cent growth) your mortgage will not be covered by the endowment, but if it grows at six or eight per cent, you should be able to cover your homeloan when your endowment matures. The dreaded red letter, however, warns you that your endowment policy is not on target to repay the mortgage, even assuming an optimistic growth rate of eight per cent.

So what now?

The letter you receive from your provider may explain how you can increase your endowment payments each month to cover any shortfall. You should be informed of how much extra you would have to pay in order to meet the target at four, six and eight per cent growth. If not, contact your provider and find out. Of course there is no guarantee that by paying more into your mortgage, your policy will grow enough to meet its target, but the more you pay in the better chance you will have. Whatever you do, don't panic and trade in your policy. Take expert advice instead.

On the heels of the ongoing endowment misery comes the news that thousands of home owners have bought endowment mortgages that lack one vital component – the endowment policy. According to the Financial Ombudsman, these customers are being left without the money to repay their home loans and ought to be fully compensated by their lenders. An Ombudsman spokesman said, ‘In the vast majority of cases we look at, we find the lender is 100 per cent to blame.’

Endowment mortgage holders are advised to check their details themselves to make sure they have things in place to cover full repayment. Those who find they have no record of an endowment policy are advised, first of all, to contact their lender to find out what compensation they may be owed.

The Financial Ombudsman can be contacted on 0800 080 1800.

An ambitious system of electronic conveyancing is planned for the UK. Johnny Turner visited the Land Registry as they unveiled their vision of a faster and easier purchase process

A comprehensive e-conveyancing system is to be introduced over the next decade, according to the Land Registry. Solicitors and licensed conveyancers, connected to a secure nationwide database, will guide their clients’ cases through a streamlined system, communicating with each other via e-mail. Part of the aim is to speed up the process. The immediate transfer of information and funds could cut as much as two weeks from the time of the average property sale – and drastically reduce the periods of limbo that buyers regularly endure.

In a recent demonstration of an early prototype, members of the Land Registry’s e-conveyancing taskforce stressed that there is still much to be done before the network is launched; the system is expected to be in place in approximately five years. A key part of the groundwork has been an ongoing phase of consultation between the Registry, ministers, conveyancing professionals and the House of Lords, where a bill laying the foundation is expected to be debated within months. According to a consultation document, ‘this will be the most revolutionary change ever to take place in conveyancing practice’. The key features are:

It is paperless This not only cuts down on the need for the storage of hefty files of documents after each sale, but speeds up the communication between the solicitors for the buyer and seller – this means less time between exchange and completion.
There is no ‘registration gap’ A notional register allows solicitors an up-to-the-minute view of the current status of a sale and any problems or holdups connected with it. Conveyancers for the buyer and seller alert each other via e-mail to any progress made or action required.

Improved efficiency and accuracy Currently, as many as half of all registration applications have some sort of discrepancy. This will be drastically reduced by validation checks to be built into the system.
Automatic simultaneous payments Funds will be transferred to and from lenders, solicitors etc. electronically and at exactly the same time. As completion is currenty often held up while the parties await the wire transfer of money, the new method will save the parties to the sale both time and worry.
Chain transparency One of the most infuriating features of a chain sale, both for solicitors and their clients, is the lack of information about which link is holding up the transaction. With the new system, each solicitor involved in the chain will be able to spot where the holdups lie, allowing them to give their clients a better idea of when the sale will be completed.