Buying, selling and letting - Thursday, October 21, 2004

Low inflation means low interest rates

The latest inflation figures show the annual inflation rate fell in September by 0.2 per cent to 1.1 per cent, the lowest level since March. This is good news for those worried about the prospect of future interest rate rises.
The falling inflation rate, which took analysts by surprise, takes the pressure off the Bank of England’s monetary policy committee to raise interest rates; several economists are now predicting that the base rate will remain at its present level of 4.75 per cent for the rest of the year.
The inflation rate, however, is still expected to rise again, according to the Bank of England.

Surprise upturn in house prices

House prices rose by 1.4 per cent in September according to Halifax, the UK’s largest mortgage lender. The surge in house price inflation followed a small fall in August, and the Halifax says that the annual rate of house price inflation now stands at 20.5 per cent.
Nationwide recently reported figures for September housing a 0.2 per cent rise in September, up from 0.1 per cent in August.

Investors head north

Hunters Estate Agents is seeing a surge in buying in the North of England. Many professional investors from the South and overseas currently view the North’s property market as one of the UK’s best performing property hotspots, according to Steve Arksey, regional manager of Hunters Land and New Homes.
‘Many exhibitors at this year’s Property Investor Show have reported a major fall in sales activity compared to this time last year,’ says Arksey. ‘However, Hunters has been inundated with enquiries from investors that genuinely believe there is plenty of room for the North’s property market to continue growing – even if it will be at a slower pace than over the last three years.
‘This has been reinforced by record volumes of lettings being secured through Hunters’ Manchester, Leeds and York offices. The average time taken to secure a new let is now less than two weeks and voids are virtually non-existent.’

One in three miss out on low rates

New research from Alliance & Leicester has found that one in three consumers overlook the most important factor – the rate of interest they will be charged – when choosing a loan. Thirty-five per cent of consumers admit the annual percentage rate or “APR” is not the first thing they look for when choosing a loan.
Andy Bayes, head of personal loans at Alliance & Leicester, said, ‘While two out of three people rightly focus on the rate of interest when choosing a loan, there is still a large number of people who pay over the odds by not giving it their full attention.’
Among those who said the rate of interest is not their main priority, 37 per cent thought all banks’ loans are similar; 19 per cent said they did not fully understand APRs; and 13 per cent though a couple of per cent would not make much difference to the cost of their loan.

What agents want

According to a poll of National Association of Estate Agents (NAEA) members, the average agent wastes up to 30 per cent or even more of their time showing people properties which are either clearly too expensive for their income or simply unsuitable for their obvious requirements (for example a family of four asking to see a one-bedroom flat). In addition, a staggering 50 per cent of sales fall through due to either the buyer or seller suddenly changing their minds. With the UK offering one of the lowest estate agency fees in Europe, the industry calls on the public to reconsider the ways in which they can help their agent achieve what they both want.

Buyers

Ensure you get your finances in order before you look for a property. Find out exactly how much you can borrow: many people organise this after they have had an offer accepted and are surprised by how little they can borrow, and then pull out of the sale.
Discuss what type of property and where you want to live before you start viewing properties. If you desperately want a garden or a third bedroom, do you really want to look at properties without them? Research the area. This sounds straightforward but a lot of sales fall through at a late stage due to a lack of knowledge about the area. Locations, particularly in big cities, vary from one street to the next. It is advisable to visit at different times of the day so you can really get a feel. If you rely on public transport, try out the journey.
Think before making the offer. Although getting an offer accepted does not mean the agreement is legally binding, the property will often be taken off the market and the seller’s expectations will be raised. Do not make an offer on a property unless you are serious.

Sellers

Don’t lie about your home or why you are moving as the buyer will find out at a later date and either pull out or – in a worst-case scenario – take you to court. Don’t ignore the facts. If your home has been on the market for four months and you have had no viewings, it is likely to be overpriced and you must accept this. Agents work on a percentage of the final sale price, so if they tell you its overpriced it is likely to be overpriced!
If you’re unhappy with an agent say so. It is not acceptable to complain about the service you’ve received when it comes to paying the bill – by this point the agent cannot act on it. The Ombudsmen is very clear that complaints should be flagged up at the time.
Give your home a chance. And remember that if you won’t allow sale boards or weekend viewings, your home will take a lot longer to sell.

Most regions see landlord rental incomes rise

Paragon Mortgages’ September buy-to-let index reveals a pick-up in rental incomes across all but three regions. Rents increased in seven regions and five out of ten regions are now registering rents of over £9,000 per year.

Property values also rose in August across eight of the ten regions – except for the North and the South East, where prices fell slightly. Average property values are now £141,765 as compared with £124,128 in January, a significant increase of 14 per cent.
John Heron, managing director of Paragon Mortgages, says: ‘Landlords across the majority of the country are seeing a rise in rental incomes, fuelled by solid demand from tenants. Those regions witnessing the biggest rent rises were also those which experienced the greatest rise in property values. Prices paid by residential property investors are still increasing, but only very slightly: in August they were up by just 0.8 per cent, in contrast with the large rises seen in the first half of the year when investors had to compete with owner-occupiers in a busy market with limited stock available.’
As a result of rises in property values over the past couple of months, yields have slipped slightly in recent months. On average, landlords are achieving a yield of 6.7 per cent gross from their investment properties.

Landlords continue to enjoy good overall returns, with total returns generated since August 2003 of just over 22 per cent (on an average property purchased that month) – a total of £27,620, comprising £18,266 in capital appreciation plus £9,354 in rental income on a property worth £123,498 at purchase.
Seven out of ten regions provide landlords with a total annual return in excess of 25 per cent. Overall returns tend to be lower in southern regions, where house price inflation has been relatively weaker over the past year, and yields lower. Year-on-year, the rate of increase of landlord property values has also declined, from over 17 per cent in July to 14.8 per cent in August. Paragon’s data continues to show annual house price inflation for investors at lower levels than the latest figures published by Halifax and Nationwide, suggesting that overall landlords continue to negotiate better deals on properties than owner occupiers.

Generally, there is an inverse correlation between yield and property value (i.e. the cheapest properties offer the best percentage yield). The North saw an increase in yields of nearly two per cent as property values dipped slightly in August. Conversely, in London and the South East, where properties values are higher, yields are lower.

Welcome drop in fixed-rate mortgages

Home owners enjoying a welcome break after four base rate rises in eight months are in line for more good news. Falling swap rates – the money-market rates that determine fixed-rate pricing – have led lenders to cut the cost of fixed loans.
Stroud & Swindon Building Society has launched a two-year fixed-rate mortgage at 4.79 per cent. Those with a home valued at less than £250,000 will pay £494 in arrangement fees. The fee rises to £594 for properties worth more than £250,000.
The two-year fix from Derbyshire Building Society charges interest at 4.8 per cent, while Yorkshire Building Society offers a three-year deal at 5.1 per cent for those moving house and 5.15 per cent for home owners who want to remortgage.
Britannia Building Society has cut the rate on its ten-year fix by a tenth of a percentage point to 5.49 per cent.
Is this, however, a good time to fix? David Hollingworth of mortgage broker London & Country thinks so. He says: ‘Hanging around on a gamble for a cheaper rate may not pay off, particularly for home owners on an expensive standard variable rate.’
Simon Tyler of broker Chase De Vere Mortgage Management agrees. ‘There will almost certainly be another interest rate rise this year,’ he says. ‘The cheap fixed rates launched in the past few days should be snapped up because they will not be around for long.’

Housing market slowdown continues

The average property price in the UK fell for the third consecutive time last month, according to figures released today by the National Association of Estate Agents (NAEA), as over three-quarters of estate agents confirmed that they believe prices have reached their peak. Asking prices were on average 1.3 per cent lower than in the previous month and the annual increase in house prices was 8.5 per cent, down from 10.3 per cent the previous month. In addition, 79.6 per cent of estate agents believe that house prices have reached their highest point and will now decline – excellent news for first-time buyers.
Some prospective buyers who have been holding off waiting for prices to hit their peak earlier in the year are now reacting to the slight drop in prices and re-entering the market. In addition, they are reacting to the slowdown and attempting to achieve further discounts, securing an average of 5.5 per cent off the asking price compared to average discounts of around three per cent earlier in the year.
NAEA president Richard Hair comments: ‘The steadying of prices has encouraged more buyers than is usual at the end of the summer and activity in general is high, although overpriced property attracts little interest. Prices are not going to crash but there may well be further small correction before normal service is resumed.’

As house prices even out it’s easier for first-time buyers to enter the property market; and there is yet more help on the horizon, especially for certain key workers, says Mike Collins of Your Mortgage magazine.

Sally McCormack is a nurse who, until she qualified just over a year ago, was sharing rented accommodation in the East End of London with five fellow students. This was an acceptable arrangement for all concerned but, as invariably happens, the end of their training meant big changes.
‘A couple of the girls decided to go back to the Midlands, one had met a Scottish lad and went off to live with him in the Highlands and the other two went back to the London suburbs to live with their parents,’ she explains. ‘As I’m from Chelmsford, Essex, I didn’t fancy that journey every day, especially as I work odd shifts. But there was no way I could afford the rent in the house we had on my own. Basically, I wanted to buy a place in London, as close as possible to Bart’s Hospital, where I work’

Property lesson

Until this point McCormack was not an expert on London property prices, but her education on the subject was swift. ‘I started looking in estate agents’ windows and could scarcely believe my eyes,’ she recounts. ‘There was nothing below £120,000 and even that would only buy a poky flat in a rundown area.’
McCormack began to think that she might have to move home after all, until she heard about the Key Worker Living (KWL) scheme promoted by the Office of the Deputy Prime Minister (ODPM, to be found at odpm.gov.uk). ‘This scheme is a development on the Starter Homes initiative and was introduced in April this year,’ she explains.
‘I was awarded an interest-free loan of £30,000 to help me buy my flat in Wood Green, north London, for £120,000. I used a loan from my parents of £20,000 to put down a deposit and the remaining £70,000 is on a discount mortgage from Nationwide.’
So, how does the loan work? ‘I don’t pay interest on the government loan while I’m in the property, and the loan is repaid only when the property is sold or if I move to a different job that isn’t covered by the KWL scheme. The amount I’d have to repay would be worked out on the basis of what percentage of the property’s original value was covered by the loan – in my case 25 per cent of whatever I eventually sell the place for.’
And what does McCormack think of the scheme? ‘It makes the difference between having my own place – and a job I love in London – and going back to my parents’ house. It’s absolutely brilliant and I recommend the scheme to others.’

Share and share alike

Shared ownership is another way that first-timers can get a property. The Housing Corporation (housingcorp.gov.uk) allows you to buy a proportion of a property from a registered housing association (HA) landlord, and you pay rent on the remainder that you do not own. You can then buy more ‘slices’ of the property as and when you can afford it, until you own it all.
People eligible for the scheme are usually first-time buyers, and priority is given to those on local authority waiting lists. You must be able to obtain your own mortgage to meet the purchase costs on a percentage of the property.
If interested you can register with Homes (homes.org.uk), where you will find details of new shared ownership properties or properties being sold by existing shared owners.
Paul Fincham of Halifax says: ‘We lend on shared ownership schemes. As long as the share you own is at least 50 per cent you can apply for a normal loan. You could then increase your mortgage in increments to buy more of the property as you can afford it. But the housing association will usually want you to be in a property for at least two years before you increase your share.’


Are you a key worker?

If you are a key worker in one of the groups listed below you could get help to buy your first home or to move into a family home. Opportunities are also available to rent homes at affordable prices. The help is available in London, the South East and the East of England.
Key workers who may get help are:
·    Nurses and other NHS staff
·    Teachers in schools and in further education and sixth form colleges
·    Police officers and some civilian staff in some police forces
·    Prison service and probation service staff
·    Social workers, educational psychologists and planners (in London)
·    Occupational therapists and speech and language therapists employed by local authorities
·    Whole-time junior fire officers and retained fire fighters (all grades) in Hertfordshire fire and rescue services
Eligibility criteria will vary across regions depending on local recruitment and retention policies.
Source: ODPM


What help is available?

The following help is available under the Key Worker Living scheme:
·    Equity loans of up to £50,000 to help key workers buy a home on the open market or a new property built by a registered social landlord
·    Higher-value equity loans of up to £100,000 for a small group of school teachers with the potential to become leaders of London’s education system in the future
·    Shared ownership of newly built properties. Under this system you buy at least 25 per cent of the home and pay a reduced rent on the remaining share
·    ‘Intermediate renting’ where the rent is set at a level between that charged by the social and private landlords
Source: ODPM