Buying, selling and letting - Friday, August 10, 2007

REITs show potential

Real Estate Investment Trusts (or REITs as they are known), have received a substantial amount of publicity since their introduction into the UK market in January 2007, according to Datamonitor. REITs represent an area of particular growth potential, given the fact that they give investors an opening in which to invest in physical land and buildings across all property sectors and all commercial, industrial and residential structures. Furthermore, investors can take-up a REIT proposition via their pension fund, which is now the only route at an investor’s disposal to invest in property and has been a booming area of the market in recent years.
However, the UK REIT market is a young and nascent one, so some prominent issues still need to be ironed out and this would explain why UK REITs have been affected by slightly adverse performance of late.

The fact that REITs are still in their formative years is a short-term hindrance but like the other investments mentioned, they continue to serve as widely known buzzwords in the savings and investment market.

New buy-to-let mortgage incentives

Standard Life Bank has introduced free legals and no valuation fees to its Freestyle buy-to-let remortgage range.
The latest changes, which became effective on last week, follow previous product developments from the Bank. These include: half-price arrangement/booking fees for any landlord purchasing more than one buy-to-let property with a Standard Life Bank mortgage (fees for the first mortgage at standard rate, all subsequent mortgages up to a maximum of nine additional properties in a 12-month-period following AIP of first application, reduced by 50 per cent, up to a total loan value of £1.5 million); a reduction of the rental yield requirement to 110 per cent from 120 per cent; verification of income not be required for loan-to-value of up to 85 per cent (increased from 75 per cent).

Jackie Moran, Head of Sales for Standard Life Bank, said: ‘This ongoing enhancement further strengthens our buy-to-let offering and makes it even easier for advisers to recommend Standard Life Bank for all their client's buy-to-let needs.

‘With the new enhanced range of buy-to-let products, clients will be able to save even more, especially when buying or remortgaging multiple properties,’ she said.

For further information, and to use Standard Life Bank's buy-to-let calculators, landlords should log onto www.freestylemortgages.com

Further information for advisers can be found at www.standardlifebank.com/adviser or by calling 0845 845 8451.

Would-be landlords should follow these simple rules for a successful let.

Know your market If looking to buy a property to let, ask your local agent what kinds of properties tenants are looking for and possible rental values before buying.  

Keep it clean and modern Neutral interiors with unfussy décor, as well as a modern kitchen and bathroom, will always be a hit with prospective tenants. Have the property professionally cleaned (including carpets) and carry out repairs.

Target the tenants who will want your property Think about the property and its area: what type of tenant will it appeal to. Also consider what kind of tenants you are looking for. What you want is a long rental period with the same tenants, so try to match your property with people who are likely to be comfortable there and be inclined to stay.

Furnished or unfurnished? Decide if you will let the property furnished or unfurnished. Remember that being flexible may secure a tenant more quickly. If letting furnished, any upholstered furniture should comply with safety regulations or be removed.

What’s included? A professional inventory should be prepared detailing the condition of the property and contents. This is particularly important now the new Tenancy Deposit Scheme laws are in force.
Keep your lender in the loop You must obtain your mortgage company’s permission to rent out the property. Also, inform your insurer that the property will be rented – otherwise future claims may be invalid.

Someone you can trust It is vital to choose a trustworthy lettings agent. You may want to make sure that the agent is a member of ARLA. Invite them to carry out a free market appraisal.

Courtesy of Anthony Stuart Estate Agents in Edgware. Visit anthonystuart.com.

Property prices increased by 0.7 per cent in July, the fourth consecutive month that house prices have grown by less than 1.0 per cent. This confirms that house price inflation is slowing, according to the latest Halifax price report.

Housing market activity also continues to ease. Mortgage approvals to fund house purchase in the three months to June were four per cent lower than in the preceding quarter. This continues the downward trend since last autumn with approvals in the second quarter of 2007 being eight per cent lower than in the latter part of 2006.

The level of new buyer interest in purchasing a house fell for the seventh successive month, indicating that potential buyers have become more cautious. Completed property sales also fell in the second quarter of 2007 and were six per cent lower than a year ago.
The increase in the proportion of borrowers taking out a fixed-rate mortgage in recent years appears to have affected the timing of the housing market's response to interest rate changes. As a result, house price inflation and activity are likely to take longer to slow as interest rates rise because many borrowers are only affected when their fixed-rate deal matures. Over the past 18 months nearly 70 per cent of new mortgages have been taken out on fixed rate terms; this is substantially above the average of around 40 per cent since 1993.

Homeowners who took out a fixed-rate deal two years ago face higher payments when they remortgage, but most borrowers will be able to absorb the rise in payments. Most people's earnings will have risen since they took out the mortgage – average earnings have risen by seven per cent over the past two years in monetary terms – providing more income to finance the higher interest payments. In addition, most borrowers facing higher payments will have accumulated a significant cushion of housing equity as a result of house price inflation since they took out their mortgage.

A healthy economy and strong labour market continue to underpin housing demand. The annual rate of house price inflation has edged up in the past two months, from 10.6 per cent in May to 11.2 per cent in July, despite smaller monthly rises. This increase in the annual rate is due to the weakness in house prices in mid 2006 when prices fell by 0.3 per cent between April and July. The modest recent pick-up in the annual rate is likely to be short-lived. Halifax expects house price inflation to ease over the remainder of the year as the impact of higher interest rates is increasingly felt.

Martin Ellis, chief economist, said: ‘We expect the downward trend in house price growth to continue as the five interest rate rises since last summer have an increasing impact on household spending and housing demand. Sound economic fundamentals, high levels of employment and a shortage in the number of properties available for sale, particularly in London and the South East, will, however, continue to support house prices.’

In the wake of FSA criticism, some lenders are abandoning ‘excessive’ exit fees. But some are not

In the wake of the victory for people-power in the row over excessive bank charges, it was only a matter of time before attention turned towards mortgage lenders and the fees they extract from their home loan customers.

Mortgage lenders often charge what is known as mortgage exit administration fees (MEAFs) when borrowers pay off their mortgage or switch to another lender to cover the staff and other costs involved. But, just as the bank charges were deemed punitive, and therefore unfair, so are these exit fees, say experts. The typical exit fee is around £200.
The FSA has put pressure on lenders since January, when it highlighted that many mortgage customers were being charged higher exit fees than expected. Last week the authority announced that most lenders had either got rid of the fees or reduced them. And although the deadline the FSA set for lenders to declare their intentions with regard to the charges, some have not indicated what they plan to do.

Ray Boulger, senior technical manager at leading mortgage broker John Charcol, says lenders are choosing to either resist change (as Barclays/Woolwich has done, leaving its exit fee at £275) or modify these fees in one of three ways:

removing: abolishing the exit fee completely. Boulger says, ‘Cheltenham & Gloucester/Lloyds TSB led the pack in the first camp by being the first major lender to announce they were abolishing the fee and were followed by a number of other major lenders.’ The lender was joined by Royal Bank of Scotland, Northern Rock and HBOS.
reducing: owering the fees
replacing: abolishing it but replacing it with another fee of the same amount but with a different name. Boulger calls these lenders ‘perhaps the most cynical group’. which nevertheless are meeting the FSA’s requirements, are those lenders which have abolished the exit fee but replaced it with a new fee for an identical amount but called it something different. The new fee names either no longer refer to the costs of closing the mortgage, or are stated to cover something else difficult to measure. Lenders who have ‘reclassified’ the exit fees include Abbey and the Bank of Ireland Group.

One lender, Principality, has increased its exit fee – by £17 to £152.
Boulger says, ‘Even after the deadline, we are still waiting to hear final confirmation from several major lenders, including Alliance and Leicester, Scottish Widows and Mortgage Express, which indicates that some are going to tough it out with the FSA. A typical exit fee is around £200 which has risen a staggering 33 per cent in the last two years. There is however now no hiding place for lenders. They have to be open about what they are doing and will have to be up front in justifying these excessive fees.’

Boulger says those who have redeemed mortgages in the last four years are likely to have ‘a very strong case’ for seeking compensation from their lender. That figure would come to around ten million mortgages, he says. ‘I would estimate that the total compensation payable will be at least £50m and probably in the region of £100m.’

We look at a no-nonsense guide for landlords who let to students
 
The Landlord’s Guide to Student Letting is an invaluable guide to understanding the continuous flux of a profitable market and the legislation attached to it.

Written by seasoned student landlord Catherine Bancroft-Rimmer, this invaluable book is candid about the pros and cons of student letting, making complex and confusing legal procedures easier to understand and act on.

Sample letters, forms and useful addresses of organisations are included to help the landlord. Rimmer also takes into account the long-term view of the student letting market nationally and shares her knowledge about potential future changes made by the government which will have a long term impact.
If you’re interested in investing in student housing, The Landlord’s Guide to Student Letting will arm you with information about your rights and responsibilities and prepare you for the highs and lows of landlord life.
 
The Landlord’s Guide To Student Letting by Catherine Bancroft-Rimmer is published by How to Books Ltd and is available at £10.99 in major bookshops and online retailers.  

howtobooks.co.uk

Being a landlord isn’t easy – it’s not like any other mainstream investment and needs constant attention. Lee Grandin identifies the top five pitfalls landlords face and provides guidance.

Problem 1: Finding the right tenants

Problem 2: Fulfilling your legal obligations

·    Ensure you have an assured shorthold tenancy agreement. This is basically a contract between a landlord and tenant, so it’s the most important document to get right.
·    Find a tenancy deposit scheme. Since April this year, landlords have been legally bound to keep their deposits in a tenancy deposit scheme. There are a number of schemes available, so it’s worth doing your homework.
·    Join a landlord’s organisation. For example, if you are a member of the National Landlord’s Association (NLA) they can provide you with all the legal documents and advice you need.

Problem 3: Finding time to manage the property

·    Buy close to home. Calls at 3am from tenants who have lost their keys are not unusual for landlords. If you choose a rental property close to your home, this makes managing the property all the easier.
·    Get to know local tradesmen. Broken washing machines and leaking showers are all part of a landlord’s responsibility and if you are not a DIY expert get to know someone who is.
·    Consider using a managing agent. It may be worth using a letting agent to manage the property and be responsible for minor repairs.  
 
Problem 4: Difficult tenants

·    Be careful who you let your property to. When looking for tenants ensure you carry out all the necessary credit and reference checks.
·    Issue warnings. Complaints from neighbours and rental arrears are just a couple of the problems landlords can face from their tenants. These can be tricky to deal with, but landlords are legally entitled to issue a warning should their tenant be disruptive.
·    Be aware of your rights. If a tenant has broken the terms of their contract, you are well in your rights to serve them notice.
 
Problem 5: Ending tenancies

·    Check the property. Make sure before the tenant moves out that the place has been left in a suitable condition and is in a fit state for the next tenant to move into.
·    Have an inventory. Check that everything that was provided still remains in the property, or has been replaced if it has been broken or damaged.
·    Deduct from the deposit. If the property is not in a reasonable condition, or there are items missing from the inventory, it is perfectly acceptable to deduct money from the original deposit before handing it back.
 
 
Lee Grandin is managing director of LettingAgent.com

Liz Fraser offers top tips to help make the most of your rental.

In today’s fast paced and competitive rental market its essential your property stands out from the rest. A few cosmetic improvements can go a long way to creating a ‘wow factor’ and it needn’t cost the earth.  


1 Add colour A quick coat of paint and a feature wall colour can totally change a room, providing you choose a colour which works with the furniture already there. A striking rug, as big as you can afford, with a linen, leather or suede border will cover a multitude of previous tenants 'carpet sins' and instantly claim the flat as your own. Two meters square is a good size as it will almost certainly fit your next flat too.

2 Let there be light Lighting is really important and should be seen as a piece of artwork in the room. Again, choose something you would like to live with for a while and be as big and bold as you dare. Black shades always look more expensive and a bit more interesting than white or cream and create a really warm boutique hotel type light in the evening.

3 Dress the walls Not many of us can afford to buy beautiful artwork, but we can still avoid the student poster on the wall look. There are lots of inexpensive canvases available on the high street – be bold and go as big as you can.

4 Create the illusion of light and space Adding mirrors to dark rooms and corners will reflect light, and may even cost less than artwork. Oversized floor standing mirrors always look impressive but a more cost effective option is to buy long rectangular shaped mirrors.


Liz Fraser helps design furniture packages for THis Designs. Visit thisdesigns.co.uk

Home Information Packs became law on 1 August but what exactly are they and what do they mean for the public?

What is a HIP? It is a collection of documents including deeds, searches, leasehold information (if appropriate) and an energy performance certificate that has to be ordered before a property is marketed.

Who needs one? Anyone who starts to market a property with four- or more bedrooms in England and Wales after 1st August will require a HIP.

Who is responsible for ordering one? The 2004 Housing Act defines ‘the responsible person’ as being either the estate agent or the owner if an agent is not employed. Failure to order one could result in a fine and/or a possible ban for an estate agent.

What will it cost? At the moment a full HIP will cost anything over £299. Leasehold properties will cost more due to the increased information that is necessary. Figures of £1,000 have been quoted.

Where do I get one? Most lawyers and estate agents will be able to recommend a pack provider. Some will have negotiated discounts but read the small print before accepting a subsidised or 'free' HIP.

How long do they last? A Home Information Pack will now be valid for at least six months, although some lawyers acting on behalf of a buyer may recommend that elements like searches be refreshed earlier than this.

What are they for? The government hopes that the introduction of packs will help speed up the time it takes to buy and sell a home by providing more information up front. There should be less likelihood of a sale falling through after a sale has been agreed.

What are they really for? As part of the Kyoto Protocol we signed up to we will be obliged to introduce energy performance certificates for all residential property in 2009. All rental properties will require an EPC from August next year.

What will an EPC cost? To start with an EPC will cost about £130.

What is an EPC? An energy performance certificate is a fridge style rating A-G which is produced by a newly qualified domestic energy assessor who will visit each property, measure things like the depth of lagging in the loft, and produce a standard report.

Do I get to see the report? Yes, it will be available to anyone who asks for it together with the home information pack and can be viewed online via the LandMark website. You cannot challenge it nor can you have it withdrawn. It is therefore essential that you get a suitable assessor who understands your type of property.

Where can I find out more? Visit theHipExchange.com.
 

Mortgage advisor Lawrence Gary talks about the impact recent rates rises have had on the property market and homeowners.

Avoiding the pressure of the rate increase

The Bank of England’s fifth increase of interest rates since August last year is causing some concern among homeowners and investors. The increase continues the record of being the highest interest rate for the last six years pushing up rates by a quarter of a point from 5.5 per cent to 5.75 per cent. It is a worrying trend and some are asking rightly if it is set to continue. With pressures on mortgages and other expenses most are understandably concerned whether things will get worse before they get better.

Is another increase in rates likely?

Interest rates are likely to rise again in the near future because the bank is struggling to keep inflation in check. As low inflation keeps prices stable and preserves the strength of our economy the bank cannot afford to let it spiral.  Unfortunately due to increased spending and borrowing the bank has to take steps to correct these factors and increasing interest rates is the main tool they have available. As the rate increase continues to pinch our spending habits will change and interest rates may stabilise. Presently all the indicators suggest another rate rise in the future may be required to return inflation to the target of 2 per cent and curb our spending and borrowing.

What impact will this have on property prices?

If the rise helps stem the increase in property prices then that would be one good thing to come out of it. However, I still believe that because of a shortage of properties then no matter how expensive they are people will continue to stretch to buy because we all need a place to live and properties offer a sound investment for the future. Unfortunately supply and demand have more of an impact on property prices than interest rates. Once there are more properties available then prices will stabilise however the current shortage is exacerbating matters.
The impact of the increase is more likely to be felt on other household expenditures as homeowners struggle to meet the increase in their mortgage payments.

How will this affect buy-to-let mortgages?

Property investors will know that the rental coverage on an investment property determines the loan to value ratio of buy to let mortgages. Generally speaking this means that the higher the rent the greater the ratio of money you can borrow against the property’s value. The standard ratios are between 80 to 90 per cent loan to value. As higher interest rates mean higher mortgage payments investors are concerned that the deals will not stack up to allow them to access the maximum borrowing on their investment. While this is true higher interest rates are stopping more people from investing so it means they will have to consider renting and therefore higher rental demand should provide an opportunity for increased rent. If this is the case then the rise in rates should correspond to a rise in rent which should still allow decent borrowing in the most desirable areas.  This will not be true for all areas.

What can I do if I am struggling to cope with my mortgage payments?

A mortgage is usually the biggest financial commitment you will have to make in your life and even the smallest change to interest rates will have a big effect when you apply them to your mortgage.
If you are struggling with your mortgage payments because of the interest rate increase you should contact your current lender to review your mortgage to see if they have a better product for you in the first instance.  

Even if you are comfortable with the latest increase I would still urge you to regularly review your mortgage because new products come onto the market all the time and you should ensure you have the most competitive product. Many of my friends own properties and it surprises me how many of them have never sought advice or reviewed their portfolio even when they are out of their redemption periods.  I regularly review my portfolio and always ensure I have the best financial advice available.
We all work so hard for our money and need to be more prudent in maintaining greater control over it to ensure we get the best returns from our endeavours. After reading this column contact your bank, financial adviser or even Milestone Financial Services for a free review of your mortgages to see if there are better products available which could start saving you money today!

Lawrence Garry writes as a property investor and is a director of mortgage adviser, Milestone Financial Services. Email him at lawrence.garry@milestonefs.com.  Also call 020 7719 0170 or visit www.milestonefs.com

Garden expect Simon Sales gives his top tips on creating the ultimate outside space

Good terraces and roof gardens can be difficult to achieve and careful planning is paramount. But if you get it right, roof gardens are the most fantastic spaces – private, elegant and glamorous, and often with views to die for.

Whether you are looking for a private area for entertaining alfresco, a zen-like space for yoga and contemplation, somewhere for the family to socialise, or just somewhere you can relax, these tips will ensure you get just what you want.

1 May I? Check that there are no planning or other constraints preventing you from having your roof terrace.

2 Weigh it up Consider the overall weight of the surface material, e.g. the plants, soil, containers, and ensure the building is designed to support it. If in doubt contact a structural engineer.

3 Get help from an expert If possible, use a garden designer who has experience of roof terraces and gardens to help you make the best decisions.

4 Follow the money Have a budget in mind so that you can prioritise the costs accordingly between the essentials and the desirables.

5 What do I want? Think about the overall look that you are trying to achieve – are you going for classical or contemporary?

6 Manage the elements Create shelter from the sun and try to slow down the prevailing wind. This can be achieved by using trellis or other planting that will act as a natural screen.

7 Make containers blend in Use similar containers made of one or two materials for an elegant solution and allow the plants to make the big statements.

8 Just add water Watering is the highest priority on a roof terrace. Always install an irrigation system. Plants in sunny, windy conditions dry out very fast and will require regular (sometimes twice per day) watering every day during the summer months. Plants will look very poor very quickly if the watering is irregular and your investment in plants will be wasted.

9 Don’t overdo it Don't apply too much water at one time, as excess water running through the containers will leach out valuable nutrients in the soil and make sure the majority of the watering takes place at night, to minimise evaporation.

10 Which plants Select plants that enjoy hot sunny conditions. Choose ones with succulent leaves, e.g silver, narrow or hairy types – all of which are designed to minimise water loss.

Simon Sales is managing director of Waterwell Lighting and Irrigation. Visit waterwell.co.uk