Buying, selling and letting - February, 2004

Apartments are more popular than ever – and they have specific space and design needs. Hotproperty offers tips on making the most of your décor

Plan, plan, plan

Before you begin to decorate, make a floor plan of your apartment and sketch in where furniture will go. Make a budget. Compile a scrapbook of colours and designs you like, room treatments and inspirations. It will help you focus your attention on what you really want.

Have a clear purpose

How will you use your apartment? Is it a full-time home or a pied-à-terre? If you dislike cooking and have a city full of eateries on your doorstep, consider doing without a gourmet kitchen and putting your decorating attention elsewhere.
Make your view a feature
City apartments often come with spectacular views – your furniture arrangement should take this into account. Group furniture so that it does not obscure your view, allowing you to enjoy the view while seated. If your apartment doesn’t boast a sweeping view, think of windows as a source of light while concentrating on making the interior your view.

Create a focal point

Fireplaces have traditionally served as a focal point for arranging a room. In the absence of obvious features, create your own by using a central display of pictures, a sculpture or flower arrangement, unusual furniture or a home entertainment system.

Go for clean lines

Your slick city apartment doesn’t necessarily have to be done out in a minimal style, but do remember that ‘less is more’. A dramatic setting demands a bold touch and will be enhanced by strong, unfussy furnishings.

Be careful with colour

Unless you’re feeling very confident, stick to a monochrome colour scheme with just one or two ‘accent’ colours or use different shades of a single colour. Too many or poorly co-ordinated colours can have the same effect as fussy furnishings.

Emphasise texture

Add interest to your interiors with texture. Contrasting rough with smooth or using luxury fabrics can add interest in an otherwise neutral environment.

Bring the outside in

Many city spaces have balconies or outdoor living areas which can form an integral part of your living area and need as much attention as you would afford your indoor rooms. Remember too that bringing natural objects, seasonal displays or plants into your apartment will maintain a link with the natural world that is often lacking in a city environment.
Stay well lit
Remember that lighting can be as important to the atmosphere of a room as furniture. Spend time observing your room at different times of day and plan the lighting to reflect changes. The more versatile your lighting, the more effective it will be. Use spot-lighting and dimmer switches to add drama.

Ask a professional

If you are unsure about décor, need to decorate a penthouse or plan to use your apartment for important entertaining or to receive business clients, seek professional advice. A professional decorator will spend time looking at your home and learning your tastes, helping you to save time and avoid ‘mistakes’.

Bought a new home? Now you need to look at insurance to cover your property, your possessions and your income, says Your Mortgage magazine.

You can now insure yourself against almost any eventuality. There’s buildings insurance, contents insurance, life assurance and critical illness insurance, with mortgage payment protection insurance (MPPI) covering your mortgage repayments if you are unable to work due to an accident, sickness or unemployment. As a home owner certain types of insurance are more important than others.

Buildings insurance

No lender will agree to give you a mortgage without buildings insurance. It is the responsibility of the freeholder to arrange this, so leaseholders don’t need to worry (except check it has been done). Your property is the lender’s security on the loan, so it will understandably want you to have that property insured against damage from fire, subsidence or heavy storms. Your lender will usually offer to sell you buildings insurance, though you may get cover cheaper elsewhere, but do bear in mind that if you take your mortgage lender’s insurance they have a vested interest in your property and therefore may be more amenable to covering your claim in full should the worst arise.
If you let your property out to tenants it is vital that you tell your insurer. It is unlikely that they will increase the premium but due to the wording of your contract the policy may become null and void if the property is not your primary residence.

MPPI

Mortgage payment protection insurance covers your mortgage payments in the event of your being unable to work due to accident, sickness or unemployment, and is also known as ASU. MPPI covers a combination of insurances. You may simply want the unemployment cover for your mortgage if you already have accident and sickness at work, for example. While about 50 per cent of new mortgage borrowers take out MPPI, only one-third of all borrowers have this insurance. This may simply be that the cover is not particularly cheap – many lenders charge around £5 per £100 of mortgage payment you wish to insure each month. But note that you may be able to find cheaper MPPI if you shop around.

Life insurance

When you take out a mortgage it makes sense to take out life insurance that would pay off your home loan in the event of your death. There are different types of life insurance:
Level term assurance: The most basic type. In return for relatively low monthly payments, the policy guarantees an agreed amount of life cover (also known as the sum assured) over a fixed term – often the mortgage period itself. It is often used to cover interest-only mortgages, where the capital owed remains constant throughout the mortgage term. The lump sum is paid out if death occurs before the policy ends. Term assurance has no surrender value after the policy has ended.
Decreasing term assurance: Instead of the cover staying at the same level it reduces over the life of the policy and only pays out if death occurs before the end of the policy. This type of cover is popular among those taking out repayment mortgages, as the sum assured reduces roughly in line with the amount of capital owed on the mortgage through time. So if death should occur before the period ends, the policy pays out a proportion of the sum originally assured, which should be enough to pay off the amount of the capital still owed.

Convertible term assurance: Can be converted into permanent cover after the original policy comes to an end, usually by buying whole-of-life- insurance or an endowment policy. You cannot be refused the right to take out a new policy, regardless of the state of your health, but there are a number of rules. You can't increase the sum assured when you convert; you must convert before your term assurance ends and the new premiums will be determined by your age and sex so they will be more expensive.
Renewable term insurance: Allows you to exchange your term insurance for another policy at the end of the term, irrespective of the state of your health.
Increasing sum: The sum assured increases during the policy’s life, usually by five to ten per cent per year and usually runs out when you reach the age of 65.
Family income benefit: Paid on a regular basis from the death of the policy holder until the end of the policy term. Policies are usually written in joint names so payments are made as soon as one parent dies. They are usually written to coincide with the dependency period of the youngest child (for example 18 or 21 years). Policies can be arranged that will pay a level income or an income that goes up by a predetermined amount each year.

Health insurance

If you are worried about falling ill and losing your income, think about critical illness cover (also known as the dread disease cover), which pays you a lump sum if you are diagnosed with a serious illness.
Alternatively, you could consider permanent health insurance, which will provide you with a monthly income should you suffer from a long-term illness or disability.

Accident, sickness and unemployment insurance (ASU)

Under Department of Social Security rules, home owners who bought their property after 1 October 1995 have to wait nine months before they receive help with their mortgage interest payments from the state; and even then they must be in receipt of Income Support or the JobSeeker’s Allowance, so their savings must not exceed £8,000. In addition, benefits only cover interest on the first £100,000 of the loan.

By taking out ASU insurance alongside your mortgage you can set the deferral period yourself, knowing that a proportion or all of your mortgage payments will be covered after a certain number of weeks or months (usually 30, 60 or 90 days) for a given period.

Buy-to-let market healthy

The latest buy-to-let index from lender Paragon Mortgages shows that landlords are beginning to pay more for their investment properties, after two months of taking advantage of slower market conditions to buy properties at prices below those paid by owner-occupiers. Despite the rise in prices, buying activity by landlords is holding steady at levels similar to the previous two months, reflecting landlords’ sustained confidence in the prospects for buy-to-let in 2004.
John Heron, managing director of Paragon Mortgages, comments: ‘After an excellent 2003, there has been no let-up in landlord activity in the New Year. At the same time, owner-occupiers are coming back into the housing market with renewed confidence, so that landlords are having to compete for property rather more than over the previous two months. The fact that investor landlords are continuing to purchase demonstrates that they are very positive about prospects for the current year. In our latest survey of landlords, they told us that they expect on average to grow their property portfolios by 8.8 per cent in 2004 – the equivalent of one additional property for every landlord surveyed.’
This month’s index shows house prices paid by landlords rising marginally, by 0.6 per cent, from £123,372 to £124,128. Landlord property values are now 11.6 per cent higher than 12 months ago, compared with the latest Halifax and Nationwide figures of 16.0 per cent and 14.3 per cent respectively.

John Heron says: ‘When the market is quiet landlords are often able to strike a better deal than the owner-occupier, but now that home buyers are starting to come back into the market prices are on the increase. However, the rise in prices paid by landlords since last month is smaller than for owner-occupiers – Halifax saw a 2.2 per cent rise in prices in its most recent house price index. The average price paid by landlords is currently just over £124,000, almost 15 per cent less than that paid by owner-occupiers (based on Halifax figures).
Average yields slipped again slightly, to 7.24 per cent, as a result of an increase in property values combined with an easing of rents received.
The lowest yielding regions in the country continue to be in more expensive areas in the south, in particular Greater London and the South East.
paragon-mortgages.co.uk

Ensuring that your home is protected from damp, fungus and insects can be costly but will save you money in the long run, says Anna Bowden

Damp and rot are commonly encountered problems in properties of all ages, and can occur for a variety of reasons. The most easily remedied occurrence is from a water leak – for example a burst water pipe or leaking guttering – but the solution is unfortunately not always that easy. Controlling damp is a job for the professionals, which, sadly, means forking out, but an ounce of prevention is worth a pound of cure. So check your home regularly for signs of leaking water and rot, as it could save you time and a lot of money in the long run.

Rising damp

This occurs when a damp proof course (damp course) is absent or has deteriorated, allowing water from the ground to seep up through the floor of the building.
The source of this is to be found in the soil, as water is raised through the brickwork by capillary action. Such water is not pure - nitrates and chlorides are brought up as salt, contaminating the brickwork, plaster and decorations. In turn these salts bring moisture from the atmosphere into the plaster.

Dry rot

Dry rot can affect properties of all ages and is caused by a high moisture level often found in areas suffering from rising damp. Severely affected timbers can be remedied without widespread damage to the structure. Dry rot is caused by serpula fungus, which is white and can leave wood a dry dust held together only by its strands. It is particularly dangerous as the fungus can travel across or through masonry to find a fresh wood supply. The first sign of dry rot is often a rust-coloured dust produced by spores. The treatment is similar to that for damp rot, though it can be much more difficult to eradicate.

Wet rot

Usually caused by a fungus from the coniophora puteana family, damp rot can appear white or brown and attacks the surface or interior of wood that comes into contact with moisture. Treatments involve drying out the wood and can include chemicals.

Woodworm

Woodworm is the most commonly used name for all wood-boring insects, including the common furniture beetle, the death watch beetle and the house longhorn beetle. The common furniture beetle, usually brought into the house with old furniture and packing cases, attacks the sapwood of softwood timber. The death watch beetle mainly occupies old buildings with a history of decay. Roof timbers are particularly susceptible. The house longhorn beetle is located in the south of England, mainly north west Surrey. As it also attacks the sapwood of softwood timber, differential identification is essential to treatment.

Penetrating damp

This occurs when water works its way through an exterior wall or roof, and is more common in older homes where walls are solid. The symptoms of penetrating damp are usually seen only in wet weather, and it is generally easy to pinpoint the source of the problem.

Areas to watch

Damp proof course

Sometimes referred to as a damp course or dpc, this is a layer of waterproof material like polyurethane at the base of a building. It acts as a barrier to water seeping up from ground level and if missing or damaged can leave a building at risk

Pointing

Mortar or cement between bricks is sometimes referred to as pointing. Damaged or missing mortar can allow water to seep into the brickwork

Flashing

A strip, usually lead or zinc, which seals the junction of roof sections. Cracks or damage to the flashing can allow water into a building

With many first-timers put off by high prices, what can be done to help? Andrew Frankish, operations director of Mortgage Talk, examines the options.

A lot has been said recently about the plight of the first-time buyer. There are plenty of statistics available to demonstrate that the first-time buyer market is at crisis point, but have we left things too late? Is there a danger that first-time buyers will disappear completely? And, if so, what are the implications?

This has been a recognised problem for eighteen months. The age of first-time buyers has been gradually increasing as their deposit requirements have spiralled out of all relation to the rate of inflation over the last few years.
Gordon Brown, in his April 2003 budget, indicated that something must be done to ease the plight of the first-time buyer but as yet the government has singularly failed to act. Of course, the first-time buyer problem is compounded by the UK’s unique economic circumstances. Despite interest rates remaining very low we really do have a two-stage economy; manufacturing is very much in the doldrums, while confidence in the housing market is strong. The latter is almost self-perpetuating and is mainly fuelled by low interest rates, which continue to encourage relatively high levels of borrowings among second- and third-time buyers and also place higher-priced properties within reach of more people. Supply is squeezed, which in turn further pushes prices up.

If we examine the situation logically, someone who bought their first house, say, ten years ago is in an enviable position. The property market at that time was weak and interest rates were significantly higher than today's levels. What this translates to is the fact that this typical buyer will, by now, have some substantial equity built into their house. As such, they will be able to move to a larger property without needing the size of mortgage that the average first-time buyer would need just to jump on the property bandwagon. However, this doesn’t benefit current first-time buyers, who have seen their buying power severely eroded by successive hikes in property values. Recently, Paragon published the results of a survey that showed that only 10.5 per cent of its applicants were first-time buyers in 2003, versus 10.8 per cent in 2002. Moreover, buy-to-let applicants comprised 11 per cent of borrowers in 2003 as opposed to only nine per cent the previous year.
And figures from the Council for Mortgage Lenders paint an even more worrying picture. For the industry as a whole, first-time buyer mortgages now only make up 30 per cent of total cases, versus a long-term trend of 45 per cent over the last decade.

Inevitably, this situation causes problems in the marketplace. It distorts house prices and alienates a whole class of today's young people, who simply feel priced out of the housing market. Given that many first-time buyers struggle to save a sizeable deposit, they have to borrow a large proportion of the purchase price of their first property which, taking recent price rises into account, means they will find it difficult to make ends meet, especially if interest rates rise as has been predicted.
In this climate a property market novice will be forgiven for feeling like the ugly sister. But what can be done to help first-time buyers make that move?

Help yourself

One way to get onto the ladder is to buy with friends. This is an idea that newly earning workers have used for many years. But with prices rising so steeply, this is a concept that more people are taking up later on in their careers. A couple of caveats here, though.
When friends – as distinct from couples and partners – decide to co-own, it is always wise for them to do so as tenants in common. This means that each party owns a pre-agreed percentage of the property, and this cannot be changed without the express consent of the other co-owners. It also means that more than two people can share ownership of the house or flat.
The converse is to own the property as joint tenants, which is the usual way in which spouses or long-term cohabitants possess property. The problem here for friends is that the split of ownership is not exactly distinct and, if one friend should pass away, his or her share automatically reverts to the survivor. Fine if you're married, but not ideal for work colleagues.

Another idea is to rent out rooms to friends or colleagues to help pay the mortgage. But make sure that you provide them with a suitable agreement that simply offers them a licence to occupy on a non-exclusive basis. The last thing you want is for a lodger to claim rights over your property on the basis that they have made contribution to the maintenance, repair and upkeep of the property.

Government policy

The National Association of Estate Agents recently called for the introduction of a fairer system by suggesting that stamp duty should be graduated. This certainly bears thinking about, with the £60,000 threshold not having been indexed for over ten years and now completely out of date. A decade ago only a third of properties were subject to stamp duty; now it is 95 percent. If the Chancellor wants to maintain his budget commitment to 70 per cent home ownership in this country, the Government needs to act to make starter homes more affordable.

Ideally, stamp duty should be abolished for first-time buyers to help them to gain a foothold on the home buying ladder, as well as supporting the housing market at the bottom. Unless we have a buoyant supply of first-time buyers it is unlikely that we will be able to sustain a strong housing market well into the future, regardless of what happens to interest rates. After all, what is the point of the Government claiming to encourage first-time buyers without offering them any genuine incentives?
Statistics from Cicero Consulting state that 65 per cent of those surveyed argue that the Government should do more to help first-time buyers, with 89 per cent agreeing that it is ‘very difficult’ for first-time buyers to get onto the property ladder. However, lenders are united in their reluctance to be seen to be encouraging unaffordable lending and to avoid a repeat of the all too recent self-certification scandal.

Perhaps more innovative schemes are needed, such as a return to Mortgage Interest Relief at Source (MIRAS) for first-time buyers. Or perhaps offering new borrowers the chance to take the first five or so years of their mortgage on an interest-only basis. Another alternative might be to allow first-time buyers to borrow over an initial forty year term, which can be recalculated to reduce the length of borrowing later on.
The truth is that, whatever the industry or Government comes up with, something has to be done reasonably quickly or the dearth of first-time buyers will have serious consequences for the housing market as a whole.

Parents

Other ideas floated by the press and other commentators include the concept of parental guarantors. Indeed, a recent poll by the over-fifties website fiftyconnect suggests that 63 per cent of its members intend to assist their children to buy their first home. And some lenders have even launched products that are designed to assist with this desire to help children onto the property ladder.
For example, the Bank of Ireland has just unveiled 1start, a so-called combi mortgage that takes an aggregate of the net available income of both the parent and child to increase the amount that can be borrowed. This is genuinely a positive step which, as well as offering a higher available amount of net borrowing, provides class-leading income multiples of four times parental income plus four times the child’s salary.

Lenders

One option might be to use more US-style longer term fixed rates, allowing borrowers to increase their income multiple calculations up to maybe five or six times salary, on the basis that what is affordable now will be even more affordable in the future.

Purchasers need professional guidance with the legal aspect of buying. Solicitor Pedro Emmanuel examines the process of finding the right conveyancing professional

For most people buying a house is one of the most important decisions they will ever make. However, unknown to a lot of people, the choice of their conveyancer is equally – if not more – important. A conveyancer is a lawyer who specialises in handling the legal formalities of the sale or purchase of a property. The conveyancer may be either a solicitor or a licensed conveyancer and will usually act for you and your lender. The role of the conveyancer is not only crucial to the success of the transaction but could determine whether or not you end up buying a liability.

What does a conveyancer do?

In a purchase the conveyancer obtains information about the property, checks that the seller has good title and then agrees the terms of the contract or lease for the purchase with the seller’s conveyancer. Furthermore, the conveyancer makes pre-completion enquiries including all the searches – usually environmental, water and local authority searches.
When satisfied with the terms of the mortgage offer and that the title is good, the conveyancer exchanges contracts on behalf of the purchaser, then obtains the mortgage advance from the lender and any balance, which the purchaser needs to provide. At completion (which is the day you move into your new home) the conveyancer pays for the house and registers the purchaser’s ownership and the lender’s charge at the Land Registry.

What should you consider in choosing a conveyancer?

The rule is not to choose a conveyancer simply because their fees appear low. There may be hidden extras. Even where the fees are really low, there are other equally essential matters to take into consideration. For instance, is the firm regulated by their relevant supervisory bodies? (The Law Society regulates solicitors while the Council of Licensed Conveyancers regulates licensed conveyancers). Regulation will usually ensure that the conveyancer has an indemnity insurance policy in place, just in case things go wrong.
You should also find out how experienced they are, how fast they can move and whether or not they provide regular updates. You may also want to know if they offer a personal service or whether they are a ‘conveyancing factory’. Location may also be important if for any reason you need to visit their offices.
By all means do look around and compare quotes from different conveyancers. But have a global picture when deciding which conveyancer to instruct.

If you’ve only ever been a first-time buyer, the jump to the next level of property ownership may be surprisingly complicated. So where do you start? Alex Hammond of Your Mortgage magazine investigates.

If you found buying your first home a confusing and exhausting experience, you should probably take a seat. Because there’s something you need to know: next time it might be even worse.
The major hurdle you faced first time around was probably finding the deposit. Once you’ve done this, with no chain to restrict your movements, the process can be straightforward. But when you have your own place to sell before you can move, you have to rely on a number of external forces that could easily thrown your own plans into jeopardy.

The real story

Iain Collings, an advertising manager, and Julie Shuttle, an office manager, both 29, bought their first property – a one-bedroom flat in Highbury, north London – in spring 2002. After a year and a half in the property they decided it was time to move on.
Iain says: ‘basically, we needed more space. We’d had enough of having nowhere to hang our laundry and no room for when our friends came over. When our mates stayed for the night they had to kip on the floor.’
Although Iain and Julie wanted a bigger flat, they liked the area and were reluctant to leave. Iain continues: ‘We’re looking at somewhere else in Islington, which is just up the road. We like living round there and sticking to the same area will mean little disruption to our lives. We’ve found a two-bedroom garden flat and hope to move in mid-March.’
But the process hasn’t been simple, as Iain explains. ‘Our original plan was to first sell our flat, then stay with friends while we arranged our mortgage and looked for a new home. We thought this would put us in a strong position for buying as we would again effectively be first-time buyers without a chain.
‘However, we realised that it was worth looking at properties even while we were still trying to sell our place, because this could give us a better idea of the size of offers on our flat we could afford to consider.’

Back-up plan

By moving their goals Iain and Julie did find a flat to buy, and sold their own home simultaneously. Everything seemed to be running smoothly, but then the purchase on their new property fell through.
Iain says, ‘We got through to the stage of having a survey done on the flat, which exposed some major underpinning issues. Basically, we couldn’t be sure that it wasn’t going to sink into the ground. The debate over this lasted for about three to four weeks and during this time we decided we needed to look elsewhere as a back-up plan.’
The two-bedroom flat that Iain and Julie will move into in March is the back-up plan. They found it quickly but the delay has meant that they have had to move out of their old flat and stay with friends. So does Iain think they chose to sell their flat, arrange their mortgage and buy a new home in the correct order?

‘There’s probably a lot of luck involved in how the process works. If we’d chosen to go ahead and sell our flat before buying we would have had to stay with friends. We tried to do the two simultaneously  - and as it turns out we’re doing that anyway.
‘The whole process was definitely more complicated than being a first-time buyer, which in hindsight was fairly straightforward. You potentially have to overcome a number of disappointments and extra costs. We paid £500 for a homebuyer survey on a flat we didn’t even move to. The process seems longer than the first time around. Perhaps I didn’t notice it as a first-time buyer because I was inexperienced, but it’s very frustrating that the legal work takes so long. You just want to phone someone and tell them to make a call or send the papers right then and there. It shouldn’t take long but it does.’
And what tips does Iain have for other first-time sellers?
‘Tell yourself that it will be hard work, it will be difficult and there will be disappointments. From our experience you should also make sure you have a back-up plan in case the sale of your property or purchase of another falls through, and allocated time to deal with any problems.’

Finance first

Paul Fincham from Halifax says, ‘Whether you are buying for the first time or moving home, the biggest factor you need to consider is the finance. So the first thing to do would be to work out what you can afford. Have a look at the deals available and get a decision in principle. Then start your house hunting.
‘When you have found somewhere, make an offer. If this is accepted apply for a mortgage and arrange the survey and conveyancing. When this is completed and your mortgage arrives you are ready to exchange contracts to complete the deal. Then it’s all yours. In theory the process is simple,’ he concludes. ‘But be prepared for any problems you may encounter.’
You can’t predict potential hitches when you’re moving but you can be ready for them with a contingency plan. Don’t assume it’s a done deal until you have completed on both your sale and your purchase. You’ll soon be able to relax in your new home – but until then you have to keep on juggling those tasks.