Buying, selling and letting - June, 2004

Supply of homes slipping?

The number of UK applications to build new homes was less in May 2004 than in the previous May, according to the National House-Building Council (NHBC). Approximately 14,600 applications were made in the public and private sectors, and while private sector starts were down by four per cent on the May 2003 statistics, housing association starts picked up, with a 31 per cent increase on May last year.
Imtiaz Farookhi, chief executive of NHBC, says: ‘Despite a decrease in May in the number of applications to start new homes, NHBC statistics show that the number of registrations so far this year are close to the level of last year. Furthermore the average number of new homes sold each day in April and May show a substantial increase on the same months last year, indicating that there continues to be a demand for new homes.’
An average of 579 new homes were sold each day during May 2004, a 16 per cent increase on May 2003.

For love or money

Almost two-thirds of first-time buyers will be buying their first property with their partner, despite the fact that fewer than half of them cite their reason for buying as being so they can live together.
The findings from Alliance & Leicester Mortgages’ first-time buyer research show that because property prices are more and more prohibitive for first-time buyers, young people are increasingly finding practical ways on to the property ladder. Fewer than one-quarter (24 per cent) of first-time buyers stated that they are able to foot the cost of their first purchase alone, so 57 per cent are choosing to share the financial commitment by buying with their partner instead.
When it comes to funding the deposit, 42 per cent are relying on their savings, which leaves over half of first-time buyers seeking financial help from elsewhere. Almost one-quarter (24 per cent) will be opting for a 100 per cent mortgage, making a deposit unnecessary, while 18 per cent will be asking their parents to help foot the bill.
According to Paul Cooper, head of mortgages at Alliance & Leicester, ‘First-time buyers are facing increasing financial challenges as house prices continue to rise. Our latest findings show that they are being forced to find practical ways to work through these challenges, such as buying with their partner, relying on their parents to fund the deposit or looking at a 100 per cent mortgage.’

A record number of people are buying residential property to rent out to private tenants. Your Mortgage magazine reveals the steps buy-to-let investors can take to ensure success.

Buying a property to let is still increasing in popularity. As other investments continue to look shaky in comparison, the rude health of the property market continues to convince us that bricks and mortar is the best investment we can make. In fact, 43 per cent of homes put up for rent between February and April this year belonged to new landlords, according to the Royal Institution of Chartered Surveyors – up from an already high 41 per cent in late 2003. But while buying an investment property has never been easier – and the choice of lenders who will help finance your purchase has never been as wide – there are still a few things to consider if you want to make your investment pay off.

Choose the right property

Above all else location, location, location is key when it comes to buy-to-let so make sure that your property is in an area that is well suited to letting. Always consult local estate agents to determine the supply and demand of rental properties in the area first. The Association of Residential Letting Agents (ARLA) will give you details of ARLA-registered agents in your area and can also offer help and advice on regulations and rent levels. Contact ARLA on 01923 896555.

Choose the right mortgage

With more than 40 lenders offering hundreds of buy-to-let mortgage deals choosing the right one can appear daunting, but it needn’t be. Check with your lender to see how much you can borrow. As a rule most will only allow you to borrow around 80 per cent of the value of the property. Almost all lenders will take the expected rental income from the property into account when deciding how much to lend. As a guide your rental income should, at the very least, cover 125 per cent of your monthly mortgage payment.

Work out costs and income

Work out how much your monthly mortgage repayment will be and whether the expected rental income will exceed this. By checking out the rental prices of similar types and sizes of property advertised in your area you will get an indication of whether this is a possibility. Also look at whether you could afford your mortgage if interest rates shot up and the property is unoccupied for, say, three months.

Consider the ‘hidden’ costs

You’ll have to pay for solicitor’s fees (approximately £900 for a £100,000 property), estate agent’s fees, buildings insurance, mortgage arrangement fees, stamp duty and possibly service charges and ground rent.

Budget for ongoing costs

You are responsible for the cost of repairing or replacing fixtures and fittings and ensuring that the property meets necessary health and safety standards. Local authorities require that you comply with fire regulations, which could mean you have to put in fire doors and smoke detectors. The Department of Trade and Industry publishes a useful guide, Furniture and Furnishings Fire & Safety Regulations. Telephone 0870 150 2500 to receive a copy.

Choose a professional letting agent

You might consider using a professional letting agent. They will find tenants, collect the deposit and rent and arrange the inventory and tenancy agreements. But they don’t come cheap. Expect to be charged anything between ten and 17.5 per cent of the gross rental income that you receive.

Ensure you have the right insurance

As the owner you are responsible for insuring the structure o your property, which includes any permanent fixtures and fittings. It is vital that you check your policy as many buildings insurance policies exclude buy-to-let.

Sort out your tax position

You have to pay income tax on any rental income you receive, although you can deduct some expenses, and you will be liable for capital gains tax when you sell. Always consult an accountant before entering the market.

Get a fully flexible mortgage

This type of mortgage can be ideal for buy-to-let as you can fluctuate your payments in line with rental income.

View buy-to-let as a long-term investment

Don’t expect to make a quick profit on rental income and equity gain the property. The forecast should be for medium- to long-term returns – five to ten years at least.

Prices up again …

House prices increased by 0.6 per cent in May, with average house prices reaching £151,800 and London’s average rising above £250,000 for the first time, according to the latest Hometrack survey.
The research reveals a 0.6 per cent increase in average national house prices, bringing the total increase this year to 3.2 per cent. The number of transactions also continued to increase, with house sales up 2.7 per cent, buyers up two per cent and discounts on asking prices diminishing.
Average sales price achieved as a percentage of asking price is 96.4 per cent. While this is the same as last month, it is the highest percentage recorded since November 2002. This again points to further upward pressure on house prices for the rest of the year. The average length of time taken to sell a property has fallen to 4.0 weeks (4.2 in April’s survey). There is currently an average of 10.1 viewings before a sale is achieved.

… and the first rung is higher than ever

It takes first-time buyers a year longer to save for a house deposit than a decade ago, according to National Savings and Investments (NS&I). The research revealed that since 1994 the time it takes to save for a five per cent deposit on a first home has increased from two years nine months to three years nine months. In the South East, first time buyers face having to save for 48 months.
With increases across the UK of between three and 15 months for the average first-time buyer to save for a deposit, it is harder than ever for those who want to get a foothold on the property ladder. The extra time taken is down to the fact that income increases (68 per cent) have not matched increases in house prices (142 per cent) over the past ten years.
Gill Cattanach, marketing director at National Savings and Investments, said: ‘The growing gap between increases in house prices and incomes means that those thinking about buying homes for the first time need to start saving earlier.’