Buying, selling and letting - January, 2005

Builders: an insurance risk?

Blundering builders are putting home owners at risk of an insurance trap, warn experts. Home owners spent more than £40 million on DIY and building jobs last year. However, most standard home contents policies don't cover accidental damage caused by builders or other contractors. Martin Nugent, of insurance broker UK & Ireland Insurance Services, warned: ‘People forget that domestic buildings policies usually only cover damage done by the home owner and their family – not builders. The first step is to ensure that reputable builders are used and references are checked.
‘Thousands of people will be undertaking ambitious projects to improve their houses in 2005. New kitchens, loft conversions and extensions are expensive and it’s worth checking how good your insurance policy is before the work starts.’

Headache for sellers

While the majority of new home buyers find the house purchase process straightforward, more than two-thirds (70 per cent) say selling their old property was much harder work. That's one of the findings of New Homes Today 2004, a survey conducted by an independent research house on behalf of several UK house builders, including Redrow.
The research, among more than a thousand recent new home buyers, was designed to uncover the behaviour, beliefs and attitudes of purchasers.
Just over half of the sample (51 per cent) found the house purchase process either straightforward or very straightforward, with only 12 per cent rating it very stressful. But of the various stages involved in the process, respondents indicated that selling their old property was the biggest headache, with the vast majority describing it as stressful.

Market looking good

The average property price in the UK fell again by a further 1.2 per cent last month, but finished 2004 on average 6.4 per cent higher than a year ago according to recent data from the National Association of Estate Agents (NAEA). However estate agents across the country report that activity is starting to increase and are on the whole expecting the market to pick up once again, with 95 per cent expecting this to happen by Easter at the latest, and over a half of all agents surveyed expecting an upturn in January.

There was little movement in the supply and demand figures, showing only a marginal decrease in the number of buyers and new instructions, as expected at this time of year. However, despite a slight decrease, the number of houses available is higher than at the same time in previous years, indicating that the market has the scope for strong recovery from the annual Christmas slowdown.
Agents report that sensibly priced properties are selling well and this is reflected with the news that buyers are achieving an average discount of around five per cent from asking prices, further demonstrating the shift in the balance of the market towards a buyer’s market.  
Over the second half of last year, as average prices stabilised, property became more affordable for many and the percentage of first time buyers rose. This level looks set to be sustained in 2005. First-time buyers currently comprise 16.1 per cent of total sales, compared to less than ten per cent at the end of the summer when house prices were peaking.

If the holiday season has left you with a financial headache, why not remortgage? It can get you some ready cash – and a better deal, says Alex Hammond of Your Mortgage magazine

How festive was your season? Chances are, the more festive it was the bigger the financial hangover you now have to deal with. And as the seasonal colours turn into bank account red, you might have to start showing the colour of your money. If you don’t want to spend the whole of the New Year repairing the destruction of one festive season, you need to take action. And you can do this with a little help from your mortgage.

Spread the load

Tony Jones, managing director of Pink Home Loans, which has launched its mortgage advice service for borrowers, says: ‘Using your mortgage instead of short-term borrowing, such as credit cards and personal loans, to consolidate Christmas debt has its advantages. The interest rate will usually be lower and the debt is spread over a longer term.’
One way to repair your bank account is to top it up with money from a further advance on your mortgage. If you have equity in your homes, a number of lenders will lend you some extra cash, which is added to your mortgage and paid off at the mortgage rate. You don’t necessarily even have to tell the lender what the money is for, but some will lend a different amount depending on this. Nationwide, for example, allows additional borrowing of up to 95 per cent of your home’s value (including the amount of your existing mortgage) if you are using the money for home improvements, or up to 85 per cent for other purposes.
A further advance could be useful if you need money in a hurry, but if you are going to start reviewing your mortgage you may as well consider switching it completely to get a better rate. You could even receive a little extra cash and still save money on your monthly repayments if you get a really good deal.

Many lenders will lend you more than 90 per cent of your home’s value but the cheaper rates are reserved for lower loan-to-value (LTV) mortgages. So if you borrow more it could mean you end up paying a more expensive rate.
Plus, it is, of course, all still extra borrowing. Jones warns: ‘The disadvantage of using your mortgage to consolidate debt is that you risk eroding your equity. This is a concern when house prices are falling. If you can’t keep up repayments you could lose your home.’

Do your homework

Jones offers some advice. ‘First, I’d look closely at the terms of all the deals,’ he says. ‘Fees can vary dramatically and if you are only borrowing a small amount it can make the difference between a good deal and a bad deal. Also, make sure there are no early repayment charges – and if there are, make sure the rate is low enough to justify them.
‘On balance, and if you are sensible, a remortgage is a good way to help with your financial planning. There are some very attractive deals out there and with the property market slowing, lenders are working harder to attract your business.’

Escalating house prices mean that many first-time buyers cannot afford to go it alone. So why not buy with a little help from your friends, asks Christina Jordan of Your Mortgage magazine.

Although first-time buyers are coming back to the housing market, they are still few in number. Unless you earn a small fortune or have wealthy parents, you will find it difficult to get a mortgage on a single salary, which means you don’t get to own a property and therefore do not benefit from the increases in equity that many existing home owners can afford to smile smugly about.
So if you’re a first-time buyer, you need to look at your options. You could live on bread and water and save every spare penny you have to amass a bigger deposit, but with prices still continuing to rise, however slowly, the goalposts are continually moving while you are not.
You could take out a 100 per cent mortgage, where you don’t need a deposit; but then you’ll be borrowing more and probably paying a higher rate to do so – the best rates are available to those with a ten per cent deposit or more.
Or you could stretch your finances. Some mortgage lenders will lend you four or even five times your income – but only if you have a significant deposit and a particular kind of job. And this can be risky as borrowing to the limit gives you no leeway when interest rates rise or your income drops.

I want to hold your hand

If your salary is not big enough to enable you to buy your first property alone, you could consider buying with a partner or friends. Many couples buy their first home together and the lender will take into account both incomes.
Traditionally, you can borrow two-and-a-half times joint incomes or three times the biggest income plus one times the smaller income, though many lenders now offer more.
Most mortgage lenders will let you buy with up to three other people, but many will only take into account the two highest incomes. Joe Wiggins, spokesperson for Nationwide, explains: ‘We will take up to four people buying together, but we only take into account the highest two salaries when we look at how much you can borrow. Otherwise, four people might be able to borrow a huge amount. We use affordability rather than income multiples, which is a slightly more sophisticated way of calculating how much we lend, as we take into account outgoings as well as income.
‘It’s difficult for first-time buyers to get onto the housing ladder, with the average house price in the UK now reaching over £130,000, so joining up with friends can definitely be a practical option for some.’
But before you dive into buying with friends, you need to be aware of the potential pitfalls.

We can work it out

The most important thing to remember is that you may be best friends at the moment but nobody can predict the future. One person may, and probably will, decide to go his or her own way at some point, perhaps to set up home with a partner. Or one of the group could become unemployed. It’s essential that you know exactly what will happen when one person decides to leave or can no longer afford to pay.
Each borrower is responsible for the whole mortgage, not just their bit, so if three people bought together and one left the other two would be responsible for the whole thing.
It is important to seek legal advice before buying together; get a document drawn up, usually a trust deed, covering all potential situations. And you need to decide whether to buy as joint tenants or tenants in common.

A service has recently been launched for first-time buyers who want to get onto the housing ladder by buying with others. FirstRungNow offers a Joint Ownership Service that gives advice to groups buying together and helps individuals find potential property partners to invest with. Managing director Helen Adams explains the benefits of the service. ‘You can come to the website, FirstRungNow.com, for information and advice about joint ownership, such as legal and insurance requirements. And if you’re looking for someone to boost group numbers, or to find someone else with whom to buy, you can contact other people wanting to buy in the same town – you read profiles and choose who you want to get to know by email.’

Buying together could provide a valuable stepping-stone onto the housing ladder if your income won't stretch to buying your first home alone, but make sure you fully understand what you are getting into, choose people you know well and always get a legal document drawn up setting out what will happen if someone wants to sell their share. While money can't buy you love, if you go into the process with your eyes open, buying with a little help from your friends could turn out to be a great move.
yourmortgage.co.uk

Despite a range of doom-mongering forecasts predicting the end of the property market as we know it, a quick look at the mortgage lending statistics will show that the market is actually quite buoyant. The figures also demonstrate that first-time buyers are coming back into the market, having been somewhat sidelined by high prices; these first-timers are seeing price rises slow – or even reverse – and are now taking the leap into home ownership.

According to the Council of Mortgage Lenders (CML) the proportion of home loans approved in October for first-time buyers was nudging one-third of all mortgages; at 32 per cent, this figure is a substantial improvement over the previous month’s 29 per cent. Indeed, this improvement in the participation of property novices marks a high point in recent months, as the current number of first-time buyers as a percentage of home buyers is the highest since April 2003.
With the monetary policy committee of the Bank of England having kept interest rates in a holding pattern these last few months, it looks as though the first-time buyer will continue to come back to its previous place as a major force in the marketplace.

Mortgage lending fell in October for the third consecutive month to the lowest level since February, according to the Council of Mortgage Lenders (CML). Gross lending totalled £23.3 billion, eight per cent lower than the previous month’s figure of £25.4 billion; and the most recent figure is 17 per cent lower than that of October last year, when lending totalled £28 billion.
Although the number of loans for house purchase declined by nine per cent compared to the previous month, the slowdown was more pronounced for movers than for first-time buyers. House purchases accounted for 44 per cent of gross lending, a figure that is unchanged from the previous month.
Michael Coogan, CML director general, said: ‘These figures are in line with other indicators suggesting that interest rate rises have had their desired effect and the housing market is slowing down. Although lending figures may fluctuate going forward, we expect the slowdown to continue through the winter months.
‘However, interest rates are now probably at or near their peak, so despite the slowing market the overwhelming majority of existing borrowers will be able to continue to afford their mortgage payments.’

Looking ahead

Home hunters will start 2005 on a brighter note according to recent research. After hitting a low point in November, confidence in the housing market recovered slightly in December. Of people surveyed, 65.8 per cent expect house prices to fall in 2005, compared to 72 per cent in November, and 30 per cent now expect house prices to rise, compared to 24 per cent in November, showing a real belief in the market’s fortunes.