wealth guru property newsletter
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Property & Mortgage Newsletter from your Wealth GuruTRANSCRIPT
Interest rates
10 essential mortgage questions
Mortgage matters
Stuck on the property ladder A shortage of choice limits those trading up
What are the key questions you need to ask?
What you need to know to attract tenants
Investing in property
What next for borrowers looking to either remortgage or buy a home?
Understanding your options
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Issue 19
Planning your remortgage.Isn’t it time you talked to us about saving money?We’re passionate about making sure you’ll obtain the best mortgage deal available.
Contact us to discuss your current situation, and we’ll help you find the best deal that's right for you.
Getting a foot on the property ladderThe financial reality of
buying a first home
New home registrations increaseDecember weather didn’t
dampen housebuilders’ spirits
Lending constraintsThe underlying drivers to be
considered before looking
towards solutions
Guidance to house builders and Local AuthoritiesHow the new planning system
is intended to work
Mortgage matters Understanding your options
Undermining the marketProposals to change
mortgage regulations
Interest ratesWhat next for borrowers
looking to either remortgage
or buy a home?
Property factsHome building
Rental propertiesTime taken to secure a
tenant has fallen
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Stuck on the property ladder A shortage of choice
limits those trading up
Investing in propertyWhat you need to know to
attract tenants
Buy-to-let mortgage lendingExpectation of strong rental
demand to remain
Fixed-rate dealsA dramatic effect on
homeowners’ rate expectations
Energy efficiency improvementsProviding landlords with up-
front financing to make rental
properties more efficient
NHBC certificateCovering you against specified risks
House building permissions downDrop coincides with the coalition
government having set out a
radical agenda for planning change
Confidence in propertyStrong returns for investors over
the longer term
Reconstructing our regionsThe clear economic benefits of
meeting housing needs
Buy-to-letStart of the New Year attracts a
growing number of investors
Underpinning the UK property marketStrong demand for good-quality
family houses
Residential property buyers gamblingAre you taking a major financial risk
by not having a survey?
Pre-empting a future interest rate riseAn increasing number of homeowners
are rushing to remortgage
Mortgage lendingHome loans on offer have more than
doubled
Developer makes good progressEven with economic uncertainties,
tax rises and government cutbacks
10 essential mortgage questions What are the key questions you need
to ask?
Landlords look to increase pricesThe lack of finance means more potential
buyers are opting to rent instead
Understanding the jargon The A to Z of property and
mortgage terms
In this issueIN THIS ISSUE
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Welcome
WELCOME
Welcome to the latest edition of our property news
and mortgage magazine. We are ‘passionate about
property’ and can advise you on any areas that may
interest you.
In a hugely competitive market, lenders are
continually updating and extending their range of
mortgages. Two of the most important points to
consider when choosing a mortgage are how you
pay back the capital that you borrow and how you
pay the interest on it. On page 09, we consider the
importance of how to fund what will probably be
the largest purchase you’ll ever have to make.
On page 12, read how optimistic sellers have
pushed up property asking prices but those
wanting to move home are stuck thanks to
a shortage of homes on offer. According to
Rightmove’s January report, asking prices rose by
0.3 per cent in the four weeks to mid-January – the
first rise in three months.
The National House-Building Council (NHBC)
provides the Buildmark warranty and insurance
cover for newly built and newly converted homes
and other warranties for social housing and
self-build homes. On page 16, we look at why
it is important that you check your warranty
documentation, which you should have received
from your solicitor on completion.
A full contents listing appears on page 3.
At the time of publishing this edition, the
property and mortgage market and economic
events are changing very rapidly and some
further changes are likely to have occurred by the
time you read it.
Content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements or constitute a full and authoritative statement of the law. They should not be relied upon in their entirety and shall not be deemed to be, or constitute advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. The Financial Services Authority (FSA) does not regulate most Buy-to-let or Commercial Mortgages.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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Assessing your mortgage options.Are you looking for the best mortgage solution?If you’re unsure about how to navigate the mortgage market during these challenging economic times, let us help you – don’t leave it to chance.
Contact us to discuss your requirements, and we’ll help you make a well informed decision.
NEWS
Getting a foot on the property ladderThe financial reality of buying a first home
And with the average first-time buyer
deposit now at £37,000, the financial reality
of buying a first home is concerning many
of those expecting to get a foot on the
property ladder.
This means that without taking into
account living or renting costs, first-time
buyers aged between 22 and 29 have to save
45 per cent of their take-home pay every
month for five years to afford a deposit.
House-building is currently at its lowest
since 1923, with mortgage lending set to be
at its lowest level for 30 years.
Stewart Baseley, Executive Chairman of the
Home Builders Federation (HBF), said:
‘More than 2.7 million young adults are
still living at home. The government needs
to help first-time buyers, and ensure that
policies enable us to build the homes the
country needs and mortgage providers are
actively increasing their lending to first-
time buyers.’ n
Over 1 million women and 1.7 million men aged between 20 and 34 are still living at home. The average age of a first-time buyer purchasing a home without financial assistance is now 37, meaning that more and more young people are leaving it later to get married and start families.
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This means that without taking into
account living or renting costs, first-time buyers aged between 22 and 29 have to save 45 per cent of their take-home pay every month for five years to afford a deposit.
NEWS
New home registrations increaseDecember weather didn’t dampen housebuilders’ spirits
Figures from the NHBC for new home
registrations in December 2010 show an
increase on 2009 figures, with just over
7,385 registrations during the month
(compared to 7,149 in 2009). These, added
to the previous 11 months, mean year end
numbers look set to end approximately
30 per cent higher than overall
registrations reported in 2009 (115,458 in
2010 compared with 88,083 in 2009).
Month on month, December 2010
figures were down on November 2010 –
a traditional trend for the industry,
reflecting a shorter month over the
festive season.
Imtiaz Farookhi, Chief Executive
of NHBC, said: ‘No one is popping
champagne corks but there is a growing
belief that the worst is now behind us and
we’re on the road to recovery.
‘The pace and extent of that recovery
really depends on factors out of the
hands of the industry, such as mortgage
availability and monetary pressures
on consumers. These are the biggest
obstacles that the house building sector
now faces for the coming year.’
NHBC statistics for the rolling quarter
October - December 2010 show that:
Private sector registrations were up
1 per cent (to 18,551) when compared
with the same period last year (18,393)
Public sector registrations were 8,711 –
13 per cent higher than the same period a
year ago (7,685)
Registrations in the combined private
and public sectors were 5 per cent up
on the same period in 2009 (27,262, up
from 26,078) n
The severe December weather didn’t dampen housebuilders’ spirits, as the last quarter of the year saw an increase in new home registrations, according to the National House-Building Council (NHBC).
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Lending constraintsThe underlying drivers to be considered before looking towards solutions
The Council of Mortgage Lenders (CML) has responded to a discussion initiated by Housing Minister,
Grant Shapps, over the large deposits needed by first-time buyers, by pointing out that lending
constraints currently apply to all those who don’t hold a large amount of equity in their homes.
The CML explains that high loan-to-
value (LTV) lending is very capital-
intensive for lenders who typically need
to hold six to eight times more capital
against a 90 per cent LTV loan than a
60 per cent LTV loan.
In addition, demand for high LTV
products is relatively low, partly because
of the cost to borrowers but also
because consumers are unsure of the
future direction of house prices.
The lenders’ body therefore urges
the government to ‘consider and
understand’ these underlying drivers
before looking towards solutions.
For example, while mortgage
insurance, shared ownership and
product innovation can all play their
part, none will provide a ‘magic bullet’
to normalise the mortgage market, the
Council suggests.
CML Director General, Michael
Coogan, sums up: ‘There is no simple
quick fix for a market that has changed
fundamentally since the credit crunch.’
He adds: ‘Creative approaches
have a role to play in helping to turn
market stability into market recovery,
and lenders look forward to working
constructively both with government
and the house building industry as we
look to help create the kind of conditions
conducive to responsible innovation.’
The CML estimates gross lending for
2011 at around £135bn, compared to
£360bn at its pre-crunch peak. n
Guidance to house builders and Local AuthoritiesHow the new planning system is intended to work
But, as a recent YouGov poll
demonstrates, the government’s
aspiration that the new system will
deliver more homes relies on changing
local people’s attitudes to housing.
A YouGov survey commissioned by the
New Homes Marketing Board (NHMB)
has revealed that more than eight in
ten people (81 per cent) believe Britain
needs more housing for sale and rent,
especially affordable homes for first-time
buyers. But it also shows that far fewer
people, just 50 per cent, would welcome
more homes of all types in their own
immediate neighbourhoods.
This is a decrease even from 2007,
when in a similar poll 58 per cent of
people said they would welcome more
homes in their neighbourhoods.
The government believes that by giving
people more power, more homes will get
built but this survey shows how much
government and local authorities need to
do to help house builders convince local
people of the benefits of development.
With Local Authority budgets cut, the
financial rewards of development, through
the New Homes Bonus, will be vital for
boroughs and towns across the country.
Stewart Baseley, Executive Chairman of
the Home Builders Federation (HBF), said;
‘The localism proposals provide a
real chance for people to develop their
communities for the better and house
builders will work with them to build the
homes communities and families want.
More homes will mean more money
for local facilities and services and
will enable young people to live in the
communities where they grew up.
‘The government and local councils
need to join us in educating communities
of the severity of the housing crisis and
the benefits of new homes.’ n
The publication of the Localism Bill after much delay provides guidance to house builders and Local Authorities alike as to how the new planning system is intended to work.
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LEGAL MATTERS
A YouGov survey commissioned
by the New Homes Marketing Board (NHMB) has revealed that more than eight in ten people (81 per cent) believe Britain needs more housing for sale and rent, especially affordable homes for first-time buyers.
Mortgage mattersUnderstanding your options
When you choose a mortgage, you’ll
need to think about the repayment
method, interest rate deals and special
features of some mortgages. The
best one for you will depend on your
circumstances, so it’s important to
understand your options and obtain
professional advice.
REPAYMENT METHODSThere are the two main ways you can
pay off your mortgage. These are called
‘repayment’ or ‘interest only’.
REPAYMENT MORTGAGEWith a repayment mortgage you make
monthly repayments for an agreed period
(the term) until you’ve paid back the loan
and the interest.
INTEREST ONLY MORTGAGEWith an interest only mortgage you make
monthly repayments for an agreed period
but this will only cover the interest on
your loan. You’ll normally also have to pay
into another savings or investment plan
that will hopefully pay off the loan at the
end of the term.
WHICH TYPE OF INTEREST RATE IS SUITABLE FOR YOU?As well as deciding on your repayment
method, you’ll need to look at the interest
rate deals on offer. Suitability of different
deals will depend on your personal
circumstances and any tie-ins or penalties
that may be attached.
STANDARD VARIABLE RATEWith a variable rate mortgage your payments
go up or down with the lender’s standard
interest rate. This often changes following
Bank of England base rate changes.
STANDARD VARIABLE RATE WITH CASHBACKWith this type of deal you get a cash
lump sum as well as the loan when you
take out the mortgage. You’re usually tied
into the variable rate for a set period.
DISCOUNTED RATEYou pay a lower interest rate to begin with,
then move to another rate (usually the lender’s
standard variable rate) after a set period.
TRACKERTracker rates are linked to the Bank of
England rate or some other ‘base rate’.
This means they’ll always go up or down
in line with changes to the base rate.
FIXED RATEYou pay a fixed rate of interest for a set
period, so you know exactly what you’ll
be paying each month during that time.
When the fixed period ends, you’ll usually
move to the lender’s standard variable
rate. There are usually penalties if you pull
out early.
CAPPED OR CAP AND COLLARWith a capped rate you pay a variable
interest rate, but there’s a ceiling so
your payments won’t go above a certain
amount for a set period. Some deals
include a collar too – this is the lowest
rate you’ll get. If interest rates fall below
the collar, you’ll lose out.
FLEXIBLE, CURRENT ACCOUNT AND OFFSET MORTGAGESFlexible, current account and offset
mortgages offer you the facility to control
and vary your monthly payments. They
can be used with repayment or interest
only mortgages.
For example, you can:
n pay less one month and more the next
n make lump sum repayments (and
sometimes draw these back)
n take a ‘payment holiday’ pay off your
mortgage early
KEY FACTS DOCUMENTS Mortgage providers are now legally
bound to present customers with a Key
Facts document.
The Financial Services Authority (FSA),
which regulates mortgages, says the Key
Facts document should deliver clear,
simple and user-friendly information to
consumers about the mortgage offer.
The Key Facts document sets out the
total cost of the loan – not just the headline
interest rate – including any up-front fees.
Each new mortgage customer has to
confirm that they have received the Key
Facts before putting pen to paper. n
In a hugely competitive market, lenders are continually updating and extending their range of mortgages. The most important points are how you pay back the capital you borrow and how you pay the interest on it.
MORTGAGES
09
UNDERMINING THE MARKETProposals to change mortgage regulations
Organisations from across the housing industry have
warned of the consequences relating to the Financial Service
Authority’s (FSA) proposals to change mortgages regulation.
Independent research shows that if the FSA’s
proposals had already been implemented, of the 11
million current mortgage holders:
n Nearly half wouldn’t have been able to borrow
what they did
n Up to a quarter may not have been able to
borrow anything at all
Moving forward, it is estimated that each year the
proposals would mean:
n Up to 153,000 house purchases could
not be possible
n 57,000 first-time buyers would be refused
mortgages
The implications for the housing market of such a
reduction in mortgage availability – already one of
the main constraints on housing delivery – are clear,
and additional pressure could be placed on the already
overstretched private and social rental sectors, where 5
million people are waiting on Local Authority waiting lists.
The organisations also warned that unless the FSA
changed its view that lending on shared ownership
properties is sub-prime, the banks would continue
to turn away more than £240m of valid business. In
2009/10, this resulted in 4,600 low-cost homes being
left vacant, even though 110,000 households had
applied to move into them.
Elizabeth Richards, Head of Legal & Policy at the
National Federation of Property Professionals (NFOPP),
comprising both the National Association of Estate
Agents (NAEA) and the Association of Residential
Letting Agents (ARLA), commented:
‘These proposals may seriously undermine the
mortgage market. The National Association of Estate
Agents attributes the decline in both buyers and sellers
during the past few months to restrictive lending
criteria. These new regulations have the potential to
exacerbate this problem. Loans to first-time buyers are
considerably lower than at this time last year, and the
NAEA believes that these new proposals will prevent
even more people from buying a home.’
What next for borrowers looking to either remortgage or buy a home?
Interest rates
While the Bank of England has not given
any indication that it will raise the base
rate, commentators are suggesting it may
have to raise rates sooner rather than
later and accelerate the pace of rates
returning to a more normal level.
That view appears to be shared by
the money markets and this has pushed
up swap rates, the funding that heavily
influences fixed rate mortgages.
But while higher swap rates could
feed through to higher mortgage rates,
it is far from certain. Banks still have
hefty margins that mean they can keep
mortgage rates low even if swap rates or
the base rate rise.
The problem is that rates are being
used not just to make money but
also to ration mortgages. The CEBR /
Chesterton Humberts property forecast
for 2011 suggested that a new bout of
quantitative easing will help. It said:
‘The expansion in the money supply will
increase competition between lenders
forcing down spreads and fees, making
mortgages cheaper.’
But waiting around to see if rates fall
further is a gamble and jittery borrowers
are increasingly tempted to choose a
fixed rate.
If you are in the position of needing to
fix, remember that if you have a 25 per
cent deposit or equity, despite the doom
and gloom, now is not a bad time to be
looking for a mortgage.
To get the full choice of deals, raising
a decent deposit is still vital. The
benchmark figure is 25 per cent – if you
have this, then you’ll be getting close to
the best rates, although for an absolute
cheapest deal you’re still likely to need
40 per cent.
A selection of better deals for 15 per
cent deposits are available and even the
10 per cent deposit market is looking
more buoyant. n
Inflation is the problem that just will not go away quietly for the Bank of England and that has led to the outlook for interest rates picking up.
NEWS INTEREST RATES
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RENTAL PROPERTIESTime taken to secure a tenant has fallen
UK private rental properties are being let
within 15 days on average, according to
property services group, Countrywide.
The firm’s latest quarterly survey shows that
the length of time taken to secure a tenant
has fallen by five days in a year, as an average
4.4 tenants line up for each available home.
The number of new tenants registering for
rental accommodation increased by 14 per
cent compared with a year earlier, and the
increase took the total number of new tenants
for the year to over 200,000, a record high.
Countrywide are seeing a change in the
demographic of tenants, with a growing
number of professional tenants emerging
across the country as affordability issues face
homebuyers who are unable to sell or raise
the capital to buy their next home.
These wider economic issues are reflected
in our rental stock, with a growing number
of three- and four-bedroom family homes
entering the market. The research suggests
that the proportion of these homes entering
the rental market grew by 3 per cent last year.
However, the greatest demand is for two-
bedroom apartments and houses, which are
still in short supply.
Demand is at its greatest in the South West,
although letting agents throughout the UK
reported a lack of supply, while confirming
that two-bedroom houses and apartments
remain the most sought-after property types.
MARKET DATA
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NEWS
Property factsHome building1 BRITAIN IS EXPERIENCING A HOUSING CRISISCurrent home building levels are nowhere
near enough to meet demand. Last year
160,000 new homes were built in England,
compared with projected household
growth of 223,000 per year.
Average house prices in England are more
than seven times average salaries and are set
to reach nine-and-a-half times this by 2026.
2 THE GOVERNMENT HAS RAISED HOME BUILDING TARGETSThe government has set a housing target of
240,000 homes per year by 2016, and a total
of 3 million homes by 2020.
3 BRITAIN’S PLANNING SYSTEM IS STILL NOT BRINGING LAND FORWARD QUICKLY ENOUGH TO MEET HOUSING NEEDSIt takes on average 15 months for home
builders to receive full planning
permission on sites they wish to develop.
This excludes time taken for pre-application
discussions, which can extend the whole
process to over two years in many cases.
4 BRITAIN’S HOME BUILDERS ARE WORKING HARD TO MEET HOUSING NEEDS New home completions have risen some 35
per cent since 2001.
5 HOME BUILDING DOES NOT POSE A THREAT TO THE COUNTRYSIDEGreen Belt land comprises 13 per cent of
total land in England. Only 8 per cent of land
in the UK is classed as urban, half the figure
in Holland and lower than Belgium, Denmark
and Germany.
6 NEW HOMES ARE FAR MORE ENVIRONMENTALLY FRIENDLY AND SUSTAINABLEDue to building standards introduced in
2006, new homes are now 40 per cent more
energy efficient than new homes built at the
beginning of the decade.
Source: CLG Housing Statistics, Housing Green
Paper, HBF research, CLG Housebuilding
Statistics, CLG Land Use Statistics, CLG Local
Planning Authority Green Belt Statistics,
National Housing Planning Advice Unit.
NEWS
Stuck on the property ladder A shortage of choice limits those trading up
Optimistic sellers have pushed up
property asking prices but those wanting
to move home are stuck thanks to a
shortage of homes on offer, according to
Rightmove’s January report.
Asking prices rose by 0.3 per cent
in the four weeks to mid-January, the
property listing website’s index recorded
– the first rise in three months.
At £223,121, the average property asking
price is up 0.4 per cent on a year ago.
Homeowners wanting to move up the
property ladder are being hardest hit by
the stuttering market, as a shortage of
choice limits those trading up.
Those hunting for the traditional semi are
being hampered the most, with the supply
of semi-detached homes – the property
that many families looking for more space
aspire to – down 30 per cent on last year.
The number of flats and terraced homes
being offered is down 10 per cent, and
the number of properties coming to the
market each week stands at 9,150, almost
half the 17,000 January average seen
before the credit crunch hit.
With house price inflation having risen
rapidly over the past decade, many
buyers of a family home face a stamp
duty bill of at least £7,500 for properties
costing more than £250,000.
This has now been added to by lenders
demanding minimum deposits of 25 per
cent to secure the best mortgage rates,
leaving a mover hoping to buy a £300,000
home needing to raise £84,000 – £9,000
in stamp duty and a £75,000 deposit or
equity.
Miles Shipside, Director of Rightmove,
said: ‘With the number of new sellers at
a two-year record low, prices are being
underpinned by muted new supply just
managing to fight off the downsides of
lender reticence.
‘However, in less popular locations, the
smokescreen of New Year price optimism
is temporarily masking the collateral
damage that the new era of tighter credit
will continue to inflict.’
One of the reasons behind the
shortage of semi-detached homes
being put up for sale could be that their
owners are facing the biggest frustration
in attempting to move up the property
ladder and find reasonably priced
detached properties.
Mr Shipside said: ‘These figures
show that owners of semis aspiring
to trade up are the most likely to
feel trapped and frustrated of those
stuck on the property ladder. They
would previously have sold to owner-
occupiers of terraces, who in turn
would have sold to first-time buyers or
buy-to-let investors.
‘With fewer buyers at the bottom of
the chain, and short chains due to more
vacant property, some are obviously
unwilling or unable to come to market.
‘Also semi owners face the biggest
price jump to trade up to their target
market of detached homes, and lenders
are no longer as profligate in their ways
to fund this traditional step onto the next
rung of the ladder.’
Rightmove measured 1.3 million
properties marketed in 2010, compared
with just 530,000 mortgages. n
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BUY-TO-LET MORTGAGE LENDINGExpectation of strong rental demand to remain
Buy-to-let mortgage lending grew by 7 per
cent in 2010, according to data from the
Council of Mortgage Lenders (CML). By the
year-end, there were an estimated 1 .3 million
buy-to-let loans outstanding, worth £152bn.
The total value of lending during 2010 stood
at £10.4bn (up 22 per cent on 2009), and the
total number of loans advanced increased 10
per cent, to 102,000.
In the final three months of the year,
there were 28,600 new buy-to-let loans
advanced, worth £3bn, a rise of 6 per cent
by volume and 7 per cent by value from the
third quarter.
In terms of loan performance, the buy-to-let
sector saw a further decline in the number of
mortgages in arrears, with low interest rates
a key driver in the improvement.
For 2011 , the CML expects strong rental
demand to remain as deposit constraints
continue to present obstacles to potential
first-time-buyers.
Director General, Michael Coogan, commented:
‘Funding remains a key constraint on growth in
buy-to-let lending, but demand seems to be
resilient and loan performance has improved.’
He added: ‘Loan performance could
potentially be adversely affected by rising
rent arrears or interest rate rises, but at
present there is no indication of these
pressures materialising in practice.’
PROPERTY INVESTMENT
Investing in propertyWhat you need to know to attract tenants1. Research, research, research – know
the area you are buying into. Regeneration
plans and new Tube stations are great
indicators of up and coming areas and
capital appreciation. Apply the ten-minute
rule for access to transport links, bars and
restaurants and local amenities.
2. Location - consider who your ideal tenants
will be. To attract quality tenants you need
quality locations.
3. Buy well - consider both price and
content. Research prices in the area and look
for comparables. Can white goods, flooring
or furnishing be included in the purchase?
4. Make sure the numbers work - most wealth
is created through capital appreciation, so buy
a property that supports this type of growth.
Ensure you include all costs in your financial
projections (such as legal fees, stamp duty,
service charges, ground rent and contingency
to accommodate void periods between
tenants). These costs are all too often ignored,
leading to negative monthly cash flows.
5. Appoint the right advisers - a professional
regulated adviser can secure the best
deals free from fees and aligned to your
investment strategy. Good letting agents will
minimise void periods. Remember that not all
solicitors are off-plan specialists.
6. Don’t expect to get rich quick - property
investment should be approached with a
long-term view. It is an asset class that in the
medium to long term has outperformed all
other asset classes and we would encourage
people to build a sustainable, appropriately
geared portfolio over a number of years.
7. Never ignore the basics of supply and
demand - find out what is needed in your
chosen area. The markets for one-bedroom
flats and four-bedroom houses do not follow
the same pattern.
8. Don’t be influenced by your emotions –
you’re not living in your investment so decorate
and furnish at an appropriate level of quality.
Make sure you understand what quality is
required and don’t be tempted to furnish
cheaply if you want to retain quality tenants.
9. Be wary of incentives - particularly
schemes or developments where you are
under pressure to sign up quickly to secure
the deal, and never buy an off-plan or new
property without the guarantee of either a
National House-Building Council (NHBC) or
Zurich ten-year warranty.
10. Don’t pay over the odds - avoid paying
finder’s fees, commissions or subscriptions,
particularly prior to completion. If the
investment proposition is a sound one, there
should be no reason to pay up-front fees.
NEWS
14
FIXED-RATE DEALSA dramatic effect on homeowners’ rate expectationsResearch from Unbiased.co.uk suggests
that the average mortgage borrower is only
prepared to enter a fixed-rate deal if the
interest rate is around 3.3 per cent.
With the Bank of England’s base rate still at
0.5 per cent, the professional advice portal
suggests the emergence of a ‘rate-spoilt’
generation, as back in January 2009 a rate of
4 per cent would have appeared attractive,
given that fixed-rate deals peaked at around
7.8 per cent at the end of 2007.
Furthermore, the study indicates that only a
quarter of respondents coming to the end of
their deals would move on to a new fix rather
than reverting to their lenders’ standard
variable rates.
According to Unbiased.co.uk, homeowners
are likely to continue to refrain from
remortgaging to a fixed-rate deal until the
base rate starts to rise.
The firm’s Chief Executive, Karen Barrett,
comments: ‘With the base rate now remaining
at a record low, our tracked research shows
this has had a dramatic effect on homeowners’
rate expectations.’
She adds: ‘Their ideas of what is a reasonable
fixed-rate mortgage have become distorted
in the low interest rate environment and
they need to ensure that their mortgage
expectations are realistic.’
According to Ms Barrett, homeowners need
to be alert to ensure they don’t miss out on
getting the best deals before it’s too late.
Landlords should be considering measures
to improve the energy efficiency of their
properties now, the Association of Residential
Letting Agents (ARLA) recommends.
The government’s Green Deal (which should
be up and running in Autumn 2012) will
provide up-front financing to make rental
properties more energy efficient where
tenants request improvements.
However, by 2015, landlords who don’t comply
may be forced to make improvements because
ministers are determined that all properties
with an Energy Performance Certificate rating
of F or G are upgraded.
For private landlords with older
properties, this may present a
significant challenge, so ARLA is
suggesting that simple measures, such
as loft insulation (the recommended
thickness is between 250-300mm),
the insulation of water fittings, and the
draught-proofing of doors and windows,
are tackled immediately.
ARLA Operations Manager, Ian Potter,
reminds landlords that they can already
take advantage of a tax allowance
of up to £1,500 for energy efficiency
improvements, through the Landlord’s
Energy Saving Allowance. n
NEWS ENERGY EFFICIENCY
Energy efficiency improvementsProviding landlords with up-front financing to make rental properties more efficient
Buy-to-let.We offer professional investor advice, essential when choosing the right mortgage deal.Providing investors with professional advice to make an informed choice is what we do best.
Whether you’re a new or experienced investor, contact us to discuss your buy-to-let requirements.
NHBC certificate
The Buildmark warranty and insurance
cover is divided into five main parts:
COVER BEFORE COMPLETION Cover during the first two years (from
the date shown on the Ten Year Notice/
Insurance Certificate)
COVER DURING YEARS THREE TO TEN Additional cover in years three to ten
(where NHBC’s subsidiary carried out the
building control)
The steps you should take vary
depending on how long the cover has
been in operation. It is important to check
for the number of your insurance policy
and the commencement date of the
cover. This information is shown on your
Insurance Certificate.
COVER BEFORE COMPLETION If, due to insolvency or fraud, the builder
does not start building or converting
your home, or fails to finish it, NHBC
will reimburse money you have paid the
builder for the home where the money
cannot be recovered from them. If the
property is not finished, NHBC can
arrange for the property to be finished in
accordance with their Standards.
The maximum amount NHBC will pay is
10 per cent of the original purchase price
or £100,000 (whichever is less).
COVER DURING THE FIRST TWO YEARS If you discover any defects or damage in
the first two years from the date of your
Insurance Certificate, you must report
these to the builder. The builder must
put right any defect or damage to your
home, caused by not building to NHBC
standards, within a reasonable time
scale. If the builder is notified of defects
or damage within this period of cover,
they remain responsible for putting the
problem right, even after this period of
cover has expired.
If, after notifying the builder of the
problem, you’ve received no response,
you should contact NHBC and they will
write to them on your behalf.
Remember that the builder is not
responsible for items such as normal
shrinkage or normal condensation due to
the property ‘drying out’, general wear
and tear or damage arising from failure to
maintain the property.
NHBC RESOLUTION SERVICEIf the builder fails to put right the
problems, NHBC will usually offer
a Resolution Service, which aims to
resolve disputes between you and the
builder. Under the Resolution Service,
they can also help arrange the work
needed to put things right if the builder
fails to do so. If the builder is insolvent,
then they insure his obligations.
NHBC can only help with disputes about
defects or damage to your home. They will
not be able to help you if you have a dispute
about financial or contractual matters.
COVER DURING YEARS THREE TO TEN During years three to ten, NHBC provides
direct insurance cover and you should
contact them, rather than the builder,
if you need to make a claim. Generally,
the insurance cover NHBC provides will
depend on the type of policy you have. It
is therefore important that you read your
own documents for specific information.
Additional cover in years three to ten
where NHBC’s subsidiary carried out the
building control
This cover only applies if NHBC Building
Control Services Ltd has carried out the
building control for your home. If it has,
you have additional cover in years three
to ten against costs arising from the
builder’s failure to comply with specified
statutory Building Regulations, where
there is a present or imminent danger to
the health and safety of the occupants of
the home.
Your Insurance Certificate will show if
this cover applies to your home.
My property is less than two years old.
What should I do if I discover a defect
or damage?
In the first two years after completion
of the property, it is usually the builder’s
liability to rectify defects or damage
caused by failure to build to NHBC’s
technical Standards.
In the first instance, you should notify
your builder of any defects or damage.
There is no need to notify NHBC.
However, you should keep a copy of all
correspondence and any other relevant
information, such as notes of telephone
conversations, and contact them in the
event of a dispute.
If a dispute arises regarding work to be
done, NHBC usually provides a Resolution
Service (see above). This assists in
resolving straightforward disputes
between homeowners and builders.
WHAT IS THE BUILDER LIABLE FOR?The builder should put right, within a
reasonable time and at their own expense,
any defect or damage caused by a failure
to build to their technical Standards
which is notified to them within this
period of the cover.
If you have to move out of the home
so that work can be done, the builder
The National House-Building Council (NHBC) provides the Buildmark warranty and insurance cover for newly built and newly converted homes, and other warranties for social housing and self-build homes. If you buy a newly built or converted home, it is therefore important that you check your warranty documentation, which you should have received from your solicitor on completion.
BUILDMARK
16
Covering you against specified risks
should meet any reasonable costs you
incur, by prior agreement with the builder,
for removal, storage and appropriate
alternative accommodation.
If the builder has been notified of a
defect or damage during this period of
cover, then they remain liable to put it
right even after this period has expired.
WHAT IS THE BUILDER NOT LIABLE FOR?n Wear and tear or deterioration
caused by neglect or failure to carry
out maintenance.
n Dampness, condensation or shrinkage
not caused by a defect.
n Anything excluded by an endorsement
on the Insurance Certificate.
n Anything caused by alterations or
extensions to your home.
n Anything resulting from compliance
with written instructions given by or
on behalf of the first owner in respect
of design, materials or workmanship.
n Any cost or expense greater than that
necessary to carry out a workmanlike
repair of the defect or damage.
n Any items falling outside the
definition of home (as defined in
your policy document).
n If you are not the first owner, anything
which you knew about when you
acquired the home and which resulted
in a reduction in the purchase price
you paid or which was taken into
account in any other arrangement.
MY PROPERTY IS MORE THAN TWO YEARS OLD. WHAT DOES MY POLICY COVER?During years three to ten after
completion, NHBC handles insurance
claims under the NHBC Buildmark (their
warranty and insurance).
In general, this part of the cover insures
against damage that has resulted from
construction defects in the structural and
weatherproofing parts of the home. The
cost of the work must exceed a minimum
sum for the claim to be valid. Not all
types of damage or parts of the property
are covered in years three to ten. n
BUILDMARK
17
NEWS
18
House building permissions downDrop coincides with the coalition government having set out a radical agenda for planning change
Local Authority planning permissions for
house building continued to head firmly
downwards in the fourth quarter of 2010,
the latest Home Builders Federation
(HBF) Housing Pipeline report released
reveals. It is the third successive
quarterly fall and leaves permissions at
less than half the rate being granted four
years ago.
Across Great Britain, just 33,000 homes
were approved for construction in the
last three months of 2010 – 9 per cent
down on the previous quarter and
22 per cent down on a year ago. Social
housing was hardest hit with only 5,500
approvals – a new low for the survey and
particularly concerning with five million
people already languishing on Local
Authority housing waiting lists.
HBF released the report just days after the
government published its 2010 housing
statistics that showed the number of new
homes completed in England in 2010
slumped 13 per cent on the previous year,
itself the lowest peacetime number on
record since 1923.
The implications of the collapse in
permissions are stark and exacerbate an
already acute housing crisis. Currently
the country has a housing shortfall
estimated to be a million homes, with
people being forced to stay with their
parents for longer and first-time buyer
levels at an all-time low.
Permissions granted for homes typically
take up to three years to build. So the full
implications of this drop will not be felt
for some time. However, with household
formation projections showing the need
for England to build around 232,000
homes a year until 2033, and 2010’s total
at just 103,000, there is obvious potential
for the crisis to deepen.
The new Housing Pipeline report
shows that through 2010 there was a
steady fall in permissions granted to
developers for new homes in England,
with a drop from over 40,000 in the
first quarter to under 30,000 in fourth
quarter. This drop coincides with the
coalition government having set out
a radical agenda for planning change.
The downward trend in permissions
shows the importance of the
government implementing its proposals
for a pro-growth planning system as
soon as possible.
Commenting, HBF Executive Chairman,
Stewart Baseley, said:
‘These figures are extremely
concerning. A reduction in permissions
granted now will see fewer homes
built in future years, exacerbating the
already acute housing shortage we are
currently experiencing.
‘The figures demonstrate the necessity
for the government to clarify exactly
how the new Localism-based planning
system will deliver the homes and
supply the growth we desperately need.
Only by ending the ongoing hiatus
caused by the scrapping of the old
system without a ready replacement can
developers and Local Authorities plan
ahead confidently and effectively for
new housing.
‘It is also crucial that councils
recognise the housing shortage and
accept their new responsibility for
housing supply. This will require
understanding the new system, taking
full account of the government’s
incentives and allowing developers to
build the homes local residents and
the country desperately need.’
The report, compiled by Glenigan for
HBF, is the second of what will be
quarterly monitoring. It will provide a
regular and accurate assessment of the
situation being faced by developers as
Local Authorities get used to the new
planning system. n
Local Authority planning permissions for house
building continued to head firmly downwards in the fourth quarter of 2010, the latest Home Builders Federation (HBF) Housing Pipeline report released reveals. It is the third successive quarterly fall and leaves permissions at less than half the rate being granted four years ago.
NEWS
19
20
New research has shown that investors
see the property market as the best
place in which to inject their hard-
earned cash this year. According to
the Worldwide Property Group’s latest
confidence tracker survey, 72 per cent of
capitalists believe that property makes a
superior investment.
This places bricks and mortar ahead of both
gold – ranked top by less than one-fifth of
respondents – and shares, which came third in
the list with just 11 per cent of the vote.
Interestingly, the group also found that 77 per
cent of investors consider this to be a great
time to buy property in the UK, while 64 per
cent view overseas markets as a strong option.
Kevin Wilkes, Managing Director, commented: ‘It’s
no surprise that so many people feel that property
offers them the best investment potential.
‘It has consistently produced strong returns
for investors over the longer term, and during
a downturn there is even more potential to
achieve great returns.’
He went on to say that the US is currently
a ‘very appealing’ location, with some
‘incredible bargains’ available to those able
to make a cash purchase.
‘My tip for 2011 would be to make this the
year that you invest. Don’t leave it too
late and miss out on some of the best
opportunities we have seen in decades.’ n
NEWS
Confidence in propertyStrong returns for investors over the longer term
New research has shown that
investors see the property market as the best place in which to inject their hard-earned cash this year.
BUY-TO-LETStart of the New Year attracts a growing number of investors
Rents in England and Wales fell slightly in January, as the buy-to-let market saw a growing number of investors.
According to the latest Buy-to-let Index from LSL Property Services, average rent dropped by 0.3 per cent (£682) compared with December but remained 4 per cent higher than a year ago, with signs of renewed growth in several areas.
The January movement marked the second consecutive monthly fall and took average yield down to 4.9 per cent, as rents declined at a faster pace than rental property values.
LSL Commercial Director, David Brown, points out that the number of buy-to-let loans available increased by 7 per cent in the final quarter of 2010, according to figures from the Council of Mortgage Lenders (CML).
He commented: ‘There are signs that this trend is continuing into 2011 , allowing a growing number of professional landlords to get onto the market – or broaden their portfolios – and take advantage of near record rental income and strong tenant demand.’
According to Mr Brown, international investors will also be playing their part while yields look attractive and properties are affordable.
Meanwhile, tenant arrears fell back slightly in January, but remained high with 11 per cent of all UK rent in arrears.
21
NEWS
Reconstructing our regionsThe clear economic benefits of meeting housing needs
The Home Builders Federation’s (HBF)
report, ‘Reconstructing Our Regions’, for the
first time unveils the clear economic benefits
of meeting housing need and tackling the
housing crisis.
The report analyses the potential
impact of the government’s New Homes
Bonus incentive to local communities
and the upturn in employment in housing
construction that would be seen if local
areas build the homes needed to meet the
government household projections over the
next two decades.
Last year saw the lowest number of homes
built since 1924 and almost five million
people on the social housing waiting lists. It
also saw a record low number of first-time
buyers, with more and more people in their
30s staying with their parents.
HBF Executive Chairman,
Stewart Baseley, said:
‘Building houses is a win-win for communities
across the country. Not only will families get
the homes they need but local employment
and increased investment will be boosted.
‘Economic growth is fundamental to a
successful recovery and housing has a huge
role to play – I urge Local Authorities to
reap the rewards of development and start
building the homes the country needs.’ n
Recently released research reveals that building the homes
required to meet government’s projections of need would
mean £1.2bn of investment annually across the country and the
creation of over 215,000 jobs.
22
UNDERPINNING THE UK PROPERTY MARKET
Strong demand for good-quality family houses
Strong demand for good-quality family
houses underpinned the UK property
market and helped support price growth
towards the end of last year, according to
estate agents Winkworth.
According to the group’s latest report, the
average asking prices of properties on
its books rose from £494,000 to £532,000
between August and November 2010.
Overall demand from buyers fell during the
three months, however, as confidence waned
and mortgage availability remained tight.
The number of properties for sale across the
UK remained stable and above levels seen
during the same period a year earlier. But
it was the growing demand for high-calibre
family homes that underpinned the market,
fuelling an upward trend in asking prices.
Dominic Agace, Chief Executive of Winkworth,
said: ‘It is the availability of finance which
remains a key determinant of the level of
activity in the housing market in 2011.
‘ U n t i l t h e b a n k s fe e l co m fo r t a b l e to
l e n d a g a i n , p a r t i c u l a r l y a t t h e b o t to m
e n d o f t h e m a r ke t , vo l u m e s a re l i ke l y
to re m a i n co n s t ra i n e d . ’
In the rental sector, demand continued
to outstrip supply between August and
November, with the number of properties to
let sliding to a level more than 45 per cent
lower than that of the same period in 2009.
Residential property buyers are taking
major financial risks by not having
surveys carried out on their future homes,
according to new research.
A study by chartered surveyors e.surv
showed that buyers gambled an
estimated £1.3bn last year by failing to
have a survey done before making a
house purchase.
Researchers found that eight out of ten home
movers choose not to have a survey, although
the average private survey – costing as little
as £200 – identifies works requiring around
£1,800 to put right, giving buyers room to
negotiate on the seller’s asking price.
According to HM Revenue & Customs
(HMRC) figures, there were approximately
880,000 residential property transactions
in 2010, meaning that more than 700,000
buyers can expect to fork out more than they
bargain for when purchasing a home they
have not had surveyed.
Richard Sexton, Sales Director for e.surv,
commented:
‘Interestingly, people buying more expensive
properties are more thorough when they
buy, despite the fact they are the ones who
can afford to fix dodgy roofs or unexpected
damp patches.
‘But they’re not just being risk averse – they
use surveys to barter down sellers very
effectively. It’s the people who can least
afford something to go wrong who are
missing out,’ he added. n
NEWS NEWS
Residential property buyers gamblingAre you taking a major financial risk by not having a survey?
MORTGAGE LENDINGHome loans on offer have more than doubled
The number of mortgages available from UK lenders has more than doubled in the last two years, but other factors continue to keep buyers out of the housing market.Research by Moneyfacts.co.uk shows choice falling to an all-time low two years ago, when only 1,097 residential mortgage products were available.
Since then, the number of home loans on offer has more than doubled, to 2,447, with borrowers holding a 20 per cent deposit seeing the number of deals available soar from 97 to 390.
Currently, the largest range of products is to be found in the 75 per cent loan-to-value (LTV) tier, where 851 mortgages are available, up from 422 two years ago.At the same time, the number of loans at 60 per cent LTV has fallen from 261 to 187, the financial website reports.
However, Moneyfacts claims that despite the overall rise in mortgage availability, access remains restricted for many.
Spokesperson, Michelle Slade, explains: ‘Borrower affordability remains the key factor in lending decisions and lenders remain strict over which borrowers they will accept.’
Ms Slade also warns that rising rates and the implementation of the Financial Services Authority’s Mortgage Market Review are likely to restrict affordability calculations further.
NEWS
The UK housing market remained sluggish at
the start of 2011, but an increasing number of
homeowners are rushing to remortgage their
property to ensure they are not caught out
by rising interest rates, research suggests.
According to the British Bankers’ Association
(BBA), the number of home loans approved
for house purchases stayed almost
completely flat in January, with only marginal
improvement from December’s two-year low.
At just over 28,900, the figure is
considerably lower than the 70,000 to
80,000 monthly approvals associated with a
stable housing market.
However, the number of homeowners
remortgaging increased by five per cent in
January – up 28 per cent on the same month a
year earlier – as families rushed to secure a fixed-
rate deal before interest rates rise as expected.
The number of UK remortgages exceeded
26,000 in January, just slightly less than
November’s 16-month high, fuelled by
speculation that the Bank of England
would boost the base rate to curb over-
target inflation.
David Dooks, Statistics Director at the BBA,
commented: ‘The high street banks have
seen more remortgaging activity of late as
people look to fix costs.’
Interestingly, the news follows Nationwide
research which indicated that 75 per cent
of homeowners have made no plans about
how they will cope if and when interest
rates rise.
Net mortgage lending was valued at £1.6bn
last month – approximately half the average
2009 amount. n
MARKET DATA
An increasing number of homeowners are rushing to remortgage
Pre-empting a future interest rate rise
23
24
DEVELOPER MAKES GOOD PROGRESS
10 ESSENTIAL MORTGAGE QUESTIONS
Even with economic uncertainties, tax rises and government cutbacks
What are the key questions you need to ask?
Redrow says it continued to make good
progress in the final six months of 2010, despite
the housing market being ‘overshadowed
by economic uncertainties, tax rises and
government cutbacks.’
The developer attributes much of its success
to its New Heritage Collection, which is
proving to be ‘aspirational’ for customers who
appreciate an emphasis on traditional values.
Furthermore, the group reported that
reservations were ‘comfortably ahead’ in the
first six weeks of 2011 compared with a year
earlier, although the figures may include an
element of ‘catch up’ from the December freeze.
Looking ahead, Redrow’s Chairman, Steve
Morgan, is more optimistic than some on
UK house prices, saying they have been
stable for some considerable time now ‘and
we do not share the pessimism of some
commentators that there will be a major fall
in house prices during the coming year.’
The group’s New Heritage Collection is currently
selling at an average £196,000, or 7 per cent
higher than equivalent homes in Redrow’s
previous Signature range.
Mortgages should be straightforward – you
borrow money to buy a property and pay
interest on the loan. But what are the key
questions you need to ask?
n How much can I afford to borrow?
n How can I tell which mortgage rate
is best?
n What is the best type of mortgage for me?
n How should I repay it?
n Can I make lump sum payments?
n Are there any redemption penalties?
n Does this mortgage come with insurance?
n What other charges will I have to pay?
n What happens if I can’t pay?
n What about the small print?
Rent climbed steadily last year and it seems
likely that the trend is set to continue in 2011,
as landlords look to increase prices.
Research from buy-to-let specialist Paragon
Group has revealed that 41 per cent of the
landlords it polled are planning to increase
rents during the next 12 months.
A further 55 per cent plan to keep rents at
2010 levels and just 4 per cent are looking to
reduce the amount of rent they are charging.
Of those looking to increase rental prices,
one in ten landlords are aiming to increase
the rent they charge tenants by 4 per cent
to 8 per cent. Nearly a third plan to increase
rents by up to 4 per cent of the current value.
Landlords are also in a buoyant mood
when it comes to demand, with 45 per cent
predicting growing levels of people looking
to rent and a further 44 per cent forecasting
already high demand to remain steady.
They have reason to be confident. Rents
in the private rented sector grew steadily
throughout 2010, according to the Royal
Institution of Chartered Surveyors (RICS).
More surveyors recorded rent increases
than falls in each of the first three quarters
of the year.
Nigel Terrington, Chief Executive of Paragon,
which polled 182 landlords, said: ‘Landlords
are in a strong position. Tenant demand has
risen faster than supply during 2010 and that
is expected to continue well into 2011.
‘This is reflected in landlords’ expectations
of future levels of tenant demand and also
the rent they are planning to charge for
their properties.
‘There continues to be a lack of finance
available in the UK mortgage market,
meaning that many potential buyers are
opting to rent instead.’ n
NEWS NEWS
Landlords look to increase pricesThe lack of finance means more potential buyers are opting to rent instead
25
Planning your remortgage.Isn’t it time you talked to us about saving money?We’re passionate about making sure you’ll obtain the best mortgage deal available.
Contact us to discuss your current situation, and we’ll help you find the best deal that's right for you.
GLOSSARY
Understanding
the jargon The A to Z of property and mortgage terms
APRStands for Annual Percentage Rate, which
helps you compare the cost of different
mortgage deals. It takes into account the
amount of interest you will pay, the length
of the term of the mortgage and other
charges, such as any arrangement fee.
ARRANGEMENT FEELenders sometimes charge a fee to cover
the work involved in setting up your
mortgage or for certain mortgage rates.
BANK OF ENGLAND BASE RATEThis is also known as the Bank of
England’s repo rate. This rate can go
up or down from time to time and is
announced by the Bank of England’s
Monetary Policy Committee.
BUILDING INSURANCEInsurance against the cost of rebuilding a
property from scratch following structural
damage, for example by flood, fire or storm.
BUILDING SURVEYThis is a technical report following an
inspection of the property. It will give you
a comprehensive account of the condition
of the property, describing any structural
or other defects.
CAPPED RATEYour interest rate won’t go above a
certain level – the ‘cap’ – during the
capped rate period. This means that you
can enjoy any rate reductions, yet have
the comfort of knowing that your rate
won’t go above the cap.
COMPLETIONThe day on which a property becomes
legally yours.
CONCLUSION OF MISSIVESThe Scottish equivalent of exchanging
contracts.
CONTENTS INSURANCEA policy insuring household contents
against theft and damage.
CONVEYANCERA legal expert handling all documentation
for the sale and or purchase of a property.
This will be a solicitor or licensed
conveyancer.
CONVEYANCINGThe legal process involved in buying and
selling a property.
CREDIT SCORINGA technique used by the lender to assist
in the assessment of your application.
DAILY INTERESTWith this method of calculating
mortgage interest, it is charged on the
amount of mortgage outstanding daily.
This means lenders take into account
any changes in the amount you owe on
a day-to-day basis.
DEPOSITThe money you pay on exchange
of contracts as part of your initial
contribution to the purchase of
your home.
DISBURSEMENTSAll the various costs itemised on your
conveyancer’s invoice for carrying out
your home buying legal work.
DISCHARGE FEEYou have to pay this to some lenders for
releasing their hold over a property once
you have paid off your loan.
EARLY REPAYMENT CHARGEWith some mortgages you have to pay an
early repayment charge if certain things
happen. For example, if you pay off some
or your entire mortgage or you transfer to
a different mortgage rate before the end
of the special rate period.
EQUITYThe difference between the amount you
owe on your mortgage and the current
value of your property.
EXCHANGE OF CONTRACTSThe swapping of contracts between
a buyer’s conveyancer and a seller’s
conveyancer. Once you have exchanged
contracts, you are both legally bound to
the transaction.
FEUDALA form of legal title applicable only in
Scotland.
FINANCIAL SERVICES AUTHORITY (FSA)An independent body that regulates the
financial services industry in the UK. Its
aim is to help consumers become better
26
informed about financial matters and to
help protect consumers.
FIXED RATEA rate of interest guaranteed not to change
over a fixed period of time.
FREEHOLDA form of legal title to land which means
you are the absolute owner of the property
and the land it’s on.
GUARANTORSomeone who guarantees to repay the
mortgage if the borrower can’t or won’t
for any reason. Guarantees are usually
entered into where the borrower’s
circumstances would not allow them to
borrow enough to buy the home they
want. For example, parents may act as
guarantors for their children when they
buy their first home.
HIGHER LENDING CHARGEFee or premium sometimes charged by
lenders if your mortgage represents a high
percentage of the property value.
HOUSEHOLD INSURANCEA way of referring to both buildings and
contents insurance.
INITIAL DISCLOSURE DOCUMENTInitial disclosure is the information you
will receive from an advisor when you
first contact them regarding a mortgage
or related product. It informs you about
the service you will receive, details
whether you will receive advice and
GLOSSARY
27
GLOSSARY
28
explains what fees may be charged. It
may help you to decide whether or not
to use that advisor.
INTEREST-ONLY MORTGAGEYou pay only interest to your lender
throughout the mortgage term and
your mortgage balance doesn’t reduce.
INVESTMENT MORTGAGEAs with an interest-only mortgage,
you pay only interest to your lender
throughout the mortgage term and
your mortgage balance doesn’t reduce.
At the same time, you put money into
a separate investment, which should
grow and pay off the mortgage as
scheduled. You must make sure you
keep premiums up to date on any
mortgage investment products.
KEY FACTS ILLUSTRATIONA Key Facts Illustration (KFI) sets out
details of the mortgage product that a
customer is interested in. All lenders are
required to set out the details in a Key
Facts Illustration in the same format,
so it’s easier for you when you want to
compare products. You must receive a KFI
before making an application.
LAND REGISTRY FEEYour conveyancer pays this on your
behalf to register your details in the
Land Registry records once you’ve
bought a property or changed your
mortgage lender.
LEASEHOLDThis means you own a property for a set
number of years. When the lease expires,
the property returns to the freeholder.
Flats are commonly sold as leasehold.
LIFE ASSURANCEA form of insurance by which someone’s
life is insured. Life assurance policies can
run parallel with a repayment mortgage,
so the mortgage should be repaid if you
die before the end of the term.
LOCAL AUTHORITY SEARCHPart of the conveyancing process when
you buy a property, carried out by your
conveyancer. It gives details of any matters
which, from the local council’s point of
view, affect the property. It reveals any
proposed changes to the local area, such
as road improvements, and details any
planning permission given for the property.
LTVThis means ‘Loan to Value’ and is the
proportion of the value or price of the
property (whichever is the lower), that
you borrow on a mortgage. For example,
a £63,000 mortgage on a house valued at
£70,000 would mean a LTV of 90 per cent.
MORTGAGE DEEDA legal document establishing a
mortgage on a property. This is called a
‘standard security’ in Scotland.
MORTGAGE TERMThe length of time over which you agree
to pay back your mortgage, up to a
maximum of 40 years.
NEGATIVE EQUITYThis is when the amount you owe on your
mortgage is greater than the value of
your property. It particularly becomes a
problem if you want to move house.
PREMIUMAn amount you pay on a regular basis. This
could be for an insurance policy, depending
on the mortgage product you choose.
REMORTGAGINGWhen you arrange a new mortgage on
your home, with a different lender, and
use the new mortgage to pay off the old
one. This could be to withdraw equity to
spend on home improvements.
REPAYMENT MORTGAGEYour monthly payments will gradually pay
off your mortgage as well as the interest if
your payments are strictly in accordance
with the terms and conditions of the
original loan.
REPO RATEThis is also known as Bank of England
base rate.
RETENTIONHolding back part of a mortgage loan by
the lender until repairs to the property are
satisfactorily completed.
STAMP DUTYGovernment tax you have to pay based
on the purchase price of a property worth
£125,000 or more. First-time buyers are
exempt from stamp duty on properties
worth between £125,000 and £250,000
until 25 March 2012.
STRUCTURAL ENGINEER’S REPORTA specialist report from a structural
engineer on the condition of a property.
SURVEY AND VALUATIONA property survey that can include a
valuation and should reveal any major
faults in the property. It must be noted
that valuations do not strictly involve
surveys. It is recommended that a buyer
should have a survey taken out.
TRACKER RATETracker rates vary in line with changes to
the Bank of England base rate. During the
tracker rate period, any changes to the
Bank of England base rate are passed on
to you in full.
VALUATIONArranged by your lender to find out if
the property is suitable to lend a
mortgage on.
Published by Goldmine Media Limited, Prudence Place, Luton, Bedfordshire, LU2 9PE Articles are copyright protected by Goldmine Media Limited 2011. Unauthorised duplication or distribution is strictly forbidden.
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