There is no doubt that banks and other lenders are making it more difficult to borrow money to finance a mortgage. Thousands of consumers across the country are starting to realise that loan companies, banks, credit card companies and mortgage lenders are slowly choking the supply of available cash.
First-time buyers are finding it more difficult to save a reasonable sized deposit, and even when they do it can sometimes be a strain to get a reasonable mortgage offer. In addition, many first-time buyers, who took out their mortgage two or three years ago, find it difficult to place a remortgage.
This all this began, last year over in America, with the so-called sub-prime mortgage crisis. This crisis rippled around the world, as many of the companies who were putting money into this risky market, were based all on other continents including Europe and the UK.
Because so many mortgage lenders lost so much money in the crisis they either don’t have the money to lend or are nervous about current lending conditions. All is not lost there are still lenders out there who can assist with mortgages and remortgages it is often just a matter of finding a competent broker.
One aspect of this crisis is that many people are turning to different measures, including the much talked about sell-and-buy-or-rent-back deals. Research has shown that where there is an affordability gap these types of deals that particularly popular, especially with younger mortgage holders.
This is a relatively new idea; even a few years ago no one sold their home, to a company then rented it back. These days its a huge business with a sizeable share of the mortgage finance market.
These schemes can be a good solution for many people having problems but the sell and rent back system but there is no doubt that this controversial way of holding on to your home is not for everybody.
There are many reasons why people turn to this system, usually when they are in a large amount of debt. They may take this option, rather than being repossessed or perhaps they’re getting divorced, and can not afford the mortgage on their own. If done through a reputable company the schemes can prove useful, although there are some less savoury operators in this market.
Last month, the dramatic change of heart by lenders, who pulled back from the under 125% mortgage market. Many companies that this within the space of just a few days with implication that they’ll feel that this is now a difficult market.
This way of holding on to your house may be of benefit to many people. What is essential to find a respected company to deal with this extremely important transaction. It should also be pointed out that there are other options such as debt consolidation mortgages and general second mortgages that can be of great assistance to many people who are having difficulties.
Sell and rent back should possibly not be the first choice for most people. Having payment difficulties or debt problems, a second mortgage may be slightly difficult to obtain, but they are available from reputable brokers.
Archive for the ‘Real Estate’ Category
Are Sell And Rent Back Schemes A Rip Off?
Tuesday, June 9th, 2009Understanding UK Bridging Finance
Wednesday, May 21st, 2008
Bridging finance, also referred to as “bridge loans” and “bridging loans”, have nothing at all to do with re-constructing the London Bridge. Bridging finance is typically a short-term loan that a business uses to supply cash for a real estate transaction until permanent financing can be arranged. The word “bridge” conveys the fact that the loan is designed to get you over a temporary obstacle.
A typical use for a bridge loan is to cover situations such as when a company needs to close on a new office building before having sold their old one. They would use the proceeds of the bridge loan to continue making payments on the old building until it is sold.
Bridging finance almost always requires that you pledge some sort of collateralas security against the loan. You could offer up commercial or private real estate that you own,or are in the process of buying, machinery and office equipment or even existing inventory. If you have outstanding business and personal credit, as well as an outstanding relationship with your lender, you might be able to secure your bridge loans on just a signature.
Because the need for bridging finance sometimes arises suddenly and without warning, it is a good idea to establish a relationship with a lender before the actual need arises. When you do this you can arrange to be pre-approved for a specified loan limit. Later, when the need suddenly arises, you won’t have to wade through all of the red tape. The typical term for a bridge loan runs from a fortnight to as long as two years. Of course, any terms can be negotiated and a motivated lender will work hard to match your needs.
Since bridging finance usually lasts for a relatively short period you may find that the interest rate you are being asked to pay is slightly higher than a more conventional type of loan. Lenders make their profit by charging interest across the life of the loan. The shorter the loan period the less interest they earn. As a result many lenders will often boost the rate by a 1/2 point or more. In general, the length of the loan, the amount of risk that is present for the lender, the quality of your credit history and the liquidity and value of your collateral all are used to help determine the interest rate.
Your best bet for securing a bridge loan at the most favourable rates and terms is to work with a qualified UK Commercial Mortgage Broker who understands the ins and outs of bridge loans. That way you can get your application in front of as many lenders as possible and end up with several who are willing to compete for your business.
Land Buying Scam – UK Property Investors be Warned
Friday, December 28th, 2007
Update
I highlighted back in December the existence of some very dubious land buying schemes. Whilst other less reputable landlord sites were promoting them and no doubt taking large commissions from these dodgy companies, Property Hawk advice was unequivocal “don’t touch them with a ‘barge poll’” we said. Now I have learnt from the BBC that Action Jack a company marketing plots of land is the third company to be wound up by the Insolvency Service for corporate abuse. This company acted as the broker for The English Land Partnership (ELP) the organisation that owned the land. The Insolvency Service now part of the DTI is currently taking action against another 21 companies involved in similar land marketing schemes.
Land as an investment
There is no denying that land like property land has been a fantastic investment over the last 10 years. The simple reason for this is that it is treated as a residual cost by developers when doing their development sums. This means that a developer will work out how much it costs to build a development, together with other associated expenses such as finance and profit. They then calculate the total value of the project.
The difference between the two is the amount they can afford to pay for the land. Therefore, as residential values have continued to soar and despite build costs also rising; it has meant that land values have largely continued to rise in line with house prices. In many cases they have actually outstripped house prices as eager developers compete with each other to get ‘there hands on’ more and more scarce plots of land. This scarcity factor is reflected in the varying proportion that land makes up of total costs in different parts of the country. In the north land costs will typically contribute 40% of the price of a new property. In London and the South-East where land is scarcer, this figure would typically be nearer 60%.
Value reflects use
The value of land however largely reflects what you can do or build on it. This is controlled by the planning system and means that there is effectively a dual pricing structure. Most land is without planning permission and is in agricultural use. The value of this land reflects the economic outputs of its use. In the case of agriculture this is not a high value economic use as only relatively modest profits can be generated from large areas. This is reflected in the current value of agricultural land of between ?2-3k per acre.
However, where planning permission is granted for a change of its use for say housing development, its value is transformed in an instant to reflect its development value. Residential building land can be worth millions of pounds per acre, often over a hundred times its agricultural value.
Dual pricing
This dual pricing structure represents ‘on the face of it’ a great opportunity for speculators to make vast profits by buying land cheap and then waiting to receive planning permission. It sounds simple. It’s not; as a town planner I have been involved in the whole tortuous process of land becoming zoned as development land.
The process can take 5 or more years to be included in the Development Plan for the area. Even areas of land on the edge of an urban area have no certainty of being included for development and political maneuverings means that land which is initially included can be removed as potential development right at the end of the allocation process.
Option agreement
All this uncertainty together with the amounts of time and money that is involved in promoting potential development sites through the process means that many sites are bought or optioned by house builders or specialist development companies with access to the necessary expertise and finance. An option agreement incidentally, is where a landowner agrees with a developer to give them the right to buy the land for a set period of time and sometimes at a pre-determined price. This gives the developer the potential to buy development land without tying up all their capital and also gives the landowner a capital sum irrespective of them being successful in their land being designated for development.
Land investment scams
This all brings me back to the reason for this article, which is two fold. Firstly, it is to educate you a little in the ‘mysterious’ ways of the UK planning and development system. Secondly, it is to warn you of the many land investment scams that are doing the rounds. I was recently alerted by an e-mail from another landlord site that has sent out a marketing e-mail of a land investment scheme being promoted by Leaders in Land. This scheme is not alone.
All you need to do is enter ‘land investment’ in Google to be bombarded by companies pertaining to offer irresistible opportunities for investment. The scheme in question is typical in that it offers to sell investors a plot of land for tens of thousands of pounds with the promise of large uplifts when it receives planning permission. The reality is that these schemes offer little or no chance of receiving planning permission and will stay in their existing or agricultural use for many life time if not for ever.
My advice – don’t touch them with a ‘barge poll’. If you want to buy land, why pay semi development value for sites which will never be granted planning permission when you can purchase the same type of land at a fraction of the cost at agricultural prices. Remember, a fool and their money is soon parted – so hang on to yours for a worthwhile property investment.
How To Let Your Property ( UK )
Friday, June 22nd, 2007
There are various circumstances in which letting out your property, or part of it, will suit your current needs.
It may be that you have inherited a property you do not immediately want to sell. Maybe you have a second home that is not being fully utilised and could make you some money from rental. Perhaps you have been posted abroad in your work and want someone to sit in the property while you are away. Or maybe you want to let a room in your property while you are also living there to generate some extra cash and help pay the mortgage.
Getting Started
Before you sign up with a lettings agent, you should find out about the financial, legal and regulatory matters involved in becoming a landlord.
1. Finance
It is imperative that you check with your mortgage lender before letting your property. Write and tell them that you want to sub-let your property. If you do not get their written permission then you could be in breach or your mortgage.
2. Check your Lease
If you live in a leasehold property, you will need to check your lease to make sure that you are not breaching its terms by letting your property. There may be fees involved in granting consents. Special conditions may be involved and it will be up to you to make sure your tenant and lettings agent is aware of these.
3. Insurance
Your current building and contents policy will probably not be suitable for application in the lettings market. Tenants are perceived to be more careless than an owner/occupier so you will probably be facing an increase in your premium to cover damage.
Lettings Agencies
When and if all these items are in order you can then sign up with a lettings agency. Using an agent will save you time and money in the long run.
The agent will have a list of clients looking for a property like yours, or will be able to advertise it if they do not. They will make contacts, arrange appointments and show people around your property, check references and draw up contracts.
Choosing An Agent
1. You may wish to Choose a company which is bonded to a professional body such as the National Landlords Association (NLA) or the Association of Residential Lettings Agents (ARLA).
2. Trust your intuition. If you are not comfortable with an agent, its premises, staff and practices, just walk away without committing yourself to anything.
3. Don’t base your choice just on what the agent says it can get for you in terms of rental income. The reality may be lower than at first suggested by the agent. If you are unrealistic and too greedy, your property will remain vacant for some time, losing potential earnings.
4. Shop around. Find out what your local agents charge and what you will get for the fee. Don’t always go for the cheapest option, but look at the range of services available. These can include discounted insurance or emergency repair insurance and are well worth having as optional extras.
5. Does the agent have an acceptable level of professionalism? Look for well maintained premises, clear advice and literature, a good website, well trained and experienced staff and high profile marketing.
Your Responsibilities as a Landlord
Before your letting agent will begin to act on your behalf, you must normally enter into a legally binding agreement which places a number of responsibilities on you.
These will include:
a) Preparing the property to let by cleaning, tidying, fixing appliances and removing any articles that are not to be used in the property.
b) Providing keys to agent and tenant.
c) Providing building, contents and liability insurance.
d) Ensuring the upkeep of the fabric of the property.
e) Repair of utilities such as plumbing, electricity and heating.
f) Arranging for final gas, electricity or telephone bills to be sent to the current tenants’ forwarding address prior to vacating the property to let.
g) Keeping the structure of the property insured for full the reinstatement value (including fixtures, furnishings and other contents where appropriate).
h) Ensuring that all furniture, furnishings, appliances and apparatus left in the property comply with the appropriate health and safety regulations.
i) Provide a landlord’s gas safety check certificate for the property and leave a copy with each tenant and the lettings agent.
Legal Responsibilities
Landlords must ensure the safety and maintenance of rented property and their contents so that no injury or damage is caused to the occupants, neighbours or the public. Fulfilling your responsibilities as a landlord during a tenancy can be very time consuming, so you could consider employing a property management company to fulfil these duties on your behalf.
Under the Landlord and Tenant Act 1985, you have three main areas of responsibility when you property is let under an assured shorthold tenancy:
1. Structure
Landlords are obligated to keep the structure and exterior of the property in good repair. Tenants must not be charged separately for this work although provision for the cost can be incorporated in the rental price. They are responsible for ensuring that the following items and areas are safe and fit for use, as well as making repairs where necessary.
* The structure and exterior of the property.
* Hot water installations, as well as the supply of water itself.
* Basins, sinks, baths and other sanitary or drainage installations.
* Ensuring an adequate provision of lighting, heating and ventilation.
* The treatment of any health-threatening damp.
* Anything else that you mutually agree with the tenant in the tenancy agreement.
2. Gas Safety
The Gas Safety (Installation and Use) Regulations 1994 place a number of responsibilities on landlords of private residential accommodation. This includes ensuring that all gas appliances are maintained and in good order; paying for an annual safety check to be carried out by a tradesman who is registered with CORGI (Council for Registered Gas Installers); keeping a record of all the safety checks and giving a copy of the safety certificate to the tenant within 28 days of each annual check.
You must also ensure that the electrical system and any electrical appliances that you supply such as cookers, kettles, toasters, washing machines and immersion heater are safe to use. However, you are not responsible for any appliances that the tenant is entitled to take at the tend of the tenancy.
3. Fire Safety of Furnishings
You must be able to verify that any furniture and fittings that you supply adhere to the standards set out in the Furniture and Furnishings (Fire) (Safety) Regulations 1988 which set levels of fire resistance for domestic upholstered furniture. All new and second hand furniture must meet the standards, unless it was made before 1950. Most furniture and fittings covered by these regulations will have a label on if it meets the standards. The only circumstances where these regulations may not apply is where you are letting on a temporary basis whilst working away from home.
Landlord’s Rights
You or your agent are allowed access to the property for two main purposes, both of which are usually detailed in the tenancy agreement.
These are to conduct visual reports in order to monitor its condition and ensure that tenants are abiding by the terms of their agreement and to show the property to prospective tenants when the current tenants are moving out. In both cases, 24 hours’ notice to tenants is usually required.
Under the Rent Act of 1977, you have the right to seek possession of your property under any of 17 assorted legal grounds. You cannot evict the tenant without a possession order from the court.
Room To Let
There are many thousands of households around the country where a single room in a property is rented out to a lodger. The government has special rules regarding the taxation of income under the rent a room scheme.
This allows you to let part of your home and generate a tax free income of up to ?4,250 per year. This equates to a monthly rent of just over ?350. If you generate more than this level of income, you are taxed on the gross rent you receive in excess of ?4,250. If you are within the rent a room scheme, you lose the right to deduct expenses from your rental income, as it is not considered a commercial venture.
Income for ancillary services such as providing meals or washing can be added to your rental income and incorporated into the rent a room scheme. However, you should check with your accountant that this does not qualify as carrying on a trade, as this would put you outside the bounds of the rent a room scheme.
Letting Your Home
There are many reasons why you may find yourself letting your home to tenants.
Short term lets are popular with homeowners whose work involves them being away from their property for a time but who will eventually return. Some people find it difficult to sell their property at the price they really want to achieve, yet need to move for one reason or another. Rather than accept a lower price than is sought, or leave an unsold property empty (which isn’t going to help the value at all), some people opt for a short let.
Letting for a period of three months can cover the costs of keeping the property whilst your agent tries to sell it. It covers the cost of your mortgage and certainly helps the appearance of the property.
High class exclusive homes dominate the short term letting market, with both flats and houses being popular. Not only are they generally high quality properties in upmarket areas, but the most successful are also presented with an attractive d?cor and furnished to a high standard. However, if your property does not fit this bill, it does not mean you won’t be able to find a short term tenant. Excellent location, proximity to useful transport links, pleasant grounds or some other appeal can make your home attractive to certain tenants.
If you are letting your home and eventually want to move back into it, make sure:
a) you have a professional inventory carried out, especially if yours is an expensive home.
b) you sign a legally binding licence agreement that allows you to regain possession of your home should the tenant decide that they like too much.
c) you take a large deposit from the tenant to cover any damage.
d) tell your mortgage lender and household insurance provider what you are doing.
Even with a short term let, you still have much the same obligations as a normal landlord, as regards fire safety, gas appliances and so on.
Let To Buy
Let to buy is a relatively new phenomenon where you buy a new home and let your old one.
As long as the rental income on your existing property will pay your old mortgage, lenders who offer this type of loan will usually offer you a mortgage for the new property based on the normal income multiples, even though you already have an existing property. This means that you end up with two mortgages at normal owner-occupier rates, therefore avoiding the slightly more expensive buy-to-let mortgages.
This is worth investigating if you are downsizing or if you want to move away from an area for a period of time, but not give up the property. It may be a home that has been in the family for a long time, or you may have a particular affinity for an area. You no longer want to live in the property, but nor do you want to lose it for good, either.
In such circumstances let to buy can be a good option. You get the benefit of retaining your asset, whilst someone else pays the mortgage for you, as well as having money left over.
Buy To Let
This is an increasingly popular investment where you buy a property specifically to let it to other people such as students, key workers and people who either don’t want the responsibility of owning their own home or who cannot afford it.
Buy to let requires special knowledge of the marketplace, mortgage products and insurance options that are open to you. A property investment adviser can help you arrange your mortgage, explain and discuss the different choices you face and how suitable they are for you, get quotations and push through the fulfilment on your behalf. Having someone take care of your mortgage application for you, filling out all the forms, liasing with the lender and going on to complete the process, can be a real relief for some people.
Whatever your objectives (to receive an income, invest for the future), the success of residential property investment depends on consistent high demand from tenants and maximisation of possible rental yields
Choose your buy to let property with care, taking the time to research and understand the local demand characteristics and how the market is likely to change over time. You must ensure that your property is in the right location for your target market and furnished to a standard that is more than adequate for the type of tenant you are looking to serve.
Always look at the investment through the eyes of a local lettings agent to assess suitability, even if you live locally to the area in which you are considering buying an investment property. They will help advise on the property type, location, decoration, furnishing, fixtures and fittings that will be required by prospective tenants.
Remember that buying an investment property is a business proposition, so you should not let your personal tastes cloud your judgement.
Tenants that are disrespectful to your property and leave it like a rubbish tip, contractors that do shoddy work an overcharge you for it, lots of paperwork, stress, huge time demands, all sorts of insurance expenses and no small amount of risk. Buying a property to let has the potential to include all of these problems as part of the package, so it is definitely not for everyone.
Over the long term, property is almost always an improving asset. Unless you buy at an overly inflated price, let the place fall into disrepair, or some kind of disaster besets the structure of the place, then you should eventually end up with an asset worth considerably more than you paid for it.
If you decide to invest in a property for letting purposes, you should consider the following points which will help you maximise your income:
1. Transport – is the area well served by a variety of local and national transport networks? If not, is there something planned for the future?
2. Safety – is it a crime hotspot and is there a neighbourhood watch scheme?
3. Amenities – is the property within easy reach of shops, schools, colleges, sports facilities, restaurants, pubs and cafes? Is this balanced with public parks and other green spaces?
4. Environment – does the exterior of the property look good and fit with others in the street? Is it near an airport or sewage farm? Does it back onto a railway line? Is it overlooked by pylons or mobile phone masts?
5. Neighbours – no one wants to live next door to noisy neighbours and barking dogs. find out what people who live locally are like and make sure they fit the same profile of the people you want to rent your house to – professionals, families, students.
If you choose your property and your tenants carefully, you are most of the way towards becoming a successful landlord.
This is meant as a general guide and should not be seen as legal advice.
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