Greg@intercounty

Wednesday, 9 March 2011

Buyers take risks to avoid the £1m hike in stamp duty

The new stamp duty hike for all properties worth over £1m is just over month away. In a recent article Buyers rush to beat rise in stamp duty I mentioned the implications of the rise in stamp duty due to take place on the 6^th April.

To avoid the increased rate of stamp duty buyers are preparing to rent back properties to sellers, after the completion date, which could be risky for buyers, especially if they are raising a mortgage to buy a house, as they could be in breach of their mortgage contract, as most mortgage companies insist on vacant possession of a property upon completion.

The risk of renting back a property could result in the mortgage company calling in the loan, and they would be within their rights to insist on converting it to a buy-to-let mortgage, which would be at a much higher rate of interest.

If you are considering this option then the best way to avoid any problems would be to contact your lender and get permission to rent back the property for a short period of time.

Many buyers will not take into consideration that the date of completion is the relevant date, which will probably result in the banking system being put under immense pressure in the run up to the 5^th of April - potentially causing chaos for buyers, sellers and solicitors.

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Monday, 28 February 2011

Cash rich property bargain hunters push prices down

Cash rich bargain hunters are pushing down property prices in the UK’s hardest hit locations, according to Rightmove.

The latest housing analysis published last week by Rightmove reveals that a three tier market emerging in the UK. It says that home owners in the most economically depressed areas of the country are being forced to sell their houses for less than the current market value, while in the elite parts of London prices are expected to rise by nearly 3% this year, and the third tier is first time buyers who cannot get mortgage funding to buy a property.

Although there is growing competition in the lending to first time buyers, mortgage lenders are only willing to lend to people with at least a 25% deposit. Therefore they are reportedly gearing to chase the minority market of equity heavy to buy to let investors, which means that mortgage funds are being denied to those who need them most.

Bargain hunting bottom feeder’ investors are expected to become more prominent in the second half of the year and will push prices down in the areas worst affected. And while there is evidence of growing competition to lend in this traditional first time buyer market segment, lenders are not looking to support the greater volume of deposit light first time buyers, it says.

‘Agents report that cherry picking lending practices are leading to some dysfunctional and desperate behaviour to solve housing needs,’ said Rightmove director Miles Shipside.

‘Some average sellers of yesteryear are now trading up by letting out their own home and renting the next rung up the ladder as they cannot get a suitable mortgage to sell up and buy a more spacious house. The accidental landlord is now being joined by the deliberate limbo landlord,’ he explained.

‘Meanwhile, professional investors are being funded by lenders to buy starter homes, condemning many of those who would have been first time buyers in the past to be permanent residents of the rented sector,’ he added.

The report also indicates that the number of new properties coming to market remains subdued as a substantial element of the mass market is locked in to their existing homes. Average unsold stock levels per agency branch have now declined for five consecutive months, falling from a peak of 78 properties to the current level of 69.

Unless the government can come to some agreement with lenders to accept a lower deposit, then it looks as though the market will continue to be subdued over the next few months.

Consumer giant Which? calls SRB firms 'shoddy'

Advice on SRBs (sale and rent backs) given to the people most struggling to pay their mortgage, is woefully inadequate according to consumer giant Which?

According to a recent Which? investigation the money advice given by these firms is ‘shoddy’ and they have reported their finds to the Financial Services Authority, the UK’s financial watchdog.

SRB, Sale and Rent Back is usually a last resort for people who are struggling to pay their debts but would prefer not to sell their homes. Most firms offer between 60% to 70% of the market value of a property. FSA rules mean that SRB firms must offer you a short hold tenancy of at least five years, but after the initial rental period they may ask you to leave your property.

In 2010 the FSA introduced new regulations to protect homeowners in debt, which means that all SRB advisors must explain carefully the terms of their policies. Including whether it is an intermediary and, if so, how many companies it deals with and whether those companies are authorised. It should also discuss how much any fees, commissions and charges are likely to be. The firm should explain this verbally, too, and in writing.

However Which’s investigation highlighted that most firms are still not complying to FSA rules. Which? contacted 17 advisers across nine firms, and seven of those advisers failed to discuss whether SRB was the right option for the customer. One advisor gave a quote that would have left their customer enough money to pay off their debts, the very reason why they had contacted the advisor in the first place.

‘It’s simply unacceptable that people are receiving shoddy advice about such a huge financial decision,’ said Which? chief executive, Peter Vicary-Smith.

‘Not only are regulated firms not doing enough to ensure vulnerable consumers make the right choices, some are offering sale-and-rent-back that aren’t authorised to do so. The FSA must tighten the screw on these firms to make sure the rules are followed and consumers are protected,’ he added.

Which? Money said that two companies, Property Locksmith and Rapid Property Group, have both been reported to the FSA.

Shortage of farmland send prices to an all time high

A shortage of farmland, sent prices to an all time high in the last half of 2010, according to RICS, The Royal Institute of Chartered Surveyors.

The RICS report indicated that commercial farmers are currently keen to expand production to capitalise on over inflated commodity prices. This in combination with declining land availability resulted in prices rising to all time highs during the last six months of 2010.

The transaction based measure of prices, which includes residential land, stood at just under £17,000 per hectare, while opinion based, which covers just bare land, approached £14,500 per hectare. Both prices measures rose by roughly 6%, the RICS Rural Land Market Survey which covers England, Wales and Scotland shows.

During the last six months of 2010 all areas of Great Britain experienced rising farmland prices with the exception of Scotland, with prices there falling by 8%. The East Midlands saw the strongest price rises, up 17%, followed by the North West at 12%.

Farmland was most expensive in the North West at £17,300 per hectare, while the cheapest land was in Scotland, priced at £9,100.

Demand continued to strengthen for both types of farmland, but 55% more surveyors reported demand rose rather than fell for commercial farmland, compared to only 6% for residential. This marks the fourth year running where the pace of demand for commercial outperformed residential. Residential farmland demand remains more subdued, as it broadly reflects the national housing picture.

Given the lack of land availability currently available surveyors expect the recent trend in farmland prices to continue over the coming year, with a strong growth in the commercial market but a flatter trend in the residential sector.

Wednesday, 23 February 2011

First-time buyers average age is now 38

The age of the first-time buyer has increased again from 36 to 38, as borrowing hits an all-time low. First-time buyers are being forced into renting accommodation which can sometimes be more expensive than buying a house. The period of tenancy is also increasing as buyers are forced into a circle of paying rent, which is not enabling them to save up enough money for a deposit.

Borrowing problems tend to arise when first time buyers have less than a 25% deposit to put down as an initial payment, the property market is viewed as unstable at the moment, and banks want to guarantee that they will see a return on their lending.

The showing of ‘how to blow a fortune’ on Panorama, BBC 1 this week, covered the issue of banks easy lending in Ireland - 110% mortgages, landlords borrowing huge amounts of money over the phone, of some clients being sold 40 year mortgages. Light touch regulation of our banking system and access to cheap funding on the wholesale markets fueled the boom in the Irish housing Market. This question remains, so why does the banking system have to go to two extremes when considering who they lend money to?

If you are a first-time buyer and have been affected by any of these issues then please get in touch with one of our branches today and we will be more than happy to discuss your mortgage options.

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Buyers rush to beat rise in stamp duty

Buyers are rushing to beat the 6^th of April rise in stamp duty to 5% for properties over £1 million.

A buyer purchasing a house for over £500,000 will have to pay 4% stamp duty, so for example a home costing £1.1m will cost £44,000 in stamp duty.

From the 6^th of April homes over £1m will attract a 5% duty, so that £1.1 million property requires £55,000 duty.

This is expected to impact more expensive homes even harder – for example buying a £2.5m house will currently involve buyers spending £100,000 on stamp duty, and this will go up to £125,000 as from April.

For clients who are concerned about the rise in stamp duty the best advice would be to have a mortgage agreed in principle. If your purchase is subject to the sale of a property, then ensure your buyer is in a full cash position. These questions are necessary in the current market. Then make sure you use a solicitor who has a reputation for pushing transactions through quickly.

Another way to meet the deadline would be to complete before your anticipated move, so for example if the sellers don’t want to move out until the end of April you could complete before the 6^th and you could sign a legal agreement ‘license to occupy’ allowing the vendor to occupy post-completion.

For a seller, the potential problem is if a buyer does not emerge before April. If you are a seller and you do miss the stamp duty deadline then it might be advisable to see whether you can drop your property price just below the thresholds, then ask for a ‘cash payment’ for fixtures and fittings, as long as these are not enormous figures, then HMR might be concerned about tax evasion.

As with all advice, we realise that all of our clients circumstances are individual, so if you would like specific advice on your concerns relating to the stamp duty rise then contact one of our 26 branches in your area for more information: