Buy to Let
Mortgage Approvals Continue to Rise
The number of successful mortgage applications peaked at its highest level for 15 months in the month of August according to figures released by the British Bankers’ Association.
In August, the number of mortgages approved for purchasing property rose to 35,226 whilst in July this figure was 33,734 and 31,542 in February. This is the fourth month in a row that mortgage approvals have shown signs of rejuvenation and August shows the highest figure since May 2010. We’ve reported in a number of articles that mortgage lenders are starting to relax their criteria a little allowing more first time buyers to enter the housing market with more confidence.
Buy-To-Lets Push Up Approval Figures
BBA statistics director, David Dooks, commented: “The banks’ new lending has ticked up in the past couple of months with higher buy-to-let demand … although the general landscape is one of households not wanting to take on more borrowing and businesses waiting for trading conditions to improve.”
The average value of a mortgage taken out has been £145,000 which is 1% higher than the same time last year, but still down from July’s figure of £151,000.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Although they [mortgage approvals for house purchases] were at a 15-month high in August, there is currently little evidence that housing market activity is really shifting up a gear. Indeed, at 35,226 in August, mortgage approvals were only 62% of the average monthly level of 57,059 seen since 1997.”
Earlier this week, the Council of Mortgage Lenders released figures showing that mortgage lending rose to a high of £13.4bn in August.
A Subdued Market Remains
But the CML’s chief economist, Bob Pannell, believes the market is still fairly muted: “Much of the recent variation in monthly lending figures appears to have reflected seasonal factors, with the underlying picture being one of activity levels that continue to be subdued but broadly stable.”
BBA also released figures for lending on loans and credit cards and these show that householders are paying off a figure that still outweighs new lending.
Archer said: “Consumers’ desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs.
Can I Rent Out My House in Secret?
If you are thinking about renting out your house then you could face an extra 1.5% of interest being added onto your mortgage rate and high administration charges. That might make you wonder if you can get away with renting in secret.
Property transactions continue to slump and whilst some mortgage lenders are reducing their deposit criteria, many are still demanding large deposits in return for good deals. This is making many homeowners consider renting to move, rather than selling up.
This process involves renting out your house so that you can rent another and gives owners a chance to ride out the slump and also avoid the high cost of moving home. Unfortunately, the response from mortgage lenders has been fairly unsupportive in recent years. Where once many mortgage lenders would grant a ‘consent to let’ and maybe charge a small admin fee, many now demand a significant rate hike in addition to larger administration fees. It seems the mortgage lenders aren’t keen on the idea of renting rather than moving and with good reason from a business point of view.
So, back to the question – can you rent your home out on the quiet? With many lenders forcing borrowers into expensive buy-to-let products and charging high fees it can be very tempting to rent without informing your mortgage lender. However, according to the Council of Mortgage Lenders, you would be committing serious mortgage fraud. Also, any tenancy agreement you draw up and agree with the tenant will be null and void should the mortgage company find out you are renting and wish to take matters further. There have been cases of tenants being served eviction notices for the next day and any agreement you have put in place will not be valid.
If you are serious about renting out your home for the foreseeable future then it’s very wise to tell your mortgage company. Not only will you sleep better at night, but you can also be sure you are operating in accordance with your mortgage agreement and tenancy law. You will also need to advise your home insurance provider to ensure the right insurance is in place.
The Difference Between Freehold and Leasehold
If you are considering owning a property in England and Wales you need to consider the two different types of property ownership that exist; freehold and leasehold.
The majority of properties in England and Wales are freehold which means technically the owner owns their property for an unlimited period.
Leasehold is a temporary right to occupy property or land and will usually involve a lengthy legal document called a lease. Most flats in England and Wales are leasehold properties and involve lease agreements between landlords and tenants. The lease document based on contractual and property law sets out the obligations and rights of both the landlord and the tenant.
Leases can apply for a fixed term and historically most flats have leases of 99 years. More recently, leases have been applied to properties that are valid for 125 years. You may also see lease agreements citing a period of 999 years although these are quite rare.
Whilst a lease document might be quite complex, the basic premise is that the tenant has the right to live in the property for the lease period stated. Usually, the lease document will state that the landlord will be obligated to allow the tenant ‘quiet enjoyment’ of the property as long as the tenant meets the obligations of the lease. The main obligation is that they meet the rent payments on time.
So, what happens when the lease period expires? If you find that you are occupying your property when your lease expires it could mean that your landlord will ask you to leave. At this stage you no longer have the right to own the property and the lease will usually include a clause that says the tenant must ‘quietly yield up possession’ upon expiration of the lease. The good news is, this rarely happens. The landlord will usually extend the lease well before the current period expires.
When looking for a new property it’s important to know the difference between freehold and leasehold as both interests in land and property vary greatly. The value of a freehold property will remain maintained when the property market is stable whilst a leasehold property is known as a diminishing asset. As the lease period gets shorter, the property will start to decrease in value. The reduction at first is minimal, but over time the value will start to fall rapidly.
Preparing a Property for the Rental Market – The Essentials
If you’ve just bought an investment property for letting out, the next step is preparing it for let. Of course, the essential part of these preparations is to ensure that the property is habitable, in presentable condition and above all else safe. If you’ve done your homework then you will have chosen a property with good links to transport, in a desirable or safe area, and that doesn’t require major renovations.
Whilst major renovations may be required on some buy to let properties we’ll leave those for another article. Here we’re going to talk about those minor alterations that can really make the difference in a short space of time.
The good news is that it’s easy to makeover a property quickly and on a low budget. We’re not necessarily talking ’60 Minute Makeover’ here, but you definitely don’t want to be spending weeks on getting your property ready for the rental market. After all, it’s an investment and whilst it’s empty you’re not making any money so it’s time to grab a paintbrush and get moving.
Before you start, take a step back and review your property. You should prepare your property as if you were selling it. Renters are as savvy as house buyers and will inspect every room and every flaw especially if they are looking for a long-term rental.
If possible you should remove wallpaper and return each wall back to a plastered finish. When it comes to redecorating between tenancies you’ll find it much easier. Choosing neutral paint colours such as that old faithful ‘magnolia’ is a good move and means you can cover up any blemishes with ease.
Ensure that anything fixed to the wall such as radiators, heaters or kitchen units are fixed to the walls securely and that carpets and flooring are sound. You might want to replace carpets with wooden floors as they are long-lasting and will repel any stains that occur during tenancies. Hardwoods are more expensive, but will last for years and can endure a lot of knocks and scrapes.
Arrange for the heating system to be serviced. Ask your heating engineer when the boiler might need to be replaced. It’s a good idea to budget or be prepared for future expense and if the boiler is particularly old you might want to replace it now rather than face the cost of future repairs.
Finally, it’s time to consider furnishings. If you are letting an unfurnished flat you will probably need to provide white goods such as a fridge freezer and washing machine at the very least. A dishwasher will be a good investment too if you can afford it. Many tenants expect these items to be in place and to be in working order.
If you are letting out your property in a furnished state then items need to be robust, comfortable, and attractive. With so many rental properties on the market you should make your property as stylish and as homely as possible so that people want to live there and are happy to pay the rent you are asking. This doesn’t mean a trip to the West End shopping for high-end furniture. A trip to Ikea will more than suffice!
As touched on previously you should prepare your property as if you were putting it on the market to sell. Once your preparations are complete make sure it’s presentable, tidy, and clean and that all appliances and other furnishings are in good condition. That way you’ll have a property that people want to live in and one that will take you through many tenancies without any major problems.
Another buy to let mortgage boom?
Last week at The Big Property List, we looked at the high number of mortgage applications that are currently being turned down and highlighted just how difficult it is to gain any foothold on the property ladder today. As with most things however, bad news for many will result in good news for a few and figures are clearly showing a significant increase in the number of buy to let mortgages currently being granted.
In relatively recent times, buy to let mortgages were seen as a market for specialist lenders only but all that has changed to move in line with the property market itself. When traditional house sales are slow, buyers with money to invest in rental properties step in and this type of purchase becomes more prevalent.
Now it seems the buy to let boom is back, with specialist lenders returning to the market with good rates after identifying the trend for investment properties. As a result, in just over 12 months, the number of mortgages available for this niche market has increased from 295 to 481.
David Hollingsworth from independent broker London and Country said,
“There are definitely more lenders who are back in the market. Skipton stopped any buy-to-let and came back within the past couple of months offering quite good rates.”
“Paragon, a specialist lender in the sector, came back at the end of last year,” he added. “They had been associated with a professional landlord but have launched mortgages which are geared more to ordinary people entering buy-to-let for the first time.”
With the increase in second homes there has been a steady entry into the market of families who buy an additional property as a one off investment. While the professional landlords still remain, there is an increase in the number of investors who are taking advantage of the market to snap up a second property. As that additional purchase is made available for rent, the need for buy to let mortgages has grown.
Times have changed however and the new range of buy to let mortgages are, as rule, more restrictive and whereas a deposit of 10% may have been enough to secure a loan some five years ago, you can expect to have to find around 30 to 35% now. Additionally, there is now an absolute minimum salary requirement of £20,000 which shows a shift away from previous times where buy to let income alone could secure a mortgage.
This is all very well but on the face of it, it seems like good news for the professional landlord, but with the market becoming increasingly difficult for first time buyers, there is a noticeable shift towards renting your home.
With two thirds of mortgage applications being turned down, renting can quickly become the only option. In turn, professional landlords are now being joined by the one off property investors and as a result, an imminent boom in buy to let mortgages seems like a natural progression.
How to Sell Your Ex-Council Property
Last week we published an article on buying ex-council property and the savings that can be made, but what about selling your ex-council property?
Selling ex-council property can be a little tricky for a number of reasons. Firstly, it can be difficult for prospective buyers to find the funds to buy ex-council properties. And secondly, first time buyers are thin on the ground right now and this is the market your property will appeal the most to.
Whilst there are many resources online for helping people to buy a new home there seems to be a real shortage to help those trying to sell their home. Here are a few things to bear in mind when selling an ex-council property.
- Ex-council properties are usually priced for a lot less than those built privately. Depending on the location and type of property, your ex-council house could sell for up to 40% less than comparable properties in the same region. However, this is only a rule of thumb and this isn’t always the case.
- Most prospective buyers of ex-council properties are first time buyers, investors or people on a tighter budget. Think about this when trying to sell your property as it’s important to know who your potential buyers are.
- The market is slow right now and will make selling your property that much harder. However, everything depends on your location, the property itself and how many potential buyers you can attract.
- Just like a private house sale, ex-council properties require a valuation. However, ex-council house valuations aren’t always so straightforward as they can be located in estates where the majority of properties are still owned by the council.
If you are just starting out in the house selling process there are many resources available to help you. Just remember that selling an ex-council house requires the same attention as selling a private house. It’s always advisable to hire the services on an estate agent and you’ll find most have invaluable expertise when it comes to selling ex-council houses and flats.
A good agent will steer you through the process ensuring your house is listed and advertised in the best possible light. They can even show prospective buyers around your home if you are unsure of how to do this or you are uncomfortable doing so. The great thing about hiring an estate agent is that they can handle the selling process for you ensuring all the great points of your home are highlighted. An estate agent also has the required knowledge to give your house a fair valuation given the state of your property, the location and other similar properties in the area.
If you have sold a property in the past then perhaps you might want to get more involved in the process or even selling privately if you are brave enough!
Of course, supply and demand for ex-council properties varies, but if your property is well priced you may find you sell your home quite quickly.
This is especially true in London and other major cities. Here there is always high demand from buy to let investors and in major cities there is already a market so you should be able to find lots of resources to help you sell your ex-council property.
A Hidden Boost for House Prices?
It’s Budget time and many of us will be frantically scouring the budget news for proposals, price hikes and changes that will affect the property business.
House prices could be set for a boost by a multi-million pound stream of buy-to-let investment by institutions, including the biggest insurer in Britain, prompted by an often-overlooked clause in the Budget.
Whilst a lot of attention has been paid to the £250m of new loans made available to help 10,000 first time buyers, less attention has been focused on the reforms to stamp duty for people looking to ‘bulk buy’ residential properties. Not getting excited yet? Wait until you see some of the figures.
If the Budget proposals pass into law, the tax bills for institutional investors and other buy to let landlords could be slashed by 80%. Anybody purchasing a property portfolio of let’s say 100 homes worth an average of £200,000 each following the 6th April would attract a Stamp Duty charge of 5% of the 20m deal value or £1m.
However, Chancellor George Osborne is proposing a change to the way these taxes are calculated. The proposal means the rate applied will be based on the average value of the properties concerned and not their total value. If we use the example given above, because the average price paid for the properties was £200,000, the rate of Duty falls to 1% resulting in a tax bill of £200,000. That’s some drop!
James Moss, a director at Curzon Investment Property, said “This will be a huge boost in the private rented sector as it will allow pension funds to buy homes in bulk without any unfair spikes in Stamp Duty.”
That’s an understatement! When you consider the sums of money that insurance companies and other institutional investors have under their management, any increase in this allocation to residential properties could have a dramatic effect on UK house prices.
Aviva, the biggest insurer in Britain today, has confirmed they are considering setting up a £1bn residential property fund so they can take full advantage of the proposed tax break and other big names are very likely to follow suit. Some market analysis has suggested that many properties still remain overpriced, but figures show that the rental market has held up despite the recession.
No matter how you look at it, bricks and mortar are still attractive for many institutional and individual investors. The next few months look set to be interesting and the result on the housing market could be dramatic although don’t expect these changes to occur over night.
Ed Mead is carrying the Olympic torch (not literally)
For many who spent the tail end of last year trying to predict this year it must have seemed a doddle compared to forecasting now. Suddenly the press, and even me, are beginning to sense that although the year may be a dreadful dirge, it does look as if prices in London will end the year higher than they started. This is not saying a whole lot but from where I’m sitting there are occasional deals being done that simply beggar belief, whereas if you wander out of London, particularly in a Northerly direction, the stories are of a very different nature as the press are keen to let us know.
Sadly all commentators agree that volumes will be a victim this year, and many fear this malaise will continue into next year which is depressing. But hang on a minute next year is Olympic year isn’t it? We’re all supposed to feel good about that, and I’ve even registered for tickets as any self respecting Londoner should, but will it be enough to dispel the fog.
One thing everyone forecast, and the auspices loom good, is that rental numbers will increase in London next year because of the 2012 Olympics being here. With perhaps the worst area for sales currently being small flats, no demand from first time buyers still, it’s very likely, and beginning to be the case, that buy to let investors are beginning to lick their lips and dive in. I sat in a meeting with some heavyweight agents yesterday and all the ones I spoke to said if they had money they’d be buying investment property now. The fact that they can’t shows the general level of nervousness and lack of income in the estate agency game at the moment, but perhaps whilst many top end agents gloat about how many £5m plus properties are selling those who deal at the bottom end might just be about to get their own timely boost.
Ed Mead is a regular contributor to The Big Property List blog. An Estate Agent for over 30 years, he has been writing and commentating on the market for over half of that as the Sunday Times Property Expert and The Agent Provocateur for the Telegraph. He sits on the Board of The Property Ombudsman Ltd, has a regular LBC slot, and is happy to say it as it is.
Other places you can find him online are the Douglas & Gordon blog and Twitter
Buy to Let may be the investment of choice, says Ed Mead
For the first time since I’ve been at Douglas & Gordon we made more money last month from lettings than we did from sales.
Given that we are a medium sized company that’s not as trite as it sounds. Renting seems to have finally lost it’s stigma and even seems to be where sensible people reckon they should be when property values appear to be on the way down.
Those who work in lettings have often felt, because of the lack of crash bang months, that the drip drip [albeit constant] nature of their income means they’re the poor cousins.
But with buy to let borrowing on the agenda again and with all the publicity surrounding Council tenants suddenly they’re front page news. About time I reckon. Having rented for over 20 years and been dead pleased with it, many commentators were amazed and quick to point out how I was missing out on the market. I politely replied that I had been investing in something slightly old fashioned and possibly more rewarding. It’s called your own company.
Such is the obsession with property (thank heavens as I’m an estate agent after all) that investing in something that actually yields jobs AND a return seems to have become a lost art. With 70% of the world’s wealth now tied up with property it’s hardly surprising.
Perhaps with standard investments yielding derisory returns entrepreneurs might start to see the light of day again, but with residential rents looking set to rise sharply, capital values stagnant at best, and borrowing costs as low as they’ve ever been I would think buy to let might just become the investment of choice for a few years to come.
Author Biography
Ed Mead is a regular contributor to The Big Property List blog. He has been an estate agent for over 30 years, and has been writing and commentating on the market for over half of that as the Sunday Times Property Expert and The Agent Provocateur for the Telegraph. He sits on the Board of The Property Ombudsman Ltd, has a regular LBC slot, and is happy to say it as it is.
Other places you can find Ed online are:
Douglas & Gordon blog
Ed Mead on Twitter
