eSmartProperty 15 by Steve Wright

esmartproperty The digital property magazine

Issue 15

The new mortgage landscape One year after the start of the credit crunch

Remortgaging

Market activity Lack of supply is still underpinning house price recovery

Stamp duty

Holiday deadline approaches

Improve your chances of finding a more competitive rate

Investor sentiment Buy-to-let investors take a longer term view of the market

The mortgage minefield Navigating through the options available

PLUS: Mind the gap >> Stamp duty >> Mortgage jargon >> Buy-to-let

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.

09 08 10

In this issue 05

What the numbers show

Lack of supply underpins the rise in house prices

06 08 09

Mortgage market is operating on two levels

The imbalance between demand and supply

The new mortgage landscape One year after the start of the credit crunch

Pick-up in buyer interest A key requirement for a healthy housing market

Lenders report optimistic numbers Fastest house price rises since early 2007

09 09

Stamp duty

Holiday deadline approaches

Property prices

Which regions are experiencing the greatest monthly property price increases?

10 13

14 16 19 19 20 22

Buy-to-let A guide to residential investment

Remortgaging

Improve your chances of finding a more competitive rate

The mortgage minefield

Navigating through the options available

Market support

Measures intended to help lenders and borrowers will soon begin to unwind

First-time buyers

Median age remains static

Sale-and-rent-back plans

Lenders welcome announcement

Protection, protection, protection Make sure you get the right policy

Helping borrowers stay in their homes

22 23 23 24 26 28 30

Solving planning disputes Property investors can now get a helping hand

Investor sentiment

Buy-to-let investors take a longer term view of the market

Satisfied borrowers

Choosing a mortgage provider comes out top in consumer survey

Renting a home

How to make your move go as smoothly as possible

Tax facts

Declaring rental income

Mortgage jargon

A guide to understanding some of the basic terms used

Mind the gap

A growing and damaging shortfall in the supply of housing

Information for home-owners struggling to meet their mortgage payments

Your property may be repossessed if you do not keep up repayments on your mortgage. 03

In this

issue Welcome to the latest edition of our property magazine. Inside you’ll find a mix of news articles and features from everything including, how to choose the best mortgage to becoming a buy-to-let landlord. On page 06 one year after the start of the credit crunch we look at how the global financial system was poised on the brink of collapse and look back at the key events during the past 12 months – including how in the United States the sub-prime mortgage market triggered the near-collapse of the financial system.

25 14 16

The stamp duty holiday, announced by Chancellor Alistair Darling last September, will finish on December 31, this year. Properties costing less than £175,000 are currently exempt from stamp duty. On page 09 we explain why time could be running out for some buyers that may be able save as much as £1,750. If you are contemplating buying a property to rent with a ‘buy-to-let’ mortgage and may have little or no previous experience of investing in the private rented sector, on page 10 our guide considers the key areas you need to consider. At the time of publishing, the property market and economic events are changing very rapidly and some further changes are likely to have occurred by the time you read this edition. A full content listing appears on pages 3 and 4.

To discuss your requirements or to obtain further information please contact us.

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.

What the numbers show Mortgage market is operating on two levels The mortgage market is operating on two levels, with the number of loans for house purchases rising over the past 12 months while the number of remortgages having reduced, according to figures published in October by the Council of Mortgage Lenders (CML). The number of remortgages dropped to 32,000 during the month of August, 22 per cent down on July's figure and 57 per cent lower than in the same month last year. The value of remortgages was down by 63 per cent year-on-year at £3.6bn. Meanwhile, the number of mortgages granted to homebuyers dropped slightly during the month, falling by 5 per cent to 53,000. However, it was 29 per cent higher than in August last year. The CML said that while the number of house purchase loans remained significantly lower than the August average of 100,000 seen in the seven years before the credit crunch, it had more than doubled since the start of the year. At £7.2bn, the value of loans for house purchases accounted for 58 per cent of mortgage activity, the highest this figure has been since 2002. The number of remortgages fell as a result of low interest rates and tighter lending criteria.

Some borrowers have also found they are unable to switch, as falling house prices have reduced the amount of equity in their property and made it difficult to find a new deal. Another driver has been borrowers' desire to pay off their debts. While some once saw their homes as a cheap source of cash which could be unlocked through remortgaging, recent figures show homeowners have recently been paying down their loans. According to the CML before the credit crunch began remortgage numbers were running at more than 80,000 a month, peaking at 147,000 in May 2003. In the early part of last year the figure was around the 75,000 mark, but this year they peaked at 44,000 in January.

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News

Lack of supply underpins the rise in house prices The imbalance between demand and supply

More estate agents are reporting house price rises than at any time since the start of the credit crunch, according to a Royal Institution of Chartered Surveyors (RICS) report. This has been also reinforced by property surveyors also reporting house price rises to the same levels seen at the peak of the property market in 2007. During September, 22 per cent more agents saw rises than falls, the highest 'positive reading' since May 2007 and compares with a figure of 10 per cent in August. The evidence suggests the price revival is being driven by an acute shortage of properties, particularly family homes. The RICS report follows Halifax reporting that house prices were rising at the fastest rate since early 2007. A 2.8 per cent rise in the three months to September, has seen the average home up some £2,672 since the start of the year, however, it says prices are still down 7.4 per cent annually. Nationwide have reported house prices are no longer falling annually, with house prices up £14,000 since February, a rise of 0.9 per cent in September. Separate research from the Council of Mortgage Lenders shows that the number of loans for house purchases in August increased 29 per cent on the same month last year. The figure rose to 53,000 in August, which was down marginally on the July total of 56,000. The August figure is more than twice that seen at the start of the year.

For some borrowers, moving off a special offer rate and on to their lender's standard variable rate (SVR) has proved cheaper than shopping around for a short-term fixed-or discount-rate deal.

According to the CML before the credit crunch began remortgage numbers were running at more than 80,000 a month, peaking at 147,000 in May 2003.

Market view

The new mortgage landscape One year after the start of the credit crunch A year ago, the global financial system was poised on the brink of collapse. Some of the biggest effects of the crisis were in the United States, where developments in the sub-prime mortgage market triggered the near-collapse of the financial system.

Lehman Brothers became the largest firm in United States history to file for bankruptcy. Merrill Lynch, having sustained heavy sub-prime losses, was taken over by Bank of America. And the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) were taken into government ownership. But while the biggest casualties of the financial crisis were in the US, there was upheaval on a global scale. Addressing a business audience shortly afterwards, the governor of the Bank of England, Mervyn King, said it was difficult to exaggerate the severity and importance of events. “Not since the beginning of the First World War has our banking system been so close to collapse,” he added. The financial crisis provoked a huge policy response from governments and central banks around the world. As Mervyn King said in his speech to businessmen, “an extraordinary, almost unimaginable, sequence of events… culminated…in announcements around the world of a recapitalisation of the banking system.” But recapitalisation was only part of the challenge. The crisis affected liquidity and funding, and there were policy measures targeted at these areas as well. As we know, a collapse of the global financial system was narrowly averted. But there was enormous disruption and huge consequences for the United Kingdom mortgage market and for firms operating within it. So, a year on, how have United Kingdom lenders been affected by the crisis, and by the policy intervention of governments and central banks? And what measures do we need now for the steady improvement in market conditions of recent months to continue? For more than a year before last autumn's crisis, the credit crunch had disrupted the UK mortgage market. One response by the authorities was to introduce the special liquidity scheme (SLS). The SLS, implemented in April 2008, eight months after the onset of the credit crunch, enabled participants to swap existing, highly rated residential mortgagebacked securities (RMBS) and covered bonds for Treasury bills. Having initially been criticised for failing to respond quickly to the credit crunch, UK policymakers introduced a comprehensive range of measures and on a large scale in response to last autumn’s financial crisis and its aftermath.

In October 2008, the government announced a £500 billion package of measures to provide funding and capital for the banking system. It not only increased the availability of shortterm funding through the SLS, but introduced credit guarantees and provided funds to re-capitalise banks. Ultimately the government injected equity into the banking system on a huge scale through the partial nationalisation of the Royal Bank of Scotland and the Lloyds Banking Group. In January this year, the government announced a further package of measures, including guarantees on highly-rated mortgage-backed securities and credit insurance on assets, including mortgages that were difficult to value. Additionally, in a measure seeking to reinforce confidence in wholesale funding markets, the Bank announced the asset purchase facility, a programme to purchase high quality, private sector assets, including asset-backed securities “created in viable securitisation structures.” This has been used to implement quantitative easing, designed to boost the money supply, though mainly through the purchase of government bonds. Over and above this extensive range of initiatives to inject capital, liquidity and funding into the financial system, the Bank has also aggressively cut interest rates, initially in conjunction with central banks around the world as part of a coordinated response to the crisis. Between October 2008 and March 2009, the Bank cut rates from 5 per cent to 0.5 per cent, an approach it had followed for more than a decade of making modest, marginal adjustments to interest rates to nudge the economy in pursuit of inflation targets. Collectively, these measures have done much initially to underpin, and then to stabilise and improve, conditions in the financial system. They have also helped stabilise the UK mortgage market. Perhaps one of the most significant developments recently has been an improvement in the prospects for wholesale mortgage funding. The market remains dysfunctional, but the secondary market price of high-quality mortgage-backed securities has been rising, and is now nearing the point where new RMBS issuance could re-start. That would ease lenders’ funding constraints and reduce reliance on schemes supported by the government.

Monetary policy, in particular the decisions to cut interest rates and introduce quantitative easing, has also helped in the aftermath of the financial crisis. Quantitative easing has helped drive down the London interbank offered rate (Libor). Borrowing at this rate is, of course, not available to all lenders, and Libor like the Bank rate and swap rates is not, in itself, a good guide to lenders’ real funding costs. But the fall in Libor is an indication of improved liquidity in funding markets and a sign of improving confidence generally. One result of the financial crisis has been a drive to reduce overall levels of indebtedness. So far, this has manifested itself most obviously at a personal and corporate level, but pressure to reduce levels of debt is also set to affect the public finances in the coming years. Reducing debt to any significant extent is a painful, long-term process. In the short to medium term, however, low interest rates have helped ease financial pressures at a personal and corporate level, while delivering the wider benefit of encouraging economic recovery and the restoration of growth, and reinforcing confidence. Retail deposits will not be large enough to fund the mortgage market at its current size. For many years, retail deposits were essentially the only source of funding for lenders. By 2002, however, the scale of outstanding mortgage debt had grown to exceed retail deposits and the gap between the two continued to widen until 2007. It was largely filled by new market entrants, often foreign-owned, using wholesale markets to fund mortgage lending. But neither of these sources is currently capable of making a significant contribution to filling the funding gap, and the government and Bank have had to act as a substitute source of wholesale funds. Many of the challenges for borrowers and lenders now are essentially driven by a process of adjustment to a mortgage market constrained by the volume of retail deposits. The funding shortage will continue to ration mortgage lending until wholesale markets are functioning more effectively. (Source: Council of Mortgage Lenders).

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News

Pick-up in buyer interest A key requirement for a healthy housing market A key requirement for a healthy housing market is the ability and desire of potential first-time buyers to purchase a property. So, what do falling house prices, the growth of negative equity, a shortage of mortgage funding and larger deposits for homebuyers mean for long-term aspirations to homeownership? These and other questions were answered by the head of research, Bob Pannell, in a presentation he gave at the annual conference of the National Housing and Planning Advice Unit.

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Four years ago, the National Housing and Planning Advice Unit published research showing that the number of first-time buyers was declining, partly as a result of sharply rising house prices and the need for larger deposits, and that this could have profound consequences for the wider housing market and long-term tenure patterns.

National Housing and Planning Advice Unit has been able to make a reasonable assessment of the numbers of first-time buyers that could have been expected to have saved a deposit from their own resources and those that are likely to have received financial help, usually from parents or another relative.

Over the last 18 months or so, we have seen a fall in house prices, which on the face of it, should have made it easier to buy a first home but the reality is that there has been no improvement in the underlying affordability position of first-time buyers. That is because for these buyers the benefits of falling house prices have been fully offset by more restrictive lending criteria. Since the report was first published four years ago, the typical deposit required by a firsttime buyer has risen from 10 per cent to 25 per cent.

As recently as 2007, before the start of the market correction that has dramatically reduced house prices, the National Housing and Planning Advice Unit concluded that around 40 per cent of young first-time buyers were relying on parents or other relatives for financial support. A year later, that had increased to around 50 per cent, and now it stands at 80 per cent.

The UK mortgage market has, of course, experienced a significant loss of lending capacity. The National Housing and Planning Advice Unit believe, however, that funding conditions will progressively improve, although probably only in line with â&#x20AC;&#x201C; rather than ahead of â&#x20AC;&#x201C; a gradual improvement in the wider economy. They also expect structured finance to re-emerge in due course, although not on the same scale as before.

At a time when lower house prices are likely to have reduced both the desire and the ability of many parents to tap into their own housing wealth to help their children buy a home, it is not difficult to understand why first-time buyer number haves reduced. In 2008, there were just 200,000 first-time buyers, the lowest total for at least 40 years.

All of this reinforces their central view that there will be a tentative, relatively weak recovery in the housing market in due course. Indeed, there has already been a pick-up in buyer interest, although some of it is seasonal, some from cash investors who believe prices are near their floor, and some from overseas purchasers benefiting from the weakness of sterling.

In recent years, more than half of all first-time buyers have been aged under 30. By studying their incomes and making assumptions about their likely ability to save towards a deposit for a house, the

While the worst of the economic recession now appears to be behind us and there will be a steady recovery in due course, its pace is likely to be tempered by a need to address the fiscal shortfall and scale back credit support measures in the medium term.

Mortgages

News

Stamp duty

Holiday deadline approaches The stamp duty holiday, announced by Chancellor Alistair Darling last September, will finish on December 31, this year. Properties costing less than £175,000 are currently exempt from stamp duty. The £600 million measure is aimed at taking more buyers at the bottom end of the housing market, likely to be first-time purchasers, out of the stamp duty bracket altogether. The discount could be worth as much as £1,750 to some buyers. Halifax estimates that up to 112,000 people in England and Wales, or 31 per cent of all buyers, were exempt from paying stamp duty as a result of the increase during the 10 months to the end of June. A further 32 per cent of people also avoided paying the tax because their home was worth less than £125,000. But the number of buyers who have benefited from the move is significantly lower than it would have been in previous years because of the current low level of housing transactions.

Lenders report optimistic numbers Fastest house price rises since early 2007 Halifax says that house prices are rising at the fastest rate since early 2007, in the run-up to the peak in property values. A 2.8 per cent rise in the three months to September, has seen the average home up some £2,672 since the start of the year, however, it says prices are still down 7.4 per cent annually. Nationwide report house prices are no longer falling annually, with property now up £14,000 since February, a rise of 0.9 per cent in September. This puts annual house price inflation at 0 per cent, a bounce back from 17.6 per cent in February.

Nationwide report house prices are no longer falling annually, with property now up £14,000 since February, a rise of 0.9 per cent in September. The property information specialist Hometrack has reported that the rate at which new buyers signed up with estate agents has slowed again, to 1.1 per cent, down from the rapid 8.5 per cent seen six months ago. The latest Royal Institution of Chartered Surveyors (RICS) report showed a rise in

the number of new instructions, with 12 per cent more agents reporting a rise in properties put up for sale.

Positive signs Confident buyers are returning to the market and have pushed property prices up to £162,000 in August, from a low of £148,000 in February, says Nationwide. An acute shortage of homes for sale is bolstering the market, says RICS. It expects prices to rise this year. Nationwide has recorded seven consecutive monthly increases to August on non-seasonally adjusted figures. Libor, the rate at which banks lend to each other, has fallen to within a normal range of the base rate, it stood at 0.55 per cent on October 7, 2009. Quantitative easing has injected an extra £175bn into the economy: it should increase lending, keep Libor low and add inflationary pressure, which may eventually drive up house prices.

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There has been speculation that the government may also extend this further to boost the mortgage market. Currently, stamp duty is divided into tiers from under £175,000, between £175,000 and £250,000, between £250,000 and £500,000 and above £500,000. The rates are zero, one, three and four per cent respectively. Members of the property and mortgage industries have long called on the government for a fairer system of stamp duty, where fixed thresholds are replaced with a more fluid set of charges, so preventing artificial price levels at each stamp duty threshold. Any changes or an extension to the stamp duty holiday could come in the Chancellor's pre-Budget report expected this autumn. If you are considering purchasing a property the dilemma is should you act now? With house prices currently holding up more strongly and in some cases rising, the stamp duty holiday may prove to act as a greater incentive as the deadline approaches.

Property prices Which regions are experiencing the greatest monthly property price increases? According to figures published from the Land Registry in September, London and the West Midlands experienced the greatest monthly property price increases rising at 0.8 per cent. This has brought the price of a property in the capital to double the average of England and Wales, at £310,640.

What the numbers show n House price average at £155,968 . n House prices in England and Wales have shown a "fairly flat market" according to the Land Registry. n The annual drop of 9.4 per cent was up from the low of 16.3 per cent seen in February, and brought average house prices to £155,968. n The Land Registry figures are based on completed transactions.

Buy-to-let

Buy-to-let A guide to residential investment If you are contemplating buying a property to rent with a â&#x20AC;&#x2DC;buy-to-letâ&#x20AC;&#x2122; mortgage and may have little or no previous experience of investing in the private rented sector, this guide considers the key areas you need to consider. It is not intended as a detailed guide and you should always seek professional expert advice.

Buy-to-let is a form of residential investment where you buy a property, usually with the aid of a mortgage, and rent it out. The 1988 Housing Act made investment in residential property more attractive to landlords when it introduced a new type of tenancy giving landlords more control over their properties. When you buy a property to let out, you are becoming a landlord. And owning investment property is not like owning your own home. Instead you are effectively running a small business. You should consider the following points before making any financial commitments:

Making your investment n A re you investing to generate an income or hoping to see your capital grow and are your expectations realistic? n Do you have sufficient capital of your own to invest in a property? n Are you prepared to tie-up your capital for a considerable period? n Will you have sufficient savings and other forms of capital after you have made this property investment?

n H ave you taken specialist tax advice about the implications of buying and selling a buyto-let property, and the tax treatment of all income and expenditure from renting?

Choosing and managing your property It is equally important that the property you buy is appropriate for the purpose and is properly managed thereafter. You should consider the following points before deciding to proceed: n A re you regarding this as a medium to long term project? n H ave you consulted a professional, qualified local letting agent before beginning your search for a property? n H ave you thought about the type of household which will want to rent your property? n Have you considered that demand for this type of property may change from year to year? n H ave you made independent inquiries to confirm a likely rental figure? n Is the location of the property attractive to tenants?

n M ost lenders will require you to have an Assured Shorthold Tenancy agreement with your tenants. Are you aware of the legal implications of this? n If you are thinking of buying a leasehold property, what is the length of the lease remaining and is sub-letting allowed? n Have you consulted a solicitor about the legal implications of renting out your property? n Have you investigated the running costs of the property (e.g. ground rent, service charges, repairs, letting and management fees, etc)? n Have you allowed for furnishings and other start-up costs in your calculations? n Have you considered how you will repay your mortgage if you have no tenants paying rent? n Are you aware that your property could decrease, as well as increase, in value? n Are you aware of all the safety regulations applying to rented property? n Have you considered the likely costs of dealing with tenants who do not pay their rent or damage your property, including the costs of evicting a tenant in court?

n Have you considered using the services of an agent to let and manage your property on a dayto-day basis or will you be doing this yourself? n If you are using a letting agent, have you assessed how much they will charge you for their services? n Will the net rental yield i.e. the rent remaining after you have paid your running costs, be sufficient to meet your monthly mortgage payment?

Choosing your mortgage If you are thinking of raising a mortgage to help fund the purchase of a property, you should consider the following:

n Have you considered what type of mortgage to buy your property with? n Have you considered the impact of any future rises in interest rates? n Could you meet the monthly mortgage payment from your own resources, if the rent was not paid or the property was empty?

Choosing a property Researching your market You should carefully research the market where you want to buy your property. You can either do this yourself or employ a specialist letting agent to help you find the area and property you are looking for. If you research the market yourself, you will need to gather information from estate agents, local papers, local employers and even the local authority, about the demand for and supply of, rented housing.

Finding your tenants

You will also want to think about the type of tenant you are aiming to attract. Are you hoping to attract single people, or families, as they will have different requirements. It is important to remember your property should have features that are attractive to would-be tenants, rather than would-be purchasers.

Choosing your location

You should also look at how close the property is to local amenities such as shops, transport and schools, and are these the type of amenities that are important to your tenants? So, if you are aiming to let your property to say

a family with school-age children, how close the nearest schools are, will be an important influence on where they choose to rent.

landlords in England and Wales called "Assured and Assured Shorthold Tenancies: A Guide for Landlords.â&#x20AC;?

Choosing your propertyâ&#x20AC;&#x2122;s size and condition

When your property is empty

You need to think carefully about the size of the property you are buying and consider if it will be attractive to households looking for rented accommodation in that location. As well as the size, type and location of your property, what about its condition? Have you assessed whether the property will require expensive maintenance. Generally speaking, older homes require more attention.

You should remember there may be periods when you are unable to find tenants for your property and it will be empty, with no rental income coming in. Obviously you will still be expected to continue repaying your mortgage so you will need to think about how you will meet your mortgage repayments in these circumstances. This could particularly apply if you choose a property in an area where the supply of rental property exceeds demand from tenants.

Choosing a property you can afford The size of mortgage you can afford will have a major influence on the size and location of your property. When considering how much to spend on a property you should bear in mind that as well as increasing in value, your property can also fall in value.

Managing your property Your responsibilities

When you have chosen a property, you will need to decide who will manage it for you. If you manage it yourself, you will be responsible for: n F inding tenants. n Checking tenantsâ&#x20AC;&#x2122; references. n Collecting the rent and maintaining the property. n Dealing with problems.

Your legal responsibilities You will also need to be aware of your legal responsibilities as a landlord such as:

n C arrying out repairs. n Ensuring the safety of gas and electrical appliances. n Ensuring that the furniture and furnishings meet fire safety requirements. You should also consider familiarising yourself with landlord and tenant law, to understand your responsibilities as a landlord, and the rights your tenants enjoy. The Department of Communities and Local Government (DCLG) have published a useful guide for

Maintaining your property As well as managing your property, you will be responsible for maintaining it. Besides repairs and regular maintenance, properties can benefit from routine improvements which maintain their attractiveness with wouldbe tenants. You may find that your property is in need of an overhaul after a tenancy finishes. Naturally, you will have to finance this yourself. What is more, your property is likely to be empty and you will not receive a rental income, while your property is being improved.

Using a managing agent

Given the number of different responsibilities you face as a landlord and the limitations on your own time, you may wish to use a managing agent to look after your property for you. This could cost you approximately 10 per cent - 15 per cent of your monthly rental income.

Choosing a mortgage Paying for your property When you choose a property, you will need to ask yourself how much you can afford to pay, and how you will pay for it? If you take out a mortgage, you should work out what percentage of the value of the property you need to borrow. The size of the loan is usually linked to the expected rental income. As a guide, your lender will expect your monthly rental income to be 25 per cent - 50 per cent greater than your monthly mortgage payments.

Your choice of mortgage

When you choose a mortgage, your choice will be between a repayment mortgage or interest-only loan. With an interest only mortgage, some lenders may require you to have a suitable investment product. If you have a repayment mortgage, lenders will also advise you to arrange life insurance alongside your loan. You may be able to choose between fixed rate and variable rate mortgages. Fixed rate loans will give you some certainty about your mortgage repayments whilst variable rate loans could move up or down. You should also remember that your mortgage payments could rise if interest rates start to rise, depending on the type of mortgage you have. But before choosing your mortgage, you should always obtain professional advice.

What will your costs be?

As well as your mortgage payments, you will need to pay for: n B uildings insurance. n C onsider contents cover, if your property is furnished. n M aintenance costs. n Periods when you are receiving no rental income because the property is empty or the tenants have fallen behind with their payments. Mortgage repayment increases because of interest rate rises, which you may not be able to recover immediately from rent increases.

Your tax liability

Before you can calculate what your income from your property will be after taking into account all necessary expenditure, you should recognise that the profits from renting property are taxable. However, you will be able to offset some of the costs you incur as a landlord against tax. You will have to pay the following taxes: n I ncome tax. n S tamp Duty when you buy your property. n Capital Gains Tax when you sell it.

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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.

Remortgaging

Remortgaging Improve your chances of finding a more competitive rate As a result of the credit crunch, the majority of lenders stopped offering larger loan-to-value (LTV - the amount lent as a percentage of the property's value) mortgages in spring 2008. Most lenders will currently only offer a remortgage LTV of between 75 - 80 per cent. The lower the proportion you owe, the better the rate you can secure. At the end of the current deal it may also be worth considering using any spare savings you have to pay off some of the loan. This could improve your chances of finding a more competitive rate. Alternatively, most lenders will allow you to pay off an extra 10 per cent a month.

Reasons for remortgaging may include: n T o reduce your monthly repayments by securing a cheaper mortgage. n To release some of the value built up in your property for other spending, such as home improvements or paying off debts. n To reduce monthly repayments by extending the term of your mortgage, which will mean it takes longer to pay off the loan and could cost more. n To reduce the mortgage term by finding a cheaper deal and keeping repayments the same you could be mortgage-free sooner. It is possible to book a mortgage rate with a lender up to six months in advance. This can be useful if you think that interest rates are likely to rise by the time you come to remortgage, or if the mortgage market looks volatile. Your circumstances may have changed since the last time you took out a mortgage, so it is important to reassess what type of loan you

need. For instance, if you were previously on a tracker rate and you think interest rates may begin to rise, you may be better off taking a fixed rate this time around. Or if you are planning to move soon, you may prefer to take out a shorter-term deal. If you have managed to build up some savings you could benefit from an offset loan, which reduces the interest you pay on the mortgage, thus decreasing your mortgage term. In the current market conditions, you may have anything between a few weeks or a few seconds to decide whether to take a deal. This is because lenders first offer you a decision in principle. This is not a binding offer and the lender is only committed to lending the money after they receive your application and make a formal offer. Sometimes demand can be so high that a lender is able to offer a deal in the morning, only to withdraw it in the afternoon and replace it with a higher rate. This is where obtaining professional advice is important to ensure that you can act quickly. Mortgage offers come with expiry dates, too, so check when it runs out because delays could mean that you have to go through the whole application process again. If you decide to change your mortgage you should compare the potential savings against any costs of switching. Although it's often possible to save money by changing your deal, you need to keep track of all the associated costs and make sure you are getting the best

value for money. Some lenders even offer specific remortgage packages where they pay for your legal and valuation fees, so all you need to do is compare monthly repayment costs (unless there are repayment penalties involved). It's a good idea to talk to your current lender. They'll still want your business so they may be prepared to offer you a lower rate. In fact, they may even be prepared to switch to one of their cheaper deals without charging you all the additional fees that you'd normally pay. To ensure that you are able to find the best rates it is important to obtain professional advice.

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Mortgages

The mortgage minefield Navigating through the options available to you Most lenders offer a range of different mortgages with varying interest rates. Some of these will be based on the lender's standard variable rate (SVR), a rate above the Bank of England base rate, which the lender can change at any time. Alternatively, rather than choosing an SVR mortgage, you could opt for one of the following: Discount mortgage - this offers a certain percentage off the lender's SVR for a set period, usually between one and five years. As the SVR moves, so does the pay rate on a discount mortgage, so you need to be able to cope if your monthly repayments increase. Tracker mortgage - this also has a variable rate, this time linked to the Bank of England base rate. Sometimes this lasts for the length of the mortgage; sometimes it is only for a short period at the beginning of the loan. Some lenders offer discounted trackers, which have a rate that is a set percentage below the base rate, while others add a percentage to the base rate. Both deals move up and down in line with any changes announced by the Bank of England. Fixed-rate mortgage - this allows you to fix the rate of interest you pay on your loan for a set period of time, usually between one and five years, although longer term fixes may be available. This is useful if you are stretching yourself to afford a property, as your repayments cannot increase during the fixedrate period. Fixed-rate mortgages can save you money if interest rates are rising, but if the base rate falls you can end up paying more than borrowers on variable rate deals.

A small handful of mortgages will track a different index to the base rate, often the Libor (London InterBank Offered Rate). However, it can be difficult to keep track of the rates on these loans, so they tend to be less popular with borrowers. Most lenders apply early repayment charges during a fixed or discount period. This can make it costly to move your mortgage during that time. Many short-term mortgage deals revert to the SVR after the initial offer period, which usually means increased repayments.

Interest-only or repayment? Once you've decided on the type of loan, your main decision will be whether to choose an interestonly or repayment mortgage. An interest-only mortgage repays just the interest incurred on your borrowing. The capital is only repaid the day the mortgage ends, and can be paid off using whatever money you choose, which might be cash from an inheritance or money built up in a separate investment. However, this approach is not without risk. If you have not

worked out how to pay off the mortgage by the end of the term you could be forced to sell off your home to settle the debt. A repayment mortgage pays both the interest and capital to the lender. This way you are guaranteed to have paid off the debt at the end of the mortgage term and providing you have made all the mortgage payments you will own the property outright. You can also have a mortgage split into part interest-only and part repayment, for example, if you have taken a top-up loan or want to keep the monthly repayments down on part of the debt. Flexible mortgage - although there is no set definition for the term, a flexible mortgage is widely accepted to fulfil the following: nA llow you to overpay by any amount without penalty, including redeeming the loan. n Allow you to take payment holidays or underpay providing you have overpaid enough in advance. n Allow you to borrow back on the mortgage (or drawdown) without charging. However, not all flexible mortgages offer all of these

features, and some are available on other types of mortgage. Offset mortgage - this is a kind of flexible mortgage with an extra feature, you combine your borrowing with your savings to reduce the amount of interest you pay over the mortgage term however you do not earn interest on any savings accounts linked to the mortgage. You have to move your savings to your mortgage provider, but offsetting can make a big difference to the total cost of your loan. Your own money is kept in a separate account and you can usually access this if you need to. Current account mortgages are a similar proposition, although they combine your day-to-day banking with your borrowing. Offset and current account mortgages often have higher interest rates than other loans, and you need to make sure you have enough savings to make the deal worthwhile.

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Policy initiatives

Market support Measures intended to help lenders and borrowers will soon begin to unwind In the aftermath of the credit crunch, the government and the Bank of England embarked on a series of policy initiatives to support the economy, consumers and to ease conditions for firms, including mortgage lenders. The authorities responded on an even greater scale to the financial crisis of a year ago.

Over the coming months and years, however, the Council of Mortgage Lenders (CML) report that many of the schemes launched in response to events since August 2007 are due to be scaled down. In some cases, this will mean not only that measures that have helped to underpin mortgage and housing markets will come to an end, but that capital and liquidity injected into the system will have to be re-paid. Some of the first effects of this process will be felt in the next few months when a number of measures intended to help lenders and borrowers will begin to unwind. Some of these are measures that were introduced to improve the functioning of financial markets, others were designed to encourage housing market activity or to protect borrowers in difficulty. Over a longer period, the process of unwinding all the measures intended to bolster the financial system and housing and mortgage markets will take place on a much larger scale. Policymakers will want to manage this in a way that minimises market disruption and this should be possible to achieve. However, given the scale of the measures that have been implemented, it may take some time to achieve. Conditions in markets have improved significantly since the financial crisis a year ago and confidence has risen. But recovery is still at a delicate stage. Lenders therefore are urging policymakers to continue to show flexibility in response to evolving market conditions, and to be prepared to continue to intervene with appropriate measures to provide support as necessary.

Closure of the asset-backed securities guarantee scheme October 2009 This scheme allows a government guarantee to be attached to sales of highly-rated residential mortgage-backed securities (RMBS) in order to encourage their purchase by investors. Since the onset of the credit crunch, the market for RMBS has been closed. Recently, however, there have been tentative signs that a market is beginning to re-open for high-quality mortgage assets. No firms are believed to have sought to use the scheme, which was announced in January. Signs that a market for high-quality RMBS may be re-opening indicate that investor confidence is slowly returning, in any case. What the events of the last year show is that the government and the Bank of England need to be prepared to intervene with appropriate policy measures to ease conditions in dysfunctional markets. It will be important for the authorities to continue to show flexibility in adjusting the policy response to changing market conditions.

Closure of the drawdown window in the credit guarantee scheme - December 2009 At the end of the year, the window is due to close and banks and building societies will no longer have access to the government’s credit guarantee scheme. When it was first

introduced in October 2008, the guarantee played a crucial role in helping sustain investor confidence in funding markets. It was an important mechanism enabling lenders to continue to issue bonds to investors. Over the last year, confidence has improved and government support may no longer now be necessary. While a sudden deterioration in market conditions could occur, it is not expected. So, a renewed need for a credit guarantee scheme is not anticipated. Nonetheless, it will be important for the authorities to continue to show flexibility in response to market conditions and to be ready to implement any policy measures that might be required to sustain market confidence.

To help sustain activity in a rapidly slowing property market, the government raised the threshold for stamp duty from £150,000 to £175,000 on September 2, 2008, initially for a year. In April’s Budget, the stamp duty “holiday” was extended until December 31, 2009. End of stamp duty holiday on homes costing up to £175,000 - December 2009 To help sustain activity in a rapidly slowing property market, the government raised the threshold for stamp duty from £150,000 to £175,000 on September 2, 2008, initially for a year. In April’s Budget, the stamp duty “holiday” was extended until December 31, 2009. It is difficult to say whether the stamp duty holiday has encouraged more home-buying. The number of transactions has been very low because of reduced access to mortgage funding, falling house prices, the recession and concerns about security of employment. Against that, it is difficult to gauge the effect of any stimulus to the housing market created by a comparatively modest tax concession. This autumn’s pre-Budget review would be a good time for the government to announce a comprehensive review of stamp duty.

An end to the freeze on payment of income support for mortgage interest (ISMI) at its current standard rate December 2009 On September 2, 2008, the government announced a temporary, two-year reduction in the waiting time for ISMI from 39 to 13 weeks, and an increase in the capital limit from £100,000 to £175,000. In the preBudget report later that autumn, the government increased the capital limit again to £200,000. Then, on December 22, 2008, there was a further announcement that the standard rate for ISMI

payments would be maintained at 6.08 per cent for six months. In the 2009 Budget, payment at that rate was extended until December 2009, when it is due to be reviewed. At this stage, there is no indication what the review will conclude, and the rate at which ISMI would be paid thereafter. Historically, there have been concerns that ISMI has not always been paid at a rate sufficient to cover fully the mortgage payments of all borrowers who qualify for help. Now that ISMI is paid at a more generous rate of 6.08 per cent that is less of an issue than before. It is still the case, however, that the rate at which ISMI is paid may not be high enough to cover the mortgage costs of all borrowers, particularly those with sub-prime mortgages. But, despite this, it is possible that the standard rate will drop from 6.08 per cent when it is reviewed in December. And it is also possible that, in December 2010, the temporary improvement in access to ISMI will be reversed and the waiting time for benefit will go back to 39 weeks. ISMI is one of the main strands in the safety net of support for struggling borrowers. Improvements to ISMI have therefore made a welcome contribution to wider efforts to extend more help to borrowers in difficulty. Looking further ahead the CML have announced that, policymakers, firms and consumers must plan and prepare for the removal of measures that have underpinned financial markets: n B anks and building societies have received £185 billion in cash from the Bank of England under the special liquidity scheme. This has been a major commitment for those firms affected and their capacity to re-pay these funds will be partly determined by confidence in the market for the mortgagebacked securities that the Bank holds as security against this advance. nM ore than £100 billion of bonds sold with a government guarantee under the credit guarantee scheme are due to mature between 2012 and 2014. Again, the capacity of firms to manage their way through this process will depend partly on the strength of demand at that time from investors for bonds not backed by a government guarantee. n T he Bank’s policy of quantitative easing has injected around £175 billion of liquidity into the economy. This will also have to be reversed at some stage. No timetable has yet been set for the withdrawal of this cash from the economy, but government and commercial securities bought by the Bank will have to be re-sold at some point, reversing the flow of liquidity.

Buy-to-let.

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News

First-time buyers Median age remains static The Council of Mortgage Lenders (CML) Regulated Mortgage Survey (RMS) shows the profile of first-time buyers throughout the UK and has revealed that since 2005, the median age of a first-time buyer has not changed (aside from insignificant fluctuations). But just in case you think the median age is suspiciously static, the mean figures have stayed equally immobile, although the mean first-time buyer age is about 31, compared to a median of 29. So, if first-time buyers aren’t getting any older (or younger), despite logic suggesting otherwise, why is this? In previous CML research there were an increasing number of first-time buyers that were getting help, most likely from parents or grandparents, to raise funds for a deposit. The latest estimates indicate that around 80 per cent of young first-time buyers are getting help in this way. Clearly drawing on your family for a deposit can help you get on the housing ladder earlier than if you had to save for the deposit yourself. So it follows that the growing incidence of assistance may be keeping down the average age of first-time buyers overall. But what about those who do not get help? Borrowers’ age profiles tend to evolve very slowly, but when you strip out those borrowers identified as having received help, a striking pattern emerges. Up until late 2007, around the time the credit crunch began, the average age of first-time buyers excluding those getting help, was fairly stable at around 33. But since then, the average age has risen very sharply and now stands at around 37.

However, lending criteria have been scaled back to such an extent in the credit crunch that it has become exceptionally difficult for young people to get a mortgage without external help for a deposit. And without that assistance, those buyers would be considerably older before they had the financial wherewithal to get a mortgage, and the average age of first-time buyers would be significantly higher. In recent months lending criteria have begun to ease somewhat. And whilst the average age statistics will probably not change, underneath the surface it is likely that that those young people not fortunate enough to receive help from family, will not have to wait quite so long before getting a mortgage.

News Sale-and-rentback plans Lenders welcome announcement

Lenders have welcomed the announcement by the Financial Services Authority (FSA) of a package of measures to protect vulnerable consumers in the saleand-rent-back market. The FSA announced during the summer their decision to introduce interim regulation of the sale-and-rentback sector, under which firms must be authorised or face penalties including fines and imprisonment. The end of next June the FSA have said is when the full regulatory regime comes into force, banning exploitative advertising and high-pressure sales techniques. The FSA also said that at that stage the rules would include: n A cooling-off period to give consumers more time to make decisions. n A ban on cold calling and the dropping of promotional leaflets through letter boxes. n A ban on the use in promotional literature of terms like “fast sale,” “mortgage rescue” and “cash quickly.” n M easures to reinforce security of tenure. n A requirement that in every sale firms must check that the customer can afford the deal and that it is right for them. The FSA’s detailed proposals are set out in its consultation paper ‘Regulating Sale-and-Rent-Back The Full Regime.’ The aspiration of the FSA is to have a sale-and-rent-back market in which: n F irms are fit and proper and appropriately resourced. n S taff are competent to carry out their role. n C onsumers get clear, concise and consistent information about a firm’s services and products and can make informed choices. n C onsumers have enough time to consider the product and possible alternatives to it, and to seek advice to help them reach a decision. n C onsumers are sold suitable products taking account of their circumstances, needs and affordability. n C onsumers have appropriate protection if things go wrong.

Even when house prices were rising rapidly, credit was relatively easy, so many young people remained able get on the housing ladder without family help through higher loan to value and income multiples.

Protection

Protection, protection, protection Make sure you get the right policy You've worked hard for what you have, so it is essential to protect yourself, your belongings and your property. To make sure you get the right policy follow our guide to the key protection areas you should consider.

Buildings and contents insurance Buildings insurance is an essential part of home insurance. It typically covers the entire structure of your home, including roofs, walls, fences, gates and outbuildings, plus permanent building fixtures like kitchens and fitted wardrobes. You can also protect against a wide range of buildings risks including, fire, explosion, storm, flood, theft, vandalism, subsidence and more. Most lenders of mortgages insist that you have buildings insurance

as part of your agreement. Buildings insurance policies are usually index-linked, meaning they rise automatically every year to match the Retail Price Index (RPI). Normally, you will also be able to claim the cost of alternative accommodation while the rebuilding work is undertaken. Buildings insurance may also include outbuildings such as sheds or garages. Always to check to see if your mortgage company are offering a special deal on buildings insurance. It may even be included in your mortgage. n A lways check that the amount of your policy covers the value of the house. If you feel it is too little, raise you cover. n Do not give any false information when applying for insurance. This will make your policy invalid when trying to make a claim.

n M ake sure your buildings insurance policy starts from the day you sign the contract, not the day you move in. n C heck the "Excess" value (the minimum amount you have pay for any claim) and make sure it is to your satisfaction. n F requently review your policy and update it if necessary. n I f you make any alterations, structural or otherwise, it is in your best interests to inform your provider. In addition, you should also take out contents insurance to protect and replace your valuables. Contents insurance policies cover movable objects inside the house. It's important to arrange contents insurance so that your belongings are covered against events including fire, theft and flood.

Contents insurance can also cover items such as business equipment, contents temporarily removed from your home, lock replacement and special events cover. Your policy will cover your possessions valued up to a certain amount, either stated by you, or categorised by the insurance company. There are two main types of cover: n O ld-for-New - Items are replaced at their current market value. n Indemnity Cover - The insurance company will take into account general depreciation. Some policies have special features. These can include built in legal expenses, cover for possessions in your vehicle, food spoilage in freezers, garage cover and out buildings cover. If you want to keep your insurance premium to

a minimum, you should ask your insurer about leaving off special features, or try raising the excess. The policy may ask you to submit a contents list, with individual items over a certain value specifically priced. This varies with different insurance companies. If you are buying an Old-for-New policy, make sure to value your contents at their replacement value, not at their actual value. When moving house, check with the insurer to see if your contents are covered, and inform them of the exact date(s) that the move is taking place. Examine any limitations and upper limit pay-outs before purchasing the insurance. Check whether computer equipment, bicycles and special valuables have to be insured separately. If you are studying away from home (e.g. at college/university), check to see if your parents house insurance covers your possession, you may find it does. n Check whether you are covered for accidental damage. n Don't underestimate the value of your contents. n Check your policy frequently and update it if necessary. n Check your excess limitation, especially for money, valuables and single articles.

their mortgage. If the main income earner unexpectedly died, there is a danger that the family could have difficulty keeping up with the mortgage repayments, and risk losing their home. As a minimum, life assurance should be taken out to ensure that your mortgage is fully repaid on death rather than the property having to be sold to repay the outstanding debt. Policies pay out either a lump sum or a series of payments when a person dies during the life or 'term' of a policy and can also be combined with other forms of insurance, such as critical illness cover.

Critical illness cover Critical illness cover pays out a tax-free lump sum to policyholders if, during the term of the policy, you are diagnosed with one of a number of specified critical illnesses or conditions such as some forms of cancer, Parkinson's disease, multiple sclerosis, paralysis or following a heart attack or stroke. The proceeds could be used to fully repay any outstanding mortgage, enabling you to be free of future financial worries.

Life assurance

How much critical illness cover you need will depend on your individual circumstances. Exactly which illnesses and conditions you are covered for will be determined at the outset, and will be stipulated in the policy details. It is essential to receive professional financial advice to determine how much cover you need and to identify how much this will cost.

When purchasing a property, many people focus on protecting their possessions with contents insurance and the house itself with buildings insurance, but often overlook protecting themselves.

Even if you are single with no dependants, critical illness cover will enable you to pay off your mortgage which means youâ&#x20AC;&#x2122;ll would have fewer bills or a lump sum to use if you were very unwell.

Life assurance is essential to protect families against financial difficulties should one partner die. It is particularly important when buying a property as most families are taking on a large financial commitment through

Accident, sickness and unemployment cover (ASU) The recession has brought with it a plethora of news regarding bankruptcies and job redundancies. So during these

difficult and uncertain economic times, you may want to safeguard yourself and your family from the financial consequences of being unable to work. ASU policies are sometimes also referred to as mortgage payment protection and provide you with an income to meet your outgoings if you are off work sick, have an accident or are made redundant. It pays out a monthly benefit to cover your mortgage and other related costs. You may choose the amount of benefit you would like to receive, although there are some limits on the maximum amount. The premium will be a percentage of the amount of monthly benefit you would like to receive and benefits are usually payable for a maximum of 12 months. Some policies will also allow you to choose whether you want to receive benefits for accident and sickness only, unemployment only or all three. Most policies will also have a 'deferment period.' This is the time you have to wait to start receiving benefits from the ASU policy after you have become ill, had an accident or become unemployed. Again, this can vary from having no exclusion period to 30, 60 or 90 days. In some instances, this can be even longer. If you were unable to work because you became sick or were out of work due to redundancy: n H ow would you pay your mortgage and monthly bills? n H ow long could you live on your savings? n What would happen when your savings ran out? These scenarios are stressful enough so it is important to be able to concentrate on getting well or finding another job. ASU cover allows you to protect your financial commitments if you are unable to work because of illness, accident or compulsory redundancy, and can include mortgage or rent

payments and any other regular monthly insurances, life cover, utility bills and loan payments.

Landlords building insurance If you are a buy-to-let landlord whether you rent a single flat, flats in blocks, commercial property, shared houses and family house lets you must have adequate insurance. These are typical features that form part of a landlordâ&#x20AC;&#x2122;s insurance policy: Loss of Rent - this typically pays up to 20 per cent of the buildings sum insured for loss of rent if the property becomes unoccupied or partly unoccupied and cannot be let, following an insured event. Home Emergency Cover - you can include 24 hour home emergency cover, giving you peace of mind in the event of a loss of essential services in your property. Full Accidental Damage Cover you can upgrade your buildings and contents cover to include any accidental damage or loss in the property. Accidental Damage - some insurers as standard, will include cover for accidental breakage of fixed glass, sanitary fixtures and accidental damage to underground services. Unoccupied Property - cover provided when your property is unoccupied for up to 120 days, when your property is most vulnerable. Student Landlord Discount some insurers will also offer an additional discount on premiums if you let to students. For Accident, sickness and unemployment insurance we offer products from a selected panel of providers.

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News Helping borrowers stay in their homes

Planning

Information for home-owners struggling to meet their mortgage payments The Council of Mortgage Lenders (CML) has given its support to a national campaign by the government to provide information for home-owners struggling to meet their mortgage payments as a result of the economic downturn. The information campaign aims to help borrowers stay in their homes by encouraging them to take control of their payment problems. It reinforces some of the key messages from lenders to customers struggling to keep up with their payments: n Don’t ignore the problem. n Get help by talking to your lender. n It is never too early to contact your lender to talk about your worries. The CML have welcomed the government’s initiative, and in particular the reminder to borrowers to speak to their lender at the earliest opportunity, preferably as soon as they think they might miss a mortgage payment. Avoiding possession is as important to lenders as it is to borrowers, and an early warning helps reduce the risk. Most borrowers who address their problems early and are committed to working with their lender through a period of short-term payment difficulty succeed in avoiding possession. The government scheme includes a series of press, online and billboard advertisements encouraging borrowers with problems to take action. As well as being endorsed by lenders, it is supported by Citizens Advice, the Consumer Credit Counselling Service, the National Debtline and Shelter.

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Solving planning disputes Property investors can now get a helping hand Landlords who find themselves mired in disputes and red tape when attempting to get planning permission to extend or improve their properties can now get a helping hand from the Royal Institution of Chartered Surveyors (RICS). The organisation has launched a pan industry Planning Mediation Service which can reduce the deadlock between conflicting parties, alleviate the strain on the appeal process and help save money both for public authorities and the landlord applicants. Led by RICS Dispute Resolution Services, planning mediation will give people access to professional mediators in the planning system. It has been developed in response to recommendations in the Killian Pretty Review, to use mediation as a tool to speed up the planning process by resolving disputes quickly and amicably, and by encouraging dialogue and discouraging entrenched positioning. There are 20,000 planning appeals every year costing the planning system in the region of £30m. The service will help resolve issues, open up dialogue and reduce areas of disputes in a wide range of planning issues. It will also

help smooth over disagreements surrounding section 106 agreements and compulsory purchase orders. Martin Burns, director of the RICS dispute resolution service said: “This service will provide both parties in a dispute some relief from what is a costly procedure for the local authority and for the appellant. Currently, the planning system is clogged up with combative appeals which more often than not result in a deadlocked situation. Mediation will provide a solution to this problem, save valuable time and improve transparency, speed and clarity in the planning process. ” The Killian Pretty Review aimed to investigate opportunities for improving the planning application process. The review was jointly commissioned by Communities and Local Government and Business, Enterprise and Regulatory Reform Departments in March 2008 and published in late November 2008. It was carried out by Joanna Killian, Chief Executive of Essex County Council and David Pretty, recently retired Group Chief Executive of Barratt Developments plc.

Property investment

Investor sentiment

Buy-to-let investors take a longer term view of the market

Buy-to-let investors are no longer reviewing the mortgage market on a regular basis and intend to hold onto their assets for the long term. This was one of the findings from the Young Index results for Q3 2009 from Young Group. The survey of investor market sentiment showed that fewer than one in three residential property landlords are tracking their mortgage options on a regular basis and only 11 per cent are assessing the market as regularly as every three months. This is the second consecutive quarter to see such a low proportion of investors tracking their options (Q2 2009 results was 12 per cent) and represents a sea change from the situation in Q2 2008 when 65 per cent of respondents were evaluating the market on a quarterly basis. Only 29 per cent of respondents now evaluate their mortgages at least every six months, compared to 82 per cent of investors who were actively tracking new deals in Q2 2008. At the end of Q3 2009, 27 per cent of investors admitted to evaluating their mortgages less frequently than once a year.

The latest Young Index data for Q3 2009 points to investors sitting tight. The average length of time that respondents expected to retain individual property assets stood at 12 years, up from an average of 10 years in Q3 2008. The Young Group, said: “The research suggests that investors are fully aware of the constricted conditions in the mortgage market. 57 per cent cited difficulties in obtaining mortgage funds as the principal barrier to investment property acquisitions. It seems they may be jaded by current lending conditions and have taken their eye off the ball when it comes to tracking the mortgage market.” There may also be a general assumption that with base rate currently at an all time low, dropping onto a lender’s Standard Variable Rate at the end of a deal is the best option, but this may not automatically be the case. Summing up, the Young Group, said: “Just because there are fewer mortgage products available, investors shouldn’t take their eye off the ball. Arguably, now is the time to be paying

more attention to the mortgage market to avoid the risk of losing out when base rate inevitably rises in the future.” The survey also recorded that, on average, residential property investors now intend to hold their investment assets for the next 12 years, two years more than this time last year. 53 per cent of investors are considering purchasing additional residential property assets within London during the next 12 months, compared to 26 per cent who are looking at opportunities in the UK outside of the capital. 57 per cent of respondents cited a lack of lending in the mortgage market as the principal barrier to investment property acquisitions.

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Satisfied borrowers Choosing a mortgage provider comes out top in consumer survey People are more satisfied with their lender than they were a year ago, according to a recent survey published by Which? Money. The total survey was based on a sample of 1,915 borrowers. Overall, average customer satisfaction rose from 58 per cent to 62 per cent,

reflecting the efforts that the lending industry has been making in challenging market conditions to improve customer service and communication. It also helps to show that efforts to communicate effectively with borrowers and treat them fairly are improving.

The editor of Which? Money, James Daley, said: “The cost of the deal is usually the top priority when it comes to choosing a mortgage provider but getting good service matters, too. It's encouraging to see that mortgage lenders have seen an increase in customer satisfaction after a difficult year.”

Renting

Renting a home

Tips to help your move go as smoothly as possible There are a lot of costs involved in renting a home. Some may be quite obvious but some you may not have thought about. Here are some useful tips provided by the Financial Services Authority to help your move go as smoothly as possible. You’ll need to pay a deposit (usually the equivalent of a month’s rent) and the first month’s rent before you move in. Think also about what type of rental agreement you need and find out what other costs you’ll have to pay.

Getting started Deposit and first rent

Tenancy options You can choose to rent from a private landlord, or you may be eligible for council or housing association accommodation. Make sure you have a tenancy agreement clearly stating the responsibilities of both the tenant and the landlord, and read it through thoroughly before signing.

Can you afford it? It’s important that you are sure you can afford the rent and bills, so be honest with yourself and don’t be tempted to overstretch your money to rent your dream home.

Most landlords will expect you to pay two months’ worth of rent in advance. One is held as the deposit in case of damage or other costs (so you’ll get it back when you leave the property, minus any charges), and the other is your first month’s rental payment.

Other costs

Some landlords ask for a larger deposit to take account of unpaid bills. Make sure you have enough money before you start looking around to avoid disappointment.

You’ll also need to think about whether you need help moving your belongings, and whether you need to buy furniture or other household items, so make sure you plan your budget to take these into account.

Different savings accounts offer different interest rates and notice periods, so make sure you can access your money when you need it.

Do you need a guarantor? If you are a student, are on a low income, your income is from benefits only, or you have a low credit score, you may be asked to provide a guarantor. They will have to sign a legally binding agreement to pay all rent and other charges due if you fail to do so.

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If you go through a lettings agent, you may be charged a fee for them to draw up the tenancy agreement and get references. Be aware of any additional costs and include them in your moving budget.

Housing benefit If you are on a low income, unemployed, or having financial difficulty, you may be able to get housing benefit to help pay part or all of your rent. Check with your local council to see if you are eligible.

Make the most of your money Work out your new budget Once you’re in your new home,

work out how much you’ve got coming in and how much you’ll need each month. If this is your first time on your own, you’ll need to plan for gas and electricity costs and budget for council tax.

Insurance Contents insurance Landlords and councils will often have insurance to protect their property and any furnishings that belong to them, but they are unlikely to insure your furniture or belongings. Speak to your landlord to find out exactly what is covered. Work out what you think your belongings are worth. Then shop around for the most suitable insurance for you.

Updating address details Tell everyone that needs to know Make sure you change your address with your bank, creditcard and insurance companies, as well as other financial companies that you have arrangements with. It might be a good idea to put a three-month redirection on your old address to cover the transition period. This can also reduce your risk of identity fraud.

details about people who have no financial connection with you.

Previous occupiers’ post Don't be tempted to keep or throw away mail addressed to a previous tenant/owner. Always return it to the sender if you don’t know their new address. You don't need a stamp, just mark it 'return to sender' and stick it in a post box. This should avoid you having to deal with any problems if they weren't up to date with their payments.

Dealing with problems Problems paying rent If you don’t pay your rent, there is a serious risk you could be evicted. Even if you have other debts, paying your rent should be a priority otherwise you could be evicted. Speak to your landlord immediately and try to reach an agreement that works for both of you.

Landlord disputes If you have problems with your landlord, or a dispute about the return of a deposit, there is plenty of advice and support to help you.

Check your credit record Your new address may have an impact on your credit score if previous occupiers have had bad credit. You can check your credit record at your new address using credit reference agencies. You can then ask the agency to change the information on your file if it is incorrect, or it includes

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Taxation

Tax facts Declaring rental income If you let out all or part of a property (including your home), how you're taxed on the rent depends on the type of letting. If you let property abroad, you may have to pay UK tax on the rental income if you're resident in the UK for tax.

Tax on residential lettings Letting residential investment property is treated as running a business, even if you only let out one property. And if you let out more than one property in the UK, they'll all be treated as a single business. Whether you let one or several properties, you're taxed on the overall 'net profit'. You work this out by: nA dding together all your rental income. n Adding together all your allowable expenses. n Taking the allowable expenses away from the income. Working out your net profit like this means that you can offset a loss from one property against the profit from others. Your net profit counts as part of your overall taxable income.

The Rent a Room scheme If you are letting furnished accommodation in your own home to a lodger and your total receipts (rent plus income from meals, laundry service, etc) are £4,250 or below (£2,125 if letting jointly), you can get this income tax-free under the Rent a Room scheme. You'll have to pay tax on anything over £4,250. Or you can choose not to use the scheme if you'd prefer to pay tax under the rules for residential lettings.

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You can choose to take advantage of the scheme if you let furnished accommodation in your only or family home to a lodger. (Your only or family home is the one where you/your family live for most of the time. A lodger is someone who pays to live in your home, sometimes with meals provided, and who often shares the family rooms.) A lodger can occupy a single room or an entire floor of your home. However, the scheme does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HM Revenue & Customs (HMRC) and pay tax in the normal way. Nor does the scheme apply if you let unfurnished accommodation in your home.

Letting all or part of your home If you let your home while you live somewhere else, your profits from the rent are worked out and taxed in the same way as for residential investment lettings. The same rules apply if you let part of your home outside the Rent a Room scheme. If you let part of your home this way, you can include a percentage of household costs like gas and electricity when you work out your allowable expenses. Letting residential property is treated as a single business, even if you let out more than one property. If you let out several properties, you can offset losses from one against profits from another. You pay tax on any profit as part of your overall income.

Tax on overseas property lettings You'll have to pay tax on income you get from overseas property lettings (whether you bring the money into the UK or not) if you are 'resident, ordinarily resident and domiciled' in the UK. If you are 'resident' but either 'not ordinarily resident' or 'not domiciled' in the UK you may only have to pay tax on any money you bring into the UK. You have to declare any income you get from overseas property lettings on the supplementary foreign pages of the Self Assessment tax return. How much tax you'll pay depends on whether you're 'resident' in the UK and 'ordinarily resident' or 'domiciled':

Resident If you're in the UK for 183 days or more in a tax year, you're a 'resident' for that year for tax purposes. If you come to live in the UK permanently or to remain for three years or more you're resident from the date of arrival. You're also treated as resident if you're in the UK for an average of 91 days or more in a tax year (worked out over a maximum of four consecutive tax. years)

Ordinarily resident If you're resident in the UK year after year you will normally be treated as 'ordinarily resident.' You're treated as ordinarily resident in the UK from the date you arrive if it's clear that you intend to stay for at least three years.

Domiciled Your domicile is normally acquired at birth but domicile is a general law concept, decided by a range of factors. You can be more than one of these - or none.

Record keeping for landlords If you let out property, you'll have to keep records of your income and expenses for at least six years, whatever type of letting it is. HMRC can ask to see supporting information for your figures at any point during this time. Even though you can't claim expenses when you use the Rent a Room scheme, it may still be worth keeping proper records. You'll need them if you decide to opt out of the scheme later.

Declaring and paying tax on your rental income If your total income from UK property is £15,000 or more in a tax year you must declare it on the full Self Assessment tax return. If it's under £15,000 you may be able to complete a shorter four-page return. If your taxable income from property is under £2,500 your Tax Office may be able to collect any tax you owe through PAYE (Pay As You Earn) if you already pay tax this way.

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Glossary

Mortgage jargon A guide to understanding some of the basic terms used APR (Annual percentage rate)

Guarantor

Mortgage term

The true cost of the mortgage over the full term, set out as a yearly rate, including all fees, terms and interest. The calculation assumes that you maintain the mortgage for the full term (for example, 25 years). APR is a standard calculation in the mortgage industry and allows mortgages from all lenders to be compared.

If your income isn't enough to secure a mortgage in your own right, you could ask a guarantor to guarantee the mortgage repayments for you. Your guarantor is fully liable for repaying the mortgage if you default on the loan.

The length of time over which the mortgage will be repaid.

Higher lender charge

Redemption

Not all lenders charge these, but if you borrow a high percentage e.g. if you borrow more than 75 per cent of the price of the property, you may have to pay this type of fee.

Paying off a mortgage.

Bank of England base rate The rate set by the Bank of England, which is reflected in the interest rates charged by lenders.

Building survey

Home buyer survey

An extensive survey, carried out by a qualified surveyor, to spot faults and potential problems in the property you are buying.

This service includes a valuation but also contains a report on the condition of the property, highlighting any defects that the surveyor has spotted.

Capital

Home information packs

The amount you have borrowed on the mortgage, on which interest will be charged.

Every home no matter what size, must have a home information pack. It brings together valuable information at the start of the house buying process and includes a sale statement, local searches, evidence of title and an energy performance certificate.

Completion When you become the legal owner of the property.

Conveyancing

Offer of advance The formal offer of a mortgage from a lender.

Stamp duty When you buy property, you may need to pay stamp duty. The UK government is set to end the stamp duty holiday on properties valued at between £125,000 and £175,000 which have been exempt from the 1 per cent stamp duty since September 2008. In January, the threshold at which buyers have to pay stamp duty will fall back to £125,000. See table for full rates.

Property purchase price Stamp duty rate Up to £175,000 (until 31 December 2009) Over £175,000 to £250,000 Over £250,000 to £500,000 Over £500,000

Zero 1% 3% 4%

The legal work involved in selling and buying property.

Interest

Disbursements

Land Registry fee

The fees, such as stamp duty and Land Registry fees which you pay to the conveyancer or solicitor.

A fee paid to the Land Registry to register ownership of a property.

A detailed report tailored to your needs and can include tests on drains or utilities. It could be very useful if you're buying an older or unusual home or you're thinking about building an extension.

Early repayment charge

Lease

Subject to survey and contract

The charge some lenders make if a mortgage is paid off early.

A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.

Wording included in any agreement before the exchange of contracts. This wording allows the seller or buyer to withdraw from the property sale.

Mortgage

Title deeds

A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.

The legal documents which set out the ownership of a property.

Mortgage application fees

This is the most basic type of survey and is the mortgage lender's inspection of the property to assess whether it is suitable for a mortgage.

Equity The total value of your property less the amount of the mortgage and any other secured loans you have.

Exchange of contracts The point where the property sale becomes legally binding.

External inspection valuation This is a very straightforward valuation which normally occurs when the amount you're borrowing is well below the value of the property and is particularly useful for remortgages. The surveyor will estimate the value of the property by viewing it from the road.

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The money you are charged for borrowing.

Fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage. Some lenders will only charge such fees for specific mortgage deals.

Mortgage deed The legal agreement which gives the lender a legal right to the property.

Structural survey

Valuation

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News

Mind the gap A growing and damaging shortfall in the supply of housing The Home Builders Federation (HBF) in September called for all political parties to prioritise action to tackle the critical issues identified in the 'Mind the Gap' report. The report highlights a growing and damaging shortfall in the supply of housing which could approach 1 million homes by the end of next year. As the political attention begins to focus on the forthcoming general election, the severity of the nation's housing supply problem should be an issue that commands a clear policy response from all the parties. "Mind the Gapâ&#x20AC;? provides a balanced and authoritative analysis of the scale and reasons for the housing supply crisis and sets out a clear agenda for improvement so that both private and public housing providers

can better meet demand and work more effectively together. Housing output has dropped considerably in the last year, primarily as a result of the economic downturn and the resultant lack of mortgage availability. This has exacerbated a much longer-term supply shortfall caused by insufficient developable land coming through the planning system. To avoid the truly damaging social and economic repercussions of this problem, the HBF claim politicians need to realise the importance of developing policy that facilitates the building of the homes this country needs. Stewart Baseley, Executive Chairman of the HBF said, "The Mind the Gap report is an extremely

useful analysis of the current position in which the house building industry finds itself as it strives to deliver much needed housing in the current political and economic climate. The shortfalls in housing provision that it identifies, and the harmful social and economic repercussions that result clearly demonstrate the need for politicians to be developing strong policies that enable the housing this country clearly needs to be delivered.â&#x20AC;?

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Your property may be repossessed if you do not keep up repayments on your mortgage.

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 FSA does not regulate commercial lending and some forms of buy to let mortgages. Your property may be repossessed if you do not keep up repayments on your mortgage.

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