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eSmartproperty The electronic property magazine

JANUARY/FEBRUARY/MARCH 2008

Government's HIP scheme extended

compulsory pack now rolled out for all properties

Landlords need to stay on the right side of the law

new rules introduced last year bring a raft of obligations

Housing market forecast for 2008 price falls will not be extended in duration

Also in this issue: Property pitfalls… what should you look out for? Buy-to-let survival tips… safeguarding your investments New-build properties… prices set to remain buoyant PLUS: PROPERTY JARGON… TENANCY DEPOSITS... RATE REFORM… HOME BUYING TIPS... HOME INFORMATION PACKS…


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In this

Issue >> 05 Government's HIP scheme extended...

compulsory pack now rolled out for all properties

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05 Homeowners spend more of their monthly income on mortgage interest payments... the highest percentage paid for 16 years

06 Landlords need to stay on the right side of the law...

new rules introduced last year bring a raft of obligations

07 Buy-to-let market 2007...

landlords see rents increase 17 per cent

08 The mortgage maze... navigating the options

10 Property pitfalls‌

what should you look out for?

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11 Choosing a mortgage... do your homework

11 Advice for Landlords...

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have you taken out specialist insurance?

12 Offsetting...

an alternative way to pay your mortgage off early

13 To track, or not to track - that is the question? Further interest rate cuts could make them look more appealing

14 Buy-to-let survival tips...

safeguarding your investments

15 Proposed overhaul of the tax rules...

buy-to-let investors still committed for the long term!

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15 Remortgaging...

get in the know before you make a move

16 Local authority searches...

protecting you from unforeseen surprises

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25 eSmartproperty JANUARY/FEBRUARY/MARCH 2008

17 Property investment...

a checklist to getting started

18 News in brief...

graduates double-up to buy their first property

18 Fixed rate mortgage deals...

government should encourage more borrowers

18 First-time buyers to remain in rented accommodation for longer...

further upward pressure on rents set to continue

19 UK's first eco-village...

part of government plans to build two million new homes before 2016

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23 In this

Issue >> 20 Home buying tips...

making the process less stressful

21 Review into the UK's housing market... opposition party seeks to find solutions to affordability issues

21 Rate reform...

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secondary legislation for all aspects set to take effect this April

22 Landlords are not put off by negative media reports‌

respondents still undaunted by such sentiment

22 Home information packs...

House of Lords argues to keep them under constant review

23 The home information pack proposition‌

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your questions answered

24 Council scheme could slow down house sales and damage the commercial sector... government accused of being in favour of its introduction

24 First-time property buyers...

situation poised to improve in 2008

25 Tenancy deposits...

a third of parents give a helping hand

25 Family homes attract high levels of demand... sector set to enjoy a prosperous 2008

25 Housing market forecast for 2008...

price falls will not be extended in duration

25 News in brief...

owners downsize to more manageable homes

26 Marketing without a HIP... is your property exempt?

26 Desirable tenants...

property investment sector finds favour with couples

26 Student properties...

close proximity locations to universities pay dividends

27 New-build properties...

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prices set to remain buoyant

27 First-time buyers...

buyer levels the lowest for decades

28 Property jargon... one-minute guide

30 The priciest postcode locations...

house price increases driven by the super-rich

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eSmartproperty JANUARY/FEBRUARY/MARCH 2008


eSmartproperty

Government's HIP scheme extended Compulsory pack now rolled out for all properties

Homeowners spend more of their monthly income on mortgage interest payments The highest percentage paid for 16 years

If you are selling a property of any size in England and Wales you will now have to provide prospective buyers with a home information pack (HIP), although a new-build property can still be sold without a HIP until April 6 of this year. The government's HIP scheme is now been extended to one-and two-bedroom properties. The HIPs, which contain information about a property including an energy efficiency assessment, searches and title deeds, were previously compulsory on larger properties. Provided and paid for by sellers, a HIP may typically cost an average of ÂŁ350. The scheme is designed to speed up the selling process and reduce the number of transactions that fall through by giving potential buyers information about a property upfront. However, until June 1 this year sellers will still be able to market a property before the HIP has been compiled. Originally the government had planned to make HIPs compulsory on all properties from June last year. Instead, the packs have been rolled out in phases, first to homes last year with four bedrooms or more in August, then to three-bedroom properties in September last year. The Association of Home Information Pack Providers (AHIPP) have said that the full roll-out of

the packs in their current form should be the "starting point and not the final destination." They are calling for information such as a home condition report to be added to the packs, so they contain everything needed by a seller to exchange on a property. Plans to include a home condition report in the HIP were dropped after opposition from lenders who said they would still require their own survey before offering a mortgage on a property. AHIPP have made it clear that for HIPs to fully inform potential buyers about properties they are viewing it is vital that the home condition report is made a mandatory part of the pack,

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

and that many of the searches which provide information on flooding, ground movement and contamination are included.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

According to the Council of Mortgage Lenders (CML), homeowners are putting the highest percentage of their salary towards mortgage interest payments for 16 years. Rising house prices and interest rates have significantly pushed up the proportion of income needed to service a mortgage. This is a natural consequence of salaries not rising in line with property prices and interest rates. Latest figures from the CML show that average first-time buyers now spend more than 20 per cent of their monthly income on mortgage interest payments before they have paid off any of the capital, the highest level since 1991. The CML expects interest rates to fall twice during 2008 to end the year at 5 per cent. Lenders have already responded to the credit squeeze by tightening lending criteria and increasing some loan costs. The CML also said there was a move away from fixed-rate mortgages during the latter part of 2007, suggesting consumers were confident that interest rates had peaked. And just under a third of consumers are choosing variable rate mortgages in the hope their repayments will come down in line with falling interest rates.

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Landlords need to stay on the right side of the law

New rules introduced last year bring a raft of obligations As a landlord of a property there are a raft of obligations with which you need to comply in order to stay on the right side of the law. New rules introduced last year give all tenants the right to complain about hazardous living conditions such as damp and faulty electrics. If the complaint is upheld, landlords can be forced to carry out repairs by a local authority.

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eSmartproperty JANUARY/FEBRUARY/MARCH 2008


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Landlords of larger houses in multipleoccupation may have to apply for a licence before they can even let the property, and all private landlords must take part in a tenant deposit scheme (TDS) aimed at protecting tenants from landlords who wrongly withhold all or part of a deposit at the end of the tenancy. Under this scheme, landlords or letting agents can only take a deposit from a tenant if they are registered with one of the three governmentapproved TDSs. These are run by the Dispute Service, an independent, not-for-profit body that requires landlords to provide legitimate reasons for making deductions at the end of the tenancy. Each scheme has slightly different rules about how deposits are held. Two are insurance based, allowing the landlord to keep the deposit for the period of the tenancy after insuring it to protect tenant's interests. The other is custodial, which means the deposit is held independently by the scheme during the period of the tenancy. Within 14 days of receiving a deposit, landlords must provide tenants with details of how it is protected. This should be set out in either the tenancy agreement or a separate signed deposit information certificate. It should include information about the landlord's contact address, the circumstances when the landlord can take money out of the deposit, and the identity of the particular scheme. Landlords face tough penalties if these rules are not followed since the tenant cannot be evicted until the matter is resolved, and the landlord will have to pay compensation to the tenant equivalent to three times the deposit. A new system has also been introduced for checking the condition of a rented property. Tenants now have the right to contact an environmental health officer and ask them to inspect their home. A rating system is used to assess potential health and safety hazards such as faulty electrics, damp, poor security, poor lighting and noise. If the problem is serious the council will require landlords to carry out repairs, or in an emergency, do them itself. Landlords of certain large shared houses also now have to apply for a licence from the council.

The compulsory licensing requirement applies to all houses of at least five people (not from the same family) spread over three or more floors. The council will visit a property to check the condition of the bathroom, kitchen and laundry facilities. Checks will be carried out to ensure the property is not overcrowded, and an assessment will be made to ensure the landlord is capable of managing the property. New private tenancies are automatically classed as assured shorthold tenancies unless their agreement states otherwise under the Housing Act 1996. Assured shorthold tenancies give landlords the absolute right to get a property back at the end of a tenancy period, which may be as short as six months. A tenant who breaches the terms of the tenancy agreement before the six months are up can be removed by the landlord. If the tenancy runs on after the fixed period, landlords can get possession of the property by giving two months' notice. Assured shorthold tenants have the right in the first fixed period of the tenancy agreement to get the rent determined by the rent assessment committee, an independent statutory body. The committee will not interfere unless the landlord is charging significantly more than other landlords. The rent it sets will be inline with the market rate. To prevent disputes arising later about who is responsible for doing what, landlords should use a written tenancy agreement. Landlords are responsible for certain basic repairs to any sinks, baths, sanitary installations and heating and hot water systems, and to the structure and exterior of the building. Small repairs such as replacing washers on taps or mending fuses and broken locks are usually the tenant's responsibility. Tenants will normally be responsible for the council tax (although this isn't an issue for students), water and sewerage charges. But landlords need to make sure the agreement is clear about who is responsible for gas, electricity and telephone bills before the tenancy begins.

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

Buy-to-let market 2007 Landlords see rents increase 17 per cent According to buy-to-let mortgage provider Paragon, landlords in the UK have made an average of 34,500 in rental income in 2007. Rents were up by 6 per cent over the past quarter and 17 per cent in the past 12 months, the research found. Bradford & Bingley reported in a survey that yields have increased by 6.02 per cent in the East Midlands in the past year and by 6.01 per cent in Scotland. The South-west, Yorkshire and the North-west achieved the best results during the year, the lender found, with rental yields worth just under 7 per cent of property value. A third of the landlords surveyed said rents were higher than 12 months ago, but over half stated there had been no change. Some 86 per cent plan to increase their portfolios or leave them as they are in 2008, according to Bradford & Bingley, with yields holding steady nationwide at an average of 5.72 per cent of property value. Around a third of landlords expect rental yields to rise this year and two-thirds envisage they will remain steady. The recent credit crunch has seen property sales decline, the effects of which will be positive for the buy-to-let market to prosper this year. The social and demographic trends that have been driving the market are strong, with rental demand remaining robust. In addition if house prices stagnate or fall, there is likely to see an increased demand for rental properties strengthening, leading to improved rental yields. The results from the Bradford & Bingley landlord confidence survey, together with the economic indicators surrounding buy-to-let, reveal that the sector is most definitely here to stay and should remain strong.

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eSmartproperty

THE MORTGAGE MAZE Navigating the options

Mortgages have become increasingly complex in recent years as the market has become more competitive. Borrowers now need to consider at least two things: the type of loan they want and how they are going to repay it. Here are the main options:

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eSmartproperty JANUARY/FEBRUARY/MARCH 2008


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Types of loan

Current account mortgages

Offset

Rates on these loans fluctuate in line with general interest rates but because they are at the lender’s discretion they don’t necessarily move as far, or as fast. Discounts are usually offered to new borrowers in the early years.

Current account mortgages enable you to combine mortgage and savings in a single account. Their main advantage is that money paid in, or interest earned on existing balances, is credited to the mortgage, reducing the debt and, consequently, interest charges.

These loans are taken out in conjunction with a current account or savings account. Rather than being paid interest on your savings, the sums saved in these accounts will be used to reduce the interest owed on your mortgage and any other loans. Regular mortgage repayments are required but at the same time the cash in the other accounts helps to reduce the loan, thereby saving interest. This can help to speed up repayment of the mortgage.

Variable rate mortgages

Fixed-rate mortgages

Self-certification mortgages

These charge the same rate throughout the period of the fix. Rates of interest on these loans are guaranteed not to change for a specified period, typically the first three to five years of the mortgage. They are useful if you want to know exactly how much you have to find over a given period. A few lenders offer 25 year fixed-rates.

To qualify for a home loan you need to sign a statement of earnings, not provide actual proof. The majority of self-certified mortgage lenders demand a 25 per cent deposit; a small minority will accept a 15 per cent deposit, and an even smaller minority 10 per cent.

Tracker mortgages

These loans, also called credit repair mortgages, are sold if you have a poor credit record and they charge a higher rate of interest because you are considered a more risky bet. There are different levels of sub-prime mortgage. Someone who has a very bad credit rating, they may be a discharged bankrupt or have a lot of county court judgements against them, will be sold a "heavier'' version. Someone who has missed a couple of mortgage or loan payments in the past will often be sold a "near-prime'' or "light'' version of the mortgage. Sub-prime mortgages can charge as much as three percentage points more than an average standard variable rate mortgage but again it will depend on your credit rating. Mortgages have become increasingly complex in recent years as the market has become more competitive. Borrowers now need to consider at least two things: the type of loan they want and how they are going to repay it. Here are the main options:

Tracker rates are normally linked directly to movements in the Bank of England’s base rate. The link may be for a limited period rather than the life of the mortgage. Tracker mortgages may be appropriate if you believe that interest rates will come down further in the months ahead.

Cashback mortgages When these loans are granted, cash payments are given to borrowers to spend how they like. They are typically between 6 per cent and 8 per cent of the loan.

Capped mortgages These put a ceiling on how high the interest rate can go, but you pay a lower rate if the standard variable rate drops below the level of the cap. They therefore offer the security of knowing that your monthly repayments are fixed at the top end, but will benefit from any falls in the standard variable rate.

Discount mortgages Discounts peg rates at a set percentage below the lender's standard variable rate (SVR). Many discount mortgages have no redemption penalties during the tie-in period, allowing you to consider remortgaging if a better deal comes along.

Sub prime mortgages

Methods of repayment

Repayment

Also known as capital and interest mortgages because part of the monthly payments gradually pays off the loan while the remainder covers the interest on the amount outstanding.

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

Interest-only The borrower pays the interest only on the loan during the mortgage term so the capital remains outstanding. Payments may also be made into a savings scheme, such as an Individual Savings Account, to repay the capital at the end of the term. The loan could also be repaid out of the sale proceeds of the property if there is sufficient value.

Endowment mortgage This is where an interest-only loan is combined with a life assurance with-profits policy intended to pay out a sufficient sum to clear the mortgage at the end of the term. But endowment policy payouts are not guaranteed and many are currently expected to produce shortfalls.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

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eSmartproperty

PROPERTY PITFALLS

WHAT SHOULD YOU LOOK OUT FOR? Arrangement fees Most lenders nowadays charge you for the work involved in setting up a mortgage or to reserve a loan at a particular rate. The amounts can vary considerably between lenders, ranging between £200 and £700. Paying more doesn’t always get you a better deal. Check whether the fee is refundable if the deal falls through.

High lending charge If you are borrowing more than 90 per cent of the property value, check to see whether you will be charged an extra fee. This is to protect the lender in case you fail to keep up the payments, but not all of them make this charge.

Insurance tie-ins Some lenders will offer you a lower mortgage rate if you buy their home insurance products. They will also encourage you to take out their mortgage payment protection policy. It is usually better to shop around for the cheapest insurance deal.

Redemption penalties With mortgage special offers and fixed rate deals, you will normally be charged a penalty if you pay off your loan within the offer period. In particular, try to avoid those loans with redemption penalties that extend beyond the end of the offer period as you will be stuck on the lender’s standard variable rate.

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Initial disclosure documents and key facts illustrations Initial disclosure documents (IDDs) spell out mortgage advisers’ services, such as whether they can recommend products from one company only, or are free to sell mortgages from all lenders. Key facts illustrations (KFIs) are given to borrowers when they apply for or are recommended a mortgage. These outline the mortgage’s cost over its term, repayments, fees and an interest rate expressed as an annual percentage rate (APR).

Annual percentage rate The APR tells prospective customers the interest rate over the life of the mortgage. This is factored in to any initial offer rate and then the lender’s standard variable rate to which the mortgage reverts, as well as the impact of fees. The APR in the key facts document does not reflect that many mortgage borrowers switch to better deals than the lender’s standard variable rate (SVR) after their initial offer expires. Neither does it include the potential costs on leaving the mortgage, such as administration fees and early repayment charges.

Standard variable rate The SVR is not the rate of the Bank of England’s base rate, but the commercial rate can be different at every lender.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

eSmartproperty JANUARY/FEBRUARY/MARCH 2008


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Advice for landlords

Have you taken out specialist insurance?

Choosing a mortgage

Do your homework

There are nearly three million properties that are privately rented out in the UK. This represents more than ÂŁ500 billion of buy-to-let investment that needs to be insured, according to research by Sainsbury's Bank. To protect their properties landlords are advised to take out specialist insurance, rather than relying on standard policies. Mortgage lenders insist on buildings insurance, which pays out in the case of damage by fire, smoke, storm, flood or subsidence. However, landlords need to use specialist buildings insurance policies, typically described as "landlord insurance" or "buy-to-let" policies, as standard home insurance policies exclude cover for any property from which revenue is earned. Even when renting out one room, you must have a specific landlord insurance policy. Tailored policies can also include cover for accidental

damage done by tenants, or while the property is untenanted. Contents within the property tend not to be covered automatically by landlord policies, so if you let a furnished property, you may wish to consider asking for contents cover to be added, or buy a separate contents insurance policy. Tenants should also take out their own contents cover if they wish to protect their belongings. Insurance will not pay out for loss of rent if you cannot find a tenant, but there are policies

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

to indemnify you if the tenant defaults. The premiums tend to be "significantly higher" than for normal buildings insurance policies, although the costs will depend on factors such as the type of property, its location, and the excess. Not only can landlords receive tax relief on mortgage interest paid on a rental property, they can also claim tax relief on the cost of insuring it when filling in the Land & Property pages of their selfassessment tax returns.

Ensure that you do not just focus on the headline rate. High arrangement charges, lengthy lock-in periods and high exit fees are some of the ways in which lenders recoup money lost through a headline-grabbing low rate. Beware of extended tie-ins, which lock borrowers into a high rate long after the low rate has expired. Watch out for high arrangement fees, which can wipe out any benefit from the advertised lower rate. A higher fee can be worth paying if you make savings on interest payments over the term of the mortgage. Generally, the bigger the mortgage the more important the rate, rather than the fee, becomes. Stepped rates are also worth watching out for. These mortgages can offer a low rate in year one before it is ratcheted up in the following years, when the borrower is often locked in to a high rate. The Higher Lending Charge which can be as much as ÂŁ2,500 if you do not have much of a deposit. Consider using a lender that does not impose a HLC, as not all of them do. Avoid a lender's Standard Variable Rate (SVR). The rate could be 2 percentage points higher than other deals offered by the same lender.

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eSmartproperty

OFFSETTING

An alternative way to pay your mortgage off earlY

For those of us looking to pay our mortgages off early the simplicity of the offsetting principle, that is that interest on our savings goes towards reducing our mortgage debt, has caught the publics' imagination. Offsetting savings or current account deposits against mortgage debt in a single, rolled-up account began in Australia and the UK market has grown from a couple of providers seven years ago to over forty today. The principle is simple: most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. Savers avoid paying tax on interest that their deposits would otherwise have earned. And because offset mortgage lenders calculate interest daily, every pound on deposit works hard to reduce the cost of borrowing. Also, in a low interest rate environment, any savings you have are effectively earning interest at a higher rate than most mainstream savings accounts would pay. There are a number of reasons for the appeal of offsetting: n Generally, offset mortgages offer a competitive borrowing rate. n In most instances they are very flexible. You can often overpay or underpay on the mortgage. n By offsetting the interest earned on savings against the mortgage debt, the total cost of a mortgage could be cut considerably. n Interest paid on savings which is offset against a mortgage debt, is tax free.

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In the main, people with larger mortgage borrowings and savings are attracted to offset, due to the built-in flexibility for those who can afford to make overpayments and who will reap more of a tax benefit from the offset concept. It is particularly popular with City workers who can use bonuses to drive down the interest on their mortgage whilst deciding how best to spend it. Offsets have proved to be beneficial for borrowers in a number of ways. In the first instance, the reduced interest payments can make for a lower total mortgage cost overall, as well as a shorter mortgage term. Greater flexibility over conventional mortgages is also an advantage, as most offsets allow borrowers to make overpayments, underpayments, or take payment holidays, meaning customers are empowered to take more responsibility and have more control over their finances. This means they can fit their mortgages around the demands and fluctuations on their money at different stages of life.

The first offset mortgages launched in the UK were current account mortgages (CAMs), linking a homeowner's current account with the mortgage. With CAMs, the bank account and mortgage were combined so customers view just one statement and see one balance. The balance is calculated daily and the homeowner pays interest only on the balance. CAMs offer the same services as an ordinary bank account. Customers can also add any savings into the CAM account to reduce the debt balance. Any other debts, such as personal loans or credit cards, can be transferred to the account. The homeowner, typically, pays the same interest rate across the lot. With an offset mortgage you can typically use the balances in your current account or savings (and even your ISA), to reduce the amount of interest you pay on your mortgage, or maximise the interest you earn on your savings. It doesn't matter that the amount of money in your current account, savings or ISA will vary. Whatever's in there from day to day will go towards offsetting

the amount you owe on your mortgage. Even if you don't have any savings, you could pay your regular salary into your current account and benefit from offsetting that money against your mortgage. You can usually access your savings at any time with no penalties to pay. So whether you're saving to improve your home, for school fees or a future tax bill, your money can always be working for you. During this period of interest rate uncertainty, offsets have helped to mitigate the effects of rises. Finally, offsets have the added benefit of being tax efficient as savings made from reduced interest payments are not subject to tax.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

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To track, or not to track - that is the question? Further interest rate cuts could make them look more appealing Fixed-rate mortgages have been popular over recent years, but with the Council of Mortgage Lenders (CML) predicting two further interest rate cuts this year, should borrowers be looking at tracker deals? Borrowers maybe in a quandary over the type of mortgage to take out! Fixed rates usually appeal to people who want to know exactly how much their mortgage payments are going to be each month. If you opt for a variable rate deal, your payments can fluctuate according to whether interest rates are moving up or down. However, with some economists also predicting interest rate cuts in the coming months, tracker deals, which as their name suggests, follow movements in the Bank of England base rate, may begin to look increasingly appealing. Thinking on the future of interest rates has changed over recent months from expecting a rate rise before the credit crunch to now expecting a rate reduction. There are many indicators that would signify that a rate reduction is in the offing. Rates in the US have dropped, inflation has been well below the target and there has been a slowdown in mortgage lending and the housing market. Although fixed rates have softened recently, now may be the time to take advantage of trackers in anticipation of rates in general reducing.

Tracker mortgages if appropriate to your situation could be a good option and offer more advantages than discounted rates. Trackers are a good choice compared with discounted variable rates as the lender has to pass on any reduction in base rate in full, so you know exactly where you stand. A discounted rate is linked to the lender's standard variable rate, which is set at the lender's discretion and does not have to reflect movements in base rate. Borrowers who can't afford any fluctuations in their repayments should still consider fixed rates and anyone with concerns about the long-term affordability of their mortgage or an aversion to risk should consider a fixed rate option. Predictions about interest rates are just that, predictions, not a guarantee. So if you choose a tracker mortgage you need to understand the consequences, rates go down, you win, they go up, you lose. Only if your finances can handle movements in repayments should you consider a tracker.

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

Tracker facts Tracker rate mortgage schemes follow movement in the Bank of England base rate at an agreed differential. The tracker rate mortgage is available for a fixed period or the life time of the loan. The most common tracker rate period is 2 years, though mortgage lenders now offer 3 year, 5 year and even 10 year track rate mortgages. If the tracker rate is for a set period of time the mortgage will revert to the lenders standard variable rate at the end of the tracker rate period.

Pros and cons of tracker rate mortgages Pros n Lower interest rate in the first few years then the lenders standard variable. n You will benefit from all reductions in the Bank of England's base rate.

Cons

n Early redemption penalties can be onerous and expensive and may apply. n If the Bank of England base rate increases your monthly payments will rise in line with it. n It is less easy to budget as the interest rate might vary.

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eSmartproperty

Buy-to-let survival tips

Safeguarding your investments

In the current economic climate it makes sense for property investors to safeguard their buy-to-let investments. Here are some survival tips. n

I f you can afford to stay invested in the buyto-let market long term, don't panic if prices fall. You have not lost money until you sell your property. n  Keep receipts for repair and maintenance work, plus other expenses necessary for your buy-to-let business, these can be included on HM Revenue & Customs (HMRC) returns as taxdeductible expenses. You must have evidence to support your claim. n  If you secured a good short-term fixed rate mortgage on a buy-to-let two or three years ago you envisage the rate increasing when the deal finishes, you may have little daylight between the rent and the mortgage payments. So getting a new deal could give you a much better margin. It may even be worth paying the redemption penalty to get out of an existing uncompetitive deal. n  Interest-only mortgages can keep down

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n

your costs as monthly payments are lower than with a repayment deal. They also have the benefit of being able to offset the interest against the rent on your tax return. This is not the roof over your head, so you don't need to clear the capital at the end of the term to keep living there; instead you could sell the property or another in your portfolio, to cover the cost of the capital. n  Building insurance is essential if you have a mortgage on your property, but landlords may not need contents insurance if the property is unfurnished, or life cover to pay off the mortgage if they die. This could save you money, but you should take advice first to assess your situation. n  It may be better to have a long-term tenant paying a lower rent than a tenant who pays a higher rent but only stays in the property for a few months. Periods when a property is empty can prove a financial struggle for landlords.

The Chancellor announced in the Pre-Budget Report last October that he proposed to reduce capital gains tax (CGT) from 40 per cent to 18 per cent after April 5 this year. But he also plans to abolish indexation and taper reliefs which currently reduce CGT bills. Longterm landlords could ultimately pay more tax as a result, although many buy-to-let landlords will pay less tax as a result of the proposed changes. n  Keep records and separate accounts for all financial transactions relating to your buy-to-let, including your mortgage and rental payments. This will enable you to keep a close eye on budgets and should also help you to avoid confusing business income and expenses with your personal finances. n  Keep a contingency fund for any loss of rent and unexpected costs, such as repairs. This can also cover depreciation costs such as wear and tear on carpets. It’s worth keeping in the region of three months' rent.

eSmartproperty JANUARY/FEBRUARY/MARCH 2008


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Remortgaging

Proposed overhaul of the tax rules

If you are considering moving your mortgage, here are some things you need to know about remortgaging.

Buy-to-let investors still committed for the long term!

Get in the know before you make a move n Don’t let apathy get the better of you. More than half a million homeowners squander hundreds of pounds each year by not switching from their lender’s standard variable rate (SVR) according to Charcolonline, the mortgage website. n Remortgaging can incur arrangement, valuation, legal and administration fees of up to £1,500, take advice to find those deals that pay some of these costs for you. n Few things in life are really free, and fee-free deals tend to carry rates that are up to a quarter of a percentage point higher than products where you pay the costs. Remember the larger your loan, the more cost-effective it may be to secure the keenest rate and pay the fees. n Redemption penalties are charged when you leave a mortgage during any offer period, but some lenders charge beyond this. Penalties can cost thousands, so work out yours before switching.

n Trying to second-guess the Monetary Policy Committee by waiting for rates to fall further before switching is not a good idea unless you are a confident economist (and plenty of these get it wrong). n D o you want the stability of knowing what your repayments will be by opting for a fixed rate? Would you be happier taking a chance that rates will remain stable or come down by selecting a mortgage that tracks the base rate? Mortgages that offer a discount on the base rate are usually cheaper than fixed-rate deals. Take advice and review what is best for your situation. n Remortgaging typically takes between four and six weeks. There is the misconception that remortgaging takes up too much time and effort, but it can be relatively painless for most people and should not take more than two hours of a borrower’s time.

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n With thousands of mortgages available, obtain advice to find the most suitable one for you. n I t can be tempting to cash in some of the equity in your home to pay for anything from home improvements to holidays. This is a cheap way to borrow, compared with credit cards and personal loans, but taking out a large chunk of cash and paying it back over the term of your mortgage means that you may still accrue a lot of interest.

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The proposed overhaul of the tax rules for buy-to-let investors and second-home owners could lead to a surge of selling in April this year. An estimated 650,000 people with buy-to-lets and second homes may see their tax bill fall significantly if the government’s plan to introduce a flat 18 per cent capital-gains tax (CGT) becomes law. Although the government is expected to make changes to its proposed tax plans in response to fierce lobbying by business leaders, the proposals for property owners are expected to remain unchanged. This has sparked concerns that some landlords, struggling to cover borrowing costs and worried about falling house prices, will rush to sell when the more attractive tax regime takes effect. This is the flipside of what happened in 1988, when a false market was created by the then chancellor, Nigel Lawson’s decision to end tax relief on mortgage interest. This led to a rush to buy homes before the perk was scrapped. The Royal Institution of Chartered Surveyors (RICS) said that they don’t believe we are on the edge of a complete bailout, but some landlords are looking to sell. RICS envisage a pickup in properties coming to the market in April this year, although they think most buy-to-let investors are still committed for the long term. If you need to sell, you could defer paying CGT at the higher rate in force now by rolling profits into an enterprise investment scheme (EIS). The CGT must be paid eventually, but if you sell your EIS shares over several years, using your CGT allowance each time, you may be able to avoid the tax or at least get the lower rate.

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Local authority searches Protecting you from unforeseen surprises

The "search" or local authority search is intended to protect you from unforeseen surprises after you've bought your new property. Usually carried out by the solicitor as part of the conveyancing process, the search is a check against any plans which might affect the property you're considering buying.

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You don't want to discover a few months after you've moved that there are plans to turn your quaint little road into a dual carriageway or to replace the little shop on the corner with a hypermarket. The search looks for planning proposals such as new roads, changes to road layouts, building developments in the vicinity and alterations to land use or public rights of way. It could also warn you of extra planning restrictions that might lie ahead, such as putting your new home into a conservation area. It is also important to ask how wide an area the search covers, as this can vary. If the search is described as taking in the "immediate environs" consider if that means the adjoining houses, the street or the neighbourhood.

Don't make assumptions that developments which are a few streets away will necessarily show up on a local search. If the search only covers the road in which you're looking to buy, you might want to make additional inquiries to see if there are potential problems slightly further away. The search is carried out on your behalf, so make sure that the information is what you think it is because any problems afterwards could be difficult to rectify. The majority of searches will typically be completed within a three week period, although it is not unheard of for some to take up to six weeks. If you're trying to move in a hurry, you can speed up the process with a 'personal search', which means paying extra for a much quicker service, usually two or three days.

In terms of the timetable for moving, it is worth remembering that searches soon become out-ofdate. If there is a long delay in the buying process your search could be months old by the time you move in and any recent planning proposals may not be covered.

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Property investment

A checklist to getting started Understand your market If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits? Make sure buy-to-let is the investment you want. If you know someone who has entered the buy-to-let market, ask them about their experiences, or speak with other investors.

Location, location, location Promising does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons. Where in your town has a special appeal? If you are in a commuter belt, where has good transport? Where are the good schools for young families? Where do the students want to live?

Make sure the figures add up Before you think about looking around properties, write down the cost of houses you are looking at and the rent you are likely to get. Traditionally buy-to-let lenders want rent to cover 125 per cent of the mortgage repayments, although some are relaxing this, and interest

rates are higher. Most also look for a 15 per cent deposit, which protects against falling prices. Consider what will happen if the property sits empty for a month or two?

Financing your INVESTMENT Research the mortgage market to find the best deal. If you are looking for advice use a specialist buy-to-let mortgage broker.

Define your tenant profile Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they may have plenty of their own belongings and need a blank canvas.

Investing for income We have all read the stories about buy-to-let millionaires and their huge portfolios. In most places the days of double digit house

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price rises are gone, so consider investing for income and not short-term capital growth. Once mortgage, costs and tax are taken into account, you will want the rent to build up over time and then be able to use it as a deposit for further investments.

Cast your net wider Most buy-to-let investors look for properties near where they live. But your town may not be the best investment. The advantage of a property close by is being able to keep an eye on it, but if you will be employing an agent anyway they should do that for you. Consider casting your net wider and look at towns with good commuting links that are popular with families or have a sizeable university.

Negotiate a discount As a buy-to-let investor you have the same advantage as a first-time buyer when it comes to negotiating a discount. If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be a sizeable asset when negotiating a discount.

Understand the cons as well as the pros Before you make any investment you should always investigate the negative aspects as well as the positive. House prices may drop slightly or even considerably. If that is the case will you be able to continue your investment? Even in popular areas properties can sit empty. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year this gives a substantial buffer. Homes often need repairing and things can go wrong. If you do not have enough in the bank to cover a major repair to your property, do not invest yet.

Getting help Buying a property is only the first step. Will you rent it out yourself or get an agent to do so. Agents will charge you a management fee, but will deal with any problems and usually have a good network of plumbers, electricians and other workers if things go wrong. You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs.

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Graduates double-up to buy their first property A survey conducted by Scottish Widows found that 72 per cent of graduate first-time buyers chose to buy with somebody else, compared with 69 per cent last year. The company's research also discovered that fewer than half of respondents who graduated in the last ten years have managed to get onto the property ladder.

Fixed rate mortgage deals

Government should encourage more borrowers Almost half of borrowers are considering medium and long-term fixed rate mortgage deals, but the government should be doing more to encourage them, according to a report by the Council of Mortgage Lenders (CML). The research showed that 42 per cent of borrowers who were either buying a new house or remortgaging would choose a fixed rate deal, compared to 13 per cent that would chose a variable mortgage deal. Bob Pannell, Head of Research at the Council of Mortgage Lenders (CML), said: "In the absence of a major policy intervention from the government, the take up of longterm fixed rates looks set to remain relatively small for the foreseeable future and the most we are likely to see is some movement from shortterm to medium-term fixed rates." Borrowers said in the survey that they would be more likely to consider a long-term fixed rate mortgage if there was a way to get out of the deal without high charges. The CML is the trade association for the mortgage lending sector and accounts its member make up 98 per cent of the industry.

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First-time buyers to remain in rented accommodation for longer Further upward pressure on rents set to continue During 2007 according to the latest research from buy-to-let specialist Paragon, buy-to-let investors experienced average returns on their investments of 21 per cent, the highest level for 28 months. With a combination of strong house prices, good rental incomes and stable yields the typical landlord generated more than ÂŁ34,500 over the past year, according research from Paragon. Rental levels, however, have been the key growth area achieving; up 17 per cent over 2007, to a record level of ÂŁ11,300 and the value of the average buy-to-let property increased by 15.3 per cent over the previous 12 months. Yields remained stable at 6 per cent throughout 2007 as landlords were able to increase rents in line with property values. According to Paragon the regions which witnessed the strongest total returns during 2007 are London, the East Midlands and the South-West. Similarly the East Midlands achieved the fastest annual growth in rents, while Yorkshire & the Humber and the North-West saw the best yields during 2007, with both regions securing levels of around 6.8 per cent.

Looking forward, Paragon expects further upward pressure on rents to continue as first-time buyers remain in rented accommodation for longer. At the same time, property prices are expected to ease in some parts of the country, which may represent an opportunity for astute landlords who can acquire additional properties at attractive prices and let them out at a good return.

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UK's first eco-village

two million new homes before 2016 The government plans for the UK's first eco-village have been revealed by the housing minister, Yvette Cooper, confirming that Barratt Developments have been chosen by the department for Communities and Local Government (CLG) as its preferred bidder to build the development. The scheme forms part of government plans to build two million new homes in the UK before 2016. The government also detailed the eco-village will be built at the site of the former Hanham Hall Hospital near Bristol and will conform to the government's most exacting ecostandard - level six of the Code for Sustainable Homes. "We have set a world-beating target that all new homes must be zero carbon by 2016. People said this couldn't be done, but, in fact, this first Carbon Challenge site shows developers are already preparing to build the first major

development of zero carbon homes," said Ms Cooper. "We want to build more homes but also to higher standards. We've set up plans for ten eco-towns. These Carbon Challenge ecovillages are now leading the way, showing what can be done. This marks a revolution in the way we design and build homes." It is hoped the eco initiative will alleviate housing shortages, which have pushed property prices out of reach for first-time buyers, while

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simultaneously working to reduce the country's carbon footprint. It is thought the Challenge will deliver zero carbon homes and communities well in advance of this becoming mandatory in 2016, and could also help the house building sector demonstrate the targets are feasible as well as commercially viable. "Barratt fully supports the zero carbon objective and we want to make as big a contribution as we can as quickly as we can. We are delighted to be asked to deliver this ground-breaking project, which will be the first large-scale zero carbon community in the country. It will enable a family occupying one of these homes to reduce their entire carbon footprint by 60 per cent," said Mark Clare, chief executive, Barratt Developments.

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Home buying tips

Making the process less stressful

There are many things to consider before you start looking at properties on the market, the most important of which is to get a ‘mortgage in principle’ in writing as soon as possible. When you find a property, you'll probably have to move fast to secure it. To prevent delays while sorting out a mortgage you should first consider obtaining a ‘mortgage in principle.’ This is a conditional offer made by a mortgage lender that provided the information you give them is correct, they will ‘in principle’ give you the loan you have discussed with them. Knowing what you can afford will also help you narrow your search. You can get this offer in writing to show to Estate Agents and sellers. Once you have an idea of how much you are able to borrow you can make further enquiries to your chosen lenders. This will help you to assess what property is in your reach and gives you a head start in the whole process. It is often the case that you will need to put forward an offer on a property as soon as possible in order not to miss out, so it is helpful to have this already in place. Take advantage of your Estate Agents local knowledge, as they will be able to answer questions relating to the location and area you are considering, which can help give a sense of the community before you

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even start looking at a property. For example it is a good idea to find out the average homebuyer’s age in your chosen area. This is important when you think long term, will you be surrounded by families or young professionals and which suits your needs best? The surrounding area will also affect the cost of your home insurance, so obtain some quotes to get an idea of potential premiums you would have to pay for your chosen location. Do your own homework and make sure that you get on overall general impression of the area. Find out what facilities are available,

where the nearest transport links are and the standards of local schooling? When you visit the area, are the gardens kept nicely, and even consider the types of cars that are parked around? This should give you a feel of the sort of neighbours you may have, should you choose this particular area. In addition, visit the area at night. Are the streets noisy at night, or is it a quiet area? Recommendations or criticisms from people that already live in area can alert you to potential problems or plus points that you were unaware of. Talk to people that work in local

businesses too as they often have a good idea of the workings of a neighborhood. Once you have decided on an area, you can then start looking for a property and choose a purchase price based on your ‘mortgage in principle.’ Remember you are buying the property not the contents. This is an important point to keep focused on at all times; do not be swayed by the decor, good or bad. The same applies to the furniture, have the owners moved the furniture out to give an impression of spaciousness? The most important factor in buying a property is to be as objective as possible about the area you are looking at and the property itself. It is also advisable to have someone else there to give you a second opinion, and insist on a home inspection by a qualified expert.

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Rate reform Secondary legislation for all aspects set to take effect this April Local government minister John Healey is drafting the secondary legislation so that all aspects of the rate reform, introduced in last year’s Budget, can come into effect this April. Owners of vacant and industrial properties will be granted six months exemption from rates payment in a move that will generate more than £1bn for the government. The government has conceded to the property industry’s demands to extend the rate relief for two years for industrial property and for one year for empty shops and offices. However, it said companies in administration will be permanently exempt while empty listed buildings will continue to quality for tax concessions ‘because of the extra work required to bring them back into beneficial use.’ It also does not plan to introduce punitive

measures to deter property owners from deliberately damaging properties to avoid paying rates, although it said it could introduce such measures if needed. It said it would monitor the impact of the reforms with the Local Government Association, the Valuation Office Agency and the Institute of Revenues Rating and Valuation. In a written statement to the House of Commons Healey said: ‘It would be an extreme step for a property owner to go to the lengths of deliberately vandalising a potentially valuable asset so that it is beyond economic repair and I do not believe this is a likely response to the Government’s reforms to make more efficient use of land.’

Review into the UK's housing market Opposition party seeks to find solutions to affordability issues Industry insiders and government figures have reacted with disbelief and anger at Tory plans to launch a review into the UK's housing market. The party announced recently that shadow housing minister, Grant Shapps, would lead a review, seeking to find solutions to affordability issues which have arisen in the market in recent years. A key tenant of Conservative plans is the scrapping of home information packs (HIPs), which they see as unnecessarily bureaucratic. "The industry's worst fears have been realised; HIPs have introduced wasteful red tape and up front costs to the seller with little or no appreciable advantage to the buyer," said Mr Shapps. However, the scheme was defended by the government. "HIPs and energy performance certificates (EPCs) are already helping consumers to save hundreds of pounds off their fuel bills and are cutting search costs too," said a spokesperson for the Department for Communities and Local Government (CLG).

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Landlords are not put off by negative media reports Respondents still undaunted by such sentiment The majority of landlords are not being put off by negative media reports regarding the buy-to-let sector, according to a new study from Bradford & Bingley. The study found that some 60 per cent of respondents are still undaunted by such sentiment, with 95 per cent remaining positive when it comes to rental yields. Separate research from the Young Group, published at the end of last year, revealed a similar outlook when it comes to paying attention to such articles. "These are the people on the ground that are researching their areas, taking out the mortgages, buying, maintaining the properties and managing the tenants, therefore their opinions are important," asserted Jeremy Law, head of buy-tolet at Bradford & Bingley. "The social and demographic trends that have been driving the market continue to remain strong with rental demand remaining robust," Mr Law added. The Association of Residential Lettings Agents (ARLA) recently reported that demand for rental properties has now reached a fiveyear high.

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Home information packs House of Lords argues to keep them under constant review The House of Lords has told the government the implementation of home information packs (HIPs) which have been rolled out to include all properties in England and Wales, should be kept under constant review. The request for the policy to be kept under review was seen as an admission of failure by some however. The controversy surrounding the policy has been acknowledged by the House of Lords, which now argues implementation of the new regulations needs to be closely monitored to ensure there are not unnecessary regulatory burdens on home sellers. While concluding the implementation of the policy has been a success to date, the

committee acknowledged the process had been divisive. In its fifth report on the subject the Lords’ Merits of Statutory Instruments Committee said: "We consider it will be important for the government to keep the implementation of this policy under review and to provide full information about the practical effects of its introduction." "The introduction of HIPs has not only been opposed by certain vested interests but has also become political and they have been the subject of much misinformation," continued the committees report. "The House of Lords report shows that the introduction of HIPs has been far from

successful," said a spokesperson for the Royal Institution of Chartered Surveyors (RICS). The government was also attacked for its decision not to include home condition reports (HCR) in the scheme. HCRs would have been written in plain English, in a standard format, giving details of a property; taking into account its age, character and location, how energy efficient it is and any defects or other matters requiring attention. "It is clear however, that without the HCR, HIPs are a waste of time and consumer's money," concluded the RICS spokesperson.

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The home information pack proposition Your questions answered Q: What is a Home Information Pack (HIP)? A: A HIP is a collection of information about a property prepared by the owners for prospective buyers. The five compulsory documents are, the HIP index, which explains what is in the pack, the energy performance certificate (EPC), which rates the property's energy efficiency and gives it an environmental impact rating, the sale statement, which explains who owns what, a standard searches document, which should cover all the relevant searches carried out by the local authority, including water, drainage and nearby planning proposals, and evidence of title documents, which prove that the seller owns the property. If the property is owned on a leasehold or commonhold basis, copies of the lease and other relevant documents should also be included. Q: Is a homebuyer’s report included? A: There is no homebuyer's report or survey in the HIP. Buyers are still advised to get a survey done themselves, however, and any mortgage company will also carry out its own valuation survey, for which the buyer will pay. Sellers can include a home condition report as an optional item, along with a legal summary, a contents form and other location-specific forms such as a risk-of-flooding or ground stability survey.

When HIPs were first unveiled it was suggested that a survey, or home condition report, would be the most important part of the pack, but heavy lobbying from organisations such as the National Association of Estate Agents forced the government to remove it. Q: Are HIP’s required on the sale of all properties? A: HIP’s are now required on all properties except new builds which meet the most recent building regulations, they won't fall under the HIP rules until April 6 this year. Q: During what part of the sale does a HIP need to be produced? A: Originally, the government said packs had to be ready before a property could be put on the market, but it has changed its mind on this twice. The law now states that if you are selling before June 1 2008 you only have to have had a pack commissioned when the house is put on the market. This means people could start looking around a property before the HIP is ready.

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Q: What is the position with selling a property in Scotland? A: Scotland plans to introduce a similar scheme this year, but it will include the property survey and is known as the single survey scheme or purchaser's information pack. Q: How much will a HIP cost to prepare? A: Research published by the government in November 2007 showed on average HIPs were costing between £300 and £350 to prepare. Some of the costs would have been met by the buyer under the old system; some like the cost of the EPC are new. In general the seller will pay the bill, although the costs of printing and postage for individual packs can be charged to the buyer. Q: HIPs remain valid for how long? A: In theory until the property sells. If the property comes off the market and goes back on again within 12 months the HIP will still be valid. Q: Is an energy performance certificate (EPC) compulsory? A: In the time since the packs were first unveiled a European directive has made it compulsory for all properties selling in the UK after January 2009 to hold an EPC. Rather than wait until 2009, the government has opted to include these in the HIP. The EPC is based on an energy audit. Before you sell your property an inspector will rate how efficient it is. They will look at your boiler, light bulbs, windows and loft and cavity wall insulation. Ratings go from A-G, with A-rated properties the most energy efficient.

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First-time property buyers Situation poised to improve in 2008 The Royal Institution of Chartered Surveyors (RICS) has forecast that the situation for first-time property buyers in the UK is poised to improve this year. In its latest analysis of the market, RICS noted that there were ongoing problems with affordability, particularly in the more widespread requirement of buyers to pay stamp duty and the difficulties involved in saving up for deposits, which tend to be larger now than in the past. According to the RICS analysis ‘there is huge pent up demand from first time buyers and should house prices drop in the early part of the year, many will be ready to pounce.’ Such a situation could be the result of any increase in repossessions, the body added. The organisation concluded that the picture presented was of a "gradual improvement" for firsttime buyers in 2008. Figures at the end of last year from Halifax indicated that the number of first-time buyers in 2007 was down to 300,000, the lowest level since 1980 and 232,000 less than five years ago.

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Council scheme could slow down house sales and damage the commercial sector Government accused of being in favour of its introduction The government have been accused of favouring an illegal scheme that will allow councils to “fleece” consumers, slow down house sales and damage a thriving commercial sector. It is planning to let councils make illegal charges for personal property search information even though by law the information has to be provided to the public free of charge. The Property Search Group says that councils are already talking of charging up to £45 for what amounts to one minute’s work.

PSG, which carries out property searches, says the move will also violate the government’s own high profile commitment to freedom of information. The illegal activities will also leave councils open to compensation bills totalling more than £100 million across England and Wales. PSG is now threatening to take the Department for Communities and Local Government to court to ensure that free access to public documents is maintained if it publishes illegal recommendations

in new guidance to local authorities. PSG founder Julie Hester said: “Allowing councils to charge for access to records needed for property searches is not only illegal but goes against the Government’s own guidance in 2005.” The PSG position is backed by the UK’s foremost legal expert on local government issues, James Goudie QC. In his legal advice he said:“A large proportion of this information for property searches must, according to statute, be made available to the public free of charge.”

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Tenancy deposits

A third of parents give a helping hand Tenancy deposit regulations can give parents a helping hand by enabling them to be free from the obligation of funding their child's deposit, it has been suggested. The Deposit Protection Service (DPS) has said that a third of respondents to its Facebook survey said that they had got their parents to help pay for their deposit. This is often due to the fact that a third of tenants do not receive their deposit back at all, with a similar percentage having to wait a month before they are reimbursed, the study found.

"Often tenants are stuck in a 'catch 22' when it comes to moving home as they need to move out to get their deposit back but can’t move in to a new property until they have a lump sum," said Kevin Firth, client services director at the Deposit Protection Service. "The Deposit Protection Service not only ensures tenants have their deposits returned – they also receive them quickly and efficiently," Mr Firth added. More landlords are now complying with UK property tenancy deposit schemes despite the initial take-up being poor.

Housing market forecast for 2008 Price falls will not be extended in duration The UK property market will not suffer an overly severe 2008 thanks to strong employment conditions and renewed interest from firsttime buyers. This is the sentiment of the Royal Institution of Chartered Surveyors (RICS), in their ‘housing market forecast for 2008,’ a report which suggests that any price falls seen will not be "extended in duration." RICS also reported that there is currently little sign of many buy-to-let investors selling properties. "The employment picture should remain firm throughout the year, helping to prevent significant numbers of repossessions and the subsequent influx of supply into the market," said RICS senior economist Simon Rubinsohn. "This should ensure that house price growth remains broadly flat over the course of the year," Mr Rubinsohn added.

Owners downsize to more manageable homes

Family homes attract high levels of demand Sector set to enjoy a prosperous 2008 Family homes in good locations will continue to attract high levels of demand this year even as the UK property market slows, according to Allied Surveyors. The firm is predicting price growth of between one and two per cent in 2008, while the National Association of Estate Agents (NAEA), meanwhile, has said that price growth will remain flat this year. NAEA thinks that consumer confidence will be boosted by interest rate cuts as the year progresses.

"Whilst some lenders are predicting little or no overall change in house prices for 2008, this masks the fact that there will be certain sectors that will see a decline whilst others such as well located family homes in the middle market will continue to enjoy healthy demand," outlined Allied Surveyors chief executive Robert Bryant-Pearson. Mr Bryant-Pearson added that he believed 2008 would be a "great time" for buyers to take advantage of favourable market conditions.

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As many as thirty per cent of prime UK property sales outside of London are based on owners wanting to downgrade their homes, according to Savills. The practice is becoming more widespread as homeowners not only look to move to a more manageable home once their children move out, but also so that they can help their offspring buy their own properties. Avoiding inheritance tax was also a driving factor behind the decision. For properties over about £1 million, a relatively high proportion of people who are moving are downsizing, the firm noted.

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Marketing without a HIP

Is your property exempt?

All residential properties new to the market in England and Wales require a Home Information Pack (HIP) by law or the person responsible for marketing the property, the seller for a private selling, could face a ÂŁ200 fine for every occasion they are caught marketing without a HIP. Properties on the market before certain dates, whether with an Agent or advertised privately, may be exempt as long as they have been continuously marketed. A break in marketing after these dates, even for one day, could trigger the need to purchase a HIP. If your property was on the market before the following dates, you do not require a HIP: 4 or more bedroom properties on the market before 1 August 2007 are exempt 3 bedroom properties on the market before 10 September 2007 are exempt Studio, 1 and 2 bedroom properties on the market before 14 December 2007 are exempt

Desirable tenants Property investment sector finds favour with couples Couples are still the most desirable tenants for landlords in the property investment sector, the Mortgage Trust has said. The specialist lender has however noted a sharp increase in the number of landlords looking to let to corporate tenants, with this group now being targeted by 27 per cent of landlords. In context, both couples (52 per cent) and singletons (34 per cent) find more favour with landlords, but the Mortgage Trust has said that there are a number of benefits to letting to business employees. "Corporate tenants offer landlords stability and they also tend to pay above average rents because they demand high quality properties and want the right locations for their employees," noted Mortgage Trust managing director John Heron. "This market is going from strength to strength as more businesses turn to the private rented sector to house employees that may have to work on a short-term contract away from home or from another country," Mr Heron added.

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Student properties

Close proximity locations to universities pay dividends Student properties will provide an investment safe haven for buy-to-let landlords during 2008 and can provide yields of between 6 and 7.5 per cent in the first year, according to investment experts Assetz. Despite the potential of moderating prices in some sectors of the housing market during 2008, buy-to-let investors are being urged to add properties in close proximity to universities to their portfolios. In recent years student rental levels have been growing consistently, fuelled by an increasing student population, leading to demand for suitable living accommodation that has outstripped supply. According to estate agent Savills, student rental prices have increased 31 per cent in the previous two years, faster than most sectors of the market.

"In today's climate it is essential that the serious investor is continually adapting their portfolio to secure the best possible returns for their cash invested. Student property has such high income that you can often repay a mortgage within 20 years, making it one of the most lucrative investment opportunities in the current market," said Stuart Law, chief executive, Assetz. "Student numbers have significantly increased over recent years, yet the majority of university campuses are not able to keep up with demand. As a result, there is a huge increase in the demand for privately-owned student accommodation, with top student towns offering a near-guaranteed and fastgrowing rental income and a constant and growing supply of tenants," concluded Mr Law.

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First-time buyers Buyer levels the lowest for decades

The average property is now unaffordable for first-time buyers in 96 per cent of UK towns, according to new research. The Halifax First Time Buyer Review reveals homes are unaffordable in 466 out of 483 towns and levels of first-time buyers are now at the lowest level since 1980 with only 300,000 making a purchase in 2007. The average price paid by a first-timer now stands at £175,000 - up 82 per cent on five years ago. Britain’s climbing onto the property ladder are further under pressure as in 8 of the 12 UK regions they are facing stamp duty. "Rising property values have priced many potential first time buyers out of the housing market. When they do enter the market first time buyers are now more likely to be in their thirties rather than their twenties and buy a flat

rather than a terraced house," said Martin Ellis, chief economist at Halifax. However, despite the rising property prices, the research shows little evidence of first-time buyers overstretching themselves. Mr Ellis said: "The financial position of the majority of first time buyers is sound and they, on average, put down a 20 per cent deposit, which is equivalent to more than a year's earnings. "There is no quick fix to the first-time buyer problem. A more subdued housing market over the next few years is a positive step for potential new entrants. Lower than average earnings house price growth together with more government initiatives may, in time, address the issue."

New-build properties Prices set to remain buoyant New research from SmartNewHomes reports new-build properties increased 0.6 per cent in the final quarter of 2007, with the December interest rate cut indicating prices for new homes are set to remain buoyant for the early part of this year. "While city bonuses may take a knock this year, something which is likely to be reflected in a reduced demand for top end properties including new, luxury penthouse apartments, I am confident the market will recover from this and any current turbulence," said David Bexon, managing director of SmartNewHomes. Apartments continue to constitute the largest proportion of new-build properties, making up 57 per cent of the market. The figure is up two per cent, at the expense of detached homes, suggesting a continued pressure on developers to focus on density, while simultaneously trying to provide the family homes the nation requires. Popular regions to buy new-build properties during 2007 have included the South-East, where prices have increased 6.8 per cent, and the South-West, up 11.2 per cent. Also, with the announcement of the 2014 Commonwealth games being held in Glasgow, Scotland’s popularity looks set to continue over the next few years. The signs are also largely positive for the market as a whole, according to SmartNewHomes. "I would expect to see new home prices rise steadily throughout 2008, finishing with annual price growth in the region of 2 to 3 per cent," concluded Mr Bexon.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

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eSmartproperty

Property jargon

One-minute guide

22 28

eSmartproperty JANUARY/FEBRUARY/MARCH 2008


eSmartproperty

Annual statement

Discounted mortgage

A statement from your mortgage lender, sent every year, showing among other things what you've paid and what you still owe.

This has a discounted variable rate of interest for a set period, after which the rate will increase.

Approval in principle A certificate which some lenders will give you that shows the amount they will probably be prepared to lend you. This is not a guarantee, but can be helpful when signing up with Estate Agents.

APR Annual Percentage Rate. This shows the overall cost of a loan, taking into account the term, interest rate and other costs.

Authorised firm A firm that has permission from the FSA to carry out regulated activities.

Buy-to-let mortgage A loan you take out to buy a property which you intend to rent to tenants.

Capital The amount you borrow to help buy your home.

Early repayment charge

each month. This means you are not reducing the loan amount (or capital) itself, and this will need to be repaid in some other way.

Key facts documents

A charge you may have to pay if you break off a mortgage deal by paying it back early and/or moving to another lender.

Standard documents that all authorised lenders and brokers must give you to explain their services and details about the mortgage you're interested in.

Fixed rate

Loan-to-value

An interest rate that is fixed, it doesn't move up or down for a set period of time.

The percentage of money you want to borrow compared to the cost of the property.

FSA

Mortgage

The Financial Services Authority, the UK's financial services regulator.

A loan which is secured against your property.

Home information packs (HIPs) The government's controversial home information pack (HIP) scheme which is now extended to all homes. Sellers of properties have to offer potential buyers one of the packs, which include legal documents and a certificate rating energy efficiency.

Capped mortgage

Income multiples

A mortgage that has a maximum limit on the interest rate you'll have to pay during a special deal period.

The factor by which your earnings are multiplied to find out how much you can borrow.

Valuation

Remortgaging The process of changing your mortgage for a different one, without moving home.

Repayment mortgage A mortgage that pays off both the home loan and the interest at the same time. Make all the payments and the mortgage will be fully repaid.

Interest

Collared mortgage

Interest rate

Stamp duty

The figure that determines how much interest you pay. Usually linked to the Bank of England's rates and can move up or down.

A tax which home buyers must pay on properties above a government set figure.

Interest-only mortgage A mortgage where you only pay the interest charges of the loan

eSmartproperty JANUARY/FEBRUARY/MARCH 2008

Term The length of your mortgage.

A brief inspection, for the benefit of your lender, of the home you hope to buy. This is to make sure they are not lending more than the property is worth and that the property is suitable security for the mortgage, but this will not tell you if it is a good or bad buy.

The charge made by lenders when you borrow their money.

Deposit

Tracker mortgage A mortgage with an interest rate that is usually linked to a particular rate that is set independently from the lender and moves up or down with it.

Mortgage broker

Cashback mortgage

The amount of money that you're putting into buying a home (not including the mortgage money you're borrowing).

Survey A report on the condition of the property you are planning to buy.

A mortgage broker helps you understand the various mortgage types and deals available to them. A mortgage broker may recommend a mortgage for you or they may provide you with information to enable you to make your own choice.

A mortgage that comes with a cash sum (often a percentage of the amount you're borrowing).

A mortgage with a minimum interest rate you'll pay during a deal period.

Secured A mortgage is a secured loan on your home; this means that if you fail to repay it, your lender may be able to sell your home to get its money back.

Standard variable rate mortgage A loan at the lender's normal mortgage rate without any discounts or deals.

Need more information? Please email or contact us with your enquiry. If you would like us to email a copy of our electronic property magazine to someone you know, please email us with their details and we’ll send them a copy.

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eSmartproperty

The priciest postcode locations

House price increases driven by the super-rich The international rich are driving house prices in the poshest parts of London into the stratosphere, Forbes.com has reported.

The Web site has published a list of Britain's most expensive postcodes, detailing the addresses which cost the most and come with the coolest cachet. The top neighbourhoods were all in central London: Knightsbridge, Belgravia, St. John's Wood, Kensington and Chelsea. The priciest postcode is SW3, the Brompton neighbourhood in the Royal Borough of Kensington and Chelsea, close to Belgravia, Knightsbridge and Sloane Square. Average home sale prices for this, the country's most expensive postcode, reached nearly two million pounds in the last year, as international buyers and those in the financial sector raced to snap up the area's white, stucco homes, Forbes.com said. Rounding out the top five were SW1X which is Knightsbridge, SW1W the postcode for Belgravia, W8 for Kensington and NW8 for St. John's Wood. While the credit crunch, high interest rates and lack of affordability have increased fears of a slowing nationwide housing market, in London and some of Britain's prime areas, prices are on the rise.

In the country's seventh most expensive postcode, SW7 (South Kensington), home prices are now more than 60 percent higher than they were in the last quarter of 2006. Buy a home there, and chances are you'll part with 1.64 million pounds. What has made England’s capital city so dear? London is fast becoming a popular haven of second homes for the super-rich, particularly those who come from overseas. Only 11 of the 19 billionaires living in London today are British, the Web site said. These are cash buyers who don't need a mortgage," it quoted Martin Gahbauer, senior economist at mortgage lender Nationwide. "Part of that is due to the fact that oil prices have continued to skyrocket, so earnings in the economies that these buyers come from are high." The attraction is also due in part to the reliability of Britain's judicial, financial and school systems, as well as the favourable tax rate: Non-domiciled residents don't have to pay tax to the U.K. government on their overseas earnings, the magazine said.

The articles featured in this electronic publication are for your general information and use only and are not intended to address your particular requirements. They should not be relied upon in their entirety. 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. Articles that make reference to announcements made in the Pre-Budget Report are based on draft legislation which is expected to be enacted in the Finance Act 2008. Your home may be repossessed if you do not keep up repayments on your mortgage. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Produced by Goldmine Publishing Limited • PO Box 5756 • Milton Keynes • Buckinghamshire • MK10 1AG

Articles are copyright protected by Goldmine Publishing Limited 2008. Terms and conditions apply. Unauthorised duplication or distribution is strictly forbidden.

eSmart Property 8  

The Digital UK Propert Magazine

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