Residential Property Review

August 2019

A new era of renting – Build to Rent

A relatively new category in the rental market, Build to Rent, saw total investment of £2.6bn in 2018, an 11% increase from 2017 and it looks likely that this sector will continue to grow quickly.

Whilst home ownership remains an aspiration for many, figures show the private rented sector remains strong, growing from 3.7 million in 2009 to 5.4 million today, with many home-hunters choosing to rent long-term, often due to affordability and flexibility.

In contrast to many private landlords, Build to Rent providers often manage the whole building and seek to offer high levels of service and property management, as well as aiming to build a community.

The attractions of Build to Rent properties may include flexible tenancies with no fees or deposit, a monthly charge which includes all bills, facilities such as spas and gyms, on-site maintenance and community spaces.

Buyers’ market likely in second half of 2019

Recent research from Rightmove indicates that buyers may be able to obtain good deals in the remainder of 2019, with lower prices combined with high stock levels.

The research also shows that market fundamentals such as low interest rates and record employment levels remain strong. Additionally, mortgage availability remains good, as indicated by figures from UK Finance, showing the number of mortgage approvals from the main high-street lenders in May was up by 9.1% year-on-year.

Miles Shipside, Rightmove’s property expert said: “Those who have postponed their purchase should note that estate agency branches have more sellers on their books than at any time for the last four years, so there should be more choice of properties to buy. It could be a good opportunity to negotiate a relative bargain in the second half of the year, if they can set aside the continuing Brexit distractions.

He added: “With activity and prices often weaker in the second half of the year, it will be those sellers who are bold enough to price aggressively who will attract buyers with the confidence to act rather than hesitate. It would appear to be sellers in the upper end of the market who need to be boldest on pricing, as data shows that the middle and lower sectors are holding up better.

Brexit-related uncertainty remains in residential market

In its August Inflation Report, the Bank of England has reported that the housing market remains weak, but there are some signs of stabilisation.

The latest NMG survey, which is a biannual household survey commissioned by the Bank and covers over 6,000 households, revealed an expectation that house prices will decline a little over the next 12 months. The survey also revealed that around 20% of households who expect to move home in the next two years, reported having delayed their move due to Brexit-related uncertainty.

Nick Leeming, Chairman of Jackson-Stops said “The data makes it clear that continued uncertainty as we creep ever closer to leaving the EU without a deal has caused hesitancy in some areas of the property markets. Yet, once a firm decision has been made on when the UK will leave the EU and people decide to get on with their lives, we should expect to see a modest uplift in property prices in the new year.”

IS A 40-YEAR MORTGAGE A LIFELINE OR A LIFE SENTENCE?

Most people who choose a 40-year mortgage do so because they want a low monthly repayment. If you were to take a typical 25-year mortgage, your repayment would be higher. By stretching out the loan, monthly payments decrease.

WHAT YOU NEED TO CONSIDER

While lower monthly payments may be attractive and can represent your best chance of getting onto the housing ladder, there are downsides you should be aware of. Taking out a 40-year mortgage means you’ll pay more in interest, and you’ll find that you build equity, the amount of the property that you in effect own, more slowly.

Even if you don’t actually keep a 40-year mortgage for 40 years, the loan is designed with a 40-year timeframe in mind, so you could find that the interest rate is higher than it would be for a more traditional mortgage term. The chances are you’ll be making repayments in your retirement years, so that’s something you’ll need to consider. It makes sense to check that you can make overpayments if you can afford them and consider swapping to a shorter-term loan when your circumstances allow.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

IN THE NEWS…

FIVE-YEAR FIX GROWS IN POPULARITY

According to mortgage lenders and brokers, five-year fixed rate mortgage deals are now outselling two-year options. With some UK homeowners concerned about the outlook for the economy, more are choosing to lock into lower interest rates, especially as the difference between interest rates charged on five and two-year deals has narrowed in the past two years.

EQUITY RELEASE BREAKS RECORDS IN Q1

Equity Release Council4 figures show that the market has experienced its busiest start to any year on record. Q1 2019 saw £936m of property wealth unlocked by 20,397 customers, including 10,854 who took out new plans. Client numbers in Q1 2019 increased 10% year on year, while the total equity released increased by 8% and the number of new plans agreed rose by 6%.

IMPROVING MORTGAGE AFFORDABILITY

In some parts of the country, mortgage affordability has been rising at its fastest rate since 2011, helped by annual wage growth at 3.4%, and subdued house price growth. This is particularly good news for first-time buyers, as many mortgage rates remain competitive.

4ERC, Apr 2019

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

SHOULD YOU REMORTGAGE?

Whilst everyone’s circumstances are different, remortgaging could make sense if you can get a better deal than the one you are currently on. You may, for instance, be able to find a deal that will mean you pay less interest, or one that gives you more flexibility, for example the facility to make overpayments so that you repay your mortgage quicker.

Given the hundreds of different mortgages available, getting professional advice will not only help you get the best deal for your circumstances, it will save you time and stress too. Get in touch.

Retirement Matters

Homeowners approaching retirement face a number of challenges when considering their future and need to make their money work hard for them.

STAMP DUTY

The Adam Smith Institute believes that Stamp Duty Land Tax should be scrapped. Amongst their reasons is the view that the prospect of paying stamp duty on a smaller home acts as a disincentive to older people wishing to downsize. For example, stamp duty adds another £2,500 to the cost of buying a retirement property priced at £250,000; that is in addition to solicitor’s fees, surveys, valuations and removal costs. (Figures differ under Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.)

RELEASING EQUITY

Those looking to raise cash to bolster retirement income are increasingly turning to equity release. It represents a way of accessing some of the value tied up in a property while avoiding the costs and upheaval of downsizing. Although there are set-up fees, most costs are delayed until you die or go into permanent residential care.

It’s important to remember that in most cases, equity release means that the loan you take out against the equity tied up in your property will increase over time as interest is rolled up. When you die, the property will be sold and the loan repaid. Although interest rates on equity release plans are higher than on a conventional mortgage, lower interest rates over the last few years have made equity release more attractive to many.

Remember to discuss equity release with your family as it will impact on the amount that they are likely to inherit.

INTEREST-ONLY MORTGAGES

Equity release is increasingly coming to the aid of those approaching retirement with an interest-only mortgage without the funds to pay back the capital on maturity and their retirement income insufficient to cover ongoing interest costs. Whilst they may not have paid off any capital, they may have built up equity, offering them a lifeline allowing them to stay in their home.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Equity release may require a lifetime mortgage or home reversion plan. To understand the features and risks, ask for a personalised illustration.

THINGS TO CHECK WHEN BUYING A NEW HOME

 

 

Basic Sanity Checks

It’s long been said that people buy a home with their hearts rather than their heads. It’s not unusual for people to fall in love with a property when they’ve spent no more than 20 minutes looking round it.

However, it always pays to take a long cool look at a property and apply some basic sanity checks. Here are a few things you might want to think about, and some you may want to get a surveyor to check out, before you commit to buying it.

THINGS TO THINK ABOUT

  • What’s the area like?

  • Can you walk to shops or do you need to drive?

  • What local transport links are there?

  • If you need to travel to work, a good service can make all the difference.

  • Is parking adequate, is the road likely to be very noisy at certain times of the day?

  • Which way does the property face? It can make the difference between having a home that’s light and bright, or one that in the winter can be frustratingly dark.

  • Are the rooms big enough? Developers can often put small furniture in show homes to make the rooms look bigger.

  • Think about storage space, and important things like the number and location of power sockets, are they sufficient for your needs?

GETTING A SURVEY DONE

A surveyor can report on important things that can be costly to put right, including structural problems, the state of the roof, signs of damp, condensation, and the quality of the window frames. You might also want to arrange to have the central heating system, pipework and radiators checked over, to ensure you don’t move in and find that you can’t heat the house and don’t have any hot water.

 

MORTGAGES – EVEN SMALL OVERPAYMENTS HAVE AN IMPACT

Mortgage overpayments can help you pay off your mortgage sooner and can significantly reduce the amount of interest you pay over the course of your loan. The amount you overpay goes towards repaying the mortgage itself, not on any interest you owe.

Research from Santander1 shows that if a borrower took out a £200,000 mortgage over a 25-year term, they could save £1,146 in interest (based on current rates) by making a monthly £10 overpayment, and they’d become mortgage-free four months earlier.

Those who can afford to make a £100 overpayment each month on a £200,000 mortgage could save £9,948 in interest and reduce their mortgage term by three years in the process. Those with a £500,000 mortgage making the same £100 overpayment could save over £10,000 in interest and become mortgage-free one year and five months earlier. A combination of paying off capital and the consequent reduction in interest, result in the time saving.

SAVINGS MATTER TOO

Whilst paying less interest and being mortgage free earlier can be attractive, it’s important not to overlook the need to keep some emergency savings set aside for unexpected bills and expenses.

1Santander, 2018

FIRST-TIME BUYERS KEEPING THE MARKET BUOYANT

The recent slowdown in the market has been good news for those who want to get into the housing market and make that all-important first purchase.

Whilst the number of current owners moving home has come to a virtual standstill, due in part to the uncertainties surrounding Brexit, the number of first-timers has increased. Analysis by Lloyds Bank2 shows that 372,100 first-time buyers entered the market in 2018, up by 3% on the figure for 2017.

STAMP DUTY STIMULUS

Changes in Stamp Duty provided much-needed help. First-time buyers in England and Northern Ireland now pay no Stamp Duty on properties worth up to £300,000. This means that they save up to £5,000. For properties costing up to £500,000 they pay no Stamp Duty on the first £300,000 but will pay duty on the remaining £200,000. (If they buy a property worth over £500,000, then they pay the standard rate and won’t qualify for first-time buyer’s relief). In Scotland, first-time buyers enjoy Land and Buildings Transaction Tax relief that saves them up to £600, whilst in Wales they get no special Land Transaction Tax concessions.

As of October 2018, first-time buyers under Shared Ownership schemes can now claim First-Time Buyer’s Stamp Duty relief on homes worth up to £500,000. This change applies to homes purchased on or after 22 November 2017. Those purchasers who chose to pay Stamp Duty in stages and were previously not eligible for the relief can now claim this tax back.

TIME TO MAKE YOUR MOVE?

As well as being able to take advantage of what has become a buyer’s market, first-time buyers can also benefit from historically-low interest rates on mortgages. The mortgage market remains very competitive and lenders are currently offering a range of attractive deals specifically designed to help young people get on the housing ladder.

In the current market conditions, it’s worth checking out recent sold prices in the area in which you’re looking to buy, as you may be able to secure a property with an offer lower than the asking price, especially if the owners are keen to move as soon as possible.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

2Lloyds, 2019

It is important to take professional advice before making any decision relating to your personal finances.

Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain.

Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Information is based on our understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation are subject to change.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Tax treatment is based on individual circumstances and may be subject to change in the future.

RESIDENTIAL PROPERTY REVIEW – March 2019

Our monthly residential market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.

Average residential sales times longer

Recent research from property portal, Rightmove, indicates that across the UK, the average time taken from when a property is first listed, until it is marked as under offer, has increased from 72 days in January 2018 to 77 days currently.

The data also shows that Runcorn, in Cheshire, has the fastest moving housing market outside of London. Runcorn has an average asking price of £132,653 and has seen a reduction in selling time from 69 days in 2018 to just 48 days currently, 29 days quicker than the national average. This appears to have largely been driven by the opening of the Mersey Gateway Bridge, alleviating major traffic problems, to allow a journey time of 20 minutes by car, from Runcorn to Liverpool City Centre.

In Scotland, homes are selling quickest in Livingston, where on average it takes just 35 days for properties to get snapped up. Redditch in the West Midlands takes top spot as the fastest selling market in England, with properties in the Worcestershire town selling in 45 days, on average.

Targets may not be met despite more homes being built

A recent survey of more than 400 housebuilding companies in England, by property and construction consultancy McBains, reveals that 57% of respondents reported increasing the rate at which they built new homes during 2018 and are also predicting a further rise over the next 12 months.

However, less than half of those surveyed (48%) think that the Government target of building 300,000 homes a year, on average, by the mid-2020s is achievable, with worries over land availability, slow planning permission and skills shortages being cited as barriers to prevent them building more homes.

Of the homes to be built over the next 12 months, house builders expect 22% of these new homes to be classed as affordable homes for rent or sale. Clive Docwra, Managing Director of McBains, commented: “For those people struggling to get a foot on the property ladder, the finding that only arou nd one in five of new homes to be built over the next year will fal l into the affordable category will be disappointing.”

Uncertainty continues

The Royal Institute of Chartered Surveyors (RICS) February 2019 UK Residential Survey, indicated that the residential property market continues to struggle for momentum. The survey posed an additional question this time, aimed at identifying the most significant factor holding back activity, and in response to this, 77% of respondents cited Brexit uncertainty as the biggest challenge facing the housing market at present. The survey also indicated that 71% felt it was impacting both buyers and sellers, while only 8% were of the view that Brexit was not having an effect on either.

The Chancellor delivered his Spring Statement on 13 March and although little was expected in terms of new policy measures affecting the built environment, many policies remain dependent on the outcome of the Brexit debate, which a RICS press release expressed as ‘frustrating given how much parliamentary time has been diverted to it at the expense of pressing domestic issues such as the housing crisis, construction skills shortage and infrastructure deficit.’

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

Credit Score Tips

Keeping your credit score high throughout your life

A good credit score will see you more likely to be accepted for various types of credit, as well as allow you to enjoy lower rates of interest. The benefits of a high score mean you’ll want to maintain it throughout your life. However, it can be easily damaged over the years. After all, keeping on top of your credit and finances can be hard as you’re dealing with all the things life throws at you.

What happens to your credit score as you age?

The older you grow, the longer your credit history will get, depending on when you took out your first form of credit. Did you know a mobile phone contract is a type of credit? So if you took one out at university, for example, even if you didn’t have a credit card, your credit history will have started building up.

Did you also know your student loan doesn’t count towards your credit report and score?

A limited history could mean a lower credit score, since there is not enough evidence of good borrowing. However, a long credit history doesn’t always necessarily mean a good credit score. This is because a high credit score is determined by a history of credit repayments made in full and on time, among other things. So, much like if you were to keep up a good diet and exercise regime you’d be more likely to be in good health as you get older, your credit history needs to be maintained in order to achieve a healthy credit score.

At certain points in your life your credit score may drop. One reason for this might be when you take out new forms of credit. Taking on a mortgage or loan could see your score drop, because of the additional debt and new credit inquiry recorded on your file. Your first mortgage, a car loan, a loan for your wedding, a joint credit card, a remortgage; there are numerous times when you might need to borrow money throughout your life and this might impact your score.

Whether you get married or not, you may choose to join your finances with your partner and open a joint account or a joint mortgage. Being financially linked to someone means their score and credit report will impact yours and you can see your credit score fluctuate depending on their financial behaviours.

How to maintain a high score

Keep credit card balances low
The higher the balances on your credit cards, the more it can negatively affect your credit score, so you should aim to keep your balance relatively low in proportion to your credit limit. Your use of credit should be under 25% of your total credit limit. For example, if your credit limit is £1,200, then you should aim to only spend no more than £300 on it. Going over this, even if you plan to pay the balance off in full, can affect your credit score.

Pay your bills on time
One of the easiest ways to maintain a good credit score and prevent it from dropping is to keep on top of your bills. This means paying them on time and not missing payment deadlines. As you get older you may have more bills to pay, so to avoid losing track set up direct debits. The payments will be made automatically from your account so there’s no risk or forgetting and being hit with missed or late-payment penalties.

Check your credit report regularly
A mistake that many people make is only checking their credit report when they need to apply for a mortgage, loan or other form of credit, which means it could go unchecked for months or even years. Checking your report can help you spot errors on your file that could affect your score. You can also pick up early signs of identity theft or fraud by examining your accounts and other information held on your report. However, unless you’re checking your credit report once a month or so, you won’t know and your score could be falling in the background without your knowledge. Get mistakes on your credit report fixed as soon as you spot them by informing the credit reference agency.

Keep old accounts
Closing down old accounts will shorten your credit history on your file and could subsequently cause your credit score to drop. Credit reporting agencies will only keep payment history on closed accounts for six years, after this it will be removed from your credit report. There are times when closing accounts can help your credit score, because it reduces the amount of available credit you have. If you are to consider this, you should still try and ensure that your total balances compared to limits, remains around the 25% mark mentioned above. However, as a rule of thumb, aim to keep accounts with a long history of good repayments.

Apply for credit in moderation
Making too many new credit applications in one go can make lenders perceive you as too risky and negatively impact your credit score. Whenever you make an application for new credit, the lenders search on your file is recorded and leaves a footprint on your credit history. Too many credit applications can imply that you’ve failed to get the credit you want.

Whether you’re a student or retired, your credit score will only be as good as your financial behaviour. It only takes a few basic habits to ensure your credit score doesn’t drop as you get older and stays as high as possible throughout your life.