Choosing your new home

Making an informed decision is the key

Whether you are a first-time buyer or are considering moving to another property, it’s very important that you are in a position to make an informed decision about your specific property requirements. You need to achieve the right balance between affordability, availability and suitability.

Start by making a list and detail exactly what you want from your new property. It may seem very obvious but this will provide you with a checklist beginning with the location through to other considerations such as local amenities. This can help save you both time and money during the decision-making process. A typical checklist would include the following points:

The decision-making checklist

Accessibility – Are your family and friends nearby? Is it convenient for work?

Facilities – Is it handy for shops, restaurants, parks and the cinema? Can you park easily?

Noise – Are you likely to have juggernauts rumbling past your bedroom at 3am?

Schools – Is the local one any good? Is the home within its catchment area? Check with the school itself.
Space – If you are buying a home you want to live in for a while, make sure there is space for the family to grow.
Crime – Find out from the police what the area is like. Have a look at the local paper to get a feel for the area.
Specialist websites, such as Upmystreet.com will provide more information on crime or schools in a particular area. Finally, there are many factors affecting your choice of home but location should be your number one consideration. You can always improve your property but you can’t move it.

Understanding the jargon

The A to Z of property and mortgage terms

APR
Stands for Annual Percentage Rate which helps you compare the cost of different mortgage deals. It takes into account the amount of interest you will pay, the length of the term of the mortgage, and other charges such as any arrangement fee.

Arrangement fee
Lenders sometimes charge a fee to cover the work involved in setting up your mortgage or for certain mortgage rates.

Bank of England base rate
This is also known as the Bank of England’s repo rate. This rate can go up or down from time to time and is announced by the Bank of England’s Monetary Policy Committee.

Building insurance
Insurance against the cost of rebuilding a property from scratch following structural damage, for example by flood, fire or storm.

Building survey
This is a technical report following an inspection of the property. It will give you a comprehensive account of the condition of the property, describing any structural or other defects.

Capped rate
Your interest rate won’t go above a certain level the ‘cap’ during the capped rate period. This means that you can enjoy any rate reductions, yet have the comfort of knowing that your rate won’t go above the cap.

Completion
The day on which a property becomes legally yours.

Conclusion of Missives
The Scottish equivalent of exchanging contracts.

Contents insurance
A policy insuring household contents against theft and damage.

Conveyancer
A legal expert handling all documentation for the sale and or purchase of a property. This will be a solicitor or licensed conveyancer.

Conveyancing
The legal process involved in buying and selling a property.

Credit scoring
A technique used by the lender to assist in the assessment of your application.

Daily interest
With this method of calculating mortgage interest, it is charged on the amount of mortgage outstanding daily. This means lenders take into account any changes in the amount you owe on a day-to-day basis.

Deposit
The money you pay on exchange of contracts as part of your initial contribution to the purchase of your home.

Disbursements
All the various costs itemised on your conveyancers invoice for carrying out your home buying legal work.

Discharge Fee
You have to pay this to some lenders for releasing their hold over a property once you have paid off your loan.

Early Repayment Charge
With some mortgages you have to pay an early repayment charge if certain things happen. For example, if you pay off some or your entire mortgage or you transfer to a different mortgage rate before the end of the special rate period.

Equity
The difference between the amount you owe
on your mortgage and the current value of
your property.

Exchange of contracts
The swapping of contracts between a buyer’s conveyancer and a seller’s conveyancer. Once you have exchanged contracts you are both legally bound to the transaction.

Feudal
A form of legal title applicable only in Scotland.

Fixed-rate
A rate of interest guaranteed not to change over a fixed period of time.

Freehold
A form of legal title to land which means you are the absolute owner of the property and the land it’s on.

Guarantor
Someone who guarantees to repay the mortgage if the borrower can’t or won’t for any reason. Guarantees are usually entered into where the borrower’s circumstances would not allow them to borrow enough to buy the home they want. For example, parents may act as guarantors for their children when they buy their first home.

Higher Lending Charge
Fee or premium sometimes charged by lenders if your mortgage represents a high percentage of the property value.

Household insurance
A way of referring to both buildings and contents insurance.

Interest-only mortgage
You only pay interest to your lender throughout the mortgage term and your mortgage balance doesn’t reduce.

Investment mortgage
As with an interest only mortgage, you only pay interest to your lender throughout the mortgage term and your mortgage balance doesn’t reduce. At the same time, you put money into a separate investment which should grow and pay off the mortgage as scheduled. You must make sure you keep premiums up to date on any mortgage investment products.

Key Facts Illustration
A Key Facts Illustration (KFI) sets out details of the mortgage product that a customer is interested in. All lenders are required to set out the details in a KFI in the same format, so it’s easier for you when you want to compare products. You must receive a KFI before making an application.

Land Registry Fee
Your conveyancer pays this on your behalf to register your details in the Land Registry records once you’ve bought a property or changed your mortgage lender.

Leasehold
This means you own a property for a set number of years. When the lease expires, the property returns to the freeholder. Flats are commonly sold as leasehold.

Life Assurance
A form of insurance by which someone’s life is insured. Life assurance policies can run parallel with a repayment mortgage, so the mortgage should be repaid if you die before the end of the term.

Local authority search
Part of the conveyancing process when you buy a property, carried out by your conveyancer. It gives details of any matters which, from the local council’s point of view, affect the property. It reveals any proposed changes to the local area, such as road improvements, and details any planning permission given for the property.

LTV
This means ‘Loan to Value’ and is the proportion of the value or price of the property (whichever is the lower), that you borrow on a mortgage. For example, a £63,000 mortgage on a house valued at £70,000 would mean a LTV of 90 per cent.

Mortgage deed
A legal document establishing a mortgage on a property. This is called a standard security in Scotland.

Mortgage term
The length of time over which you agree to pay back your mortgage, up to a maximum of 40 years.

Negative equity
This is when the amount you owe on your mortgage is greater than the value of your property. It particularly becomes a problem if you want to move house.

Premium
Amount you pay on a regular basis, this could be for an insurance policy depending on the mortgage product you choose.

Remortgaging
When you arrange a new mortgage on your home, with a different lender and use the new mortgage to pay off the old one. This could be to withdraw equity to spend on home improvements.

Repayment mortgage
Your monthly payments will gradually pay off your mortgage as well as the interest if your payments are strictly in accordance with the terms and conditions of the original loan.

Repo rate
This is also known as Bank of England base rate.

Retention
Holding back part of a mortgage loan by the lender until repairs to the property are satisfactorily completed.

Stamp duty
Government tax you have to pay based on the purchase price of a property worth £125,000 or more. First-time buyers are exempt from stamp duty on properties worth between £125,000 and £250,000 until March 25, 2012.

Structural engineers report
A specialist report from a structural engineer on the condition of a property.

Survey and valuation
A property survey that can include a valuation and should reveal any major faults in the property. It must be noted that valuations do not strictly involve surveys. It is recommended that a buyer should have a survey taken out.

Tracker rate
Tracker rates vary in line with changes to the Bank of England base rate. During the tracker rate period, any changes to the Bank of England base rate are passed on to you in full.

Valuation
Arranged by your lender to find out if the property is suitable to lend a mortgage on.

UK property sentiment

Survey indicates property sales will improve

The Royal Institution of Chartered Surveyors (Rics) has indicated that members feel more confident about sales of UK property over the next three months than they did in July.

This is despite 32 per cent more chartered surveyors reporting prices falling rather than rising throughout August.

A fifth (18 per cent) of those surveyed indicated that they expect sales to improve over the three months to December 31st.

Commenting on the findings, Rics spokesperson Jeremy Leaf explained: “There can be little doubt that the restrictive attitude to the provision of mortgage finance will continue to limit transaction activity in the market.

“Looking forward, our price indicators are telling a mixed story which is consistent with the uncertainty hanging over the economy, the low level of interest rates and the lack of new house building”.

Recent research by the Building Societies Association indicated that mortgage availability was less of a concern for prospective homebuyers in the current economic climate than it was earlier in the year.

Tackling the supply crisis

Shortfall of homes approaching a million

Increasing housing supply is critical to the UK both socially and economically. The Home Builders Federation (HBF) is calling for recognition of the important role home builder’s play in meeting people’s need for housing and jobs.

HBF estimates the shortfall of homes to be approaching a million, yet we are building fewer new homes now than at any point since the 1920’s.

The housing crisis has resulted in:

– Nearly a third of men and a fifth of women aged 20-34 living with their parents

– The average age of an unassisted first-time buyer reaching 37
– Nearly 5 million people on local authority waiting lists

– Many young people having to put off starting a family or being unable to live where they would wish for family and work reasons

Action to tackle this supply crisis will also be crucial for local jobs. Each new home built creates 1.5 full time jobs plus up to four times that number in the supply chain.

The HBF is urging people looking to move home to consider the many advantages of buying new.

HBF Executive Chairman Stewart Baseley said: “House building is a British industry success that is responsible for hundreds of thousands of jobs across the country. New homes are vital for first-time buyers and young families – and are also greener and so cheaper to run. And with customer satisfaction at an all time high, I would urge anyone looking to move house to visit their local show home. By buying new, you will be helping yourself – and a great British industry”.

Taxing times for landlords

Maximising your allowances to reduce taxable profit

If you let out property you can deduct certain expenses and tax allowances from your rental income to work out your taxable profit (or loss). If you have several UK residential lettings you pool the income and expenses together. But you work out holiday letting and overseas letting profits separately.

If you let out property you can deduct certain expenses and tax allowances from your rental income to work out your taxable profit (or loss). If you have several UK residential lettings you pool the income and expenses together. But you work out holiday letting and overseas letting profits separately.

Allowable expenses

The expenses you can deduct from letting income (unless it’s under the Rent a Room scheme) include:

– letting agent’s fees

– legal fees for lets of a year or less, or for renewing a lease for less than 50 years

– accountant’s fees

– buildings and contents insurance

– interest on property loans

-maintenance and repairs to the property (but not improvements)

– utility bills (like gas, water, electricity)

– rent, ground rent, service charges

– Council Tax

– services you pay for, like cleaning or gardening

– other direct costs of letting the property, like phone calls, stationery, advertising

You can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it.

Non-allowable expenses

When you work out your profit, you can’t deduct:

– ‘capital’ costs, like furniture or the property itself

– personal expenses – costs that aren’t to do with your letting business

– any loss you make when you sell the property

But you may be able to claim some allowances instead.

There are different types of allowance you may be able to claim for your capital costs. Capital costs include expenditure you make on assets like furniture and machinery. The allowances you can claim for some of your capital costs vary according to the type of letting.

For furniture and equipment provided with a furnished residential letting (excluding furnished holiday lettings) you can claim a ‘wear and tear’ allowance. The allowance is currently 10 per cent of the ‘net rent’ – this being the rent received less any costs you pay that a tenant would usually pay.

As an alternative to the wear and tear allowance, you can claim a ‘renewals’ allowance. This covers the cost of replacing furniture or equipment, including small items like cutlery. To work it out, take the cost of the replacement item and deduct from it: the amount you sold the old one for (if you got anything for it); and, anything extra you paid for a better one.

Once you’ve chosen which of these allowances to claim for a property, you can’t switch between them from year to year.

Whatever the type of letting, you can claim a capital allowance on the cost of things that you need for running your property letting business, like cleaning and gardening equipment. You can also claim for equipment that isn’t for the use of a single let property, like a boiler that heats more than one property.

The allowance depends on what you buy. You can usually claim 50 per cent of the cost when you buy it – but sometimes 100 per cent for some environmentally friendly expenditure. Each year after that you can currently claim 25 per cent of what’s left. HM Revenue & Customs changes the percentages from time to time. The allowance is deducted along with other expenses in calculating your profits.

You’ll get smaller allowances if you use the item privately or for anything other than your business.

Remortgaging

Moving your mortgage can be both painless and inexpensive

Moving a mortgage without moving from a property can be both painless and inexpensive. If you have had your existing loan for some time, and are paying your lender’s standard variable rate, or have come to the end of a discount or fixed scheme, then you could have a wide choice of alternative new loans to consider.

Your questions answered

Q: What is the first step I should take towards obtaining a mortgage on better terms?
A:
First, ask your existing lender about any special deals they can offer you to cut your mortgage costs. They should be able to show you how your payments will alter if you switch loans and explain the costs and paperwork involved.

Q: Will I have to pay my existing lender a penalty charge?
A:
They will be able to tell you this. Remember to factor in this charge if they do. However, in many cases, the savings from moving lender can be so great that penalties can still be worth paying.

Q: What if my existing lender cannot help me?
A:
Next, shop around among other lenders. Don’t just look at high-street names – many new lenders have entered the marketplace in recent years and offer very attractive low-cost deals.

Q: Will I need a valuation?
A:
You may be required to have a valuer examine your home before your new loan is agreed – though they may just carry out a valuation from the street if you are only borrowing a small percentage of the total value.

Q: Will I need a solicitor or licensed conveyancer to handle the conveyancing?
A:
You could either instruct one yourself or in some cases the new lender may assist you to find one.

Q: Is the process a lot of hassle?
A:
Often the paperwork of a remortgage can all be done over the phone – or even on the Internet. Completed forms are just sent to you to sign and return. The process should be painless.

Q: How long does a remortgage usually take?
A:
There is no standard time. Delays can happen – but most remortgages are typically completed within two months.

Repossession rates down

Historically low interest rates have helped homeowners

The Financial Services Authority (FSA) has reported a fall in repossessions. According to the FSA, repossessions fell in the April to June period to a level not seen since the beginning of 2008.

Lenders seized 9,978 properties in the quarterly period – a fall of 5 per cent compared with the January to March period. Analysts believe many homeowners have been saved from repossession, due to historically low interest rates, which have driven monthly mortgage repayments down.

In the meantime, the number of mortgages in arrears also dropped, said the FSA. Around 37,000 people fell into mortgage arrears in the period – 8 per cent less than the previous quarter.

The figures are in line with those from the Council of Mortgage Lenders (CML), who recently reported that 9,400 properties had been repossessed in the April to June period.

The fall led the CML to once again revise its forecast for 2010 repossessions, expecting a total of 39,000 repossessions for the year, compared with its previous estimate of 53,000.

The FSA figures are higher than the CML’s as they include second-charge mortgages and loans advanced by lenders who are not CML members.

Rents reach a two-year high

Rental demand puts upward pressure on prices

Buy-to-let rents, according to the LSL monthly index of average UK rents have reached a two-year high. The current economic uncertainty has meant prospective buyers are discouraged from buying and are therefore looking to rent.

Furthermore, first-time buyers are finding it difficult to get a foot on the property ladder due to a lack of mortgage availability. Unless they have a sizable deposit, they are typically unable to secure a mortgage.

As a result of increased rental demand, there is upward pressure on prices, according to LSL. The group said that average rents had risen for seven consecutive months, increasing by 1.4 per cent in August.

In some instances higher rents are pushing tenants into arrears, with the south-east experiencing the highest increases where landlords have increased rents by 2.8 per cent.

London also saw a 2 per cent rise during August, with the average rent now standing at almost £1,000 a month. On average, however, monthly rent in the UK is around £686, LSL said.

Commenting on its figures, LSL warn that rents are increasing as more and more potential home buyers opt to rent. People are wary of a further downturn in property prices and concerned over the effect of government cuts on their own ability to meet long-term financial commitments. Additionally, many can not get a mortgage at an affordable rate.

Treasury rules out financial support

No help to boost the UK’s supply of homes to rent

The property industry has reacted with dismay after the Treasury recently ruled out giving any help to boost the UK’s supply of homes to rent.

The British Property Federation (BPF) said short-sighted ministers had missed “a real opportunity” to support the fledgling professional private rented sector and in doing so ease the UK’s housing crisis, create new jobs and reduce the budget deficit.

It spoke out after HM Treasury responded to a consultation launched by the previous government, ‘Investment in the Private Rented Sector’, intended to unlock new sources of capital for house building in the face of constrained bank lending and falling public spending.

However, despite calls from an alliance of industry bodies, the Treasury ruled out giving financial support to increase the delivery of homes to rent, claiming that institutional investment would remain a ‘niche’ part of the sector.

The BPF had argued for cost effective measures to encourage institutions such as pension funds to invest in the sector, including the disaggregation of Stamp Duty Land Tax on the bulk purchase of homes.

The private rented sector has provided 1.1m additional households with a home since 2000, accounting for nearly all housing growth, but more are needed, with almost 5m people languishing on council waiting lists.

Commenting on the publication, Ian Fletcher, Director of Policy (Real Estate) at the British Property Federation, said:

“This is a real missed opportunity, but the real losers from today’s announcement are not the property industry but the millions of people in the UK who just want somewhere to live.

“There is a huge hole in the Treasury’s logic – on the one hand arguing that any change to the SDLT regime would ‘carry a significant cost to the Exchequer’, but on the other hand that this is a ‘niche’ sector and that nothing would happen. They can’t argue it both ways!

“The good news is that private renting will have no shortage of demand, as people struggle to buy and the government struggles to fund other housing provision. The bad news is that with a little bit of public spending government could have leveraged in significant funding for housing from institutions.

“It is difficult to see what other sources of funding the government is going to conjure up in the near future. We welcome the recognition, however, that expanding the REIT regime in the UK will be beneficial and is worth continuing to explore”.

Housebuilders recognise the importance of quality

‘Building for Life’ national standard for well-designed homes

A record 55 new housing schemes have qualified for a ‘Building for Life’ standard this year, 50 per cent more than last year and the largest number in the eight years of the award.

The schemes scored more than 14 out or 20 against the ‘Building for Life’ criteria, the national standard for well-designed homes and neighbourhoods. It is the first-time more than half of all entries achieved a standard, suggesting an overall rise in housing quality.

A total of 20 schemes qualified for a gold standard and 35 for a silver standard this year, compared to 12 gold standards and 24 silver standards last year.

The schemes suggest that housebuilders are increasingly seizing the opportunity to play a leading role in creating successful places, as well as the construction of individual homes. The concept of placemaking can be seen across all 55 schemes, regardless of their size or location.

They range from a distinctive scheme in South London with coherent private and public space to family housing at Hulton Square in Salford which provides good access to public transport and makes best use of its location near a park, primary schools and a healthcare centre.

Over half of all the schemes that achieved a ‘Building for Life’ are in the South West or in London. A self build development in Bristol, Ashley Vale, is the first scheme of its kind to achieve a ‘Building for Life’ standard.

Wayne Hemingway, chair of ‘Building for Life’, said: ‘Building for Life has helped developers and planners talk the same language and by working together they’re creating far better places to live’.

Richard Simmons, CABE chief executive, said: ‘This suggests to me we might finally be starting to deliver good quality housing on a regular basis’.

Stewart Baseley, executive chairman at HBF, said: ‘A record number of standards reflect the industry’s commitment and shows recognition that quality is a driver of business’.