Our latest update is in from Peter, a.k.a. Mr Mortgages. Email back to talk to him.
Not much of interest for mortgages and property in the Budget except the Help to Buy scheme has been extended from 2017 to 2020. I personally think that once the government started interfering with the property market, they will not be able to withdraw, putting the element of risk on the taxpayer instead of indemnity insurance companies. (You have to ask yourself, “Why would the insurance companies not underwrite the percentage of lending above 75 per cent loan to value of a client’s mortgage”. They used to; clients were charged an insurance premium such as ‘mortgage indemnity guarantee premium’ or ‘high loan to value premium’. Could it be the risk factor do you think? ). The other changes in the budget included an attack on people buying in a company structure. This especially affects offshore purchasers for high value property in London as they will now pay stamp duty land tax at higher rates than before. The general view is that prices in London may dip a bit when this comes in but will recover quite quickly.
I suppose there is a significant benefit on the horizon when people can get at their ‘pension pots’ in 2015. I can see many disenchanted pension investors pulling funds out as soon as they get to 55 and investing in property, which will strengthen the property market at the same time as providing the government with tax revenue and pushing up the money supply in the economy. Additional capital and business incentives were announced and together with the improved economic forecasts suggest that ‘affordability’ will start to rise for the first time in several years, again good for the property sector making rents and mortgage payments more attainable.
Are you considering buying new build apartments as ‘contracts off plan’ where they should be completed in a year or two’s time? Selling agents are promoting many new developments with nice glossy brochures and detailed models and even a demonstration suite kitted out on site. Most agents offer a professional attentive service where you are cocooned within a pleasant suite of offices to discuss your purchase. However, remember, they work for the developer, not you, and do not be afraid to haggle.
Also be aware that once a new build has been sold, it tends to lose value (the new build premium goes when completed as the property is now classed as secondhand, a bit like buying a new car). This can be offset by buying ‘off plan’ where the deal is a genuine discount on today’s prices with the hope that, over the time it takes to complete the build, there will be an increase in value. However, you need to be careful here, If a large percentage of the new build is being sold off plan then, when they all complete, those contract purchase prices will be registered at Land Registry and that would be the open market value at completion as far as surveyors are concerned.
On the mortgage front, there are still some lenders that will allow 5 per cent grifted deposit from the developer on new builds, so this could be incorporated in the pricing structure to enable mortgage percentage to fit price. In short, completion finance would most likely be available (subject to changes in interest rates and product criteria ) Think the potential investment through and do your research of comparable values in the site post code and within ¼, ½ and mile radius, easy to take a look at Zoopla and Rightmove. Then assess the risk, do your homework. If, for some reason, suitable mortgage finance is not available to you at the time of completion (e.g. your circumstances change or no mortgage products fit) you could lose not only your deposit and reservation fee but the developer could sue you for breach of contract for the balance of price (very stressful, unless you can get a clause in the contract for sale that says, ‘subject to suitable finance being available’ to you – which is unlikely the vendor will allow. In addition, make sure there is a ‘long stop’ clause in the contract, this basically says that if the developer fails to complete the development within (say) six months of the target date, they will be in breach of contract and must pay you back you deposit and reservation fees with interest. (Again. many developers try to avoid having this in the contract).
Developers often offer cashbacks and other incentives (such as white goods, stamp duty and legal fees gifted deposits etc.) However all lenders now require a CML declaration form (provided by the Council of Mortgage Lenders) of all incentives and may deduct the aggregate value of these incentives from the price when calculating their maximum lending (loan to value). Some lenders will allow white goods, legal fees and stamp duty paid by the developer, but not all.
Generally, investors for new build, especially apartments, aim to get at least 15 to 25 per cent off the listed price, especially if they are registering to buy more than one apartment. It would be wise to instruct a major professional RICS surveyor firm to do a ‘desk top’ valuation on the basis of ‘if the apartment completed today, what would be the open market value?’ This will cost you a valuation fee, but you would then have a clear idea of value verses price before you commit and could save you thousands or confirm you have a good prospect.
Don’t get me wrong, I am not trashing new build apartments and the buying off plan process, there can be some good deals in a rising market, but there is much to consider and more risk involved than buying built property. When our existing clients are looking to buy, new or built properties, we carry out initial research for them and provide our ‘view’ at no cost (This is not indemnified professional advice under our indemnity insurance protection policy, but simply, from years of experience, our opinion. Some of our clients are re-mortgaging to release funds for their deposit on an off plan contract, having done their research of course. Next week, by the way, I will be looking at the buying at auction process.’
Want to talk to Peter? Email back and we will put you in touch.