Mortgage | Property Investment | Finance Guide

Highlights

• London has not proved immune from the crisis in the residential development industry. New build starts have fallen to unprecedented lows, further widening the gap between the number of new homes being constructed in the capital and the number of new households forming. Supply is particularly constrained
in the super-prime sector.

• Demand from City employees will weaken with bonuses in 2009 predicted to be around a third of peak levels – but increasing interest from abroad, triggered by the weak pound, will provide some counterbalance. With prices falling by as much as 40% for new build stock in some secondary locations, gross yields are
reaching double figures and investors are becoming more active.

• In this review, we set out the key issues impacting on the London development sector and Alan Benson, Head of Housing and Homelessness at the Greater London Authority (GLA) expands on the thinking behind the Mayor of London’s new housing strategy.

From – knight frank

The Bank of England has cut interest rates to 0.5% – a fresh all-time low – and says it will now boost the money supply to help revive the economy.

Interest rates have now been reduced six times since October, and the latest half a percentage point cut from January’s 1% had been expected.

The Bank said it would expand the amount of money in the system by £75bn in an attempt to boost bank lending.

This policy, so far untried in the UK, is called quantitative easing.

Mortgage fraud rose to a 13-year high of £36 million last year, approximately 10 times higher than the recorded £3.7 million in 2007.

According to KPMG’s forensic fraud barometer, more than £1.1 billion worth of cases were heard at UK courts last year recording the second highest level of fraud in the survey’s 21 year history.

However KPMG warned that most fraud committed since the credit crunch has not yet come to court and the trend of increasing mortgage fraud is likely to get worse with the global economic downturn.

The forensic investigation unit of KPMG stated that crime by professional gangs remained at the “extremely high” levels seen in previous years, while fraud by company managers, employees and customers trebled to £300 million last year.

Additionally a fivefold increase in company fraud from £24 million in 2007 to £125 million last year was visible.

For new landlords entering the market, this advice from LONDON’S LETTING AGENT is useful reading.

Stephen Ludlow, Director of ludlowthompson.com, explains: “Virtually overnight people who never anticipated becoming landlords have done so because they are unable to sell their property.

“Unlike buy-to-let investors new landlords may not have had time to research the market beforehand. They may not be clear on how to attract the best tenants or about their legal obligations as landlords.”

What every landlord wants is to let to a ‘quality’ tenant, quickly and for a good rent. This starts with making the right choice of letting agent to maximise your rental return as well as advise and support you. Look for a letting agent agent who can offer you the following -

* Be members of The Association of Residential Letting Agents (demonstrates professional standards). Ideally they may also be members of The National Association of Estate Agents (NAEA) or The Estate Agents Ombudsman Scheme (OEA).

* Operate from high street based shops that are visible and easily accessible to potential tenants.

* Have enough trading history to demonstrate practical experience of lettings e.g. 10 years or more as a letting agent.

* Be experienced enough to advise you on your legal obligations e.g. safety legislation and HMO (houses in multiple occupation).

* Offer effective marketing and website marketing to procure tenants.

* Access to fringe services that landlords require: tenancy deposit scheme, inventory service, rental warranty & legal insurance, emergency repair services.

* Operate recognised training programmes for staff (look for Investors In People accreditation).

* Have a clear complaints procedure.

* Vet tenants using a recognised credit referencing agency such as Equifax.

* Can offer you property management for guidance and support throughout the tenancy. The managing agent will arrange repairs and chase any late rent payments. For 5% of the rental this can make good financial sense when you are too busy to manage the tenancy yourself.

* Have enough local market knowledge to advise you on a rental valuation taking into account any mortgage repayments you may need to consider.

Marketing your property to tenants -
Look for a letting agent who can offer you a wide reach to London tenants via database and search engine marketing.

Beware of low letting agency fees -
There are now many more estate agents moving into lettings agency. Inexperienced letting agents can offer lower fees because they do not have the infrasture of an experienced letting agent. It is a false economy to choose the cheapest letting agent if it cannot adequately credit check the tenant/s or use the correct documentation. Remember that letting agent fees are tax deductible so you should be choosing on best service and ability to maximise the rental achieved with strong marketing.

Proven customer service -
A letting agent who can cater for everyone will attract more tenants to your property. Do they offer online services and support from a lettings property consultant? Can tenants book property viewings online but speak to someone when they need to? Does the letting agent publish customer feedback to prove they can deliver what they promise?

Furnishing -
Don’t over furnish the property as it probably won’t increase the rental achieved. The trend for tenants to rent for longer before buying their own property means that they are now more likely to own at least some of their own furniture. Try to keep the decor neutral and don’t personalise the property with paintings or ornaments as tenants may hide these in cupboards where they are more likely to get broken.

Warranties for appliances -
Put electrical appliances and boilers under extended warranty and choose a letting agent that can offer you access to emergency repair services with approved contractors. This avoids the issue of not being able to get things fixed quickly; often contractors are busy and may not be able to fit you in for a couple of weeks. Items outside of warranty can be pricey to repair. You want to avoid tenants stopping paying the rent because of delayed repairs; under The Landlords & Tenants Act (1985) there are certain areas where tenants may be able to withhold rental payments.

Good information folders -
You should provide details of emergency phone numbers in a tenant’s handbook which could also give details on how to use the household appliances, how the boiler and heating is operated and details regarding the local authority, such as the amount of council tax payable, car parking, and when refuse and recycling is collected.

Landlord obligations -

Record keeping:
You will need to submit a self-assessment tax return to HMRC giving details of your rental income. You can claim for a number of allowable expenses such as accountants and letting agency fees and mortgage interest payments. Seek advice from a letting accountant to ensure you claim all your allowances.

Mortgage & insurance:
If you have a mortgage you need to obtain written permission to let your property from your mortgage provider – failing to inform you lender may put you in breach of your mortgage conditions. If you own a long leasehold you will also need the written consent of your freeholder or their managing agents, who may ask you to write covenants from the head lease into the tenancy agreement

You will also need to tell your buildings and contents insurance provider. Even if you are letting an unfurnished property it is a good idea to take out contents insurance as this will provide you with a level of public liability insurance.

A two-year freeze in council tax has been approved by Lambeth Council’s cabinet.

The freeze, intended to help residents out during the economic downturn, was approved on Monday along with the council’s budget.

The Labour-run council has promised the freeze will be implemented without any cuts to frontline services.

But critics highlighted cuts in the budget for adults with learning difficulties, while £1.5m will be cut from looking after children in care.

The cabinet argued the council has simply made efficiency savings across its services – £36m in total – and the quality of service will not be affected.

The cultural services department, which has suffered a freeze in services such as park maintenance and some library spending after a projected £2.5m overspend last year, has not yet set its budget.

Conservative leader Councillor John Whelan said this suggested the problems in the department were not being resolved and all the while the borough’s parks and libraries were suffering.

But council officers said the budget proposals gave more time to addressing issues and looking at the environment across the department to address the budget properly.

Council leader Steve Reed said officers from across the council should be celebrated for the £36m efficiency savings that had allowed the freeze.

He added: “I think its right we go with a two year freeze because its important people keep their money in their pockets as much as possible at this time.”

Cabinet member for finance and resources, Councillor Jim Dickson, said the council was moving the budget at a time of great economic uncertainty and the budget reflected that, both in allowing suitable reserves in case of further financial crisis and saving money for residents.

He said: “This is a budget which is good for the community, right for the community and good for services.”

The Bank of England has reduced interest rates to a record low of 1% from 1.5% in an attempt to boost the shrinking economy.Lowest price ever

This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending.

However, there are concerns that savers will be hurt by lower interest rates.

And business groups argue that this rate cut will not be enough to ease the economic crisis, and will not encourage banks to lend.

The decision comes after official data showed the UK had entered a recession in December, after two successive quarters of economic contraction.

The Bank Rate has now been reduced from 5% in October last year.

In a statement, the Bank of England said that the rate cuts, along with government measures to boost the economy, “would provide a considerable stimulus to activity as the year progressed.”

Britain is experiencing a deeper recession than other countries because of the relative size of the country’s financial sector, finance minister Alistair Darling said Tuesday as he tried to deflect criticism of the government for the scale of the economic crisis.

“Because we have such a large financial services sector and also because of the nature of our housing market, we were bound to be affected to a greater extent than some countries,” Darling told a committee of the House of Lords.

Darling’s comments followed last week’s prediction from the IMF that Britain’s recession would be deeper than elsewhere. It forecast that Britain’s economy would contract by 2.8 percent this year, which would be the country’s worst performance since the 1930s, and more than the 2.5 percent predicted for Germany and the 1.6 percent penciled in for U.S.

In his last set of forecasts in November last year, Darling predicted that the British economy would contract by between only 0.75-1.25 percent and insisted that Britain was in a better position than other countries to weather the storm emanating from the seizing up of credit markets and the near collapse of the global banking system.

He is expected to downgrade his 2009 forecast in March or April when he delivers the Budget and will no doubt face criticism for underplaying the scale of the recession. Britain officially entered into recession — considered to be two consecutive quarters of negative growth — in the fourth quarter of 2008 when figures showed that it contracted by a massive 1.5 percent from the previous three month period.