Category Archives: Buying and Selling Property

Improving the home buying and selling process

The Department of Communities and Local Government is looking at ways of improving the home buying and selling process in the UK. Except Scotland, where it’s different.

Well, I say Three Cheers for them for finally addressing this problem. For too long, sellers have been able to gazump and buyers to gazunder, just before Exchange of Contracts. This is incredibly stressful and costly for both the gazumpee and the gazunderee – words as ugly as the practice itself!

I believe that the solution to improving the home buying and selling process is relatively simple. At present, when contracts are exchanged, the purchaser is required to deposit up to 10% of the purchase price. Very very rarely do people withdraw after this.

The Mini Deposit – Improving the home buying and selling process

So, all we need is a Mini Exchange of Contracts when an offer in writing is made and formally accepted. This is the point at which an agent typically issues a Memorandum of Sale. At this point both buyer and seller should be required by law to deposit a relatively small sum of, let’s say £1000 in Escrow. If either party choses to withdraw, offer less or demand more then the other party could receive their £1000 as compensation.

Of course, there would be certain circumstances wherein a purchaser could legitimately withdraw without forfeiting the £1000 mini deposit. Such circumstances could include cases where legal searches uncovered poor title.  Or perhaps a road passing through or close to the property in question.  A surveyor’s report  might have uncovered serious subsidence or dry rot. Again, if the seller accepted these findings and agreed voluntarily to reduce their price then the sale could still proceed.

However, where a purchaser, without good reason decides to offer less than the agreed amount then the deposit could be forfeited.  The seller would be at liberty to receive the purchaser’s £1000 and abort the sale. Similarly if the seller suddenly changes their mind or wanted more then the purchaser could elect to receive the seller’s £1000 and abort the purchase.

Concentrating minds at the point of the Memorandum of Sale

Apart from the stress of someone suddenly withdrawing, there’s the considerable legal and surveying costs that accrue. Thus the £1000 would at least go towards defraying these costs, but more importantly would concentrate the minds of both seller and purchaser at the point when an offer is made and accepted.

And of course this change in property law would not only benefit owner occupier sales and purchases but investment ones involving landlords and buy-to-let as well.

So, I think that’s a good way of improving the home buying and selling process in the UK. What do YOU think?

Landlords and Letting – Affordable landlord insurance

Is there a future for traditional estate agency?

I was prompted to write this after receiving something in my email inbox about how traditional estate agencies are suffering in the current Brexit market.

Estate Agencies on the High Street

Once upon a time, if you were looking to sell, buy or rent a property you would either check out the ads in the local paper and/or wander down the local high street and have a chat with people in the local estate agencies. People do still do this, but a huge and increasing number now simply go online, usually heading straight for the main portals like Rightmove, Primelocation and Zoopla, or maybe the agents’ own websites.

Nowadays, there are agents set up to exploit this new world, such as Purplebricks.com who just charge vendors a fairly low fixed fee to market their property. Of course this does save vendors a huge amount but only if the property actually sells, because of course, traditional agents’ fees are dependent on the sale actually completing.

Agents’ high commission

But it is true that with astronomical property prices (in some parts of the UK) the traditional agent’s 1.25% fee actually can translate into a huge amount of cash. It’s not uncommon in London and the South East for quite ordinary properties to sell for £700,000 or more. At only 1.25 % this means that vendors are having to give the agent £8750.00 PLUS 20% VAT. And for agents who are charging 1.5% it amounts to a staggering £10.500 plus VAT!

The High Street Estate Agency – who still needs it?

However, estate agents will rightly point to the huge expense of maintaining a high street presence and having to spend money on expensive newspaper advertising. But are either of these really necessary anymore? How many people actually bother to visit a high street agent with all the problems of city centre parking etc? And do purchasers really pay much attention to the local paper even? Not only are printed ads often out of date but sadly, local papers, like so much other printed media are in serious decline.

Perhaps the future lies in much more ‘stripped-down’ a la carte estate agencies, where they do not maintain high street offices but work out of ordinary offices not in city centres. Furthermore they would not advertise unless the client wishes to pay for it and rely almost entirely on web interaction. This would mean that fees could be much less and still allow the agents to make decent profits.

Landlords and letting property

As for lettings agencies, I think much the same applies. In fact, as a landlord unless you live far away from your rental investment, it really does not make sense to use an agent at all. You can now use companies who will let you access the main property portals for a very small fee. However, if you do not use a letting agent , obtaining Landlord Rental Guarantee and Legal Expenses Insurance together with thorough referencing is even more important – but still much cheaper than using an agent.

I am sure that, except for selling, renting and buying the most prestigious and up-market properties, the future is in this much more ‘stripped-down’ letting or sales agency.

Landlords and Letting – Affordable Landlord Insurance

Britain’s Zero percent APR Addiction

UPDATE June 28th – Now Mark Carney agrees with me!

Britain today is addicted – addicted to cheap credit

Britain’s zero percent APR addiction entails endless adverts for cars, vans, furniture, white goods etc where you are charged zero percent interest and they even contribute towards your deposit! At the same time nobody is really interested in you paying up front for anything and savers are lucky to get over 1% on their savings. No wonder so many older people almost feel forced to enter the buy-to-let market and many young people have given up on saving.

It’s now almost pointless to hold large sums of money on deposit. It’s true that we are warned by Mark Carney and others on a regular basis about what might happen ‘when interest rates rise’. But maybe they never will – at least not in the medium term, because our whole economy is hopelessly addicted to cheap credit – that goes for the car industry, manufacturing and indeed the property market.

How did we get here?

The main source of our current addiction leads back to the financial crash of 2008, when the banks – mainly American, nearly trashed the world economy. Following that crash it was necessary for government and banks to progressively lower the rate of interest just to keep the economy turning over. This has been true the world over but it is particularly critical in Britain where a disproportionate  amount of the nation’s cash is locked up in property. Thus the very roofs over British people’s heads depend upon the perpetuation of cheap credit – not to mention the existence of the likes of B&Q and Homebase.

However the other main reason is the massive suppression of ordinary people’s wages over the past 20 years or so, due largely to mass immigration, the increased power of directors and the decline of trades unions. Employers can literally pick and choose employees, whilst offering them absolutely paltry wages. Thus the only way employees’ purchasing power can be maintained is with cheap and widely available credit. Enter the enticing Zero Percent APR.

The Property Market

The fall in interest rates is indeed worldwide, but because we in Britain have such a love affair with property ownership it has drastic effects on the housing market here. Many older people who would have once tucked their savings away in their local building society now feel almost forced to jump into buy-to-let, where yields of 6% are fairly easily attained. This in turn drives up demand for property, putting it even further out of the reach of the majority of younger people. When I was young it was fairly normal to buy your first property in your late 20s but now many are having to wait until their late 30s or even 40s before they can ‘get on the property ladder’.

You would assume that because mortgages are so cheap that younger people would be able to afford them but because of the traumatic experience of easily available mortgages before 2008, banks and building societies tend to look for relatively high deposit to loan ratios.

So will interest rates ever rise?

Obviously no one has a crystal ball, but as I have said, I certainly believe they will not rise in either the short or the medium term – maybe 10 years. Chronically low interest rates and quantitative easing mean that money itself is losing its value and that is a very dangerous thing. Perhaps if there is a change in the employment market where people are actually paid more realistic wages then this could eventually begin to turn the tide in the opposite direction. Maybe in many years time interest rates may at least climb to 3 or 4% and people might start saving again – who knows?

LandlordsandLetting – affordable landlord insurances.

The Reluctant 60 plus Landlords

There is endless wailing about how greedy buy-to-let landlords are snapping up properties from under the very noses of young first-time buyers.

Hardly a day goes by without some hand-wringing politician (usually Labour) telling us that if only it weren’t for those awful buy-to-let landlords more young people could afford their own place to buy.

Who are the culprits?

Many of these avaricious landlords are actually over 60 and most of them probably don’t want to be landlords at all!

But now that they see their savings being trashed by Mark Carney’s quantitative easing (a wonderful euphemism) and historically low interest rates, so they need to find other ways to make their money work for them.

The other options

They can of course put their cash into poorly performing funds with heavy management charges. Buying shares and bonds is an option but it does require a certain amount of specialised knowledge and you have to actively manage the portfolio. Added to this, there is quite a downside risk as they say.

The landlord option

Buying rental property is an obvious solution. You can easily get at least a 5% yield on your money and you’ll probably get some nice capital appreciation into the bargain. And it’s a physical asset – it can’t just disappear, as many people’s savings did in 2008.

But there’s a downside – there’s always a downside isn’t there?

Being a landlord, unless you are lucky, is NOT an easy option. Take one look at the TV series ‘Nightmare Tenants and Slum Landlords’ and you can see what I mean. For landlords whose tenants cannot or will not pay their rent, it is an absolute nightmare indeed, involving months of legal nonsense and Possession Orders and bailiffs etc etc.

Some of the consequences of bad tenants can be mitigated by taking out landlord rent guarantee insurance but even that can’t completely take away the stress.

What’s more, the government has in recent years made being a landlord much more difficult. There are endless legal hoops that a landlord has to jump through to ensure he or she does not fall foul of the law. Fail to properly protect the deposit or even fail to notify the tenants can mean you will not be able to secure a Possession Order if necessary.

On top of all this are the constant management problems involved with being a landlord – repairs, disputes with the managing agents etc etc.

Enter the Reluctant Landlord

So, there are many 60 plus landlords who would far rather just tuck their savings into the local friendly building society or bank like their parents did. But they cannot – unless they want to see their savings dwindle away to nothing.

Interest Rates

Late last summer (August 2016) the Bank of England lowered the bank rate to a ludicrous 0.25% from the almost ludicrous 0.5%.

Quite rightly they want to stimulate the economy – although there may be some political posturing by Mark Carney over the result of the EU Referendum (little bit of politics as Ben Elton used to say). On top of this they are going to increase quantitative easing AGAIN. It’s a bit like a heroin addict who keeps needing ever greater doses to keep going.

The Law of Unintended Consequences

This is one of my favourite laws. By stimulating investment by lowering interest rates, the government and Bank of England (and everyone) are virtually compelling many pensioners and pre-pensioners to buy rental property. This demand pushes prices property prices up further and means that young first-time buyers don’t stand a chance of ‘getting on the property ladder’ as they say.

I do think that the Bank of England need to consider whether they are just going a bit too far in this rush to stimulate the economy with cheap money. Apart from anything else it does sound a note of desperation – and that’s never good for business confidence.

Malcolm James Stretten

Landlords and Letting – Affordable Landlord Insurances and Advice

Yet another property buying panic, partly thanks to Mark Carney?

Mark Carney Estate Agent Sold Boards UK Map

Late last year Mark Carney, the Governor of The Bank of England helped set the stage for yet another property buying panic when his forward guidance suggested that interest rates in the UK were likely to fall.

That’s a ‘fall’ from their historic low of 0.5%! Added to this is the forthcoming ‘Annuity Liberation’, whereby from this April 2015 people will be free NOT buy an annuity to provide themselves with a secure pension.

A hard choice?

So, the decision for new pensioners and others is… should I buy an annuity, put the money into a savings account and get 1.5% (if I’m lucky), or buy a property to let and get around 5% net yield with a probable long term capital growth?  Hhhmmm – as the actress said to the bishop, that’s not a hard one!  Of course people will say that savings aren’t investments, but what other options exist? Corporate Bonds are indeed a realistic possibility but they do require a certain amount of research and understanding and are not for the unsophisticated investor. Other kinds of investment vehicles such as funds are also a possibility but ultimately you are also paying for the services of very expensive fund managers.

Hooked on low interest rates

In reality, the ludicrously low interest rate is making ‘investors’ of us all. For several years now, so-called financial commentators have been ‘warning’ of an interest rate rise. I am aware of the old adage that ‘what goes up must come down’ and vice versa, but I personally don’t think that interest rates will rise again for many years.

The reasons for me saying this are as follows:

  • The Governor of The Bank of England has already predicted a FALL in interest rates due to falling levels of inflation.
  • The Euro is a basket case currency and most of Europe has very high levels of unemployment, partly due to the ridiculous Euro and partly due to the incompetent idiots running the EU. So now the European Central Bank is about to start ‘printing money’ in order to stave off deflation.
  • We’ve had extremely low interest rates for over 6 years and…here’s the important one…property owners and the UK economy are addicted to low interest rates. Any noticeable rise interest rates would cause panic selling by massively leveraged buyers, particularly in the buy-to-let sector. This would cause recession in the supply chain, such as companies like B&Q, Homebase, Wickes, architects, tradespeople,  solicitors, builders’ merchants, construction companies, banks, building societies and other course, our much loved estate agents and conveyancing solicitors. Well, as they say, every cloud has to have a silver lining! And of course the knock-on effect would be felt right through the UK economy.

Panic Property Buying – the signs are all there

We’ve recently reluctantly felt impelled to join in the panic property buying phenomenon. Now, I know that Warren Buffet wisely says, ‘When everyone’s being greedy, be afraid and when everyone’s being afraid be greedy’. But because Britain is a very overcrowded country with unsustainable levels of immigration and we are all hooked on low interest rates, I cannot foresee a time when property buyers will again be ‘scared’. I appreciate of course that these observations will be mainly applicable to London, The South East, Manchester, parts of The Midlands and The West Country.

We have seen flats and houses advertised for say £190,000, only to find that the agents are using these as ‘guide prices’, meaning that after you get involved in negotiations you find that they are going to best and final offers which could be more than 10% above that supposed ‘asking price’. In effect they are running blind auctions on property, and even if it’s crap, it usually has offers on it within a few days of going on the market. Also, time and again we are finding that agents are advertising places for sale when in fact they have sold them several weeks ago. They then claim that the vendors asked them to keep the property on the market even though someone is going through the process of buying the property. Sometimes the agent blames Rightmove or Primelocation. ‘We told them to take it down but they’re very slow you know’. Basically a case of ‘it’s not me guv’.

Of course the real reason for all this is that there is a massive imbalance between supply and demand – huge demand and not enough properties to go round all the agents.

In conclusion

We are obviously living in a society where real money is becoming gradually worthless. There are endless car ads telling you that all you need to buy a top of the range Audi for example, is £299.00 a month – no mention of the actual purchase price. If you ask a shop if they offer a discount for cash they usually laugh in your face and suggest you take out a credit agreement with them! Almost every major consumer good is advertised at so much a month, particularly things like mobile phones. Banks and building societies basically are treating savers with contempt  and offering them 0.2% on their ‘ONLINE SUPER PLUS SILVER SAVER ACCOUNT’ or some sort of nonsense.

It is of course good news for companies linked to the property market like Landlords and Letting! This is because it means many more landlords needing to take out rent guarantee insurance in case of defaulting tenants. But for the wider economy I think things are badly out of balance.

So in conclusion, I guess it’s a case of Carry on Buying – rather like an old much loved British movie really!

UPDATE MARCH 2015

Mark Carney and the Monetary Policy Committee are now saying that the next move in interest rates is likely to be UP!  I suspect that this is because they realise that their earlier speculation that interest rates would fall has started a buying panic – which it has, and they are now seeking to calm things down.

 

Landlords and Letting – Protecting buy to let investments

 

Leasehold Property – The Landed Gentry’s Triumph

To the best of my knowledge the only country in the world that is cursed with the concept of Leasehold Property is Britain.  And historically that is largely down to the vested interests of our landed gentry.

It is essentially a carefully crafted fraud wherein leaseholders don’t actually BUY their property, they BORROW it from the Freeholder. They own the bricks and mortar, the fitted kitchen and bathroom etc – but they DON’T own the land.  Hence the weird concept of ‘ground rent’.

Are you a Landlord or a Tenant?

Vast areas of Central London, for example, are actually owned by people like The Duke of Westminster and many of the buildings are really only ‘borrowed’ by the leaseholders who inhabit them.  The landed gentry love the idea of leasehold tenure because it means they never ever entirely let the true ownership of their land slip into others’ hands.  In fact if you are say a buy-to-let landlord you will actually often have seen the Freeholder referred to as your landlord!

Which brings me to the whole very modern concept of flat ‘ownership’.  Many major house builders and developers have seen the benefit of ‘selling’ flats on ludicrously short 99 year leases.  In fact, many people who bought 99 year leases only back in the 1990’s are already finding that their leases are approaching the all-important threshold of 80 years remaining.  In fact, when the 70 year threshold is passed it becomes almost impossible to obtain a mortgage and thus the property’s value is badly affected.

We must thank Margaret Thatcher

Thanks to Margaret Thatcher, who was never a great friend of the parasitical landed gentry, the Leasehold Reform Act finally came into law in 1993, three years after she was forced out of office.  This act at least went some way to restoring some power to leaseholders.  It meant that from then on leaseholders could force their freeholder to sell them added years.  Above 80 years there is a fairly precise formula related to the value of the property with the extended lease, the ground rent and the number of years still remaining on the existing lease.  This formula is used to calculate how much premium a leaseholder must pay to extend.  And because it’s a formula, it means there are limits on how much the freeholder can actually demand.  But if your lease is under 80 years then it is more of an ‘open-market’ negotiation and likely to be much more expensive.  The act importantly also gave groups of leaseholders in blocks of flats the right to force their freeholder to sell them the freehold.  Ultimately disputes can be settled via the Leasehold Valuation Tribunal.

Is your lease approaching the 80 year threshold?

Many leaseholders are probably blissfully unaware that their lease may be approaching the 80 year point – and freeholders love it because at some point the leaseholder will want to extend their lease… Another problem with some leasehold property is that there are penal clauses in the leases and individuals and property companies study freeholds that are up for sale to find just such leases.

What I would like to see is it being made illegal from some future point to sell any property with less than a 999 year lease. But you can be sure that the landed gentry and other major land owners would fight such a proposal tooth and nail.

If you do need assistance and advice with legal aspects of your lease there is a pretty good government funded organisation called The Leasehold Advisory Service.

 Landlords and Letting

Estate Agents’ Boards – A Personal Rant

Hands up who likes estate agents’ boards? They are everywhere and the agents say that it helps them sell your property quicker because people see them and call up. There are For Sale boards, To Let boards, Sold By boards and Let By boards. And they all have one thing in common – the agents love ’em.

To let sign UK

Using your property for free advertising

Agents love them because, simply put, it’s free advertising for their business! It is usual practice to ask the vendor if they would like a board but sometimes they don’t even ask and suddenly one appears outside your house. This happened to me recently when an agent was marketing a property I owned in Rotherhithe. Admittedly, as soon as I complained – and boy did I complain – they took it down.

I guess it CAN be argued that a For Sale board helps the vendor, although in these days of the internet it’s a dubious claim. But a Sold By board helps no one apart from the agent, with the idea that other potential sellers will see it and put their property with that agent.

In fact, I said it is free advertising. In fact, thinking about it, it’s worse than that – YOU are paying for them to advertise their business!

Agent boards and blocks of flats

This is where I really take exception to their damn boards. You must have seen small blocks of flats, maybe a short road and at the head of it on the communal ground there they are – loads of ugly agents’ boards all vying for attention. And by ‘ugly agents’ boards’ I don’t mean that the agents themselves are necessarily visually challenged. Unless you have a vigilant management company, there they stay – a complete eyesore! It’s the typical problem where no one person actually takes responsibility for forcing the agents to remove them. They are there TOTALLY as free advertising as no one knows to which flat each board refers.

Let’s make them illegal!

Agents’ boards exist for the same reason that many other nuisance things exist – just because they always have. I feel that these boards should be outlawed everywhere and local authorities should be empowered to force agents to remove them under pain of stiff fines. No exceptions.

Agents’ boards may have served a slight purpose once upon a time, although the ‘Sold By’ and ‘Let By’ ones never did. But in a world of Rightmove, Primelocation, Zoopla and others, agents’ boards are an anachronism and a real blight on the environment.

I’d be interested to see what others think – maybe I’ve got this wrong?  There’s a simple poll at the bottom of this item.

Should we ban estate agent boards?
Yes
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 Landlords and Letting – Landlord Insurances

Improving the English Conveyancing Process

They say that moving home is one of life’s most stressful activities, along with bereavement and divorce etc and particularly so if you are actually buying and selling.  If so, why doesn’t the Government try to improve it and make it less stressful? I believe that it can be improved – after a brief outline of the way it is now I suggest how this might be achieved.

The fact is that the English Conveyancing System is as they say ‘Not Fit For Purpose’ and it’s a testament to the dismal quality of both civil servants and particularly legislators.

1930s_houses

Buying and Selling basics

You find your ideal home, make an offer and if it’s accepted, both parties pass relevant details to their solicitors and then the whole rigmarole starts. The buyer’s solicitor requests endless documents, mortgage companies are alerted, removals companies contacted, a survey is commissioned and so on. At some point contracts are exchanged with an agreed completion date. The whole tortuous process can take up to three months…if you’re lucky!

Of course, the point at which both parties can reasonably relax is Exchange of Contracts, when the buyer contracts to buy and the seller contracts to sell, both being liable to lose a large amount of money if they renege on the deal.

Subject to Contract

But as we all know, at any point right up to exchange of contracts either party can withdraw, or simply demand a higher sale price (gazumping) or demand a lower sale price (gazundering). And unless agreement can be reached, the whole process collapses, the buying chain is broken..along with the hopes and dreams of all the rest of the people in that relevant chain. Also huge amounts of money, on solicitors, surveys, reports etc are wasted by the would-be purchaser. Then the whole tedious process starts again.

This absolutely ludicrous, because the whole English Conveyancing System is  not so much based on ‘subject to contract’ but subject to a nod and a wink!

Putting your money where your mouth is

What I suggest, is that once an offer to buy is formally accepted and a survey completed, an Initial Deposit be placed in escrow by both parties. This deposit will then be forfeited to the aggrieved party in the event that the other party seeks to change the agreed sale price or withdraws from the process before actual Exchange of Contracts.

Of course the devil is in the detail, as they say. There will have to be very carefully specified reasons for a buyer to withdraw, such as a search revealing that a motorway or similar is planned to go through the sitting room or at least within hearing distance of the property in question and that was not revealed in the initial Property Details. Precise grounds for parties to withdraw from the commitment to buy and sell will need to be established but the current system is ridiculous and badly needs reform.

But how much should the Initial Deposit be? I would suggest 0.5% of the agreed sale price but obviously others would have a view on that. But it has to be sufficient to ensure that both parties are serious about the transaction and really ARE willing and able to proceed. It will also at least go towards compensating the aggrieved party for wasted survey and legal costs.

Who benefits?

Serious purchasers will benefit, serious vendors will benefit…even estate agents will benefit! The only people who won’t benefit are mortgage companies, surveyors and of course…solicitors – but that’s not a bad thing is it!

Tell us what YOU think – take our poll

Should we reform the UK property buying process?
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Landlords and Letting – Landlord Insurances