Feb/100
Buy-to-Let Top Ten Tips
Buy-to-Let is no longer the hot industry it once was and many investors who bought such properties in recent years have struggled as the mortgage rates soared. However, existing Buy-to-Let investors should now be benefiting from lower rates, if they have fallen on to their lender’s standard variable rate.
However, new mortgage deals remain expensive and experts in the industry acknowledge the fact that now is a tough time for buy-to-let.
With property prices now falling, those investors who have continued with the tried and tested method of investing for rental returns rather than capital growth are tempted.
If investors are prepared to watch the value of their property decrease in the short term and ensure their property meets the criteria of at least 75% to 85% loan-to-value and returning 125% of monthly mortgage payments then it can continue to be a decent long-term investment.
As with any other investment, buy-to-let comes with no guarantees, but, for those people who have more faith in bricks and mortar than stocks and shares here are ten top tips to help you conquer the Buy-to-Let industry:-
1. Don’t set yourself large goals
We have all heard on the news about buy-to-let millionaires who have their huge portfolios of property, however, the days of double-digit house price rises are over. Experts are now recommending that investors invest for income and not short-term capital growth.
Rent should be the key return for buy-to-let. Most buy-to-let mortgages are done on an interest-only basis, so the amount borrowed will not be paid off over time.
After the mortgage, costs and tax are taken into account, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments, or to pay off the mortgage at the end of its term. This means that you will have benefited from the income from the rent, paid off the mortgage and you will hold the property’s full capital value.
2. Choose an area that may be likely to develop
Deciding on the location of your investment should not be if it is the most expensive or the cheapest property. The location should be a place where people would like to live and this should be for various reasons. Where in the town has appeal? If the property is in a commuter area, where has good transport? Where are the good schools for young families? Where do the students want to live?
3. Spend time doing the calculations
Before you think about looking around properties you should write down the price of houses you are looking at and the rent that you would be likely to get. Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments, although many had relaxed this in recent years. They also looked for a 15% deposit, which protects against potential falling prices. But in the wake of the problems in the mortgage market many lenders are now demanding 25% deposits, or even larger, for rates considerably above residential mortgage deals. The best rate buy-to-let mortgages also come with large arrangement fees.
You need to also figure out the following:-
Will your investment work out? What will happen if the property sits empty for a month or two? Make sure you know how much the mortgage repayments will be.
4. Do the research (look around)
Just walking into your bank or building society and asking for a mortgage is not the best idea. It may sound obvious, but people who do this when they need a financial product are one of the reasons why banks make millions of pounds in profit. If you are seeking advice, consider using a specialist buy-to-let mortgage broker.
Remember that asking them for information does not mean that you are under any obligation to use them.
5. Consider how involved you want to be
Buying the property is only the first step, you need to think about how involved you wish to be after completion. Will you rent it out yourself or get an agent to do so on your behalf? Agents will charge you a management fee, but they will deal with any problems that may occur and they will have a good network of plumbers, electricians and other workers if things were to go wrong. You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs. If you choose an agent you do not have to go for a High Street agent, many independent agents offer an excellent and personal service.
You should select a shortlist of agents, big and small, and ask them what they can offer you.
6. Do your research on the current market
If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits?
Make sure buy-to-let is the investment that you definitely want. Your money may be able to perform better elsewhere. In recent years a high-rate savings account would beat most investments. Now the rates are lower, but, investing in buy-to-let means tying up capital in a property that may decrease in value.
If you know someone who has entered the buy-to-let market, ask them about their experiences.
7. Consider properties away from your home town
Most buy-to-let investors look for properties near where they live, but, your own town may not be the best investment for you. The advantage of a property being close by is you are able to keep an eye on it, but, if you will be employing an agent anyway they should do that for you.
Look further afield and look at towns with good commuting links, that are popular with families or have a sizeable university.
8. Test your negotiation skills
Buy-to-let investors have the same advantage as a first-time buyer when it comes to negotiating discounts. If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be a sizeable asset when negotiating a discount.
9. Discover the potential pitfalls
Before making any investment you should always investigate the negative aspects as well as the positive. House prices are falling and if this continues, will you be able to continue your investment? Even in popular areas properties can sometimes sit empty for some period of time. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year – this gives a substantial buffer. Sometime homes will need repairing and things can go wrong. If you do not have the funds in the bank to cover a major repair to your property, such as a new boiler, do not invest yet.
10. Which tenant group are you targeting?
Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant group. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish. If it is a family they will have plenty of their own belongings and need a blank canvas. It is possible to take out an insurance policy in the event that your tenant fails to pay their rent.
Jan/100
Mis sold Mortgages
Mortgage mis-selling case could impact on repossession
The Financial Ombudsman Service (FOS) has found that a previous homeowner, whose property has been repossessed by their lender, was actually mis-sold their mortgage in the first place.
The petitioner had already lost her home at the time of the FOS ruling but was awarded compensation once it was established that the mortgage had been mis-sold.
According to the Guardian newspaper, on 25th March 2009, the ruling could set a precedent that would prevent repossession where it can be shown that a mortgage has been mis-sold.
The case hinged on rules covering ‘suitable advice’. Nevertheless, some lawyers who have considered the case are hopeful that in future the ‘suitable advice’ clause could be used to actually prevent repossessions occurring in these circumstances.
The scandal of mortgage mis-selling in the UK was addressed in a Citizen’s Advice Bureau report published in 2007, entitled ‘Set up to Fail’.
The report was based on 1,200 case studies from 360 Citizens Advice Bureau across the United Kingdom.
It found that many lenders and brokers were not ensuring that borrowers understood the risks of entering into a mortgage or were aware and agreed with what the policy entailed. The research also revealed that in some cases, it seemed that the lenders did not check whether the borrower could even afford the mortgage repayments from the outset.
Jan/100
Sale and rent back to right-to-buy home owners
Right-to-buy owners who have come into difficult financial diffculty are being tempted into “sale and rent back”. The scheme offers a way out for many homeowners who found themselves struggling to pay for a mortgage that should have neve been sold to them in the first place. A “sale and rent back” is whereby a homeowner sells their property to a private company at a discount price and in return are allowed to remain in their home as a tenant.
The overall appeal is obvious but But Denise Rooney of Chas Housing Aid Centre, Kirklees, says many schemes fail to deliver: “We have cases where people are allowed to remain in the home for a much shorter time than they were led to believe or the company they sold their home to goes bust, the debt is sold on and they are evicted.” This can result in famikies being left with no where to go or turn to, as they are deemed “intentionally homeless”. The statistcs are backed up by housing charity Shelter who note more than 600 households were classified as intentionally homeless due to mortgage arrears in 2008.
The “sale and rent back” scheme offers a hand to those in desperatefinancial times, but the human cost seems to outweigh the financial benefit.
Jan/100
Regulator cracks down on mortgage brokers
The FSA has fined three mortgage brokers for their inability to demonstrate they had recommended affordable mortgage contracts that met their clients’ needs.
Mohammad Rana, registered as Countrywide Management Consultancy and trading as Property Compass, has been fined 14,700 for failing to ensure that appropriate arrangements were in place for the supervision and monitoring of the firm’s sole adviser.
Peter Scott, trading as the Mortgage House, was fined 11,900 because the regulator found that he did not have a sufficiently clear understanding of the regulatory requirements imposed by the FSA. Chariot Mortgage Services Limited has been fined 10,500 for purporting to be whole of market, which was not actually the case.
Jan/100
£100,000 fine for North Wales mortgage broker
A MORTGAGE broker has been banned from trading and fined £100,000 for exposing 1,500 customers to the risk of bad mortgage advice. Rhyl-based Stephen Jones failed to make sure customers could afford the mortgages he had recommended, the Financial Services Authority said. Mr Jones was senior partner of Jones and Poole Independent Mortgage Specialists, in Edinburgh House, Clwyd Street.
The FSA alleged Mr Jones failed to control his business or make sure it met regulatory requirements, and said he did not treat customers fairly when recommending mortgages.
Mr Jones was yesterday slapped with a massive fine – the second largest of its kind ever imposed – after the FSA found he exposed about 1,500 customers to the risk of receiving unsuitable advice.
The regulator also fined junior partner Simon Poole, who ran the partnership’s office in Chester, £7,000 for exposing 750 clients to the risk of purchasing unsuitable mortgages.
The regulator alleged that, before a visit from FSA staff, Mr Jones arranged for customers to sign and back-date documents for completed sales, so it would look as if he had created sales documents at the time.
He was also accused of providing a lender with false income information to support his own mortgage application.
But Mr Jones told the Daily Post he rejected the allegations of dishonesty and fraud, and was seeking legal advice with a view to challenging the FSA’s ruling. But Jonathan Phelan, the FSA’s head of retail enforcement, said: “Mr Jones and Mr Poole exposed more than 2,000 of the partnership’s customers to the risk of receiving unsuitable advice and losing money.
“Mr Jones’s fraudulent mortgage application and his dishonesty in attempting to cover up regulatory failings were completely unacceptable warranting a ban and a large financial penalty. Mr Poole’s failings were of a lesser order and although they were deserving of a fine, he has not been banned.” Mr Poole was fined for failing to record whether he had assessed clients’ ability to afford a mortgage. He also failed to implement changes recommended by a compliance consultant.
Mr Jones said he had not heard from the FSA since its enquiries last year, and yesterday’s news of the £100,000 fine had come as a complete shock. He said: “I will be taking legal advice on this because the FSA has implied dishonesty and fraud… I was never dishonest. “I have always worked ethically and have always looked at the affordability of mortgages.”
The FSA said it has removed the partnership’s authorisation, but Mr Poole had obtained new authorisation to carry on as a sole trader. Mr Jones said he was no longer in the mortgage industry, and had set up a new venture involving a care home.
Jan/100
Mortgage broker fined for failing customers
BOURNEMOUTH mortgage broker Leybridge Ltd has been fined £24,000 and censured by the Financial Services Authority (FSA) for keeping inadequate records and failing to ensure it provided suitable advice to its customers.
According to the FSA the Bath Road based business operation exposed 425 customers to the risk of being mis-sold a mortgage during the period between October 2004 (when the company was first established) and February 2008.
However, the FSA has waived the fine in order to ensure that Leybridge can afford to compensate customers who might have been disadvantaged.
Explaining the censure, the FSA says Leybridge failed to ensure that it made and retained adequate records of its customers’ personal and financial information in a number of key areas and widespread record keeping failures led to the firm being unable to demonstrate that the advice given to customers was suitable.
The firm was also found to have employed inadequate file checking systems whereby sales advisers and mortgage processors would check each file for the existence of requisite documentation, not the standard of its completion.
Directors would then check only a sample of files and did not do so on a regular or adequate basis.
In its report the FSA said that customers who are employed and can prove their income most commonly take out full status mortgages.
However, Leybridge sometimes recommended self certification mortgages to such customers. In these circumstances Leybridge often recorded no explanation as to why this type of mortgage was recommended.
When Leybridge issued a letter of suitability to its customers detailing the reasons why a particular mortgage product had been recommended the reasons given were often generic and did not reflect the information contained within the fact find.
Margaret Cole, FSA Director of Enforcement, said: “Leybridge’s record keeping was so poor that they could not demonstrate that the sales of mortgages were suitable and had no way of proving to us that the firm was treating its customers fairly.”
In waiving the fine, the FSA said it had taken into account that Leybridge had been open and cooperated fully with the investigation and had accepted that there were management and control failures during the Relevant Period.
Leybridge also agreed to remedial action in the form of a customer contact exercise and has committed to compensate those who may have suffered any detriment as a result of Leybridge’s failings.
Managing director David Dixey said that many of the aspects identified by the FSA had occurred during the early days when the company was first started.
“We have continued to learn as the business has grown and put in place measures to overcome the issues identified.” During the period we rejected 20,000 mortgage applications where people could not fulfil the conditions which shows how selective our process is.”
Leybridge is a limited company with three directors. During the relevant period, Leybridge employed three salespersons who between them advised on 425 mortgage contracts.
Jan/100
FSA fines three mortgage brokers
Three seperate mortgage broker firms have been fined a total of £37,100 by the Financial Services Authority (FSA) for inadequate sales procedures. Mohammad Rana, based in Marston in Oxford, registered as Countrywide Management Consultancy and trading as Property Compass, was fined £14,700. Peter Scott, based in Horsham, West Sussex, trading as the Mortgage House was fined £11,900 and Chariot Mortgage Services Limited, based in Sale in Cheshire, was fined £10,500. However, the FSA said that had the brokers not agreed to settle early, they would have not qualified for a 30 per cent discount. This would have meant that their fines would have been £21,000, £17,000 and £15,000 respectively.
The FSA found all three mortgage brokers failed to gather adequate customer information, including personal and financial information, to demonstrate the suitability of their advice.
Countrywide also failed to ensure appropriate arrangements were in place for the supervision and monitoring of its one adviser, according to the regulator.
The FSA also ruled Mortgage House’s Scott did not have a sufficiently clear understanding of the regulatory requirements imposed by the FSA aimed at ensuring he gave affordable and suitable advice.
Chariot failed to communicate information to its clients in a way that was clear, fair and not misleading in that it held itself out as sourcing contracts from the whole of the market which in practice was not the case, the regulator ruled.
All three mortgage brokers are now required to undertake reviews of past business to establish whether, behind the process failures, any customers received unsuitable advice, and to help put things right.
Jonathan Phelan, head of retail enforcement for the FSA, said: “It is deeply disappointing to find that mortgage brokers visited by the FSA are falling short of basic standards aimed at ensuring that they treat their customers fairly.
“We will continue to take disciplinary action against mortgage brokers who cannot demonstrate that the mortgage contracts they recommend are affordable.”
Jan/100
£30,000 fine for mortgage broker
A mortgage broker from the UK has been fined a massive £30,000 by authorities after being accused of giving advice that put consumers at risk during the ongoing global credit crunch and financial crisis. William John Evans, along with a fellow director from Abbey Mortgages, were fined by the Financial Services Authority earlier this month. The FSA is exercising an ongoing crackdown on unscrupulous lenders and brokers given the current financial climate and the state of the housing and mortgage markets.
Having analysed a sample of around 113 cases between January of 2006 and April of 2008 officials from the UK’s financial regulator found that Abbey Mortgages Ltd had not met the standard required. Mr Evans was found to have carried out inadequate checks with regards to whether the customers were earning the income that they claimed to earn, which led to customers taking on mortgages that they could not afford repayments on.
The standard FSA fine is £50,000 but the directors were unable to afford this, and instead opted for the high cost review instead. The two directors avoided a fine of £42,000 each by agreeing to pay the fine as quickly as possible.
Mr Evans stated: “The cases they were concerned about we have to pay for an independent company to do a full review to make sure there was no detriment to our clients. This couldn’t have come at a worse time with the market in the state it is. We’re not short of enquiries, we’re just short of mortgages for them.”
An FSA official said: “Obtaining and clearly recording the right information from customers is not just about process. It is an important step in preventing financial crime and giving customers the right advice and treating them fairly. This is always important but is especially important in difficult economic times.”
Jan/100
Mortgage broker banned and fined
A mortgage broker has been banned and fined £100,000 by the Financial Services Authority for being involved in submitting false applications. The regulator said the fine handed out to Abiola Agbalaya was supposed to be a deterrent against mortgage fraud. The banned broker was the sole controller of Herald Finance Ltd in south London. The FSA has banned more than 30 brokers in the past two years during a crackdown on mortgage fraud.
‘Serious and blatant’
Mr Agbalaya obtained several mortgages after submitting applications that significantly overstated the profits of Herald and his own income, the FSA said. The regulator also banned Grace Olatunji, who worked as a mortgage consultant for Herald, for submitting applications based on false income information. Margaret Cole, director of enforcement at the FSA, described the actions of the duo as “serious and blatant”. “Perpetrators of fraud will increasingly find themselves facing bans and significant fines as we continue our work in this area,” she said.
Jan/100
FSA Mortgage Broker Crackdown
The Financial Services Authority has today announced it is embarking on a crackdown of unscrupulous mortgage lenders and lending practices which have been uncovered in the industry, particularly in selling heavy mortgages to those that can least afford them.
Speaking today on the state of the mortgage industry they said that it would begin a significant clamp down on the dishonest brokers currently operating within regulated markets, particularly in light of a total of four in depth investigations into brokers already this year, with 65 additional firms in line for further scrutiny.
The FSA alleges problems within self certification mortgages which see borrowers actively encouraged to inflate their income and earning potential to obtain more generous mortgages.
The Financial Services Authority has today urged mortgage brokers to carefully consider self certificated earnings figures from customers, and indeed to consider reasonableness of mortgage burdens as a whole when deciding whether or not to sell to prospective customers in order to avoid falling foul of industry regulations.
Seven additional brokers are currently being subject to investigations by the FSA, with the potential for charges of fraud to be levied against those falling below the strict requirements for selling mortgages imposed by statute and by the industry regulators. It is thought that the FSA may continue investigations over the coming twelve months in order to avoid damaging the reputation of the industry and having an adverse impact on the customers to which they relate.
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