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
Firm fined for not complying with FSA principles and rules
The FSA has fined a Derbyshire-based financial advice firm and its two partners a total of £49,000.
The failings at Sett Valley Insurance Services were identified during an FSA visit focussing on the fair treatment of customers, as part of its assessment programme for small firms.
The subsequent FSA investigation identified a number of problems with the firm’s sales and advice processes, including a failure to record sufficient information about customers’ personal and financial circumstances to ensure the suitability of any advice they gave, and a failure to communicate with them in a way that was clear, fair and not misleading. The firm’s systems and controls were also inadequate and did not meet the FSA’s requirements.
Jan/100
Mortgage Fraud in legal firms
Investigations carried out by the Solicitors Regulation Authority as part of a crackdown on solicitors involved in mortgage fraud have totalled 106 in a short period of time.
As a result of the audit 22 law firms have now been closed down, and a further 24 cases have been referred to the police for investigation. Another 30 cases have been referred by the SRA to the Solicitors Disciplinary Tribunal, which has the power to strike off solicitors, with other investigations continuing.
The level of fraud is colossal, and it is estimated that this investigation alone has saved lenders between £15m and £20m.
The regulator handled over 400 cases of suspected mortgage and property fraud last year, an increase on the 356 reports in 2008 and just 85 reports in 2005.
The SRA has now issued advice and warnings to all solicitors’ firms, alerting them to the warning signs of suspicious transactions.
It has also reminded firms that they need to ensure they do not become embroiled in fraud and to report any suspicions they may have.
“We are committed to working closely with the SRA during 2010, and beyond, to target corrupt solicitors who we believe are a significant enabler of property fraud.” Robert Wishart, detective superintendent of the City of London Police, national lead force for fraud investigation.
Steve Wilmott, head of the fraud and confidential intelligence bureau at the SRA, says: “Last year the SRA stepped up its work to prevent, deter and tackle mortgage fraud.
“Mortgage fraud is a serious issue for home owners and lenders.
“We are working closely with major lenders and the police to share intelligence and take prompt action.
“Working in collaboration will help us to better understand the threats and give us the opportunity to take preventative and enforcement action to protect the financial community”.
Jan/100
The darker side of right-to-buy
Right to buy was introduced almost 30 years ago, hailed as a social revolution that would transform council estates. The reality shows a less rosier picture of fractured communities, exploitative landlordism and a severe lack of affordable housing. Most of the housing exists as the remains of the “homes for heroes” scheme initiated during the twenties by Prime Minister Lloyd George. Yet it is another historical piece of government policy that has influenced the shape of Britain’s streets. In December 1979 the Conservative government published the housing bill that allowed council tenants’ right to buy their homes. The idea was that those who bought their homes would take pride in their property, looking after them more because they had a personal investment in it. Ken Collins like many others bought his house, through right to buy and has expanded his home into a valuable asset. Ken not only benefited financially, he believes that residents who bought their homes became more responsible for them which in turn improved the quality of the entire neighbourhood.
In the long-term the financial benefit to right-to-buy owners is apparent, however the long lasting social effects are clear to be seen in what were previously council estates like Dagenham. Critics of the right to buy scheme argue that right to buy has pushed ‘social housing’ out of affordable areas and replaced it with private sector leasing. Landlords rent these properties out on short term leases to large families, often vulnerable in desperate situation which has an overall negative effect on social cohesion. Furthermore there is evidence to suggest a more under hand practice lurking in London’s council estates. Those reluctant to give up their council tenancies unofficially sub-let properties for cash-in-hand, selling their front door keys, further eroding communities making them increasingly unstable.
It is unsurprising that council tenants choose a less savoury route when we consider the problems taking the official route. This is particularly noticeable in situations were the tenant becomes a leaseholder on buying their ex-council flat. Some councils charge the leaseholders for building improvements, this can lead to demands for vast sums and leave people with no option to sell up rather than remain in their homes. The problem is that the right to buy scheme ignores the fact that many of the council tenants are low income families and rather than handing them an opportunity to secure a home for their future it places them in impossible financial situations leading to debt or worse with no home. Ironically, it is the council that offers an opportunity for those leaseholders struggling to pay back their mortgage a way out, they offer to buy the property back for council housing, some skeptics go so far as to say that the service charges are a way of emptying housing that is desperately needed in popular areas.
The biggest fear is that the reluctance from government to decrease right to buy is taking away the right to rent from people who can not afford to buy. A balance needs to be maintained between those who wish to rent and those who want to become homeowners and the only way forward is to build more affordable housing.
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/101
Right-to-buy trap for homeowners
A recent survey concluded that people who buy their council homes under right-to-buy schemes are more likely than other homeowners to get into mortgage arrears and therefore risk losing their homes. The survey carried out by Consumer Focus between March and May found that nearly one in 10 who had bought their council home got into difficulty in the previous three months.
The findings came as no surprise to property experts such as Val Blood, of North Yorkshire Housing Advice Resource Project, who stated “During the property boom, council tenants were encouraged to take out mortgages they simply couldn’t afford,” she says. “Companies leafleted whole estates and especially targeted tenants in rent arrears with the promise of paying off what they owed and allowing them to buy their home as well. But if you can’t pay your rent, how can you pay a mortgage? Within a year many were facing repossession and often ended up homeless.”. A possible attriburte to this consequence was the fact that people who had taken out a mortgage on a council home were 50% more likely to have other debts secured against it. The positives of right-to-buy were projected way above the negatives and lured many people into taking a mortgage out and a risk they could not afford. Brian Coulson, housing lawyer at Bury Law Centre added, “There has been a lot of hard sell on TV and cold-calling from lenders encouraging right-to-buy homeowners to ‘release the equity in your home’. When you’re struggling to make ends meet, these offers are hard to resist.”
One such unfortunate right-to-buy homeowner, Glen Mason knows only too well the devastating effects of the right-to-buy scheme. “I thought buying the flat would make my retirement easier,” he says. The increasing outgoing payments to store cards and credit card debts soon mounted and Glen was unable to keep up his mortage payment. It came at the worst of times, when the recession hit Glen lost his job and left him in the most despertae of circumstances
Barclaycard and some of his other lenders successfully applied for charging orders, securing the money they were owed against Mason’s home. Last month a judge granted Mason’s mortgage company a possession order, and gave him 28 days to vacate his home. He stated, “What makes me angry is knowing that if I had still been renting from the council, housing benefit would have covered my rent when I lost my job and I would still have a home.”
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.
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