I am a first-time buyer and I have been speculatively looking for the last six months, and more seriously over the last two. I am horrified how much prices have risen in this time. Can the market continue to rise? Sarah Follett, London
Jeremy Leaf: The property market has picked up considerably in the last few months after a long quiet period and expectations in many quarters that prices would crash. Confidence in the market is very volatile and the rising cost of energy and council tax as well as possible increases in unemployment and interest rates are likely to keep a lid on excessive price rises. In any event, increases are not uniform so it is possible that increased flexibility with regard to choice of location could yield dividends in terms of better value for money.
I am looking to buy a first-time property in London. Where does the panel think is the best location/postcode for future price growth? Michael Webster, London
Jeremy Leaf: Properties close to new transport links or proposed regeneration schemes tend to increase most in value. Many areas have also increased in value due to their proximity to areas that have already increased in value. For instance, areas like Stroud Green, Finsbury Park and Stoke Newington in the north of London and Balham and Tooting in the south of London have increased in value due to their proximity to Crouch End or Islington and Clapham or Wandsworth respectively.
The area close to Kings Cross has been talked about for many years as the next big area of growth and with massive public and private investment as well as the re-location of the Eurostar link this now seems to be happening. When identifying areas to move to look out for early signs of regeneration, such as improvements being carried out to properties and new shops and cafes opening.
On a local level, proximity to a good school can have an effect on price increases. Traditionally inner London areas have seen the biggest price rises as the more established outer suburban areas are less volatile in terms of changes in housing stock and population. An area can take many years to improve so you may need to be patient after you have bought your property. Everyone is looking for the next Islington, Notting Hill or Clerkenwell but those areas regenerated over many years.
Kristian Digby: I would have a look in and around Stratford E15. This Pocket of East London was neglected for many years but it’s going to be the home of 2012 Olympics. Canny investors and first time buyers actually bought there a few years ago realising that the area had huge potential, but its only now with the run up to the games that things will really get moving. However, finding properties for sale is the hard bit as the homeowners in the area are holding tight and waiting for the big bucks.
I am about to start looking for flat to buy in Newcastle. What should I be looking out for when I am shown around properties and what sort of questions should I ask the estate agents? Alfred Johnson, Newcastle
Kristian Digby: Ask your estate agent how long the leases are, many mortgage companies won' t lend if it's below 75 years. If you did buy a flat with a short lease, it can also be very tricky when it comes to re-sell. When you ask estate agents about important issues, such as noise pollution and parking, you might as well save your breath as agents will generally only tell you what you want to hear, so make those kind of enquires elsewhere.
I have been working full time for the same company for three years but I have yet to secure a staff contract. I am paid as a casual on a daily basis. I have been renting for six years but I now want to buy a flat. Will any bank or building society lend money to someone with my employment status and will it affect the rate I could get? I have a large deposit. Will that help? Simon Marks, Manchester
Simon Tyler: You sound like you have a solid working history behind you even if you lack a staff contract. Self-employed people do not have staff contracts either but they are able to get mortgages without too much trouble.
However, while the self-employed very often choose the self-certification route - because their incomes can be tricky to verify, you won't have this problem because you will have P60 documents which will show exactly how much you have been earning. As long as there aren't any other issues here - such as a poor credit record - then you should be a relatively straightforward case.
The fact that you have a big deposit is also a great help. Exactly how big that is as a percentage of the property value does make a difference. A deposit of 25 per cent or more would be ideal because then you should qualify for most of the mortgages on the market. It gives the lender plenty of security and demonstrates a big commitment from you.
Your work situation may mean that you won't have access to the very best rates on the market, but the deals should still be competitive.
I want to buy a two-bed flat but I am unsure about which type of property to go for. What are the advantages of buying a new-build over a period conversion and vice versa? John Jefferies, Cardiff
Kristian Digby: I can only give a personal answer to this and I would say period conversion every time. I know that new builds are well insulated, have a builder's 10-year guarantee, and most are equipped with a fancy open plan kitchen with chrome oven hood, but quite frankly you can keep it. I film properties all over the country every week and I'm yet to be really impressed with a new build apartment. More often than not, they have dull layouts held together with pathetic build quality. Yet I've seen loads of cracking flats in period properties that have oozed charm and personality.
I am 27-years old and trying to buy a flat. When I was 18-years old I had a County Court Judgement against me which I have just paid but this fact is making it difficult to get a reasonable mortgage. I am not even sure what type of mortgage I should be trying to get. I have put an offer on a flat but I fear I will lose it unless I get a mortgage offer soon. Ben Fryer
Ray Boulger: The size of the CCJ will be very relevant in determining how negative an impact it will have on your mortgage application. Many mainstream lenders will consider your application if the CCJ was relatively small, say less than £500. But the CCJ means that the rest of your status is even more important than it normally would be. It would have been more helpful if you had paid the CCJ off quicker. Some lenders are not at all flexible in their assessment of applications from people in your position, whereas other will take a more individual view, bearing in mind the age of the CCJ, if you can demonstrate that your current financial situation is now sound.
If it proves impossible to obtain a mainstream mortgage, the alternative is a sub-prime (adverse credit) mortgage. Most lenders in that market will ignore CCJs incurred more than 3 months ago. Assuming you have no other credit problems and you have a deposit of at least 5 per cent, you will probably be pleasantly surprised at the rates of interest on good sub-prime mortgages.
I would strongly recommend that you speak to a genuinely independent mortgager broker as soon as possible as there will be a huge difference for someone in your position between the best mortgage available to you and an unnecessarily expensive sub-prime mortgage.
I am about to start looking for a small flat in London but most of the places I have seen on the internet are listed as leasehold. If I were to buy a leasehold property what protection would I have from excessive ground rents and management fees? Is it better to buy a share of freehold and if so, what sort of premium should I pay for this? Jill French, Reading
Simon Tyler: Leasehold properties can be fraught with problems though the situation has improved since the Leashold Reform Act 2002 was introduced.
Ask the tenants if there have ever been any problems with the landlord and check how long is left on the lease. If a landlord tries to impose what leaseholders think are excessive charges they can apply to the Leasehold Valuation Tribunal (LVT) to have their cases assessed. It can, however, be a lengthy and troublesome process, so you need to be prepared for a battle. The LVT can force the landlord to reduce the charges, but it often requires a concerted effort by the leaseholders to take the landlords on.
If you want to buy a flat and then buy the freehold, there are strict rules governing this. Tenants that have owned their property for two or more years have the right to buy the freehold, but the price they will have to pay depends on the length of time left on the lease. The less time left, the more expensive it will be. There is a strict formula for working this out and you will need to employ a specialist solicitor to do this work for you.
Another possibility is buying a flat in a block, where tenants can club together to buy the "commonhold". Under this arrangement, the tenants manage the block together rather than the landlord employing managing agents. There are strict ways of working out how the cost of the commonhold.
Will Home Information Packs really help first-time buyers? Are lenders going to use them as alternatives to valuation surveys meaning lower mortgage fees? And what sort of a distorting effect will they have on the property market? Jennifer Greenbury, Gloucester
Jeremy Leaf: The introduction of Home Information packs (HIPs) should make the home buying process simpler, more efficient and transparent as nearly all of the information you need to purchase a property will be available at the outset. This should reduce the risk of wasting money on abortive costs and the possibility of the sale falling through. The responsibility for providing this information falls on the seller.
First –time buyers should in general benefit but dangers will remain as, for instance, the availability of all relevant information "up front" could make it easier for unscrupulous purchasers to "gazump". It is therefore important that first-time buyers are well organised and able to act quickly once the decision to purchase has been made.
Lenders have said they will use HIPs to aid a lending decision but unless the proportion of equity is high or other criteria are met, they are still likely to require valuations.
The introduction of HIPs could create a market "spike". In other words, it may result in plenty of properties coming on to the market before the implementation date of June 1, 2007 and a consequent shortage of properties afterwards. However, the government hope that sellers will appreciate the advantage of offering their properties with HIPs and will do so even before June 2007 as a means of gaining a market advantage.
First-time buyers will also probably prefer to submit offers on those properties where more information is available. But if there is a temporary under-supply of properties, then prices could rise in the short term until the market settles down.
I am currently renting a property and wish to make my first step on to the property ladder. Ideally, I would like to buy in Shepherds Bush, however, a one-bed flat is slightly outside my budget. I could afford a two bed if I rented a room out but I don’t know how to find a mortgage lender that would take any potential income from letting a room into account. Omar Bakhshi, London
Ray Boulger: Firstly, it is worth mentioning that, providing you have no loans or balances outstanding on credit cards, you may be able to borrow more than you think as some lenders will offer up to about five times your income.
If you let out a room in your home, the first £4,250 of rent is tax free. However, most lenders will not take this income into account when assessing how much to lend you. One lender that will is Mortgage Express and they will add £4,250 to your earned income if you are going to let out a room. However, their income multiples are not as good as many other lenders and, because they do not specialise in mainstream markets their interest rates for residential purchasers are not very competitive.
Two options that may work for you are:
- Ask one of your parents to either act as a guarantor or be a joint borrower (the property can still be in owned solely by you). They will effectively be facilitating the obtaining of the mortgage but providing you are able to make all the mortgage payments they will not have to pay anything.
- If you have a deposit of at least 10 per cent some lenders will take the rental income into account on a self certified basis, where they only ask you to put a single figure on the application form for your total income and thus you could include the anticipated rental income.
I am currently renting in London and have been looking to buy my first home in and around the same area SE1. I am currently on your typical average yearly wage. I have a deposit of around £30,000 and I would like to know whether this will enable me to get a more substantial mortgage. How does a deposit help and do you have any idea of how much I could possibly borrow? I have no debts, credit cards and like to think I am relatively responsible with my money. Ian Lester, London
Simon Tyler: Given that the average annual salary is now around £25,000, and that many lenders will now advance loans of 4-4.5 times income, you should not have much trouble buying a property for around £150,000. This takes into account your £30,000 deposit - the actual loan amount you could qualify for would be roughly £110,000-£120,000.
It may be possible to get a bigger loan. Some lenders base their lending decisions purely on "affordability", and because you appear to have no other debts, it may be that you would qualify for a bigger multiple of your income.
Some banks give loans equivalent to five or even six times income but this is rare. If you are a professional, such as a doctor or solicitor, some lenders will take a more generous view of your circumstances, based on the assumption that your earnings are likely to increase more rapidly than in other jobs. Scottish Widows and Standard Life bank are just two that will lend more generously to professionals. Others will lend bigger income multiples to graduates, for very much the same reasons. If you fit either of these descriptions, you may be able to borrow more.
I have been wondering about the financial rationale for buying a property instead of a lifetime of renting as is usual in Germany and other countries. I want my investment to make the best possible financial sense as well as enjoying the feeling of having my own home. Would my house deposit be better off in a high-interest account and I continue renting? Ellen Scrimgeour, London
Simon Tyler: I would always encourage buying as a long-term investment - as long as you can afford it without unduly overstretching yourself. Britain is a small island with a chronic shortage of housing, so property will always be a good investment over the long term. Historically, the returns from property have been outstanding - apart from a couple of occasions when recession stopped prices in their tracks. Even then, prices recovered in a few years and starting rising once again. Between 1989 and 1995, prices fell by 37% in real terms. But since then prices have soared.
If you want to be able to access your money in the near future, or can't afford to ride out any short-term price fluctuations then you are better off renting. Buying is not a short-term proposition and with the housing market pretty fully valued at the moment, you need to be able to commit to a property for five years or more.
Putting your money in a savings account will never match the returns from property over the long term, but it is of course a very safe home for your money if you simply want to buy a little more time before making a decision.
If you are considering renting for the rest of your life, then you need to be thinking about better investments than high-interest savings accounts, and you will need to invest in a broad spread of stock-market based investments in order to get a wide enough spread of risk.
I don't yet have a family and I'm in a position to purchase either a large house which I don't yet need or two smaller properties (and rent one out). Which is the preferable option for a higher rate taxpayer in full employment?
Jeremy Leaf: The choice between buying one larger property or two smaller ones depends very much on your attitude to owning a second buy-to-let property and the possible problems that could result if you have a difficult tenant, void periods or the need to carry out works. As the loan on the buy-to-let property will be based on potential rental income the combined value of the two properties will probably be greater than if you were just buying one property to live in with the loan based on your income.
Any interest on loan repayments for the buy-to-let property, as well as the cost of repairs and agency fees will be offset against rental income whereas expenses on your own property cannot be off-set. There will be capital gains tax payable on increases on the buy-to-let property, subject to relevant taper relief, whereas capital gains on your own property are free of tax.
Instead of buying a house larger than you need you may consider buying a property suited to your current requirements but in a more expensive location. This will normally result in lower expenditure with regard to repairs and services.
I am 23, earn £21,000 and have savings of £15,000 for a deposit on a property. My family keep advising me not to buy as they do not think I have a large enough deposit but as prices continue to rise I am falling behind. Should I purchase while I can or wait? Paying rent seems such a waste. Abigail Evers, Aldbourne, Wiltshire
Jeremy Leaf: The choice to buy depends on your lifestyle. Your ability to purchase a property with the income and deposit currently available to you will depend very much on the location of your purchase. You may consider alternative options such as shared ownership through a Housing Association, buying a property with a friend, buying a two bedroom property where one bedroom can be let out or purchasing a buy-to-let in a cheaper location. It is important that you do not over commit yourself financially and to appreciate that future property price increases are not guaranteed.
Many first time purchasers do not adequately take into account the expenses involved when buying a property, such as stamp duty and legal fees as well as those involved in owning a property such as maintenance, service charges and council tax.
I am considering buying a flat with my partner but we're very confused about what is happening to the property market. Should we jump in now before prices rise beyond our means or should we wait? What are the chances of price crash? We don't want to end up in negative equity. Michael Lucas, Nottingham
Kristian Digby: I think it’s an interesting sign that the government are running a "Home Buy" scheme that lends certain first-time buyers 25 per cent of the purchase price. The loan is paid back when the property is resold and the amount paid back is 25 per cent of the value of the property at the time of sale. My point is this: would the Government be investing their money in the housing if they did not feel confident about property market?
When I buy my first house, would I be better off getting a mortgage for as short a time as possible (say 22 years), or getting a mortgage over a longer period (30 years), allowing me more disposable income, and then re-mortgaging to a shorter period in a few years time when my income has increased? Mark Daubney, Seaton , East Yorkshire
Ray Boulger: As you are a first-time buyer I assume that you are still fairly young and that 30 years will not take you beyond your anticipated retirement age.
A mortgage can be any term up to about 50 years so if you have a repayment mortgage the shorter the term you can comfortably afford the less it will ultimately cost you. The monthly cost of an interest-only mortgage is the same, whatever the term, but the longer the term the more it will ultimately cost. However, if you have other debts, apart from a loan from The Student Loan Company, they are likely to be at a higher interest rate than your mortgage and therefore it will be cheaper to concentrate on paying them back as quickly as possible and taking the mortgage on an interest-only basis would help you to do this. When the other loans are repaid you could use the spare income that will leave you with to increase payments into your mortgage. Also, as your earnings increase you could increase your debt repayments, whether that is still repaying credit cards / loans or the mortgage.
Most mortgage lenders allow some degree of overpayments without incurring an early repayment charge so you may be able to pay off some of the mortgage whilst leaving it as interest only or you might prefer to switch to a repayment mortgage if your preference is for a more disciplined approach. You don’t have to remortgage to switch to repayment but if you are remortgaging or moving house that may be a convenient time to switch. The most important thing is to have a realistic strategy for repaying your mortgage.
Whether you start with an interest-only mortgage depends on your priorities – do you want to pay your mortgage off as quickly as possible or initial spend more of your income on other things?
My fiancé and I are looking into buying our first home but we are not sure what mortgage to go for. We are currently saving because we feel that it will be beneficial to get as big a deposit as possible - but will it? I am worried that my debt will hold us back as well. Is it better to clear the debt off first and then look for the right mortgage or just concentrate on the deposit?
Ray Boulger: If I knew the amount of debt you were carrying my answer would be far more focused, but I will provide some general thoughts. A good starting point is to point out that there are several good 100 per cent mortgages on the market but the best will typically cost about 0.75 to 1 per cent more than the best mortgage with a 10 per cent deposit. Also, the income multiples available on 100 per cent lending are often, but not always, less than if you have a deposit.
If you have outstanding loan or credit card debts that will normally reduce the amount you can borrow. If you decide on a 100 per cent mortgage avoid any which impose a Higher Lending Charge, as this is typically an extra 3 per cent fee added to your mortgage.
There are a few schemes on the market which allow you borrow more than 100 per cent so if you decide to buy now it may be worth considering rolling your existing borrowing into a 100 per cent plus mortgage. It could reduce the interest rate you pay on your existing debt and make your overall level of borrowing more affordable.
I generally wouldn’t recommend buying unless you are reasonably settled in your location and expect to be there for a minimum of three years in view of the cost and hassle of buying and selling. Assuming you are settled the most important consideration is can you afford the mortgage and the other costs that go with owning your own property. If you can then an important consideration on whether to buy now or wait while you pay off your debts and save a deposit is your view of property prices.
Over a five-year term you would pay about 4 – 5 per cent more in interest on a 100 per cent mortgage than if you had a deposit. Therefore if property prices increase by more than 5 per cent over five years, which I think is likely, you will overall be better off by buying now with a 100 per cent mortgage. If you expect prices to fall, you should obviously keep saving.
Another consideration is the value you put on owning your own home rather than living in someone else’s property. For many people being able to choose, for example, how their home is decorated and what, if any, improvements they make without asking anyone else (except perhaps the planning authority for some improvements) is an important consideration.
Why is it that having witnessed massive increases in house prices, which far outweigh pay rises, mortgage providers do not review the basis criteria on how they lend. The current 3 to 3.5 times annual salary mean in most cases a first-time buyer is stuck with a loan of between £70,000 and £85,000, Michael Knights
The short answer is that many lenders have reviewed, and increased, how much they will lend. This is not primarily because of the increase in house prices but as a result of the prime cause of that increase -- much lower interest rates. As lower interest rates reduce monthly payments people can afford to borrow more and with most people expecting the lower interest rates to be broadly maintained, although one needs to budget to allow for an increase, many lenders have reacted to this by increasing their income multiples.
In addition, income multiples have become dated for other reasons. We appear to be in a period of sustained low interest rates (by UK historical standards) and an increasing number of lenders assess the amount they will lend by looking at "affordability". This not only takes account of interest rate levels but also better reflects any other debts or other financial commitments and other individual circumstances such as the number of dependents.
Some lenders will now lend up to 5 times single or joint income, especially if you have a good credit record, no debts and no dependents. Thus a couple, both on an average salary of about £26,000, could borrow up to around £260,000, even if they need a 100% mortgage. It is much more difficult for someone wanting to buy on their own, where the maximum loan on the same salary would be around £130,000. In many parts of the UK this would still be insufficient to buy a property and so if you are buying on your own one option you might consider is a share equity scheme, where you buy part of a property and rent part, with the option to increase the proportion owned when you can afford it.
