Sarah: Hello everyone thanks for coming. We’re just about to get started, so I’ll welcome you all to Ask the Experts, where we’ve got our expert panel assembled to answer all your questions about buying your first home.
Let me introduce myself, my name’s Sarah Smith, I’m a presenter on Channel 4 News and I’m also their business correspondent, which means I do spend quite a lot of time covering the property market – it’s a very big story at the moment and one of the biggest issues that we’re forever covering on the news is just how difficult it is for first time buyers to get on the property ladder these days.
As you probably know that’s why the government have introduced various schemes to help first time buyers like Help to Buy but that’s lead some to worry that actually we’re already inflating a property bubble in some parts of the country and maybe now isn’t a terribly good time to invest if property’s overheating.
There’s all kinds of risks, as you know, associated with any kind of property investment and we’re here to try and unpick some of those for you and try and get you to avoid some of the more common pitfalls.
So let me introduce our experts. First, you’ll probably recognise George Clarke here from Channel 4, Restoration Man and George Clarke’s Amazing Spaces. You might not know that he’s also the creative director of an architectural practice called George Clarke and Partners – they design and build award-winning projects throughout the UK and abroad, so he’s got lots of practical experience to bring to this.
Holly Thomas, beside me here, is an award-winning financial journalist, who’s written for the Sunday Times, the Daily and Sunday Express and also Financial Times Business. She covers all areas of personal finances, she specialises in property and investments.
Beside her is Craig McKinlay, who is the mortgages director for Lloyds Banking Group. At the other end we’ve got Miles Shipside. He is the commercial director at Rightmove. That’s Britain’s leading property website. He’s been an estate agent for over twenty years, he regularly appears on TV and radio, talking about the property market and he’s also a qualified chartered surveyor, so between the four of them, there shouldn’t be anything that our panel can’t answer.
George: Famous last words.
Sarah: Well, fingers crossed.
I’ve got a couple of questions myself, just to get us started off in general and I’ll start with you Miles, if that’s alright?
When is it a good idea to be buying – who should be buying a home? Who should be trying to get on the property ladder? And who shouldn’t?
Miles: Well – depends on your personal circumstances. Renting vs. buying – a big question. You’ve got to work out the economics of it. Does renting suit your lifestyle? Do you want the responsibility of buying a house? Can you afford the deposit?
If you’re buying a property, you are best to look long-term, it’s a major commitment, so if you think there’s going to be a degree of fluidity with your job in terms of location, perhaps you’re best to rent. But if you’re looking to actually set down roots somewhere, then many, many people before you have decided to get onto the housing ladder and buy.
It is something of a British obsession, having said that, owner occupier rates have been falling in recent years and renting does suit some people’s lifestyles, so very much a personal decision. Don’t make it on purely financial grounds as well – buying a home is something that you should do for emotional reasons and the enjoyment of owning a home, don’t just think about profit – think about the enjoyment of having your own nest and somewhere to bring up a family.
Sarah: Because Craig – there must be people that come to Lloyds looking for a mortgage, to whom you have to say no – they’re not the right people to be buying a property.
Craig: No, no – absolutely. I mean we, as do other lenders, currently accept about nine out of ten first time buyer applications. But absolutely it has to be right for the individual. I mean it’s a big, serious decision. I mean, you’re borrowing a lot of money – most people pay it back over 25 years –some up to 40 years. So it’s a big decision, it’s an expensive decision – it takes time and money to get into, it takes time and money to get out of. I mean, clearly you can get out of a house purchase, you can get out of a sale, but it’s not something you should take lightly.
So really, to echo the other comments, you really need to consider: is this something that I’m planning to be in for the next couple of years? Do I expect to stay in the area? If you’re buying with your boyfriend / girlfriend or friends, you know, do you expect those relationships to last? So it is a big thing.
Holly: It can be the right thing for certain people, you shouldn’t just rush onto the property ladder because you’re reading that prices are going up. It’s very much a personal decision and, you know, as Miles said, if your job is quite fluid and you’re not looking to put down roots, then buying, actually in the long run, could be just the wrong time. I think it’s all very well to watch the market, and try and perhaps time the market but even the best experts in the world don’t know exactly what’s going to happen. We don’t have crystal balls, so I think it’s important to do what’s right for you at your stage of life. Affordability is of course the issue.
Sarah: Very very low interest rates make it of course attractive – do you think that makes it a good time to buy now Miles?
Miles: Record low interest rates – obviously it’s whether you can actually access those rates- which depends on the amount of deposit one can put down, but you’ve really got to look at can you afford rates when they go up? Because the negative of low interest rates is that there is only one direction for them to go.
So – yes, we’ve got low interest rates, which is great now and we’ve got Help to Buy and lower deposit mortgages coming back. So there are things in a buyer’s favour, but the UK property market is made up of lots of small local property markets with lots of different conditions. But I’m going to come back to what I said earlier – is – don’t just buy for profit, think about other long term factors rather than just thinking ‘where shall I buy that’s going to increase in value?’.
Sarah: How Craig do you start off trying to get a mortgage in the first place?
Craig: Ok – well the first thing I’d say- to give everyone -kind of- a bit of hope – I mean this is all – sounds daunting – and what I’m about to say is quite daunting – but last year, which was a historically relatively low year for first time buyers, it’s coming up from previous lows we’ve seen, but last year we think there would be about 350,000 first time buyers successfully bought a house, so it’s not just the people in this room, you’re not that rare, there’s a lot of people that have managed to successfully navigate.
Probably the most important thing you can do is start to plan early. So really, obviously, you need to go and talk to a mortgage lender – be that a bank, or go and see a broker or a building society to talk about how much you can borrow. But really you need to start – be planning as far before that point as possible, because you need to think about saving up your deposit, because whatever type of house you buy and whatever type of scheme – or not in a scheme- you’re going to need some type of deposit. So you need to think about saving the deposit up. And the other thing you need is - credit score’s really important. So, you know, you can change your credit score over time, so if you’ve had issues with your credit score in the past, you can change that over time. So you need to make sure that you’ve got a reasonable credit score and that you’ve worked out how much deposit you think you’re going to need.
George: Can I just ask how you change your credit score?
Craig: Yeah – so the first thing is – find out what your credit score is.
George: I probably shouldn’t be asking the questions here – this is to benefit you – but I am intrigued.
Craig: Yeah, so the first thing is find out what your credit score is – the two biggest credit companies in the country will allow you to do it online for – I think it’s about £2 or £2.50 – to get a credit score, so try and work out what your credit score is. Personal circumstances, so you need to see if you’re – you know - if you’ve lived in, as a student, maybe with friends, and one of them has got a bad credit score, potentially you can get attached to that. If you find that out you can then appeal to the credit company and get removed from that and say ‘look - you know – this isn’t my wife or boyfriend or whatever, this is someone I lived with’ so you can kind of get disconnected from that. But really it’s about - kind of - acting responsibly and being able to show a track record of borrowing reasonable amounts of money and paying it back and acting responsibly.
Holly: There can be lots of problems with your credit file – I think this is one thing about using planning ahead is when you think you’re going to even start looking in the near future, it’s just to get a copy of your report. It does cost £2 and -you know- hopefully it’ll be absolutely fine, there’ll be nothing you don’t recognise on there, but I don’t know the actual facts, but so many people find something – like you say – they might have flat shared somewhere or there might be something on there, or you didn’t pay a full catalogue bill – you might have two pence left on there and if you look at it far enough in advance then you’ve got the time to sort it out. Even if it was a genuine mistake, you can pay it off, but sometimes you can leave a note on the file to explain: look, this was a two pence debt I owed – this is the reason, because then a lender will look at it and say ‘ah- okay, so this is a bad mark but this is the reason’. Now, I don’t know if they’ll look past that but at least you can put a small explanation on there to say, you know, this was a genuine mistake.
Audience 1: Just really wanted to see what options were out there if you’re currently renting and so it’s much more difficult to save the deposit if you’re starting from scratch and starting to plan where really you need to look financially to, whether or not there’s 100% mortgage out there or if you actually do need something and if so what sort of level of deposit are they looking at now.
Sarah: Interesting question, of course there is help and we can discuss that for people who have got small deposits. We’ll start with you Craig, is there such a thing 100% mortgage anymore?
Craig: Not that I’m aware of, certainly none of the main big high street lenders do 100% mortgages. A few of them will do 5% deposit mortgages that they’ll do on their own and some of the smaller building societies where you only have to put down a 5% deposit and then the big thing at the moment is the government Help To Buy Scheme which quite a few of the lenders are taking part in the government basically indemnifies the lender if there’s any issues. So it’s kind of a transaction between the lender and the government, it’s not something the borrower has to get involved in. There are various schemes that are 5% deposit mortgage but like I’d say you pretty much, for most lenders, need at least 5%. Clearly the more you can put in so it tends to be there’s different rates and the more you put in the better the rate gets so if you can put in 10% you’ll find that the mortgage rate will go down by possibly up to 1% and then again 85% is another place where the rates change and they come down continually until about if you’re lucky enough to have a 40% deposit then the rates get really cheap. So one of the benefits of saving a big deposit is that you’ll normally get a cheaper rate but it all depends on how long you want to wait, what type of house you want to buy, etc…
Sarah: Help To Buy has made a big difference, I mean a lot of people have rushed to take advantage of it...?
Holly: Absolutely, it has been an incredible scheme in which people were very sceptical about even the first sets of figures that have come out are really encouraging that it is helping people.
Sarah: …but you would probably get a better rate with Help To Buy would you instead of getting a 95% mortgage?
Craig: Let me just clarify Help To Buy, Help To Buy Part 1 – came out last April is basically only available on new build houses, so basically new build houses or flats. That’s the shared equity element where you put 5% in and the government puts up to another 20% in and then the lender lends 75%. The advantage of that is it allows you to buy new build houses which is great. But also your mortgage payments tend to be fairly low because the bit the government has lent you, the 20%, you don’t pay any interest on until after five years. Actually say you buy a house to £100,000 – you need to put £5000 in, the government puts 20% in and the lender puts 75% in – you’re only paying interest rates on £75,000 rather than normally you’d be paying on £95,000. So it can make it quite affordably although you do have to be prepared after five years you have to start paying interest on the 20% part. So that was the first scheme, last April, which was new build only. Then the bit that’s getting a lot of publicity at the moment is the second part of Help To Buy which is the 5% deposit mortgage, that’s available on all homes – that’s new build, second hand homes, it’s not just for first time buyers it’s also for people to move home – it’s available for properties up to £600,000 but clearly you’ve got to have a lot of money to be first time buyer buying a £600,000 house but believe or not they do exist. The difference with the scheme is that the government don’t own any of the house. So basically you put your 5% deposit in, the lender puts the 95% loan in, you pay on the full 95% interest rates and you pay that back over time and there is no government involvement. The only government involvement is if you were to default – so if you couldn’t pay the mortgage back and the lender were to lose money the government would pay that money back so it basically insures the lender. The reason the government did that is because 95% mortgages have long been part of the lending kind of picture – it’s only been the last few years since the credit crunch that lenders have been more cautious because of all the problems they had and started basically only lending to 90%. So the government said well actually we think we have lots of first time buyers who can’t get into the property market because they can’t save up the deposit so actually if you start learning to 95% we’ll kind of insure part of it to make sure you don’t lose money. Obviously the lender pays a fee for that so it’s a bit like an insurance product.
So there’s two different parts to Help To Buy so it’s important that you understand if you’re talking to your mortgage provider or a house seller or new build buyer that you understand which one is doing.
Sarah: Miles, it’s popular, it’s new so we haven’t seen any of the pitfalls yet but is there anything to be wary of with Help To Buy? Maybe reasons not to rush into it?
Miles: If we look at the new homes scheme obviously as Craig said, whilst obviously it’s a great scheme for a home buyer if you have got stretched affordability then a 20% interest free loan from the government is something to consider but you obviously have to start paying interest on that in 5 years and if property prices don’t go up then as well you could be trapped in that property because you obviously don’t own as much of the equity as you would do. It has been massively popular – some developers have effectively sold out of their developments because of it. It has to a degree lessened the negotiating power of the buyer basically because developers are selling those properties more quickly – and you are restricted to a new build property. So with the Help To Buy Phase 2 on existing property obviously it gives you a lot wider market to look at. But the great thing is there is evidence already that it has started to create greater competition in the 5% deposit market and that’s really the purpose of Help To Buy and if it can be ended early, it’s scheduled to last for 3 years, then everybody will be happy that the mortgage market is functioning again and there are 95% loan to value competitive mortgages out there.
Sarah: Miles we had a very specific question about Help To Buy that came from Emma via Twitter. She says she wants to use Help To Buy to build an extension and sell in 6 months, are there terms and conditions that would prevent her from doing this?
Miles: Let’s assume that it’s Phase 2 of Help To Buy and it’s an existing property that she wants to extend then no, it’s just Help To Buy Phase 2 is just like a traditional mortgage – no caveats attached at all.
Sarah: You don’t have to stay for a certain amount of time?
Miles: {shakes head}
George: You can’t own another property though?
Miles: You don’t have to be just a first time buyer and another misnomer but you can’t own another property..
George: …Either in this country or abroad; which not many people know.
Sarah: Is that true with both the Help To Buy schemes?
Craig: Yes absolutely is yes.
Miles: Those who are going to be helped by Help To Buy and it helps them get onto the housing ladder are going to love Help To Buy and there’s people – politicians, economists, bigger picture saying it’s a bad thing. But the irony is once you’ve actually bought your first home; you do actually want it to go up in value as well.
Audience Question: Is it smart to buy something in central London as a long term investment?
Miles: Central London has had a lot of price growth compared to out of London and what we are seeing now in prices is a degree of a ripple effect, affordability has become increasingly stretched in parts of central London then people are looking further out both investors and owner-occupiers. To either be able to afford somewhere for their own occupation or from an investment point of view to actually see greater returns so having said that central London: very limited supply and we’ve only briefly touched on supply and demand but it doesn’t matter what you buy in life, if you buy something that is in really limited supply then it’s a safe bet and will tend to go up in value but at the moment more action in terms of affordability and future profit is happening in outer London.
George: It depends what you mean by central London really, Belgravia and Knightsbridge have gone up by 360% in the last 10 years, which is just mindboggling when you think about it. If I was going to do it, not just from an investment point of view but from a personal equity point of view, knowing that you’ve got securities, good transport links, Crossrail for example, property prices round Crossrail stations are going to increase a lot when that opens in 2017/2018. Because it is all about being able to commute into your job and then back out again. And you do get regeneration hubs, for want of a better word, around good transport like that so that’s what is causing the ripple effect really, because the better the transport gets and how those links get back into central London then people are happy to move out or buy on the edges to be able to get into town easier and that’s combined to the fact that the reality is people just can’t afford to be so close to the middle of town anyway so happy to move to the edges so those transport hubs are enormous at the minute. In places, and I shouldn’t really talk about specific ones, but specific areas that people wouldn’t have wanted to live in a few years ago are now starting to increase now because of that increased transport in those areas.
Sarah: It is an interesting question to work out whether or not, when you start looking for a property, it should be new build or an existing property. What are the advantages of each?
George: One of the issues really with new builds is that generally they cost more. Because, you know, they are of a better standard and a better quality. The developer is obviously looking to make some of his profit now. Whereas the developer who built that property thirty or forty years ago has already made his profit and it’s spread among all the people that have owned it, because you are paying that profit to him directly now on that build. So new builds generally, not always, I’ll kind of qualify this a bit more: Generally more expensive, you’re getting better build quality, hopefully although some people will even dispute that because there are some house builders out there that aren’t building at the standard and quality that they should be really. And it’s also personal taste and style isn’t it? Some people like living in older properties and I mean I’ve been doing an empty homes campaign over the last few years where there’s been this huge debate where a lot of councillors would say ‘oh yeah, we’ll demolish all of this old housing stock because people don’t want to live in them anymore and then you go and speak to people who are first time potential house buyers and they’re going ‘I’ll buy it, I’ll take it tomorrow’. And you’ve got to think about you’re long term running costs on something like that. You might be buying a property where the boiler’s over ten years old so it really does need replacing. Might not have double glazing, you might be thinking about doing that. So before you know it there might be 6-7-8-£9000 worth of costs just to get your older property up to the standard and comfort that you want so it’s a personal decision more than anything else.
Sarah: Does it make a difference in getting a mortgage whether it’s a new build or an existing property?
Craig: No, slightly different lenders will lend you different amounts depending whether it’s new build or second hand. But no, generally not at all. There’s often different government schemes, clearly one of the biggest problems in driving house prices up is lack of supply so we’ve historically fairly low levels of new build homes. We need to build, people say, around 200,000 houses a year, there’s about 100,000 being built. There’s a lot of government schemes to incentivise house builders which is why the first part of help to buy went on new homes. You can get some quite good deals so that tends to be the main difference really. From a lenders point of view some slight differences but most lenders will lend on all things, might lend you different levels on new build versus second hand homes.
Sarah: Does it make a difference to what type of investment it is Holly, are you going to make your money back better on a new build or existing property?
Holly: I think a property is worth what someone wants to pay for it. That’s what it comes down to. You know, I like period properties myself. But a lot of people just want something functional with a brand new boiler, they want double glazing, they want a functional home, they’re not interested…
George: They make life easier a little bit when it comes to surveys and peace of mind for the banks as well. If you’re a first time buyer on a property the banks will generally insist on having a survey done as one of the conditions of that and if it’s a new build property it’s normally effortless unless you’ve got a really bad house builder. Whereas on a period property the list can be pretty long. And nearly all surveys are non-intrusive surveys anyway so you never really know what you’re going to get. You know, it’s a visual inspection of the building. They’re not pulling the floorboards to see whether you’ve got rotten joists beneath. There is more risk involved, if you like, with an older property than a new one. And the new one’s got guarantees against that anyway because the developer will have backed that through their own insurances.
Sarah: Alex, what’s your question?
Alex: Quite a practical question this one, but my dad’s a lot better at this than me, but what kinds of things would you say in general we should really be looking out for when you’re kind of getting guided round a property for the first time?
Sarah: George?
George: Obviously the condition of the building, it’s a very obvious answer really but when you’re walking round the property, quite clearly even though a surveyor is going to do a non-intrusive survey as well, to go round with someone experienced like your dad is going to be brilliant. A lot of people I know take their builder friends around with them as well. Anyone with any half decent DIY experience is going to be able to spot problems, quicker than someone who doesn’t do DIY. The main things to look out for things like structural movement, which is a biggie.
Any kind of cracks in the outside walls, blatantly obviously, is going to be a howling problem. Things like any visual areas of damp, coming through walls and walls surfaces. Pulling away of the internal walls with external walls happens quite a lot if you’ve got an area with a little bit of movement, when you look at the internal walls, wherever the junctions are, you know between wall, floor and ceilings, that’s generally where you are going to get some structural movement in a property. It’s really difficult when it comes to electrics and plumbing, really tricky.
When you’re walking around a house, you’re thinking – is it in the right area, is it near the right schools, how far away is it from work, where’s the nearest bus stop and the last thing you are thinking about is whether the wiring needs to be redone or not, to be honest with you and that’s why it’s worth having someone alongside you like that will say , do you know what, it’s an old properly, the wiring’s a bit shot, it probably hasn’t be touched for 30 years, we going to have to budget a couple of grand to do that.
I’ve mentioned it before but things like you’re boiler system, we never MOT or test our boilers. We get them fixed when they break, but we don’t do any general maintenance on them ever, landlords do for rental properties because they’ve got to get them certified every year. If you’re a homeowner, people just generally don’t do that and if it’s ten year old, honestly the components in that boiler are probably so knackered and tired. Someone will come round and say ‘its fine, it still works, its fine’. But actually the heat output from something like that might be 50% efficiency from what a new boiler might be, so it is that general stuff, damp, structural movement and getting a service for electrics. Really it’s about the general condition of the building. So if the kitchen is tired obviously, from a personal taste point of view, you might want to change it. If the bathroom’s looking a bit shabby, kitchens and bathrooms are the biggie. There are the big things that people spend most money on in their houses. You come into a new house, you want a nice new bathroom and you want a nice new kitchen, even if the condition of the one that’s there’s not bad, you’re probably going to end up changing it. So I would just list all of those things out as much as you can. Sometimes it is worth getting your hands on a previous surveyors report and taking it with you. You can find them online, if a surveyor has done a report for another house, at least it’s got all the headlines that they’re going to be looking for and it’s worth you just looking for the same things when you go round it yourself. You’ll end up having to pay for a survey anyway but it’s worth knowing, that you’ve got it in your head what those additional costs might be, before you make an offer. Because obviously you’ll put in an offer on something and it will get accepted, then you get the survey done and then you have to go back to them and say well actually can I knock five grand off because the surveyors said all of this, and then it becomes a real debate then. Because they say, ‘forget it, I’ll go to the next person who’s going to offer me the same amount as you’. So, it’s worth having some of that knowledge before you even put your offer in.
Miles; And from a negotiation point of view. Obviously being armed with that knowledge, particularly if you’ve taken out a professional with you, whether it be an electrician, plumber. Then it really does help you negotiate from a stand point of fact rather than just saying, ‘I want to offer you three or four thousand pounds less’. It does obviously depend how hot the market is because you can do all those clever negotiation tactics but if there is a queue of other people willing to pay the price then its wasted effort. One of the other things to think about, obviously get very focused on property and defects – but you’re going to be living there as well, so visiting the property at different times of day, looking at the traffic noise at different times of day, looking which way the garden faces, the rooms face…
George: Where the sun is!
Miles: Absolutely.
George: I know people that have brought properties and they’ve gone ‘the garden doesn’t get any sun, it’s north facing and we just get this massive shadow cast from the back’ and you think god you just spent two hundred and fifty grand on a property and you didn’t realise that.
Miles: You can put defects right, but if the neighbours aren’t right, that is harder and we done surveys at Rightmove and the importance of your neighbour – absolutely critical. We ask people ‘how many of you actually did meet your neighbours before you agreed to buy’, and a very, very small percentage.
Sarah: Are there other things that will always be undesirable in a property that people should be careful of, very tiny bedrooms, or nowhere near public transport, or are there key things that you might not think of if were buying for the first time, but that might make it harder to resale?
Holly: From a resale point of view, I think that’s really crucial because you can get so caught up with the emotion of buying your first home, and it’s exciting and ‘oh I can hang this picture there’ and it’s great. But resale is quite a good thing to have in your head, because if there is something that you think ‘I kind of don’t like that but whatever I am just too excited’, it is really worth it. Quirky things, like in some old properties you might get, if you’re in a purpose built maisonette for example, a first floor flat if you have a private garden there can be a staircase to go back down to the garden, doesn’t matter for you but somebody who might want to buy it with children – that’s a no no. So a tiny bedroom, you know, it can work but not if you want to rent it out or sell it out as a sharer, you know it’s fine if you are in a couple. If you’ve got one double bedroom and a tiny bedroom, it’s never going to work for sharers. So, resale I think is always good to have in your mind. If there is something you’re unsure about, that can’t be put right, I think even interior design wise…
George: There will be certain things that are out of your control though, but make sure your conveyance lawyer checks it. You don’t want to buy a house where they are building like HS2, or something, some major infrastructure project, that you weren’t aware of when you put your offer in (I mean that’s quite extreme). But I do genuinely know of people who have bought a property and not really, really gone through the searches properly and then all of a sudden a massive housing development has been built next door. Which is a good thing because it is providing the housing that the industry needs, but when you’ve got a building site next to you for three years when they are building a sky scraper (bit of an exaggeration) it might not be what you want.
Sarah: Assuming you can avoid all of those pitfalls, are there any rules of thumb about whether it’s better to buy a smaller property in a really good location, or a bigger property in perhaps an area that’s not quite so up and coming?
George: That’s an interesting one. I mean location is obviously a huge part of that, so as soon as you talk about a ‘good location’, you’re going to pay a premium for it, it’s as simple as that because most people want to live there. That’s giving you some security and stability and you’re not really playing the market, you’re not predicting what’s the next place that’s going to shoot through the roof. In places like London, there are always conversations about the next area and its mind boggling how that can distort prices. There are some area’s that I go to, and I think hang on when you talk about this turning around I’m thinking this will take twenty years for this area to turn around. But some will turn quite quickly in three or four years, so locations everything. The size of the house you buy is a personal issue because buying something small means that if it needs doing up it’s not going to cost you an awful lot of money to do it, because there’s not a lot of work to be done. If you buy a bigger property, it’s going to cost you a lot of money to do it. So either of them can give you the same percentage added value, so the added value on something really depends on where it is and what it is your building. Generally if I was going to put an extension on a house, for example in W1 in London, the build cost is probably going to be relative to one in W3, to be honest, roughly it’s not going to cost you a lot more money unless there’s access issues and things like that. So the build costs can generally be the same but it’s about the resale value per square foot. People ask me a lot about basements, should I build a basement under my house and the build cost generally is…
Miles: Massive.
George: Yes it is huge, but also it can be if you’re building a basement in one area of London and another area of London, it can generally be the same per square foot but the resale figure is massively different. So you’ve really got to think about the added value on what it is you’re trying to do.
Sarah: How do you work out where the up and coming areas are?
George: Yes where’s the crystal ball…
Miles: Obviously look for early announcements of transport links, we’ll leave the HS2…but depending on what markets you are in, but generally commute distance is a key factor for people whether you are in London or elsewhere, so it might be road links. Or major investment, so if an area is getting external investment, then you will see people want to live there, it’s more a pleasant place to live, more employment comes in. Employment is absolutely a massive factor and the projections for London are massive growth in employment which is going to underpin house prices there. That’s at a strategic level, on a more tactical level, if you’ve missed the major news, you can look for high streets being done up, trendy shops appearing, cafés, restaurants, bars so people like to live in nice places with nice amenities so you can see an area turning, London yes, they turn more quickly because people have an awful lot of money to invest and try and look for a return. But the adage is best off owning the worst property in the best location, rather than the best property in the worst location.
Sarah: Hidden costs are really frightening, especially if you’ve never been through the process before, if you are a first time buyer, a lot of people are very, very nervous about what costs are going to come they haven’t maybe budgeted for, what should people be looking out for Craig?
Craig: Some lenders charge things like application fees, which will be about one hundred pounds. But the two big things to consider are; clearly the mortgage rate, so whether it is say four percent, five percent etcetera and then also is there is a product fee? So most lenders have a range of fee free products, where the rate is normally higher. Say five percent with no fee or maybe four and a half percent with a thousand pound fee.
Now clearly the thing for you there is to consider both of those, so if you were to buy a really expensive house, then you would possibly be better off going and paying the thousand pound fee and getting the four and half percent rate in that in example. If you were buying a house for fifty thousand pounds, you’re probably better off taking the higher rate and not paying the fee. But you need to look at both of those things and work out how long you’re going to be paying them for. One of the key things to bear in mind when you’re looking at getting your home, being a first time buyer, is that the rates out there at the moment are historically low; they’ve never been as low as this in three hundred years/two hundred and fifty years or something. So they are really low, so don’t just look at what you’re paying now and like I say if you’re in a fixed term for two or five years that helps because you know how much you’re going to pay. But there’s a pretty good possibility at the end of that fixed period, mortgage rates will have gone up, so you may have to pay more. So it’s really important you think ‘well if mortgage rates were to rise by two or three percent, could I still afford it?’ But again that is something that you should talk to an advisor on to make sure you can afford it, not just now but in the future as well.
George: I think the important point though really is that, if you’re a first time buyer…if I was a first time buyer today there is no way on earth I would push myself financially to the limit on a house purchase now. You might not be able to predict what interest rates are going to be like in a years’ time, two year times or three years’ time. Well I think you would be mad to not sit down and budget for all of your general living costs, which are generally going to go up anyway, you know fuel prices, food prices, generally are increasing and to not leave a reasonable cushion there, to allow some form of contingency for a rise in your mortgages repayments would be madness, to be honest. You’ve got to remember all the wasted costs; stamp duty, it’s just a big tax straight away. I’m assuming you’re not going to buy something over two million quid but that’s seven percent tax now, which is just a huge amount of money on something like that. All of your legal costs, not massively expensive, but still a cost; removal costs, agents fee’s if you’re selling something already (which you wouldn’t be if you were a first time buyer) but those costs are quite a lot, and people forget about all those costs because you put your estate agents figure down at one and a half, two percent, but then you’ll forget they are going to charge you VAT on that. There’s all those tiny little things that when you look at the bottom line at that very end, you go ‘oh my god I’ve spent thirty thousand pounds more than I was going to do’, really. You’ve got to make sure you’ve got absolutely every single penny laid out.
Miles; Another interesting one, that’s not really come to the fore…obviously every property for sale/for rent, has now got an energy performance certificate and they are not really massively understood, but you wouldn’t actually dream of buying a fridge unless it was A rated, but again emotionally you get carried away looking at a property, but the on-going running costs are really a massive factor.
George: Huge.
Miles: It’s not fully come through in property values yet, but with energy costs increasing, a property that is well insulated – which costs a fair amount of money to do but there are some great subsidies around to do it, but looking into that as well. Is it solid walls as opposed to cavity walls – crikey that’s going to cost more to run. Double glazing, it that easy to put in? What subsidies and grants can I get?
Sarah: If someone goes into the bank to speak to a mortgage advisor, will they run them through all the potential costs of everything. So, ‘you’ve got to think your buildings insurance will be this much, you’ll going to have to pay this and this’ and will they hold their hand through that process?
Craig: Absolutely, they will hold their hand through that process, because we go through everything Holly was talking about earlier, you know how much to spend on each of these things…Clearly they have to have buildings insurance, that’s normally part of the mortgage condition because clearly the bank needs to look after its investment. Most people take out contents insurance, although they don’t necessarily need to and then there are things like do they want mortgage protection insurance…all these different things. They will basically sit down and work out affordability based on how much money you’ve got coming in and how much money you’ve going out and that model will include how much you intend to spend on insurance.
Sarah: Another question came in on Facebook, it said “me and my girlfriend are self employed, what can we do to enhance our chances of getting a mortgage?”
Is it harder if you’re self employed? It must be?
Craig: Well, it’s slightly more difficult. The thing you’ll need if you’re self employed, most lenders will ask you for two years of account verified to prove this is how much you’ve earned, this is how much the profit of the business has been. Normally how much you’ve earned and they will take a view based on that. Clearly there’s a huge amount of self-employed people in the UK and you know they do get mortgages. It’s just again the same as everything else really – it’s all about being planned and organised, thinking it through, making sure you get good advice; you ask lots of questions and kind of have a quality discussion with either your broker or the lender.
Sarah: When it’s difficult to get on the housing ladder and when it’s difficult to find somewhere that you can afford, shared ownership of course becomes a more and more popular option. Has anybody thought about buying with friends or family, rather than buying with a boyfriend or girlfriend or a spouse. Buying with friends or siblings in order to try and get on the ladder? A couple of people…
George: I haven’t got any friends…
Sarah: It’s obvious, there must be pitfalls if you buy a house with friends, can it work out well though?
Holly: It can work out, I know a friend for whom it worked really well, but I think the most important thing if you go down that road is to just set everything out on paper legally, very formally because things change, you could buy somewhere with a friend, in London it is probably quite popular just because it helps to buy with someone else and have those two incomes of the mortgages application. But I just think a lot can happen, if you’re both single at the time and then one meets someone else, they want out and they want to sell up, where does that leave the other person? So if you have a contingency plan for most obvious scenarios, I think and everything’s aid down financially, you know it seems a bit strange to do that with a friend but with something so important and so huge cost and investment for both of you, I think it can work, but you need to be in agreement and have a pretty strong relationship, I think.
Sarah: What do banks think when friends come and want to buy together?
Craig: Yeah most banks are pretty accommodating, a lot of lenders will allow up to four people to buy together. But I think probably the key thing you have to think through is if there is a change in circumstances, maybe the person you’re with meets a new person or leaves or whatever, potentially loses their job or something like that, then you’re jointly responsible. You would be responsible for making their share of the payments. So it’s a big undertaking and you really need to think it through, but there’s some big advantages, like I say, it might be the only way you can do it.
George: The banks don’t recognise any difference in the split either, do they? So if someone says I’ll guarantee sixty percent of it and you can only afford forty percent, the banks don’t recognise that do you? Blanketly its joint responsibility isn’t it?
Craig: It’s normally joint responsibility and like I say you’re responsible for the other person, if for whatever reason don’t pay.
George: Because you do get a lot of people who say ‘well I’ve got a little bit more money, so I’ll put a bit more in and I’ll take more ownership of it’. But you can do it separately.
Craig: You can do it separately, you can do it legally so that person would maybe own a bigger share of the house but you would need that all properly legally arranged.
Sarah: Laura on Facebook actually wrote in and asked us, she said ‘she wants to buy a flat with a friend but one of us is putting in a much larger share of the deposit, how can we make sure it’s fair, who gets what when we come to sell?
Craig: So again you would need proper legal advice and you would need to have that written out that this is the circumstance, you own this share, if the house price rise up, t his is how we will split out any profit.
George: I mean it is just a separate property deal away from the banks and everybody else really, isn’t it?
Miles: So you should think about the exit strategy, not the purchasing strategy.
Holly: It’s a prenup for housing.
Sarah: How cheeky can you be? Can you put in ten percent, twenty percent below the asking price or are you going to irritate sellers doing that and prejudice yourself out of it?
Miles: Sorry to hark back to two thousand and nine but yes you can put in twenty percent below asking price and some properties halved in value between two thousand and seven and two thousand and nine so that is a word of caution for the housing market. The credit crunch let’s hope was a one off extreme but property markets do fluctuate so it depends what type of market you’re in and local supply and demand factors and really the personal circumstances of the seller so there is no hard and fast rule as to what offer one might make. If it’s a hot market and other people are queuing up then you’re going to have to pay over but if you can actually find out why the seller is selling and their sense of urgency and how much interest that there has been, and agents now do have to tell you if there are other offers as well – so you can by asking the right questions get a good idea perhaps what sort of offer you ought to put in. You can start low and work up but you can ruin your credibility if you are too cheeky and start too low and you don’t get treated seriously.
George: And I think you’ve got to look at what you can afford and how much you want the property as well. I know people who will just look at it and say ‘I really want it it’s going to push us a little bit but we’re going to just offer the asking price, we’re serious we really want the place’. And a lot of the time they will get a seller who will say ‘they’ve offered the asking price let’s just get on with it’.
Miles: It’s only a moral obligation of a seller because obviously they have no obligation to accept any price but if they’ve asked a price and you’ve offered it then it’s a strong obligation for the seller to actually take the property off the market and say we’ve offered you what you want please take the property off the market we’re financially fit, the property is ours. The best properties to buy are the ones where the sellers haven’t prepared for sale. A lot of sellers do prepare a property for sale but if you can buy a property that’s smelly, disgusting, a tip and there are a good number of them around – a lot of people will be put off by dirt, they can’t see the potential of a property so we have talked about fairly major building works but actually hard working cleaning and decorating is actually probably the best and easiest way to get a capital appreciation because no end of buyers will be put off.
George: The other thing you can do and I talked about uses a little bit, and I know I’m stepping outside residential a little bit but you may or may not know that the government has just changed planning legislation so that if you buy a B1 office building you can get that converted to residential without planning permission which is quite a biggie actually so in certain areas of towns and cities where there has been a huge drop in employment and business and they have gone bust and spaces have come available you can go in and take a B1 building and make it into residential without planning. We have just done that on a building that we bought. You look at the building that we just bought and you would never want to live in it, it’s a nineteen sixties horrible nasty B1 commercial building but with a little bit of vision and creativity could make a fantastic house. The added value on that is huge because commercial in this particular area is selling for one hundred and fifty to three hundred pounds per square foot but residential is between eight hundred and nine hundred and fifty pounds per square foot so the day you buy it and get that residential on there you know you’re going to be fairly safe but that’s a developers step – it’s not just a bit of refurbishment and cleaning and changing the bathroom and kitchen.
Lloyds Bank plc. Registered office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales No. 2065. Lloyds Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278.
Eligible deposits with us are protected by the Financial Services Compensation Scheme (FSCS). We are covered by the Financial Ombudsman Service (FOS).