by admin | Jul 12, 2019 | Investment, Mortgage News
If you’ve been paying attention to the financial news, you’ll probably have noticed that there have been numerous articles highlighting the increasing challenges faced by property investors in general and buy-to-let property investors in particular. The fact still remains, however, that the UK has a high demand for property and especially for high-quality rental property. This means that there are still very respectable profits available to astute property investors who operate in the right way. If that sounds like something which would interest you, then here is a beginner’s guide to property investment.
It’s not just an old joke, location really does matter
If you’re planning on managing a property yourself, then you’re probably going to want to look for properties which are within practical travelling distance of where you live. These days, however, property investors, especially beginners, might want to give serious consideration to using a lettings agent to ensure that every aspect of their buy-to-let business is managed in total compliance with the law. This does add to costs, but it also means that investors can look at a far greater range of locations since they will not need to travel to them personally (or at least not often).
Teamwork makes the dream work
For “hands-on” investors, having an address book full of useful contacts (such as reliable and proficient tradespeople) can make life go so much more smoothly. For “hands-off” investors, a good lettings agent can be more than worth their fee. In either case, having an accountant on board is not just a convenience from the point of view of managing your tax returns with minimal hassle, but an investment from the point of view of minimizing the amount of tax you have to pay. You may also want to have a lawyer on your side, particularly if you are a “hands-on” investor. As previously mentioned, the UK buy-to-let market is becoming increasingly regulated and penalties for non-compliance, even inadvertent non-compliance, can be very severe. You might also want to consider becoming a member of relevant associations and other networks as a handy way of keeping on top of developments in the property market and of benefitting from other people’s experience.
Make sure your portfolio is built on solid foundations
A rising tide floats all boats and a rising property market effectively gives property investors some leeway to make mistakes and escape unscathed (or with very little damage done to them). When the property market is stagnant or falling, property investors need to tread more warily. This has always been the case but recent developments have made it even more important that investors get their sums absolutely correct right from the off. In this context, there are two changes which are of particular note. The first is that Mortgage Tax Relief is in the process of being abolished, which could have significant implications for investors on higher incomes. One way to deal with this is to hold property within a limited company, however, this carries a number of implications which need to be clearly understood before a property investor can make an informed decision as to whether or not this is the right approach for them. It’s also worth noting that if you are a new property investor and choose to go down this road, you almost certainly want to buy your property through the company right from the start to avoid the costs of transferring it into the company further down the line. Secondly, the government has now finally banned landlords charging additional fees to tenants, which means that it is now utterly vital that property investors have a clear view of all the expenses they can reasonably be expected to incur (and ideally a margin of safety) so that these can be incorporated into the rent tenants pay.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The FCA does not regulate some forms of buy to let mortgages.
The FCA does not regulate tax planning and we act as an introducer for it.
by admin | Jul 1, 2019 | Mortgage News
At a very basic level, interest rates are percentage fees levied whenever one person has use of another person’s money. While the headline numbers can look small, they can have a very big impact so it really does pay to understand how they work.
Interest rates can be simple but they are more likely to be compound
Simple interest rates are based purely on the initial sum lent or borrowed. For example, if you lent someone £100 and charged 1% per annum simple interest, then each year you will receive £1 in interest. If, however, you charge 1% per annum in compound interest then the first year, you will receive £1 in interest but the second year, you will receive £1.01 in interest. This may not seem like much of a change but as the years go by, it will add up.
That was, of course, a very simple example. In reality, while simple interest really is simple, compound interest can be much more complicated as there can be all different kinds of ways of calculating it, which is why the annual percentage rate (APR) can come in very useful as a guideline to your financial “worst-case scenario”.
Different people (and companies) can be charged different rates for exactly the same product
If two different people (or companies) apply to exactly the same lender for exactly the same product, they can still be charged different rates for it. This is because the lender will assess risk and reward on an individual basis.
For example, let’s say two borrowers want to buy identical houses on a new-build development. One has a 10% deposit and is self-employed (albeit with the required level of documentation to show income) and the other has a 25% deposit and is fully employed, has been so for several years and works in a skilled and fairly secure profession. It’s easy to understand why a lender would see the second borrower as being far lower risk and hence want to attract them with a lower interest rate.
The good news here is that being aware of this reality is a crucial first step in understanding what it means for you and hence what you need to do to manage it. This basically entails looking at your situation as a whole and deciding where you are prepared to make compromises and where you are not. For example, if you are currently employed but want to go self-employed, then it may be best to wait until after you have bought a property and been approved for the necessary mortgage, or, if you are already self-employed, then you may want to make sacrifices elsewhere in your life so you can build as big a deposit as you possibly can.
Interest rates are in a constant battle with inflation
If you’re a saver then the only way you can make an effective (i.e. real-world) profit from your cash deposits is by earning an interest rate which is above the rate of inflation. If you are a borrower, then the only way you can earn a profit on the money you borrow is by generating a return which beats inflation after you have paid your lender interest on the sum which, as we have already seen, needs to make them a profit after inflation. Whatever way you look at it, inflation is the enemy of profit whether that profit comes in the form of interest rates for savers or investment returns for anyone. Of course, the fact that people do regularly manage to beat inflation shows that it is possible, however, it is important to keep the effects of inflation in mind when taking any financial decision, including assessing interest rates.
Your property may be repossessed if you do not keep up repayments on your mortgage.
by admin | Jul 1, 2019 | Insurance News, Mortgage News
In the residential property market, the general idea is that you buy a home in which to live and that ultimately you will end up owning it completely, i.e. you will pay off your mortgage in full. Obviously, there is some nuance to this, for example, people may decide to sell their property during the term of the mortgage and they may or may not choose to move directly into another owner-occupied property, but that’s the basic idea. The bad news is that even if you do plan to stay in your property and pay off the mortgage in full, there’s no guarantee that you will be able to do so, the good news is that there are steps you can take to increase your chances of paying off a mortgage successfully.
Assume that the effective minimum term of a mortgage is five years
The length of a mortgage term depends on the agreement with the lender, but since houses tend to be big-ticket purchases, mortgage terms tend to be on the longer side (as in a couple of decades or more) to keep the repayments manageable. Borrowers can exit the mortgage any time they choose by paying back the amount owed – and possibly a penalty as well. Penalties have to be reasonable, but, in short, if the borrower exiting the mortgage early would cause reasonable damage to the lender (e.g. the lender gave them a special introductory deal), then a penalty may be applied as redress. In practical terms, the costs involved in moving home are so high that it generally takes about five years to recoup them, therefore it only makes sense to buy (and take out a mortgage), if you are totally confident that you can stay in the property for at least five years. Please note, that if your Plan B is to let out the property should you wish to leave it then you will need to swap your residential mortgage for a buy-to-let, which is a different mortgage application with different approval criteria and its own associated set of costs.
Flexibility is good so avoid over-stretching yourself
Resist the temptation to “get on the housing ladder” at any cost. If you cannot afford the sort of mortgage you will need to buy a suitable property, then accept the fact and carry on renting while you increase your savings and/or income. Remember that owning a home brings responsibility as well as freedom. If you’re fed up of the restrictions imposed by landlords, you may be tempted to focus on the fact that you’ll be able to do what you like with your own home. Once you actually own a home, however, you may quickly come to understand just why landlords place restrictions on what tenants can and cannot do with a property. You may also come to appreciate how convenient it was just to be able to call a lettings agent/landlord and have them deal with problems/repairs instead of having to sort it yourself (or make arrangements for someone else to sort it).
Learn to love insurance
When it comes to mortgages, for most people the most obvious forms of insurance to take out are life insurance, buildings insurance and home contents insurance. These may be very wise investments (although, as always, make sure you get the right cover for your needs), however, you may want to extend this to income-protection insurance and/or critical illness cover, if you are self-employed or payment-protection insurance if you are employed. For the sake of completeness, the infamous PPI scandal was related to the miss-selling of PPI, so basically it was a reflection on human behaviour rather than on the product itself, which can be a very useful purchase.
Your property may be repossessed if you do not keep up repayments on your mortgage.
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