Mortgage debt will lead to longer working


More than a third of homeowners will work into retirement to pay off their mortgages, according to a new survey.

The survey from One Account found 36% of mortgage holders think they will not own their homes outright until they are over 60 meaning many of them will have to work longer into retirement to pay off the debt.

And to make matters worse, the survey found that the heavy mortgage debt held by Britons is preventing almost a half of them from saving. This is likely to impact upon their retirement fund further increasing the amount of time they need work into retirement.

Plans to start a family are being put on hold too. Nearly a fifth of 25 to 29-year-olds said the cost of their mortgage prevented them from starting a family.

The burden of debt on mortgage holders has also been revealed by recent figures from the Citizens Advice Bureau showing that 770,000 people missed at least one mortgage repayment in the past year.

Housing market ‘unseasonably warm’

House prices increased by 1.3% during September, bringing the annual rate up to 8.2% - its fastest annual rate of growth since February 2005, Nationwide said today.

Fionnuala Earley, Nationwide's group economist, said, “Just like the weather, the housing market was unseasonably warm in September as August’s interest rate hike did nothing to cool the rate of house price inflation.

A weak patch this time last year, when prices fell by 0.2%, exaggerates the annual increase, but the more recent three-month-on-three-month series still shows a clear pick up in price growth since July.

The price of a typical house is now £169,413, almost £13,000 more than at this time last year and the equivalent of a rise of more than £35 per day over the last 12 months.

Demand in the housing market seems firm “Housing market demand strengthened again in July with house purchase approvals reaching 120,000 – almost 20% above the long term trend,” said Ms Earley. “Buyer interest remains robust as estate agents continue to report strong enquiries. However, fewer sellers willing to put their properties on the market is adding to already squeezed supply, which increases price pressure. High prices and little room for price negotiation could mean that many of these new enquiries do not come to fruition, but up until now new buyers have found both the appetite and the ability to overcome the affordability hurdle.”

Landlord demand

Buy-to-let landlord demand looks to remain strong for some time to come. Around two thirds of existing landlords have plans to extend their portfolios and many have access to finance from gearing their existing portfolios.

Loan-to-value ratios on buy-to-let lending (including remortgaging) has drifted up since the start of 2005. In the first half of 2006 almost two thirds of gross buy-to-let lending was at a loan-to-value ratio of 80% or more, compared with only 41% in the first half of 2005.

Homeowners increasing their borrowing

Owner-occupier borrowers are also managing to overcome the financing hurdle.

Many reports suggest that parents and family are increasingly funding deposits for their children. Nationwide analysis of mortgage lending data suggests that borrowers increase their borrowing by around 10% when remortgaging.

Based on a typical house purchase two years ago remortgaging now would release around £11,500 which, if used to help an average first-time buyer onto the housing ladder, would leave them only having to find a further £2,300 to fund a 10% deposit.

“As raising the deposit, rather than meeting the mortgage payment, is the biggest hurdle to first-time buyers, such a helping hand goes a long way,” said Ms Earley.

600-home urban village gets green light

Stroud Council has given the go ahead for a 600-home urban village in Gloucestershire, subject to planning agreements.

The sustainable urban community, called the Littlecombe development will reinvigorate the former Lister Petter headquarters - a previously industrial area - creating an exciting mixed-use scheme offering 600 homes, with 30% available as affordable housing, a business park, offices and on-site community facilities to cater for residents.

The buildings will be designed to cause minimal environmental impact both during construction and once in use. The overall aim is to reduce standard property CO2 emissions by 30% throughout the site, and cutting-edge solutions being considered include biomass district heating systems, solar panels and rainwater harvesting.

Chris Foley, South West RDA head of operations for Gloucestershire said: "Great attention is being paid to creating a high quality scheme that complements the existing landscape.”

“A key feature on the site will be the River Cam which, once opened up, will run the length of the site creating a striking riverside environment offering public open spaces for community and recreational use."

The first phase of earthworks started on site in March 2006 to form the development plateau for the business park.

Joint development partners the South West of England Regional Development Agency (RDA) and St. Modwen Developments Ltd, are now working with Stroud District and Gloucestershire County Councils to confirm details of additional contributions they will make to the local community. It is understood the Section 106 agreement for the development have been agreed and are now waiting to be legally formalised.

Homeowners set for compulsory MPPI burden

Pressure is set to mount on mortgage holders to buy mortgage payment protection insurance (MPPI) cover, as leaked details of talks between debt charities and mortgage lenders lead to increased speculation of an additional burden on homeowners.

Media speculation that record levels of missed mortgage repayments and the worrying debt mountain shouldered by UK homeowners will prompt the introduction of compulsory MPPI could give High Street banks a major payday, said Moneynet chief executive Richard Brown.

“Making this insurance compulsory would effectively mean substantial additional monthly costs would be passed on to homeowners, even if – as has been hinted – the Treasury demand that lenders and mortgage companies provide the cover as a bolt on to protect borrowers against falling into deep debt should they lose their jobs or be unable to work,” Richard Brown said.

Currently, barely a quarter (24%) of homeowners have an MPPI policy in place. Should the worst happen, and the main breadwinner loses their job, then they currently have to wait for nine months before qualifying for any State help with the mortgage by way of Income Support Mortgage Interest payments – and this is not available if you have savings in excess of £8,000.

“Even then, they are only given assistance towards the interest on their repayments, so for many people it makes sense to arrange cover,” said Brown.

“Whilst we agree that for many people this insurance offers valuable protection, we would caution against accepting quotes from most of the High Street lenders, which are known to be extremely expensive when compared to stand alone policies.”

“…MPPI cover can be bought through the likes of British Insurance or Paymentcare.co.uk for a fraction of the cost of an identical policy offered by Cheltenham & Gloucester or other High Street giants.”

“One thing is for sure, however: if the Treasury does demand that lenders include compulsory cover, you can bet your bottom dollar that the industry will not be doing so out of altruism.”

Home demolition ‘compensation gap’ of £35,000

Home clearance is a necessary part of housing renewal but the compensation shortfall is ‘problematic’, a report has claimed.

Aspects of the government’s Housing Market Renewal Pathfinder scheme to renew failing housing markets could be improved according to a new report commissioned by the Joseph Rowntree Foundation.

The Sheffield Hallam University research found the Pathfinder scheme, which operates across nine areas in the Midlands and North of England, needs to provide better financial and social support to residents affected by demolition.

The researchers acknowledged the need for demolition and renewal as part of the drive to restructure weak housing markets but wanted the resulting implications to be addressed more adequately.

The report found an average shortfall of £35,000 between the cost of buying a new home and compensation received by home-owners.

Report author John Flint said: "Central government should recognise that housing market renewal funding alone is not enough to address the increasing affordability gap for owner-occupiers in demolition areas."

While some pathfinders have developed financial packages to help lower income owner occupiers, good practice needs to be spread more widely across the nine areas, the report says.

Financial advisers in trouble again

A third of financial advisers are breaking City watchdog rules designed to protect consumers, according to a new survey by consumer organisation Which?

In another ‘mystery shopper’ raid some 35% of almost 60 advisers visited failed to provide the Financial Services Authority required documents on costs.

Rules introduced by the FSA last year require all financial advisers to give clients two "Keyfacts" documents on costs and services before giving advice. More than 80% of the ‘tested’ advisers did not explain the purpose of the cost document and around 30% also failed to provide "Keyfacts" on services.

Tied advisers, who mainly work for high street banks and building societies, were the worst - just 16% passed all the standards. Compared to independent advisers they also offer a limited choice of product provider and on some products tend to take more commission.

A Bradford & Bingley adviser selling protection insurance said they were free to choose the product provider, when in fact they are tied to Legal & General. And an adviser at HSBC, again selling protection insurance, said the bank had an agreement with different insurance companies, but that he’d recommend an HSBC policy. This was, in fact, the only income protection policy he could recommend.

While independent financial advisers came out better, they still fell short of the mark; less than half those visited passed all the benchmarks for good advice.

Neil Fowler, editor for Which? magazine said, "Which? has been testing financial advisers for over 20 years and our results have been consistent throughout that time.Our latest investigation leads us to believe that the industry has failed consumers in the provision of this crucial service, and is still failing them."

To get the best advice, Which? recommends avoiding the high street. People should stick with advisers who are fully independent, contacting at least three to try to find one that specialises in the type of financial advice needed.

People looking for financial advice should also consider paying by fees instead of commission and be prepared to negotiate costs with the adviser.

Are UK homes becoming more affordable?

According to the latest, asking price index report from Home.co.uk (see our story, Asking prices defy rate increase) UK Property has become around 15% more affordable since asking prices peaked in 2004.

According to that index, asking prices have fallen steadily for over two years, thereby reducing the price of the average house by around 5%. Couple that with an increase in UK average earnings of around 10%, over the same period, and the ‘average property’ is 15% more affordable for the ‘average buyer.’

So houses are now cheap? Not exactly, the most affordable region, Yorkshire and Humberside, still has a price to earnings ratio of 8x average salary. Houses have gradually become easier on the pocket but they are far from cheap.

Doug Shephard, business development director at Home.co.uk, said, "Current house prices are still expensive. However, our research has revealed that the tide is slowly turning in favour of the many thousands of potential first-time buyers who have been priced out following the extraordinary house price inflation that drove asking prices to new record levels in 2004."

A trend toward greater market stability?

Increasing affordability is good news for sellers and aspirant owner-occupiers. While this trend toward improved affordability continues, the risk of a property crash is steadily diminishing.

By offering small discounts sellers have kept the market moving and, perhaps more importantly, buyers face a reduced risk of crash-induced negative equity.

The rub for buy-to-let investors, in the current situation, is that they are less likely to make a profit in the near future. Moreover, high house prices means low rental yields and many new landlords may simply be subsidising their tenants.

Affordability is closely examined in the report from Home.co.uk and reveals significant regional variation and a few surprises. Who would have thought that, of the ten regions, Greater London, with an asking price to earnings ratio of 8.5, was the third most affordable region to buy a house? The hefty salary cheques pulled in by London workers appear to compensate adequately for the higher property prices in the capital. For comparison, the overall home affordability ratio for England and Wales currently stands at 10.3.

The region with the least affordable property is the South West. Property on the market in this region has a staggering price earnings ratio of 12! Yes, the most common asking price is twelve times the average salary.

Those that inhabit the much sought after holiday home destinations in the South West will be well aware of how they have been priced out of their own towns by more wealthy buyers of second homes and holiday-lets. These buyers are often the beneficiaries of the higher value job markets in London and overseas. A steady influx of such buyers has meant that many, once vibrant, picture postcard communities are mere ghost towns in the off-season.

However, it is not just the South West that is suffering higher house prices than the locals can afford. A similar situation is to be found in both the South East and East Anglia, with each region registering home affordability ratios of 11+. Both second-home buyers and commuters working in London have inflated House prices in these regions.

Greater London asking prices rose by 1.1% this month, helping to shore up the mix-adjusted average for England and Wales, which increased by just 0.2% but was down 0.1% over Q3.

The best performing region for Q3 was Wales with a rise of 2.1%, whilst the worst performer, the East Midlands, fell by 3.0%. Over the last year, asking prices in England and Wales fell by 1.0% (3.4% below the CPI and 5.3% below the AEI) thereby continuing the two year trend toward greater overall affordability.

A current trend toward more stable and sustainable market conditions there may be, but the risk of a downturn, albeit diminished, is still present. The possibility of further increases in the cost of borrowing, the consequences of irresponsible lending practices and a potential mass exodus of buy-to-let investors are all dark clouds on the property horizon.

The Home.co.uk Asking Price Index reports may be viewed at http://www.home.co.uk/asking_price_index/

Tighter rules on cheques paid to banks

In a few weeks time people writing cheques made payable only to a bank or building society will need to break that habit. Instead they will have to add extra details about the beneficiary of the cheque, like the name or account details.

This is because from October 2006 banks and building societies are likely in certain circumstances to decline cheques made out to only a financial institution.

The new arrangements are intended to make it absolutely clear who should benefit from the funds and help prevent fraudsters paying in stolen cheques. As banks and building societies hold accounts on behalf of millions of customers, if the cheque is made payable simply to "XYZ Bank/building society", there is nothing to identify which of those account holders should benefit from the funds.

By making a cheque payable to "XYZ Bank" and adding the "account number" or "name" it is clear who the funds are intended for. Cheques made out to personal or business customers will be unaffected.

These changes were announced last December and are designed to help tackle fraud. Since then, the industry has, been advising people to start adding the extra details immediately, through leaflets and information on cheque books and statements.

Commenting on the changes, Ian Mullen, chief executive of the British Bankers' Association said: "The new arrangements reflect the importance that financial institutions place on fraud prevention."

"Although the instances where fraud has occurred in these particular circumstances are fortunately few, it is crucial that the industry continues to make life for the criminal as difficult as possible. The new measures are simple, but provide additional security when a cheque is made payable to an institution such as a bank or building society and follow good practice guidance that is included in the Banking Code."

Then there were four - or not

HSBC, one of a few lenders prepared to offer mortgages to four people on one property, has reported a 50% boom in group mortgages.

The bank said that its research showed up to three quarters of first-time buyers would consider purchasing a property with friends.

Barry Blackshaw, the senior manager of lending markets at HSBC, said: "We are addressing customer need. First-time buyers are increasingly unable to meet traditional lending criteria as a result of house-price growth."

"As prices are unlikely to fall any time soon, we are expecting this trend to continue."

Concerns

Industry experts are increasingly concerned about shared mortgages, as clubbing together could create problems in time.

Sue Anderson, of the CML, said, " Borrowers need to be careful. This kind of offer can create unstable households, which could ultimately be bad news for the owners and for the property market."

Richard Donnell at Hometrack said, "Shared equity, shared ownership are all viable opportunities, but there is nothing wrong with renting - it gives you flexibility, it's cheaper than buying and you can save up money."

Although group mortgages are rising as a proportion of total lending in the UK, they still account for a relatively small percentage. Between 2000 and 2005, the number of mortgages lent to groups of three or more borrowers more than doubled, from 0.3% to 0.7%, according the CML.

Other lenders, including Abbey, HBOS and Britannia Building Society, allow up to four friends, the legal limit for the number of joint owners allowed on one property, to buy together.

Hidden house chain breakers revealed

Moving house is one of the most stressful elements of modern life, up there with divorce, but new research reveals that purchasers won’t hesitate to drop a deal if the circumstances are not right.

The top deal-breakers are led by contaminated land where a massive 86% would withdraw from the sale if they found out the new home was nearby, found the report from mortgage supplier the Woolwich. 84% would withdraw if it was in a flood area and troublesome neighbours would account for 80% pulling out. Other areas such as subsidence (78%), asbestos (76%) or a landfill site nearby (67%) would lead to most dropping the deal.

Andy Gray, head of mortgages for the Woolwich, said: "With more than one in ten buyers pulling out of a chain, moving house can be a stressful experience. A home buyers survey may show up some of the key deal breakers like subsidence but other issues won’t appear at all, such as troublesome neighbours, therefore it’s important the new neighbourhood is checked out."

"However, hopefully home information packs, which become compulsory next year, will enable homebuyers to have more information up-front potentially reducing the number who pull out of property chains."

The research also looked at survey related reasons where homebuyers would use their bargaining power to negotiate money off rather than pull out of the sale entirely. More than two thirds would negotiate up to £10,000 off the asking price if the survey report highlighted key issues such as dodgy electrics (70%).


Top 10 deal-breakers
(% of buyers who would pull out)

Reason %

1. Contaminated land 86

2. Flooding 84

3. Troublesome neighbours 80

4. Subsidence 78

5. Absestos 76

6. Landfill site 67

7. Rights of way across garden 63

8. High power cable 61

9. Noise unsociable hours 57

10. Rising damp and timber/dry rot 47


Top negotiating points
(% of buyers who would negotiate money off)


Reason %

1. New roof needed 77

2. Dodgy electrics 70

3. Rising damp and timber/dry rot 50

4. Length of leasehold 42

5. Conifers dispute 35

Location, location, location has become a well-known catch phrase but to go alongside it should be Research, research, research. Top tips for homebuyers are…

Know what you’re buying:

Introduce yourself to your neighbours: Make an excuse to pop round – ask them about the area, or what the local amenities are like.

Vary the time of your house visits: Visit any prospective house at different times of the day and both during the week and at the weekend to get a rounded view of the neighbours and the neighbourhood.

Probe the home seller about the neighbours: Do they keep themselves to themselves? Are they quiet and peace loving like Coronation Street’s Emily Bishop? Or are they high drama like Eastenders’ Slater family?

Look for signs of homeowner pride in the neighbourhood: A well-tended garden, clean windows, or any signs of expansion or improvement are often seen as a positive sign.

Check crime figures: This will give you an indication of the tone of the neighbourhood.

Go to the pub: Chatting with a local landlord or shopkeeper can be a good way of finding out about the neighbourhood.

From the survey identify whether it is something which can be fixed. If it can be fixed, consider negotiating money off the asking price. When negotiating remember to keep your goal in mind, if you know that the roof will cost £7000 to repair, aim to knock £7000 off the asking price.

If it is an issue out of your control, such as flooding, evaluate the impact it could have on your home life and your insurance premiums.
Enquire with your local council where landfill sites are located.

Research local newspapers to find out about the community life, local schools and crime.

Nude Britannia

The great heatwave of 2006 may already seem like a distant memory, but as the summer draws to a close, a new survey by property website propertyfinder.com reveals that millions of Britons have been stripping off completely on terraces, balconies and in gardens all over the UK.

A startling 19.7% of respondents say they have got their kit off outside while at home on at least one occasion, equivalent to around 11 million people. The figures also suggest people are not going to great lengths to ensure nobody sees them, with 21% saying that they have caught their neighbours in the altogether at some point.

Those in metropolitan areas are more likely than those outside cities to sunbathe nude (21% compared to 16%). It seems that even though rural homes may be more secluded, city dwellers are less likely to know their neighbours and a greater feeling of anonymity seems to lower metropolitan inhibitions.

British not as prudish as widely thought...

It would appear that traditional British stuffiness is diminishing as the findings reveal Brits to be fairly relaxed about the possibility of having naked neighbours. When asked if they would be put off buying a house with nudists next door, 50% said they would have ‘no concern at all’, while 34% said they wouldn’t mind as long as they did not have to see their neighbours naked. Only 16% said they would not want to buy a home in these circumstances.

While 29% said they would be embarrassed to talk to their neighbours once they had encountered them topping up their tan in the nude, 57% said it would make no difference at all to their neighbourly relations (and a further 10% said they had no contact at all with their neighbours anyway).

An especially friendly 4% said it would enhance their relationship with those next door.

Younger people were less likely to have concerns than older people. 59% of the under 45s would have ‘no concern at all’ in buying a home next to naturists compared to only 41% of over 45s and 50% for the overall average.

Warren Bright, chief executive of propertyfinder.com said: “It seems that the Brits’ traditional prudishness is a thing of the past. The vast majority of homeowners are fine with neighbourhood nudity. What upsets people far more is noise and antisocial behaviour. A quiet neighbourhood is a big draw to the vast majority of buyers, whether the neighbours are clothed or otherwise.”

Noise is more of a nuisance

In contrast to the figures on nudity, 46% of respondents cite night time party noise as completely unbearable, 45% hate hearing music through the walls or floors, 39% hate domestic arguments and 37% hear music being played outside in the garden or on a terrace or balcony.

The latest research by Propertyfinder.com adds to the evidence that the nation is becoming more relaxed with nudity in private gardens, or other outdoor areas. In a recent court case in Cardigan in West Wales, a woman was cleared by magistrates of indecent exposure, sweeping aside allegations that her behaviour was ‘grossly offensive to normal decent persons’.

This research also suggests that naturism is much more widespread than might be believed. While there are just 16,000 members of British Naturism in the UK and around 130 ‘sun clubs’, the statistics suggest that many millions of us have at some point bared all in our gardens.

Andrew Welch, Commercial Manager of British Naturism said: “Nude sunbathing is the most natural thing in the world. It is terrific news to hear that it is becoming more socially acceptable too. Naturists are incredibly considerate and take great care not to offend. The seclusion of a back garden is the ideal place. Why not give it a try?”

Immigration drives record rent rises

In its lettings survey published yesterday, RICS (Royal Institution of Chartered Surveyors) has reported accelerating tenant demand and rental levels in the quarter to July.

One of the key factors driving this boost in the rental market has been immigration from EU accession countries, according to RICS. Surveyors report that immigration from EU accession countries (Government estimates stand at 427,095 since EU expansion) has put further upward pressure on rents in some regions.

Other key drivers cited by RICS are the current strength of the economy and declining accessibility.

Record rent rises

30 percent more chartered surveyors reported a rise in rental levels, as demand growth exceeded supply growth, up from 20 percent in the last quarter. The rise in rents for the quarter to July was the strongest in the survey’s history, almost four-times the long run average.

Tenant demand also accelerated in the quarter to July approaching the fastest pace since Q2 2001. 25 percent more Chartered Surveyors reported a rise than a fall compared to 19 percent in the last quarter with an ever strengthening economy and declining accessibility for first time buyers driving tenant demand higher.

Instructions to let property continued to grow, although the pace slowed for the second consecutive quarter, lagging behind demand. Tenant demand in London accelerated at the fastest pace since Q4 2000 with rents rising at the fastest pace in the survey’s history, driven by a strong corporate sector and migrant labour.

New investment in the rental market is subdued as gross yields remain low while ever increasing house prices are cooling interest.

Surveyors are confident the upward trend will be sustained in the next quarter with 28 percent more surveyors reporting confidence in rental increases compared to 24 percent in the last quarter.

RICS spokesperson Jeremy Leaf commented:

“Economic prosperity and population migration have increased rental demand pushing up rents, making conditions better for property investors. However, first time buyers will find it hard to enter the housing market with higher rents making it difficult to save sufficient sums for a deposit.”