Property and economic update
May appears to have been a very surprising month for the housing market as prices increased by a very presentable 0.6% according to the Hometrack house price survey. London took a substantial lead with price rises recorded at 1.2%. However, if you look deeper into this report an even more surprising picture emerges, with a number of hotspots returning really substantial increases. North London, for instance, reported a huge 2.3% increase for May, which just goes to show that good returns can be made even in a slow market.
So is this a sign of things to come? Many people would like to think so but we don't share that view. House price growth of this scale could lead to a re-heating of the market and this would increase the potential of price decreases. This is one instance where static or slight increases are preferable, allowing salary increases to play catch-up and therefore further reduce pressure within the market.
Hometrack believes that these strong price increases will lessen over the coming months with the market returning to more sustainable levels. Richard Donnell, director of research at Hometrack comments: "With affordability levels already stretched, we are likely to see much slower house price growth over the second half of the year. We expect average house prices to increase by 3% over the whole of 2006". A view re-enforced by the other main market commentators.
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Borrow your way to wealth
In a recent presentation on global trends in the mortgage industry by David Moloney, director of consultancy firm Mercer Oliver Wyman, some very interesting points were raised. David ran some extensive research on the UK population between 1994-2004 to try to see which industry created more real wealth for its customers. His conclusion is that the mortgage industry creates more wealth than other wealth creation industries. He then went even further to suggest that we should probably call the mortgage industry the official wealth creation industry.
He backs his argument by the following statistics.
At Property for Life, the basis of our teachings is that people should borrow as much as possible against their property as we believe this is fastest and safest way to create wealth (all things being equal), and we have numerous examples in our seminars to prove this concept. Having a world authority figure backing our view with research data definitely re-enforces our point.
In Britain we seem to be obsessed with paying off our mortgage debt as soon as possible and owning our homes outright. But this just produces additional equity and we all know that equity is dead money. In essence, by paying off your mortgage you are just locking valuable funds away. The view that mortgage debt must be cleared as quickly as possible appears to have become engrained into our culture, but lets see what this can cost the average British home owner
Every £2 that you pay off from your home, at an interest rate of 6% will save you the interest payment of £2 x 6% = 12 pence over the next 12 months; but if you could use this £2 to borrow £8 towards purchasing your next property (assuming 80% finance, imagine your next property is worth £10 for simplicity reasons). With the property going up by an average 10% a year (property doubles on average every 10 years), plus 4% rent, you will gain 14%. Then you take away 6% interest and 1% expense, you will still have a net gain of 7% for the next 12 months. So you would make £10 x 7% = 70 pence. So if you are paying off the debt on your home, it's like throwing away 70 pence to save 12 pence!
So what should you do? Well, that's entirely up to you but you basically have two options.
Your first option is release equity from your property and re-invest it into another. There are a lot of finance products in the market that would allow you to borrow a high percentage of the cost of the investment property (without using other property as security), so why not talk to us to see just how much you could release?
Your second option is to do nothing and continue to pay off your existing mortgage debt. Most people won't do anything except pay off their home, even though there is probably enough existing equity to purchase another property.
The smart investor will look at taking on more mortgages debt as soon as possible as a way of putting more money into what is effectively a leveraged savings account with an interest return that could be as high as 30% per annum. Try to picture this; the £2 you pay into your mortgage debt is being lent by the bank to someone you don't even know to make a 30% return for them on your money! I am sure there are better ways to give away your money!
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Administration, Administration, Administration
by Mark Harrison
When prices are booming, lenders are desperate to lend money, and willing to sometimes turn a blind eye to the odd lapse in paperwork. Once prices look like stabilising, or there is a rumour of a price decline, then lenders typically over-react by asking for more and more backup information to support your loan application.
For the experienced investor this is seldom, if ever, a problem, since after a few properties, we end up setting up more formal filing systems. For the new investor, however, it can come as a sudden shock to be asked to produce odd bits of paperwork that, in the past, might have been thrown (or shredded.)
While the list below is not exhaustive, if you are intending to apply for finance, you should ensure that you have the following to hand before you go to see your mortgage broker:
- Two years worth of bank statements (most lenders will only ask for 3-6 months, but sometimes lenders ask for more.) These bank statements should show an income to match the income you claim to have and proof that you have made payments on your existing mortgage(s) without problems.
- Mortgage statements on your own house for the last two years. Again some lenders may ask for a rather shorter time period, but some ask for more paperwork, and the requirements for paperwork are only going up at the moment.
- At least 3 months worth of pay slips from the same employer, and the P60 from your last tax year.
- In addition, some lenders may wish for a letter from your employer outlining what income is guaranteed, and what is subject to performance (either yours, or your employers), and confirming that you are not under threat of redundancy.
- If you are self-employed, or own a material percentage of the company that employs you, then you may need to provide accounts for the last two years, together with details of your accountant (who then may, or may not actually be approached to verify that the accounts you are producing have indeed been seen by them).
- If you already own investment property, mortgage statements for each investment property for the last two years.
- If you currently have tenanted property, copies of the Assured Short hold Tenancy (AST) agreements for each property, showing that your tenants have valid contracts.
- Your passport. Anti-money-laundering legislation is one of those things that impose a burden on all of us. It is not uncommon to be asked to provide a passport by not only your solicitor, but your mortgage broker and even your estate agent (if you are using one) these days.
Now for some good news. If you do not have all of these documents, then it is still possible to get an investment loan. However, you MUST tell your mortgage broker if you have problems producing any of these, or if producing any of these is likely to highlight credit problems in the past. Your broker, assuming he or she is any good, will normally be able to find a lender and loan to fit your circumstances, but there is little they can do if you apply for a loan for which you do not qualify, and are then turned down.
The other reason that you need good paperwork is for the time of year when the investor turns to Tax Returns. The law changed a few years ago - the burden is no longer on the Inland Revenue to determine whether you need to submit a tax return - it is on you. If you receive any income from property, then you should assume that a tax return is something you will need to fill in.
The good news is that they are not as bad as one might fear! Compared to Company Tax Returns, personal returns are relatively straightforward. For the last few years, mine has taken less than an hour to complete once I have the figures together - and this means keeping my paperwork up to date.
You may still choose to have an accountant or other professional fill in your tax return for you - if nothing else, your accountant should be able to advise on which expenses can be claimed, and what allowances you should be taking advantage of. Even if they are filling in you tax return, however, you still need to be able to produce the underlying figures. Once you let property, then you need to keep a track of both income and expenses, and, vitally, keep receipts for any expenses you have incurred.
My own filing system is relatively bulky - for each property, I have several suspension files:
- One for income, which broadly holds statements of rent receipts, and ASTs.
- One for the mortgage lender, which includes mortgage statements, plus all the paperwork concerning the loan such as terms and conditions, and a photocopy of the loan application.
- One for service charges and ground rent statements (obviously, only for leasehold properties).
- One for other expenses, which broadly contains receipts for everything from CORGI certificates through cans of paint, replacement loo seats, handyman bills, and the other minor items I buy in the course of keeping my portfolio looking attractive and able to command top rent.
- One for miscellaneous, which holds all the paperwork concerned with owning the property, as opposed to letting the property - all the letters from the solicitor about the purchase, plus these days legal documents as a result of lenders dematerialising (this is a technical term for them deciding that YOU should store deeds rather than them paying for storage themselves).
In addition, I have a file for each bank account, so that I have many years worth of statements to hand.
It may seem like overkill to have half a dozen files when you only have one property, and everything fits into a single cardboard box! Over the years, however, I have had no regrets about setting up a more comprehensive filing system, because I know that whenever I am asked for a piece of paper, I have it to hand. When paperwork drops through the door, I either put it in a TO DO tray, or a TO FILE tray, depending on whether any immediate action is required.
For the TO FILE items, I strongly recommend that for your first few years as an investor, you actually file them yourself - not because putting paper into trays is a good use of your time, but because it helps you keep up to date with what your properties are making and costing. After the first few years, you should have developed your own intuition and can hire an administrator to do things like filing and letters for you. I now employ someone for ten hours a month (two Saturday mornings), which is plenty to ensure that my portfolio is perfectly filed, and everything is to hand, as well as having someone who can generally sort out problems, and do things like pop out to Staples for office supplies and the like.
It may seem a very tedious subject for the newsletter, but it is a subject you need to get right. The best time to sort out you filing is NOW, not when your mortgage broker phones up to say that the lender needs to see a statement from 15 months ago that you have now lost!
One final recommendation - if ever you hand over original documents to a lender or mortgage broker, then ask them to sign a receipt that itemises exactly what they have taken, and take photocopies of all the documents before you let go of the originals.
The reason for stressing this is that I once had a call from a lender who had asked to see two years statements from each property I owned, plus two years from my personal bank accounts, and had refused to accept photo copies. The call was to apologise that the lender had lost them! I explained that having originals was vital to my business, as the lender would agree, that each duplicate issued by my bank or other lenders would cost typically 20 pounds, and that I would therefore be issuing a small claims court claim against them for 20 pounds times 96 statements - that is to say for just under two thousand pounds. I reminded them that their representative had signed a receipt for all the documents. Mysteriously, within 90 minutes, I had a phone call back saying that the documents had been located.
Copyright 2005, Mark Harrison Ltd, reproduced by permission www.yourpropertyexpert.com
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""I can feel guilty about the past, apprehensive about the future, but only in the present can I act. The ability to be in the present moment is a major component of mental wellness." - Abraham Maslow, 1908-1970, Psychologist
"Whatever course you decide upon, there is always someone to tell you that you are wrong. There are always difficulties arising which tempt you to believe that your critics are right. To map out a course of action and follow it to an end requires...courage." - Ralph Waldo Emerson, 1803-1882, Poet and Essayist
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Develop a prosperity consciousness
by Brian Tracy
The starting point of all riches is the development of a prosperity consciousness. You must become a financial success in your thinking long before you achieve it in your reality. Both poverty and riches are the result of a state of mind, and the most important single step you ever take on the road to wealth and financial independence is the decision to change your thinking, to impress into your mind an unshakable belief that you can and will achieve your financial goals. This must happen before anything else happens.
Think and Grow Rich:
While I was growing up, I was fascinated by stories of successful men and women and how they made and lost their fortunes, and then made them over again. I read about the importance of a prosperity consciousness in the book, Think And Grow Rich, by Napoleon Hill, several times. But I never fully understood what it meant until about five years ago. Then it hit me and I've never been quite the same since. Every aspect of my life has improved dramatically, especially in the area of accumulating wealth, since I finally understood what it meant by a prosperity consciousness.
Two Great Discoveries:
Here are two of the most exciting principles ever discovered in the long search by mankind for the secrets of health, happiness and great personal wealth.
All Causation Is Mental:
The first principle is this. All causation is mental. That means everything that you are or ever will be will be as a result of how you use your mind. You are merely a mind with a body to carry it around with. The entire man made world that you see is simply an expression of thought. Your entire life is an expression of your own thinking. And since the quality of your thinking determines the quality of your life, if you improve the quality of your thinking, you must, you will, inevitably improve the quality of your life.
The Law of Expectations:
The second principle is what we call the law of expectations. This law says that whatever you expect with confidence, positive or negative, becomes your reality. If you confidently expect to succeed, if you confidently expect to learn something from every experience, if you confidently expect to become wealthy as a result of applying your talents and abilities to your opportunities and you maintain that attitude of confident expectations long enough, it will become your reality. It will give you a positive optimistic cheerful attitude that will cause people to want to help you, and will cause things to happen the way you want them to happen.
Action Steps:
Here are two things you can do immediately to practice these principles in your day to day life:
First, start thinking today in a positive, optimistic, confident way about personal and financial success. Continually imagine what differences it would make in your life if you were financially independent. This is the starting point of developing a prosperity consciousness.
Second, develop your own attitude of positive expectations. Look for the good in every situation. Look for the valuable lesson in every setback or difficulty. Be positive and cheerful about everything that happens and you will be amazed at the difference it makes in your life.
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"Before you begin a thing remind yourself that difficulties and delays quite impossible to foresee are ahead...You can only see one thing clearly, and that is your goal. Form a mental vision of that and cling to it through thick and thin." - Kathleen Norris, 1880-1966, Novelist
"Good plans shape good decisions. That's why good planning helps to make elusive dreams come true." - Lester Bittle, Author
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In the news
Better conditions for buy to let investors
Rent rises accelerated for the second consecutive quarter, driven by a combination of economic and demographic factors, the Royal Institution of Chartered Surveyors has reported.
Its latest lettings survey found 20 per cent more chartered surveyors reporting a rise in rental levels than a fall, indicating that rents have been climbing at their fastest rate since July 2001. 'Economic growth, rising employment and inward migration from EU accession countries have increased upward pressure on rents', it said. 'Surveyors are confident the upward trend will be sustained in the next quarter'.
According to the survey, for the eighth consecutive quarter instructions to let property continued to grow at a steady pace but were outstripped by tenant demand. 'Tenant demand in London accelerated to twice the long run average with rising rents pushed by migrant labour amongst other factors'.
Investors were holding tight to their existing properties, said RICS. It found the proportion of landlords selling property where tenancies had expired had fallen to 3.8 per cent in the quarter to April - the lowest outcome in two and a half years.
'Investors are holding fast to property as healthy house prices and strong tenant demand hearten expectations of capital growth', said RICS spokesman Jeremy Leaf. The news is not so good for first time buyers with house prices continuing to rise and the alternative of renting steadily becoming more expensive.
'Economic prosperity and population migration have increased rental demand making conditions better for property investors. The recent choppy ride for equities means interest rates are less likely to rise which is good news for investment'.
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Need mortgage advice?
Maybe you're thinking of buying an investment property, or you need to release funds tied up as equity in your house. Perhaps you just want to find the best mortgage rate for your own individual circumstances and cut your mortgage payments. Why not call our mortgage department today? Our resident mortgage advisers will give you the best possible advice to suit your requirements. Call them today on 0870 1670996.
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What's new?
Property for Life is growing, and as a result we would like to welcome several new members to our team.
Steve Morgan joins Property for Life as our French property expert. Steve has many years experience within the specialist and lucrative French leaseback market and has in fact returned to the UK from Southern France especially to take up this role. Steve can be contacted on 01252 730792 or at stephen.morgan@propertyforlife.com
John Hook has taken the reigns as mortgage director and will be responsible for developing and growing our mortgage business. John has a wealth of experience within the mortgage and financial services sector and joins us from a director role at Charcol. John can be contacted on 01252 730796 or at john@propertyforlife.com
We would also like to welcome two new additions to our property consultancy team.
Mark Abbott brings many years of property experience from Townends estate agents and will be focused on UK property consultancy. Mark can be contacted on 01252 731043 or at mark@propertyforlife.com
Haley Neaves joins us from Anglo Cyprus and has many years experience within overseas and UK property sales. Haley will be able to help with any questions you may have regarding all of our property availability. Haley can be contacted on 01252 730799 or at haley@propertyforlife.com
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What's available?
We currently have the following investment opportunities.
UK property
Alexandra house, St Georges Quarter, Leicester
Queens Hall, Wolverhampton Street, Dudley
Eastside, The Washington Building, Bow, East London
Victoria Place, Pile Marsh, St. George, Bristol
CV One, Lower Ford Street, Coventry
Overseas property
Residence des Arts, Paris
Residence les Ecourts, French Alps
Terrazas de la Torre, Murcia, Costa Calida, Spain
Mar Menor 2, Mar Menor, Costa Calida, Spain
Roda Golf & Beach Resort, Roda, San Havier, Murcia, Spain
Corvera Golf & Country Club, Corvera, Murcia, Spain
Dona Lucia, Estepona, Marbella, Spain
Dona Julia, Costa Del Sol, Spain
Estepona Beach and Country Club, Estepona, Spain
Benatalaya, Marbella, Spain
Punta Perla, Dominican Republic, Caribbean
Sun Palace, 3rd District, Budapest, Hungary
Erkel House, Budapest, Hungary
Orpheus Ski, Bansko, Bulgaria
Florida land packages
Please go to www.propertyforlife.com/property/ for full details and look out for more great opportunities coming soon!
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Upcoming events
Over the coming months we will be attending several exhibitions in addition to our ongoing Property Academy programme. If you would like to attend a property academy session please call Laura on our 01252 737575 or email laura@propertyforlife.com stating which session you would like to attend and how many places you require.
June 24th 2006 - PFL Property Investment Academy - Cheshunt Nr Enfield
September 9th – The Coppid Beech Hotel, Bracknell
October 14th – The Montague Hotel, Central London
November 18th – The Cobham Hilton, Cobham, Surrey
For further information regarding the Property Investor Academy Programme please follow the link www.propertyforlife.com/whyinvest/education.html
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Recent events?
We recently exhibited at the Property Investor and Homebuyer North show in Manchester. Once again our MD David Austin delivered several seminars to a packed room as part of the events exhibition programme.
We would like to offer a special welcome to all of those people who joined Property for Life at the show. You have joined a rapidly expanding consultancy with an open and unique approach to property investment. We are sure that you will find membership beneficial.
Our property investor academy programme continues to go from strength to strength and recent events have proved to be some of the best yet. If you would like to attend an academy event please take a look at the following dates and contact Laura on 01252 731045 or email laura@propertyforlife.com
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Do you fancy a spending spree at one of the UK's leading department stores?
The new look Property for Life referral programme can offer you just that.
All you need to do is tell an interested friend about Property for Life and you could soon have a minimum of £250 in gift vouchers to spend in any John Lewis or Waitrose store.
Quite simply, for each person introduced by you who then purchases a property through us you will receive a cool £250 in John Lewis gift vouchers. If they purchase more than one property you will receive £250 in gift vouchers for each property they purchase. You could soon be well on your way to that spending spree.
Remember, the more people you introduce the more chance you have of grabbing at least £250. So why not tell your friends and family about Property for Life? Make sure they register on-line at http://www.propertyforlife.com/register. When registering it is important that they select the recommendation option in the 'How did you hear about us' section of the form and include your name in the 'other' box.
Please note that the referral programme is on a per property not a per person basis. Please see http://www.propertyforlife.com/services/referalprogramme.html for further information.
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