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Expat Investor : July August 2007
Fast Facts 66460 Fast Facts 66461 PROPERTY INVESTMENT July/August 2007 EXPAT INVESTOR 23 Mortgage monitor -- a market view Nigel Pascoe, Director of Lending, Skipton Guernsey, places a spotlight on the UK mortgage market for expat sterling borrowers. With concerns growing over the state of the first time buyer market and worries about the amount of money new homeowners are prepared to borrow, John Charcol has launched a new rent-a-room mortgage to help borrowers get onto the property ladder. The product takes into account the UK Government's lodger scheme, which allows people to earn up to £4,250 per year in rent tax free, and adds this to a borrower's income, allowing them to take a higher mortgage if they expect income from letting a room. There are currently two product types available which allow a borrower to rent a room -- a two year fixed rate of 5.99% until 30/06/09 (which reverts to bank rate +0.99% for term 6.5% APR) and a two year tracker which tracks at 0.50% above bank rate, giving a pay rate of 5.75% (also reverting to 0.99% above bank rate, 6.5% APR). These products are available with no higher lending charges up to 95% LTV (loan to value). Katie Tucker, product specialist, comments: "This is a product that allows people to benefit from a practice that goes on every day already. Many people take a lodger in to help pay the mortgage and bills, so offering a formalised solution goes that one step further. This means some can afford to join the property ladder and others can afford two bedrooms when previously they may have been restricted to one." Key features of the mortgage include: minimum salary of £25,000 required. mortgages available at 4.25 single income and 3.25 joint income. £4,250 can be added to gross income for first room and then £3,188 (75%) can be added for a second room. The maximum amount is therefore £7,438 which is added to the salary. low arrangement fees of between £599 and £699, which can be added to the loan. can overpay up to 10% pa ERC free at the beginning of each year. This is useful if a borrower wishes to Fast Facts 66463 £2bn lost in cost when buying overseas Australia and New Zealand favourite emigration destinations British buyers abroad are being hit by millions of pounds in hidden costs reports Moneycorp, the foreign currency exchange specialist. As much as £2 billion is being lost annually on bank charges, legal fees, taxes and poor foreign exchange rates new research reveals today. UK property buyers in hot spots like Spain, Portugal and France told Moneycorp researchers they have spent as much as £19,000 each in unexpected costs -- costs that could have been avoided had they researched the buying process more thoroughly, used the most cost effective services and set realistic budgets for themselves. Despite nearly half (45%) setting a budget of around £9,000 for unforeseen charges -- a quarter (24%) admitted they had exceeded their original financial plans by incurring preventable costs. And whilst the rate of UK investors opting to buy abroad continues to rise --only a quarter of them (27%) employ a specialist foreign currency provider, Moneycorp says it's hardly surprising, therefore, that paying over the odds for money transactions and fluctuating exchange rates are significant culprits in the overspend phenomenon. Three quarters of overseas property investors could save thousands of pounds by using a foreign exchange specialist for their financial transactions. The study of people who have purchased abroad also revealed that one in five property buyers failed to save money due lack of knowledge and research. One in seven (14%) felt that language difficulties contributed to the high level of unexpected costs they incurred. Legal costs prove the most John Charcol offers rent a room (or two) mortgage Comments made at the May meeting of the Bank of England Monetary Committee hint that the end of the current cycle of interest and mortgage rate rises may now be approaching. As well as the easing of house price inflation, which is now evident all across the UK, with the notable exception of London, data released this month on consumer inflation shows a significant drop from the end March 3.1% figure to 2.8% at the end of April. Lower energy costs resulting from cheaper oil are now starting to feed back into the system and, at the same time, the high pound is having Traditional second homes in the sun holiday destinations face stiff competition from popular emigration destinations such as Canada, Australia and New Zealand in the latest HIFX Global Property Hotpots league table. This table is based on the number of overseas property enquiries currency specialists HIFX receives per country. The latest report confirms that the increasing number of enquiries from Brits are from those looking to permanently emigrate. Mark Bodega comments, "We often see an uplift in the number of emigration enquiries around Spring time as people emerge the effect of reducing the costs of imports to the UK, so raw materials and finished goods are both effectively cheaper. Many commentators are still worried by the high level of retail price inflation, though, and on balance feel that one more increase in the UK base rate may be needed before September. Rising or high inflation means that the independent Bank of England has to act, and in practice that means raising the cost of money in the UK to try and stop the source of the inflationary pressures. For the mortgage holder, what does all this mean? If interest and mortgage rates are near the top of their cycle, borrowers will want to be able to benefit from any interest rate cuts that do eventually flow through. Whilst this might be some time off, locking into a long-term fixed rate loan is unlikely to be right for most borrowers, unless of course there is a need for budgeting certainty. Borrowers who need to know what their monthly outgoings are will always benefit from a fixed rate loan over a period that suits their lifestyle. For more infor mation from Skipton Guer nsey, enquire through the fast facts number below. overpay any excess rent to reduce their mortgage. maxloanat95%LTVis £250,000; at 90% LTV £350,00; and at 85% LTV £500,000. How rent-a-room works For example, a single person who earns £25,000 per annum could borrow £106,250 (based on a 4.25 income multiple). On this basis, a repayment mortgage over 25 years with an initial rate of 5.99% would have monthly payments of £692. However, adding £4,250 available from rent-a-room they could borrow an extra £18,062 which gives maximum borrowings of £124,312. Monthly payments would be £809. The mortgage is £117 more expensive, but the additional tax-free income from renting out the room would be over £350 a month. from the British winter and are keen to realise their dreams of a new life abroad before the year is out. We are seeing an increasing number of enquires for the ever popular emigration destinations of Canada, Australia and New Zealand." The percentage of enquiries relating to buying in Australia has doubled since the beginning of the year and more than doubled for New Zealand. "With a typical three bedroom detached property in New Zealand costing £100,000, no stamp duty or capital gains tax (CGT) and year-on-year capital appreciation of between 10-15%, it's easy to see why so many of us are upping sticks and moving out there for good. A paradise for lovers of the great outdoors, the lifestyle on offer is healthy, fun, and affordable" says Mr Bodega. HIFX stresses that it is particularly important to consider currency fluctuation when emigrating as the time it takes between making a successful visa application and eventually moving abroad can be anything from nine months to four years. During such a time, exchange rate fluctuations can have a huge impact on a person's future wealth because at various points during the process they will have to convert some or all of their assets into the local currency of the new country. When transferring all your worldly goods even small fluctuations can have a huge impact. Mr Bodega explains, "Last year we saw the Australian dollar fluctuate (against sterling) by almost 10% (9.7%) so when moving £250,000 down under in 2006, currency fluctuation meant you risked losing as much as £24,250. Making the decision to move to a new country is a big undertaking, both emotionally and financially. The last thing that any family taking the leap would want to do is unnecessarily lose as much as tens of thousands of pounds in the process. Unfortunately though, this is exactly the case for the many people who entrust the transfer of their assets from old to new country to their regular high street bank. This huge loss could be avoided simply by people being aware of the alternatives and making sure they get the best rate for their money, early on in the process." To find out more from HIFX enquire through the fast facts number below. To learn more about managing foreign currency exchange, tur n to page 21 of this issue. Fast Facts 66462 common reason for budgets to burst -- with the average oversees investor splashing out £2,207 on this element of their property purchase. When added to unforeseen bank charges and taxes -- this total reaches almost £5,000. And it's not only direct financial factors that over stretch buyers' budgets -- unexpected travel costs, builder's fees and fixtures and fittings also send accounts into the red. More than one in twenty overseas property investors complained that building fees exceeded initial quotations, with buyers splashing out an average of £3,777 above their original expectations. And kitting out interiors puts a strain on many new owners -- with 5% admitting they had overspent on decking out their new dwelling. Salary Current amount available Salary plus £4,250 rent New amount per annum at 4.25 x income a room allowance available £25,000 £106,250 £29,250 £124,312 £30,000 £127,500 £34,250 £145,562 £35,000 £148,750 £39,250 £166,812 £40,000 £170,000 £44,250 £188,062 HALIFAX SVR REPAYMENT MORTGAGES (£ PER MONTH) Amount 7.25 % 7.50 % 7.75 % 8.00 % £50,000 361.4 369.49 377.66 385.9 £60,000 433.68 443.39 453.19 463.08 £70,000 505.96 517.29 528.73 540.27 £80,000 578.24 591.19 604.26 617.45 £90,000 650.52 665.09 679.79 694.63 £100,000 722.8 738.99 755.32 771.81 £120,000 867.36 886.78 906.39 926.17 £140,000 1011.92 1034.58 1057.46 1080.54 £160,000 1156.49 1182.38 1208.52 12234.9 £180,000 1301.05 1330.18 1359.59 1389.26 £200,000 1445.61 1477.98 1510.65 1543.63 £220,000 1590.17 1625.78 1661.72 1697.99 £240,000 1734.73 1773.57 1812.78 1852.35 £260,000 1879.29 1921.37 1963.85 2006.72 £280,000 2023.85 2069.17 2114.92 2161.08 £300,000 2168.442 2216.97 2265.98 2315.44 HALIFAX SVR INTEREST-ONLY MORTGAGES (£ PER MONTH) Amount 7.25 % 7.50 % 7.75 % 8.00 % £50,000 302.09 312.5 322.92 333.34 £60,000 362.5 375 387.5 400 £70,000 422.92 437.5 452.09 466.67 £80,000 483.34 500 516.67 533.34 £90,000 543.75 562.5 581.25 600 £100,000 604.17 625 645.84 666.67 £120,000 725 750 775 800 £140,000 845.84 875 904.17 933.34 £160,000 966.67 1000 1033.34 1066.67 £180,000 1087.56 1125 1162.5 1200 £200,000 1208.34 1250 1291.67 1333.34 £220,000 1329.17 1375 1420.84 1466.67 £240,000 1450 1500 1550 1600 £260,000 1570.84 1625 1679.17 1733.34 £280,000 1691.67 1750 1808.34 1866.67 £300,000 1812.5 1875 1937.5 2000 What it'll cost you