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Expat Investor : May June 2008
May/June 2008 ? EXPAT INVESTOR 21 PROPERTY INVESTMENT Fast Facts 55450 Fast Facts 55451 portfolio of properties over the next six months. To further support this, the average size of respondents’ portfolios currently stands at 6.1 properties, an increase from an average of 5.7 just six months ago. Confidence about rental yields is also high, with the fundamentals that have underpinned growth in the buy- to-let market remaining strong. Tenant demand continues to strengthen, driven by an increasingly mobile and fragmented population, and a shortage of affordable housing stock for sale. Rental yields remain steady at 5.72%, up from 5.71% in October 2006. Geographical areas commanding the highest levels of rent include the East Midlands (6.02%) and Scotland (6.01%). The South West was the area which experienced the highest overall percentage rise during this period. Rental yields went up by 7% in this area from October 2006. When asked about the prospect for rent levels over the next six months, 95% of those surveyed believe rental yields will remain robust, with a third (33%) expecting them to rise and 62% expecting them to stay at the same level. When asked about current rent levels, well over a third (37%) said that they were higher than 12 months ago, with over half (52%) stating that there was no change in levels over the same period. Despite the economic challenges ahead following the fallout from the ‘credit crunch’ , property investors are prepared to weather the storm in the markets and are in it for the long run. When asked about their reasons for investing, nearly half (47%) said that they were investing for capital growth, whilst 43% are hoping that their properties will provide them with a pension for retirement. Jeremy Law, Head of Buy-to-Let, comments, “Over half of our landlords report that they have added to their portfolio this year, which is extremely encouraging and indicates that the prospects for the sector remain positive in 2008. Their views are the most authoritative in the industry, as they are expressed by those who are at the coalface of the buy-to-let market. These are the people on the ground who are researching their areas, taking out the mortgages, buying, maintaining the properties and managing the tenants, therefore their opinions are important. “The social and demographic trends that have been driving the market continue to remain strong, with rental demand remaining robust. If house prices stagnate or fall, we are likely to see demand for rental properties strengthening, leading to improved rental yields. The results from our landlord confidence survey, together with the economic indicators surrounding buy-to-let, reveal that the sector is most definitely here to stay and will remain strong.” British landlords remain upbeat about buy-to-let Contrary to some recent accounts that the buy-to-let market is heading for a crash, the Bradford & Bingley landlord confidence survey of over 3,800 British landlords shows that 60% of those surveyed are completely undaunted by these recent reports. Such is their confidence in the market that 86% of all respondents are planning to either increase, or leave untouched, their A SURVEY of landlords conducted by Bradford & Bingley, the UK’s largest buy-to-let lender, has revealed that property investors remain confident about the prospects for the UK’s buy-to-let market in 2008, in spite of recent reports of a slowdown in this sector. Many have plans to increase their portfolios over the coming months, with rental yields holding steady at 5.72%. Keep up with payments and pay your mortgage off early “BORROWERS worked hard to live on a tighter budget last year, and now that the bank rate has started falling, by just keeping their mortgage payments up at the level they are now used to, they could reward themselves with an early finish to their mortgage,” says Katie Tucker, of Charcol.co.uk. “For many people, the mortgage is what dictates when you can retire. By paying it off even a few years early it can make a difference to your quality of life, not only because of age, but because of the money you free up to spend on other things. “Borrowers on variable rates have seen their monthly mortgage payments increase five times in the last two years. Base increased from 4.5% to 5.75%, taking the typical monthly payment for a variable £100,000 repayment mortgage from £555 to £629. However, borrowers who have been able to afford these mortgage payments over the last year should consider keeping them at that level now, because whatever isn’t paying interest will pay off the capital instead, reducing your term. Many economists predict that interest rates will fall as low as 4.5% again by the end of 2008.” For example, if you maintain the payments of £629 p/m that you paid on £100,000 of debt at 5.75%, but your rate has moved down to 5.25% now, £30 of it is extra, and chips away at the capital. If continued, this pays your mortgage off two years early. Miss Tucker continues, “Making this little overpayment reduces your capital, and with property value rumoured to be falling in many places this year, repaying debt is the must-do for 2008 to minimise any risk of negative equity. “Most lenders allow you to overpay between £500 and 10% of the outstanding debt extra, without charge, each month; you simply write a cheque to yourself, or set up a standing order, and let them know you want it to go towards reducing your capital debt. Your lender or a broker can easily tell you what facility you have.” www.charcol.co.uk Who wants a place on the property A list? FOUR in 10 people would consider buying a listed property, but over a third do not know that extra insurance is needed for listed properties. Rural insurer NFU Mutual has issued a warning to owners of listed properties that they need specialist insurance for their homes. NFU Mutual’s survey found that 80% of respondents who would consider buying a listed property cited the property’s character and charm as a reason. Boasting rights is paramount for some, with a fifth (22%) of 25 to 34- year-olds saying they would like the status of owning a listed property. This is less important for the over- 55s, though, with just 15% saying they are interested in status. There is also a regional difference – just 4% of Scots are interested in status compared to 23% of people in Wales and the Midlands. Despite the romantic dream, 35% of people would not even consider buying a listed property, with DIY and home improvement being the main reasons. Seven in 10 people prefer to have the freedom to make changes to their home, and more than half (55%) of those not interested in buying a listed property think that too much maintenance is required. Londoners (62%) and those in the South (62%) are also particularly reluctant to buy a listed property due to having to maintain it. NFU Mutual warns that listed properties are particularly vulnerable to not having adequate buildings insurance, due to their age and specialist nature. It can often be impossible to assess the correct rebuilding value without an on-site visit by a trained valuer. Laura Wood, spokesperson for NFU Mutual, says, “No one should rely on printed tables when trying to place a rebuild value on their property, as no two listed properties are the same, this uniqueness being the reason for their listing. “It is a common misunderstanding that the rebuilding cost of a listed property has any correlation to its market value. On occasions the rebuild cost can, in fact, far exceed its market value. Per square metre, rebuild costs can sometimes be four times greater than an average modern (postwar) property. Care should always be taken when choosing insurance for listed buildings. It is not a one-size-fits-all approach, and owners of listed properties are urged to seek specialist advice and regularly review their insurance arrangements.” Rate Expected payment Actual payment Resulting Mortgage Term 5.75% £629 £629 25 years 5.50% £614 £629 24 years 5.25% £599 £629 23 years 5% £584 £629 22 years 4.75% £570 £627 21 years 4.50% £555 £629 20 years
July August 2008