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The Benefits of Paying Early

[ Posted November 30th, 2009 ]

A mortgage is probably the biggest payment that most people make each month. For many the payment is almost prohibitively large. It affects all aspects of our lives, what we do, where we go, who we go out with. For many the signing of a mortgage contract is a financial commitment similar in many ways to a marriage. It may sound strange, but it probably makes sense to pay more on a mortgage every month.

Why is this?

The obvious answer would be that you can finish payments earlier. The calculations are actually simple. A mortgage company will charge less interest over time and therefore you save money in the long run, especially for those mortgages which could run for 20 years or longer. There are many mortgage companies offering mortgages known as bi-weekly mortgages, specially set up to make extra payments and therefore cost the consumer less money in the long run.

But how does this work, and why do more people not do it?

In a bi-weekly payment scheme the lender accepts 2 payments per month thereby making 13 payments a year rather than 1 per calendar month, thereby saving a little money each month by reducing the amount of interest that is calculated off your outstanding unpaid sum. However, the key, as with any product, is to analyse things on a case-by-case basis and also analyse, asking detailed questions on mortgage lenders operating methods.

If, for example you make bi-weekly payments but the mortgage lender only credits your account monthly the end result is exactly the same, yes it is a bi-weekly mortgage but the only gain would be convenience for people who are paid twice monthly rather than monthly. Also, most bi-weekly payment plans come with a higher interest rate. It may be possible however to just set up your existing mortgage to accept extra payments, they will likely levy a fee for this however you may still be saving money. It helps to do the maths.

It may also be wiser to set up a payment scheme on your own that will facilitate extra payments through a bank account or maybe set up a savings account into which you heap a sum with which to pay off the mortgage in lump sums, this way you also accrue positive interest and while it is unlikely to match the percentage of the mortgage its better than nothing. However it may be your mortgage provider will levy a heavy sum for one-off payments. Again, check the details and check if you really are to make savings in the long run, and choose a payment plan to suit you.

Housing Tax-Make Yourself Aware of the Changes

[ Posted November 30th, 2009 ]

There has always been a lot of shifting in the taxes governing the property markets.

This period is no different. The Liberal Democrat party has announced that should they be elected they intend to introduce a levy on homes valued over £2 million, this is following an announcement that the figure was to be £1 million, however it was quickly changed following criticisms that it was too low, those people hit would be those with high equity but restrained liquidity, namely those in the more expensive south west and elderly pensioners.

The higher threshold will reduce the number of homes potentially affected; now affecting around 75,000 rather than the original plan which would have affected 250,000. To balance the books however they have now increased the rate from the original 0.5% to 1% of the house value. For many this would mean taxes of over £5000 per year. For the average person this is a significant amount.

The thinking behind this tax is obviously that people who live in expensive houses can afford to pay more tax. However, is this true? Is the price of a person’s home directly related to their cash liquidity and therefore their ability to pay tax?; is this tax fair?

Recent studies have shown that in many cases, while there is a correlation between house price and income, this doesn’t necessarily mean that there is a link with a person’s liquidity.

For those wishing to invest in homes, especially those over a threshold of around 500,000 this may actually be something to think about if they are planning for the long term or as an investment in which the profit margins are not too great. In the last boom, house prices went up dramatically, for many this was beyond their initial expectations and though their equity may have gone up , in the boom peoples wages had not. Thinking about these future changes and making yourself aware of both existing and impending laws could make a big difference to the house buyer.

Changing House Habits

[ Posted November 30th, 2009 ]

The average age of the UK is increasing. In 2008 the average age was 39, up from 37 in 98. While this doesn’t look like a big increase, it represents a large increase in the age to which people are living to, compared to the 70’s people are living around 10 years longer. So what does this mean for the property markets?

Although each person is different, the behaviour of both house buying and selling and its associated processes is changing. One of the key processes is that of the elderly and their ability to keep up with home payments, usually the gap between retirement and death is about 10-15 years and most people plan as such, however as a people live longer a gap is appearing in peoples finances and some uncertainty is being faced as to how to tackle this problem.

One of the main assets many elderly people is their home. A house represents a massive amount of equity that can be tapped by selling or renting it out. However for those who still wish to live in their houses this isn’t an option.

One of the solutions that people are turning to is equity release or reverse mortgages.

Essentially these solutions are policies wherein equity rich (but cash poor) people decide to either completely sell or partly release the value locked up in their property meaning they can stay in their home till the end of their lives, being able to sustain themselves more comfortably, or alternatively making arrangements for the home to pay for nursing homes or care should they need it, indeed more and more are turning to this option; the equity release market is currently booming, growing at an average of 13% per annum according the department of national statistics.

While for many this is a great solution, it is not for everyone. One must think about the term of the required cash. If it is long term, such as a nursing home then this is a good idea, however for quick cash releases it may not be fiscally sound thinking as the premiums and charges on this kind of plan can be steep. It is also worth checking the specifics of some contracts, make sure they are government approved as they may have small print that may not be to your liking.

Property Investment Up?

[ Posted November 30th, 2009 ]

Following the slumps of recent years, one might be forgiven for hesitating to buy a property, however the opposite seems to be true. It has recently been discovered that more people than originally thought intend to invest in property.

Barclays Wealth and Economist Intelligence Unit survey found 35 percent of people wanting to invest now are planning to increase the proportion of their investment spending on property, this was over a 2 year period. This trend was also found out on a global scale. 90% of investors plan to increase their property investment in the world’s biggest 10 markets.

So why is this?

It seems that the obvious answer would be that with the economic downturn and property market crashes, prices are now at what most investors seem to estimate to be the ‘trough’ of a downward trend; the only way is up!

One key indicator would be that the biggest markets for investment is in the US and the UK, this may be because this is still where much of the investment capital is, however China, not so strongly hit by the property market recession is also in the top investment areas.

So should you invest?

Roy Gilbert, head of the same unit that published these findings echoed the calls of others to say that one should exercise caution on this kind of investment, the property markets are still in turmoil and this feeling that things have bottomed out could actually be a false one, prices may still have some way to tumble. "Wider market data suggests that initial indications of recovery in property could be a false dawn, or the start of a slow upturn.

The next 12 months will be crucial in getting a clearer idea of what the longer term property investment landscape will look like" he said It is unlikely that prices will skyrocket as they did in the boom preceding the dip.

Looking at previous ‘bubble-bust’ scenarios the popping of an investment bubble is usually followed by a gradual increase rather than a sharp one on the long term, though there may be lucrative opportunities for those wishing to gamble a bit and look for some short term gains, now could be a good time for those wishing to invest in the long term too, even with another drop it would be likely that prices in 2 or more years will be higher than they currently are.

Student Accommodation-Buy to let?

[ Posted November 24th, 2009 ]

With the overall increase in the demand for student housing, linked to the increase in the amount of students going to University year on year there is also an increasing worry for students and parents alike regarding their son or daughters living situation for the 3 or more years they will attend.

Student accommodation rent prices at universities have risen with the increased demand, this has forced many parents to consider buying a house for their child with a view to taking the mortgage payments as rent to cover the mortgage, making something profitable as if the extra bedrooms are filled by students too then this will create a nice return, compounded on the fact that the student districts of town are notoriously low-priced, for many parents and property investors it has been a no-brainer.

But should you invest? The answer seems to hinge on what you are looking to do with the house, and how well you research the local markets beforehand, it is wise to match up the rent prices to how much you need to pay for rent and taking into account market variables. It also seems to matter if you are in it for the long or short term. Long term investors could be looking at returns, whereas 3-4 year investors may not.

To draw an example, Beeston, a district of Nottingham, is a growing student area. Here a 3 bedroom Victorian home cost just £50,000 in 2000, in 2003 one sold for £145,000, the prices then took a huge fall in the property market crash, where some houses bottomed out at £60,000 in 2008 and now, with the recovery, comes in at around £165,000.

In this, the parent looking to sell up after their child graduated in 2008 would be out of pocket, in terms of gains it would actually make sense for them to send their children back to college for another 3 years to recoup their costs.

Chinese Investors Buying ‘Out’.

[ Posted November 23rd, 2009 ]

China’s robust and booming property markets have recently led to an influx of property investors coming to mainland China to capitalise on the ever upward property prices.

This would lead most people to think that mainland Chinese are doing the same, and they would be correct. However there is another trend that has occurred as a double -wammy of the strong Chinese economic markets and the recently crashing prices of the rest of the world. This is particularly noticeable in the markets of Hong Kong and Macao, as well as key areas in Japan.

Despite strong currency regulations restricting the flow of money out of mainland China many Chinese are turning to the depressed markets to invest their money in property. Hong Kong recent property prices shot up 30% in the last few months, responding to the sharp increase in demand.

But many of the Chinese are essentially breaking the law by doing so-why do they take these risks? The penalties of the Chinese government are not light, but it seems that they do not deter profit-hungry Chinese nationals who see property in Hong Kong and other places not only as a great investment but also as gateway to the outside world.

One of the main reasons for this is that although the law is clear on the limits of taking ‘The Peoples Currency’ out of China it is rather slack in it’s true application of the laws, even for the average Chinese person there are numerous ‘under the table’ approaches to getting cash out of the country via offshore banking or something as simple as carrying a suitcase full of cash across the border or contacting family members to group cash together. Hong Kong also seems to encourage this influx of cash stating that a suitable investor can become a resident by investing 6.5 million Hong Kong dollars.

But this is not all good. Especially for the locals of Hong Kong. There exists potential for the property markets to experience runaway price inflation where property bubbles vastly outstrip local wages and living costs, the problem is a tricky one as there is no shortage of mainland Chinese with money to fuel the bubble.

HIP- Keep yourself in the know

[ Posted November 23rd, 2009 ]

Whilst HIP sounds like a kind of disease, it means Home Information Pack. These are recently enforced mandatory information that must be compiled before any transaction takes place on either side and apply to all homes in the UK.

But why do we need these home information packs? What do they give us that we didn’t have before?

This pack was aimed to speed up the purchasing process by giving home owners more initial information on the house they are buying. They also aim to allow the buyer more information before they buy to aim to avoid any unpleasant surprises upon purchase of their home.

Every HIP pack must contain the following:

• Home Information Pack Index- this is a listing for everything contained in the pack such as documents, surveys etc.

• Property Information Questionnaire – This is a kind of FAQ sheet to allow to ask the questions that should be asked and answered satisfactorily before purchasing a home.

• Energy Performance Certificate (EPC) or Predicted Energy Assessment (PEA) – This gives the house rating in terms of the houses energy efficiency.

• Sustainability information- This is required for newly built homes and shows the house was built in accordance with the correct guidelines.

• Sale statement- This confirms the type and purpose of the house.

• Evidence of title-This shows that the house owner will have the title to the land and the house. Leasehold properties require a copy of the lease.

• Standard searches- This gives background information on the local area and gives information on the local council and facilities.

• Extra optional information-This is dependant on the compiler of the HIP and may give any range of information on the house, its history or its surrounding area.

But a recent study showed that the relatively new Housing Price Packs have considerable differences assigned for between different providers.

According to a recent comparison the biggest high street providers, in some cases, were charging almost 50% over the cost of some online retailers for the price of ‘constructing’ the HIP. The biggest stated difference was in Halifax whose charge for an HIP on a 2 bedroom flat was £516 whereas a comparative quote from a direct online provider clocked in at £292.

It therefore pays to shop around as HIP’s can vary in depth and quality. Always check your HIP provider is an authorised one but it also helps to see how they justify the quoted price. What does one provider put in that others may not?

Finding a Home Abroad- A brief overview of the pitfalls of buying a home on the continent.

[ Posted November 19th, 2009 ]

Thousands of Britons dream of having that perfect holiday or retirement home in the warmer climes of western Europe , Spain, France and Italy in particular have all seen dramatic increases in the amount of properties bought by British foreign nationals.

But for many people this dream home idea can turn into a nightmare as they were unprepared for exactly what awaited them upon arrival in their new home.

Like any investment it pays to scout ahead, and many UK residents are quite savvy when it comes to the UK markets and conditions, spending the time needed to make sure that their investment is a sound one, yet horror stories often prevail from Europe where, for one reason or another all the bases have not been adequately covered.

Firstly, the arguably most important point is to consider the strain an extra property will put on your finances.

If you have the cash, pay this way, it will make the entire process infinitely simpler. Most people will need to take out a mortgage, either as a new one or as an extension of their existing one. Bear in mind that most lenders on a remortgage deal will only release 75% of the original homes value. It also helps to remember to that should you default on your payments, you will lose both homes.

Also be wary of exchange rates, should you be either taking out a foreign currency mortgage or earning money abroad as currency value swings could drastically increase you monthly overheads.

It is also wise to take the amount you think you will spend and add at least 10% to the value for costs, then another 10% for the ‘unexpected costs factor’. While this is wise for any transaction it is especially relevant when entering unknown markets that, even with professional aid, could present nasty surprises.
Next, investigate your locale, there are now many helpful websites that will give you direct information or put you in contact with a local agent, there are also newspapers and magazines that can help; Homes Overseas, Foreign Property News and Exchange & Mart are good examples for finding that dream buy.

To finalise, the phrase “When in Rome…” is pertinent. You may still be a British citizen but when living abroad you are most likely subject to all the laws, rules and regulations that apply to a local; saying “I didn’t know I had to pay that tax” is not going to wash with the authorities and heavy fines and penalties could be enforced. Make sure you get legal advice, particularly if staying in your home abroad for more than a few months a year. While it’s not likely you will pay two sets of taxes as many countries have reciprocal agreements with the UK, there may be some stings in the tail you were not expecting.

Securing your Homes Future Value- The Financial Upside of Energy Compliance

[ Posted November 18th, 2009 ]

It is on everyone’s lips ‘Global Warming’. The government wants everyone to updgrade their homes to be energy compliant to meet their future targets for CO2 emission reduction.

But what about the cost? One of the main arguments in the past against home upgrades has been a fiscal one. But this is a misnomer. In fact, in today’s coming markets home buyers will be looking more and more at homes in terms of their ‘carbon neutrality’ and may make you money in long run.

To put it in context, would you consider buying a house that keeps in more heat, therein saving you money, or not?

The following are key points that can help you; the home owner to prepare your home for the future.

1/. Make sure walls and attics are insulated.

House insulation has been practiced since house building began (at least in good houses anyway). Heat loss is the key factor in making savings on energy bills. Most individuals are aware of this, however many people don’t realise that their insulation is, in fact not as good as it should be-get a professional in to check for insulation gaps with an infra-red camera. Having a professional certificate of insulation could be a home buying clincher.

2/. Upgrade windows

Even though windows can be expensive, getting energy star compliant glass can save up to 24% on monthly bills. Thus raising a homes saleability.

3/. Planting trees or shrubs

What? That’s right, in older houses sometimes its not easy to upgrade but foliage keeps poorly insulated houses cool in the summer and let sun in in winter, or evergreens could block strong winds from stealing the heat away. Also, touches of nature sell houses. No one wants to just see concrete.

4/. Upgrade the house furnace or boiler and your plumbing

Many old boilers and wood stoves are horrendously inefficient; upgrading these could really help to save on those bills. Pipe insulation would also help on heat loss. For a home buyer a boiler is a big expense, help put their mind at ease.

5/. Investigate tax credits

The government offers a number of tax incentive and grant schemes to help you upgrade your home, contact your local council or go online for more information on your area 8/. Schedule an energy audit These are new ideas but there are some companies and also government agencies that can provide you with (often free) audits.

While these measures may seem expensive, they often are not and will help your homes’ value increase, and secure it as a future investment .

Government Is Set To Put Back Stamp Duty- The Return Of The Stamp.

[ Posted November 17th, 2009 ]

For many people in the UK, stamp duty is a rather unwelcome addition to the stress and burden of buying a home, and for those not prepared it can be a financial slap in the face. As a quick introduction, stamp duty is basically a tax imposed on anything that has a ‘chargeable consideration’ that is; the government imposes a tax on the movement of financial assets of significant value, a house is considered one of these.

For the home buyer they need only concern themselves with the SDLT or Stamp Duty Land Tax, which is imposed on most properties in the UK. This tax, although small on paper at 1% of the total houses sale value, (and increasing incrementally for houses over this value up to 4%) can be quite a hit to the already straining wallets of groups such as first time buyers and many groups, led by the National Association of Estate Agents and the Association of Residential Letting Agents, is also calling for reform on the current stamp duty system, which is seen by many to be outdated and to cause unnecessary strain in already weak housing markets.

Recently the government has given home owners with household values of under £175,000 an exemption from this tax to try to stimulate the sluggish markets, however as of 31st December 2009 this exemption is due to end and looks to return to the original value of £125,000. For many home owners this is not an issue, despite price drops, many house prices remain above the threshold set and will have no effect. This is especially true in the south. However those to be aware should be the owners in the north of England, Wales and Scotland where many of the house prices range just below this figure at an average of around £116,000. Those looking to move soon might want to consider doing it before the New Year.

 
 
 
 
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