London Remortgage

There are few more emotive issues than the estimated value of your own property.

Anyone who has been or is intending to remortgage in the foreseeable future will be aware that an independent valuation will need to be completed in most cases. In the current property market, this can be a harrowing and eye opening experience. It has become increasingly evident that property valuers have been taking a very lean view of the UK property market and this has significant implications for seller, purchasers, remortgagers and, most importantly, mortgage brokers and IFAs.

According to London-based data services company Hometrack, which delivers a good indication of a property’s value, house prices fell for 18 consecutive months up to December last year, when the average house price in the UK climbed just 0.1 per cent.

For most areas, last year provided the poorest house price growth - if any - in more than a decade. There is no doubt that 18 months of average values falling, or at the very least the speed of growth falling dramatically, have diminished homeowner equity levels and dented consumer confidence. Hometrack’s national average house price in December was measured at £160,900, down 1.6 per cent from £163,474 in December 2004.

From a seller’s perspective, the messages are simple: supply outweighs demand and it is a buyer’s market. In the first quarter of last year, the number of properties available soared by more than 30 per cent.

During last year, the length of time it took to sell a house grew by more than 20 per cent to eight weeks. In 2004, it took and average of 6.5 weeks from listing to confirmed sale. Importantly, the sale price as a percentage of asking price was down to 93.5 per cent last year, endorsing the point that buyers exercised significant bargaining leverage over sellers and negotiated large discounts.

In real terms, a seller who lists his property for sale at last year’s national average of £160,900 will, on average, achieve an agreed sale price or £150,441 and have to wait on an agonising two months to seal the deal.

Even at this price it is a bridge too far for most first-time buyers looking to get their toe in the property market. But there is some light at the end of the tunnel. First time buyers accounted for 11 per cent of total buyers in the third quarter of last year, according to the National Association of Estate Agents. This was up from 7.7 per cent in August. Brokers should be mindful of the important market sector in their marketing plans, and a further interest rate cut in the first quarter of 2006 could really kick start the property market.

Remortgage

From a remortgage perspective, the implications are significant and a conservative valuation can conspire to make the professional mortgage broker or IFA look a bit silly.

Brokers and lenders witnessed and unprecedented level of down valuations last year - where the property valuation is significantly less than the customer’s initial estimate. Most lenders require a valuation to be completed on remortgage applications, particularly where the loan-to-value ration is more than 70 per cent. The major issue facing mortgage brokers is taking a customer’s estimate of their perceived property value on face value, as invariably it will be on the high side. This is where the fun begins.

Let us visit the sale process of a typical mortgage broker. You spend a good few hours completing a fact find, issuing an independent disclosure document and building the confidence of your client in your ability as a professionally-qualified, Certificate in Mortgage Advice and Practice-endorsed, FSA-registered adviser.

You tell your client that you have more than 4000 mortgage products to choose from and you will find him one that fits his need exactly. A key cornerstone of the selection is the LTV ratio and this is based on the customer’s estimate of his property’s value.

This estimate will be based on a few things: knowledge of other properties that have sold recently in his street or neighbourhood, the press and a large dose of gut feel.

Clearly many clients will have an over-inflated view of what their property is truly worth; it is an emotive issue and one that can really bite the adviser. Imagine then you have taken all the details required on the fact find, you have sourced a deal, it is tight on equity - but based on what you know and have been told, the deal fits.

The valuation rains on your parade as it comes in much lower than expected - lower than the customer’s rose-tinted estimate, lower than the flowery estimate given by the local real estate agent.

Now meet the independent valuer. Independent valuers are a cautious lot, and the subject of much cursing and blaspheming.

From a mortgage broker perspective, however, remember one thing. As far as a customer is concerned, you sent that valuer to value their property, you are the focal point of their mortgage transaction - indeed you are the expert. So when the valuation comes back well below expectations it is you, the broker, that will be left to deal with the problem.

This can create several problems. First, the deal that you diligently sourced from your 4000 choices may no longer fit the lender profile. Second, you need to explain to the client that his net asset position is not as good as he had thought. Third, you will be left to resurrect a new deal without much credibility left.

Some may think it is possible to get a valuer to change his mind. This happens about as often as the moon is blue. In fact, it happens about as often as often as a valuer gives a higher valuation than a customer’s estimate.

Remember a valuer will need to substantiate his figure with comparable - and recent - local sales, which is usually tough to argue with.

Even arranging finance for a new build can be fraught with danger. One such case recently saw a mortgage arranged for a new build. The customer had negotiated a discount from the builder’s original asking price and, by definition, set a market price for the new property.

Imagine explaining to the customer that the deal he had got on his property was not as good as he thought because a licensed valuation down graded the new purchase by £15,000. This resulted in the deal not fitting the lender criteria and a distressed customer at loggerheads with the builder. The builder was happy to back out of the deal and sell the property to another customer, happy in the knowledge that the chances of the same valuer turning up were remote. The consequence was a very unhappy customer and a very traumatic process for all involved, including the mortgage broker.

So what do we do in these downward trend times? Hometrack estimates that property prices this year will rise just 1 per cent, citing affordability as the major barrier to entry for buyers. Halifax is a little more optimistic, predicting a 3 per cent rise. Either way, the head days of double digit growth of past years are gone. It really is a challenge as a professional mortgage broker to tread the tightrope between realistic property valuations and a disappointment.

POSITIVE

There are, however, positive signs on the horizon for the property market. First-time buyer activity has increased, usually a precursor for renewed vigour in the property market.

Estate agents have reported their first drops in available housing stock for nearly six months, another sign that activity is starting to move the right way.

Interest rates are stable, and the much vaunted interest rate cut to stimulate a slowing economy has not happened - yet. Inflation and unemployment levels will need to be kept in check to facilitate a cut in rates. All of these things may happen or continue to happen; they may not.

In the interim, mortgage brokers need to deal with the reality of a bear property market. At point of sale, be armed with the facts and be ready to re-adjust your customer’s estimate of his property value. Check property websites before your sales call and get a feel for local area conditions and trends.

Not only will you be armed with the facts, you may just save yourself and your customer a lot of heartache. Additionally, it is not a bad idea to get to know your local valuers; you will find the same names keep coming up.

When push comes to shove and you need to explain the salient points of a valuation, or worse still a down valuation to a client, you had better know what you are talking about. Saving the deal could rest on it.

Finally, at point of sale, cover yourself. Explain to the client that you are basing your product recommendation on his estimate of property value and that it is subject to qualification from a licensed valuer.

Remember property values are an emotive topic - so know your area, do your homework and you will reap that rewards with much less hassle.

Article Source: http://EzineArticles.com/?expert=John_S._Smith

House prices recorded another strong year in 2007, underpinned by significant economic momentum, ongoing housing shortages and strong buy-to-let demand. A worldwide economic boom allowed London to benefit from its position as one of the globe’s financial hearts, while the manufacturing sector shook off the strong pound and the cost of expensive raw materials to record a reasonably strong year.

The upbeat economy proved supportive of buyer confidence and proved to be a great factor in keeping housing demand at high levels, especially during the first six months of the year. However, the Department of Communities and Local Government (DCLG) said that price inflation fell slightly late last year, from 11.3 per cent in October to 9.5 per cent in November.

Although the figures are not very positive, most analysts had predicted a downturn in price growth as a result of the global credit crunch. The Royal Institution of Chartered Surveyors (Rics) has backed the view and said that the UK housing market is supported by a number of key underlying factors.

The resilience of the employment picture continues to provide a key layer of support for the market. In the absence of a marked increase in redundancies, the level of distress sales of property should remain relatively subdued.

The likelihood of further interest rate cuts during the first half of the year will also help underpin house prices as first-time buyers are attracted back to the market.

However, mortgag and remortgage lenders, brokers, estate agents and valuers say that property prices will slow dramatically in 2008, in some regions they may even fall, although, they are not predicting a crash in the residential or buy-to-let markets.

The main reasons for the more subdued outlook lie on the demand side of the market, where a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations appear likely to reduce the level of activity.

So what does 2008 hold for investors? Higher mortgage and remortgage rates and lower house prices were two major financial features of 2007, but what will the future hold?

Some experts are predicting average house prices to fall by 2 per cent in 2008 and while buyers are much thinner on the ground, so are sellers. Many sellers are not prepared to sell at less than they think their property was worth earlier in the year and fewer houses on the market will keep prices from falling very far. However, demand for properties will fall because buyers will be hit by higher borrowing costs and tighter lending criteria. In particular, some existing sub-prime borrowers will be unable to remortgage, or afford the rate their mortgage reverts to when the initial deal finishes, and they will have to sell or their properties will be repossessed.

The was a steady easing in house price growth during the second half of 2007 as the rise in interest rates since August 2006 and negative real earnings growth have curbed housing demand.

The impact of higher interest rates will bite further in the coming months. In particular, this will arise as large numbers of borrowers who took out fixed rate mortgages in 2005 and 2006 at very low rates move on to significantly higher rates as their mortgage term expires.

Higher commodity costs including food, energy prices and council tax bills will also take up more of homeowners’ income, reducing the amount many householders have to spend on housing. As a result, the annual rate of house-price inflation will continue to ease during 2008.

On the upside, we expect the Monetary Policy Committee to cut rates to 5 per cent by the end of 2008 and this, along with the continued shortage of housing, will provide some support. House price growth is expected to be broadly flat in 2008. With little if any growth in prices, and lower levels of house purchase activity, mortgage lending will also be weaker in 2008.

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Central London residential property prices rose by 3.9% in July 2007, the highest jump in a single month for 31 years, according to the Knight Frank Prime Central Location index. Lack of supply of suitable properties is considered the reason for the continued rise in residential prices throughout central London, with rises in house prices consistently outperforming gains in flat prices month on month since January.

July’s figures give an annualised growth of 36.4% - the highest annual growth since 1979 – and now the reasons for the lack of supply driving the outstanding price increases are coming under the microscope. It appears that foreign buyers have a large part to play, as 61% of all property over £4 million for sale in prime central London is sold to foreign buyers who, unlike domestic buyers tend not to have another property to release back into the market, thus restricting supply even further.

The substantial rise in property prices has also led to a shift in the behaviour of foreign buyers who initially buy their property for occupation while working in the City. In the past many would arrive to undertake a prestige job in the City and purchase a property solely for occupation while they were in the country and sell the property immediately after returning home. However, because of substantial rises, such as the 36% recorded over the last year, property is increasingly being retained as an investment once the buyer returns home. This has helped fuel the property shortage and in turn keeps central London property values high.

In 2004 the average period that a foreign buyer would hold onto their property after returning home before selling it, was nine months. Last year that period had risen to 20 months and is still rising. It appears that rather than take a quick profit on their London property foreign landlords are now willing to reap an income from tenants while watching the capital value of their property investment surge.

Of course, foreign buyers cannot take all the blame - or credit - depending upon your point of view, as for the substantial and sustained increases in property prices in central London multi-million City bonuses have been swiftly invested in prime central London property, which is still seen as the most solid of investments. So, unless foreign buyers and city brokers decide to liquidate their investments the outlook for central London property seems bright indeed.

Article Source: http://EzineArticles.com/?expert=Adam_Singleton