The effect of market conditionsI have tried to reflect the current market conditions in the UK where property prices are still falling and inflation is running up. However the calculator does not allow for property price decrease so I put 0.1%. Like in the late 1980s, with a shorter period of residency of a few years, there it is a greater possibility that you may get caught out by a short term dip in prices.  If the tool accepted negative property price inflation rate, the results should have shown that renting at least for the next 5 years would be better. But at 0.1% property price inflation the results are showing that starting from year two, buying becomes the best options. In a rising property market, for a short period of a couple of years or so, renting might be better but for a longer period it is obvious that you would be better off buying.  What ifsIn any case it is worth performing several different rents versus buy comparisons, specifying different rates of house price increase, different mortgage rates to compare the results for different scenarios to see how the outcome is affected.                                                                                                               

Without being perfect the best rent or buy calculator I have found is the one of MSN UK.

http://money.uk.msn.com/mortgages/calculate/rent_buy_calculator.aspx Let’s take an example of someone who pays a rent of £800 per month. In Middlesex in 2008 this amount allows you to rent a one to two bedrooms flat. We now search for a one to two bedroom flat to buy. Depending on the area and if you negotiate well you can get that for £150,000. Let’s crunch the numbers in the Rent or Buy Calculator. 
DepositThe rent or buy comparison assumes that the money you have available to put down as a deposit should you decide to buy, will instead be invested should you decide to rent. This investment capital is then assumed to grow at the investment rate of return. Buying CostsThis is the total of all the costs associated with buying the property, including stamp duty, conveyancing, solicitor’s disbursements, surveying and the cost of any immediate repairs that are required. Let’s say the property is in perfect condition. We don’t include any costs such as removals that would be equally applicable whether you decide to rent or buy. Interest rateMortgage rates can vary tremendously over time. Unfortunately nobody can accurately predict  future interest rates, although many try. If you are comparing rent versus buy over a period of residency of several years then it may be safe to base the comparison on a mortgage rate fairly similar to today’s rates. For a comparison over a longer period of a decade, visit as many bank websites as possible and check their lifetime tracker rates or ten year fix rates.  Discounted MortgageMany, if not most, mortgages now offer an initial period during which the interest rate is discounted or fixed at a reduced rate. I’ve put discounted rate of 5.5% which in today’s climate is a good deal. MaintenanceIf you anticipate staying in the property for only a few years before selling up, and the property is in fairly good condition, then you may get be able to keep annual maintenance costs fairly minimal. If you anticipate a longer term residence however then it is wise to budget a reasonable amount for maintenance, not just to make improvements but also to preserve the value of your property Property InflationWith all the bad press on an imminent UK property crash, the credit crunch etc…I was very surprised to see the rent or buy calculator did not allow for a negative inflation rate. As if the tool considered that properties never depreciate. But at the same time the site provides this explanation: “The rate of increase in property prices can fluctuate widely from year to year. During a prolonged ‘boom’ in property prices it easy to think that an investment in property is almost guaranteed to significantly increase in value every year. However this may not always be the case.” As a historical guide, during the years 1993 to 2002 the rate of increase in house prices has varied between a decrease of 2.5 % and an increase of 16.9%, as can be seen below.1993 -> -2.5%1994 -> +2.5%1995 -> +0.7%1996 -> +3.6%1997 -> +9.4%1998 -> +10.9%1999 -> +11.5%2000 -> +14.3%2001 -> +8.4%2002 -> +16.9% The average of the above rates of house price increase is 7.57%. For a rent versus buy comparison over a relatively long period of a decade or more you may consider that the average mentioned above is a reasonable estimate for a comparison.

Given that the transition from rapid increase to negative increase may occur quickly and unexpectedly, also given the fact the current market conditions is of a decrease of price rather than an increase I decided to put a stagnant market with an appreciation of only 0.1% of property value. Monthly RentThe amount of rent, relative to the price of the house that you would otherwise purchase is an important factor in the comparison. Rent is assumed to increase in line with the increase in property prices. So rent will also increase around 0.1%. Rented maintenanceAlthough with most residential property rentals it is the landlord that is responsible for maintaining the property, there may be cases where you agree do some of the maintenance or you anticipate carrying out some improvements with the landlord’s permission, even though not bound to do so by the rental agreement. The annual cost of maintenance is assumed to increase each year at the general inflation rate. Investment CapitalIf, as is normally the case, your mortgage is less than 100% of the property’s purchase price, then you will be providing the difference as your deposit. If you decide to rent instead of buy then it is assumed that you will instead invest that money. It is assumed that these funds will grow in line with the investment rate of return. It is not assumed that you will spend the funds on the holiday of a lifetime! Investment Rate of ReturnWhether you would play safe by putting it in a building society or be prepared to live with the ups and downs of the stock market in the hope of a better return the choice is yours. I put an estimate of the average annual rate of growth of an investment. General InflationThe annual cost of property maintenance is assumed to increase in line with general inflation. A useful indicator general inflation is the Retail Price Index. Over the past decade or so, the average annual rate of increase in the RPI was 2.63%, as shown below.1990 - 9.5%1991 - 5.9%1992 - 3.7%1993 - 1.6%1994 - 2.4%1995 - 3.5%1996 - 2.4%1997 - 3.1%1998 - 3.4%1999 - 1.5%2000 - 3.0%2001 - 1.8%2002 - 1.7%2003 - 2.9%2004 - 3.0% Length of ResidenceThe average length of time that people retain a mortgage is 6 years, after which most people sell up or switch mortgages. This calculator is designed to show whether at the end of this period you would have been better off by putting your money into property or investing it, given their respective costs and the estimates for growth and inflation that you have made. 

Following is an example of one bank’s online buying guide: http://www.lloydstsb.com/mortgages/first_time_buyer_guide.asp 

1. Plan ahead: this stage is about building up some savings to put down as a deposit, reducing your expenses, and polishing your credit record (if you have one).
   
2. What you can afford: this stage is about the size of the mortgage you want to take and the related mortgage payments
   
3. Searching for the right place
   
4. Find the right place and make an offer
   
5. Deal with the legal process
   
6. Exchange contracts
   
7. Completion. Congratulations the house is yours. But you still need to move into it!

 Each of these stages contain sub-tasks you need to carry out properly to successfully buy. So when you read that buying a house is one of the largest commitments someone makes in his entire life that is true. The question I want you to think about is: Could we make this process lighter and less stressful? I’d like to answer yes. I believe that a simplified buying decision process should only be based on two fundamental questions that guide your decision process:
 o    Have you found an area you could stay in for more than a year? This means you have become less transient than when you decided to rent rather than buy.

o    Assuming that you’ve developed a sense of investing can you afford the mortgage payment or even a little bit more? We could not avoid this question about affordability any longer. So let’s deal with it now. Before buying my first house in 1999, I was renting. But before that I was housed by a friend and I did contribute toward his mortgage payments… I always had the desire to own my house because it did not make sense to flush all this money toward the rents if I was going to stay in the same area for more than one year. £750 * 12 = £9000.00 will disappear forever after 12 months.   In the meantime I knew that properties go up in value along side with inflation. My sense of investment started to blossom. After renting for about 4 months, I worked out how much extra I could pay towards a mortgage if I wanted to buy a slightly bigger house in the same area in which I was renting To get that first foot on the UK Residential Property Ladder I needed to compare my options: to rent or buy?

The MoneyMadeClear™ website has a section which explains what a mortgage is: http://www.moneymadeclear.fsa.gov.uk/products/mortgages/mortgages.html Let me reproduce here the key information but visit the website for the original definition provided by the FSA. A mortgage works like any other kind of loan – you borrow money, and you pay it back with interest over a period of time. But it has one key difference: it’s secured against your home. So if for any reason you can’t repay it, the lender can sell your home to recover their money. This process which allows the lender to sell your home to recover their money is called repossession. And we mentioned that already. It is something to avoid at all costs. The MoneyMadeClear website also mentions another type of loan to buy an investment property: Buy-to-let mortgages. Because these types of loans are not regulated, the FSA refers you to the CML website but without providing a link. I’ve done the work for you. You can visit http://www.cml.org.uk/cml/consumers/guides/buytolet#oneto understand what is a buy to let mortgage. Buy to let mortgages are strictly reserved to property investors and landlords. But for now we are focussing on the residential property ownership.   We now know what a mortgage is but getting a mortgage is it the very first step to buy a house?

There are many buying guides available on the radio, in the press or on-line So this section isn’t yet another house buying guide. The purpose isn’t either to select the best buying guide and recommend it.  What I am interested here is to highlight the conditioning behind the traditional way of buying a residential property in the United Kingdom. I googled “house buying guide” but without the quotes. One of the sponsored website that came first was http://www.moneymadeclear.fsa.gov.uk/campaigns/Mortgages.html  This website is a reference information site from the Financial Service Authority (FSA) the UK’s financial watchdog backed by the government. “No Selling. No Jargon. Just the facts”. So immediately we can see that the traditional way and mainstream thinking is that you need to get a mortgage to buy a house. In fact another alternative could be to buy outright in cash but in reality only a few people can afford that option. So let’s accept, as suggested by the FSA, that traditionally, you must get a mortgage to buy a house in United Kingdom. But is it really the first step you should do?

Let me start by saying that there is nothing wrong in renting in itself. The title “what’s wrong with renting” is just to capture your interest.. But when I found a nice house to rent in my desired area in December 1998, I worked out that I could afford to buy in the same area and as I was probably going to stay there longer than a year it made sense to compare my options: should I buy or rent? While doing some research, I stumbled across a rent versus buy questionnaire with a staggering number of 21 questions to answer! I am going to save you from this I am going to save you from this laborious survey. My personal opinion is that when making the decision to rent or buy you need only consider two  fundamental questions:o    Do you want to stay in the area for more than a year? If it is less than a year then obviously renting it the best option.o    Do you have a sense of investing and taking responsibility? Buying a house is a big liability. Things could go wrong and you may find that you can’t resell you house should you have to move on the future. Investing is first and foremost the ability to manage the associated risks but also the associated potential profits. In a rising market you don’t need a great sense of investing. In a stalling or falling market you must dig further and cover more angles. You must take into consideration your personal circumstances, the state of the housing market, the state of your finance, and your ability to manage.If you answer “no” to the first question then don’t buy at all, rent instead!  You’ve noticed that we haven’t discussed your income. This is because you need sufficient and regular income in both situations whether you buy or rent.  Your income level therefore is not the critical factor to decide whether you should buy or not. Your income level should only determine how you want to buy: the traditional way or a much smarter way.    Buying is the only option that allows you to get an asset (the house) that can appreciate and be used to finance your way up onto the UK residential or investment property ladder. Renting will never give you that option!

Stamp Duty: The Lowdown

Stamp Duty, or Stamp Duty Land Tax to give the tax its full title, is payable on all property purchases in the UK above a series of threshold values. The current rates of Stamp Duty for residential properties, payable on the total purchase price, are as follows:

• Up to £125,000               0%
• £125,000 - £250,000     1%
• £250,001 - £500,000     3%
• £500,001 and above      4%

For more information, please go to http://url.ukpropertyladder.com/directgov-stampduty. 
How to Avoid Paying Excessive Stamp Duty
When negotiating the purchase of a residential property and agreeing a price, it pays to look carefully at the levels where the Stamp Duty tax bands change. One should be particularly wary at the point where the rate of Stamp Duty rises from one percent to three percent; the Stamp Duty payable on a house costing £250,000 is £2,500 whereas for a house costing £250,001 the Stamp Duty payable would be more than three times as much, i.e. £7,500.03!
What’s The Difference Between Stamp Duty Evasion & Avoidance?
When discussing possible ways of avoiding Stamp Duty, it is necessary to understand the difference between Stamp Duty evasion and avoidance. Evasion of Stamp Duty is illegal and would normally involve some falsification of the details within the documentation associated with the property purchase.

HM Revenue and Customs (HMRC) monitor property transactions and will investigate and prosecute in suspected cases of fraud. Penalties of up to £3,000 may be imposed in addition to HMRC’s calculation of the total Stamp Duty liability.

Stamp Duty Exceptions
Full or partial avoidance of Stamp Duty may be possible on some residential property purchases depending on the type and location of the particular property. Granted, legitimate methods of avoiding Stamp Duty are restricted, but exemptions are available under certain conditions.

Stamp Duty Disadvantaged Areas
The government has designated certain areas of the UK as being ‘disadvantaged’. In these usually unsalubrious areas, sometimes also referred to as being ‘in regeneration’, the zero percent Stamp Duty threshold has been raised from £125,000 to £150,000 in an attempt to stimulate the property market in these often socially deprived localities, where the quality of schools may also be an issue.

Details of the locations of these designated areas are available from the HMRC website - see www.hmrc.gov.uk/so/dar/dar-qualifying.htm.

‘Zero Carbon’ Stamp Duty Exemptions
Approximately one quarter of the UK’s carbon dioxide emanates from domestic properties, so in order to address issues on the increasingly high profile green agenda, the government has introduced Stamp Duty exemptions for the initial purchase of ‘zero carbon’ homes built after October 1^st, 2007.

Qualifying new properties of up to £500,000 in value are exempt from Stamp Duty and higher value properties are eligible for a reduction of £15,000 from the standard calculated rate; for example, the Stamp Duty payable on a ‘zero carbon’ house costing £600,000 would be £9,000 instead of £24,000 for a similarly priced conventional property.

The government’s definition of a ‘zero carbon’ property is one with ‘zero net emissions of carbon dioxide (CO₂) from all energy use in the home’.

For more information about ‘zero carbon’ properties, please go to www.thisismoney.co.uk/mortgages/article.html?in_article_id=418676&in_page_id=8

Fixtures and Fittings & Stamp Duty Implications
Some buyers attempt to reduce their liability to pay Stamp Duty by offering a lower price for the property but agreeing to buy fixtures and fittings, separately. If this approach is taken, the transaction needs to be handled carefully in order to avoid attracting undue attention from HMRC. Stamp Duty is payable on fixtures (items that are physically attached as part of the house, e.g. kitchen cabinets, radiators, etc.) but fittings such as curtains and other soft furnishings, also known as chattels, are exempt from Stamp Duty.

Flexible Property Purchasing: A Fresh Approach to Stamp Duty Avoidance
Unfortunately, when negotiating a property transaction, it is all too easy to get bogged down in the minutiae of the various completion costs, including the often disproportionately burdensome Stamp Duty fees.

In this respect, the British property purchaser needs to step back and think of better ways to avoid paying Stamp Duty. Visionary thinking and a new approach is called for if we hope to solve the Stamp Duty dilemma, long-term.

To this end, flexibility regarding the way in which we navigate the property purchasing process is key; and this is where a ‘try before you buy’ strategy could show the way forward.

This alternative residential property purchasing strategy, known also as a ‘rent to buy house purchase’ has the potential to reduce the would-be buyer’s liability to pay Stamp Duty.

Advantages of Residential Lease Option Agreements
A rent to buy property transaction, sometimes called a ‘residential lease purchase’, combines a short term lease with an agreement to purchase the property at a fixed price, within a specified time limit (usually three years or less). Taking this approach allows the prospective buyer to move into the desired property without delay; it also provides a welcome financial ‘breathing space’, prior to applying for mortgage funding.

In addition, agreeing the date of the sale for say two years after the residential lease purchase agreement has been signed means that the price is fixed at the outset. Structuring the transaction in this way also offers the real possibility that Stamp Duty tax thresholds will have been raised by the Chancellor of the Exchequer during the intervening period, thus potentially reducing the overall amount of Stamp Duty that is likely to be paid on the deal.

Long Term Strategy for Solving the Stamp Duty Dilemma
To summarise: for many potential property buyers the amount of flexibility offered by a rent-to-own house purchase should be given serious consideration, as many advantages are apparent including:

• lower deposits allowing extended periods to fund the balance of the deposit;
• the flexibility to opt out of the purchase within an agreed period;
• a fixed sale price for an agreed period before completion; and
• the opportunity to ‘gain time’ to increase savings and source the best mortgage possible.

 For more helpful information about getting on to the property ladder and lease purchase options, please visit:

http://www.ukpropertyladder.com/tenant-buyers.

More Homeowners Renting. Doesn’t it make sense?

Let’s be clear, we at UK Property Ladder promote lease options also known as “rent to buy” “rent to own” or “try before you buy” schemes. We believe this is the best way to bring some stability within the UK housing market. Lease options offers a smooth transition between renting and owning. It is tailored to first-time-buyers, landlords who are looking for a happy exit strategy (a smart way to avoid repossessions, or selling to pocket equity) and even desperate sellers we could avoid becoming accidental landlords.

So let’s analyse this video from ITN, “More homeowners renting” does it really really make sense?

• Property sales are down all accross the United Kingdom - ok that’s a fact.
• Rental market is on the increase, letting and management agents are reporting healthy increase. That’s also a fact.
• But as rental demand grows, supply also grow. The report mentioned that accidental landlords or landlord who can’t sell their property are letting instead.

What the report deos not say is that the seller had a particular reason to sell. The reasom has not disappear it’s just that the market conditions do not allow him to sell. That’s why we advocate lease options (call it how you like: rent before you buy, try before you buy) as a way to help all those who want to sell but can’t sell because of the market conditions.

People still need to leave somewhere and that’s not going to change whether a PROPERTY CRAAASH happen or not. So will a property crash turn tenants who are flushing money they will never recover into an renting into owners? No, never. And if they can buy now when the period is favourable they won’t buy when prices go back up. So those who can’t sell needs those who don’t want to waste their rents. We know reputable bespoke property transaction company that can help. Just get in touch to find out how lease options can work for you whether your a tenant/buyer or a landlord/seller.

The UK Housing Crisis Did Not Start with the Credit Crunch

I googled “housing crisis uk ladder” without the quotes just to see if I would find this blog on the first page of google results.

Somewhere down the bottom on the first page of google results I did found the blog. However, a website that which ranked higher caught my attention with it’s sumary: “How are the young ever to afford to get on the housing ladder given the severe … Wanted: new city to solve UK housing crisis, Household growth in England. …”

I clicked on the website. It was promoting a book titled “The Housing crisis” published in 2004.

I jumped to the key facts and highlighted the following:

“Britain will need a new city the size of Leeds to be built over the next decade if it is to tackle the chronic housing shortage which leads to rocketing house prices that keep potential first-time buyers off the property ladder. (p. 20) “

Bearing in mind that this book was published in 2004 way before the credit crunch started (2007), we can draw four keypoints about the UK housing crisis:

1. The fundamental UK housing crisis is mainly due to the housing shortage
2. Many would-be first time buyers won’t jump on the property ladder if no creative solution is brought to the market
3. “Rent to buy”, “rent to own”, “rent now buy later” or lease options are best suited solutions to allow most first time buyers with regular income to reach the first rung of the the property ladder.
4. Any one who can’t qualify for a mortgage immediately but have regular income will also benefit from these creative solutions to (larger) home ownership.

If you can’t qualify for a mortgage right now but would like to buy a property eventually, visit our tenant-buyer section.

If you have a house that you preffer to sell at market value or above because of your personal circumstances, visit our landlord-seller section.

Example: Specifying defaults for submission

So what if you’ve just created new content and you’d like to suggest the exact story title, description and category for your content when that first person submits it to Digg? No problem, use the following additional Javascript variables to specify these values (note that the user who submits your content will be able to change these):

Will The Property Market Improve By End 2008?

Below, I’ve listed property market headlines from June 27 until July 2008. The next time I publish another headline list will be around the end of the year. I don’t set any expectation. I just want to see if the market improves or not. Unfortunately one of the article quotes: “SLUMP COULD GET WORSE - Hit by the global credit crunch, lenders have toughened up borrowing conditions, demanding as much as 25 percent of a home’s value as a deposit before making any new loans — until relatively recently 100 percent loans were commonplace“. Read the rest of the headlines and follow the links for more information.

But the point is this:

• If you cannot put 25% down as deposit then rent now buy later, consider becoming a tenant buyer.
• If you cannot accept 25% price reduction off the value of your house then let now sell later, consider becoming a landlord seller.

UK Property market - housing crisis headlines

July 10 - Builders feel pain as house prices fall
July 9 - Housebuilders have cut nearly 4,000 jobs in the past 10 days, with some shedding 40 percent of workers to cope with the deepening crisis in the housing market. Bovis cuts 400 jobs and Redrow cuts 350 jobs. Bovis CEO says the downturn has gathered pace in the past few weeks and feels “an awful lot worse” than the last major correction in the early 1990s.

July 8 - Persimmon cuts 1,100 jobs.

July 4 - Barratt Developments cuts 1,000 jobs.

July 2 - Taylor Wimpey says it fails to raise up to 500 million pounds in new cash.

June 30 - Taylor Wimpey says it will write down the value of its land holdings by 660 million pounds and axe about 1,000 jobs.

May to June - Housebuilder shares fall almost daily as investors flee the sector.

April 30 - Nationwide Building Society says its April house prices index was down 1.0 percent year-on-year, the first annual fall since March 1996. Days later, Halifax says April house prices, as measured by it, were down 0.9 percent year-on-year for the first annual fall since February 1996.

April 24 - Persimmon, Britain’s biggest housebuilder by market value and No.3 by homes built, says the housing market has deteriorated rapidly since Easter.

April 8 - Halifax says house prices fell 2.5 percent in March.

March 6 - Taylor Wimpey, Britain’s biggest housebuilder by volume, says its order book is down 19 percent year-on-year and suspends a 500 million pound share buyback.

February 17 - Northern Rock is nationalised.

November 8 2007 - Halifax, Britain’s biggest mortgage lender, says house prices fell for the second month in a row in October, the first back-to-back monthly falls in two years.

November 6 - Bovis Homes says global financial turmoil is hitting the housing market, effectively telling analysts to trim their profit forecasts. Other housebuilders tell a similar story in later weeks.

September - A run on savings at Northern Rock results in the government agreeing to guarantee all existing deposits.

August - “Credit crunch” starts appearing in headlines.

June 27 - Mortgage bank Northern Rock cuts its 2007 profit forecast, blaming a rise in funding costs in financial markets.