GETTING ON THE PROPERTY LADDER

TODAY’S BLOG

GETTING YOUR FOOT ON (AND OFF) THE PROPERTY LADDER…

Despite various Government initiatives – the ‘Help to Buy’ scheme; stamp duty land tax relief; reduced deposit requirements etc – getting on the property ladder still proves to be a difficult task for the majority of young adults in the UK; and can feel almost unattainable for some.

This sometimes means that couples move in together (often prematurely) and/or live with parents for longer in order to start saving for a house deposit. There are a variety of things that can be done to help build a deposit for first time buyers under the age of 40, but the truth is that this is very marginal. In spite of what some celebratory estate agents may suggest, cutting back on trips to Starbucks is a drop in the ocean when we see property prices galloping off into the distance and out of range of anyone earning less than £80,000. Yes, rates are low, mortgage terms are longer, but often the bank of Mum and Dad or an inheritance has to save the day!

In this country, our laws generally protect the landlord as opposed to the tenant, making buying all the more desirable; yet it is almost out of reach for millennials.  The average age of first time buyers in the UK is now 34 years old which is an alarming statistic (it’s 37 if you live in London).

You know that buying a house is of course an investment, but it also represents so much more than that – a home, a stable environment, your sanctuary. Most of us would also concede that we have done relatively little to increase the value of our homes, most of the rise has been due to the demand, which is fuelled by a lack of housing stock. Most of us have actually been quite lucky rather than particularly savvy about property.

At Solomon’s, we work towards enabling our clients to achieve financial freedom. Usually that means paying off your mortgage long before you retire.  A huge milestone for anyone … effectively liberating your salary and giving you the opportunity to spend your hard-earned income on other things.

We aren’t only about helping you to invest your money (although this is obviously a large part of what we do) – on many occasions, Dominic has had to tell clients that they have reached a point where they can start spending it! (You might be surprised to hear that people are sometimes reluctant to do this; having been shackled by mortgage payments for so many years).

It is not that we are giving clients permission to spend their money (such permission is not ours to give or withhold!), rather it’s simply about reminding them of their autonomy and the power to make ‘informed choices’.

We have been told many times in the past that one of the things clients like about our service is the guidance and ‘reassurance’ we provide.  And this is indeed one of the most enjoyable parts of what we do – financial freedom is our main aim for clients and we derive great pleasure from seeing this happen.

Abigail Liddicott
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GETTING ON THE PROPERTY LADDER2023-12-01T12:12:55+00:00

HEARTS, MINDS AND EQUITY RELEASE

TODAY’S BLOG

EQUITY RELEASE SURGE

A surge in homeowners looking to free up cash from their properties propelled the figure for equity release to £1.05bn in the three months to the end of September, driven by high house prices, gifts to family members and uncertainty induced by the coronavirus pandemic. The value of equity released jumped by nearly one-fifth from £884m in the third quarter of 2020.

While the number of loans taken out was slightly down year on year, the average amount of housing wealth freed up was 23% higher, at £101,593 per borrower. Data published this month by one of the main equity release providers (Key) suggested many borrowers were taking advantage of recent house price gains to help family members climb the housing ladder. “Big-ticket items” such as debt management and gifting were behind nearly two-thirds of the equity released in the third quarter. More than two-fifths (42%) of the cash given to family and friends was used for house deposits.

For homeowners over the age of 55, equity release offers a way of unlocking the value of their properties, whether for home improvements, paying off other debts or to help family members. Interest on the loan is paid through the sale of the house at the end of the term, so unlike a conventional mortgage a borrower is not required to demonstrate a minimum level of income to qualify. Interest rates are higher for these “lifetime mortgages” than for most mainstream mortgages. Interest rates are low by historic terms, but equity release is a not straight-forward.

Hearts, Minds and Equity Release

THE POWER OF COMPOUNDING INTEREST

Equity release is not like a normal mortgage, repaid over a set time. It is generally a loan which is only repaid when the property is sold. Overall, no payments are made, the interest merely compounds. By now you know the miracle of compounding interest – which works wonderfully for your investments and does precisely the opposite for your debt.

The risks you need to consider are future interest rates, the future value of your home and how long you will live or anyone else that you share it with. The earlier you release equity, the bigger your total debt in the end. Admittedly this helps reduce the value of an estate for inheritance tax, but in practice it can simply mean that there is nothing to inherit.

Some of you may remember the significant property crash in the late 1980s. At the time equity release was very popular and many people got caught out by the reduced value in their home and the increasing interest rates. All conspired to create genuine stress and financial hardship for some. There have been reforms, but I would urge caution – a lot of it. This should always be considered in the context of your total financial planning, not simply a desire to help a family member.

We do not provide advice about equity release but can refer you to a specialist. However, you should exercise great caution and have a clear plan and reason about why you want the funds. Interest rates are normally higher than a typical mortgage. The fact that around half of those using equity release are between 65 and 74 does not bode well for those that may live for 2 or 3 decades.

As ever, good financial management starts with good budgeting and a proper plan.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

HEARTS, MINDS AND EQUITY RELEASE2023-12-01T12:12:59+00:00

HOT PROPERTY?

TODAY’S BLOG

HOT PROPERTY – WHAT YOU NEED TO KNOW

We are all aware that the world is a bit weird now.  The thoughtful self-reflection that occurred during lockdown appears to have given way to fatigue, thoughtlessness and sometimes an attitude of selfishness. The UK property market continues to confound reason.

We know that during the initial lockdown, which was really the duration of the second quarter of 2020, very little happened, then gradually restrictions have lifted. One of the often-cited reflections of working from home is the need for a quiet space at home, be that a spare bedroom, study or garden shed. As people became accustomed to not commuting, many found that they are in fact rather more productive. Some have found a better balance between the professional and the personal. Many have questioned why they are paying for an expensive small home that makes commuting quicker but now find it unnecessary. Some have noted the value of community and the desire to be closer to relatives. Space is cheaper elsewhere.

We know that big cities like London were struggling to encourage people back into the office, leading to an existential threat to many supporting businesses and organisations, from cafes and restaurants to meeting venues. We are now heading into the Winter with yet another Governmental set of directives, which may or may not be helpful.

Interest rates have never been lower in living memory. If ever there was a time to borrow it is now. However, lenders are all too familiar with bad debt and worry about an economy that may experience a prolonged recession, with rising unemployment and job insecurity. The usual domino effect of recessions. This results in lenders managing their own risk, limiting who, when and why they lend. They hold the cards. We may all find money a bit tighter if taxes increase to pay for furlough and various Covid bailouts.

SOLOMONS IFA MONEY FOCUS

STAMP DUTY: GOING, GOING…

The Chancellor has tried to stimulate house sales by removing Stamp Duty on sales under £500,000 until the end of March 2021. This is a tax break that is planned to end. Some of you may remember MIRAS, another tax break which ended 20 years ago. House sales in England typically account for 85% of all house sales in the UK, forgive me, but I’m going to focus on the sales in England. The ONS records sales over £40,000. In Q2 of 2020 a provisional 131,730 homes were sold in England, a year earlier the figure was 237,870. Sales had been gradually improving since the credit crunch. Numbers had not recovered to their 2006/07 which saw 1,433,200 homes sold, that collapsed in 08/09 to just 664,250. Sales have been recovering slowly and then dented again by the Brexit vote, before reaching 1,003,060 in 18/19.

SCORES ON THE DOORS…

2020 began fairly slowly, but reflective of seasonal normality with monthly sales in the 70,000 range. April sales collapsed to 32,350 (lockdown) but by July sales had returned to winter levels of 71,190. So despite what Estate Agents may be telling you, property sales are below average, down by something like 20%. You can dress it up, but that’s the reality of completed sales. That said, according to Nationwide average prices recovered in July and increased in August by 3.7%. They also note that the 2010s has been the weakest decade for property prices up 33% over the decade compared to 180% in the 1980s. Low interest rates and the credit crunch being the suggested main factors.

YOU HAVE MORE MONEY? LET ME SHOW YOU…

Some warn that the reduced stamp duty tax will not be passed on, as sellers push prices to cover their own stamp duty on property over £500,000. In short, the young are paying above the odds. Some expect prices to fall as demand slows in April next year when the stamp duty break ends. Then there is Brexit, which is now a sub-heading of the national conscience, but it would appear that the Government have little real idea if agreement can be reached.

This might prompt a reduction in prices (nobody knows) which tends to happen when a tax advantage ends and a recession is happening. So those thinking of buying this autumn or winter that are looking at property priced under £500,000 face the increased risk of buying at a peak value and a collapse. They have to counter this with the benefit of stamp duty savings. A property valued at say £400,000 currently has no stamp duty, from April such a sale price would result in £10,000 of Stamp Duty. That said, £10,000 is only 2.5% of the purchase price (£400,000) it would not be inconceivable to see prices fall by 15% (£60,000 in our example). This may wipe out your deposit and possibly mean that you have negative equity.

THE THING IS – WE DO FORGET

Turning to relatively recent property crashes, the 1990s provided some of the harshest lessons for homebuyers. The worst decade for price rises – even London only increased by 40%. Some of you may remember MIRAS, which was tax relief given to borrowers. Nigel Lawson changed the terms of MIRAS so that unmarried couples could not claim it from August 1988. He announced the changes in April 1998 which provided 4 months of “opportunity” which pushed up prices to bubbling point. When the relief was lost repayments went up. The overpriced market peaked in 1989 with an average price in London of £97,667 but then fell back to £66,573 by the end of 1992. A fall of £31,094 or more importantly 31%. When inflation is factored in, prices didn’t really recover from 1988 until 2001.

A decade later (April 1998) MIRAS was again reduced to the point of being almost worthless and finally abolished by Gordon Brown two years later in 2000. Its been 20 years since MIRAS ended. There has been some tinkering with Stamp Duty which was altered from a flat rate system to a tiered rate system from December 2014. This was done in an attempt to curb price rises particularly in London. In Q4 of 2014 the average national price was £189,002 by Q2 2020 it was £220,133 (up 16%). In London the average price was £406,730 and is now £475,448 (also up 16%). So the gap has not widened, but equally it has not shrunk (so the strategy neither worked not “failed” but it certainly didn’t change anything). The numbers are certainly larger and London remains the most expensive part of the UK.

IF IT WORKS, IT WOULD BE UNUSUAL

So over the last 32 years tax changes to residential property has created a quick spike and then collapse in prices (1988-1992) and it has also effectively done nothing (2014-2020). Chancellor Rishi Sunak would be making a little history if his policy didn’t fail or do nothing of substance.

If history were to repeat itself, which let’s face it, tends to happen more as an echo than a direct repetition, then there is the prospect of a 31% fall (88-92). That would mean someone buying in 2020 for £400,000 would potentially be contemplating their home revalued at £276,000. It could be a decade before prices recover.

We have short-term memories and forget what has happened. First time buyers have no memory of a property crash, (indeed some of my detractors on social media appear to have no memory at all). Lenders are currently very reluctant to lend more than 90% and many will struggle to get a competitive loan with more than an 85% mortgage. So with our £400,000 example, that’s a deposit of £60,000 and if a third gets wiped off by 2022, the £340,000 mortgage would be higher than the value of the property (£276,000) for some time…

FORECASTS ARE NOT MY THING

The truth is we simply do not know what will happen. We do know that Brexit will happen (we do don’t we?). We know that we are in a recession. When recessions happen, jobs are lost, money is tight, homes get repossessed (1991 was the peak for repossessions). We know that interest rates are at all time lows which implies only one likely direction for the cost of borrowing (upwards). So would you buy to save £10,000 on stamp duty before March or would you wait a couple of years and either buy the same property for 30% less or simply buy a bigger place.

IN SHORT- BE PREPARED TO LIVE WITH YOUR DECISIONS

This is a gamble, I have no idea what will happen, perhaps property price rises will return to 1980s levels, but that would likely mean inflation is out of control and interest rates could be much higher than they are now (which I think is unlikely). I do not know – nobody does. We are due a correction – any sensible person knows that property in the South East is overpriced. The only consolation I can offer is that if buying, make sure you do so knowing the above and that you might be stuck for a decade. Fine if you are a young couple in a flat, but not that great if you start to have a family. Lose your job or your relationship falls apart. Perhaps “nothing” will happen. I do not know, but I’m not sure I’d bet my house on it.

SOLOMONS IFA UK AVERAGE PROPERTY PRICES 74-20

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

HOT PROPERTY?2023-12-01T12:13:12+00:00

So, you know what I did this summer…

So, you know what I did this summer..

This summer reminded me that active experience of something is more helpful than a knowledge of it. I have not moved house for 21 years and this summer, circumstances were right for a move.

On average, people move house every 7 years. At least that’s one statistic that I heard proclaimed with great certainty. Obviously many of our clients have moved over the years, and I have also spent the last five summers moving my daughters between home, university, student houses and a first new flat. So the physical hauling of stuff and the “letting everyone know” is certainly a current, up to date experience.

We haven’t provided mortgage advice for a reasonable number of years and have referred this service to a very good adviser that does. However I am very glad we don’t, because the degree of uncertainty is far too uncomfortable for me.  Selling and buying houses brings out some rather unpleasant aspects of characters and I was reminded that just because someone agrees a deal, doesn’t mean that they will keep their word. Dishonest buyer intentions and motivations, attempting to manipulate every opportunity to their full advantage….perhaps I am just a bit naïve and not “cut-throat” enough.

Agents and disruption

The process was helped to some extent by technology, but if ever there was a case for some much overdue “disruption” the conveyancing and payment of funds process must surely warrant some smart techno-genius with ample opportunity to shake things up. Waiting for responses to questions, funds to clear, agreements to be honoured felt far removed from this instant internet age. Apparently nobody knows a conveyancer that is any good… (least of all Estate Agents who deal with them all the time). I did not know this.

Still, we got there in the end, happy enough with the agreement. Like everyone else I don’t want to have “paid too much” or “bought at the wrong time” but equally, this is a house for a home, not a share. Sure we are investing in the future, but there’s rather more to it than simply the price tag of a house isn’t there.

As for the Estate Agents… despite the general national view, I found all of them to be genuinely helpful and decent people, sure there was incredibly good use of photography and a couple were poorly informed,  but my experience was pretty good, I have no complaints…. And I now have far greater empathy for those of you that have been through this process in the last few years. Stress levels get tested needlessly, I certainly hope that when it comes to financial planning, we remove all unnecessary stress.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

So, you know what I did this summer…2023-12-01T12:19:04+00:00

Why is it better to have a good deposit for a house when buying a home?

Solomons-financial-advisor-wimbledon-top-banner

Why is it better to have a good deposit for a house when buying a home? The short answer is that having a large deposit is cheaper for two key reasons. Firstly you have a greater choice of lenders who are willing to offer a mortgage. Secondly, the rate of interest that you pay is much less (currently almost 2.5 times less). A third reason would be that it is a larger buffer against a sharp fall in property prices, reducing the possibility of negative equity, which in the US is no big deal, because they just hand the keys back, but here in the UK you have to pay your debts.

What is the Government Help to Buy Scheme? SafeHouse

If you believe the owning property is a particularly good thing, you may well support the Government help to buy scheme, enabling people to buy their first home. Since the credit crunch lenders have cut back the amount that they lend and the risk that they take. As a result it is difficult to find a competitive mortgage rate unless you have a large deposit of significant equity in your home. The new Government scheme basically underwrites the risk which is not passed on to the lenders (several of whom we all effectively now own). So to be blunt, the taxpayer is taking the risk… again.

Why have property prices risen so much?

I am not against property ownership at all. However current property prices are daft. They are fuelled by overzealous estate agents, surveyors and lenders who all essentially collude in the myth that property is fairly valued. Frankly they all have to, because to do otherwise would be so out of touch with the market that they would go out of business, so I’m not blaming anyone. However the main culprit is the lender, who essentially makes money out of nothing (they do not have the resources to back the loan; merely re-lend your deposit and all of our collective cash. This “easy money” has fuelled the myth that property values have soared legitimately. They haven’t. There is a massive disconnection between income and property prices. As salary inflation has remained relatively static of late and property prices have “risen” the gap is constantly widening. Sadly, there are no easy solutions – big salary rises or a reversal of property valuations.

How much more is a 90% LTV?

Britain is peculiar in its obsession with home ownership, most of Europe rent. That of course does not mean the we Brits are wrong – look at the state of European finances and we are apparently rather savvier. Today’s news that if you have a 60% mortgage (40% equity or deposit) your mortgage is likely to cost you almost 2.5 times less than someone with a 10% deposit. In short it pays to have cash and to have less debt. You know this of course, but that doesn’t help the next generation who are going to struggle to buy a home and due to inflated property prices the size of the deposit is becoming out of reach for many. So rather than address the root causes, the Government has merely said, borrow the money and they will cover the risk. Not what I would call wisdom in action, but by far the most palatable of alternatives of massive salary increases (which may not work) or a massive property devaluation.

Dominic Thomas: Solomons IFA

Please note that we do not arrange mortgages, if you want help with a mortgage, we can suggest a very good independent mortgage broker.

Why is it better to have a good deposit for a house when buying a home?2023-12-01T12:38:27+00:00
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