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Help-To-Buy Scheme Could Threaten UK Housing Market

Help-To-Buy Scheme Could Threaten UK Housing Market

The Help To Buy Scheme Could Be Scaled Back Amid Concerns That The UK Property Market Could Be Heading
For Another Property Bubble

George Osborne, the Chancellor of the Exchequer has said that the Bank of England are being vigilant on UK house price rises and they would intervene if the situation becomes necessary.

The Chancellor’s comments come after the Organisation for Economic Co-operation and Development (OECD) warned that the booming UK property market could threaten the economic recovery of the country.

Possible action could include reigning back the Government’s Help-To-Buy scheme, which enables people with only a small deposit to take out a mortgage.

In a report the OECD said that “The UK should introduce measures to address the risks of excessive house price inflation, as property values now significantly exceed long-term averages relative to rents and household incomes. Access to the Help to Buy scheme should be tightened, and buyers should be required to put down bigger deposits for mortgages”.

In response to the report, Mr Osborne said: “I’ve said we should be vigilant about the housing market and this Government has given the Bank of England the power and the tools to do what they felt needed to be done to help to contribute to building a resilient economy in an independent way”.

The Help to Buy scheme enables the Government to place a second charge on properties purchased under the scheme, allowing them to have some degree of profitability and allow them a small degree of control over the UK property market.

People buying property worth up to £600,000 (GBP) using a deposit of just 5% may be grateful of the Government’s help but many fail to realise the full implications of the scheme, or spot the Government tactic of controlling properties.

The Government either top up the purchasers 5% deposit with 20% of the property’s value or it will underwrite a portion of the debt allowing lenders to advance purchasers with high loan-to-value mortgages that the Government guarantee.

The £600,000 (GBP) upper limit of the Help-To-Buy scheme has been widely criticised for being too high, however, recent figures show that the average cost of a property bought using the scheme was just £148,000 (GBP).

Concerns are rife that another property bubble may be formed in the UK property market following a continuing run of positive house price trends.

Mortgage lender, Nationwide recently reported that property values had risen by 10.9% during the last 12 months, the first time annual house price inflation has reached double figures since April 2010.

Data from the Land Registry also shows that average property prices in London have already surpassed the previous 2007 peak.

Recent property price increases have caused the typical average cost of residential property in the UK to rise to £262,770 (GBP), according to Zoopla.

New regulations to control borrowing were introduced at the end of April 2014 to ensure prospective property owners are not risking taking on too much debt.

Under the Mortgage Market Review, lenders are required to carry out stringent affordability checks, including making sure borrowers can continue to meet the mortgage repayments if and when interest rates rise.

However, data on the number of mortgage approvals for residential property purchases appear to suggest that the market may be moderating, with the Bank of England reporting a dip in loan approvals for the second consecutive month during March 2014.

The forces that brought about the financial turmoil and economic mess around the world are still present and the majority of developed nations are not going to be able to figure out a quick solution…and sometimes the proposed plans for economic recovery don’t look all that promising.

The media keep spreading doom and gloom with daily news reports and depressing financial statistics, but is it the real, true, honest picture?

The honest answer is…..NO!

Property investors have been forced to use creative strategies, since the property crash in 2007/8, in order to profit from property as banks stopped lending, investment mortgages were withdrawn and access to alternative finance dried up.

Investor attitudes were labelled as falsely positive by many sceptics but the determination remained and only those with a firm belief, sound finances and solid investment strategies continued to prosper.

However, a renewed optimism has swept the nation following an uplifting and inspirational summer of achievement, with Queen Elizabeth II’s Diamond Jubilee, the European football championships, the 2012 London Olympics and Paralympics taking place and the effort and determination to succeed demonstrated by Team GB and athletes from around the world.

There is renewed hope emerging from the shadow of the last 4 years and a sense of purpose has returned to the UK Buy-To-Let market.

In recent weeks there has been a dramatic change in attitude towards UK property investment, despite the Bank of England’s quantitive easing policy and the raft of Government welfare reforms, banks are beginning to lend again, (although they are being quite selective at present). There has been an increase in the number of Buy-To-Let mortgage products hitting the market and property investment in the UK is up!

Even speculative investors are attempting to get in on the action, without any real idea of what they are doing. They realise that there is profit in property and their intention is to replicate the strategies of successful investors as property bargains abound.

Why?

Because life goes on! 

If you want to stay ahead of the game be concerned about YOUR own economy:

  • How will you cover future wants and needs? You know; University education for the children, your own retirement and life in general!
  • Can you hedge your own greatest financial asset – your job – and be assured it will always be there?
  • Will your salary grow substantially over time?
  • Can owning property replace your current income?
  • Is financial freedom really your goal?

These are questions millions of ordinary people, not investing in property, are asking, but the institutional answers are not really that clear or reassuring. 

Savvy property investors have already planned their investment strategies and have allowed for contingencies and have an exit strategy in place BEFORE spending a single penny.

If the current economic state is going to become the new normal, it doesn’t matter for property investors who have invested in themselves and have learned to earn!

Successful property investors realise that the only economy to be concerned about is their own and they are the ones that will always come out on top. 

Investors are finding ways of protecting and even growing their incomes, assets and plans for the future despite the fragility of global economies, including developing properties into HMO’s (Houses of Multiple Occupation), aquiring expert knowledge on Government proposals for welfare reforms including how to get LHA and Housing beneft payments for tenants direct from local authorities and seeking educational courses or investment forums with successful property investors who run workshops to help property investors.

It has been suggested that residential property prices in the UK are unlikely to rise significantly over the next five years, according to one property expert.

While costs are expected to rise slowly across the coming half-decade, the escalation in UK residential property values may not be as marked as some would like to think.

Timothy Lambert, head of investment property at Parallel Investment Management, explained: “It is difficult to predict trends in the current climate of economic uncertainty, observing that although there remains a desire to buy among the general public, many individuals remain wary about the prices they are required to pay. There is also widely believed to be a growing north/south divide in terms of pricing differentiation so people will consider carefully where they are based before committing to buy.”

And while many first-time buyers may be having problems saving the required large amount of money to pay a 25% deposit, other individuals are encountering even more difficulties when attempting to qualify to obtain a mortgage at a competitive rate.

UK Buy-To-Let landlords, on the other hand have the opportunity to reap the benefits of the EU’s monumentous decision not to target Buy To Let mortgages when the European Parliament looks at mortgage lending as a whole in coming months.

UK property market not expected to do much this year

Is the UK property sales market dead?

With some property pundits predicting that the UK property sales market is not expected to do very much this year, due to lack of interest, the results of an industry watchdog survey makes light of the reasons behind the property sales stagnation.

The latest research from the Association of Residential Letting Agents (ARLA) has suggested that UK landlords will be less inclined to restructure their property portfolios until better mortgage and financial products become readily available.

With increasing mortgage rates being announced by major lenders and improved loan to value offerings only just starting to return to the marketplace, it may be some time before landlords, who in effect are self employed businessmen, are able to obtain non status property loans again.

The Buy To Let boom, prior to 2007, encouraged amateur investors to snap up multiple properties throughout the UK, in the hope of a large increase in value due to capital appreciation. The housing crash of 2008/9 wiped out much of their perceived equity and left them searching for high yielding rental returns in the PRS in order to meet their BTL mortgage payments.

The ARLA study showed the number of individual landlords expecting to acquire further properties this year has dropped from 27% to only 25%.

Tim Hyatt, President of ARLA, claimed the Private Rented Sector (PRS) is still likely to see growth this year, however, the number of landlords expanding their property portfolios is likely to see a reduction.

Ian Potter, ARLA operations manager, also commented, saying: “A healthy Private Rental Sector is crucial in providing choice and flexibility for consumers across the housing market in 2012 and, ultimately, helping to provide more homes for more people.”

Unable to sell up, investors have become reluctant long term landlords and have struggled to meet mortgage payments due to the economic climate affecting the circumstances of their tenants.

With job losses and pay cuts still ongoing and welfare reforms being pushed through by government, some landlords face an uphill struggle.

They obviously aren’t aware of the rent guarantee product offered by Legal 4 Landlords. In the current economic climate, many landlords find their default rates soar as tenants struggle with rising unemployment and increased bills. Recovering arrears can be difficult and costly for landlords, without any guarantee of success.

Even the thorough tenant referencing cannot predict a tenant falling on hard times and not being able to pay their rent. Landlords need to cover their expenditure if the worst happens. Rent Guarantee’s may make a significant difference to a landlord’s financial survival.

There Will Never Be A Better Time To Invest In Property

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