Archive for May, 2006
Buy-To-Let Mortgage Rates
There are more than 200,000 amateur landlords in the UK and although the market has slowed because of rising house prices and interest rates, those with sufficiently large deposits ‘typically 20%-25%’ can still earn a respectable yield from the rental income.
Deposits generally need to be larger in today?s market otherwise the rent will not usually be sufficient to cover the mortgage interest and satisfy the lender?s requirements.
Investment mortgages used to be 1%-2% more expensive than standard residential deals but since the inception of specialist buy-to-let products the rates have plummeted. The best buy-to-let deals are now cheaper than many ordinary residential loans.
Lenders generally demand that the rental yield being able to cover the mortgage interest, plus approximately 20% as a safety buffer for both you and the lender. However, some lenders have relaxed this criterea and now only insist that the rental income will cover 100% of the mortgage interest, although to qualify you will generally need a larger deposit. Affordability is not worked out on a capital and repayment basis – the sums are done on an interest-only basis. This means that it is up to you whether or not you make any provision to pay off the mortgage capital.
Technically, all you need is a deposit of as little as 15%-25% and, as long as the potential rent is deemed to be sufficient, you can buy your investment property.
However, buying-to-let in London should not be regarded as a short-term bet but should be entered into with a medium to long-term view.
London Again: Property Prices Booming
2005 was certainly a year of two halves. January to June was very slow and many in the property industry were not hopeful of a revival. However, before we knew it, all changed in July and the market rallied. It was a trend that ran to the end of the year.
Better still; West Hampstead’s housing market has got off to a flying start this year, with property prices posting their biggest jump for 18 months. Some economic commentators had predicted a fall in property prices. But those of us handling the sales of second-hand homes - which do of course make up the vast majority of property stock for sale in the UK - and are nearer to the everyday market than most, felt that the mood was optimistic. This has been confirmed by national building societies and banks that have just reported the biggest monthly price increase since July 2004, at the height of the boom.
Inevitably when there is a quickening of pace in the market there are fewer properties for sale. This is the case now and points to a very active spring with eager competition for the best flats and houses. Already, in many instances recently, Paramount have agreed offers within 48 hours and have even achieved over the asking price.
In London February is city bonus time. This year has a bumper one and certainly triggered a mini property boom in some of our areas.
But big city bonuses will not stimulate the whole market. They never do.
Early in 2005 the doom-mongers were predicting a violent bursting of the property bubble and the market in free-fall. Fortunately they were wrong. The reason is clear. Contrary to the previous market downturns the economy is stable, with low interest rates. Consequently market confidence has remained reasonably high. The downside is that recent price rises have deterred would-be first time buyers who have been forced to rent rather than purchase. It is first time buyers who really drive the market as a whole.
All this has kept the buy-to-let market relatively buoyant and we see no reason in the short to medium term for this to change.
When will first time buyers return in numbers? Simply, when salaries are raised to a point that first-time buyers can enter the market in numbers.
So, in the absence of an economic downturn and a large interest rate rise - or any other unforeseen event that would affect it - we are seeing a confident and steady property market, one that allows reasonable choice and some time for reflection for buyers, and encourages reason and a little patience in sellers. Enjoy it while it lasts.
lease option to buy
How a lease option could benefit both buyers and sellers.
Ken Go (888) 822-5363
It would appear the market is changing, these changes will require both seller and buyer to adapt. The seller must realize that there will be more competition in the marketplace as more homes hit gets listed “For Sale”. Price will start to play a bigger role than the condition and location. Expect to see more listing prices being reduced and expired. Buyers have to realize they are not going to “steal” any homes as far as pricing goes. At least not yet, because now the buyers are still out there looking but taking their time and they have more choices.
The idea came to me when I have a caller who asks for my advice to see if I could lower his payments by refinancing his property. Here is their situation, they purchase a property less than a year ago with no money down, and got a two (2) years fixed rate mortgage that they could not afford from the start. Their loan agent promised them that they could refinance and get their payments down within a year. Two things happened here when that loan agent said that statements, one is either that person is so smart that he or she could predict what will happen to interest rates and home values within a year or that person is flat out just saying that to close this loan. You figure it out, on top of all this the loan carries a prepayment penalty for both loan.
Anyways, I calculated his options and checked the property value. I am hitting a brick wall, cant do any better on his payments due to interest rate now are higher. The property value has not risen enough to make a 90% combined loan to value due to the prepayment penalty to be added to the loan balance.
I then remembered that I have a client who is currently working on getting their credit cleaned up and in the process of saving up money for closing cost. T hey makes over $9000.00 a month and can afford$3000.00 payments. I heard a light bulb lit up in my mind and thought that maybe somehow I could put both of them together and make it work for both.
I am suggesting to the owner of the property to sell because even if I can help him with refinancing, in six months time he would be back in my office asking me to do the same for him and now he would live mortgage to mortgage sacrificing just to be above water. I then called the callers who are currently trying to save money and work on improving their credit and see if they might be interested in a lease option to buy. How this works is, they would take over the existing payments of the seller without going thru an escrow; a lease contract is signed thru an agent for a minimal fee paid by either the buyers or sellers. Without having to apply for a new loan, once agreed the buyers can move in and continue making payments for the sellers until a given time on the contract. Then should the buyers apply for a new loan to release the sellers from the mortgage responsibility.
Facts about lease options for sellers:
1. The seller might be able to avoid paying a prepayment penalty if the contract due to be exercised after the prepayment period.
2. The seller depending on the contract might walk away with some money.
3. The seller needs to monitor the payment of the buyers because the loan is still under the sellers name until the buyer refinances the loan.
4. The seller minimizes commission and closing cost paid to agents and escrow companies.
Facts about lease options for buyers:
1. The buyers will be able to avoid having to qualify for a loan regardless of credit situation, because they might just need to take over the existing loan of the seller.
2. The buyers will be able to avoid paying high fees for closing cost.
3. The buyers must be able to afford the payments of the mortgage, tax and insurance to be proven to the seller to avoid delayed payment on the mortgage loan.
4. If the buyers have poor credit but can afford the mortgage payments, they would have the time to re-establish their credit prior to applying for a loan in the future to fully own the house outright.
As easy as it sounds, this might be a harder task than meets the eye. The match has to be perfectly beneficial for both parties. A lot of communication would have to be going on even after the contract has been exercised.
Warning: Be careful with applicants just wanting to take over your payments and move in. They could move in sign a contract with you, but never pay the lender and you will be responsible as far as the lender is concerned because they never took out a loan under their name. If they did, it would not be called a lease but a regular conventional transaction.
Advise: Employ a professional to handle and negotiate the transactions and ask for some kind of good faith deposit to show interest from the buyers. Remember, they should be releasing the sellers from the payments only but not the responsibility.
Please contact me for your inquiries, I will be more than happy to assist you in anyway I can. Call me at (888) 822-5363 or write to Kennethgo@verizon.net . Sincerely.