Monthly Archives: April 2013

Leasehold homes are rapidly losing their value

Many are seeing the value of their new homes fall and this is not as a result of the property market!

Around a tenth of all owner-occupied homes are leasehold. That is 1.43million homes, 817,000 of which are flats. Leasehold is when the land on which the property is built is not sold with the home. All leasehold homes are only owned for the duration of the lease, after which the ownership reverts to the freeholder.

The maximum length for a lease is 999 years. But many new homes have been built with leases that are just 99 years. As owners soon discover, when a lease has less than 80 years left, the value of the home decreases. Properties lose around 5% of the value when a lease reaches the 80-year mark.

When the lease is 60 years or less, homes start to rapidly lose their value and become all but impossible to sell or re mortgage. Most lenders require at least 55 years left on the lease, with around 30 years left at the end of the mortgage term.  Many new homes sold in the 1980’s with 99-year leases may now only have 65 years remaining.

Leaseholders should look at extending their lease when it reaches 85 years. A lease can be extended by 50 years for a house and 90 years for flats. The 1993 Leasehold Reform Act made it possible for all leaseholders to extend their lease by up to 90 years and gives them to legal right to buy the freehold.

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Five reasons why ‘Help-To-Buy’ is a bad idea

Five problems with the Help-To-Buy scheme.

1. It could create a house price bubble

The UK is not building sufficient new homes to meet demand. Instead of focusing policy on the supply side the government has taken steps to increase demand by making it easier for people who couldn’t and perhaps shouldn’t to get on the housing ladder.

It is basic economics that if demand increases without an increasing supply prices will rise as a consequence of the shortage.

Government policy should not be underwriting and subsidising another housing bubble. This policy is not making homes more affordable but will make them easier and more expensive to buy.

2. It could help the well-off buy a second home

The Treasury has published a list of those who would be eligible to benefit from the Mortgage Guarantee element of the Help to Buy scheme, which is available on properties up to £600,000.

This did not rule out people using the scheme to buy a second home- an issue still yet to be clarified by the Government. The scheme may even be used by existing owners to remortgage their property.

As it stands, unless the eligibility criteria is revised to rule out people exploiting the scheme it looks like Osborne is making it easier for the well off to get wealthier.

3. Government policy should focus on social housing

Most experts argue that the State should be focusing policies that increase the provision of social housing to help those most in need in our society, rather than attaching itself to the mortgage market and helping house builders by making it easier to buy a new home.

The government should not be encouraging mortgage providers to lend to borrowers that it would otherwise consider too risky.

We all know what happens next.

The Government funds allocated for social housing are small beer when compared to the scale of Help to Buy, which could potentially underwrite £130bn of home loans.

4. The taxpayer is exposed to huge losses

If Help-To-Buy starts price bubble in the housing market that then bursts, leading to a property price crash many borrowers “helped” to buy could default on their repayments and lenders being forced to repossess and sell.

If house prices fall with resultant losses, it will be the taxpayer picking up most of the liability.

5. It may not lead to cheaper mortgages

At present only the banks partly owned by the taxpayer, Lloyds Banking Group and Royal Bank of Scotland have agreed to use the Help to Buy Mortgage Guarantee Scheme. If the scheme is to be a success it will depend on the uptake by lenders and the extent to which they reduce their rates and fees prices to account for the Government underwriting loan guarantee.

At present current financial regulations force banks to hold over six times more capital against 95% loan as they do for a 60% loan. The regulator may be looking at offering banks some relief from the capital adequacy rules.

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Why most UK home buyers would NOT buy a home built after 2003


Three-quarters of the British public would never buy a home built in the last 10 years.
That is the finding of a 2010 YouGov poll carried out on behalf of the RIBA as part of their study into the ever decreasing size of UK new homes, now on average 80% smaller than an equivalent European Union new home.
One in four home buyers would avoid any home built in the last 10 years.

There are many reasons given but overwhelmingly the most common is that new homes are just too small and too dark.
There are also many other Disadvantages.

The RIBA Case for Space study found that buyer’s priorities vary with 69% saying that a high level of natural light was important to them.
A further 51% confirmed that room size was the most important factor when looking to buy a home.
Outside space was important to 47%.
Privacy to 49% and the appeal and look of the street or estate being important to 43%

It is therefore no surprise that the following reasons were given why those surveyed in the Future Homes Commission’s Report (September 2011) would choose not to buy a new home:
* Lack of storage space
* Lack of privacy from neighbours
* Poor sound insulation
* Lack of outdoor space
* Not enough space in rooms
* Small windows/not enough natural light
* Inflexibility of spaces for communal and private living or for future changes in the

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