David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:

Voids are the Black Holes of property investment, they will suck out your yields and chew them up!  So, although with a great managing agent by your side this post is likely to find you sipping a mai tai in a sun-lounger, when we call to say your tenant has given notice, it’s time to take decisions quickly!

PAD4U are very aware of the hidden dangers that voids present.  Whereas maintenance issues are usually very visible in terms of outlay, voids eat away at your return on investment quiety, but they can be a far bigger danger.  So when we hear a tenant is leaving, we will inform you, and we will also book a pre-vacating inspection at least 2 weeks before your tenant actually vacates the property.

At the pre-vacating we will assess whether the property can be marketed immediately and , if so, we will swing into action and start marketing your property with the aim of securing a tenant just as your previous tenant is vacating.  If the property requires minor updating, or even major updates (say if you have had a long term tenant), we will call you to let you know what will be required (although  not a full inventory), it’s a useful heads up to get work scheduled in as soon a your tenant vacates the property.  PAD4U are FMB MasterBuild and TrustMark approved and we can arrange for qualified and insured contractors to complete the works quickly and to a high standard.

It always amazes me that some landlords will try to save money on contractors to carry out works themselves, but take many months to complete the required works.  This is a false economy and your property is losing money every day it is not tenanted.  Not only this, but you are leaving your property insecure and more likley to be broken into. Other landlords await the resolution of TDS disputes, but this can take weeks, meanwhile you are already losing £££s.

The moral of the story is simple, PAD4U aim to ensure voids are kept to an absolute minimum, but we need your help.  If works are required, it pays to get the work done quickly rather than cheaply, as cheaply may end up costing you a lot more money.  I guess it’s proves the old mantra, that time is money.

David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:

The chancellor didn’t have much up his sleeves this time around, certainly not any money, so the country’s expectations were not sky high.  However, the budget had been touted as a budget for growth, and there was certainly interest to see how radical the chancellor would be.  The Markets were also watching closely for any signs that the austerity measures, which are now just beginning to bite, being relaxed, such signs would no doubt be met with markets taking fright.  After all our deficit still puts us close to the PIGS (Portugal, Ireland, Greece Spain).

The Markets were quickly calmed by the fact the budget was virtually cost neutral.  But this didn’t leave the chancellor with too many levers for growth.  Given this, overall his budget was a success in my opinion, but there was little if anything to get the housing market back on track.

The reduction in corporation tax and investment in redevelopment zones for businesses are two simple but effective mechanisms to get businesses growing and investing again and this is welcome.  The fact the banks won’t benefit from this reduction was politically smart.  However, the windfall tax on North Sea oil is counter-productive in a time when oil is expensive and becoming more difficult to source given conflicts across the globe, the last thing the chancellor wants is to thwart growth in North Sea oil exploration.  Statoil, and Valiant Petroleum have already mothballed developments in the North Sea, I hope this is merely bravado on their part and that development and exploration of North Sea oil will continue, if not, this will be a clanger for the chancellor.  Especially given the penny saving on fuel is unlikely to be seen in the forecourts I suspect.

In regards to the Housing Market, I hoped for a shake up of the stamp duty tax system, which is outdated and could have been an excellent lever to get the Market moving again.  Instead we got a token gesture for the builders providing loans to assist buyers with deposits only with new build purchases.  This really is a band-aid, and I would have liked to see more pressure on the banks to get sensible rates and deposits for mortgages – not trying to patch over the problem.  How is it justified to have rates as high as six of seven percent when the BoE base rate is at 0.05% with deposits of 5-10%!  This needs to be looked into thoroughly and there needs to be a mechanism whereby when the banks/markets are over/under pricing risk the BoE/Govement have levers to liquidate the market, other than pumping money into  those very same institutions that are not working.

Ultimately the real levers for growth are not directly in the chancellors control,  it is low, stable interest rates that will bring confidence back to the market.  But how long can Mervyn King keep his nerve?  Inflation is predicted to hit 5.5% before coming down, the temptation  to increase interest rates will be hard for Mervyn King to resist, but resist he must until growth returns to the economy.

David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:

I recently caught up with a colleague of mine James Kirkman, who has been working on helping UK property investors invest in the German property market.  Usually I steer well clear of investing in property abroad, but a combination of the strong Germany economy and the fact that investment is not in holiday homes, but instead in the domestic rental market, spiked my interest;  the yields don’t look too bad either!  James has kindly written an article below on the German market, if this wets your appetite and you are considering investing in the German market (or just want more information), please contact me and I will put you in touch with James.

What makes the German rental market different?

The owner-occupier rate across the developed world averages at 71%, with the highest level in Spain of 85%.  The country with by far the lowest level of owner occupation is Germany with around 41%. Well in fact the rate of 41% for Germany hides a number of “abnormalities” between regions. To the former western states, owner occupation can be a good deal higher, but rarely above 60%. On the flip-side, states in the former east can have owner-occupation rates down to as low as 13%. Indeed the capital city Berlin has an owner-occupation rate of around 15%. Why is this and what effect does this have on the housing and rental markets?

Well, from my time working in Germany as an investor and consultant, I would say the lower levels of owner occupation actually change EVERYTHING. Lets look at some of the features of the market due to this

phenomena:

• The average resident time for a tenant in Germany is between 3-7 years, depending on their age and the size of apartment in the main. This is completely different to other developed countries, where much more transient tenancies are common, perhaps less than 1 year on average. The figure should not be a surprise, just because they are tenants, Germans do not make more moves than owner occupiers in other countries. The usual forces of age, family size, downsizing etc are exactly the same. This really is the key difference.

• On from the point above, it is more common for tenants in Germany to treat their rental as their home.  They are there for so much longer, and a community exists within the housing estate or apartment house just as it would with owner-occupiers. You see this effect in the way that the common parts of the property are cared for, for example.

• Tenants move lock, stock and barrel! It is usual for a tenant in Germany to move into an apartment or house as a “shell”. The walls will fresh painted [by the outgoing tenant] and there maybe flooring [or maybe not!], nearly always there is a bathroom suite in place. But that’s it. Most tenants move in with their own kitchen, treating in much like furniture, and all lighting. This is a real shock for international investors.

• Commensurate with their long residence time, tenants enjoy appropriate laws to protect them from landlord wrong-doings. Rental increases for example are usually capped at 20% in any given 3 year period, unless the rent falls far below the market rate. Additionally, a landlord cannot simply evict a tenant with no reason. Of course, if a tenant falls behind in rental payments, then due process kicks in after 1 month, leading to court proceedings just like in most markets. However, a landlord may only take occupation of a property if he is to take up residence himself, or one of his close family. A notice period of 6 months is usually needed in this case, but varies.

• Tenant contracts are usually “rolling” so after an initial period of 1 year, the contract can be noticed by the tenant with 3 months written notice to leave.

• A landlord is obligated to put in place proper procedures for cleaning and maintenance of the common parts of a property, and making sure it is insured and ground tax paid. The good news here is that whilst this is the landlords responsibility, it is effectively paid for by the tenant out of the “warm rent” or ancillary costs, so not coming from the cash flow of the property.

So, what’s the effect of all of this?

In the first instance, landlords notice the increased stability of an investment in Germany. With much fewer tenant moves, the rents become more predictable and easier to control. Additionally, the cashflow from an investment is far easier to predict. Without the need to furnish apartments, and with all the ancillary costs of ownership being paid by the tenant, it is non-routine maintenance that is the only draw on cash flow. Maintenance tasks such as replacement of boilers or roof tiles etc can be planned for and a separate “sinking fund” set up or just provisioned by the investor as part of their plan.

You can see that this type of investment really lends itself well to “hands off” investors, with the features of ownership very much like owning a commercial property. With this in mind, the manager of the property and the tenancies will often be very much closer to the investment that the investors themselves. This can be a little different to other markets, with the manager sometimes assuming a gradient of power over the investor if things do not go to plan! The key of course is choosing a manager well, and working with them in a productive manner to achieve good results for all.

I would make the final point that the very low levels of owner-occupation are somewhat of a temporary feature of the states to the east of Germany. The aspirations of the new generation who grew up in the re-unified country are no different from east to west, north to south. So we should expect rates to rise to more like 40% over the coming generation. This will have huge impacts on the market and capital values, as you can expect.  If you have found this article of interest, please go to our website where you will find articles on all subjects including property management, financing, finding investments, and lowdowns of the areas in which we currently operate.

www.proventureproperty.com

David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:

Today a number of changes have now gone live to the secure landlords area of the PAD4U website, that will allow PAD4U landlords to view recent rents received and property balances which are updated daily.  This is in addition to landlords statements (up-to-date and historic) which are already available online in the secure landlords area of the website.

The changes are just a small part of our major objective in ensuring doing business with PAD4U is as transparent as possible.  Many of our landlords live a long way from their rental properties, a number are located in different countries across the globe.  So it makes sense  that we allow those landlords to have a firm grip on their portfolio regardless of the distance. More changes are planned later in the year including online access to inventories, so watch this space!

If you are a PAD4U landlord and haven’t used the service yet, it’s well worth having a look.  The service is provided free of charge to all PAD4U landlords.  To get started click register on this web page and we’ll get you up and running within 48 hours.

Please let us know how you are getting on with this service by leaving your comments below.

Catherine, Fresh Partnership, Mortgage Brokers for PAD4U, writes:

Over the last few weeks I have noticed an increase demand for re-mortgage products, both from residential and investor clients.  This is possibly due to the amount of press speculation that swap rates have increased.  Also, I can’t see Bank of England’s base rate going any lower than 0.5%, especially with inflation on the up!   The Big question that I get asked so many times ‘Is when do I think rates will go up’, and unfortunately I don’t know.  Over the years I have listened to some of the best economists in this country, and you know they have also got it wrong.  It all depends on the clients attitude too risk as to whether now is the right time to re-mortgage or not.  I am sure a lot of us are now benefiting from ridiculously low follow-on rates after being released from tie-in periods with our existing lenders, and I am guilty (up until now), of thinking I will take advantage of the lower monthly payments and increased cash flow profit.

WHY RE-MORTGAGE NOW

To keep it simple, the lenders buy in wholesale money.  For example, the lenders buy ‘fixed rate’ money on the SWAP rate market.  Over the last couple of weeks, I have seen lenders withdrawing fixed rate products to re-launch their products with increased rates.  Compared to historical data, the rates over the last year or so have been unusually low, but this cant last forever?  The lenders buy the money at one rate and then sell on the money to their customers at another rate, and this how they make their money.  They buy in tranches of funds and sell out with their margin.  Obviously, the lenders are in it to sell money, to make money.

If you are no longer tied in to a product with a lender, you will most probably now be on either their Standard Variable Rate (SVR) or a follow on Base Rate Tracker.  Base rate trackers are great as the Bank of England is in control of the base rate, and it is only if/when this rate changes that your interest rate would change.  However, this is only great whilst the base rate is at 0.5%, once it starts to go up, I am sure at this time the lenders will be clever enough to increase their margins on re-mortgage products.  The lenders SVR is more of a concern to me as the lender is the one in control of this rate and they can change the rate at any time they want.  Lenders can increase SVR without explanation or any notice to their customers.

Products Available – There are several different types of re-mortgage products available, and the choice for residential mortgages is still much greater than buy to lets.  There is a good offering of residential tracker mortgages available, typically for two to three years, but most of these nowadays come with a high arrangement fee, so cost and risk comparisons needs to be considered, it is worthwhile discussing these points with your broker, but unfortunately they won’t be able to pull out their crystal ball.  There is also a good deal of fixed rates residential mortgages available, but again speak to your broker to decide on the tie-in period, rate, arrangement fee and advantages/disadvantages of re-mortgaging right now compared to waiting.

Interest Savings – If you are in a fortunate position of having a decent amount of equity in your property/properties, it is worth considering releasing some of the capital to invest in further property.  For example, I have clients that are releasing equity by re-mortgaging the maximum amount of money from their residential property on interest rates as low as 3%, to then invest the money they have released in to properties that are yielding 18% – makes sense to me!  Why leave surplus money in your property or even in a bank account, when the returns are much greater in investment property.  However, I would always recommend a comfortable ‘rainy day’ pot.

WHAT POSITION DO I NEED TO BE IN TO RE-MORTGAGE

Most of the lenders will now only consider a re-mortgage for customers with clean credit history, so it is important to keep an eye on your credit file.  If you are planning to re-mortgage try and avoid unnecessary footprints, as this does have an impact on the lenders credit scoring.  Also, cancel off any existing credit facility relationships you no longer use e.g. credit cards.

When re-mortgaging a residential property, the amount you can lend is usually based on an income multiplier, which is usually somewhere between 3.5 and 4 times salary.  Some lenders nowadays combine the use of an income multiplier and an internal credit scoring system to determine the amount they are prepared to lend.

If looking to re-mortgage a buy to let property, some lenders require a minimum income, but there are still lenders that don’t have a minimum income requirement.  With several buy to let lenders it is uncommon for them to ask for proof of income for a buy to let mortgage, however they do reserve the right to request further information at any point from application to completion.

WHY CANT I RE-MORTGAGE TO ANOTHER LENDER AND WHAT CAN I DO

Unfortunately I am finding that the main reason why my customers are unable to re-mortgage is because they don’t have enough equity in the property.  For example, in order to re-mortgage a buy to let property, there needs to be at least 20% equity.  For residential mortgages, lenders are offering some fantastic products at 75% loan to value but for a higher loan to value than this the products don’t seem to be as attractive.  There has to be a financial benefit for re-mortgaging, so I would suggest to speak to a broker before you do so they can take all the fees in to consideration and advise whether you should stick with your existing product or swap.

If you can’t re-mortgage to another lender, but you don’t like the idea of sitting on the lenders standard variable rate, speak to your lender, as I know some lenders will offer re-mortgage products to their existing clients, even if the overall loan exceeds their maximum loan to value (some will even go up to 100%).

If you are unable to re-mortgage but benefiting from a low standard variable rate or follow on lifetime tracker, it might be worth considering making overpayments to your existing lender.  This may enable you to re-mortgage in the future, as you will be reducing the loan.

WHAT RE-MORTGAGE PRODUCT IS BEST FOR ME

This all depends on your attitude to risk.  I will briefly summarise a selection of products:

Fixed Rate Product – at the outset the term and tie-in period is agreed.  Throughout the tie-in period, the mortgage payment will not go up or down as the rate is set at a fixed rate.  The benefit to this is if interest rates go up or the lender increases their standard variable rate, it will not effect the mortgage payment through the tie-in benefit period.  However, if interest rates were to go down, as the rate is fixed the mortgage payment would remain the same.

Bank of England (BOE) Tracker Rate Product – is where the set rate is linked to Bank of England for a period of time agreed with the lender.  The mortgage payment goes up and down in line with BOE rate movement.

Bank of England (BOE) Lifetime Tracker – is where the set rate is linked to Bank of England for the lifetime of the mortgage.  The mortgage payment goes up and down in line with BOE rate movement.

Offset Mortgage – this is where a savings account can run alongside a mortgage and the amount in savings can be offset against the outstanding mortgage debt.  If the original mortgage payment is maintained, this will reduce the term of the mortgage as in theory overpayments are being made.  This type of product can also be available with access to a savings pot.  For example, you may want to mortgage a property up to the maximum loan to value, but not take the maximum loan upfront.  The surplus loan available can sit in a savings pot, and/or not be taken until such time the money is required, the benefit of this is interest is only being paid on the loan currently drawn down.

CAN I RELEASE MONEY WITHOUT RE-MORTGAGING

If you are looking to buy a further property and struggling to release surplus equity out of a property you already own to form a deposit, you could look at using a bridging company where they will place a charge against the existing property.  In some cases this means that you don’t need to have any liquid cash when using a bridging facility, as the deposit normally required is secured against an existing property and the loan required to purchase a further property would be secured against that property.  This would only really work if there were a reasonable amount of equity in the existing property.

Hope the above information is an insight to the re-mortgage market.  Please contact me for further details.