Bad Science and Bad Economics
Posted by admin in Investment, Landlords, Tenants on September 23, 2011
Ben Goldacre, in his book ‘Bad Science’, has been exploring the various stories we read and watch in newspapers and on TV regarding scientific subjects and shining a light on how much of it is founded on ‘Bad Science’. This can occur through lack of research, lazy journalism or just general ‘Bad Science’. We end up with an inaccurate picture of what is scientifically correct and what meaning this has in the context of our day-to-day lives.
Perhaps Ben Goldacre may turn his scrutiny to ‘Bad Economics’, as there are countless examples of such. One of my pet peeves is the comparison of investing in the Stock Market vs Investing in Property, as there are usually gaping holes in the analysis.
For example, leverage: the headline usually reads “Return of £100,000 invested in the Stock Market, equals £100,000 invested in Property”, (over some arbitrary time frame). However, the error is in the question; £100,000 invested in property would equal £400,000 invested as most investors would use mortgage funds to leverage their money (here I calculate for 75% Loan To Value as an example). Of course it is not usally possible for a private investor to do the same with the stock market (although options, futures, etc offer leverage they do so over set time frames that require constant rollover, which may involve a margin call depending on how the investment has performed), as no bank will give long term funds for this type of investment. So the actual comparison should be £100,000 invested in the Stock Market, against £400,000 invested in property (taking into account the interest costs of the bank funds). The outcome of which, of course, would be very different.
The question above, however, is still incorrect because it assumes average house prices. However, most property investors don’t buy into a property index, but rather an individual property or properties. Thus, the comparison should be £100,000 invested in an individual Stock (or Stocks or Index) vs £400,000 invested in one or more properties. Now this is where things get tricky. There are significant studies which demonstrate that both private investors and professionals alike are pretty poor at choosing companies that beat the market over time, i.e. stockpicking, so it’s best the investor sticks with an index, but his/her returns will thus be limited. There are many explanations for this, but one factor is likely to be a lack of understanding of what they are buying. Whilst I have found no evidence to suggest that investors would be better informed on individual properties, I would hypothesise that they are more likely to buy in the area they live, and therefore have more information regarding schools, transport, the type of potential tenants, and that to a reasonable trained eye most of the information about a property would be more readily available to anyone.
Whilst this article does not provide the answer, perhaps if financial journalists could start by asking the right questions, the information gained can be used by private investors to make sensible financial decisions on real world scenarios.
First time buyer mortgages must adapt
Posted by admin in Investment, Tenants on September 7, 2011
There have been seismic changes in the UK economy and housing market during the last decade, however the available mortgage products for first time buyers have hardly changed from the time I was looking to purchase my first home.
First Time Buyers haven’t suddenly become a greater risk to the banks in recent times but their needs have changed. The solution isn’t to make loans unavailable or unaffordable for this group of buyers, but to adapt these products to today’s reality,
Firstly we are all living longer and perhaps more importantly we are going to be working longer. Longer mortgage terms are needed to reflect this new reality 30 to 35 year mortgages are available but these need to become more available for first time buyers.
Flexibility. Mortgages need to be far more flexible with mortgages breaks available perhaps one month every year to help during the difficult Christmas period. Again such holiday breaks are available in some products, but need to be more widely available.
Rate security and flexibility. Variable rate mortgage products need to have the flexibility to switch to fixed rate products any time during the term of the mortgage without any penalty. Such mortgages are beginning to appear.
Overall banks need to alter their approach from an adversarial short term approach, hoodwinking buyers in straight jacket mortgages, confusing first time buyers with complex fees and rates which eventually cripple their finances, to a sensible look at the long term requirements of first time buyers and providing products that meet the needs of this group of buyers. Ultimately this will result in long term stability for the banks, lower risk of default, and therefore feedback in sensible rates for first time buyers.
It’s a tough market, but you can still sell your house.
Posted by admin in Investment, Landlords, Tenants on August 4, 2011
I don’t need to inform anyone that the market is tough especially in local areas such as Levenshulme/Longsight/Gorton as first time buyers are finding it virtually impossible obtain the finance they need to get on the housing ladder. But don’t despair house sales are still being made, here are some tips to help you sell your home:
1. Price: Get it right, first time!
Firstly, you need to get an honest valuation on your property by an experienced local Estate Agency (choose three of the top agents in your area – only choose strong local agents and find out how they will market your property). Secondly, if you find yourself using the phrase “Let’s try it at ‘x’ first and then we will go down to ‘y’”, stop! Throw some cold water over yourself (no actually do it! It helps), then make the sensible decision to set the price correctly first time. The best opportunity of selling a property is the first month it’s on the market, don’t waste this, or you will end up reducing the property more than ‘y’ to sell the property after the first month has elapsed.
2. De-clutter to the extreme!
There is nothing worse than viewing a property that looks like an explosion of a Storage Depot has occurred nearby and left the shrapnel in the property you are viewing. Pack everything away neatly in the Garage or Cellar or alternatively store some of your belongings with family whilst your property is on the market. The property should be extremely clean and tidy for all viewings and when the agent is taking photographs. You need to show your property in the best light. I know this is hard work, but it pays. Oh, and put the toilet seat down!
3. Click ‘Like’ on Rightmove or PAD4U website to get your property on Facebook!
OK so this isn’t the most likely route to finding a buyer, but with millions of Facebook users, its worth letting all your friends know your house is on the market as they may just know someone who is interested in buying a house in that area.
Rents must rise
Posted by admin in Investment, Landlords on August 3, 2011
The media is currently littered with stories of rents rising, to the extent one would think they had double over night! Whilst, I’m sure some areas may have seen dramatic rises in rent such as the South East and London, many more areas are only seeing a minor “correction” in rents which has been long overdue.
Over the years multitudes of legislation (mostly ill-thought) has been thrown at landlords. This legislation may not have resolved any issues, but it has certainly resulted in extra costs for legitimate landlords. Take the Tenancy Deposit Scheme (TDS), such schemes have insured that landlords rarely receive the actual costs of the works they carry out in-between tenancies. For example, if a tenant has marked a wall, the landlord will NOT receive the costs of repainting that wall, only a minor adjustment for the mark itself. Back in the real world a landlord will have to find a decorator willing to come in to paint one wall (good luck), or usually end up painting the entire room so that the different ages of paint correspond.
The landlord needs to recoup this shortfall somewhere, and that somewhere has to be increase rent for every tenant. This is just one example of legislation that has increased the total costs for landlords. Other legislation includes selective licensing, health and safety legislation, energy performance certificates. All this legislation costs money and therefore rents have to increase to take account.
In conclusion rents have remained static for far too long, whilst the costs of being a landlord have increased. It was only a matter of time before the increased costs resulted in the necessary increases in rent. Whilst increased legislation isn’t the only reason rents are rising, demand is also increasing due to banks reluctance to lend to first time buyers, it is factor that landlords must consider when setting rents.
Governments need to think carefully before introducing legislation that ultimately benefits neither landlords or tenants and increases the costs to everyone in the form of red-tape.
Slum Landlords: driven by Government policy?
Posted by admin in Investment, Landlords on July 12, 2011
Dispatches ran a disturbing programme recently on Slum Landlords. I’m sure anyone watching the programme would have been disgusted and shocked at the condition of homes some tenants have to reside in, sadly, although disgusted, I am not shocked. This Government, and previous Governments’ policies (or lack of) positively encourage such landlords and their behaviour.
For example, to date anybody can set up a Lettings Agency tomorrow, without any qualifications, or without any insurance protecting Client funds (such as landlord’s rent). This has resulted in landlords losing thousands of pounds if their Agency goes bump, often without knowing they are exposed to any risk. Why has it taken so long for any UK Government to insist that Letting Agents must be member of a qualified body such as ARLA (Association of Residential Letting Agents) or RICS (Royal Institution of Chartered Surveyors) or other recognised bodies? In addition every Lettings Agent should insure all Client funds. If a bank goes bust you wouldn’t expect to lose money (though it can happen in extreme cases), likewise if a Letting Agent goes bust you shouldn’t lose money either, period. (PAD4U is ARLA licensed and Client Funds are insured).
Of course there are landlords who do not use Letting Agents, which is right and proper they have this choice, but they ought to be licensed by local Councils. Landlords should meet a minimum understanding of tenancy law (and this should be tested), before they are able to let out a property without the aid of a qualified agency.
However this doesn’t explain the poor condition of property, this is due in part to the present Government failing to keep it’s promise to overturn a policy implemented by the last Labour Government in regards to Housing Benefit. Previous to the last Labour Government, Housing Benefit rent was paid directly to the Landlord, this ensured the following: tax payers money which is meant to pay for rent actually pays for rent (this is incredibly important point – it is not the Government’s money, nor the tenants, it’s is the tax payer’s money, and due care and attention should be made that it meets its intended purpose in society), secondly, even if a tenant has other debts which may automatically be taken from their bank account, their rent money is safe , they would always have a roof over their head, because their rent was paid automatically.
The reason such a policy results in sub-standard housing is because “good” landlords that ensure their property meets (and exceeds) all standards set, will insist they receive a fair market rent for their property. Due to the above policy “good” landlords or agencies for that matter cannot afford to take the risk on Housing Benefit tenants. So Housing Benefit tenants have no choice, but to fall into the hands of “Slum Landlords”, who will happily take the risk of not receiving rent, because they are happy to throw tenants out, and spend no money on the property whatsoever, so they will always make profit regardless.
So much is obvious. However, what baffles me is why all Governments seem complicit in this inevitable outcome. Perhaps, because they can lay the blame at “Slum Landlords” rather than themselves, or because it can potentially save money. But it is shameful that such an affluent country has it citizens living in squalor, or that millions are still awaiting a home. Intelligent Government policy should ensure “good” landlords and good agents can operate and that “Slum Landlords” cannot. Shelter and other charities work hard to help those people unfortunate enough to be in this position, but it is the Government who are ultimately responsible for housing its citizens.
Time to consider rent guarantee?
Posted by admin in Investment, Landlords on July 4, 2011
Landlord Action, a specialist in difficult tenant evictions, have recently reported an 11% increase in their case load. With the austerity measures beginning to bite, is now the time to consider rent guatantees on your property?
Rent Gurantees ensure that you will receive a minimum amount of rent on your tenancy. PAD4U work with Endsleigh Insurance to provide rent guarantees. On a 6 month tenancy 4 months are guaranteed. However, rent guarantee also covers the legal costs of evicting a tenant which can quickly add up.
Rent guarantees are not the panacea for all rent issues. Choosing the right tenant from the outset is critical as is effective management throughout out the tenancy. However, in these uncertain times, where people’s circumstances can change rapidly, it is worth considering the benefits that rent guarantee can provide.
If you would like more information including full terms and conditions please email alaine@pad4u.com.
Generation Rent?
Posted by admin in Investment, Landlords, Tenants on June 22, 2011
I read with some sense of irony the research recently instigated by the Halifax on the social trends and views of First Time Buyers. The research ‘discovers’, that due to the banks requiring huge deposits, first time buyers can no longer afford to buy a home, but now must join ‘Generation Rent’. I would have thought that this would be self-evident, and ought to embarrass the banks, but seemingly not.
Interestingly the research demonstrates that the greater majority of people desire to own their own home (77%). Therefore we haven’t seen a step change in the British psyche as the title ‘Generation Rent’ suggests, only that due in part to the bank’s currently lending criteria, first time buyers, can no longer afford to buy a home and must now rent. The study suggests several outcomes of this avoidable phenomenon, but the most concerning is the reduction in social mobility i.e. the wealth gap between the have and have nots is likely to widen considerably.
Of course it isn’t just the banks fault, a culture of saving needs to be rekindled in Britain, but due to the banks setting an unrealistic high bar for deposits, more young people are likely to dismiss the opportunity and not bother saving at all for a home. Landlords are likely to benefit from the the banks grip on mortgages, forcing more people into rented accommodation and for far longer.
The Government have policies such that emergency services cannot strike, so that the country does not grind to halt. Financially we need more than words to ensure banks lend responsibly (which doesn’t mean they don’t lend at all), otherwise the banks may cause the housing market to grind to halt, and the UK economy as a whole.
The Banks are still broken, but not financially
Posted by admin in Investment, Landlords on May 30, 2011
David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:
The banks have been busily rebuilding their balance sheets, more precisely their capital ratios i.e., their savings/loan ratios and having plenty of liquidity (cash) available to cope with the difficulties in the global economy.
This has been achieved by a range of measures including Government backing, quantative easing, improving margins (read charging us more). However, whilst the banks have been repairing their balance sheets with gusto, there seems to be little progress in the processes that to some extent caused the difficulties they find themselves in.
The shock has greatly affected banks capacity to take action, they are still stunned like animals caught in the headlights of an oncoming vehicle. This inaction is having a negative effect on UK economic growth.
Recently I applied for a mortgage from a financial institution that I shall not name. The time it has taken and the sheer number of silly questions that are being put forward is astonishing. For example, after forwarding all of my tenancy agreements, I had the response that many were ‘out of date’. Of course the agreements are not out of date, merely the fixed period has expired and now they have become periodic tenancies. However, the underwriter seemingly doesn’t understand the concept of periodic tenancies! So now we have the ridiculous situation where I am writing long explanations of tenancy law to the underwriter! This is madness; an underwriter should have a basic understanding of tenancy law, given they are potentially responsible for millions of pounds worth of bank funds.
The above example demonstrates the banks still need to work harder on ensuring the people responsible for making financial decisions have the acumen and the training necessary to carry out their tasks, not just the ability to complete forms. Unless the banks understand that stopping all lending isn’t the solution, but rather that they need to lend intelligently which requires human decision making by competent staff, we are doomed to failure… Just of another sort.
Potential Investment Properties
Posted by admin in Investment, Landlords, Tenants on May 4, 2011
David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:
We have a couple of potential investment properties that landlords may be interested in building their portfolio.
The first is a 3 bedroomed end terrace in Waterloo Street, Crumsall, Manchester. The property is in need of some renovations, but it is Gas Central Heated and Double Glazed. The property has been reduced to £59,995. Rental expectations once repairs are completed would be in the region of £450-£495. See photo below:
.jpg "Waterloo Street")
The second property is a 3 bedroomed semi-detached property on Sunnyside Drive, Drolysden, Manchester. The property is need of some renovations. The property has been reduced to £79,950. Rental expectations once repairs are completed would be in the region of £550-£595. See photo below:
.jpg "Sunnyside Drive")
If you are interested in viewing either property please call 0161 257 2441 to book.
Reminder: Gas Checks
David Boyd, Managing Director, PAD4U Estate and Letting Agents Manchester writes:
Gas Checks need to be performed annually on every property that has gas appliances, such as boilers, gas fires, gas cookers, etc. It is vital that the Gas Check is carried out by a Gas Safe registered engineer who also has the correct insurances in place. The legal implications for not complying with this important legislation has resulted in many landlords receiving very substantial fines, and/or jail terms. The consequences for tenants has been serious injury, or even, loss of life.
PAD4U thus takes the management of Gas Checks very seriously. We recommend that all landlords allow PAD4U to organise Gas Checks with contractors that we have approved and have the necessary qualifications, are registered with Gas Safe, and have the necessary insurances in place. This is the simplest and easiest option and offers complete peace of mind.
If as a Landlord you would like to perform your own Gas Safety Check, then we need to have an ** original** Gas Safety Certificate before the current Certificate elapses. We will contact you and stipulate a date where we expect to receive the new Gas Safety Certificate. If the ** original certificate** (not a fax or a scan, etc), is not received by the stipulated date (for whatever reason), we will instruct a Gas Safe engineer to carry out the inspection on your behalf immediately, to protect you, the tenant and ourselves in such an important aspect of property management.
Member of BlogTopList