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Mortgages

Right to Buy: Four Misconceptions Clarified

Buying a home in the United Kingdom has never been more expensive.  Affordable finance options are readily available but the average UK property price has skyrocketed over the past 20 years.

Thousands of council tenants across England however are finding themselves able to potentially capitalize on a highly profitable opportunity. Those who qualify under the Right to Buy scheme may be able to purchase their properties for as much as £82,800 (increasing to £110,500) less than its official market value.

These kinds of enormous discounts have made property ownership more affordable for buyers than ever before. Nevertheless, there are some council tenants who continue to be daunted by the prospect of purchasing their home, even under the Right to Buy scheme. They believe it to be risky and complex but the process for the buyer is actually quite straightforward and similar to any property purchase.

The four common misconceptions that stand in the way of prospective council property buyers are:

Misconception 1: “It’s too complicated!”

From the buyer’s point of view, its actually very similar to any property purchase. All that is needed is to establish your eligibility and then formally indicate your intention to purchase the property.

If you’ve lived in a council house for more than three years and you intend to purchase the house as your primary or only residence, its highly likely that you will qualify for a discount. If you’re happy with the purchase price after the discount is applied then the process is the same as that of any other property purchase and in-fact in some ways more straightforward as the seller is less likely to pull out of the sale. 

Misconception 2: “Right to Buy is only for first-time buyers”

The truth is that there are few restrictions within the Right to Buy scheme, in terms of previous home ownership. Again, just as long as you intend to use the property as your primary or only residence, it’s irrelevant how many homes you’ve owned in the past. The Right to Buy scheme is open to all qualifying council tenants across the board.  Eligibility is measured by length of tenancy, the nature of the property and so on. As such, you do not have to be a first-time buyer to qualify for a sizeable discount, under the Right to Buy scheme in England.

Misconception 3: “Right to Buy is only for low income households”

It’s surprising how many people think they would not be eligible for a Right to Buy discount on the basis of their earnings. While various schemes and incentives have been introduced over the years for low income households, Right to Buy isn’t one of them. It’s worth remembering that some council homes in more prestigious locations across England have exceptionally high values. In this case, even a substantial discount wouldn’t eliminate the need for a large mortgage. Your income level will only affect your eligibility for the mortgage to purchase your home, not your eligibility for a discount.

Misconception 4: “I won’t be allowed to sell or let my property in future”

Some purchasers have naturally turned to the Right to Buy as a way to make money. Contrary to popular belief, those who qualify for Right to Buy discounts are perfectly entitled to sell or let their properties from the moment they take ownership of them, however if you sell your home during the first 5 years of purchase, you will be expected to repay some or all of the discount that you were granted.

If you are interested in the Right to Buy scheme or have any questions regarding secured loans or mortgages for home purchases, we would be delighted to hear from you. Book your obligation-free consultation with UK Property Finance today. Work out the costs of a mortgage using our UK mortgage calculator

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Investors in Kevin McCloud Face Prospect of Liquidation

The businesses started by Grand Designs star Kevin McCloud that once seemed bullet-proof investment prospects are now headed for liquidation. As a result, those who invested (some heavily) in HAB Land Finance are now facing the prospect of losing every penny.

Named after Mr McCloud’s Happiness Architecture Beauty brand, HAB Land Finance attracted more than 280 investors and raised a collective £2.4 million at the time of its establishment. The company was founded as a property development project in Winchester and Oxford, but an announcement was made this week that the liquidators have been called in.

Investors had been promised healthy returns of up to 8% – they instead now face the prospect of being wiped out entirely.

When the company was founded in 2017, Mr McCloud advertised the investment prospect as having the potential to deliver “triple bottom line returns with progress on energy positivity”. Of the almost 300 investors that helped fund HAB Land Finance, none saw any return on their investment of any kind.

In August this year, a letter was issued to HAB Land Finance’s investors warning that they stand to lose up to 97% of the money they contributed to the venture.

“After final completion of the projects at both Kings Worthy and Cumnor Hill [in Oxford], the net return available to bondholders would be expected to range from £606,000 (best case) to £69,000 (worse case) which, in each case, is equivalent to 26 pence and 3 pence for every £1 of bond monies invested,” read an extract from the letter – a copy of which was obtained by the Guardian.

As a result of ongoing financial difficulties and a generally poor outlook, the firm’s board made the regrettable decision to call in the liquidators. One of which – James Bennett – attributed the company’s financial issues to unexpectedly high costs.

“The directors have reported that higher than anticipated design and project management costs, coupled with delays to the delivery of the sites, resulted in the companies experiencing significant liquidity issues,” said Mr. Bennett.

“This has resulted in a considerable loss to mini-bond holders who largely financed the project,” he added.

Simon Bullock, director of HAB Land, said that the company had ‘no alternative’ than to call in the liquidators.

“With only 22% of the mini-bond holders voting for the resolution and having exhausted all other options we were left with no alternative but to commence proceedings to put these companies into liquidation,” he said in a statement.

“With respect to the current HAB development sites in Oxfordshire and Winchester, none of the homeowners are directly impacted by this change although the situation remains fluid and under review,” Mr Bullock added.

“This has meant that there is, what we hope to be, a temporary pause on the remaining works on the sites.”

Local authorities have since lashed out at HAB Land, having accused the company of failing to deliver a series of promised facilities. According to Winchester City Council, the company promised to build a play area, an orchard and allotments at Lovedon Fields, Kings Worthy, which have instead been replaced with an unfinished property development.

The story was first covered by the BBC, who reached out to Mr McCloud directly for comment, though has not yet received a reply from Mr McCloud personally or his company.

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Mortgages

Help To Buy vs Right To Buy

Through experience, we’ve found that a lot of would-be homeowners in the UK confuse the government’s Right to Buy scheme with severable separate affordable home ownership programs.

‘Help to Buy’ in particular is often mistaken as the same basic scheme as ‘Right to Buy’, though there are significant differences between the two.

Help to Buy

Introduced in 2013, the government’s Help to Buy was created to help struggling buyers purchase properties, without the need to provide an excessive down payment. Whereas banks and major lenders typically request deposits of between 10% and 20%, Help to Buy reduces initial deposit requirements to just 5%.

The property being purchased must have a market value of less than £600,000 and be the intended primary residence of the buyer, should the purchase go ahead.

Qualifying applicants are required to offer a deposit of 5%, after which the government provides an equity loan up to a maximum of 20% (or 40% in London) of the market value of the property. This boosts the down payment the buyer is able to provide, opening the door to more competitive mortgage rates and lower borrowing costs with leading lenders.

Contrary to popular belief, these equity loans are available to first time buyers and existing home-owners looking to relocate. However, the scheme covers new-build properties only – not resale homes of any kind.

The government-issued equity loan is provided for an initial five-year period at 0% interest, after which an interest rate of 1.75% is payable during the six year, increasing by 1% for every year after the loan balance remains unpaid.

The Help to Buy scheme is therefore designed to improve accessibility and initial affordability for homebuyers, though doesn’t offer any direct incentives regarding the price of the property. The market value of the property is the price payable and the equity loan provided by the government must be repaid in full.

Right to Buy

By contrast, the government’s ‘Right to Buy’ scheme opens the door to potentially huge discounts for qualifying tenants. In this instance, the scheme is available exclusively for tenants of council properties, who must have lived in a council home for a minimum of three years (previously five years).

Tenants who qualify under the Right to Buy scheme may be offered as much as 70% off the market value of their property. The maximum discounts currently available are set at £70,600 across most of England and £104,900 in London.  The size of the discount depends on several factors, including the value of the property, the type of property they live in and how long the tenant has lived there.

While the Right to Buy scheme doesn’t offer any direct assistance regarding mortgage eligibility, qualifying applicants can use the discounts offered instead of down payments. This means that while it is still necessary to apply for a mortgage via the usual channels, it may not be necessary to come up with any deposit whatsoever.

The government recently announced plans to extend the Right to Buy to tenants of housing association properties, though no specific dates for the new legislation have yet been confirmed.

Ask the Experts…

If interested in taking advantage of any government-issued home purchase scheme, it’s important to carefully consider all available options. Independent advice and support should be sought at the earliest possible stage, in order to ensure you fully understand your position and your eligibility, should you go ahead.

For more information on any aspect of Right to Buy or Help to Buy, book your obligation-free consultation with a member of our team today. Work out the costs of a mortgage using our UK mortgage calculator

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Revealed: Where UK Rent Prices are Rising Most Rapidly

The average property rental prices in the United Kingdom have been accelerating at a phenomenal rate over recent years. Now, the results of a new study, published by property website Zoopla, reveal the areas of the UK most affected by skyrocketing home rental prices.

The Zoopla report reveals that the biggest increases in average property rental prices of the past year occurred in Bristol, Leeds and Nottingham. Meanwhile, the biggest annual reduction in property rental prices was noted in Aberdeen.

Specifically, Zoopla reported that tenants in Nottingham signing new tenancy agreements this year are paying around 5.4% more than they would have in 2018. Both Bristol and Leeds recorded a 4.5% annual increase, inflation that significantly outpaced average UK wage growth for the same time period.

Despite the significant rental property price hikes of recent years, Zoopla stated that it is actually becoming more affordable for tenants to rent homes in the UK. This is partially attributed to more first time buyers getting on the property ladder, taking at least a little pressure off the property lettings market.

In Aberdeen, the average property rental price decrease of 4.1% was attributed to wider economic issues affecting the area. Aberdeen’s economy is closely tied to the oil industry, which has a knock-on effect on both average house prices and monthly rent prices.

Zoopla’s report also showed that property rentals are becoming cheaper in Middlesbrough and Coventry.

London Leads with the Highest Rental Costs

The most recent Family Resources Survey carried out by the government found that around half of 25 to 34 year-olds and three-quarters of 16 to 24 year-olds now live in privately owned rental properties in the UK. The vast majority of rental properties in the United Kingdom are located in London, which is also where average rent prices are the highest by a significant margin.

Revealed: Where UK Rent Prices are Rising Most Rapidly

According to the report from Zoopla, most private tenants in the United Kingdom use approximately a third of their earnings to cover their rent. Private tenants in London, Oxford, Brighton and Cambridge spend a considerably higher proportion of their earnings on rent whereas tenants in Stoke, Bradford and Hull rank at the opposite end of the scale.

Average property rental prices in the UK are up approximately 2% year on year, though this is well below the average annual wage increases for UK workers.

UK-wide rental prices are up by an average of 2% in the last year, which is about half the typical level of wage rises.

“Renting is more affordable today than the 10-year average. An increase in first-time buyers, 80% of whom exit the private renting sector to buy, has also moderated rental demand,” reported Zoopla, commenting on the findings of the study.

“Rental affordability varies widely across the country, reflecting the relative strength of local economies.

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Polish Homeowners Take On the Banks…and Win

It’s not often that the everyday consumer takes on one of the world’s financial giants and actually wins. It’s the classic David vs Goliath tale, though one in which Goliath almost always has the upper hand.

Nevertheless, a recent victory for more than half a million indebted Polish homeowners has demonstrated the importance of standing up for what’s right.  Following a legal battle that’s been raging for several years, hundreds of thousands of struggling Poles have won the right to exit their over-inflated Swiss Franc mortgages.

It’s estimated that around 20% of all mortgages in Poland are held in Swiss Francs.  With the value of the Swiss Franc having doubled over the past decade, Polish homeowners with Swiss Franc mortgages have faced crippling and continuously rising debts. However, a ruling reached by the European Court of Justice will allow those affected to request that their loans be converted to the Polish Zloty.

While the ruling was welcomed by Polish consumer groups and political activists, government officials highlighted its potential implications for the country’s banking sector. Finance Minister Jerzy Kwiecinski stated that Polish banks would likely face collective losses running into tens of billions of zloty.

Foreign Currency Mortgages

Following Poland’s entry to the European Union in 2004, it’s estimated that approximately 700,000 households signed into foreign currency mortgages.  Attracted by low interest rates and heightened accessibility, foreign currency mortgages were snapped up by millions across Poland, Austria, Croatia and Hungary.

At the time, the Polish Zloty was performing well and the Swiss Franc mortgages on offer represented excellent value for money. However, the value of the Zloty started to fall sharply as the financial crisis escalated, just as the Swiss Franc was surging. Later in 2015, the Swiss Franc’s currency ceiling against the Euro was abandoned, delivering a hammer-blow to hundreds of thousands of Polish borrowers.

This meant that while around half a million Polish households entered into mortgages when the value of the Swiss Franc was less than 2pln, its value had sense skyrocketed to more than 5pln. It has since fallen back to around 4pln, but this still equates to around double the original debt taken on by an extensive audience of borrowers across Poland.

Figures show that at one point in time, approximately half of all mortgages in Poland were held in Swiss Francs. Even today, it’s estimated that around 23% of Polish mortgages are in Swiss Francs, according to the latest figures published by Erste Group.

European Court Intervention

It’s been a long and difficult fight, culminating in approximately 16,700 claims being lodged by borrowers demanding that their loans be converted into the national currency of Poland. Several cases have been brought before the highest courts in Poland – the case of Kamil and Justyna Dziubak having ultimately been referred to the European Court of Justice.

The basis of the couple’s complaint focused on the unfairness of the Swiss bank that provided their mortgage being able to fix the exchange rate by itself. The ECJ ruled that the couple had the right to ask the courts in Poland to convert their mortgage to the Polish Zloty, paving the way for hundreds of thousands of borrowers across Poland to do the same.

According to Mrs Dziubak, the saga and its eventual outcome clearly illustrates the importance of having the courage to challenge the banks where necessary.

Inevitably, the Polish banking sector and indeed the country’s wider economy is expected to take a substantial hit as a result of the ruling. Should the majority of borrowers with Swiss Franc mortgages request conversion to the Polish Zloty, the estimated cost for the banking sector could be anything from 20 billion to 60 billion Zlotys.

Share values for Poland’s leading bank – PKB Bank Polski – have already fallen 2% in the wake of the ECJ ruling.

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Escalating Issue with Unfinished Accommodation Hits Students Nationwide

Students across England are feeling neglected, let down and angry. Having expected to move into comfortable and functional accommodation in time for the new term, hundreds are being told their student residences are not ready to be occupied.

The result of which is a growing number of students finding themselves stuck in hotels and other forms of temporary accommodation, away from the general student population. Often with no access to basic facilities, those affected are being forced to live on takeaways and use paid laundry services simply to keep their clothes clean.

According to student housing charity Unipol, at least 22 private student residences up and down the United Kingdom are facing severe delays. This equates to around a third of all new blocks that were supposed to be ready in time for the new term. 

Along with the expense, discomfort and isolation being experienced by those affected, the National Union of Students have expressed concern with how the disruption may affect the quality of their educational experience.

The problem is particularly prolific in Portsmouth, where educators are calling for greater scrutiny over private student accommodation providers. University of Portsmouth vice-chancellor, Graham Galbraith, stated that as the disputed developments are private, the university has no direct control over them.

“At the end of the day, those housing providers know that the universities will step in. So where does the responsibility for this lie? Because they seem to be able to walk away,” he said.

Mr Galbraith’s comments echo the sentiments of educators across the UK, who cannot understand the total lack of accountability for private student accommodation developers and building owners. He believes that as this entire arm of the industry is funded almost exclusively by maintenance loans – i.e. public money – it should be subject to the same scrutiny as any other form of public spending or investment.

He warned that as things stand, there is no direct control whatsoever and that new student housing blocks can be built and opened with no interaction or dialogue with the university whatsoever. This, despite the fact that billions of pounds of taxpayers’ money funds these developments in the form of student maintenance loans.

A Nationwide Issue

Students in Portsmouth are far from alone in their plight, as the issue is spreading across the United Kingdom. In Bristol, for example, student housing delays have become so severe that some students are being temporarily housed in Wales.

According to Universities UK, the issue lies in the fact that its code of conduct is only applicable where university-owned accommodation is concerned. There is currently no specific code of conduct and no regulatory standards for private student developments, which are outside the control of the public sector.

It is therefore unclear who will make the first move or when, though educators agree that certain safeguards should be put in place for students.

Adding insult to injury, some students have been offered a mere £150 in compensation, which for many is far less than they are paying for a one-week stay at their temporary residence. 

One of the private housing companies behind an unfinished development in Portsmouth has apologised unreservedly for the inconvenience, though points the finger of blame squarely at its building contractor. 

A spokesman for the housing company expressed its disappointment “to hear that the university does not consider that we have communicated effectively to them”.

“We believe that we have done everything possible to mitigate the impact for those affected in the time available,”

“We will continue to do all we can to get students into the building as an urgent priority.”

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