From today anyone marketing a property with three-bedrooms must now provide a [tag]Home Information Pack[/tag] (HIPs).  This follows the introduction of Home Information Packs for four-bedroom houses from the beginning of August.

The packs were intended to speed up and simplify the house buying system in England and Wales, however their introduction has been opposed by many industry professionals including estate agents and surveyors.

The [tag]HIP's[/tag] pack includes several items which have always been required to complete the house buying transfer, but they also introduce some new elements too.  The full home information pack should contain:

• Evidence of title
• Copies of planning, building regulations or listed building consent
• Guarantees for any work carried out on the property
• A local search
• An Energy Performance Certificate (EPC)

The initial introduction of the Hips was delayed by the government at very short notice, officially because of a lack of trained inspectors.  However many believe that the delay was due to the intense opposition to HIPs from within the industry.

The reports that are now required are very different to the ones originally proposed, amongst other items the Home condition Report (HCR) was dropped.  The HCR was meant to substitute the valuation report normally required by the mortgage company. This had to be dropped when the lenders all refused to accept the report as security for the mortgage.

The energy certificate is a required element of the HIP, and is supposed to grade houses and flats in a similar way to how home appliances are graded.  The report will indicate how much money can be saved by installing better insulation or a new boiler.

Whether or not the introduction of home information packs has had any impact on the market is difficult to say, there are conflicting sets of figures which can be used to illustrate either point of view.  But there can be no doubt that Home Information Packs will continue to cause controversy long after their initial introduction.

It is a fact of life that one person's misfortune can be another persons opportunity, so any discussion about property finance has to include a quick consideration for what happens when things go wrong.

When a property is repossessed it will inevitably end up in an auction, resulting in a lower price for the seller and a potential bargain for the buyer.

Repossessions on the Rise

Figures from the Council of Mortgage Lenders (CML) show that during 2006 [tag]home repossessions[/tag] were on the increase with a total of 17,000 repossessions taking place over the whole year.  To help put this in to context there were 10,310 repossessions in 2005 and 6,030 in 2004.

So it can be seen that there is certainly an upward rise in the number of mortgages going wrong However it is yet to be seen whether the CML's forecast of 19,000 for 2007 will be achieved.  When considering these figures it is important to understand that these are historically very low, to put them into context there were 75,540 repossessions in 1991.

The Financial Services Authority (FSA) has publicly stated that it is concerned that a weaker economic environment could have a considerable effect on borrowers ability to keep up repayments, especially given that many of them have increased their borrowing recently.

The recent boom in property prices have in someway given a false sense of security to borrowers. Many have got used to the idea of property prices increasing and interest rates staying low.  Given this feeling of security many homeowners have continued to borrow more, this is demonstrated by the increase in second charge loans and remortgages.

One interesting trend identified by the FSA in their "Financial Risk Outlook" report was that the majority of repossessions were for buy-to-let properties.  One theory suggests that this is due to low capital growth in new build properties and low rental yields caused by large numbers of new-build rental properties in urban areas.

Although the FSA will continue to encourage brokers and lenders to make doubly sure that borrowers are properly vetted and informed about the financial risks associated with buying property, it is well known that borrowers are more interested in buying their dream property at any price.  With competition withing the mortgage industry remaining high it is very unlikely that lenders will take any serious steps to change anything.

According to recent reports there are a number of landlords ignoring the [tag]Tenancy Deposit Scheme[/tag] (TDS).  In figures released by the National Landlords Association (NLA) it is estimated that approximately 150,000 landlords have directly registered with an approved Tenancy Deposit Scheme.  This means that there is a significant number who have not.

The legislation covering [tag]tenancy deposit protection[/tag] has been in place for nearly five months which means that there is a very large number of existing tenancies exempt from the legislation as it only covers tenancies created after April 2007.

The Tenancy Deposit Scheme is designed to protect deposits taken under an Assured Short-hold Tenancy (AST) agreement in England and Wales.  There is a fear that in an attempt by some landlords to avoid regulation by letting their property under a different type of tenancy.  This could prove to be a very risky strategy for landlords as it would make it very difficult for them to apply to the courts to recover possessions.

Another fear is that landlords may be choosing not to take deposits, thereby exposing themselves to even greater risk from tenants leaving without paying the final month's rent.  Let alone the risk of damage to property and possessions.

It would be a shame if in an attempt to avoid one small piece of legislation a landlord created more problems than simply registering with an approved Tenancy Deposit Scheme.

Whilst there could be a number of factors why so few landlords have registered with an approved scheme, there may be a minority of unscrupulous landlords who are deliberately flouting the law.  Whether deliberate of done in ignorance, the penalties for breaking the law are severe.

In the event that the matter ends up in court, a non-complying landlord can be ordered to repay the deposit, plus a penalty of 3 times the amount.  If a deposit has not been protected by an approved TDS then then the landlord will be unable to apply to the courts for fast-track possession under section 21 of the 1988 Housing Act.

Whilst some landlords my perceive the TDS as an unwelcome piece of red-tape, it should be remembered that failing to look after a tenants deposit under the Tenancy Deposit Scheme can create much more serious problems in the future.

The government has announced that the Home Information Pack scheme (HIP's) will be extended to cover 3 bed houses from 10 September 2007.

Despite opposition to the initial introduction of HIPs the government has decided to push ahead with the expansion of the scheme.  The Home Information Packs were originally scheduled to be introduced for all homes from 1st August 2007, but after a farcical u-turn in July only 4 bed houses were initially covered.

The original brief for HIPs was to find a way to improve the house buying process in England, not least to speed up the house buying system. However following an EU directive that all houses must have an Energy Performance Certificate (EPC) the government decided to add the requirement to the HIPs.  This would have worked had they no been forced to withdraw the Home Condition Reports (HCR) from the packs.  If you have a low tolerance for acronyms then  this whole matter could start sounding like double dutch (DD).

HIPs Being Introduced Gradually

Opponents to the introduction of HIPs had hoped that the government would take the staggered launch as a opportunity to review the whole matter and possibly make some positive changes.

Claims that an EPC will somehow help to reduce carbon emissions are somewhat strange given that the observations in the report are only advisory and carry no weight.  Not least given the age of most properties being bought and sold, it is strange to think that an Energy Efficiency Report will recommend that a listed building fits uPVC windows which is in direct opposition to listed buildings regulations.

HIPs can cost around £500 and take about 5 days to compile.  The finished report should include:

• Evidence of title
• Copies of planning, listed building or building regulations consents
• A local search
• Guarantees for any work on the property
• An energy performance certificate

One of the factors which delayed the initial introduction of HIPs was the lack of home inspectors, the government recently confirmed that there are enough inspectors to further expand the scheme.  So, it seems likely that HIPs will soon be required for all properties changing hands.

The relationship between landlord and tenant is rarely put under more pressure than when the issue of deposits is discussed.  Unscrupulous landlords have left many tenants feeling deeply suspicious of the whole question of repairs and deductions.

Under pressure from Citizens Advice the government has introduced legislation which aims to solve many of these issues.  The introduction of the [tag]Tenancy Deposit Scheme[/tag] in April 2007, covering England and Wales was welcomed by many.  The main aim of the scheme is to provide clarity and security by means of having deposits held by a thirds party.  All landlords letting property under an Assured Shorthold Tenancy (AST) agreement are now required by law to register the deposit with an approved scheme.

Nick Dardalis of Steadfast Property Management, a cheltenham letting agent, points out that the vast majority of landlords have always behaved in a professional way, but sadly the few that were causing problems have a lot of answer for.  One impact of the Tenancy Deposit Scheme is that the inventory now become a much more important document.  If a landlord wants to deduct money from the deposit they need to be able to prove the condition of the damaged item at the start of the tenancy.  An inaccurate  inventory can ruin any attempt to recover money from the tenant.

The Tenancy Deposit Scheme has been in force now for 4 months, and as expected there has been no adverse impact on the Buy-to-Let sector.  There have been calls for lenders to make sure that prospective landlords are made aware of their responsibilities by including information about the TDS on mortgage offers, although as with all legislation ignorance is no excuse.

Perhaps this legislation could be seen as more reason for the professional landlord to use the services of a letting agent to handle these matters.

 

unregulated been a lot of talk in the press about homeowners applying for mortgages with "[tags[adverse credit[/tags]".  The popular press tends to concentrate on the problems this causes for for the applicant, but the issue of adverse credit applications creates problems for brokers and lenders too.

The headlines have been caused by the recent problems in the US non-conforming market.  The finance industry regards any application with adverse credit as "non-conforming" and in the the US lenders have been granting mortgages to people who subsequently were unable to meet their repayments.  With disastrous consequences for some of the major lenders.

With rising interest rates the same problem could easily arise in the UK market, and this is obviously causing concern to lenders and the industry regulators.  The Financial Services Authority (FSA) is watching the sub-prime market carefully.  Sub prime is yet another piece of jargon for adverse credit.

The result of all this is that the FSA are keeping a close eye on the activities of sub-prime lenders and brokers, but it could be argued that the only long term solution to debt problems is the education of borrowers.

How Common is Adverse Credit

There have been plenty of horror stories in the press about rising levels of debt and its consequences, but just how bad is the situation? In the first quarter of 2007 there were (according to the insolvency service) 30,075 insolvencies recorded in England and Wales, roughly a 50% increase on the same period last year.  By the end of April 2007 the total personal debt in the UK was £1,325 billion.

The most worrying statistic is probably the levels of secured debt.  Amazingly there is £1,112 billion secured against homes in the UK, this includes first charges (mortgages) and second charges (secured loans).

With the recent interest rate rises starting to bite there is inevitably going to be an increase in the number of missed payments and this would add to an already increasing number.  For example, recent figures show that around 75,000 payments are missed every month.

Lenders are well aware of the difficulties faces by adverse borrowers, and they are also aware that when someone with adverse credit applies for a mortgage there is (statistically) a good chance the borrower will experience problems in the future.  The FSA has made it clear that it expects lenders to treat borrowers who experience financial difficulties fairly.

To cope with the increasing numbers of missed payments lenders have special departments to look after arrears and missed payments.  The main function of these departments is to try and help the borrower bank on track by arranging payment plans.  However with so many missed payments each month, there will inevitably be some lenders who fall short of the standards expected by the FSA.  The most aggressive tactics are likely to be employed by the un-regulated sectors i.e. buy to let lenders and commercial lenders.

Whatever your circumstances the advice from all the debt counseling services is clear,  talk to your creditors and seek help as soon as you realise there is a problem.

During a recent speech the outgoing chief executive of the Financial Services Authority (FSA) publicly stated that he would like to see secured loans come within the regulatory umbrella of the FSA's control.

It was suggested that the current regulatory regime, with the office of fair trading (OFT) covering some consumer transactions, and not others was disjointed. Currently the FSA regulate all first charge loans on owner occupied properties with the OFT regulating second charge loans under £25,000. Secured Loans over £25,001 are currently not regulated by either authority.

One of the arguments for letting the FSA take over regulation of the secured loan market is that it will make it easier for lenders and brokers to deal with just one regulator. Although the counter argument is that the mortgage market and the secured loan market are very different beasts.

In the event that the secured loans market became regulated by the FSA the biggest casualty would probably be the smaller brokers. The costs associated with compliance can be crippling to all but the big players.

Of course these were just the comments of the outgoing chief executive of the FSA. In reality it is unlikely he would have made these comments if any change was imminent. The most likely outcome is that the government will be watching the effects of the implementation of the revised Consumer Credit Act 2004 (CCA), this changes many of the current regulations covering secured loans and could satisfy demands for more regulation.

Technorati Tags: secured loans, homeowner loans

The succession of recent interest rate rises is starting to have an impact on the [tag]buy to let[/tag] market. The inevitable consequence of this is that some lenders are tightening their criteria for new borrowers. This means that unless a new entrant to the buy to let market can come up with a large deposit they are going to find problems balancing their rental incomes against higher loan to value mortgages.

This can make life difficult for newcomers into the Buy to Let market who want to start at the lower end of the market and build up their portfolio. That isn't to say it can't be done; there are still a few lenders giving 'good deals' but they are becoming the exception to the rule.

With interest rates potentially hitting 6% by December 2007 some buy to let lenders are concerned that borrowers will be struggling to cover their mortgage payments. Some lenders will accept that the rent is being subsidised by the borrower's other income but if that is not an option you will be required to show proportionally higher rental cover to get the same deal.

The Financial Services Authority (FSA) has expressed concern that the number of repossessions among Buy to Let properties is on the increase: by December 2006, 25% of these properties sold at auction had been repossessed. Many of the repossessions were new build flats which has been caused partly by excess supply leading to lower rents. One of the leading mortgage lenders has revealed figures that show a fall of 4.4% in prices of new-build apartments against a general market growth of nearly 11%.

The recent interest rate rises have exacerbated the problem, the effect on mortgage payments means that they have increased by around 20% while rent incomes have gone up by only 5%. So, something to think about when considering entering the buy to let market, it pays to be able to prove that you have some reserves in place for the occasional rainy rent day.

[tag]Bridging loans[/tag] can be used for almost any purpose so long as there is enough equity in the property.  The UK Bridging Loan market is estimated to be worth £2.5 billion and the demand for bridging loans is believed to be growing by 25% year on year.  [tag]Bridging finance[/tag] can be made available for many purposes, the obvious one being to bridge the gap between the purchase of a new property and the sale of an existing property.

Once regarded as the funding solution of last resort, bridging finance has under gone something of a transformation over the last few years. It is no longer the preserve of the desperate house-mover but a valuable tool for savvy property investors and developers looking to secure a bargain.

The growth in the number of bridging lenders means that there is more competition, which in turn has led to more competitive rates and more innovation, particularly around the issue of exit fees and default rates. Many of the more well established lenders have been forced to change their business practices to keep up with this evolving market. Thankfully the practice of hiding crippling terms in small print will no longer be tolerated in a market dominated by brokers. .

We all know how frustrating it can be when a long chain suddenly breaks and these at the top look like losing their dream home. but there are plenty of other instances when bridging finance might be appropriate. For example an auction purchase which only has 28 days to complete, or a business which finds itself needing to find a substantial amount of tax money quickly.

Bridging Loans are often used for:

Auctions:
When purchasing property at [tag]auction[/tag] the borrower usually has a deadline of 28 days to complete the process.  Although it is not uncommon for borrows to be told that it is possible to complete purchase using conventional finance in practice the funding is rarely available in time.  Having paid a 10% deposit it is vital that completion takes place within the deadline.  This is where bridging loans are most useful, once the valuation has been received legal completion can often take place within a few days.

Buying Property at Undervalue:
Approaching a mainstream lender with a proposal to purchase a property at under value is pointless as they will only consider the purchase price.  However bridging loans can be raised against the value of the property and not the purchase price.  This means that theoretically it is possible to purchase a property at discount without putting any money into the deal.

Debt Relief:
Business people often get into financial difficulties due to cash-flow problems.  These can be a result of trading problems or even unexpected tax demands, where there is enough equity in a freehold property bridging loans are an ideal solution.

One aspect of bridging loans which have caused the most concern is the perceived lack of transparency, many borrowers had complained that the rate
originally offered had been subsequently withdrawn and replaced with a much higher rate. The lender's would counter this claim by blaming the customer or broker for not supplying accurate information at the outset.  Therefore It is important to make sure that the terms of a bridging loan are explained in clear english, worth remembering that just chasing the headline rate could leave a borrower in future trouble.

We would love to hear you views on bridging loans, good and bad!

[tag]Home Information Packs[/tag] are now not going to be mandatory until 1st August 2007, although only properties with four or more bedrooms are going to need them.  Cynics of the way that the whole matter has been handled have even suggested that the final decision about the future of HIP's and [tag]Energy Performance Certificates[/tag] (EPC's) will be delayed until Gordon Brown takes over.

Apparently the plan is for a phased introduction of HIP's or Seller's Packs over the rest of the year, when the impact of the August introduction has been assessed. This has the potential to develop into a classic catch22 situation. HIP's and EPC's can not be fully introduced until there are enough qualified inspectors to carry out the job. Because of all the confusion over the introduction of [tag]Seller's Packs[/tag] the organisations responsible for the training and certification of inspectors has reported that new applications have dried up. Let's face it, who in their right mind would pay several thousand pounds for training only to be left in limbo?

Aside from the official line that HIPs will be required for all properties being marketed with four bedrooms or more from 1st August, very little else has been said about the future.  There is one piece of irony that should not be lost in all this mess. The Royal Institute of Chartered Surveyors (RICS) were the organisation who finally managed to stall the introduction of HIPs with the application to the courts for a judicial review of the way that EPC's had been introduced.  The irony is that RICS were one of the organisations who would have benefited financially from carrying out the training and induction of new inspectors. And, just to make life more interesting, hose reports issued after 1^st August will now be valid of 12 months instead of 6 months as originally intended.

So, what about this business of four bedrooms, is there a definition of a bedroom? Well actually no - Which means that theoretically there is nothing to stop someone marketing their property as a 3-bed house with study / computer room / dressing room.  The greatest penalty would probably come from the difficulty in marketing a 3-bed house with a 4-bed price tag.

What do you think? Did you put your property on the market to avoid the introduction of Home Information Packs?