An interesting addition to my posting from yesterday re Issue 7 – Banking incompetence and the effect on Consumer Confidence.

It seems that Barclays agree with me!

http://news.uk.msn.com/uk/article.aspx?cp-documentid=12082219

My thoughts on falling house prices

I was taught in economics class that the price of an object is affected by both the supply of that product and the demand that exists to buy it. The price can be forced upwards by reduced supply as long as sufficient demand exists. We were in a market where demand for house outstripped supply (alongside other effects) and so the price increased . Now we are in a market where the demand is ebbing away and therefore prices are dropping. So what is causing this drop in demand?

Issue 1 – the credit crunch
Currently, the lack of mortgage funds available to buyers is the most significant force in falling demand for housing. According to the Council of Mortgage Lenders, Gross mortgage lending reached an estimated £14.6 billion in November - a 22% fall from October and a 51% fall from November last year. (Source 1)
Up until summer of 2007, there were many competitive products out there eager to lend with 100% finance packages and high multiples of income. However, now that the banks themselves are finding it hard to raise finance, they have cut back on their own lending by removing many of the less ‘safe’ mortgages and increasing the interest rates on others. Higher deposits are also making it harder for the first time buyer to afford a mortgage.

Issue 2 – The ratio of house prices to incomes has risen to an all time high pricing first time buyers out of the market
In the UK the ratio of house prices to incomes has almost doubled since 1970 – for example, London average house prices are 4.8 times income (2006), against 2.6 times in 1970 (source 2). This means that many potential buyers are struggling to be able to get a mortgage based on their income levels, even assuming a mortgage is available In the past this problem was got around by banks being willing to offer 'generous' mortgages (e.g. interest only, self certification, 100% mortgages). The credit crunch obviously has had an effect on this availability of credit.

Issue 3 – Speculation in UK housing market.
Because traditionally the view a house is that it is not just an asset, but a place to live in, house prices won’t rise and fall due to speculation like the stock market will. However a lot of demand for UK housing has come from buy-to-let investors. Many buy-to-let investors purchase with the long term view; however, now that prices are falling, some of these speculators are likely to leave the market causing a significant drop in demand and a further increase in supply of housing stock.

Issue 4 – the Volatility of the UK housing market.
The UK housing market suffers from a lack of available housing as a propertion of the total housing stock because the number of new houses being built at any time is relatively small. This is an island of limited size, but increasing numbers of single home dwellers is putting further pressure on the existing stock. It only takes a small rise in demand to increase prices but similarly it could only take a small fall in demand to cause significant price falls as we are seeing now. High demand over the last few years has led to an increase in the number of homes being built, however it takes time for this stock to feed through to the housing market. This means that now there is a glut of unsold new builds which are further reducing the price of existing stock.

Issue 5 – UK economy is sensitive to any change in Interest Rates due to personal debt.
There are record levels of consumer borrowing in the UK which is a combination of mortgage borrowing and personal debt like credit cards. The total level of debt the total amount owed by consumers on credit cards, loans and mortgages hit £1.444 trillion for the 12 months to June. Even more worryingly, in the same period the country's gross domestic product (GDP) stood at £1.41 trillion.
Therefore even a modest rise in interest rates could have a very adverse effect on consumer confidence and spending. Therefore the housing market is particularly vulnerable to any rise in interest rates that may occur - even if it is only through an increase in bank rates (as opposed to base rates). Also, even though the Bank of England has cut interest rates, many homeowners are not seeing these rate cuts passed onto them.

Issue 6 – Predictions for House Prices and the UK economy as a whole
Many economists predict significant house price falls. This in itself can have a downward effect on house prices. If buyers think that house prices are going to continue to fall, they will delay buying in order to get a better deal! This reduction in demand coupled with the supply of houses remaining unsold being high is a downward force. Furthermore, gloomy predictions for the economy as a whole and increasing unemployment levels make people nervous about the future and less inclined to risk a move unless they have to.

Issue 7 – Banking incompetence and the effect on Consumer Confidence
The problems at British banks including Northern Rock, HBOS and many US banks have severely dented consumer confidence in the Mortgage industry and made buyers even less inclined to ‘take the risk’.

Issue 8 – House Prices can Fall - even with limited Supply.

For those who believe house prices can never fall, it is worth considering the case study of Japan. In the 1980s there was a similar boom in house prices in Japan, howver, since the peak of 1991 house prices in Japan have fallen for 15 consecutive years.

So where does that leave us?
This is not an easy question and I do not have a functioning crystal ball. There are pundits who say 2011 will see a recovery, others that say this could last another 5 years. What I am certain about is that 2 things have to happen before we will begin to see a recovery:
1. Money has to start flowing again. There can be no demand without finance.
2. Buying has to become more appealing than renting. Whilst rents are falling and finance is hard to get, why buy now? Wait until the market ‘bottoms out’ and then buy before it starts going up again.

Source 1 Council of Mortgage Lenders

Source 2 Mortgage Guide UK

Source 3 Money High Street

So now the year is coming to an end...

and it is time for reflection. This time last year I had never heard the term 'credit crunch' and recession wasn't even suspected and I was searching for my first development property. I made an offer on a place last December, but the full building servey showed up so many issues it would have been a money pit and so I pulled out.

I started the year full of optimism. I found a house that was sorely in need of some TLC and the mortgage was no problem to sort out (though it took slightly longer than expected because they were so 'busy' at Natwest).

I am ending the year in a very different world! People are loosing their jobs and house prices are tumbling, so impecable time as usual! However, I am hopeful. The falling house prices are largely a byproduct of no money circulating round the system. The original inflating pressure on house prices was the lack of housing stock and this problem has not gone away. Infact, with building working stalling on many sites, this can only get worse. Once the money starts to flow again houseprices will begin to recover. So I just need to hold on until then. I have a tennant at the moment who pays the mortgage and then some... so as long as it stays full and I keep working hard things will eventually come good.

So this Christmas I shall be raising a glass to the future and hoping that by 2010 I will be ready to take the plunge and do it all over again! Courage friends and may Santa bring you the 2009 you wish for!

what have I learned?

Well this has been my first project and I have learned an aweful lot of lessons that I can carry forward onto my next project.

1 Plan everything - plan the purchase, plan the development and most importantly plan how you are going to spend your money and your time. Budget and schedule are paramount to the property developer. I thought that I had a healthy budget, even including a contingency of 10% but even this turned out not to be enough.

2 Stay focused. It is easy to get emotionally involved in the property and end up adding expensive touches simply because you have always wanted one. You have to decide if the expensive wooden floors would not only appeal to your target buyers, but will they be willing to pay more for it?

3 Stay sensible. Make a list of the of all the jobs that you want to do and then sleep on it! Price each job and then decide if the job more than pays for itself in increasing the asking price. Always undertake essential work, being sensible about adding favourite touches and then completely ignore the unnessarily expensive ones.

4 Be realistic. You are never going to achieve a sales price considerably above the ceiling price in an area by simply adding more 'things'. If you are renovating a 2-bed terrace, fitting it out like a penthouse suite may actually alienate some of your possible buyers. And spending more on the development will not necessarily mean you will make more money on the sale!

5 Remember the 3 important numbers in property developing - the amount you bought the property for, the amount you spent on it, and how much you can sell it for. Everything else is eye candy! Keeping focused on this is what seperates the amateurs from the professionals - and this is not an easy game in a falling market.

FINISHED at last

I cant believe it. It is finished!!! It took some time dressing and hoovering and I finally finished cleaing the kitchen at 6.15pm with the first house warming guests arriving at 6.30! Talk about taking it to the wire but it had to be done. I knew that if I didnt create an 'unmissable' deadline that this project would drag on and on. This way I could kick the workers up the but and get them to finish off those little touches that have made this property such a success!


I am so proud of my brother and my dad - and of myself and Paul. This has been a family effort and I am amazed at what we have been able to achieve.



Well done guys

What was I thinking??

What was I thinking?? I have arranged a house warming party for next week so this has to be finished. Dad is moving in to the house this week to get it done - despite there being no gas until the gas man cometh to switch the boiler back on. The gas man appears to be the MOST unreliable man in the universe - having let me down 3 times now. At least I haven't paid him yet for the stuff he has already done so he HAS to come and finish off.


The fireplace is being delivered on Wednesday and the carpet is being delivered and fitted on Thursday. This leaves Friday for a tidy up and hoove and a relaxing Saturday getting ready by dressing the house (I wish).


As always Dad and Tim have been fab and the whole family has been helping out with Julie and Lix going around tidying up bits of paintwork. This has been a real family affair and that has been part of the pleasure.

I know that this next week is gonna be tight but it has to be done if we are ever gonna get done!

Kitchen

Well the kitchen is pretty much finished now and it looks fab! Paul and I spent many many many hours on the internet choosing a cooker and hob that we could afford that also looked the part. In the end I found Kitchen Science where I was able to get a cooker and hob delivered for less than £275 which was astounding. We also sourced a delightful little chimnel extractor fan which was reduced from £150 to £75 at B&Q.

It just goes to show what a little research can do!

The garden

This is really beginning to come together. Lix has been out there shovelling the rubble from the pathway for 2 days - and has filled about 60 rubble sacks (guess I will need a skip soon). Paul and I have taken a trip to Focus and filled the boot of his car with bags of bark and weed suppresant. I want the garden to look neat and there simply isnt enough time or money left in the budget to go for gravel. At least the sun has shined for the workforce for the first time in what feels like months!



Tho I am sure that I have actually snapped my spine from all the manual labour!

Final push

So we are into the final straights now. The date for finishing is September 27th and I am a woman on a mission. We are over budget, over schedule and I am overdrawn. As I watch the housing markets are in meltdown and I am having a breakdown but I am determined to get this finished.


I am resigned to the fact that I am going to have to rent this in the short term and wait for the sagging market to recover, but I am determined that this is going to be the best rental property in the area!

Bathroom

Well the inspector has been round and had a chat with Dad. Nothing too scary - and it helps that the manhole is on our property so away we go.

I am off to the shops now to pick some tiles. As the room is so tiny the sink will need to a small cloakroom variety and I am going for white slight-gloss tiles to add a feeling of space. the floor tiles are also going to be white but to avoid the room looking like an operating room I have got some mosaic tiles to go horizontally around the room. I also picked up a chrome heated towel rail that was going cheap at Focus so I will need chrome fittings. It is going to look great!

Hopefully we can also save the shower which is servicable and only needs a good clean. That will free up money to spend on the bi-fold door making the bathroom feel more spacious.

This is a small room but a vital one as it is always one that I look closely at when I buy! It's all about the kitchen and bathroom baby!!!

Bathroom

Well we are taking at look at the bathroom this weekend. These people lived in such a state I couldnt believe it. There is a toilet but it is in the wooden shed which stands at the end of the kitchen, and is accessible through a hole cust in the kitchen wall! There is a tiny outside window that is broken, and there is no door between the toilet and the kitchen - erm.. very hygenic!!! And the toilet itself is unspeakable - that is going straight in the skip!

There is a rudiementary bathroom upstairs - in that there is a partition down the middle of the 3rd bedroom with a bath in it (not fixed to the wall or with correct pipework). The bath is also filthy, but it is a whirlpool spa bath so worth saving after a really really REALLY good clean!

We did find a bathroom sink in a box under the stairs, but it is too big so a shopping trip is in order (my favourite part!).

The first job is to get the Building Inspector round to look at what we need to do to get the waterworks to standard and then we can make a start in giving the new owners a new bathroom!

Credit Crunch

This is starting to get a bit scary now. The first I heard about the credit crunch was when I was completing my mortgage back in January and there was talk of my bank being overwhelmed with mortgage applications as some offers where being withdrawn (and Northern Rock were spirralling out of control). This did not worry me unduely at the time, except that it held up my purchase. A bank making some really bad choices surely wouldnt mess things up too much!? Now this looks like things are going to change radically in the near future. Mortgages are being withdrawn and banks seem to be less inclined to lend. As I am appealing to first time buyers I hope that this will not have too detrimental affect on the price I hope to get.

Plasters

Well the plasters have done their first bit upstars and it looks amazing. It had to be done, despite the cost, because I need a good finish and the previous owner was a muppet! The plaster he put in the hall wasnt even attached to the wall and moved when you leaned on it. Now it looks like eggshells. I have to leave it dry properly before we can start painting - but then I hope the place will start to look better. It will give us a much needed boost when our engergy levels are starting to flag a little!

Budgets and schedules - gone!

I have been looking back over my original budget and I already realise how wrong I was! As an amateur I had absolutely no idea how much things cost. I bought the property for £102,000 and planned to spend £10,000 doing it up - and then sell it for £130,000.



Well that 10 grand is no longer looking realistic! I have spent 5K already and we are not even close to half way through the project. And my planned 8-10 week project is also looking a dim and distant memory. This is week 8 and we are not even close to being finished - floorboards are up, electrical cables hang from ceilings and walls everywhere you look, and there is no plaster on most of the walls.

However, as a beginner the only way onward is upward, and I will know better next time! This is a very steep learning curve, and as long as the curve is heading upwards and not down the plughole I am happy!

Summer

When is summer going to arrive? It is so wet - and I want to get outside to start painting the outside of the house. Dad has been in and replaced the rotten lintel over the kitchen window. He did a stirling job removing the rotten wooden one and replacing it with a new cement one. It looks horrible at the moment but once it has ha a lick of paint it will look fab. I was originally going to remove the kitchen window and replace it with french doors into the garden, but the increased costs in the electrics have put paid to that! I am trying to keep a tight hold on the budget but it is not easy.

We have had a good look at the kitchen we found boxed up under the stairs and I think it looks pretty good. The work surface is shot and will be binned, but we took a look at some on offer at Wickes and 2 new surfaces will set us back about £150 which I dont think is bad at all. I am going for stainless steel appliances so that is the next thing to look for.

Shopping

Now this is the bit I really like - the shopping. We went out and bought the new bed today. I know I don't have anywhere to put it (the floorboards in bedroom 1 are up and the plasterer has not yet been) but it is nice to get something done - even if it has got to go in my spare room at home!

The budget is looking a bit strained but if I want to get the best out of the property I need to dress at least some of the rooms. I am not going overboard, but I want to dress the large bedroom, the small bedroom (to show it is a good size single) the living room and the dinning room. This should look great for photos too.

A little aside... in the garden.

The inside of the house is a tip - and to cheer myself up I have moved to the outside for a bit. There is a little flowerbed in the back yard that could do with a little TLC and so I decided to do something about it as there is not much for me to do inside at the moment.

I went to a plant auction in Spalding and had rather a good time. I bought a boot load of plants for a fraction of the price that I would usually have to pay and so set about planting them at the house. That's when I discovered the previous owner's pet graveyard - dead rats! Once the nausea passed and I bagged up the remains, I planted the new plants and gave them a good watering. If I plant them now they will have a chance to get established so they will look their best when I come to sell.

I stood back and surveyed my handy work, and congratulated myself on a job well done. Now I bet we have the hottest May on record and they all die!

End of week 3...

So week 3 is over - and to be honest I was glad to get back to work!

Most of the work this week has been invisible work - further chasing of the electrics and moving some of the pipe work for the central heating. The previous owners had pipes all over the place and they looked terrible. I want a good finish and so they are being chased into the walls before the plasters come in June.

So here is goodbye to April and hello to May (and hopefully some good weather).

End of week 2...

This property developing is hard work! Not being technically skilled I have functioned this week as carrier, tea lady, sandwich fetcher and painter stripper. Who would have though that a house without skirting boards or doors (the previous owners never used them!!) had so much blooming paint to strip! I am covered in blisters from molten paint droplets, and after a woozy moment on Tuesday we reached the conclusion that the door frame in the second bedroom may have been painted with leaded paint. In future all painting stripping is to be undertaken in a well ventilated area!

But the way I see it, every hour it takes me to do these dull tasks is one hour less I have to pay someone else to do it. And I actually enjoyed ut. I dont get to get really mucky in my day job - and the dust and crap floating around this house means that by the end of the week my clothes could stand up by themselves! It was also important to be on site to be able to answer those questions that only I could make a decision on. And obviously to pay for supplies - I now know what a 22mm yorkshire fitting looks like even if the guy in Focus doesn't!

End of week 1...

Well this is the end of week one and the place looks worse than it did when I started (and that is saying something). What remained of the kitchen has come out and floorboards ripped up.

The electrics are shot so Dad has started chasing out sockets etc for the 'competent person' to come along and rewire. This should save me a pound or two.

I am on holiday next week so the intention is that I will turn handyman helper for the week - again using my labouring skills to save a few pennies.

What have I done?

Now I am scared!

My Dad came to the first project meeting and being quite handy himself he has pointed out areas that I hadn't considered or budgeted for. The electrics looks shot! The floorboards throughout the house look like they need replacing and the plaster has to be pulled off the walls and re plastered. All expensive jobs on my meagre budget. Fortunately Dad knows 'people' so the quotes are gonna come in thick and fast. Being the world's best Dad, he is going to work alongside my brother on this projects - and unlike Tim I won't have to pay Dad. The difference being that paying Tim means I can have greater demand on his time than I can on Dad's who still has to earn his crust.

But we have made a schedule of works and pinned it to the wall in the dinning room so Tim knows where to start. I have amended my woefully inadequate time guesstimate from 8 weeks to a more realistic 12 weeks so we shall see how we go.

Excitement upon excitement

So I have been to my new house today and I am still buzzing with excitement!

They have taken all their belongings but left the smell behind. I am sure it will fade eventually. With the place empty it is possible to see the real potential of the place. The two reception rooms are spacious bright and the kitchen is a fair size. There is no kitchen as such at the moment - it is still in it's box under the stairs. The previous owners never got around to fitting it. We took some of the boxes out and it appears to be buttermilk in colour and quick possibly useable - anything that helps keep the budget under control will help. We also found the bathroom sink under the stairs - still in its original wrapping.

My brother Tim is doing most of the work at the house and we are meeting with him on Sunday to go through what needs to be done.

First step is to gut the place!

Renovating show

The House Building show was cracking!

If you get the chance to go you definately should. It was full of suppliers of everything you could possibly imagine, with free seminars covering all sorts of useful topics including property developing as a career. I picked up some leaflets and some discount vouchers for Wickes which I am sure will come in handy.

Now my feet are killing me and I am off for a cuppa and a sit down after all that walking.

Well here we go!

Well here we are. I have the budget, I have the finances and now I have the keys! At long last my career as a property developer is about to begin.

I am off to the shops now to get some keys cut and then heading over to the house tomorrow. I am going to the House Builders and Renovation show today to hopefully get some ideas on where to go next!

Credit Crunch

Trust me to have such impeccable timing! Just as I buy my first property there is a downturn in the housing market as mortgage companies tighten their belts and reduce their lending. This hasn't affected me personally that much - I still had plenty of mortgages to choose from, the problem has been that my lender is still lending. As other lenders withdraw mortgages, my bank (NatWest) are being swamped by applications and mine is getting lost in the system.

The people that I am buying from are in a hurry because I am holding a whole chain on my sensitive little shoulders, and they are getting twitchy! Unfortunately there is nothing I can do about except make calls and try to hurry them along.

I finally got the offer yesterday but the bank had put the wrong conveyancer on the paper work and it had to go back again .

We will get there in the end!

A good place to start

Well the new blog for Propertyforbeginners.co.uk is online now and just in time too - I am just about to exchange on my first property.

The first house is in Rushden in Northants - a three bed Victorian terrace in deperate need of a bit ot TLC. I didn't think that I would be able to stetch my budget to a three bed - a one or two bed house was as good as I thought I would get - I even viewed a couple of flats in Peterborough. So when an estate agent in Rushden told me about this place I had to take a look. And it was definately special! I think the word would be mingin! I didnt think people lived in such squalor! The place is in such a mess and the smell is something else! There is no proper inside bathroom (there is a bath upstairs but it is not fixed in properly) and the toilet is in the outside shed which someone has thoughtfully smashed a hole through into the kitchen to allow access to the loo! That's gonna be a job and a half!

The people who live there have pet rats, a dog and a 4 year old boy still in nappies - the smell was so bad that I could still smell it on my clothes an hour after I had left. But it the fact is that if the place was clean and tidy I wouldn't have got it for the price I did. So mid Jan I put in an offer £4K below the asking price and it was accepted.

I have invested in a full building survey - which avoided me making a costly mistake on another possible investment - and that came back without any real surprises.

So fingers crossed we should be there soon.

Mortgage - taking the plunge

My first step was to arrange a mortgage, which I did through a broker attached to an estate agent. I did this because they are local to me, and when you work away a lot, locality is important. The issue with Buy to Let mortgages is that, unlike residential mortgages, you cannot surf and compare mortgage rates wiithout registering and risking being continually contacted from the rest of your natural life. Time wiill tell whether this proves to be a mistake.I settled on a variable interest only mortgage over 25 years with no redemption charges (very important for a quick turnaround). This will keep my monthly outgoings to a minimum, which is very much the point.I plan to set up another bank account to manage the funds. I will put my savings into this and make as many of the purchases as possible out of it, including the monthly mortgage repaymensts.