The following table shows the average UK house price each year from 1962 until 2004. The source is the Office of the Deputy Prime Minister (ODPM). Despite press comments about markets “crashing”, the average price has fallen in only two of the last 42 years (1982 and 1992).

On many off plan deals, you pay an initial deposit when contracts are exchanged, and agree to make further payments during the construction period. These are often known as ‘Stage Payments’.

Property purchases are described as “Off Plan” when contracts are exchanged before construction has begun. The purchase is made on the strength of architects’ plans (hence “off plan”) which are attached to the contract and form part of it. The benefits of buying off plan can be considerable if you buy in quantity, because you are helping the developer to finance their building costs. If buying or negotiating for a bulk purchase, it is quite normal to get a discount off current market value of up to 10%, (sometimes even more) which, when added to any growth in prices during the construction period, gives you significant built-in equity.

As always, DEAL WITH A COMPANY YOU CAN TRUST, WITH A STRONG TRACK RECORD!

Over time, the value of a property will increase; at least that’s what history demonstrates! The value of that increase is normally described as Capital Growth. This can be expressed as a percentage of the base value or as a sum of money. For example, if you buy a house for £100,000 and after a period of time it is valued at £125,000, then your capital has grown by £25,000. If you paid the original £100,000 in cash, then your capital growth is 25%, i.e. £25,000 expressed as a percentage of £100,000. If, however, you bought the property with an 85% mortgage, then your actual capital investment would have been £15,000, i.e. the 15% deposit you had to put in yourself. Under these circumstances, your growth of £25,000 will represent 167% of your original investment. That is the power of “gearing” or “leverage”.

This is defined by the Royal Institution of Chartered Surveyors (UK) as the best price which might reasonably be expected to be obtained for an interest in a property at the date of valuation assuming: a willing seller; a reasonable period in which to negotiate the sale; that values will remain static during that period; that the property will be freely exposed to the market; and that no account will be taken of any higher price that might be paid by a person with a special interest. This is approximately the value you would expect a lender’s surveyor to assign to a property with vacant possession. The underlying calculations are normally based on a value per square foot for the location, multiplied by the actual square footage of the property.

This is often cited as the main reason why many investors prefer property to Stocks and Shares. Although Equities (Stocks and Shares) do sometimes show higher capital growth than residential property, you are unlikely to persuade a lender to advance you 85% of the purchase price of a bundle of shares – their value is too volatile; the underlying assets are rarely equal to the share price; and the dividends payable are rarely sufficient to support the interest on any borrowings, even if you could get them. So if you buy £100,000 of shares and they increase in value to £125,000, you have gained 25% growth on your investment.

Property is quite different, because of the ability to “gear” or “leverage” your money. In the example above, if you had bought a property for £100,000 you would have been able to borrow 85% of the price, meaning that your cash investment would have been only £15,000. But you would still have experienced £25,000 capital growth which equates to a return of 167% on your investment. Without the benefit of leverage, the value would have had to increase, not to £125,000 but to £267,000 to earn the same percentage return on your investment.

This is a legal term describing a thorough effort to intercept potential problems before they occur. It is a term that covers the process of discovery into the risks and value of a business that is to be purchased or, in our case, the financial and professional standing of a property development company. The usual application of the term is in confirming that the financial and record keeping aspects of the business are as represented and that they have demonstrated the ability to successfully carry out similar projects in the past. It refers to the complete analysis of a business to assist a buyer in making decisions about dealing with that business.

When people talk of the Equity in your house, they are referring to the amount which is “your” money. If you bought a property for £100,000, using a mortgage loan of £85,000 and your own cash deposit of £15,000, your equity at that time would have been £15,000. If the property is now valued at £125,000 and the mortgage remains at £85,000, then your equity has increased to £40,000.

For an example, if you are buying a property off plan and the open market value is £100,000 but you are getting a 15% discount, then you will be paying only £85,000. On completion, lending can often be arranged based on 85% of the value, rather than 85% of the purchase price, which means that you can borrow 85% of £100,000 i.e. £85,000 even though you are only paying £85,000 for the property. In this way you are effectively investing none of your own capital, except for professional and completion fees. In cases where the property has risen in value during the construction period, it may even be possible to receive cash back when you complete the mortgage. In the above example, if the property was now valued at £120,000 you might well obtain a mortgage of 85% of £120,000 (i.e. £102,000), giving you a property without deposit plus a cash-back sum of £17,000. This will not always be possible, because lenders expect the monthly rent to cover 125-130% of mortgage interest, but the principle is nevertheless sound.

As its name suggests, the holding cost of a property, or anything else for that matter, is the cost to you of holding onto it over a period of time. If your mortgage interest on a particular property is (say) £700 per month, then that is your holding cost. Strictly speaking you should also include any other costs which you would incur irrespective of whether or not the property is tenanted. These could include buildings insurance, ground rent, and any maintenance charges there may be.

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When we present an investment opportunity, we aim to give potential investors all the information they need, both marketing and financial, in order to make a reasoned, informed decision. Even at our heavily discounted prices, the purchase of a property is a large investment and should not be undertaken lightly. By visiting our Property Gallery you will see for yourself the immense amount of detail we provide on all the properties we offer.

Always seek professional advice: qualified Accountants have a wealth of knowledge and also hold professional indemnity insurance. The bloke down the pub is unlikely to have either of these! The general areas of tax advantage with holiday lettings can benefit those who are selling a family business and retiring, as well as those who have significant taxable income and are likely to show a loss on their holiday lettings (perhaps they anticipate good capital growth). If you think this may include you, please talk to your professional adviser.

Commercial property has been, historically, the almost exclusive province of the professionals, mostly large institutional funds with very deep pockets. Even a small shop on your local High Street could easily cost you a million pounds to buy. With a nationally known retailer paying £60,000 a year in rent, on a 6% yield, the freehold would change hands for £1million. This bears no relation at all to the bricks and mortar value of the property - this example might well have a rebuild cost of less than £200,000 excluding the tenant’s fixtures, fittings and improvements.

Whilst the income stream in this example might be 100% secure, with no void periods or late payments of rent, the better the tenant the lower the yield. Conventional buy to let lenders do not normally handle commercial property, and those lenders who do entertain it will rarely advance more than 80% of the purchase price. And because this type of investment is priced according to the investment yield, it is not subject to the dramatic price increases seen in the residential market. Best leave it to the professionals unless you know what you are doing!

A repayment mortgage is one where your monthly payment to the lender includes not only the interest incurred, but also an element of repayment of the principal sum borrowed. At the end of the loan term, your debt to the lender has been repaid so the property is yours, mortgage-free. Because of the way the calculations work, the interest (which is allowable against tax) will be a far higher proportion of the monthly payment in the early years, whereas in later years there will be less interest but significantly greater capital repayment which is not allowable against tax.

As its name suggests, this type of mortgage requires you to pay interest only each month which means that, at the end of the term, you will still owe the full amount of the original loan to the lender. The benefits of this arrangement are that monthly outgoings will be significantly less than with a repayment mortgage, and that these payments are allowable in full against your property profits for tax purposes. The choice between ‘Repayment’ and ‘Interest Only’ loans is one which you should discuss with your financial adviser or mortgage adviser before making any commitment.

This is the original sum you are borrowing by way of a mortgage or any other type of loan.

This is a charge paid to a lender in compensation for lost interest if you redeem your mortgage before the end of its term. During a discount period you will be penalised if you try to switch to another product or mortgage provider, and penalties can be particularly severe during the first year, to ensure that the costs the lender incurs in setting up the mortgage are always covered. Penalties can be a fixed sum of money or, more often, a proportion of the loan.

Most lenders will charge you an arrangement fee for setting up your mortgage with them. This is supposedly to cover their administration costs. Always make sure that your mortgage adviser tells you exactly how much this will be, as it is normally added to the principal amount so you will be paying interest on it throughout the term.

Standard Buy to Let mortgages are limited to 85% of the property’s purchase price or valuation (whichever is the lower), but some lenders’ mortgage products will only allow a smaller proportion, particularly if the borrower or the property is seen as representing a higher than average risk. In any event, the percentage of price or valuation which a lender will advance is known as the percentage ‘Loan to Value’, or LTV for short.

A more recent use of the term, now fairly widely understood, is where a lender will advance a percentage of the open market value, even if the purchase price is lower. This is commonly known as Loan to Value finance.

The Standard Variable Rate is the rate which many mortgages revert to after the introductory fixed rate or discount period is over. They are the simplest and most traditional mortgage type with no upper or lower limit on the rate charged, and the lender can raise or lower the rate at their discretion. As always, you should ensure your mortgage adviser explains the implications of this before committing to a lender.

Fixed rate mortgages guarantee a certain rate of interest for a pre-determined period of time. Anything from 1 to 5 years is common, though the period may be much longer. The benefit of this type of loan is that you know in advance what your monthly payments will be, irrespective of any movements in the Bank of England’s minimum lending rate.

Although the interest rate is not fixed in advance with this type of mortgage, it still provides some protection in times when rates in general are on the increase. If the rate is ‘capped’, this means that however much market rates rise, your mortgage rate will not go any higher than the stated ‘Capped’ rate.

These types of mortgage have become more popular in recent years, largely in response to the increased competition between lenders. A discounted rate is a rate below the lender’s Standard Variable Rate and is normally for a fixed period of time after which it reverts to the SVR. There are almost always penalties for changing lender once the discounted rate expires, and these products will normally carry a higher than average arrangement fee. The recently popular “Tracker” rate mortgage is one which tracks movements in the Bank of England rate, and is often expressed as a fixed percentage above or below the Bank’s lending rate.
Tracker Mortgages.

Void periods are those periods of time during which a property is not let on a tenancy agreement. The impact, of course, is that you are not receiving any rent! When one tenant leaves there is often a short time before someone else occupies the property and, in extreme cases, a property may remain unoccupied for extended periods if, for instance, there is an over-supply of properties available for rent and a shortage of willing tenants.

These agreements are defined by The Housing Act 1988 as amended by the Housing Act 1996. An Assured Shorthold Tenancy is a kind of tenancy which offers the landlord a guaranteed right to repossess the property at the end of the term. In practice, it does not necessarily have to be 'short': assured shorthold tenancies set up after 28 February 1997 can be for any length of time the landlord wishes to offer. Prior to this, however, the first tenancy had to be for a fixed period of at least six months, with no power for the landlord to terminate the tenancy before this time, and the landlord was required to serve a Notice of Assured Shorthold tenancy on the tenant in the proper form, prior to commencement of that tenancy.

An Assured Shorthold Tenancy has the following important features:

• It is now the automatic or default form of tenancy for most residential lettings
• The landlord has a right to regain possession of the property at the end of the tenancy (although a court can still not award possession during the first six months if a tenant refuses to leave).
• The landlord and tenant can freely agree the rent but the tenant does have the power in certain circumstances to refer the rent to the rent assessment committee.

If you use a Letting Agent, of course, they will organise the agreements for you as part of their service.

Mortgage lenders normally insist on a rental cover of up to 130%. This means that the gross rent received must be 130% (i.e. 1.3 times) of the interest payable to the lender. In recent months, some lenders have been prepared to relax this requirement and rental cover as low as 100% is on offer if you search hard enough. There is usually a price to pay for this, however, which might be a higher arrangement fee, a lower percentage to value, or a more stringent investigation of the borrower’s financial status.

If you are buying a property at a discount to open market value, for instance in an Off Plan deal, the principle of gifted deposits can sometimes be used to allow the seller to pay your deposit for you. The contracted purchase price is shown as the open market value, and the seller gives you a ‘cash back’ on completion, equivalent to the difference between the market value and your agreed purchase price. This allows you to raise mortgage funds against the market value rather than your effective purchase price. If you are buying at a 15% discount to valuation, then a mortgage of 85% of the valuation will cover 100% of your actual purchase price. Not all lenders will do this, however, and you must be honest with them. Anything else is fraud!

Another way to achieve the same end, though there are some costs involved, is to take out a bridging loan to cover the purchase, then re-mortgage at 85% of valuation.