Will the Mortgage Guarantee Scheme trigger a 'Boom and Bust' legacy for the Conservative Party?

The mortgage guarantee scheme is designed to help first-time buyers and existing property owners move up the housing ladder providing borrowers with a 5% deposit the opportunity to buy property worth up to £600,000.

The Government will guarantee up to 15% of the loan at a cost to the lender, allowing the borrower to access cheaper mortgage deals.

This differs from the first stage of Help to Buy.   That scheme allows people taking their first step onto the property ladder to borrow up to 20% of the value of a new build home from the Government, interest-free for the first five years.

Borrowers need a 5% deposit and must take out a mortgage to cover the remaining 75% of the cost of the property.

After the five-year interest-free period ends, borrowers will be charged a fee of 1.75% of the loan’s value. This fee will increase every year at 1% above inflation.

These fees only count toward the Government loan and come on top of the mortgage repayments. Borrowers must pay back the equity loan when they sell the home or at the end of the mortgage period - whichever comes first.

The mortgage guarantee scheme  - Help to Buy 2 - is available to both first-time buyers and existing homeowners buying new build and older properties.

Borrowers will need a 5% deposit, while the lender will be able to buy a guarantee from the Government covering up to 15% of the value of the property.

Both phases of the scheme are available on properties worth up to £600,000.

So what are the pitfalls?

If house prices fall, hundreds of thousands of buyers on the scheme could be left in negative equity.

If a property is repossessed because of default of the borrower, the Government will guarantee 75% of the part of the loan above 80% of the loan to value. The borrower will meet the other 25%.   If there is insufficient funds to meet the loan the borrower will still be liable to the lender for the whole of the loan even the part guaranteed by the Government.

The other key question is whether mortgages offered through the scheme will actually be any cheaper than those on the market at the moment, and whether enough lenders will take part.

Banks need to pay a charge to have their mortgages guaranteed by the Government, so are likely to build this sum into the total cost of the loan.  It is likely that a sum equivalent to 1% of the value of the property is to be placed into a reserve to cover defaulters.  The cost of this will be passed onto the borrower.

Are these schemes the real solution to Britain’s housing crisis?  Will they not keep house prices artificially high, giving people no choice but to take out large loans that could run out of control if interest rates rise?

Cambridge University study found last year that although shared ownership schemes allow them to buy their first home, they do nothing to help them buy their next home.

Cynics will say all of this amounts to nothing other than political engineering reminiscent of the type of policy that led to the ‘boom and bust’ years.  Ironic in some way given this is a Conservative policy.     We will just need to see what time brings. 

MJP Conveyancing  are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Property Law Implications of Fracking

What is Fracking?

It is a process whereby natural gas is extracted from beneath the earth though hydraulic fracturing.  It is not a new process; it has taken place in this country for many years now. 

This type of mining has in the United States led to a substantial reduction in the price of gas for industry and consumer – a reduction of around a third. The Government is hoping for a similar result in the UK  given the existence of massive reserves of shale gas.

There is no legal framework for governing Fracking within the UK. The Government hopes the current safeguards built within environmental and planning law will be sufficient to protect the environment and communities.

So who owns the shale gas? 

In the US it belongs to the landowner whereas in the UK the Crown owns it (Petroleum Act 1988).  So there is unlikely to be Dallas like windfalls on offer.

However to mine the gas the contractor still needs the consent and the cooperation of the landowner to be able to drill down for the extraction to take place. If the drilling company proceeds without their consent and co-operation, it could face delays in starting or continuing to drill or it could find itself unable to drill or continue drilling at all. One project could given the horizontal drilling involve a multiple of landowners as the local authority and the regulators.

Can a landowner claim compensation?

A Government licence is needed to extract it. The licence holder can obtain ancillary rights under the Mines (Working Facilities and Support) Act 1966 - for example, to occupy land, to obtain a water supply, to dispose of effluent, to erect buildings and to lay pipes. The court will grant such rights if it is not possible to agree terms with the Landowner.

Compensation and costs can be sought from the contractor and if necessary awarded by the Court though the measure of that compensation will be based not on the value of the extraction by the contractor but rather the financial loss the landowner will suffer by not having the land available to use.

Common Law and Statute therefore offer protection to the landowner and financial recompense as well as costs will be available.  How the law dovetails with the owners of mineral rights (which need to be registered at the Land Registry by 12 October 2013) and the rights of adjoining land whose land the process may damage/disturb remains to be seen.

MJP Conveyancing  - David Pett

Beware of the Help to Buy Scheme

The Help to Buy shared equity scheme designed to get people onto the housing ladder has its benefits but those who may be enticed by developers to make use of the ‘leg up’ must exercise some caution.

There are clearly signs that the property market is recovering, with the Royal Institution of Chartered Surveyors reporting that demand rose to its highest level for more than three years after the April launch of Help to Buy. New buyer inquiries were at their highest level for more than three years, and the scheme was starting to make an impact, the institute said.

However some of the methods developers are using to market their properties to first-time buyers who might be eligible for the Help to Buy shared-equity programme are being called into question.

What is the Scheme?

Under the scheme, which is expected to trigger 74,000 sales, the taxpayer provides an interest-free loan of 20pc of the purchase price for five years, to enable a borrower to buy a newly built property. Home buyers still need a 5pc deposit, but this additional loan should enable them to buy a property they couldn't otherwise afford. Help to Buy mortgages can be used on properties valued up to £600,000.

Participating mortgage companies will then grant an advance of the remaining 75pc of the value. After five years, the homeowner has to pay interest on the outstanding 20pc at a rate of 1.75pc, although this will rise by inflation plus 1pc annually thereafter.

However, it has been reported that developers are marketing their properties at prices 20pc below the correct asking price, implying that the equity loan is a discount or free gift.

A property for sale by a certain large developer, for example, priced at £439,500, was also advertised separately at £351,600 – indicating that the property was cheaper than it actually was.

Slicing money off the price implies it is a gift from the Government. It is not. An equity loan is precisely what it says it is. It is a loan that has to be repaid. This may encourage people to take on debt, which is not understood, or to overstretch themselves and buy properties bigger than they can afford.

New homes tend to be more expensive. According to the latest report from Halifax, the average cost of a newbuild home is £233,822. This compares with the average property price of £166,000 in April.

Indeed, a large section of the mortgage market has turned its back on the new shared-equity scheme. Only Halifax and NatWest, both part-owned by the Government, have embraced the scheme enthusiastically, although Woolwich is also offering Help to Buy loans.

So what are the pitfalls of this scheme?

·    You can participate only if you do not own any other property.

·   If you want to buy the Government out, you can do so, but there will be costs. You can increase your equity, but only in 5pc slices. Each time the property must have an independent valuation, which you will have to pay for.

·    You may also face problems if you want to extend or alter the building, as you have to seek approval, which may not be forthcoming. Increasing the value of the property through a large extension can make subsequent equity valuations problematic.

Advice

·     Buying a new property means you will be invariably be paying more for the property than the equivalent second hand property so make sure you look to negotiate the price down.

·    Look to work out how much you will paying under the scheme and the mortgage in 5 years time – will you be able to afford it.

·     Don’t be drawn in by misleading sales talk.

·     Remember it will  be expensive to increase your equity in the property.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Do not purchase a New Build Property without first reading this....

Buying a property which has yet to be built, or which is newly constructed should be approached with care and here are some tips which will help:

Remember those friendly and helpful people within the sales offices are sales people and are no different from those people who you would find in car and double-glazing showrooms.  They are paid on results and work under the pressure of targets.   Once they have you signed up they will be your best friend and be in regular, sometimes daily, contact until they have collected all of you money.   There are many instances when this shadowing could be conceived as harassment.  If you consider there is undue pressure look to see if the developer subscribes to the Consumer Code for Homebuyers (http://www.consumercode.co.uk) and make a complaint.

• At the outset you will be asked about whether you have a mortgage and a solicitor to undertake the legal work.   You will be steered towards making use of the developers preferred brokers and solicitors.  These are ‘partners’ who have been chosen to work with the developer as the developer expects those partners to report to them regularly and to do all they can to ensure the developer meets its sales targets.  The sales team will push you to use these partners often saying it will be less expensive and a lot quicker.  More than often it is not.  I have heard of a case where a potential purchaser who was insisting on using her own solicitor was told she could only do so if the developer’s head office permitted it!  There is also a high level of misinformation given about other conveyancers e.g 'they are too slow', ' they are not very good'. 'we would not recommend them' etc 

• The use of the developers preferred partners should be avoided for several reasons

• How can you guarantee that the preferred partner is not acting with only you best interests at heart?  The ‘tie in’ with the developer could lead to a conflict of interests. They might be less willing to advise you not to purchase in fear that if they did this could lose a tie to a lucrative source of work. This a particular risk when purchasing a leasehold new build property and when advising on onerous rent review clauses.  

• You may not be getting the best deal in town.   You may be able to get a more competitive fee/mortgage product elsewhere if you were able to shop around.

• Make sure before you sign the reservation form and part with your hard earned cash that you seek legal independent advice because once signed you may if you withdraw lose your reservation fee.  If the developer subscribes to the Code you should be able to recover most of your reservation fee. 

• Many developers are selling more properties on the back of the Government’s Help to Buy Scheme.    This is a gift from heaven for some sales teams as is makes the sale that much easier.  Beware however of signing up before understanding fully the ins and outs of the scheme.  I doubt many of those selling understand the scheme and are failing to provide any or an adequate explanation of its workings at the point of sale. For further information visit here: https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-mortgage-guarantees    Keep in mind you may be paying more for the property than you might have otherwise paid if you had purchased outside the Help to Buy Scheme.  Always get the property independently valued. 

• There are other important aspects of the purchase which you may not be told about at the time you are asked to sign the reservation form

• If it is a leasehold flat you will be required to pay an annual service and ground rent charge even if the estate is not fully developed. This can amount to an extra payment of £200 – £1000 each year.  The ground rent charge is likely to be reviewed and increased from time to time. Make sure you understand the basis of the review.  Onerous rent review clauses could make the property difficult to sell.  My advice is not to purchase a new build leasehold where there is a rent review clause that provides for the rent to double at regular intervals. 

• If it's not a flat you may still be required to make a contribution towards the cost of maintaining shared facilities such as a play area for example.

• You will be required to pay a contribution to the cost of the developer’s legal costs even though the documentation is on a word processor and takes little effort and resource to produce.

• It is unlikely that you will see your final completion statement detailing extras and other expenses until a few days before you complete making it difficult for you to query figures.

• There is a date by which you must exchange otherwise you will lose your reservation fee. Make sure you are happy with this deadline and if you agree   new deadline make sure it is confirmed in writing and be careful as it is known that contracts can be withdrawn before exchanged with little notice, especially if the sales office can find a buyer who might be prepared to pay a higher price.  

• The contract and other legal papers you will be required to sign are looked upon as ‘closed’ meaning the developer will generally not allow your solicitor to make any changes to the provisions it contains.  

In conclusion my advice is as follows:

• Ask yourself is a new build the right property for you  - don’t get carried away with the sales talk. 

• Always take independent legal advice on the legal aspects of the purchase before signing a reservation form and handing over the reservation deposit.  If in doubt see if you can agree a reduced deposit so as to minimise the penalty if you have to pull out before signing the contract to purchase. 

• Resist the pressure and tactics deployed to persuade you from the using the developers preferred legal or broker partner and make a free choice on the advisor you choose to look after your interests.

• Make sure the sales person tells you all about the Help to Buy scheme if it applies and also about all hidden costs such as service charges and ground rent.

• Find out before you sign what other building is to take place around the plot you are purchasing and when will the whole development be concluded.  Ask also about the developer’s policy on Social Housing and where this part of the development is to be based.  These are important factors since they could impact on you use and enjoyment of the property.

• If the purchase involves a doubling rent review clause keep well way from the property. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidp@mjpconveyancing.com 

Beware of the Green Deal - it could all go Pete Tong!

Homeowners will be besieged with offers of energy efficient improvements to their home with the headline of ‘no up-front’ costs but as with most deals which appear to good to be true, there are pitfalls.

The reality is that Green Deal providers foot the bill with the homeowner repaying the debt over time via a charge on their energy bills.  Sounds simple.

The arrangement is essentially a loan and therefore protection is provided under the Consumer Credit Act. This means the provider is obliged by law to provide certain information, such as the total charge for credit, any APR, how repayments are calculated, information about cancellation rights etc.  That’s the good news.

The bad news is that, like anything bought on credit, improvement works will cost significantly more than they would if paid for up front.  As to whether the hem owner will be advised of cheaper alternatives will remain to be seen.

There is a sort of a safeguard through what is known as a "Golden Rule" – that the cost of repaying the loan should not exceed the estimated energy savings each period. So, for example, if it is estimated you will save £50 a quarter on your energy bills, your Green Deal provider may not recover more than £50 a quarter from you to pay back your loan. But the key word here is ‘estimate’ what if the actual savings are less?   Does this mean the provider will refund the difference?  In short the answer is an emphatic no.   The risks will be explained but I suspect little emphasis will be given to the same.

The other downside is that the ‘debt’ follows the property and not the person who took the loan out.   This means when the homeowner sells it will be the buyer who picks up responsibility for the liability.  Purchasers may not be able to afford the repayments, particularly first time buyers.

The scheme seeks to address this concern in two ways. First, there are extensive rules about disclosure – anyone selling a property must tell a prospective buyer if there is a Green Deal attached to it; the buyer must be notified before the seller accepts an offer at the very latest. Second, the code of practice states that if the occupier of the house changes, the provider should reassess the affordability of the plan for the new occupant.

This presents practical problems and could make a property with a Green Deal attached more difficult and/or more expensive to sell.  The disclosure requirements are strict, and a buyer must consent to any Green Deal in writing.  A homeowner who fails to obtain such consent will have to pay compensation. What if a buyer does not want to consent?  There is little the seller can do beyond negotiating. They could, for example, offer to pay off the loan in full. In such cases, however, they should be prepared to pay an early settlement fee, and may well find themselves out of pocket if a buyer does not agree to any corresponding increase in the purchase price.

Even if a buyer does consent to the Green Deal, the reassessment requirement may disclose no or little saving given the buyer's needs and energy usage will inevitably differ. A buyer may therefore want the reassessment done before deciding whether to make an offer on a property, all of which is likely to take time.  This could cause delay or even the collapse of the transaction.

The idea is good but when you drill down and consider the small print as well as the complications that arise on the sale of the property, one is bound to seriously question the benefit of the estimated short term saving.  

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidp@mjpconveyancing.com

Success Story for East Anglian based Legal Practice

Legal 500 Norwich based legal Practice, MJP Solicitors, will soon be following the path taken by many of the Country’s leading lawyers by incorporating their business as a Limited Company.

From 1^st May MJP Solicitors will be creating two new companies – MJP Limited and MJP ConveyancingLimited – with the view to add strength to their already successful national clinical negligence and conveyancing services.

They will be part of a growing trend of legal practices taking steps to bring their business into line with modern day thinking on taxation and succession issues. 

According to Solicitors Regulation Authority (SRA) figures, 2,400 of the 10,973 law firms as of July 2012 were incorporated companies, compared to 1,898 a year before – a rise of 26%.

This move comes on the back of a very successful year for MJP who have seen their profits treble through the expansion of their clinical negligence and conveyancing offerings.  

David Jones, head of the MJP clinical negligence team, explains how despite the recent withdrawal of public funding and some of the worst trading conditions in the business’ history, he has seen business go from strength to strength:

“Trying to anticipate trends and careful forward planning has been the key.   This coupled with an investment in IT of over £80K and some focused marketing has helped us retain a national reputation in helping families all of the country with the consequences of surgical and treatment failures”. 

He adds:

“Many clinical negligence lawyers receive a bad press, but what is often overlooked is how lawyers like us have helped to provide a good and rewarding quality of life to many victims who through no fault of their own have suffered life changing injuries.   I also believe that due to our work we have helped to raise standards within the health service industry.

Commenting on the recent withdrawal of public funding and welfare reforms, Mr Jones remains upbeat:

‘Gaining access to legal services of the type we provide will be more difficult but we have several options and ideas on offer which will ensure that we will remain highly accessible to victims who wish to seek advice and support from our team of specialists.

Another part of the success story has been high level of growth in the property division of the business.  

“ We have over the past 12 months moved over 5000 clients”, states Head of Residential Property, David Pett. He adds “that despite the slowdown in the property market, we have seen over the past 18 months, the level of completed transactions increase from around 20 to over 200 each month.

Much of the success for this lies with the “in house’ creation of an online tracking and property log book IT system.   This allows estate agents and clients to track the progress of the transaction and with our unique Property Log Book we have been able to offer our clients added value to accompany a very competitive fee structure”.

Looking forward there exists, as Mr Pett explains, a positive plan for growth:

“We continue to recruit new staff and are already looking to expand the business further through careful acquisition decisions. We are on the constant look out for other providers of property related legal services that may be looking to be part of the exciting plans we have for the future.   Our aim is to be one of the largest providers of conveyancing services in this region within the next 5 years”.

MJP Solicitors – contact DavidPett on 01603 887067 for further information

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk