Looking back……

The summer holidays are over, the kids are back at school. In a normal year buyers and sellers, perhaps unrequited before the oncoming of the summer holidays, would seek to transact before Christmas. There is of course nothing remotely normal about 2008, but first what has happened since our Spring Report in Douglas & Gordon’s area?

• Average price of property sold up 7.8%
• Number of properties sold down 42% year on year
• Number of applicants registering to buy down 47% year on year
• Number of new instructions to sell down 17% year on year
• Number of new instructions to let up 40% year on year
• Number of tenant applications up 15% year on year
• Fall in average value 8.5% (11.1% August 2007 to August 2008)
• Fall in average rental values 1.5% (August 2007 to August 2008 3% increase).

Readers may be surprised to see that the average price of property sold has increased. This is simply because demand at the top end of the residential market has held up over the first half of 2008. Values overall have fallen by 8.5% in the period under review, bringing the total decline for the last 12 months to over 11%.

The total picture shows a dramatic decline in activity in the Central London housing market as a whole. In the Sales market, both the number of potential buyers and sellers has reduced - by 47% in the case of buyers and 17% in the case of sellers. So, although demand has reduced very substantially, there has also been a significant reduction in supply, with the result that values have probably held up better than most commentators have been expecting. In the Lettings market, tenant demand has only increased by 15%, so there is reason to assume that there are a large number of current tenants who might otherwise be looking to buy who are staying put. This tallies with Douglas & Gordon’s let portfolio reaching a record of over 2000 units during the period under review Instructions to let taken on over the last 6 months were 40% greater than the same period in 2007, indicating that many potential vendors have looked to the rental market to see them through the downturn in prices.

Looking ahead……

With the global banking system almost in complete meltdown, forecasting the future is extremely difficult. The main characteristic of this “housing crisis” is the collapse of activity in the sales market. Although the credit crunch started 12 months ago, the negative impact on prices was initially as much to do with less confidence amongst buyers than an inability to raise finance. Twelve months on, the supply of mortgages has been reduced to a trickle and the shockwaves going through the banking and financial sector has further diminished buyers’ confidence. However, vendors are not prepared on the whole to take the hit required to guarantee a sale. For Central London, the outlook for jobs in the financial sector over the next six months is dire. Redundancies might bring forced sellers so far absent into the market. They will certainly result in termination notices at the middle to upper end of the Lettings market, bringing to an end three years of growth in rental prices. With low transaction numbers, the business of valuing property becomes more problematical and is likely to lead to more caution amongst mortgage valuers, putting further downward pressure on prices. As postulated in our Spring report, we identify a two tier market and expect the “perfectly formed” to hold values whilst the “compromised” drift further down by maybe another 10% over the next 6 months, unless the availability of credit increases and the cost decreases.

As we go to press, governments throughout the world are using both monetary policy (the Bank of England has just cut the base rate by 0.5% to 4.5%) and fiscal policy (taxpayers are putting up £500 billion to shore up the banking sector), in an attempt to restore both liquidity and confidence in the markets, without which a return to economic growth is impossible. These steps will not restore confidence in the housing market in isolation. The housing market cannot but be effected by prevailing negativity. However, liquidity will enable those who have to buy to do so and restore some momentum from which a full recovery in the housing market can take place. With the main objective of monetary policy being switched from inflation control to economy stimulus, it is likely that inflation will return and then housing will play its traditional role as a good hedge. Add to that the weakness of sterling encouraging foreign buyers, and prices may well recover more quickly than seems possible at the moment. The basic supply and demand ratio in Central London is one of restricted supply and global demand. Until “normal service“ resumes, those that can access finance are in a very strong position to buy well. It is salutary that in the UK as a whole, 40% of homeowners and therefore approximately 27% of the population live in houses with no mortgage. They and their families have huge leverage.

How to Get a Mortgage in the Credit Crunch
By Ray Boulger

Many lenders, especially the bigger ones, delegate the decision on whether to offer you a mortgage, and if so how much, to their computers. The computer makes its decision on the basis on your credit score because lenders have found that the credit score is a good predictor of ability and willingness to pay. Nevertheless, the credit score is not a panacea and relying solely on it sometimes means that perfectly sound applicants get rejected for totally illogical reasons.

The computer has to be programmed by humans and so although they decide the basis on which the computer makes decisions, any computer will struggle to deal with applicants whose circumstances don’t fit certain patterns.

The key to your credit score is the information held on you by the three credit reference agencies, Experian, Equifax and Call Credit. All lenders use at least one of these to check up on you, even those which use humans rather than a computer to decide whether to lend to you.

Therefore it is absolutely imperative, especially during the credit crunch, to understand what affects your credit score and how to improve it. A good starting point is to obtain a copy of your credit report from at least one of the credit reference agencies. Experian and Equifax are the ones most widely used by lenders and it is possible to obtain a free copy of the report.

This is offered by some web sites but is also available direct from the companies. To get a free credit report from Experian or Equifax you need to subscribe to a service requiring monthly direct debit payments but both companies offer a month’s free trial and so if you don’t want the ongoing service you can simply cancel the direct debit after obtaining the initial free report.

The report will show the information lenders see when you apply for a mortgage (or indeed any other credit). This includes a 6 year payment history on most, if not all, of any borrowing, including your mortgage, credit and store cards, personal loans and mail order accounts. It may also include information on other monthly payments such as mobile phone or broadband accounts. For each account it shows whether payments were made on time and if not how late they were.

Additionally the credit reference agencies record and report electoral roll information, details of any county court judgements, defaults, IVAs (individual voluntary arrangements), bankruptcy and any property repossessions. They also record searches made by companies and fraud warnings.

One serious problem with the system is that a significant minority of information recorded by the credit reference agencies is incorrect. In a survey undertaken by www.annualcreditreport.co.uk in May 2006, one in three people found an error on their credit report when they checked it and one in ten people considered the error to be a serious one.

One reason for all these errors is that whereas if you are accused of a murder you are considered innocent until proven guilty the opposite applies if any company supplying credit information to a credit reference agency claims you haven’t paid them on time. Most reports of late payment are accurate but that is not much comfort for anyone libelled by an incorrect report of late or non payment. This may happen as a result of a dispute or simply because of an error by the company claiming a missed payment, i.e. by an employee keying in a wrong account number.

The credit reference agencies take no responsibly for checking the information supplied to them by companies but simply take it as gospel. Therefore it is important to exercise your statutory right under section 159 of the Consumer Credit Act 1975 to have any errors you find corrected quickly and for no charge. Any incorrect information may result in your being declined for credit, offered a smaller amount and/or charged a higher rate of interest.

If you are unable to persuade a company supplying incorrect information about you to a credit reference agency to correct it you have a right to complain to the Information Commissioner (http://www.ico.gov.uk/) and the Data Protection Act 1998 you gives you the right to pursue a claim for compensation for any loss.

If any information is incorrect you can request a "notice of correction" but such a notice means that the lender has to follow a manual procedure to decide whether to offer credit. In this increasing electronic age many won't bother to do so but will just decline you instead and so it is much better to get whichever company supplied the incorrect information to correct it.

If a lender uses credit scoring to assess your mortgage application and rejects you they should tell you the principal reason for the decline. However, they are under no legal obligation to do so and most won’t, citing the Data Protection Act as their excuse. What they must do is tell you by law which credit reference agency they used.

Shopping around for a mortgage is even more important in the current environment but doing so by completing multiple mortgage applications to see how much you can borrow, and at what rates, from different lenders is a really bad idea. This is because most lenders record a “footprint” on your credit file each time they search your file and too many searches reduces your credit score, thus reducing your chance of getting a mortgage on subsequent applications.

As an independent broker John Charcol not only has access to the whole market but also understands which lenders are likely to offer you a mortgage and how much they are likely to offer. This information tends to change much more frequently in current market conditions than normally and so getting good independent advice is crucial to not only getting a mortgage, but also to getting the right one and not destroying your credit status.

Some simple things to do to improve your credit score include:

• Make sure you are always on the electoral roll.
• Make sure all mortgage or rent payments and all loan payments are made on time.
• Make at least the minimum payment on all credit cards every month.
• Never exceed an overdraft limit or go overdrawn without previous agreement.

• How long you have lived at your current address.
• Whether you own or rent.
• How long you have been with your current employer or have been self employed.
• How long you have been with your current account provider.
• Whether you have any existing credit. (It is better to have 2 or 3 credit cards on which you make minimum payments than no credit cards!)

The flight to letting by frustrated sellers is flooding the market. To let you must be competitive. “Condition is paramount” Douglas & Gordon’s refurbishment department is the expert when it comes to preparing properties to let.

Tyrena Dangerfield reports:

We have seen a major increase in rental properties this year, all of which are in various conditions which require varying degrees of work. We advise clients on the how to maximise the potential of their properties, but equally we have to discuss budgets and the best use of the clients resources.

Some properties are simply not going to attract tenants in their current conditions and all they require are some simple and quick works which will give the property a whole new look. This can be achieved by carrying out redecoration works, new carpeting, window treatments and re-arrangement of furniture. Some may well require the need for a handyman to carry out minor repairs which are noticeable when viewing a property.

We are currently refurbishing a large number of properties where there is not a large enough budget to carry out all the works we recommend but we have to address the bare minimum of works in order to still attract good quality tenants.


Here are two examples of properties which have achieved higher rents:

Evelyn Gardens, SW7
A one bed flat that had not been touched since 1965 and required a full refurbishment to include new wiring, a new heating and hot water system, re-designing of the layout to include an open plan kitchen with wooden flooring, throughout. This really was a spectacular flat which would not have been rentable in its existing condition but within two days of marketing the flat was rented at the asking price of £550 per week.

Tyrena Dangerfield
Refurbishment Department

Granville House, 2a Pond Place
London SW3 6QJ

Office - 020 7225 0234
Direct - 020 7591 8738
Email - tdangerfield@dng.co.uk

The Health and Safety Executive say on their website that:"Our mission is to protect people's health and safety by ensuring risks in the changing workplace are properly controlled."

That may well be true, but in practical terms every employer and landlord has that responsibility and, by and large, it is left to their own judgement initially as to how to implement health and safety in their premises. Most aspects of health and safety have to be dealt with on a “do it yourself” basis.

It’s generally only if things go wrong (such as an accident or fire) or the matter goes to Court that employers will find out whether or not their judgement was right. That’s one reason why the newspapers are full of examples of people being ultra cautious in how they interpret the requirements, such as schools stopping school children playing conkers unless they wear protective goggles etc.

This “do it yourself” health and safety approach applies to fire safety as well. The Regulatory Reform (Fire Safety) Order 2005 came into effect In October 2006 and replaced over 70 pieces of fire safety law. The Order applies to all non-domestic premises in England and Wales, including the common parts of blocks of flats or houses in multiple occupation (HMOs). Under the Order, the responsible person must carry out a fire safety risk assessment and implement and maintain a fire management plan. The local Fire and Rescue Authority may give advice if requested, but it’s up to you to ask for it.

Risk assessments should be carried out by a “competent person”. However, a “competent person” is not defined. It’s likely to include people who have undertaken and passed relevant health and safety training courses, but it could also be somebody who is qualified by experience and who has some standing in the business or community; perhaps an accountant. It’s up to the employer to form a view on who is or who is not “competent”.

Can we afford health and safety in the credit crunch? All aspects of living involve a greater or lesser degree of risk (even crossing the road) and each person has to judge what is acceptable to him or her in any particular situation. Using a “competent” person in formal situations should standardise that judgement to a certain extent, but I think most people would agree that it’s important to control and reduce risk as much as reasonably practicable, especially when dealing with employees or tenants in the context of a “duty of care”. Having said that, it’s arguable that everybody should take some responsibility for their own safety, even though that might appear to go against the grain in our “compensation culture”.

The following is not meant be exhaustive but sets out the general process to be followed for business premises. A similar approach applies to fire safety and other relevant premises.

• Draw up a health and safety policy covering all the relevant areas within your business. Cars and other vehicles used for business purposes are also places of work for this purpose.
• Communicate that policy (including a short policy statement) to your staff and other relevant parties…such as contractors.
• A “competent person” should carry out a risk assessment for each activity and each work place, keeping a written record of the areas assessed, especially those requiring attention.
• Take such reasonable precautions as you consider necessary to avoid injury. This could involve taking action to change the physical environment or it could involve training people, for example in how to use a particular item of equipment. The law requires you to protect people as far as “reasonably practicable”, whilst employees are required to co-operate with measures to improve their health and safety.
• Review the risk assessments on a regular basis to establish if things have changed in any way and take appropriate remedial action.

Michael Amos FCIS MBA
Douglas & Gordon Company Secretary