The latest thing I have learned about is the ‘iceberg house’. According to Charlie Ellingworth who works for a company called Property Vision (www.propertyvision.com), an iceberg home is one that expands downwards instead of up. So there is more below the surface than above. “The economics are compelling,” Ellingworth writes in his blog. Above ground space in London’s wealthier areas costs more than £2,000 per square foot. But the cost of digging down comes to just £500 per square foot. So it’s a no brainer.

Of course living underground is not for everyone-me included. But it shows you how desperate people are for space and how willing they appear to be to put up with any inconvenience just to live in the Capital.

I lived in a basement flat in Stroke Newington at one time and would not wish to repeat the experience. I forgot to lock my front door on one occasion and found that a drunk had wandered off the street, down the steps and into my living room. There was a pub next door and there was no shortage of drunks hanging around outside it. I expected to be violently assaulted and was already in fight or flight mode (flight being the most likely outcome if I am brutally honest) but all he wanted 11p. That’s right 11p. He needed it to make up the price of a pint. I considered this to be a reasonable request under the circumstances and was very relieved to give him the required sum and the price of another pint to go along with that one. Needless to say I never forgot to lock my front door again.

The ‘iceberg house’ a peculiarly London phenomenon mainly because London is the least dense capital city in the world with only 78 dwellings per hectare compared with 300 in Paris and 1700 in Kowloon. Most London dwellings are houses rather than flats. The underlying clay is easy to excavate, unlike New York where the underlying rock, Manhattan schist is just too hard to make it possible. I have been reading stories of 5000 square foot houses with 3000 square foot basements, and house near to Kensington Palace with permission for three floors below to include a tennis court.

Apparently planning permission is not a problem. Most developments come under the heading of ‘permitted development’, so the planners can do nothing about it. You can even excavate under your garden without any problem.

So if you are stuck for space it might be worth a look. No doubt its a massive job to undertake, but it might be worth the trouble.But take my advice, make sure you lock your doors or have 11p at hand just in case you get a nocturnal visit from an intoxicated passer-by.

The advantage of this kind of loan is that you have a much smaller monthly repayment. At 4% interest the monthly repayment on £150k would be £500. But if you were paying off the capital as well you would have to pay £792 per month. You should put this £292 that you have saved into an investment vehicle such as an endowment or an ISA that would pay off the mortgage and have a nice lump sum left over. At least that was the theory!

The disadvantage is that you had better have £150k to pay of the bank when they come looking for their money. The problem is that endowments have just not performed to expectations and borrowers are left with insufficient funds to pay off the capital loan.

The Financial Services Authority has warned that 1.3 million people might be facing this problem before 2020. The worry is that they won’t have the cash to pay off the loans. This won’t be a big problem if they have equity in their properties, they can always sell up at a profit and pay off the loan that way. It’s not an ideal solution, people don’t want to move from their homes after living there for years, but at least it is a solution.

The big problems arise when the borrower is in negative equity. The endowment won’t cover the mortgage, and selling up will still leave them owing substantial amounts to the bank. So what can they do?

The first thing most people appear to be doing is blaming the banks. That old accusation of “irresponsible lending” is once again being levelled at the banks. How could they be so irresponsible as to lend to people who had no proper means to pay back their loans?

Well let me put this way. What about “irresponsible borrowing”. How could people be so irresponsible as to borrow money they had no proper means to pay back? We are all adults and must take responsibility for the decisions we take. You can’t blame the banks for your financial mess any more than you can blame Mc Donald’s for making you fat. These people were warned. Those relying on endowment policies to pay off their mortgage receive a projection letter from their insurer every two years. These are colour-coded — red if a shortfall is expected; amber if a shortfall is likely, and green if the policy is on track to pay off the mortgage. So they had ample warning.

Other people used the interest only route to get a foot on the property ladder, and buy a property that they really couldn’t afford. They were banking on house price rises to lift them out of the hole. They made no provision for paying off the loan, they just trusted to luck. Of course in most parts of the country these price rises have not happened and they face a very uncertain future.

I do have some sympathy for these people; it must be horrible to have such a black cloud hanging over your head. But the fact that the banks are being blamed again for their customer’s lack of financial planning is absurd.

If you buy a house you can’t afford to live in don’t blame the bank.

John Longford 23/4/12

Many estate agents are refusing to take on any more properties for the Olympics. Their books are full, demand is low. In fact some agents say that there are more properties than tenants.

Now I have to make a confession. I joined the hordes of people trying to make a buck during the Olympics. I didn’t kick out my long term tenants, I am much too cautious to do that, but I tried to rent out my own home. This would not be a major problem for me because I am a teacher and my wife is on maternity leave. We were planning to go on holiday during the summer, to visit the new baby’s grandparents, so my house could easily be made vacant during the Games if the right offer came along. So basically I could have someone else pay for my trip.

I have a 3 bed house in west London, so it’s not ideally located for the Games, but I was quoted £2500 per week for the duration of the Olympics, and a little less for the Paralympics. 3 different agents came around. The fees were wildly different. One quoted 10% +VAT, another 17%. These fees are fair, and I would have no problem paying them. I also put my house on a specialist Olympic rental website. I haven’t even gotten one reply, but it only cost me £20, so I’m not too bothered.

But one agency took the biscuit. They wanted 26% + VAT, plus a £1000 admin fee. This is totally outrageous, and I have not instructed them because I refuse to pay such exorbitant fees. When I did my sums I calculated that the agent would end up taking a higher percentage of the rent than I would.

2 weeks rent @ £2500 per week = £5000
Minus 26% + Vat =£1560
Minus admin fee =£1000
Rent received =£2444

So the agent takes £2560, and I get £2444. How can that be fair? I understand that short lets command higher fees, and I could even swallow the 26% fees, but the £1000 admin fee really sticks on my throat. I was told that this was for gas safety certs, EPC certs and cleaning. I can get all that done for £200. Easily. By the time I have paid tax on my profit it just wouldn’t be worth the hassle.

Perhaps if they reduced their fees, that could then reduce their asking prices. Better value accommodation would bring in more enquiries, more properties would be let and everyone would win.

John Longford 12/4/2012

Mr. Quirk really hit the nail on the head when he said: “The decline in northern house prices is looking ever more relentless, while in London the market is verging on the buoyant. Much of that 2.2% monthly rise is down to the capital’s gravity-defying boom. With the markets so polarised, national house price numbers should be taken with about as much salt as that currently being shoveled on to the roads of Newcastle.”

Couldn’t have said it better myself. This is what I have been saying since I started writing this blog. In fact I wish I had thought of such a colourful and witty way to express this simple fact: House price averages mean nothing. Prices outside London are stagnant or falling. The farther north you go the steeper the falls. The market in London is booming, accounting for most of the 2.2% increase.

The unreliability of these kinds of stats is underlined by the fact that the Nationwide’s house price average for the same period shows a 1% drop in prices. Confused? I know I am. So what can you do in the face of this blizzard of contradictory information?

The answer is simple-you get as much local knowledge as possible. People who base investment decisions on national averages are lazy. Local knowledge means everything in the property business. You need to know exactly what is happening in the town, the street, the block that you plan to buy in. It’s about micro-markets, not national averages. And by a micro-market I mean knowing exactly what price properties in the street you are interested in are going for.

So don’t waste your time pouring over average house price statistics. It does not reflect what is happening in your local area. If you are planning to buy for investment up north you are buying a property which is falling in value. This breaks one of my rules of property development;

Don’t try to catch a falling knife.

John Longford 6/4/2012

He gives several good examples of how landlords are caught in the middle. Landlords get a lot of flak for not renting to people on benefits. But often the landlords want to rent to people on benefits but the insurance companies won’t provide insurance if a flat is rented to unemployed people. So the landlords are painted as being cruel, heartless and lacking a social conscience, while often they just don’t have a choice.

I have personal experience of this. I own a number of buy to let flats, and in every case my permission to rent from my freeholder clearly states that I am not allowed to rent to people on benefits. If I do I am in breach of my lease, and would end up in serious trouble. I have also the same stipulation in my buildings and contents insurance. If you have a leasehold property you usually won’t get permission to rent to anyone other than working professionals.

Another point raised in the blog is how Assured Shorthold tenancies are ruining tenant’s lives. Since these tenancies can only be awarded for a maximum of twelve months, tenants never know if the landlord will ask them to leave at the end of the tenancy. This gives people a horrible sense of insecurity; they can’t put down proper roots because they might be uprooted in a year.

Once again I have personal experience of this. Recently I had a tenant ask if when renewing, would I grant a 24 month contract? He is worried that I will increase the rent again in 12 months. I was happy to do this but the bank put a stop to it. They don’t allow 24 month contracts. This is a pain for both of us. The tenant wants the security of knowing he won’t face a hike in rent in 12 months’ time, and I want the security of knowing that I will keep an excellent tenant long term. In the end I gave him my word that the rent will stay the same for the next two years and he is happy with that. But I felt I was caught in the middle.

Then there is the problem of the behavior of some estate agents, who seem to hate tenants. “All tenants are scum” is the quote attributed to one agent. But landlords are tarnished by their association with such people. I had a tenant from Iraq who I got on well with. When he wanted to move to a larger property to accommodate his growing family, I put the flat on the rental market. He was happy for the agents to do viewings at reasonable times, but he had one rule. Everyone who comes into the flat must take off their shoes. I was always happy to respect this rule whenever I went to the property.

Anyway an agent from a local agency went around to do a valuation. He walked around on the tenants expensive rugs, and refused to take off his shoes. He caused great offence, and the tenant almost cancelled viewings. Another agent was found by one of my female tenants rooting around in her wardrobe. Yet another agent was so negligent during a viewing that he allowed my tenants laptop to be stolen. How do you let someone walk out of a property carrying a laptop that they did not have when they came in?

Although I wasn’t present when any of these incidents took place I got a lot of heat from my tenants. Basically they blamed me, because I sent the estate agents to the property in the first place, and my standing in their eyes suffered accordingly. Once again I was caught in the middle.

This is the case with so many landlords. We are not angels, and I know that there are many bad landlords out there. But there are some ills in the letting industry that we can do nothing about.

John Longford 4/3/2012

This was cited as evidence that people in London are struggling to meet their rent payments. We were given the impression that the whole private rental sector is in crisis with people struggling to keep a roof over their heads. Shelter has set up a “Homes for London” campaign. This campaign is demanding that the next Mayor “stands up for London’s renters and finds a way to reduce the cost of private renting”.

This all sounds reasonable and indeed laudable until you consider a few points. The average wage in London is £26,000. So if both partners work and take home the average wage, then the average family can rent an average property. I know there are too many “averages” in that sentence, but I am trying to make a point. This does not sound like a crisis to me. Now I know that not every family has two breadwinners, but many do, and in my experience most women are happy to go out to work. It’s not a major hardship.

Then there is a problem with the mathematics. If the average income is £35K and the income needed to rent is £52K there is a shortfall of £16k per year in the average family’s budget. This is a massive figure. So how do they afford to pay the rent? Why aren’t the majority of tenants behind on their rent?

Yet the vast majority of tenants are up to date with the rent. How are they doing this? I know people will say they make cutbacks in essentials like food and heating, but there is no way you can make up a shortfall of over 30% in your budget by cutting corners on essentials. If you did you wouldn’t be able to eat for days, and you’d come close to freezing in winter. Is life in London so bad for the average family who are renting in London that they are regularly going cold and hungry? From reading this you would think that London is a third world hellhole instead of one of the richest cities in the world.

Then there is the bit about the London Mayor “standing up for tenants by brokering a better deal for them which protects families from the capital’s rental market”. This is highly emotive language. By saying the Mayor has to stand up for tenants, you are given the impression that tenants are being victimised, even bullied. This is not the case; tenants have more rights in this country then in almost any other in the western world-and they know it.

Then there is the practical issue of how the Mayor could broker a better deal for tenants. Would he be able to tell private landlords exactly how much they are allowed to charge in rent for their properties? The property market is a free capitalist market and the Mayor has no place getting involved in it. The going rent is what the market will bear, based on the law of supply and demand.

Demand is high, so prices are high. People are not stupid. They know what’s best for their children, and how to care for them properly. If families renting in London are having such a miserable time, can’t afford the essentials, then why are they not leaving the capital in their droves to live in a more family friendly environment? They are not; in fact the opposite is true. Migrants come from all over the world to settle in London. They do this because they want a better life for themselves and their children. They won’t go somewhere where the average family can’t afford to eat and heat their home.

Shelter is a respectable charity, which does a lot of good work. But they only harm their own credibility when they come out with statements that just dont stand up to serious scrutiny.

John Longford 3/4/2012

I have learned two things in life the hard way.

1. There is no such thing as a free lunch
2. If a deal appears to be too good to be true, then it is.

And sadly this is a classic example of both old sayings coming true. Banks are not too keen to offer mortgages to owners who have rented out their roof space. This is perfectly understandable, and I can see why the banks would feel this way. Legally they are entering very murky waters.

Imagine the legal minefield that could result, if the bank has to repossess the house. Who owns the solar panels? Well the solar panel company, so the bank can’t remove them. The lease company will only remove the panels if the lender can show it has tried and failed to sell the property. This must lead to a lot of hassle for the bank, not to mention legal expenses. The solar panel company won’t want to give up a roof which is a good earner for them, so no doubt they would fight to retain their position. It must end up as a right mess.

This has a few implications. If you have this kind of a deal in place, and are trying to remortgage, you will find very few lenders willing to offer you a mortgage. So you will have to take whatever deal your present lender will offer. That could very well tie you into an expensive deal, and as rates rise you could well get caught out.

Then there is the problem of reselling your home. If you have trouble finding a mortgage, then so will any potential buyer. Your house could well be almost unsaleable. You could be stuck in a house you can’t sell, on a mortgage rate you can’t afford.

This is a heavy price to pay for free electricity. Steer clear of these “too good to be true” deals.

John Longford 26/3/12

This is all sad, misdirected nonsense, often motivated on by jealousy. And for ordinary people it is shortsighted and dangerously counterproductive. Let me explain.

I believe that there should be no such thing as stamp duty at all. Not for any property purchase, at any price, anywhere, ever. I could understand it (but not agree with it) if it was imposed on investment properties, or even holiday homes. But why should people pay thousands and thousands of pounds of their already taxed income to the Government just for the pleasure of buying a place to live? Why should someone who has worked hard and gotten on in the world have to fork out £140,000 to buy a £2m house?

Where I live in London £2m will buy you a very nice family home but that’s all. Detached, 4-5 bedrooms, large kitchen, 2-3 bathrooms, nice garden, garage, in a good location. That’s about it. It won’t buy you a mansion with tennis courts, a swimming pool, sauna and bowling alley. This tax won’t just hit Russian oligarchs and Saudi oil sheiks; it will hit working families as well. Yes families who have done well for themselves, but working families nonetheless, who do know what it’s like in the real world.

A home is a necessity, yet is taxed if you are buying a luxury, like a yacht or a Ferrari. Am I the only one who sees this? What people should be doing is fighting against this totally immoral tax in all its forms, not supporting it because this particular tax hike doesn’t apply to them-yet. But this is why supporting this tax is so shortsighted, it might not apply to you now, but it will sooner or later and maybe sooner than you think.

Remember that this tax is here to stay. As property prices increase more properties will be worth in excess of £2m, and more people will be trapped in the net. As the years pass £2m will buy you less and less, and eventually it will be the price of an average family home in London. Will the Government raise the threshold in line with price rises? Of course not.

Exactly the same thing happened when the old thresholds were introduced. I remember buying a property in 1998 for £59,999 to avoid paying stamp duty which at that time started at £60,000. This seemed like a lot of money at the time. But as prices rose every property in the area was caught in the net. What did the Government do? Did they raise the tax threshold every year in line with rising prices? Not a chance. The threshold stayed the same for years, raking in more and more tax. Prices in London had tripled before the Government even considered raising the thresholds. Exactly the same thing will happen again.

So be careful when you shout “tax the rich” because you might well find yourself or your children having to pay this “rich man’s tax” in the coming years.

John Longford 25/3/2012

The scheme is aimed at people who want to buy but can’t come up with a large deposit. Usually banks want a minimum of a 10% deposit, but many want 20% or even 40%. The scheme allows buyers to only come up with a 5% deposit, and is available on new build properties up to £500,000. It doesn’t just apply to first time buyers; it’s available to existing home owners as well. Housing minister Grant Shapps has said that NewBuy will offer 100,000 homebuyers the chance to buy a new-build property with only a 5 per cent deposit. It was trumpeted this week by David Cameron as being “a vital boost to the housing market”.

Nationwide building society, NatWest and Barclays have already signed up, with others expected to follow suit, including Halifax by April and Santander by the middle of the year. Construction companies including Barratt, Bovis, Bellway, Linden Homes, Persimmon, Redrow and Taylor Wimpey have also signed up.

So how exactly does this work? Well, as I have said the buyer must put up a 5% deposit. House builders will put 3.5 per cent of the purchase price into an indemnity fund for each property sold, while the Government will provide a 5.5 per cent guarantee. This means that buyers have much less chance of falling into negative equity, which means they should still be able to sell if they fall behind with the mortgage. This reduces the possibility of bad debts for the banks, and makes lending much more attractive.

Sounds like a good idea. The buyer wins; he gets a nice new home that he couldn’t afford if he had to pay the full deposit. The house builder wins, he makes a sale. The bank wins, they get to lend money with reduced risks, and so make even more money. Everybody wins, or do they? Well I have some serious reservations.

I don’t think it’s the job of the Government to kick start the housing market, or indeed any market. Free markets should take their own course, without Government interference. Governments have a woefully poor record when it comes to this kind of thing. The Irish Government, for example, offered tax breaks on houses built in certain economically deprived areas of the country. This contributed to the massive building boom which swept the country. The problem is that far too many houses have been built. Now you have whole estates with nobody living in them. This silly policy and lax planning laws have left a scar on the landscape. I know all about it, I visit Ireland regularly.

The whole scheme is aimed at making it more attractive for the banks to lend by reducing the risk. Basically the Government is using taxpayer’s money to sweeten the deal for the banks. Is this a good use of taxpayers’ money? I don’t think so. It’s also apparent that the banks won’t offer their best deals to potential buyers. When asked if the new deals were competitive David Hollingworth of London and Country Mortgages answered “reasonably”. Hardly a ringing endorsement!

And what about the building companies who don’t build new houses but specialise in renovations? Is it fair on them that their competitors who do New Build are getting what is in effect a Government subsidy? This discriminates against the renovating companies, and anyone running that kind of company must be very annoyed indeed.

Let’s not forget the rest of the market. If I am trying to sell my house but my potential buyer can only get finance on a new build then I am stuck. Most property deals are done as part of a chain; this does nothing to help the chains to move because new builds are not part of a chain. A scheme that helps first time buyers get on to the ladder would be much more effective.

Its a simple fact that new builds are not good value for money. There is a premium on new builds, just like on new cars. This vanishes as soon as you put the key in the front door. Then there is the concern that builders will jack up prices, knowing that the NewBuy properties will attract more interest. If you are planning to avail of this deal make sure you are not getting overcharged for your new home.

So all in all I believe that this scheme is unfair, shortsighted and ill conceived. You can’t kick start a market as large as UK property-you shouldn’t even be trying. The Government should butt out and let the market take care of itself.

John Longford 21/3/2012

According to the article the London market is booming. It is frenzy out there,” says Tracy Kellett, a buying agent who searches London and the south-east for properties for her well-off clients. Prices in Kensington, Chelsea, Mayfair and Knightsbridge are up 9% already this year. Properties that were originally marketed at £1.25 million are going for £1.6 million and its cash buyers only.

Ultra-rich foreign buyers are looking for a safe haven from the Euro crisis and are snapping up not just one property, but two or three, or more in the same block. Some are buying for their children. One agent tells how he was approached by a buyer who wanted to spend up to £30 million. When the agent told him he only had one property in that kind of range and that was £50 million the buyer explained that he was not interested because his children were given a budget of £30 million each, and so it wouldn’t be fair to spend £50 million on one of them.

In this market the seller is king. People with £30 Million to spend still can’t get what they want. The usual requirements are an apartment on one floor, with a lift a porter, and valet parking. Some people also require bullet proof garage doors and retina recognition at the front door.The average price for a property on the books of Adams estate agents is £12 Million, but they have one on the market for £120 million. At the very top end of the market properties are not even advertised. The sellers do not want anyone to know about the state of their finances, so the whole thing is kept quiet. The properties are still selling.

How different it is in Hartlepool. Just 250 miles away from the capital, but in property terms it might as well be on a different planet. The town is struggling with high unemployment due to public sector cuts and loss of manufacturing jobs. Hartlepool saw house prices fall by 17% in 2011, and despite a 0.5% rise in January they remain at an average of just £78,623, compared with a peak of £113,352 in 2008. Some terraced houses are selling for as little as £20,000. Many properties are not selling at all. Landlords are having big problems renting out their properties, having to cut rents to attract tenants. This means a lower standard of tenant and more problems.

Local estate agents are closing down because of lack of sales. Those agents who have remained open say this has been the hardest year in the past two decades. And remember that Hartlepool is not alone. Whole swathes of England and Wales have the same problems.

There are a lot of reasons for this boom in the London market, and I have written about some of them already in other blogs. But there is another factor driving this market which I never realised before- the “Princess Dianna effect”. It means that these areas Kensington, Chelsea, Mayfair and Knightsbridge- have become popular abroad because of their association with Princess Dianna. It has given them a certain cache. It’s hard to put a monetary value on this but it does exist. Poor Hartlepool just doesn’t have this sophisticated image.

I am a London property owner and investor. Sadly I don’t operate in the stratosphere of the super-rich. I own one and two bed flats in the £300,000 price range. Not for me bullet proof glass and retina recognition technology. But the injection of so much cash into the market can only push up prices throughout the capital. My little empire is benefiting from all this activity caused by the “Princess Dianna effect” even if I don’t own properties in Kensington or Chelsea.

Thank you Princess Dianna.

John Longford 14/3/2012