Monthly Archives: January 2016

Buy buy buy…..bye!

It could be argued that when you don’t own the property that you live in, that you are simply pouring money into the pockets of some landlord.

Making the rich richer…

Wasting money.

What this argument fails to take cognizance of, is the fact that you will have to pay something for wherever you live.

You either pay rent, forfeit income or revenue from your assets or pay to service the debt of your economic sponsor.

Interest rates are at their lowest for decades.

Back in 1990 when Mr Jones invested in his first property, the mortgage rate was well north of 15% in fact in the twenties. The reason? Economies were booming, inflation was high and living in darkest Africa – the very real risk of currency devaluation was an ever present threat.

Since the mid nineties, mortgage rates have crept downwards and then started to plummet from the economic crash early into the millennium.

For some 6 years they have lingered around 0.5% in the UK at least. Put down less of a deposit and you pay a higher rate .

Conversely, property prices have skyrocketed. Nationwide moving from an average of just over £60,000 in the late 1980’s to just under £200,000 now. While that’s a three fold increase, a look at the stock markets the FTSE 100 has grown from 1,000 in the mid 1980’s to just under 7,000 today. So a seven fold increase, more than double that of property.

The allure

London signageSo what’s the allure? Why own property, and get up to your eyes in hock for something that will only have modest capital growth?

The reality is that a property purchase is an emotional more than an investment buy. It’s perceived as less of a gamble than playing the markets – you have something physical to show, something you can add your own touches to. A place to raise children, create memories and a place for people to gravitate to.

The perception is that once you own property you’ve made it, but the reality is that unless you built that property from nothing and have no debts associated with it, it is nothing more than a millstone around ones’ neck.

As Rafael Behr wrote in the Guardian, many residents of London seem to be vacating the city.

many are seeking a gentler life elsewhere

While that may be true for those he has met in Brighton, those he knows and his social circle, the reality is that the Big Smoke has a ‘shortage’ of properties to rent and spiraling property prices that make it difficult for anyone with any sense to see the logic of holding onto massive value properties.

He is also a Londoner, a statistical anomaly, and more importantly, he likely never lived outside the city before. So despite this red flag and others, we soldiered on with our quest.

None of that gentleness for us, we love this City, and we have lived in others, so we know what an interesting place is, to live. Is it easy? No, but few things are.

The gamble

dive inWe contacted the bank and received an agreement in principle for the mortgage that we felt we could afford and then dove into the market feet first. We reached out to several agencies simultaneously and one in particular, Foxtons was clearly very motivated to do something and we were able to quickly line up some viewing time according to our schedules.

Foxtons is an interesting bunch, we had dealt with them before as tenants with them as the letting agents, the experience was neither thrilling nor disappointing it just was… What became clear is that any prior dealings were irrelevant. This, I have come to learn, is pretty normal. You never create a real relationship with these agents, for them you are just a number.

There is also a tie up between this agency and a mortgage consulting firm called Alexander Hall. The relationship is undoubtedly a somewhat incestuous one.

All you have to do is read some of the online articles like  The secret agent,  Foxtons moves Alexander Hall staff out of head office,  Acquisition of Foxtons and Alexander HallForgery, lies and deceit employed by estate agentsAlexander Hall considering legal action after BBC expose and you realize that the neutrality of Alexander Hall is always a tightrope. The real truth is that they all work as a chain with blended benefits to be had by all.

Alexander Hall and Foxtons did a brilliant job …

While you are assured that the fee is a flat rate the fact of the matter is that there must be various kick backs in play otherwise there is no benefit to be had for all the participants. That all said, apart from hard sell on Insurance policies, for us Alexander Hall and Foxtons did a brilliant job!

foxtonsminiOf interest is, the fact that Foxtons, distinctive for their skeleton adorned minis was started and then sold by  Jon Hunt, who pocketed an estimated £370m after selling the business to a private equity group – just as it appears the housing market began to slow down.

The sale was projected to make Hunt one of Britain’s wealthiest men. He owned 97% of Foxtons, which started trading in a converted Italian restaurant in Notting Hill in West London in the 1980’s growing to 19 branches in the capital by 2007.

In 2013 BC Partners, the buyout group that took Foxtons private in what the Financial Times described as an “ill-timed deal at the top of the property market in 2007” subsequently sought assistance from various banks to float Foxtons as a listed company on the stock exchange. The splash  as FOXT.L made a strong debut on with the stock rising well above its offer price, shrugging off concerns that the property market was overheating. Shares opened 19% above the 230 pence offer price  to value the company at around 775 million pounds according to Reuters.  They currently trade at 160 pence having peaked in June 2015 and declined – the latter attributed to the general elections.

banksBut I digress, this is also interesting only because in our quest for a property we had to deal with an agent and understanding the agent and the relationship between the agency and any mortgage consultant or bank is equally important.

Mr Jones’ bank doesn’t offer mortgages and the tie up that they have with a building society is pretty miserable, in fact the whole relationship seems very defective. Talking to three different bank employees resulted in three entirely different answers and experiences.

So while the bank provided a letter in principle, the real mortgage in principle came through Alexander Hall.

Payslips,utility bills, passports, bank statements, all kinds of pieces of information to help with the process of evaluation.