And Finally, It’s The Crosby Show.... By Louisa Fletcher.

It’s been nearly as long awaited as the X-Factor final, but eventually, the Crosby Report, commissioned back in April when the world was a very different place was revealed last week. However it didn’t elicit the trumpet fanfares that were expected.

The finance and property industries as a collective have held their breath for the last few months, waiting for some independent stroke of genius that would relight the fire of a cooling UK housing market. What we got, however, is in reality less likely to be practiced than your child’s lines for the upcoming school nativity play.

Boiling it all down, James Crosby, former head of HBOS, has taken nearly eight months to suggest that the government hand over another large amount of dosh to the banks, in return for their mortgages, effectively securitising debts which then could be used to trade on the markets. So far, so unoriginal. But perhaps I’m being unfair by summarising. His report actually contained three main recommendations:

1) That the government should encourage the International Accounting Standards Board to rethink its principle of "fair-value accounting", which is the mechanism which has forced banks to reduce the value of their assets and caused interbank lending to seize up.

2) The suggestion that there is a "strong case" for the government to intervene in mortgage finance markets by guaranteeing £100bn of mortgage-backed securities in 2009 and 2010. To give you some idea, around £200bn of mortgage finance came from the mortgage-backed securities market by 2007, before the credit crunch kicked in.

3) That the government could make money from these guarantees (which is a good thing, given that we’re £3trillion in debt and need to fill the coffers somehow). Crosby has formulated a system whereby the government auctions guarantees that can’t be attached to remortgages or riskier 100% loan-to-value deals.

Hmmmm. Alistair Darling, whilst trudging through his Pre Budget Report (but don’t get me started on that either) did refer to Crosby’s research and findings, however it seems that this isn’t something which is going to get implemented quickly. In fact, you’d probably get better odds on John Sergeant returning to Strictly Come Dancing than you will any of this being implemented before the next budget. As Darling commented, “I share Sir James’s concerns about the availability of mortgage finance. To implement Sir James’s recommendation, the government would need to obtain State Aid approval from the European Commission and resolve some technical and practical considerations but we will proceed to work up a detailed scheme based on his recommendations and seek State Aid approval to proceed."

“...with a bit of luck and a fair wind we should see more mortgages available in the new year.”

So in other words, we have to go and ask the Euro-bods if it’s OK to fix our own banking system. Like I said, don’t get me started!

What does this all mean for you then, the erstwhile property investor?

Well, if I’m being positive for a moment, between the government taking Crosby’s advice and the FSA, who are currently busily reviewing lending practices, with a bit of luck and a fair wind we should see more mortgages available in the new year. Which would be nice, because according to the Council of Mortgage Lenders (CML) this year we’ve only seen £40billion of lending, compared to £108billion in 2007. This would suggest that there are an awful lot of people out there who’ve held off buying, and once the bottleneck in the lending system has resolved, one would suspect this will have the positive effect of getting a rather sluggish property market moving again.

Of course, I am being optimistic here, because the other economic factors at play (rising unemployment, reduced spending on the High Street) do play a part in all of this. But at the end of the day, as a Landlord I’d suggest things may work out OK either way. Because if would-be buyers continue to stay out of the market well into 2009, all that’s going to do is increase the need for private rented accommodation. And if they start buying again as and when confidence returns, we should see a positive effect on house prices.

Which, looking on the bright side, is pretty much a win-win situation for investors. Now, that’s a novel concept these days, isn’t it!

Another day, another interest rate

As I write, the Bank of England have today reduced rates to 2%. Whilst it wasn’t exactly unexpected, it is unprecedented and pretty indicative of the scrabble to save the economy sliding deeper into recession. Apparently, last time rates were this low, fuel rationing was still in force and food was ridiculously expensive – so times don’t change too much after all!

On the up side though, we’re beginning to see the resurgence of cheaper lending products, which has to be a good thing. Particularly if, as an investor, you’ve been clobbered over the last year or so when you came to re-finance your property with a large administration fee and a none-too-competitive rate of interest.

“On the up side though, we’re beginning to see the resurgence of cheaper lending products, which has to be a good thing.”

I’ve spoken to a few lenders in the last couple of days, and it’ll be very interesting to see what shakes out of all of this over the next few months. Whilst there are a few banks and building societies who have actually taken on board the situation and have either passed on the rate cut in full, or where tracker mortgages are concerned, are electing not to enforce the ‘collar’ – in other words, the interest rate which, should the Bank of England base rate drop below it, the lender won’t pass on the reduction – the majority are carefully watching the market respond, and are yet to announce what products they are either scrapping or introducing.

Buy-to-let mortgages, as I’m sure you’re probably aware, have been some of the worst hit in the last year, predominantly due to the various lenders perceiving them to be more ‘risky’ than straight-forward owner-occupier loans. However, with demand in the private rental sector strong, and a good chunk of the new mortgage business out there being in the buy-to-let sector, there’s cause for many lenders to rethink this. What it is worth bearing in mind though, is as with owner-occupier mortgages, the better rates are available for those with either higher amounts of equity or larger deposits, with the cheapest deals available for those who wish to borrow 60% or less of the value of the property. In which case, it’s well worth shopping around to find a product, and also not rushing into anything, as really it’s going to take another couple of months for the reductions to be passed on in such as way that the market will really benefit. However, it also means that there are going to be plenty more new mortgages available over the coming months, as lenders start to fight to win new business again.

Then there’s the next question – will they really cut rates again in January? My guess is that yes, they may well go down another 50 points. I would suspect that the Bank of England wanted to hold something in reserve, so they had options if the current course of action didn’t kick things into place as quickly as they would have desired, which explains the 1% drop for this month, rather than the 1.5% reduction that many economists really did believe might happen.

But what this shake-up does bring with it, as I said last month, is a window of opportunity to borrow at reasonable rates (subject to being able to get the right deal), AND buy property at realistic prices. In other words, if you have the financial security to ride out the not so great times, such as voids, and are able to top up the rent if it doesn’t entirely cover your mortgage, plus you’ve carefully budgeted and have weighed up all the risks, then now is probably as good a time as any to add to your portfolio in terms of buying UK properties.

The golden rule is though, that if you do add to your portfolio now, you are going to need to stay in it for the long term – which means at least ten years – to ensure that the market has properly recovered to enable you to see some capital growth. You won’t be able to liquidate easily in the next two to three years, so think very carefully before you commit yourself to anything.

But for the brave, the combination of bargains available in terms of property values at levels we’ve not seen for a few years, plus (fingers crossed!) finally the banks doing the right thing will bring some festive cheer as we move into 2009. Just don’t forget my Christmas card, OK?

News in brief

I’m addicted, I’ll be honest. I’ve discovered www.zoopla.co.uk which is an amazingly clever website that provides instant, free valuations on every property in the UK. They take historic data from the Land Registry, lending institutions and other key sources, then apply some very smart technology to be able to provide you with a pretty accurate price for any property based on today’s market – in other words, not what it sold for, but what it’s worth right now. I’ve spent a while playing with it, and to be honest, once you get the hang of entering in all the details for the property you want a price on, it’s pretty darn spot on. So, if like me, you’re trying to gauge the value of your portfolio as the market fluctuates, or you’re trying to figure out if that repossession you’ve been offered is as much of a bargain as the estate agent claims, this is absolutely worth looking at. It’s also incredibly interesting to work out how much your neighbour’s house is worth....

The Nationwide seem to be on a bit of a ‘hearts and minds’ campaign at the moment, but hey, don’t lets complain! First off, they announce that, for ordinary owner-occupier tracker mortgages, they won’t be enforcing their collar (the only lender so far to do so without pressure from the government or the FSA). Next, they announce a new insurance product for their Buy-To-Let customers which offers a ‘blended’ policy designed for single or multiple property portfolios of residential, commercial or mixed occupancies. Including up to £100,000 of legal expenses for any one claim, loss of rent cover, alternative accommodation costs and a legal helpline, as well as buildings and contents cover, it’s been designed as a ‘one stop shop’ so that you can get all the cover you need in one go, simply and cost effectively. Nice to know that there are some banks and building societies out there who are still keen to do something for their customers!

We all know that about smoke alarms and the need to ensure they are installed and regularly tested. But what about Carbon Monoxide Alarms? With winter setting in and tenants turning up the heating, if you haven’t already got them fitted to your rental properties, it may be a good idea to start thinking about it. Carbon Monoxide poisoning is responsible for over 50 deaths per year, and hundreds more people suffer from un-detected low level effects such as fatigue, headache, dizziness, weakness and breathlessness. Just because you have a Gas Safety check each year, don’t assume that all will be OK. Boilers can be temperamental at the best of times, so best to play safe. Carbon Monoxide alarms cost between £15 and £25, so it’s a cost effective preventative measure, and what’s more, they’re easy to come buy from DIY shops. Probably one of the best Christmas presents you could give your tenants. Other than a rent reduction, of course!

The IAP Global Newsletter is for general information only and is not intended to be relied upon by readers in making or not making specific investment decisions.

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