The tale of two properties
I had an interesting last week. I was looking at remortgaging one of my investment properties in London and another in Manchester. Both have substantial equity and I really just wanted to move to a different product as the discounted period had run out and their standard variable wasn't that impressive.
I thought I would be cheeky on the London one and told the lender it was worth the same as it was worth in 2007. Actually, I was expecting that the valuer would come back with the standard HBOS 17% drop since 2007.
I met the valuer at the property and as he inspected the flat I asked him about the market, his impression of the area and his thoughts about recovery. He happily chatted as he went about his job but the thing that hit me was his comment about flats in Islington.
He felt that flats in Islington had held their value but that unfortunately, houses had dropped. But interestingly enough, the valuation came back at the same as 2007. Great news for me!
The other property in Manchester wasn't so lucky. Its value had plummeted by about 30% since 2007. A combination of fire sales, scared valuers and ongoing site maintenance issues had meant that the site had dropped considerably more than the average.
So as you can see on the tale of two properties: two properties with two very different outcomes. The lesson is to get local when you are dealing with property. It's not enough just to believe the average figures of the various house price indexes.
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Turning lemons into lemonade…
I actually had 3 mortgages with GMAC, a division of General Motors. They had sold the loan book onto a company called Oakwood who desperately needed to shift the loan book on. They wrote to me offering a discount of 15% if I remortgaged away from them.
I thought about their offer and after a phone call, they offered me a total of 25% off the mortgage. I contained my excitement long enough to say that I thought the value would only come in at 40% off (which equates to £56,000 off the mortgage). She said the only way that would happen was if I was to put some money in and she suggested £5k. ‘To show commitment', she said, I obliged her saying that ‘I would need to ask the boss…' (my wife Arlene of course.)
In all, I got £56,000 off the previous mortgage of £135,000, a massive bonus for me.
Not only do you need to take average house price results with a grain of salt but you also have to spot an opportunity for your investment if there is one. For me I won twice, my rate remains a good one and I have actually increased my equity through sound negotiation.
Now I am not suggesting for a minute that every lender will discount 40% off your mortgage but it might be worth a try. I know of three lenders that have done this throughout this recession. They have simply wanted to cash in their loan books so they could lend the cash out again to continue trading.
In any case, the most valuable lesson of the tale of two properties is not to trust the average house price indices but to get local with each one of your properties.
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