03 Mar 2010

According to the 2010 International Property Rights Index (IPRI) released on Tuesday, South Africa has retained its position at number 24 out of 125 countries measured.

The index is prepared annually from a study conducted by a Hernando de Soto, fellow at the Washington-based Property Rights Alliance. It is supported by 62 partner organisations worldwide, including SA's FMF.

"SA is in the top 20% of countries measured in this study and this bodes well for the future if the rating improves or even remains at this level, which it needs to do if SA is to fulfil its promise of being one of the world's high growth countries,” says the Free Market Foundation (FMF).

"SA has shown that it has the potential to grow and prosper. All it needs is the continued application of policies, such as respect for property rights, which have been shown to play a crucial role in bringing about economic growth."

In 2009, SA shared its position on the index with Spain and South Korea. This year they are joined by Qatar and Taiwan. Botswana is at number 44 on the index, while Mauritius is at 46 and Ghana at 59.

The top five countries on the index are Finland, Denmark, Sweden, Netherlands and Norway.

Legal and political environment (LP), Physical Property Rights (PPR) and Intellectual Property Rights (IPR) are the three components that are measured in the compilation of the index. SA's LP score was 5,7 (out of 10) coming out at number 45, while on PPR its score was 7,4 and came out at number 22 and on IPR it scored 7,4 coming out at number 20.

Its overall IPRI score was 6,8, making it number 24.

IPRI is yet another index on which the high crime rate pulls SA down. – I-Net Bridge

Source: Property24

Homeowners who are postponing their property sale plans now in the hope of achieving higher sale prices during the Soccer World Cup are not doing themselves any favours.

So says Willie Steinmann, owner of the new Chas Everitt International office in Melkbosstrand on the Cape's western seaboard, who notes that demand for homes in the village and in the nearby Atlantic Beach Golf Estate has increased substantially in the past six months.

"However, many owners here who intend selling are missing out on this surge in interest because they've decided to wait until the World Cup to put their properties on the market. Indeed, we already have a shortage of stock to offer buyers in the most popular price ranges."

The trouble with this approach, he says, is that the buyers who are currently really keen are quite likely to go elsewhere if they cannot find homes to buy in Melkbos - "and, speaking realistically, they are unlikely to be replaced by a wave of foreign buyers falling over themselves to pay higher prices during or immediately after the World Cup.

"In addition, any delay in placing a property on the market means increased holding costs for the owner and finally, there is a strong possibility that interest rates will start rising again later in the year, making it more difficult for any buyer to qualify for finance.

"In short, home sellers who hang back now are short-changing themselves."

Steinmann says that most of those currently seeking to buy in the village proper are targeting properties in the R1,4m to R2m range, while those looking to buy in the golf estate are willing to pay between R1,6m and R2,5m - and that any homes in these categories that are perceived to be well-priced and offer good value are being taken up very quickly.

Also very popular, when available, are homes in the neighbouring Duynefontein area, where prices start at around R1,2m for a three-bedroom, two-bathroom house on a large stand, and range up to around R1,8m for a renovated property.

"There is far less demand," he says, "for the luxury homes in the village priced at R4m and up.

"As for flats, there are quite a number available now at prices from R650 000, and we recommend these to investors as there is always good rental demand in Melkbos, and extremely limited opportunity for new development because of the Koeberg restrictions."

source: Realestateweb

Finance minister Pravin Gordhan delivered very little for the property sector in his maiden budget in South Africa's Parliament on Wednesday - however a nasty VAT trap could soon be eliminated for cash-strapped property developers.

Officials are to review an expensive tax scenario in which developers who don't immediately sell units and are forced to rent must pay VAT on building materials and no longer claim VAT.

The idea is to provide cashflow assistance for developers who are forced to rent out stock they can't sell - a common scenario thanks to the tough economic conditions.

"The sale of residential property by developers is subject to VAT at the standard rate, while the leasing of residential accommodation is VAT exempt. VAT input credits are allowed for standard-rated sales of property, but disallowed for exempted rentals. The temporary leasing of residential units requires a full claw-back of the VAT input credits for leased units," said the treasury.

"The current value of the adjustment is disproportionate to the exempt temporary rental income. Options will be investigated to determine an equitable value and rate of claw-back for developers," it said.

Although the trap will be reviewed, officials will be keen to fix the problem without creating a VAT loophole for developers.

Source: Realestateweb

More private property developers are set to benefit from enhanced urban development zone (UDZ) tax allowances. This was revealed in Parliament this week when South Africa's new finance minister Pravin Gordhan unveiled the national budget.

The National Treasury has proposed that an enhanced allowance should be considered for private developers who improve another party's land.

"Depreciation allowances, including the accelerated depreciation relief for urban development zones, are available if the underlying land is owned by the party undertaking the improvement. This requirement creates practical problems for development partnerships undertaken by government and the private sector. Government entities often provide long-term use of land in exchange for private development."

The UDZ has sparked the rejuvenation of many "ugly duckling" areas, so a proposal to further extend the allowance is likely to provide a further boost to property values in many areas.

Source: Realestateweb

08 January 2010

The question on every South African home-owner’s lips : "How do I rent my house to 2010 soccer visitors?"

Unfortunately for these home-owners, there is no quick-fix, easy solution. Match, the FIFA-endorsed accommodation agency, only works with formal accommodation establishments like hotels. And, after years of concentrating on sales rather than rentals, few estate agency groups have expertise in short-term lets.

You are taking your chances even with the big name brands that have pots of money to throw at glossy magazine advertising and international property shows and that want to jump on the 2010 bandwagon. There are no guarantees they'll find a tenant for you or ensure your home is well looked-after while you live elsewhere.

There are, of course, a handful of agents who are exceptionally good at sourcing and managing tenants for short-term lets, but they are few and far between and tend to be in areas frequented by holidaymakers or who were specialists in short-term corporate rentals long before South Africans even contemplated having the world cup soccer games on home soil.

With everyone expecting to make easy, big money over the 2010 soccer period, the services of the average property rental agent are unlikely to come cheap.

You could rent out your home yourself. A short-term rental offering is like a small business. You need a good product and a selling plan - and your product needs to meet the expectations of your clients when they check in.

Your home needs to be neat, clean, and appropriately furnished with the mod-cons a soccer fan paying big bucks for his, or her, special holiday expects. Then, you have to think of ways to market your property, make it stand out from the rest.

 You have got competition: All the thousands of other South Africans who want to rent out their properties, plus the hotel chains here and in nearby countries that are hoping to cash in. Also don't forget that many soccer visitors will be looking for more casual accommodation, like caravans and tents.

The big challenge with going the do-it-yourself route is finding your tenants. If you don't have the benefit of word-of-mouth through a network of foreign friends and family members, you need to start by investigating where to advertise - which country and in what medium.  It is difficult to target a specific nationality or group of supporters for the entire period. Teams will be moving around and their fans will want to follow.

There are some websites offering 2010 advertising opportunities, but you don't have any guarantee appropriate tenants will find them in cyberspace. The traditional property listings services, meanwhile, haven't focused particularly on 2010 visitors. And, remember: Advertising can be expensive.

You might want to consider other ways of tapping into that influx of visitors, like hooking up with a local bed & breakfast to offer your home if they need extra space or receive calls from people wanting a self-catering option. You could consider offering the B&B a referral fee or a share of the rental for passing business your way.

Instead of targeting foreigners, consider opening your home to locals. After all, they will also need somewhere to sleep if they want to share in the fun and excitement of watching soccer games.

Some home-owners are contemplating offering their homes plus tickets as a way of attracting some temporary rental business during the period.

 07 Dec 2009

Nominal year-on-year (y/y) house price growth in the South African housing market picked up further in November 2009, with the prospect of price deflation of less than 0,5% for the full year, Absa's House Price Index revealed on Monday.

After adjustment for the effect of inflation, house prices continued to decline in real terms up to October this year, albeit at a slower pace, it said.

The index rose to 370,2 in November compared with 366,8 in October and 353,4 in November 2008.

House prices in the middle segment of the market were up by a nominal 4,7% y/y to R1,006m in November, after increasing by a revised 3,4% y/y in October. Month-on-month price inflation came to 0,9% in November.

In real terms, middle-segment house prices were down by 2,4% y/y in October, compared with a decline of 3,9% y/y in September after revision, Absa said.

The average price of small houses (80m-140m) declined by 1,7% y/y in nominal terms in November, compared with a revised drop of 2,2% y/y in the preceding month. As a result, the average nominal price in this category of housing came to R665,100 in November. In real terms, the average price of small houses was down by 7,7% y/y in October, after declining by a revised 8,6% y/y in September.

In respect of medium-sized houses (141m-220m), nominal price deflation came to 3,3% y/y in November (-3,8% y/y in October after revision). This brought the average price in this segment to around R916,900 in November.

Adjusted for inflation, prices declined by a real 9,2% y/y in October (9,6% y/y in September after revision).

The average nominal price of large houses (221m-400m ) increased by 3,5% y/y in November this year, after rising by a revised 3% y/y in October. The average nominal price in respect of large housing was at a level of 1,419, R700 in November.

In real terms, house prices in this segment dropped by 2,8% y/y in October (-3,5% y/y in September after revision), Absa noted.

Absa says various economic indicators point to a gradual recovery in the South African economy. However, households are still struggling with relatively high levels of debt in relation to income, tough labour market conditions and declining real disposable income.

"In view of these developments, housing market conditions are expected to improve further in 2010, but it is set to be a gradual process with nominal price growth forecast to remain in single digits over the next twelve months," said Absa.

In the first eleven months of 2009, nominal house price deflation averaged 0,5%, compared with the same period last year. If recent trends in price levels prove to be sustainable, nominal price growth of at least 5% can be expected in 2010, it added.

Real house prices are forecast to decline for a second consecutive year in 2009, with at best a small real increase next year, based on nominal house price and consumer price inflation trends and projections, it concluded. – I-Net Bridge

 

Source: Property 24

This week in Tabloid Tuesday, a snapshot of property market media coverage: Donald Trump gets heavy-handed with three villagers getting in the way of a magnificent golf course development in Scotland, while just around the corner another wealthy American real estate investor has probably scored the St Andrew's property deal of the decade, right in front of the famous links course's 18^th hole. Plus: update on beleaguered Zimbali property developer IFA.

David versus Donald. American property tycoon Donald Trump is used to getting his way, whatever the endeavour. The Apprentice host is scary on TV, but three home-owners on a windswept stretch of Scotland's North Sea coastline aren't cowering. The group, dubbed by the British media as the "Menie Three", are fighting to stay in their homes, which are getting in the way of Donald Trump's plans to create the world's greatest golf course - one billed as being even better than any of Scotland's historic links courses.

The voice of the Menie Three this weekend was David Milne, who owns a converted coast guard station situated just outside Trump's 1 400-acre championship links course terrain. Milne, a safety consultant to the oil industry, bought the property in a remote, windswept spot above the dunes for £18 000 and added four-bedrooms. He told The Daily Telegraph he never thought Trump would get permission to build on the shifting dunes that are a site of scientific interest. The couple, reported the paper, have been offered £230 000 for the flat-roofed house they have extended over the past 17 years, plus they would get lifetime membership of the resort and would be offered one of Mr Trump's 500 new houses at cost price.

Milne said the offer was "insulting". "I only play golf twice a year, and I already live in the best place, with the best view. This property is not for sale and it never has been," he said.  Milne believes Trump wants the property "in order to remove it from the landscape". The Milne home would have a perfect view of the £1bn resort, including the 400-bedroom hotel and 950 holiday homes.

Village idiot vs New York Clown.  Milne isn't the only one of the "Menie Three" who claims to have been insulted throughout this mega golf course development deal. Michael Forbes, in his 50s and living with ageing mother Molly, has taken to name-calling along with the Trump machinery. Said The Daily Telegraph of Donald Trump: "When he learned that Mrs Forbes had raised a court action in an attempt to stop the project, Mr Trump issued an unbusinesslike assessment of his rival, calling him a village idiot and his property ‘a disgusting blight on the community'". Mr Forbes in turn, it is reported, called Trump a "New York Clown".

Could the case, at the Court of Session in Edinburgh, scupper Mr Trump's plans? Tabloid Tuesday reckons it seems unlikely. After all, Trump has already got through years of protests and objections and a planning inquiry. It seems quite possible he will succeed in forcing the Menie Three to sell. Of greater concern, perhaps, will be the worldwide property slump and poor economy as well as the stiff competition from other top golf courses within striking distance of the 8 000-year Aberdeenshire sand dunes through which Trump is hoping to carve.

These days, Trump's organisation has changed tack. At the weekend, instead of delivering more strong words about the "Menie Three", his spokesman on the ground said people will "love" Trump's first resort in a cold climate but could not discuss the project while a court case was going on.

Desperate developers, eager estate agents. Speaking of changing tack, has Pam Golding Properties (PGP) changed its mind about auctions? Not so long ago the organisation issued strongly-worded statements discouraging property sellers from putting their properties under the hammer. But this week, the estate agency invited the media to attend an open outcry sale in conjunction with the Alliance Group to offload Boschendal Estate, owned by IFA Hotels & Resorts (JSE:IFH) and JCI (JSE:JCD), the former effectively used as a slush fund by assassinated corporate thief Brett Kebble.

Ronald Ennik, MD for PGP's Gauteng region said in August: "Now more than ever there is a stigma attached to selling a property on auction as opposed to via the conventional, private treaty method through a real estate agent. Due to the current economic situation and distressed sales, buyers are expecting a big discount on auction. It's essentially an all or nothing scenario, and if the auction does not achieve a successful sale then you've put all your eggs in one basket and have no room to now try to negotiate a better price."

Ennik's words were prophetic, with Boschendal's historic Goede Hoop homestead fetching what some might perceive as a disappointing R23.5m.   Two properties were taken off the block to alleviate onerous selling conditions.

Nevertheless, Ennik's boss Dr Andrew Golding was upbeat about the Winelands deal. Always looking on the bright side of things, Golding said, after the event that the auction which raised R43m on three properties achieved "pleasing prices".

The Goede Hoop buyer was a local, Golding told Moneyweb's editor-in-chief Alec Hogg on the SAfm Market Update with Moneyweb this week.

With IFA in dispute with creditors at its Zimbali, Kwa-ZuluNatal site, and owing hundreds of millions of rands to Nedbank (JSE:NED), Tabloid Tuesday is not surprised an auction was the way to go. And, with the Goldings once sharing office premises with Kebble, it is perhaps only fitting that PGP is involved in a JCI property disposal.

Property deal of the decade. An American property developer with fewer hassles on his hands than Donald Trump or IFA's Wessel Witthuhn is Herb Kohler, who recently snapped up Hamilton Hall, a building that some believe has the best sporting view in the world. The Hall, which enjoys a prime position at the 18^th of St Andrew's Old Course, and is across the road from the club house, has stood empty since 2006 after the University sold it to a property developer, said The Daily Telegraph. Kohler plans to be polite and considerate to the "villagers". He will consult the locals about what to do with the building, though speculation is it will be converted back into a hotel.

Source: Real Estate Web

8 December 2009

03 Dec 2009

"Bond approval" or even "bond application" are terms that have aroused much scepticism and caution over the last two years.

"But with the relaxation of lending policies there should be a much improved chance of being approved for a loan on favourable terms," says Kay Geldenhuys, property finance manager at ooba.

"Banks are once again offering 100% loans and the current lower interest rates make it a better time for consumers looking to buy."

Ooba offers these tips on getting that bond approval:

Checking affordability

Before you even apply for a loan, check whether the property is affordable, suggests Geldenhuys.

"Determining the right price range is an essential first step to avoid wasting time looking at unsuitable properties. A property finance consultant will take you through the exercise of establishing what you can afford, taking into account your specific financial requirements. Monthly repayment affordability is generally calculated at 25% to 30% of joint gross income, but other criteria, including existing debt commitments, may affect the size of the loan that the bank will grant. Remember that the "hidden costs" (transfer and bond registration fees) usually have to be paid upfront, and add a sizeable amount to the cost.

Get prequalified

One way to ensure that the loan you apply for will be granted is to get a prequalification. Companies will, at no cost, prequalify you for a certain bond amount which takes the stress out of applying for a bond once you have decided on buying a property. An additional positive factor is that buyers who are prequalified are in a much stronger position to negotiate with sellers.

Check your credit record

Bond applications may be declined for several reasons: you may not be able to afford the monthly loan repayments, or may require a 100% loan that would push the repayments beyond your reach. Another critical consideration is your credit profile, says Geldenhuys.

"This includes your employment history and consumer bureaux results, which provide a picture of your debt and payment history. If the bank considers you a good credit risk, it will assess the value of the property to be purchased. If this too meets all the relevant criteria, the loan is usually granted. The mortgage originator also often motivates the merits of a particular loan application to the bank's credit manager."

To improve your credit record, Geldenhuys suggests cancelling out-of-date credit cards; and ensure that you pay all instalments on existing debt by the due date every month.

Submit the correct information

To assist the bank in determining its risk, you will be required to provide personal information such as bank statements, salary slips, a statement of assets and liabilities, a statement of your monthly expenses and information on your credit history, including whether you have ever been insolvent.

Get the best interest rate

The lower the bank's risk in lending funds to a particular borrower, the better the rate it will offer that individual. In calculating its risk, it will consider factors such as the amount of equity you are willing to invest into the property, i.e. your deposit; the size of the loan; and the repayment-to-income ratio (the ratio between the bond payment and the buyer's income).

The type of bond you apply for, your credit history and the investment value of the property you intend buying also affect the rate you will be offered. Shop around and negotiate with various banks to ensure you get the best package.

"While a deposit is not always required, try to put down 20% or more if you can, as the bank is more likely to offer you a better rate as the risk of the loan is reduced," suggests Geldenhuys.

Source: Property 24

PRETORIA: On 4 December FIFA will conduct its pool draws for the 2010 Soccer World Cup to determine how matches will be allocated between South Africa's Hosted cities.

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Bill Rawson, chairman of Rawson Properties, has come out with guns blazing. He reckons South Africa is the best place for property investors. Following criticism of his views that it's a bad idea to invest in residential bricks-and-mortar elsewhere (click here to read "Don't buy property offshore" and Realestateweb's article: "Great reasons to invest offshore"), Rawson has issued more reasons why you should stick to South African property. Read the articles and join the debate, by commenting below, on whether it is a good idea to invest some of your money in property elsewhere in the world. Here is Rawson's statement to the media:

In a recent hard-hitting statement, Bill Rawson, Chairman of Rawson Properties, disagreed radically with other high profile people in the South African property sector on the question of whether to use the increased offshore allowance - now up to R4m per person - to invest in property overseas.  Rawson said that he would not advise investors to follow the overseas route.

Rawson ‘s view was that, taking the low returns of First World property and the dismal prospects for significant capital growth into account along with the difficulties frequently encountered with foreign legislation and foreign agents, the South African property market is still the right place for all except the most sophisticated South African investors to be.

Asked to comment further on this, Rawson this week said:

"Firstly let's accept that it is always wise to have part of one's portfolio - I would say up to 40% - in property, whether this is local or offshore.

"South Africans looking at overseas opportunities then have to ask themselves:

· Will the likely increases in South African municipal rates be so high that they cut seriously into the returns and detract from South African property values?

· Is the current strength of the rand in relation to euros, dollars and pounds so advantageous that it would, in fact, be a pity not to be buying overseas right now?

· If the rand remains strong would you still be in a position to sell at a profit?

· Accepting that the rand could always go on one of its rollercoaster rides, are you willing to pay the extra cost for rand protection in case this happens?  If not, do you appreciate that both your deposit and monthly payments could have risen 10% to 20% between the time of signing and eventual handover of the cash?

· Looking at overseas prospects generally, do you foresee the European and USA economies recovering and if so in what period?  Some have said that a full recovery will take at least a decade.

· Do you believe that the inefficiencies and corruption in South African national, provincial and municipal administrations are so serious that they will damage the economy irretrievably or do you think, as I do, that South Africa is just riding out these difficulties and that so long as we have a vigilant press and a strong opposition in parliament the negative factors will be kept sufficiently under control?"

Rawson said that European and UK property, although a safe bet, is currently giving only 2% to 3% returns whereas South Africa's residential property returns are usually in the order of 5% to 10%, while commercial properties are giving 7% to 12%. Furthermore, he said, capital growth rates in all sectors of South African property are likely to be once again above 8% by the end of 2010.

"Even allowing for a higher inflation rate," he said, "it seems to me fairly clear that the local product is preferable to that of foreign countries - and it is worth noting that some 150 000 expatriates seem to agree:  almost weekly we receive requests from South African expatriates looking for property buys back here in their homeland and many of these people now have several South African properties in their name."

Source: Property24 - 11 Nov 2009

The US property market is on the mend and SA's prospects are also looking very rosy.

So says RE/MAX International's senior vice president of international franchise sales, Peter Gilmour, who adds "South Africa remains one of the better performing global property markets".

"Within the US the real estate market is optimistic despite the continued decline in property sales and ongoing bank repossessions. The projected number for property sales transactions for 2009 is five and a half million and although a far cry from the figure of 8 million recorded for 2005, it is still positive compared to results recorded for 2008.

"The number of pending home sales, properties that have sold but not transferred, is up for the seventh month in a row and is at the highest level since March 2007. A higher Pending Home Sales index indicates better sales in the coming months and shows buyers are returning to the market."

In terms of transactional activity, Gilmour said that first-time homebuyers account for approximately one third of all property sales transactions within the US, largely due to the $8k tax subsidy deduction policy instituted by the government. Sharing the remaining balance are investors who, making the most of a depressed sellers' market, are buying homes for between 20% and 30% of the market value of two years ago, and then there are the ordinary buyers, who have remained unaffected by market conditions.

"Homebuyer subsidies have not yet been renewed, which is a concern to the US real estate industry. As a result, strong industry lobbying efforts are being undertaken in a bid to obtain further extensions to homebuyer subsidies and in so doing unlock the door to recovery of the US property market."

"Leading the journey out of the recession are the states California, Arizona and Nevada that were first affected by the recession. We anticipate that those states along the East Coast will take a little longer to recover."

"Amidst a slow recovery, obtaining a mortgage remains a rigorous task. Banks remain conservative and there has been no substantial change in lending policies. Potential home buyers are still required to submit 10% to 20% cash deposits. The very complex US credit rating system is also severely hampering sales."

Gilmour further added that commercial property is taking a tremendous strain at the moment.

"Vacancies are up in all areas, businesses and individuals are extremely cautious and conservative when considering their needs, and rental negotiations are also difficult. The returns on commercial properties will drop substantially and this will impact negatively on their value."

Gilmour advised that the most active property sales transactions are taking place in the entry-level $100k to 300k price bracket. "Buyers are looking for smaller units that are close to transport infrastructures and place of work. The luxury property market is very slow throughout the US although distressed sales are attracting investors."

Dr Simon Pearse, CEO of Marriott, notes that the US still offers some of the most reliable income streams for investors at attractive prices.

"America has led the world into the recession of the past three years and is likely to lead the way out.

"In terms of the financial crisis of the past year, the American stimulus package equates to about 5% of GDP, which when compared to China at 12% of GDP, suggests that the US is not necessarily bearing the brunt of it. The total global banking write offs of US$1.6 trillion has been borne by banks around the world, particularly the UK and Europe. Much of this relates to US securitised debt that has funded American homes.

"Coming from South Africa, with 0,5% of global GDP, 1,7% of global stock market capitalisation, an unusually strong Rand and a deepening recession, now is a sensible time to diversify some savings offshore," he concludes. – Eugene Brink

 

 By David Burrows (Source: AOL MONDAY, 26TH OCTOBER 2009)

Now is the ideal time for young first time buyers to get on the housing ladder, according to research from Lloyds TSB.

In a survey conducted by the bank, 70% of parents with children over the age of 18, said now was the right time for their children to buy rather than rent.

The research also showed that one in four of these parents (23%) plan to use their savings to help their children buy their first home and, on average, they have a total of £41,000 saved in order to provide financial assistance to all of their children.

After a rapid decline of first time buyers during 2008, the number returning to the market is gradually beginning to increase. In January 2009 there were 8,600 first time buyers compared to 19,200 in August. In the second quarter of 2009, first time buyers accounted for two in every five (38 per cent) house purchases (1).

One of the reasons first time buyers are increasing in number is affordability as Stephen Noakes, commercial director of mortgages, Lloyds TSB, explains. "The current housing market presents a real opportunity for first time buyers, as long as they are ready to buy with a deposit. Housing affordability is back to the level it was in 2003, so many parents with grown-up children want to help them take advantage by using their savings."

The survey from Lloyds TSB showed that helping each of their children equally is very important to parents, with 93% intending to provide the same financial assistance to all of their children.

Herein lies a problem because providing money for deposits on houses or flats can easily account for a large chunk of savings – possibly ₤50,000 plus if there is more than one child to cater for.

Given that there are real concerns that UK savers have under-funded their pensions, there is a real danger that parents may be using money that would otherwise have made life a little more comfortable in retirement. Of course it may be the case that the parent is repaid in full by their son or daughter as their salaries and prospects improve but there is no guarantee that this will happen. As the children are highly likely to outlive the parent there is a strong likelihood that any money used for deposits will effectively remain tied up in the child’s property investment.

Mortgage providers are looking at ways to encourage parents to help out their children in the housing market without tying up large chunks of money indefinitely. Lloyds TSB has unveiled its three year product, called ‘Lend a Hand'. It offers first time buyers a 95% loan to value mortgage, at 4.99%, by taking a legal charge on a savings account belonging to their parents. Parents retain ownership of their savings while earning a competitive fixed interest rate of 4.00% and, at the end of three years, their savings are returned.

According to Lloyds TSB the appeal of the product is that parents are more likely to provide financial assistance if their children could secure a mortgage that allowed their savings to be returned with interest. And this type of mortgage also lets parents recycle their savings to help their other children.

Ray Boulger, senior technical manager at John Charcol is broadly in favour of the product. “Borrowers are getting a better rate with this product – effectively they are getting the typical rate you would associate with a 75% mortgage. Also I think more first time buyers are going to qualify for a mortgage with this than for a standard 95% mortgage.”

He adds: “But you have to remember that money is at risk, in the event that the purchaser defaults on payments and the property is sold at a loss. However I would suggest that in most cases families will know that their child is responsible and loans like these might be far more preferable to just handing the child a cash deposit. It is also worth bearing in mind that after three years, if property values have fallen, the loan to value might be higher so not all the savings will be protected. But I would suggest if anything property prices will start to rise over the next year. I think it is an interesting product which is attracting a decent amount of interest.”

David Hollingworth at London & Country Mortgages takes a similar line to Boulger. “At the moment first time buyers are not realistically going to get a 95% mortgage – to just get into conversation with a lender you will have to have a 10-15% deposit. With products like this from Lloyds, the additional security offered by the parents means the buyer is getting a decent rate on their loan. Also the parent, despite the fact that the money is tied up for three years, is receiving a perfectly reasonable rate on their savings.”

He adds: The alternative scenario to mortgage deals like this is that the parent has to gift money to their child. Can they afford to and do they want to? What if their child is buying with a boyfriend or girlfriend they do not entirely trust do they really want to hand over large amounts of cash?”

Whilst Hollingworth is largely supportive of the Lend a Hand product, he questions the tone of Lloyds TSB promotional material which talks of ‘real opportunities’ for first time buyers in terms of property prices.

“Prices may have come down a little but the bottom line for buyers is to take a measured approach. There is no rush to buy and even allowing for the possible end to the stamp duty holiday, homebuyers should focus primarily on buying the right property for them at a price that they can afford.”

Top tips for getting your children on the property ladder

• Look at the different mortgages available for first time buyers and how your financial assistance can best be used.
• Work out how much money you can afford to use to assist your child with purchasing their property and decide whether it is a gift or a loan to your children.
• Review all of your savings and investments to establish where is most cost effective to take your money from
• If possible, access lower interest paying accounts and those where you won't have to pay a fee to access money.
• Try to avoid emptying your ISA, or other tax efficient investments which you have locked up.
• Sit down as a family and be clear how much you are providing for your child and under what terms.If you are providing a loan, agree over what period you would like it to be returned and agree up front if any interest will be charged.
• If your savings will be linked to your child's mortgage, make sure you seek independent legal advice. For example, what will happen to your savings if your child falls behind on their mortgage payments.