Rohan Weerasinghe

House Price to Rental Ratio

Those of you who have seen me speak in public or who have listened to our Wealth Angels Essential Property Programme will have heard me talk about market valuation by looking at the house price to earnings ratio. Another ratio that can be assessed is the house price to annual rent ratio (HP/R Ratio).

This is calculated by comparing like with like, house price with rental figures for the same type of property. For example when considering one bedroom flats you must review the average property price in a specific area and rentals for the same type of property. This calculation is essentially the reverse of the yield calculation whereby the gross rent is divided by the house price.

An example would be an apartment that costs £200,000 and an annual rent of £7200 indicates a ratio of 28. In the same town another apartment with a market value of £200,000 can receive a rent of £1500 per month giving a HP/R ratio of 11. By carrying this exercise out on a range of areas and properties you will be able to assess when properties are "undervalued" and "reasonably valued" and "overvalued" with respect to the rental market.

For an insight into other indicators that you can use in the current market go and register for my FREE Market Video Report at www.wealthangels.tv on the front page of the site.

Mortgage Lenders Get Stricter

In just a few short months we have seen a rapid knee jerk response by the UK mortgage lenders to what has been happening with the "credit crunch". Ironically, from what we read, a lot of the problems that have arisen are a result of some lenders being over-zealous in their lending in the past 24+ months.

So, we now face a more cautious market - some lenders are pulling 85% buy-to-let mortgages, others are restricting their products and other reducing lending to 80% and 75%. There are still products out their at 85%, the lenders are simply being more strict about their assessment of the rental figures and the valuations. Which, in reality is sensible - you and I don't want properties that are not going to stack up anyway !

Lenders are also keeping interest rate charges higher than many of us had hopes after recent base rate cuts and they are taking more money from us for the privilege - arrangement fees have been significantly increased.

These high arrangement fees point to the lenders taking a big advantage of investors who are re-mortgaging or looking to purchase a new property. This is unlikely to change in the near future - which means we have to be much shrewder about our investments. You must check your numbers and be prepared to hold onto the property longer before your re-mortgages. Unless, of course, the numbers are strong and you can still benefit.

GET A GOOD BROKER AND USE TWO - this will allow you to check in with each to see what is available. Also, the market is changing daily - if a product works - take it. If you wait, it may be gone the next day.