Dear Investor

Yes I thought you would open this one!

I often come across property sales companies offering me and their clients properties 20% or 30% or 40% and indeed 50% discount to market value.

I must admit that this sales and marketing technique, which in the main is what it is, can be very effective as psychologically we are all after a “bargain” 

But, does any of this stand scrutiny?

Genuine discounts

You can get a genuine discount on property prior to the launch of a scheme, in what I term the pre-release stage.  Why?

Well the developer has a few motives which revolve around risk. 

Firstly, if he can sell “instantly” a percentage of his scheme, he has covered some financial bases, such as cashflow, and he can also show the bank signed contracts which make them feel warm and keen to lend money for the next project.  He is also further down the road to break-even, when all developers breathe a sigh of relief.

Secondly there is the “loyalty” effect with investors.  By investing pre-release at discounted prices, the investor makes instant profit which is tangible and real.  Investors, who make money, re-invest and we as a company are benefiting greatly from this at the moment.

Thirdly, you can also get a genuine discount when a development has the last few properties remaining and the developer wants financial closure.  However, this is not as good as getting in at the start, because in most cases prices will have risen over the period of construction.

Questionable Discounts and Below Market Value

I am assuming that most of us are aware that the standard off plan 15% discount we see day-in-day-out is in some cases is very questionable.  Often developers and/or agents mark up prices simply to discount them as a sales and marketing ploy.  I am not saying that every company does this, but some do, so be careful.

More interestingly is the 50% discount to market value claims by various companies.  In the real world with hard nosed business people, if someone really felt that he could buy something for half price, why would he tell me?  

If he had the cash then why not buy it all himself and sell on making a very hefty margin, far more than any finder’s fee will provide.  If he hasn’t got the cash then any bank on the high street will give him a loan to fund such a fantastic business opportunity – where’s the risk?  Why not get friends and family onboard and form a syndicate if for some odd reason the bank is not forthcoming?

Or do you sell to clients and in return receive a few thousand pounds per unit in finder’s fees?

Well, I’ll leave you to work it out!

And finally, why would any developer in the world be so out of sync with market prices in his area or region?  If the market is as buoyant as is often claimed, then why does the developer need to sell a whole scheme 50% below what is claimed it is worth?

He just wouldn’t would he?

Research by Alliance & Leicester Mortgages reveals that more than three quarters (78%) of brokers predict the 100% plus LTV mortgage and personal loan market will grow within the next two years.

Overall, brokers expect business volumes in the combined mortgage and personal loan market to grow by 9.4 per cent in the next two years, with nearly one in ten (9%) even predicting a growth in excess of 20 per cent. A further one in eight (13%) predict a static market with only a very small minority (1%) of brokers predicting a decrease in the high LTV mortgage sector.

With more providers offering products which combine a mortgage with a personal unsecured loan, it looks like the market is preparing for increasing consumer demand for these products.

Jeremy Claridge, Head of Specialist Mortgages at Alliance & Leicester, said:  “With increasing house prices and rising interest rates, homebuyers and remortgagers will be looking for affordable ways to get a mortgage. We are pleased to see that most brokers predict this market will grow within the next two years as these products offer a great opportunity for borrowers who need some additional funding. The mortgage market is continually changing and there is an ever growing need to find more flexible products to allow people to get on the housing ladder or to manage their existing borrowings in a better and more efficient way.”

The research further shows 100% plus LTV mortgages are no longer new products for a small niche market, with three out of four (74%) brokers saying they have already advised on this type of product.

Jeremy Claridge added: “It’s good to see so many brokers are familiar with the 100% plus LTV mortgage and personal loan market and they have started advising on these products. As borrowers look for the added flexibility a combined mortgage and personal loan can offer their clients, brokers need to ensure they are advising on all options available in the market especially in the current housing market and interest rate environment.”

Floods Recovery Minister John Healey has urged people in flood-hit communities to seek free and impartial insurance advice before signing up with third parties who offer to help settle insurance claims.

Publishing information setting out how people can access free insurance advice he warned that accepting help from third parties could mean people are left short of the money they need to fully repair their damaged homes and replace prized possessions.

His top tips include:

• You can make a claim directly and free of charge direct to your insurer
• You don’t need to pay a ‘middleman’
• If you choose to accept help from third parties check they are regulated by the Financial Services Authority
• Free, independent advice is available from your local Citizen’s Advice Service
• Having visited a number of affected areas John Healey’s top priority is for life in communities to get back to normal as quickly as possible. Key to this is people being able to repair their homes and replace their possessions at the earliest opportunity. So access to free insurance advice is essential. He has met with the insurance industry and heard how they are putting extra resources into speeding up the claims process.

Flood RecoveryMinister John Healey MP said: “I’ve visited a number of communities affected by the floods and have spoken with people whose homes have been damaged and have lost much of their belongings. I know a lot of people are very upset and feel vulnerable at this difficult time.

“That’s why our top priority is for life to return to normal as quickly as possible. I have been working with the insurance industry to ensure that claims are being dealt with swiftly so people can start making repairs to their homes and replace possessions. 

“It is important people know where to access free and impartial advice so I’m arranging for practical information to be made available in flood affected communities. 

“So there is no need to use a ‘middleman’ who might offer to settle claims in return for a cut of the payout. But where people choose to do this it is important they understand this could leave them short of the money they need to fully repair their damaged homes and replace prized possessions.

“My message is clear - if in doubt speak to the Financial Services Authority, Association of British Insurers or the Citizen’s Advice Service. They are there to help.”