Buying Property in UK

admin — Sun, 31 May 2009 15:07:32 +0000

We will not go into much detail on buying property in the UK for a few reasons. Firstly, if you’ve just arrived in the country, no lender will do business with you for several years until you’ve established a credit record. Secondly very few people arriving in the UK have sufficient money to put down as a deposit. Thirdly it takes most people quite a lot of time to come to terms with their new lifestyle and surroundings before deciding where to buy a property. If you are able to put down at least 25% of the value of the property in question, then you will find more lenders willing to deal with you. Using a mortgage broker is a good idea. An useful website to help you find a suitable mortgage is:

http://www.fast-mortgage.net

About 75% of people in England own their own home. This is because of easy access to mortgages and long term repayment schemes in a highly competitive lending market. It is often cheaper to buy a home than to rent in the UK. Repayment schemes run as long as 30 years. You will need to contact several mortgage lenders to see what kind of deal they can offer you. Only once you’ve found a lender to your liking can you then consider taking action.
The first practical step to buying a property is to decide on the where you want to live. Then you investigate the properties on sale in the area you’re interested in through the local estate agents. Hopefully you can afford the area, otherwise you will have to find another area. You register with an estate agent and they make a note of your requirements. They should be able to immediately provide a number of house’s details for you to look at. Once you have selected one or more properties of interest they will arrange with the property owner for a mutually convenient time for you to view the property.
Once you have identified a property you wish to buy, you instruct the estate agent to convey your desire to buy. Remember to stipulate that your offer is subject to survey and contract. Under British law, until contracts are exchanged, either party can amend or withdraw from the sale. It normally takes 6 weeks from submitting the offer until the contracts are exchanged. The time from ‘exchange of contract’ to possession of the property can vary as it depends on either party’s wishes. This plays out up and down the line of property owners and is called a daisy chain.
When buying a property you will need a solicitor or conveyor to do the legal work, which includes the title search and deed registration. It is also advisable to hire a surveyor to check out the property structurally for you. If you are taking out a loan, most lending institutions will ask for a surveyor’s report.
Be warned though, that in England during boom periods, “gazumping” is a common occurrence. “Gazumping” is the practice of a seller agreeing to an offer from a buyer, but then accepts a higher offer from another buyer later. Gazumping does not happen in Scotland as once each party has agreed to the sale, neither party can withdraw. It is imperative therefore that you have a survey done before making an offer on a house in Scotland.

Financial options

admin — Mon, 20 Apr 2009 20:37:13 +0000

Financial options exist for many ﬁnancial instruments. The most common form of exchange traded options are stock options. These are usually restricted to the largest stocks in a market. They have highly standardized terms. They usually have a common expiry date, in other words on a particular day each month a number of contracts will all expire. It is usually possible to trade options across a range of exercise dates.
Options can be issued in a number of different forms:
American versus European. An option may be written that can be exercised on any date until the expir y of the option contract or can only be exercised on its expir y date. The former is referred to as American style and the latter as European style.
Asian. Asian-style options are a relatively recent innovation and differ from traditional options in that they use an average price of the underlying instrument over a speciﬁed period rather than a single spot price.
Warrants. Warrants are simply a form of long-dated call option contract. While exchange traded options are highly standardized, exist for a range of expiry dates and have a common expiry date warrants are issued in a particular form and for a speciﬁc expiry date. They may be issued in a “covered” form, where the issuer owns the underlying instrument, or uncovered where in the result of their exercise the issuer will have to buy the stock in the market.
Rights issues. Companies may look to raise more capital from their shareholders by having a rights issue whereby shareholders are “invited” to subscribe for additional, new shares. These new shares are usually priced at a signiﬁcant discount to the current market price. These rights are a form of European-style call option. Rights for larger companies may be listed and traded on an exchange.
Convertible bonds. Conver tible bonds comprise a straight bond plus a stock call option. When companies issue conver tible bonds these options are usually implicit but investment banks may buy these bonds and break them up into their constituent par ts and sell on the straight bond equivalent and option separately.
Exchange traded versus over-the-counter. Option contracts may be traded on an exchange or be “over-the-counter” (OTC), that is a private agreement reached between two par ties. Exchange traded options are issued in a highly standardized form. OTC contracts may take many forms giving greater ﬂexibility than exchange traded options. They are, however, inherently illiquid, and bid–offer spreads given by the (usually) single market-maker may be very wide.
Black–Scholes. Various models have been developed to value traded options based on a framework derived by Fischer Black and Myron Scholes. These models require a relatively high level of mathematical skills to understand well. My ﬁrst degree was in theoretical physics and I struggle with them. For all save option specialists it is probably sufﬁcient to treat Black-Scholes as a fairly reliable black-box model. Give it these four inputs (price of underlying instrument, volatility of price of the underlying instrument, time and interest rate) and it will give a plausible value for an option’s premium.
Three of these four factors are well deﬁned and can be measured with a high degree of certainty. The exception is the volatility of the price of the underlying instrument. The historic level of volatility varies over time and its measured value depends on the frequency (hourly, daily, weekly etc) and time period selected. Valuation models need the future (rather than past) volatility and there is no guarantee that the historic level of volatility will be maintained. The value these models put on an option is therefore an estimate and two traders are likely to arrive at different (but close) estimates for an option’s premium.
It is helpful to remember the following relationships. Both call and put options become more valuable as they move deeper into the money. Their value increases with the time to expiry and volatility of the price of the underlying instrument. Rising interest rates result in higher stock call option prices but lower stock put option prices.
Embedded options. Many ﬁnancial instruments, including loans and deposits, contain embedded options. These differ from traded and OTC options in that they are not deﬁned in explicit terms. Someone who has taken out a 30-year mor tgage has effectively bought a prepayment option allowing them to pay off the loan before it comes to term.

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Buying Property in UK

Financial options