Monday, January 30, 2006

Glazed shower screens, hard water, forget it

Early last year, we did a bathroom refit. When we built this house, in 1992, the standard arrangement was to build a family bathroom, complete with bath and shower mixer tap, and an en-suite bathroom, which had a shower but no bath. Like sheep we followed the herd. And, in truth, this arrangement worked fine for many years whilst the children went through primary school.

But children grow up and teenagers don’t do baths. No, they like to shower. For ages and ages. So it came to pass that they all started wandering into our bedroom at all hours so that they could shower. Well, of course, this was just NOT ON. Something had to give and what gave was about £10k’s worth of bathroom and plumbing alterations.

Of course, bathroom styles have moved on a bit since 1992 and a must-have feature of contemporary bathrooms is a curved shower screen. OK, we’ll have that one. In our case, a 1200mm Matki, cost £731 complete with curved tray. Oh and it wouldn’t be up to the minute without a digital shower, would it? In our case, the Aqualisa Quartz (£375) with an alternative push button on/off switch mounted just inside the bathroom door (extra £36).

In truth, they are both great. The Aqualisa Quartz shower system saves fiddling about with thermostatic controls. In fact it saves messing about with anything as you just push the button to turn it on and a neat little surround light flashes red until it reaches the correct temperature, at which time it stays red. To turn it off, you just press the button again. The first push button switch we fitted was defective. However, a replacement sorted out the problem in a matter of days.

The shower screen is also a qualified success. It looked fantastic when fitted but we live in a very hard water area and within a week it was caking up with limescale. And there is so much glass that it started to look really naff very quickly. However, help was at hand. One of the other jobbies we undertook during this refit was to install a water softener, a real salt-eating ion-exchange softener. The softener went live about three weeks after we started using the shower and since then the glass has started to get cleaner. Getting limescale off glass is a bugger of a task (citric acid solution is best) and yesterday I took 45 minutes out to clean the shower and I still couldn’t all the residual limescale off the glass. Just three weeks hard water use back in April and it’s still there.

The upshot of this is that if you must fit a fancy glass shower screen and you live in a hard water area, don’t even think about it until you have fitted a water softener.

Tuesday, January 17, 2006

Should I develop the plot or sell it?

Elizabeth asks:

Can anybody give me some advice please.

I have a semi-derelict property which I own with no mortgage. I have been offered £200,000 as it stands. I could spend £350,000 on it and develop it into three houses which would fetch in total £650,000 (as advised by estate agents), on which the profit may be £300K. Bearing in mind I can get £200,000 for it at the moment, is it worth doing? I will have to pay interest on the loan for 10 months for the build, plus I am not living there, so I will have to pay capital gains tax and also I believe that I am unable to reclaim my VAT. The build cost has been estimated by a timber frame specialist who is doing a full build for me, in your experience do these honestly run to budget?

Mark replies:

Firstly, one or two points require clarification. If the property is not your main residence, then the sale of it will be subject to tax, either capital gains tax or income tax, whether you develop it or not. It may be that in it’s existing state it doesn’t have any accrued capital gain — you may have inherited it recently, for instance — but the principle is the same. The only way you can avoid paying tax on any profits from the deal is if you choose to live in the completed house and thereby turn it into your main residence. As there are three houses, this looks problematic, unless you chose to develop it slowly over a period of years, moving from one house to the next to the last.

The other tax point concerns VAT. You don’t actually say whether “developing it into three houses” involves demolishing the existing structure and building three new ones (in which case you will be able to reclaim VAT) or converting the existing structure into three dwellings (in which case you wouldn’t be able to reclaim all the VAT but would normally be able to pay just 5%). The principle is that if you are creating a house for the first time, you can reclaim all the VAT involved in undertaking the work. If you are converting one house into many, then you pay a reduced amount of VAT (5%) but if you are extending or improving an existing home then you must pay VAT at the full rate.

Final point, you ask “Should I sell for £200,000 now or develop it with the hope of making £300,000 profit?” Let’s presume that the tax and VAT position is neutral — i.e. one route isn’t any more advantageous than the other — the question really boils down to the hassle factor. The answer is actually quite straightforward. The easy £200,000 is the sell now option: the extra £100,000 is in all likelihood not going to be quite as large as you imagine. You have already identified the cost of borrowing involved and the time taken to build the houses. But there will be many other costs, not least the cost of holding onto these finished properties before they are sold. You also cast doubt on your own build cost figure of £350,000 and ask if such figures “honestly run to budget.” My feeling is that your question is rhetorical. You KNOW that costs like this rarely if ever run to budget.

So whilst I am sure there is money to be made in undertaking the developing, it’s not easy money and that it’s probably best done by full time developers who have done it all before. Which, of course, may describe your good self, but I would hazard a guess that you aren’t, otherwise you wouldn’t be posing the questions in the first place.

Monday, January 16, 2006

Broadband switch - the sequel

I wrote about my termination spat with Demon on Jan 6th. At the time, they had told me that I couldn’t switch from a Demon commercial account to a Demon residential one without a delay of 8-10 days. I called their bluff and switched to TalkTalk. This morning, without any warning, the Demon connection had gone down. By 9am, the TalkTalk connection was live. It took me until nearly midday to get the two computers and the Xbox to recognise the new line, due mostly to me stumbling about unaware of how to changeover the settings on my Ethernet ADSL router. But a phone call to the router suppliers, DSL Warehouse, (incredibly helpful), put me in the picture and everything is now up and running smoothly. In fact, all I had to do was change the user name and password in the router, which is accessed by typing its IP address directly into my web browser. I had done this the previous January when first getting broadband up and running but had, of course, forgotten how to do it in the mean time and had been twiddling with the network settings on my laptop which only succeeded in making a very simple operation a complex task indeed. The downtime? Even with me screwing all the network settings up and having to reset them, it was less than four hours. I didn’t even need TalkTalk’s welcome pack, just a user name and password, which I accessed from a direct dial, number they provided. The saving? Its now costing me £18 a month instead of £39 and the speed is 2meg/sec, four times the download speed. Some downgrade!

I had a computer weekend. On Friday after lunch with my publisher, I plugged my laptop back in, booted up and then attempted to download the day’s emails. Something spiked and the computer froze. Maybe it was a parting shot from Demon? Whatever it was, the computer went down with a vengeance and when I reawoke it it wasn’t the same as it had been.

I have been using Microsoft Entourage as an email package for about three years and something happened at this freeze-out to cause Entourage to fall over and die. I can’t say I am that bothered: I never much liked it anyway. What it did, which was elegant, was to combine calendar, address book and emails all into one package, as part of Microsoft’s Office for Mac suite. But the way they were all connected was klutzy and the search field was quite the most horrible thing Microsoft have ever produced. But Entourage had all but died: I could retrieve most of the old information but I couldn’t use it to do anymore emails. So I took the chance to switch to the Mac’s inbuilt tools, being Address Book, Mail and iCal. None of these exactly sings as far as I am concerned, but they work reasonably well and they all have a big plus in that they integrate with DotMac, the online server space which Apple sell as part of their package and which I have been using for some months now for email and web space. By synchronising between my computer and DotMac, I can have access to my address book and calendar, emails and browser bookmarks from any computer anywhere in the world. With just a password, I effectively have all my vital information stored on line so this gives me both backup and access from afar. I like that.

I also chose this moment to switch all the traffic from my selfbuild mail list to google mail. This list has been a big part of my life for many, many years but it generates a huge amount of mail, far more than I get otherwise, even including spam. I have been archiving this stuff for three years and my Entourage database now holds 30,000 messages, which I will of course never read. Google mail is offering me 2685MB of web space for free: that looks an ideal spot to park the next 30,000 messages.

Friday, January 06, 2006

Switching broadband supliers

This afternoon’s task was to switch my broadband account to something cheaper and faster. Broadband has only been available in our village for a year yet it has transformed the way we use the internet and the whole family now regard the computer as being more important than the TV and almost as important as the iPod in the great scheme of things. Prior to broadband coming, I had been a long-standing dial-up account holder with Demon Internet, one of our oldest ISPs, and I naturally gravitated towards Demon Broadband when the exchange was enabled in January 2005.

Yet I was not a happy bunny with Demon’s broadband service. Mainly because I foolishly signed up for the wrong account, a Business 500 one which cost me £39 per month and came with all sorts of features I didn’t need like domain names and web pages. And having signed up for this, rather than one of the cheaper residential accounts, they wouldn’t let me reconsider: apparently a consumer’s right to cancel only applies to residential accounts, not to commercial ones. I was stuck with this account for 12 months. And to make matters worse, they went and changed my host name from brinkley to brinkley-adsl, which screwed up my main email address. Had I taken a residential broadband account from them, I could have kept my old host name. Needless to say, this was not explained to me at the time. You can imagine how chuffed I was with my Demon broadband account.

Anyway, it’s now January 2006 and my year on the Broadband Business 500 contract is up. During this year, broadband speeds have increased and prices have fallen and now you can get 2meg unlimited access for around £20 a month. Demon have a nice offering that fits the bill so I contacted them to suggest that they now switch me over to a residential account.

Demon: “Oh, you want to downgrade?”

Me: “If you call a service that is four times faster and half the price a downgrade, then yes, I want to downgrade.”

Demon: “It’s not that easy. You have to first cease to the business service and then open up a new account. There will be an 8 to 10 day period with no broadband service, though we can offer you dial up.”

Me: “8 to 10 days! I would like a seamless changeover. 8 to 10 hours maybe but not 8 to 10 days without broadband. Other providers have told me I can switch over seamlessly. Surely it’s not beyond Demon’s capabilities to switch from one account to another without a time delay?”

Demon: “I think the other providers are having you on. I don’t think it’s technically possible.”

Me: “Well I am prepared to take that chance. Give me my migration code please.”

And so I bid farewell to Demon after seven years. But what happens next?

Well my natural port of call was TalkTalk, Carphone Warehouse’s aggressive phone company who already handle our landline calls. I have become a bit of a Carphone Warehouse fan over the years having bought countless mobiles for the family from their store in Newmarket. TalkTalk Broadband is as keenly priced as any other offerings, especially for their landline customers. Currently, the offer is £17.99 a month. So TalkTalk got the first crucial call.

Me: “I am looking to switch broadband providers. And I want to do it seamlessly.”

TalkTalk: “I think we can do that, I’ll just check with the technical side……..yes we think it’s the same kind of broadband (IP stream, rather than Datastream), so the changeover can be done virtually instantly. All we need is the migration code from Demon. Should take about ten days.”

Whilst they were at it, they got the line rental business as well (from BT) and we also signed up for Nectar points. The kid on the end of the line, Jason from New Zealand, couldn’t have been more helpful in stark contrast to the obfustication I had been getting from Demon: it makes a difference.

So TalkTalk broadband it is. Now I am in their hands. Only time will tell if it works as intended and if the changeover is as seamless as they claim. I will report in due course.

Thursday, January 05, 2006

Property or shares?

Where is the best place to put your savings? In your house or in the stock market? Most Brits are instinctively drawn to the property market for three principal reasons.
• Firstly, it gives you somewhere to live – you can’t live under a share certificate.
• Secondly, it’s tax free. You can build up a store of wealth and not have to pay any of the proceeds to the government.
• Thirdly, it’s easy to borrow against. You can put up as little as 5% of the house value, get your name on the deeds, and then enjoy the highly geared growth of your equity, the 5% you put in. Except of course during those awkward moments when the price of houses falls, as happened from 1988-1993.
• It’s just easy to borrow to buy investment property. You can get 90% mortgages on buy-to-lets, if you know where to go.

Against this, the attraction of owning stocks and shares looks limited, because although there are tax shelters available with pensions and ISAs, they are much more restricted than you get with your own home and no one will lend you huge chunks of money to buy BP or Glaxo. Plus also the stockmarket has a nasty habit of throwing up horrible headlines like “£25billion wiped off shares in ten minutes of carnage.”

But the stock market is not without its fans. For one thing, whilst average returns on the stock market are pretty similar to the housing market over the past 25 years, it is not that difficult to find ways of beating the stockmarket’s average return, whereas it is much harder to do this in property.

Anyone who doubts this should be aware of the returns achieved by Anthony Bolton, star fund manager for Fidelity Investments. Bolton’s flagship fund, Fidelity Special Situations, was launched in December 1979, in the year of Mrs Thatcher’s ascendance to power, with an offer price of 25p per unit. Today, the value of each unit is almost exactly £30, more than a hundred-fold increase. The key to Bolton’s success is consistency: many fund managers beat him in the annual race to be top dog but none has his record over the long term. Consistency and compound growth. At an average return each year of 20%, Bolton’s fund has hardly ever had a bad year. Even now, this £5billion trust, by far the largest mutual fund invested in the UK stockmarket, still makes above average returns year-on-year. Most people would feel that the years since the dotcom boom finished have been lousy for the stock market and excellent for the housing market, and they’d be right, but Bolton’s fund has still outperformed both. Since the start of the new century, British houses have roughly doubled in value, the FTSE 100 first halved in value and has now all but returned to where it was, but Fidelity Special Situations has increased in value three-fold.

Looked at over the long term, the effect of this year-on-year outperformance is staggering. In 1979, when Bolton’s fund opened for business, an average house in Cambridge, where I live, was worth around £35,000. Today it's £200,000. If that seems like a good return, it is. The house has gone up in value by 7% per annum on average, doubling every 10 years.

But compared to Bolton’s Special Situations Fund, it's useless. Had you or I put £35,000 into this fund in 1980 and left it to mature, it would now be worth a £5million, with which we could have bought 25 typical Cambridge houses at today’s prices. OK the taxman might have had a quarter of them when you came to sell, but with that sort of dosh, does it really matter?

Don’t get too excited about Anthony Bolton and his investments because he is about to retire and Fidelity are shortly going to stop any new investments into their Special Situations Fund. But there are others out there who can all but match Bolton’s uncanny ability to make consistent returns over the long term. And you don’t have to dig very deep to find them.

Tuesday, January 03, 2006

Heat pumps: just how good are they?

Over the past few weeks, the Independent has been carrying what it calls an Advertisement Promotion for Ice Energy heat pumps. It’s a full page and it appears in their Wednesday property supplement. The key feature of this promotion is a green boxed-out section which contains some data which is entitled Typical cost savings of a ground source heat pump (GSHP) against oil and gas. Here’s what it contains:

• House type: 230m2 detached property in a rural location comprising 2 bathrooms, 4 bedrooms and 3 reception rooms, underfloor heating installed throughout

• Annual energy consumption: 32,400kWh, based on a heat requirement of 45W/m2 for central heating and domestic hot water

• Annual energy costs:
Oil 32,400 x 0.0357 x 1.25 = £1,446
Gas 32,400 x 0.02 x 1.25 = £810
GSHP: 8,120 x 0.07 = £568

Assumptions: heating oil costing 3.57p/kWh and boiler efficiency 75%, gas costing 2p/kWh and boiler efficiency 75%, electricity costing 7p/kWh and GSHP efficiency being 400%

There is some more stuff about how boilers only last 12 years and would need replacing before a GSHP system, which will last 25 years, but this is essentially a side issue. The central claim is that it is much cheaper to run a GSHP system than either oil or gas. It looks too good to be true. Is it?

First assumption. Will a 230m2 detached house really take 32,400kWh per annum to provide space heating and hot water? It could but if it was a newly built house and it took that much, you’d be very disappointed. We live in a 200m2 house with oil-fired heating: the house was built in 1992 to slightly above thermal envelope standards, which are much lower than those currently operating. We burn 27,700kWh/annum. Now this theoretical house is larger than ours by 15% - that makes 27,700 into 31,855kWh, very similar to Ice Energy’s figure. But, and it’s a BIG BUT, this is our consumption of oil, not our heating requirements. Ice Energy multiply this 32,400 by 1.25 to take account of a boiler running at 75% efficiency. I have an idea that our 14-year-old (and still going strong) Boulter boiler burns at around 75% efficiency, so our actual heating requirement is much less than our consumption figure.

Coupled to which, our energy bills could have been much lower still if we had built to 2002 standards. So, Ice Energy, you are over egging this particular pudding. A newish 230m2 house really shouldn’t need anything like 32,400kWh to keep warm. 20,000kWh would be much closer to the mark, and it could be much less if built green.

Second assumption. Energy costs. I think Ice Energy’s take on energy costs is pretty accurate as a snapshot of what is happening in the market as of now. What it will be like over a 25-year period is anyone’s guess but 2005 was marked by much higher oil prices, slightly higher gas prices and no change as yet in electricity prices. Logic would seem to suggest that the price ratios are currently out of equilibrium and that either oil will fall or electricity will rise.

Third assumption: the efficiencies of boilers v GSHP. They have suggested that boilers operate at around 75% efficiency. The new generation of condensing boilers are designed to operate at around 90%. They have also suggested that the efficiency of GSHP is 400% - i.e. that every unit of electricity fed into the system produces four units heat output. I think that’s high, at the top end of what we expect from GSHP. It might get to that sort of figure in spring or autumn when it’s not doing much work, but in the depths of winter it’s not going to get there. And as for heating domestic hot water, it’s never going to get there. In fact as regards hot water, GSHP is hardly any more efficient than using an immersion heater. I would have thought a more realistic assessment of GSHP efficiency would put it at between 2.5 and 3.0, say 2.8 for arguments sake.

So let’s replay the annual energy costs with my assumptions, rather than Ice Energy’s.

• House type: 230m2 detached property in a rural location comprising 2 bathrooms, 4 bedrooms and 3 reception rooms, underfloor heating installed throughout

• Annual energy consumption: 20,000kWh, based on a heat requirement of 25W/m2 for central heating and domestic hot water

• Annual energy costs:
Oil 20,000 x 0.0357 x 1.1 = £785
Gas 20,000 x 0.02 x 1.1 = £440
GSHP: 7,150 x 0.07 = £500

Assumptions: heating oil costing 3.57p/kWh and boiler efficiency 90%, gas costing 2p/kWh and boiler efficiency 90%, electricity costing 7p/kWh and GSHP efficiency being 280%

I think that’s a far more realistic appraisal of what Ice Energy and the whole GSHP industry are offering. It is cheap to run, but not phenomenally cheap. I am familiar with an Ice Energy installation where the fuel bills have been monitored and the outcome is around 36kWh/m2/annum, which would make their notional 230m2 house come in at 8,500kWh/annum. And you have to set against that much higher installation costs, typically around twice as much as an oil-fired boiler and maybe three times as much as a gas-fired one.

In short, GSHP is currently, at today’s fuel prices, a compelling option for home heating in a newly built house. But not nearly as compelling as Ice Energy would have us believe.