A Question of Property - Ep 11 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 11 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello, and welcome to A Question of Property. I’m your host, Lucia France, and I’m joined by our usual panel of property experts.

Lucia France:

John Howard, first of all, property expert of more than 40 years’ experience, an author of three different books on the subject, including buying and selling at auction, and writing another one currently.

Lucia France:

We also have Stefano Lucatello, Senior Partner at Kobalt Law International Property Lawyers, and, of course, Paul Mahoney as well, bestselling author, award-winning property speaker and head of Nova Financial Group.

Lucia France:

So good morning to all three of you guys. How are we today?

John Howard:

Good morning. Very well, very well.

Stefano Lucatello:

Good morning.

Paul Mahoney:

Good morning.

John Howard:

Very relaxed. Sun’s out.

Stefano Lucatello:

All good. All good.

Lucia France:

Good, good. Nice to see you all. So before we start, I’m going to send out a general question to everybody for this week. What did everybody make of Boris’ stay alert speech?

John Howard:

I thought it was very, very good, but then I would say that because I’m chairman of the Ipswich Conservatives. He got a lot of stick for it but to be fair to him, he had 20 minutes to say what probably should have taken two hours.

John Howard:

So everyone comes up with, “Oh, what about if my mother stands outside with her face facing the other direction, can I speak to her?”, and all this silly business. At the end of the day, we’re in an incredibly difficult situation. They’re trying to make the most of it, they’re trying to get the country back to work, which has got to be the right thing for the country. Let’s hope it’s not too soon and we’re not back in lockdown.

John Howard:

But certainly with our estate agencies in Norfolk, they caught us slightly on the hop because I thought it would be the end of this week that he would say something, and it obviously was the Monday night. So we were scuttling around a little bit on Tuesday morning, but we’re all good, and we’re very busy, by the way.

Stefano Lucatello:

He didn’t exactly put himself across very well, did he? I received a very funny message from someone saying that although he couldn’t see his mom and dad, the estate agency rules had now changed, so he’d put his house up on the market and his mom and dad were coming round for a viewing at 5:30 in the evening.

John Howard:

Yeah. Well, Stefano, he’s a prat, isn’t he, that guy? At the end of the day, everyone knows what we meant, and you can make fun of it all if you want to but, actually, this is serious. We need to get the housing market going, we don’t need to be meeting our second cousins. At the end of the day, the housing market’s far more important than that.

Stefano Lucatello:

I’ve got a friend of mine who’s up in Beverley, near Hull where I’m from, and she was telling me yesterday that her boss was telling her that she had to open up the office. They’d all gone into the office, they had to open up the office and see all these people. She’d had 400 telephone calls by six o’clock last night. There were people, as she called them, the unclean, who were banging at the front door trying to get to see her, and she was refusing to open because she doesn’t want to put herself in that position, and I think she’s right.

John Howard:

She’s absolutely right. You’ve got to put the right safety measures in place. She’s absolutely right. But, of course, a lot of people, like with us, our estate agencies, we haven’t actually opened them up. We’re still working from home, most people are, but we’re getting on doing viewings and valuations and so on, and it’s great, great news for the… Because the housing, you know as well as anyone, Stefano, the housing market is vital to the economy. Vital.

Stefano Lucatello:

Yeah.

Lucia France:

[crosstalk 00:03:38]

Paul Mahoney:

Just on that, so the valuation side of things, I was hoping that following that announcement, that the valuations would start straight away again. They haven’t. Most of the valuing companies, the surveyors, are essentially using the excuse that they need to adjust to the announcement still.

John Howard:

Pathetic. Aren’t they pathetic? They really are pathetic. That’s why you’re not a valuer and I’m not a valuer-

Paul Mahoney:

A lot of people are on furlough [crosstalk 00:04:07]

John Howard:

… and Stefano’s not a valuer even, because they’re pathetic.

Lucia France:

Can you guys-

Stefano Lucatello:

No, I’m just a mere lawyer, John.

John Howard:

Yeah. Well, you’re next one up on the grade, don’t worry.

Stefano Lucatello:

Cheers, mate!

Lucia France:

Sorry, sorry. John and Paul, could you just confirm what’s going on with valuations then at the moment?

Paul Mahoney:

Nothing.

Lucia France:

Nothing. Nobody’s allowed to do anything. Oh, gosh.

Paul Mahoney:

Well, no, they’re allowed to do it now. Obviously following the announcement, I think it was Wednesday that they said that the property market’s back open, but we haven’t been able to get any valuations done, or even booked as of yet, and we’re being told that essentially the companies are adjusting to the announcement. So bringing people back from furlough, getting set up to be able to start booking in valuations.

Lucia France:

[crosstalk 00:04:57]

Stefano Lucatello:

They don’t go into the properties anyway, they always do drive-by valuations, Paul.

Paul Mahoney:

No, they don’t. They don’t, Stefano. Sometimes they do. There’s three different types of valuations. Well, there’s probably more than three, but three main ones. There’s a desktop valuation where they just do it from their computer. They’ll do a drive-by sometimes, but most of what we do is new build properties, and almost always they will go into the property.

Stefano Lucatello:

Yeah.

John Howard:

There’s three different types of valuations as well. There’s the safe, there’s the negative, and there’s the stupid.

Lucia France:

Okay, right. Let’s move on to our first question today. So this first one is for Paul: “Paul, I’m looking to purchase a slightly more expensive property which will only return me 4% or 5% yield. However, because it’s a slightly more expensive property and in a good area, I’m more interested in capital growth than I am in rental yield. Do you think this is a sensible strategy?”

Paul Mahoney:

Okay. It’s a good question. I think the answer very much depends on their situation. I’d say probably the thing that we come across most is people just starting out in property that want to build a passive income, and because income is the end goal, they focus on income from the start, which in my view is a mistake because it’s very difficult to build income through income-focused assets.

Paul Mahoney:

What I mean by that is, let’s say I’m a first time investor with 50 grand to invest but my end goal is £50,000 per annum from my investments. If I invest and I get a 10% net yield on my 50 grand, that’s 5,000. The only way I turn that 5,000 into 50,000, through income-focused investments, is investing nine more lots of 50 grand.

Lucia France:

Right.

Paul Mahoney:

Hopefully that makes sense. So, therefore, the only way that I am able to create £50,000 of passive income is saving half a million pounds. For most people, that’s impossible, or is going to take a very long time.

Lucia France:

Right.

Paul Mahoney:

Whereas if you’re looking to build an asset base, growth is much more likely to get you there quicker. You can take that same 50 grand, buy a £200,000 property, and if that doubles over a 10 to 15 year period, which is very achievable, all of a sudden you’re 50 is worth 250,000 because the debt remains the same, property value doubles, and if you do that four times, your 50 is worth a million.

Paul Mahoney:

So I suppose, in short, the answer to the question is, if this person’s looking to build an asset base, I wouldn’t say it’s so much about the yield. They shouldn’t necessarily be focused on the yield. So long as that is sufficient to cover the costs and gives them a good buffer and they are confident in the growth prospects of that property, then that’s the most suitable asset for somebody who is in the growth phase of their investment journey. Whereas if they’ve already got a very big pot of money and they want to retire tomorrow, then income is more important.

Lucia France:

I guess because they’ve said they’re more interested in capital growth, then it seems like they are in it for the long haul, kind of thing, from what they’ve written, I believe.

Paul Mahoney:

Yeah. I think that’s the answer. I would obviously question why they feel as though it’s a good growth asset. Just because it’s more expensive and it has a lower yield doesn’t make it a good growth asset but I assume they’ve kind of ticked all the boxes in that regard too.

Lucia France:

Yeah. Okay, great. Thank you very much, Paul. That’s great. Let’s move on to John then for your first question today: “I am looking to purchase a thatched cottage and hope to get the survey done shortly. Apart from the cost of insurance being greater, what else should I be looking out for with such a property?”

John Howard:

Goodness me.

Lucia France:

[inaudible 00:09:01]

John Howard:

My gut feeling is don’t do it, to be honest with you.

Lucia France:

Really?

John Howard:

Well, I used to own a thatched cottage. My second house was a thatched cottage, and there are lots of challenges to it. First of all, the thatch is very expensive to replace. There’s two types of thatch. There’s reed and there’s straw. The reed, Norfolk reed, is very expensive. Lasts longer, 35 years probably. Straw probably lasts 25 years.

Lucia France:

That’s what I was going to ask. How often does it have to be replaced?

John Howard:

About 35 years for reed and about 25 for straw but, of course, during that time the roofs do deteriorate, and you can have a ridge done which is relatively cheap to get the ridge done and just tidied up and just re-netted. It depends on the condition of the roof, I would say. I would personally get a thatcher to give you a report on the roof because it might look fine from the outside, it might look all tidied up, but underneath that, there could be a problem with it.

John Howard:

So obviously the thatch is the biggest thing. Just get it checked. Have a survey done by a thatcher. There’s plenty around these days still. Get it checked by them. It’s likely also to be timber framed probably because it’s old. I expect it’s old. Again, loads of problems. I’ve got a partly timber framed property here. Loads of problems with timber rotting and all sorts of different things.

John Howard:

So unless you’re really hellbent on having a beautiful Suffolk, chocolate box thatched cottage, and there are many in Suffolk, and they’re beautiful, unless you want to do that, unless you’re hellbent on it, I would suggest you buy something with a different roof, a pantiled roof. Even a peg tiled roof’s expensive as well, but the thatch can be quite onerous.

Lucia France:

But don’t you think it would be sad, John, if everybody who’s thinking of buying a thatched property today by chance happens to watch this episode and-

John Howard:

Yes.

Stefano Lucatello:

Who will be watching?

Lucia France:

… that that beautiful, traditional English look is never to be seen again?

John Howard:

The negativity. Yeah, it can look lovely, it can look charming, but it’s like probably some of the men you’ve been out with over the years, Lucia, before you fell in love and got married. First impressions are great but by the third date you’ve probably booted them away.

Lucia France:

Even after being married. We got married in Vegas after 10 weeks.

John Howard:

That is brave! Lucia, that is brave!

Lucia France:

Yeah.

John Howard:

Goodness me.

Lucia France:

That’s for another show!

John Howard:

It is. That’s a whole show on its own!

Stefano Lucatello:

Lucia, just one point.

Lucia France:

Yes.

Stefano Lucatello:

I’ve bought a couple of thatched cottages over the years for clients, and insurance is important. My other half, who comes from the other side of Devon, the other side of Exeter in Devon, her brother, one of her brothers had a thatched cottage the other side of Devon, and it burnt down and, it took with it the whole line of thatched cottages. They had a problem with one of the-

John Howard:

So did my business partner’s, his thatched house burnt down.

Stefano Lucatello:

But they usually take the whole line. Unless it’s standing alone, there’s a whole line of them usually. This was in a village the other side of Exeter, a place called Tedburn. It took the whole line down and the insurance company was umming and ahhing as to whether they would replace it, whether they would rebuild it, or whatever.

Stefano Lucatello:

So you’ve got to have extensive insurance and you’ve got to make sure that you have insurance not only to replace it in a case of fire, but also in the case of, as John says, every 25, 35 years when you need to expend that amount of money, to take it back to zero and redo it basically, and sometimes you have to do the spars underneath it, the wooden spars and all the rest of it.

Lucia France:

Yeah. So they obviously mention the insurance in this question as well, the actual work of having the thatch redone every 20 to 30 years. I guess it’s just a lot more expense involved there, isn’t there?

John Howard:

There is, yeah. There is, yeah.

Lucia France:

Great. Okay. Thank you very much for that answer. Okay, let’s move on to Stefano for your first question. We’re going abroad to Malta: “I’m looking to purchase a property over in Malta that was built approximately five years ago but I’m a little bit suspicious as to whether it was built correctly. How would I find out without spending a lot of money doing so?”

Stefano Lucatello:

Right. Well, Malta has a common law body of law, very similar to ours. So therefore you can go and do a planning search. You can do a building regs search. You can examine the plans that have been deposited, and you can check what certificates have been issued along the way.

Stefano Lucatello:

The Maltese government is quite stringent on planning, development. They have a code, and they have what’s called a duty to promote a comprehensive, sustainable land use planning system. So, to that extent, they’re very stringent. Remember, Malta is an island. It’s got Gozo next door which is slightly better quality buildings, it’s much smaller. It promotes growth in a particular way. It restricts growth to the extent that if it’s not something that is fitting with the rest of the island, it won’t allow it.

Stefano Lucatello:

So the best thing to do is, if you’re in England and you don’t want to go across to Malta, is to instruct a Maltese lawyer in Valletta or somewhere like that, and they will do a search for you and come back to you. Something like that will cost you probably 500 or 600 quid. That’s probably the best way to do it. So you’d give them the details of the property, they’d go to the planning register for you, or they’d make an online search, and they would come back to you and tell you what’s the situation, if it was built in accordance or if it wasn’t, and see where it goes from there.

Stefano Lucatello:

Because it’s Malta, it’s unlikely that if it was built incorrectly it would still be there. It would have had some form of action or preemptive action taken to put it right.

Lucia France:

Okay. I’ve only been to Malta once but it was absolutely beautiful there in Valletta, isn’t it? But a lot of the buildings look really, really old.

Stefano Lucatello:

They are.

Lucia France:

Is that the case that they would still be okay?

Stefano Lucatello:

Malta has a very north African Moorish style of building, and much of the buildings around Valletta even, if you look at them, they’re all white stone and they go back centuries. So those, to that extent, no, those fall into a different bracket. They fall into assets of architectural value and natural historical value. So, no.

Stefano Lucatello:

There’s a code that came out many years ago and it’s renewed. The latest code is the 2016 planning code for Malta, and that would deal with properties that exist and have existed from, I don’t know, 30 or 40 years and anything that needs to be done to them, and also new builds. There isn’t a lot of new development, I have to say.

Stefano Lucatello:

Because Malta is so small, there isn’t a lot of new development and it’s restricted, especially on Gozo. When I go diving in that area, I sometimes go diving in Gozo, and Gozo is beautiful but it’s restricted in what you can do and what you can’t do. You’ve got film stars that have their assets there. So, to that extent, it’s protected. It’s almost like it’s a protected area of the world and it does have some sort of UNESCO standing.

Stefano Lucatello:

So they are very particular as to what you can do, what you can’t do. Notwithstanding how much money you want to put into it, if they say no because they don’t think it fits with the rest of it, they won’t let you do it.

Lucia France:

Okay. Great. Thank you very much. Would you recommend buying in Malta in general, if you can?

Stefano Lucatello:

Malta’s a great place. Malta has a bit of everything. It has a bit of north Africa, it has a bit of England, and it has a bit of Italy in it. The Maltese speak their own language. So they speak a mixture of Arabic, Maltese, which is their own dialectic language, and they also understand Sicilian very, very well because they’re only 60 kilometers away from the southern tip of Sicily.

Stefano Lucatello:

So they have a great affinity with Sicily, they have a great affinity with north Africa. You can see those three cultures. When you go there, you can see that they all speak English. The older members of society probably don’t but the younger ones all speak English. Their parliament is run in English and in Maltese, and it’s a difficult language to understand. It’s almost like being in Gibraltar because many of the names are interchangeable with Gibraltar as well. People like [Kanessa 00:17:39], and other names like that where I was in [Gib 00:17:41], they have ancestry in Malta as well.

Stefano Lucatello:

So it’s a great place to go to. Great food, great culture. You’re in the middle of everything there. Because it’s a former dependent United Kingdom territory, it’s got the English and they’re very, very hot on the… they love England, but they’re also connected to Italy, and they’re also connected to north Africa.

Lucia France:

I loved it there. Lots of filming going on there as well. They use it for period filming and stuff. Right, okay. Let’s move back to Paul then for your second question for today. So this person agreed to purchase an off-plan apartment, they say, 18 months ago, and it’s due to be ready supposedly in about three months. However, they say, “I’m now nervous about purchasing this property. Is there any possibility of me getting out of the contract now?”

Paul Mahoney:

Okay. Well, my first question if somebody asked me that would be, why are they nervous?

Lucia France:

It doesn’t say, I’m afraid.

Paul Mahoney:

Potentially, in the current situation with COVID-19, that might be causing some nervousness perhaps. But if it’s due for completion quite soon, I wouldn’t be concerned about that. We’re getting lots of questions at the moment about, how much do you think the property market’s going to drop by? I think that’s a big assumption because it hasn’t dropped by anything yet. There’s been talk about it, there’s been media around it, but I’m a big believer that when it comes to property, you should completely ignore the media because it’s so sensationalized and often preempts things that don’t happen, such as Brexit.

Paul Mahoney:

There was talks about property falling by 30% if the referendum went the way of Brexit, and it didn’t fall at all. In fact, the U.K. property market increased by 4% per annum in the two years following Brexit and some areas increased by a lot more than that, such as the northwest. So that would be my first question: Why are they nervous?

Paul Mahoney:

If they absolutely have to get out of the purchase, there’s a few things that they can do. Well, first off they would want to check if the contract is assignable, meaning that they are allowed to sell the property whilst it’s off-plan. The one restriction to doing that is they’d almost definitely have to sell to a cash buyer because it’s very difficult to get a mortgage when you buy an assigned contract, and even if you can get a mortgage, usually you can only get it at the price that the original buyer paid, as opposed to the price that you’re paying.

Paul Mahoney:

So some people who buy off-plan, they might try to sell at an uplifted value, which is fine if it’s to a cash buyer, but if it’s to someone who’s trying to taking a mortgage, they might have difficulty with that.

Paul Mahoney:

Even if it’s not assigned, they could speak with the developer and ask them if they will let them make it an assignable contract or, perhaps even better, let them find a buyer and have them rescind the contracts at the same time that the new buyer exchanges.

Paul Mahoney:

So a lot of our clients buy off-plan. We’ve been through this process quite a few times, and really the ideal way of doing this is, if you want to get out of the contract, sometimes perhaps we might find a client of ours, a new buyer, and the new buyer exchanges at the same time that the old buyer rescinds, and therefore the new buyer’s still buying direct off the developer, so there’s no issues with mortgages, and the old buyer gets their deposit back because essentially the money changes hands.

John Howard:

Paul, what you said there was very interesting, about the contract not being able to be… difficult for building societies to lend on an assigned contract. I didn’t realize that, and that’s very interesting.

John Howard:

The one thing I would say is that if you’re buying off-plan, you’ve got to make sure that these deposits are protected now. I think there’s a company or two now doing… you can take out insurance against that now, which you couldn’t do in the past, I think. It’s a-

Paul Mahoney:

That’s true, John, so far as your deposit being protected. However, generally, even when your deposit is protected, it’s only protected against insolvency of the developer, as opposed to-

John Howard:

That’s probably a good start, Paul.

Paul Mahoney:

Yeah, of course. No, absolutely. That’s what you want, definitely, but it’s not protected against you changing your mind.

John Howard:

No, no, no, of course. I understand that. But any sort of protection-

Paul Mahoney:

It’s person to person. From a legal perspective, if they aren’t able to assign their contract, they are legally obliged to complete.

John Howard:

For sure, for sure. The other advice I’d give anyone who’s buying off-plan is that make sure that in your legal agreement it says, “This property will be built by a certain day,” two years’ time, or whatever, and if it goes beyond that date, you have the option to pull out if you wish to. I think that’s important.

Lucia France:

Speaking from personal experience here actually, we managed to get out of buying an off-plan property probably about 12 months after we put the deposit down and we did that just by speaking to the developer. We had in an email that one of the sales executives had said it would be ready within three to six months, and that was our kind of get out. But the other thing I would say is as well, use a solicitor or lawyer separate from the ones that they recommend you to use because obviously that is then [crosstalk 00:23:25]

John Howard:

Surely not, no! Surely not! Surely not!

Stefano Lucatello:

I couldn’t agree more!

John Howard:

We like to recommend solicitors, it’s important!

Lucia France:

Thanks, Stefano.

Stefano Lucatello:

I couldn’t agree more.

Lucia France:

I’m not giving legal advice, I’m not a lawyer, but-

Paul Mahoney:

Just a couple of things on that-

Stefano Lucatello:

Whether you’re getting into something in the United Kingdom or whether you’re getting something abroad, never, ever use the developer-

Lucia France:

This is in the U.K.

Stefano Lucatello:

… or the estate agent’s lawyer. They are always, always, always getting some form of kickback, commission, they’re in the pockets of [crosstalk 00:23:54]

John Howard:

No. I cannot agree. I cannot agree with that Stefano.

Paul Mahoney:

That’s not true, Stefano.

Stefano Lucatello:

That is always true. That is always true.

John Howard:

I can’t agree that someone in your profession, as professional, obviously as fully qualified as you are would do such a thing.

Stefano Lucatello:

I’m holding my position on that point. I’m holding my position on that point.

Paul Mahoney:

Just a couple of points there, guys.

Lucia France:

Sorry. Paul.

Paul Mahoney:

So what John mentioned is right. Usually what you’ll have is an expected completion date in the contract and then a long stop date in the contract, which standard practice is that that will be 12 months after the expected completion date. Lucia, you were very lucky.

Lucia France:

I was.

John Howard:

Very lucky.

Paul Mahoney:

For them to act upon an email that the agent sent is almost unheard of. Usually they will refer you to the contract and say with a long stop date [crosstalk 00:24:37]

Lucia France:

[crosstalk 00:24:37] it still took a lot of discussion.

Paul Mahoney:

… not having your money back. What you need to keep in mind though is even if the long stop passes and you rescind the contracts and you ask for your money back, if they’re not a good developer, the only way to force the money out of them is to take legal action against them. So don’t just assume that because it says that in the contract you will get your cash back straight away. Sometimes you need to force it out of them.

Paul Mahoney:

On that point with regards to the solicitors, there is some truth and definitely some wisdom to what Stefano has said, so far as perhaps don’t use the solicitor that the developer’s recommended or the estate agent has recommended. But, for example, I know that for our business, we will get an independent solicitor to review the development and get familiar with the developer, and in that case it’s very beneficial to use a solicitor who has already done that than one who hasn’t.

John Howard:

It’s cheaper.

Paul Mahoney:

Because they’re cheaper and they’re much quicker. In my experience, buyers who insist on using their own solicitor because that’s who helped them buy their home-

John Howard:

Normally ends up in tears.

Paul Mahoney:

… it ends really badly because they get the wrong advice, they’re not familiar with off-plan, they’re not familiar with the developer, they’re not familiar with the development, and they almost see it as their job to find problems that don’t exist.

John Howard:

It’s their job to scupper the sale, half these damn solicitors. They’re not all like Stefano.

Stefano Lucatello:

What I would say, guys, is that we have… not on the English side… I’ve personally done this sort of thing on international things, where a developer will ask you to prepare a due diligence report for the purposes of marketing. So we come in, we prepare a due diligence report and then they use it as a marketing tool. Then they would send us clients, but we are totally independent. So if I see something that’s wrong, I’ll tell him and then he won’t be able to [crosstalk 00:26:41]

John Howard:

That’s a very good idea. That’s a very good idea. I like that.

Stefano Lucatello:

It’s very useful. The other thing I’d say is not… and it’s becoming more prevalent over the last 10 years… is that you’ve got these hot houses where you’ve got a big room full of lawyers, many of whom are not qualified. There is a lead team solicitor and you get these… what do you call them? Hot houses of lawyers [crosstalk 00:27:06]

John Howard:

I call them legal factories.

Stefano Lucatello:

Yeah, these legal factories.

Paul Mahoney:

Boiler rooms.

Stefano Lucatello:

Boiler rooms. That’s right, Paul. That’s right. Boiler rooms, where the client is paying £400 for the legal process.

John Howard:

Too cheap, too cheap.

Stefano Lucatello:

Exactly. You cannot expect to get a proper service from a person who charges you £400. And, of course, the problem is, as you know, that when you get a mortgage… you’ll know this, Paul… when you get a mortgage, very often there’s a legal pack attached to it for 499 quid, or it’s included in the valuation, or whatever it is, and of course the clients then are pushed into using this hot house.

Stefano Lucatello:

You have no obligation, even though the building society or the lender says you have an obligation to use them. You are free to choose whichever lawyer you wish, whether it’s your own personal lawyer or whether it’s their team or another team or whatever, but you do not need to. I would urge people not to use these hot houses. The number of people who-

John Howard:

Definitely.

Stefano Lucatello:

… over the years have come to us and we’ve had to put things right because things have not been spotted because they use unqualified members of staff.

John Howard:

I would also say that with estate agents as well. If they’re online, online estate agents, online lawyers, nightmare. Absolute nightmare.

Paul Mahoney:

Just one point on that fees thing, Stefano. One thing that we’re always very clear with our clients on is making sure that you’re comparing the total cost of solicitors.

John Howard:

Yes. Good point.

Paul Mahoney:

So quite often we will get a quote from our preferred solicitor that might be £1,500 that includes all disbursements, and then a client will come back to us with a quote that says £400 or £500, but it’s just the solicitor fee without any of the extras. So getting a full understanding of the total cost and therefore making a like for like comparison is important.

Stefano Lucatello:

Just one point on solicitors. For example, as a law firm, we only charge, when we do conveyancing or anything else, we only charge a fixed fee. So when the prospective client comes to us, we send out a written quote which includes the fee, the VAT, the disbursements, and we also put a big note at the bottom with two calculations of stamp duty: one, if it’s your first property anywhere in the world because, as you know guys, this stamp duty thing is not very well understood.

Stefano Lucatello:

If you’ve not got any property anywhere else in the world and you are a first time buyer, then you’re on one set of stamp duty. If you have a property anywhere else in the world, or in the United Kingdom, or you’ve bought before, or you’ve got one now, then you’re on the extra 3%. So people don’t understand that, and as solicitors we are very clear in our letter of prospective instruction and quotation as to what stamp duty may apply, and could apply, depending on which situation you’re on, and not many solicitors make that very, very clear, and some have been bang to rights with the SRA for that.

John Howard:

Very good points. Very, very good points.

Lucia France:

Absolutely. Thank you very much, guys. Okay. Let’s move to John’s next question: “I’m buying a house that is split into two flats for investment. I’ve done some planning research and it appears that they did not have planning permission to do that. However, they have been flats for over 20 years. Therefore, do I need to get planning or not?”

John Howard:

You still need to regularize it. So there’s a rule, and I’m sure Stefano will help me out here. I think it’s the 12 year rule, which means that if they’ve been converted for 12 years and no-one’s objected, the local authority haven’t objected, then you can go for what’s called a certificate of lawful use which is what I’ve done quite often over the years, and you have to prove that it’s been used for flats in excess of… I think it’s 12 years. To do that you need a sworn affidavit perhaps from a neighbor. You probably need two or three really to back up your proof.

John Howard:

Don’t think just because it’s been rated separately, or that you’ve got electricity bills going back, that is enough. It’s not enough. You need to get an affidavit sworn, stat dec, as it’s also called, statute of declaration, from at least two or three people to say… Neighbors are the ideal one because they’re believed, if you like. Don’t think you can just pay someone a fiver to do it, which, one, is illegal and, secondly, the local authority will see straight through it. So always play a straight bat and you’ve got nothing to worry about. If it has been 20 years, you’ve got absolutely nothing to worry about but you do need to regularize it.

John Howard:

Also, of course, that doesn’t affect the building regs. So if the building regulations weren’t done 20 years ago, there’s no limit on that. So you will be forced, or you should look at the building regulation and see what should be done for fire, for sound, all that sort of stuff, because the last thing you want, if you were renting them out and there was a fire and it didn’t have proper fire precautions, you could be accused of manslaughter if it went that far, or something like that. Very, very serious.

Lucia France:

So you-

John Howard:

Would you agree with that, Stefano?

Lucia France:

Sorry, go ahead.

Stefano Lucatello:

I’ve done a few of these over the years. Isn’t it called an application for retrospective consent?

John Howard:

Yeah.

Stefano Lucatello:

You’re quite right. You’ve got to get evidence from people in the area, usually people next door, as to how it’s been used, how long it’s been used for, back into memory. It’s continuous, uninterrupted, unchallenged user-

John Howard:

12 years, I think.

Stefano Lucatello:

That’s right. As regards insurance, as I understand it, if you don’t have proper planning, especially building regs, as John said, because building regs is indefinite whereas planning you can put it right, as it were, insurance can be invalidated if you don’t have proper planning consent and building regs on a property, and if something happens and it goes up in smoke, sometimes, as I understand it, they could say, “Well, I’m sorry, you didn’t have proper planning, it shouldn’t have been built in the first place.”

John Howard:

I’ll tell you what really worries me, moving on slightly, are HMOs and things like that, where people have just done it without any permission. Even if they live in the house themselves and rent rooms out, it’s still an HMO, one way or the other. It’s very serious if it hasn’t got full regs, and if you’re looking to rent one of these, or buy one of these, you really need to make sure. Especially because in an auction, because that could be why it’s an auction, the council have forced them to close. So you’ve got to be very, very careful on this. Really, really careful.

Lucia France:

So-

Stefano Lucatello:

[crosstalk 00:33:33]

Paul Mahoney:

Something like that would also probably be quite difficult to finance.

Stefano Lucatello:

Good point.

Paul Mahoney:

Obviously, generally people aren’t buying property with cash-

John Howard:

Absolutely.

Paul Mahoney:

… they’re usually looking to finance them, and if it’s two separate flats but on the same title, it’s likely to be very difficult to finance, if not impossible.

Stefano Lucatello:

If they’re two flats, they should have separate titles. There should be a freehold title and then there’ll be two leasehold titles on it. Certainly, as you know, if the lease is longer than seven years, it has to be registered but, in any case, presumably they’ll be leases of 99, 125, 999 years.

John Howard:

Yeah. I think you’re one step ahead there because I think what the guy’s saying is he’s buying it, it’s a house in two flats.

Stefano Lucatello:

Right.

John Howard:

He may well then create a title split, as it’s called now. But initially he’s buying it as a house in two flats, which I agree with Paul, it will still be difficult to… you couldn’t go to the… All these loans that you get off building societies, buy-to-lets, all fine if you tick the box. If you’re outside that box because it’s slightly unusual, that’s where you struggle to fund it, which is crazy really, but they do.

Stefano Lucatello:

Paul, are there specialist lenders that do that sort of thing?

Paul Mahoney:

Well, there are specialist lenders for most things but if a house has been converted to two flats that are on the same title without planning, most lenders wouldn’t touch that with a barge pole.

John Howard:

I would say it would go down as a house, wouldn’t it, for the time being, until you proved it, I suppose.

Paul Mahoney:

Yeah.

Stefano Lucatello:

Right. Go on, Lucia, I’m next.

Paul Mahoney:

But if the surveyor goes out and sees that it’s two flats with two locked doors, they’re going to ask questions.

John Howard:

Yeah, they are.

Paul Mahoney:

Surveyors even ask questions about a house or a flat with locks on the individual bedrooms. So it would be tough. Generally, lenders don’t like to touch anything-

John Howard:

Paul, that could just be a badly behaved child that has to be locked in their room from time to time, couldn’t it?

Stefano Lucatello:

Trust you.

Lucia France:

We are not condoning anything like that on this show.

John Howard:

Don’t they do that anymore? Don’t they do that anymore?

Lucia France:

No. [crosstalk 00:35:40]

Paul Mahoney:

No, no. Parents are much better these days, John.

Lucia France:

What’s that, Paul?

Paul Mahoney:

I said parents are much better these days.

Stefano Lucatello:

They don’t lock kids up anymore.

John Howard:

Never did me any harm!

Lucia France:

I’m afraid we are actually running out of time for this episode. So, Stefano, you’ve got a lot more questions to answer next episode.

Lucia France:

If you do have any questions you would like to email us, please do. Ask@aquestionofproperty.co.uk is our email address. I’d like to say thank you to Paul Mahoney, Stefano Lucatello, and John Howard for all your expert advice today.

Stefano Lucatello:

Pleasure.

Lucia France:

Definitely one to watch today if you are thinking of buying an off-plan property. Thanks for watching and we’ll see you again next time.

 

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