A Question of Property - Ep 16 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 16 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello everybody, and welcome to episode 16 of A Question of Property. My name is Lucia France, and I’m your host for this show. We’re joined by our usual panel of amazing experts. We’ve got John Howard, property expert of over 40 years experience in the industry and author of three different books on the subject, including buying and selling at auction. Hello to you, John.

John Howard:

Hi, good to see you.

Lucia France:

Good to see you too. We’ve got Stefano Lucatello, senior partner at Kobalt Law International property lawyers, and our go-to for advice on buying and selling property in Europe. So, good morning to you, Stefano.

Stefano Lucatello:

Morning, Lucia.

Lucia France:

Morning. And of course Paul, our best selling author, award-winning property speaker, and head of Nova Financial Group. So nice to see you, Paul. Good morning to you.

Paul Mahoney:

Good morning, Lucia.

Lucia France:

So we’re going to kick off with our starter questions, and we’ve actually got two here today. So you can answer both if you don’t mind.

Stefano Lucatello:

Thanks.

Lucia France:

Someone wrote in and asked this one. Does everyone wear a full suit or do you just dress your top hop halves for the show? And the second question is, the place you wish you’d bought a property in the past, but didn’t?

John Howard:

Oh, that’s an easy one for me.

Lucia France:

We’ll go to John first.

John Howard:

Well, the first thing, yes, I always try and be professional and people say, “Oh, John, you’re very old fashioned.” Because normally, when I’m doing my seminars and when I’m doing TV stuff and all this, I wear suit and I always wear a tie, because I think it’s professional and it makes me feel that I’m on the ball and ready to go. Everyone has a different attitude, but I appreciate that.

John Howard:

The second question is very easy for me. Walberswick is a lovely, lovely village near Southwold, which is on the Suffolk coast, beautiful. Well, in the 1992 recession, I got offered seven flats in Walberswick for 250,000. Long story short, they then tried to put it up to 260,000, the price, and I said, I’m not paying up the 10,000. I’m not buying it, so I did buy it. Those flats today are worth 300,000 each, minimum. 350 each, probably.

Lucia France:

Ouch, ouch, ouch.

John Howard:

Every time I walk the dog, it destroys me. I can’t even walk past the building.

Lucia France:

Oh no. Oh no.

John Howard:

[crosstalk 00:02:35] What can I do?

Lucia France:

Hopefully [crosstalk 00:02:37].

John Howard:

That’s not funny, Paul. It’s sad.

Paul Mahoney:

John, where is your tie today? Are we not special enough?

John Howard:

When I’m at home, I haven’t been wearing a tie because I feel it’s a little bit over the top. But normally I do, as well you know, Paul.

Paul Mahoney:

[crosstalk 00:02:51] Yeah, that’s very true.

Lucia France:

Paul, if you could, answer those two for us as well, please.

Paul Mahoney:

Yes, I’m more formal on the bottom half at the moment, actually.

Stefano Lucatello:

[crosstalk 00:03:04] In a boxers?

Paul Mahoney:

So yes, that answers that question, I suppose. Well, look, I think any decent location … well, that’s not true actually. All right. Probably, the best answer to that, my hometown, where I grew up is an hour North of Sydney. It’s a beach town. It’s doubled in price over the past 10 years, and I’m looking at buying a place there at the moment. You can’t get anything half decent for under a million dollars. Whereas I probably could have got those same properties for about 500 grand, 10 years ago.

Lucia France:

Good to know. Good to know, and nice to know when you head back home as well. Stefano, what’s your answers to these ones?

Stefano Lucatello:

As a solicitor, I’m always formally dressed with or without a tie. I always look impeccable. Thank you, John. Secondly, I-

John Howard:

Stefano, can I stop you there? Can you just tell the audience how many times you’ve got and how many suits you’ve got, and how many shirts you’ve got please? Because it’s really interesting.

Lucia France:

Well, I’d like to know.

Stefano Lucatello:

Over 150 suits and over 350 ties.

Lucia France:

Whoa.

John Howard:

There you go. [crosstalk 00:04:11] I told you it was interesting.

Stefano Lucatello:

With over 150 pairs of shoes.

Lucia France:

Are they all color coded?

Stefano Lucatello:

Absolutely. [crosstalk 00:04:17] I’ll you why. When I came down … Sorry, again?

Paul Mahoney:

Out of interest, how long? Are some of those 20 years old, or have you acquired them all in the past five to 10 years? Because [crosstalk 00:04:27].

Stefano Lucatello:

They go on a rolling mission. What happens is every year or so, I throw some suits out and I give them to charity. I’ll tell you why just as a quick aside. When I came down to London from Hull as a young trainee [inaudible 00:04:41] article clerk, I came down with two suits and a couple of shirts and I started working in the West End in Mayfair, in Dover Street. And I noticed within two days that all my contemporaries had a different shirt, a different suit, different pair of shoes.

Stefano Lucatello:

By the end of week one, I rang my mother up and said, you need to send me 500 quid down because these people are changing shirts like a whatever. So that’s how it came about. And ever since then, I’ve always had a big array of suits and ties. I love ties. I have a collection of Leonard silk ties.

Lucia France:

They’re lovely.

Stefano Lucatello:

John’s seen them because he’s seen them on TV with me, and each one of them has the limited edition number on the back. They’re each individual, and they cost a bomb. But for me personally, as a lawyer, I like to feel good. And I think it’s for all of us. We’re all professionals, all three of us.

John Howard:

Yeah, I think you’re right.

Stefano Lucatello:

When you’ve got a nice suit, a nice tie, you feel great, and you go into a business meeting, you feel good as opposed to feel I would never go into a business … only in the lockdown do I go into business meetings now.

Paul Mahoney:

Yeah, I agree with both of you. It’s very much a mindset thing.

Stefano Lucatello:

Yeah. And remember that it doesn’t matter which profession you’re in, the impression that a person makes within the 30 seconds of you going into a meeting will be the impression that he takes away, whether it’s good, bad or indifferent, and you can’t get rid of that. So I’ve got one shot as we all have as at impressing a client, not only with what I know, hopefully, but with what I’m wearing. And John’s right.

John Howard:

If I can just say, the other thing I believe is that actually it shows respect to the people who you meet, and I think that’s important. Especially, if they don’t want to dress like that, that’s fine, but it shows respect that you made an effort to meet them and be professional. I think that’s very important.

Stefano Lucatello:

Yeah.

Paul Mahoney:

Absolutely. They say that you have a fraction of a second, visually, for somebody to form a first impression, and you have four seconds, verbally.

John Howard:

That’s not aa problem for Stefano.

Lucia France:

Well, do you know, actually speaking as somebody who has spent most of lockdown with just one bag of clothes, because I only thought I was going to be here for a week and obviously then knocked down happened, my sister, bless her, she sent me a whole box of my clothes and piled them all up.

John Howard:

That’s nice.

Lucia France:

Folded them all up and they sent it to me, and I feel so much better now that I’ve got my own clothes back.

Stefano Lucatello:

Lucia, you need to get rid of that one you’re wearing today because I noticed it’s got all sorts of holes on it.

Lucia France:

[crosstalk 00:06:59] It’s butterflies.

Stefano Lucatello:

… a few times.

Lucia France:

It’s butterflies.

John Howard:

Lovely.

Stefano Lucatello:

[crosstalk 00:07:01] It’s beautiful. Very trendy.

John Howard:

Very elegant.

Stefano Lucatello:

Very trendy.

Lucia France:

Guys, let’s get back on-

John Howard:

He’s a charmer. He’s a charmer, isn’t he?

Lucia France:

To property, okay. So the same question now is for Paul. What is your view, Paul, regarding interest rates over the next 10 years, please? It can obviously make a big difference to your net rental return per month if it goes up a lot. So, well, basically, can you predict the future here, Paul, please?

Paul Mahoney:

Look, obviously I can’t. I don’t have a crystal ball, but there is one obvious thing, they can only go one direction. We’re at historical low interest rates and they can’t really come down any further unless they go to zero. So therefore, they will increase it at some point. However, I wouldn’t be too concerned about this. And the reason I say that is, I assume we’re talking about buy-to-let mortgages here and how that’s going on. You mentioned that rent, so-

Lucia France:

Yeah, yeah.

Paul Mahoney:

Lenders now will stress test your mortgage for you at an interest rate of 5.5%. So even if you’re borrowing it 2%, your rent needs to be sufficient to cover for not just 5% but 5.5%, but also cover that 125% of the time.

Lucia France:

Right.

Paul Mahoney:

So there’s a calculation there that they run. Now, you used to have to do that for yourself. It’s now done for you. It’s still worth doing it yourself to understand what your break even point is so far is what rates would have to go to for you to start to make a loss. But that is a pretty substantial change to go from 2% to 5.5%. It’s not just a tripling of the rate, because the base rate at the moment, is it isn’t 0.1%? Am I right in saying that?

Lucia France:

Yeah.

Paul Mahoney:

When it came down to have a locked down? Help me out here, guys.

Lucia France:

Let me-

John Howard:

Yes, yes, yes, yes. It’s 0.1%.

Paul Mahoney:

So if you’re borrowing it 2%, the bank’s margin is 1.9 and therefore for the rate to go to 5.5, that is a massive, massive increase from where it is now. So you need to be conscious of these things. You need to stress test your mortgages, but so long as your rent is sufficient to be covering that sort of rate of around 5.5%, I’d say you’re pretty comfortable for the next 10 years at least.

Lucia France:

Great. That’s good. Thank you very much, Paul. Anything to add there, guys, to that one?

Stefano Lucatello:

I think if you try and predict the future, you might not always get it right. It’s very difficult to predict the future. And I agree with what Paul says, that we’re at rock bottom, so it couldn’t go much lower. But it might just stay the same as opposed to going up.

John Howard:

Just quickly, what I would say, of course, if they keep printing money, then people say, “Well, if the government keep printing money like they have been doing, then that will cause inflation.” Inflation has never been a bad thing for the property industry at all, to be honest with you. However, it potentially will push interest rates up. But should you be doing deals if you can’t afford to pay deals or invest in property, whatever, if you can’t afford to pay probably at least double what you’re paying now in interest? If you can’t afford to do that, then really you shouldn’t be doing it anyway.

Paul Mahoney:

What you’ve said there, John, obviously that’s the opinion of a lot of people, that obviously they are printing money at the moment and that might affect inflation. But if we look back at the last recession, they printed a hell of a lot of money then, and it didn’t drive up interest rates.

John Howard:

No, it certainly didn’t. I agree. I agree with that, yeah.

Lucia France:

Thanks very much guys. Thank you for your input there. Let’s move to Stefano then. All of your questions today are about Spain, Stefano. Just so you know that. This person says, I’m looking to move to Spain. I’ve got two dogs that I don’t wish to part with. Are they allowed to return backwards and forwards to England now? And will they be allowed after the 31st of December this year?

Stefano Lucatello:

That’s a good question. Well, I’ve never had a dog in my life, but as I understand it, [crosstalk 00:11:08] dogs and other animals … you do, and you’ll know because you’ve lived in Spain, that dogs need to be chipped up, Lucia. And as such, they have to have their own, sorry, dog passport. In this case, animal passport. If they’re not chipped, they have to go into quarantine.

Stefano Lucatello:

So if you’re in Spain and you’re leaving Spain and you’ve had them in Spain, you’ve got to have them checked both under Spanish law and under British law, United Kingdom law and have its own passport. If you don’t, I’m not even sure if you can leave Spain without it being chipped. But on the presupposed theory that you can leave Spain, when you get to the United Kingdom, however-

Lucia France:

Sorry, Stefano. Let me just stop you one sec, because they’re saying they want to move to Spain from-

Stefano Lucatello:

All right, sorry. Okay, fine. It doesn’t matter whichever way it is. So they’d have to have a passport, you’d have to have it chipped. If it’s not chipped or passported, I don’t think you’d be able to leave the United Kingdom. But if you were to get to the other side, then they would put it into quarantine for 30 days, 31 days, however long it is that they’d have to put it into quarantine for, and then you would have to have it released.

Stefano Lucatello:

I know a friend of mine who went to Italy, for some reason had to have their dog quarantined in Italy once it’d arrived. They arrived by car, and there was something wrong. I can’t remember what it was, but it was quarantined. So I think the ultimate thing is that you can take it abroad. I would make sure it’s chipped before you leave the United Kingdom. Make sure all your animal paperwork is in order before you leave the United Kingdom.

Stefano Lucatello:

Will it change after Brexit? I can’t tell you. I would not have thought that veterinary matters will change. They might get more difficult in the sense that when you arrive, they will actually physically ask you for the proof that he’s chipped, the passport, et cetera, et cetera. Whereas beforehand, until now, you go and come and they don’t really say anything. But I think, especially with Spain’s, having seen all the other things that have been happening in the last few months with when British people, United Kingdom people are applying to become resident in Spain, my understanding would be that perhaps they would be targeted as many years ago were Brits who were coming out of Gibraltar, where I used to live, coming into Spain.

Stefano Lucatello:

We were always targeted to see whether we had the right car things, like a spare wheel, the triangle, the jacket, another set of glasses if you wear specs, the first aid kit and all the other bits and pieces. I think that we will, as Brits, be targeted more on these administrative things when we go abroad into Schengen countries as of 31st, December 2020.

Lucia France:

And if I may add to that as well, Stefano, we got our dog in Spain from a rescue center there. And if you get a rescue dog, which I 100% advocate, they automatically come with the microchip in their neck. You go through on the ferry or whatever, and they just beep their neck like you would in a [crosstalk 00:14:03] something and it beeps.

Lucia France:

And it comes up with all their information, but you do need to make sure that in Spain, they need a rabies jab every year, whereas in the UK it’s every three years. They also have to have a worming tablet within five days of travel. So you have to travel within those five days. So I hope that helps.

Stefano Lucatello:

That doesn’t apply for the owners then?

Lucia France:

No. No, not all.

John Howard:

Perhaps it should in some cases.

Paul Mahoney:

We actually moved our British Bulldog from Australia to the UK, and then back again.

Lucia France:

Oh, wow.

Stefano Lucatello:

Wow.

Paul Mahoney:

It was really easy going from Australia to the UK, and it was really difficult going from the UK back to Australia.

Stefano Lucatello:

What was the difference, Paul, on the second part? Why was it more difficult?

Paul Mahoney:

Australia, I think she just had to have a shot. Well, one shot 90 days before we left to come into the UK. And going back, I know Australia has really strict animal laws, so there was loads of things we had to do to get her back to Australia before she left.

Stefano Lucatello:

Where if she now?

Paul Mahoney:

She’s in Australia.

Stefano Lucatello:

All right.

Lucia France:

[crosstalk 00:15:05] So she’s a very well traveled pooch then?

Paul Mahoney:

Yes.

John Howard:

Can I just say, isn’t it amazing? He’s Australian, he lives in Great Britain. And the great, it means something, yeah?

Stefano Lucatello:

[crosstalk 00:15:18] And he likes the Queen.

John Howard:

He lives in great Britain. The second thing, he’s got a British dog. What can we say?

Paul Mahoney:

Well, she was born in Australia, so she’s at least a little bit Australian.

Lucia France:

She probably has a-

Stefano Lucatello:

Well, it’s debatable.

Lucia France:

It has an Aussie accent by now if she’s been there a while.

John Howard:

Let’s hope not. Let’s hope she’s kept her Britishness.

Lucia France:

Oh, dear. Right. Thank you very much for that, Stefano. Let’s go to John for your first question today.

John Howard:

Yes.

Lucia France:

So John, I’ve currently got a bridging loan on a property, which is currently half finished and behind schedule due to COVID. The loan has to be paid back by the end of June to the bridging company, and I won’t be in a position to do this. So please, what is your advice?

John Howard:

Well, the first thing to do is to ring the bridging company, speak to them and try and negotiate another six months. I doubt they’ll negotiate a year, but you could try six months. They’ll probably sting you for extra interest, but really what choice have you got at this point? Selling a part finished property at auction is painful, and normally will cost you money. So many people are using these bridging loans like banks, and the clue is in the name; bridging loan.

John Howard:

So, a bridging loan, years ago, people would only take a bridging loan out if it was for two months, three months, knowing they’ve got a certain time when it’s going to be paid back. Now, what’s happening is they’re using these bridging loans like banks, and they’re probably paying 10%, 15% interest. If I’m paying 15% interest on deals, I’m not going to make a lot of money. So unless they’re clever than I am, some of these [inaudible 00:17:00], and some probably are, and they’re using bridging money, how on earth do they expect to make any money out of these deals? It’s too much. You shouldn’t be paying more than-

Paul Mahoney:

And John, that’s actually quite a good bridging rate.

John Howard:

… five or six. Well, there you go. It’s madness. 5% or 6% interest is what you should be paying on money to deal, if you can. You don’t want to be paying any more than that. It worries me because I think the market in the UK is two tier. You’ve got the domestic market of people buying their house to live in and flats to live in, that’s one market. Then you’ve got the development market and the investment development market, and this is incredibly vulnerable during this time. And I think will get worse. And people, because they haven’t been able to get on site for three months, some of them they can’t get materials. They’re way behind. And some of these bridging companies aren’t sympathetic at all.

John Howard:

Some of the clearing banks, if you’re with them, I’m sure they will be, the bigger banks, but very few people now have got property with the big banks because they wouldn’t lend enough money and so on. But there is a lesson here, and the lesson surely is if you’re having to use bridging companies at extortion interest rates because they’re lending you 8% loans of value or something like that, probably is why you’re using them, find some more money somewhere. Find a bank, find someone. Just find a different alternative because it’s madness. This is a typical example of what’s going to happen going forward.

John Howard:

But all we can do, no one’s going to read mortgage here at the moment over the thought, because it’s half finished, this, that, and the other. All they can do, I feel very sorry for them, but all they can do is hope the bridging company will extend the loan and I’m sure they’ll charge you more to do.

Lucia France:

What do you think they would add then to the interest, John? If you’re saying a 15 to 20 is actually a good rate, then what would be possible?

John Howard:

Well, I think that rate is extortionate. Paul was more in touch with it than I am, and I’m sure he thinks it is extortionate, but he says that’s what it probably is.

Paul Mahoney:

[crosstalk 00:19:00] Bridging rates usually range … sorry to jump in, John.

John Howard:

Yeah, go on.

Paul Mahoney:

Bridging rates usually range between half a percent and 2% a month.

John Howard:

Oh.

Lucia France:

Right. Wow.

John Howard:

It’s appalling, isn’t it? It’s just appalling. It’s taken advantage of people, really. If they were a big company, that’s a bit different. But if these are individuals who are just getting on the property ladder, it’s criminal, really.

Lucia France:

Also, it is just pure luckiness that this situation happened when it did, and they bought the place when they did, so I feel for them. That’s [crosstalk 00:19:33]

Paul Mahoney:

Just to add to other option that might be available to this person is maybe speak with a specialist broker. Because if their lender does say no or gives them very unfavorable terms, there might be another bridging company that would come in and take it over.

Lucia France:

Oh, okay.

Paul Mahoney:

Rather than just giving up.

John Howard:

My only concern with that, Paul, is because it’s half finished, it’s very hard to get another company in it at this point. If it was finished, I agree with you. Half finished is very difficult, I think. [crosstalk 00:20:01] And having said that, the person calls …

Paul Mahoney:

Even with that, the bridging companies … sorry, go ahead.

John Howard:

Sorry. The first question is, Paul, is, have these people got the money to finish it?

Paul Mahoney:

Yeah, yeah. [crosstalk 00:20:12] Especially the point or the reason I suggested that is, especially the more expensive guys, the reason they charge those extortionate rates [crosstalk 00:20:21] is they probably would lend on something like this. They think very much outside of the box or they’ll lend to pretty much anyone because they’re … not anyone, but within reason, because the rates are so high and they can take an equal risk.

John Howard:

By the way, we’ve all got issues at the moment. I’m paying 16,000 pounds a month out in empty rates on properties that are finished, which I’m in the process of trying to sell. So it’s relative. And people forget about rates with properties. When they’re finished, these local authorities now are on to you from day one, and there’s no negotiation on that. If the property is finished, you’ve got empty rates.

Lucia France:

Well, that brings us nicely actually onto our next question for Paul here, talking about rental returns on buy-to-let properties. This person says, everybody seems to forget the real cost of repair and insurance. That can cost a lot of money during the year. So, Paul, what would you suggest is the best way to mitigate this?

Paul Mahoney:

This is one of the reasons that we tend to focus mostly on new or near new properties.

Lucia France:

Right.

Paul Mahoney:

Because first off, if you’re buying new, they come with a whole range of warranties. So you’ll have a two year builder’s defect period, which covers pretty much everything for the first two years, all minor defects. A good example is I bought this place 18 months ago. A few weeks ago, one of the mechanisms on the windows stopped working. I submitted a defects report, it was fixed a couple of days later, headache and cost-free.

Lucia France:

Right.

Paul Mahoney:

Now of course, if you’re a landlord and then your property is older than two years, that would be your headache and your cost. And quite often, if something is going to go wrong, it will go wrong within the first couple of years. You’ve also got your fixtures and fittings under warranty. Your oven, your dishwasher, your fridge, they all come with usually five to seven years of manufacturer’s warranty. And you’ve got a 10 year structural warranty. That covers the structure of the building, water ingress, design defects, all that sort of stuff.

Paul Mahoney:

So it results in a much lower cost, lower maintenance property, so long as you’re buying it at the right price, because that’s probably the biggest objection we get to buying new, that sometimes new properties can be overpriced. But they’re not always overpriced. And certainly, if you’re buying at the right price and you’re getting those insurance policies that make them more passive, that’s ideal in my view. A lot of people like period properties and Victorian houses and that sort of thing. I couldn’t think of anything worse as an investment to be honest.

John Howard:

Thank you. Thank you very much. I’ve got a great two listed property, and you’re right by the way.

Paul Mahoney:

[crosstalk 00:22:58] It’s like buying a vintage car.

John Howard:

Yeah, spot on.

Paul Mahoney:

You take it for a spin, something needs fixing.

John Howard:

Yeah.

Paul Mahoney:

As an investment, that doesn’t make any sense to me. I want a box that generates me money, and I don’t want to be getting my hands dirty. I don’t want to be fixing toilets every weekend. I don’t really consider myself a landlord, I consider myself a property investor. And therefore, that type of property makes more sense for me. Lower maintenance, lower cost.

Paul Mahoney:

So this person is concerned about maintenance costs. I’d encourage them to buy new properties that have all these warranties, and then they shouldn’t have to worry about it for at least the first seven to 10 years, until the property might need something done to it.

Lucia France:

I guess in the meantime, make friends with local trades as well. Give someone a shout, that can help you out. Let’s go on to Stefano’s next question. Stefano, we’re back to Spain again here. I own a house in Spain, along with my partner. I feel like we should sell, as I don’t know what the implications will be once Brexit goes through on the 31st of December. We’ve added-

John Howard:

Good luck.

Lucia France:

Sorry? Sorry, John?

John Howard:

Good luck.

Lucia France:

Well, we’ve added a lot of value to the property, and as estate agents have verified, we definitely get back more than we paid for it as it’s in a very sought after and well established area. I think it’s almost impossible for us to become residensia now, as the backlog of people doing this is so big. What would your advice be?

Stefano Lucatello:

Stay put, don’t sell.

Lucia France:

Why is that?

Stefano Lucatello:

Because the market is so complicated as it is here, but it’s so complicated abroad with Brexit. Not only Brexit, but with COVID-19. That the market at the moment is showing false readings. My view is that if you are not a seller that needs to sell, then I would stay put. It’s only a question of months. I would review the situation January of next year.

Stefano Lucatello:

My view is that you would not get as much back for your property as you think, even though you may have added value to it with a swimming pool, whatever you’ve added value to it. The price, remember also those state agents usually upsell your property because it’s in their own interest to upsell a property. So they’ll put it on at, let’s say, 750,000 euros if it’s a beautiful property. In their own mind, they know that they’re not going to get 750. So they leave it there for a while, then they come down after a while, and a bit more and a bit more. Had you put it on the market originally for 500, you’d have sold it straight away.

Lucia France:

Right.

Stefano Lucatello:

It’s a lottery. I would stay put for all sorts of reasons aside for Brexit and for COVID-19. Enjoy it and don’t have any knee jerk reactions as you wouldn’t in the United Kingdom as well. I think the same policy applies in the United Kingdom that, if you’ve no reason to sell it, if you’re not what’s called a motivated seller because something is pushing you to sell, then I would stay put. And I would just sit back, just keep it in its beautiful condition and start the process of selling it if you still intend to selling it in January 2021.

John Howard:

I cannot believe we’ve now got Stefano answering questions about … You ought to be an estate agent, you should. I thought you were lawyer. You’re now giving advice on property sales and what people should do. The fact is you’re right is a bit annoying.

John Howard:

The one thing I would say is this isn’t going to get better next January. You’re stuck for a good three years, a good three years. This isn’t going away anytime soon. Unemployment in Spain, in a place like that, it’s going to be horrific, much worse than in England. And in England, they’re talking about potentially 4 million out of work. So this isn’t going anywhere. You want to button down the hatches, enjoy your home and forget about selling it. Just forget about it because it isn’t going to happen unless you want to take a big, big dive in its perceived current value.

Lucia France:

And in turn it-

Stefano Lucatello:

What I doubt … sorry, Lucia, is that my view is that the only places that you should consider selling in are major capital cities like Rome, Milan, Paris, Madrid, because then, there’s always someone. Monaco, there’s always someone who wants a pied-à-terre for a weekend with money to pay. But apart from that, I wouldn’t be selling anything.

John Howard:

Stefano and I agree, which just doesn’t always happen.

Lucia France:

That’s not a common occurrence on the show.

John Howard:

No.

Lucia France:

But just to answer the second part of the question, Stefano, they say it’s almost impossible to become residencia now, as the backlog of people doing this is so great. Have you heard any more of that? Because I remember you saying in previous episodes that some of the … I’ve forgotten the name of them.

Stefano Lucatello:

Procedures. The administrative procedures?

Lucia France:

Yeah, that they’ve just stopped taking inquiries about that.

Stefano Lucatello:

The NIE. Well, it is the case now that NIEs, the alphanumeric codes that you need, the fiscal code that you need to buy property in Spain, as you know because you’ve got one, they’re very difficult to get at the moment because they’re backlogged, and the procedure very slow, and the police are taking their time in doing them.

Stefano Lucatello:

One thing to say is though, the fact that you don’t have residencia, IE, the resident permit, by the end of this year is not a bar to you getting residencia. All you have to have done is put the application in by the 31st of December. And I’m not sure about this, but when I was doing a webinar the other day on Italy, I learned the estate agent was telling me that the same thing happens in Italy, and it’s not a close. You can actually put it in by the end of June 2021. So I’m not sure if the same applies in Spain, I can find out.

Stefano Lucatello:

But all you have to have done is put the application in by the 31st of December, and then you can get it in due course. You can stay on the basis that you’ve put your application in.

Lucia France:

Right.

Stefano Lucatello:

But remember, there’s always the 90 day rule which applies, which is if you stay more than 90 days, you have to have applied for it.

Lucia France:

Okay, great. Thank you very much, Stefano. That’s fantastic.

John Howard:

Good advice, good advice.

Lucia France:

Very good advice.

Stefano Lucatello:

Thank you, John.

Lucia France:

Okay, then. Back to Paul for your … No, we’re not on to Paul. Sorry, John. I do apologize. John, do you think that the UK property market will reduce in value over the next two years? And if so, how do you think the banks will react to that happening and their loan to value ratio?

John Howard:

Are you sure you don’t want to ask Stefano that, because he’s the property expert now, isn’t he? Have you noticed?

Stefano Lucatello:

I’ll just add a comment after you’ve finished expounding.

John Howard:

Yeah, thank you. So, do I think the property market is going to reduce over the next two or three years, is the question?

Lucia France:

Yes.

John Howard:

As I’ve said, I think maybe in the last program when someone asked me about values, at the end of the day, like I said, there’s a two tier market in my view. There’s the domestic market. And now the domestic market if you talk to Savills and Savills’ reports they’ve done, and all these big companies doing these regular reports on the market, they think if you add them all up and take an average of those reports from all the big guys, then it looks like they’re talking about a 5% to 8% drop in the residential domestic market.

John Howard:

Now, as Paul always says, and Paul’s taught me this, and he’s absolutely reminded me, not taught me, but he was absolutely right, the UK property market is a micro-market. I said before, last time in 2008, we’ve got a number of flats in Brighton. They never went down in price. Other places we had properties, they went down 30%. So it is a micro-market. And in certain areas, certain houses won’t go down at all, others will go down more. If you’ve got Rolls-Royce in Derby, for instance, in Derby and they shave 5000, 6000, 7000 jobs, then obviously, you don’t want to invest in Derby. So if there’s all these, so it’s a micro-market.

John Howard:

On the domestic side, I think it will go down a little bit. On the, what I call the development market, the investment development market, much more vulnerable. The reason it’s much more vulnerable is because you’re going to have unemployment going through the roof without question. No one is disagreeing with that. You’ve got a recession, potentially a depression. You’ve got interest rates you could loan, and the banks are holding firm, which is good at the moment. But of course, banks won’t lend the same loan to value as they do at the moment. Not to commercial people. So, we’re talking about the business of development, the business of investing.

John Howard:

So I’m not talking about the amateur market, where with all due respect, people buy a property and keep it 25 years. I’m talking about the more sharp end of it all where, say, you have a five year deal with a bank on your overdraft, on your property investments and developments, and the five years comes up. You renegotiate with your bank. Normally, they’d say, “Yeah, go again for the next five years.” What are they going to say this time? They’re going to say, “Well, your loan to value was 70%. We now want to reduce that to 60%. We’ve just had it all revalued. And guess what? You need to put a load of money in to enable us to carry on lending to you because the loan to value, well, we want to lend you less. And secondly, we just valued your property and it’s gone down 10%, your portfolio.”

John Howard:

So all these problems are going to boil up. They’re not going to boil up tomorrow, but over the next two or three years, they’re going to boil up. And that will have a serious effect on the property market.

Stefano Lucatello:

Can I just add something to John’s comment?

John Howard:

Please do. I thought you would.

Stefano Lucatello:

I think you’re right.

John Howard:

Thank you.

Lucia France:

What?

Paul Mahoney:

[crosstalk 00:33:00] it as well. What’s been interesting it’s all these things are great in hindsight, and we can only talk about what we think might happen in the future. But what’s interesting at the moment is we’ve had locked down, that’s now easing a little bit. The mortgage and property market was put on hold during lockdown and reopened, if you like, last week or the week before. The mortgage market has bounced back really strongly, which is impressive. In fact, new products have been released at higher loan to values than were available pre locked, which seems counterintuitive, but it’s the truth.

Paul Mahoney:

So I think that’s really interesting, that the lenders are seeing an opportunity to get back into the market. Now is a good time to be taking mortgages. So far as what John said, I think maybe two or three years, I don’t think it’s going to be a downward spiral for that long. At some point in that two or three years, we’re probably going to have some form of trough, some form of reduction in prices overall. I think everyone accepts that.

Paul Mahoney:

But on the basis that as John mentioned, you can’t invest in the UK property market. There’s not really such a thing. No one has enough money to buy all the properties in the UK and get a good enough spread. You can only buy individual properties in individual areas. And certain areas where I’m buying at the moment and our clients are buying, we’re confident we’ll do well regardless of the direction of the overall property market. Therefore, the logic of holding off until maybe the price is reduced by 5% overall, when at that point in time mortgages are likely to be far less available …

Paul Mahoney:

So, let’s say, for example, yes, you peak the market right at the bottom and you get a 5% or 10% discount for doing that. But the larger values have come down 15% to 20%. That doesn’t make any sense, unless you’re a cash buyer and you’re willing to use that cash to take advantage of the opportunity. It doesn’t make much sense as a standard buy-to-let investor, someone who’s looking to build a portfolio passively to be trying to peak troughs in the market. Because it’s more difficult to get financed when you’re at the trough of a recession. That’s what I’ve always said.

John Howard:

Paul, what I’ve always said is that if you’re a buy-to-let investor and you’re borrowing the money over 20 to 25 years, I don’t particularly disagree with you. It doesn’t really matter when you buy. At the end of the day, we know that in 20, 25 years time, unless there’s been some dreadful disaster that you would have at least doubled the money from what you paid 25 years earlier. So I think that’s not the sort of market I’m talking about.

John Howard:

I’m talking about, as I explained, the hard nosed end of it, the sort of end I’m at where it’s dog eat dog, and there’s big capital gains to be made and there’s big capital gains to lose. It’s not for everyone. And the buy-to-let market is a fairly safe market compared to what I’m talking about.

Paul Mahoney:

On that note, John, in the property development market, would you not agree with me that unless you have the capital to take advantage of opportunities at the trough of a recession, it’s going to be very difficult to get any form of finance at that point in time anyway?

John Howard:

Yeah.

Paul Mahoney:

So if you want to do a property development, maybe doing it now could be a good idea unless you want to wait two or three years.

John Howard:

Well, if you look at what I’m trying to do at the moment, and whether I’ve got it right or not, who knows, but I’m looking to buy residential portfolios, which with income, because I think that’s pretty safe, which is similar to what you’re telling your clients to do. The difference is I’m buying in bulk and then I’m going to trade them out individually, hopefully to other people who will keep them for a while and then trade them out.

John Howard:

I’m not looking to do any detailed, big developments. And the reason for that is although I could probably fund some, the reason for that is I don’t know where the market is going to be in two or three years time. So, I know that if I’ve got residential property with a yield, that yield will save me. I can pay my mortgages. At worst, I can pay my mortgages. At best, I can sell them at a profit, so that’s a very safe market to be in. Where people are incredibly vulnerable at the moment or where they’ve got a project three quarters away finished, they’ve overrun, normally the bank would help them out and say, “Well, don’t worry. If we need to lend you another couple of 1000 to get the project finished, we’ll do that.”

John Howard:

Going forward, these banks probably won’t say that, because that’d be worried about … Banks are incredibly cautious and they’re not going to help out other people, other clients, if they can avoid it. And it’s very, very dangerous. Very vulnerable. If you’ve got a part finished development at the moment which isn’t going well, you’ve got to really question that, they’re the most vulnerable. Because one, it’s not finished, they can’t rent it out. Two, it’s not finished so you can’t sell it or refinance it. So they are in a very vulnerable position, most people. Luckily, everything we’ve got is finished at the moment. So we’re okay.

Lucia France:

Thank you very much for that, John. And thank you too, Stefano and Paul, as well for all of your input today. That’s the end of today’s show. If you would like to send us an email, please do. Ask, ask@aquestionofproperty.co.uk is the email address, or just leave your question in the comments. Thank you very much for watching. Thanks to you guys. See you next time. Bye, bye.

 

A Question of Property

A Question of Property – Ep 20 – Paul Mahoney, Stefano Lucatello & John Howard
A Question of Property – Ep 20 – Paul Mahoney, Stefano Lucatello & John Howard
read more
A Question of Property – Ep 19 – Paul Mahoney, Stefano Lucatello & John Howard
A Question of Property – Ep 19 – Paul Mahoney, Stefano Lucatello & John Howard
read more
A Question of Property – Ep 18 – Paul Mahoney, Stefano Lucatello & John Howard
A Question of Property – Ep 18 – Paul Mahoney, Stefano Lucatello & John Howard
read more
A Question of Property – Ep 17 – Paul Mahoney, Stefano Lucatello & John Howard
A Question of Property – Ep 17 – Paul Mahoney, Stefano Lucatello & John Howard
read more
A Question of Property – Ep 16 – Paul Mahoney, Stefano Lucatello & John Howard
A Question of Property – Ep 16 – Paul Mahoney, Stefano Lucatello & John Howard
read more
Want to be the first to know what’s going on in the world of property investment? Subscribe to our newsletter below.
The property pension plan book icon

Take Control Of Your Future With Buy To Let Investment, get The Property Pension Plan for Free!

Find Out More
Get in Touch

Book a complimentary property and/or finance consultation

back-to-top