A Question of Property - Ep 6 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 6 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello everybody and welcome to A Question of Property. My name is Lucia France and we have our panel of experts with us here today. John Howard, our property expert with more than 40 years experience in the industry, author of four books is it now John on the subject?

John Howard:

Three and one in the oven.

Lucia France:

One on the way. What’s the newest one that’s about to come out?

John Howard:

It’s about the domestic market because most people move up once every seven years and they’ve got to remember what to do and what not to do and there’s a lot of tips in there about buying at any time really, not just the first time buyers.

Lucia France:

Great. We also have a Stefano Lucatello, senior partner at Cobalt Law International Property Lawyers and our international property expert. Stefano, your book is available now as well, isn’t it?

Stefano Lucatello:

There it is.

Lucia France:

There it is. Investing in foreign property and John’s read it as well I believe.

Stefano Lucatello:

Yeah. It’s on its second edition now.

Lucia France:

Great.

Stefano Lucatello:

It had a chapter on Brexit. John and I have discussed this topic long and long and often. [crosstalk 00:01:11] Absolutely.

Lucia France:

We have got a question about the special relationship that you guys have on this show.

Stefano Lucatello:

Oh, no. Here we go.

Lucia France:

We also have joining us, Paul Mahoney, head of Nova Financial. Welcome to Paul. Paul, you’ve got your book there as well, seeing as we’re on the topic of books.

Paul Mahoney:

I do. Yeah.

Lucia France:

The Property [inaudible 00:01:35].

Paul Mahoney:

International bestseller. I’m not sure anyone else on the panel can say that.

Lucia France:

I’m not sure either.

Stefano Lucatello:

My forward is by an international bestseller.

Lucia France:

Fantastic. Well that’s a good to know. I’ll be promoting my book next week. I’ll make it better work of finishing.

Paul Mahoney:

Excellent. Is that on yoga?

Lucia France:

No, it’s actually about, it’s actually quite scary short stories. A few of them have been performed on the No Sleep Podcast, if anyone would like to listen to that. We’ll come back to that next week. Right. Okay. Let’s start then with Paul today. We’ve got a question which I think is quite topical for a lot of people who have been furloughed, obviously due to the COVID-19 situation. This person who’s written in has said, “I’m currently furloughed and I may unfortunately lose my job over the next six months. Should that affect me purchasing my first buy to let property?”

Paul Mahoney:

Okay. They’re saying it’s their first buy-to-let property. The main thing be concerned about I would say if they’re potentially going to lose their job and then looking at buying the first buy-to-let is about having the income to get a mortgage.

Lucia France:

Right.

Paul Mahoney:

Now they haven’t mentioned whether they already own a home. If they do, that puts them in a better position.

Lucia France:

Okay.

Paul Mahoney:

There are some lenders who will lend to you without having employment income so long as you have the resources to support yourself.

Lucia France:

Right. Okay.

Paul Mahoney:

If you can show that you have funds, for example, to support your lifestyle, some lenders will lend to you without having a minimum income solely based upon the income that the property you’re buying is going to generate.

Lucia France:

Right. Okay.

Paul Mahoney:

That’s one thing to consider, but being a first time, seems they’re going to be a first time landlord, that they would be pigeon-holding themselves a little bit trying to get a mortgage without having a job.

Lucia France:

Right. Okay.

Paul Mahoney:

Now that’s not so much the case for somebody who already has buy-to-lets. There’s quite a lot of lenders who will lend to you if you’re already a landlord without having employment income, especially if you’re in between jobs. That’s not so much of a concern because it becomes much more about the properties you’re buying than it does your personal situation. As a first time landlord, there is a slightly smaller market of lenders and products if you were to be between jobs when trying to get a mortgage.

Lucia France:

Yeah. Is that… Sorry. Is that quite unusual for somebody to get a mortgage in that situation, or does it happen quite often?

Paul Mahoney:

If they don’t have employment income?

Lucia France:

Yeah.

Paul Mahoney:

It depends on the situation as I say. If they don’t already own home and they’re not already a landlord, they would struggle to get a buy-to-let mortgage without having employment income because they are I suppose considered that the higher risk borrower because they don’t have any other assets and they don’t have employment income.

Paul Mahoney:

It would depend on their resources. If they’ve got a few million pounds in the bank, they might be okay but if they’re buying the first buy-to-let, they probably don’t. Therefore, if I was there, I probably would want to secure my employment situation before launching into buying a buy-to-let and trying to get a mortgage in, in a bad scenario. The other thing to consider at this very point in time is that the mortgage market is, this is a difficult one to navigate right now. A lot of lenders have closed applications, especially at the high loan to values. Pretty much, the only real mortgages that are, that are relatively easy to progress at the moment, at the much lower loan to value mortgages because lenders are comfortable progressing them on paper, on, on desktop valuations as opposed to in person surveys.

John Howard:

Pathetic aren’t they really, Paul. They’re pathetic aren’t they. These lenses, honest to God, they are pathetic. What do they think the hell’s going to happen? No, I mean it’s bonkers. Bonkers.

Paul Mahoney:

Yeah. It is a bit crazy, especially when you consider the fact that the average maximum for lending is 75% yeah. You’ve still got 25% equity there. I don’t think anybody thinks that the market’s going to fall by 25% plus. I wouldn’t have thought, but someone might argue against me there, but yeah. There’s plenty of equity there. It’s a fairly safe and robust lending market at the moment, much more so than any previous financial crisis or anything such as that. Yeah. I agree, John. They are a bit crazy so far as putting things on hold. I don’t think it should be happening, but one question I’m getting a lot at the moment is about lenders withdrawing from the market.

John Howard:

Yeah. Absolutely.

Paul Mahoney:

I don’t think that’s actually the case, John. I think that’s been sensationalized a bit. Lenders are pausing applications, they’re not withdrawing from the market. I’m very confident that those lenders will be back to the market once all this COVID-19 and lockdown stuff is over.

John Howard:

Presumably, Paul, at a slightly lower loan-to-loan ratio than they are now.

Paul Mahoney:

I don’t necessarily think so because the logic we’re being given by lenders is that the two main reasons they’re not able to progress applications is one, valuations can’t happen and two is they’re under resourced and overworked. Under resourced because of the current situation, people are sick and people working from home, but also the fact that they’re getting a massive amount of inquiries about mortgage holidays, so they have to deal with these inquiries [crosstalk 00:07:24] borrowers, whereas therefore, they have to deal with their current book they find it difficult to be taking on new loans. That’s the logic we’ve been given as opposed to the fact that they’re concerned the market’s going to tank.

Lucia France:

Right. Thanks, Paul.

Stefano Lucatello:

Can I just put my penny’s worth in? Just as, as the voice of reason here amongst all three of us. [crosstalk 00:07:49] agree with me. John was in agreement. One thing I would say I would be safeguarding whatever money you’ve got and trying to live and I wouldn’t be thinking of buying a buy-to-let property at the moment. I think you need to survive and look after your family and buy food and maintain what you’ve got as opposed to trying to risk something. The second thing is most surveyors don’t actually go and do evaluation as such. They do a drive by evaluation. Why can’t they do a drive by evaluation in the car?

John Howard:

We don’t always agree, but I agree with that. This business about not doing valuations is just crazy. Get in the car. I mean it’s… You’re allowed to work if you can’t work from home, so just get in the car and drive past the damn thing. Most of the time they’ve got comparables anyway on computers, all these different companies of what they’re worth, what they were worth. I agree with you there. I find that a very weak argument.

Lucia France:

John, can I just…

Stefano Lucatello:

Sorry, Lucia. Isn’t the point that the banks in this torrid time are having the money given to them by the Bank of England. All the rest of it. It’s just them that are not letting us borrow the money from them. They’re retaining it. Is that right, Paul and John?

Paul Mahoney:

Yeah. I don’t think liquidity is a problem. It’s just the fact that, well the logic, because obviously I have a house brokerage then I’m the principal of the logic that lenders are giving to us so those two points, valuations and under resourced and overworked.

John Howard:

Well, we’re all that aren’t we, Paul but we get on with it.

Lucia France:

Well yeah I was just going to come back to you there, John. You seem to be quite vehement about the lenders being pathetic and you just?

John Howard:

Well, I mean come on. All this business about the first thing they all do is of course is run scared in any slight turbulence, and you can sort of understand that. The government have said to these banks, I know they have for a fact, they’ve said to them they want them to support people, they want them to carry on lending. The one way of the property market dropping is for these banks to behave irrationally.

Lucia France:

Right. Yeah.

John Howard:

Irresponsibly, and not getting on with valuations, not letting people move when they want to move house, which really causes virtually no risk at all to anyone at the moment is crackers. The housing market is the most important industry in the UK because if you buy a house, you buy a kitchen, bathroom, curtains, carpets, it goes on and on and on and the government know that and they need to get us back, opened up these estates agencies and everything else was quick as they can.

Lucia France:

Great. Okay. Thank you very much, John. John, your first actual proper question for today.

John Howard:

Yes.

Lucia France:

“I have been a proper property investor for a few years now, but I’m looking to get into property development, which is an area I know that you, John, do a lot of. Should I wait or should I try and jump in over the next few months?” Wait for this situation to be over with.

John Howard:

Okay. I’m impressed that they all are proper property developer, something about not often described as myself so I’m well impressed. I think at the moment personally I’m looking at deals that I can do within six months or I’m looking at deals that are longer term, that sort of thing Paul buys where he’s, buy-to-lets for the next 25 years. It’s all very boring but all very safe. What I’m not looking at is doing developments which are going to be two years before I can sell them. The time you bought it, got planning, developed it, built it and then sold them because I’m not sure where the market’s going to be in two years time, two to three years time. I don’t know where it’s going to be. I would certainly look round to opportunities, especially part-finished opportunities where banks have pulled it back from the current owner because they’ve messed up and they can’t finish it. I’d be looking at those because they’re quicker to finish then they all starting from scratch.

John Howard:

At the moment, I think you need to be a little bit fleet of foot because if you’re in and out fairly quickly, then if the market does drop, the damage is is limited, whereas if it’s, if it’s two years it could be, we don’t… We just don’t know. We don’t know. We don’t think it’s going to drop that much but we’re not sure so why take that risk. Certainly start looking around, start getting your experience in developing by best negating the situation. But just hold off a little bit.

Lucia France:

I just like to give Paul the chance to come back at that boring comment there.

Paul Mahoney:

Look I appreciate…

Lucia France:

[inaudible 00:12:36].

Paul Mahoney:

As general approach to property investment I suppose is a little bit boring in comparison to what John does as a property developer, but that’s very intentional. The fact that we can get strong double digit returns at 20% plus on the cash invested without taking much risk at all, I don’t think those returns of boring, but we focus more on passive property investment rather than going out and getting our hands dirty. That suits a broader range of people than property development does.

Lucia France:

Great. I just thought I’d like to give you the chance to reply there, so thanks.

John Howard:

He did. He did.

Lucia France:

Okay, let’s move on to Stefano’s First question for today. “I own a property in Spain which I let out for holiday purposes as well as use it myself some of the year. I rely on the income that this generates. Do you think that in the next 12 months I will be able to let it out as I have done in the past?”

Stefano Lucatello:

When he says it relies on the income, does he rely on the income to pay any debt that’s has been incurred on the Spanish property, or does he rely on the income for his general?

John Howard:

I’d imagine he relies on income to live off in the UK.

Lucia France:

I mean, it just says I rely on the income that it generates, so yeah.

Stefano Lucatello:

Right. Well, Spain, like Italy, France and Portugal has in the last two years introduced rules and regulations as to landlords letting. It’s a big fiorin, especially on the islands in Majorca, Menorca and the Balearic Islands because all these English people predominantly who let out their properties were not respecting local laws and bylaws on environmental health, human health and all the rest of it, such as smoke alarms and electrical standards, wiring standards and gas certificates, stuff that John and Paul do all day long, sort of things that when, especially Paul, when he buys a buy-to-let and then it rented out, you can’t rent it out without the proper gas certificates, electrical certificates and all the other bits. The people abroad were not doing this. I know it’s slightly off what was being asked, but I just thought I’d say the English people think that they’ve been got at by foreign authorities and they haven’t. What happened is the foreign authorities brought themselves up to decent levels of protection.

John Howard:

English, standard English.

Stefano Lucatello:

You’re right, John. English standards. The English people got away with it for many, many years and now they’re having to spend money on putting their properties right and bringing it up to…

John Howard:

Rightly so.

Stefano Lucatello:

Yeah, absolutely. For protection everyone. Whether we can rent it out or not in the next 12 months is debate is a problem all sorts of fronts. Why? Because as I was saying at the beginning, at Airbnb, when we’ve touched on this before, governments have imposed now restrictions of 90 days in most cities and most places have rental per for rental purposes because they are frightened and into protectionism and they’re frightened, especially in Spain and the islands and Balearic Islands came out with it first. They were saying, “Well hold on a minute, we’ve got all these people, foreigners doing Airbnb. Our hotel industry has been decimated because it’s so small as it is, so we’re going to bring in new rules, which is that you cant rent it out for more than 90 days.” That is now Europe wide. It also applies in London if you apply it properly.

Stefano Lucatello:

That’s the first thing. Whether he can continue to rent it out, I suppose you will be able to. My view is this, that if you buy a property for rental purposes abroad, I would be tending to rent it out to someone like a professional couple who are going to be in there for four or five years, who will pay you a lesser rent than you would get in the holiday months to see the sort of June to September months, but at least you know that you are getting a constant, not the highest rental but a constant rental every month for the next four or five years. Enter into a proper rental agreement because remember abroad, another thing, it’s not as easy to get tenants out once you’ve got them in. Get the right tenant in, get them in for a long period, lock them in and get a professional set, husband and wife, whatever, and you know they’re in there and at least you know you’re getting a rental income, which will cover your outgoings, your mortgage if you’ve got one, whatever.

Stefano Lucatello:

You need to be careful on all sorts of fronts. One, the rental agreement, legal get proper legal advice, two get the right client. I wouldn’t go for a summer months only rental, I would go for a local person who can occupy your premises and we’ll look after them and you’ll get a lesser rent, but you’ve got a constant rent.

Lucia France:

Yeah. Constant use.

Paul Mahoney:

Question there, Stefano. The 90 day Airbnb rule, is that policed at all?

Stefano Lucatello:

Yes. I know in Italy and France, not so much in Spain, but in Italy and France, in Italy, in Rome now and in major cities where people have bought rental incomes for the purpose of renting out, especially in Rome, where it’s a big tourist thing. I’ve had a client of mine who’s actually had the police, the local police officer go round and say, “Show me your rental agreements, show me how you work this,” and then they’ve actually said, “Right. Go onto Airbnb now and show me how many days you’ve rented it out” and people now being fined for it.

John Howard:

I also know that in Barcelona, Paris, New York or Amsterdam at Airbnb are constantly being fined big amounts of money.

Stefano Lucatello:

Yeah.

John Howard:

Yeah.

Stefano Lucatello:

People are going round this. They’re getting around this by changing the rental vehicle. They’re saying, “Okay, I have 90 days with X, Y and Z limited. I’m now trading under A, B, C.

John Howard:

Got you. Yeah.

Stefano Lucatello:

It’s not right and it’s illegal.

John Howard:

It’s not right. Now.

Lucia France:

I’d just like to add to that question as well, Stephano, is that some of my friends who were still living in Spain, you literally can’t go anywhere at the moment. Lockdown is so strict there. There’s all kinds of fines imposed if you’ve found to be more than two of you in a car, more than one of you in the car. I think at the moment, certainly for the next 12 months he might find it very difficult to, or this person might find it very difficult to rent out.

John Howard:

Yeah.

Lucia France:

Okay. Let’s move then to John for your next question for today. “You seem to disagree a lot with your other panelist Stefano, on occasions. Why is that?”

Stefano Lucatello:

I’m the voice of reason. He’s not the voice of reason.

John Howard:

Can I just say what sort of question’s that? What I would say…

Stefano Lucatello:

Quite clearly a viewer who understands that what I say is correct and what John says a little bit…

John Howard:

What I would say is also Stefano is a lawyer and I’ll have to give him credit. He’s a very good lawyer and he’s very precise because that’s how he’s trained to be. It’s very really black and white and we do disagree in clash on occasions but we are good friends. We do clash but that’s quite healthy. At the end of the day, he’s got a view, he’s got a professional view if you like and I’ve got a more of a dealing view on occasions and I think that’s the difference. I think if we were in business together, it will be a great partnership. The reason for that would be because you’d have the voice of reason, which is Stephano and then you’ve got me pushing things forward and trying to get things done. Actually…

Stefano Lucatello:

Me pulling you back.

John Howard:

It’s a good lesson there, really good lesson there. If you’re going to go into partnership with so many business, my business partner who’s about to retire says he’s had enough for me after 28 years, which I can’t believe. He’s the counselor and he’s very cautious and professional, and I’m more… I’m cautious, surprisingly doing my thing, I am cautious, but also, I push forward and he says we can’t quite do it yet, John or whatever. Obviously I respect what he says.

Lucia France:

It’s a balance.

John Howard:

A balance. I respect what Stefano says. That’s just how, that’s just how it is. There’s no point if you’re in business having the same person, type of person. You want a different person and they want to do different jobs as well. There’s no point in you both going to look at every property in the world, you want one doing finance probably, one out there doing the deals for instance.

Lucia France:

Yeah.

Stefano Lucatello:

John’s right. As a lawyer, we’re trained to work within parameters and to use whatever laws we have to the best of our client’s advantage, the best advantage of our clients. John’s got, if I’m not wrong, John, you didn’t go to university, whatever did you. You’ve just got to the experience of life. I think we’re a bit different.

John Howard:

That’s nice, isn’t it. Rub that one in. Not that I’ve got a chip…

Stefano Lucatello:

I’ve got to get one over you at least. Come on.

John Howard:

I’ve got three O levels.

Stefano Lucatello:

All right. The point is, the serious point you’re making is that John is a very experienced developer. He knows his stuff. Why? Because he’s talking from zero. He’s been, he’s trained, he’s worked with people, he’s learned to use it, learned to use his trade and he knows his trade very, very well. I mean, look, he’s written four books after all. A man who’s written four books must know everything he’s talking about.

John Howard:

I’m not so sure my English teacher would say that.

Stefano Lucatello:

You didn’t write the book, someone else wrote it for you.

John Howard:

I wrote them.

Stefano Lucatello:

Anyway, seriously, I mean, it’s good to banter. We do have good banter, we do disagree, and I think it’s usually the case that we do end up on the same page, but we can…

John Howard:

It’s healthy. It’s health.

Lucia France:

Yeah.

Stefano Lucatello:

Paul’s the one that’s quiet. Paul’s the one that’s the voice of reason.

Lucia France:

Well, I think Paul and I are just quite sensibly keeping out of this situation.

John Howard:

Lucia, I’m not being funny. How boring is it on some of these panels where no one ever has says anything against each other, no one ever disagrees. It’s crazy. That isn’t true. They’re not being honest with themselves if they are being like that.

Lucia France:

It doesn’t work. Life doesn’t work like that. Everybody’s got different opinions.

Stefano Lucatello:

What do you think Paul?

Paul Mahoney:

I agree.

Lucia France:

Well, it’s good that we’ve got, we all feel comfortable enough to be ourselves here and say what we think. We’ve not got very long left guys, so I’m just going to move on to Paul’s last question for today here. “I’ve been looking at buy to let opportunities in London, but property seems quite expensive there. Should I look at other areas?”

Paul Mahoney:

Okay, so this is quite a common question too. We’re based in London, most of our client base is in London. Go back a few years, it was much easier to get a good opportunity in London that stacked up both from the numbers and growth potential perspective. There’s been quite a few changes in the market over the past few years, so we’ve had section 24 which has changed the way that buy-to-let mortgage interest is able to be tax deductible, same duty premiums on buy-to-let properties and also mortgage serviceability changes. All of those changes have impacted types of properties in different ways, and they’re mostly hurt high value, low yield properties the most because they are much harder to stack up because you can borrow less, you’re paying much more stamp duty. Therefore, from a numbers perspective, they’re much more difficult to make work. Whereas low value, high yield properties are much easier to make work. A lot of cases have actually benefited from these changes because it’s caused a shift in the market.

Paul Mahoney:

The old cliche approach of buying in London just to break even just for growth. It doesn’t work as well anymore because for example, the average property price in London is about 500,000 pounds and you can only borrow about 55 to 60% against the average London property now, given serviceability changes. Therefore, you are applying at least 200,000 to a property that is probably just going to break even after all your costs. You’re neutral cashflow position and therefore you’re speculating on capital growth in an area that’s already grown substantially and he’s was already unaffordable to the people that live there. The average property prices in London are about 12 times the average income, whereas lenders will only lend you four to five times.

Lucia France:

Yeah.

Paul Mahoney:

That’s a big gap there, whereas we can type that same sort of money of 200 grand and we could buy two, three, maybe even four properties in somewhere like Birmingham, Manchester, Liverpool, which are the main cities we’ve been focusing on the that are going to give you a significant net yield. You can expect to achieve a net yield on funds applied of somewhere between five to 10% net. That’s a pretty decent cash buffer. In my opinion, in the right properties in the right areas, more growth potential as well.

Lucia France:

Okay.

Paul Mahoney:

When you compare those two, certainly on a numbers perspective, there’s no comparison whatsoever. The latter works much better. I suppose one thing that people sometimes need to get their head around is if, for example, they’re living in London, then it’s not necessarily, you don’t necessarily have to invest around the corner. If you have the right team around you and you being unemotional and commercially minded when it comes to decision making process, you can invest anywhere because you know something I quite often say here we’ve got clients in Australia at the Middle East, all around the world and their investments perform just as well as the client who lives down the road from their investment so long as you’ve got the right management team in place. Yeah.

Lucia France:

Trust the people you’re working with as well.

Paul Mahoney:

Yeah. We used to do a little bit in London going back about five years, but now from a buy-to-let perspective it’s very, very difficult to justify and to do it just for the sake of the fact that you live there, I think is the wrong mindset to have.

Lucia France:

Right.

Stefano Lucatello:

What about the properties, Paul, in the suburbs, like Barking and all these places are coming up now where you know, the end of the Piccadilly line, the end of the district line, central line…

Paul Mahoney:

Even then, Stefano, you’ve got places like Luton, Slough, Barking, as you say, areas that have been a bit under loved in the past and probably have good reason to grow in value from where they are now, yes, they make more sense than the more central areas, I would say. Still, when you compare them to the center of Birmingham or the center of Manchester, you’re investing in those places that are 15-20 miles from the center of London as satellite towns to London. Now, why would you invest there when you can invest right in the center of a major city?

Stefano Lucatello:

Yeah.

Paul Mahoney:

That’s my view anyway.

Stefano Lucatello:

Yep. Right.

Lucia France:

Guys, thank you so much for all of your input today. I’m afraid we’re going to have to draw it to a close there. Thank you very much to Stefano, to Paul and to John. I’m Lucia France. If you’d like to get in touch about all of these books are available to buy online, of course, as well, something to read while you’re in lockdown. If you do want to get in touch, just email us, ask, ask@aquestionofproperty.co.uk.

Stefano Lucatello:

Come on, guys. Send us your questions.

Lucia France:

What’s that?

Stefano Lucatello:

Send us your questions.

Lucia France:

We look forward to seeing you next time. Thanks for watching.

 

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