Property Question Time – S1 Ep 66 - Nova

Property Question Time – S1 Ep 66

Our MD Paul Mahoney is on the Expert Panel for Property Question Time which features on Property TV – Sky Channel 198. In this show, the public asks property related questions to the panel of industry experts. The experts also provide “Golden Nuggets” or Pearls of Wisdom from their experience on what viewers should be aware of. In this episode, they discuss changes made by Mortgage Lenders, the changes in the Stamp Duty Premium and also provide Advice on Bridging Loans. Watch Property Question Time on Property TV – Sky Channel 198. Click above to watch this week’s episode.u

Bryony Billson:

Hello, and welcome to Property Question Time. I’m Bryony Billson, and this is the show where you get the chance to have your questions answered by our resident property experts. So let’s see who we have in the hot seat today. A warm welcome to Suchit Punnose, Founder and CEO of Red Ribbon. We have Paul Mahoney from Nova Financial Limited. And last but by no means least, Satyen Lakhani from OffMarket Investment. My first question is going to go straight to you, Suchit, and it is in regard to purchasing property in India. They’ve asked, “What do I need to be aware of when purchasing property in India as an NRI?”

Suchit Punnose:

Very broad question, but starting with the same approach as one would have in buying a property in the UK or indeed in any country. For the size of the country you will look for good locations. I would recommend that one looks at tier two cities, which are smaller cities that are growing at the moment, and also offer greater opportunities for both income and capital growth. One of course needs to look to see what sort of investment one needs into India. Is it a direct holding by way of buying a property and renting it out or not renting it out? Or does one go into indirect investments through a property fund, for example. That’s the sort of call. But it’s no different for an NRI or an Indian buying a property in India.

Bryony Billson:

Okay, thank you. You feel like there’s not really then any further risks for this person than if they were buying in the UK perhaps?

Suchit Punnose:

Well, I wouldn’t say that. I mean, jurisdiction of risks are different. So if you look at India, India comes with high growth and therefore there is also a higher risk. High risk in as much as that one needs to know where you’re buying and how are you buying it. But overall, the systems and procedures are the same. They’re safety to title. You do have quite a few lenders in India that would lend, I guess, the mortgage. So, it’s pretty much straight forward in that sense. But in terms of the risk of the investment, ie. in terms of rental yield or capital growth, that would vary between country to country.

Whether it’s the UK market growth, macro economics would be different to India. Our argument is that at the moment if you look at the macro fundamentals, the shortage of homes is about 22 million new homes in India. Therefore, there’s a great opportunity there. There is 700 million people moving in from the country side into cities. It is, perhaps, the single largest urbanization in the history of mankind. Which means 700 million people needs to be sorted in terms of property housing and all other related infrastructure.

We always say that if you’re looking at diversifying your property investment portfolio, India should definitely be the target, after the UK.

Bryony Billson:

Thank you. Paul. Our question … Actually it says, “Hi all.” From our viewer. But I’m going to ask this one to Paul, but please do contribute after, if you like. “Our house is on the market. We owe 48,000 on it all. We have seen our perfect home, but they want a quick sale. Our house is on the market for 179,000 and the new one is 215,000. All our equity is in our house, so we have nothing to put down. We’re hoping ours will sell soon, but what are the options to release equity to use as a deposit?

Paul Mahoney:

There are few options. However, given it seems that it’s fairly time sensitive to be able to get this property, bridging would be an option. Essentially, bridging is short term lending. That could be secured against their current home. Only if though, the existing lender is okay with it. So they mentioned they owe some money already. Assuming that is a fairly standard residential mortgage, some residential lenders won’t be happy with the second charge being put on that property, some will.

The reason I mentioned bridging is that it’s the type of lending that happens quite quickly. Some bridging lenders would tell you they can lend to you within a few days. In reality, it’s usually a couple of weeks that you can get that money. Pretty quick in comparison to other options, that would be one option, but it’s quite expensive. It usually ranges anywhere from half percent a month through to 3% a month on the amount they need to borrow. That would give them the money pretty quickly to be able to put down on the subsequent purchase.

However, in doing that they would need to be absolutely certain that their current home is going to sell and that they can get a mortgage on the subsequent purchase. Potentially, a cheaper option would be to just approach their current lender and tell them the situation. This is what we want to buy, we need this much money to do it. Will they facilitate it for them? Some lenders will actually allow you to port a mortgage from one property to another.

Really it’s worth seeking advice, because, of course, they could go to their current lender, their current lender might say yes or no. Even if they do say yes, they might give them some certain terms, which may not be agreeable. They could go to a bridging lender and that would end up causing them an awful lot of money. Especially if the process gets drawn out, that’s really the major risk with that sort of short term type of finances. If things take a lot longer than you expected and you’re paying 2% or 3% a month on 100,000 pounds that’s a lot of money. Seek advice, I’d say. Speak to an advisor about the situation that we have there. Obviously, these questions always tend to be pretty general in nature, because they have to be. But go through the whole situation, all of your option, assess those options, the cost and the benefit of each and I suppose that will help you determine the right outcome.

A lot of it might come down to how much they really really want this property. Because they’re not quite … In reality, they’re not quite in the position to buy that property yet. But if they really want it then there’s probably options available for them to get it.

Bryony Billson:

It’s good to know that they do have options available to them, but I think your advice is very … You’re sport on with your advice there, with making sure of something … with bridging, that they don’t just go straight in, but then if they have all the facts together and just thinking about this house. Because, as we all know, things often do take longer than expected.

Satyen Lakhani:

I think Paul’s spot on. At least there are options there. Sometimes they may be none obvious options. Which is to approach the developer to see if they can facilitate that bridging facility to companies that they may already be in discussions with as well. Because if they are motivated to sell, they will see if they can help you. If you’re both motivated in the same subject, same unit, there’s a way you can work things out. By perhaps more time, or ask the developer to see how they can bring in a bridger or a lender to help them facilitate the purchase.

Bryony Billson:

Thank you. Well, I’m actually going to come onto you now for another question. Satyen, “I’ve currently reserved a new flat in London. We’re looking to get a mortgage set up with the help to buy a scheme. We currently have the 5% deposit to do this. We’re buying the property off plan, and the completion date is not for another seven to eight months. During this time we’re hoping to save up additional funds to pay our stamp duty. They’ve actually got three questions here. I’ll tell them all to you and we can go back if you like.

The first one is, is it possible to do this? Then they want to know, do we need to prove we have the funds available to pay the stamp duty? And finally, they want to know roughly when would we have to pay the stamp duty?

Satyen Lakhani:

Indeed, there are three sections to that. Fundamentally, if they’re buying from that developer, is the developer offering the help to buy scheme. Usually, new build properties, they usually want 10% on exchange, which negates the help to buy scheme, which does it on 5%. So, again, they need to ask the questions to that developer. Regarding the stamp duty, yes, they’re going to need that money, and they’re going to need to pay that on completion. There’s no option there. They have to pay that. It’s an obligation. Therefore, again, if they don’t have those funds right now, what guarantees they’ll have the funds by the time they complete. Again, this is another area they need to go and seek advice from. Because, it may well be that they’re saving up to this money, so what is their position in saving, that allows them to feel they’ll have enough money in that timeline to have the stamp duty saved up.

Again, this is where financial advisers earn their money, because that’s what they’re good at in terms of advising the buyer. Again, factors to look into, don’t just feel, yes, I’ve done it so I can. Because things don’t end up in that simple manner, usually.

On the help to buy scheme you need to find out if the developer is offering that. Are they going through the help to buy scheme through the developer? If not, if the developer is offering that, it might be wise to look at that option as well, because that will give them or give the developer a security that they’re going through an avenue that they’ll put out there as well, and it will give them the confidence they’ll do it in a certain timeline. Two or three points there to consider, and all of those invite seeking further advise. Again, I think we’ve said it enough times. To do it without the emotion of I really want that property, or the emotion of we really can save the money for that stamp duty.

Ideally you want to be in the position that you’ve already got those funds ready and lined up, then you know you’re doing it because you’ve got it all there. If it’s not there then why is it not there. Have you processed this well enough and hard enough to say, okay, I’m going to buy a property, but I haven’t got all the funds ready? Again, you’ve got to ask these brutal question to yourself. Am I in that position to buy this property? If not, what are the what ifs? If I can’t raise the money what would happen?

Another questions that you often have the right answer to support what you’re trying to do. It’s important to make sure you’ve got options like that to give you the best scenario possible for yourself.

Bryony Billson:

I think it’s really clear and really great advice because for some reason, sometimes I think people can go out. They find a property that they fall in love with then they line up their finances and they get things straight. Really what you’re suggesting to get really clear on and really straight with is ask those difficult questions first, get your finances straight, perhaps, before you even go and fall in love with a new flat in London. So, that you already know the answers to these questions before you start thinking differently.

Satyen Lakhani:

Again, I think bear in mind that you’re not totally on your own. That developer that’s putting that new project usually has associations with a selling agent. It may not be in the state agency, it may be an investment company that is promoting that site on behalf of that developer. Usually they’ll have options and solutions that you may not know to look to. So you’re not totally on your own.

Bryony Billson:

We’ll be taking a quick break, but stay with us because we have more questions to ask our property experts and maybe one or two golden nuggets. We’ll see you soon.

Welcome back to property question time with me, Bryony Billson. And on my expert panel today is Suchit Punnose, Paul Mahoney and Satyen Lakhani. We’re going to go straight to you Paul with a golden nugget.

Paul Mahoney:

My golden nugget is fairly topical. There’s been a lot of changes with regards to lending on basically mortgages lately. The most recent change was as of September this year, 2017. With regards to the way that lenders look at portfolio landlords, and essentially the change is for anybody who has for or more incumbent properties, properties with mortgages, there are more stringent checks being done in the whole portfolio rather than just the property that’s been lent on. Which I suppose makes sense. Because you could have one great property and three terrible ones and those three terrible ones could have quite a big impact on that one great one, to your overall financial position.

It’s important for landlords that do have four or more properties with mortgages, that’s an important stipulation because it only applies to properties with mortgages, that you make sure your overall portfolio actually works from a cash flow perspective. A lot of lenders would now require you to have a business plan and a cash flow analysis, and to stress test your mortgage rates. To make sure that not only at the current rates your portfolio works but a slightly higher rate your portfolio works as well. It’s not something to get worried about or to put you off, but again we’re seeking advice on how best to make these changes or to put these things in place to make sure that moving forward when it comes to remortgaging or purchasing subsequent properties that you’re in a good position to fulfill the lender’s criteria.

Bryony Billson:

Thank you. Brilliant golden nuggets there. Why do you think they have made these changes. Who is it really benefiting?

Paul Mahoney:

It’s benefiting everyone really. Landlords might feel that they are being under attack at the moment, but to be honest it’s about making overall lending market more robust. No one wants another 2008. As I say, by checking a whole portfolio a lender could be confident that that person they’re lending to, because at the end of the day they’re lending to the person, not necessarily their property, that their portfolio actually works overall, even if rates were to double or triple.

We’re in a very low interest rate environment and I think all lenders and the Bank of England and the Prudential Regulatory authority are all a little bit concerned as to if rates do increase substantially what happens. We’re bringing these things into place. That helps people better deal with that potential scenario.

Bryony Billson:

Thank you. Some expert information there. We’re going to move on to one of our next questions, and I’m going to go to Satyen. We’re currently looking at a few developments nearby, which all have completion dates of roughly six months after release subject to delays. With most mortgage offers only being valid for six months, how do people reduce the risk of the build taking more than six months, which seems likely, and having to apply for another mortgage and have the offer reduced, which is possible. Do we need to find a lender who will hold on for say, 12 months from the offset?

Satyen Lakhani:

That’s a great question, and a scenario that I’ve come across a few times. In this instance, I think, again, it’s seeking advice from a financial advisor. They will put you in the right direction. Most properties usually see delays in completion for unforeseen circumstances. It could be that the kitchens haven’t arrived on time. It could be weather issues. There are various factors that delays completions on properties, which will have an impact if they’d gone to a mortgage and have a mortgage offer that runs out within a certain timeline. What would happen is that the lender would want to send the surveyor in again, and philosophically, they may change the value of the property, which have an impact on how much they can borrow again.

There are factors that needs to be considered. What we’ve found is that lenders usually have a scenario that they can’t go beyond a certain timeline, which is called a long stop date, in terms of when they can finish a completion. If someone, usually on an off plan property, would have exchanged within a short period of time, so therefore they are committed to that property. If the developer goes above and beyond that long stop date, then by right, they have to offer the buyer whether they wish to proceed or not. If they choose not to proceed then they get their money back. The full amount of deposit that they paid as well.

But again, they need to seek the right advice from their financial brokers to make sure that they’re doing the right thing.

By going for a lender to offer a 12 month mortgage offer, again, I think Paul will emphasis that rare to find that position. There are not many lenders that will offer that position. The key thing is to make sure … The key word in all of this is confidence. That you are confident that that developer will finish the product in a certain timeline, to the standard that you want them to in terms of what they’ve sold to you. The way to do that, again, is to look at the developer, look at their website, look at what they’ve done in the past, when they’ve delivered that and try and gauge from that whether you’ll find that are you buying from the right person. Then options of finance, always you need those options, and seek that financial advice, which I think you’d agree with.

Paul Mahoney:

Completely agree with all those due diligence points and exactly right. Most lenders won’t give 12 month mortgage offers. Most are three to six months. But in saying that, most will also extend those offers unless something has significantly changed. Often you can get one or two extensions on that mortgage offer. Sometimes they want to send it to a surveyor, sometimes they won’t. But an important thing to consider there, is when you’re buying off plan and there’s nothing for them to actually survey it’s a paper survey, which are always very conservative.

By definition, they have to be because there’s nothing for them to see. That mortgage offer doesn’t really mean very much. Generally they would be subject to survey at the end anyway, and if they go out and the unit is completely different from what was promised or they’re of a very bad quality or whatever it might be, it doesn’t mean you’re getting the mortgage. When buying off plan, certainly make sure you have the confidence you could get the mortgage and ticking all the boxes both for yourself and the lender’s criteria. But it’s the mortgage offer when the property is complete that actually mean something. It’s important to understand that.

Satyen Lakhani:

Usually you’ll find that the debtor would give you notice as to when you need to go for your mortgage, and it’s towards the later part of your completion build, where the developer has to get the building regulations all signed up, etc, then they will serve you notice via their lawyers to your lawyer, saying, okay, you need to now seek mortgage or seek finance because in two weeks time we’re going to ask for your monies.

So, you’ll have a timeline where you can go genuinely for a mortgage who will be in a position then to survey the property. Because, if it’s near completion then they’ve got a better viewing point, that they want to go and see the sight. Again, if you’re buying from a branded developer, that gives the surveyor confidence as to what their build is going to be like, and they can anticipate the completion and the finished product. Because again, when you go from the outset to find an off plan property you really want to buy from a branded developer who has a website, that they show their finished product, and that gives you an indication as to what your property is going to be like as well, and the timeline as to completion as well.

Again, there’s a lot of factors involved. Don’t just go out there and buy blind and hope for the best. Because you need to be in a confident position. And the confidence comes from buying from a branded developer, confidence comes from seeking mortgage advice who gives you options that yes, you are a mortgageable person, we will want to lend money to you, yes. So that gives you confidence. The rest follows its true course by way of your solicitor doing the natural conveyance and the developer showing you where they are in the bill process as well.

Again, all the way through is confidence. And if you’re in that position, you are comfortable. Certainly you’re confident that you’re investing at the right place at the right time as well.

Bryony Billson:

Thank you. Confidence is key then to that question. Thank you so much. Suchit, quite a detailed specific question here. I know you’re an expert in this field so I’m sure it’s fine. Aveo wants to know, “I want to buy a property for investment purposes near Madurai. I’m confused about flats and plots. I’ve no plans to settle there, it’s just for investments. Your kind suggestions will be highly appreciated.”

Suchit Punnose:

Very interesting. Madurai is a tier two city in South India. It’s a temple city. There’s a lot of traffic in for pilgrimage into that city. Considering the options the viewer asked for, whether flats or plots. There’s both chalk and cheese. Flat means you have a property, it’s ready to go. You can buy and hold or buy and hold and let out. Plots is totally different, it’s almost close enough to land banking. You buy a plot and you sit on it, and hope that the developer would bring in the common facilities and infrastructure and you can then later on either develop or sell on the land.

It’s just a question of what the person wants to do. It both have got its pros and cons. The flat, of course, is completed, that means the developer has made the margin on the construction. You now have to wait for the rent a lead and capital growth to kick in. If it’s a plot then you have the option to do a design of your own choice and build it and therefore get the developer’s margin, then if you don’t wan to sell it you can then also hold on to it. That then becomes a personal choice.

From the sounds of it if it’s purely investments and if that person is doing for the first time it may be advisable just to go with a straight forward purchase of a flat.

Bryony Billson:

Thank you very much for your advice there.

Paul Mahoney:

Just one comment on that. This isn’t specific to Indians. Buying property anywhere, in my opinion a plot isn’t necessarily an investment, it’s a speculation, whereas a flat is. Because a flat will actually generate you an income, and then of course, hopefully give you some capital growth as well. Whereas buying a plot is almost like buying a commodity. You’re hoping that other factors will increase the value of that plot as opposed to actually generating an income over that time frame.

Bryony Billson:

Thank you. I already got extra bit of information there for that person to consider. My last question actually goes to you Paul. They say, “I own my flat and now want to help my partner to buy their own property too. We don’t live together, therefore if we were to apply for the mortgage jointly but only my partner who doesn’t own any properties is solely on the property deed for the new property, is the second home stamp duties still applicable?”

Paul Mahoney:

There’s about 10 things to consider in that question.

Satyen Lakhani:

But the real question.

Paul Mahoney:

Let’s go through it bit by bit. I might need you to recap [inaudible 00:23:42] question. But firstly, something that would be quite important in this question is whether the partner, whether they’re married, because if they’re married or not that makes a big difference. Secondly, the property that the one partner is looking to help the other partner buy, are they going to live in that property together or are they going to continue to live separately, because that will determine the type of mortgage they will need on either the property they already have or the one that they’re going to buy.

Thirdly, they mentioned that the property would be bought in the new property buyer’s name, but both will be on the mortgage. A lot of lenders wouldn’t be happy with that. Some lenders might be. But generally, to be on a mortgage you need to be an owner of that property, because by being on the mortgage, essentially you are what they call, jointly and severally liable for that mortgage, and therefore for that property to be foreclosed on if you don’t repay. So if you’re not an owner how does that actually affect you. Quite a few things there.

Lastly, so far as the stamp duty premium, what would determine if that applies or not is if they’re married. From a tax perspective, the HMRC considers a married couple a joint entity. So, if they’re just boyfriend and girlfriend and they’re buying separately and it’s that subsequent buy is first purchase, then no, it wouldn’t apply. But pretty well all of those points I’ve just made do depend on whether they’re married or not and the use of the new property.

I haven’t really answered the question, but I’ve given some points for consideration.

Bryony Billson:

Thank you. You’re right. There was a lot going on there and you’ve done a really fantastic job of addressing some of the potential further questions-

Paul Mahoney:

So hopefully that helps them consider their points, and they can pretty actually seek some personal advice their actual situation.

Satyen Lakhani:

I think it’s a classic scenario of [Ducking 00:25:58] it’s not you, it’s me scenario. You want to end it either way. It’s a simple way to do this.

Bryony Billson:

Talking of endings, I’m afraid that is all we have got time for today. Gentlemen, thank you so much for coming in and giving all your fantastic advice and information to our viewers today. If you have a question that you want to ask then please email us at info@propertytelevision.tv or you can download our app or go to the website, property-tv.co.uk and we look forward to seeing you next time.

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