Property Question Time – Special Episode - Nova

Property Question Time – Special Episode

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 the changes in Mortgage Lenders, the changes in Buy-to-let mortgages and also provide Advice on Retirement income. Watch Property Question Time on Property TV – Sky Channel 198. Click above to watch this week’s episode.

Jemma Forte:

Hello, and welcome to a very special edition of Property Question Time special because it is a Finance Special. So if you want lots of interesting tips and clues on how to make lots of money, you’re in the right place, and we’ve got three special guests who are all financial property experts to answer lots of questions that they haven’t seen before. So this really is putting them on the spot, but I’ve got a feeling they’re all going to be absolutely fine under the pressure.

So my first guest is Tony Gimple, and Tony is the co-founder of Less Tax 4 Landlords. Then next up we have a regular face here on Property TV, it’s Paul Mahoney, the Managing Director of Nova Financial, and last but not least of course, James Jenkins from Moneysprite. James is of course a Financial Adviser. So, are you ready chaps? We are going to be putting your knowledge to the test, but also this is going to be the kind of information that people out there who are interested in property are going to be probably scribbling down on a notebook.

So let’s kick off, and these questions are for all of you. So this first question is from somebody who’s saying this: “We’re currently selling our flat, which is in London, and we were supposed to exchange last week, but then suddenly heard that the buyer’s mortgage was rejected, and that is because our ground rent will double in 25 years from 200 pounds a year to 400 pounds a year, and now his solicitors told us that our flat is unmortgageable. My solicitor says that’s nonsense, there will be a mortgage out there, but we’re looking at asking the landlord for a deed of variation. So can anybody help me understand this? How is 200 pounds on 25 years seen as untenable? And any idea of rough timeframe, cost of deed of variation? Anybody who wants to kick things off? James.

James Jenkins:

I can kick things off. I had a case very similar where I was acting for the buyer in that scenario. It’s becoming increasingly common with lenders having problems with leaseholds and doubling ground rents. Now, this one it’s 200, doubling in 25 years to 400, and so on, and I’m assuming it’s sort of 125 year lease. It’s absolutely plausible the mortgage lenders pulled the mortgage off it for that reason, that’s the first thing, but it’s not ever lender is going to say no to that.

Jemma Forte:

Okay.

James Jenkins:

It really does depend on the individual lender. The issue is, when a little while back sort of new-build leaseholds came up with a massive issue about doubling ground rents every 10 years, and as a result of all that, a lot of lenders pulled out of lending on those bases, but also said, “Right, we’re not doing any doubling ground rents.” It’s sort of very much a broad approach to the whole marketplace.

Jemma Forte:

Because if I’m correct, wasn’t it like Dolphin Clauses, they called it? Or something?

James Jenkins:

Yes.

Jemma Forte:

And I think that if people were not spending much on a property comparatively, they could end up paying like a third of the cost of the-

James Jenkins:

Yeah, they’d be going-

Jemma Forte:

In a huge extortionate amount.

James Jenkins:

Yeah, the ground rents were going up sort of 30, 40 thousand pounds, and things like that, at the end of term. Now, if you think logically on that one, over 125 year lease, if it doubles every 25 years, in 125 years’ time, the ground rent will be 4,000 pounds for the year.

Jemma Forte:

And we’ll all be dead.

James Jenkins:

We’ll all be dead, but also 4,000 pound in 125 years is probably going to be roughly worth about 200 pounds today.

Jemma Forte:

Right, yeah.

James Jenkins:

So it’s not that different to what it is in today’s money. Now, there are lenders out there that will lend on that basis.

Jemma Forte:

Okay.

James Jenkins:

The second part to the question is about the deed of variation.

Jemma Forte:

The timeframe then the cost of deed of variation.

James Jenkins:

That’s far more a legal area than any of us are involved in. However, deed of variation, as with anything to do with law, how long is a piece of string? If a landlord’s particularly good at responding and so on and so forth, then it could be relatively quick, but what you’ve got to bear in mind, if a landlord’s going to issue a deed of variation on your flat, he’s got to be prepared to do it on all the flats in the block that they own, and whether the landlord wants to do that. So quite often, more often than not, and in the case that I had recently where were acting, they went to the landlord, about four weeks later we heard back from the landlord, “No, not prepared to do a deed of variation.”

Jemma Forte:

Right.

James Jenkins:

End, done.

Jemma Forte:

Okay.

James Jenkins:

Also, when it comes to the costings, obviously if he does agree to a variation, invariably you’re going to be the one picking up the cost for his legal bills, your legal bills as well. So it’s likely to be a relatively costly process. Most often is making sure that when somebody’s buying a leasehold flat, or selling a leasehold flat. If they’re selling it, volunteer up this ground rent clause Day One so that the buyer can be in a position to make sure that the mortgage they get is going to suit.

Jemma Forte:

Okay.

James Jenkins:

Now, the issue we’ve got around it being unmortgageable is, as there is a bit of a trend for lenders to be pilling back from this, if you’re to buy a flat with that kind of clause on it where lenders are starting to pull out, withdrawing, you may be the person that buys it and ends up with an unmortgageable flat if everybody follows suit. Now, I do think we’re likely to find a lot more real world thinking from lenders on these as these sort of really extreme examples of, it’s not really a problem, become more common, and more sort of toning down to not lending on specific, sort of the new-build ones, the 10 year doubling leases, and things like that.

Jemma Forte:

Yeah, so at the moment you think that this is a symptom of people who are just going, “Don’t go near them full stop.”

Paul Mahoney:

It’s a bit of a hot topic at the moment, isn’t it?

Jemma Forte:

Yeah, it is.

Paul Mahoney:

The issues that have been around leasehold and concerns there, and I think it is the extreme examples that have been in the media, which kind of gets everyone a bit scared, but what’s important is to understand the lease, what’s involved. That’s one particular term, as far as the ground rent doubling after 25 years. Another is sometimes it will increase with inflation after a certain period of time.

Jemma Forte:

Which seems reasonable more, yeah.

Paul Mahoney:

Which is pretty reasonable, and is probably pretty similar to doubling over 25 years, you know? Inflation around two or three percent, that probably is doubling. I think it is there, or thereabouts doubling over 20 years, and lenders, for some reason, seem a bit more comfortable with that even though it’s the same thing.

Jemma Forte:

Okay.

Paul Mahoney:

I suppose that’s the point to understand there, is lenders don’t have to say yes, it’s their money.

Jemma Forte:

It’s their money. We forget that sometimes, don’t we?

Paul Mahoney:

So they don’t necessarily have to be very logical, and a lot of the time they’re not, unfortunately.

Jemma Forte:

Right.

Paul Mahoney:

So it’s important to understand that. It might seem unfair sometimes, the lender says no, and they may not give you a reason, or the reason they give you may not seem very logical, but at the end of the day it’s their call.

Jemma Forte:

Okay.

Paul Mahoney:

But I suppose the upside is, there are lots of lenders out there, and there’s lots of products within each lender. So if one lender says no, there’s probably another that will say yes.

Jemma Forte:

But in this instance, their buyers are probably going to pull out, aren’t they? Because they have been told by their solicitor, “No.” So that is stressful for the people selling, isn’t it? When to them it looks not unreasonable.

James Jenkins:

Yeah, the solicitor invariably is acting for the buyer, and he’s going to advise his client the best way that he sees, and if he thinks that the advice or information he’s getting is that lenders are not going to be lending on this, he’s going to advise his client it’s not mortgageable, and therefore not to proceed, so he doesn’t get caught out two years, three years down the line when he comes to try and sell.

Paul Mahoney:

Which is a shame really. I think sometimes solicitors try to cover themselves too much, and therefore they’re acting in the best interests of their client, maybe this person’s going to miss out on that property that they really want because the solicitor’s covering themselves.

Jemma Forte:

Yeah. I wouldn’t be concerned about 25 years, personally. I think if I was buying, I would question it.

James Jenkins:

Maybe a good idea then, for the seller, maybe for them to go and talk to a mortgage advisor and say, “Look, this is the situation, where would you be able to put it? Where would you be able to place it?” So that when you know how many lenders are potentially out there so that … Those that are almost pre-prepared for the new buyer, that we know that seven lenders here will lend on that property, but if you look at it there, they won’t lend. There’s no negatives to that because when you can do is save yourself a lot of heartache down the line with suddenly somebody getting just before exchange of contract and pulling out, because, let’s be fair, as a mortgage broker, 90% of the time when we sit down with a client to do a mortgage application on a property, when you’re coming to me to buy a property, you generally don’t know the terms of the lease at that point. So I can ask all the questions under the sun, is it a doubling ground rent? And so on and so forth, and invariably yourself, and more often as well, the estate agents don’t really know. It’s only as that pack comes out to their solicitor, “Oh, hold on, it is a doubling ground rent clause.”

Jemma Forte:

Right.

James Jenkins:

So we can do a lot of work one direction, and then have to pull back and go another way, or find out that actually, if only that lender fits that client’s income expenditure and circumstances, then actually you’re not going to be able to buy that flat because this is your only choice as a mortgage lender. So as a seller of a flat with that kind of clause, I don’t see any negatives to you spending a bit of time just with a mortgage advisor. I’m assuming you’re buying and you’re probably going to have your own mortgage adviser anyway. Just say, “Look, can you do a little bit of work, tell me who would lend on this.”

Jemma Forte:

Yeah, it’s terrible really. It’s been like the sort of PPI scandal of the property world, hasn’t it? And in some of those extreme instances, it actually meant people kind of losing their home in the very worst cases. You can understand why people don’t want to go anywhere near it with a barge pole, because it’s just awful and pretty scandalous really.

James Jenkins:

Yeah, exactly, but it’s an extreme example, versus what’s normal, I guess.

Jemma Forte:

Yeah, versus this, which is, if you look at it logically and sit and do the maths.

James Jenkins:

And a lot of these are not new-build flats, these are flats that were built in the 1960s, 1970s. They’ve been bought and sold countless times before.

Jemma Forte:

And some of those really bad examples, I think the ground rent was doubling every year.

James Jenkins:

Yes.

Jemma Forte:

So that very quickly, if you sit down with a calculator, spirals off.

Paul Mahoney:

There were some examples of where there was no stipulation of how much it can increase by, so that the ground rent can be sold on, and that person who buys the ground rent can make it whatever they like, which obviously isn’t ideal.

Jemma Forte:

Yeah, terrible.

Tony Gimple:

There’s also an underlying problem, not directly connected, but with how professional advice is asked for and delivered. Professionals, generally speaking, don’t like to give advice. Advice equals risk, and they will only answer that which you’ve asked them. You need to find advisors who are prepared to look at things completely in the round and point out what may be unintended consequences of what it is you’re doing. So you have got a ground rent that’s increasing periodically, they should tell you, “Have you actually seen this? There is no stipulated amount, that’s unusual. The consequences to this, to you, are.”

Jemma Forte:

Yeah, don’t you expect usually your solicitor to find this out?

James Jenkins:

Yeah, but bear in mind they’re probably not going to get that until they’ve had, first of all, the memo itself from the estate agent, and then the contracts pack in from the other side if they’ve been forthcoming with the information, but what you’ve got to remember is that, invariably, the minute the sale is agreed, the agent’s all over the buyer to get survey instructed, “Where’s your mortgage. Where’s your mortgage? Where’s your mortgage?” So they’re starting to spend money before this kind of information landed at their solicitor’s desk, and then the problem comes up, and that’s why we’re talking to our clients a lot about that now when they’re buying flats, is saying, “What’s the ground rent? Is there any doubling ground rent?” Before we do the mortgage application, and then we’re trying to find out from the estate agents before-

Jemma Forte:

Before any offers have been made, etc. Yeah.

James Jenkins:

Everybody sort of goes ahead.

Jemma Forte:

Yeah, has gone and invested.

Paul Mahoney:

What’s important to keep in mind there as well is, often the solicitor will point these things out, but they won’t interpret them.

Jemma Forte:

Okay.

Paul Mahoney:

So they’ll tell you the risk, which might scare you, and then you’re scared and you don’t know what to do.

Jemma Forte:

Yeah, okay.

Paul Mahoney:

And the solicitor won’t take a commercial view on those things, whereas perhaps you should be. So whether you do that yourself, or again, whether you seek other advice outside of the solicitor to help guide you through that, and what is really a red flag, what is really a risk, and what is just the solicitor saying, “This is black and white.”

Jemma Forte:

Yep. Guys, we’ve done a whole quarter of the show just on that question because it is such a massive topic. So thank you so much, and join us in the next section of this Property Question Time Financial Special.

Welcome back to the second part of this Property Question Time Special. It’s an hour long Finance Special with me, Jemma Forte. Thank goodness I’m not the expert, and Tony Gimple, Paul Mahoney, and James Jenkins, these are our finance specialists. So, more questions, let’s get cracking. We’ve got one here, and it’s for all of you, and bearing in mind our experts have not seen these questions as well, so we’re really putting them in the hot seat.

Somebody here says, “I’m looking to take over my parent’s property and remaining balance on the mortgage, but with a new provider. Vaguely, the property is valued around 60 to 70 thousand, with about 35 of that left to be paid. From a legal perspective, is this likely to be classed as a straightforward buy and sell, or something more intricate as gifted equity?” Now, it doesn’t state obviously whether the parents are still around, necessarily, but what do you make to this, Tony?

Tony Gimple:

What we don’t know is why they’re thinking of doing it. Are the parents still going to be living there? Is it for some other purpose? It could be fraught with complications. Although the numbers in this example are relatively small, it could well bring about Inheritance Tax.

Jemma Forte:

Okay.

Tony Gimple:

So if the parents are still living in the property and benefiting from that, that could be classed as a gift with reservation of benefit. So they’re not paying a market rent to live in the property, therefore it’s still in their estate for Inheritance Tax purposes.

Jemma Forte:

Okay.

Tony Gimple:

It’s also in the son’s estate, both for Capital Gains Tax, if he’s not living there it’s now an investment property. Any income he generates from that will be subject to taxes, and it’s in his estate for an Inheritance Tax perspective as well.

Jemma Forte:

Wow, it’s complicated, isn’t it?

Tony Gimple:

It’s a complex question very simply worded. There’s even more complexity to it. If the son now owns the property, mom and dad are living there, what happens if something goes wrong in the son’s life? Bad marriage, bad relationship, financial difficulties, suddenly mom and dad could be out of the house. So it’s not really a question about whether it should be a mortgage, a sale, equity transfer, it’s really getting underneath why it’s happening, and what they’re trying to achieve.

Jemma Forte:

Gosh. I mean, I think this is why people get so stressed about the issue of Inheritance Tax, etc.

Paul Mahoney:

I think a little bit more detail would make that question a lot more simple because, as Tony said, whether the parents are still around, whether they’re living in the property, whether the son, is it the son?

Jemma Forte:

Yeah.

Paul Mahoney:

Is taking over the property, is living there, and whether that’s with the parents or without the parents. All those scenarios are very different, and raise different things that need to be considered.

Tony Gimple:

Yeah, actually, there is quite a general point there. As professionals, experts, whatever, we all get asked questions and expected to give answers on the spot without really understanding what was behind the question. Going back to what we talked about in the earlier segment, it’s really, really important to always ask of that person, why?

Jemma Forte:

Why, yeah.

Tony Gimple:

The hows are immaterial, it’s the, “Why do you want to do this? What are you trying to achieve?” Then we can start to give some meaningful responses.

Jemma Forte:

What’s quite interesting is, what’s great is we do get a lot of questions through here, and they’ll be sometimes that long, which for me is like … But it’s great because the more detail, the easier.

James Jenkins:

Sometimes the longer questions give you a yes or no answer, and it’s very, very … Actually, the shorter questions are the ones where you’re sort of guessing. I mean, what I would add on that point is we, from a technical point of view in terms of getting that mortgage, whether it affects things or not, yes. Parents living there or not living there, that’s all important. Is it the son’s second property, first property? Does he own elsewhere? They’re all questions that need to be answered. In terms of the technicality of the actual question of is it a straightforward buy and sale? Or is a gifted equity? It depends which way they’re doing it.

So a son can buy from parents and give them a deposit, and buy it like a normal sell and buy, but you can also do a concessionary purchase, which would be a gift of equity whereby effectively you’re, in theory, buying the property for what the current mortgage is, the mortgage amount of almost 100%.

Jemma Forte:

Right, yeah.

James Jenkins:

And then the equity is gifted. So you don’t have to put any physical money down, it’s a family to family transaction. So in this scenario, he’s got say 50% mortgage-

Jemma Forte:

Wouldn’t that be not a good thing to do then? I see, so then he inherits the value of the property, I’ve got you.

James Jenkins:

Yes. So effectively, although he gets a 50% mortgage, the property is worth this much.

Jemma Forte:

Yes.

James Jenkins:

So in a year, two years’ time when he comes to remortgage, he can remortgage and take money out of it if he needs to, because there’s equity in there. So that’s another way of doing it.

Tony Gimple:

Assuming the parents give consent at that point.

James Jenkins:

Well, yes. Now the other part is, they don’t necessarily have to sell it. They could, in theory, look to maybe remortgage and add him to the mortgage. If what they’re looking to do is just to, if they’re getting to the end of a mortgage term and they’re maybe too old to get a mortgage in their own right, maybe they’re looking towards a son who’s maybe working and younger to get a longer term on that mortgage so they don’t have to sell and go into a home or whatever.

So there are mortgage lenders out there that he could just transfer on a remortgage rather than buy it or sell it. So they still retain ownership of the property, he gets added to the mortgage, and some lenders will actually take, as long he’s earning sufficiently, and we don’t need the parent’s income, they’ll then base the mortgage term on his age, and therefore they can get longer on that mortgage term without having to worry too much about the sale and purchase as a gifted equity or whatever, and without them losing the ownership of that property.

Jemma Forte:

Yeah. There is a point in your life where it becomes very insulting when you go to get a mortgage and they go, “Well, we’ll only give you this because of your age.” You’re like, “What? What are you saying?” I was like, “Oh,” very insulted. Like, they think I’ve only got 23 years or something. It’s like, “I’m not that old.”

Paul Mahoney:

Something to be conscious of, just on that point there, if the son is getting involved just for a serviceability or an affordability perspective to help the parents out, and the son’s not living there, that could have a big impact on him being able to get a mortgage anywhere else. So that scenario, in my opinion, would only really work if the son is living with the parents in the property.

Jemma Forte:

Interesting, yeah.

Paul Mahoney:

Or if the parents move out.

Jemma Forte:

Yeah.

Paul Mahoney:

If the son’s not living there, then he would be severely handicapping himself by helping the parents out with their mortgage.

Jemma Forte:

Yeah, okay. So got it. I mean, this is why you need to go and get professional advice, isn’t it? Because there is so much to consider, but I think most people it’s too much. It’s too much to-

James Jenkins:

I think Tony’s point is, as long as you know why they’re doing it, then actually the answer’s much more simple.

Jemma Forte:

Right.

James Jenkins:

I think we’ve made it sound probably more complicated and frightening than it is because we don’t know the reason why. So we’re sort of saying, “If it’s this, and if it’s that.”

Jemma Forte:

Yeah, okay.

Tony Gimple:

It’s almost that they need professional counseling, as opposed to professional advice, because a counselor will always ask, “Well, why?”

Jemma Forte:

I’ve got you. Okay, thank you. So there you go as well, if you’re sending in questions to us, the more detail, the better. So we’ve got another question here, this person, I’m not sure whether it’s a man or a woman says: “I’m curious to know if there are any advantages or disadvantages of adding my two buy-to-let properties into my personal pension. If it’s advantageous, how do I go about it? I’m 45 years old, and both buy-to-lets are mortgaged.”

Tony Gimple:

There’s a fundamental and underlying problem there. First of all, does he have sufficient … Or she, have sufficient pensionable income.

Jemma Forte:

Okay.

Tony Gimple:

And if they’re residential properties, although I’m not a financial advisor, my understanding is that they can’t go into pension funds.

Jemma Forte:

Right, okay. Is that … Do you-

Paul Mahoney:

Just to clarify that, they can.

Tony Gimple:

Okay.

Paul Mahoney:

But you get taxed for 55%.

Tony Gimple:

Well hey.

Paul Mahoney:

So they can, but it’s not worth it.

Tony Gimple:

No.

Paul Mahoney:

They tax you to the point where it doesn’t make any sense.

Tony Gimple:

Any sense, yep.

Jemma Forte:

Oh, okie dokie.

Tony Gimple:

Whereas if they were commercial properties, self-invested pension, lots and lots of tax breaks, very efficient. Very efficient for Inheritance Tax, and could well be a good idea.

Jemma Forte:

Okay.

Tony Gimple:

Based on what the overall situation is though.

Jemma Forte:

Well, I would say that probably answers that question then, doesn’t it? Just don’t, it’s not worth it.

Paul Mahoney:

Assuming that they’re talking a residential buy-to-let, yeah, which they probably are. If they’re commercial, for example if they’re something like student accommodation, care homes, hotel rooms-

Jemma Forte:

Right, then it’s a different-

Paul Mahoney:

That’s considered commercial property, that could go into a pension.

Jemma Forte:

Okay.

Tony Gimple:

And also, it’s a bit of a contradictory question. If you’ve got rental properties, commercial or otherwise, producing an income from an amount of capital employed, that is a pension by any other name.

Jemma Forte:

Right.

Tony Gimple:

Is the yield from the rent going to be higher than an annuity rate in a pension?

Jemma Forte:

Yeah.

Tony Gimple:

Because bear in mind, you’re giving up the capital value when buying annuity, whereas you’re still keeping the capital value if you’ve got houses and the income they produce in your own name.

Jemma Forte:

Yeah, and I guess also then that income, although you’d save it if you want to use it as a pension, you can get to it when you want because that’s the thing with pensions, it tends to be locked in, doesn’t it?

Tony Gimple:

Correct, yeah.

Jemma Forte:

Yeah. I’m always trying to get at mine.

Paul Mahoney:

I assume they’re looking at doing that to put it into a more tax effective environment, but generally when people are getting toward the age of retirement, the income from your investments will be your main source of income anyway.

Jemma Forte:

Yeah.

Paul Mahoney:

So aside from that income, you’d be a low tax … Sorry, a basic rate tax payer.

Tony Gimple:

Yeah.

Jemma Forte:

Yeah.

Paul Mahoney:

So it’s relatively tax efficient to have them in your own name anyway.

Jemma Forte:

Okay.

Tony Gimple:

I mean, there are other things to look at in the bigger picture, but yeah.

Jemma Forte:

Okay. Thank you so much. I think that’s answered that very, very succinctly. Right, you are indeed watching Property Question Time. This is a Finance Special, so stay tuned and we’ll see you after this short break.

It’s part three of this special property question time. It’s a Finance Special with me, Jemma Forte, and my three experts who haven’t seen the questions before, and my industry experts are Tony Gimple, Paul Mahoney, and James Jenkins. So here we go with the next question, fellas. It’s for all of you: “Just arranging a remortgage at the moment, but I’m getting a hard sell to take out MPPI, specifically a decrease in term assurance critical illness cover over an 18 year term. The remaining amount on my mortgage is about 150K. I’ve got no dependents. I’m single, I’ve got enough in savings to tide me over for mortgage payments for two years, and my work offers four times my salary if I pop my clogs whilst in employment.” Who does it go to if you’re dead? Anyway, “Do I need the cover the broker is suggesting?”

James Jenkins:

Your point there about who does it go to if you’re dead. What I was going to say, the death-in-services is irrelevant in this question because it’s paid on death, not critical illness. There’s a big, big difference. Critical illness is your cancers, tumors, strokes, heart disease, it doesn’t mean you’re necessarily going to die.

So two areas to look at here. First, I don’t really like the term ‘hard sell.’ So it would be interesting to see what that hard sell looks like. It’s not the right way to provide insurance to a client.

Jemma Forte:

Is that not how you would do it?

James Jenkins:

I wouldn’t do it on a hard sell basis. It’s a basis of talking to a client about what their current situation is, what their current setup is, where their need areas are, because our jobs as advisors are to tell people where their shortfall areas are, not to just say, “Well, what do you want?” So this is what your need area is, it’s critical illness.

Now, for her, I’m assuming it’s a her, basis, I don’t know why I assumed her, but for this person, she’s got two years worth of mortgage payments saved up, and death-in-service, which is irrelevant in a critical illness question. So that’s all well and good, but if she gets a critical illness, she’s going to have to pay the mortgage, what is she going to live off, off the back of that? So if she can pay her mortgage for two years, that’s fantastic, what about living costs? So assuming that she’s not going to be able to work potentially because of this critical illness.

Now, what she should be looking at, and a critical illness policy is exactly the right kind of cover to look at, is a decrease in term insurance policy, which is what they’ve recommended, that’s going to mean that if she’s diagnosed with any of these conditions she’s going to get a payout, she can pay her mortgage off. Then, that money she’s got saved up is going to be her money to live off, and it may mean because she hasn’t got to pay her mortgage out of that now, that money will last longer than two years.

Jemma Forte:

Okay.

James Jenkins:

All the research shows that people who don’t have to worry about finance so much when they get diagnosed with a critical illness make a far better recovery, and also they are less likely to relapse on what it is they’ve had. So heart attacks, less likely to have a heart attack again because you haven’t got to worry about the stress.

Jemma Forte:

Not stressed out working.

James Jenkins:

Exactly, the mortgage.

Jemma Forte:

Yeah.

James Jenkins:

So I think I would agree with what the advisor’s trying to say here in terms of that’s the area that she should be considering. I think maybe it’s the way they’ve gone about it in terms of the hard sell, rather than actually talking to them and explaining the benefits and where it fits into their current planning scenario.

Jemma Forte:

I think it’s a thing that is difficult for people to confront and talk about because you’re essentially saying, “You might have a heart attack or get cancer or something,” which is obviously the last thing any of us want to think about, and yet of course, it could be anybody. So it is a strange thing to talk about sometimes.

James Jenkins:

Well, the latest figures are one in two people will get cancer at some point in their lives. So that means there’s four of us sat around the table, so two of us are nailed on.

Jemma Forte:

That’s a cheery thing.

James Jenkins:

But that’s what makes the conversations awkward because it’s real world, it does happen. As an advisor it’s always a really difficult conversation to have with somebody, particularly somebody who maybe thinks they’re bulletproof, and it is difficult to try and not cross that line between saying somebody-

Jemma Forte:

Sort of scaremongering, yeah.

James Jenkins:

Scaremongering, but also getting them to understand that this is real world issues that need to be dealt with. So I think, as I say, the issue really there is not so much what it is that he’s talking about, it sounds more like how he’s going about it. The way that some advisors do deal with the cover is, rather than spend an hour talking to a client about the benefits, about how it fits, what it really means, what the claims payout records are, I mean, 94% is sort of the average payout on critical illness. So there’s a good record that insurance pay out on these claims.

Jemma Forte:

Really? Okay. So what, you will have an amount guaranteed, kind of thing, if you get X, Y, or Z, but also, I think where people worry is like, obviously with any insurance you hope you never see that money again, it’s just a waste, if you like. That’s what you want, but if it happens and you make a claim, I think what people are scared about is like, “But is there small print where if I get X, they won’t pay? Whereas, if I get X, they will?” And you can’t list all the diseases that you could possibly get.

Paul Mahoney:

And with critical illness, looking at some of those figures, one in two people get cancer, most critical illness will cover most, if not all, cancer. So there’s a pretty high likelihood that you’re going to claim on something like that, and in fact, make money from it, which just, as James was saying, softens the blow.

Jemma Forte:

So they’ll give you more than you might need in that period?

James Jenkins:

No, what I think he’s saying is in terms of what you’ve paid for the cover.

Paul Mahoney:

Yeah, obviously you might be paying 10 quid a month or something, and it might pay a couple of hundred thousand pounds, depending on what that critical illness is. So it’s almost a no-brainer to have it, given that you know it’s pretty likely that you might have to claim it, even though it’s a terrible thought to have.

Jemma Forte:

Have you all got it?

Paul Mahoney:

Yes.

James Jenkins:

What you said then about the list is all insurers will provide a list of what they do cover and what the medical diagnoses and definitions are below that.

Jemma Forte:

Okay.

James Jenkins:

So the biggest issue with insurance is cost versus benefit, or perceived benefit to the client. If it cost a pound month, everyone would have that cover, no questions asked at all, but these things don’t cost a pound a month.

Jemma Forte:

No.

James Jenkins:

They cost based on risk, based on your age, health, likelihood of getting it, family history, and it’s costed out like all insurance, it’s risk costed. So it’s about cost versus benefit, and it could be, I think the biggest issue is trying to help this client understand benefit versus cost and where it fits in. Ultimately, when it comes to a mortgage, life insurance, critical illness cover, none of those are compulsory to get the mortgage through. So if she really doesn’t understand the benefits or want them, she can not have them, she doesn’t need them.

Jemma Forte:

Okay, so if you’ve got critical … So, in other words, the bank don’t insist on it-

James Jenkins:

Correct.

Jemma Forte:

Because if you couldn’t pay your mortgage, they would just take it back.

James Jenkins:

Take the house back.

Jemma Forte:

Yeah, okay. You don’t want that, do you, in that situation? So very interesting, so in other words, would you all agree that probably critical illness cover in this person’s case, despite having no dependents or anything like that, thinking of themselves, it’s a good thing to have-

Tony Gimple:

Yep.

Jemma Forte:

And to think about, but that maybe a hard sell makes you feel a bit uncomfortable. There’s a fine line, isn’t there?

Tony Gimple:

What it was and how it was perceived could be two different things, but yes.

Jemma Forte:

Okay. You’re making me think about all sorts of things, I must say. Okay, we’ve just got time for another one. Somebody here says: “We bought a buy-to-let and got the keys a couple of weeks ago.” Congratulations. “Two days later,” oh, “We found out about problem neighbors, which wasn’t declared by the previous owners, so we are very annoyed and want to sell on. As it was a second property, we had to pay the Scottish equivalent of stamp duty. Do you know if we can get a refund given that it’s not our main original residence that we’re selling?”

James Jenkins:

Refund on the stamp duty?

Jemma Forte:

A refund on the stamp duty.

James Jenkins:

I don’t think you can because it’s not selling a main residence.

Tony Gimple:

No, and it’s Scottish to boot, so it’s slightly different rules.

Jemma Forte:

Is there any recourse for someone who hasn’t declared a problem neighbor?

Paul Mahoney:

What is a problem neighbor? What’s the definition of that?

Jemma Forte:

Well, I don’t know, but they obviously really are problem neighbors if two days later-

Paul Mahoney:

Like, how do you define a problem neighbor?

Jemma Forte:

I guess it’s noisy, antisocial-

Tony Gimple:

It might not have been a problem for them.

Jemma Forte:

Behavior, I don’t know.

Paul Mahoney:

I suppose you can’t really define it, can you? A problem to some person isn’t a problem to the next.

James Jenkins:

Yeah, because if the people who’ve sold it have said, “We never had a problem.”

Paul Mahoney:

Yeah, “We like it.”

Tony Gimple:

Exactly.

Paul Mahoney:

“They were our mates.”

James Jenkins:

Maybe they partied with them, you don’t know, yeah.

Jemma Forte:

Isn’t there a contingency clause there that if-

Tony Gimple:

No.

Jemma Forte:

If you’ve complained about these people to the council-

James Jenkins:

That’s assuming they have.

Jemma Forte:

Of the noise and stuff, but if you have, then you have to declare that, don’t you?

James Jenkins:

Yes.

Jemma Forte:

But if you haven’t, if you’ve lived with it, then-

Tony Gimple:

Then it’s not a problem for you.

Jemma Forte:

There’s no recourse.

James Jenkins:

Yeah, if there’s no problem for you, you can’t declare a problem, and then there isn’t going to be a recourse because that’s the new person’s opinion that it’s a problem.

Jemma Forte:

I feel really sorry for people who have antisocial neighbors, and I would assume that if they found out two days later, there must be something quite bad going on nextdoor.

Tony Gimple:

Quite possibly, but actually proving that somebody deliberately withheld it, that it was material to them making the purchase, you’re in a bottomless pit of legal fees.

Jemma Forte:

Okay.

James Jenkins:

Yeah, the most likely scenario is what you do is, you go back to your solicitor, you get them to raise it with the other side, and then if you’re going to pursue it any further you’re looking at litigation.

Tony Gimple:

Yeah.

James Jenkins:

So it’s not a matter that’s going to be sorted out between the two conveyancing solicitors.

Jemma Forte:

Okay, alright then.

Tony Gimple:

Correct.

Jemma Forte:

Interesting. So just to absolutely clarify as well, if you had, and I don’t know if this is your area of expertise, but if you had neighbors and they’re having parties most nights doing your head in, you work night shifts, absolute nightmare, and you phone up Noise Pollution at the council, do you legally have to declare that when you’re selling the house?

Paul Mahoney:

As far as I know, I don’t think so.

Jemma Forte:

You don’t think so.

Tony Gimple:

No.

Jemma Forte:

It’s interesting, isn’t it? Because it’s something that I would want to know, and I think it’s really interesting when you go and view a property, there are so many things you can’t possibly find out until you live in it, and that is one of them.

Tony Gimple:

Do your research, and do a bit of a mystery shopper. Knock on some neighbors’ doors and say, “Hey, what is it like to live?”

Jemma Forte:

“What’s it like?” Yeah, you get the truth.

Tony Gimple:

And they’ll always be guaranteed that one person will be very happy to talk to you and give you the low down-

Jemma Forte:

Yeah, yeah.

Tony Gimple:

On the entire neighborhood.

Jemma Forte:

It makes such a difference.

James Jenkins:

It’s very much a buyer beware, isn’t it?

Tony Gimple:

Buyer Beware.

James Jenkins:

You can’t be protected against every single possible situation that may have arisen at some point in the last 20 years, but yeah. Boundary disputes, things like that are usually a lot easier to pick up because they’ll be logged and registered, but yeah, things like the complaints, go and do some research. Drive around at night, see what it’s like at night, if you’ve got people skateboarding on your front wall? Or is it a nice peaceful-

Jemma Forte:

I like that.

James Jenkins:

Is it a nice peaceful neighborhood, do you know what I mean?

Jemma Forte:

Yeah.

James Jenkins:

Go and do these bits, don’t just rely on what somebody’s told you.

Tony Gimple:

Exactly.

Jemma Forte:

Yeah, yeah. I do have a friend who is in a situation where he shared a lease with somebody who was incredibly ill, and they kept their flat in a very, shall we say, not a great way. Like, you’d open the door and it was really … And he worries a lot about selling his flat in the future, you know? It’s tricky. Anyway, thank you for that, that’s very interesting. So yeah, I’m afraid nothing you can do, but they might sell the property on and then they don’t have to claim it either, do they? So this property could just be sold every-

James Jenkins:

Well yeah, that’s the question-

Jemma Forte:

Every six to eight weeks.

James Jenkins:

Theoretically, are they going to then note that on their sales, that they’re selling it because there’s nightmare neighbors. I would imagine they probably won’t be.

Paul Mahoney:

Probably wouldn’t, now.

Tony Gimple:

Yeah.

James Jenkins:

But they wouldn’t be able to claim their stamp duty back we don’t think-

Tony Gimple:

Don’t think.

James Jenkins:

Is the other part of the question, because the only way to claim it back is if you’ve paid it when you hadn’t sold the main residence.

Jemma Forte:

That’s a tax on buying a property, isn’t it?

James Jenkins:

Well yeah, so you-

Jemma Forte:

Which they have done.

James Jenkins:

Yes, but when you buy a second property, you pay a levy or three percent stamp duty as a second home or second property, but there is a clause that if, say for example you sell your main residence within three years of buying that and move into that one as your new main residence, then you can claim back the extra stamp duty.

Paul Mahoney:

Is it three years?

James Jenkins:

Yeah, three years. You can claim back the three percent extra you paid, and I think what they’re asking is, “Because we’re selling this property within three years, can we claim it back?” And the answer is no, because they’re not selling their main residence, they’re just selling the investment that they bought.

Jemma Forte:

Okay.

Tony Gimple:

And it’s a transactional tax.

Jemma Forte:

Okay, thank you. Thank you so much. That brings us to the end of part three out of four of this Property Question Time Special. See you after the break.

Welcome back to this final section of our hour long Finance Special of Property Question Time with me, Jemma Forte, and my three industry experts who are busy answering all of your quite complex questions in a nice clear way that we can all understand, even me. So I’m joined today by Tony Gimple, Paul Mahoney, and James Jenkins.

Gentlemen, this is your question, bearing in mind they haven’t seen this before either, it’s good stuff. This person says: “I’ve been lucky enough to pay off my mortgage early, and I called my insurance provider to check what happens to my mortgage protection now. I was told it wasn’t attached to the mortgage, so if I die there’ll still be a payout to my estate, reducing year by year. Now, I’m quite happy to continue paying if this is the case, but I can’t find anything in my terms and conditions to confirm it. Does anyone know if this is usual for a mortgage term life assurance?”

James Jenkins:

Yes.

Jemma Forte:

Okay.

James Jenkins:

I do.

Jemma Forte:

Right.

James Jenkins:

That’s completely normal.

Jemma Forte:

Is it?

James Jenkins:

Yeah.

Jemma Forte:

Okay.

James Jenkins:

Invariably, the mortgage and the insurance company, two entirely separate entities, neither knows about the other one. What happens is, when your advisor sets up your mortgage protection policy, it is linked to the mortgage, but only in so much as how we’ve designed it. So in terms of the sum assured day one, how long the policy is going to run for, whether it’s decreasing if you’ve got a repayment mortgage, or level if you’ve got an interest only mortgage.

Jemma Forte:

Right.

James Jenkins:

So it’s linked to the mortgage in that respect, in terms of just its design. It’s not actually, the payout doesn’t go to the insurance company, so if you died, it doesn’t … Sorry, to the mortgage company, it doesn’t go over there. If something happened, the payout comes to you for you to do something with it. So the fact you’ve paid your mortgage off is completely irrelevant. The insurance company is no need to know.

Jemma Forte:

But you’ve also got to keep paying it, even though you haven’t got the mortgage?

James Jenkins:

No, you haven’t got to. No, she’s opted to.

Jemma Forte:

Right.

James Jenkins:

You can stop an insurance policy, whether it’s mortgage related or not, at any point. There’s no penalties to stop an insurance policy, not like a mortgage, if you come out of that early you’ll pay an early repayment charge.

Jemma Forte:

Yeah.

James Jenkins:

When it comes to an insurance policy, the only penalty by not paying for it is you won’t have that cover anymore.

Jemma Forte:

Yeah, okay.

James Jenkins:

So if you want the cover, which it sounds like she does, then it’s absolutely completely … It won’t be in your terms and conditions because it’s just a completely different policy from a separate company completely to your mortgage.

Jemma Forte:

Okay.

James Jenkins:

So that policy can run independently for as long as she wants to, or until it happens.

Paul Mahoney:

I’ve seen it happen, the name of the policy that’s causing a bit of confusion.

Jemma Forte:

Yeah, exactly, yeah.

Paul Mahoney:

The fact that the reason they took it out was to cover the mortgage doesn’t actually mean it’s anything to do with the mortgage.

Jemma Forte:

Yeah. I mean, I would be exactly the same as her. I’d be like, “Mortgage term life assurance is linked to it,” but it’s not. You learn something new every day.

Right, I’ve got another one here, and it’s a free for all. So this person says: “I’m in a position where I only need 8,000 pounds to purchase my property, and I’d like to get a loan for this amount and pay it off over 30 months. Can you legally get a loan for this? Or does it have to be a mortgage?”

James Jenkins:

Yeah.

Jemma Forte:

I think if it’s only 8,000 pounds, you could, yeah?

James Jenkins:

As long as you’ve got a loan company who’s willing to lend you the money, then yeah.

Jemma Forte:

Then it’s your money, yeah.

James Jenkins:

It’s not secured. The only problem you have with loans when it comes to buying properties is if you’re trying to use it as a deposit for a purchase and you’re going to get a mortgage for the balance, because then that’s going to come into play with affordability and some lenders will have an issue with you borrowing money to put down a deposit so you can borrow more money, but if they’re buying cash and they’re just 8,000 pounds short, as long as they can get a loan to do it, then yeah, there’s no problem with that at all. There’s no third parties [crosstalk 00:38:02].

Paul Mahoney:

Through any means, yeah.

Jemma Forte:

Okay. This person says: “I’m releasing equity from my property by putting a buy-to-let mortgage on it. The equity will be used to fund a deposit on a second property, and the second property requires full renovation. Can I live in the buy-to-let property temporarily for three months whilst the new place is renovated?” What do you think, Paul?

Paul Mahoney:

Well, most buy-to-let mortgage terms wouldn’t allow that. You could probably risk it and they probably wouldn’t find out, but if they did find out, it would be breaking the terms of your mortgage and-

Jemma Forte:

Does anybody come and check?

Paul Mahoney:

They can do, yeah.

Jemma Forte:

Yeah.

Paul Mahoney:

Yeah, they can check through where your mail’s going, for example, and your council rates, electricity bills. Banks share information, so if you have your bank statement from a different bank going to that address, then the other lender could find out about that. More than likely though, if you approach the buy-to-let lender and told them your situation, they’d probably be okay with it.

Jemma Forte:

Would they? Okay.

Paul Mahoney:

Probably, I’d say. Obviously it’s at their discretion. I can’t see any reason, if it was only for three months and there was good reason for it, why they wouldn’t do it. There was a case recently where a lady was divorced. She had two buy-to-let properties. She moved out of the family home into one of her buy-to-lets. She didn’t know she was doing anything wrong, and came to us to remortgage her buy-to-lets and it did cause a bit of an issue because the lender picked up that she was living in a place with a buy-to-let mortgage on it.

Jemma Forte:

Great.

Paul Mahoney:

But through remortgaging that onto a residential mortgage, the problem was solved.

Jemma Forte:

Okay, is that the kind of thing like if you just said, “Oh, sorry,” and feign innocence and you make sure you get out the next day, is it sort of alright? Or do you get clamped in irons and dragged to prison?

Paul Mahoney:

The difference would be whether there’s malice there or not. Whether you’re doing it intentionally, what they call a backdoor buy-to-let.

Jemma Forte:

Yeah.

Paul Mahoney:

So you’re trying to sort of con the system, or whether you’ve just done something you didn’t know was wrong. There’d be a big difference between those two scenarios, I’d say.

James Jenkins:

Ignorance is no defense, is it? That’s always been the way-

Jemma Forte:

Stupidity.

James Jenkins:

Isn’t it?

Jemma Forte:

Yeah.

James Jenkins:

They would say, “Yep, maybe you didn’t know, but you still did it.” The key is, like you said, talk to the mortgage lender.

Jemma Forte:

Yeah.

James Jenkins:

Because actually, if you talk to them before you’ve done something and say, “This is what I need to do, and this is what I propose,” etc., invariably they will allow you to do something, but at least you did it with their consent, and if they don’t allow you, then okay, you know where they stand on it. So if you then decide to still go ahead and do that, you know that you’re doing something you shouldn’t be doing.

Jemma Forte:

Right. Yeah, I think it’s human instinct, isn’t it? Some of us try to get away with things, but it is better to do it the proper … You learn that as you get older.

Right, we’ve got another question here. This person says: “I made my final mortgage payment, and it couldn’t have come at a better time. Now I need to remove my old partner,” the sentence doesn’t stop there, “Now I need to remove my old partner from land registry and property ownership. I paid him for his part when we split. I got him to sign something and we got our witness to also sign. Does anyone know how I go about proceeding, and will I need a solicitor?”

Tony Gimple:

There’s no mortgage on the property?

Jemma Forte:

So made the final mortgage payment, and now she wants to remove her old partner from the land registry and property ownership. She’s paid him for his part when they split up. Is she going to need a solicitor to proceed?

Tony Gimple:

She can go online to HM Land Registry. There will be forms on there that need to be completed. May have to go through the money laundering rigamarole, in which case she will have to see a solicitor or conveyancer.

Jemma Forte:

Right, okay.

Tony Gimple:

But generally speaking, it’s not a painful process.

James Jenkins:

I would recommend probably where there is a partner that’s come off … Sounds like he’s still on the deeds, but they’ve paid off. I would potentially go with a solicitor in the first place to make sure that you are watertight, and that he can’t come back and say you didn’t do something you should have done. So I think probably, whilst I don’t think you have to, probably good advice to do so, I would say.

Paul Mahoney:

And by making sure it’s done correctly, not only is it done correctly, but you can rely upon the solicitor’s professional indemnity insurance if something is done wrongly.

Tony Gimple:

It’s covering it off, yeah.

Jemma Forte:

Okay.

Paul Mahoney:

So if anything were to happen down the line, you could rely upon the advice you were to get from that solicitor.

Jemma Forte:

Yeah.

Tony Gimple:

But it’s a simple process.

Jemma Forte:

Okay. Well that’s reassuring. It’s very sad, isn’t it, when people feel quite acrimonious about each other and their money’s tied up together, but it happens so often of course, doesn’t it?

Tony Gimple:

Unfortunately.

Jemma Forte:

Yeah. So in fact, with that in mind, if you were advising a couple who were completely happy, but like the critical illness, you never know what’s around the corner, what would be things that you would advise people to make sure that they avoid doing, or things they actively should do, just to protect themselves as individuals?

Tony Gimple:

Don’t argue.

Jemma Forte:

Don’t argue?

Tony Gimple:

Say, “I love you,” before you go to bed-

Jemma Forte:

Yeah, these are life tips now, Tony.

James Jenkins:

We’ve moved on to the Lifetime Special.

Tony Gimple:

And talk the problems through. When you enter into something, a relationship in particular, buying property together, you’re doing it for the long haul. If you’re going into it thinking this is going to fail, well sometimes things can fail as a direct result of it, and how do you really protect yourself? Spouses, civil or partners, have got unlimited financial dependency on each other. There are real interest. I suppose you could get into the areas of prenups, prenuptial agreements, but when it comes to property, a sensible thing to do is own the property as tenants in common.

Jemma Forte:

And basically always have both of your names on the agreement.

Tony Gimple:

Yeah, and you each own a defined share.

Jemma Forte:

Yeah.

Tony Gimple:

And if you want to have something in place to say that, “If we split up, etc., the following happens,” how long will the relationship survive after you’ve had that conversation is another matter, but you’re consenting adults, talk it through.

Jemma Forte:

Yeah.

Tony Gimple:

Work out what it is you’re really trying to achieve, and then take advice to make it work.

Jemma Forte:

Yeah. By the same token, I think these days some people have to stay together because they can’t afford to split up, or in the case of one couple I know, are divorced but living in the same house still.

Tony Gimple:

Yep, yep, happens.

Jemma Forte:

It works okay. It’s not ideal, but it can happen, can’t it?

Tony Gimple:

It can.

Jemma Forte:

And it’s more and more.

James Jenkins:

Yeah, they can do a Declaration of Trust, isn’t it?

Tony Gimple:

Yep.

James Jenkins:

Which says what happens in the event of that.

Jemma Forte:

Right.

James Jenkins:

So they can do that, and actually they’re quite common really. With a lot of first time buyers they are quite common to do those.

Tony Gimple:

Yeah. Particularly if they’re two individuals buying together, as opposed to a married couple-

James Jenkins:

Yes.

Tony Gimple:

Or one’s put more money into it and there’s a bit of sensitivity there.

Jemma Forte:

Yes. Well that … Yes, if maybe there’s no dependents and there’s very differing wages, that could be-

Tony Gimple:

Yep.

James Jenkins:

I don’t some people are as awkward about it as you think they might be, because actually people will quite openly talk about, “Well, we don’t expect to, but let’s do this.”

Jemma Forte:

Yeah.

James Jenkins:

And actually, that’s the time when you get a more sensible agreement because there’s no animosity. So you agree sensibly a way that it would happen.

Jemma Forte:

Because, Tony, you’re saying if you talk about it then it … But actually, you could go the opposite way and say, “Well, why wouldn’t you talk about it if you’re totally happy?”

Tony Gimple:

Well, true. True, true, true.

Jemma Forte:

So yeah, a few ways of looking at it. Well thank you so much, gentlemen, for answering all of those questions in such detail, especially since you hadn’t seen them ever before. It just shows they really are property experts. So thank you so much for joining us for this hour long Financial Special of Property Question Time. My name is Jemma Forte, and I just want to thank my guests; Tony Gimple, from Less Tax 4 Landlords, Paul Mahoney, the MD of Nova Financial, and James Jenkins, Financial Advisor from Moneysprite.

Right, if you’ve got any questions you’d like different experts, or maybe the same, you never know, to answer, then please get in touch. You can email us info@property-tv.co.uk. You can have a look at our Property TV website, or you can download our app for free, we’re everywhere. Thank you so much. See you soon.

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