Jo Grimwood: Hello there and welcome to Property Question Time. I’m Jo Grimwood. Now this is your truly interactive property show where you get to send in questions that we then ask to our panel of property experts.
Jo Grimwood: And today we’re joined by Simon Zutshi who’s author, speaker, and founder of PIN along with CrowdProperty. Welcome Simon.
Simon Zutshi: Hello.
Jo Grimwood: We also have Paul Mahoney who’s the MD of Nova Financial Group. Welcome to you Paul.
Paul Mahoney: [inaudible 00:00:38].
Evan M.: And Evan Maindonald who’s founder and CEO of MELT Homes which is a property, development, and investment company. Welcome Evan.
Jo Grimwood: So we’re going to start with a question for you, Simon, today. Fabulous.
Jo Grimwood: I’d like to renovate my property with a budget of 10,000 pounds. What should be my first priority of the renovation, and what will make the price of the house increase?
Simon Zutshi: Okay. So I guess it really depends how much the value of their house is. If it’s a 100,000 pounds, a 10,000 pound budget’s better. If it’s a 500,000 pound house, a 10,000 pound wouldn’t even do a kitchen, and it’s really more of a kind of a light refurb than a renovation.
Simon Zutshi: So in properties, I guess it really depends what needs doing, but the two things that tend to add the most value and improvement to a house is the kitchen and the bathroom. For 10,000 pounds, depending on the value of the property, that’s probably enough to refurb those, to make those look pretty good. You might spend a little bit on a bit of cosmetic painting on the property, maybe cleaning, replacing carpets. So, yeah, 10,000 pounds would probably be about enough, but I’d say, “It really depends on the value of the property.”
Jo Grimwood: Okay. And is it really worth renovating? I mean they mentioned to obviously to add value. If they were potentially thinking of selling, would it be worth renovating before they did that?
Simon Zutshi: Well, yes. I mean, again, say you have an inherited property. It’s my inheritance property thing. I’m going to do it up then sell it. You’d get a much, much better price than if someone is coming in, and they’re looking for a deal because it needs renovating.
Simon Zutshi: I mean I think whatever you’re selling, just always cosmetically improving it, and you spend a very small amount wanting to do that. You can dress the property. You’ll get a much better price because you’re trying to help people imagine what it would look like when they move into the property whereas if it’s a bit drab, and it needs a bit of work, you’ll find people trying to chip you on the price because they’ll say, “Well, they’ve got to spend money on it. It’s not ideal.”
Jo Grimwood: Interesting. Okay, thank you Simon.
Jo Grimwood: So Paul, quite a long question for you. We’re currently looking to move to a new four bedroom house early in 2019 which is worth 320,000. Our current house is valued at 200,000, and our mortgage is around 70,000. Now, this would give us around 130,000 deposit for the new place which is ideal; however, I’d thought about keeping our current home and renting it out, but have no idea about the pros and cons.
Jo Grimwood: I’m meeting up with a mortgage advisor next week, but thought I would ask here before, so at least I have some knowledge. Could I remortgage my current home for 200,000 and still use 130,000 equity as deposit on the new place. Obviously, I understand I would have two mortgages, and it would all depend on if the rental figures from my current home allowed me to pay that mortgage. Any advice?
Paul Mahoney: There’s obviously quite a few things to consider there. Yes, they could sell their home. In selling the home, they’d have to consider the cost of selling the home, so they’ll likely have agent fees and legal fees, et cetera to pay, so they may not be quite left with the 130,000. Just a quick point there.
Paul Mahoney: If they were to keep it, there’s probably more to… Well, there is more to consider than just whether they can get a mortgage for the property. They need to consider whether it actually makes sense as a buy-to-let. Whether there’s going to be demand for that property in the rental market. Whether where they live is the right place to have an investment because, of course, the criteria they’ve used for selecting that property is what they want and like which may not be what the rental market wants and likes, so that’s important to consider. Perhaps something their mortgage broker might be able to help with, but might not as well, so might need to seek the help of another professional in that area.
Paul Mahoney: To keep it as a buy-to-let and remortgage it, they asked, “Could they remortgage it as 200,000.” Well, “Yes,” if it’s worth 200,000, the value being 200,000, and the fairly standard buy-to-let loan-to-value ratio would be 75%, so they could quite likely get out their 130,000 assuming the rent stacks up from a serviceability perspective because there’s two ways that lenders look at what they’ll lend you. There’s loan-to-value, and there’s serviceability which is actual rent that the property will generate.
Jo Grimwood: Yes.
Paul Mahoney: So there’s quite a lot to consider there as to whether they should be selling, or whether they should be keeping it. Another thing to consider is some, if not all, lenders will consider them accidental landlords because they didn’t buy that property as a buy-to-let, it’s been a previous home that they’ve just kept.
Paul Mahoney: But, look, I’d say the most important point there is does that property make sense as an investment? Should they be keeping it as an investment or not because they could always sell it, release the equity, potentially buy a home, and maybe buy a different buy-to-let, so keeping that one may or may not be the right option for them, and what they’re looking to achieve.
Jo Grimwood: Great. And what do you think? Anything to add there?
Simon Zutshi: I think you need to look at people’s individual circumstances, and as Paul already says, “Sometimes selling a house, and if you’ve got some good equity there, and you’re not getting good return, it might be better, even though the selling costs and buy costs, to take that and buy a couple more and get a much higher return on investment,” and it really is looking at each individual’s circumstance. Get some professional help to help you go through that analysis and make a decision.
Jo Grimwood: Fabulous.
Evan M.: There’s another point probably worth adding which has to do with stamp duty. If they only have one property at the moment, if they buy another property, so they own two, they’re going to be hit with the additional 3% stamp duty, right, that the government introduced not so long ago. So whereas if they sell their existing property and buy another one, they won’t be hit with that additional 3% stamp duty, right? So that’s a cost consideration that needs to be taken into account.
Evan M.: The other thing that’s worth also thinking about is the government’s withdrawal of interest relief on mortgage interest for buy-to-let properties, so that does significantly increase the… Or let’s say, decrease the attractiveness of holding a buy-to-let property in a personal name, so it might be worth considering actually moving that property into a limited company because that’s more tax efficient, and it wouldn’t get around the additional 3% stamp duty issue, but it certainly would help in terms of making the buy-to-let property more profitable.
Evan M.: And actually as Simon said, “If you’re doing that, maybe you want to build up a couple of buy-to-let properties,” because actually just having one in a company, it doesn’t give you a lot to cover the administrative costs of setting up and running the company in the first place.
Jo Grimwood: Yes. Absolutely.
Evan M.: So a couple of thoughts there.
Paul Mahoney: An interesting point on that so far as moving it into the company is something worth looking at. Is that it would solve the problem for the new purchase, so by moving it into the company, you would pay 3% on the one you currently own, but because they’re buying a higher value property subsequently, they wouldn’t pay it on the subsequent purchase, so they’d save the 3%. If it was 130,000 pound difference in value, they’d save the 3% on that difference.
Evan M.: Yeah.
Paul Mahoney: So that’s one way of reducing that extra stamp duty if they wanted to keep the current property.
Evan M.: Yeah. I think increasingly the strategy for buy-to-let investors is to use limited companies.
Jo Grimwood: Yes.
Evan M.: For those reasons.
Jo Grimwood: [crosstalk 00:07:57], absolutely.
Evan M.: Yeah.
Jo Grimwood: Obviously, there are costs involved in setting that up as well, but it may balance out in the long run.
Evan M.: One property it’s less viable, but once you’ve got three or four, then it starts to really make a lot of sense.
Simon Zutshi: And that’s a big change from how it used to be. It always used to be if were doing a long-term buy and hold, you’d do it in your own name, and if you were maybe flipping, selling a property, you’d do it in a company for tax reasons, and that just goes to show that it’s really important to keep up-to-date with changes in the market. What you were necessarily doing five, 10 years ago, may not be the best thing to do now.
Jo Grimwood: Yeah. Keep current with what’s going on in the market.
Evan M.: Really important.
Jo Grimwood: Brilliant. Great answer. And thank you very much gents as well for your input.
Jo Grimwood: I’m going to move onto a question for you Evan. Now, my mother owns a house with no mortgage. She’s asked me to move in with her as she’s getting older. I need to raise finance to extend the house, a 100,000. How do I go about doing this? My mom won’t be able to get a mortgage at her age now, so I want to take on the responsibility myself.
Evan M.: Okay. Well the first thing that you need to do is to get the house into… Or get your name on the title of the house. So there are two ways to do that. Either your mother could transfer the home to you, and perhaps if it’s her long-term intention to do that anyway, now might be a good time to think about doing that.
Evan M.: If your mother wants to keep her name on the title, then the thing to do would be to put the property into joint names, and if the property’s in joint names, you can raise a mortgage, so whether it’s in your sole name, or if it’s in a joint name, you’re okay on that front.
Evan M.: Because it’s your mother principal primary residence, there won’t be any capital gains tax implications of that, and in fact, if the property is transferred when there’s no mortgage on it, or an interest in the property is transferred, there’s no stamp duty either. So you have to be a little bit careful about that.
Evan M.: If there’s a mortgage on the property, then you will end up paying stamp duty on a transfer, but as long as the value of the transfer’s over a 125,000 pounds. But if there’s no mortgage, then it can be gifted, and when that happens, there’s no stamp duty, so that’s the way to do it.
Jo Grimwood: So that would avoid inheritance tax as well, by changing over while her mother is still alive?
Evan M.: Yes. Because it’s her mother’s principal primary residence, I think… So if you’re moving in with your mother, then it will become your principal primary residence also, so when it transfers from your mother to you, then there would be no capital gains tax on that because it’s a principal primary residence, and the same would also apply at whatever point you end up selling the property if you do.
Jo Grimwood: Tremendous. Okay. I think we have time for a gold nugget from you, Paul.
Paul Mahoney: With all the recent changes in the buy-to-let market, very briefly being Section 24. We refer to it for the withdrawal of… well, the apparent withdrawal of mortgage interest tax relief. The reason I say, “Apparent,” is you need to understand it.
Jo Grimwood: Yes.
Paul Mahoney: Because the way it’s written is a little bit confusing. Stamp duty changes, mortgage serviceability change, and then also some further change for the guides to the way lenders look at portfolio landlords.
Paul Mahoney: There’s been a lot that’s changed lately. You need to understand it. There’s been some really alarming surveys lately which identifies the fact that most landlords don’t understand those changes whatsoever, and they are the people that are going to be impacted by them.
Paul Mahoney: So if you’re looking to invest in property, or if you are already a landlord or property investor, you need to understand these things. Whether that be understanding it yourself or seeking professional advice to understand them, the changes can really affect what makes sense, and what doesn’t, so get your head around them. Make sure you understand them in detail, or at least work with somebody who does. Who can help you make the right decisions.
Jo Grimwood: Fabulous.
Evan M.: It’s worth saying, actually, just to add to that. Some great online forums that you can use to get answers to very specific points or questions that you might have on those changes. And there’s some great online resources as well that you can use to get yourself up to speed with those things if you’re just starting out.
Jo Grimwood: Great.
Simon Zutshi: I agree with that, but the one point is don’t go and ask tax questions on forums like that, sort of say, “Hey, this is my question. What shall I do?” Because you’ll get loads of people’s advice who really don’t know what they’re talking about. So I agree it’s a great resource, but just be… Some of the questions, you definitely need to get professional advice from.
Evan M.: True. On those key things like tax, professional advice is key.
Simon Zutshi: Yeah.
Evan M.: And actually I think in a way what Simon’s saying is that with tax it’s very specific to the individual.
Jo Grimwood: Yes.
Evan M.: It’s specific to your situation, so you can’t make a generalization based on what someone else’s situation is that they’ve described online.
Simon Zutshi: Yeah. That’s right.
Jo Grimwood: Okay. Great advice. Thank you very much. We are going to be taking a short break, and when we return here at Property Question Time, loads more questions for you to sink your teeth into. We’ll see you in a few minutes.
Jo Grimwood: Hello, and welcome back to Property Question time. I’m Jo Grimwood. Today, I’m joined with Simon Zutshi, also Paul Mahoney and Evan Maindonald. Welcome gentlemen.
Jo Grimwood: Fabulous. So let’s get stuck in with a question for you Simon. I’m looking to invest for the first time in an area that will present me with a high yielding property. What areas should I be looking at in the UK or should I be looking aboard?
Simon Zutshi: Okay. I don’t like to recommend particular areas because what might be relevant right now might be different in six months time. On a very general principle, people always used to look to northern cities where the property prices are generally lower. I mean it’s a little bit lower, but now that much lower, so the yields on the property’s generally much better than in the southeast and London where, actually, you don’t get such a high return because generally the prices are very high, so that’s the general rule of thumb.
Simon Zutshi: You do want to think if you’re investing outside of your area, it’s really important to have a power team there. People who can find properties, who can do the maintenance, and also manage them for you if you’re not going to be doing it yourself.
Simon Zutshi: When it comes to investing, should you do the UK or should you go overseas, I would suggest if you live in the UK, and you want to be getting return on your money, absolutely invest in the UK. There are opportunities overseas, but there’s a whole level of extra complexity and extra risk as well. You have currency fluctuations. You’ve got difficulty of actually doing due diligence. You might not speak the language, understand the legal system there, so all that extra complexity to add on, it’s far more risk as well.
Simon Zutshi: I think the UK’s such a good market. We have an increasing population, limited supply of accommodation. Long-term, UK’s got to be the place to invest.
Jo Grimwood: Fabulous. Yeah. I know my friends. They live in Portugal who are property investors have a hard time getting some very simple things done sometimes.
Simon Zutshi: Exactly.
Jo Grimwood: Lots of stamps on pieces of paper.
Simon Zutshi: If you’re not there, it’s even harder.
Jo Grimwood: Yes. Absolutely. Great, okay.
Jo Grimwood: So Paul, I purchased a property in 2007. Lived there for a few years, and since then haven’t changed the mortgage. It’s a repayment mortgage, and the interest rate is currently at 4.74%. The current amount left on the mortgage is 63,000 pounds, and monthly repayments are 417.
Jo Grimwood: Now, a few years back, I started to rent out the property with the yearly permission of the lender. I’m left wondering if I should remortgage. My assumption is if I do then it would have to be a buy-to-left mortgage given how the property is presented and presently used and will be in the future.
Jo Grimwood: Could anyone please outline what benefits I’d get by doing this? What sort of expense might I expect in making such a change?
Paul Mahoney: The benefits of doing so. So I assume by letting that property out that they’re likely living in another property that might be theirs or might not be theirs. But a rate of 4.74% is definitely the upper end of the market currently. Depending on their situation and the property itself… They didn’t mention the value of the property, did they? Just the value of the mortgage.
Jo Grimwood: No. Yeah, the value of the mortgage.
Paul Mahoney: And therefore depending on the loan-to-value as well, they’re probably quite likely to get quite a bit less than that, interest rate wise. The better rates at the moment for buy-to-lets are around 2%, so less than half what they’re currently paying, so that will also reduce the repayments quite significantly.
Paul Mahoney: They could keep it under repayment basis for a buy-to-let, and a lot of buy-to-lets are interest… Buy-to-let mortgages are interest only, but allow you to pay extra on a yearly basis. So that which, I think, surprises a lot of people is also less risk by going for an interest only mortgage because by taking a repayment mortgage, you commit yourself to higher repayments.
Paul Mahoney: Whereas by taking an interest only mortgage, you give yourself the flexibility to still make higher repayments if you want to, but if your property isn’t let, you can reduce your cost. So I think a lot of people view repayment mortgage as the most sensible way to go, but sometimes they’re not because you definitely are taking more risk.
Paul Mahoney: Cost to consider. Well, I suppose the general costs of taking a mortgage. [inaudible 00:16:45] or they wouldn’t need to take a buy-to-let mortgage because it’s currently being let. Even though they currently have consent to let, you obviously can’t take a home loan, and then get consent to let straight away because you’re taking it for the wrong reasons.
Paul Mahoney: They’ll often have to pay for evaluation, solicitor’s fees, and some sort of arrangement fee with the lender. If they’re doing it through a broker, there might be broker fees involved as well. So they are the general sort of costs.
Paul Mahoney: The main benefit to their situation I would say would be, “Reducing the interest rate, but also, I suppose, doing the right thing,” because their lender could turn around next year and say, “No, you can’t let it anymore.” And therefore, they’d either have to remortgage or sell it. So they’re obviously currently operating at their current lender’s best to tell them they can let it out, whereas by taking a buy-to-let at least they’ve got the mortgage fee for the purpose.
Jo Grimwood: So I have a question for you Evan. How much should I spend on my first house? Myself and my girlfriend have been looking for our first house since the start of the year. We had a budget of around 230K for a two to three bed house in Bristol. Now, we haven’t had any success in finding a house we remotely like, and we’ve seen 15 to 20 by now.
Jo Grimwood: So now is my question. Should I look at houses that are a bit more expensive? We have a 35K deposit and could probably push to 40K if we needed. Our combined income is 65K per year. As the house prices in Bristol are high even 250K won’t get you much. I’ve seen a few nice new builds for sale at around 280,000, but is this pushing it too far? Any help or guidance would be much appreciated.
Evan M.: I think my starting point on it would be, “Yes. You should expand your budget.” If you’re not seeing what you like, at the budget level that you’re looking at, if you have affordability, or if you’re able to afford a mortgage at a higher level and based on the income figures that have been described, and the amount of deposit that you’ve got, that’s not a huge stretch.
Evan M.: In the long run, property prices will always go up, so as long as you’re taking a long-term approach, and if it’s a property that you’re buying to live in yourself, then I’m assuming the attention is not to sell it on very quickly, then it’s going to be a good investment.
Evan M.: The Bristol market has been very good for the last four or five years, and it’s still very strong, so, I think, it’s likely that prices will continue to rise, so I think you want to be buying sooner rather than later.
Evan M.: One thing you might want to consider is the Help to Buy scheme. If you’re a little bit stretched on income multiples or on deposit, then the Help to Buy scheme will give you… Or through the Help to Buy scheme, the government will give you a 20% deposit which is an interest-free loan for a five-year period, and that can reduce the amount of mortgage that you need.
Evan M.: The income multiple that you would be looking at on a Help to Buy mortgage would be around about four and a half times joint income, or the maximum income multiple would be. So in terms of affordability, you should be able to easily buy a property that’s worth in excess of 300,000 pounds.
Jo Grimwood: Wow.
Evan M.: You could also look at 90% or 95% mortgages. There are quite a few of those around these days. And so my advice would be if you’re not finding what you’re looking for at the price point that you’re currently targeting, then you do need to move your sights up a little bit.
Evan M.: One other thing worth saying is there are some interesting areas around Bristol. The Forest of Dean is one. The toll is coming off the Severn Bridge at the end of this year, and house prices in the Forest of Dean are currently very competitive compared to Bristol. You get a lot more there for your money, so again, you might want to try maybe widening the scope of your search and perhaps targeting areas where there’s potential for growth because of changes like the bridge toll. I think the Forest of Dean will see some fairly significant growth once their toll comes off.
Jo Grimwood: That’s a great little tip, little hidden tip there Evan. So this is why you watch. You get these great tips from the experts. And I was going to suggest, actually, yeah moving outside, maybe broadening the range is going to be a smart thing to do if they really can’t stretch too much.
Jo Grimwood: Anything you’d like to add gents?
Simon Zutshi: Yeah. On that also, I’d say that sometimes for the first time buyers, they’re quite fussy and maybe unrealistic about what they’ll actually get for their money. And there was a comment about, “Well, we’ve seen some quite nice new builds.” Well year, new builds do look nice because they’re nice and new, and they’re dressed to make them look really good.
Simon Zutshi: To make your money go further, you might look for a property that might be a bit older, that might need a little bit of renovation work, and so you can actually add value to the property that way. So again, that depends on the inclination. They might just want to not do work at all, but if they’re prepared to get their hands a bit dirty, that can be a good way to get more for your money when you’re first starting.
Jo Grimwood: Well, that’s about all we’ve got time for today. Thank you so much gentlemen. Once again, our guests Simon Zutshi, Paul Mahoney, and Evan Maindonald. Thank you for joining us.
Jo Grimwood: So if you’ve enjoyed this program of Property Question Time, you can actually get involved yourself and pose a question to our panel of experts. You can just head to the website, infoatproperty-tv.co.uk or log your question on our website. Until next time, I’m Jo Grimwood. I’ll see you soon.