Steven Galpin: Welcome to Property Question Time. This is the program where you can get your property-related questions answered by our expert panel. I’m Stephen Galpin and with me today are Paul Mahoney, MD of Nova Financial Group. Welcome to you. Ayesha Ofori founder of Propel Accomplished Property Investors and Developers, welcome to you. And John Howard, property developer, author and of course investor Angel on PTV’s Property Elevator show. Welcome, John. Our first question today is going to Paul, and Paul, your question is this: I recently moved house and I’ve let my previous property using a buy-to-let mortgage. Unfortunately there’s a lot of maintenance to be done on that property and with hindsight I should have borrowed more. Is it possible to increase the mortgage without applying for a completely new loan?
Paul Mahoney: Okay. It’s a good question. I suppose that there’s a couple of things that probably need to be clarified there before I can give the right answer, but I’ll give both scenarios. Sometimes when people let their old home… Sorry, did they say they bought a new property?
Steven Galpin: They bought a new property and they’ve let their old one.
Paul Mahoney: Okay. All right. So, there’s two different ways that can be done. Sometimes people get a consent to let, which means you keep your original mortgage on that previous property, but usually because they bought a new one and assume they’ve taken a residential mortgage on that new one, they would’ve switched it over to a buy to let anyway.
Steven Galpin: Yep.
Paul Mahoney: And as they said they borrowed a certain amount so far as getting more from that same lender, some lenders will allow you to do that, though they will give you sort of an extension of your mortgage if you like, but that’s not always the best option either. You know, they shouldn’t just look at that as a… I assume the raise and they’re probably thinking of doing that is they think it might be less costly. So without incurring fees such as valuations and arrangement phase and things, but quite often the initial lender will charge you those things anyway.
Paul Mahoney: The question would be why didn’t they borrow, you know, the maximum amount of what they were going to need initially? Also, the fact that they’re saying there’s maintenance, you know, borrowing money to do maintenance on a property maybe isn’t the best way of doing things either because essentially they’re taking capital from their property to maintain, you know, something on an ongoing basis. So that’s gonna run out at a certain point, likely, unless they’re talking about a renovation. So the answer is they should speak to an independent broker really, you know, get an idea of their situation, what they need and then find a product that’s fit for purpose.
Steven Galpin: I suppose the difficulty is [inaudible 00:02:47] renovation works while the new tenants are in there. That’s going to be rather difficult, isn’t it? And it’s going to be difficult to quantify what that’ll do to the rental once they’ve done it. Whether it’s an obligation or whether it’s an enhancement.
Paul Mahoney: Exactly. There’s a few things to clarify there. Like with any sort of mortgage situation, you need to get an understanding of that full picture. That’s always somewhat difficult when you’re getting a tiny little snapshot of that to provide the best answer.
Steven Galpin: Okay. Aisha, any comments on that?
Ayesha Ofori: I think I just second that, you know, speaking to a broker will give anybody a good opportunity to understand, you know, what’s available in the market and you know, what mortgage is suitable for what’s going on at the time.
Steven Galpin: I presume it’s also going to be cheaper than applying for a separate loan to do these things. You know, if you go to normal finance houses, they’re going to be rather more expensive than your original mortgage lender.
Ayesha Ofori: No, not necessarily. You’d be surprised and sometimes you can actually speak to a broker and they won’t charge you. They’ll get paid with their fees on the other side. So there’s not really any downside to you speaking to a broker and you might as well hear what you know, opportunities and what’s available.
John Howard: Okay. John, anything? Well, you may not be surprised, Stephen, for me to say that they need to think about all this in advance, anticipate what needs to be spent and really I haven’t got a lot of sympathy for them, surprisingly. Because they should have thought about all this in a way, you know, it’s a big job if you’re investing in a property and you’ve got to look at the long term and what’s going to need to be done and probably phase that in over a number of years.
Paul Mahoney: Yeah.
John Howard: ‘Cause it’s maintenance at the end of the day, but you need to recognize that before you take out your loan.
Steven Galpin: It’s the same thing that comes up time and time again on the program, isn’t it? You know, fail to plan, plan to fail.
John Howard: Absolutely complete.
Steven Galpin: And also take good stock of what your professional advisors are going to tell you.
John Howard: Exactly. Very much so.
Steven Galpin: Okay.
Paul Mahoney: And not thinking of property as a hobby. You know a lot of people end up accidental landlords [crosstalk 00:04:44] keep this property.
Steven Galpin: Spot on.
Paul Mahoney: That’s not what it is.
John Howard: No, property’s a business. How many times do we have to say it on this program? Property is a serious business. It’s a lot of money involved.
Steven Galpin: Yep. Okay, Ayesha your question. Now, I’m guessing this is coming from somebody who wants to start on the path to property development. Their question is: What are the first rules of property development? There you go.
Ayesha Ofori: Yeah. Big, big question. I mean the first thing that I would say is team. You need to have the right team around you and if you don’t have prior experience, it’s particularly important because how are you going to, for example, get financing or how are you going to know certain pitfalls to avoid and what you need to do? So I say whether or not you have experience, you need a great team. If you don’t have experience, it’s even more important. And by team, I mean, you know, an architect, a surveyor, solicitor, a builder, it could even be engineers depending on what projects you’re doing. That would be the, sort of, very first thing that I would think about. Beyond that, it would then be, you know, what is your property development strategy? Property development is a very broad term. What exactly do you plan to be developing? You know what areas for example,
Steven Galpin: Okay fine. Paul, would you consider yourself to be part of the sort of strategic planning of a development?
Paul Mahoney: Yeah, well, absolutely. It kind of ties into the previous point, doesn’t it? And I do agree with everything that was said there. I think far too many people watch certain TV shows and things and kind of think, well it’s easy to make loads of money in property development.
Steven Galpin: Just go to the auction.
Paul Mahoney: You know, keeping in mind it’s a profession, you know, and you need to have a strategy and you need to approach things in the right way. You can’t just say, well, I’m going to be a property developer overnight. Go and buy a plot and all of a sudden make a million quid. You know, there’s a lot more to it than that. It’s like any other business like we just said, having a strategy actually finding if you don’t know what you’re doing, well that’s not necessarily the end of the world, but finding people that do and surrounding yourself with those people and maybe considering the fact that on your first deal you might not make a lot of money or, you know, just to get a bit of experience, I would say for that person is quite important.
John Howard: Okay. And John, do you have a single golden rule?
John Howard: I’ve got a lot to say on the subject. Having done it for forty years. I mean, it amazes me the amount of people who want to be a property developer or an investor with no experience. It’s quite a dangerous thing to do. And of course, the more money they have to invest to start with, the more excited they become. So I always think that, again, surround yourself with the best people. If those people make you… Better than you, that’s great. Brilliant. I’m always delighted to have the best people around me and to make me look… Sometimes they make me look better as well, which is great.
John Howard: And it’s so important to do your research and be realistic about your prices and the value you think they’re going to be worth at the end of the project when they’re finished. And don’t just take what an agent says, make your own decisions. Agents are normally 10% higher than they should be probably cause they’ve very… As we said on this program before, when a state agent, if it’s residential opens the curtains in the morning, it’s always a sunny day and that’s what you’ve got to remember.
Ayesha Ofori: I mean it’s a marathon, not a sprint. Right? And I think that’s what a lot of people don’t necessarily appreciate.
John Howard: Yeah, agreed.
Ayesha Ofori: Okay, great. John, your question.
John Howard: Good.
Steven Galpin: Bit complicated, I’m afraid.
John Howard: Oh.
Steven Galpin: I live in a small rural community where we’ve been designated for additional housing. The estate should meet then the needs of the local councils quota. The entrance to the estate will be about 50 yards from my drive. The road is currently a 40 mile an hour road, but due to there being no other pedestrian access to the estate, road calming is being introduced with a single file gate right outside my house. I anticipate queues of traffic outside my house, problems with the access, and probable devaluation of the property. Is there anything I can do to have the road calming plans moved or who should I contact? A Nice, easy one for you.
John Howard: Thank you very much. Yes. I’m glad I’m getting paid. So well, the first thing to say is your local counselor. So a lot of people think, well why is it worth me bothering to vote in the local elections? And this is a prime example where it is. So the local counselor, that’s the first person to go to if there’s an issue and a problem. Go See your local counselor, explain the situation to them. They will then get on to the chairman of the local parish who will then hopefully get onto the county council, who will then get on to the roads department, transport department and see if it can be moved or something can be done. So when people say, oh, it’s not worth voting at the local elections, it’s really important because they’re local issues and this is a local issue.
Steven Galpin: Okay. Ayesha, anything to add to that?
Ayesha Ofori: I’d say possibly see whoever else in the, you know, the neighborhood feels the same way because if there are more of you, it’s likely to carry more weight
John Howard: For sure.
Steven Galpin: How accessible are the councils on this sort of thing?
John Howard: Very, very accessible. They’re there to help. They’re there to… by the way, as is the local MP, of course. You know, people say “Oh, it’s an MP.” Go, go and see them because they are there to help you. They’re being paid to help you. So go and see them. Same with the local authority, the council, you know, all these people are available, but you have to use them.
Steven Galpin: Yeah, I mean a quite devastating issue. Although the question really sounds quite simple. Can I just move some sort of gated, slow down area, but I mean it can have quite a devastating effect on the property. Would it devalue it much?
John Howard: I think it could, unfortunately, yes and, and there’s really nothing you can really do about that in terms of the down valuation, you can’t get any money back from anybody for it, unfortunately. Or you can try [inaudible 00:10:46] work with the community, work with the local authority and the council and see if you can mitigate it in some way.
Steven Galpin: It’s quite, it’s quite interesting actually. A lot of the questions that we get about councils and planning departments, people almost sort of treat them as the enemy, don’t they? And actually they’re quite receptive and helpful.
John Howard: They’re actually, you know, they’re your friends and they’re free, so use it.
Steven Galpin: And that’s all we have time for in this half of the program. We’re going to go to a commercial break now, join us again shortly.
Announcer: Property is a great investment option, but it’s one of the largest purchases that you’ll ever make. As individuals we’re all limited by our resources and regardless of our experience, knowledge, or time, we can achieve much more with the help of a qualified team, and extra resources being available. Nova financial specialize in assisting clients to achieve financial freedom through property investment. With over a hundred years of experience. We shape your family’s future. To invest in property with absolute confidence call us on 0203 8000 600 or visit Nova.financial.
Announcer: The tax system has evolved significantly over recent years, for property investors and developers. You may think that you and your accountant have a grip on these changes, however, unless you’re receiving specialist tax advice from a specialist tax advisory firm, then it’s unlikely to be the case. At ETC Tax, our team of highly experienced chartered tax advisors work with private individuals and companies to deliver effective tax planning whilst meeting HMRC compliance requirements. Let us help you to meet your personal or commercial objectives in the most tax efficient manner. ETC Tax, Making the complex simple.
John Howard: My name is John Howard and I’ve been investing in developing properties for over 40 years. In that time I’ve been very successful, but of course I’ve always made the odd mistake as well. In my book, I explain how to be successful and what to do should something go wrong. I’ve survived three property recessions. I can help you do the same. My book is available online. Please go to johnhowardpropertyexpert.co.uk.
Speaker 6: If you’ve got a question about property, why not ask an expert Property Question Time gives you the opportunity to ask anything you want, whether it’s about planning, finance, conveyancing, moving abroad, literally anything that’s property related. The Property TV panel of experts are available to answer your questions no matter how complex they may seem. Simply email your question to firstname.lastname@example.org and join us on Sky Channel 189 to hear your questions answered.
Steven Galpin: Welcome back to Property Question Time. I’m Stephen Galpin and with me are Paul Mahoney, Ayesha Ofori, and John Howard. Welcome back guys. Paul, your question for this second half is: I am 50 years old and want to start a property portfolio to pass onto my children. Given my age, how long a period could that get a buy-to-let mortgage for? And in percentage terms, how much could I borrow per property?
Paul Mahoney: Good question. Very common people are starting out at that age and to be honest with you, in buy-to-let terms that’s not an old age at all. The reason for that is buy-to-let mortgages are considered commercial mortgages. The service ability for those mortgages is predominantly the rent from the properties themselves as opposed to a residential mortgage, which is the home you live in, and therefore it’s very associated with your, your personal income. So you know, if you’re borrowing at 50 to buy a residential home, then you probably would be somewhat limited regarding the timeframe as compared to someone that’s 30 years of age. With buy-to-let, that person wouldn’t really be limited at all. Some lenders will lend to up to the age of a hundred. So a very common thing actually is that people do assume that given their age, and even at the age of 60, 65, 70, and even above that, you can still get buy-to-let mortgages over a decent, you know, term period.
Paul Mahoney: So for that person, it’s not something to worry about at all. And in fact, they’ve got quite a bit of time on their side to enable them to start building a portfolio even prior to retirement. You know, they’ve got 15 years. So, the time frame isn’t so much of a concern. How much they’d be able to borrow is based upon two things, serviceability and loan to value. So most lenders, what I call the average maximum that lenders will go to is 75%. The reason for that term, and I think I coined it, is that’s where lenders will go to while still offering decent interest rates. So at the moment you can borrow 75% in about two or 3% interest rates and you can go above that, but the rates become higher if you’re a bit below that. Sometimes the rates are a bit cheaper but not substantially cheaper.
Paul Mahoney: And because you know buy-to-let mortgage is cheap money, usually it’s worth having them. So, 75% loan to value is what most lenders will go to. The other thing to consider is serviceability, which mostly only limits you if you’re buying lower yielding properties. Geographically, that has affected the London and the southeast pretty much. In the last year, the Bank of England mandated that all buy-to-let lenders needed to use a benchmark rate of five and a half percent, meaning that even if the lending to you at 2% they need to stress test it at five and a half. Now there are some ways around that, but in general that’s the rule. So that means if your interest… if your yield is below about four and a half, 5% that could limit your loan… Your ability to borrow up to 75%
Steven Galpin: Paul, you mentioned yield, there, was a critical part of deciding the percentage. So I presume, you know, London properties for instance, where you’ve got to, you know, whole plethora of properties over a million pounds or so, the actual yield must go rocketing down, especially if you take into things like some of the service charges that people hear [crosstalk 00:17:24]
Paul Mahoney: Absolutely. And so, yeah, good point. They do actually consider costs of that. And you’re right, in the past London has grown substantially, but of course past performance is no indication of future performance. So, you know, with that change that came into place, a lot of people are struggling to borrow what they could before in not just London but the southeast, any high value, low yielding property and that’s actually benefiting areas which with low valleys and high yields because you can still borrow as much as you could before and therefore sometimes it’s a better use of the money.
Steven Galpin: Hmm, okay. Ayesha.
Ayesha Ofori: I’d say just on that, you know, speak to again, a mortgage broker, so get variety of different, you know, ideas from different Lenders.
Steven Galpin: I suppose to some extent your informed mortgage broker these days, has almost replaced your expert building society manager of years ago
John Howard: Totally, Stephen. You and I remember the bank manager, you go and see them or you sit down, you have a cup of tea and he’d say, where is it? And you say where it is and, in principle, you get an agreement.
Steven Galpin: He knew more about you than you did in some extent [crosstalk 00:18:31]
John Howard: … in certain cases quite disturbing. That’s how it worked. And you’re absolute right, the mortgage broker has taken the place of the bank manager completely and there’s some really good mortgage brokers out there and as we said before, to start with, get your team together. And one of the most important parts of your team is the mortgage broker.
Ayesha Ofori: Yeah. And you could even speak to more than one initially. You know, if you speak to a mortgage broker and you find that you don’t particularly gel very well, you know, speak to a couple until you find somebody that fit, I think as well as the advice, it’s also about the relationship.
Steven Galpin: Okay. All right. Ayesha, your question. This is a good one. I can see John Jumping in on this one too. What is the most common mistake made by property developers?
Ayesha Ofori: Well, again, it comes down to, I’d say, experience, but I think I’ve seen a couple of things. Do your due diligence, do your homework. You need to know the area. You need to know the type of, you know, development that you’re proposing to build. Is it suitable for the area? Have you looked at your numbers? Have you factored in a large enough contingency? Nobody can predict the future. What happens if, you know, the market falls? What happens if it takes a bit longer to sell, you know the end units, if you’re selling, and you can’t pay back your investors? You have to have a plan A, plan B, C, D and E and a lot of people don’t necessarily have so many different paths to go down if things don’t go according to plan.
Steven Galpin: And I suppose, again, this is a case of developing a good relationship with your, sort of local agent, I suppose, in the area that you want to develop.
Ayesha Ofori: Absolutely. I think that’s important because the agents are obviously on the ground, so if it’s not an area that you live in, for example, then you know going to speak to different agents and getting their viewpoints absolutely is a critical part of, you know, your overall sort of due diligence. But I think that, you know, it’s a responsibility of the developer to make sure that, you know, they understand the specific dynamics of that area and then how anything that may go on in the sort of wider scope of, you know, property market could affect that. And can you have contingencies in place,.
Steven Galpin: John, you’re developing all sorts of different areas.
John Howard: We do, yeah. Okay. Three things. First of all, they underestimate the cost of the works. That’s the first thing most people do. Second, they estimate that the length of time it will take to do and the third thing they overestimate what the sales are going to be worth at the end. Unless the market is increasing, of course. You know, it’s rapidly going up and they’re the three most common things. And even if they’re 5% wrong or 10% wrong in each one of those, it makes a huge amount of difference. You’ve really got to be conservative. Really gotta be conservative on your… And if the deal doesn’t work because you’re conservative, walk away from it, go and find one that does. You know, people seem to get in the idea “I’m buying it”, especially auction, “I’m buying it almost at any cost. I’ve done all the research and I’ve spent all this time” and I waste 95% of my time literally looking at deals and not doing them, but it’s the 5% I do do that more than pay for the ones I don’t do. And that’s the key.
Steven Galpin: And I suppose also, these potential mistakes over time and material costs can affect your draw down from your lenders, which is in turn going to affect the sort of confidence they’ve got in you effectively.
John Howard: Absolutely. You know, under promise and over deliver every time.
Ayesha Ofori: And I think in a rising market it can be quite easy to find something and have it work well. But when things turn…
John Howard: Yeah, you can mask it, can’t you?
Ayesha Ofori: Exactly. So you can mask it in [crosstalk 00:22:27] exactly, but when things turn, that’s what separates, you know, those who are experienced from those who aren’t.
John Howard: For sure.
Ayesha Ofori: And then what do you do? So at the moment I’ve seen a lot of people sort of, you know, doing developments, not necessarily very experienced or not putting in as many contingencies or doing things as…
Steven Galpin: Scary
Ayesha Ofori: … as you would think. And it works now, but it might not in future.
John Howard: I might not work in six months or three months.
Ayesha Ofori: Exactly.
John Howard: And of course, do they work into, do they work out all their interest, all the stamp [inaudible 00:22:58] you know, legal fees sells? Half of them don’t even do that. It’s crazy.
Ayesha Ofori: And there’s actually one other interesting thing that I’ve come across is that sometimes, particularly for newer developers, they, they’re not necessarily very familiar with the FCA rules and regulations about how to raise funding into their developments in terms of how you can and cannot pull assets from different investors. So that’s something that I, you know, I think that a lot of people should pay more attention to.
John Howard: Oh, for sure. Great.
Steven Galpin: Thank you very much.
John Howard: Very good.
Steven Galpin: John?
John Howard: Yes?
Steven Galpin: Your final question. I want to change one large bedroom, it’s an en suite, into two smaller ones. One of which would keep the en suite. Access to the second bedroom would be by going through the first bedroom. Is that the legal?
John Howard: Well first of all, if it’s a house, it is legal. It’s your own home. In the old days when they had those terrace houses, quite often you did have to walk through one bedroom to get to the upstairs to get to the next bedroom to get to the bathroom. And most people have now put a landing in of some sort, hallway in of some sort. So I’m not sure it’s going to put a lot of value on the property. I mean it should do technically cause it goes from one bedroom to two bedroom. But if you’ve got a walk through one bedroom to get to the other, it’s almost more of a landing these days, isn’t it, than a bedroom? I would say.
Steven Galpin: I suppose the only complication could be in a block of flats. You might fall foul of the distance between the furthest bedroom and the…
John Howard: Yeah.
Steven Galpin: … nearest fire exit.
John Howard: I agree with that, But I’m assuming it’s a house by the sound of things. Yeah. But you could if it’s a flat, yeah, there’s other things to consider. Yeah.
Steven Galpin: Yeah, Ayesha?
Ayesha Ofori: I think if it’s a residence, you know, for somebody and they’re planning to live in it, then it’s not necessarily the end of the world, but if you may think about selling it in future, then how appealing would that be to somebody else.
John Howard: Well, you can always put it back.
Ayesha Ofori: Yeah.
John Howard: You can always put it back to how it was.
Ayesha Ofori: Yeah. I guess, yeah. If you factor in those costs.
Steven Galpin: Yep. Although that could be a costly exercise that you don’t want at the point of sale [crosstalk 00:25:02]
John Howard: Yeah, but if it suits you. It might just suit you for whatever reason. And, and so on. I mean everyone has different circumstances. Yeah.
Steven Galpin: Okay. I suppose these sorts of alterations could have some effect when you come to sell the property and the next person’s trying to finance it.
Paul Mahoney: I think it kind of does tie into the underlying theme we’ve been discussing about strategy and end goal.
Paul Mahoney: You know, what is this person trying to do? Are they going to rent a place…
John Howard: He wants two bedrooms.
Paul Mahoney: Well he wants two bedrooms, but why does he want a second bedroom? Because if he’s planning to rent the second bedroom, well that person’s not going to want someone walking through their bedroom all the time.
John Howard: I think, to be fair, it sounds like to me that it’s more a family home.
Steven Galpin: It’s a family home, yeah.
John Howard: … And they want this, they want to create another bedroom and then, you know…
Ayesha Ofori: As I said, if it’s for them to stay in, absolutely fine. If it’s, we want to create a second bedroom to add value and then sell, …
John Howard: It’s not going to add value.
Ayesha Ofori: Exactly.
Paul Mahoney: Probably won’t do that.
Steven Galpin: All right, ladies and gents thank you very much. That’s all we’ve got time for now. So Paul Mahoney, thank you. Ayesha Ofori, we thank you very much on your first program today. Well done. And John Howard, thank you again for giving your expertise.
Steven Galpin: That’s all we have time for today. So join us again next time on Property Question Time.
Speaker 6: If you have any questions you’d like to send to the experts at property question time, you can submit them via our website, on social media, or email us on email@example.com
Announcer: property is a great investment option, but it’s one of the largest purchases that you’ll ever make. As individuals, we’re all limited by our resources and regardless of our experience, knowledge, or time, we can achieve much more with the help of a qualified team and extra resources being available. Nova financial specialize in assisting clients to achieve financial freedom through property investment. With over a hundred years of experience, we shape your family’s future. To invest in property with absolute confidence call us on 0203 8000 600 or visit Nova.financial.
Announcer: The tax system has evolved significantly over recent year for property investors and developers. You may think that you and your accountant have a grip on these changes. However, unless you’re receiving specialist tax advice from a specialist tax advisory firm, then it’s unlikely to be the case. At ETC Tax, our team of highly experienced chartered tax advisors work with private individuals and companies to deliver effective tax planning whilst meeting HMRC compliance requirements. Let us help you to meet your personal or commercial objectives in the most tax efficient manner. ETC Tax, Making the complex simple.
John Howard: Hi, I’m John Howard and I’m known as the property expert. The reason for this is over the last 40 odd years I’ve bought and sold over three and a half thousand properties and I’m still going. I’m delighted to pass on my vast experience and knowledge to you through my property seminars that are taking place across the UK this year. To know more, please go to johnhowardpropertyexpert.co.uk
Speaker 6: If you’ve got a question about property, why not ask an expert? Property Question Time gives you the opportunity to ask anything you want. Whether it’s about planning, finance, conveyancing, moving abroad. Literally anything that’s property related. The Property TV panel of experts are available to answer your questions, no matter how complex they may seem. Simply email your question to firstname.lastname@example.org and join us on Sky Channel 189 to hear your questions answered.
Speaker 6: Proper Wealth covers all areas of wealth creation with a specific focus on property hosted by international property finance expert Paul Mahoney, the show invites industry experts to share their wealth of knowledge with viewers from topics that include buy-to-let, tax, portfolio management, finance, and planning to host investment spots and conveyancing. Proper Wealth covers it all. Proper Wealth, exclusive to Property TV.