Property TV | Property Question Time – S1 Ep 52

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

Jemma Forte:

Hello and welcome to today’s edition of Property Question Time with me, Jemma Forte. This is the show where you get to ask your property related questions to industry experts, and you also get for free, some golden nuggets, those little nuggets of wisdom. So let’s introduce you to today panel. We have first up, Tomer Aboody, who is the founder of MT Finance, and then we have Mary Anne Bowring, who is the founding director of Ringley Group. Then we have Paul Mahoney, who is the MD of Nova Financial. Welcome, all of you. Okay, let’s get cracking. Paul, I might start with you today just for a laugh. So your first question is this. “Buy to let, is it worth it? As it stands, I turn 28 next month.” Lucky you. “And I have 36,000 left on my mortgage.” Lucky you.

“My salary is about 29,000 a year and I’ve had my house three years next month and have overpaid on it since I’ve had it,” very clever, “since using my 10% overpayment allowance each year. I’ve got about 12,000 in stocks and shares and a mutual fund, which I want to keep going. Instead of overpaying, am I better using that money and saving for another deposit and a buy to let?” This is obviously a very savvy person, so [crosstalk 00:01:41]

Paul Mahoney:

Sounds like they’re doing quite well.

Jemma Forte:

Yeah, really well, so they need some good advice.

Paul Mahoney:

Well, the two aren’t mutually exclusive. He can continue to pay. I’m assuming it’s a he. It may not be.

Jemma Forte:

He or she. We don’t know.

Paul Mahoney:

They can continue to overpay on their mortgage and essentially still be saving for a buy to let. What I mean by that is by paying down the home loan, they can they remortgage the home loan to take funds out and use that to purchase a buy to let. So in fact, that’s probably the best way to save because the rate that he’s paying on his home loan is likely much higher than the rate he would get in the bank in a savings account. Where the buy to let is still a viable option, I’d say in the right circumstances, absolutely, however, there are more complexities involved now with all the recent changes with regards to the tax deductibility of mortgage interest, [inaudible 00:02:37] premiums and then also mortgage service ability changes with regards to buy to let. So there’s more to consider. There is a larger gap between a good investment and a bad investment. You shouldn’t just assume that all property will grow in value and that you’ll do well from it. I suppose seeking advice there is quite important, but yes. Buy to let is still very much viable.

Yes, I believe that everybody should be saving to invest to build an investible asset base, but they don’t necessarily need to be either saving or paying off the home loan. In fact, I’d say a lot of cases, again, this isn’t specific to their situation, but in a lot of cases, you’re probably better off putting your extra cash into your home loan to then remortgage at some point to take the funds out and invest.

Jemma Forte:

Excellent. Okay, thank you. I hope that helps. So, Mary Anne, this is quite an interesting one. So a young, vulnerable male, homeless person, gets referred by the counsel to a charity, who tell him that they have a room in a shed house. They get him signed a six month contract. They’ll get his housing benefit and give him 40 pounds to live on and then when he’s laid to take into the house, he realizes it’s not suitable. It’s a bad area. At least one of his previous drug suppliers is very close. So he immediately says, “No thank you,” and the charity now insists that he has to give a month’s notice and will claim his housing benefit, even though he’ll never live at the property. So what are the rules about a contract in a case like this and a cooling off period, etc? I mean, that’s a fairly unusual situation, isn’t it? But you can totally understand that young, vulnerable male trying to get away from the precise thing that’s probably led to being in difficult circumstances.

Mary Anne B.:

Sure. An awful story, but the problem is, a contract is a contract and it really is up to him to consider all things before he takes that contract. He’s also potentially got another bigger problem that if he actually never lives in the property, I don’t think it’d be legal to claim housing benefit for it because you can’t claim housing benefit for somewhere you’re not living because effectively, that would be fraud and if the contract requires, perhaps, a four week notice period, which is actually quite flexible as far as contracts go because a normal tenancy might be for 12 months with a six month break clause. So he’s really got to think hard about what he needs to do for the next month because he won’t get housing benefit on two places and he may well have a contractual obligation to pay this month, even if he gives notice the very next day. So the real question is is perhaps try to increase the circle of friends and advisors around you to not make bad decisions in the first place.

Jemma Forte:

Yeah. Okay, fair enough. Yeah and it’s just tricky, isn’t it?

Mary Anne B.:

It’s very sad, yeah.

Jemma Forte:

What’s so sad is, what is it, it’s a known drug dealer. [crosstalk 00:05:27] just harass them. Yeah, difficult story. Thank you. All makes sense. Okay, Tomer, time for you to answer a question. So this person says, “I’ve seen a property I’m very interested in, but need to sell my house in order to raise the capital. Problem is that bungalows are rare where I live, so I don’t want to take the risk of losing this one. Do I have any options while waiting for my house to sell? The bungalow’s worth a 175k and my house is worth 125k with 8k remaining on the mortgage. My bank of 40 years say they can’t help and I’m too old at 58. Should I opt for a bridging loan?”

Tomer Aboody:

I suppose these are circumstances, which as an industry, you see quite a lot because, I mean, on that side, [inaudible 00:06:18] on how to deal with this. But the right lenders out there borrow from the bridging space and I’ve seen also in the mainstream market do lend to [inaudible 00:06:29] people that believe that they’re much older than they really are. They’re old. 58, you got hopefully plenty of years left in you.

Jemma Forte:

In this day and age, we’re working until about 89 aren’t we anyway?

Tomer Aboody:

I think everyone needs to, I think, yeah. But I think it could be a viable option with regards to maybe going to a bridging loan or definitely get advice out there from a broker because just because your bank says no, there are possibly other viable options for yourself because there are other lenders now who diversify into different markets or are able to assist people in their elder years or older years. But you’re not that old at 58, so I think there’s definitely a few options out there [crosstalk 00:07:09] considered, yeah. I don’t think it’s a definite no go.

Jemma Forte:

Okay, would you agree with that, Paul?

Paul Mahoney:

Yeah. I’d say that’s probably a fairly common misconception is that people with their bank of 40 years and whatever their bank says, they take that as gospel, which isn’t the case. There is such a varying range of criteria out there and often, you’ll find that when people do have a bank of 40 years, they will be high street banks. They tend to be the least flexible, so going down and speaking with them, fine if they can do it for you. But if they can’t, there’s likely, in most cases, somebody else that will. So that is really the value of speaking with an independent broker that can look at those options and find something that may work for you because there’s one in the high street. There’s the other end, the guys that would almost lend to anyone, but are very expensive and there’s everything in between. So it’s worth exploring your options.

Jemma Forte:

Yeah, and I guess everybody’s gonna have to adapt because the population are aging, so it’s not the same is it, as when two generations ago went to get a mortgage or expected to retire at 60 and you’d have paid everything off. I mean, now, first time buyers are probably gonna be 58. Give it a few years.

Tomer Aboody:

But I think, yeah. As Paul was saying, I think the market has changed dramatically and there’s a lot more availability for different kind of lending, the whole spectrum of age group, whether you’re first time buyer or you feel that this is your last move or middle move, I think it’s worth to definitely speak to a financial advisor because he can definitely advise you on different options available.

Jemma Forte:

Yeah, so talk to different people. People are out there to help. Yeah. Okay, don’t take no for an answer.

Tomer Aboody:

No.

Jemma Forte:

Excellent stuff. Thank you so much. Right, we’ve had three questions. Has anybody got a golden nugget for me before the break?

Mary Anne B.:

I’ve got one. In terms of lease extensions, a question that is when is a lease a short lease to buy it and when should I not buy it?

Jemma Forte:

Yeah, that’s a good one.

Mary Anne B.:

So generally, as a charter surveyor of charter value, the RSCS does a least that’s short once it becomes less than 70 years. However, the marketplace tends to think the cut off is nearer 80 years in most areas. That’s really based on the fact that if you want to extend your lease, marriage value, which is an extra part of the premium in buying a lease extension, is only payable if the lease has less than 80 years. Between 80 years and 70 years, if you’re gonna stay there for three or four years, you’re getting nearer to the cusp of evaluation crunch at 70 years. Albeit in certain areas, perhaps I’m in Chelsea, a 40 year lease be commonplace. But it’s all to do with ratio of loan to value that you’ll be able to achieve. The other aspect really is if you’re selling a short lease hold flat, the buyer has a disadvantage of not being able to extend their lease for two years.

There’s this waiting period, but there is quite a clever trick that the seller could serve a section 42 notice to claim the right and then pass that right on to the buyer and perhaps negotiate something in the purchase price to save the buyer waiting two years because as the two years goes on, the lease extension price is only going to go up.

Jemma Forte:

Okay, very interesting. It’s always slightly confounded me that sort of 70 years is considered a short lease. How much does it cost roughly to extend a lease or does it depend on the property?

Mary Anne B.:

Completely depends on the property and the location. I mean, there’s three main factors. One is the ground rent you pay. That could be 100 pounds or it could be 500 pounds. Two is when that ground rent is going to review. Three is the value of your property and when the landlord will get that back, IE will he get his reversion back in 60 years, 40 years, or 80 years. The final part is to do with whether their lease has got more or less than 80 years because the two parties, landlord and tenant, have to share the difference in the premium. So the difference between the short lease value and the long lease value, they share that 50/50. So you don’t pay any of that [crosstalk 00:11:08] valuation if you’ve got over 80 years unexplored.

Jemma Forte:

Okay, thank you, Mary Anne. Right, there you go, our first golden nugget of the show and there will be more after this short break.

Hello. Welcome back to part two of Property Question Time with me, Jemma Forte, and my three guests, who today are Tomer Aboody, Mary Anne Bowring, and Paul Mahoney. Okay, Paul, I’m gonna ask you, please, for your golden nugget for this episode.

Paul Mahoney:

Okay. I read a stat recently that said that 9 out of 10 people buy within five miles of their own home, which on the face of it kind of makes sense. They understand the area. They know which street’s a good street, or bad street, etc. the problem I have with that is when it comes to investing in property, it should be completely unemotional and commercially minded and that fact that you live in a particular area has very little, if anything, to do with that area being a good place to invest. So I suppose I would encourage people to look a bit further afield. As I say, make invest decisions or buy to let purchase decision with your completely commercial hat on. I suppose getting the information, there’s lots of information out there. You can seek advice or you can do it yourself. But making sure that when it comes to investing, you’re doing it to make money as opposed to just being able to drive past your property every now and again because if you have the right team around you, you never actually have to do that.

It’s more of an emotional comfort feeling, especially in the current UK market. The way that the market’s gone is there’s a major disparity between property prices and yield across different locations. London to southeast, high value, low yield. Other areas, lower value, higher yield. So depending on what you’re trying to achieve, there’s two different things that can work for different people. But making sure you’re making those decisions purely based upon investment commercial mindset as opposed to just being near home.

Jemma Forte:

Yeah, okay, thank you and I suppose a lot of people probably don’t view their home as a business asset, do they, and then can get quite stuck to one area. But yeah, for anybody that’s hoping to make a bit of money, that definitely makes sense. Go further afield. Right. I’ve got a question for you, Tomer, so this person says, “My mortgage application is not going through successfully because of self-employment and defaults, etc. so I’ve decided to get a bridging loan and pay it after 12 months using a remortgage and I’ve got a few questions. So they’re asking for security. As I’m a first time buyer, can the new house be used as security?”

Tomer Aboody:

In theory, yes. I mean, we see, I mean obviously with industry, especially if it’s in an unregulated space, if a client’s buying a property as maybe a first time buyer, as an investment asset, the first time buyer to that investor. Sometimes, unfortunately, defaults or bad credit will affect their ability to get a mortgage. People have bad situations. They’ve missed a payment. They’ve missed a telephone bill or a gas payment. If you’re on an unregulated lender, you could take a view on that and give someone opportunity to be able to still buy an asset if they feel this is a good investment. Using the security of the property that you’re buying, yes. I mean, that’s probably the only way you can really use and be able to get a new loan from a bridging lender because they typically wouldn’t lend against anything else apart from property if you’re in that space.

So yeah, I mean, I think that’s most important is get the asset, go across to one of them, get advice on who to speak to, go to maybe get a lender out there who’s non-regulated, who’s able to help in the buy to let space and give you a loan against that, then gives 12 months to 18 months, the ability to refinance out, maybe by getting tenants into the property and thinking that way. But yeah, I mean, I think that using your new asset is probably the only way or one of the only ways.

Jemma Forte:

If you’ve got bad credit, does it get wiped after a certain amount of time, like points on a license?

Tomer Aboody:

There are periods when it does. I think that then once again, you’re going down the credit repair lending and that’s completely different, kind of like [inaudible 00:15:25] you’re going down and that’s where you getting advice on that from a financial advisor. But there are [inaudible 00:15:32] of which banks can take on certain criteria, which they will lend against. Maybe [crosstalk 00:15:39]

Jemma Forte:

So say they’ve just missed a payment once by mistake.

Tomer Aboody:

Some people will take a view on that. If it’s missed mortgage payments and you’ve got historic [crosstalk 00:15:47], then it’s probably a no. But if it’s a gas bill or phone bill, I think a lot of lenders out there will give you a second chance. But it depends on who you speak to.

Jemma Forte:

Okay. All right, thank you very much. So Mary Anne, this person says, “I’m struggling to get my security deposit back from a flat that I rented for four years. The landlord and I are on good terms. He’s agreed there should be no deductions, but the letting agents who manage the property have completely ignored our request, repeated phone calls and emails for over 41 days.” Oh, that would drive me mad. “Since the end of the tenancy. The deposit’s registered with tenancy deposit schemes. So what should I do? What options do I legally have to get them to act? It’s not even a dispute, so can tenancy deposit scheme act in this case?”

Mary Anne B.:

It sounds like you have a rogue agent [crosstalk 00:16:39] because the government website says that the deposit must be given back within 10 days and it uses the word “must.”

Jemma Forte:

And you’d think most of those agents on the high street, they’re very legit. They absolutely do that. [crosstalk 00:16:50]

Mary Anne B.:

It’s good that the person who’s asking the question said that they know their deposit is registered because that suggests that the agent did at least register it within the time period at the beginning of the tenancy and provide them a certificate and a reference number. A worser situation would be that they said they registered it but didn’t, so their money [crosstalk 00:17:08]

Jemma Forte:

I suppose we don’t know that for sure.

Mary Anne B.:

No, but if the money is there, then it doesn’t cost anything for the tenant to raise a dispute with the deposit tenancy deposit service. Both parties have to agree to that as a dispute mechanism or dispute resolution mechanism. But if the landlord is agreeing and you are agreeing, then there’s no reason that the tenancy deposit service wouldn’t order the agent to release the money. Real question that’s beginning to worry me is does he still have the money? Did he actually register it in the first place and what on earth could the reason be for delay?

Jemma Forte:

Well, yeah and actually I’m starting to think about in the past and asking these questions. You give your deposit in good faith and I think a lot of us sometimes make assumptions without maybe knowing about the tenancy deposit scheme. So I hope it is.

Mary Anne B.:

Well, you absolutely have to be provided with a certificate of registration and every tenant should make sure that they have that and keep that safe in case they need to use it.

Jemma Forte:

So that would be the very first thing to find out is to say, “Please can I see my certificate,” if you haven’t got one.

Mary Anne B.:

Well, you can actually go onto the national database and go and get it, so if it’s with them, it’s not a problem. There’s then two questions. Is it a custodial deposit or is it an insurance back deposit? In one situation, the tenancy deposit service have your money. In the other situation, the agent has your money. So it’s a case of finding that out as to where you’re gonna get your money back from. But the tenancy deposits work service website says that after a dispute is dealt with, they will pay your money within two working days. Here, you have no dispute. So you and the landlord together need to go to that and get your money quick.

Jemma Forte:

Okay, thank you. There you go. Really hope that means you’re able to go and get your money that you’re owed. Okay, Paul, somebody here is saying, “I’m not really sure what the best choice is for my wife and I. We’re aiming to get on the housing ladder, albeit a little late to the party.” Understandable. “My wife is late 30s and I’m in my early 40s. We’ve got a child and another one on the way. House prices are very high where we live, so help to buy shared ownership appears to be the only realistic option. For the size of property we need, deposits required a mortgage amount. This way is affordable, so how do we get that deposit? We can’t move in with our parents. We don’t have any inheritance or the like, so it will just be save, save, save.” It’s so hard these days, isn’t it? What are the best choices open to us?

Paul Mahoney:

There are a few options that can help. There’s the first home buyers ISA, where the government makes quite a large contribution to the returns. I believe it’s … it may even be 50%. I don’t know off the top of my head. But it’s quite a large contribution the government makes on a yearly basis. Although, I believe you can only save about 12,000 pounds [inaudible 00:19:54] through that or something. So depending on the price of the property they’re buying, I suppose that will determine how useful that might be for them. From a budgeting perspective, I suppose very simply how we often talk to our clients about how they should try to budget is allocated around 30% of their net monthly income toward their sort of accommodation, the other 30% toward living, and another 30% towards savings. Some people can’t do that, but very roughly, there’s a simple formula. That’s something to aim for and I suppose that extra 30% will help them save toward getting their deposit. Aside from that, of course, it’s just generally being frugal, I suppose, that will get them there.

Jemma Forte:

Yeah, yeah. Okay, thank you so much. Yeah and good luck with that. Where there’s a will, there’s a way. Right, Tomer, a nugget. I believe you owe me one.

Tomer Aboody:

So I’m looking actually today at the new buy to let landlord’s, the PRA rules, which have come into play, where buy to let landlords if you own four or more flat properties as investments, in order to buy another one, you have to declare basically all the information you have on all your current investments with regards to your mortgage payments, the rental, basically, [inaudible 00:21:13] on a business plan, how you get able to be able to afford the payments if something happens with regard to mortgage rates going up or the tenants leave, etc in order to buy a new property.

On the bridging space, there are on the unregulated side, lenders who, because obviously to buy to let investments, it’s an unregulated space, you’re able to go if they’re not sanctioned by the PRA rules, which a lot of them are not, you’re able to then go and buy the property and maybe quite quickly if you find something in auction, take out 6 to 12 months to get your house in order, make sure you’ve got your business plan ready, present that to your mortgage advisor, get that to the bank, and be able to then refinance out. But it gives you a bit more time in order to be able to buy an asset in the meantime, rather than having it to provide all the information straight away, which you might not have the access to or the timeframe to do so.

Jemma Forte:

Yeah. Would you agree with that?

Paul Mahoney:

Yeah, there’s some fairly simple templates available to landlords to allow them to get those new requirements in place. It’s only very recent. 30th of September it came into place, so a lot of landlords we’re speaking with are saying they’re quite overwhelmed with what they need to do. It’s not as difficult.

Jemma Forte:

The goal posts have changed.

Paul Mahoney:

Yeah. It’s actually not as difficult as it may seem, so utilize the resource you have available to you to make that an easier process to get to the point where you can have what you need.

Jemma Forte:

Okay. All right. Yeah, it does interest me how legislation changes so quickly in your field. Just to keep up, you must be constantly swatting.

Tomer Aboody:

You have to. You have to be constantly aware of what’s around you and be able to work with that. [crosstalk 00:22:53] You have to adapt. I mean, in order to go forward, you got to adapt and the government is pulling the regulations in order to help and make sure that we don’t face any future disasters in the financial markets.[crosstalk 00:23:07]

Jemma Forte:

Yeah, and I guess it’s one of the first markets that they look at, isn’t it, in terms of, “We’ll get a bit more tax from there or doing this.” [crosstalk 00:23:13] Yeah, yeah, but I feel sort of, in a way, sort of some sympathy for landlords that don’t do it on a massive scale because it is quite difficult. One minute, that was really great and the next minute, that’s less. Okay, all right, well thank you so much. That was really fantastic and I hope you enjoyed the show. Now if you’ve got any burning property questions, we would absolutely love to help answer them. So please get in touch and we will do that on a future show, so you can email us info@property-tv.co.uk or go to our website. It’s all there. All the W’s, .property-tv.co.uk. So that just leaves me to thank my guests today, so thank you so much to Tomer Aboody, Mary Anne Bowring, and Paul Mahoney. Thanks for watching and we’ll see you soon.

 

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