Jemma Forte: Hello, and welcome to Property Question Time. My name is Jemma Forte and it’s lovely to have your company. Let me introduce you to my trio of industry experts who are going to ask your property related questions today.
First up we have Paul Mahoney who is the MD of the Nova Financial Group. Hello. Then we have Mary-Anne Bowring, the founding director of the Ringley Group. And Stefano Lucatello, senior partner of Kobalt Law, International Property Lawyers.
Right. Welcome everybody. I’d like to just crack straight on if I may with our viewers’ questions. So Paul, this one’s for you first.
My wife and I are in our 20s and we’re looking to buy our first home in the next six months or so. We both work full-time with salaried jobs and a combined income of a little over 50,000 per year. We also have really good credit reports as a result of previous borrowing that is now pretty much all paid off.
We currently rent privately and we will only have a 5% deposit by the end of our estimated six month period. With the new changes to [inaudible 00:01:19], etc., we’ve done an AIP just to see where we’re at and it’s come back saying they’d be prepared to lend us 251,000. I’m after some advice as the way I see it, we could use help to buy, to go for a slightly bigger house or buy a smaller one on a normal mortgage.
Paul Mahoney: Okay.
Jemma Forte: It’s tough these days, isn’t it, just to [inaudible 00:01:40] … It really is, isn’t it?
Paul Mahoney: Yeah, yeah, it’s a big problem.
Jemma Forte: You work very hard and then …
Paul Mahoney: As far as people being able to save-
Jemma Forte: Yeah.
Paul Mahoney: Okay, the 5% of nothing is nothing, so it’s hard for me to say what that actually is, but let’s say we assume it’s of the 251, but it may not be because the 251 might be based upon their income. So there’s two ways that lenders look at how much they’ll lend you.
It’s serviceability, which for a residential mortgage is how much you earn and loan to value which is the 5% they’re referring to. So if you say it’s 5% of 251, they’ve got £12,500 or thereabouts. The help to buy option, depending on where they’re buying might be their only option.
Jemma Forte: Okay.
Paul Mahoney: Your standard residential mortgage is 80, 85% so if we’re looking at 12,500, unless they’re buying somewhere that’s pretty cheap, comparative to the rest of the country, that may not be an option.
Obviously that’s the purpose of help to buy is to help people like this couple that are struggling to get that deposit to actually get into the market. And obviously that would get them to that 251 mark. But it does just depend on where they are in the country, I suppose, as to what their options are because that generally will determine the prices of properties.
As to what they should do if they did have the two options, it comes down to their personal situation, I suppose. They’re still borrowing the money with help to buy, so it still has to be repaid at some point.
Jemma Forte: What is the difference?
Paul Mahoney: Well, help to buy generally relies upon the idea that the property will be worth more at some point in the future, so it makes up for that extra value. But it may not be.
Jemma Forte: Right, okay. So is it quite hard to get that type of mortgage?
Paul Mahoney: It’s not quite hard to get it if you fit the criteria.
Jemma Forte: Or if the property fits the criteria.
Paul Mahoney: So it needs to be a new built, generally.
Jemma Forte: Right.
Paul Mahoney: So often new builds will be pretty more expensive than older properties because they’re new and for all the bells and whistles. But yeah, again, it’s fairly limited information to provide a full level of guidance as to what the pros and the consumers are there, but …
Jemma Forte: Yeah, full picture, sure.
Paul Mahoney: But definitely get advice on those two different types of mortgages and how that suits them and their plans.
But because they’re buying this place to live, it’s a very personal decision. So, generally, people aren’t willing to move too far away from where they’re comfortable just so they can buy.
Jemma Forte: They’ve completely got their lives in a certain place.
Paul Mahoney: That’s going to have a big impact on things as well. There’s the financial side of it and then there’s the personal side. Both need to be considered.
Jemma Forte: It’s just so frustrating for people once they’ve got mortgage sorted out, their monthly payments are so much less than the rent, which is that rather big hurdle to get over initially, isn’t there?
Paul Mahoney: Yeah.
Jemma Forte: Okay, thank you very much. I hope that’s helped and good luck with it all.
Okay, so Mary-Anne, this person says, I’ve recently purchased a Victorian terrace in Manchester, which is leasehold. I believe the lease to be 999 years from 1961 and the annual charge is only £5. We bought the property with the knowledge that the roof was damaged and would likely need a full re-roof. To make this more worthwhile, we plan to do a lot of conversion with a dormer extension and I know I need to obtain permission from the landlord to make any structural alterations.
I did a bit of searching on forums and understand that many people don’t bother when in similar circumstances. What would be the risk of going ahead without permission. I’ve emailed the solicitors who conveyanced the purchase but would appreciate any impartial advice to avoid them sending us down an unnecessary and potentially costly route.
Mary-Anne B.: Yeah, sure. The risk could be losing your house.
Jemma Forte: Oh that’s quite risky.
Mary-Anne B.: If the lease says that you need landlord’s consent to make alterations and if you don’t have landlord’s consent, you’ll be in breach of a covenant of the lease.
Jemma Forte: But then they could, what, take your house?
Mary-Anne B.: If you’re in breach for covenant of the lease, that could be grounds for landlord seeking or starting to commence forfeiture proceedings.
Not necessarily to say that the forfeiture would go all the way through because there are some remedies, and you could undo what you’ve done-
Jemma Forte: But get the wrong landlord who’s particularly aggrieved and you’re in serious trouble.
Mary-Anne B.: It’s not the wrong landlord, at the end of the day, it’s his freehold of his property and assuming that we all live 999 years-
Jemma Forte: I intend to.
Mary-Anne B.: And then he would get that house back at the end of that period. So he has an interest in that property. But to get the landlord’s consent anyway, the landlord would want other things. He would want you to have planning commission. You don’t only need to be scared of the landlord. The local council can some along and say we didn’t give you planning permission for that.
Jemma Forte: You’ve got to take it down.
Mary-Anne B.: Take it down. And so you’ve got the landlord who can forfeit for breach of lease. You’ve got the council who could prosecute you for not having planning. And then, of course, you may or may not have complied with building regulations as well, so built it under the building codes of this country with the correct timbers of the correct size, correct load bearing capacity. So there are some boxes that you need to tick. And ultimately, because you have a lease, in that lease, there should be a lease plan. So your lease plan today has got a small house and you want to sell it, so the first thing the solicitor’s going to say is, is this house as per the lease plan? If the answer’s no, then you’re going to have a problem with any future sale because the solicitor’s going to know that there’s some things that haven’t been done correctly.
Jemma Forte: Yeah, and the thing is, who’s not going to give permission. It’s like you can have a leaky old roof or you can have a nice new loft extension. They’re bearing the cost. Surely, you’d be like, great, go for it.
Stefano L.: There is a solution though. You can have indemnity insurance. You could take out indemnity insurance which would cover you for the amount of loss, pecuniary loss, that you might stand, if the house were to be taken away from you. So you could take indemnity insurance.
Jemma Forte: Right. So do it without permission but take-
Stefano L.: If there’s ever a potential for breaching a covenant or for example, the usual one is there’s only one house to be built on a plot of land. So you knock your house down but you decide to build two houses on your plot of land, you’re in clear breach of the provisions there. But you take out indemnity insurance just in case someone down the chain of the previous owners, or the original owner’s family, comes back and says that I know you breached the covenant, I want a penalty for that to be paid. So your indemnity insurance would actually mature and it would cover you.
Jemma Forte: Oh, I see. Okay, but yes, the standard advice is always going to get permission.
Stefano L.: Absolutely.
Mary-Anne B.: Yeah, I mean the reality is the cost of the indemnity advice is probably the same as the cost of the paperwork for the landlord to give you consent. [crosstalk 00:08:27]
Jemma Forte: Yeah, and actually what interests me … I’ve done some searching on some forums. It’s interesting that there’s people on these forums saying, oh yeah, I just did it.
Mary-Anne B.: Well, if it was your freehold house and my you’ve only got one risk which is the planners and if the planners have got other loft conversions all up and down the same terrace, then of course you risk is relatively small because you could go for retrospective planning permission or established use consent afterwards. So you could hedge that risk by looking at the terrace and everybody’s got a roof extension except for me.
But the risk of breach of covenant is another more serious risk and it is your home.
Jemma Forte: Okay, just go the safe route.
Mary-Anne B.: The planners won’t take away your home but the freeholder could.
Jemma Forte: Okay. All right, thanks. So much. Right. Your question now Stefano.
So this person says my husband and I are UK residents and jointly own property, mortgage free in Mar Menor, do you know where that is?
Stefano L.: Yes, Mar Menor. It’s on the Eastern seaboard of Spain.
Jemma Forte: There you go. I have looked into releasing some equity in the property to put toward a purchase in the UK, but my mortgage advisor has advised us that because we’re in our 40s, we’re not eligible for taking a mortgage on the property as equity release is not permitted in Spain. We bought the house three years ago. So, is it possible to take a UK mortgage out against a Spanish property after the purchase?
Stefano L.: English banks and lenders do not like lending abroad. The only real chance she’s got of an English mortgage being granted is if she goes to a foreign bank, or a foreign lender, which is based in the United Kingdom.
So there are many of them, and she should approach, or they should approach that bank, or those banks to see what they would do and what they wouldn’t do. It’s better, always to go to a lender in the country that your property’s based in. It is the case that equity release is not allowed in France, Spain, Italy, and Portugal. It’s a concept that the English have created, which has come from America and we follow suit with everything like that.
But because equity release is not possible, there could be other ways of dealing with the matter such as selling the property on a long term contract. You can actually sell your property and derive some of the income now and get the rest of it paid over a period of time, over a 10 year period. So therefore you have the right to … You’d negotiate the right to stay in your property, and you would have part of the capital sale value given to you now, which might help you, and the rest of it over a period of time.
But otherwise if they can’t equity release, and I have to say if you’re 40, foreign banks seem to lend, or are happier to lend to a higher age group, so you can have in Spain a mortgage, which would take you to your 75th birthday.
Jemma Forte: Right, that’s interesting, yes.
Stefano L.: So I don’t believe that they couldn’t go to a Spanish broker and decide or arrange something else. There is a solution to the problem.
Jemma Forte: Okay, excellent stuff. So, again, it’s just about consulting someone really good, like Stefano, and just getting the exact right advice.
Thank you so much. Right. That’s it for part one of Property Question Time. Join us after this short break.
Welcome back to Property Question Time, with me, Jemma Forte and my industry experts who are answering your questions. So Paul, we’ve got one for you here.
This person has written in saying, I’m looking at my options for moving house to be in the catchment area of a specific secondary school. I own my home. I’m mortgage free and then I have another buy to let property with a large mortgage on it. I’m considering selling the buy to let and taking out a new buy to let mortgage on my present home to pay for the new home.
As must as I’m aware, if I was to sell my home and buy a new one or even rent a home for a year or two, and then buy a new home, I wouldn’t be liable for the additional 3% SDLT but I can’t work out if I’d be liable for it if I were to sell my existing buy to let, but keep ownership of my home and turn it into a buy to let. Any advice?
My mind feels quite fried. I’m trying just to keep up with all of that.
Paul Mahoney: I think I’ve got that.
Jemma Forte: Yeah?
Paul Mahoney: It’s not specifically my area of expertise, but I do understand the rules around it and we can and do advise in a way. My understanding is that what they’re asking to do, sell the home, keep the buy to let, buy a new home, is they would be liable for it on the new home.
Because it’s not specifically buy to let properties. It’s second and so forth property purchases.
Jemma Forte: Got you.
Paul Mahoney: So even if you don’t own a property and you buy a buy to let, you’re not liable for it on that first purchase, but you are liable for it on any subsequent purchases. So unless they sell both, they would be liable for it on that subsequent purchase.
Jemma Forte: Right, okay, yeah. So basically, in any case, where you’ve got more than one gaffe, you’re going to pay, yeah.
Paul Mahoney: It’s an easy mistake to make because it is referred to as affecting buy to lets, but, in fact, it affects any purchases more than one property.
Jemma Forte: And it’s interesting isn’t it, their sort of moving house and the catchment area situation. That’s something that’s huge specifically in the UK. Or I know it is in London. And it actually changes the house prices doesn’t it?
Paul Mahoney: Yep. And there’s actually a little trick around … It doesn’t apply to them perhaps. If somebody’s upgrading … So let’s say they currently live in a £100,000 property and they’re planning to buy a £500,000 property, but they want to keep the £100,000 one, in that scenario, they would be liable for the extra 3% on the £500,000 property, which is a lot more than 3% on a hundred grand. So one way around that would be to sell the initial home to a limited company, which is a separate entity.
Now you would pay the 3% on the hundred grand because there’s no first concession for a limited company, but you wouldn’t pay it on the 500 grand property.
Jemma Forte: Oh, okay.
Paul Mahoney: So they’d save themselves quite a lot of money there. They’d put the buy to let into a limited company structure, which to some people would be a good way of structuring it anyway and they’d avoid paying tax on the higher value property.
Jemma Forte: Oh there you go. The right little tricks.
Paul Mahoney: Maybe that would work for them if they were willing to move, sell their home, move their buy to let into a limited company and then buy the new home. Something worth looking-
Jemma Forte: Yeah, that’s definitely probably worth examining in full, thank you, that’s great.
Okay, Mary-Anne, this person says we’ve had an offer accepted on a flat. It’s the top two floors of a three story Edwardian conversion. The mortgage advisor and one surveyor said that we can only get a home buyer survey because it’s a flat. However, other surveyors have said because it’s an older property you need to get a full building survey. So what do you think?
Mary-Anne B.: First of all, I think you’re the customer so providing it’s your money, you can get any survey that you want. What is true, is that the RSS and [inaudible 00:16:21] magazine together designs a home buyer survey to be suitable for flats, to go into more detail than a mortgage valuation would but it isn’t a building survey. It isn’t carried out, necessarily by a building surveyor.
So a building survey is a structure detailed examination for components parts of the building and you can set the brief and agree it with the surveyor, but ultimately it will go deeper. The challenge is with the building survey is that there will be parts of the property or parts of the wider context of the property that they might not be able to inspect.
For example, they might not be able to inspect the drains because they’re in the rear garden which belongs to somebody else. They might not be able to inspect the roof, because it’s above a top floor flat and doesn’t belong to you. So it’s about limiting the scope.
So yeah, the full extent of a building survey is unlikely to be possible in flat, but the parts of building survey detailed of your flat itself, plus contextual advice on risks in other parts of the area the property sits in are still available.
Jemma Forte: So if you were in a converted house or something, would you be able to knock on your neighbor’s doors and say, “Look, I’m having a survey, would you mind if he came into your garden and had a look at the back …” whatever. Does that every happen?
Mary-Anne B.: It does happen.
Jemma Forte: Just on good will.
Mary-Anne B.: But by agreements, two people can do anything they’d like to do.
Jemma Forte: Not break into their flats. Ask them permission.
Mary-Anne B.: Yes, of course, it’s wise, because in a flat you pay for the upkeep of the building through service charge, so whether you’re in the top floor flat, you’re going to be paying for the roof and the drains. And so those problems need to be quantified by you.
The way that often they quantify it instead is by asking questions of the person who’s managing the whole building, such as when was the roof last done? Are there any guarantees? When’s it likely to be done? What money’s in the reserve fund towards the roof? So you can begin to get a feeling of the condition of it. There may also be some questions your lawyer can ask about has a capital expenditure plan been put into place for the building? Is there a set of condition to say what needs to be done?
And likewise the same on drains. Has there been any issues of tree roots in the drains? When were they last cleared out? And of course a damp is likely to only be in the ground floor flat, but you can live in the top floor flat and have to pay 20 or £30,000 to make good the ground floor flat.
Jemma Forte: That seems so unfair, doesn’t it?
Mary-Anne B.: Well, yes, but then they’re paying toward your roof.
Jemma Forte: Yes, yes.
Mary-Anne B.: So you live together in a flat, you pay together in a flat. So it’s about the depth and the intelligence of the question asking when you buy flats.
A building surveyor will certainly help you frame all the right questions really well, but what they’re going to be concerned about is limiting their personal liability to you on the areas of the property they weren’t able to get in to inspect. So it’s a modified building survey but, depending on the age of the property, they have the best skill set and you are the customer and you get what you ask for and what you pay for.
Jemma Forte: I always think knowledge is power. It’s the most expensive thing you ever buy, isn’t it, your property so I, personally, like to get a building survey. And then what happens is they send it and I think, great. And I can’t understand any of it. So then I just speak to them and go was it all right. And they say yes. And then I think, great. Fine. But at least you’ve got it and they’ve looked at everything.
Stefano L.: One thing you could do, as lawyers, we always as preliminary inquiries on additional inquiries and additional inquiries which are pertinent to the particular property that you’re buying.
Jemma Forte: Right.
Stefano L.: And also if you can, ask your solicitor to look through his previous conveyancing documentation that he may have got from a previous solicitor or the previous owner and then you can actually look through the chronologic history and see if there have been things that have effected the building and you can ask questions from those answers you have from previous sales and purchases of that building.
Jemma Forte: Got you, okay. Excellent, thank you. And that brings me on to your question, actually.
We recently bought a villa requiring updating for cash. We’ve had some unexpected problems, though, and we’ve got little money left of our budget and are now considering a small mortgage or personal loan to complete.
We’d be carrying out the work ourselves to keep costs down. Due to my age, 65, I’m aware I could only take a mortgage for a maximum of 10 years. Lending 5% of the estimated value of the property when completed would be more than 50% of the purchase price. Can you recommend a way forward?
Stefano L.: I’m presuming that this gentleman and lady have bought either in Italy or in Spain.
Jemma Forte: Spain.
Stefano L.: Because he used the word “villa”. Let’s say it’s Spain. You can borrow in Spain and in Italy for up to an age of 75. So he could borrow according to his financial criteria for 10 years. If he borrows and he secures on his property, he will pay a lesser interest rate than if he takes out a personal loan. That’s the first thing.
Secondly, it is the way to go forward. I don’t really know what else I can add to the question-
Jemma Forte: Yeah, I think it’s reassurance and it’s that small mortgage versus a personal loan.
Stefano L.: If his wife, for example, is younger, his partner is younger, and she’s on the title deed, it may very well be that they could take out a mortgage in her name solely with him as a guarantor because she’s a part owner of the property and if she’s younger, the mortgage could be for a longer period of time.
Jemma Forte: What does happen, just, God forbid, if somebody dies before the mortgage is paid back?
Stefano L.: Abroad, if you die, then the survivor is jointly and severally liable for the loan.
Jemma Forte: Okay, excellent. Thank you very much, indeed. Right, that brings us to the end of this episode. Thank you so much for watching and thank you, of course, to you, my three experts, Paul Mahoney, Mary-Anne Bowring, and Stefano Lucatello.
Thank you so much and I’ll see you next time. And if you’ve got any questions, of course, get them into us because we love receiving them. The website is www.property-tv.co.uk and you can email us, too, firstname.lastname@example.org. See you soon.