Lucia France: 00:14 Hello and welcome to Property Question time, I’m Lucia France and this is the show where you provide the property questions, and we provide the property answers for anything that you want to know on the subject.
Lucia France: 00:25 Now joining me in the studio today we have our panel of experts starting with Paul Mahoney who is currently in Australia, he’s the managing director of Nova Financial Group. We also have Stephen Galpin, London based property consultant, and Tony Gimple as well who’s the founding director of Less Tax for Landlords. So thank you for joining us here today. We’ll get straight in with the question then Tony, the first one is for you. Many areas around the UK have seen significant capital growth, although I have heard that releasing money from equity is becoming more and more difficult because of the PRA guidelines. Thus making crystallizing that equity more difficult and adding to the negative view held by some looking to grow their portfolio. What else can we do to get around this?
Tony Gimple: 01:10 I suppose the big thing is to change the way you look at property. Relying upon capital growth rather than house price inflation to make money is in large part behind many of the tax changes introduced by the government. And the prudential regulation authority is just a management tool to take the heat out of the market. Up until now it’s relatively easy to buy property, get capital growth, take your money out without any burden other than being able to afford to repay it back.
Tony Gimple: 01:40 Now lenders typically won’t lend you money just for you to enjoy. So you have to have good commercial reason to do it. And if you’ve got an incorporated portfolio taking that money out by way of mortgage simply to live on could incur you significant tax charges. The key is to look at how to run a tax efficient professional property business. Look at where you should recycle capital, where gains can be wiped out or deferred for the future.
Lucia France: 02:16 Okay. And in terms of what this question is asking about the PRA guidelines, what do you think are the main ones there that are affecting how your capital could be used?
Tony Gimple: 02:27 Well that’s quite simply lenders will make it much harder for you to take money out simply to cash in on the capital. If you wanted to remortgage the property, reinvest that capital, less of a problem.
Lucia France: 02:43 Yeah.
Tony Gimple: 02:43 If however what you want to do is because you haven’t got income is to take out the capital by way of mortgage to live on, that’s not a good thing to do. And the PRA rules get in the way.
Lucia France: 02:55 Right. What would you say then to someone who really has to do that? They need to release the equity for whatever reason. Is there anything they can do to help themselves?
Tony Gimple: 03:05 Yeah, they really need to start looking at this as business. Why do they need the release of capital just to live? Is there a fundamental flaw in their business plan? Have they got a property portfolio which is predicated on growth as opposed to income?
Lucia France: 03:23 Right. Great, thank you very much Tony for that very comprehensive answer there. Over to Stephen. So this one’s about local councils, sometimes a tricky subject. I’ve heard that local councils can be very difficult when it comes to approving planning for the change of use on properties. Can anyone with experience offer any guidance on how to approach councils?
Stephen Galpin: 03:45 Right. Well councils are difficult about this subject for a reason, they’re there to protect really the environment of the communities that have already been set up. Now, you have a lot of people who will complain that they didn’t get planning for this, or that, or the other. But they fail to look at the overall bigger picture. For instance, if you’re wanting to convert industrial or commercial property to residential, you will have a resistance because the council will say, “Well look, actually we’re losing potential for employment here by going from commercial to residential.”
Stephen Galpin: 04:22 You’ll find, for instance that a hotel will get relatively easy planning consent in a residential area because again, design these days are usually pretty good, they will fit in with the current environment. But more importantly, they will provide employment. So that’s a relatively easy planning route.
Stephen Galpin: 04:44 Again, you’ve got to look at aesthetics, whatever you’re wanting to build has got to fit in with what’s there already, it’s got to be sympathetic. It should have good green credentials. It’s such a wide, wide subject that you have got to take into account everybody else’s considerations. Now I’ve said this many times before, the easy route to this is to make contact with your local planning duty officer. They’re there every day, most days, often you don’t even need an appointment. You can turn up, you can get informal planning advice. They won’t tend to want to go through with you a particular application, but you’ll get a feel for what the council will want to do, what they’re encouraging, and what they’re ethos at the moment is.
Lucia France: 05:35 Okay, that is good to know. So definitely again, we’ve said it before, but become friends with the local duty planning officer. And is there any guidance on how to approach them, maybe if you are rebuffed in the first instance and they don’t want you to do what you’re doing? Is persistence the key? Or what would you say there?
Stephen Galpin: 05:51 Well again, I’ve said this before on the program, many, many years ago I was refused planning consent for something I wanted to do. And I found out my best friend who’s an [inaudible 00:06:07] in the planning and I said, “Can we appeal this?” And he said, “Well yes you can.” But he said, “Why don’t you simply look at why they’ve rejected your application?” And it was this, he said, “Look, they’ve thrown it out because they don’t like what your architect has drawn. So go back to your architect, ask him to draw something else, and see how that goes down.” And that usually works. The legal route of appeals can be so expensive, so time consuming, they’re out of the reach of normal people unless you’re a big developer an appeal is really quite a cost prohibitive exercise. So again, local contact. Contact with your parish council. [crosstalk 00:06:51] and just look at what you’re trying to do. [crosstalk 00:07:00].
Lucia France: 07:03 Okay, so really just keep going back with a slightly different idea each time.
Stephen Galpin: 07:04 I think so.
Lucia France: 07:05 Okay, fantastic thank you very much Stephen. And now to Paul. He’s currently in Australia. The question for you Paul is hello, my mom wishes to sell me her house she’s been renting out. The value is 125K but she said I could buy it for 90K to help pay less stamp duty. Is there any tips you know of, of what I can do to avoid fees?
Stephen Galpin: 07:28 The legal route of appeals can be so expensive, so time consuming, they’re out of the reach of normal people unless you’re a big developer an appeal is really quite a cost prohibitive exercise. So again, local contact, contact with your parish council if you’re out in the country, contact with your planning officer, and just look at what you’re trying to do. Look at it objectively, stand back and say, “Does this fit?”
Paul Mahoney: 07:57 There’s no stamp duty payable unless you already own a property. So for example if you already own a property you would pay 3% of whatever you’re paying for that property. But it seems this is your first purchase. So there won’t actually be any stamp duty payable. So as far as mitigating other fees, like legal fees and things, there’s a very broad range of legal fees out there when purchasing property. You can deal with a [inaudible 00:08:27], which will usually be a bit cheaper than a solicitor. But you also want to make sure you’re getting the right advice. Because when you’re buying property you need to make sure that you’re ticking all the boxes. Not just for yourself and your own peace of mind, but also for potential lenders, and things that they’re going to look out for, which could potentially make your property less valuable if for example there’s any easements or lease concerns, or anything like that around the property you want to be made aware of it.
Paul Mahoney: 08:58 So seeking the right professional advice, you know, I would say for a few extra hundred pounds, or generally it will be in that range to get the right advice, it’s worth doing it. Although I understand that sometimes your budget only allows for certain things. So as far as the stamp duty goes it doesn’t seem like you’ll pay any anyway. Legal fees I’ve spoken about. And look, that’s pretty much the fees that you’re going to be incurring when purchasing this property. So hopefully that helps.
Lucia France: 09:29 Great, thank you very much Paul. Now back in the studio we have time for one golden nugget, so who’s with us on that one? Stephen.
Stephen Galpin: 09:37 Well I think I’ll just say a few words, it’s not going to be a long one. It’s very simply this, regular viewers will see the kind of questions that we get, and many are in a similar vein, and it’s how do I enter the property market? How do I start a business? How do I start investing? And I think the first question that one should really ask yourself is are you a business person? I’m afraid the days of automatically buying property and seeing a profit come along are long gone. It’s quite an involved business these days. You’ve heard Tony talk about the tax complications and the need for care and planning and business planning over these things. So you’ve got to be sure that you’re of a mind that can handle a business.
Stephen Galpin: 10:26 For instance, an agent will tell you that you can rent your property for let’s say 300 pounds a week. Well that’s fine, but it’s not fine to assume that you’re going to rent it for 52 weeks a year at that figure. Can you handle a void? If you don’t rent it for six or eight weeks what are the consequences for you? Again, is your business plan there? Do you [inaudible 00:10:49] one property, two property, three properties? I’m sure Tony will talk at length about the different sorts of planning depending on the type of portfolio that you’re going to seek out. Whether you’re looking for income, whether you’re looking for capital gain.
Stephen Galpin: 11:04 But it all comes down to your particular ability to be able to run a business, because property is a business.
Lucia France: 11:12 Sound advice there. Thank you very much Stephen, Tony, and Paul in Australia. We’ll be back after this short break.
Lucia France: 11:27 Hello and welcome back to Property Question Time, and welcome back to our experts as well. We have Tony, Stephen, and Paul in Australia. So back to your second question Tony, is government policy trying to drive out accidental landlords, and what do you think about it?
Tony Gimple: 11:43 The short answer is yes. And it’s not such a bad thing. Property, Englishman’s home is his castle, it’s easy to understand. Many people have arrived there completely by accident, excuse me, two people buy a property each when they’re single, they marry, shack up, and now they’ve got one spare property. Or parents die and they inherit another one. [inaudible 00:12:08] property visibly easy, as we’ve previously discussed, in order to make money from it you have to treat it as another business.
Tony Gimple: 12:17 And accidental landlords, so those with one, two, three properties, have to a large degree cluttered up the market without really understanding what it’s about. So all of the changes that have come about are designed for one purpose, to professionalize the sector. Now, there’s been a lot of moans, gripes, and screams of pain about the tax changes. But perversely, actually it’s a sign of success. Governments don’t seek to regulate or tax failing sectors. So being a professional landlord, running a professional property business, if you’re running it as a business will work to your advantage now. Whereas being an accidental landlord is bound to push you out.
Lucia France: 13:03 Right. And if there is somebody who’s watching, presumably this person is an accidental landlord themselves, have you got any advice for them on what they can do to sort of mitigate those circumstances and those changes?
Tony Gimple: 13:15 Take an objective look at where they are. [inaudible 00:13:19] running any business, you’ve gotta ask some key questions. How much of what, by when, by whom, and more importantly, why am I doing this? If I had the same amount of capital today and I were responsible to shareholders, be accountable for my decision, or to future generations, how would I apply that capital?
Lucia France: 13:41 Right.
Tony Gimple: 13:42 So even if you have only two properties, if you would use that the same way again. Now look and say, “Okay, I know what I want to achieve and why, how can I use that to grow the portfolio to get the maximum return at minimal risk whilst creating good income for myself and future generations?” So it may be that as opposed to forcing you out of the market, the changes confirm where you are, and you now decide no, I’m gonna run it as a proper business.
Lucia France: 14:12 Right. Okay, excellent, thank you very much Tony. Moving onto Stephen now, another question here for you, I’m having difficultly selling my house, and I’m not convinced that dropping the price is the right thing to do. Can you give me any thoughts or guidance on the subject?
Stephen Galpin: 14:28 Right, well this again is a pretty deep subject. It’s partially dependent on where you are in the country, what the market’s doing, how the market is affected by the geographical location. I’m not keen to suggest that dropping the price is always the answer, because I think the level of drop to create a market in a market that’s quiet, would be quite, quite difficult for most people to cope with.
Lucia France: 14:55 Right.
Stephen Galpin: 14:55 What the question really is asking, is can you create a market out of a non-market by discounting? And I think the answer is no, unless you’re prepared to dramatically reduce. I think there are a lot of things you can do. When we’re in a good market, agents will tend to use lesser qualified people to run their businesses, and to some extent in a good market it’s almost order taking. People create their own interest in buying, and sellers have to do very little. It’s in these harder times that we have to think a little bit. And I read a very good article the other day by one of the top agents saying that one of their difficulties was getting clients to interact with them. Having difficulty having conversations with them about the presentation of their home.
Stephen Galpin: 15:52 And I mean the simple lessons there are declutter, depersonalize your home. Remember that often if you’re living in an apartment block for instance, you might be competing against a beautiful show flat next door in a shiny brand new building, people are going in there, they’re coming in your property. They expect to see the same standard of presentation. Now, that’s not always possible with a home. But we can all do a lot. We can all keep our bathrooms tidy, we can put our washing away, and we can keep the place looking spic and span. And that’s your responsibility while you’re trying to sell your home.
Stephen Galpin: 16:27 So my advice would be is no, don’t jump into discounting at the first opportunity. There are agents that will encourage you to do that. I think my question back to an agent would always be well look, if you want me to drop it X amount of money, show me another property you’ve got on your books at that level. Or show me a sale that’s been achieved at that level. That way there’ll be an element of realism into that decision.
Lucia France: 16:55 Yeah, definitely good advice. And in terms of the agent that you were talking about who wrote the article and saying that they have difficulty talking to their clients, would you say that’s something you shouldn’t have a problem talking to your clients about? That should be quite a direct subject.
Stephen Galpin: 17:11 You’ll find that the good agents will have that conversation, and they’ll have it quite firmly. Because nobody likes to hear criticism of either the way they’re living, or their own home, and they love their own ornaments, and they love their own bits. But you’ve got to be quite [inaudible 00:17:28] about it, you’ve got to say, “I must appeal, especially in a quiet market, to the widest possible audience.”
Lucia France: 17:34 And what would you say in properties that you’ve seen over the years was the biggest no-no in terms of décor, or ornaments, or things that people had in their house?
Stephen Galpin: 17:44 Untidy bathrooms, loo seats up, shoes by the front door, that kind of thing. People just don’t want to see it when they come in. They feel when they see a home that’s so personalized, they feel almost that they’re intruding. And you’ll find there’s a difference in speed within which they go around the property. If it’s an immaculate property they’ll spend time going around. If it’s untidy, if it’s too personal they’ll rush around and go.
Lucia France: 18:12 That’s interesting, good advice there. Thank you very much, Stephen. And then to Paul, who is currently in Australia. Now this is your question Paul, I’m currently in the process of getting a buy to let mortgage, which in time I would like to turn to a residential mortgage. The property is in need of works, and an extension. Am I able to do this while it is on a buy to let mortgage, or will it affect me when I come to changing it to residential? Any help would be much appreciated.
Paul Mahoney: 18:39 Okay, yeah good question. The potential issues that you might have, given that you mentioned that it’s in need of a lot of work will really depend on how much work it’s in need of. Because whether it’s a residential or a buy to let mortgage that you’re looking to take on this property, the lender will send out a surveyor, and that surveyor will need to say that the property’s habitable for you to get either of those types of mortgages on the property. Or in some cases the lender might put in place some requirements, some things that you might need to do first to be able to get the mortgage.
Paul Mahoney: 19:21 So without knowing the level of work that needs to be done, or the severity of that work, and whether that affects the habitability of the property. You know, for example does it have a working bathroom and kitchen are two things that a lender or surveyor will want to see for you to be able to get a mortgage at all. So far as taking buy to let initially and switching it over to a residential, so long as you can get a buy to let mortgage, you shouldn’t have any issues then switching it over to a residential.
Paul Mahoney: 19:56 The question in my head would be why you’re looking to do that initially, and what the benefit is of doing that? That wasn’t part of your question, so I can’t answer that. But assess all your options, and seek some advice on what those options are. Because you might have a narrow view of what those options are, but there might be other things out there that could work better for you and help you achieve the right outcome.
Lucia France: 20:25 That’s great, thank you very much Paul, fantastic advice there. And Tony, I think it’s your turn for the second golden nugget of the show today.
Tony Gimple: 20:34 Okay. Decide what you want before you act. Look do I want income, do I want growth? Am I looking for something during my lifetime, or am I looking for something beyond my lifetime? Don’t just charge in, even if you’re an experienced landlord. Understand what your goal is, where you are now, what the pitfalls will be. So plan in advance, and then act upon it.
Lucia France: 21:04 I think we were talking in a previous episode about buying into new builds and things like that. Is that an area that you would suggest caution as well?
Tony Gimple: 21:14 Well it’s not just new builds. It’s looking at I want to be a professional landlord, I want to build, run, and grow a professional property business. So when you’ve made that first decision before you go into any properties, where does that fit into my plan? So have the plan and follow it, and don’t be afraid to say no. Just ’cause you’ve seen a property doesn’t mean to say you should buy it. You’re not buying your home, you’ve got an investment. Will it pay? Can I get my money back? And so on. So look carefully before you jump.
Lucia France: 21:51 And conversely, I suppose on the other side of it, if you are looking to buy a home, then you’ve gotta think of other aspects as well.
Tony Gimple: 21:59 Well if you’re buying your home it’s your home. It’s not an investment decision, it’s a heart decision. Do I like it, does it appeal, is it personalized, depersonalized, is it close to schools, is there good public transport, is there doctors, dentists, and so on? You’re making completely different decision.
Lucia France: 22:16 Thank you very much there Tony, great advice. Thank you to Stephen as well, and thank you to Paul currently in Australia. Thank you for watching. If you’d like to get in touch then email us, firstname.lastname@example.org. Or of course you can go to the website and get in touch that way. That’s property-TV.co.uk. Thanks for watching, we’ll see you next time.