Shona Lindsay: Hello, and welcome to Property Question Time. As ever, I’m joined by three experts here in the studio, and today we have Garrett O’Hanlon, who is the Founding Director of MAP Surveyors. Hello.
Garrett O: Hello. Good morning.
Shona Lindsay: And Simon Zutshi, author of international bestseller, Property Magic, and founder of Property Investors Network. Hi Simon. Hi.
Simon Zutshi: Hello.
Shona Lindsay: And finally, Paul Mahoney, Managing Director of Nova Financial Group.
Paul Mahoney: Hello.
Shona Lindsay: Hi. How are you?
Paul Mahoney: Very well.
Shona Lindsay: So we’ve got loads to get through today gentlemen. If I may start with Garrett, our first question is we are looking to get a drain survey for a pre-purchase Victorian terrace. Issues with damp and wet soil under the floorboards in the ground floor. Any advice on how to look?
Garrett O: Carefully I would suggest. Obviously we sometimes get part of the picture, not necessarily all of the picture. It sounds as if they’ve had a survey done and that’s recommended some further investigation with the possibility of defective drains. Certainly a closed circuit television camera survey of the drains would be prudent, and that would indicate to you if there are deficiencies, and by sending the camera down the line where those deficiencies are.
I’d be concerned by the suggestion that there is just soil under the floorboards, rather than [crosstalk 00:01:36]-
Shona Lindsay: So no foundations?
Garrett O: Well, foundations to the walls but no concrete oversight to the floor, which brings issues. I’d be very concerned if there is the suggestion of defective drains and damp soil, because the soil will be damp potentially with more than just water.
Shona Lindsay: Mm-hmm (affirmative), nice.
Garrett O: I would’ve thought that might be evident from within the house, but you would need to get that soil tested because there’s a risk of contamination, serious contamination there. So yes, certainly get the drains tested. It does sound as if you need to maybe strip out the whole of the floor and replace with a concrete oversight as well. So you’re talking about a very big job here, and certainly yes, before you commit to any further purchase you need that.
Shona Lindsay: Right.
In terms of the kind of person that they should get in to do this work, would you bring in a surveyor, or would you bring in a drain specialist, or both?
Garrett O: Yeah, I mean it sounds as if they’ve had the surveyor in already. So yeah, you need a company that specializes in closed circuit television camera surveys of drains. There is a professional body for those. I can’t recall the name off hand, but certainly we’ve got details of that, and I’m sure lots of other surveyors would have too. So make sure they’re professionally qualified, make sure they will offer insurance-backed guarantees for any work which they undertake, and make sure that …
You’ve got to be careful too because this could be a shared run, potentially, if it’s in a Victorian house. So you’ve got to be cautious about who’s further up and down that line, what their contribution to that might need to be, and the fact that if you do need to repair these, you mustn’t interrupt the service to their-
Shona Lindsay: Oh, someone else’s home?
Garrett O: This is increasingly becoming an issue with Victorian houses. They often have shared water supplies too, and the same applies. You can’t just cut your water supply off to do what you want to do, because other people rely on it. God knows, they could be on dialysis or anything in their homes. So just proceed with extreme caution and be aware there could be a joint liability there.
Shona Lindsay: With the idea of the wet soil, I mean, are we talking that actually those sewage pipes could literally have just cracked and everything is coming out? Could it be as big an issue as that, do you think it sounds from the question?
Garrett O: It certainly could. I’ve seen issues like that. I won’t go into too much detail on the program in case people are eating or anything, but we’ve seen lots of things over the years. Escaped of effluent do occur, and sometimes vigorously and undiscovered for a long period of time. The health implications are very, very serious, and your liabilities in law could extend to other parties if that contamination, due to negligence on your part-
Shona Lindsay: Starts on your-
Garrett O: … has effected somebody else.
Shona Lindsay: Right, yeah.
Garrett O: So a very, very serious issue, certainly.
Shona Lindsay: So it doesn’t sound like a simple thing that would be solved. It sounds like quite a big job.
Garrett O: It certainly could be.
Shona Lindsay: So there would be financial implications with that, with the purchase?
Garrett O: Absolutely, and again, you need to know that clearly before you commit to that purchase.
Shona Lindsay: Yeah. She’s saying there’s wet soil under the floorboards. She’s not actually talking about floorboards in the house.
Garrett O: Well, I’m assuming we’re talking about a floor void there. So you had the floorboards and then a void, and then you would normally expect to see a concrete oversight, brick sleeper walls and a timber wall plate, separated by a damp-proof membrane. It could be very bad. It could be the floorboards are directly on to the soil, which is a nightmare scenario and it could give you dry rot as well. It could be that there are sleeper walls and so forth, but there is no concrete oversight.
So like I said, with a lot of these things you need to dig a little bit deeper, no pun intended, before you find out exactly what’s going on there.
Shona Lindsay: And definitely not to be ignored?
Garrett O: But it doesn’t sound like a simple and easy problem.
Shona Lindsay: Okay, thank you. That’s brilliant.
If I could move on to Simon, our next question is from someone who has a three-bedroom house, they live on their own and have two spare bedrooms. Now we’re going to rent them both out to two separate people whilst they still live in the house in the first bedroom. Now the government website says your home is a house in multiple occupation, HMO, if both of the following apply: At least three tenants live there forming more than one household; you share a toilet, bathroom or kitchen facilities with other tenants.
She’s asking, or he’s asking, I do apologize, “Do I count as a tenant if it’s my home? There will be two tenants and me, the homeowner. Also, I have a mortgage. Would I need to tell my bank lender. It’s a regular mortgage, not a buy-to-let.”
Simon Zutshi: Okay, so it’s a very common situation this, but a complicated answer I’m afraid. So technically three or more unrelated people in a house does constitute a HMO. However, the owner is obviously not a tenant, and the two tenants aren’t normal tenants you’d have under an AST contract. They’d be under kind of a license, so if they didn’t pay the rent, you could basically get them out. Even if you have friends living in the house, it is important to make sure you do have a contract in place. Because sometimes when things go wrong, friendships don’t really work, so it’s very important to have contracts.
So it is an HMO, and let’s just think about the implications of that. So first of all, it probably won’t need an HMO license. The government guideline is for five or more people living in a house needs a license. However, some councils have introduced additional licensing. They would say that three or more people living in a house would need a license. So the first thing to do is check with the owner’s local council to see how many people in their particular area require a license for the HMO. That’s the first thing.
Whether it needs a license or not, it should have the safety requirements that an HMO would have. So first of all, really they should have an interlinked smoke alarm system, so that if a fire started in one of the bedrooms, everyone would be alerted so they can get out quickly. Safety of the people in the house should be one of the primary concerns of this property owner, so that would need to be done.
I believe, unless it’s a three-story building, it may not need fire doors, but if it’s three stories it would need fire doors. Again, speaking to the local HMO licensing department, they’re really helpful and they’re there to help, and give advice and guidance. They’d be able to advise what the situation should be.
You might think, “Well, this sounds like a lot of work and effort,” but what you need to remember is the government have actually, for many, many years, had a scheme called Rent-a-Room Scheme, where you can rent a room out in your home, or couple of rooms out, and get a rental income coming in. I think it’s something like seven and a half thousand pounds tax free. So although there might be some initial setup cost, you’re going to get that money back very, very quickly. That would obviously massively help cover the bills, the mortgage, and actually it’s how I started. I bought a house and rented out two rooms, did exactly the same thing. That was a long time ago and they weren’t really worried about licensing and things in those days, so it was a big different.
The other really important thing is insurance. So if this person has a residential mortgage based on them living in the property, I think it would be a good idea to speak to the mortgage company to say, “Look, I’m thinking about renting out a couple of rooms. Is that okay?” Some lenders might be fine. Some lenders might say, “No, not interested.” Actually, a lot of people don’t bother to tell their mortgage companies because they feel, well, as long as the mortgage is being paid, what do they really care? That’s up to the individual.
What I would say though is the insurance is critical. If you are renting out rooms in a property, whoever you have your insurance with, you should have specialist buy-to-let landlord insurance so that if someone has an accident in the property for example, you’re covered in case they try and sue you. If there are damages. If you didn’t have the appropriate insurance, if you had your insurance with, say, your mortgage company and they didn’t know you were renting out rooms and something happens, they would-
Shona Lindsay: They could potentially say they’re not going to pay out.
Simon Zutshi: … probably turn around and say, “Sorry, you’re not covered because you didn’t tell us you were doing this.” So I think it’s important to not have insurance with a mortgage company, to have it with a specialist buy-to-let insurance company who know that you’re living there, and they know you rent, and you just declare everything to them. You can be completely upfront and legitimate, and then you should be able to get the appropriate insurance cover.
So to summarize, think about the number of people and speak to the local council about additional licensing, which you probably wouldn’t need to have. Also, consider the safety requirements in the property, consider the insurance, and advisedly, really speak to your mortgage company as well.
Shona Lindsay: Well done. That was about four answers in one.
Simon Zutshi: I said it was a complex answer to a very common question.
Paul Mahoney: Just a note there on the mortgage side of things, if it is two people that they don’t know and they’re going to put locks on their days, they should be aware of that because some surveyors and lenders don’t like that. So if they haven’t told their lender, and then they get a survey done and they see locks on the doors with different people living in those rooms, that would be a dead giveaway and that could cause them problems.
Shona Lindsay: Okay, thank you.
Garrett O: Surveyors don’t like locks.
Shona Lindsay: No.
Simon Zutshi: No, they don’t.
Garrett O: Quote of the day.
Simon Zutshi: I guess it depends who you’re having [inaudible 00:10:27].
Garrett O: That’s right.
Simon Zutshi: So when I first … I had friends and we didn’t have locks on the doors, and it wasn’t a problem, but it’s a very good point to make. Especially if you own it and you want to remortgage it, those things might become apparent if a surveyor came round.
Shona Lindsay: And it’s going to be really obvious, as you were saying.
Simon Zutshi: Yes, exactly.
Shona Lindsay: Thank you.
Garrett O: Actually, one more quick point, because on the surveyor thing, we are required to fill in suspicious activity forms as well for lenders. So actually, something like that could-
Shona Lindsay: Would flag it up immediately.
Garrett O: … prevent the mortgage completely.
Shona Lindsay: Okay, brilliant. Thank you. Everybody’s included. I love it, I love it.
Paul, I’ve got a specific question for you now though. So hi. I recently bought a second home for my wife and kids to live in as we were going to be splitting up. As ever with relationships, complications, et cetera, we have now decided not to. This is good news I think. We have decided not to and so we have this other house. I bought the house a month ago for £60,000, so it was exempt from stamp duty, but I’m now considering letting it out. My question is will I have to retrospectively pay the 3% stamp duty as it is now a buy-to-let property, and technically it wasn’t when I bought it?
Paul Mahoney: It’s an interesting question. It sounds as though they already own that second property, they bought it for 60,000. However, my understanding is that the 3% should’ve always been levied because-
Shona Lindsay: Yes, that’s why I frowned slightly at that.
Paul Mahoney: … the stamp duty premium isn’t with relation to whether it’s a buy-to-let or not. It’s in relation to whether they already own a property, and it seems that actually this person already does. So it’s a bit strange that their solicitor didn’t advise them initially … Well, didn’t advise them initially they had to pay it, but it’s also a bit strange they got away with it.
The only way I can see that perhaps they may have got away with it is by saying they were going to move into that property, but again, my understanding is that you claim it back as opposed to having to pay it later on.
Regardless, in answer to the question, it seems as though they will have to pay it, but I’m surprised they’ve got away with it in the first place.
Shona Lindsay: So it’s almost as though they’re just catching up.
Simon Zutshi: The only thing I can think of is maybe if the partners weren’t married and if the first house is in the wife’s name.
Shona Lindsay: Well it does say, “My wife.”
Simon Zutshi: Oh, okay. Maybe.
Shona Lindsay: Yeah, “A second home for my wife and kids to live in.”
Simon Zutshi: Because then if you’re not married and you have them in separate names, and if it’s technically their first house, or their only house, then you wouldn’t pay stamp duty.
Shona Lindsay: Yeah, then you wouldn’t have paid stamp duty.
Simon Zutshi: But I agree with Paul. If they’re married, they probably should’ve had to pay it in the first place.
Paul Mahoney: Yeah, and if they’re married, they’re considered one entity in the eyes of HMRC for stamp duty purposes.
Simon Zutshi: That’s right, yeah.
Paul Mahoney: So yeah, it’s surprising. It seems like it would be due. I’m just surprised they’ve got away with it in the first place.
Garrett O: Maybe they did their own conveyancing, so there was nobody there to actually advise them.
Paul Mahoney: Maybe.
Simon Zutshi: Yeah, sometimes people do do that.
Shona Lindsay: Perhaps we shouldn’t dig any deeper.
Simon Zutshi: Actually on that point, I think sometimes people do their own conveyancing, they try and do their own mortgage just to try and save costs. I think that’s a really bad idea. I think you should always just pay for professional, because they should be guiding you and advising you. By the way, if they make a mistake, they will have professional indemnity insurance.
Shona Lindsay: Insurance, yes.
Simon Zutshi: You can go back and claim on them, rather than you making a mistake and you’re the only person who’s responsible.
Shona Lindsay: Brilliant, thank you. Thanks gentlemen.
Well, that’s all we’ve got time for in this first half of the show. Please come back after the break and we’ll have lots more questions and lots more advice for you.
Welcome back to Property Question Time, with me Shona Lindsay, and my lovely guests today. We have Garrett O’Hanlon, Simon Zutshi and Paul Mahoney. So let’s crack on with this next lot of questions if we may.
Garrett, I’ll go back with you. What difference are there, if any, between using a surveyor or a structural engineer for a building survey on a property?
Garrett O: Okay, it’s really about picking the right person for the job, as always. Don’t go to your proctologist for dentistry, it’s a poor route, and you should really choose the right person in the first place.
So structural engineers are fantastically qualified professionals, but the manner of their qualification doesn’t really equip them specifically to undertake residential surveys. There are some people within the structural engineering industry who have chosen to go down that route, and some of those are very good.
But if I take, for instance, the situation where you might have a problem with a property that … and we had some recently, where there was a non-compliance issue with elements of the property with lender’s requirements. Now we value properties for lenders too, so we understand all of those requirements. Now, engineers are very unlikely to be involved on lender’s panels, so they wouldn’t perhaps be able to give you that element of advice, that there is a conflict, a problem with that that could cause you a problem later on.
So they’re ideal, for example, if you’re calculating a through-lounge beam, or a chimney breast support, or something like that, but really and truly, if you want a survey on a property, you do need a surveyor. You need somebody who is experienced, who specializes in residential surveys. Increasingly it is a feature because, as I’ve said on the program before, lenders, to a much greater extent now, won’t send anybody at all to look at the property. The valuation will be done from a desktop on an automated valuation model, so it’s an imperative you get somebody to look at it for you. Whilst some structural engineers could be okay, generally you should stick with a surveyor.
Shona Lindsay: What are these sort of issues that come up that would make it very different in terms of what the mortgage company wants? I mean, we mentioned earlier when we were talking about the potential HMO about the locks on doors. Is it that kind of thing?
Garrett O: It’s often the manner of the construction. Certain types of concrete construction is well documented as not being acceptable, but the fact is lender’s policies change. We had one very recently where it was a particular type of timber construction, let’s say, which sits outside regular timber frame but has always been acceptable broadly to lenders, but in fairly recent times the lender’s policy has changed so it’s less acceptable now.
If you’re not involved in that arena, if you don’t have those 100 manuals, which we do in our office to tell you what the lenders are requiring at different times, then they won’t understand that. There was another issue with that too about sprayed foam under the slates and things.
So as I say, engineers have their place, and some of them are very good, but I think you really must stick to a surveyor to do a residential survey.
Shona Lindsay: [crosstalk 00:16:56] specifics?
Garrett O: Yeah.
Shona Lindsay: Yeah. Thank you, brilliant.
Simon, so a very quick question, completely different to your first one. My 18-year-old son has £15,000 to invest. Is this enough for him to get on the property ladder?
Simon Zutshi: Okay. So I guess it kind of depends where in the country he lives, if he’s putting a deposit in to buy a property. If a property is sub-100,000, that would definitely be enough money for them to get a first property on the property ladder. If they were in London and it’s buying a £400,000 property, probably not.
So an 18 year old will be a first-time buyer, and so they’d be able to get a 90 or 95% mortgage. The more they can put in as a deposit the better, because they’ll have a lower interest rate. Otherwise, it might be a bit too expensive.
The other thing is the mortgage. So depending on what the 18 year old does, if they don’t have an income, a very high income, they may struggle to get a mortgage. Now, the parents, if they have a good income, they can act as guarantors and come on the mortgage as well, and give the mortgage company reassurance that yes, in the event of the 18 year old not being able to pay, they’ll be able to step in and cover the mortgage.
A particular strategy that does work very well is if this 18 year old was, for example, going to university, and they were going to be there for a number of years, and they’d have lots of friends, they could potentially rent out the rooms in their house to their friends, subject to HMO licensing as we talked about before. Actually, that would be a good scenario because the rental income would more than cover the mortgage. They would be able to use their personal tax allowance because they wouldn’t be working, because they were students, and also they [inaudible 00:18:38]. So they get about up to £19,000 tax-free rent coming in.
Shona Lindsay: Which would be a great start for someone.
Simon Zutshi: Which would really help cover the cost, and even pay for their tuition fees maybe.
So there’s also an argument to say that if they were going to university and the parents wanted to top up that £15,000 to help put the deposit in and be guarantors on a mortgage, that’s probably far more cost effective for them, gaining a bigger house that can be rented out. Rather than having to pay tuition fees and accommodation, et cetera, whilst at university.
By putting it in the 18-year-old’s name, they get the benefits of being a first house, not having stamp duty, being able to get the income and all the various allowances and things. Whereas what most parents do, they put it in their name. They have to pay tax on all the income, they have to pay stamp duty, they have to pay capital gains when it’s sold.
So it’s just thinking a slightly different way, but the biggest thing would be the ability to be a guarantor on a mortgage to prove and help with the affordability.
Shona Lindsay: Yeah, and to be … as you say, potentially get a bigger place and then be bringing in income in from that as well.
Simon Zutshi: Exactly, yes. Yeah.
Garrett O: What about crowdfunding as well? That might be an option.
Shona Lindsay: I was just about to ask that, yeah.
Simon Zutshi: Well there are some equity crowdfunding sites where if you give up some of the equity, they can come and put the money in. But whether they would do that for those kind … I mean, I think crowdfunding and peer-to-peer is a massive growing market, and who knows, that might be the way we fund all properties in the future if people don’t want to work with banks anymore, which is a possibility. But at the moment I think that there’s a very good route of doing it, which is as long as the parents have got some substance-
Shona Lindsay: Yeah, and it’s going to be theirs.
Simon Zutshi: Exactly, yeah. The problem with Help to Buy and also crowdfunding, if you’re giving away some of the equity to someone else, you’re not really going to benefit from the true growth of the property. If you’ve got 15,000 to start with, that’s a good deposit in some areas of the country.
Garrett O: It’s that bank of mum and dad thing, which is becoming an increasing feature, isn’t it?
Shona Lindsay: Yeah, it is.
Garrett O: And mentioned more and more.
Shona Lindsay: But it’s a different way to look at it actually. The bank of mum and dad actually growing and actually feeling like it’s getting something back as well.
Simon Zutshi: Yeah, but if you think about it, if ultimately the parents want to have a legacy and leave some inheritance to their kids, giving them some money and getting on to the ladder earlier than they would normally if they’re doing it on their own is actually quite a smart thing because then they gain the growth from another property as well by maybe releasing some equity from their own home, or an investment property, whatever it might be.
I think that’s realistically how most people get on the ladder these days. It does seem very hard for people to save enough money to be able to get a deposit. An 18 year old saving … I mean, he might’ve had an inheritance maybe, but saving £15,000 is to be commended.
Shona Lindsay: Yeah, and good on him that he wants to do something positive with it. Yeah.
Simon Zutshi: Absolutely. Absolutely.
Paul Mahoney: If they don’t have that available, although you say you’re giving away equity with the Help to Buy, 15,000 with Help to Buy does allow you to buy a £300,000 property. So as long as he has the affordability and he has some income to support a 55% loan on 300 grand, he would be able to but a £300,000 property in London with a 40% equity loan.
Shona Lindsay: Wow. That’s extraordinary, isn’t it?
And you’ve come into the question just as I want to ask you a question Paul, so this one’s directly for you. I am in the process of remortgaging a property and changing from a personal mortgage to a buy-to-let. Also in this process, I’m looking to add my partner onto this mortgage. Will there be stamp duty owed on my partner’s half of the property if we do this?
Paul Mahoney: Okay, so a good question. That will greatly depend on whether they’re married. If they are married, I believe that you can get a stamp duty concession.
Shona Lindsay: Right. A concession, not a full exemption?
Paul Mahoney: Well, I know for a fact that you would pay … well, you wouldn’t pay capital gains, but I believe that you can get a concession if you’re married. If you’re not, there would be stamp due. It would also depend on whether the lender needs the partner to become an owner, because essentially if the partner was to become an owner, then obviously there’s a change of ownership. That’s both a capital gains tax and a stamp duty event.
If they didn’t need to become an owner, again, perhaps if they’re married, the lender may consider them as one entity and they may both be able to be on the mortgage without having to change the ownership of the property.
Shona Lindsay: So you’re not actually changing the deeds, per se, you’re just changing what it says on the mortgage.
Paul Mahoney: Correct, yeah.
Shona Lindsay: Right, okay.
Paul Mahoney: So I think the answer to that question would very much depend on whether they’re married or not, both on the stamp duty piece and the mortgage side of things, as to whether the partner needed to become an owner of the property.
Shona Lindsay: Obviously we don’t have that information, but hopefully that was useful to who was asking the question at home.
Paul Mahoney: Yeah, it would make sense to get both tax advice and conveyancing advice on that point.
Shona Lindsay: Yeah. Thank you, thank you.
Well that’s all we’ve got time for today for this edition of Property Question Time. But don’t forget, if you have any questions for our experts please write to us either through the website, which is www.property-tv.co.uk, or directly on an email at firstname.lastname@example.org.
Before I go, a huge thanks to my lovely guests here in the studio. To Garrett O’Hanlon-
Garrett O: Thank you.
Shona Lindsay: … to Simon Zutshi, and Paul Mahoney. Thanks so much for being with us, and we’ll see you on the next edition of Property Question Time. Bye.