Property TV | Property Question Time – S1 Ep151 – Stephen Galpin, Paul Mahoney and Mike Gray

Lucia France: Hello and welcome to property question time. My name is Lucia France, and this is the show where all of your property dilemmas are turned into solutions. Now, joining me in the studio today we have our panel of experts, starting with Stephen Galpin, so welcome to you, Stephen. Stephen is a London based property consultant. We also have Paul Mahoney. Welcome, again, Paul to you: Managing Director of Nova Financial Group. And Mike gray as well, who’s managing director of Dedman Gray Property Consultants, so welcome to you, Mike. So, we’ll get started with the first question to you then Stephen. It’s short and sweet this time, but something we regularly talk about on the show: “I’m looking to invest in London soon, do you recommend waiting until after Brexit?”

Stephen Galpin: Well, it’s a very difficult one and if we all knew the answer we’d all be quite well off, I think, but I think in essence the market at the moment is a little bit flat, so possibly a good time to buy. I think most of the larger agents are suggesting that there’ll be a bounce in 2020 once we know the effects of Brexit: better or worse. So, I think, in essence, there’s no real harm in buying now, I don’t see any purpose in waiting. I know that we had some press: Bank of England were thinking that possibly there’s a 30% dip on its way in property values, I think that’s grossly exaggerated. I think if you buy in quality areas, as you should always do anyway, then you’re not going to see anything like that if indeed there is a further dip. But so, no. I’d say get on with it if it works for you, if it’s the type of property that you want, if you’re in a position to manage it properly and look after it properly, you’ve got the support of your local agents and the information that goes with that, then get on and do it.

Lucia France: Now, obviously this particular viewer is asking about London, how does that fair for the rest of the country without being London centric here?

Stephen Galpin: Well, I mean, I get that criticism weekly, don’t I? [crosstalk 00:02:17].

Lucia France: Get you out of there.

Stephen Galpin: Too London centric. Look, there’s no question, I mean, at the moment, if you look at the figures nationally, I mean, there’s some quotations last week saying that in the north of England: Midlands to the north, there’s something like 14% per annum increase in property values against four point something in London, that’s all very well. I would just say for an investment point of view, we’re a capital city here and in a capital city, it almost works like an insurance policy, there’s always going to be somebody around who will buy your property or rent your property, and if you’re in investment business, then that’s what you need to look at.

Lucia France: Okay.

Paul Mahoney: If I could just add a little anecdote-

Lucia France: Please do.

Paul Mahoney: … ’cause I agree with what Steve said. I think investing in property is about time in the market rather than timing the market. So, there’s never really a bad time to buy, there’s always political and economic blips, and there’s always a reason if you’re a very conservative person not to buy, but I come across far too many people who are older in age and have had good money their whole life but haven’t invested, and they end up with very little whereas those that invest early, in the right areas, you know, in areas with depth and London isn’t the only area in the UK with depth there are others, then you can’t really go too far wrong. So long as you’re confident in sustainable demand regardless of the state of the economy.

Lucia France: And any thoughts on the Brexit situation as well?

Paul Mahoney: I think Brexit is one of those: it’s a political or economic blip. No one really knows what Brexit is yet, it could be positive it could be negative, who knows?

Lucia France: Or a combination of the two.

Paul Mahoney: Or a combination of the two. Buying in an area where people are going to want to live based upon employment, facilities, amenities people aren’t just gonna disappear because of Brexit. So, if you buy in those properties in those sorts of areas, you can be confident doing okay, and if the market does dip, well it dips, you can see it through.

Lucia France: Okay Paul, on to your first question for today which is: “I’ve taken out a buy to let mortgage for an auction property, rather than just a lick of paint I’ve decided to remodel it slightly, I don’t know how long this will take maybe three to four months. The buy to let mortgage I got was portable, so could I, when the refurb is complete, get rental and sale valuations or quotes and make a decision whether to rent or sell then or will I have done something wrong by having a buy to let mortgage but never actually renting it out? Please help I’m confused.”

Paul Mahoney: Okay, there’s a few things to consider there, buy to let mortgage is for the purpose of letting the property, so by taking that mortgage, you are essentially saying to the lender that you’re going to let it because the reason they’ve given you that mortgage is their comfortable with the rent the property is generating to actually service it. So, you technically are doing something wrong by not letting it straight away. If you were going in to getting the mortgage with that intent, then you really should tell the lender that, and there are specific products available for that purpose. Some lenders-

Lucia France: For the purpose of-

Paul Mahoney: For the purpose of renovating.

Lucia France: Right, okay. Yeah.

Paul Mahoney: Some lenders might be okay with it on a buy to let basis others won’t. You could go for bridging finance which will be more expensive, but it is for the purpose of properties that aren’t ready to let.

Lucia France: Right, okay.

Paul Mahoney: The other thing to consider is if you do that and you get away with it with your current lender, either not tell them or tell them and you get to the point of wanting some, perhaps, remortgage or sell, you won’t have any letting history, so they will ask to see these short tenancy agreements, the AST, and see that it’s been let, and if it hasn’t, then they’re going to want to know why, and that could cause you issues. So, I’d say, depending whether they’ve actually taken that mortgage yet or not, if that’s their intention, then just be honest about it, get advice from an independent broker on what the most suitable product is for that purpose, and go down that path.

Lucia France: And where they say, they are doing the refurb, or slightly be modeling it, does that matter that they haven’t told their lender about those refurbishments?

Paul Mahoney: Well, if it’s not being let, and it is on a standard buy to let and the lender thinks there’s a tenant in there then, potentially, yes, that could cause a problem.

Lucia France: Okay.

Paul Mahoney: Because, of course, the way that lenders look at the serviceability of a buy to let mortgage is the rent that’s going to service it, it’s far less about the actual individual situation. So, that could cause them problems depending on the lender and the product they’ve gone for.

Lucia France: And do you think that, in this case, when they decide to sell it, or if they decide to sell it, it would be worth changing the mortgage before that?

Paul Mahoney: That’s another thing to think about, is a buy to let mortgage is given on the purpose of being quite long term. Usually, it’s at least a 10 year term. Now, if you’re buying and selling properties all the time with buy to let mortgages, you’ll soon get blacklisted by lenders because they aren’t going into it for the purpose of lending to you for a year or two or six months: that’s what short term finance is for. So, if you’re doing that all the time, it’s not going to go on for very long.

Lucia France: Okay, thank you-

Mike gray: Just one question on thinking about that, it’s two types of lending, isn’t it? The short-term and long-term. Is there still, on the buy to let mortgages, will there still be redemption fees to pay if people pay that off to-

Paul Mahoney: Entry and exit fees.

Mike gray: Fine okay.

Paul Mahoney: So, you pay arrangement fees, and you, generally, depending on the mortgage, and the length of the initial term, pay an exit fee as well, especially, if it’s fixed to be a higher fee, but even when it’s not fixed, usually, there’s a two or three year minimum term.

Lucia France: Right, okay. So, yeah, it’s like you’re gonna get stung one way or another.

Mike gray: Yeah, either before or at the end.

Paul Mahoney: It’s probably not a very cost effective way of doing it, though, the interest rate might be a bit lower, you might find that other types of finance might be more cost effective in the long run.

Lucia France: So, basically, just be up front in the first place really-

Paul Mahoney: Seek advice and use the product that fits purpose.

Lucia France: Absolutely. Okay, brilliant. Thank you very much Paul, and now moving on to you Mike, this is your first question for today: “Why do people sell at auction rather than with estate agents? I have a property, a two bed semi-detached property in a 1930s development near a historic village. Properties in the village sell quickly all the time, but I’m not getting any interest in my home. Would putting it in an auction help me?”

Mike gray: Yeah, that’s an interesting question as well. The thing about choosing: not every property is right for selling by auction, and we often recommend that a different sale should be taking place. But in the right situation for the right property, it really is the one that brings you to a head nice and quickly. The example you use there: it doesn’t matter where it is whether it’s near a village or a town center location, or a vibrant city, very often it’s the timing where somebody want to get the result. Years ago, auction was always considered to be like the last resort, or, “We’ve tried everything else now what should we do?”

Lucia France: Right.

Mike gray: But that’s not the case now because there are more people, particularly, in the investment market that are now looking to buy through auction because it’s less troublesome, is more instant, and you can get a quicker decision. That means the buyers gotta be ready to go and the sellers they know that they can get an outcome within the six or eight week period. So, there’s a bit of a balance. What we do, is we look at two things: it’s the property that’s being considered to be sold, and also the situation of the seller. If they are living there themselves, and they’ve still got somewhere to find, well then auction is not the best route, but if it’s already vacant, it might be divorce or might have some financial pressure, well, then there’s nothing better than a nice quick transaction over and done with within six weeks.

Lucia France: And would you say here as well that she’s … this person, I’m not sure it’s a male or female, is saying, “I’m not getting any interest in my home.” Would you say that’s something to do with maybe it’s not on at the right price?

Mike gray: Well, it could always be price, it could be the way it’s being marketed: There’s different ways in going about these things. The other thing that the auction process delivers is a much bigger playing field and a much wider audience whereas sometimes when they’re on the market, particularly, this one where they’re talking to a small village, often the local agent may only reach out to a smaller radius of potential buyers whereas the auction market is a much bigger audience with probably going out to people like, not only investors, buy to lets, people who want to live there themselves, property companies, landlords, developers, and maybe somebody who wants to buy it up and extend it and invest some further money on it. So, it’s a much bigger audience to reach out to for the purpose of selling.

Stephen Galpin: Mike, what’s the difference in cost for going through an auction as opposed to an agent?

Mike gray: There’s not too much difference, is probably, generally, works out just a little bit more expensive on the fee. It’s still only a sale on paid on results, so if it’s not sold, the seller wouldn’t pay any auction fees. The only slight difference is there’s an upfront entry fee which in regional positions it’s between £300/£400, and that’s for preparing a catalogue or arranging the auction itself. So, the fees don’t vary too much. But what it is it’s more of a direct commitment because the process is: into auction, six or eight week marketing program, you’re on the rostrum, and very often the deal is done within that period.

Lucia France: And do they normally sell that first auction that they’re put on?

Mike gray: With an auction it is usually the first time round because the other thing, good auctioneers shouldn’t be taking instructions on properties that either shouldn’t be sold by auction or in the right price level because this, really, is a market to bring it to a head. The statistics at the moment are, one would expect, between 65 and 85, 90% success rate on all lots sold by auction.

Lucia France: Great. Okay, Mike, we’re gonna have to leave that one there. Thank you guys. That’s all we have time for for this half, we’ll see you back after the break.

Welcome back to property question time with me, Lucia France, and our panel of experts today, Stephen Galpin, Paul Mahoney, and Mike gray. So, welcome back guys. On to your next question, Stephen: “I’m in an apartment block and my service charge has risen every year for the past four years, is there anything I can do about this?

Stephen Galpin: Right? Well, that’s not an easy one either is it? The answer is yes, there are courses that you can take which may at least regulate your service charge, particular in an area like this, we’re here in Docklands, you’ve got very complex buildings, high technology buildings often with swimming pools, gymnasiums, and multitude of facilities, and you must understand that if you buy in this type of building, it costs a lot of money to run. And, of course, not all developers are as good, perhaps, as they should be, and you’ll often find that a new development in its first years, it’s subsidized, to some degree, by the developer while he’s still there selling the remaining units, et cetera. And, of course, when he withdraws and goes, you’re on own, and I’m afraid swimming pools and gyms are not cheap to run, so you’ve got to expect this.

And there’s something that’s very important, I would suggest, probably Paul will confirm this, it’s about affordability: you’ve got to factor this into what you’re buying whether it’s for investment, or whether it’s your home. Now, are there things that you can do about it? Well, yes, there are: usually you’ll find in these buildings you’ll have a Residents Association, or a number of you that are perhaps a little bit more interested than others, and it’s good to have that forum. I mean, the sorts of things to look at: who’s paying for the insurance on the building? Okay. Well, if it’s the developer, is he taking commission from that? Nothing wrong with that as long as it is declared, but you might then want to say, “Well, look, I’m sorry Mr. developer, we want not to go out to tender.” You must also find when developers suddenly come along and say, “Oh well, the boilers are broken, we need some new boilers and they’re 200,000 a piece, so this is going to go on the service charge.”

Make sure that you’ve received the correct notices for such works, it’s obligatory that a developer must give you or a freeholder must give you notice of those changes and demands. So, it’s all quite considered, there are tribunals that you can go to, if you’re unhappy about the progression of the service charge, usually upwards very rarely downwards, but it can be done, it’s a structured process, but it’s a process that works. But common sense should prevail like everything else in any kind of dispute or misunderstanding or dissatisfaction with what you do: try and talk to your Freeholder, try and talk to the managing agents and see where it’s going, see what the real causes are, and you’ll probably understand why those increases are happening.

Lucia France: And do you think this is a particularly unique case, this person is saying every year for the past four years?

Stephen Galpin: No, I don’t. I think I could probably name you half a dozen buildings within 100 yards of here that say the same things happened.

Lucia France: So, it’s a quite common situation?

Stephen Galpin: It is and you should never underestimate, I mean, there are buildings here where perhaps a two bedroom apartment will cost you in the region of 14,000/15,000 a year in terms of service charge: it’s a huge overhead, and as Paul will know, many people underestimate this, it eats into their investment value, and all of a sudden they have a shock about what they’re actually realizing on their very hefty investment.

Lucia France: Yeah, can you fill us on that Paul?

Paul Mahoney: Yeah, look, it will also depend on the age of the building, generally you’ll find they’ll rise more as the building gets older ’cause there’s more to repair, but as Steve said there definitely is a requirement for them to justify those costs. I think generally people feel as though they’re not justified, but you can go through those processes to find out why there’s these increases but you definitely need to account for it.

Lucia France: Yeah, I think, just to check and be one of those residents who does know what’s going on otherwise it could probably seem quite confusing. Right, thank you very much, Stephen. Okay, Paul, your next question for today is this: “I am moving abroad and trying to sell my flat but with little luck. I was promised an easy sale by my estate agent but not much happening after several weeks having even dropped the price. My mom is in a position to buy the flat outright from me and then let it out. Is this a viable idea? Are there taxes et cetera that she or I need to be aware of? Would she need a mortgage? Thank you for any help or advice.

Paul Mahoney: Okay. Yeah, there’s a few things to consider there. It’s not an uncommon situation with estate agent signing you up and then promising the world and showing you the Atlas. But so far as selling … did they say it was a buy to let property?

Lucia France: They said … I think they own it and their mother is in a position to buy the flat outright from them and then let it out.

Paul Mahoney: Alright, so there would be taxes to pay. In that essentially the mother isn’t a linked entity to them in any way or in the eyes of HMRC, so they would have to sell it to their mother whether they did that at market rate or not, taxes would be levied at market rate. So, if it’s their home, they probably wouldn’t pay capital gains tax, if it’s a buy to let they would: that would be either the 18% or 28% depending on the marginal tax rate. The mother would pay stamp duty, and, again, that would depend on the all the usual stuff it’s like selling to a complete stranger.

Lucia France: Yeah.

Paul Mahoney: Did they ask about mortgages?

Lucia France: Yeah, they’re saying, “Would she need a mortgage?” But then previously to that, they say, “She’s in a position to buy the flat out right from me and then-

Paul Mahoney: Well, if she can buy it out right, of course, she wouldn’t need a mortgage. Depending on what she’s planning to use the property for would really determine whether she should take a mortgage: if she’s buying it to live in it, then you’re better off having a debt free home, if she’s buying it as a buy to let, I’d say she’s probably better off having a mortgage because-

Lucia France: I think that’s the idea here buy it outright for me, and then let it out.

Paul Mahoney: All right, okay there we go. Well, if she’s buying as a buy to let then yes, of course, you can buy cash bought buy to let, but this has come up quite a few times in other episodes, where I’m quite a strong believer that the major benefit of property investment is the mortgages, the ability to leverage your funds can result in quite strong returns on your cash or your equity whilst not necessarily having to set the world on fire on the asset returns. So, rather than the mother buying cash, she could take a mortgage and maybe buy a couple of properties and probably get a much better return on her funds.

Lucia France: Great. Okay, thank you very much there for that question, Paul. And then Mike, on to your next question for today: “My company has outgrown its current leased office, there’s a large commercial building for sale nearby which is suitable but too big, could I buy it and then split the property and sell the other half? Or would I have to rent it out? Any advice would be appreciated.”

Mike gray: Yeah, that’s a predicament that many businesses find when looking for additional space to grow their business: you can’t always find the right space in the right location to suit their particular requirements. I think it’s dangerous sometimes to buy something that’s too large because they’re then forcing extra pressure on finance on that business for space that they don’t necessarily need for running the business. But answer their particular question: Of course, they could either take on the extra space and arrange for tenant to let the other area, or, of course, they could break it off and sell that off to keep their own finances intact, but of course, depends on each property, whether it can split well, and whether communal areas lead to the areas of the three potential tenants that might be there, so that would need some careful thought.

The other advantage by doing something like this, is they’re then taking on a larger building then they need which may give them the chance for growing into the extra space in two or three years down the road. So, that will be very good astute or planning for future. I think the main thing to consider here for somebody is they shouldn’t put extra financial pressure on a business taking on something too large when actually their prime focus here is buying some space to operate their business from, so the moment they do that, they become half an occupier for their own business, and the rest of it is really considered as an investment, and are they really in a position to be able to take on that investment as well as their own expansion?

Lucia France: Well, it’s interesting you say that because in the first sentence of this, it says, “The company has outgrown its current leased office.” Which they obviously don’t own anything to take against that, so would you recommend maybe continuing to lease somewhere else?

Paul Mahoney: We’ll it’s about the space requirement they need, and, of course, the location. And I always say to businesses, “Are you doing this for the best of the business or are you looking to invest in some property for some further income?” And I think often the two things very much get muddled up. And sometimes I think businesses have gone a little bit too far with the extra space. So, focus one: is it a space they really need and where is it? And if the only way they can do that to make that move, is there some extra accomodation they don’t need? For goodness sake, not these days, don’t leave it vacant: there are tenancy options, there are breaking off and selling it, and don’t forget nowadays, one last point, they can arrange for tenancies on one or two … on a shorter term. So don’t commit it too long because it’s almost a fact isn’t it? If they sublet it for three years or five years, they’ll need the space all to themselves, and they’ve lost the opportunity having that chance.

Lucia France: That’s it. That’s great. Thank you very much, Mike. Thank you to all of our panelists today: Mike gray, Paul Mahoney and Stephen Galpin. Thank you at home for watching and if you would like to get in touch with us then just go to the website property-tv.co.uk. Also on Instagram @property_TV and info@propertytelevision.tv if you’d like to email us. Thanks again for watching and we’ll see you next time.

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