Lucia France: Hello and welcome to Property Question Time. I’m Lucia France and this is the show where we bring the solutions to all of your property problems. Joining me in the studio today we have our expert panel of guests. First of all is Stephen Galpin, welcome Stephen. He is a property consultant from London. Joanna Leggett as well, founding partner of Leggett Immobilier in France, welcome Joanna. And Paul Mahoney, managing director of Nova Financial Group.
Paul Mahoney: Hello.
Lucia France: Welcome to you all. Okay Stephen, we’ll get started with you for your very first question. “An apartment in Hampstead seems to be a very sound investment for me …” writes in one of our viewers, “But it seems that recent trends have made Docklands apartments have longer-term growth prospects. Is this a fair assessment or should I keep my focus on Hampstead, which has a stable history of property growth.”
Stephen Galpin: Okay, well quite a complex answer I’m afraid because there are a lot of facets to this to someone to say, now look first of all Hampstead is a conventional property area, it’s long-established, well-established and I think the view of it being stable is probably quite right. Let’s come down into Docklands and perhaps into Canary Wharf where we’re filming from today. There are something like 20-odd apartments scheduled to be completed over the next three or four years. Inevitably that will create a little bit of over-demand in terms of renting and, of course, availability, so you’ve got to factor that into the equation.
We must also remember that in and out costs are also quite considerable today with stamp duty. Stamp duty remains with the buyer rather than the seller, although we’ve been campaigning for something different for some time now. The in and out costs are quite expensive and that’s got to be a consideration and, of course, that’s going to reduce your potential profit or growth over the years.
In general I think it would be accepted that this sort of area in Docklands is perhaps potentially more capable of providing extra growth potential, but I think the words are ‘be careful’. If you don’t understand the area or if you’re not friendly with local agents who can guide you, then I’d consider that very, very carefully and maybe stick to the safe areas, I think. Although having said that, Canary Wharf has changed from being what I would say a sort of financial area into now it’s a proper recognized post code that would be on a tick list of anybody wanting to move to London.
Lucia France: Yes.
Stephen Galpin: Things are changing but it takes time. Whether you have time with your investment, if it’s your home, I think you’ve got to look at what just suits you best as an individual or a family.
Lucia France: When you say there’s going to be around 20,000 new apartments completed over the next three to four years, in terms of that do you think that makes it less of a safe bet then in that case?
Stephen Galpin: A lot of those apartments will have been sold overseas to overseas investors. A lot of people buying for buy-to-let, but of course we see the government now trying to discourage individual buy-to-lets. These people are being termed as accidental landlords, the government are trying to increase the amount of institutional investment in letting property and that may or may not be right, but surely with such a supply of apartments in a limited area it’s going to cause problems of a kind, not problems that are going to last a long time. All these markets iron themselves out over time, but again, if it’s your home, if that’s where the viewer is living then consider very carefully whether you’re a Hampstead person or whether perhaps you’re a Docklands person, the two environments are entirely different.
Lucia France: And speaking …
Paul Mahoney: I’d like to add something to that.
Lucia France: Please do.
Paul Mahoney: I think they mentioned it was an investment, I’m not sure, but if it is an investment …
Lucia France: They did, yes.
Paul Mahoney: I would ask the question, why only those two areas.
Lucia France: Right. Yeah.
Paul Mahoney: There are lots of other areas around Greater London and around the UK that could be more suitable depending on their goals or their situation. That’s a question that’s not really answered as to why they’re … Because they’re two very different areas, you’re quite right, Canary Wharf or … I would ask why those particular areas.
Lucia France: Yes. [crosstalk 00:04:36]
Stephen Galpin: I think on top of that you’ve also got to consider if it is investment rather than home then what’s the purpose of that investment. Is it to have capital growth over a period of time or is it to secure a stable rental income? Again I would say from that point of view I’d say Hampstead is probably the safer area. You will tend to get a longer term tenant in that sort of area whereas down here in Docklands you’ll get the young professionals that are by nature on the move all the time and so your turnover of tenants is higher.
Lucia France: Would you say, Stephen, if someone who doesn’t know the area around here in Docklands particularly well that there’s just very quickly an area that’s maybe safer than others or somewhere to look for first?
Stephen Galpin: You only have to look at the areas down here. You can see where the concentration of developments are. Where there is a concentration of development you’ll get infrastructure, you’ll get good shops, you’ll get good facilities. Where things tend to be built on the fringes where the infrastructure isn’t there, I’d steer clear of.
Lucia France: Okay. Thanks very much, Stephen. Okay, moving on to Joanna, your first question for today. “I have a semi-detached neighbor …” I think this is obviously his neighbor’s detached house. “The other day he knocked at the door to ask if I want to sell him two of my four empty rooms at the back of his part of the house. I surround him at the side and the back. I would never sell, but he made the suggestion that an alternative would be to convert his part of the loft. I would be against this. My question is: If he wanted to build upwards into the loft, he would need to do this on our party wall, presumably. Would he need my permission in that case?”
Joanna Leggett: First of all I’d ask the question: Why would you oppose it? If you’re in the UK, for example, in a 1930s semi-detached property and your neighbor put in a loft conversion you’ll probably think, “That’s great, it means I can get one.”
Lucia France: That’s true, yes.
Joanna Leggett: The planning permission would go through. It’s always good to get on with your neighbors. I can understand not wanting to sell parts of your own building, but a loft conversion is no different to that as it would be in the UK. It also helps I think as well that particularly in France, I’m not sure the area they’re in, but if it’s in a rural location or a countryside, which it does sound like with the fact that there’s rooms going around the back.
Lucia France: Yes.
Joanna Leggett: They could move on somewhere else and not be able to sell the house or something else and if the house gets run down it’s going to devalue their own property.
Lucia France: Of course. Yeah.
Joanna Leggett: I would always suggest to try to get on with your neighbors as best you can. From the neighbors point of view they can apply for planning permission just as you would in the UK for a loft conversion and probably will get granted it. The best thing to do would be to try to find an amicable solution rather than have disputes with your local neighbor.
Lucia France: Definitely. What is it that makes you say they probably would get granted that planning permission?
Joanna Leggett: It’s the same as a loft conversion in the UK. Most semi-detached properties, these days rather than moving if you don’t have the funds to move you’ll up up into the loft and exactly the same rules apply in France to the UK that you can apply for planning permission and it’s most likely to be granted.
Lucia France: Yeah, and it’s to create that extra space for …
Joanna Leggett: Exactly, for families or an extra room or to increase the value of the property.
Lucia France: Exactly. I suppose this neighbor has done it the right way in terms of they’ve knocked on the door, they’ve tried to have a proper conversation with them. Do you think there’s any situation where it would be wise to sell those two of the four empty rooms that they want?
Joanna Leggett: If they’re not being used and you have no intention, but saying that you’re going to devalue your property because you’re losing space that you have on it, so I would keep the rooms at the back but a space that doesn’t belong to you and it’s not really going to affect your building in any way unless it is, but by the sounds of it a loft conversion isn’t going to affect your property, then I would be … Get on with your neighbor and say you’re happy for them to go ahead.
Lucia France: Yeah. If it’s something that you were never going to use it, then it’s maybe worth doing that. Great, thank you very much Joanna. Okay, cool. Moving on to your first question here today, “I’m selling my house in order to buy a slightly larger one. I own this house outright and the new house is just 10K more, which I have in cash. However, would it be possible to apply for a buy-to-let mortgage on this house so effectively buy it from myself, then rent it out and use the rent to pay the mortgage.” Oh, that sounds confusing.
Paul Mahoney: Okay. Good question. The answer is yes, they wouldn’t need to buy it from themselves though, they could retain their current ownership of the property and change the use of the property. The idea of remortgaging a home you already own to buy a new home is what’s called let-to-buy.
Lucia France: Right. Okay.
Paul Mahoney: As opposed to buy-to-let because you’re letting to buy. It’s quite often done for accidental landlords that can’t sell their property or just want to keep their property, which I believe is over half the landlords in the UK. It is a consumer buy-to-let mortgage and what that means is that it’s more highly regulated than your traditional business buy-to-let mortgage because it is a previous home.
Lucia France: Right. Okay.
Paul Mahoney: And because that person in the eyes of a lender wouldn’t necessarily be viewed as a business person or investor because they’ve just kept their home as opposed to investing the property to make money. But the answer is yes, they could do it. In fact, it’s probably a good idea because in my view when it comes to investing in property, really the major benefit is the leverage, the ability for mortgages.
Cash-bought buy-to-let is okay but the returns aren’t that great when you take into account costs and things, but when you account for the leverage, the fact that you can borrow at pretty low interest rates at the moment, fairly high loan to values and over the long-term, that’s where you can get quite good returns on the cash or equity in your properties, so that person could do that and by the sounds of it they could probably end up with enough cash to maybe even get another buy-to-let.
Yes you can do it. It is something definitely worth considering. Seek advice on what your options are because it is a specialized type of buy-to-let mortgage and go about it in the right way to achieve the goals they’re looking to achieve.
Lucia France: I suppose in what they’re saying here that the new house is just 10K more, it would seem crazy not to keep hold of the original property in the first place.
Paul Mahoney: Yeah. They said they’ve got the cash so they could just buy the new one with cash, but then they’ve got two debt-free properties, which in my opinion is an under-utilization of their resources. Having good debt, investment debt, that helps you better utilize your money, is a good thing. It sounds like, given they’ve only got two properties, I don’t know anything about the rest of their finances, but it sounds like they’ve probably got a bit of work to go to build an investible asset base to be financially free or comfortable, and by using debt that’s one way of accelerating that and making it happen quicker.
Lucia France: I suppose …
Stephen Galpin: [crosstalk 00:11:31]
Lucia France: Sorry, go ahead.
Stephen Galpin: I was going to say, Paul there’s one thing here that you did hit on it. I think people do have to understand with any kind of letting or investment activity is a business.
Paul Mahoney: Yeah.
Stephen Galpin: As with any business you’ve got to assess the risk. If these people are relying on the rental from the first property to buy their home, i.e. the second property, and do think about voids, do think about the times when you don’t have that rent coming in, perhaps in between tenants and that sort of thing, is it sustainable as far as your own finances are concerned?
Paul Mahoney: It is a good point that I probably didn’t mention enough is they should assess whether that property they’ve bought as a home, an emotional purchase, is actually a good investment.
Lucia France: Absolutely. Thank you very much guys. That’s all we have time for for this half of the show. We’ll be back after this break.
Welcome back to Property Question Time with our panel of experts here today, Stephen Galpin, Joanna Leggett and Paul Mahoney. Welcome back, guys. On to your next question then, Stephen. This person who has written in has actually thrown this open to the whole panel, so we’d like to know all your thoughts. “I’m keen to know the panel’s thoughts as to whether High Street shops are worth buying as an investment any longer.”
Stephen Galpin: Right. On Property TV we’ve recently done some programs about the High Street and talked to one or two of the larger High Street landlords. It’s quite interesting, the whole subject. We’re seeing in the press every day almost the woes of High Street and whether it’s online trading that’s ruining it or anything else. I think the consensus is there are a number of issues. One is the ease of parking and therefore accessibility.
Two, the big landlords have historically controlled the High Streets, are they in fact now relaxing their covenants about who can go onto the High Street, in other words, allowing the smaller businesses on rather than just the flagship stores. To somebody like Harrods that’s got a two billion a year sales turnover, the council tax doesn’t really matter too much.
Lucia France: They probably don’t [crosstalk 00:13:37]
Stephen Galpin: To the smaller businesses, although the government have said, “Well look, we’re going to help the smaller shops on the High Street.” You do just wonder how many smaller shops there are on the High Street to help, so a bit careful there. But the interesting thing is, once again here at Canary Wharf you’ve got a shopping center that’s an absolute success, you’ve got the two Westfields, East London, West London, absolutely teeming at the weekends and at shopping times and most other times actually.
I think the question has to be perhaps, are these the new High Streets? Has our High Street as it was become a different animal? I think the answer is yes. I think what we’re going to see over the next few years is a change of investment in the High Street to perhaps part residential, part entertainment, part dining, rather than just a series of multiple stores replicated across the country.
Does that make a good investment? I think on balance it probably would because I think you’d be taking a chance but I think what you’d be investing in is a sort of reinvented future. I don’t think the High Street is going to stay the same as it has been for many, many years now.
Lucia France: No. Absolutely.
Stephen Galpin: If that helps it helps, if it doesn’t it doesn’t.
Lucia France: Yeah, I’m sure it does. Any other thoughts there, guys, on this one?
Paul Mahoney: I think a few things to consider as an investment is the borrowings that are available to you, what can you borrow to invest. Because, again as I mentioned before, that’s a key driver of returns on the actual funds invested. I completely agree, that will depend on what you’re buying, where you’re buying and who the sort of target market is. I know as a shop owner you could have various different retailers in there, but you should have a bit of an idea of who you’re targeting and who they’re going to target because obviously that’s ultimately going to determine your success.
Lucia France: Knowing the area is going to help here as well, isn’t it?
Paul Mahoney: Of course, yeah. Be prepared for vacancy periods, is one thing. One of the reasons I think residential property is far more suitable for the vast majority of people is that the vacancy periods are a lot lower than commercial space. The costs of borrowing it are a lot lower and the long-term term values are higher. I would say you’d want to be pretty confident and almost a little bit more financially well off than your average person to be looking at that as your standard investment option.
Lucia France: Great. okay. Any other thoughts there guys?
Stephen Galpin: I think Paul is absolutely right about that and I think there’s something else to consider and it’s a point of really self-examination. Just remember, on commercial property you’re going to be negotiating with commercial people and those people are probably going to have a higher skill set than you in terms of commercial negotiating skills and probably financial clout, so you’re going to be a little bit the underdog in that situation so make sure you get some good help.
Lucia France: Great stuff. Okay, thank you very much. Joanna, your next question here, “I need help to buy my first property in France.” Well you’ve come to the right person. “Since France is a huge country and with its many regions, departments and its varied regional and microclimates, it’s really difficult for me to decide where in France I should buy. Any advice appreciated.”
Joanna Leggett: Very short question but huge answer. You’ve got to do your research. It’s obviously very early stages. The budget is probably going to be the first determination of where you can afford to buy depending on your budget because, for example, if you’re on a small budget of say 50,000 Euros, that writes off the whole South of France. You’d be needing to look in the central regions, halfway down France and the Southwest if you’re on a very small budget.
If you’ve got a large budget then obviously all areas are open to you. I think if it’s a holiday home there’s different questions: How much time are you going to be spending there, so how much land do you need? Are you looking for an apartment and you want shared ownership, et cetera. There are so many questions that you’d need to ask yourself. First of all, I’d make a criteria list. I’d make a list of what my budget is, what you want to get out of the property, how big you need the property to be, et cetera.
I would talk to big international agents. I would attend property shows in the UK. Go along, go to the seminars, listen to all the different areas. I would do some recce trips. Get over to France, spend some time there, because every region is totally different. If you’re in rural France and you don’t speak any French at all and you’re in the countryside you can feel quite isolated.
If you want to be in a community where there are other Brits or Dutch or Belgians or English speakers, then there are certain regions that you should be looking at. If you want to be in a region where there’s no English speakers, there are other regions to look at. Then there’s also the weather. The weather is very different from North to South.
Lucia France: Such a big factor.
Joanna Leggett: Exactly. The Southwest of France, for example, can reach 40 degrees in the summer, the same as the Côte d’Azur. If that’s too hot and you want something slightly cooler, you may want to move over to Burgundy and the cooler areas in the center of France. It’s a massive, massive question.
Lucia France: Yeah it is, it really is.
Joanna Leggett: You’ve got to do some research and get over to France and see what areas you actually like.
Lucia France: Definitely. They mention in the question in the many regions, departments and things like that, are there certain areas of France where it’s actually easier or more difficult to move to in terms of legalities and red tape and things like that?
Joanna Leggett: No. Not really, not at all. The laws are the same all across France. I think it depends if it’s a permanent residence or a holiday home really. You’ve got to look at the roots of how you’re going to get there and how you’re going to get back. I would always suggest, particularly by age if it’s a retirement that you’re within half an hour at least of a hospital, doctors and major facilities, so I’d choose a town, draw a half hour circle around that city actually where all the amenities are, and choose something around those areas. It might be worth looking at the cities that you like first.
Lucia France: Definitely. Thank you very much, Joanna. Paul, onto your next question then. “I’m due to receive some money from my father’s will. This will allow me to pay off my mortgage for my property, a two-bedroom flat. After my mortgage is paid I will have an additional amount of money that would be enough to buy a 75,000 pound one-bedroom flat outright. I even have a potential tenant in mind. I think I would get 400 pounds per calendar month, 450 per calendar month in rental. I was wondering if you would think this is a good idea and if there is anything I need to watch out for.” Doesn’t say where it is, but I’m guessing it’s in London.
Paul Mahoney: The price does kind of give some sort of indication of where it is. It must be in the North of England because there’s not really much to buy around that price in the Southeast. Things to consider, so they’ve said that they’re looking at buying that property outright.
Lucia France: That’s correct, yes.
Paul Mahoney: In a way it’s somewhat similar to the previous question in that I’d usually discourage people against buying buy-to-let property outright simply because, as I say, it is an under-utilization of the money. You’re looking at getting on a net basis they’re probably only … Because they said 400 to 450 rent per month for an 80,000 pound property so that’s about a five percent yield. That’s not great for a property of that value.
Lucia France: Right. Okay.
Paul Mahoney: On a net basis they’re probably not going to be getting that much when they consider things like management, maintenance, whatever. If it’s an apartment they’ll have service charges, ground rent. There’s a whole lot of things that will go into the cost of that property.
Lucia France: For sure, yeah.
Paul Mahoney: By taking leverage you can actually boost that yield because borrowings are cheap at the moment, and boost the ability for growth. I’d consider whether a mortgage is suitable. Again, similar to the previous question, I’d consider whether this property they’re looking at is actually a good investment. It seems like this is the first investment they’d be making.
Lucia France: It seems so, yeah.
Paul Mahoney: Seek professional advice on that as to whether it stacks up. Not just what it might rent for on a monthly basis because quite often, especially with cheaper properties in less desirable areas, often the rent can seem quite high but also the vacancy periods could be quite high and the types of tenants can be less attractive than you might want.
Lucia France: Right. Okay.
Paul Mahoney: Quite often I’ll see opportunities that people show me that the yields are 15 percent, but if your property is empty half the year [crosstalk 00:22:11]
Lucia France: It doesn’t really matter. Yeah.
Paul Mahoney: Or if your tenant doesn’t pay, there’s a whole load of things to consider so far as whether something stacks up as an investment or not, not just what you think it might rent for on a monthly basis.
Lucia France: Absolutely. Thank you very much Paul, I’m going to have to stop you there. That’s all we’ve got time for today. Thank you to our panel of experts, Paul Mahoney, Joanna Leggett and Stephen Galpin.
If you have any property questions you’d like to ask to answer then do get in touch. Info@propertytelevision.tv or go to the website property-tv.co.uk. We’ll see you next time.