Lucia France: Hello, and welcome to Property Question Time. I’m Lucia France, and this is a show where we answer any and all of your questions about property with our lovely panel of experts. Joining me in the studio today, we have Stephen Galpin. Welcome to you, Stephen.
Stephen Galpin: Hi.
Lucia France: Stephen in a property consultant in London. Welcome to Joanna Leggett, founding partner of Leggett Immobilier in France, and Paul Mahoney, Managing Director of Nova Financial Group.
Paul Mahoney: [crosstalk 00:00:40]
Lucia France: Welcome to you all. We will get started with the first question to you today, Stephen. Is there much value these days in having a commercial property in a small town with living accommodation above? I’m thinking of buying and converting one into purely residential, which seems a most sensible use of this space. What do you think?
Stephen Galpin: Again, this is a subject we’ve covered before. This is about the high streets and perhaps the future of high streets. I’d have to say that traditionally you’ll have a bit of a struggle converting a commercial property into pure residential. Labor councils will start to say hold on a minute, that’s going to cut down employment. You’re going to be replacing an employable situation with an unemployable situation. You will have a resistance. You might well get it. Is pure residential suitable for high street use? I’m not too sure. You’ve got things to consider, like parking, depending of course where you are, which town it is. That can be a huge consideration and have a huge effect on the value of your property. Especially if you’re in a small town where pretty well everywhere you’ve got to go to out of town you’re going to have to drive to. Where you going to put your car?
Probably Paul would answer this better than I, but I think also you might find that if you’re looking to sell part of this, perhaps you’re going to convert the bottom half into one flat and then the upper into another one, if you’re not successful and you’re left with the shop at the bottom to rent, we’ve talked about the ability to be able to let commercial property. It’s a different discipline from letting a flat. It’s far more complex, far more difficult. More importantly, I know a lot of the lenders still have a resistance to lend on residential property that’s above commercial property. I don’t know why that is Paul, perhaps-
Lucia France: Oh really? Why [crosstalk 00:02:35]
Stephen Galpin: … you can explain that. I don’t know.
Paul Mahoney: The strange reason for it is in case a curry shop or something goes in on the ground floor and the fumes and that sort of thing.
Lucia France: Oh, really?
Paul Mahoney: That’s the reasoning, from a bank’s perspective. I think they are becoming more flexible around it, in that they can see that in some cases there is actually a utility to having a café or a gym or something like that.
Stephen Galpin: Technology’s moved on as well, in terms of extraction and that sort of thing.
Paul Mahoney: Exactly. But, that is the traditional reason.
Lucia France: Oh, okay.
Stephen Galpin: But, it is a consideration. Especially if you’re in a small town with a limited number of lenders that will look at that sort of area. Then, that could be quite a consideration because any successful property development, whether it’s for let, investment, or whatever else, you’ve got to have a market that can afford and fund what they want to buy. If you can’t, you’re in a mess.
Lucia France: Also, with things that you were mentioning like parking et cetera, in many, many towns that is a huge problem. Even with new build developments, most places only come with one parking space. That could be a real consideration to think about. Is there any situation where you’d say yes, definitely go for it?
Stephen Galpin: To be honest, I don’t think there is. I think if you want to go into residential investment, then go into residential investment. There’s an old saying, is to be a pioneer is extremely expensive.
Lucia France: I think we’ll leave that question there.
Stephen Galpin: I think you should.
Lucia France: Nicely put. Thank you very much, Stephen. Okay Joanna, on to your next question. I hope I’ll do my French accent correctly here. We are planning to build a double garage and are struggling through [foreign 00:04:17] form. It’s a lot more complex than the [foreign 00:04:22] we submitted previously for a small shed. We had a search through and had not much luck finding a guide to completing this form. Any advice on how to complete this form?
Joanna Leggett: Firstly, it’s a planning application and I would personally advise that you actually get somebody to do it for you. I would get an architect to draw up the plans. In the old days, you used to be able to go down to your local mayor with a bottle of whiskey and couple of photographs and he’d help you fill it out.
Lucia France: Ah, the good ole days.
Joanna Leggett: They were the good ole days. However, later on when you came to sell it, the man doing a little shake hand doesn’t count anymore. Obviously, you’d have to get retrospective planning permission for whatever you’ve built. Not the shed, by the way, that’s absolutely fine. But, for that type of consense, my advice, unless you speak perfect French, I would go to the planning office. If you do speak perfect French, give them a call, make an appointment. Take down your documents, your paperwork, and your design and they will help you to fill in the form. There isn’t any sort of guide online. You might go onto forums where other people have done similar things, but the laws change all the time, so I wouldn’t rely on those forums. I would either go to the planning department yourself.
The [inaudible 00:05:33] can advise which planning department is relevant for your commune. Or, I would get an architect. It’s not expensive. For a double garage, you’d probably be looking at around 1,000 euros. Bearing in mind the double garage is probably going to cost around 25,000 euros to build. I would get the architect to draw up the plans because the architect will take it from start to finish. They’ll also know the area. They’ll be able to tell you actually, you’re not gonna get permission there because you’re close to a church, et cetera, et cetera. They’ll be able to advise you before you even put the form in. I think it’s a lot simpler way of doing it and you’re guaranteed that it’s signed off properly, it’s being designed properly, et cetera rather than going back to the old ways with the old bottle of whiskey and shake hands.
Lucia France: Although it does sound like fun. Here as well, where they’re talking about creating this double garage, it sounds quite simple, but quite often in the UK when you go for planning, there’s a bit of back and forth or a lot of back and forth in terms of going back with a different design. Is that the case in France as well?
Joanna Leggett: It depends where you are. If you’re in a city, then obviously it’s very much the same as it is in the UK. If you’re in rural France, then they do encourage development as long as it’s in an area where you can build, because obviously they get more taxes. You’ve got a bigger property, the taxes stay local, so it helps the local community, et cetera. And, they’re quite good at giving planning permission. However, if you’re in a historic village or you are near a historic building, such as a church, for example if you’re near to a church, you won’t be allowed an in ground swimming pool.
Lucia France: Really?
Joanna Leggett: You’d have to build an above ground. What difference that makes, I have no idea.
Lucia France: Why is that?
Joanna Leggett: It’s just one of those French laws.
Lucia France: Interesting.
Joanna Leggett: That’s the thing. Before you go ahead and start putting your plans together, an architect would be able to help you. Or a meeting with you local planning department, as you would do in the UK.
Lucia France: Absolutely. Just quickly, the [foreign 00:07:20], like declaration of work, is that something you can do post having built?
Joanna Leggett: The [foreign 00:07:24] is basically the form to declare you’re doing something that doesn’t need planning permission. For example, a shed. You’re just declaring that you’re putting a shed up, and you don’t need full planning permission for that. But anything, for example like a garage, you would need planning permission.
Lucia France: If you didn’t declare it, is there any comeback on that kind of thing?
Joanna Leggett: Yes. The local mayor could see it and be quite annoyed that nobody had asked for planning permission. We have had people having to take buildings down that they have built or have done the old handshake with the mayor and then the planning department finds out and you end up having to take it down.
Lucia France: Then you have to buy even more whisky.
Joanna Leggett: Yeah. Those good ole days are gone. I would just treat it exactly the same as you would if you were in the UK. Go down the right channels, get your proper planning permission, get somebody to draw it up and do the form correctly for you.
Lucia France: Fantastic. Thank you very much, Joanna. Moving on to Paul for your next question. This is quite a long question, so bear with me. I’m considering investing in a BTL, a buy to let. I’m looking for some advice. I currently am not an owner/occupier due to the fact of house prices being much higher than I could afford on a single person mortgage. I’ve recently inherited some money and I’m looking at a buy to let in an area that I know very well that is much cheaper to buy a property. I could afford a property of 80K by putting down a 20% on a buy to let. My IFA has found me a few lenders who would lend to me on this basis. I’ve worked out a yield of around 10% a year with a rent of 450 to 500 per calendar month. I’ve read that the rules are changing re the amount of income tax that I’d have to pay on the income. I just need to know whether it’s worth it or is there a better way to grow my 20K over the next five or so years? Thanks.
Paul Mahoney: Okay.
Lucia France: That was nice. We don’t often get thanks in here.
Stephen Galpin: [inaudible 00:09:16]
Paul Mahoney: This is something that’s quite common. It’s something that I’ve … well, I didn’t coin, I actually took it from Australia. Rent vesting. People that continue to rent and invest. Especially in London, it’s very, very expensive to buy now. A lot of young professionals who can’t afford to buy where they want to live continue to rent in desirable locations and invest in more affordable areas, where they can still get on the property ladder but at a bit of a more affordable price. For this specific person, 80,000 pound price point, 20% deposit, as a first time buyer they will find that difficult. The average maximum for most lenders is 75% for a buy to let. With some lenders, it’s even lower for first time buyers, especially if you don’t own any residential property.
They’ve said that their broker has found them some options, and they probably have. As to whether that will work will depend on their financial position and the property they’re buying. Although buy to let mortgages are generally a lot more about the property you’re buying, because that’s the serviceability, as a first time buyer there’s a bit more risk in the lender’s mind because it’s only the property that you’re buying that they have as security. You don’t have any other assets they could come after if something went wrong. 80,000 pounds in the UK is definitely the lower end of the market, so I’d be asking where is this property? Does it make sense as a place to invest and does the property stack up? And, they said a 10% yield but 400 pounds rent per month.
Lucia France: Yeah, 450 to 500 pounds.
Paul Mahoney: I think they’ve done their maths a bit wrong there, because that’s a 5% yield. So, that might change their decision to invest. So, assess the area, assess the property. Work out what your mortgage options are. There probably are options that are worth investing in for this person, but seek professional advice and make sure you do it in a way that’s actually going to help you toward your end goals rather than just investing for the sake of it.
Lucia France: I’m not sure whether this is something that you [inaudible 00:11:19] yourself, but where they say they’ve read that the rules are changing regarding the amount of income tax they’d have to pay on income. Is that something to consider?
Paul Mahoney: Section 24, it changes the way that buy to let mortgage interest is able to be tax deductible. Essentially the way that it’s written is quite misleading. It says that by 2021, buy to let mortgage interest will not longer be tax deductible at all. But, you do receive a tax credit at 20%, which also is the basic rate of tax, which effectively means it is still tax deductible at the basic rate of tax. So, this person would only be affected by that if they’re a higher rate tax payer.
Lucia France: From what we’re seeing here, maybe not. Maybe they are. Finally, is there a better way to grow their 20K over the next five years or is this still the best option?
Paul Mahoney: The point I’d make there is buy to let is no longer a do it yourself activity. It used to be. It’s not anymore. There’s a lot more to consider. You do need to be commercially minded and take a business approach to making money through property. The best way to do that if you don’t already have that knowledge is to seek professional specialist advice.
Lucia France: Great stuff. Okay, that’s all we have time for for this part of the show. We’ll be back after this short break. Hello, and welcome back to Property Question Time with our expert panel Stephen Galpin, Joanna Leggett, and Paul Mahoney. On with your next question then, Stephen. A viewer has written in to say I’ve taken a twelve month lease on a house, with nine months remaining. However, I’ve had a small inheritance and I want to buy a property now. The landlord however, is insisting that I pay all of the lease off. I’ve offered him three months if he lets me out early, but he’s not interested. Is there anything I can do to make him release me early?
Stephen Galpin: I think the one thing that we need to know is what kind of lease it is, which we don’t know.
Lucia France: We don’t know, right.
Stephen Galpin: But, I would be very surprised if it’s anything other than an assured shorthold tenancy. What that means is it was brought in in the late ’80s to make sure that landlords knew that they could get their properties back and that tenants knew that they had an assured period of that tenancy, and that period was set at six months. Whether that lease is for six or twelve months, under an assured shorthold tenancy-
Lucia France: It says 12 months here.
Stephen Galpin: … Yeah. Whether it’s for six or twelve, the lease can be broken at six months, provided two months notice is given. But, it can’t be given, obviously, before the four month period has passed. I would suggest that what she does is look at the tenancy. If it is an assured shorthold, as I suspect, she’s in her third month. Wait til the fourth month. Serve notice on the landlord that in two months time that she’ll be leaving, and I think that’s a perfectly legal process, is it not Paul? I think.
Paul Mahoney: Yep. Absolutely.
Lucia France: Everyone agreed with that one. I suppose maybe the other option would be finding someone who was willing to take over the …
Stephen Galpin: I’m not sure that really works. Certainly on assured shortholds it would be very difficult to pass the tenancy rights over.
Lucia France: Right, okay.
Stephen Galpin: So, I don’t really think that’s a great answer to it. It might be possible in agreement with the landlord, but I he’s being difficult about the term, then chances are he’s gonna be difficult about everything else I think.
Lucia France: If they did give the notice on the four month date coming up, then they’d only lose the two months [inaudible 00:14:53]
Stephen Galpin: They could stay there for the two months. They’ve got to pay the rent for that period. But, it’s certainly not the extra six months that she’s going to have to fund.
Paul Mahoney: It seems to solve the problem because they’ve said that they’ve offered three months, and that’s essentially what they’re offering. I think perhaps either the landlord’s uninformed or he’s trying to take advantage of the question maker being uninformed.
Stephen Galpin: I think, once again, we’ve covered this so many times on Property Question Time, is if you have a proper lease, if you use proper agents, if you get proper advice, then things don’t go wrong. I always say look, you both have a lease. Both read it and just do what it says, and you avoid all the problems.
Lucia France: Stephen, just on that note, they did mention here that they’ve had a small inheritance and want to buy property. They maybe should think about how long that process can actually take.
Stephen Galpin: I think so. Any normal purchase is going to take probably the best part of three months, if not a little bit longer. But, I do also think the question of having the inheritance and buying a property is a totally separate question from dealing with your lease. So, I think get one thing right at a time and then you can go from there.
Lucia France: Great. Thank you very much, Stephen. On to Joanna. We have been slowly selling our existing rental properties and buying some here in France. We normally only buy one a year or so, as I’m getting slow in my old age and it takes me that long to get one ready to rent. We have almost completed number three. We’ve got someone interested in one of the existing properties and we’re going to go looking for a new one to buy. The problem is we found three very good prospects. Normally, we have been buying in cash, but I’m wondering if buy to let mortgages exist in France so we could buy more than one of these three. Any advice would be appreciated.
Joanna Leggett: Of course, they do exist in France. It doesn’t say, I’m not quite sure whether they’re a French resident or not. Did they say they’re still in the UK?
Lucia France: Where they say we’ve been slowly selling our existing rental properties and buying some in France, it makes me think they’ve been selling them in the UK.
Joanna Leggett: That they’re UK.
Lucia France: Yeah.
Joanna Leggett: Then, it’s gonna be tricky. It is possible. The buy to let mortgages in France, they’ll lend 70% of whatever the rental value is, but because they’re not French residents, getting those type of mortgages is gonna be quite tricky. There are products on the market. I’m not a financial adviser, I’m an estate agent, so we can certainly recommend or put them in touch with the right people that could. I would suggest again, go to a property exhibition or look up online for some international mortgage brokers who will deal with lots of different banks. Some banks will lend, but they are gonna have to prove history of the UK that that’s what they’re good at, or their history in the French properties that they’re renting out until they become a French resident. If they’re a French resident, it’s a lot easier. English banks, for example, or British banks, aren’t going to lend on properties abroad. They’ll only lend on properties in the UK. So, they are going to have to have a French mortgage, as such, if they are doing a buy to let in France. But, shop around. As long as they’ve got very good accounts, good proof, et cetera of what they’ve been doing in the UK, there are some banks that will lend. But, they’ll need to shop around with an international mortgage broker.
Lucia France: Here, they’ve said normally they’ve been buying in cash. Is that going to …
Joanna Leggett: Cash is easy. If you’ve got cash, you just go and buy the property and rent it out. It’s as simple as that. It’s the mortgage problem, because they have no proof that that business has worked well in France and they’re not French residents. It would be the same if I was trying to do the same in the UK. It’s quite difficult for me as a French resident to get a mortgage in the UK. So, it’s similar on the way back.
Paul Mahoney: One thing to add there. They mentioned they’re selling down their properties in the UK. Don’t know the size of their portfolio, how many they’ve got left, but if they are a UK resident, they could potentially re-mortgage the properties they have in the UK to release cash and use that cash to buy them in France.
Joanna Leggett: Exactly. And then, they would be a cash buyer again.
Lucia France: Yeah, that’s [crosstalk 00:18:44]
Joanna Leggett: Because they’re coming with cash as such.
Lucia France: Good piece of advice, depending on whether they want to keep hold of them or not. That could really work out for them. In terms of is there anywhere in France it would be easier to get a mortgage on or anything like that?
Joanna Leggett: Cities, obviously, and provincial towns, where they are going to be easy to let out. But again, it is dependent on the individual. They are going to have to prove that they’ve been in that business, they’re good at rentals, et cetera. But, it is gonna be the residency that’s gonna cause the problem.
Lucia France: Okay, great. Thank you very much, Joanna. Moving on to you now, Paul. A nice short, sweet question here for you. Do you have any suggestions regarding locations in the UK for the best possible returns on buy to let investments?
Paul Mahoney: A fairly common question. Returns can mean a number of things, though. There’s two main types of returns when it comes to property investment, and that’s income and growth. Your yield and capital growth. Those two things work for different people depending on what their goals are. Traditionally, the London and the southeast has been quite good from a growth perspective and the north has been better from a yield perspective. That, arguably, is shifting, in that for example London has had a very good run from a growth perspective and is now without doubt plateauing, in some areas falling. There’s lots of speculation as to why that is, but I think it’s just because it’s had a good run. We’re over 80% above the 2007 peak property prices in London, so a lot of areas have more than doubled in the past 10 years, and that’s a good run. Markets are cyclical.
Lucia France: Yeah, [inaudible 00:20:23]
Paul Mahoney: There are other areas in the UK at the moment which are doing really well, in a market where other areas aren’t. Places like the Midlands, specifically Birmingham, Manchester, Liverpool. Each of those cities have really strong positive driving factors at the moment, around billions of pounds being spent on infrastructure, really strong job growth. Net migration in the UK is very strong to the north, away from London. I think that’s being driven by affordability. A young professional in London, it’s almost impossible for them to buy their own home. Especially when they’re first starting out. They might have 300,000 pounds to spend on a property. You can’t buy anything in London for that, really. You can go to the city center in any of those cities I’ve just mentioned and buy a penthouse apartment and live for probably three quarters of the living cost.
So, for that person it kind of makes sense. That’s not only being reflected in individual preferences, but also a lot of major businesses are moving significant amounts of their workforce to their areas, like HSBC to Birmingham and a range of other major companies. So, so far as locations go, I would say that the areas with the most positive potential over the next five to ten years are those three cities, Birmingham, Manchester, Liverpool. The property prices are a lot lower, the yields are a lot higher. There’s a lot more room for growth there, within affordability ranges. Don’t just buy anything there. Buy the right properties in the right areas. But, from my perspective, I think those areas have the most going for them at this point in time.
Lucia France: In terms of things like transport links as well. They have lots of change going on in here. I know coming from Birmingham to this particular area where we’re filming today-
Paul Mahoney: Yes, you’ve got HS2, which goes into Birmingham. That will make a massive difference. 45 minutes into London from Birmingham when that’s done. I believe it’s due for completion 2026. That goes all the way through to Crewe, which is only 20 minutes to both Manchester and Liverpool. And then, you’ll have HS3, which goes through Manchester to Leeds. That will really open up transport links and the ability to do business across all of those cities. But, that’s just one example of the whole northern powerhouse scheme which is aimed at better utilizing the northern cities.
Lucia France: Great stuff. Thank you very much, Paul. And, thank you to all of our guests for today, Paul Mahoney, Joanna Leggett, and Stephen Galpin. That’s all we have time for today, but if you have any property questions and would like to get in touch, then please do. Our website is property-tv.co.uk or firstname.lastname@example.org is our email address. Do get in touch if you’ve got any questions. Thank you for watching, and we’ll see you soon.