Property TV | Property Question Time – S1 Ep186 – Nicholas Wallwork, Steve Jacob and Paul Mahoney

Stephen Galpin: Hello, and welcome to Property Question Time. This is the program where you can have your property-related questions answered by our expert panel. I’m Stephen Galpin, and with me today on the panel are: Nick Wallwork, CEO of PropertyForum.com. Welcome, Nick.

Nick Wallwork: Thank you.

Stephen Galpin: Paul Mahoney, CEO of Nova Financial Group. Welcome, Paul.

Paul Mahoney: Thank you.

Stephen Galpin: And Steve Jacob, chairman of Fabrik Property Group. Hi Steve, how are you?

Steve Jacob: Hi.

Stephen Galpin: Okay. Gentlemen, we’re going to move straight on, then. Nick, your first question is: Prices in London keep rising and rising, I’m a young professional in my thirties on a career path, am I going to be better to move out of London and commute in, or should I try and bear the punishment of London prices?

Nick Wallwork: Well you’re right, London’s a sort of market in itself, and it certainly rises the fastest in a boom market, and falls the quickest in a sort of bear market. Pricing and affordability is pushing first-time buyers out, quite a lot, obviously. I think the first-time buyer age is up to late thirties now, isn’t it? I’m not sure of the exact number, it’s 38-39, which is kind of crazy to be able to afford a property.

So, moving outside, I’d recommend somewhere like the Thames Valley. You’ve got Crossrail starting from Reading, I believe next year. It’s been delayed, but I think it’s actually starting service next year. You can get right from Reading into Central London in sort of 20 minutes.

It’s much easier to live outside of London now and commute in. Much less commute times, and it’s more affordable. The prices are lower.

Stephen Galpin: Yes. I think you’ve hit the nail on the head. There is specific commuting equipment now being installed. Crossrail is one. I remember commuting into London from Henley, which is absolutely great. It’s 20 minutes until they say, “Well I’m sorry, the train isn’t running this morning.” [crosstalk 00:02:07] or whatever else, and then it’s not quite so funny at 6:30 in the morning, is it?

Nick Wallwork: No.

Stephen Galpin: You come in from Reading anyway, don’t you?

Nick Wallwork: Yeah, I’m based in Reading and the Thames Valley, we do a lot of development through that area, and as I say, Crossrail is going to be a game-changer. It’s already only 20 minutes into Paddington, but then of course you’ve got to get across into Central London. What Crossrail means, it means you can go straight into Central London without changing trains.

Stephen Galpin: I’m just wondering what the price differential percentages is in terms of speed of rising or speed of falling in between perhaps Central London, and then perhaps the M25 ring. Paul, have you got any thoughts on that?

Paul Mahoney: Yeah, I think there’s still some value pockets in London as well, especially if you’re buying as your home, and it’s not necessarily about serviceability from rent and that sort of thing.

I assume this person’s buying for themselves. East London and Southeast London, there’s still some cheaper places where you’re still quite central. I live in Deptford, Zone 2, and it’s significantly cheaper than anywhere else in Zone 2, so that’s probably worth considering.

Stephen Galpin: Well I think-

Nick Wallwork: On the fringes of good areas, I think is the key because then it’ll grow out into your area in the coming years.

Stephen Galpin: I think we both almost live within a mile of this sort of building here, and I mean into the west end, it’s 20 minutes at most, isn’t it? Which is pretty good. Steve, north of England.

Steve Jacob: Yeah, it’s quite a relatable subject. I lived in Essex my whole life, met my fiancée in Essex, and we moved to the north of the country, and I was pushing to buy a house straight away. My fiancee said, “Let’s rent first, let’s see how we get on,” and that was a good decision on her part because after about 12 months, it was apparent, she couldn’t do it. She was too far away from her family, and we decided to come home. So for this guy, if he’s always lived in London, to move out of London might be a big decision. It might be worth it for him just renting in an area outside of London, maybe like Thames Gateway or somewhere like that, and just seeing how he gets on.

Paul Mahoney: We’ve also noticed quite a strong trend toward people that were planning to buy for themselves, noticed they can’t buy where they want to live, so they rent where they want to live, around Central London with housing facilities and that sort of thing, and investing in the north, for example. Because the serviceability doesn’t work for them, buying a home, they can invest the money they have in a buy-to-let, and get on the property ladder that way.

Stephen Galpin: And that could go a good way to funding home life, can’t it? Of course, yeah, okay. I have to say, I’ve moved out of London a couple of times and I miss the big green and the big yellow shop, you know. I think I have to stay here.

Anyway, Paul. In considering my state, I’m seriously thinking about selling my house to my children, and renting it back from them until I die. They have mortgages of their own, so could they get a joint buy-to-let mortgage to make this work?

Paul Mahoney: Okay. So there’s a few things to consider there. There’s a bit of inheritance tax planning that probably needs to be done. That’s not my own specialty, but my understanding is that if that was gifted, and they were to pass away within 7 years, it would be subject to inheritance tax. They should seek advice on that.

So far as whether buy-to-let mortgage would work, a traditional buy-to-let mortgage wouldn’t work because it’s a family member that is living in the property. There are mortgages available for that purpose and they’re consumer mortgages and they’re still technically buy-to-let, I suppose, but there’s more boxes to tick. They’d also have to look at the fact of the lenders would probably look at this person’s children as accidental landlords, so they haven’t bought that property for business purposes. They’ve been given it or inherited it from their father, and therefore, there’s considerations have there, and there’s other boxes to tick there as well. A traditional buy-to-let lender or mortgage, they look at that and see if you’re going into as a business activity, so it’s a commercial mortgage, and therefore, it’s a lot more flexible than a residential mortgage.

Stephen Galpin: I’m also thinking probably have to be very careful about the rent set, wouldn’t you? The temptation would be to preferential rentage over to him, and that in itself could actually attract a tax liability, couldn’t it? If it was-

Paul Mahoney: There’d be tax considerations, there’d also be considerations to how much you could actually borrow. Because if they’re supplementing their father’s rent, well they’re only going to be able to borrow to a certain amount based upon that rent. So depending on how much is going to be owed on the property that might be a difficulty as well.

Stephen Galpin: Sure. Nick?

Nick Wallwork: Yeah, I think they look at it as well, don’t they, essentially that is almost a second home in the simple sense of the term. So they’ve got to be able to afford that, as well as, their main mortgage. So the current situation, how many properties they own already that’s going to… also they’re going to look at the big picture of what their portfolio looks like.

Stephen Galpin: Would that have any, shall we say, council tax implications, anything like that?

Nick Wallwork: Not so far as I’m aware. I think the tenant would just end up paying the council tax as normal.

Stephen Galpin: Okay, good. Steve, have you come across this?

Steve Jacob: I haven’t come across this exact situation, but when going into the buy-to-let market just consider how heavily regulated it is on the residential side. And if they did go ahead and do the deal and become landlords, make sure they understand the market and go and get themselves a professional property manager who knows all the boxes to tick when onboarding a tenant.

Stephen Galpin: Okay, well talking about professional property managers, which I know is your subject, how easy is it for a new property portfolio holder to manage their properties? Inheriting one from my late husband looks too much for me to handle, and I’m unsure about whether I should sell it, or whether I should keep it, and try and manage it myself.

Steve Jacob: Well, as I just said, it’s a heavily regulated sector. When I first got into property, I didn’t realize how many boxes you have to tick, and it’s not until you have a bad tenant, and you take your case to the court. I mean literally there’s about seven or eight things you need to have like a gas cert, electric cert, an onboarding pack. And if you don’t tick every box, the judge will simply look at the pack, and throw it straight out of court in favor of the tenant.

And I had a tenant that was in my property for 12 months not paying rent, and I had to do addendums to the contracts to get things right. So in that instance, go and get a professional property manager, make sure they know how to tick all their boxes, speak to that property manager’s existing landlords to make sure that the landlords have already got a happy reservice. And yeah, it’s a big decision to make.

Stephen Galpin: Well, I mean the question really is about should she keep the property, or should she try and manage it? And I think it’s the same subject that we have many times on this program. It’s a professional business, it’s not a game. You need to be professional, particularly these days. It is heavily legislated.

Paul Mahoney: It’s not a hobby anymore.

Steve Jacob: A hundred percent.

Stephen Galpin: It’s not a hobby anymore.

Steve Jacob: It’s not a hobby, no-

Stephen Galpin: No.

Steve Jacob: It’s definitely… I mean the terminology passive income is used a bit ad hoc. It’s not passive, it is a business.

Stephen Galpin: Gentleman, thank you very much for that. That’s all we got time for in this half of the program, so we’re going to take a short break now. Don’t go away, join us after the break. Thank you.

John Howard: My name is John Howard, and I’ve been investing and developing properties for over 40 years. In that time, I’ve been very successful, but of course, I’ve always made the odd mistake as well. In my book, I explain how to be successful and what to do should something go wrong. I’ve survived three property recessions, I can help you do the same. My book is available online. Please go to johnhowardpropertyexpert.co.uk.

Speaker 6: The tax system has evolved significantly over recent years for property investors and developers. You may think that you and your accountant have a grip on these changes; however, unless you’re receiving specialist tax advice from a specialist tax advisory firm, then it’s unlikely to be the case. At Etc Tax, our team of highly experienced chartered tax advisers work with private individuals and companies to deliver effective tax planning whilst meeting HMRC compliance requirements. Let us help you to meet your personal or commercial objectives in the most tax-efficient manner. Etc Tax: Making the complex simple.

Speaker 7: The antiquated village of La Rochebeaucourt in rural Dordogne may not have the cache of Paris or London, yet it houses one of the ten fastest growing property consultancies in Europe. It is home to Leggett Immobilier, the leading international estate agent in France. They have around 16,000 properties for sale right across the country with a network of 400 agents who provide local expertise and market knowledge.

If you want to know the best villages, schools, restaurants, or boulangeries, then the Leggett team will know the answer. As well as advising buyers on the local market and regional property prices, they also have a bilingual contract team who ensure that your purchase will go through as smoothly as possible. Leggett has been voted Best Estate Agent in France for the past four years running. To experience these exceptional service levels for yourself then head to our website leggettfrance.com.

Speaker 8: Property is a great investment option, but it’s one of the largest purchases that you’ll ever make. As individuals, we’re all limited by our resources and regardless of our experience, knowledge, or time, we can achieve much more with the help of a qualified team, and extra resources being available. Nova Financial specialize in assisting clients to achieve financial freedom through property investment. With over 100 years of experience, we shape your family’s future. To invest in property with absolute confidence, call us on 0203 8000 600, or visit nova.financial.

Speaker 9: Meet the Author is a brand new mini-series involving leading experts in the property industry including mentors, developers, property lawyers, and other industry experts who share insightful stories about their journey and their books. Each book is compiled by authors with years of valuable experience, tips, and observations providing you with new knowledge about the property industry. To find out more, visit the website property-tv.co.uk/library.

Stephen Galpin: Welcome back to Property Question Time part two. I’m Stephen Galpin and with me are Paul Mahoney, Steve Jacob, and Nick Wallwork. Nick, your first in the second half. Can we really expect house prices to increase after we have fully Brexited, or should we remain skeptical?

Nick Wallwork: Well, I think we’ve all had enough of Brexit, and we’d like a decision and every day changes. But-

Stephen Galpin: Well, that’s not answering the question.

Nick Wallwork: No. [crosstalk 00:13:18] like a true politician, I avoid the question. No, I think there’s some pent-up demand with people that have been holding off on the short-term waiting to see if the market’s going to bottom out at all with Brexit. I don’t think we’re seeing a huge downward shift in prices, a little bit, a little bit more in London as well. But I think that’s the uncertainty, and once that passes and there’s a decision either way, I personally believe we’ll see a nice bit of market movement and some more transactions in the short to medium-term.

Stephen Galpin: I mean interestingly enough on Property TV, we’ve had the opportunity to interview one or two of the very top agents, and their view is that there will certainly be a Brexit bounce after everything is settled. But we’re not experiencing the sort of drops that, for instance, the Bank of England predicted, are we?

Nick Wallwork: No, I think-

Stephen Galpin: I mean we got a stagnation in the market at the moment-

Paul Mahoney: However, that comment was taken completely out of context. When [Mark Honnie 00:14:14] spoke about the market potentially falling by 30%, he wasn’t necessarily saying that. He was saying that the banks needed to be prepared for if that were to happen.

[crosstalk 00:14:23] And he wasn’t saying that was going to happen and it’s something we’ve discussed on the panel yesterday. So I think that was twisted by the media, and he was probably well aware that it was going to be.

Stephen Galpin: I’m sure, yes.

Paul Mahoney: But, yeah, I agree. The property market is very simply all about supply and demand. And demand in all the major cities of the U.K. is significantly outweighing supply. And it has done for decades. So if you’re buying in the right areas and the right properties, regardless of short-term economic and political blips, you’re going to do pretty well.

Stephen Galpin: Yes. Steve, I mean we’re a little bit London-centric in our view of things, so give us a northern perspective on that.

Steve Jacob: When I see a number of property valuations get done, and every single valuation we’re getting in [Chelmsford 00:15:07] at the moment has a mention of Brexit and has been down-valued. The actual way I value a property hasn’t changed in the slightest, but I think the uncertainties calls in valuers to be a little bit more skeptical and create a down valuation situation. So if you’re buying property at the moment, just be aware it probably will mention it in the valuation and you might be a little bit cheesed off.

Stephen Galpin: But interestingly enough if I think I remember my training properly, for instance, Red Book valuations shouldn’t be valuing on the basis of what might happen in the future, they should be based on valuation as of now, should they not? [crosstalk 00:15:44]

Steve Jacob: The way I calculate the value of a property hasn’t changed in the slightest, but it has caused me that little bit of aggravation. Again though, it can also be used as a tool to renegotiate your property if it is down-valued.

Nick Wallwork: You know, I think surveyors have got to protect their PI cover. There’s no incentive for them to value something high ever, and valuing in the moment in what is a unique black swan event, we’ll call it, and we’re in the week of potential Brexit. If you’re getting something valued, I had something down-valued yesterday by 30%, and it was a cheap property.

Steve Jacob: Wow.

Nick Wallwork: Absolute madness. So I think it’s just massively being careful.

Stephen Galpin: Well, I think we could probably do a whole program, and probably Paul would contribute an awful lot to this in terms of valuations [crosstalk 00:16:36]. But there we are.

Well, let’s move on. Paul, to your question. If a company is setup to buy and rent out properties, does it get taxed like any other company? How do we handle the rising value of the properties as an asset on the books each year? Now just qualify that, I think we should probably sort of just put in for the viewer’s benefit: How do we handle the either rise or fall of the values in our economy? Because both could be useful.

Paul Mahoney: Yeah, okay. So the first point as far as tax, the answer is yes, it does get taxed in a very similar way to other businesses. There are different types of businesses of course. There’s trading businesses and investment businesses, and that’s mostly to do with inheritance tax, so it’s worth understanding that and how that might affect your estate and how it won’t be passed on. And also how you have your personal tax and things, how the business is treated for tax purposes.

The difference really is an investment business is you take some cash, you buy something quite passive, and you just let it sit there. A trading business is when you’re actually working in the business and that can have different tax ramifications. From the perspective of valuing properties, I think it’s a bit of a gray area on a yearly basis for the accounts. It’s certainly my experience, I haven’t had valuations done every single year, it’s been more of a guesstimate, but I believe some others do.

As all tax things, there’s always a bit of a gray area as far as what you have to and don’t have to do because HMRC never tells us anything in black and white. But you know, make sure you’re doing the right thing, and you’re accounting for the values properly, I suppose.

Stephen Galpin: Okay, anything to add Nick?

Nick Wallwork: I think it helps your balance sheet to show slightly increasing balance sheet, so revaluing your properties even if it is a guesstimate, and looking at the local market, getting it right is important, so you’ve got an understanding of where your portfolio’s at, and how you’re leveraged. So I think it’s important to do whether it’s informally or more formally.

Stephen Galpin: I mean that information is ready available these days. You can go to property portals and you can get local statistics for the property values in your particular area. Do you come across this, Steve?

Steve Jacob: Yeah, so every year, well not necessarily every year, I want to give my bank, because I class the bank as my business partner, I want give the bank the most accurate valuation I can. So I’ll just go… there’s a local valuer I know in the town, and literally for a few hundred pounds, he’ll just revalue all the stock, and if there’s not been a change, he’ll probably won’t charge me as much. But I just give that to my bank manager and give it to my accountant and it just gets revalued on the books.

Stephen Galpin: I think as far as I’ve always experienced, I think as long as your revenue’s see that you’re taking realistic view of your assets, I mean I think that’s all that could be expected of you, really. I don’t think, especially for small companies, and perhaps I’m thinking buy-to-let owners that had bought in a limited company, I don’t think revenue would expect them to have Red Book valuations done each year at £1000 to £2000 a time.

Okay gents, thank you very much. Steve, you better sit still for this one, it’s quite a long one. I live in an apartment block in Central Manchester. The development is now ten years old and the service charge is been to date quite reasonable. However, recently the freeholder has decided that huge refurbishment work should be undertaken, and I’m presuming that this is in the interest of enhancing his freehold investment value. While I understand that the block should be well-maintained, these works would seem excessive. Proper notices have been served on residents announcing the commissioning of these works. Is there anything we can do to moderate the scope of these works? The freeholder is refusing to engage and simply says we should take legal action if we feel so strongly that these works should not take place. However, it seems that the odds are stacked against us as he is able to reclaim his legal costs on our service charge.

So there’s three parts to that really, aren’t there?

Steve Jacob: Yeah, well it’s quite a sad situation to be in. This is the type of stuff that does give developers a bad name, and it’s not nice to hear. Firstly, he should have served a section 20 notice.

Stephen Galpin: I’m presuming that’s where he refers to notice.

Steve Jacob: Yeah, so he’s probably playing his side of the game as straight as he can. I would definitely advise to get a property litigator involved, it might not cost as much as you think, and if a group of you can get together and pay for that advice. If a property litigator notices there’s a blatant act of unfairness, they will tell you that, and if you win, he has to pay your legal fees.

There was a situation where a friend of mine was a nightclub owner. He had the lease on a property and the freeholder coming in and doubled his rent. And he came to me for some advice and I told him to go to a property litigator and a surveyor. And the rent went up, as it should do with a rent review, but nowhere near as much as double and that advice saved the nightclub owner a lot of money. So seeking professional advice in that situation is very important.

Stephen Galpin: Okay. I think there’s a fundamental point there that I don’t think a landlord is really in any position to take the building past the specification that it was. So if it’s an excess in terms of specification or anything, I think you might have a fair argument to restrict the works that are going on. I mean freeholders these days with the multiples that are being achieved on freehold sales, of course they’re very conscious of getting the high value for a freehold sale much more so than they were ten years ago even.

Steve Jacob: Hundred percent. Yeah, I mean it’s like a multiple of about 30, 35 sometimes.

Stephen Galpin: 30, 32 here quite regularly achieved.

Steve Jacob: Yeah, so they’re going to try and push their values where they can.

Stephen Galpin: Okay, Paul, any financial slant on that?

Paul Mahoney: Not really, I don’t think, no.

Nick Wallwork: Are you able to finance freeholds if you wanted to go out and invest in freeholds?

Paul Mahoney: Well, something to consider with freeholds and I actually just had a conversation about this before the show. A client is looking at buying a block of ten flats and the freehold. It seems sensible that if you’re buying a block, you’d also buy the freehold. Lenders don’t like lending on buy-to-let apartments where you also own the freehold because essentially, you’ve got the rights to both sides. So they prefer that if you’re buying a buy-to-let that somebody else owns the freehold, but one way around that is to buy the freehold in a company and buy the flats in your own name, or vice versa. And although you’ve got control of both, for some silly reason, lenders prefer it.

Stephen Galpin: Well, I think that’s quite interesting. I think we’re going to see the birth of, an explosion in fact, of companies that are setup purely to own freeholds nowadays. Ground rents are no longer peppercorn, they’re often perhaps even £1000 a year, so become quite substantial assets.

Gentlemen, thank you very much for your expertise. Nick Wallwork, thank you very much joining us today. Paul Mahoney, thank you. And Steve Jacob, thank you for coming down from the north of England to join us, you’ve been very welcome and thank you for your input. That’s all we got time for today. Join us next time for Property Question Time.

Speaker 10: If you have any questions that you would like to send to any of our experts at Property Question Time, you can submit them via our website, on social media, or e-mail us at info@propertytelevision.co.uk.

John Howard: My name is John Howard, and I’ve been investing and developing properties for over 40 years. In that time, I’ve been very successful, but of course, I’ve always made the odd mistake as well. In my book, I explain how to be successful and what to do should something go wrong. I’ve survived three property recessions, I can help you do the same. My book is available online. Please go to johnhowardpropertyexpert.co.uk.

Speaker 6: The tax system has evolved significantly over recent years for property investors and developers. You may think that you and your accountant have a grip on these changes; however, unless you’re receiving specialist tax advice from a specialist tax advisory firm, then it’s unlikely to be the case. At Etc Tax, our team of highly experienced chartered tax advisers work with private individuals and companies to deliver effective tax planning whilst meeting HMRC compliance requirements. Let us help you to meet your personal or commercial objectives in the most tax-efficient manner. Etc Tax: Making the complex simple.

Speaker 7: The antiquated village of La Rochebeaucourt in rural Dordogne may not have the cache of Paris or London, yet it houses one of the ten fastest growing property consultancies in Europe. It is home to Leggett Immobilier, the leading international estate agent in France. They have around 16,000 properties for sale right across the country with a network of 400 agents who provide local expertise and market knowledge.

If you want to know the best villages, schools, restaurants, or boulangeries, then the Leggett team will know the answer. As well as advising buyers on the local market and regional property prices, they also have a bilingual contract team who ensure that your purchase will go through as smoothly as possible. Leggett has been voted Best Estate Agent in France for the past four years running. To experience these exceptional service levels for yourself then head to our website leggettfrance.com.

Speaker 8: Property is a great investment option, but it’s one of the largest purchases that you’ll ever make. As individuals, we’re all limited by our resources and regardless of our experience, knowledge, or time, we can achieve much more with the help of a qualified team, and extra resources being available. Nova Financial specialize in assisting clients to achieve financial freedom through property investment. With over 100 years of experience, we shape your family’s future. To invest in property with absolute confidence, call us on 0203 8000 600, or visit nova.financial.

Speaker 9: Meet the Author is a brand new mini-series involving leading experts in the property industry including mentors, developers, property lawyers, and other industry experts who share insightful stories about their journey and their books. Each book is compiled by authors with years of valuable experience, tips, and observations providing you with new knowledge about the property industry. To find out more, visit the website property-tv.co.uk/library.

Speaker 11: If you’ve got a question about property, why not ask an expert? Property Question Time gives you the opportunity to ask anything you want. Whether it’s about planning, finance, conveyancing, moving abroad, literally anything that’s property-related. The Property TV panel of experts are available to answer your questions no matter how complex they may seem. Simply e-mail your question to info@propertytelevision.tv and join us on Sky Channel 189 to hear your questions answered.

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