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Buying a Leasehold Property – What You Need to Know

Did you know that four in 10 new properties in England and Wales are now sold as leasehold, ranging from one bedroom flats in city centres, to four bedroom detached homes in rural areas?

Before you buy a leasehold property, it is important to be aware of what your lease includes and understand any charges you may face when buying a leasehold home.

What is the difference between a leasehold and a freehold?

If you own the freehold to your home, it means that you own the building and the land it sits on. If your property is leasehold, you hold the property on behalf of the freeholder and rent the home until your lease expires. Leases are usually long term – often 90+ years, however some developers have sold homes with leases as high as 999 years.

Check out our video Freehold vs Leasehold: The key differences for more information.

What is ground rent?

Ground rent is an annual charge which the leaseholder must pay to the owner of the freehold. This is often a fixed sum, however, your lease may contain a clause which allows the landlord to increase the cost payable every five to eight years from the date of build.

Your agent, conveyancer or solicitor should be able to advise if there are any rent review clauses in your lease and check what this would mean for you. The costs of the ground rent may be negotiable so make sure to check this with your agent or the developer if you are buying a new build.

Why do I have to pay a service charge?

A service charge is a fee that is payable by all residents which contributes towards the upkeep of the building. This could include cleaning of communal areas, upkeep of outdoor spaces and general maintenance. Generally, the fee payable is fixed however this may change year on year.

Make sure you ask your conveyancer or solicitor to explain all charges fully and enquire as to whether the lease administrator has any plans for works which you will be responsible to pay for.

Why would I be asked to pay an administration fee?

Administration charges are payments for services connected with your buying, selling or use of the property; they can include anything from charges for document applications to exit fees. The costs of any administration fees should be expressed in your lease agreement however your conveyancer or solicitor should be able to review your lease and advise you.

What should my agent be telling me?

Your estate agent should pass on all material information in respect of the lease. This would include, but is not limited to;

  • The number of years remaining on the lease
  • Ground rent costs and when it is payable, together with details of if or how this will increase over time
  • The annual service charge costs and when it is payable
  • Details of any event-related fees & charges payable under the lease
  • Rent payable in the case of a shared ownership arrangement
  • Details of any other fees or charges contained in the lease
  • The total balance of the sinking fund
  • Details of any unusual restrictions or covenants affecting the use and enjoyment of the property

Keep in mind that estate agents are not solicitors, if you are concerned about any aspect of your contract or your lease, speak to an impartial solicitor.

What else should I be aware of when buying a leasehold property?

Developers have been known to sell the freeholds of entire developments to third-party companies who then charge escalated fees to the homeowner when they come to purchase the freehold. Spiralling fees and onerous clauses have led to some building societies and banks refusing mortgages on leasehold properties – this can make them very difficult to sell.

Can I buy the freehold?

Before you commit to buying a leasehold property, look into who owns the freehold and find out whether it is likely to be sold on and who too. If you are buying a new build, ask the sales office to quote you a price for purchasing the freehold.

If you live in an apartment or large complex, there are steps you can take to purchase your freehold, take a look at our helpful guide on buying the freehold to your flat.

Read your contract carefully

Some leases have clauses which obstruct your use of the property and some restrictions are not always obvious.

Read your lease carefully and if you are unsure of anything, speak to your solicitor immediately.

Make sure you have a clear understanding of what you are entering in to, how much you will be expected to pay on an annual basis and if there are due to be any increases.

 

http://www.propertymark.co.uk/advice-and-guides/buying-a-home/buying-a-leasehold-property/

Key Differences Between Freehold and Leasehold Properties

 

If you took a very simple situation where you’ve got a building with a ground floor flat and a first-floor flat both have the benefit of the foundations of the building and the roof to keep it sheltered. You need some kind of administration system setup because the ground floor flat while it doesn’t have control over the roof is reliant on its maintenance. And the first-floor flat while it doesn’t have control of the foundations is reliant on them just to exist. Because buildings unlike in cartoons do not hang in the air when the bottom gets blown up. You also need to make sure the building is insured in case of a disaster as well.

So leaseholds were set up. The main features of a leasehold is that there are restrictions to do with what the occupiers can or can’t do. So typically, these things might include pets and not doing anything illegal or immoral. If there’s a balcony a simple thing like not hanging the washing out, so that it makes the building look unsightly across the balcony, might be another common restriction.

The other two features are a ground rent, this is a sum of money that is paid every year but it doesn’t have to be money and you’ll often hear the term ‘peppercorn ground rent’. It literally means that ground rent is paid in the form of a single peppercorn so it doesn’t really have any monetary value but it does make the lease valid.

The second thing is a maintenance and service charge. So, there might be common areas to the building not only the roof and the foundations, but it might be external decoration, some garden areas or a common hallway that needs to be lit, and cleaned and insured of course as well. The maintenance and service charge covers the costs of all of those items.

If you’re a buyer looking at leasehold property it would be wise, if the information is immediately apparent, to ask the estate agent how much the ground rent is and how much the maintenance and service charge is.

Then the other piece of essential information it’s always worth asking is the length of the lease because it will be for a fixed term. Typically, the shortest lease is started off with 99 years and the longest ones 999 years. Obviously, years will run away and it could be a lower term so you need to ask those questions.

Then one you’ve got all that information, take some advice, there are plenty of people to help you. You could ask your estate agent, you could ask your solicitor and you could ask your mortgage adviser if you’re unsure about any of those aspects. But with all that information hopefully you can now go away and successfully purchase a leasehold property.

 

http://www.propertymark.co.uk/advice-and-guides/buying-a-home/freehold-vs-leasehold.aspx

Three things to consider before you take the plunge into property investment

Donna McCreadie – Perrys Chartered Accountants, offers sound advice for those looking to take the plunge into property investment.

According to the latest figures released by IMLA, new investment in the buy-to-let market has fallen by £20bn in the last two years, so it may seem that putting your money into property is no longer a wise move.

Recent changes in legislation and greater scrutiny from lenders have meant that many buy-to-let investors are no longer expanding their portfolios as rapidly as they once were. However, if you do your homework, property can still be a good, solid long-term investment, providing excellent annual returns and appreciation rates.

If you are looking to take the plunge into property investment, or even if you have already built up a portfolio, here’s what you need to know about the latest legislation …

 

1: Allow for stamp duty surcharges

If you have a pot of money put aside for a second property make sure you do your sums first, factoring in all the charges you are likely to incur in addition to the price of the property itself.

Changes in stamp duty land tax mean you will have to pay 3% on top of the existing stamp duty rates currently paid on main residences. This will apply even if your existing home is abroad and you are purchasing your second property in the UK.

Furthermore, unlike the tiered stamp duty rates, which are applied proportionately to the value of the property, the 3% charge applies to the entire purchase price. For example, if you are buying a property for £300,000, you will pay 3% on the full amount and then the standard rates of 0% on the first £125,000, 2% of the value between £125,001 to £250,000 and 5% for the remaining portion of £251,000 to £300,000. To put it into context, if you were purchasing the property as your main residence you’d pay £5,000 in stamp duty charges, but as a second property it will cost you more than double the amount at £14,000.

2: Consider how your income tax may be affected 

Once upon a time a landlord was able to claim tax relief on rental income by deducting both mortgage interest and other allowable costs associated with a let property. However, changes being phased in since April 2017 mean this relief is being significantly reduced over the next few years until it is replaced with a new 20% tax credit system in 2020.

Therefore, 100% of any rent you receive will have to be declared and added as income on top of any income you already earn from other sources. For example, if you are already in paid employment earning an annual salary as a basic rate taxpayer at 20%, you could end up tipping the scales into the higher rate tax band of 40%, which will also affect your personal savings allowance.

3: Should you set up as a limited company?

Limited companies are not subject to the same set of tax relief rules as sole traders, so setting one up might seem like an ideal solution. However, investors should do their homework before jumping straight in. Research has suggested that using a limited company for property investment is only worthwhile if you’re buying four or more properties, and in the case of existing landlords this could be a lot more.

For example, rates on mortgage loans are usually a lot higher than for personal borrowers so this could offset any potential savings. And if you do decide to move an existing property portfolio over into company ownership you could be in line for a hefty bill in the form of capital gains tax and stamp duty payments.

What next?

Whatever you are planning, before making any final decisions always make sure you seek professional advice from a tax specialist and independent mortgage adviser. They will be able to fully assess your situation and provide you with information so you can be armed with the full facts before taking the plunge.

 

http://www.propertyreporter.co.uk/landlords/three-things-to-consider-before-you-take-the-plunge-into-property-investment.html?utm_source=Email+Campaign&utm_medium=email&utm_campaign=21136-251414-Campaign+-+06%2F03%2F2018+Oblix

Top tips on buying an investment property at auction

With thousands of properties already sold this year and popularity growing by the day, more and more people are choosing to buy and sell their properties via the auction room.

Recent analysis of the sector has shown that savvy investors are coming to auction rooms to find the ideal rental property and are attracted to the method by the quick completion times, lack of property chain and transparent pricing.

If you are thinking of investing in property for the first time or, are an existing landlord who has never been to an auction, read our top tips on buying an investment property at auction…

Do your research 

As a buy-to-let landlord you need to research the lot and its viewing schedule and also ensure that there is sufficient demand from tenants for the type of property you intend to purchase before placing any bids.

View the property and the legal pack

Review your finances 

On the day of the auction, you will need to pay a 10% deposit in order to secure the property and the remaining 90% to be paid 20 working days later. Before attending the auction, if you are not a cash buyer then we recommend speaking to a mortgage advisor about your options.

Place your bids 

If you plan on bidding at the auction, you must bring with you proof of ID and of course, your 10% deposit. If you are unable to attend the auction then you can either nominate someone you trust to bid on your behalf (by proxy), or bid over the telephone. If you do want to bid either by proxy or by telephone, make sure you call the auctioneer in advance to find out all of the terms and conditions.

 

http://www.propertyreporter.co.uk/auctions/top-tips-on-buying-an-investment-property-at-auction.html?utm_source=Email+Campaign&utm_medium=email&utm_campaign=21136-251698-Campaign+-+08%2F03%2F2018+SHAW

 

Discussion: Should tenants have the default right to keep pets?

Labour has today launched a new action plan on animal welfare, which includes a proposal to give tenants the default right to keep pets, unless there is evidence the animal is causing a nuisance.

You can read the NLA’s initial response here.

Under the 2015 Consumer Rights Act, a landlord should only be refusing permission if it is reasonable to do so, for instance on grounds of the animal’s size, the damage it could cause and its impact on future rental prospects.

Many tenancy agreements will be worded to reflect this position. For example, the NLA’s AST includes the clause:

Not to keep any animals, reptiles, insects, rodents or birds at the Property without our written permission (which will not be unreasonably withheld). For the avoidance of doubt, this clause does not apply in connection with registered guide and assistance dogs.

There are no actual policy details yet as Labour have only said they will consult with landlords on the proposal. The NLA very much welcomes this because there are issues that will need to be addressed to make it in any way a workable policy.

Ultimately what must be avoided is a one-size-fits-all approach that treats the whole private rented sector as a giant uniform monolith. Unfortunately, politicians of all persuasions have been guilty of this, not least Labour.

Damaging Costs

The first port of call for Labour’s consultation with landlords should be to try and reach an understanding of why some landlords are reluctant to allow pets in their properties. The policy could then, hopefully, include plans to solve this reluctance.

Luckily, the NLA has previously done some research on this with our members and the results will not surprise you.

This research showed that over half (55%) were unwilling to allow tenants to keep pets in their properties:

pets allow question

Of those that were unwilling to allow pets, 41% of landlords cited the main reason as potential property damage:

why not pets

The obvious answer to the risk of pet-related property damage is increase the security deposit taken. Alternatively, clauses could be inserted into the tenancy agreement such as one requiring the tenant to professionally clean the property on move-out. The Dogs Trust’s Lets with Petsscheme advises landlords to take these approaches.

However, these approaches will soon be outlawed by the ban of letting fees likely to come into force sometime in 2019. While deposits will be capped at 6 weeks’ rent under the draft Tenant Fees Bill, Labour would like to see this reduced to 4 weeks’ rent which we have already warned about. On top of that, the Bill would ban landlords and letting agents from requiring tenants to pay for third-party services, such as a professional cleaner.

This leaves no room for landlords to seek some extra financial protection against pet damage, which could see some unintended consequences. Perhaps landlords who currently supply furniture would stop, or decrease the amount or quality of the furniture or fittings provided.

While more costs for landlords does not automatically increase rent, it adds to the cumulative upwards pressure and could exacerbate the effects of Section 24 tax changes that are starting to impact on landlord finances.

Consequential?

 There are likely other consequences of a “default right” that need to be addressed by any consultation the Labour undertakes with landlords. While not an exhaustive list, here are just some issues that we hope are taken into account before any policy details are decided:

  • Landlords will likely face other increased costs as a result of the tenant’s “default right” to a pet. For example, landlord insurance premiums are already likely to rise if tenants have pets (if the policy even covers pet damage). What will the effect be in premiums if all tenants have the default right? What impact will this have of rents?
  • Some properties may not even be suitable for pets (depending on the animal and the property) such as high-rise flats, so would not automatically improve animal welfare,
  • In the case of many leasehold flats, permission for pets may not be within the gift of the landlords as the lease itself bans them. They would then need an exemption from the “default right”,
  • Houses in Multiple Occupation (HMOs) also need to be look at, so that sharers are not forced to live with pets they do not want to live with, or possibly to which they are allergic,
  • How could landlords evidence that a pet is, or would cause a nuisance, and what legal routes would be open to landlords to rectify the problem or seek redress?

We welcome Labour’s promise to consult with landlords on the development on this policy, and while we may not agree on its necessity, we will endeavour to work constructively to ensure any outcome is workable and more than just another financial burden on landlords.

 

Discussion: Should tenants have the default right to keep pets?

Private Landlords in England need to be prepared for increasing regulation

A specialist commercial property lawyer has warned that private landlords in England need to be prepared for increasing regulation following the publication of a Government consultation.

Tim Miles, a Partner with national firm Clarke Willmott LLP, says the consultation on electrical safety will have a significant impact on private landlords and the buy to let sector in England.

The consultation proposes to compel private landlords to undertake mandatory electrical installation safety checks every five years, on all private rented properties within their portfolio.

Following similar obligtions in Scotland, the consultation proposes a fine of between £5,000 and £30,000 for failure to comply, which should provide a costly deterrent. Although, unlike Scottish regulations, the consultation falls short of proposing checks on electrical appliances such as white goods supplied by landlords, it will still have a significant impact.

Additionally, landlords also need to be aware that in line with current gas safety requirements, the consultation proposes preventing landlords from being able to evict tenants under a Section 21 notice unless they have provided the tenant a copy of electrical installation safety documentation.

If approved, regulations from the Secretary of State for Housing Communities and Local Government are likely to follow later this year.

Tim said: “Private landlords in England need to be prepared for increasing regulation and should not view the consultation as a stand-alone act, but as part of a wider package of action.

Another consultation has been released in the same week proposing that private landlords will be required to sign up to a new private housing obudsmen and the Government’s support for The Homes (Fitness of Human Habitation) Bill.

These consultations are part of the Government’s clear intent to protect tenants post-Grenfall.

Additionally landlords need to be aware that the five year mandatory suggestion is only a suggestion and there is the potential that (dependent on the consultation to ensure that a wide range of views are considered.”

http://www.propertyreporter.co.uk/landlords/private-landlords-in-england-need-to-be-prepared-for-increasing-regulation.html?utm_source=Email+Campaign&utm_medium=email&utm_campaign=21136-249688-Campaign+-+22%2F02%2F2018+MT

 

 

4m Renters Risk Homelessness

The latest research from Scottish Widows has found that UK renters are putting themselves at risk of homelessness by failing to have a financial safety net in place.

According to the findings, 38% of private renters admit that they’d not be financially secure if their household lost its main income. And nearly four in 10  – amounting to 4.14 million people – say that if they fell seriously ill and were unable to pay their rent, they would have no idea where they would go or could be left homeless.

Yet only 4% of private renters have critical illness cover and 22% have life insurance, leaving them at risk of eviction and financial hardship due to lack of a back-up plan if the unexpected were to happen.
skint 2
Renters’ worries fail to prompt action
The research reveals that more than half (51%) of renters worry about unexpectedly being unable to pay rent, a bigger concern for them than the prospect of living in a substandard property with serious issues like electrical problems or mould (36%), or having a difficult landlord (39%).
Regardless of their worries, however, almost a quarter (24%) admit they’ve never thought about what they’d do if they became ill and couldn’t afford the rent. And of those who have thought about it, over two fifths (44%) say they’d have to ask their parents to cover their payments, and two-fifths (41%) would have to move back into the parental home.
Renters are also failing to insure against common mishaps, such as theft, fire or flood. Only 32% of private renters say they pay attention to insuring their home contents against these eventualities, and just 10% of renters say they have home insurance that covers both their property and contents.

Renters still have financial obligations to protect
Renters may not be prompted by a house purchase to look at how they and their families would manage financially if they were to die or become seriously ill. But while they don’t have a mortgage to pay, they still have financial obligations, not least the monthly rent and regular household bills.
When asked about how they’d cope should they or their partner not be able to work for six months, a third (33%) of renters say they’d dip into their savings, and almost as many (31%) say they’d rely on state benefits. Their savings, however, are unlikely to cover all their outgoings and living costs for too long, with those in rented accommodation having just £9,260 put aside, compared with an average of £21,152 among mortgage holders.
Although many renters assume they can rely on benefits, working-age welfare reforms – both made and in plan – mean that fewer of them would get their rent paid in full if their circumstances changed without warning. This is particularly the case with freezes in income replacement, income top-up, and local housing allowance.
Renters’ lack of protection also points to a larger financial struggle, as almost half (46%) say they’re stuck in rented accommodation because they can’t afford to buy. A third (34%) also admit they are not saving at all, and 60% say they’re not saving for the long term because they can’t afford to.

Johnny Timpson, protection specialist at Scottish Widows, said: “It’s important for people living in rental accommodation to understand the risks of signing a tenancy contract without any financial back-up in place, particularly if they don’t have much in the way of savings.
Our research demonstrates how critical it is to think ahead, and while no-one wants to think about the worst happening, having a safety net in place will provide peace of mind about avoiding eviction and being able to keep up with regular outgoings such as household bills.”

David Rochester, Head of Underwriting, Home Insurance, Lloyds Banking Group, said: “While it’s critical that renters think ahead about covering their rent in case they’re unable to work, they also need to think about bracing for other eventualities, such as damage to their possessions.
Renters may not want to think about the possibility of theft, fire or flood, but having insurance in place will help protect them and their property in such an event. Industry research tells us that an astonishing 60% of private renters between the ages of 20-30 don’t have contents insurance***. This is a significant figure, and indicates how young renters in particular risk leaving themselves financially exposed, should the worst happen and they need to replace any item of worth in their home.”

http://www.propertyreporter.co.uk/landlords/4m-renters-risk-homelessness-by-not-having-a-financial-safety-net.html?utm_source=Email+Campaign&utm_medium=email&utm_campaign=21136-245284-Campaign+-+25%2F01%2F2018+MT

Are government policies going to affect rent prices?

Dorian Gonsalves, CEO of Belvoir, warns that government interference in the rental sector is likely to result in a rise in rents throughout 2018 and into 2019.

 

Dorian had this to say: “As 2018 progresses, landlords and tenants will find themselves shouldered with an extra burden of cost due to continued government interference in the rental market, which includes a decision to ban tenant fees and the implementation of punitive tax changes.
Image result for rent
Belvoir’s Q3 rental index revealed that, on average, rents increased by just £3 a month compared to the same period last year, which demonstrates that the rental market is working well for most landlords and tenants across the country. However, as a consequence of the impact of government policies we believe that during 2018 many landlords will inevitably be forced to review rents across their entire portfolio. This is a real shame, as in our experience many landlords have resisted increasing rents when they have a tenant in situ, but this is likely to change during 2018 and 2019 when the impact of some of the government’s policies become more apparent.

We have not seen evidence of smaller landlords choosing to exit the sector. With all the uncertainty surrounding Brexit, we believe that property remains a simple, unsophisticated and reliable investment for over two million UK landlords. We are, however, noticing that those new landlords who are entering the sector, are doing so with lower borrowing, and they are looking for a stronger return on their cash. To many of the UK’s smaller investors, property represents a relatively strong investment, and more importantly, it is an asset that they can touch, see and pass on to family members in the future. We predict that this is unlikely to change for a very long time.”

Continue reading “Are government policies going to affect rent prices?”

Rent Increases

The latest data and analysis from HomeLet has revealed that the private rental market ended 2017 with rental price inflation moving marginally higher.

According to the report, rents in the UK rose by an annualised average of 1.7% during December, reaching £907 compared to £892 in the same month of last year.

Rental price inflation was much more stable over the course of 2017; by contrast, rents in 2016 regularly rose at an annual rate of more than 4% in the first half of the year, before rental price inflation dropped back in the second half.

Rental price inflation remains modest by recent standards. In December 2015, rents were up 3.7% on the same month of 2014, in a year when rental price inflation never fell below 3.5%.

The data for December 2017 also means it is likely that rents rose at a slower rate than general inflation in every month of last year, with inflation on the consumer price index measure running at 3.1% in November, the most recent period for which official statistics are available. The last time that average rents rose more quickly than inflation was December 2016, when the HomeLet Rental Index recorded an increase of 1.7% compared to a CPI reading of 1.6%.

The East Midlands recorded the highest rate of rental price inflation last month, with rents that were, on average, 4.6% higher in December 2017 than in the same month of 2016. Rents in the East Midlands now average £611 a month, remaining lower than most regions of the country other than Wales, and the North East. Rental price inflation exceeded 3% in three other regions last month: the South-West, the North-East and Northern Ireland.

By contrast, the South-East of England was the only region to register a fall in rents last month, with average rents in December down 1% on last year; rents in the South-East fell on an annualised basis in every month of 2017. Rents in Wales were completely flat last month, with every other region of the country seeing at least some increase.

December’s 1.0% increase in rents in London means the capital saw positive rental price inflation compared to December 2016, despite registering falling rents in five months of the year. The average tenancy agreed in London last month cost £1,524, compared to £1,509 a year previously. Stripping out the effect of London rents from the national picture, rental price inflation across the UK would have been 1.9% last month rather than 1.7%.

Martin Totty, HomeLet’s Chief Executive Officer, had this to say: “2017 was a year in which rental price inflation was modest; we actually saw average rents across the country fall during May and June, and while this was not repeated during the second half of the year, we remain some way off the much higher levels of rental price inflation that prevailed in 2015 and much of 2016.

We continue to see a very mixed picture regionally: in areas of the country where rents rose less quickly in 2015 and 2016, rental price inflation was much higher last year; by contrast, those areas where rents were previously rising fastest have been seeing much more modest increases.”

Rental growth accelerates by a third in 2017

 

Rental growth accelerates by a third in 2017

The latest data and analysis from Countrywide has revealed that rental growth across Great Britain increased in 2017 to 2.4%, up from from 1.8% in 2016.

According to the figures, the average rent ended the year at £960 per month, up by £23 a month from the start of the year.  While rents rose a third faster than they did in 2016, rental growth was still behind than in both 2015 (3.2%) and 2014 (4.9%). Forty-six per cent of landlords increased the rent when re-letting their home, up from 37% in 2016.

In a reversal of 2016 when London had the slowest rate of rental growth in England, last year it had the fastest. Over the course of 2017 rents in London rose 3.2%, reversing the 0.8% fall recorded in 2016. Scotland (3.3%) was the only region in Great Britain where rental growth outstripped the capital.  2017 also saw Yorkshire and Humber replace Wales as the sixth most expensive region of Great Britain to rent a home.

Last year also saw a drop in the number of homes bought by Landlords.  In 2017 landlords bought 12.5% of homes sold in Great Britain, down from 14.7% in 2016, 16.3% in 2015. This represents a nine year low.  Between 2016 and 2017 the proportion of homes sold to landlords fell in every region, nowhere more so than in London. This means in the capital 5,400 fewer homes were bought by a landlord in 2017 than in 2016.

The falling number of landlord purchases has meant the number of homes on the rental market has dropped.  In December 2017 there were 4% fewer homes to rent across Great Britain than in December 2016, with London recording a 21% fall, the largest of any region. Despite the stamp duty hike induced fall in stock, there were 5% more homes available to rent than there were two years ago. However in London the number of homes on the market has dropped by a third.

Johnny Morris, Research Director at Countrywide, said: “Last year saw the rate of rental growth pick up to get closer to its long-term average.  Most of the rise comes from a pickup in rental growth in London, after falls in 2016.  Rents rose across every region of Great Britain last year, although the north of England saw rents rise at a slower rate than they did in 2016.
 Rental growth has been supported by a fall in the number of homes on the rental market, with the biggest fall in London.  It looks like increased competition between tenants for rental homes will drive faster rental growth in 2018.”