Buying, selling and letting - February, 2007

First-time buyers who are considering buying abroad should face reality, says Bill Sunner of Landlords Only

Buying abroad has become the latest trend for wannabe landlords, but those who are thinking of buying overseas should know that it is not for everyone.

Investing in a country which is being developed obviously allows more scope for capital growth – and of course there is the draw of the exotic sun and a change of scenery. However, emotions need to be put aside and the harsh realities of the practices and pitfalls of buy-to-let abroad assessed.

There are key defining qualities that make a landlord suitable for buying abroad, with experience being top of the list. This is paramount to success in overseas property development. First-time landlords are not ideal candidates because usually it is the novice investor who gets caught out by drawbacks they did not expect and were not prepared for. Because of this a landlord needs to be resilient and patient, as inevitably they are going to encounter problems.

Having capital behind an investment abroad is a must. Often a 30 per cent deposit is required to secure a property and it is essential that a landlord have enough money behind him to ride any storms which may come along.

Before embarking on an overseas investment, a landlord needs to be aware of the processes that are required of him. It is necessary to open a bank account in the country where the property is located; in fact, this is mandatory before any purchase goes ahead. It is normally this bank which provides the landlord with a mortgage, if required, and although similar structures to those in the UK are in place, landlords will find that there is less mortgage product choice than they will find domestically.

There are many risks to investing abroad, and as with any property investment the basic rules of economics apply. Landlords should check out the supply and demand of an area – they need to make sure that there are enough potential renters in that location to let the property and also that the market is not already swamped with landlords offering a similar service.

Buying abroad often means buying into a country where the laws, regulations, rules and even the language are different. This can broach many unexpected problems and learning how to ‘talk the talk’ in a new language is often the key to success.

At the moment, property hotspots seem to be Bulgaria and Croatia, mainly due to the low property prices. When buying a property to let in any country, landlords should look out for properties in resort settings, as these appeal more to renters.

Properties with good transport links and amenities are a good choice; renters look for facilities such as a swimming pool and a local golf course, and take note of how close local shops and restaurants are to the property.

If the draw of buy-to-let abroad is just too strong, landlords should make sure they take their wealth of experience, full pockets and a phrasebook to the best resort in Europe.

See landlordsonly.co.uk

Buy-to-let has become one of the ten fastest growing sectors of the economy, out-performing investments in either gold or the Stock Market.
 
Renting and sharing rented property is becoming more a matter of necessity than choice.  Life has become tougher for first-time buyers to get on the property ladder leading to more people wanting to rent property.  The Association of Residential Letting Agents (ARLA) says that 48 per cent of its members believe there are now more tenants than properties available helping to boost rental yield for landlords.
 
People are buying properties to let as investments for retirement, homes for their kids at university, to generate income, and many other reasons. Other people are forced to rent their homes for example to enable job moves. At the same time more and more people are looking to rent. 
 
The buy-to-let market does not come risk free. Tougher legislation means more responsibilities for the Landlord. Investment decisions need to be taken carefully. Management of rented property must be done professionally if good profits are too be made.

Looking for rented property is normally done through estate agents or newspapers. Going to a reputable letting agent will save a lot of time and legwork and removes much of the risk.
 
Letting specialist, Zoe Serafimova MNAEA*, at Changing-home.co.uk provides expert guidance on the important considerations of buying and letting property. She advises:
 
1.    Think carefully about all the finances.  Mortgage providers tend to look at gross rents of about 130% to 150% of the monthly repayments.  Calculate the purchase, improvement and running costs and balance these against the realistic rental income and the increase in the value of the property itself. 
 
2.    Fit out the property according to your target market. 
 
3.    Remember that letting it for less may well bring in more money than not letting it at all. You want to avoid having an empty property.
 
4.    Legislation surrounds residential lettings and incorrect action can have consequences out of all proportion to the error or omission.  Current health and safety regulations are strict, covering gas and electricity supply and appliances, furniture, fire safety, etc. Make sure you are fully aware of all regulations or have an expert to advise you.
 
5.    A lease needs drawing up, with a proper inventory and condition schedule. 
 
6.    The property will need checking regularly and any problems will need action to comply with the law and the tenancy agreement. 
 
7.    Finally, seeking advice from a professional or expert nearly always proves a money-saver, which in the end is what the investment is all about.
 
* Member of the National Association of Estate Agents.
          
 

Disputes likely to increase as buy-to-let boom creates generation of novice landlords

- Tribunal service highlights concerns, as buy-to-let households exceed one million in Britain’s towns and cities -

More than a million households in the UK now live in buy-to-let properties. This figure is set to rise by two-three per cent a year over the next decade, with the sector now contributing more to the country’s economy each year than all the pubs, hotels and restaurants in the UK, according to a recent report.

The study has also found that almost a fifth of landlords have only entered the residential letting sector in the past few years, with almost two thirds involved for less than a decade. In the light of these findings, the government sponsored Residential Property Tribunal Service is set to embark upon an awareness raising campaign amongst the growing number of novice landlords and tenants who may not know where to turn when common disputes arise.  

In addition to the growing number of first time landlords, changing lifestyles, affluence, employment patterns and financial circumstances have all combined to encourage more younger people to rent. At the end of the 1980’s, around 40 per cent of 20-24 year olds and roughly 66 per cent of 24-29 year olds were already owner occupiers. Now only 20 per cent and 50 per cent or these age groups respectively purchase. This is a considerable social change, with many people moving to owner occupation at least a decade later in life than people of their age used to.

Established to settle disputes on private rented sector and leasehold matters in the housing field, and operating in some instances as an alternative to the county courts, RPTS provides an accessible and cost-effective solution to residential disputes for landlords, tenants and lessees. In recent years, the service has undergone dramatic change, and in addition to its traditional work on rents and leasehold disputes, it now also has the ability to settle disputes on:

o    Service charges – the LVT has much wider powers to decide whether service charges are payable including decisions on whether the costs are reasonable, the standards of work are reasonable and whether the lessees have been properly consulted. 
o    The right to manage – a new right for lessees of flats to manage their own properties has been introduced.  The LVT can decide disputes between the landlord and the right-to-manage company.
o    Administration charges – the LVT can decide whether other charges under a lease (eg. a landlord’s costs associated with giving consent to sell the flat) are payable and/or reasonable.
o    Variation of leases – the power to correct defective leases, which was previously exercised by the County Courts, has been transferred to the LVT.

Since the introduction of the Housing Act earlier this year, RPTS can also adjudicate on disputes over actions taken by local authorities in relation to the new Housing Health and Safety Rating System, licenses for Houses in Multiple Occupation, the selective licensing of landlords in some areas and management orders, including those for empty homes.

The tribunal aims to be an efficient and user-friendly system, with a great deal of emphasis placed on ensuring that hearings are informal and accessible. Not all cases involve lawyers, with many parties choosing to represent themselves, and the service is cost effective, with application fees ranging between £50 and £500 depending on the nature of the dispute. Many sorts of application, including those in rent disputes, are free.

The RPTS is strictly impartial – it is available equally to leaseholders, tenants and landlords - and every case is reviewed and decided on its merits.  Hearings take place locally or at one of RPTS' five regional offices.  If applicants have mobility problems, panel hearings can even be held in their own homes.

Michael Ross, chief executive of RPTS, said: 'We were particularly interested in the report’s findings that almost 40% of properties were not bought explicitly to rent out and may, for example, be a bequest or more commonly the landlords’ own former dwelling. When combined with the significant number of people now choosing to rent instead of own their property, we are concerned that there is a new generation of novice tenants and landlords who, faced with a potentially stressful dispute involving their property, simply do not know where to turn.

'We are keen to highlight our ability to help in such cases and to reassure first-time users of the service that they need not be concerned about appearing before a tribunal, as our cost effective and user-friendly procedures and guidance materials are designed to help allay their fears.'

For further information, please visit the RPTS website at rpts.gov.uk. Alternatively, you can call the RPTS national helpline number on 0845 600 3178.

For most vendors and would-be landlords, interior design services are an expensive luxury and the DIY option can be risky. To help bridge the gap, forward-thinking interior design company Designs for All Occasions has launched a range of stylish, comprehensive 'ready to wear' interior design packages incorporating everything from fully assembled furniture through to the finishing touches.

‘In the rental market, a well co-ordinated, cleanly designed look can help speed up the letting process, attract a higher price and ensure that tenants treat the property with more respect,’ says Esther Bond, MD of Designs for All Occasions. ‘These packages have been cleverly created to ensure that everything is cost-effectively co-ordinated, down to the smallest detail.’
Whether you want to dress your property to sell or to attract quality tenants, the use of simple design can up your chance of success. Developers, too, have found the Designs for All Occasions range helpful. ‘They are moving towards compact living and innovative use of space,’ Bond says. ‘Our bespoke furniture packs provide an ideal solution for one- and two-bedroom apartments, where space can be cleverly used without compromising on style or finish. All of the packs are fully assembled for maximum convenience.’

The company has put its two decades of experience in creating interiors for show homes, hotels, rentals, commercial premises and private properties to use in creating the three ranges they offer. The Bronze range, which incorporates furniture, curtains, bedding and towels for the bedroom, kitchen, bathroom and living are, retails at £2,930 for a one-bedroom apartment. The included kitchen pack comprises a full dinner service as well as utensils, chopping boards and tea towels. Customers have a choice of colour co-ordinations and styles.
The Silver and Platinum ranges contain more furniture pieces, making them suitable for larger apartments. Optional finishing items such as lighting and mirrors as well as bathroom fittings and electrical goods are available at additional cost.

Contact 01276 691010 or visit dfao.co.uk to find out more.

London saw by far the biggest gains, with a 13 per cent rise in prices over the last year, according to Hometrack. Within London, the Land Registry has pegged price rises in the capital’s most expensive borough, Kensington & Chelsea, at a shocking 16.3 per cent. Other high-value boroughs, such as Camden (average price £437,540) and City of Westminster (averag price £494,471) also made big gains.

Very few counties saw prices stay the same or fall. The Isle of Wight, which has seen a virtual freeze in prices recently, had no price movement between January last year and this month. Other counties that stayed the same include Teesside and County Durham; the latter had been experiencing a sort of price surge until last year but seems to have stalled somewhat.

The Home Counties continued to perform well price-wise, with Berkshire showing a 9.3 per cent gain. Also strong were Hertfordshire at 6.5 per cent, Essex at 6.0 per cent, Surrey at 5.3 per cent and Kent at 5.1 per cent. Not the earth-shattering rises these areas saw in between 2001 and 2002 but healthy nonetheless.

London leads, most areas follow

T he latest figures from the Land Registry show a very strong performance price-wise from the capital, with high-end areas doing exceptionally well. The only London borough that experienced no monthly price movement in December was Bexley, while the 4.1 per cent growth seen in Barking and Dagenham counted among the lowest rises.
Only Greenwich slipped price-wise, with a fall of 0.3 per cent.
Nationally, the Land Registry figures show that the year 2006 ended with a solid rise in prices in England and Wales – indeed, the past year saw a greater pickup in prices than 2005.

Buying abroad gains in popularity

The number of British now owning a property abroad is 800,000 an increase of 45 per cent in just two years, according to recent figures from Mintel. This is set to double in the next few years.
‘We have been aware of the rapidly burgeoning overseas property market,’ says Steve Emmett, Chairman of the Federation of Overseas Property Developers, Agents and Consultants (FOPDAC), who calls attention to the fact that the overseas property scene is a ‘huge unregulated market’.
One country that is consistently popular with British buyers is Spain; the profile of the buyer of Spanish property has changed in recent years, with a growing trend towards younger buyers often in their thirties with families.
The Office of National Statistics says that more than £6 billion has been invested in Spanish property, accounting for 27 per cent of British foreign investment.

Tenant deposit protection unveiled

A new scheme for overseeing the deposits of tenants will be ready this spring. The Tenant Deposit Scheme (TDS), which will come into effect in England and Wales in April, will oversee deposits equating worth £1.2 billion, according to Communities.gov.uk.
The scheme will provide protection to both tenants and landlords entering into assured shorthold tenancy (AST) agreements by offering an independent and regulated means of dispute resolution.
The National Landlords Association (NLA), the sponsors of one of the two insurance schemes, will principally concern landlords and agents not belonging to RICS, ARLA or the NAEA. David Salisbury, chairman of the NLA, hopes the TDS can help to ‘nurture and encourage a professional private-rented sector’.

More landlords, more disputes

The boom in buy-to-let is likely to lead to a growing number of tenant/landlord disputes, according to the government-sponsored Residential Property Tribunal Service (RPTS).
As the number of households installed in buy-to-let properties exceeds one million, and that figure set to rise steadily, the government hopes to reach novice landlords with the message that the RPTS is best placed to adjudicate in the event of a disagreement.
A study by RPTS has found that almost a fifth of landlords have only entered the residential letting sector in the past few years, with almost two-thirds involved for less than a decade. In addition to the growing number of first-time landlords, lack of affordable homes and changing lifestyles have meant that people are renting longer and buying later. At the end of the 1980s, around 40 per cent of 20 to 24 year olds and roughly 66 per cent of 24 to 29 year olds were already owner occupiers; now only 20 per cent and 50 per cent or these age groups respectively purchase.
This is a considerable social change, with many people moving to owner occupation at least a decade later in life than people of their age used to.

What the buy-to-let crowd is looking at this week

Iconica

What Two-bedroom apartments with flexible layouts; gated development with allocated parking
Where Maidstone, near the centre
Who Both first-time and more experienced investors, as well as owner-occupiers and downsizers
Why The central location makes this a great base for London commuters. Maidstone is a very popular town, offering relaxed pace, an ever-improving riverside and good shopping. Investors in this area will find a good supply of quality tenants. Iconica itself presents an aspirational take on centre-of-town living, with its chic specification and minimal need for maintenance. Each apartment has Also, the price is conducive to a reasonably painless investor purchase; the apartments start at £204,950.
When The first occupations are expected anytime
Contact RPC Land & New Homes on 01622 691911 or agents Page & Wells on 01622 756703. See iconica-maidstone.co.uk.

Emporium

What One-, two- and three-bedroom ‘boutique-style’ apartments set around an enclosed courtyard
Where Buckhurst Hill, a short walk from the epicentre of high-quality shopping and good restaurants at Queens Road
Who Young professionals will be drawn to the spec and the location, so investors will get in there. With more buyers than property in the present market, such luxury is bound to be popular
Why These smart, contemporary apartments offer luxurious, modern spec. Kitchens are by Urban Myth and there are fitted wardrobes to principal bedroom. Each apartment has an allocated parking space, and Buckhurst Hill tube is just a mile away.
When First completions this spring
One-bedroom apartments are priced from £230,000, while two-bedroom apartments start at £270,000. Contact Higgins Homes on 0845 678 9799.

A step-by-step guide by Mary-Anne Bowring of Leaseholder Support

While your lease is probably the most valuable asset you own, the freeholder holds a stake in its value too. This is for three reasons: he receives investment income from it (the ground rent); he has the hope value of a premium from you if you buy a lease extension; and he holds the reversionary interest (i.e. the value of the vacant flat in a number of years’ time when your lease runs out).
While the prospect of extending your lease may seem like a daunting task, it is feasible and you can do it yourself, thus adding value to your property. Here are seven steps you’ll need to take.

1 Establish if you qualify for a lease extension

In 1993 leaseholders were given statutory rights under Section 56 of the 1993 Act to claim a 90-year lease extension at a reduced ground rent of £1/peppercorn if demanded. legislation has changed,  making it increasingly easier for leaseholders. For example, you now only need to own the lease for two years, do not need to live in the property and can own it through a company.

2 Get your papers together

The lease is likely to be required by the valuer to calculate your future ground rent commitments, and by the lawyer to confirm title searches prior to serving a Section 42 ‘Notice to claim your rights’. Find your last ground rent demand to be sure who you are currently paying ground rent to. Don’t worry if your freeholder has long disappeared; there is a procedure called a Vesting Order which ensures that you can still get your lease extended.

3 Get advice on a ‘reasonable premium’

Fees will be well spent if a valuer with appropriate expertise is selected. Speak to the person that might take on your case and ask them some difficult questions. Check that the report will include the calculations to show you how the premium is made up, a commentary/explanation of the methodology and comparable market transactions/case law evidence on which your valuer is to relay. This level of detail will give you confidence to make key decisions and an understanding of which parameters affect the end figure. How else how can you decide your opening negotiation position?

4 Serve a notice or open informal discussions?

A difficult question! There is no downside to asking whether your landlord will entertain informal discussions. However, don’t give up if the answer is ‘serve a notice’ as it is the notice that secures the freeholder’s ‘reasonable’ costs in dealing with your claim, even if you give up. If you are proceeding informally you will need to ensure that the freeholder is quite clear that it is your Section 56 rights you are negotiating about (see step 1, right). A claim notice fixes the valuation date (at date of notice) and establishes that you are claiming your Section 56 rights.

5 Agree the ‘premium’ to be paid for the lease extension

Our research suggests that about half of premiums are agreed informally, and of the half negotiated after service of a claim notice only about five percent end up at the Leasehold Valuation Tribunal. There are 13 valuation variables to be agreed and three components of the valuation to be established. Some variables are fact, for example, the ground rent; others are based on property and financial market evidence or caselaw such as the long and short lease values and yield rates.

6 Prepare the Supplemental Lease and Deed of Variation

This is the legal instrument that extends your lease. The lessee’s rights are to vary two terms of the lease: the ground rent and the term. The freeholder cannot force you to agree to changes to other clauses, although many try, and your old lease does not get ripped up. It is sometimes here that leaseholders who went down the informal route become unstuck when the freeholder suggests that while the premium is agreed, they do not agree to the ground rent being reduced to £1/peppercorn. If you have a mortgage it is necessary to obtain your mortgagee’s consent to the lease extension as they too have an interest in your leasehold title. This is just a formality, as we cannot imagine a situation where a mortgage company would refuse to approve a deed that increases the value of their security.

Register your lease extension to increase the value of your flat

The Supplemental Lease and Deed of Variation is a document that is usually executed by deed. It needs to be registered at HM Land Registry to become part of your properties title. There is a nominal registration fee and stamp duty land tax form to be filled in.

Mary-Anne Bowring is managing director of the Ringley Group and founder of Leaseholder Suppor. For further information on this and other property issues see leaseholdersupport.co.uk

Three things every leaseholder should know:
If you have a short lease, have owned the flat for two years and want to sell up, you can serve a claim notice and sell your flat with your lease extension rights so the new purchaser does not have to wait two years to qualify, during which time invariably the price of a lease extension will be rising.

Since July 2003, if your lease has more than 80 years unexpired you do not have to pay marriage value. Marriage value is the difference between the freeholder’s interest prior to the lease extension and his interest after, which otherwise is shared 50:50.

Your claim notice could be invalid if the price served does not pass two key tests: the bonafides test and the realistic test. The principle of bonafides can be established if you have sought professional valuation advice. The principle of realistic accepts that the notice might not need to reflect your best offer, as it is accepted that valuations and the eventual premium agreed are a matter for negotiation. In this test, the Court’s approach would be to review the variables of the valuation and, for example, to exclude marriage value or development potential could invalidate your initial notice.

PURE Property, the region’s premier property acquisition service, says the annual race amongst home seekers to buy in top school catchment areas for the new academic year has started early this year.

Managing director, Jonathan Hopper, speaking from Pure Property’s head office in Norwich, said that each year the rush to settle into the best school catchment areas starts earlier.  
“Relocation is often the only way to ensure children have access to the top performing schools, particularly as competition for those places becomes greater,” he said. “Often access to those schools for children outside of the catchment area is very restricted nowadays. It may seem like a dramatic step, but for parents seeking to better the life and educational chances of their offspring, it can be a very sound investment.”

Pure Property, winner of the Daily Mail’s Best Property Finder Award for Norfolk and Cambridge, works solely on behalf of homebuyers to secure property based on each client’s lifestyle, living requirements and budget. Clients benefit from the company’s in-depth knowledge of the region’s areas, access to a vast property pool and skill and experience to negotiate on price. For individuals or for families relocating to a new area, this service removes the usual pressures and fears of the buying process, as well as saving time and effort on fruitless searches.
“Parents are coming to us with catchment area at the top of their brief,” said Jonathan. “Our service offers them peace of mind, ensuring that they have the right information before making a decision. We do not take a blanket approach with our clients. Everyone has different needs and levels of knowledge about areas in the region – we respond to that and the feedback has been fantastic.

One client moving into catchment of a top performing school in the area, described Pure Property as “going beyond expectations”.
“We had complete confidence in the Property Consultant’s understanding of our needs. We couldn’t have achieved the move we got without them and our children are very happy in their new school. The service meant we didn’t have to compromise on anything; Pure Property ticked all the boxes and we got exactly what we wanted”.
Jonathan urges parents to make an early start on relocation plans. “The earlier you begin, the more opportunity to find the right property. That way you don’t end up making a wrong move just to meet the deadline for school applications”.