Q. What are the three most common expenses buyers forget to account for?
A. The most frequently forgotten expense is stamp duty – either that this tax needs to be paid at all, or by using an incorrect calculation, says property mentor Mandy St John Davey (mandystjohndavey.com).
‘You pay different rates of duty for different proportions of the property price. If the property is a second home, you will be required to pay upwards of 3%.’
The second thing lots of people overlook is the arrangement fee when obtaining a mortgage. ‘Read the paperwork very closely when applying for the loan,’ says Mandy. ‘Some lenders expect you to pay an arrangement fee when you submit your mortgage application, and they can be reluctant to refund it if you decide not to proceed with their mortgage offer.
‘Other lenders will add the fee to the loan, which means you will be paying more interest in the long term.’
And thirdly, she says: ‘Don’t forget to budget for property insurance – especially contents insurance – to protect against unforeseen disaster.’
Q. I’m stretching my budget to buy a property and can’t afford expensive repairs when I move in. How can I check these won’t be necessary?
A. ‘There are two types of survey that assess whether a property is structurally sound,’ says Angela Gordon-Lennox, senior product manager at Landmark Information Group (landmark.co.uk).
‘The first type is a Homebuyers Report by a chartered surveyor, who visually assesses the property for any defects or potential issues that may require more detailed investigation.
‘The second is a Building Survey, which is a full physical investigation of the property and the most thorough report on the condition of it.
‘The surveyor will really ‘get under the skin’ of the home – for example, by entering the loft, lifting drainage covers and checking plumbing fitments.
‘If defects are found, you will need to decide whether to continue with the purchase, negotiate a lower price with the seller or factor in the cost of repairs.
‘Going further, your solicitor will recommend conveyancing search reports that provide insight into external factors, such as whether the building is close to contaminated land or a flood-risk area, or if the plot suffers from subsidence or sinkholes.
‘A Landmark RiskView residential report gives information relating to environmental risks in one document, while a Plansearch report provides neighbourhood details about schools, amenities and planning applications.’
Q. My partner and I are saving up to buy our first home together, but it is taking ages to reach our target deposit. How can we speed up the process?
A. ‘If you’re renting and it’s possible to return home or find cheaper accommodation, you can increase the monthly amount you save,’ says Roger Knight, lending manager at Newbury Building Society (newbury.co.uk).
‘The “bank of mum and dad” – or gran and grandad – is helping many people to buy their first home. If parents or grandparents use their savings to assist family members with their mortgage deposit, this is referred to as a “gifted deposit”. Always seek independent legal advice before entering into such an arrangement.
‘Parents can sometimes provide help with deposits by taking out an alternative mortgage deal on their own home, or by becoming a joint borrower on your new mortgage.
‘There are government schemes, too, such as Help to Buy, which give savers a financial bonus when they purchase their first home.
‘The Shared Ownership scheme is a cross between buying and renting and allows you to
buy a share in a property, usually between 25% and 75% of the purchase price. You then pay rent on the rest. This means that the deposit can be a lot lower.’
If you’re using a removal company, don’t forget to declutter first. They’ll charge depending on how much stuff you want moved, so any you can get rid of first, will save you money.
The majority of buildings insurance claims in 2015 were due to water ‘escapes’ (26%). Subsidence was well down the list at just 4%*.
Q. I’m buying a property that has suffered from structural movement in the past and need sufficient insurance for my mortgage, yet insurers are refusing to cover me! Help?
A. This is a much more common problem than you might think, according to Toby Green, head of operations at Highworth Insurance (highworthinsurance.co.uk).
‘There are many properties across the UK that have a history of structural movement, subsidence, landslip or heave, which can make finding adequate insurance both time-consuming and difficult – when it needn’t be.
‘Find out as much information about the property as you can, including when the movement happened, what caused it, how it was repaired and whether the property was previously insured.’
He continues: ‘When you have this information to hand, you can call a specialist, non-standard insurer, who’ll be able to offer a policy to cover your specific requirements.’
Q. I’m thinking of becoming a landlord, but I’m concerned about changes in tax law. Where should I go for advice?
A. ‘Property tax law is going through reforms at present, with changes to mortgage interest relief, stamp duty and tax on enveloped dwellings,’ says Andrew Davis, managing partner of Davis & Co LLP (davis-co.co.uk).
‘Further changes are on the horizon in the form of the Making Tax Digital policy. This will require many landlords to file a quarterly return with HMRC, although changes are being introduced gradually from 2018.
‘If you are unsure about the impact of tax on your property business, it is absolutely essential to seek advice.
‘An independent qualified accountant who specialises in tax accounts and tax planning with specific regard to the treatment of property would be able to help.’
Q. I plan to buy a family home, but I’ve only ever lived in rented housing – what pitfalls do I need to avoid?
A. ‘First, recognise that a property report or valuation is not a survey,’ says Property Mastery Academy co-founder Mark Lloyd (propertymasteryacademy.co.uk).
‘These are produced for the lender only, so you should consider paying for a Homebuyers Report.
‘Use a mortgage broker rather than a high-street lender – they can give you a better view of what is available.
‘Do your homework about the area in case any major developments are planned. Remember you are buying for the long term, so don’t panic over the mortgage. Lenders want to lend if you have good credit and the property satisfies their criteria.’
Mark advises patience: ‘Don’t expect things to happen overnight. Once your offer is in, it can take months to reach completion as you will likely be in a chain, so don’t give notice on your tenancy too soon. Before contracts are exchanged, you can still change your mind, but will incur some costs – survey and solicitor fees, for example.
‘Finally, once you have exchanged contracts, you’re committed to buying and the completion day is set, so don’t get pushed into an inconvenient date.’
Remember that if, as a landlord, you use an agent, it’s less hassle but they could keep 10-20% of the rental income.
Stamp duty is zero for first-time purchases of homes worth less than £125,000, but rates increase as the property value rises.
Q. As my pension prospects look bleak, I want to invest my money in property: in the long term, would I be better purchasing a house and renting it out or going in with others to own lots of properties?
A. ‘Pensions, ISAs and similar products can indeed be disheartening investments right now, and property investments can offer a very attractive alternative,’ suggests Ronnie Gleeson, managing director of Thames Property Nest Eggs (thamespropertynesteggs.com).
‘However, with the new buy-to-let tax laws which are being phased in, investors do need to be mindful of the financial impact the rules place on the rental income of landlords. Thames Property Nest Eggs was launched as something of an antidote to this.
‘Its fast-track option allows individuals to invest in the London property market with other like-minded co-investors, and have the property purchased, refurbished and sold straight away on their behalf.
‘This modus operandi completely sidesteps the new, so-called “tenant tax” derived from rental income, and can within produce a healthy capital growth profit within six to nine months, generated as a result of buying well, refurbishing well and selling well.’
Q. My child is struggling to get on the ladder. Am I legally allowed to purchase a property and rent it to them?
A. Dennis de Kloe, operations director at Why Property Works (whypropertyworks.co.uk), has good news: ‘There is no legal ruling that stops you from renting out a property to a relative. The main consideration is the way you’ll finance this new buy-to-let property. If you are paying with cash, there will be no issues. However, if you take out a buy-to-let mortgage, you will need to check the lender is happy for you to let to a relative.
‘Please make sure you put in place a tenancy agreement, inventory, and so on, and ensure you comply with all other regulations, such as gas safety, fire safety and Legionella checks.
‘As this will be an extra income stream, make sure you complete the relevant tax returns.’
Q. I’ve been stuck in a chain for ages and I’m scared my seller is going to pull out – what can I do to speed things up?
A. Property mentor Mandy St John Davey (mandystjohndavey.com) says: ‘Ask your conveyancer or estate agent to follow things up and make regular calls to ensure they chase your buyers. Have all your paperwork up-to-date and keep any certificates regarding the property to hand.
‘Putting a deadline on exchange or completion dates can sometimes help, but if the worst happens and your seller does pull out, considering renting a place to live for a short period.
‘Although this can be an extra expense, it will put you in a great position to secure a deal on a future property where you can move quickly.’
Q. I’m considering buying a cheap property at auction, then doing it up and selling or renting it – but I’m a novice. Is this one of those jobs best left to the professionals?
A. ‘There’s no need to leave it to the professionals if you take the right steps to prepare yourself,’ says Susan Alexander, founder of The Property Mentor (thepropertymentor.com).
‘The secret to purchasing at auction, renovating and reselling is gaining as much understanding as you can and where possible getting support from a mentor who has been there and done it before. Research! Research! Research!
‘To do this, speak to the auctioneer about the property first, as they are very helpful. Always view the property and take a builder to get a quote on the works. Also, have a solicitor review the legal pack and give you feedback before the auction.’
She continues: ‘Speak to a couple of estate agents to understand the potential resale values and obtain a decision in principle from your finance broker before you place a bid.
‘Most importantly, decide on your maximum bid and stick to it. Don’t get auction fever!’