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- Herausgeber: Elite Publishing Academy
- Kategorie: Fachliteratur
- Sprache: Englisch
Here’s What You Will Learn In The Book
What sort of buy to let property should be purchased?Does the buyer want capital growth or good rental returns?How you sell your property fast
What is equity release?
The advantages and disadvantages of the most common mortgages.
How to do the correct land valuation and calculation
What is property development?
How to carry out the right planning procedures that save you time and money
The 12 golden rules for gaining a planning consent
The importance of using a member of the RICS
What is a Breach of Contract?
The full disclosure of Capital Gains Tax
How to remove a restrictive covenant on your property
The advantages of Joint Ventures
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Seitenzahl: 263
Veröffentlichungsjahr: 2021
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The Pocket Property Guide
Henry Williams
Published by
www.elitepublishingacademy.com
All rights reserved.
No part of this book may be reproduced in any form by photocopying or any electronic or mechanical means, including information storage or retrieval systems, without permissions in writing from both the copyright owner and the publisher of the book.
First Edition published 2020© HENRY WILLIAMSPrinted and bound in Great Britain by www.elitepublishingacademy.com
A catalogue record for this book is available from The British Library ISBN 978-1-912793-30-1
Disclaimer
The Information contained in the book, is for general information purposes only.
The Author assumes no responsibility for errors or omissions in the contents. In no circumstances shall the Author be liable for special, direct or indirect, consequential, or incidental damages or any damages whatsoever in an action of contract, negligence or tort, arising out of or in connection with the contents of this publication.
The Author reserves the right to make additions, deletions, or modifications to the contents of this publication at any time without prior notice.
Please note that the publication does not guarantee the accuracy, relevance, timeliness, or completeness of any information in this publication.
Introduction
This is a guide to property that is residential and not commercial or agricultural.
All references to legal aspects described in this book are in respect of the law in England and Wales and are not to be taken as advice. The regulations for Scotland and Northern Ireland may differ.
The purpose of this guide is to help anyone interested in buying, renting, or selling a house or flat. It is designed for the ordinary person, who is either in the property market, or is thinking about getting into the property market, and a guide to the various aspects within that market. Without going into a ridiculous amount of detail, I have tried to explain how the various aspects work, in layman’s terms including their advantages and disadvantages. For instance, although I have gone through buying and selling a property in one section, I have also devoted a section to the various types of property i.e. buy to let, self-build, freehold and leasehold.
Also to cover all aspects, I have included sections on developers, development, valuation, valuers, dispute resolution and joint ventures, to give the reader some insight into how these areas work.
I have also devoted a section to some of the more obscure aspects of property i.e. the filum rule, adverse possession, ransom payments, covenants, easements, uplift clauses, options, etc.
What I have tried to achieve in this guide is to give the reader the basic knowledge of how all these aspects work, as there is no doubt that if one wants to obtain a mortgage, it must help if one has some idea of what is available, how it works, the advantages and disadvantages. This guide will also help when dealing with professionals such as architects, solicitors, surveyors, structural engineers, quantity surveyors, etc., if one has a rough working knowledge of what these professionals do, or more importantly what they are supposed to do and achieve, it will give the reader the relevant knowledge to ask informed questions, query fees, etc. The same applies to warranties, builders, building contracts, how one deals with defective materials or workmanship, the list goes on.
The procedures, questions, and solutions provided in this guide are not to be taken as hard and fast rules or advice, but as general comments on what would normally be the situation and/or solution. However, most situations should be treated on their individual circumstances.
Therefore, it is always advisable to consult the relevant expert in whatever field the reader is dealing with, e.g. if it is a legal query, one should seek specific advice from a solicitor, if it is a funding query, a mortgage broker should be consulted, etc. Having stated the above, the reader will find having some basic knowledge of certain aspects beneficial when dealing with the expert in question, as it will enable the reader to identify the queries, he/she wants clarifying or advising on and assist the reader in analysing the advice given.
Lastly, as you will see from the index, I have divided the guide up into various sections, this is the order in which they appear in the guide. As a general rule the topics are set out alphabetically in their various sections, unless there is a strong connection with one of the other sections, i.e. Boundaries, will be found as a sub section of Title Deeds due to the obvious connection. However, there is a link mechanism, so if the reader wishes to go straight to, say, Boundaries they can click on it in the index and it will take them straight there. Where topics overlap, such as Social Housing and Affordable Housing, there are similar links provided. Where there are words used to describe an act or procedure that are similar such as Uplift and Overage, I have only described the procedure in uplift and made the reader aware that there is a similar term.
Classes/Types of Home Ownership
Affordable Homes/Housing (also see Social Housing)
Affordable housing includes social rented, affordable rented and intermediate housing. This type of housing is provided to specific households whose needs cannot be met within the private property market. They can be a new build property, or a private property purchased for use as an affordable home. Shelter England publish annual statistics on affordable housing supply in England. They show the gross annual supply of affordable homes, which includes new build and acquisitions from the private sector. However, they do not show the number of losses through demolitions or sales.
There are several types of home ownership that go under the banners of affordable housing and the means of purchase
Social rented are properties provided by local authorities and some registered providers, normally Housing Associations. The rents for these properties are set at a level dictated by affordability in that area. Social rented properties are the most affordable rental properties and rents are approximately 55% of private rentals.
Affordable rented properties are provided by local authorities and registered providers and are subject to a control that requires the level of rental charged, to be no more than 80% of local, private market rent. Some local authorities require rents to be capped at the local housing allowance to ensure the rent is covered where a tenant is claiming Housing Benefit or Universal Credit.
Build to rent and/or buy are properties usually built as blocks of flats. The property is rented for a set period, during which time the tenant saves enough for a deposit to purchase the property, at the end of the rental term.
Affordable home ownership is a term covering different affordable purchase products, it is also sometimes referred to as low-cost home ownership and can be included under an intermediate housing definition.
Shared ownership normally through a housing association or a developer (see Shared Ownership). Help to buy (see Mortgages). Help to buy is now being phased out and replaced by the government’s 30% discount for first-time buyers. The scheme is designed for homes be sold to first-time buyers with a discount of 30% and will include both flats and houses. The main difference between this scheme and help to buy is that the discount will be passed on to future buyers when these houses/flats are resold, allowing the next generation of first-time buyers to get a foot onto the property ladder. Further information on the government’s 30% discount scheme will be available when it comes into force.
Help to buy ISA – this is where the prospective purchaser saves money in an ISA - help to buy ISAs are a tax-free savings product for prospective first- time buyers. The government will pay a 25% bonus on savings up to £12,000, capped at £3,000. Savings are limited to £200 a month, plus up to £1,000 lumpsum when the account is opened.
Shared equity – the applicant purchases a share in the property and rent is paid on the remaining share, but the purchaser can buy further shares in the property until it is owned outright.
Right to buy (see Social Housing).
Buy to Let
What is buy to let?
Buy to let is where a property is bought specifically to be rented out to tenants rather than lived in by the purchaser.
The purchaser/investors can make money by generating an income via the rental charged and/or by a capital gain when sold. However, if a mortgage is required to buy the property, the rental payments must cover more than the monthly buy to let mortgage repayments. However, when sold the gain will attract Capital Gains Tax (see Capital Gains Tax).
However, like all investments, there are risks attached to buy to let. For example, you could be hit by rising interest rates, stuck with difficult tenants, or unable to sell if the housing market changes.
Recently times have become tougher than ever for buy to let landlords, with the introduction of higher stamp duty taxes and less flexible rules on the tax relief that can be claimed against the income.
What is a buy to let mortgage?
If a purchaser cannot buy his/her investment property outright, they will need to apply for a mortgage, but this will need to be a specific buy to let mortgage. A standard or 'residential' mortgage/loan is only relevant when the purchaser intends to live in the property as their main residence. There are differences between a residential and buy to let mortgage and the way the affordability is calculated.
Instead of just a buyer’s salary being taken into consideration, the lender will view the potential rental income of the property as the primary source of income to fund the mortgage/loan. Many lenders will then take the buyers personal income into account as a secondary factor.
For further information on buy to let mortgages and associated costs see Mortgages.
What sort of buy to let property should be purchased?
As when searching for a personal residence, it is important to look at location. This is equally important when looking for a buy to let property. So, before a buyer starts their search, they should think about what kind of tenant they are targeting.
A student, for example, is likely to want to live in an affordable property close to the university and nightlife, while families will be interested in the proximity of good schools, plenty of storage space and a garden. Get the location or type of property wrong, and rents will be lower and tenants harder to come by.
Bear in mind that some properties are more difficult to secure a mortgage on. These can include former council houses, new developments and flats above commercial premises, such as shops.
What type of tenant?
The type of tenant renting your property can really impact on the viability of a project. For instance, many lenders have restrictions on mortgages for student lets and Houses in Multiple Occupation (HMOs). HMOs are defined as having three tenants or more that share a toilet, bathroom, and kitchen facility.
Where to choose to buy?
When starting out in buy to let, buying a property close to home is a good idea as the buyer is familiar with the area and will be on hand should there be any problems.
However, if the buyer plans to use a letting agent to manage the property, buying somewhere further afield can present a wider choice of properties. The buyer also has the use of in-house local knowledge from their agent on returns on investment, purchase price and rental incomes.
The buyer should make sure they are getting a good deal by checking comparable average property values for the area on one of the larger websites and consider comparable rents for that area.
Does the buyer want capital growth or good rental returns?
Buy to let investors will either be relying on increase in value, known as capital growth, or rental income generated from the property. Rental income can be expressed as a percentage of the property value. The buyer will need to work out which of these has the greater financial advantage. In some cases, it will be a bit of both.
For example, if the buyer’s initial costs are so high, they are unlikely to attain a good rental yield, they will be dependent on property prices rising. If on the other hand an investor is buying a cheaper property to rent out to several students, they will be relying more on the rental yield.
A good rental yield is generally benchmarked at around 5% a year. However, some properties might reap yields as high as 7%+, while HMOs can achieve between 12% and 15%.
What are the responsibilities of a landlord?
There are certain legal responsibilities. Tenants must be assured that their right to live in your property is protected by a tenancy contract and that their deposit is protected by a Deposit Protection Scheme. This is a legal requirement and the landlord, or their letting agent, will be fined if they do not provide them. There are two types of government backed deposit schemes, insurance and custodial.
Under the insurance scheme, the landlord or agent retains the deposit and pays interest to the insurer. They are available through the Deposit Protection Service, My Deposits and Tenancy Deposit Scheme.
The custodial option, where the deposit is paid directly into the scheme, is free-of-charge to use. Each scheme comes with an independent resolution service to resolve problems between landlords and tenants, should they arise.
There are several types of tenancies, but the most popular is an assured shorthold tenancy (AST). These contracts give tenants a legal right to live in the property for a fixed duration, or on a rolling term.
ASTs normally last for a set period of 6 or 12 months. They will detail how much the tenant must pay in rent during that time, responsibilities for repairs, notice of eviction, increases in rent, how long the tenancy lasts and the tenant's right to have their deposit protected.
Since 1st February 2016 landlords have also been responsible for checking their tenants have the right to rent in the UK. Although this has been challenged in the High Court for breaching the human rights of tenants
Leasehold/Freehold
The term freehold means that the owner owns the building and the land it stands on outright, in perpetuity. It is the person(s) named in the land registry as the “freeholder”, owning the “title absolute”. Freehold is always the preferred option of ownership, as:
There will be no annual ground rent payable, as opposed to Leasehold.
The Freeholder is the person solely responsible for maintaining the fabric of the building - the roof and the outside walls.
Unlike a Leaseholder the Freeholder is responsible for maintaining the building and the associated charges, which are to a degree out of the leaseholder’s control and can be expensive.
Most houses were and are sold as Freehold, as there is no need or reason to sell individual properties as Leasehold. Leasehold, for example, is primarily used for flats, where one person’s ceiling is another’s floor and there are certain common areas, such as the roof, stairs, corridors, etc, that need to be the joint responsibility of all the flat owners in that building. Therefore, this then becomes the responsibility of the leaseholder, who charges an annual maintenance fee to each flat owner.
The recent practice by some developers of selling new housing as leasehold has caused a lot of controversy. The practice was designed to allow the property to be sold at a discount and in some cases makes the developer more profit. There have been instances where the unsuspecting buyer has bought a house on leasehold with the ground rent attached. The ground rent in some cases has been set to increase at regular intervals, which in some cases can be every 5 or 10 years and again in some cases the lease states it will double at those intervals. So, a house where the annual ground rent was £250 that doubles every 5 years, results in the leaseholder paying £4,000 per annum in ground rent from year 20. The developer has then sold the ground rent on to investment companies at a huge profit and the poor house owner has a house that they cannot sell, due to the ground rent. The government is supposed to be taking steps to make changes to this practice.
Leasehold
Leasehold means that the leaseholder (the tenant) has a lease with the freeholder (the landlord). The general difference between a tenant and landlord and a freeholder and leaseholder is that the property is leased for several years for a one-off payment and then allows the leaseholder to use the property for the years stipulated in the lease. The one-off payment, at the outset of the lease, is often called a premium and works as such - the leaseholder enters into a 99-year lease at an agreed annual payment, with a lumpsum one-off payment paid to secure the lease.
Leases are usually long-term and can often be 99 years or as high as 999 years - but can be as short as 50 years.
The responsibilities and rights of the freeholder and leaseholder are set out in the lease, which is a legal document that both parties must abide by. The lease will address such areas as:
Who will be responsible for maintaining the common parts of the building (if a flat) such as the entrance, corridors, and staircase, as well as the exterior walls and roof? However, other leaseholders might have claimed their “right to manage”, in which case it is their responsibility.
The consequences of not abiding by the terms of the lease, i.e. not paying maintenance charges, ground rent, etc. In some cases, this could mean forfeiting the lease.
The costs the leaseholders will be liable for are typically maintenance fees and annual service charges for their share of the buildings insurance, etc.
Leaseholders will normally pay an annual ground rent to the freeholder. This will be set out in the lease and at what intervals it will be reviewed, which normally means an increase.
Leaseholders are not allowed to carry out major works and must obtain permission from the freeholder before they carry out any major works to the property.
Restrictions will be put in place on what the property can be used for, or what the leaseholder can do in the property - such as owning pets, subletting, noise, etc.
The Value of Leases
At the end of the term of the leasehold, i.e. when there are no more years left on the lease, the property reverts to the freeholder, so, if the lease is for 50 years, the leaseholder has the right to use the property for 50 years before the owner, the freeholder, takes physical possession back. Long leases have a value. However, short leases drop in value quickly and the nearer the expiry date of the lease the faster the value drops. There are accepted tables used by RICS valuers that state the calculation to be used when valuing a lease with varying numbers of years to run, e.g. a flat with a lease of 60 years to run before expiry would be valued at 10% less than if it had a lease of 99 years. Therefore, a flat valued at £200,000 with a 60-year lease is only worth about £180,000. The difference between the leasehold value and the freehold value is the freeholder’s equity in the property.
One of the main problems with leases is the length of years, either left on the lease, or if new, the length of the new lease. A lease of less than 80 years will decrease the value of a house. A short lease on a property can decline quite quickly in value. This means resale will be difficult and lenders reluctant to offer a loan or mortgage.
If a buyer is contemplating buying a leasehold property, he/she should instruct a professional valuer to value the lease and more importantly, ask for an indication of the value as the lease gets shorter.
How to extend a lease
The government has passed several acts giving leaseholders protection against short leases. These give the leaseholder the right to extend their lease or the right to buy the property. However, extending can be very expensive. The law is different for houses or flats. Below is a brief synopsis of what is involved in extending leases on either houses or flats.
Flats
The leaseholder usually has the right to extend their lease by 90 years in addition to the unexpired term.
However, the legal right to extend only applies if the leaseholder has held the lease on the property for 2 years or more and the original lease was a long lease, usually more than 21 years. After the freeholder/landlord is aware that the leaseholder qualifies for the right to extend the lease, the freeholder can accept their offer, negotiate or reject the offer. If the freeholder rejects the offer, it can be challenged in court.
Usually the leaseholder will not have to pay more ground rent and can negotiate new terms and conditions in the extension to the lease, such as involvement in management decisions, are pets allowed and who pays for what?
Normally a premium/one-off payment will be charged for extending the lease. This premium/one-off payment can be negotiated. A valuer may be needed to settle on the correct amount.
In many cases, when considering buying a leasehold property of less than 70-80 years, the freeholder will insist that the leaseholder extends the lease prior to the sale of the lease.
Houses
The leaseholder may have the right to extend their lease by 50 years on their house and this will be made clear in the lease agreement. However, the legal right to extend only applies if the leaseholder has held the lease on the property for 2 years or more and the original lease was a long lease, usually more than 21 years.
After the freeholder/landlord is aware that the leaseholder qualifies for the right to extend the lease, the freeholder can accept their offer, negotiate or reject the offer. If the freeholder rejects the offer, it can be challenged in court.
If so, they can renegotiate the terms and conditions of their lease (see above for flats). When extending the lease for a house, the leaseholder will not have to pay a premium to extend the lease, however, the ground rent may increase.
The leaseholder should obtain professional help to extend their lease, as there are certain rules pertaining to converted houses, where the rules for extending the lease may be like those for extending the lease on a flat.
Buying, or the right to buy the leasehold property The leaseholder may have the right to buy the house or flat so that they become the freeholder/owner. This is known as ‘enfranchisement’. The rules and legal procedures are complicated. There are legal costs involved, which are necessary. However, the law governing the purchase will depend on whether it is a house or flat. Again, professional advice and assistance will prove not only necessary but invaluable.
Disputes
It is not uncommon for freeholders and leaseholders to be in dispute over certain matters. The most common areas where disputes arise are:
Freeholder’s charges account for over 20% of all major disputes between leaseholder and freeholder. One of the main reasons for this is that the leaseholder has little or no control over this expenditure and often feels the freeholder is over charging them and they are unable to do much about it. While ground rents on flats usually cost in the region of £100s annually, annual charges can amount to £1,000s a year.
Leaseholders often feel that freeholders are not carrying out the necessary maintenance to the building to an acceptable standard or keeping common areas clean and tidy. A lot of leaseholders complain of a lack of control over what works are carried out and many feel they have great difficulty getting necessary works to the building undertaken.
On the part of the freeholders, their complaint is that often leaseholders are in breach of the terms of the lease, e.g. keeping pets when not allowed, carrying out building works without permission, etc.
If disputes cannot be settled between the leaseholder and freeholder, they can enter a court action for a judge to determine the disputed issue. However, this can be a lengthy and costly exercise when the court procedure and legal costs are considered (see Dispute Resolution).
New Build Housing
New build housing is normally carried out by a developer or builder. The developer will buy land with a planning consent on it, or secure the land legally from the landowner, via an option and then apply for planning permission themselves on the land.
Normally new housing is for sale at a specific price. Discounts do not usually apply and there is less scope to try and put in an offer lower than the asking price as the buyer would do on an older property. However, discounts are available, in some instances. There are three main reasons why discounts are offered or available.
Some developers, especially the smaller ones, will offer new housing for sale, off-plan. This means the buyer can enter into a legal agreement with the developer to buy a house when it is built. The advantage to the buyer is that these types of deals are open to discount because the developer is receiving an initial deposit and the certainty that once built the property is sold, or if the buyer backs out the builder/developer will keep the deposit paid. The advantage to the developer is that if they are short of funds to carry out the construction, they can go to a lender with the legal paperwork to demonstrate they have a sale for the property once it is built. The buyer, or his/her solicitor must get this type of deal tied up legally, i.e. there must be legal documentation stating the type of finish the property will be completed to, this normally applies to kitchens and bathrooms, plus fittings such as lighting. However, the most important point is the date for completion, a date must be set, or the buyer could wait indefinitely, whilst the developer uses the funds for the off-plan sale to fund the speculative development on site.
The other means of gaining a discount is when a medium-sized buy to let landlord wants to buy a few properties on the development and again will enter into a legal agreement to do so. The same conditions as above apply.
Lastly, if the housing market has taken a severe downturn, as happened after the 2008 financial crash, developers are happy to offer discounts to offload property already constructed.
In certain circumstances new builds purchased off-plan can be very profitable for the buyer. Firstly, the buyer should be getting a discount on what would have been the price of the property once built. Secondly if the first phase sells well, the developer may raise the asking price for the next phase of sales. This means the buyer has made a profit because of the discount and then a further profit because the property price has increased. In a bull property market, it has been known for buyers who have placed deposits on properties to be built have sold on the contract to buy the completed house before it was built. The adverse can apply if a deposit has been paid and the market takes a downturn, the buyer must either complete (see Completion) the sale or risk losing their deposit.
There are also other little perks a buyer may receive if a developer wishes to accelerate sales, such as added incentives, reduced Stamp Duty, contribution towards legal fees, removal costs or free carpets. The advantages when buying new build homes are that the buyers can choose their own plot and can sometimes select materials and other features, so to a degree their home is tailored to their requirements. Regarding plot sizes most new build properties will be set on smaller plots than houses built some years ago. The reason for this is that the planning departments of the local authorities have changed their views on density. Until about 20 years ago the view of planning authorities on density was less rather than more.
However, because of the present shortages in housing available the planning authorities have changed their view and are now asking for the density to be higher which in turn decreases the plot sizes. To give you an example, 20 years ago the density for new build would normally have been 6 to 8 houses an acre, today it is 12 to 15 per acre, or 28 to 36 per hectare. Therefore, if the buyer wants a house on a larger plot it would be better for them to look at houses-built pre-2000. The one exception to this is the self-build market, where the planning authorities are stipulating 4 to 6 houses per acre, or 10 to 14 per hectare, with a specified distance between plots.
When starting to look around for a new build home, the buyer should research the marketplace and see what is available in their area. They should also check what features are included in the standard cost, such as utilities, white goods (bathrooms/kitchens), floor finishes and landscaping. However, this will depend on the developer’s working model when developing a specific site. It is important to check these details so the buyer can make allowance for this in their budget to cover any additional costs. The specification for the finish of a new home be will dependent on the options that pertain to that specific development. The buyer should always check what options are available at the earliest opportunity.
Most developers allow the buyer to choose some of the finishes, i.e. choosing carpets, tiling or even what type of kitchen and certain elements of the finish. When buying a new home as opposed to an older property the buyer should take the following into account, as the process is slightly different.
Once the buyer has agreed with the developer, or their agent, on the type house, the plot location and finishes (see above) that they are prepared to purchase, the buyer will need to pay a reservation fee to reserve the purchase, which could be a few thousand pounds. This reservation fee may not be refundable if the sale does not proceed. The buyer should check the conditions attached to reservation fees before agreeing to pay it.
The buyer should then instruct a solicitor, or conveyancer, to carry out the necessary legal work and make sure the buyer has the 10% exchange deposit and a mortgage offer is in place.
The buyer’s solicitor/conveyancer will then carry out the necessary searches and check warranties
