Buy to Let tips

There are several reasons for looking at property to purchase for the purpose of letting.   

Property prices are still falling and providers of mortgage products for buy to let are offering competitive rates.   Added to this we are experiencing a rise in rents due to a shortage of good rental property.  The shortage of mortgages with a high LTV (loan to value) has led to an increase in interest in rented property.  In line with our friends on the Continent the focus is now beginning to move away from home ownership towards rental.

So what do you need to look out for if you are looking to enter this market?  To begin with the property is likely to be in the lower price bracket and will therefore need to be chosen carefully.  

Start with speaking to the selling agent and find out what rental income it is likely to generate, whether there are comparable properties that can considered and more importantly whether there is a high demand for rentals in that area.   Check that the selling agent has experience in the rental market.  This is an important exercise because your mortgage company will be looking at the rental value when it comes to valuing the property for security purposes. 

Make sure you always invest in a full survey.   This is likely to cost around £400 and will be worth every penny.  You need to make sure there are no hidden surprises such as the need for a new roof or other  major works that could upset your financial calculations and turn a profitable investment into a drain on your resources.  Don't do what a large number of purchasers do and rely on the mortgage valuation.   This is dangerous because the lender's surveyor is only only interested in making sure the property offers adequate security for the loan. 

A survey may also help you secure a reduction in the selling price.   I act for a number of investors in property and in my experience you can normally with a full survey look to save around £2000 on the agreed price.

Many of the investment properties on the market are flats or leasehold properties.  Approach these properties with extra care.  They are often cheap because the unexpired term of the lease has fallen under 80 years.   The reason for this is that once a lease falls below this threshold the cost of extending the term can prove prohibitive.  

Leasehold property can also come with hidden cost which again if not checked can turn a potential investment into a loss.   Most properties require the owner to pay a service charge and ground rent.   Typically this will be around £1200 per annum and needs to be factored in when looking at the expected return.

You should always ensure extra funds are set aside to cover any major work that might have to be undertaken to the property.   Redecoration to the common areas of the building and replacement of lifts can often cause the service charge to increase significantly.  A new lift can cost around £100,000!

There may be a reserve fund set aside for major works of this type.   If there is not I personally would not purchase unless I knew what work was likely to take place within the next 10 years. 

Being a landlord is not just about collecting the rent.  There are a raft of legal obligations to meet relating to  deposit holding gas electricity just to mention a few.  Make sure the surveyor is told you intend to let so that he can check out the gas and electricity installations.  I recently  had  a client complain because on completing the purchase of a buy to let property she found the gas fire in the lounge was not working.  I politely reminder her that she was advised to arrange a full survey before committing to the transaction.   Cutting corners to save money can often prove to be  a costly mistake. 

The last and most important piece of advise is to always choose the right solicitor to act for you.  Choose someone like me who has experience in this field and who knows what to look for particularly when it comes to purchasing a leasehold property.  This is a specialist area and requires expertise.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Don't buy leasehold property without reading this...

Buying a leasehold property is not as straightforward as you might think.    Nor is it cheap.   You need to make sure the selling agent specializes in this type of property, and you are given all relevant information so you can make an informed decision.  

Look out for the hidden costs. 

Most leasehold properties include common and or shared areas and responsibility along with the cost of maintaining these parts is shared between the tenants.   The expense is called a service charge and this can often be high and burdensome.   

Often responsibility for collecting the service charge rests with a commercial agent or Management Company.  Upon completion of your purchase the agent or Management Company will expect you to pay a fee for lodging notice of your new ownership as well as your mortgage.   They may also require you to enter into an agreement with them direct to make sure you take over responsibility for payment of the service charge.   They may require you to pay an additional fee for lodging this agreement.  You may also be required to acquire a shareholding in the management company for which a further fee might be payable.

The landlord may also be planning to undertake major works such as replacing the roof or external painting.   Sometimes there is money set aside for these extra works.  Often there is not.  If there is no reserve then you could find yourself having to make a contribution towards the cost of these works and this could mean having to pay out thousands of pounds.

Your solicitors will also be looking to charge you more for the work.   This is because there is far more work involved when checking the lease and other legal aspects.

Check the length of the lease and how much of the term of the lease is left to run.   If the remaining term is under or close to 80 years then you should consider carefully with the agent or your solicitor how much is will cost to extend the lease.   It becomes more expensive to extend a lease that is under 80 years.  Keep in mind your lender may not be prepared to lend to you if the remaining part of the lease is under a certain limit.

Beware of rent review clauses.  Plenty of leases contain oppressive review clauses that can result in substantial increases in the level of future rent.

In short make sure you seek expert advice from a solicitor who has experience in this area.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Ground Rent Disputes

MJP solicitors are currently assisting 23 clients who are seeking to recover damages from their former solicitors for professional negligence for failing to properly advise as to the consequences of a ground Rent revision in their lease which will considerably increase the ground rent payable at the 25 year review period.

If you have a similar concern or wish for further information please contact David Jones on  01603877000 or by e-mail at davidjones@m-j-p.co.uk