What a crazy week this has been! Monday started with two valuations being cancelled first thing and RICS guidelines confirming that only essential valuations should be carried out. This is obviously an enormous problem for us and our clients, but in the specialist area we are in there are also other knock-on effects we are seeing from COVID-19. Builders have got very mixed messages, so some are working and some aren’t; councils are prioritising essential works so planning and licensing will be delayed I am sure, and there is going to be uncertainty around whether this is a good time to invest.

What I do know is that property investors are a hardy bunch, and I am certain that this will not keep the market subdued for long. Where there is uncertainty there are opportunities for those happy to take a risk. And we are starting to see China come out the worst of it and regain some sort of normality so this is a short term issue if handled correctly.

What we have learned this week

In the very short term, lenders are focusing on getting everything completed that is time-critical, so those who have exchanged first and then everything which has a valuation report. This is vital to ensure that those who have committed money to their property are able to complete when they want to. There are also plenty of refinances to complete, which are especially important when clients are exiting a bridge.

What will come next?

We have seen a couple of lenders temporarily stop new applications, but I don’t think this is necessarily the way things will continue. The valuation issue needs to be resolved, and lenders have different funding lines so that will have an impact on how they progress. On the whole, though, we have seen lenders tell us they are open for business and are finding solutions for the valuation issue.

What happens in the next few weeks is going to vary by lender, and also depend on how quickly valuers can get back to work.

We have some lenders who have already said they are happy to use a desktop valuation for new inquiries for purchases and refinances. This will allow single-unit properties (most flats and houses on a single AST where no work is required) to continue. This isn’t a solution for HMOs and blocks of flats though. This won’t work for everyone but is a great step in the right direction and hopefully, more lenders will follow.

Other lenders are looking at alternatives and I’m sure we will know more in the next week so I will keep you updated as and when I know what is happening.

So what can we do for now?

The main thing is that we are still open for business and happy to talk to you about your plans. We are still able to help you with inquiries you have, although we may not have the full range of options available right now. Of course, we are happy to talk through your options and then depending on how urgent it is and what options are available you can decide whether you want to proceed now or wait.

There are lenders who are able to look at a full case without a valuation and then either issue an offer subject to the valuation or have a full case checked so that as soon as we are able to arrange a valuation then we can hit the ground running. This is especially important when you are on a bridge and need to refinance.

This is also a great opportunity to think about your long term strategy now that we have some time on your hands! Would you like to look at a different area, a different type of letting? We are happy to talk through criteria and options.

What to do if you’re worried

Firstly, speak to your broker. We are the ones who are getting first-hand information from the lenders and we know the most up to date information. We might not be able to tell you much yet, but this week we have been speaking daily to lenders for updates on what they can do and what they are trying to work towards. We can help you negotiate extensions on your bridging loans if you need too.

If rob have any worries about making payments towards your mortgage then please call your mortgage lender as soon as you can. Remember different lenders have different rules to speak to them all and see what your options are.

Apart from us all feeling like extras on Apocalypse Now… the massive overload of constant, changing information, is distracting at best.

What this is all teaching us is that remote working, at least for a while, is going to be the norm.  So how can we use that as an opportunity and keep our investment plans on target??

5 years ago I started my portfolio.  I bought 4 flats without EVER visiting them.  I had to clear one of them out, as the new tenants were moving in 2 days after completion, but other than that,  I didn’t see them for 2 years!

How?…. Why?… I hear you ask.  Well, I run 2 businesses and the properties were 100 miles away, which restricted me somewhat; but I knew that this was something I wanted and needed to do.  Did people think I was crazy? Yes, they did, but that is about each of our mindset and whether we really want it to work by doing it this way.

Pitfalls

• Lack of real research, both online and on phone to agents
• Not having a really good ‘power team’, as they are also your trusted eyes
• The viewing is a really small part of the conveyance process, so reading legal paperwork.

Importantly these were all 2-bed flats.  Reasonably straightforward in the mix of the types of properties you can buy.

Initially, I saw 2 flats, which I didn’t get, one of them I pulled out just before the exchange, due to management company information, my solicitor gave me good advice.  However, that gave me the one chance of ‘reccying’ the area.  But time was the precious commodity so I had to balance the benefit of physical viewings against actually getting something,   I didn’t believe that viewing properties gave me any more information than photos.

I did my research, which Google allows, (street view, nethouseprices.com), together with speaking with agents in the area about rental demand and yields.  This is VERY important.

All I would be seeing is a 2 bed flat, which would be seen ultimately by the valuer anyway.  Any negotiations on the price would be after the report was back and I had something concrete to work with.

What is important is that I have a really good management agent.  Why am I not visiting the properties and paying for full management? I understand that property investment is not a passive job, but by working ‘smartly’, we can manage more parts remotely which gives me my most precious commodity…time.

It also took the emotion out of the purchase.  I wanted a good yield to balance my retirement pots, which was mainly a paper exercise.  I needed equal bedroom sizes, which are all available online.

If you are buying something to renovate, then that may not be so easy, but the estate agent would be able to facetime/video call whilst at the property – again, it doesn’t necessitate a visit.  The builder will want to visit, but again you can be on hand remotely.

If the UK falls in line with other parts of Europe, then our mindset will need to change in line with that.  This industry has proved over the decades that we are a robust lot of people, but to survive this and progress, we really do need to focus forward outside of traditional ways of working.

 

This week we are talking about serviced accommodation or SA. It’s a hot topic at the moment, with lenders changing their policies and clients wanting to get into different types of investments. There are some great advantages of using SA but first, there are some things to consider.

Does your lease allow SA?

It’s common to use flats as SA, especially when you are looking at city center investments for professional tenants, holiday let’s and so on. Where the property is a leasehold, you check with your freeholder to ensure that they allow you to use it for short lets. Not all houses are freehold, so when you’re looking for properties to purchase for SA don’t make any assumptions!

Does your mortgage allow SA?

Most buy to let lenders want you to use a standard AST in their property, so short term lets fall outside of this. It’s important that you are upfront with your broker about what you are using the property for so that we can find a solution that fits your needs. There are a number of lenders who are happy with SA, but they have different rules on what they will and won’t do; for example, some lenders don’t like night by night rentals but will look at weekly rentals. Some like corporate lets and holiday let business and others don’t. we can get to 75% loan to value, but it is more common to lend up to 70% so that needs to be a consideration.

How does this fit with your portfolio?

Generally in all parts of life, a larger risk gives potentially a greater reward and SA is no exception. The risks of not having a tenancy agreement in place mean that your income can be very up and down, but the potential can be much higher.

It’s important to have a mix of investments within your portfolio. Having lower-yielding but less risky properties as well as potential higher-yielding properties can be helpful but are more work so the time aspect of an SA needs to be taken into consideration.

Who will manage the property?

Lenders will want to know who is going to look after the property for you, especially when you don’t have a great deal of experience or it’s far away from when you are based. It’s really important that you factor this into your costs, as well as cleaning, handovers and so on.

Is there sufficient demand?

It’s important to ensure that you can demonstrate a good level of demand for both rental and resale for your property both for yourself and the lender. Void periods can have a massive effect on your rental and reduce any potential increases you could have earned so it’s so important to do your homework. There are many ways in which you can test the market and check what else is available.

So what are the advantages of serviced accommodation over standard buy to let’s?

This can be split into two categories, firstly to generate more income:

• Diversifying your portfolio

Having a variety of rental properties in your portfolio creates a mix of risk and reward which can help to increase your income from your portfolio.

Another aspect to consider is looking at your existing portfolio and seeing if something you already have that could be more suited to SA rather than it’s existing use. This could help to increase your income without further purchases.

• Much higher potential rental

When you’re looking at rentals per day or per week, you have the potential to earn so much more than when you are renting it for 6 or 12 months. There are a number of options to achieve this, you can look it managing it yourself, or you can use a management agent or corporate let agreement to allow another company to manage it for you.

• Opens up new markets for investment

You may currently be looking at single let’s or HMOs in certain locations as the yield works for you, or it’s somewhere that is easy to look after yourself. Looking at properties designed for SA may open up new locations and property types, which again is another way to diversify your property portfolio and increase your income.

Secondly, there are many tax advantages:

• Speak to your accountant about ‘furnished holiday lets’

There are many tax advantages for having a furnished holiday let, which are SA, but your accountant may not know this.

• Section 24 changes

With the change in personal tax rules around buy to let’s, where you have SA there are scenarios where section 24 does not apply. Again speak to your accountant but it may be an option for an existing bug to let where the tax changes mean that it is no longer as profitable.

• Capital gains tax and capital allowances

Again, speak to your accountant but these are two great conversation starters to reduce your tax bill. Capital gains tax does not work in the same way for SA, and capital allowances can help you save money on items you’re are buying for your properties which are used for services accommodation.

As with all tax-related matters, it is personal to you and you should only take the advice of a tax-qualified accountant in these matters.

As always, any enquiries you have, please give us a call!