Frequently Asked Questions
Having been in the industry for over a decade now you can imagine we’ve been asked every question possible that even remotely relates to property investment. We have collected the most common of these questions along with quick answers for your convenience. If you can’t find an answer to your question, or simply want more information then please don’t hesitate to contact one of our Senior Property Consultants by calling us on +44 (0)203 176 0060 or emailing us directly at [email protected].
1. How often are the tenants and the building checked?
Dependent on the management firm, usually every 6 months – or more upon request. All tenants are credit and reference checked and have to give a deposit too. The building is checked by maintenance teams often as they’re usually on site.
2. Are the developments freehold or leasehold?
Typically, in England, an apartment style development will only be leasehold, with a lease length from 125 years upwards. However, property in Scotland tends to be freehold. You can read more about the difference between freehold and leasehold here.
3. How can I be sure my money is safe?
All property sales within the UK must go through a UK solicitor. Your solicitor won’t ask you to pay a deposit unless they have thoroughly checked your sales agreement. Most of the developments Aspen Woolf deal with have a first charge for our client’s financial security, safety and benefit. This is above and beyond what is normally required. We also spend considerable time conducting due diligence on not just the developer, but the directors of the development, ensuring the development has full planning approval.
4. What is a first charge?
A first legal charge, in simple terms, means a person or group who has the first legal right over a property before any other person or business. This means if the developer goes bankrupt and the land is reverted back to the bank, for instance, before the development can be resold the first charge has to be settled and client’s funds must be repaid.
5. I’ve heard stories that the service charge is increased after “x” years?
In all developments, the service charge is reviewed in line with market rates.
6. I have done a check and the development has only been around for 1 year?
All developments have their own company registered at Companies House, this ensures that if anything happens to the developer or contractors, the development is ring fenced and safe from external issues.
7. What is an escrow account?
An escrow account is an account in which your deposited funds are held by a third party. This is to ensure the funds are not released to the developer in one lump sum, but at different agreed stages within the build.
8. What is a stakeholder account?
Typically, it means a business or individual with an active interest in the development, often a solicitor acting on behalf of the purchasers. It is generally set up by your solicitor to hold funds which will be released at certain agreed stages in the build.
9. Is this NHBC approved?
All properties come with a 10-year new build warranty, which is equivalent to NHBC.
10. What happens after the assurance period?
You’ll still be able to have the property fully managed and maintained if you wish, so you can relax while a professional company deals with the tenant and maintenance for you.
11. Can I buy using a mortgage?
On a very select few of our developments mortgages are available, so please make sure you mention this when speaking with Aspen Woolf. However, most developments are cash investments only.
12. Can I get a Visa if I invest in property in the UK?
For anything visa related, Aspen Woolf would suggest you contact an immigration specialist – this isn’t something we can help with, as Visa criteria can change year to year. More information can be found here.
13. What happens if the developer goes bankrupt?
In many cases, a new contractor is appointed to complete the build as there is the safety of a legal first charge already in place.
14. Can I use my own solicitor?
Although Aspen Woolf does recommend using a solicitor familiar with the project to keep the buying process on track and as easy as possible, you are of course free to appoint any UK property solicitor you wish.
15. But my funds will be tied up too long before I receive an income?
As with any off-plan real estate investment, your initial deposit will be tied up during construction. However, many developers offer interest on your funds up until completion to help compensate for this. Your property purchase will also increase in value during that build time. Aspen Woolf will always aim to provide properties with the best potential return and capital appreciation. Your money may be tied up, but it’s always growing.
16. What happens if the management company go bust?
The developer often appoints the management company, so if a management company ceases to trade then the developer will source a new company to replace the previous management if needed.
17. Why invest in buy-to-let property?
Investing in property has always been a popular choice as it is a tangible asset which you have control over, with a steady growth in value expected over time and, not to mention, that you will receive rental income from. Housing and shelter is a fundamental need for all people. When this demand exceeds supply it makes for an excellent investment choice.
18. What kind of yields can I expect?
Yields can vary, depending on where and what you buy. Contrary to popular belief, London actually offers some of the worst rental yields in the UK. Regional city locations in the north of England offer the best rental yields in the UK, regularly above 6%. Rates can go up or down, but the future is ever growing for the buy-to-let market in the big Northern cities.
19. Who are Aspen Woolf and what do you offer?
Aspen Woolf is an award-winning property investment brokerage that helps connect investors across the globe with high-yielding property investments. We are highly committed to upholding the highest professional standards and are regulated in the UK by The Property Ombudsman.
20. What are the purchase costs for a buy-to-let property?
Purchase costs vary between different developments.
The most common costs include:
- Legal costs
- Registration fees and Searches
- Stamp Duty
- Purchase taxes (depending on the location)
- An administration and handling fee of £1,000
Estimated up to £1,400 (it varies depending on which solicitor you use), including disbursements. Disbursements are charges your solicitor doesn’t control and are over and above their own fees, as a general rule every UK solicitor will pass these charges on to clients to recoup the cost. Such things as bank charges, land searches and document fees.
You will also pay land stamp duty on your property; this varies on the value of the property and how many properties you have. Your solicitor will calculate this for you at the time of purchase.
|Buy-to-let and second home Stamp Duty tax bands|
|Brackets||Standard rate||Buy-to-let/second home rate (April 2016)|
|Up to £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1.5m||10%||13%|
* This is only given as a guideline, please check with your accountant or solicitor for actual amounts payable.
Aspen Woolf are not tax or financial advisors, so we’re unable to give advice on tax, we suggest you contact an accountant to have this checked. Each country has different rulings in relationship to UK taxes.
21. Can I move into my investment property?
Generally, investors do not live in their investment buy-to-let properties. A buy-to-let home is an investment that generates income. If you live in it yourself, you won’t be bringing in income, so the property isn’t a buy-to-let anymore – you become an owner-occupier instead.
In addition, many buy-to-let opportunities are for off-plan properties, so at the point of investment the home may well not have been built.
There are also mortgage considerations. Buy-to-let and owner-occupier mortgages command different rates of interest, have different conditions, different loan-to-value percentages and different application criteria. If you have an existing buy-to-let property that you wish to move into, and which you have funded in part through a mortgage, you will need to change your buy-to-let mortgage to a residential mortgage before moving into the property.
However, that said, of course you may move into the property provided that it is a residential property and you will also forgo any rental assurances that come with the investment. However, please be aware that only students can live in student properties.
22. Can I live in the student property?
If you are a student, then of course you can. If you are not, then sadly, no, you cannot. Only students may live in student properties.
23. Can my son/daughter live in the property?
If you buy a residential investment property, then anyone you appoint can live in there.
If the property is a student property, then only registered students can live in the student property.
24. Which taxes are associated with investing in a buy-to-let property?
Buy-to-let property investment involves paying a range of taxes.
Income from your property is taxed in the same way as money you earn at work and has the potential to push you into a higher tax bracket.
Capital gains tax can apply to any property you own that is not your home. It is calculated based on how much your capital has grown when you sell the property.
Taxes and allowances change regularly, so be sure to avail yourself of the latest information at the time you plan to invest.
The above should not be construed as tax advice and everyone’s circumstances are different. You should verify any tax information from HMRC or a qualified tax adviser.
25. Can I rent out my current home and change my residential mortgage to a buy-to-let mortgage?
This is certainly possible, though not necessarily simple.
Residential mortgages and buy-to-let mortgages are very different. Residential mortgages are designed to offer protection to homeowners and are regulated by the Financial Conduct Authority to reduce the risk of the mortgage holder(s) losing their home. Buy-to-let mortgages are not regulated by the Financial Conduct Authority and involve different affordability calculations and criteria.
Buy-to-let mortgages are calculated based on the rental income the property is likely to achieve and usually interest-only. Therefore, any discussion with the lender of an existing residential mortgage regarding changing it to buy-to-let will usually involve an entirely new application process.
There is an exception for temporary periods of letting, whereby a residential mortgage holder can apply for ‘consent to let’ for a time-limited period. This is in discretion to your mortgage lender.
If you are considering turning your current home into a buy-to-let property, it is best to speak to your mortgage lender as early as possible to ensure that you do not breach your existing mortgage in any way. You will also need to speak to your insurance company regarding amending your home insurance.
26. What happens if the construction is delayed?
It’s always in the developers own financial interest to complete on time, but there is also a longstop date in place to protect the client’s best interest should any delays occur.
Investors are provided with construction updates and images of the build progress are supplied in regular intervals.