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. Many developments can have a charge for client’s financial security, safety and benefit. This is above and beyond what is normally required. Some do not. It is important that you discuss and understand your financial security with an independent financial advisor.
4. What is a legal charge?
A legal charge, in simple terms, means a person or group who has a legal right over a property. This means if the developer goes bankrupt then you have a legal right over the property.
5. I’ve heard stories that the service charge is increased after “x” years?
In most developments, the service charge is reviewed in line with local inflation. Some do not and it is important you check this with your legal representative.
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. Not all developments offer such a mechanism. In some cases, all funds can be released to the developer. It is important that you discuss and understand the specific funding mechanism for your development with your legal representative prior to exchange of contracts.
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. Does my development have a warranty?
All new build properties come with a 10-year new build warranty, an example of which is NHBC.
10. What happens after the rental assurance period?
You’ll usually be able to continue to have the property managed and maintained if you wish, so you can relax while a professional company deals with the tenant and maintenance for you.
11. Do I need to do my own due diligence?
Purchasers are expected to conduct their own due diligence and make their own judgement on any property being offered. Purchasers must verify the information and any speculative information offered by us. Purchasers are expected to perform their own financial and legal assessment of any opportunity prior to making any commitment to purchase.
12. Do Aspen Woolf provide financial advice?
Aspen Woolf is not authorised or regulated by the Financial Conduct Authority (“FCA”) and as such neither is permitted to offer financial advice about investments, whether regulated or unregulated; accordingly, we don’t offer financial advice. In case of queries or doubt, purchasers and any other interested parties should consult an FCA-regulated Independent Financial Advisor.
13. Can I buy using a mortgage?
On a number of our developments mortgages are available, so please make sure you mention this when speaking with Aspen Woolf. If the developer offers incentives then this can effect lending on the development. It is important you explore all your options with a mortgage advisor prior to purchasing.
14. 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.
15. Do I need a solicitor?
Absolutely. 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.
16. 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.
17. What are the risks of buying off plan property?
Buying off plan properties are a popular choice for investors, especially with their attractive payment plans and discounted prices. An off-plan property in the UK can be very profitable when buyers conduct the right research and take the necessary steps to protect themselves.
Delayed completion or cancellation of the project
Unfortunately, developments don’t always follow the construction timeline, there are many variable factors that contribute to delays. Make sure, when buying off-plan property in the UK, you ensure that the sale and purchase agreements clearly mention the completion date and how the developers will handle the situation if they aren’t able to meet the completion date. Normally in the UK, contracts will have an expected completion date, and a long stop date. It’s the long stop date which is the one that really matters contractually. Make sure you consult your lawyer and understand this clause properly.
There are even situations when the project can get cancelled or terminated before completion, resulting in buyers losing the money they’ve paid so far. It’s crucial to research the developer before buying off-plan property and make sure they are established and reliable. Look at their track record with previous developments: have their other projects completed on time?
Ensure you use an experienced off plan property lawyer, they know what to look for, make sure they send you a report on the contracts, this is where they will highlight the potential risks for you. Don’t be afraid to ask any questions or to try to negotiate certain clauses. Typically, these contracts are one sided, like most contract. It’s important you and you lawyer work together to ensure you have protected yourself as much as possible.
Market conditions may change
Another one of the risks of buying off-plan property is the fluctuation of market conditions. It could be that market prices move downward after you’ve brought the off-plan property, which means that property is worth less than what you’ve paid for. One of the tips for buying off-plan property in the UK is to make the purchase in a rising market, so you can take advantage of competitive prices and enjoy greater returns once it’s completed due to higher market value.
Also, ensure that the project has a good location, is well-connected to other parts of the city and has good surrounding infrastructure, amenities and attractions.
Quality may not be what you expected
It’s important to research the developer when it comes to the quality of the property. Whilst the show homes and brochures may look very appealing, the actual finished product might not be of the same standards or to your liking. This is where buying off-plan property in the UK differs from ready properties, where you can actually see the unit you intend to buy. It’s one of the risks of buying off the plan, but it can be mitigated by researching the developer and seeing that they have a good track record.
Cannot be sold until completion
Off-plan property buyers may find themselves restricted if they’re looking to sell their unit before completion. Nowadays, developers often require buyers to have paid off a certain percentage of their off-plan property, before they can sell it. One of the most important buying off-plan property tips is to check with the developer the minimum threshold after which you can sell your off-plan unit.
You should ensure you have a clause included in the contract which allows you to sell your off-plan property before completion, make the contract assignable. Some contracts have this already, some don’t. You lawyer will help draft a clause to be included in your purchase contract.
No immediate returns
One of the disadvantages of buying off the plan property is that investors will not see immediate returns until the property is completed, whereas, those purchasing ready properties can start to benefit from rental returns. However, those buying off-plan property in the UK will enjoy discounted prices and can take advantage of rising prices once the project is completed.
Thus, while there are certain risks of buying off-plan property in the UK, buyers can take certain measures and precautions to enjoy the many benefits of off-plan purchases.
18. What happens if the management company goes bust?
The management company would have to be replaced. If the previous company were contracted to pay any assured rents then these would likely be lost.
19. 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 rental income too. Housing and shelter is a fundamental need for all people. When this demand exceeds supply it makes for an excellent investment choice.
20. 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 better 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.
21. 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 members of The Property Ombudsman.
22. 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
23. 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.
24. 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.
25. Can my son/daughter live in the property?
If you buy a residential investment property, then anyone you appoint can live there. If the property is a student property, then only registered students can live in the student property. It is always important to refer to the lease agreement to understand any restrictions before proceeding.
26. 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.
27. What happens if the construction is delayed?
It’s always in the developers own financial interest to complete on time, but there is often a longstop date in place to protect the client’s best interest should any delays occur. It is expected that buyers conduct their own research into the background of the developer and their track record.
Investors are provided with construction updates and images of the build progress are supplied in regular intervals.