London’s 2019 property lives up to its challenges and contradictions. Shortage of affordable homes, oversupply of new builds, de-glamorised leaseholds, tax return regulations, help to buy schemes, licensing, stamp duty, Brexit and so on.
At the end of last year house prices dropped by 1.5% which has not happened since 2012. The forecasts predicts that the house prices as well as mortgage rates will now stay stable. Buying a property in 2019 will allow for price negotiation. Buyers and investors are more likely to get a lower price for the asset they want.
Let’s look at the basics in terms of property purchase.
What is a freehold?
The dictionary definition of Freehold is:
permanent and absolute tenure of land or property with freedom to dispose of it at will.
Consequently, freehold gives you the freedom and responsibility to maintain, manage, rebuilt, demolish or sell the property and land it stands on. In terms of major changes the exceptions are listed buildings.
Listed buildings are part of English heritage, in other words they carry historic or architectural value. This means that legally there is limitation on the extent to which you can alter such properties. Some buildings have listed only the exterior, some have listed also interior parts.
Your local listed building officer is able to inform you appropriately and potentially grant you special permission for works.
What expenses are associated with freehold?
The Premium Property Price
Chartered Surveyor Valuation
Stamp Duty Land Tax
Legal fees / Solicitor
There are potential additional expenses and cost of buying freehold ( Registering a new freehold, Copies of deeds -per flat, Copies register of the title – per flat)
What is a leasehold?
Leasehold is another term tied to a property purchase. At least a third of Londons households in reality are leasehold properties. And no less than 90% of new-builds are the same.
Buying a leasehold Property means that the property is owned for a period of time. The ownership of the property ends with the end of the lease. Land on which the property stands is not owned by the buyer and the landlord can demand a ground rent to be paid.
Leasehold is typically a selling arrangement for a property that is a part of a larger building, for instance a block of flats. In this arrangement the leaseholder owns the property within while the freeholder continues his ownership of the whole building and the land it stands on.
In the eyes of the law, lease is a tenancy. When the lease ends and neither of the parties take steps, the lease continues as tenancy. Leasehold can be extended by 50 or 90 years if you qualify for the extension.
For more information you can take a look at the new Mayor’s leasehold guide for Londoners
What expenses are associated with leasehold?
Annual ground rent ( the profit of the freeholder)
Annual building insurance, usually an expense to the landlord
Annual service charge – day to day maintenance of the building and insurance of the contents of the building
Sinking funds – contribution into a fund covering unexpected maintenance and repairs
Key points regarding a leasehold
Landlords can recover unpaid ground rent up to 6 years back.
The Freeholder can terminate the lease in case the leaseholder does not fulfil the contract.
Leaseholder usually needs freeholder’s permission to proceed with any major works at the property
Leaseholder can set up a Right to manage company in order to take over the management of the property from the landlord.
Leasehold property ultimately represents a diminishing asset.
The leaseholder can ask the landlord to extend the lease at any time. The freeholder can request a deposit or 10% of the value of the new lease.
Extending a lease may have further costs involved, such as a marriage value.
Leaseholder has 2 options in getting the lease extended. Except negotiating the extension directly with the landlord, leaseholder can decide to take a “statutory route” to negotiate the terms. This way the results can be sometimes achieved quicker and even cheaper.
Provided the leaseholder has owned the flat for two years the right is to add 90 years to what is left on the present lease at a “peppercorn” rent, which means no ground rent.
A lease shorter than 80 years can seriously affect the value of the property. It is also difficult to find a mortgage for such investment.
Re-mortgaging in order to cover the lease extension can be challenging as you may not know right away the amount you need to raise.
You can make an offer subject to lease being extended and this will have to be negotiated. Leasehold can be possibly converted to a commonhold. Converting can become pricey and time consuming process.
A recent article from the Independent details the pitfalls of a leasehold agreement and essentially compares it to a modern feudalism.
The landlord has the all-important power to award contracts to anyone he chooses, irrespective of the cost, quality or even necessity of the job. But you have to pick up the tab
What is Commonhold ?
Share of freehold can be only obtained when freehold land or a building becomes registered at the Land Registry as a commonhold.
Commonhold is a new type of property ownership, an alternative to the long leasehold system. It allows freehold ownership of individual flats, houses and non-residential units within a building or an estate. Ownership is not limited by time as it is with a lease.
The rest of the building or estate forming the commonhold is owned and managed jointly by the flat or unit-holders, through a commonhold association.
Key points regarding a commonhold
Individual unit – holders form a commonhold association, which grants each member the direct ownership of their unit and a share in ownership of the common parts. Commonhold association owns the common parts and it is a limited company.
All shareholders have equal rights and all decisions are made through commonhold association by the property owners.
Paperwork tied to commonhold is standardized and transparent to avoid inconsistency between leases.
Enforcing the rules stated in the Commonhold Agreement can create tensions between the shareholders
What is Shared Ownership?
Allows the buyer to purchase and own a part of the property and rent or lease the rest of it. You can buy usually between 25-75% of the property and you can later on buy more shares of the property. In some cases buyers may be able to gradually buy 100% of the property. Shared Ownership is designed to help first time buyers to shift from renting to a part ownership.
Key points regarding Shared Ownership
Shared ownership often require a lower deposit. Ground rent and service charges need to be paid 100% regardless of the size of the share.
More accessible mortgages but not all lenders are able to offer this product,
shares owned can be sold at any time.
Usually, stamp duty land tax is not paid on the initial purchase, but once the ownership crosses 80%, stamp duty must be paid on the full value of the property.
The tenure is secured, as long as the rent and mortgage payments are up to date. Structural alternations of the property must be supported by permission from the housing provider.
What is a Buy Off-Plan?
Essentially, buying off-plan means buying a new-build property before it’s been completed. You will be presented with computer generated view of the new build. With the vast tech developments, you are often able to take a virtual tour at the property although the structure has not yet been finished.
Pros of buying Off Plan
Early buyers are sometimes offered 5% discount.
You may be able to use Help to buy equity loans
There is a potential that the value of the property rises even before being completed.
Brand new Property comes with home warranty. There are various providers such as National House Building Council (NHBC) or ICW who provides a 10 year policy on new builds, renovations and retrospective cover.
If you are are buying to let you don’t need to worry about EPC or Fire Safety as new builds are compliant.
You can personalise the property by choosing colour schemes, fixtures and quality finish packages.
Buying off plan means buying underprice because it yet could not reach it’s future market value.
Buying underprice can potentially turn into a disadvantage because the size of your mortgage could change.
Cons of buying Off Plan
Less options with getting a mortgage. There is limited lenders that target Off-Plan buyers.
Mortgage lenders normally guarantee the mortgage offer for up to 6 months. This may mean re-applying if the completion date lays further down the line.
Your deposit can be at risk if the size of the mortgage changes
If you can’t complete the process of buying they are some circumstances under which the developer can sue you.
Undoubtably, freehold is the best option and commonhold is highly preferred. For up and running buy-to-let investors leasehold is still an investment they can get return on in this ongoing market with new developments.
Projecting a new investment must be a twice measured, once cut act. Rental yields, lender’s conditions, tenant demand and other aspects of the sector play major roles in making final decision about the investment.
Basic forecasts for 2019
By -to Let
Investing in property is characterized as highly safe long term investment. The vibrant Uk capital rich in new developments, young population and work opportunities continue to predict significant returns for investors.
Source: Totally Money
Lenders are increasingly offering cash-back on buy-to-let mortgages. Leeds doubled the cash-back on some of its products from £500 to £1,000.
Paragon launched new products specifically designed for portfolio landlords.
Property professionals who participated in a study by mt-finance research on the Uk property sector identified following top challenges they faced in 2018:
London’s Yields in 2019
Hackney the new Tech City of London experienced the house price and rental rise of 4.5% during 2018. The mighty economic growth is led by the hub of digital companies and its vibrant folks.
Leyton, rich in period terraced houses often converted into flats. Such housing stock represents an option for property investors with limited budget. A growing cultural scene and proximity to the Olympic site, Leyton is now attracted by various demographic and lots of young renters. Yields at 4.2%.
Leytonstone commuters benefits currently from Overground railway along with the Central line and it’s Southern end Maryland will be one of the new Crossrail stations. Leytonstone rental desirability increased 83% along the past 5 years while the property prices stayed reasonable.
Stratford with yields holding on 4.5% & nearby East Ham yielding currently at 5.7% demonstrates great value homes in the locality. East Ham hold its pride in excellent schools and it is awaiting a multimillion upgrade over the upcoming years. This eastern sweet spot benefits further from District as well as from Hammersmith & City Line.
Bromley keeps its traditional looks, catching an eye of buyers interested in Edwardian or Victorian architecture. Freehold is clearly still an option here, average property price in December 2018 was £316,085. The cherry on top of this cake is the transportation. 6 direct trainlines running to central London keeps the yields at 4.2%.
The rental demand along the projected and half finished Elizabeth line will continuously rise and the with it the rental yields too. Bexley’s connections to the city are poorly now, but Crossrail is about the change this. Average yields ranking close to 7%.
The 73 mile Elizabeth Line running from Reading and Heathrow on west side to Shenfield and Abbey Wood on East side is currently delayed by 18 months. The Line has the potential of carrying half a milion passangers a day and finally offer an alternative to the Central line on the most crowded parts of the line. The TFL claims that it will increase the capital’s transport capacity by 10%.
This line is designed to bring life to places like Thamesmead, which is at the same time looking at Town Centre refurbishment laying by the Themes. Average rental yields just over 4.45%. 11 min from Canary Wharf.
Other locations benefiting from the newest tube lines above rental yield 4% are Forest Gate ( traveling distance of 12 min to Canary Warf) and West Drayton yielding well above 4%. Forest Gate desirability is underlined by well rated state schools and walking distance to Westfield shopping centre in Stratford. West Drayton’s new homes are on the increase since the Crossrail plans were revealed.
Source: London loves Business
Hayes is of the areas which will get highly enhanced by the Crossrail. Commuting from Hays will equal as little as 20 min to Bond Street and 5 Min journey to Heathrow. Proximity to several large employers such as Heathrow airport is another reason to weigh out buying an investment property here.
Ealing Broadway is another rental hotspot looking at 50% commuting cuts once Elizabeth Line is open. 10min distance from Bond street will surely push the current 3% yields up. It is worth mentioning that a step further, the steadily rejuvenating White City also appeal to buy-to let investors in recent years.
Hounslow is under improvement too and what more you may find a property here which qualify for stamp duty exemption. Rental yields almost at 4.4%, Hounslow will appeal to many now. The neighbouring Brentford matches the average yields with Houslow and offers high number of waterfront homes.
9 Elms Station and Battersea Power Station are also work in progress with estimated 20 000 new homes and 25 000 jobs in the area due to the novelty.
The development market in 9 Elms is massive. Yet on its start, the breaking year for the area is set to be 2020 when the region will be fully operational. Lettings market here see an average rent of £450 a week for one bedroom apartments. Due the fact that there is high number of new flats in this complex the rents are slightly lower, but long term it is destined to upside.
“2021 will see a further milestone passed with Apple occupying the Power Station’s office element.
In the run up to 2020 the area will witness the arrival of more than 1,000 US Embassy staff as well as the completion of thousands of new apartments”
Croydon is now well known for its transformations over the last decade. Average rental yields currently reaching 5.3%. Area has planned an arrival one Westfield shopping Centre which will certainly preserve the demand. Above all mentioned Croydon also prides itself in open green spaces.
North East towns like Barking & Dagenham are reaching 5.34%. Buyers can choose to invest in new builds.
Haringey’s rent has risen last year by 7% ! Local economy’s forecast is to expand by 14% by 2020, 11% population grow. Dynamic scene indulging in change driven by the creative community attracts the profile of young tenants. The average house price in January 2019 equals £ 550,415.
Wembley which is under ongoing re-development is averaging yields of 4%. Large residential projects complemented with leisure stations such as football stadium, park or swimming lake are designed to attract property investors.
Cricklewood & Brent Cross qualifying as one of the largest regeneration areas within Europe , managing an investment of £4.5 billion to create an oasis of green spaces and leisure facilities. Investors should be comfortable with long-term return, current rental yield averages around 2%
Interesting plans are awaiting South Kilburn over the next 10 years , where a council estate is booked for a plastic surgery with top architects!
The ever changing metropolis of London continue to shelter over 9 millions of people in 2019. The Population density in the city is estimated to 7,700 residents pre square mile and 14, 550 in Greater London.
If you are looking to buy a home for yourself, you may be be able to negotiate a good price on the one you like the most. Searching for a freehold or share of freehold ? Visit fabulous Adzuna Freehold finder .
For new developments available for Shared Ownership or Help to Buy you can check our Blog article 70 Hot New Developments in London.
If you are looking for buying a property investment London’s diversity may be able to meet your needs if you are looking for a stamp duty exemption, quick return or long term investment.
Zoopla’s recently details data on the top performing buy-to-let areas in London.