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  • 10/03/2003
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My client now lives abroad, but owns a two bedroom-flat in central London as a buy to let. The original tenants have now moved out and it has been empty for three months which means they will soon be struggling to pay the mortgage. The client wants to know whether the market has peaked and should they be selling up?

This client is faced with a vexing dilemma. If the situation regarding the vacant tenancy does not improve, there could be a real threat to the financial stability of the client. This could lead to mortgage arrears, which will have a significant effect on the borrower’s credit rating.

The issue hinges on when the client purchased the property. The date of purchase will give the adviser information on the potential capital gain. We do not know the size, of the client’s mortgage, but if we take, for example, the Nationwide house survey, a property purchased in 1998 for £200,000 would be worth in excess of £400,000 by the end of 2002. In this situation it is a very healthy capital gain.

It is also worth noting that property prices already appear to levelling off in London, especially in the high-demand areas. In addition rental yields appear to be falling due to market oversupply. A reduction in the rent charged could solve the tenant problem.

A sale at this stage may trigger a taxable capital gain. Bearing this in mind the client will need to take detailed tax advice.

In conclusion, the answer lies in the client’s attitude to risk. The speculative position would be to hope the client can find a tenant and that property prices will continue to increase.

However, the safer option would be to sell the property now.

Simon Biddle

Broadly speaking, the prospects for buy to let remain good, with residential property clearly remaining a good long-term investment.

The likelihood of continuing low interest rates and stock market volatility should continue to make investment in residential property a favourable option.

This will be further fuelled by the demand for rented properties. The perception of renting has changed dramatically in the last five years and it has now become far more socially acceptable. Tenants are, increasingly, upwardly mobile people who have higher expectations and standards for the place they call home.

As a landlord the client cannot substitute the advice of a local letting agent to give a much more localised view. For example, a local letting agent will give some idea of the type of properties which are renting well in any particular area.

The Association of Residential Letting Agents (ARLA) can also offer help, particularly regarding advice on regulations and a general indication of rent levels.

When taking the longer term into account, the rental property market is expected to grow at a healthy pace.

The greater availability of mortgages for residential investment purposes, and the increasingly competitive nature of the mortgage products offered, will also help to increase the market by making it accessible to more investors.

Martin Ellis

The answer clearly lies with the client and not with a mortgage based solution from a broker.

It is well documented that the buy-to-let market is reaching saturation point in the South. However, there is always a rental threshold which will ensure full occupancy ‘ the property is, after all, in Central London and one would assume desirable if it has been let in the past.

A two-bedroom flat in this location should never sit unoccupied for long and so therefore, perhaps it is the letting agent who is at fault ‘ not the property.

The central issue lies in the client’s goals ‘ is it capital growth, income on rental yield, or does the client want to come home at some point and live back in the centre of London?

We should look at the client’s original long-term plans when they bought the property and subsequently let it out.

There are a couple of solutions to this, either use a letting agent that guarantees rental income, albeit at a reduced rate. So, change the letting agent and the problem could disappear. Or, sell it. The clients will have seen capital appreciation and be able to invest the money in alternative investment options.

Andrew Seymour


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