Property investment can be a tricky thing to get into for the first time; there are several acronyms and terms used that aren’t used in everyday speech. At the Heaton Group, we believe in full transparency and helping our investors, whether seasoned or new to the industry and as such, we’ve put together the following guide.
What is Off-Plan?
Off-plan property is when the development is yet to be completed. Often property investors will buy a property before completion to ensure that they beat the demand. The property, when completed, goes through incredible demand, so it’s usually best to get involved as early as possible. The “off-plan” refers to the plans drawn up by the property developer. This often provides more favourable terms to investors because lenders view this as a more significant potential within the market. It’s essential to purchase off-plan from a reputable developer as there is a risk if the developer doesn’t have an exceptional track record.
What is a Buy-to-Let Mortgage?
A buy to let mortgage is different than a standard mortgage in the sense of you are indicating to the lending provider that this is a “venture” with intent to let the property out in the future. Several different metrics are assessed during the lending process. Usually, the deposit needs to be above 25% of the final purchase price. As with a standard mortgage the landlord or investors income is taken into account, but this is assessed against the mortgage of the property and not that of the rental income (however lenders would like to see how much yield you will get from renting the property).
Usually, those looking to buy property in desirable or high-demand areas will find mortgages easier to come by. Still, all lending criteria are on a case by case basis. Property developers do prefer a Decision in Principle (DIP) to consider reserving a property for you.
What is Freehold?
Freehold property is where an individual/company owns the property, and when you purchase the property within you are a leaseholder and pay ground rent and service charges. Leases are typically a long term (90 years or 120 years) but can be shorter. If you have a freehold, you can charge leaseholders ground rent for their property. Still, you are responsible for the maintenance of the building such as the staircase and entrance hall areas as well as the roof and exterior walls.
Freehold buildings are often bought as a “block” of apartments that the freeholder sells or rents out to tenants. There are sometimes issues between freeholders and leaseholders due to the ground rent increases (some London properties have seen their ground rents go up by 4x in the last five years)
What is an HMO?
We’ve previously provided information on HMO’s here but what this stands for is House in Multiple Occupancy – meaning a property that contains more than five people who aren’t related to each other. Often these will share a communal living area such as kitchens, bathrooms and living rooms while providing occupants with their bedrooms. HMO’s are frequently bought as a block and then rented out to individuals as a collective for a landlord to make the most return on investment.
What is Rental yield?
Rental yield is the property investors income calculated against the price they paid for the property minus all other charges associated with owning a property such as insurance and management fees such as ground rents. Typically, you’ll see low rental yields in London due to high purchase prices of properties – the highest rental yields can be found in the North West of the UK.
What is Stamp Duty?
This is what you’ll pay if your property is worth over £125,000. If you’re a first-time buyer, there are different rules for Stamp Duty as there is assistance provided for these buyers. People who buy an additional property that is worth over £40,000 must pay additional stamp duty. This has caused friction within the buy to let market as there is a feeling that the government is working against the buy to let landlord. While we don’t disagree with this sentiment as it would make everyone’s lives easier if this weren’t the case, provided you pick the right investment this shouldn’t be too much of an issue.
What is an Owner Occupier?
What we’ve noticed is an increase in those interested in living in the off-plan properties too. It’s a testament to the areas we’re investing in that people are viewing them as potential homes for themselves rather than investment opportunities. Owner-occupiers are always welcomed at the Heaton Group as choosing to Buy to Live a viable way of getting a great property.
If you’re ready to make a property investment or wish to discuss your options and future developments, then please do get in touch on 01942 251 945 or email us at email@example.com