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Generating income via rental property continues to be a popular investment strategy for private UK landlords. With rental demand remaining high, there’s the prospect of healthy returns which, in Manchester, consistently exceed UK averages. According to recent industry figures, M1, M2 and M3 postcodes can achieve yields of up to 5.6%, while properties in Fallowfield and Rusholme can deliver exceptional rental yields of up to 9.5%.
Unfortunately, the initial cost of purchase is less attractive. Buy-to-let mortgage lenders will likely demand a hefty deposit of around 25% before considering a loan application while Stamp Duty Land Tax on second properties is levied at 3% up to a value of £250K, rising to 8% for properties valued between £251K and £925K. Then there are the usual legal costs, insurance and admin fees that must be budgeted for.
Finally, to get the property ready for letting, it may need repair & maintenance, fitting out with essential appliances and even full furnishing in many cases. And don’t forget that a valid Gas Safety Certificate is legally required before the property can be let, as well as an EPC rating of E or above, which is due to rise to C or above by 2025.
To gain access to the rental market, the above financial obstacles must be navigated first, and landlords will understandably be keen to keep costs down so as not to dilute their profit margins. Going through every cost line with a fine tooth comb to see where savings could be made, all too often it’s the independent property survey that’s seen as non-essential. But is this a risk worth taking? We would strongly advise against it.
Many property buyers make the assumption that an inspection carried out by the mortgage lender’s assessor tells them all they need to know about the property. Surely, if the lender is satisfied with the mortgage valuation survey, the property must be OK, right? Well, not necessarily. A mortgage valuation survey is often nothing more than a basic check and tick-box exercise to satisfy the mortgage company’s lending criteria. “Its main aim is to ensure the property is worth the money being paid for it,” says one industry source. It won’t tell you anything about the structural condition of the property. What’s more, since it is commissioned by the lender, the buyer may not even get to see a copy of the report.
The only way to obtain a professional insight into the asset that’s about to be purchased is by way of an independent surveyor. It’s the kind of due diligence that should be done to protect any bricks-and-mortar investment. After all, most landlords are not construction experts, and it is highly unlikely that an untrained eye would be able to spot a serious building defect. Whether you are buying your next home or an investment property, a survey is money well spent. Here’s why:
The most appropriate type of survey, whether for an owner-occupied home or a rental property, chiefly depends on the property in question, that is to say, its type, size, age and condition. There are three different types of survey endorsed by the Royal Institution of Chartered Surveyors (RICS): A basic Level 1 RICS Condition Report, a mid-range Level 2 RICS HomeBuyer Report and a detailed Level 3 RICS Building Survey.
Certainly, if the investment property is being bought at auction, nothing less than a Building Survey will do. The report is designed to “give a description of the condition of each element of the property, identifying the building’s defects along with likely causes, recommendations for urgent repairs, maintenance issues and cost implications of any necessary repairs,” explains one expert in the field. For large buildings and doer-uppers, period properties and non-standard constructions, and flats and houses with a chequered history of alterations, this type of in-depth investigation is highly recommended.
Modern rental properties that are of standard construction and generally in good condition will benefit from a HomeBuyer Report, which provides a good general overview of the building’s condition with sufficient detail to flag up anything untoward. Both Level 2 and Level 3 surveys should also include a current market valuation and a reinstatement cost assessment (RCA) which can be extra helpful in terms of financial planning. If the property is new or nearly new and has no obvious flaws, a Level 1 survey should be enough to provide peace of mind, highlighting any defects that need urgent attention.
Written By Annie Button
Posted by Simon on May 26th, 2010
Posted by Simon on November 8th, 2012
