James Cooke: Stay Put And Add Value!
James Cooke MA is Director of Your Home Property Management and in this article he offers five different investment strategies for leaseholders looking to add value to their flat – without selling.
Over the last year or so we’ve seen more and more of our leaseholder clients choosing to sit tight, not sell, and instead sweat their existing property asset. Before we move on to adding value to your flat, let’s just spend a moment understanding the housing market. I do this not because I want to waste your time but because it will help rationalise my investment tips.
The Current Housing Market
Right now mortgages are cheap. But to unlock these fabulous deals requires a massive deposit. Usually north of 25%. So on a £200,000 flat you need £50,000. Yep – me neither. High deposits are a key factor in explaining why the housing market has been flat for the last few years. The situation is steadily improving; you can now get a mortgage with just a 5% deposit but the deals are much less attractive.
Those hit hardest by high deposits are young first time buyers – because they haven’t got any property assets to begin with. But why are those who already own property hurting too? Because they haven’t seen a decent rise in their property’s value and no increase in equity means no juicy deposit for a good deal.
Stuck In A Catch 22
In a nutshell: no one can get a decent deposit because there’s been no increase in equity – and there’s no increase in equity because no one can access the funds to drive up demand.
So we are stuck. But for how long? Until 2034. Yep – an FT report quoted an economist predicting that (if you factor in inflation) the UK average house price won’t return to 2008 levels until 2034. This is the pessimistic view.
Ed Stansfield at Capital Economics is a bit more upbeat: “All the evidence shows house prices are still far too high in relation to people’s incomes. At the very least, homeowners need to be braced for another five to ten years without seeing any rises at all in the value of their property.”
So the experts’ view is that house prices aren’t going anywhere for at least five years – probably more. Add this to the fact we are in the worst ever recession (which may yet be a triple dip slump and even worse than 1929) and you can understand home owners simply battening down the hatches.
Five Sure Fire Ways To Add Value To Your Flat
What can a leaseholder do to sweat their property assets? Most people haven’t got £50k as a deposit for a great mortgage deal but many have a few thousand which they can spend wisely to add value. Here’s our list of the five most popular ways leaseholders are investing in their own homes to add value.
1. Extend Your Lease
When your lease term runs out your lovely flat is handed back to the landlord. And you get nothing. But there is statutory legislation that gives you the right to extend (by 90 years) at any time. In the main the cost of extending your lease is outweighed by the additional value of a flat with a long lease. Just don’t leave it too late because it can get really expensive. A good time to extend is if your lease has between 95 and 85 years remaining. Don’t go below 80 years outstanding because lease extension costs start to rocket.
2. Buy Your Freehold
Or for about the same money as a lease extension you, and your neighbours, could club together to buy your freehold from your landlord. And so long as your building qualifies, your landlord has to sell. Like most things there will be negotiations over the price but in the main agreement is found. If not you can get the price resolved by the First Tier Tribunal (Property Chamber). Again the cost of buying your freehold is less than the value added by having a flat with a share of freehold. Plus you will get a 999 year lease and no ground rent – and total control over the block’s management. For total control, buy your freehold.
3. Swap Your Managing Agent
You can also add value by kicking your poor performing managing agents into touch. Effective block management is a rock solid way to add value. If you’re suffering with poor management imagine what that performance is doing to your flat’s value…the door entry system isn’t working, the garden’s neglected, and the hallway is in a state. Maximise your property’s value with an effective property manager.
4. Let Your Property
Of course if you can get a deposit together and secure a great mortgage deal then there’s no better way of sweating your property asset than by getting someone else to move in and pay off your mortgage for you. But as we’ve already touched on this route requires the Holy Grail of a big deposit for your new home.
5. Home Improvements
Sounds dated doesn’t it? But spending a few thousand pounds on the right improvements can have a dramatic effect on your property’s value. According to research by HSBC, the most effective investment in terms of home improvement is to…add space i.e. a loft extension or out to the side. But this is impossible for a flat owner. The next best area according to the HSBC research is…to invest in a new or enhanced kitchen. If your kitchen’s looking a bit jaded any enhancements will have a dramatic impression on the overall value of your home.
You can of course go the whole nine yards and replace the complete kitchen. But bear in mind you can make some dramatic results just by replacing unit doors and investing in a great paint job.
All of the above work. If you’re a flat owner waiting for the good times of dramatic property price rises to pay for your next move – you could have a very long wait. In the shorter term these five tips will more than pay for themselves and help you effectively sweat your property asset.
For further information on the services offered by Your Home Property Management please contact James on:
T: 020 8257 7663
M: 07715 328 711