When buying a flat there are several factors which need to be considered. This brief guide is intended to highlight some of the questions you should ask before placing an offer.
Questions you should ask
Does the flat need or have a HMO license?
Certain types of Houses of Multiple Occupancy require a license. In Exeter, flats or maisonettes now require a HMO license if they are above, or connected to, commercial premises (shops, offices etc.) and are let to three or more people forming more than one household who share a kitchen, bathroom or toilet.
A license is also required for buildings which have been converted entirely into self contained flats, where the conversion does not meet the standards set by the 1991 Building Regulations, and less than two thirds of the flats are owner occupied. Buildings which have been converted into only two flats will only require a licence if both flats are tenanted. Before committing to the purchase of a flat, it is a good idea to check whether the building needs a license and has one in place.
The license currently costs a minimum of £800, covers the whole building and is valid for 5 years. It usually in the name of the person responsible for building and costs are often shared between all the properties in the the building. Note that if the license is in the name of the person selling the flat you are looking to buy, it may need to be re-applied for and paid for again. Full details can be obtained from the Exeter City Council website.
Is the property leasehold?
There are three ways that you can own a property; freehold, leasehold or leasehold with an interest in the freehold (also known as “share of the freehold”). Put simply, owning the freehold means that you own the building and the land that it’s built on, whereas owning the leasehold means you own the building but someone else owns the ground. Obviously, where flats are built over one another, each flat cannot exclusively own the ground on which they are built! However, in many leasehold developments, the freehold is often owned collectively by all the leaseholders together, which means that the owners effectively own a share of the land on which the property is built (sharing the freehold). This has the advantage that any ground rent is not paid to an external land owner. A lease is typically granted from anywhere between 60 years and 999 years.
How long is the lease and how much of it is remaining?
Having a good number of years left on the lease is important as part of the value of the property is tied up with how long you have exclusive rights over the property. Also, in general, mortgage companies look for a minimum of 70 unexpired years. You should give consideration to how long you will keep the property and that future buyers will also look for a similar lease length.
What is the ground rent payable?
This is money paid to the freeholder to rent the land on which the property stands. Ground rents can be set at anything from a peppercorn payment of £1 per year to hundreds of pounds per month. Ground rent will be fixed in the lease and cannot usually be changed.
What are the maintenance payments?
It is normal for the owners of each individual property in the block to make a monthly, quarterly or 6 monthly payment to a management company to cover maintenance of the exterior of the building. Usually, this would be between £25 and £150 per month.
What do the maintenance payments cover?
This can vary from one property to the next. It is usual for the individual owners to be responsible for their own windows, however in some cases the maintenance charge will cover replacement windows and redecoration charges. Maintenance charges usually include buildings insurance, which can be viewed as a saving. As a bare minimum, always ask who maintains the grounds, who cleans the hallways and communal entrances and who pays when new windows are needed or the roof needs attention.
What are the parking arrangements?
Just because there are parking spaces or garaging in a development, it does not mean that each flat or house has an automatic right to park in them. On some occasions, parking spaces have been rented out separately to the flats themselves. Check with the agent or the current owner.
Is there a sinking fund?
It is normal for the regular maintenance payments to be slightly higher than the cost of the maintaining the property, so that a pot of money or “sinking fund” is built up to cover any unexpected or scheduled, but major, maintenance. There should at any point be enough funds in the pot to enable emergency repairs to be undertaken wherever necessary. Not all flats will have a sinking fund in place.
Is there any scheduled maintenance?
If the maintenance company is planning on refurbishing the entire building, re-roofing or replacing all the windows, you need to know about it. If this is the case, check that there are adequate funds is already in place, otherwise the new owners will be footing part of the bill.
What if there are no regular maintenance charges? Occasionally you will come across a leasehold property with no fixed maintenance charges. What this means in practice is that you will still be liable for paying for your share of the maintenance of the building, but this is done on an ad-hoc basis, as work is needed. In this case, one of the owners would usually coordinate works and collect payment from the other leaseholders.
What are the legal costs associated with buying?Some management companies will charge to answer solicitor’s enquiries and some will charge if you apply to keep a pet, erect a satellite dish, take in a lodger or change the colour of your front door. It is worth bearing these costs in mind.
Also, check with your solicitor how much extra they charge if you are buying a leasehold property. It is normal for a leasehold conveyance to be around £100 more than for a similar freehold property.
Can a lease be extended?
If a property has a lease of less than 100 years, it would be pertinent to look into the cost of extending the lease. The cost of doing so can vary immensely, so getting a quote is strongly recommended at an early stage. The Leasehold Act provides some protection against freeholders making extortionate charges for extending a lease, but it is common for costs to be thousands of pounds.
One minor point to be aware of is that Charities are exempt from the Leasehold Act, so may charge significantly more for extending a lease. In particular, beware of National Trust properties and converted chapels where a Church organisation may still own the freehold.
What about pets?
Some leasehold properties don’t allow pets, others will allow some pets and some will allow pets with permission of the management committee. If you don’t have a dog, you may want an assurance that nobody can keep several ‘yappy’ dogs in the same building! Ask the estate agent prior to offering and make sure your solicitor checks this carefully.
Who manages the property?
Some management companies have a better reputation than others. A quick Google search can normally expose the worst offenders. Poor management will typically result in high maintenance charges and insufficient maintenance, etc.
We hope this guide has proven useful for you but should you have any questions or would like some expert advice, feel free to call us and we will be more than happy to help.
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