The idea of going on holiday is to take you away from the office, switch off and relax. Well it doesn’t quite work like that for me and, I’m sure, for many others. What a holiday does for me is give me thinking time that ordinarily I wouldn’t have. In simple terms, I can look at the business I run from the outside looking in, rather than trying to look inside from inside. I get a sense of perspective and positivity looking in, and that stimulates ideas and thoughts that can help colleagues and clients alike.
Whilst on the sun bed (under a cloud I may add), I got to thinking of the small property investors/developers and began to feel sorry for them. Why? Well, over the past four years small and new investors have been beaten up by sections of the financial sectors including, more recently, the taxman and stamp duty authorities.
Four years ago, the savvy investor looked out for the right property, bought it, re-modernised it over a ten week period or less, and then placed it back on the open market for first time buyers, small families or downsizers to purchase as a wonderful modernised new home. In return, the investor would hopefully make some profit and move onto another property. In some cases, the investor would keep the newly improved property and re-mortgage for buy to let purposes.
The investor could do this three to four times a year bringing many other businesses into the equation, from solicitors and builders to estate agents and mortgage brokers. Surprising what that little run down property could do! Sadly, the majority of building societies and banks decided to implement the “six-month rule”, a rule that was poorly thought through and restricted the trading of the small investor.
Now the investor could only do one or two transactions a year if they were lucky. The irony of the six-month rule was that you couldn’t re-sell your investment property to a buyer with a mortgage until you had owned it for six months. yet you could buy a £100,000 Porsche and trade it the next day to someone requiring finance. Bizarre!
To add insult to injury, the weary small investor then had the tax relief rate halved from 40% to 20%. Ouch!
It’s been a tough five years. There is one thing for sure, people need to move for many reasons. But, is it the vendor who will lose out? The reality of the situation and a gripe that many small investors have is that many thought that what they were doing was helping – turning an eyesore into a nice home; improving an area; allowing people to stay in their chosen area. I happen to agree that they were helping.
Many investors were being contacted by local authorities to see if they would rent their houses to the council clients. As an investor myself, it worked for me with Stockport council, and a new partnership was born. In addition, that run down eyesore that stood empty for years became a bright new and vibrant house, improving the neighbourhood (stopping complaints and improving local security) whilst creating additional revenue for the councils via council tax. The improvements also made it easier to obtain a mortgage on the property as it was free from defect.
The good news is that more lenders are now scrapping the six-month rule so there is a glimmer of light at the end of the tunnel. Feel free to contact me if you want to know who those lenders are.
Moving forward, the fact is that compromise in many property transactions will be the key attribute. In my own consultancy role as head of Edward Mellor Auctions, we have made steps to deal with that compromise situation. Many more clients see auction as a way to efficiently sell their property and are glad of our intervention, no matter how big or small this may be. The numbers are growing.
For you investors the road to success is still there, perhaps there are a few detours you need to take. However, do it with guidance there are good professional people out there to help.
Giving you more time to sit on your sunbed and relax.
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