Topic 13: Assessing the property Flashcards
What is a sitting tenant?
Someone who has a tenancy agreement with the current owner and is protected by law from being asked to leave. Few lenders will consider lending if there is a sitting tenant.
What is Term of the lease?
The remaining time left on a lease, which will affect its value. Most lenders require at least 40 years left on the lease at the end of the proposed mortgage term.
What is Marriage value?
The additional amount payable to extend a lease with less than 80 years to run. Paid in addition to the premium (cost) for extending the lease.
What is a Multiple-use property?
Property, usually flats, where part of the building is for commercial, industrial or retail use.
What is Reinsurance?
The process by which an insurer pays another insurer to take on some or all of the risk posed by an insurance contract.
What is Flood Re-sheme?
Designed to provide reasonably priced buildings insurance for properties in flood-risk areas, that may otherwise be uninsurable. Flood Re is a reinsurance company funded by a levy on home insurers, and in the event of a claim on a qualifying policy it will reimburse the insurer for part of the claim. This enables the insurer to pass on some of the risk to Flood Re and so charge a lower premium than would otherwise be the case.
What is Flying freehold?
Part of a freehold property that extends above or below another person’s property but is not next to or touching the ground. It can be a problem, because the owner of the land may fail to maintain their property, which could result in damage to the property with the flying freehold.
What is Gross yield?
The annual rent from a property as a percentage of the purchase price.
What is Net yield?
The annual rent, minus running costs, from a property as a percentage of the purchase price. Note that mortgage payments are not deducted.
How might disputes affect the property’s value?
As part of the due diligence process, the conveyancer will enquire about any disputes between the vendor and their neighbours or other parties connected
(or claiming to be connected) to the property. Failure of the vendor to disclose a
dispute could lead to legal action if the purchaser is later affected by it. In some circumstances the nature of the dispute could threaten the value of the property or lead to the transaction falling through.
Are there any problems relating to freehold tenure?
The value of freehold property might be affected by the existence of easements and covenants – for instance, a property with a right of way through its garden
is likely to be valued lower than a similar property without such an easement. A flying freehold can also have an adverse impact on the value of a property.
Freehold flats present particular difficulties, as we saw in Topic 4. For example, there is no clear responsibility for certain areas in the building – damage to the ceiling of one flat may also involve the floor of the flat above it, but it may not be obvious who is responsible for repair. For this reason many lenders will not provide mortgages for freehold flats.
Are there any problems with leasehold tenure?
- The lease may contain restrictions or obligations that a buyer might find
unreasonable. - The length of the remaining lease term is crucial, and properties on long leases sell at significantly higher prices than those on short leases.
- Lenders are usually cautious about lending on former local authority flats, with typical concerns including the type of estate where the property is situated, the type of construction (particularly concrete), the height of the building (tower blocks), access and proposed developments, the proportion of flats that are now privately owned and maintenance of the building. Many
lenders will not lend on former local authority flats in high‑rise blocks.
How does location affect value?
Geographical location is of great importance in relation to property value.
Generally, areas of economic prosperity attract population clusters that drive up demand, with London and the south‑east of England being prime examples.
This is not to say that property prices are inevitably low in sparsely populated areas – sometimes they have higher prices to reflect exclusivity.
Even within towns and cities, the very name or postcode of an area can affect property values positively or negatively. Think of your own area and you will easily come up with names of districts that are considered ‘upmarket’ and those that are less desirable.
How does type, age and condition affect a
property’s value?
The type of property will have an impact on its value. Generally, flats are less valuable than houses, and detached houses are more valuable than terraced and semi‑detached houses. Bungalows are often more expensive than a house
with a similar number of bedrooms, although bungalows do appeal to a more limited market. This may mean they are less sought after in areas where there are many bungalows.
