Many people’s fixation with the central London property market is on how to scramble on to its bottom rung. For others, the consideration is the opposite: namely whether to cash in and flee the capital.
Leaving is not a simple decision. As my family drove north in 1989 to start a new life in a Cumbrian village after selling our home in Bayswater, my father warned: “This is a one-way ticket. We’ll never be able to move back to London.”
Fast forward 26 years and my wife and I faced the quandary of whether to jump off the central London property ladder. We are moving to Nairobi for the Financial Times and had to decide what to do with our 2,000-square-foot house in Fulham.
Should we sell or let it? Have London house prices peaked? If we sell, what would we do with the money? But if we rent, would the hassle be more than it’s worth?
Our decision is one that faces not only Londoners working abroad, but couples marrying who both own a home, those thinking of downsizing or perhaps retiring to the country.
House prices in our area have stagnated over the past six months and even fell in the second quarter of 2015 amid fears of a “mansion tax” and efforts by the government and the Bank of England to cool the property market. But such short-term gyrations that might prompt us to sell could obscure longer-term trends.
If the price of our next-door neighbour’s house, sold late last year for £1.75m, is anything to go by, our house has increased in value by about 40 per cent since we bought in mid-2011. We could now not afford to buy in the street. And my father’s words still ring in my ears. Since 1989, prices in central London have risen on average by about 8 per cent a year.
Moreover, rents appear to be on the rise. Whether it is the seemingly never-ending tide of French migrants or Brits starting to enjoy the feelgood factor, demand for family homes in west London appears to be buoyant. So we decided to let rather than to sell.
Ensuring our insurance and mortgage providers were happy with the property being converted from owner-occupier to rented was next on the to-do list. Both quickly came back in the affirmative, although I did wonder if the latter was because our mortgage was less than 25 per cent of the bank’s valuation of the house.
It is definitely possible to let and manage a property without an agent, even from thousands of miles away, but we decided that it would probably be a false economy — and I don’t want to be bothered by tenants fretting about a skylight while trying to avoid being kidnapped in Mogadishu.
But who should we use? We were not so keen on going with one of the big high-street agents that has a high turnover of staff, so we considered two smaller, boutique-style outfits. Found through a friend’s recommendation, we settled on Berkeley Way, set up by Alex Reeves and Sheena Patel in 2005.
Why? The agent appeared as interested in our street and its residents — with a view to finding a tenant that would feel comfortable, and so hopefully stay for longer — as thinking about potential short-term profit. It did help that Berkeley Way thought we should be able to secure up to £1,300 a week, 30 per cent more than the other agents, and agreed to charge 12 per cent a year to let and manage the house, several percentage points lower than many agents charge.
Owners wanting to let their homes need to be ready for some harsh home truths about the quality of their property and the amount — and cost — of work required to make it “tenant ready”. Fortunately our agent was largely complimentary; a cracked floor tile, dripping tap and leaky shower cubicle in a bathroom were among the most serious issues.
But we were also advised to redecorate the property from top to bottom to give it the “shiny new” feeling tenants are after, and to make it much easier to spot damage in future beyond the expected wear and tear. This involved laying out nearly £6,000.
Berkeley Way advised “launching” the property on the market in early July — just as private schools are breaking up and potential tenants are starting to think about their accommodation for the new school year.
Deciding the rent was the next issue. One house nearby, but 350 square foot larger, was let in May for £1,165 per week. Another, again slightly larger, was on the market for £1,300.
Alex told us that in our immediate neighbourhood “it is worth noting that there are not lots of houses which have achieved over the £1,000 per week marker”.
My wife and I decided we’d prefer to secure a tenant quickly than be greedy and potentially endure an anxious wait. So we settled on an asking price of £1,195 a week
The house went on the market on a Monday evening, Berkeley Way received three inquiries on Tuesday and conducted two viewings on Wednesday. One couple put in an offer that evening and after some negotiating over the following 24 hours we settled on £1,150 per week. It turned out the family live only one street away and are having to move because their landlord wants possession of the house.
Judging by the response, we appeared to have judged the market just right. Ten serious inquiries on the first day would have been a sure sign of underpricing, we were told, while no nibbles by the end of the week would have indicated that we were being too greedy.
So, fingers crossed, we’ve ticked or are ticking all the necessary boxes. The electricity, gas and other utilities still need to be sorted but that only requires a couple of phone calls. Let’s hope the house is still standing in three years with the same number of rooms.
Tax changes in the Summer Budget mean landlords will have to sacrifice a greater share of rental profits in future.
By contrast, profit on selling one’s primary residence is not liable to capital gains tax — but that is unlikely to be a sufficient incentive for most people to jump off the London property ladder.
Landlords can still claim tax relief on mortgage interest — although the Chancellor is reducing the amount that can be claimed from April 2017. And if the property is owned by more than one person — a married couple, for example — then each person is entitled to claim the tax-free allowance, currently £10,600. However, if one person is foreign then they are unlikely to be entitled to the same benefits if you are moving abroad.
If the property is being let furnished, landlords can offset 10 per cent of the rental income for wear and tear — until 2016. Then, under rules announced in the last budget, you will have to claim for actual replacement rather than an automatic percentage.
All this takes for granted that you are filing a UK tax return. You will have to continue doing this when overseas and even if the rental income is less than the tax free allowance. And if you are not filing a tax return, you will have to start doing so.