Can I reserve a new build before I sell my house?

Can I reserve a new build before I sell my house?

There’s no place like (a new) home but — you’ve probably already heard — it takes more than a quick click of the heels to get there.

We’ve all dreamed of finding that perfect property, in the perfect place for what is, hopefully, the perfect price. There are just a few hurdles to get over and hoops to jump through in order to get from ‘A’ to ‘B’ to ‘C’.

In an ideal world, homeowners would like to have their next abode in the pipeline before committing to the sale of their own property. Unfortunately, this can’t always be the case, especially when it comes down to dealing with developers.

While some will offer a little bit of leeway, the majority of national chains don’t like to be kept waiting and would prefer for their clientele to be in a position to buy before sanctioning a reservation.

Interested parties would require proof of funds, and a mortgage in principal (if necessary), before even being considered as potential suitors for a plot on any given development.

Approval of your financial situation would then enable a buyer to put down a reservation fee (generally between £500-£1,000), which will hold the property for an agreed amount of time and, in turn, provide the buyer with a window to finalise the sale of their own property, if they haven’t already done so.

This is when the excitement really starts to ramp up, though there is still some way to go until you can afford to start dreaming about colour schemes, floor plans and new furniture.

A deposit, usually at least 10% of the final purchase price, unless eligible for the Government-backed ‘Help to Buy’ scheme, would then be necessary to keep the ball rolling.

From this point — with a solicitor/conveyancer in place, along with a mortgage agreement (if applicable), and all searches have come back minus any problems — contracts can be exchanged, with all “i’s” dotted and “t’s” crossed, meaning you’re on your way to completion and the ownership of a brand-spanking new home.


What should you look for when buying a new build property to rent out? 

Like with any business venture, it is important to cover all bases in order to protect your investment and get the most out of it.

A little research can go a long way when it comes to getting the best bang for your buck, especially in the property world.

The question is simple; are new build buy-to-let transactions profitable? The answer, however, is not quite as transparent.

Any would-be landlords must strategise, they must do their homework on specific developers they may be dealing with, taking in reviews, ratings, reputations, portfolios, pedigree, professionalism etc.

They should take into account the rental yield, current trends in the market, the capacity for growth, the demand for tenants in that area, the valuation of the property versus any negotiated discounts and maintenance costs.

The first port of call is to ensure that any overheads/expenditures are fully covered, at the very least. After all, the reason you’re taking the plunge is to turn a profit.

Whether you’re a first-time landlord, or a seasoned investor, you’ll no doubt already be fully aware that new toys/gadgets/products/commodities tend to cost significantly more, due to inflated prices.

New-build properties are no different and typically come with a premium included in the price. Depending on the percentage attached, from an investment perspective, that ultimately impinges on profitability margins.

Then there’s the worry of depreciation. Take a sparkling new car for example; as soon as the key enters the ignition and the vehicle is driven off the dealership’s forecourt, the value instantly plummets.

The same can be said for new-build houses. The moment the investor opens the door of their new home, the valuation will immediately take a tumble. For this reason, when looking at purchase patterns associated with a specific developer, it might be worth trying to negotiate a discount to help stave off the threat of potentially diminished capital growth.

New-build plots — though statistically smaller in square-footage and/or more expensive than existing dwellings in the immediate area — are, however, more energy efficient and cheaper and easier to maintain.

The fixtures, fittings and all the trimmings are brand spanking new and are under warranty, as opposed to existing builds that might require a new roof, structural titivating, electrics, plumbing, windows and doors. The list is endless and expenditure can be high while new-builds are covered with a 10-year NHBC warranty.

Admittedly, newly constructed homes can come with their own flaws and teething problems, which is why it would be a sensible move to complete a snagging survey of the property on purchase. However, they are generally more cost effective in this respect in both the short and long-term.

These factors, among others, need weighing up. While some prospective buyers would prefer to go out with the old and in with the new, others are of the belief that old is gold in the property market, with the argument that new-builds aren’t able to hold their value quite like their ancestors.


Multiple property taxes for landlords – What’s the law? 

Computing property taxes can be a complicated charade at the best of times, particularly for those new to the market, and the confusion only multiplies when landlords add to their portfolio.

Outgoing expenses are probably the last thing on your mind once you start juggling properties, tenants, developers, furnishings, repairs and improvements. It’s only natural.

Getting your head around mandatory returns such as stamp duty, capital gains tax (only when coming to sell a property), National Insurance, corporation tax (if applicable), income tax etc — while calculating whether you’re eligible for any form of relief — can be a minefield and often weighs heavily on your mind.

Here at Hull Cash Buyers, we recommend seeking expert advice from a specialist at the earliest opportunity to get information tailored to your individual circumstances, which will smooth out the process going forward and help you take control.

For starters, landlords will have to pay a 3% Stamp Duty (SDLT) surcharge on properties costing more than £40,000 at the standard rates at that time. 

A single buy-to-let property would already carry a 3% rate on the part of the property purchase priced between £125,001 and £250,000, which equates to £3,750, though this would rise to 6% (£7,500) on a second property.

For example, if you acquire your first BTL property for £350,000, the Stamp Duty Land Tax you owe would be £8,750. The amount payable on a second buy-to-let property for landlords would be £15,500.

As a landlord you’ll already be paying income tax on the rent you receive from your properties. If you have a portfolio of BTL properties, then all rental receipts and expenses can be stored together in one place.

The thing to keep your eye on in this respect is whether your rental income tips you into a higher tax bracket when added to your regular income from your occupation. 

Any rental profits are taxed at the same rates as business/employment earnings so, depending on which tax band the income falls into, you’ll either be paying 0%, 20%, 40% or 45%, on any earnings over a particular threshold, which can cost a landlord thousands of pounds.

However, the tax that a landlord pays on any profit from rental (the first £1,000 ‘property allowance’ is tax free) is subject to deductions for ‘allowable expenses’, which cover outgoings on the day-to-day running of the property.

These include costs for maintenance and repairs (that are not is not considered a capital improvement), insurance, legal fees for lets of a year or less, letting agents’ fees, accountants’ fees, utility bills, like gas, water and electricity, travel expenses, administration costs, rent, ground rent, service charges etc.

Expanding your portfolio would also likely expose a landlord to Class 2 National Insurance payments. This is the case if earnings from rentals total £6,515 per annum and being a landlord is your main job, you rent out more than one property and/or you’re buying new properties to rent out.

If your total income from UK property is £10,000 or more for the tax year before expenses, you must complete the main tax return. 

You’ll also need to complete a tax return if your rental income is above £2,500 after deducting rental expenses. 


If unsure, seek guidance  

We’re all aware of the popular idiom: “Proper Preparation Prevents Poor Performance”.

It is vitally important to be as prepared as possible when it comes to unfamiliar subjects and topics that are beyond our understanding.

It takes somebody with an advanced business acumen to fully comprehend the nuance of taxes, which is why we would highly recommend seeking the expert guidance of a professional.

Whether you choose to take on this responsibility yourself going forward, or you opt for a specialist to act on your behalf, it is always advised that you get to grips with your finances in order to continue having a healthy relationship with HMRC.

Once you become au fait with any financial implications, and you have a strong understanding of the options open to you, then landlords can begin properly structuring their property business and find sources of finance to best fund that investment.

This way landlords can act smart, avoid tax traps, claim allowances and relief in order to keep their tax bills at a premium while enhancing their capital growth.

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