Buying in UK, Plymouth

M

Marykate

Guest
Dear all,
I wonder if anyone could offer me their advice. I am imminently considering buying a house in Plymouth, southwest UK. It is a large 4 bed Georgian house in very good conditon with a good garden in a desireable location near the seafront. The asking price is £420,000 (Sterling). I would hope to only hold on to the house for a year or two max and an now wondering if the whole venture would be worth it. I would intend to rent it out (I know the area quite well and have relatives living nearby who could keep an eye on things). As far as I can tel lthe maximum rent I could hope to achieve is £1,200 per month.

I am wondering about a few aspects:
Capital appreciation. already prices for the houses in this street have doubled in the past two years but I am wondering if this trend will continue. It would seem from what I have read that it may not.
-Tax issues. I am working and resident in Ireland. If I sold after a year would I have to pay the UKk 40% Capital Gains Tax or the Irish 20%.
-Mortgage. Would it be best to go with an Irish or UK bank for the mortgate.

Would it be worth it at all in the current climate of increasing interest rates.

Many thanks for your advice to anyone who can help me out.
 
Hi Marykate,

I live in London so am not familiar with the Plymouth area but here are a few observations.

Given the costs involved in buying property for investment purposes, you ought to be looking at a holding period of at least 5 years in my opinion. You will have to pay 3% stamp on this purchase (£12,600) in addition to solicitors fees (another £1,500 or so).

As for capital appreciation - who can tell? UK house prices are increasing at about 5%/6% per annum depending on who you listen to - there was a jump in prices in the early part of this year but the market seemes to have slowed down a little so I would not hold out for a huge amount of capital appreciation unless you are getting the property on the cheap.

Rent of £1,200 p.m. works out at just £300 per bedroom - this appears to me to be fairly cheap given how nice the property sounds - are you sure that this is a realistic rental figure?

How will you be financing this project? How much in cash would you have to put down? The rental yield on £1,200 looks skinny even before stamp and costs etc.

Someone else will have to advise you on the tax side but I know that there is a double taxation agreement between the UK and Ireland.

Johnboy
 
Thanks Johnboy.

From what I have gathered/know about Plymouth, the rents are not nearly as high as for example London, or anywhere near what can be achieved in Dublin. I am told a monthly rental of £1200 is a realistic figure. On the plus side, the city of Plymouth is allgedly 'buzzing' and poised for great expansion/improvements.

We would be financing this with some of our own capital (approx €40,000) and remortgaging our own house in dublin whcih is mortgaage free and is currently worth approx €700,000. i am not sure if the numbers stack up yet. The problem is we have to make a deciosn pretty quickly.

I am worried that we might be getting emotionally swayed by the house (which is really nice) and not look coldly enough at the numbers.
Any more advice really appreciated!.
Many thanks, Marykate.
 
Marykate, I'm looking at UK so I was doing the numbers. Your yield at £1200 per month is 3.4%, Mortgage cost is House Price + StampDuty + Solr - your €40k cash = £407k or €592k. That's €1,950 pm, interest only.
That's a minus €200 pm cashflow after investing €60k of your own money.

Killian.
 
Many thanks Killian. It does seem a lot of interest to be repaying.
The property would have to rise by a large amount for it to make sense. It is hard to judge, in general Plymouth property has not rised by the national average, yet this steeet is slightly unusual in that the buildings are all old and listed with a good deal of character, and close to the sea. They have rised by over 200% over the past 3 years. The southwest itself is rising fast in general. Its a hard call.

I am still unsure about the CGT situation. Assumining (big assumption) we were to make a profit, what CGT is payable would you know. We live and work in Ireland. I belive CGT on property profits is 40% in the Uk. Would we end up just paying the 20% CGT in Ireland or would we be made to pay 20% in Ireland and the difference (20%) in the UK? Or does anyone know?
thanks again
Marykate
 
Hi Marykate,

Looking again at the numbers that you have posted your investment proposal makes less sense given that your monthly income (assuming full occupancy) will not cover even the interest-only funding costs of this investment.

I have made similar comments to other would-be investors from Ireland looking at the UK property market. Remember that you can get 4.75% in the post office in the UK and according to the most recent report I read, gross yields from buy-to-let nationally were 6.3% for the first half of this year and are forecast to grow as rents increase over the course of the year. Your negative return does not look terribly attractive in this light (you will be in fact subsidising your tennant's rent). If you fund from Ireland with an Irish mortgage then you will run exchange rate risk.

Again I would stress that capital appreciation is never a given. The UK property market peaked back in 2003 and after falling a little has picked up again but given how paranoid the BoE appears to be about the economic impact of a runaway housing market they would probably up rates again if property prices started moving up siginificantly. House prices are growing on average by about 5%/6% nationally. I am sure that there will be certain areas that will do significantly better but why are you buying after prices have already gone up by 200% - perhaps the easy money has already been made?

On the CGT as far as I understand you will pay the full UK rate and any exesss in Ireland (but since CGT is lower in Ireland then you will probably not have to pay any GCT in Ireland) - though this is an amateur's guess so you will need professional advice on the tax issues.

Johnboy
 
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