You may remember that in the last video we were talking about modern method of auction properties and the fact that the auctioneers or estate agents are going to expect you to pay a fairly chunky non-refundable deposit if you are the successful bidder.
And there’s a couple of implications of this which I think people don’t realise, and this is in the whole kooky world of legalities and finance because what you may not realise is that the amount that you pay as a deposit is taken into account when calculating stamp duty land tax.
So, for example, if you paid £150 thousand for the property and you paid something like a £6 thousand non-refundable deposit, and by the way, at that level of value it could be more, you have to look at the auctioneer’s terms and conditions to find out exactly what it would be. Let’s say for argument’s sake that it is £6 thousand, then the stamp duty will be calculated against the purchase price of £150 thousand, plus the £6 thousand.
What makes it particularly galling is this though, you think I’ve taken that into account in my figures, I will buy the property I’m going to carry on with the purchase, I will now apply for finance. And so you go to a lender perhaps for a buy to let mortgage whatever it happens to be the type of finance you think you’ll need for this particular project, and you say “I’m paying £156 thousand for this property, please could you lend me 75% or 80%, or whatever the LTV is against £156 thousand”.
What are they going to say? They’re going to say “Well actually you’re not £156 thousand, you’re only paying £150 thousand for the property. The other £6 thousand is merely a non-refundable deposit, and we won’t take that into account in formulating how much we’re going to lend you”.
And you’ll say “But that’s not fair because HMRC have said that when it comes to calculating stamp duty they want that £6 thousand to be taken into account”.
The lenders will say “Well that’s nothing to do with us, talk to HMRC about that. As far as we’re concerned you’re paying £150 thousand for the property and so that is all we’re going to finance against”.
So there we are one of those strange quirks of property. So, if you haven’t seen the other video then please watch it, and hopefully, that gives you a better idea of what the modern method of auction is all about. Am I saying don’t buy properties through the modern method of auction? No of course not. And maybe in time, it’ll become one of the main ways that we do buy property. But just be aware that with all these things there’s pros and cons.
I hope you found this video useful and informative, and if you did then please come over to my website thepropertyteacher.co.uk where you’ll find loads more great property-related resources including free special reports to download and my best-selling series of e-books which includes The Successful Property Renovators Workshop, 63 Common Defects In Investment Property And How To Spot Them, and if you’re just starting out in property or you want to grow your portfolio you may be particularly interested in The Successful Property Investors Strategy Workshop in which I’ll take you through exactly how I started and built my property portfolio starting literally with none of my own money, and how I built a portfolio of £2 million worth of property in just four years, that was starting from scratch.
I’ll take you through everything that I did right so that you can copy me and do the same, and I’ll also show you everything that I did wrong so that you can avoid the mistakes that I made and so that you can progress in property and be far more successful, far more quickly than I ever was.
And this is based upon my own real-life experience, and it took me about four years to actually work out how to do property investing properly, but in the 200 pages in The Successful Property Investors Strategy Workshop, I’m going to show you all that four years knowledge condensed down so you can use it immediately.
And until next time, here’s to successful property investing.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
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