This is one of the most common questions we get from investors and the answer is: it depends where you want to buy! It depends on your budget, the price and availability of stock, the demand for rental accommodation in the area and your overall investment goals.
So, once you’ve clarified your position and requirements, the very next thing you should do is speak to a local expert, like us. We’ll be able to tell you which type of property is most likely to suit and advise you on what things you need to consider when doing your research.
Speaking in very broad terms, there are a few basic guidelines. Houses tend to grow better in capital value than flats but flats tend to be more readily available and in greater demand/supply in cities. With houses you have the responsibility for all the maintenance and repairs of the property and grounds; with flats, there is the requirement to pay for maintenance communally. That may or may not be an issue, depending on whether there are already communal funds in place to pay for upcoming work. If there isn’t a ‘sinking fund’, you could receive a surprise quote and bill for thousands of pounds of work you didn’t know were required.
Flats may have restrictive covenants dictating whether and how the property can be let and what residents can and can’t do; assuming it’s not listed, you’re likely to be able to do pretty much anything you want with a house. And there is more likely to be the opportunity to add value through extension or conversion of a house; improving a flat is usually limited to internal decorative/cosmetic changes, although sometimes you can create another bedroom or en-suite.
The biggest difference between the two is the tenure. Houses are freehold, which means you own the land on which the property stands and are pretty much completely in control with what happens to it. Flats, however, are leasehold and that means there are certain key things it’s vital you investigate before deciding to buy one to let:
- How many years remain on the lease? Mortgage companies are less likely to lend when a lease length drops to below 80 years, as the cost renewing the lease can jump at this level, coupled with an uncertain future of the tenure means the value of the flat can drop dramatically in just a few years as only those with cash can typically buy it.
- Are there any restrictive covenants? For example, you may not be able to let the property at all, or can only let the property to one tenant and sub-letting might not be permitted. There may also be restrictions on parking, use of the communal grounds and the type of renovation you can carry out.
- How much is the service charge, what does it cover and is the ground rent included? Are there limits to annual increases?
- Is there a current sinking fund and when were major works (such as roof repairs, water tanks and painting of the exterior) carried out? You don’t want to get saddled with a huge bill as soon as you complete or buy without knowing what works will be required during your investment period.
- How many of the other flats in the building are let? If the answer is ‘none’, you may get complaints from other residents who might not appreciate non-owner occupiers.
You should also make sure that if you’re buying a flat, you engage a solicitor or licensed conveyancer who is used to dealing with the purchase of leasehold properties.
Remember, if you have any queries or concerns about buying a flat, you can pop into your local Reeds Rains branch for advice any time - we’re always happy to help and our team are extremely well versed in the pros and cons of investing locally in both flats and houses.
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Our initial mortgage consultation is free. We will charge a fee between £399 and £999 on application. The amount we will charge is dependent on the amount of research and administration required. We reserve the right to charge a subsequent fee of £99 for each further application that may be required.
The Financial Conduct Authority does not regulate some forms of Buy to Let.