16 Factors that Affect Property Value

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1 16 Factors that Affect Property Value This exercise aims to test you so you can recognise certain factors that might affect the value of property and whether these factors might prevent someone from having a mortgage secured on the property. There are a total of six properties selected at random from the estate agent s window. Under each photograph we ve noted some of the features of the property which may or may not cause issues on value and mortgage ability. For each property make notes as to the affect these features have on value and whether you would consider it a good security for mortgage purposes. Imagine you were a surveyor, what recommendations would you put in your report for maybe a retention or the need for a further specialist report. So lets summarise what you have to do for each property: Factors affecting the value How good a security is it for a mortgage? Surveyor s recommendations May-07

2 Factors that Affect Property Value Property One Location North London, ex local authority flat, in mix of high rise and low rise property both local authority and private. Fourth floor Lift Construction re-enforced concrete construction. Built 1960 s 2 bedroom Leasehold 123 years remaining Price 125,000 No vacant possession 10-May-07 85

3 Answers The main concern on value and mortgage purposes would be it s ex local authority nature. This is not snobbish (I grew up in a council house) but re-saleability for the lender. Fourth floor is better than 14 th floor and there is a lift. Many lenders would not have this kind of dwelling on their lending books. Construction wise well it s not standard and concrete block work has deteriorated over the years leading to demolition. Many thousands of these properties were built by local authorities in the 50 s and 60 s. Lease is fine however you would want to check the lease conditions. No vacant possession means that there is a tenant in the property so this would be a buy to let property not suitable for personal occupation. The price certainly reflect these factors As far as the surveyor is concerned, I doubt if it were to get to the stage of valuation since the lender would probably refuse it before it went to application May-07

4 Factors that Affect Property Value Property Two 2 bedroom leasehold flat above commercial premises on the High Street Tube 1 mile away Location North London Traditional construction and built 1890 s 78 year lease remaining No allocated parking Separate rear access Needs internal re-decoration Full vacant possession Price 175, May-07 87

5 Answers More mainstream property and lending situation this one. Flats above shops are non uncommon particularly in cities such as London. They are sought after and offer good value for money. This one has all the right ingredients a lender would look for. Own access is essential and only minor decoration, which would be asked for by the surveyor with an undertaking. The lease is quite short but as long as there is at least 30 to 40 years remaining after the mortgage term had expired, this should not be a problem. You ll want a decent survey of the property as it is quite old, so a home buyers and a basic valuation for mortgage purposes wouldn t be sufficient. Insurance would be a challenge because by being above commercial premises, this creates more of afire risk, but because it is leasehold, the freeholder will have a block insurance policy covering all the flats in the parade. Parking is not a deal breaker, just a big headache if you have a car, but being close to the tube maybe an advantage someone is wishing to take in lieu of parking. The lease conditions would have to be verified May-07

6 Factors that Affect Property Value Property Three Semi detached Grade 2 Listed property with 4 beds over 3 floors Freehold with vacant possession Needs finishing internally Public footpath through the back garden Thatched roof Sale by auction with guide price of 250, May-07 89

7 Answers A beautiful looking property but looks can be deceptive. Nothing that would prevent a mortgage being secured present. The thatch roof does have a more limited lifespan than slate and tile but they do make property desirable. It s a huge property for the price so I would think the price reflects the semi nature and the fact that it is Grade 2 Listed and needs finishing works. This grading would put many buyers off because improvements and alterations are strictly monitored by English Heritage which aims to ensure materials and such are as it originally was. Grade 2 dominates the majority of listed properties in the UK and describes the property as of special interest. It just might put some people off, so the lender would want to make sure the new owner gets these works finished to make the property readily re-saleable. A substantial retention would be imposed possibly a complete retention until the works are completed. The easement i.e. the footpath is a fact which is reflected in the price. It happens in the countryside and little can be done about it. This can put some people off and will affect re-saleability May-07

8 Factors that Affect Property Value Property Four Timber constructed property on an island on the River Thames Restrictive covenant preventing permanent occupation and only to be used for leisure and weekend retreat purposes.. River frontage. Leased by the Environmental Department 10-May-07 91

9 Answers Quirky property and definitely not suitable at all for mortgage purposes. The construction is totally unacceptable. It isn t timer frames but made of sheets of timber. It s a glorified garden shed. Flooding is a major and definite risk so buildings insurance would be impossible to obtain. Access to the property looks tricky except by boat, which is probably it s market May-07

10 Factors that Affect Property Value Property Five 3 bedroom mid terrace house ex local authority. Newly built conservatory/extension in the rear. Traditionally constructed i.e. bricks and tiles Freehold Shared access through the tunnel beneath the property Built 1950 s 10-May-07 93

11 Answers This property appears to be ex-local authority with a conservatory built on after purchase from the council. The surveyor will advise that the planning consents and building regulations approval documentation for the conservatory is checked by the solicitor before completion. The general condition looks fine but the surveyor will advise on this. The only concern could be the tunnel entrance to the rear seen on the photograph. This tunnel is for the owners of the two mid-terrace houses to gain access to their rear gardens and is a common feature on these types of property. The tunnel allows for shared access but they are normally an example of flying freehold. This is where some of your actual property hangs over someone else s land. Typically above the tunnel is one of the owners properties and this hangs over the land which belongs to someone else. Typically, not a major problem if the total floor space that s flying is less than 25% May-07

12 Factors that Affect Property Value Property Six New build yet to be completed Restruictive covenants not allowing high fences in the front or the parking of commercial vehicles or caravans in the front. Main road behind property separated by earth mound Freehold of traditional construction. 10-May-07 95

13 Answers This artist impression looks nice. But it s not built yet. Some issues here. Firstly the surveyor will ask that the property be subject to an NHBC guarantee. This gives protection to the owner (and the lender) for ten years of faults developing on the property. For the first 2 years, pretty much any problem is fixed. These are called snags in the trade and Barratts (the builders) will have a special team who will go around fixing these snags for free. The remaining 8 years is an insurance based cover which looks at major faults only. The whole mortgage loan will be retained until the property is completed and the surveyor will want to reinspect the property when this is done. The customer can exchange contracts but the mortgage completion will be delayed until the property is finished. All the usual consents and approvals will need to be seen as well. New build estates often have these covenants which ensure the frontages are clean, minimal and attractive to future purchasers. Often builders will take people around just finished estates to give them a feel for their new property, which hasn t yet been completed May-07