Q&A

Buy or wait for phase twoI am looking at an apartment in a new development. The first phase - basically two blocks - is going on sale now and they are ready for occupation.

The development will be finished in two years at which time there will be four more blocks and some retail units. Am I better waiting until the second phase to buy so that I can see what the whole place looks like or should I buy now in the hope that I will be getting an apartment at a better price?

A: One of the big drawbacks of being the first in to buy in a large new development is that you could find yourself living in a building site for several years. On well run, well developed sites, disruption is kept to a minimum but building is noisy and dirty and you will have to accept some disturbance. First buyers are often particularly disappointed in the lack of the promised landscaping which typically is not put in place until the last unit is built - although to sell the first phase there is usually some landscaping and general prettification.

The advantage of the first phase is, as you say, that the units tend to be slightly lower in price than the second or third phase. Developers want to test the demand for the development and to get sales going.

Another advantage is that often the first phase is the best located - it is usually closer to the entrance, which means closer to public transport and so on. Builders operate the same psychology as Maître d's - in an empty restaurant you'll always be put near the window so passers-by get an impression of full tables. It's highly likely that there is an architectural model of the scheme which will give you an indication of how the first two blocks relates to the rest. For example, you may not wish to be too close to the retail unit or you may prefer a certain orientation for light and view purposes. It also gets down to your personal circumstances. If you are renting, have mortgage clearance to buy now and, after a thorough search, have found an apartment in an ideal location for you, then waiting for a second phase just to see what it looks like is going to cost you money.

Interest relief while abroad

Q: What is the position about mortgage interest relief if I let out my house while I work abroad (for about three years).

A: While you are away, your primary residence becomes an investment property so you can claim the mortgage interest cost in full as a tax deduction against the rental income. As a landlord, you can also claim other expenses relating to the property, such as advertising the rental, general maintenance of the property and so on.

As your work absence is around three years (and not four years which is the Capital Gains Tax threshold) and you intend to come back to the house, you should not be liable for CGT if you decide to sell sometime in the future. You should tell your insurance company about the change in status of your house from a primary residence to an investment property, as this may affect your premium and you should also tell your mortgage holder. You will obviously be liable for tax on the rental income, less allowable expenses.