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This research, which polled more than 500 UK property investors, takes a look at just how Brexit is impacting their long-term investment strategies. It found that since the EU referendum in June 2016, 64% of investors have not let Brexit impact their property investment decisions. 45% of investors have expanded their property portfolio since the EU referendum and only 7% have sold one or more homes as a direct result of Brexit.
According to the findings, 57% do not envisage their property investment strategy changing following the Brexit deadline (29th March 2019). There might be a spike in property investment in new properties immediately following the Brexit deadline.
The 2016 EU referendum signified the beginning of a new era in UK politics. It also triggered many predictions of the demise of the country’s property market.
However, despite the uncertainty caused by the on-going Brexit talks, the majority of property investors have carried on with their financial strategies unperturbed, new research from Market Finance Solutions revealed.
The bridging lender commissioned an independent survey, among more than 500 UK property investors, all of whom own two or more investment properties. It found that when reflecting on the period since the EU referendum, almost two-thirds (64%) stated the Brexit has not impacted their property investment decisions.
In fact, 45% said they had bought at least one more property since 23rd January 2016, with only 7% stating they had sold one or more real estate assets as a direct result of Brexit. The research also revealed that the majority of investors do not see Brexit affecting their long-term strategies. More than half (57%) of respondents say they will not change their property investment strategies following the Brexit deadline.
Although, there could be a surge in activity with the real estate market after Brexit formally takes place, with three in ten (29%) property investors lining up new purchases for once the deadline has passed. The potential delay to the Brexit deadline could see this activity stalled.
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Nationally, the number of new homes created in 2018 was 222,194, the highest since 1989. Yet since 2002, the average number of properties built in the UK has only been 146,700 per year. You would think, seeing all the new homes sites around, you could ask are we building too many houses, especially off the back of those impressive 2018 build figures? However, to keep up with the ever-growing population, lifestyles and people living longer, official reports state the Country actually needs 240,000 new homes built every year to just stand still.
It is estimated, by the Chartered Institute of Housing, that the current national backlog of new homes required is in the order of 4.7 million (i.e. because of the bottled-up household formation by younger adults living with parents, shared housing and unaffordability). As a Country, we cannot meet all these needs immediately and it will take time to build up an effectual plan to address these issues.
Looking closer to home, you will also see from the graph below the long-term trend of new homes building (the yellow dotted line) has been going in an upward direction. In fact, the 2018 new homes build stats for Maidstone are 68.6% above the post Millennium average.
In 2018, 1,286 new dwellings were created in the Maidstone Council area and of those 1,286; interestingly 302 were Council and Housing Association homes
So, if our local authority had a more ambitious annual target of say an additional 500 homes on top of those figures, where could they be built and how would they be paid for? Of course, there are the normal apprehensions about infrastructure issues such as roads, schools, hospital capacity and doctors’ surgeries but our local authority has a Local Plan and that has the locations of where they envisage the new housing will be built (and the infrastructure that goes with it).
The Tories lifted the cap on what local authorities could borrow to build Council houses in late 2018 meaning Councils could borrow more money to build more Council houses. Let’s say we built those 500 homes a year for the next 5 years in Maidstone, that would cost the local authority £375 million to build, which would produce in total £17.4 million in rent. At current interest rates, the interest would be £9.5m per year leaving a surplus of £7.9m for property maintenance and management – meaning the Council houses pay for themselves!
Therefore, what does all this mean for Maidstone homeowners and Maidstone buy-to-let landlords?
Well, the chances of our local authority getting the full funding for an extra 500 homes a year is slim as there is only so much money to borrow. If every UK local authority got funding for 500 additional homes a year for the next 5 years, an impressive 867,500 homes would be built in those 5 years but that would require the councils to borrow £130.1bn – and Central Government doesn’t have that kind of money for Councils to borrow (more like £10bn to £15bn).
The 4.7million long term housing shortage means house prices will remain strong in the long term (despite blips like Brexit etc). Demand for private rental properties will continue to grow and if you read my recent article on Maidstone rents, this can only be good news for Maidstone landlords. This attention on the housing crisis by the Government is good news for all Maidstone homeowners and Maidstone buy to let landlords, as it will encourage more fluidity in the market in the longer term, sharing the wealth and benefits of homeownership for all. However, in the short term, demand still outstrips supply for homes and that will mean continued upward pressures on rents for tenants and stability on house prices.
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The proportion of 25 to 34-year olds who own their home in Maidstone has nearly halved in the last 20 years, so what does this mean for all the existing Maidstone landlords and homeowners together with all those youngsters considering buying their first home?
Well, looking at the numbers in greater detail, in Maidstone there has been a 43.5% proportional drop in the number of 25 to 34-year olds owning their own home between 1999 and 2019 .. and a corresponding, yet smaller drop of 21.2% of 35 to 44-year olds owning their own home over the same time frame.
So, if you were born in the late 1980’s or early 1990’s, the dream of owning a home in Maidstone has reduced dramatically over the past 20 years as young adults’ wages and salaries are now much lower in relation to Maidstone house prices. Nationally, average property values have grown by 186.9%, whilst average incomes have only risen by 44.8%, yet that doesn’t allow for inflation. However, whilst not over the same 20 years (it’s close enough though), the Institute of Fiscal Studies said recently the average British home was just over 2.5 times higher in 2015/6 than in 1995/6 after allowing for inflation; yet the average household income (after tax) of 25 to 34-year olds grew by only 22% in ‘real-terms’ over those 20 years.
Yet, even though property prices are at record highs, on the other side of the coin, the monthly cost of mortgage payments has actually fallen because interest rates have remained low. In 1999, the average mortgage rate paid by UK homeowners was 6.54% whilst today it’s more than halved to 2.64% - a drop of 59.4%. Many of you reading this will remember the 15% mortgage rates of 1992!
The fact is, mortgage repayments take up a considerably smaller proportion of take home pay, on average, than they did before the Credit Crunch or in the late 1980’s. Although the risk that mortgage rates will increase if the Bank of England put up interest rates might leave some homeowners in a difficult position – hence I might suggest (if you haven’t already) you seriously consider fixing your mortgage rate (remember to take advice from a professional before you do).
Yet look at the data in even greater detail and you will see, going back to the 1960’s, we weren’t always the huge homeowning nation we always thought we were.
Today, 4.5% less 35 to 44-year olds and 33.5% more 45 to 54-year olds own their own home compared to 1969. So as the younger generation in Maidstone has seen homeownership drop in the medium term, they will in fact end up inheriting the homes of their parents. We are turning into a more European (especially German) model of homeownership, where people buy their first home in their 50’s instead of their 20’s.
My message to first time buyers of Maidstone is go and get some mortgage advice! The cost of renting smaller starter homes is between 20% and 25% more than the mortgage payments would be. 95% mortgages (meaning a 5% deposit is required) have been available since late 2009 and some banks even do 100% mortgages (i.e. no deposit) .. I suggest that you don’t assume you can’t get a mortgage – for the sake of a 45 minute chat with a mortgage adviser – you get a straight answer and all the information you need.
Therefore, what does this mean for homeowners and landlords of Maidstone? Well, for many tenants, renting is a positive choice and as we aren’t building enough homes to meet current demand, let alone eating into the lack of building over the last 35 years, demand will outstrip supply, home values will, over the medium to long term, rise above inflation – meaning it will be a good overall investment as demand for rental properties increases. Good news for Maidstone landlords and Maidstone homeowners alike.
The single biggest issue in the Country (and Maidstone) today is that we aren’t building enough homes. I know it seems the local area is covered with building sites – yet looking at the actual numbers – we still aren’t building enough homes to live in. Residential property only takes up 1.2% of all the land in the Country – and whilst I’m not suggesting we build housing estates on National Trust land or cut down forests, until we realize that we aren’t building enough .. this issue will only continue to get worse.
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For most Maidstone people, a mortgage is the only way to buy a property. However, for some, especially Maidstone homeowners who have paid off their mortgage or Maidstone buy to let landlords, many have the choice to pay exclusively with cash. So the question is, should you use all your cash, or could a mortgage be a more suitable option?
Well, looking at the numbers locally...
5,378 of the 18,966 property sales in the last 7 years in Maidstone were made without a mortgage (i.e. 28.4%)
Interesting when compared with the national average of 31.9% cash purchases over the last seven years. Next, I wanted to see that cash percentage figure split down by years. As you can see from the graph, this level of cash purchases vs mortgage purchases has remained reasonably constant over those seven years...
Next, if you are going to go for a mortgage, the next question has to be whether you should fix the rate or have a variable rate mortgage. In the last Quarter, 90.57% of people that took out a mortgage, had a fixed rate mortgage at an average interest rate of 2.27%, although what did surprise me was only 65.79% of the £1.429 trillion mortgages outstanding in the whole of the UK were on a fixed rate. The level of mortgage debt compared to the value of the home itself (referred to as the Loan to Value rate - LTV) was interesting, as 61.9% of people with a mortgage have a LTV of less than 75%. Although, one number that did jump out at me was only 4.33% of mortgages are 90% and higher LTV - meaning if we do have another property slump, the number of people in negative equity will be relatively small.
Next, looking at the actual number of properties sold, it can be clearly seen the number of house sales has dipped slightly in 2018…
So those are the numbers ... let us have a look at the pros and cons of taking a mortgage, with specific focus on Maidstone buy to let landlords.
Taking a mortgage will help a landlord increase their investment across more properties to maximise the return, rather than putting everything into one Maidstone buy to let property. This will enable the landlord to ensure if there a void in the tenancy, there should still be rent coming from the other properties. The flip side of the coin is that there is a mortgage to pay for, whether or not the property is let.
The other great motivation of taking a mortgage is that landlords can set the mortgage interest against the rental income, although that will only be at the basic rate of tax by 2021 due the recent tax changes. Banks and Building Societies will characteristically want at least a 25% deposit (meaning Maidstone landlords can only borrow up to 75%) and will assess the borrowing level based on the rental income covering the mortgage interest by a definite margin of 125%.
A lot will depend on what you, as a Maidstone landlord, hope to attain from your buy to let investment and how relaxed you would feel in making the mortgage payments when there is a void (interestingly, Direct Line calculated a few months ago that voids cost UK landlords around £3bn a year or an average of £1000 per property per year). You also have to consider that interest rates could also increase, which would eat into your profit ... although that can be mitigated with fixing your interest rate (as discussed above).
So, with everything that is happening in the world, does it make sense to buy rental properties? Now we help many newbie and existing landlords work out their budgets, taking into account other costs such as agent’s fees, finance, maintenance and voids
in tenancy. The bottom line is we as a country aren’t building enough property, so demand will always outstrip supply in the medium to long term, meaning property values will keep rising in the medium to long term. That’s not to say property values might fall back in the short term, like they did in 2009 Credit Crunch, the 1988 Dual MIRAS crash, the recession of the early 1980’s, the 1974 Oil Crisis, the early 1930’s Great Depression ... yet every time they have bounced back with vigour. Therefore, it makes sense to focus on getting the best property that will have continuing appeal and strong tenant demand and to conclude, buy to let should be tackled as a medium to long term investment ... because the wisest landlords see buy to let investment in terms of decades - not years.