Heatons landlords, sell your property portfolios, your tenants will soon be leaving in droves as they buy their first home with the new 5% deposit mortgages backed by the Government’s new mortgage-guarantee scheme revealed in March’s budget! These 95% mortgages are to be supported by the Treasury, lessening losses for mortgage lenders should the borrower be incapable of repaying and get repossessed, as the Government want Generation Rent to turn into Generation Buy.
This sounds like the death knell for buy-to-let investment in the Heatons as many tenants will soon be buying their first home – or is it?
It’s true that on first impressions it might look like many Heatons first-time buyers will now be leaving their rental properties in their droves with this new low deposit mortgage scheme. However, these potential Heatons first-time buyers are facing four big issues which will inhibit their ability to take advantage of the mortgage scheme, meaning many will continue to rent.
Firstly, the mortgage rate for 95% mortgages has increased. The lowest five-year fixed-rate mortgage with a 5% deposit today (with Barclays) is 3.45%, up from 2019’s best rate of 2.75%. That doesn’t sound a lot, yet it makes a massive difference to the monthly mortgage payments (as you will see below).
Secondly, due to pent-up demand post lockdown and the stamp duty holiday, this has increased demand for Heatons property, placing upward pressure on the Heatons property prices which has made it problematic for first-time buyers to get on the Heatons property ladder. This has meant …
the average price of a Heatons first-time buyer property has risen from £183,491 to £210,479 in the last 12 months …
in turn this means, that Heatons first-time buyers have had to save an additional £1,349.40 for their deposit to keep up with the house price increase. That means …
the monthly payment on a 30-year mortgage for a Heatons first-time buyer has jumped from £711.63 per month in 2019 to £892.32 a month today, an increase of £180.68 per month.
The third issue is demand for Heatons first-time property from buy-to-let landlords is surpassing supply, adding further fuel to the fire of driving up prices. Finally, the fact that most Heatons first-time buyers are of the younger generation and it’s the younger workers that have been most at risk of unemployment or salary cuts during the economic crisis.
You might say things will change in 2022 but would it surprise you that 95% mortgages have been available to first time buyers since the summer of 2010 and were only withdrawn during the first lockdown in 2020?
Since 2010, even with ultra-low interest rates, the number of private rented properties in the UK has grown by 580,000 households from 3.8m households to 4.4m households and will continue to grow, let me explain why.
The notion that buy-to-let property is a strong long-term investment has not altered with the pandemic. Since 1930 with the all the crises we have had with WW2, the Oil Crisis, 3 day week and hyper-inflation in the 1970’s, Heatons property has been a hedge against inflation and in addition, delivers a decent income yield of 6% and upwards. Not bad when compared to the 0.5% with a savings account (if you are lucky).
It is a fact that those landlords that see buy-to-let investment in the Heatons as a long-term strategy will win.
It is certainly the case that I am starting to see an exodus of the ‘amateur landlord’, leaving more professional landlords who see ‘landlord-ing’ as a business, not a game. Those long-term Heatons landlords can see through the present predicament as they have a long-term buy-to-let investment mindset.
Many Heatons landlords are intensely aware that demand for high quality private rental properties in the Heatons is only going to flourish as a consequence of the pandemic; whilst not forgetting that demand presently exceeds supply. Also, those same Heatons landlords know that a responsible approach to their tenants with regard to condition and repairs is a key to ensuring the rent keeps flowing in with minimal void periods.
Finally, even though Heatons house prices are, on average, on the up, there are still some bargains even in this market. By doing their homework and working with an agent like myself, these savvy Heatons landlords are paying reasonable prices, thus giving them a sturdier rental yield and the ability for future capital growth.