Tuesday 22 January 2019

34.5% of All Royal Tunbridge Wells Properties were Bought Without a Mortgage in the Last 7 Years


For most Royal Tunbridge Wells people, a mortgage is the only way to buy a property. However, for some, especially Royal Tunbridge Wells’ homeowners who have paid off their mortgage or Royal Tunbridge Wells’ 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...

4,456 of the 12,896 property sales in the last 7 years in Tunbridge Wells were made without a mortgage (i.e. 34.5%)

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 only4.33% 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 Royal Tunbridge Wells 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 Royal Tunbridge Wells 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 Royal Tunbridge Wells 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 Royal Tunbridge Wells 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.

Monday 14 January 2019

The £7,002,045 Ticking Time Bomb for Royal Tunbridge Wells Landlords

I just love looking over and keeping up to date the 108 pieces of legislation that govern the rental of residential property in the UK”  
...No Royal Tunbridge Wells Landlord, ever
  
If you are one of the 2,088 Royal Tunbridge Wells landlord’s that manages your own property, would it surprise you to know that there are 108 separate pieces of legislation that govern the rental of private houses to tenants. Oh, and on top of the 108 pieces of law, there are further 300+ regulations in the mix. Whilst Royal Tunbridge Wells’ landlords may once have preferred to manage their Royal Tunbridge Wells buy-to-let properties themselves to boost their profits, many Royal Tunbridge Wells landlords are starting to see this as a false economy.

In the last four years, an additional 803 landlords in Royal Tunbridge Wells have converted from self-managed to having their property managed by a letting agent in Royal Tunbridge Wells, taking the total number of properties under management in Royal Tunbridge Wells to 3,265 (out of a total of 5,353 private rental properties in Royal Tunbridge Wells).

Now, don’t get me wrong, self-managing your Royal Tunbridge Wells rental property can be a very fulfilling experience, allowing you, as a Royal Tunbridge Wells landlord, to build a deep relationship with your tenant and your emergency 24 hour plumber, builder (happy to do small jobs at a drop of a hat), decorators, first name terms with their deposit provider, lawyer and EPC provider to name but a few. (Wow!)

Also, did you know if your tenants deposit isn’t registered, or doesn’t continue to be registered after the end the periodic tenancy upon renewal ... you could be fined up to three times your deposit? With the average rental deposit in Royal Tunbridge Wells being £1,118, each self-managed landlord in Royal Tunbridge Wells could be fined £3,354 per tenancy if the deposit isn’t currently registered. Therefore...

...if every deposit of every Royal Tunbridge Wells self-managed landlord’s property wasn’t registered, the total fines would amount to £7,002,045
Now of course, I am not suggesting for one minute all the self-managed landlords of Royal Tunbridge Wells haven’t registered their deposits, yet almost on a daily basis, I come across horror stories to that effect. Another two (but by no means all) hot issues that the Courts are cracking down on, are doing immigration ‘Right To Rent’ checks on all tenants (yes all tenants) and confirmation proving the tenant received the ‘How to Rent’ guide. If that second issue cannot be proved (a ‘sent’ email won’t suffice), the landlord cannot serve the section 21 Notice, meaning the tenant cannot be served notice to vacate the property.

To many, it’s really a case of DIY or getting a qualified professional in … as those additional Royal Tunbridge Wells landlords mentioned above have done since 2014. You might say, “Of course you are going to say all this – you are a Letting Agent”. Well the choice really comes down to your time and your knowledge. If a Royal Tunbridge Wells landlord is not equipped, or able, to devote time keeping up-to-date of legislation and law nor doesn’t want to be bothered 24/7/365 about a blown light bulb, dripping taps, have that confrontational conversation with their tenants about missing rental payments, or arbitrate arguments and disagreements between your tenant and the neighbours, it is perhaps better to pass this accountability/responsibility onto a letting agent.

One thing I would say is all letting agents aren’t the same. Would it surprise you to know that letting agents aren’t regulated?

The landlords of Royal Tunbridge Wells that do use a letting agent should not forget that passing over management to a letting agent doesn’t mean they can disregard legislation and they are still responsible for deposit/rent repayment legal directives, civil fines or action if the letting agent makes a mistake. Therefore, it’s important to pick a respectable letting agent from the start. 

Nevertheless, for those Royal Tunbridge Wells landlords that see their job as a professional landlord and want to be intricately involved in the day to day administration of their rental properties, it can be worthy pursuit.

If you are a self-managed landlord in Royal Tunbridge Wells, and want to know if your paperwork is in order please feel free to drop me a line and I am more than happy to do an ‘MOT’ on it to ensure you are the right side of the law.