Saturday 13 November 2021

Would You Re-Mortgage Your Royal Tunbridge Wells Home to Help Your Child onto the Property Ladder?

How far would you go to help your child get on in the world?

Many Tunbridge Wells parents move area to ensure their child gets into the best primary school or fund their university costs. Many of you reading this have even helped your children with the deposit for their first home from savings.

However, I have come across many Tunbridge Wells people in their 50’s and 60’s, who have good jobs and incomes, yet don’t have the savings to give to their children to help them buy their first home. It doesn’t help when you consider …

The average value of a Tunbridge Wells home has risen by 12.1%

in the last 5 years, from £468,635 to £525,200.

I am therefore seeing increasing numbers of parents who are willing to re-mortgage their own Tunbridge Wells home or start a new mortgage (when they own their home outright) — to get their children onto the Tunbridge Wells property ladder.

So, whilst the Government is trying to turn Britain’s 20 and 30 somethings from ‘Generation Rent’ into ‘Generation Buy’, the Bank of Mum and Dad are mortgaging their retirement to pay for it all. Yet it need not be cost prohibitive borrowing the deposit as you still have access to interest only mortgages.

With an interest only mortgage, your monthly mortgage payment covers only the interest on your mortgage, not any of the original capital borrowed. This means your mortgage payments will be lower than on a repayment mortgage, remembering though at the end of the term you will still owe the original amount you borrowed from the mortgage provider.

1 in 14 new mortgages are interest only and 1 in 5.5 existing mortgages are interest only mortgages, they are very popular.

Anyway, many Tunbridge Wells homeowners might be worried about having that level of debt in their golden years. However, many plan to pay off the mortgage when they downsize as they get into their 60’s and 70’s.

I talk to many Tunbridge Wells homeowners, who are asset rich but cash poor and desire to help their children onto the Tunbridge Wells property ladder. Their attitude is their children will inherit their property when they pass away, so it seems practical to give them that money to work harder for them earlier in their life when they need it to buy their first home.

Can you get a mortgage, even if you are retired?

A lot is dependent upon your age and financial position. The mortgage companies will see if you have adequate funds for your retirement and emergencies plus leaving enough equity in the property to enable you to downsize in the future. Like all things, you need to take advice from a qualified mortgage arranger.

So, that then begs the question, is there enough equity in Tunbridge Wells homes to borrow against?

In the late 1980s and again in the early 2000s, many Brits saw their homes as a cash machine. Numerous homeowners re-mortgaging at the end of their mortgage’s preliminary term (usually after the initial 2, 3 or 5 years), but when doing so increased their mortgage to enable them to buy a nice car or fancy holiday. Yet, by increasing the borrowing, it created negative equity in the early 1990s and stopped many homeowners moving home between 2009 and 2013 because of their lack of equity.

Therefore, I have to ask, have we borrowed too much this time round?

Looking at Tunbridge Wells and the specific postcodes TN1, TN2, TN3 and TN4 combined ...

In 2016, the average Tunbridge Wells homeowner had a mortgage of £169,506 and today it is £213,789, a rise of £44,283.

Looking at these numbers, one might think we are again over-extending ourselves, yet as regular readers of my blog about the Tunbridge Wells property market will know – I like to drill down and look at all the figures.

Initially, I was worried about these stats, until I considered the equity Tunbridge Wells people have amassed over the same 5 years.

In 2016, the average equity held in a Tunbridge Wells homeowners’ property (whilst still having a mortgage) was £299,129, yet today that stands at £311,411, a rise of £12,282.

Even though mortgages have increased, Tunbridge Wells homeowner’s equity has risen even more, meaning as we stand today, mortgaged and owned-outright properties, there is …

£15,936,969,530 of equity held in all Tunbridge Wells homes.

Whilst the total value of mortgages has increased slightly since 2016, as a percentage, this has gone down meaning Tunbridge Wells homeowners and Tunbridge Wells landlords have increased their equity in the last five years.

It can quite clearly be seen that the financial insecurity sparked by the Credit Crunch crisis of 2008/9 has created a generation of Tunbridge Wells homeowners and landlords who are savers and improvers rather than movers and excessive borrowers, using excess cash to invest in their property and pay down debt or to excessively borrow on their equity growth.

Only 15.85% of the total value of Tunbridge Wells property

is borrowed money with a mortgage.

This is great news for every Tunbridge Wells homeowner and landlord because irrespective of whether the ‘Post Lockdown Bounce’ is short or long-lived, it shows the Tunbridge Wells property market is in a better state to ride out any storm that it might encounter than ever before because less people will be in negative equity or have prohibitively high mortgages.

Before I finish, I fully appreciate money and inheritance is a sensitive subject for many families.

My message to all the Tunbridge Wells parents is, just because your children aren’t talking about the subject, it doesn’t mean it’s not on their mind.

The lead has to come from you, as a Tunbridge Wells parent, to ensure the wealth held in your bricks and mortar can be used to your family’s advantage, when they need it most.

If you do, your children will thank you for it and they may even do exactly the same for their children, then, they will do the same for their children’s children ... creating a legacy that will go on for generations.

Wednesday 10 November 2021

Has Buy-to-Let Changed the Royal Tunbridge Wells Property Market?

 

The ‘Buy-To-Let’ Mortgage is celebrating its Silver Anniversary (25 years) this autumn. 

Isn’t it fascinating that a decision between a group of letting agents and bankers all that time ago to offer ‘Buy-To-Let’ (BTL) mortgages has changed the face of the Tunbridge Wells (and national) property market?


But has it been a good thing? Or has it ruined the dreams of many 20 somethings wanting to get on to the property ladder in the last couple of decades?


Let’s look deeper at the whole story, then I will let you, the reader, decide.


As soon as the BTL mortgage was launched, it was clear there was an enthusiasm and a need for this mortgage product. So much so the size of the Tunbridge Wells private rented sector has grown exponentially.


According to my analysis…


there are 5,353 private rented homes in Tunbridge Wells,

worth £2,888,639,000.


So now we are in 2021, it seems farcical that banks and building societies once thought that properties rented out to private tenants would not create a steady income or increase in value, yet this thought was conventional back in the 1990s. 


It’s no wonder BTL landlords have been given a hard time, with numbers like this. 


Yet before we burn every landlord at the stake,
let’s just look at the background story.


The Conservatives introduced the right of a council house tenant to buy their own council house in the early 1980s. Fantastic news for council tenants, yet when a council tenant bought their home, that meant that council housing was taken away from future generations to rent and therefore eroding the council housing stock available. Meaning from the mid 1990s /early 2000s, people who would normally be eligible to rent from the council, yet who couldn’t buy, had only one option … rent from a private landlord.


Meanwhile, in the early/mid 1990s we had 15% mortgage interest rates, unemployment rates of 9% and the 1989 housing crash fresh in people’s memories. Repossessions were rife, making home ownership not the most attractive prospect for 20 somethings. 


Tunbridge Wells house prices dropped by
30.7% between 1989 and 1993.


This meant as we entered the mid 1990s, the local property market entered a period of stagnation. There were many Tunbridge Wells homeowners that bought their home in the property boom of the late 1980s who were disinclined to sell their home for a loss. They were in negative equity (i.e. they owed more than what the house was worth) yet needed to move because of their growing families. 


Renting their home out could have allowed them to buy another home for their growing family, but most banks and building societies were still mostly unreceptive to the notion of these homeowners becoming accidental landlords. Most mortgage terms and conditions usually included clauses that prohibited homeowners from renting out their homes. 


So, with growing demand from potential tenants, supply reduced from the sale of council houses and many homeowners in negative equity, all bound up by the semi-deregulation of the private rented sector with the Housing Act 1988 – you can see that the BTL mortgage came along at the right time.


Early take up of BTL mortgages was slow in the first couple of years.


By the Millennium, according to the Council of Mortgage Lenders, there were just over 120,000 BTL mortgages, with a total value of £9.1 billion.


Yet as we entered the 2000s, they really took off, with every man and his dog jumping onto the BTL bandwagon. So much so that today in the UK, there are…


4.4m private rented homes, 2.1m of them with BTL mortgages
 totaling £234.1bn, which is 11.9% of the UK’s GDP!


That’s more than a 1,650% increase in the number of BTL mortgages to landlords and a 2,470% increase in the value of those BTL mortgages. 


Since 2001, the number of privately rented households in the UK has grown from 8.3% to 19%.


On the face of it, you could say with the growth of these BTL landlords with their cheap BTL mortgages and often unkempt properties, it has pushed potential homebuyers into squalor. Yet, let’s look a little deeper.


Most Tunbridge Wells landlords are very fair with their tenants providing them with clean, well presented and affordable housing. Of course, there are the rogue landlords but with TV shows such as ‘Landlords from Hell’, the British public are given a distorted and uneven view of private landlords as a whole.

Private sector landlords have played a critical role in providing homes to millions of Brits in this country, let me expand.

The UK population has grown by 405,000 people per year (for the last 20 years), yet only 22,750 council/social houses have been built per year in the same time frame.


If it wasn’t for the rented sector, who would have housed all the extra people in the country over the last 20 years?  


What about the exorbitant rents? Would it surprise you that rents have risen below inflation between 2008 and 2019? 


Also there has been a drive to tax BTL landlords more comprehensively and regulate the private rented sector to develop better housing conditions 
for tenants.


Unlike owner-occupier homes, tenants get the benefit of new regulations from Gas Safety Checks and Electrical Safety Reports. Also, BTL landlords will need to improve their Energy Performance Certificate Rating to at least a C rating by the end of 2025 for all new tenancies, and by end of 2028 for all existing tenancies, all at no cost to the tenant and directly saving them money on their heating costs – something that is very important considering the recent rises in gas prices. 


Tunbridge Wells landlords have also had to pay more tax on their BTL properties, paying 3% Stamp Duty tax supplement for the last 5 years, and higher rate tax relief on mortgage interest was taken away four years ago.


Landlords have also had to deal with the financial fallout of the pandemic. It is estimated 1 in 5 tenants in the private rented sector have some form of rent arrears. 


Interestingly landlords that don’t use a letting agent to manage their property are 272.5% more likely to be 2 months or more in arrears.


Also, evictions for rent arrears were banned during the pandemic, meaning some tenants ran up arrears of 12 months or more. According to the National Residential Landlords Association (NRLA), this has left around 210,000 private tenants in the country facing a court order for rent arrears. That would equate to…


287 Tunbridge Wells private rented households
with a court order for arrears.


The idea that Tunbridge Wells landlords are middle-class establishment types who are out to take advantage of tenants who can’t afford to buy their own homes is, in my opinion, just wrong.


Of course, there are some rogue landlords, yet there are plenty of rogue tenants. Just because you are a landlord in the area, it doesn’t mean you are quaffing champagne and rolling in cash.


961 Tunbridge Wells landlords own just one BTL property.


And just under half of those use their rental income to supplement their pensions, and according to the NRLA, a third of landlords have a gross income (excluding income from the BTL property) of less than £20k per annum.


It’s hard work being a Tunbridge Wells BTL landlord and I still believe the burden of housing just under a fifth of the UK population isn’t appreciated or taken seriously by Government.


Notwithstanding the challenges, most BTL landlords are in it for the long run. BTL mortgages can be secured for less than 1% and demand is on the rise (with rents rising at the highest rate for 10+ years). Of course, Brexit caused a few issues with some  landlords losing some Eastern European migrants. Yet once things settle down, we will have an influx of people coming from Hong Kong and Afghanistan, wanting to settle down, get jobs and ultimately require a home to live in, which will be a private rented house.


I know the Stamp Duty tax holiday has cleared out the landlords who were on the fence for staying in the private rented sector or selling up, but those landlords that are left will be more professional and will run their BTL portfolio as a business, not a hobby.


My final piece of advice to anyone thinking of becoming a BTL landlord in Tunbridge Wells for the first time is that you have to have a strategy and plan ahead. Those who stumbled into the BTL market in the early 2000s made a lot of money without any strategy or tactics. 


Moving forward you need the guidance and support of an agent who can tell you the best places for investment, be that for better yield or better capital growth. 


They will also be able to tell you what tenants demand to ensure that you attract the right sort of tenants who won’t trash the place and leave you in arrears. If you would like some advice, do not hesitate to drop me a line or pick up the phone.