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The mind-set and tactics you employ to buy your first Maidstone buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!).
Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Maidstone properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.
This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Maidstone buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.
Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Maidstone area.
As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield - and are doing so by buying cheaper properties.
However, before everyone in Maidstone starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Maidstone buy to let property to buy. Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Maidstone landlords who are looking for capital growth, an altered investment strategy may be required.
In Maidstone, for example, over the last 20 years, this is how the average price paid for the four different types of Maidstone property have changed…
- Maidstone Detached Properties have increased in value by 251.1%
- Maidstone Semi-Detached Properties have increased in value by 274.5%
- Maidstone Terraced Properties have increased in value by 285.4%
- Maidstone Apartments have increased in value by 279.6%
It is very much a balancing act of yield, capital growth and void periods when buying in Maidstone. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!
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My thoughts to the landlords and homeowners of Maidstone…
The tightrope of being a Maidstone buy-to-let landlord is a balancing act many do well at. Talking to several Maidstone landlords, they are very conscious of their tenants’ capacity and ability to pay the rent and their own need to raise rents on their rental properties (as Government figure shows ‘real pay’ has dropped 1% in the last six months). Evidence does suggest many landlords feel more assured than they were in the spring about pursuing higher rents on their properties.
During the summer months, historic evidence suggests that the rents new tenants have had to pay on move in have increased. June/July/August is a time when renters like to move, demand surges and the normal supply and demand seesaw mean tenants are normally prepared to pay more to secure the property they want to live in, in the place they want to be. This is particularly good news for Maidstone landlords as average Maidstone rents have been on a downward trend recently. So look at the figures here...
Rents in Maidstone on average for new tenants moving in have risen 0.9% for the month, taking overall annual Maidstone rents 0.9% lower for the year
However, several Maidstone landlords have expressed their apprehensions about a slowing of the housing market in Maidstone. I think this negativity may be exaggerated.
Before we get the Champagne out, the other side of the coin to property investing is capital values (which will also be of interest to all the homeowners in Maidstone as well as the Maidstone buy-to-let landlords). I believe the Maidstone property market has been trying to find some level of equilibrium since the New Year. According to the Land Registry…
Property Values in Maidstone are 5.64% higher than they were 12 months ago, rising by 2.3% last month alone!
Yet, I would take those figures with a pinch of salt as they reflect the sales of Maidstone properties that took place in early Spring 2017 and now are only exchanging and completing during the summer months.
The reality is the number of properties that are on the market in Maidstone today has risen by 14.1% since the New Year and that will have a dampening effect on property values. As tenants have had less choice, buyers now have more choice ... and that will temper Maidstone property prices as we head towards 2018.
Be you a homeowner or landlord, if you are planning to sell your Maidstone property in the short term, it is crucial, especially with the rise in the number of properties on the market, that you realistically price your property when you bring it to the market ... with the increase in choice of properties, the balance of power during negotiation generally sways towards the buyer. Given that everyone now has access to property details, including historic stats for how much property have sold for, they will be more astute during the offer and negotiation stages of a purchase.
However, even with this uplift in the number of properties for sale in Maidstone, property prices will remain stable and strong in the medium to long term. This is because the number of properties on the market today is still way below the peak of summer of 2008, when there were 1,812 properties for sale compared to the current level of 790 (if you recall, prices dropped by nearly 20% in Credit Crunch years of ‘08 and ‘09).
Compared to 2008, today’s lower supply of Maidstone properties for sale will keep prices relatively high...and they will continue to stay at these levels for the medium to long term.
Less people are moving than a few years ago, meaning less property is for sale. Fewer properties for sale mean property prices remain relatively high and this is because of a number of underlying reasons. Firstly, buy-to-let landlords tend not sell their properties as often than owner-occupiers, consequently removing the property out of the housing market selling cycle. Secondly, Stamp Duty is much higher compared to 10 years ago (meaning it costs more to move). Next, there is a dearth of local authority rental housing so demand for private rented housing will remain high. Then we have the UK’s maturing owner occupier population, meaning these older people are less likely to move (compared to when they were younger). Another reason is the lack of new homes being built in the country (we need 240k houses a year to be built in the UK and we are currently only building 145k a year!) and finally, the new mortgage rules introduced in 2014 about how much a person can borrow on a mortgage has curtailed demand.
Some final thought’s before I go – to all the Maidstone homeowners that aren’t planning to sell – this talk of price changes is only on paper profit or loss. To those that are moving ... most people that sell, are buyers as well, so as you might not get as much for yours, the one you will want to buy won’t be as much, (swings and roundabouts as Mum used to say!)
To all the Maidstone landlords – keep your eyes peeled – I have a feeling there may be some decent buy-to-let deals to be had in the coming months. One place for such deals, irrespective of which agent is selling it, is my Maidstone Property Blog .
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The most recent set of data from the Land Registry has stated that property values in Maidstone and the surrounding area were 4.4% higher than 12 months ago and 17.91% higher than January 2015.
Despite the uncertainty over Brexit as Maidstone (and most of the UK’s) property values continue their medium and long-term upward trajectory. As economics is about supply and demand, the story behind the Maidstone property market can also be seen from those two sides of the story.
Looking at the supply issues of the Maidstone property market, putting aside the short-term dearth of property on the market, one of the main reasons of this sustained house price growth has been down to of the lack of building new homes.
The draconian planning laws, that over the last 70 years (starting with The Town and Country Planning Act 1947) has meant the amount of land built on in the UK today, only stands at 1.8% (no, that’s not a typo – its one point eight percent) and that is made up of 1.1% with residential property and 0.7% for commercial property. Now I am not advocating building modern ugly carbuncles and high-rise flats in the Cotswolds, nor blot the landscape with the building of massive out of place ugly 1,000 home housing estates around the beautiful countryside of such villages as Hunton, Hollingbourne and East Farleigh.
The facts are, with the restrictions on building homes for people to live in, because of these 70-year-old restrictive planning regulations, homes that the youngsters of Maidstone badly need, aren’t being built. Adding fuel to that fire, there has been a large dose of nimby-ism and landowners deliberately sitting on land, which has kept land values high and from that keeps house prices high.
Looking at the demand side of the equation, one might have thought property values would drop because of Brexit and buyers uncertainty. However, certain commenters now believe property values might rise because of Brexit. Many people are risk adverse, especially with their hard-earned savings. The stock market is at an all-time high (ready to pop again?) and many people don’t trust the money markets. The thing about property is its tangible, bricks and mortar, you can touch it and you can easily understand it.
The Brits have historically put their faith in bricks and mortar, which they expect to rise in value, in numerical terms, at least. Nationally, the value of property has risen by 635.4% since 1984 whilst the stock market has risen by a very similar 593.1%. However, the stock market has had a roller coaster of a ride to get to those figures. For example, in the dot com bubble of the early 2000’s, the FTSE100 dropped 126.3% in two years and it dropped again by 44.6% in 9 months in 2007… the worst drop Maidstone saw in property values was just 20.05% in the 2008/9 credit crunch.
Despite the slowdown in the rate of annual property value growth in Maidstone to the current 4.4%, from the heady days of 13.39% annual increases seen in mid 2010, it can be argued the headline rate of Maidstone property price inflation is holding up well, especially with the squeeze on real incomes, new taxation rules for landlords and the slight ambiguity around Brexit. With mortgage rates at an all-time low and tumbling unemployment, all these factors are largely continuing to help support property values in Maidstone (and the UK).
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Over the last 12 months, the UK has decided to leave the EU, have a General Election with a result that didn’t go to plan for Mrs May and to add insult to injury, our American cousins elected Donald Trump as the 45th President of the United States. It could be said this should have caused some unnecessary unpredictability into the UK property market.
The reality is that the housing and mortgage market (for the time being) has shown a noteworthy resilience. Indeed on the back of the Monetary Policy pursued by the Bank of England there has been a notable improvement of macro-economic conditions! In July for example it was announced that we are witness to the lowest levels of unemployment for nearly 50 years. Furthermore, despite the UK construction industry building 21% more properties than same time the previous year, there has still been a disproportionate increase in demand for housing, particularly in the most thriving areas of the Country. Repossessions too are also at an all-time low at 3,985 for the last Quarter (Q1 2017) from a high of 29,145 in Q1 2009. All these things have resulted in...
Property values in Maidstone according to the Land Registry are 4.4% higher than a year ago
So, what does all this mean for the homeowners and landlords of Maidstone, especially in relation to property prices moving forward?
One vital bellwether of the property market (and property values) is the mortgage market. The UK mortgage market is worth £961,653,701,493 (that’s £961bn) and it representative of 13,314,512 mortgages (interestingly, the UK’s mortgage market is the largest in Europe in terms of amount lent per year and the total value of outstanding loans). Uncertainty causes banks to stop lending – look what happened in the credit crunch and that seriously affects property prices.
Roll the clock back to 2007, and nobody had heard of the term ‘credit crunch’, but now the expression has entered our everyday language. It took a few months throughout the autumn of 2007, before the crunch started to hit the Maidstone property market, but in late 2007, and for the following year and half, Maidstone property values dropped each month like the notorious heavy lead balloon, meaning …
The credit crunch caused Maidstone property values to drop by 20.05%
Under the sustained pressure of the Credit Crunch, the Bank of England realised that the UK economy was stalling in the early autumn of 2008. Loan book lending (sub-prime phenomenon) in the US and across the world was the trigger for this pressure. In a bid to stimulate the British economy there were six successive interest rates drops between October 2008 and March 2009; this resulted in interest rates falling from 5% to 0.5%
Thankfully, after a period of stagnation, the Maidstone property market started to recover slowly in 2011 as certainty returned to the economy as a whole and Maidstone property values really took off in 2013 as the economy sped upwards. Thankfully, the ‘fire’ was taken out of the property market in Spring 2015 (otherwise we could have had another boom and bust scenario like we had in the 1960’s, 70’s and 80’s), with new mortgage lending rules. Throughout 2016, we saw a return to more realistic and stable medium term property price growth. Interestingly, property prices recovered in Maidstone from the post Credit Crunch 2009 dip and are now 55.02% higher than they were in 2009.
Now, as we enter the summer of 2017, with the Conservatives having been re-elected on their slender majority, the Maidstone property market has recouped its composure and in fact, there has been some aggressive competition among mortgage lenders, which has driven mortgage rates down to record lows. This is good news for Maidstone homeowners and landlords, over the last few months a mortgage price war has broken out between lenders, with many slashing the rates on their deals to the lowest they have ever offered. For example, last month, HSBC launched a 1.69% five-year fixed mortgage!
Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to an all-time high in the UK.
In the Maidstone postcodes of ME14 to ME18, if you added up everyone’s mortgage, it would total £2,680,740,489!
Since 1977, the average Bank of England interest rate has been 6.65%, making the current 323 year all time low rate of 0.25% very low indeed. Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.52% in the autumn of 2012 to the current 59.3%. If you haven’t fixed – maybe you should follow the majority?
In my modest opinion, especially if things do get a little rocky and uncertainty seeps back in the coming years (and nobody knows what will happen on that front), one thing I know is for certain, interest rates can only go one way from their 300 year ultra 0.25% low level ... and that is why I consider it important to highlight this to all the homeowners and landlords of Maidstone. Maybe, just maybe, you might want to consider taking some advice from a qualified mortgage adviser? There are plenty of them in Maidstone.
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As the dust starts to settle on the various unread General Election party manifestos, with their ‘bran-bucket’ made up numbers, life goes back to normal as political rhetoric on social media is replaced with pictures of cats and people’s lunch. Joking aside though, all the political parties promised so much on the housing front in their manifestos, should they be elected at the General Election. In hindsight, irrespective of which party, they seldom deliver on those promises.
Housing has always been the Cinderella issue at General Elections. Policing, NHS, Education, Tax and Pensions etc., are always headline grabbing stuff and always seem to go ‘the ball’. However, housing, which affects all our lives, always seems to get left behind and forgotten.
Nonetheless, the way the politicians act on housing can have a fundamental effect on the wellbeing of the UK plc and the nation as a whole.
One policy that comes to mind is Margaret Thatcher’s Council House sell off in the 1980’s, when around 1.4m council houses went from public ownership to private ownership. It was a great vote winner at the time (it helped her win three General Elections in a row) but it has meant the current generation of 20 somethings in Maidstone (and elsewhere in the Country) don’t have that option of going into a council house. This has been a huge contributing factor in the rise of the private renting and buy to let in Maidstone over the last 15 years.
Nevertheless, looking back to the start of the Millennium, Labour set the national target for new house building at 200,000 new homes a year (and at one point that increased to 240,000 under Gordon Brown for a couple of years). In terms of what was actually built, the figures did rise in the mid Noughties from 186,000 properties built in 2004 to an impressive 224,000 in 2007 (the highest since the early 1980’s) as the economy grew.
Then the Credit Crunch hit. It is interesting, that the 2010 Cameron/Clegg government did things a little differently. The fallout of the Credit Crunch meant a lot less homes were built, so instead of tackling that head on, the coalition side-stepped the target of the number of new homes to build and offered a £400m fund to help kick start the housing market (a figure that was a drop in the ocean when you consider an average UK property was worth around £230,000 in 2010). The number of new houses being completed dipped from 146,800 in 2011 to 135,500 the subsequent year.
So, one might ask exactly how many new homes do we need to build per year? It is commonly accepted that not enough new properties are being built to meet the rising need for homes to live in. A report by the Government in 2016, showed that on average 210,000 net additional households will be formed each year) up to 2039 (through increased birth rates, immigration, people living longer, lifestyle (i.e. divorce) and people living by themselves more than 30 years ago). In 2016, only 140,600 homes were built ... simply not enough!
Looking at the numbers locally in Maidstone and the surrounding area, it is obvious to me, that we as an area, are not pulling our weight either when it comes to building new homes. Although in the 12 months up to the end of Q1 2017, 1,130 properties were built in the Maidstone District Council area, we may still need to do better. Go back to 2007, that figure was 720, 10 years before that in 1997, 380 new homes and further back to 1988, 1,000 new homes were built.
Who knows if Teresa May’s Government will last the five years? She will think she has bigger fish to fry with Brexit to get bogged down with housing issues. But let me leave you with one final thought.
The conceivable rewards in providing a place to live for the public on a massive house building programme can be enormous, as previous Tory PM’s have found out. Winston Churchill in 1951, asked his Minister for Housing (Harold Macmillan) if he could guarantee the construction of 300,000 new properties a year, he was notoriously told: “It is a gamble—it will make or mar your political career, but every humble home will bless your name if you succeed.”
Isn’t it interesting, that the Tories remained in power until 1964! Mrs May will have to work out if she wants to be the heiress to Harold Macmillan or David Cameron