I was at the Medway Business Awards on Friday night and was chatting to one of the leaders of the Medway Regeneration Project. We were discussing the huge salaries required to buy a house in each Kent town. It piqued my interest to say the least. I had a look online at a tool oddly provided by a blind company, and I dug into the types of salaries they calculate are required to buy a mortgage in each of the Medway areas:
Rochester £36,094.50 per annum
Strood £35,997.00 per annum
Hoo £38,883.00 per annum
Chatham £29,269.50 per annum
Walderslade £36,387.00 per annum
Gillingham £29,269.50 per annum
Rainham £36,387.00 per annum
This makes the average salary required to buy a house in Medway, £34,612. With the national average salary at only £27,000, it’s easy to see that the first obstacle for first-time buyers is a potential salary gap equating to 22%.
But things are looking up. As part of Phillip Hammond’s budget this week, he announced a stamp duty cut for first-time buyers. Designed to create an incentive to save a deposit, this begs the question, what kind of deposits are first-time buyers looking at in our area? The Medway Council Property Price Report cited that the price of a 3 bedroomed, terraced house in Medway has risen steadily over the last 5 years, to an average of £242,457 in 2016/17. But long gone are the days of 100% mortgages, or even 5% deposits. In fact, the Office of National Statistics cite the actual average first time buyer deposit for properties in the South East at around £60,000. £60k! Time and again, we hear news reports and discussion about it being extremely hard for first time buyers to get on the property ladder, and with stats like this, it’s easy to see why. So what about the buy-to-let investors who need a mortgage? Are they equally disadvantaged?
Well with mortgage rates at record lows, there are some great mortgage deals available for buy-to-let investors. But the rates for buy-to-let mortgages tend to be considerably higher than residential mortgage deals, so investors need to make sure their sums stack up so that return on investment is guaranteed. It’s also important to be cautious of those low rates. Nothing lasts forever and just last month we saw the first, of what is anticipated to be several, interest rate rises from the bank of England. You need to bear these in mind and know your investment can stand the test of further rises.
In terms of deposits, it is common for buy-to-let lenders to demand around a 25% deposit. And it’s also worth remembering that buy-to-let mortgages often come with much larger arrangement fees, so your initial outlay is going to be more. Plus since April 2016, people buying second homes – such as investors and landlords – now have to pay an extra 3% stamp duty on property purchases. It’s also worth considering the tax rise that is due. Buy-to-let mortgage interest relief will be axed and replaced with a 20% tax credit.
I’m not trying to put first-time investors off, quite the contrary: I want your investment to succeed. That’s why it’s so important you check and re-check your figures, and get some sound investment advice.
There are lots of great tools around for helping you to calculate return on investment. But please remember, if you are buying with a mortgage, rent-to-property price yield will not be the return you get. That instead would be return on investment.
If you want to know your return on investment on a potential investment property, please don’t hesitate to get in touch with me. I have managed properties in Medway for many years and am always willing to advise those looking to invest in the area. If there’s anything you want to know or would like some advice on a potential investment opportunity, you can reach me at firstname.lastname@example.org, connect with me via LinkedIn or join our discussion group over on Facebook.