Craigavon Area landlords... it's time to sell, sell, sell as your tenants will soon be leaving in their droves as they buy their first home thanks to the Government's mortgage guarantee scheme!
Now, I know I sound like the Grim Reaper announcing the death of Buy to Let investing as many tenants will soon be buying their first home – but is it really that bad?
These 95% mortgages are to be supported by the Treasury, which means losses for mortgage lenders will be lessened, should the borrower be unable to meet their repayments and end up getting their property repossessed, as the Government continue on their crusade to turn “Generation Rent” into “Generation Buy”.
On first impressions it looks like the new low deposit mortgage scheme will have many first-time buyers jumping on the property ladder. But there are four issues that will inhibit their ability to take advantage of this scheme, meaning many will continue to rent.
Firstly, interest rates for 95% mortgages are on the increase. Currently the lowest two year fixed-rate mortgage with a 5% deposit is 3.38% (with the Halifax), up from 2019’s best rate of 2.59%. Now, I know that doesn’t sound like a massive increase, but it does make a significant increase to the monthly mortgage payment, as you can see in the table below…
|Deposit @ 5%||£7235||£8146|
|95% Mortgage Borrowed||£137,478||£154,778|
|Annual Interest Rate||2.59%||3.38%|
|Mortgage Length||25 yrs||25 yrs|
|Monthly Mortgage Payment||£623||£764.93|
|Total Mortgage Payments Over Term||£186,900||£229,478|
|Total Interest Cost Over Term||£49,421||£74,700|
Most people think that the 95% mortgages are a new thing, but they have actually been around since the summer of 2010, and where only withdrawn during the first lockdown in 2020.
Due to a surge of demand (thanks in part to the Stamp Duty holiday), property prices in the Portadown, Craigavon and Lurgan area have increased. This has made it increasingly difficult for first-time buyers to purchase their own homes.
This has meant the average price of a property in the greater Craigavon area has risen from £144,713 to £162,924 in the last 12 months. This in turn means that first-time buyers have to save an additional £910 for their deposit to keep up with the house price increase. But more importantly, it means the monthly mortgage repayment on a 25 year mortgage has jumped from £623 per month in 2019 to £765 a month today, an increase of £142 per month.
The third issue is demand for Craigavon area properties from first-time buy-to-let Landlords and experienced property investors, who realise the yields they can achieve, adding further fuel to the fire of driving prices up.
Finally, with the furlough scheme coming to an end in September the younger generation of workers who make up the bulk of first-time buyers are at a higher risk of unemployment. There are still lenders accepting new mortgage applications from borrowers on furlough income with most applying some sort of restriction on how much they will lend, meaning a higher deposit would be required.
The notion that buy-to-let property is a strong long-term investment has not altered with the pandemic. When you think back to all the crises we had to go through, property has been a hedge against inflation and in addition, delivers a decent income yield of 5% and upwards. Not too shabby when compared to the 0.5% with a savings account!
It is a fact that those Landlords that see their buy-to-let investment as a long term strategy will win.
This is certainly the case, as we are starting to see an exodus of the ‘accidental’ Landlord, leaving more professional Landlords who see their buy-to-let investment as a business. And it is those long-term Landlords that can see through the present predicament as they have a long-term investment strategy.
Local Landlords are acutely aware that demand for good quality private rental properties in Portadown, Lurgan and Craigavon is only going to increase as a consequence of the pandemic; the figures speak for themselves as we are averaging approx. 150 new potential tenants to our database each month.
Also, those same Landlords know that a responsible approach to their tenants with regard to condition and repairs, is key to ensuring the rent keeps coming in with minimal void periods.
Yes, house prices are on the up in the greater Craigavon area, but there are still some bargains to be had even in this market. By doing your homework and working with an agent like us, savvy Landlords are paying reasonable prices, thus giving them a better rental yield and the ability for future capital growth.
If you are a Landlord who has property in either Portadown, Lurgan or Craigavon, our team is here to help guide you on your Buy-to-Let journey, irrespective of whether you manage your property yourself or use another agent in town, we are here to help. Just give us a call on 02838 355100.