Peterborough’s ‘Generation Rent’ to Become ‘Generation Buy’?

Boris Johnson has attracted both praise and horror in equal measure with a new plan for 95% mortgages to help beleaguered first time buyers to get on the property ladder, but would that expose UK taxpayers to too much risk? In this article I discuss the implications of what that would mean both nationally and locally in Peterborough.

With the Peterborough property market taking off due to the stamp duty holiday introduced in the summer, Boris Johnson announced at the recent Tory Conference a plan to offer first time buyers long-term low interest rate 95% mortgages (meaning they would only need to raise a 5% deposit). Yet when someone borrows more than 75%, the banks normally take out insurance in case the buyer defaults and the bank lose money if the property gets repossessed.

When the economy is good, the risk is low – so the insurance premiums are also low for the banks – meaning they are happy to lend high percentage loans. Yet, nobody could deny we are entering a period of uncertainty in the coming 12/18 months, meaning the insurance premiums for the banks have gone through the roof.

Mortgage companies have avoided riskier high percentage first time buyer mortgages since the start of the Coronavirus predicament. At the end of February 2020, there were just under 400 95% loan-to-value mortgage products accessible for first time buyers, yet today that figure stands at just 26.

Another reason for removing the number of 95% mortgages was that the demand for lower percentage loans exploded after lockdown was lifted, and with many mortgage staff still working from home, the banks and building societies focused their attention on getting those (less risky) mortgages sorted first. Therefore, they removed the higher percentage loans from their books, so they weren’t swamped with too much work … so, one must ask, should the Government take on the risk from mortgage providers in the form of a guarantee from the Government — sparking concern among economists the Government is already burdened with debt – does it need anymore?

Yet taxpayers have been funding a similar scheme for years. The Help to Buy scheme, which allows first time buyers to buy a home with a 5% deposit (and the Government guaranteeing between 20% to 40% of the loan) has been in operation since 2013. Taxpayers are already guaranteeing £16.049bn of loans for 224,133 first time buyers, and when we look closer to home locally, since 2013 …

2,106 first time buyers in Peterborough have used the Help to Buy scheme to help buy their home, relying on the Government to guarantee them on average £40,106

That means in Peterborough alone, £84,463,236 is at risk if those Peterborough homeowners’ default on those pre-existing Help to Buy Loans … yet the default rate is quite low.

So, should the Prime Minister be playing with the housing market? Ought he instead allow open market forces to be applied to the property market, allowing it to find its own normal and leave the mortgage providers to decide on mortgages based on risk, because all the Prime Minister will potentially achieve is a synthetic rise in property values?

Some in fact have argued it would be better to spend that public money on delivering affordable rental properties?

However, isn’t it better in the long run for the country as a whole that British people own their home rather than rent because the Government will have rent to pay for those tenants when they retire if they are on the basic (low) state pension?

Personally, I don’t disagree with the initiative, yet all I am querying is, what are the Peterborough first time buyers going to be able to buy? The Peterborough property market is already quite drawn-out, as ultra-low interest rates have augmented the gap between the first home and the second home, the second home to the third and so on and so forth, so is this initiative fashioning a massive demand that will inflate property prices up the Peterborough property ladder still further and ultimately lead to even more frustration down the line?

However, could this be the very thing that saves the Peterborough property market in 2021?

Firstly, with the stamp duty holiday due to finish by the end of March, there are suspicions the property market will stall. And secondly, the very popular Help to Buy scheme mentioned above also finishes at the end of March 2021. This boost instead of fuelling house price inflation could stabilise the property market.

In fact, the Government are hoping the property market will help power us out of recession. The early signs are good as the Peterborough housing market has exploded as a result of the stamp duty holiday introduced in the summer. It certainly needs to as the country’s GDP only grew by 2.1% in August, down from 6.4% in July, 9.1% in June and 2.7% in May.

As a country, our GDP is still 9.2% below the levels seen pre-Covid. With the property market doing well, the country remains on course to leave recession in Q3, yet with the impending triple peril of rising unemployment (after furlough), further lockdown restrictions and a messy end to the Brexit transition period does this mean we are potentially in for an interesting ride?

Only time will tell if ‘Generation Buy’ will help save the property market, the economy and ultimately Boris? In the meantime, I think it will be a safe bet that people still need homes to live in … and irrespective of what happens to the property market, with that simple fact, the winners in all of this will be Peterborough buy to let landlords.

Tell me your thoughts on this …

3 Reasons That Will Make You Want To Stop Being a Peterborough Buy-to-Let Landlord

… and the six reasons that will make you want to become one

The buy-to-let market in Peterborough is about to enter a challenging 12 to 24 months. Yet by looking back at the last recession and what is happening now, there are vital lessons all Peterborough landlords can learn to protect themselves, and in fact create opportunities for themselves both in the short term and ultimately the longer term. For the purposes of this article, I would like to split these and look at the challenges and then the opportunities.

So, let’s consider the challenges ahead for Peterborough landlords …

Overall, the impending rise in unemployment stands to encumber tenants’ ability to pay their rent, the rents being achieved and the possible Capital Gains Tax changes might mean an increase in tax paid by Peterborough landlords when they come to sell their Peterborough buy-to-let properties.

Lets look at these three points in greater detail. Firstly looking at your Peterborough tenants ability to pay the rent; the Furlough Scheme certainly did help soften the blow, helping out 8.9 million people in May (out of 30.5 million who were eligible for it) and at the last count in early August, this thankfully had reduced to 5.3 million people (meaning 15.86% of workers are still on furlough). However, it cannot be denied the economic fallout from Coronavirus has already placed some tenants under economic strain. As the Furlough Scheme finishes at the end of October, commentators are suggesting the number of tenants either incapable of paying their rent, or requesting a reduction in their rent, is predicted to increase as we go into autumn and early winter.

The ultimate sanction against non-payment of rent is legal proceedings although guidance from the Government has recommended that landlords and tenants should work together and deplete all possible options before starting eviction proceedings. Yet many Peterborough landlords are feeling the pressure as many mortgage payment holidays will be coming to a close at the end of September. Some Peterborough landlords can indisputably see that their tenants are finding it tough and they are willing to work with them, but they can only make allowances go so far.  Landlords aren’t running a charity and I would stress to any tenant that finds themselves being made unemployed in the months to come to apply for Universal Credit as soon as possible, which should help with their rental payments. With regard to the eviction process, the Government have changed the rules a number of times in the last few months, so if you want an update, don’t hesitate to contact me, whether you are client or not – I am just happy to help.

Secondly, it’s interesting that in central London, there has been a glut of Airbnb properties coming onto the market because of lack of tourists to rent them on a short-term let. A greater supply of rental properties has meant a downward pressure on rents in London of 2.1%. I don’t think this is so much of an issue in Peterborough as

Peterborough rents are 2.27% higher year on year

Thirdly, there is talk that the Chancellor, Rishi Sunak, is looking at changing the Capital Gains Taxation rules.  As property is the biggest asset that most people own, this is also reason for concern for Peterborough buy-to-let landlords. Currently, Capital Gains Tax on sales of buy-to-let property is levied at 18% for basic income tax rate payers and 28% for higher rate income taxpayers. There is talk the capital gains made on the landlord selling their buy-to-let property could be taxed at the landlord’s income tax rate.

Yet before you all start selling your Peterborough portfolios before November’s budget, any changes in Capital Gains Tax would be immediate. That means to ensure you didn’t come foul of the potential rise in the tax, you would have to have to sell your Peterborough portfolio at a ‘fire sale price’ in days and have a solicitor that could do the conveyancing in 3 weeks (whilst it is taking 19 weeks on average for buyers to sort their legal work out) and the buyer be a cash buyer because banks are taking months, not weeks to sort finance. This is just something we are going to have to take on the chin!

Let us now consider the opportunities ahead for you Peterborough landlords …

As the country officially entered its first recession since 2009, uncertainty in any markets (be it property or stocks and shares etc.) causes investors to vacillate over whether or not to take the jump. Nevertheless, there are numerous indicators that appear to show this is, indeed, a good time either to become a buy-to-let Peterborough landlord or expand one’s property empire and buy more property … let me explain.

Firstly, assets (such as gold and stocks and shares) are great, yet if they aren’t producing income and cash – that doesn’t pay for your day-to-day living. Gold doesn’t create any income and many FTSE companies won’t be paying dividends for a while. Government Bonds are currently earning their investors 0.2% (no – that isn’t a typo) and the best savings accounts are achieving 1.1% with a 120-day notice period, so where are you going to invest your hard-earned money?

The average Peterborough buy-to-let property will earn a monthly return of 5.33%

Of course, deciding on the right Peterborough property is crucial to get a good rental income and return. I have seen so many Peterborough first-time landlords buy with their heart and not their head. Buying your own home is more heart than head but buy-to-let is a completely different kettle of fish. There is the inverse relationship between income (rent) and capital growth (how much it will go up in value in the future) i.e. as one goes up, the other tends to go down – so getting the balance for your needs is vital. Again, I can advise on that for you.

Secondly, with the stamp duty holiday and the pent up demand for people wanting to move home in Peterborough (discussed many times recently in this blog), the Peterborough property market is certainly very buoyant at the moment, yet even the most optimistic agents say it cannot last. Whether the market goes pop or has a slow and steady puncture, the market will cool in 2021. The recession will mean some people are less able to afford a mortgage. This means that if Peterborough property values do ease off in 2021, you may be able to get a great buy-to-let deal if you are planning on becoming a Peterborough landlord or expand your property empire as an existing landlord.

Also, if the property market does find property prices realign to a new normal in 2021/2, house sellers may find it difficult to get a good price on their Peterborough home during a recession, meaning many house sellers may be more agreeable to sell their property at a lower price.

Third, if people aren’t buying, they still need a roof over their head and the council aren’t building any council houses, meaning the private sector will need to take up the slack.

Rightmove reported tenant demand grew by a third in May 2020 when compared to the same month in 2019

Therefore, if you are still unsure about becoming a Peterborough landlord, knowing that more Peterborough people want to rent should help you feel more comfortable as the risk of ‘running out’ of renters interested in your Peterborough property is minimal. Yet again, please don’t go buying any old Peterborough property, as it’s fundamental that you make a good investment from the start in order to see a good return on your investment.

If Peterborough property values do fall in 2021 (as in 2009), tenant demand for Peterborough property will only go up

Fourth, the Government reduced Stamp Duty with the sole aim to benefit the property market. The purchase needs to complete by the end of March 2021, which means you will need to have bought the property by November at the latest (as obtaining finance and legal work is taking at least 19 weeks). A word to the wise though, that whilst the saving in Stamp Duty delivers some up-front saving for those buying a buy a let property, don’t get carried away and use that saving in the purchase price you pay. Certain sectors of the Peterborough property market are seeing some very inflated prices, meaning if you go into battle for a show home quality semi-detached house within a stone’s throw of the best school, you will be fighting against buyers who want it for themselves and are prepared to pay top dollar for it, meaning some landlords could end up paying more for a property. My advice, if you want to save on the Stamp Duty, there are bargains to be had – you just have to know what you are looking for (again, as mentioned in point 1 – I am here to help on that whether you are a client of mine or not). The other option would be ‘just hold back’ until after 31 March 2021, when Peterborough property prices could ease.

Fifth, reports that the mortgage lenders are imposing stricter conditions are true, yet even during Covid, many lenders are seeing buy-to-let landlords as a safer option to lend their money to. In June alone, the number of buy-to-let mortgage products rose by 19.2% (to just over 1,700) meaning if you have a decent deposit of 30% upwards, you are likely to find something that fits your needs (at the time of writing this article, the Birmingham Midshires had a buy-to-let 5-year fixed rate mortgage at 1.94% and Santander at 2.04% … this is cheap money in anyone’s language). Mortgage rates are ever becoming more economical, which is a great motivation for anyone wanting to get a foot on the Peterborough buy-to-let property ladder.

Finally, words cannot portray the feeling of being able to see and touch one’s investment like the sensation of bricks and mortar. Buy-to-let investment has to be seen as a long-term investment yet, for many, that is a source of financial security. Of course property values might go south next year (but they might not!) whereas there may be intervals where it’s more problematic to sell because property values will be too low, as is normally the situation throughout a recession, there will also be times where Peterborough landlords will make a nice profit when selling their buy-to-let homes. Like all things in life – it’s all about the timing.

Peterborough property values are 194% higher than 20 years ago

If you’re looking to invest but are not interested in stocks and shares (and you understand that your money may be tied up for a while) then the Peterborough buy-to-let market could be for you.

To conclude, buying the right Peterborough property at the right price to start with, presenting the property in the best way to get the best tenant, fully checking out and referencing the tenant to ensure they have a good track record of being a good tenant that doesn’t trash the property and has always paid the rent on time in the past and then finally, managing the property to ensure your property complies with the 200+ legislations and regulations of rental property, so you can sleep well at night … all to ensure the property is returned at the end of the tenancy to you in good order is what nirvana looks like.

Of course, buy-to-let does come with some risks and challenges, but it’s all about mitigating those risks. Also, there is no denying that buy-to-let also comes with a lot of opportunities as well. If you are a landlord with another agent or even a Peterborough landlord that manages the property themselves, feel free to drop me a message, email or pick up the phone and let’s chat about your personal goals when it comes to buy-to-let … because what have you got to lose? Surely 15/20 minutes of your time to get great insight and inside track is worth it?

Remember, the choice is yours!