In recent weeks I have had the pleasure of meeting up with a few investors who were looking to enter the Walsall Property Market. There are so many approaches to investing in property and many ‘Guru’ type figures out there, all willing and able to help…all for a fee of course (some of the fees are eye watering)!! Having attended the course, some of the investors found my Blog and decided to take me up on the offer of a meeting over a cuppa. The common theme/ question that came up repeatedly was… “Do I buy with or without a mortgage”!?
For most Walsall people, a mortgage is the only way to buy a property. However, for some, especially Walsall homeowners who have paid off their mortgage or Walsall buy to let landlords, many have the choice to pay exclusively with cash. So, the real question is, should you use all your cash, or could a mortgage be a more suitable option?
Well, looking at the numbers locally…
3,426 of the 12,587 property sales in the last 7 years in Walsall were made without a mortgage (i.e. 27.1%)
Interesting when compared with the national average of 31.9% cash purchases over the last seven years. Next, I wanted to see that cash percentage figure split down by years. As you can see from the graph, this level of cash purchases vs mortgage purchases has remained reasonably constant over those seven years…
Next, if you are going to go for a mortgage, the next question has to be whether you should fix the rate or have a variable rate mortgage. In the last Quarter, 90.57% of people that took out a mortgage, had a fixed rate mortgage at an average interest rate of 2.27%, although…what did surprise me was only 65.79% of the £1.429 trillion mortgages outstanding in the whole of the UK were on a fixed rate.
The level of mortgage debt compared to the value of the home itself (referred to as the Loan to Value rate – LTV) was interesting, as 61.9% of people with a mortgage have a LTV of less than 75%. Although, one number that did jump out at me was only 4.33% of mortgages are 90% and higher LTV – meaning if we do have another property slump, the number of people in negative equity will be relatively small.
So those are the numbers … let us have a look at the pros and cons of taking a mortgage, with specific focus on Walsall buy to let landlords.
Taking a mortgage will help a landlord increase their investment across more properties to maximise the return, rather than putting everything into one Walsall buy to let property. This will enable the landlord to ensure if there is a void in the tenancy, there should still be rent coming from the other properties. The flip side of the coin is that there is a mortgage to pay for, whether or not the property is let.
The other great motivation of taking a mortgage is that landlords can set the mortgage interest against the rental income, although that will only be at the basic rate of tax by 2021 due to the recent tax changes. Banks and Building Societies will characteristically want at least a 25% deposit (meaning Walsall landlords can only borrow up to 75%) and will assess the borrowing level based on the rental income covering the mortgage interest by a definite margin of 125%.
A lot will depend on what you, as a Walsall landlord, hope to attain from your buy to let investment and how relaxed you would feel in making the mortgage payments when there is a void. So, with everything that is happening in the world, does it make sense to buy rental properties?
The bottom line is we as a country aren’t building enough property, so demand will always outstrip supply in the medium to long term, meaning property values will keep rising in the medium to long term. That’s not to say property values might fall back in the short term, like they did in the 2009 Credit Crunch, the 1988 Dual MIRAS crash, the recession of the early 1980’s, the 1974 Oil Crisis, the early 1930’s Great Depression…yet every time they have bounced back with vigour. Therefore, it makes sense to focus on getting the best property that will have continuing appeal and strong tenant demand and to conclude, buy to let should be tackled as a medium to long term investment … because the wisest landlords see buy to let investment in terms of decades – not years.
Now, don’t get me wrong, in my day job I help many newbie and existing landlords work out their budgets, taking into account other costs such as agent’s fees, finance, maintenance and voids in tenancy.
If you need help and advice on your property journey whether you are a newbie to the world of buy to let or not, before you take your first step to building your property empire…pick up the phone or get in touch.
Phone: 01922 637672
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