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Should you, as a landlord for buy to let or for personal occupation, buy a brand-new home?
Well, let’s start by looking at the numbers …
Over the last 10 years, 3,125 new homes have been built in the Medway area
That is a lot of bricks and mortar! Roll the clock back twenty years in the Medway property market, and there were two distinct camps of property buyers - folks who would only contemplate living in period character properties with their original fireplaces and beams, and those people who preferred the low maintenance of a new home. Old period homes were ridiculed as money pits by new-home aficionados, while new-home owners were accused of buying boring boxes, all vanilla, all the same, homogenous and bland.
However, it’s not as black and white as that anymore – or not as I see it in Medway. New homebuilders are now trying to change their cookie-cutter uniform rows of suburban boxes into developments that are as individual as the families that love in them, thus increasing their appeal. Nonetheless, whether you choose a stone cottage, archetypal Victorian semi or terrace, 1970’s/80’s functional home or a untouched new home, whatever home you buy, it can result in supplementary costs that are often not taken into math’s when buying by potential homeowners or buy to let landlords.
So looking at the numbers in greater detail, let’s see what type of new homes people have been buying in the Medway area ..
Number of New Homes Built in Our Local Authority in the last Decade
New Homes Built in Our Local Authority in the last Decade as a Percentage
New Homes Built Nationally in the last Decade as a Percentage
Detached
574
18.4%
29.2%
Semi
540
17.3%
21.9%
Terraced
770
24.6%
26.6%
Flat
1,241
39.7%
22.3%
I thought the mix of what was built/bought locally over the last 10 years when compared to the national figures was fascinating … it’s interesting (but not surprising) to see a greater proportion of flats built locally and fewer detached homes being built, when compared to the national averages. This is because of the nature of the Medway area, its position in the country, the availability of building land, planning restrictions by Medway Council and the price of building land.
 
 
So, should you buy a new home (because a lot of people locally have over the last ten years)?
Well if you are considering new, take care when buying one, as often the show home isn’t the actual property you end up buying. It’s like visiting the car showroom and falling in love with the model in the showroom (which is spec’d up to an inch of its life) – only to get the base model when handed the keys. Look out for things like curtain rails, tv aerials (or lack of them), kitchen appliances, carpets and curtains … and outside – make sure you aren’t unwittingly buying a square piece of earth instead of the manicured landscaped gardens.
New homes are a lot more efficient on energy consumption compared to the old drafty, high fuel bill Victorian semis, as their owners can testify. Older properties will have maintenance issues, with 100yo brickwork and roofs that might need replacement and extra insulation, rotten wooden windows and a dodgy central heating boiler (all sounding rather a strain on your bank balance if you weren’t aware). The point I am trying to get across is open your eyes and don’t assume .. ask questions and get a surveyor to make a detailed inspection of the property so you know what you are getting yourself into.
Next, I also wanted to break down the new home stats to each individual year in our local area to see if there was a pattern to when people bought a new home. As you can see, apart from a drop in 2014, the general trend of new home sales has remained steady. Looking at the much larger second hand housing market in Medway over the same 10 years, the coloration between the new homes market and second market has been quite strong – which shows the new home builders don’t make (or break) the Medway housing market – just follow it (although with the planned building locally in the next 10/20 years – who knows if that will continue to be the case?).
 
 
So, should you buy brand-new or second hand? If price is your sole motivator, then new homes are always CHEAPER when the economy is bad. However, in normal and good housing market conditions, you will pay a ‘new build premium’. The Royal Institute of Chartered Surveyors admits that this can be as high as 10% extra, when compared to a similar second hand property – so be aware of that (it’s like paying extra for a new car and losing a bit (or a lot) of money as soon as you drive off the forecourt). Although, it’s not always about pure pound notes.
Older houses are bigger (more room) yet take more money to heat. Older houses have bigger gardens (to enjoy) – but you will spend more time tending to them. Older houses are in more established areas (with more facilities), whilst everyone is starting afresh on new homes. It all comes down to personal opinion. One final thought though, at least with new homes there is no gazumping or no upward chain to ruin any sale completion dates …

The choice as they say … is yours!
If you are a Medway landlord, irrespective of whether you are a client of mine or another agent in Medway (or even you do it yourself), feel free to drop me a line or pop into the office for an informal chat on the future direction of the Medway rental market and where opportunities may lie.
 
One place for more information is my Medway Property Market blog. If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Medway property market together with regular postings on what I consider the best buy to let deals in Medway, then it is well worth reading. You can also email me at This email address is being protected from spambots. You need JavaScript enabled to view it.
If you are in the area feel free to pop into the office which is based at Station Road, Strood, Kent, ME2 4WQ
 
 


Don’t forget to visit the links below to view back dated deals and Medway Property News. 

Blog – http://www.medwaypropertyblog.com/

Facebook – https://www.facebook.com/DocksideP/

LinkedIn– https://www.linkedin.com/in/spencer-fortag-medway/

Website – http://www.docksidekent.com/



I am of the opinion that buy to let investment in Medway, in the long-term, will bring substantial returns for landlords, irrespective of latest regulation and tax changes. 

Taking a very conservative (with a small ‘c’) view, I believe landlords will see a projected net profit of £599,511 per property over the next 25 years through capital gains and rental. When inflation is taken into account that works out at £353,112 (in today’s money) or around £14,124 per year. The breakdown applies to a basic tax-paying landlord placing a characteristic 25% deposit on a £239,300 terraced/town house property.

Capital gains make up a substantial part of a landlord’s returns. Again, being conservative, I have assumed that house prices in Rochester, for instance, over the next quarter century (between 2018 and 2043) will rise at half the rate they did between 1993 and 2018 (the preceding 25 years), therefore the example Rochester property in the previous paragraph would grow in value to £728,788, providing gross capital gains of £489,488.

A typical Medway landlord receives, on average, rent of £10,500 per annum per terraced/town house property and so, over a 25-year period, that example property would generate a total rental income of £401,363 (again – very conservatively assuming a compound annual growth rate in the rent of 1.71% per annum).

Nevertheless, there are costs to running a buy to let property (mortgages, void periods, repairs, agents fees etc) .. and over those same 25 years, I have estimated that to be £291,340 .. giving the net profit levels mentioned in the second paragraph.



Now of course I have had to make assumptions to reach these figures, yet I hope you would agree, I have been very unadventurous with my assumptions.

The Medway (and UK as a whole) buy to let property market is experiencing a massive sea of change. Regulation and tax changes have altered the dynamic in the property market, diminishing its appeal to inexperienced and amateur landlords, and these new tax changes mean higher tax bills for higher rate tax landlords. Yet, despite these rising costs, there are still healthy returns to be found in Medway buy to let investment for knowledgeable and steadfast landlords. Nonetheless, the days of anything making money and idle speculation are long gone. 

Buy to let is a long-term business undertaking, necessitating commitment and expertise. Don’t put your head in the sand and think it doesn’t affect you. Medway buy to let landlords must be equipped to start business and tax planning, take portfolio management advice to ensure their investments will meet their investment goals, appreciate the risks as well as the rewards, and, most crucially, the obligations they have towards their tenants.


If you are a Medway landlord, irrespective of whether you are a client of mine or another agent in Medway (or even you do it yourself), feel free to drop me a line or pop into the office for an informal chat on the future direction of the Medway rental market and where opportunities may lie.
One place for more information is my Medway Property Market blog. If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Medway property market together with regular postings on what I consider the best buy to let deals in Medway, then it is well worth reading. You can also email me at This email address is being protected from spambots. You need JavaScript enabled to view it.
If you are in the area feel free to pop into the office which is based at Station Road, Strood, Kent, ME2 4WQ
 
 


Don’t forget to visit the links below to view back dated deals and Medway Property News. 

Blog – http://www.medwaypropertyblog.com/

Facebook – https://www.facebook.com/DocksideP/

LinkedIn– https://www.linkedin.com/in/spencer-fortag-medway/

Website – http://www.docksidekent.com/

The current average value of a property in Chatham currently stands at £262,000 so what will the recent increase in the base rates to 0.75% do to the local property market (especially property values). In many of my articles, I talk about what is happening to property values over the short term (i.e. the last 12 months or the last 5 years), but to answer this question we need to go back over 40 years, to 1975. 

The average value of a Chatham property in 1975 was £12,684

However, since 1975, we have experienced in the UK, inflation of 807.5%.

Back in 1975, the average salary was £2,291 and average car was £1,840. A loaf of bread was 16p, milk was 28p a pint and a 2lb bag of sugar was 30p. Inflation has increased prices, so comparing like for like, we need to change these prices into today’s money. In real spending power terms, an average value of a Chatham house in 1975, expressed in terms of today’s prices is £115,121. 

That means in real terms, property costs a lot more today, than in the mid 1970’s, but has it always been that way? Looking at the important dates of the UK property market, you can see from this table, the last two property boom years of 1989 and 2007, show that there was a significant uplift in the cost/value of property (when calculated in today’s prices).

 

Before we move on, hold onto the thought that you can quite clearly see from the table, in real terms, properties are cheaper today in Chatham than they were in 2007!

So, it made me wonder if there was a link between house prices, inflation and other external economic factors, such as interest rates? Interest rates have a strong influence on inflation and property values, principally because changes in the interest rate affect the cost of mortgage payments for homeowners and they affect the flow of foreign currency in (or out) of an economy, thus changing the exchange rate and prices we can sell our goods and services abroad and prices we pay on imports.

So how exactly do interest rates affect property values?

When interest rates rise, it has a substantial effect on increasing the monthly cost of mortgages. Higher mortgage payments will discourage prospective homebuyers or people looking to move up market (meaning their mortgage payments go up) – thus making it comparatively cheaper to rent.

Furthermore, the high cost of mortgage payments sometimes also pushes some existing home owners to sell, meaning there is an increase in house sellers and a decline in house purchasers, and as the law of economics state, when supply is increased and demand falls, (house) prices fall. Another fallout of a rise in mortgage payments is a rise in repossessions. Interestingly, repossessions in the UK rose from 15,000 per annum in the late 1980’s to over 75,000 per annum in the early 1990’s, meaning even more properties came onto the market, exasperating the issue of over supply – pushing property values even lower. 


High interest rates caused property values to fall in mid 1970’s, early 1980’s and most recently, the early 1990’s (who can remember the 15% mortgage rate!) Conversely though, the drop in property values in 2008/2009 – was not due to interest rates, but due to the credit crunch and global recession.

So, what will happen now interest rates have risen?

It is vital to remember that interest rates are not the only factor affecting property values. It is also possible that when interest rates increase (which they will from the current 0.5%), property values can also continue to rise (it happened throughout the mid to late 1980’s and again between the boom years of 2002 and 2007). When confidence in the economy is good, and we as a Country experience a period of rising real incomes (i.e. after inflation), then the British in the past have continued to buy bricks and mortar, notwithstanding the rise in interest rates. 

Another important factor on property values is the supply of housing. A big reason in the current level of Chatham house prices is due to the shortage of supply, which has kept property values higher than I would have expected. An additional factor is whether homeowners have a variable or fixed rate mortgage. 90.6% of new mortgages taken in the last Quarter were at a fixed rate, and 66.2% of all mortgaged homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they re-mortgage in a few year’s time, meaning there is frequently a time-lag between higher interest rates and the effect on property values. Another factor on mortgages is the ability to get one in the first place. Back in 2014, mortgage providers were told to be stricter on their lending criteria when arranging mortgages following the footloose days of 125% loan to value mortgages with the Northern Rock. These new rules are a lot more rigorous on borrowers' ability to repay the payments (although it makes me laugh, when with starter homes it nearer is always cheaper to buy then rent!).

I think the final point is this … affordability is the key. Look at the graph (the red bars) and you will see in REAL HOUSE PRICE terms – it’s cheaper to buy a home today than it was in 2007, yet why aren’t we seeing people buying property at the levels we were seeing in the 2000’s before the credit crunch? Again, looking at the reasons why, I will talk about in future articles.

In conclusion, interest rates are important – but nowhere near as important on the Chatham (and British) property market than they were 15 or 20 years ago.

So, before I go, one final thought - how do we measure the success of the Chatham property market? Well I believe one measure that is a good bellwether is the number of property transactions, as that could show a more truthful picture of the health of the property market than property values. Maybe I should talk about that in an up and coming article?

One place for more information is my Medway Property Market blog. If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Medway property market together with regular postings on what I consider the best buy to let deals in Medway, then it is well worth reading. You can also email me at This email address is being protected from spambots. You need JavaScript enabled to view it.
If you are in the area feel free to pop into the office which is based at Station Road, Strood, Kent, ME2 4WQ
 
 

Don’t forget to visit the links below to view back dated deals and Medway Property News. 

Blog – http://www.medwaypropertyblog.com/

Facebook – https://www.facebook.com/DocksideP/

LinkedIn– https://www.linkedin.com/in/spencer-fortag-medway/

Website – http://www.docksidekent.com/

I have been doing some research, looking both at National and Regional reports on the demand and supply of property and people together with future projections on the economy, population and family demographics with some interesting results.  According to the Office of National Statistics, in the last financial year nationally, private renting grew by 74,000 households, whilst the owner occupied dwelling stock increased by 101,000 and social (aka council and housing association) stock increased by 12,000 dwellings.
 


It was the private rental figures that caught my eye.  With eight or nine years of recovery since the Credit Crunch, economic recovery and continuing low interest rates have done little to setback the mounting need for rented housing.  In fact, with house price inflation pushing upwards much quicker than wage growth, this has meant to make owning one’s home even more out of reach for many Millennials, all at a time when the number of council/social housing has shrunk by just over 2.5% since 2003, making more households move into private renting.
There are 44,016 people living in 17,424 privately rented
properties in Medway.
In the next nine years, looking at the future population growth statistics for the Medway area and making careful and moderate calculations of what proportion of those extra people due to live in Medway will rent as opposed to buy, in the next ten years, 18,864 people (adults and children combined) will require a private rented property to live in.
Therefore, the number of Private Rented homes in Medway will need to rise by 7,467 households over the next nine years,
That’s 830 additional Medway properties per year that will need to be bought by Medway landlords, for the next nine years to meet that demand.
… and remember, I am being conservative (with a small ‘c’) with those calculations, as demand for privately rented homes in Medway could still rise more abruptly than I have predicted as I would ask if Theresa May’s policies of building 400,000 affordable homes (which would syphon in this 5-year Parliamentary term is rather optimistic, if not fanciful?
So, one has to ask wonder if it was wise to introduce a buy to let stamp duty surcharge of 3% and the constraint on mortgage tax relief could curtail and hold back the ability of private landlords to expand their portfolios?
Well a lot of landlords are taking on these new hurdles to buy to let and working smarter.  Buying the property at the right price and using an agent to negotiate on your behalf (we do this all the time) ... and the 3% stamp duty level isn’t an issue.  Incorporating your property portfolio into a Limited Company is also a way to circumnavigate the issues of mortgage tax relief (although there are other hurdles that need to be navigated on that tack), but just look at the growth of proportion of Buy to Let properties in the Country since the Summer of 2016 ... something tells me smart Landlords are seeing these challenges as just that ... challenges which can be overcome by working smarter.

I have a steady stream of Medway landlords every week asking me my opinion on the future of the Medway property market and their individual future strategy and, whether you are a landlord of mine or not, if you ever want to send me an email or pop into my office to chat on how you could navigate these new Buy to Let waters ... it will be good to speak to you (because you wouldn’t want other landlords to have an advantage over you – would you?).

One place for more information is my Medway Property Market blog. If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Medway property market together with regular postings on what I consider the best buy to let deals in Medway, then it is well worth reading. You can also email me at This email address is being protected from spambots. You need JavaScript enabled to view it.
If you are in the area feel free to pop into the office which is based at Station Road, Strood, Kent, ME2 4WQ
 
 


Don’t forget to visit the links below to view back dated deals and Medway Property News. 

Blog – http://www.medwaypropertyblog.com/

Facebook – https://www.facebook.com/DocksideP/

LinkedIn– https://www.linkedin.com/in/spencer-fortag-medway/

Website – http://www.docksidekent.com/

And if it does ... who will be the winners and losers?
Those Medway people wanting property values to dropwould be those 30 or 40 something’s, sitting on a sizeable amount of equity and hoping to trade up (because the percentage drop of your current ‘cheaper’ property will be much less than the same percentage drop of the more expensive property – and trading up is all about the difference). If you have children planning to buy their first home or you are a 20 something wanting to buy your first home – you want them to drop. Also, landlords looking to add to their portfolio will want to bag a bargain (or two) and they would love a drop!
Yet, if you have recently bought a Medway property with a gigantic mortgage, you’ll want Medway property values to rise. If you are retired and are preparing to downsize, you will also want Medway property values to rise (because you will have more cash left over after the move). Also, if you, a landlord looking to sell your portfolio or a Medway home owner, who has remortgaged to raise money for other projects (meaning you have very little equity), you will want Medway property values to rise to enable you to put a bigger deposit down on the next purchase.
So, before I discuss my thoughts on the future, it’s important to look at the past…
The last property crash, caused by the Global Financial Crisis, was between Q3 2007 and Q3 2009 … when property values in Medway dropped 16.43%
...taking an average property from £167,784 in September 2007 to £140,220 by September 2009 … and since then – property values have over the medium-term risen (as can be seen on the graph). 
 

So ... what is happening now?
The simple fact is people in the UK are moving less (and hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that the problems in the British housing market are a lot greater than measly old Brexit!
There is a direct link between how people feel about the property market (sentiment) and the actual performance of the property market. However, the question of whether people’s sentiment moves as a result of changes in the property market, or whether changes in the property market drive sentiment is a question that baffles most economists – you see if someone feels assured about their financial situation (job, money etc.) and the future of property, they are more likely to feel assured to spend their hard-earned earnings on property and buy and if you think about it … vice versa. So, I believe Brexit isn’t the issue  - it’s just the “go to” excuse people are using. Humans don’t like uncertainty, and Brexit itself is causing uncertainty – it is, after all, the great unknown.
So, is it the flux of global politics? Politics are causing hesitation in the posh £5m+ markets of Mayfair and other high value Monopoly board pieces – but certainly not in sleepy old Medway (I don’t think Medway is too high up on the house buying list of all these Saudi Prince’s and Russian Oligarchs) ... no the issues are much closer to home.
So, coming back to reality, one the biggest driving factors in the current state of play in housing market has been the part Buy To let landlords have played in the last 15 years. Making money as buy to let landlord in these golden years was as easy as falling off a log – but not anymore! Landlords had been getting off quite lightly when it came to their tax position, but with Osborne changing the taxation rules on buy to let ... things have become a little more difficult for landlords.
Landlords have been hit with a supplementary rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers. High rate taxpayers in the past have been able to offset the interest payments from their buy to let mortgages against their self-assessment tax bills – at their marginal rate. Between now and 2020 ... this is being reduced in small steps, so they will only be able to claim back relief at the basic rate of tax. The bottom line is that it will be much tougher for investors to make money on buy to let. Tied in with this, the mortgage rules were changed a few years ago, meaning it’s also become slightly tougher to obtain buy to let mortgages (although if I’m being honest – they need too).
And what of Medway first time buyers? Well, a few weeks ago in my blog on the Medway Property Market, if you recall, I mentioned that last year was the best year for over decade for first time buyers. For the last 30 years, buy to let investors have constantly had more purchasing power than first time buyers, as they were older and more established, together with their tax breaks. Yet, now as many amateur landlords are having second thoughts in staying in buy to let, this has given first time buyers a chance to get on to the property ladder.
What will happen to Medway property values? The simple fact is we don’t have the conditions that caused the crash in 2007 (i.e. sub-prime lending in the US, causing banks not to lend to each other, thus stalling the global economy as a whole). Assuming everyone is sensible on the Brexit negotiations, the biggest issue is interest rates.  As long as interest rates remain comparatively low (and don’t get me wrong – I think we could stand Bank of England base interest rates at 1.5% to 2.5% and still be OK, then the thought of a massive property market crash still looks improbable.
Yet correspondingly, I cannot see Medway property values rising quickly either.
The double-digit growth years in property values between 1999 and 2004 are well gone. A lot of that growth was caused by an explosion of buy to let landlords buying property to accommodate the influx of EU migrants in those years.  Mark Carney at the Bank of England can’t make interest rates any lower, so it’s difficult to envisage how credit conditions can get any easier!
Balance of probabilities ... Medway property values will hover either side of inflation over the next five years, but if we did have another crash, what exactly would that mean to Medway homeowners - if they dropped by the same percentage amount, as they did in the last crash?
If Medway property prices dropped today by the same percentage as they did locally in the Global Financial Crisis back in 2007/9 … we would only be returning to the property values being achieved in January 2016 … and nobody was complaining about those!
Therefore, looking at the number of people who have bought homes in the area since January 2016, that would affect approximately only 17% of local home owners and landlords ... and only a small percentage would actually lose - because you only lose money if they decide to move (and come to think of it, some of those sellers would fall into the category mentioned above that would relish a price drop!). So, really not many people would lose out.

Interesting don’t you think?
One place for more information is my Medway Property Market blog. If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Medway property market together with regular postings on what I consider the best buy to let deals in Medway, then it is well worth reading. You can also email me at This email address is being protected from spambots. You need JavaScript enabled to view it.
If you are in the area feel free to pop into the office which is based at Station Road, Strood, Kent, ME2 4WQ
 
 

Don’t forget to visit the links below to view back dated deals and Medway Property News. 

Blog – http://www.medwaypropertyblog.com/

Facebook – https://www.facebook.com/DocksideP/

LinkedIn– https://www.linkedin.com/in/spencer-fortag-medway/

Website – http://www.docksidekent.com/
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