As part of my Chichester Property News mail-out (sign-up for free at www.bit.ly/chipropertynews) I provide a ‘buy-to-let deal of the week’. It used to be relatively easy to scour the property portals and find a property in or around Chichester (Fishbourne & Tangmere often proving to be good hunting grounds) that offered good rental demand and a decent price tag, alongside sound fundamentals. Now though, it is increasingly challenging to find anything I can truly label as a ‘deal’.
This is for a couple of reasons - pricing and supply. I have written about both of these topics quite frequently, with property prices in Chichester up, whilst the supply of properties for sale is down. These two factors have seen sellers’ expectations increase, making it more difficult to negotiate a ‘deal’.
I have recently had a couple of people come to me with a budget of £250,000 looking for a buy-to-let property. Not long ago you could get a good two-bedroom house in or around Chichester with that budget (and on occasions a decent three-bed would pop up for that price!) but those days seem numbered.
Whilst the stamp duty relief has added fuel to the fire, I believe this all comes down to interest rates. For those with money in the bank earning a pitiful level of interest (the best ‘easy access’ savings account offers 0.6%) the old adage of property being as safe as houses steers people towards to buy-to-let, despite the rising legislation, taxation and house prices lowering returns.
Meanwhile, first-time buyers reliant on a mortgage now need just a 5% deposit to benefit from a (five-year fixed-rate) mortgage with a rate of 2.99%. Paying an extra £20,000 on the purchase price will actually cost just £90 a month extra, which seems a small price to pay if it means getting on to the housing ladder.
This has all led to a rise in rents, as well as property prices (primarily for houses). The two-bedroom house you used to buy for £250,000 and rent for £950pcm (a 4.6% rental return) will now cost £280,000. But, it could rent for £1,050pcm nowadays….a 4.5% rental return. Seeing as mortgage rates have also dropped in this time, only those buying with cash are actually losing out when it comes to the gross return on buy-to-let investments.
Psychologically though, it’s hard not to anchor prices at their previous level. A certain type of person has missed many a ‘deal’ based on the thinking of “I could have bought it for £200,000 last year and now it’s £220,000”. Only for it to then continue creeping up in price, firstly through the £250,000 price tag and now on to £280,000.
And that is now the dilemma. I am still of the mindset that paying £280,000 is ‘wrong’ when the same property could have been bought for less not long ago. For those who wait; prices may indeed ease up as the stamp duty relief / furlough / Brexit concerns (insert any other number of plausible sounding ‘reasons’ here) come into play, but than again I may be searching for a buy-to-let deal in 1-2 years’ time with the cheapest two-bedroom house in Chichester being priced in excess of £300,000 (there are just three currently for sale below this figure!).
So, despite all the above, whilst there may not be the ‘deals’ there once was, if I were seeking a buy-to-let now, I’d still choose to pay the extra and stick to hunting for a house rather than fishing for a flat.
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