Much has been written about how people are waiting longer before they buy their first home. It has, however, recently emerged that people are beginning to invest in property at a younger age.
Statistics show the younger generation is taking over from their elders
New research by mortgage broker Commercial Trust has revealed that the 20-29 and 30-39 demographics have both seen year-on-year rises in the proportion of all buy-to-let mortgage applications every year since 2015. At the same time, there has been a decrease in the share of the market held by the over 60s.
This is supported by data which indicates not only that the average age of purchasers is falling but that the number of purchasers aged fewer than 40 is increasing.
Cash buyers are being replaced by mortgage-backed buyers
The investment-property landscape has traditionally been the domain of “cash buyers”, or at least “cash-rich” buyers, people who could afford to put down very hefty deposits so lenders had minimal to no real risk. These days, however, there are increasing numbers of buyers with buy-to-let mortgages, especially younger ones.
The affordability paradox
Lenders have long since stopped offering interest-only mortgages on residential property. This means that anyone who wants to buy a home of their own has to take out a repayment mortgage (or an offset mortgage, which is essentially a variation of a repayment mortgage).
These are more expensive than interest-only mortgages and hence it is harder to meet the post-Mortgage-Market-Review affordability criteria.
Interest-only mortgages are, however, very much still a feature of the buy-to-let mortgage market and while potential borrowers do have to be able to demonstrate that they can afford the repayments, the fact that the repayments are lower means that it is easier for them to do so.
It’s also worth noting that a residential property has to be in an area where the buyer wants (or needs) to live, whereas an investment property just needs to be in an area where there is a demand for rental property.
This situation has the potential to create an interesting paradox in which a person who would not be able to buy their own home due to the affordability criteria might be able to get a mortgage on a buy-to-let property. They might even increase their chances by looking for an investment property in a more affordable part of the country. The profits from their investment property could then be put towards the purchase of a home for their own use.
Property can offer both yield and capital growth
Although people with interest-only mortgages do not build up equity in the properties they buy, they do get the full benefit of any increase in their value (except for any Capital Gains Tax which may be due). This means that over the long term, they have a very good chance of benefiting from capital appreciation as well as yield, although it is the latter which tends to be the main attraction of the investment-property sector.
Mark Burns is the Managing Director of Manchester estate agents Indlu. Indlu specialise in both residential and commercial property, including a fully managed lettings and estate agency service and buy-to-let property in Manchester.