Are 87% of statistics made up?

The Bournemouth/Poole/Christchurch area has come out as being the 5th most expensive place to live in Britain with the average house price being 10.5 times average earnings.

We’re a little sceptical of those figures though.

First of all, the average house price here is somewhat skewed by the plethora of multi-million pound homes in places like Sandbanks, Branksome Park and in some of the nearby rural areas. If you look through the local papers and magazines you will find at least a dozen homes over £1m in every issue and many more over £500,000. These kinds of prices are bound to lift the average price upwards. There are plenty of homes in the area under £200,000, well within the affordability of many residents.

Then we look at income. As this is a tourist town, there are lots of jobs in bars, restaurants and hotels that are taken up by students and a migrant workforce which pull down the average wage compared to people in industry for example.

From our experience as mortgage brokers in Dorset, although we are not in the North of England where prices can be as little as half of the prices here, we are not in as bad a position that we are lead to believe.
If prices really are 10.5 times earnings and the maximum you can borrow these days is 4.5 times income then you need 6 times average income as a deposit and who on Earth manages to save 6 times their salary in order to afford a home? Second and subsequent home buyers might have it in equity but first time buyers have no chance so this figure is not entirely accurate as we have arranged many mortgages for people this year with less than half a year’s salary as a deposit.

But what does it mean to readers of this column?

Prices of homes are on the upside of affordable but affordable all the same.
Tony, one of our advisers was in Hampstead, North London last week visiting a client and he pointed out that 2 bedroom ex-council flats in the area are now changing hands for up to £600,000. You can still buy a 5 bedroom house in Talbot Woods for that (just about).

Also, because of the afore-mentioned students and low paid workforce, there is a great demand for rented accommodation. Buy to let mortgage activity from landlords and potential landlords has increased substantially over the last 3 months and is showing no signs of slowing down. Competition will increase for property once pension funds are released to invest in real estate as promised by the Chancellor, so it might be time to enter the market now rather than waiting for next year.

So what is the right property to invest in?

According to statistics and backed up with our own findings, the best property for investors is the humble one bedroom flat.
In terms of yield, growth and rental voids, five 1-bedroom flats costing £100,000 each will out-perform one 5-bedroom house over any period you wish to think of.
HMOs are an exception to the rule as they are generally converted from family homes into what is in effect, separate mini-flats with a common living/cooking area. They are fantastic earners though, it must be said. I will talk more about them in a future column.

Meanwhile, if you want to know more about residential mortgage affordability and using buy to let mortgages to invest in property, drop us a line.

Call 01202 233660 today, email us on info@planit-mortgages.co.uk.

This entry was posted on Thursday, November 13th, 2014 at 11:16 am and is filed under News.

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