Thursday, August 27, 2015

Melton Mowbray – The 10 year Time Bomb on Home Ownership

The British obsession with owning your own home started just after the Second World War.

Looking at the country as a whole in 1951 30% of residential property was owner occupied then, every ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and 68.07% by 2001 but after that, it dropped to 63.4% by 2011 and continues to drop today.

Young adults tend to start to think about settling down and moving out of the family home in their early-mid twenties.  After a couple of years, they will have a choice of either buying their first house (albeit with a mortgage) or decide to privately rent for the long term (because the Council House waiting list is measured in decades at the moment!). The ratio of people owning a house with a mortgage verses privately renting is an extremely important guide to what people are doing about their housing needs and what their attitude to renting vs buying is.  

With that in mind, within the next ten years, I am predicting there will be more people renting privately in Melton Mowbray than own a property with a mortgage and that the British love affair of property ownership will fade as the decades roll on.

This is a really important change in the way we live, as I explained to a local Melton Mowbray landlord the other day, knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in the town; Melton Mowbray property prices and Melton Mowbray rents.

In the Melton District Council area as a whole there are 2,738 households that are privately rented via a landlord or letting agency verses 7,968 households that are owned with a mortgage, so my prediction appears to be outrageous. However, when we look deeper (as the devil is always in the detail), 3,956 of those 7,968 households are 35 to 49 year olds and 2,491 are households of 50 to 64 year olds. I would expect all the 50+ years to be paying their mortgage off as they enter retirement as I would with some of the people in their mid/late 40’s. 

Meanwhile, at the other end, in the 25 to 34 age range (the age most people bought their first home in the 1970’s/80’s/90’s) only 1,017 of the 1,720 households occupied by those 25 to 34 year olds are owner occupiers with mortgages, because 703 households are privately rented. This means only 59.1% of 25 to 34 year olds have bought their house (with a mortgage). Twenty years ago, that would have a much higher percentage of homeowners (between 75% to 85%).

It can be seen that as the older generation pay their mortgages off as they start to get to retirement and the younger generation aren’t jumping on the property ladder like they were 20 or 30 years ago, the private rental sector will take up the slack as more and more people will want a roof over their head, but won’t buy one but rent one. 

With Local Authorities and Housing Associations not building houses anywhere near like the number of houses they were building in the 1950’s, 60’ and 70’s, the private landlord appears to have good demand for their rental properties for many decades to come.

This will create a polarisation in the housing market between those, mostly older, households who own outright and those, mostly younger, households who rent. Our housing market is very much turning into the European model. However, all is not lost, the younger generation will inherit their parents properties, which in turn will enable them to buy, albeit later in life.

If you are a landlord or thinking of become a landlord, please come and see me at my office on Burton Street for honest advice on the Melton property market.

Thursday, August 20, 2015

Great Investment property - 3 bed semi with garage on Willoughby Close

This beautiful property on Willoughby Close in Melton Mowbray is up for sale with Harrison Murray. It is on the market for £154,950 and looks like it would not require any work to let this. 

I think in the current market it would achieve at least £ 675 pcm which is a comfortable 5.2% return. It is in a really popular area for families and this type of property will always be in demand...

Willoughby Close, Melton Mowbray, LE13 1HJ

Willoughby Close, Melton Mowbray, LE13 1HJ

Willoughby Close, Melton Mowbray, LE13 1HJ

George Osborne – The Melton Mowbray landlord’s friend?

Well the last few weeks has been rather hectic as Melton Mowbray landlords, some who use us to manage their properties and other landlords who just read our Melton Mowbray Property Blog, have been sending me emails or picking the phone up to me about the new rules on buy to let taxation announced in the recent budget. 

George Osborne confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments, on their buy to let (BTL) properties, would be reduced over the coming years for higher rate income tax payers. The Chancellor said the tax relief that private buy to let landlords (who pay the higher rate of income tax) would change in 2017 from the current 45%/40% and would steadily reduce over the following four years to the existing 20% by 2020.

With 13.2% of residential property in Melton Mowbray being privately rented (as there are 1,533 privately rented properties in the town), these changes are potentially something that will not only affect most Melton Mowbray landlords, but also the tenants and the wider property market as a whole. The choice of rental properties could drop, especially at the top end of the market which could push up rents.

However, Melton Mowbray landlords could protect themselves by reassigning one or more rental properties into a company structure (e.g., a Limited Company, Partnership or Sole Trader) and by doing so, the total tax paid is greatly reduced, because a company only pays tax on the profit. Nonetheless, before everyone goes off setting up companies for their BTL portfolios, it must also be noted, if a sole trader firm is started, stamp duty needs to be paid, yet if the owner is in business with a partner, they could enjoy some stamp duty relief.  

The biggest tax variation is Capital Gains Tax (CGT) where the tax bill will be much higher when you come to sell your portfolio. In essence, by going into business with your BTL properties, you will potentially have a modest stamp duty to pay when you start, but you will have a lot less monthly tax to pay, irrespective of the interest rate, but the CGT bill will be much higher when you come to sell ... as you can see, it is not a ‘get out of jail card’. Now it must be remembered, I am not a tax advisor, so you must take advice from a qualified person (more of that later).

Those planning to purchase a BTL property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make. However, I am not that concerned, as the scaremonger reports fail to see the fact that two out of three BTL properties that have been bought since 2007 have been purchased without the support of BTL mortgage. With those two thirds of landlords paying cash for the purchase of their rental properties, that means two thirds of landlords will be totally unaffected by the changes.

So what of the future? The British love their Bricks and Mortar, it’s an asset that they can touch and feel and has a 70 year track record of capital growth that has out stripped inflation. Buy to let will still be attractive to Melton Mowbray investors and let me explain why. If you invested £30,000 in Melton Mowbray property in September 1987, today it would be worth £132,797. If you had invested the same £30,000 in to the London Stock Market (the FTSE 100 to be exact), it would be only be worth £85,879 today, whilst Inflation would have taken the original £30,000 and pushed it up to £62,345.

It’s true some central London landlords relying solely on the tax breaks rather than high yields may be forced out of the market, but even those landlords could seek to recoup any losses by increasing rents. However, those landlords may leave the market and this could constrict the availability of rented houses even more than it is already, increasing rents and thus pushing yields even higher for landlords and BTL investors still in the market... thus attracting new landlords into the market because of those higher yields.

The reality is, there is too much demand and not enough supply of homes for people to live in in the town. Official figures show the population in Melton Mowbray is rising by 251 persons per year (i.e., demand rising), but only 187 properties are being built each year (i.e., supply is low). This sets up the Melton Mowbray (and UK) property market to continue to create strong and steady returns, irrespective of any tax loophole being there (or not as the case maybe).

If the demand is there, I am happy to organise an informal seminar with a local Melton Mowbray accountant one evening, whereby they can show you the options available and what might be best for you. Therefore, if you are interested in attending, please drop me an email and we will be able to get something organised very soon.

Tuesday, August 18, 2015

Eagles Drive 1 bed house for less than £90,000

This Quarter house is on the market with Connells and is one of the ones with an open plan kitchen. It is on the market for £ 89,950 and these usually go for £450 pcm producing a potential 6% return. 

These type of properties do not always see as much capital growth as a 3 bed semi could but provide a promising yield.

Add caption

Thursday, August 13, 2015

Bowley Avenue - Tenants lining up for properties like this!

This property for sale on Bowley Avenue with Melton Premier and would easily let for over £700 pcm as it is so nicely finished inside. 

There are many professionals looking for these sort of properties to rent it would make a great buy to let investment for a landlord looking for minimal voids and a potential for capital growth.

The ‘Liquorice Allsorts’ Melton Mowbray Property Market

Despite the UK economy heading in the right direction with record low mortgage rates and unemployment  figures dropping,  the rate of property prices rising in Melton Mowbray have tempered since the start of the year. 

This slow but sure downward trend in the rate of growth has been in evidence since mid-2014.  Property value increases continue to outpace the growth in salaries, however the gap is closing, helped by a lift in salaries over the last 6 months. 

Property values in the East Midlands region as a whole are 2.9% higher than a year ago.  Compare this to the neighbouring regions of the West Midlands at 3.5% higher and Yorkshire at 1.1%, the majority of the country continue to see annual house price gains - the exception being Wales which recorded a slight  decline of -0.6%.

Even with the tempering in house price inflation, it does not necessarily change my outlook that property prices are likely to be firmer over the second half of 2015 amid heightening activity in the Melton Mowbray property market.  As stated in a previous article, there is a current shortage of properties on the market, restricting supply, which in turn will provide stability and support to Melton Mowbray property prices. Therefore, I my overall opinion is that Melton Mowbray property prices will rise by 5% over 2015 and roughly the same in 2016.

Property investment is a long term business.  Buying the right sort of property is vital. I have recently been speaking with a number of Melton Mowbray landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns (high yields) but quite often offer poor capital growth (i.e. they don't increase in value that much over the years compared with the average) verses properties that do go up in value quicker but often offer a lower yield.  So, what type of properties have performed best over the last few years in Melton Mowbray, especially in terms of their capital growth?

When comparing  what the average price of detached, semi detached, terraced and flats were selling for back at the start of the Millennium to the present.  The results are quite remarkably different, almost like a bag of Liquorice Allsorts, as the different types of property have performed poles apart over the last 15 years:

·         Detached Houses in 2000 were selling on average for £118,862 and so far in 2015, they have been selling on average in Melton Mowbray for £271,500 a rise of 128%
·         Semi -Detached Houses in 2000 were selling on average for £58,180 and so far in 2015, they have been selling on average in Melton Mowbray for £172,083 a rise of 196%
·         Terraced Houses in 2000 were selling on average for £42,164 and so far in 2015, they have been selling on average in Melton Mowbray for £108,129 a rise of 156%
·         Flats and Apartments in 2000 were selling on average for £36,238 and so far in 2015, they have been selling on average in Melton Mowbray for £89,125 a rise of 146%

Moving forward, what should new and existing buy to let landlords do with this information?  Well, the questions I seem to be asked on an almost daily basis by landlords are:

·         “Should I sell my property in Melton Mowbray?”
·         “Is the time right to buy another buy to let property in Melton Mowbray and if not Melton Mowbray, where?”
·         “Are there any property bargains out there in Melton Mowbray to be had?”

Many other Melton Mowbray landlords, who are with both us and other  Melton Mowbray letting agents, like to pop in for a coffee,  pick up the phone or email us to  discuss the Melton Mowbray property market, how Melton Mowbray compares with its closest rivals (Leicester, Oakham and Loughborough), and hopefully answer the three questions above.  I don’t bite, I don’t do hard sell, I will just give you my honest and straight talking opinion and look forward to hearing from you.

Thursday, August 6, 2015

Melton Mowbray Property Market – Bricks and Mortar!

The Land Registry have just released their latest set of figures for the Melton Mowbray Property market. It makes interesting reading, as average property values in Melton Mowbray rose by 0.5% in May. This leaves average property values 4.1% higher than 12 months ago, meaning the annual rate of growth in the town fell to its lowest level since March 2014. When we compare Melton Mowbray against the regional picture, East Midlands property values rose by 0.2%, leaving them 2.9% higher than a year ago.

Obviously this is a far cry from the price rises we were experiencing in Melton Mowbray throughout 2014. At one point (October 2014 to be exact) property values were rising by 7.7% a year. All the same, even with the tempering of the Melton Mowbray property values in 2015, property values are still higher. This is good news for local homeowners who had been affected by the downturn after 2007 and still find themselves in negative equity.

However, the thing that concerns me is that the average number of properties changing hands (ie selling) has dropped substantially over the last 12 months in the town. In April 2014, 43 properties sold in Melton Mowbray but in April 2015, that figure dropped to 18.  I have been in the Melton Mowbray property market for quite a while now and the one thing I have noticed over the last few years has been the subtle change in the traditional seasonality of the Melton Mowbray property market. It has been particularly noticeable this year in that the normal post Easter flood of properties coming onto the market was not seen. This has made an imbalance between supply and demand, with less houses coming onto the market there is simply not as much choice of properties to buy in Melton Mowbray and with the population of Melton Mowbray ever increasing, this will generally strengthen house price growth for the foreseeable future.

So what does all this mean for Melton Mowbray landlords or those considering dipping their toe into the buy to let market for the first time? For many people, buy to let looks a good investment, providing landlords with a decent income at a time of low interest rates and stock market unpredictability.

However, if you are thinking of investing in bricks and mortar in Melton Mowbray, it is important to do things correctly. As an investment to provide you with income, for those with enough savings to raise a big deposit, buy to let looks particularly good, especially compared to low savings rates and stock market yo-yo’s. I must also remind readers, landlords have two opportunities to make money from property, not only is there the rent (income), but with the property market bouncing back over the last few years, property value increases has spurred on more investors to buy property in the hope of its value continuing to rise.

Savvy landlords with decent deposits can fix their mortgages at just over 3% for five years, making many deals stack up. Nevertheless, low rates cannot stay low forever, because one day they must rise and you need to know your property can stand that test. I saw some Melton Mowbray landlords struggling in the mid noughties, when interest rates rose from 3.5% in July 2003 to 5.75% in July 2007. That might not sound a lot, but that was the difference of making a £100 a month profit in 2003 to having to make up a shortfall in the mortgage payments of £100 per month in 2007.

Its true many landlords were thrown a life raft when the base rate dropped to 0.5% in March 2009. Whilst interest rates have remained there since, mark my words, they will rise again in the future. However, even with the potential for costs to rise, demand for decent rental properties remains high as there are ever more tenants in the market, driving up demand and thus rents. The British love of bricks and mortar plus improving mortgage deals also add up to fuel the buoyant Melton Mowbray property market.

If you are planning on investing in the Melton Mowbray property market, or just want to know more, things to consider for a successful buy to let investment, I would welcome the opportunity to meet up at our Burton Street offices, give me a call on 01664 569700.