Are houses becoming less affordable in Rotherham?
A Rotherham homeowner emailed me last week following my article about the change in attitude to renting by the youngsters in our town. They thought it was too expensive for first time buyers to buy in our town.
There can be no doubt that buy-to-let landlords have played their part in driving up property values in Rotherham (and the UK) and from that made housing a lot less affordable for those in their 20s and 30s.
Should the BoE be charged with containing buy-to-let housing market?
In the email they asked if the Bank of England (BoE) should be tasked to control house price inflation in the same way as the BoE controls inflation. The BoE has a target for the annual inflation rate of the Consumer Prices Index of 2%, whilst it is also required to support the Government’s economic policy, including its objectives for growth and employment. The BoE could get involved by possibly changing the rules on the loan-to-value (LTV) ratios.
Let’s look at how affordable Rotherham is.
The best measure of the affordability of housing is the ratio of Rotherham Property Prices to Rotherham Average Wages – the higher the ratio, the less affordable properties are. (eg. looking at the table below, for example in 2014, the average value of a Rotherham property was 5.02 times higher than the average annual wage in Rotherham)
The deterioration in affordability of property in Rotherham over the last couple of years has been one of the reasons why the younger generation is deciding more and more to rent instead of buy their own house.
… but it’s not the only reason.
A quick look on Money Supermarket today found 169 lenders prepared to offer 75% LTV buy-to-let mortgages and none at 85% LTV. Lenders have self-imposed a high level of entry for buy-to-let landlords (i.e. putting down at least 25% of the purchase price in cash). The BoE don’t need to meddle there!
In addition, the Tories have certainly done lots to level the playing field in favour of first time buyers. For nearly a year now, landlords have had to pay an additional 3% in stamp duty on any buy-to-let purchase. Over the coming four years, tax rules on landlord’s claiming mortgage interest relief will affect their pocket. It also doesn’t help that the local authority sold off council houses in the Thatcher years meaning that for so many on low incomes or with little capital, owning a home has simply never been an option (today or in the past).
It’s easy to look at the headlines and blame landlords.
First time buyers have been able to access 95% LTV mortgages since 2010, meaning even today, a first-time buyer could purchase a 3 bed terraced in Rotherham for around £100,000 and would only need to find £5,000 deposit.
Yes, a lot of money, but first time buyers need to decide what is important to them. Reducing in other areas of life (such as foreign holidays or the latest iPhone with expensive contract) can free people up to save for a deposit.
I think we as a country have changed… renting is returning to be the norm.
So my opinion is this: landlords have it tough.
Let’s not blame them for the perceived woes of the nation.
At the end of the day, if we are really honest we haven’t always been a country of homeowners. Roll the clock back to 1964, and nationally, 30% of people rented their home from a private landlord. Today the national figure is only 15.3%.
If you are an existing landlord or someone thinking of investing in buy-to-let property I am happy to give you advice. Get in touch with me here. In the meantime, please follow me on Facebook and Twitter for the latest insights into the property market here in Rotherham.