Is the Rotherham property market heading for a crash? And if it does crash, who will be the winners and who will lose out?
There are various reasons people want prices to maintain at their current rate. Likewise, some would benefit from a drop. In this article we’ll be examining who could win and who could lose, as well as looking at what is currently going on in our area and what might happen in the future.
Who wants house prices to drop?
There are two broad camps who would possibly want house prices to drop. The first is obvious – those millennials wanting to buy their first home or perhaps a young married couple wanting to buy their first home before having children. Property prices dropping would help the first time buyer category.
The second category are the Rotherham people who are in their mid-30s to 40s and sitting on a sizeable amount of equity but are hoping to trade up. Why? Because the percentage drop on the current ‘cheaper’ property will be much less than the same percentage drop of the more expensive property. Trading up is all about the difference!
Finally, shrewd landlords looking to add to their portfolio will see a price drop as an opportunity to bag a bargain or two.
Who wants house prices to rise?
If you’ve recently bought a Rotherham property with a gigantic mortgage you will be hoping that property values continue to rise. If you are retired and preparing to downsize you will also want Rotherham property values to rise as this will leave you with more cash after the move.
Whilst some landlords looking to buy would relish a price drop, landlords looking to sell their portfolio will want to maximise what they can make while prices remain high. Rotherham home owners who have remortgaged to raise money for other projects (meaning you have very little equity), will want property values to continue to increase in order to enable you to put a bigger deposit down on the next purchase.
A brief look at the past
Before we consider the future, let’s take a look at the past. The last property crash was caused by the global financial crisis and happened between Q3 2007 and Q3 2009. Property values in Rotherham dropped by 13.26%. The average property in September 2007 was £135,375 but only £117,425 in September 2009.
Since then, property values have rise in the medium-term, as you can see below.
So … what is happening now?
The simple fact is people in the UK are moving less (and hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that the problems in the British housing market are a lot greater than old Brexit!
There is a direct link between how people feel about the property market and the actual performance of the property market. However, the question of whether people’s sentiment moves as a result of changes in the property market, or whether changes in the property market drive sentiment is a question that baffles most economists – you see if someone feels assured about their financial situation (job, money etc.) and the future of property, they are more likely to feel assured to spend their hard-earned earnings on property and buy (and if you think about it… vice versa.)
So, I believe Brexit isn’t the issue – it’s just the “go to” excuse people are using.
Humans don’t like uncertainty, and Brexit itself is causing uncertainty – it is, after all, the great unknown.
So, is it the flux of global politics? Politics are causing hesitation in the posh £5m+ property markets of Mayfair and other high value Monopoly board pieces – but certainly not in a smaller place like Rotherham (because let’s face it, I don’t think Rotherham is too high up on the house buying list of rich foreigners).
Instead, the issues are much closer to home.
Changes to buy-to-let as an investment
One of the biggest driving factors in the current state of play in the housing market in our local area is been the part played by buy-to-let landlords in the last 15 years. Making money as a buy-to-let landlord used to be as easy as falling off a log – we’ve had some golden years! But not anymore! Landlords had been getting off quite lightly when it came to their tax position but now that taxation rules on buy-to-let have changed things have become a little more difficult.
What’s changed? Landlords have been hit with a supplementary rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers. High rate taxpayers in the past have been able to offset the interest payments from their buy-to-let mortgages against their self-assessment tax bills (at their marginal rate) but this is being reduced in small steps – they will only be able to claim back relief at the basic rate of tax.
The bottom line is that it will be much tougher for investors to make money on buy-to-let. Tied in with this, the mortgage rules were changed a few years ago, meaning it’s also become slightly tougher to obtain buy-to-let mortgages (although if I’m being honest – they needed to do this).
I recently mentioned that last year was the best year for over decade for first time buyers. For the last 30 years, buy-to-let investors have constantly had more purchasing power than first time buyers, as they were older and more established and had tax breaks helped them out. However, with many amateur landlords reconsidering staying in buy-to-let, the door is open for first time buyers to get their first foot on the property ladder.
What will happen to the property values?
The simple fact is we don’t have the conditions that caused the crash in 2007. Back then sub-prime lending in the US caused banks to stop lending to each other and stalled the global economy as a whole. Assuming everyone is sensible with the Brexit negotiations, the biggest issue is possibly interest rates. As long as interest rates remain comparatively low (and don’t get me wrong – I think we could stand Bank of England base interest rates at 1.5% to 2.5% and still be OK), then the thought of a massive property market crash still looks improbable.
Yet correspondingly, I cannot see Rotherham property values rising quickly either.
The double-digit growth years in property values between 1999 and 2004 are well gone. A lot of that growth was caused by an explosion of buy-to-let landlords buying property to accommodate the influx of EU migrants during those years. Mark Carney at the Bank of England can’t make interest rates any lower, so it’s difficult to envisage how credit conditions can get any easier!
Balance of probabilities: Rotherham property values will hover either side of inflation over the next five years.
But if we did have another crash, what exactly would that mean to Rotherham homeowners?
If Rotherham property prices dropped today by the same percentage as they did locally 10 years ago… we would actually only be returning to the property values being achieved in April 2013… and nobody was complaining about those!
Therefore, about 17% of local home owners and landlords have bought homes in the area since April 2013 – that’s only a small percentage of people who would actually lose. After all, you only lose money if you decide to move. Many of these people may be people looking for a price drop so in reality, not many people are going to lose out.
Not much to worry about then! Interesting, don’t you think?
As ever, if you do need help or assistance in knowing what’s the right move for you, I’m on hand to help out. Please get in touch with me and I will be happy to offer advice.
My latest research looks at both national and regional reports on the demand and supply of property and people and considers future projection on the economy, population and family demographics. There are some interesting results that will be useful for those who are fascinated by the local property market here in Rotherham (and the shape of property across the UK!)
According to the Office of National Statistics, in the last financial year, national private renting grew by 74,000 households, whilst the owner occupied dwelling stock increased by 101,000 and social stock increased by 12,000 dwellings.
The number of private rental households has caught my eye
It was the private rental figures that caught my eye. With eight or nine years of recovery since the financial crisis began in 2009, economic recovery and continuing low interest rates have done little to setback the mounting need for rented housing. In fact, with house price inflation pushing upwards much quicker than wage growth, this has meant to make owning one’s home even more out of reach for many Millennials. At the same time the number of council/social housing has shrunk by just over 2.5% since 2003, making more households move into private renting.
What about Rotherham?
In Rotherham there are 12,877 people living in 5,416 privately rented properties.
If we look at the future population growth statistics for the Rotherham area and make careful and moderate calculations of what proportion of those extra people will rent as opposed to. buy we can predict how many more people may be in private rented property. In the next ten years, I believe around 5,500 people (adults & children combined) will require a private rented property to live in.
Therefore, we need the number of private rented homes in our area to rise by 1,446 households over the next nine years.
That’s 258 additional Rotherham properties per year that will need to be bought by Rotherham landlords to meet that demand.
… and remember, I am being conservative with those calculations. Demand for privately rented homes in Rotherham could still rise more abruptly than I have predicted as I have previously suggested that Theresa May’s aim to build 400,000 affordable homes is rather optimistic, if not fanciful.
So, one has to ask wonder if it was wise to introduce a buy to let stamp duty surcharge of 3%? Furthermore, will the constraint on mortgage tax relief curtail the ability of private landlords to expand their portfolios?
The rise of the smarter landlord
Well, a lot of landlords are taking on these new hurdles to buy-to-let and working smarter. Something tells me that smart landlords are seeing these challenges as just that… challenges that can be overcome by working more smartly.
For example, buying the property at the right price and using an agent to negotiate on your behalf and the 3% stamp duty level isn’t an issue. Likewise, incorporating your property portfolio into a Limited Company is also a way to circumnavigate the issues of mortgage tax relief (although there are other hurdles that need to be navigated on that tack).
There’s actually been growth in the number of buy-to-let properties across the country since 2016 indicating that landlords are using their brains more! I have a steady stream of Rotherham landlords every week asking me my opinion on the future of the Rotherham property market and their individual future strategy and, whether you are a landlord of mine or not, if you ever want to send me an email or pop into my office to chat on how you could navigate these new buy-to-let waters it will be good to speak to you.
Don’t let other landlords have an advantage over you! Get in touch today…
Good news for buy-to-let landlords in Rotherham – ‘top of the range’, well-presented properties are getting really decent rents compared to a year ago. However, this rise in rents is thwarting many potential first time buyers from saving for a deposit and for money for a rainy day. On top of this, there is also a shortage of of Rotherham homes coming on the market thus adding fuel to the slowdown and affecting not just first time buyers but also those looking to move up the housing ladder.
Whilst it is true that the Government’s initiatives, targeted at improving the supply of homes built and helping first time buyers obtaining necessary funding, are slowly starting to work, I also believe that to boost more existing home-owners and their properties onto the market, we as a country, need to see a better focus placed on those looking to downsize (i.e. the mature generation).How
If we took away some hurdles to homeowners downsizing, such as removing stamp duty for those downsizers (as was done for first time buyers last year), together with encouraging even more first time buyers with 100% mortgages to buy the smaller properties, this would release more mid-range properties onto the market. Subsequently, this would encourage more mature homeowners to downsize from their bigger properties to buy those mid-range properties – thus completing the circle.
Looking at the most recent set of data from the Land Registry for Rotherham (the S65 postcode in particular), the figures show the indifferent nature of the current Rotherham property market.
Only 168 Rotherham (S65) homes changed hands in the last 6 months
Rotherham property values and transactions continue to be sluggish, and the monthly peaks and troughs of house prices and properties changing hands doesn’t mask the deficiency of suitable realistically priced property coming onto the property market. The housing market is slowly becoming inaccessible to some would-be home owners.
The data from the Land Registry is always about four or five months behind, but looking at what each property type is selling for in S65 makes interesting reading:
There’s quite a bit of variance in terraced and detached properties but we must remember these are the average prices paid, so it only takes a run of a few expensive or cheaper property types to have an impact on the figures.
What about the number of properties for sale?
I directed my research for the numbers from early summer in 2008. At that time, 1,554 properties were on the market for sale in our area, compared to 722 properties for sale when I was researching this article. That’s a drop of 54%.
The importance of landlords
The Government needs to seriously consider the supply and demand of the UK property market as a whole to ensure it doesn’t seize up. It needs to do that with bold and forward-thinking plans.In the meantime, people still need a roof over their head, so as local authorities don’t have the cash to build new houses anymore, it’s the job of Rotherham landlords to take up the slack. I must stress though, I have noticed a distinct ‘flight to quality’ by Rotherham tenants, who are prepared to pay top dollar for an exceptional home to rent.
If you want to know what tenants are looking for and what type of things you as a Rotherham landlord need to do to maximise your rental returns, feel free to drop me a line.
It’s been nearly 18 months since Sajid Javid, the then Housing Minister published the White Paper “Fixing the Broken UK Housing Market”. In the meantime, Rotherham property values have continued to rise at a rate of 3.1% (year on year for the council area) but the number of new homes being constructed locally bumps along at a snail’s pace, creating a potential perfect storm for those looking to buy and sell.
The White Paper is important for those in Rotherham and the rest of the UK, as it will ensure we have long-term stability and longevity in property market as whole. Rotherham home-owners and landlords need to be aware of the issues in the report to ensure they don’t lose out. The White Paper wanted more homes to be built in the next couple of decades, so it might seem counter-intuitive for existing home-owners and landlords to encourage more homes to be built and a change in the direction of housing provision – as this would appear to have a negative effect on their own property.
Yet the country needs a diversified and fluid property market to allow the economy as whole to grow and flourish, which in turn will be a greater influence on whether prices go up or down in the long term. I am sure every homeowner or landlord in Rotherham doesn’t want another housing crisis like we had in 1974, 1988 and most recently in 2008.
Since it’s publication, Sajid Javid has moved on to the Home Secretary role, so now James Brokenshire (the 17th Housing Minister in 20 years) has been given the task of making this White Paper come alive.
What was the main points in the White Paper?
The first of the four points brought up was a proposal to give local authorities powers to speed up house building and ensure developers complete new homes on time. Secondly, the White Paper suggested statutory methods demanding local authorities and builders build at higher densities (i.e. more houses per hectare) where appropriate. The other two points were incentives for smaller builders to take a larger share of the new homes market and help for people renting.
However, the two initial points of planning and density are what this article is most interested in…
For planning to work, we need a robust Planning Department.
Looking at data from the Local Government’s Association, in Rotherham the council spends below the regional average – only £20.75 per person compared with the regional average of £37.35 per head. This means the planning department will be hard pressed to meet those targets.
However, 100% of planning applications are decided within the statutory 8-week initial period, above the regional average of 87% (see the graph below). I am therefore slightly disappointed and also pleased with the numbers for our local authority when it comes to the planning and the budget allowed by our politicians to this vital service.
2. Density of Population
9 people live in every hectare (or 2.471 acres) in Rotherham
It won’t surprise you that 231,177 of 257,280 Rotherham residents live in the urban conurbations of the authority, giving a density of 16.3 people per hectare (again – much lower than I initially thought), whilst the villages have a density of 1.8 people per hectare.
I would agree with the Government’s ambition to make more efficient use of land and avoid building homes at low densities is good to have. It is important that the form of development reflects the character, accessibility and infrastructure of the area.
It’s all very good building lots of houses – but we need the infrastructure to go with it.
Talking to a lot of Rotherham people, their biggest fear of all this building is a lack of infrastructure for those extra houses (the extra roads, doctors surgeries, schools etc.). I know most Rotherham homeowners and landlords want more houses to be built to house their family and friends… but irrespective of the density, it’s the infrastructure that goes with the housing that is just as important. The White Paper failed to go as far as I feel it should have done.
I believe there are interesting times ahead.
Five babies have been born for every new home that has been built in Rotherham since 2012, deepening the Rotherham housing shortage.
How did I get to this figure? Let’s take a look at the most up-to-date data for the the Rotherham Council area. There are two graphs below. The first examines the numbers of properties built vs. the number of babies born together. The second shows the corresponding ratio of the two aforementioned metrics:
It can be seen that in 2016, 5.09 babies had been born in Rotherham for every home that had been built in the five years to the end of 2016 (the most up to date data). Interestingly, that ratio nationally was 2.9 babies to every home built in the 50s and 2.4 in the 70s. I have seen the unaudited 2017 statistics and the picture isn’t any better! (I will share those when they are released later in the year).
This discovery is an important foundation for my concerns about the future of the Rotherham property market. When you consider the battle that the twenty and thirty somethings of today are facing in order to buy their first home and get on the Rotherham property ladder, the future becomes all the more alarming. Ultimately, this will mean the babies being born now, who will become the next generation’s first-time buyers will come up against even bigger competition from a greater number of their peers unless we move to long term fixes to the housing market, instead of the short term fixes that successive Governments have done since the 1980s.
An unprecedented and unbelievably difficult position
Our children, and their children, will be placed in an unprecedented and unbelievably difficult position when they want to buy their first home unless decisive action is taken. You see, it doesn’t help that with life expectancy growing year on year, there is also excessive pressure on the availability of homes to live in.
Owning your home is a measure many Brits to aspire to. The only long-term measure that will help is the building of more new homes on a scale not seen since the 50s and 60s. Essentially, we need to aim to at least double the number of homes that are built annually.
In the meantime, what does this mean for Rotherham landlords and homeowners? Well the demand for rental properties in Rotherham in the short term will remain high and until the rate of building grows substantially, rents will remain strong and correspondingly, property values will remain robust.
We are not building enough new properties. That is the simple fact. And if the supply of new properties is limited and demand continues to soar for a variety of reasons (ie. divorce rates, ageing population, immigration rates), the values of those existing properties will remain high and out of reach for a lot of people… especially the blue collar working families of Rotherham.
Let’s examine how affordable property is for the average working family in Rotherham.
Looking at some recent statistics released by the Government, the ratio of the lower quartile house prices to lower quartile gross annual salaries in the Rotherham Metropolitan Borough Council area has hit exactly 5 to 1.
How did we end up with this ratio?
Essentially, if we ordered every property in the Rotherham Metropolitan Borough Council area by the value of those properties, the average value of the lower quartile properties (i.e. lowest 25%) would be £95,000. If we then did the same with salary, ordering everyone’s salary, the average salary of the lowest quartile (lowest 25%) £19,000 pa. If we divide £95,000 by £19,000 we end up with a ratio of 5 to 1 – put simply, the cost of buying a home is five times the annual salary.
What does this mean for Rotherham families?
Assuming there is one wage earner in the house, the chances of a Rotherham working family being able to afford to buy their own home, when it’s five times their annual salary, is very slim indeed.
The existing affordability crisis is the unavoidable outcome of the decade on decade failure to build enough homes to keep up with demand.
Nevertheless, improving affordability is not a case of just constructing more homes. Our council needs to ensure more properties are not only built, but that they are built in the right locations and of the right type and at the right price to ensure the needs of these lower income working families are met. At the moment, they have few options apart from the private rental sector.
Looking at the historic nature of the ratio, it can clearly be seen in the graph below that this has been an issue since the early to mid 2000s.
Few council houses left – is the reintroduction of 100% mortgages the answer?
However, if you take a look at the historic data, those on the bottom rung of the ladder (those in the lower quartile of wage earners) used to be housed by the local authority instead of buying. Unfortunately, when the vast majority of council houses were sold off in the 1980s it has meant that there are few left to house this generation.
Many of the lower quartile working class families were given a lifeline to buy their own homes in middle 2000s, with 100% mortgages. Sadly, with the credit crunch in 2009, that rug (of 100% mortgages) was rudely pulled from under their feet. On the whole it is much cheaper to buy than rent… but it’s the finding of the 5% deposit that is the challenging issue for many Rotherham working class families. Unless the Government allow 100% mortgages back, there will be no improvement in this situation, which is increasing the demand for rental properties.
What can we do to help?
In the long term, to alleviate these problems, I would suggest the Rotherham community hold their local politicians to account – there are actions that the council could take to ensure the affordability of housing by working with private developers and housing associations and aggressively using the planning tools at their disposal to safeguard the local community getting the new households we need.
In addition, on the renting side of the problem, Rotherham Metropolitan Borough Council could make certain parcels of residential building land for private rented development only, eliminating the opportunity of the land being bought to develop large executive homes, which do not solve the current problem. (Although in the short term this does mean demand for rental properties will continue to grow, keeping Rotherham house prices high and Rotherham rents high.)
It’s a difficult time for those longing to own their own home in Rotherham. Let’s keep up the pressure on our local politicians to work hard to solve these problems.
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