The ‘Right to Buy’ scheme was a policy introduced by Maggie Thatcher in 1980 which gave secure council tenants the legal right to buy the Council home they were living in with huge discounts.
The heyday of Council ‘Right To Buys’ was in the 80’s and 90’s, when 1,719,368 homes in the country were sold in this manner between October 1980 and April 1998. However, in 1997, Tony Blair reduced the discount available to tenants of council houses and the numbers of properties being bought under the Right to Buy declined.
So what does this mean for Rotherham homeowners and landlords? Well quite a lot in fact!
Looking at the figures for our local authority, whilst the number of ‘Right to Buys’ have dwindled over the last few years to an average of only 48 ‘Right to Buy’ sales per year, one must look further back in time. Looking at the overall figures, 11,918 Council properties were bought by council tenants in the Rotherham Metropolitan Borough Council area between 1980 and 1998. Big numbers by any measure and even more important to the whole Rotherham property market (i.e. every Rotherham homeowner, Rotherham landlord and even Rotherham aspiring first time buyers) when you consider these 11,918 properties make up a colossal 16.8% of all the privately owned properties in our area (because in the local authority area, there are only 70,610 privately owned properties).
Rotherham first time buyers and landlords can now buy these ex-council properties second hand (or the PC brigade like to call them ‘pre-loved ex–local authority dwellings’) as those original 80’s and 90’s tenants (now homeowners) have more than passed the time of any claw back of the discount they received (council discount was repayable if the first owner sold within a stipulated time period – usually 5 years).
Now let us all be honest, some (not all), but some ex-council properties lack the vital KSA that some landlords crave. The new homes builders know all about KSA (or Kerb-Side-Appeal) as they dress up the exteriors of their new homes to make them more appealing to buyers … and if you don’t believe me … why do Show homes exist? Going on the exterior looks of a modern property might be a theoretically good way of choosing a Rotherham buy-to-let property, but in a challenging market, some Rotherham investors are finding a more no-nonsense down to earth approach brings the largest returns.
Yes, the modern stuff being built in Rotherham is lovely, but too many landlords purchase buy to let property solely based on where they would choose to live themselves, instead of choosing with a business head and choosing where a tenant would want to live … because remember the first rule of buy to let property … you aren’t going to live the property yourself. What an ex-council property lack in terms of KSA, they more than make up for in other ways. Tenants more worried about how close the property is to a particular school or family members for child care matter to them far more than the look of a property.
Whilst ex-council properties tend to increase in value at a slower rate than more modern properties, that is more than made up in the much higher yields – and those built between the wars or just after are really well built. Tenant demand for such properties is good since Rotherham property values are so expensive, a lot of people can’t get mortgages to buy, so they will reconcile themselves to renting, meaning there is a good demand for that sort of property to rent. Also, the very fact the council were forced to sell these Rotherham properties in the 80’s and 90’s, means that today’s younger generation who would have normally got a council house to live in themselves, now can’t as many were sold ten or twenty years ago.
So to Rotherham landlords I say this … don’t dismiss ex-council houses and apartments – but remember the 1st rule of buy to let (see above). However, those very same Rotherham landlords should go in with their eyes open and take lots of advice. Not all ex-council properties are the same and even though they have good demand and high yields, they can also give you other headaches and issues when it comes to the running of the rental property. One source of advice is the Rotherham Property Blog … that just leaves the 19,436 council houses still owned by the local authority to be sold to their tenants in the coming years!
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My parents bought their first house in the 1960’s, they were in their early 20’s. Interestingly, looking at some research by the Post Office from a few years ago, in the 1960’s the average age people bought their first house was 23. By the early 1970s, it had reached 27, rising to 28 in the early 1980’s.
This year alone, 1,424 people in Rotherham will turn 28 and 1,288 in 2017 .. and dare I say 1,251 in 2018 .. year in year out the conveyor belt carries on .. where are the Rotherham youngsters going to live?
Ask a Rotherham ‘twenty something’ and they will say they do not expect to buy until they are in their mid thirties – seven years later than the 1980’s. Some people even say they will never be able to buy a property and the newspapers have labelled them ‘Generation Rent’ as they are people born in the 1980s who have no hope of getting on the property ladder. One of the major problems facing young Rotherham people is the large deposit needed to get a mortgage .. or is it?
The average price paid for an apartment in Rotherham over the last 12 months has been £86,200 meaning our first time buyer would need to save £4,310 as a deposit (as 95% mortgages have been available to first time buyers since 2010) plus a couple of thousand for solicitors and survey costs. A lot of money, but people don’t think anything today of spending a couple of thousand pounds to go on holiday; the latest iPhone upgrade or the latest 4K HD television. That amount could soon be saved if these ‘luxuries’ were withheld over a couple of years but attitudes have changed.
Official figures, from the Office for National Statistics, show the average male in Rotherham with a full-time job earns £541.90 per week whilst the average female salary is £383.90 a week, meaning, even if one of them worked part time, they would still comfortably be able to get a mortgage for an apartment.
I was reading a report/survey commissioned by Paragon Mortgages from the autumn of last year. The thing that struck me was that when tenants were asked about their long term housing plans, some 35% of participating tenants intend to remain within the rental sector and 24% intended to buy a house in the future, with the proportion of respondents citing the “unaffordability” of housing as the reason for renting privately increasing from 69% to 74%.
However, time and time again, in the starter home category of property (ie apartments), nine times out of ten the mortgage payments to buy a Rotherham property are cheaper than having to rent in Rotherham. It is the tenant’s perception that they believe they can’t buy, so choose not to. Renting is now a choice. Tenants can upgrade to bigger and better properties and move up the property ladder quicker than their parents or grand parents (albeit they don’t own the property). Over the last decade, culturally in the UK, there has been a change in the attitude to renting so, unless that attitude changes, I expect that the private rental sector in Rotherham (and the UK as a whole) is likely to remain a popular choice for the next twenty plus years. With demand for Rotherham rental property unlikely to slow and newly formed households continuing to choose the rental market instead of purchasing a property. I also forecast that renting will continue to offer good value for money for tenants and recommend landlords pursue professional advice and adopt a realistic approach to rental increases to ensure that they are in line with inflation and any void periods are curtailed.
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I do like to have a coffee at Swan Lake Tearooms on Rawmarsh Road in Rotherham. Whilst in there, a suited gentleman approached me and asked if I was the person who wrote the newsletters about the Rotherham property market.
We ended up having an interesting chat about the local property market, as he was concerned his daughter would never be able to buy her own property, a place in Rotherham she herself can call home.
My latest analysis, using the Land Registry and Office of National Statistics, shows that overall, month on month, Rotherham property values increased by 2%. The year on year figures showed the value of residential property in Rotherham has increased by 3.1% in the year to the end February 2016, taking the average value of a property in the council area to £101,500.
It gets even more interesting when we look at the last few months’ figures and see the patterns that seem to be emerging.
- January 2016 – a rise of 1.3%
- December 2015 – a drop of 0.6%
- November 2015 – a rise of 0.2%
We have talked in many recent articles about the lack of properties being built in Rotherham over the last 30 years. This lack of new building has been the biggest factor that has contributed to Rotherham property values still being 83.46% higher than in 1995. At the risk of repeating myself, until the Government addresses this issue, and allows more properties to be built, things will continue to get worse as the UK population grows at just under 500,000 people a year (which is a combination of around 226,000 people because of higher birth rates/people living longer and 259,000 net migration) whilst the country is only building 152,400 properties a year – no wonder demand is outstripping supply.
Another reason intensifying the current level of property values in Rotherham, is the fact that people aren’t moving home as much as they used to, meaning fewer properties are coming onto the market for sale, so in consequence, there is a lack of choice of property to buy, meaning people thinking of moving are discouraged from putting their property on the market … thus perpetuating the problem, as the scarcity of possible properties to buy in order to move also deters people from offering their home for sale. This unevenness between demand from would-be purchasers and the number of properties coming on to the market for sale is causing pressures in Rotherham (and the rest of the UK).
So what of the future of the Rotherham property market and this man’s daughter? I firmly believe the property market in Rotherham and the country as a whole is changing its attitude about homeownership. Back in the 1960’s, 70’s, 80’s and 90’s, getting on the property ladder was everything. Since the late 1990’s, we as a country (in particular, the young) have slowly started to change our attitude to homeownership. We are moving to a more European model, where people choose to rent in their 20’s and 30’s (meaning they can move freely and not be tied to a property), then inherit money in their 50’s when their property owning parents pass away, allowing them to buy property themselves … just like they do in Germany and other sophisticated and mature European counties, meaning his daughter will end up owning property, just later in life than we did. So, whatever the vote on the 23rd of June, if you think about it, we might be more European than we think!
Rotherham’s continuing housing shortage is putting the town’s (and the Country’s) repute as a nation of homeowners ‘under threat’, as the number of houses being built continues to be woefully inadequate in meeting the ever demanding needs of the growing population in the town. In fact, I was talking to my parents the other day at a family get together; the subject of the Rotherham Property market came up in the conversation (as I am sure it does at many family parties in Rotherham) after the weather and politics. My parents said It used to be that if you went out to work and did the right thing, you would expect that relatively quickly over the course of your career you would be buying a house, you would go on holiday every year, you would save for a pension. But now things seem to have changed?
Back in the Autumn, George Osborne, used the Autumn Statement to double the housing budget to £2bn a year from April 2018 in an attempt to increase supply and deliver 100,000 new homes each year until 2020. The Chancellor also introduced a series of initiatives to help get first time buyers on the housing ladder, including the contentious Help to Buy Scheme and extending Right to Buy from not just Council tenants, but to Housing Association tenants as well.
Now that does all sound rather good, but the Country is only building 137,490 properties a year (split down 114,250 built by private builders, 21,560 built by Housing Associations and and a paltry 1,680 council houses). If you look at the graph (courtesy of ONS), you will see nationally, the last time the country was building 230,000 houses a year was in the 1960’s.
How George is going to almost double house building overnight, I don’t know, because using the analogy of a greengrocers; if people want to buy more apples (i.e. houses) in a greengrocers’ shop, giving them more money (i.e. with the Help to Buy scheme) when there’s not enough apples in the first place doesn’t really help.
Looking at the Rotherham house building figures, in the local authority area as a whole, only 620 properties were built in the last 12 months, split down into 600 privately built properties and 20 housing association with not one council house being built. This is simply not enough and the shortage of supply has meant Rotherham property values have continued to rise, meaning they are 0.6% higher than 12 months ago, falling 0.9% in the last month alone.
I was taught at school (all those years ago!), that’s it’s all about supply and demand, this economics game. The demand for Rotherham property has been particularly strong for properties in the good areas of the town and it is my considered opinion that it is likely to continue this year, driven by growing demand among buyers (both Rotherham homebuyers and Rotherham landlords alike). You see Rotherham’s economy is quite varied, meaning activity is expected to remain relatively strong into the early Summer of 2016, especially as some Rotherham buy to let landlords try to complete purchases ahead of the introduction of new stamp duty rules in April.
.. and of supply, well we have spoken about the lack of new building in the town holding things back, but there is another issue relating to supply. Of the existing properties already built, the concern is the number of properties on the market and for sale. The number of properties for sale last month in Rotherham was 855, whilst 12 months ago, that figure was 957 whilst four years ago it stood at 1,271… a massive drop!
With demand for Rotherham property rising, minimal new homes being built and less properties coming onto the market, that can only mean one thing … now is a good time to be a homeowner or landlord in Rotherham.
I had an interesting email from someone in Rotherham a few weeks ago that I want to share with you (don’t worry I asked his permission to share). In a nutshell, the gentleman lives in Brinsworth, he is in his mid 60’s and still working.
He has a decent pension, so that when he does retire in a couple of years’ time, it will give him a comfortable life. He had recently inherited £90,000 from an elderly aunt. One option he told me was put it into a savings account. The best he could find was a 2 year bond with the Post Office which paid 1.9%; meaning he would get £1,710 in interest a year. One of his other options was to buy a property in Rotherham to rent out and he wanted to know my thoughts on what he should buy, but he had concerns as he didn’t want to take a mortgage out at his time of life. He was also worried about all the tax changes he had read about in the papers for landlords.
Notwithstanding the war on Rotherham landlords being waged by George Osborne, the attraction of bricks and mortar endures for many. As our man is a cash buyer, he would not have to deal with the intricate cut to mortgage interest tax relief that will diminish, or even eradicate, the profits of many Rotherham landlords. It’s true he would face the extra 3% in stamp duty to buy a second property, but with some good negotiation techniques, that could soon be mitigated.
I told him that buying a Rotherham buy to let property is all about the total return on investment. True, he could put the money in the Post Office bond and receive his interest of £1,710 a year or, as he rightly suggested, invest in property in Rotherham. The average yield (yield being the equivalent of the interest rate on the property) at the moment in Rotherham is 4.37% per annum, meaning our potential F.T.L (First Time Landlord) should be able to, depending on what he bought in the town, earn before costs £3,933 a year. (However, I told him there are plenty of landlords in Rotherham earning half as much again (if not more), if he was willing to consider more specialist investment types of properties – again, if you want to know where – look at my blog or drop me an email).
The bottom line is that the success of investing in Rotherham buy to let property versus a savings account with the Post Office (or whatever Bank or Building Society is offering the best rate) will depend on the performance of those assets. Unlike with a savings account, with property the capital you invested can also go up (and yes, it can go down as well – more of that in second). Property values in Rotherham have risen in the last twelve months by 0.6% meaning, that if our chap had bought a year ago, not only would he have received the £3,933 in rent, but also seen an uplift of £540 …meaning his overall return for the year would have been £4,473 (not bad when compared to the Post Office!).
.. but the doom mongers amongst you will say, property values can go down, as they did in 2008, and in 1988 and 1979. Yes, but after 1979 prices had bounced back to their ’79 levels by 1984 and went on to grow an additional 58% in the following four years. Then again, they dropped in 1988 and did take 13 years to reach back to those ’88 figures, but the following six years (between 2001 and 2007) they then increased by an additional 66%. Now, according to the Land Registry, average property values in Rotherham currently stand 19.41% below the January 2008 level, and anecdotal evidence suggests that in the nicer parts of Rotherham, we are well above these sorts of levels.
… and what would that £90,000 get you in Rotherham? A decent 3 bed town house in Kimberworth Park, a lovely 3 bed terrace in Treeton or Clifton (close to Rotherham town centre) .. in fact, the world is your oyster. But which Oyster? Well, my blog reading friends, if you want to read similar articles like this and what I consider to be the very best of buy to let deals in Rotherham, irrespective of which agent is selling it, then you need to visit the Rotherham Property Blog
There I was, out with the family at Boston Castle last weekend, when a smart gentleman approached me. ‘Hello’, he said, ‘You are the person writes that Property Blog aren’t you? We have met before at that Business Networking event in Rotherham a few months ago’.
I did then recognise him and, whilst I won’t mention his name, he runs a small but perfectly formed well known independent retailers in the town … It’s amazing who you see when out walking! Anyway, I was at a loose end for five or ten minutes as the other half was sorting things with the family, so we had a chat.
He wanted to know my thoughts on the future of the Rotherham property market, and I would now like to share with you that conversation, my Rotherham property Blog reading friends. People are always going to need a roof over their heads and somewhere to live will never go out of fashion – it’s a necessity for every single person. The 22 to 30 year olds of the town have a choice to what type of roof they have … they rent from the Council, they can rent from a private landlord or finally they can get a mortgage and buy one. In the 1970’s/80’s and 90’s, the expected thing was to save like mad for two years for the deposit (going without luxuries) whilst living at home or renting a cheap two up two down, then buy your first house. However, more recently fewer Rotherham youngsters have been buying, choosing to rent instead – mainly from private landlords (as Councils have been selling off council housing on the Right to Buy Schemes). The numbers are truly staggering … and I want to share them with you.
Roll the clock back 20 years and Rotherham was a different place. There were 32,524 households in Rotherham and 17,242 of those were owner occupied. Move to the present, and with all the building in the town, the total number of households has increased by 14.86% to 37,358 and quite surprising (to me at least), the number of owner-occupiers has increased to 20,928 (although as a proportion, it is only 56% compared to 53% twenty years ago).
However, it’s rented sector that is truly fascinating … twenty years ago, only 2,011 properties were privately rented in Rotherham … and now its 4,561, a rise of 2,550.
The twentysomethings of Rotherham housing difficulties haven’t been helped by the local authority selling off council housing, with the number of council houses dropping from 11,701 to 9,024 over the same twenty-year period. Demand for decent rented property remains high, as Cameron’s much vaunted house building program is years away and has decades of under investment to catch up on before it starts to affect demand. Even with the Buy to Let tax rule changes over the coming few years (which will see the maximum tax relief available to landlords drop from 45% to 20%), private landlords still have an important role to play in housing the people of Rotherham and those who educate themselves and treat it as a business will survive and prosper.
The best way Rotherham landlords can protect their income from property (and mitigate the affects of the tax rises) is to keep the homes they let out in Grade A condition. I have found, especially over the last three or four years, Rotherham tenants have ever growing demands from their rental property, but many are prepared to pay ‘top dollar‘ for houses and apartments that meet their high expectations. You must not forget, letting property in Rotherham (in fact anywhere) is a business, so all private landlords should also seek the advice, opinion and commentary of property professionals.
… And just as the other half had sorted the family, he asked ‘What of the news of Stamp Duty changes for Landlords coming in April?’ My thoughts are with such low supply (i.e. numbers of property for sale), and high demand it is hard to imagine Rotherham property values will see much impact – but I predict, ever so slightly, the proportion of owner occupiers should increase slightly compared to buy to let landlords in the coming decade as the the housing market should return to balance. For more in-depth thoughts on the Rotherham Property Market, which have a library of similar articles like this, all on the Rotherham Property Market, keep visiting this blog.
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