I received a very interesting letter the other day from a Rotherham resident who was retired and mortgage free. He stated how unaffordable Rotherham’s rising property prices were and that he worried how the younger generation would ever afford to buy.
He went on to ask if it was right for landlords to make money on the inability of others to buy property of their own. He wondered whether landlords are actually denying the younger generation the ability to buy their own home by buying buy-to-let properties.
Whilst doing my research for my many blog posts on the local property market in Rotherham, I know that a third of 25 to 30 year olds still live at home. It’s no wonder people are kicking out against buy-to-let landlords – they are the greedy bad people who are cashing in on a social woe! In fact, most people believe the high increases in Rotherham’s (and across the country) house prices are the very reason owning a home is outside the grasp of these younger would-be property owners.
However, the numbers tell a different story.
Average Age of First-Time-Buyers
Looking at the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market. In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31
Nevertheless, the average age doesn’t tell the whole story. In the early 1990’s, 26.7% of first-time buyers were under 25, while in the last five years just 14.9% were. In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.
House Price-to-Earnings Ratio
There are also indications of how unaffordable housing is, the house price-to-earnings ratio has almost doubled for first-time buyers in the past 30 years.
In 1983, the average Rotherham home cost a first-time buyer (or buyers in the case of joint mortgages) the equivalent of 2.6 times their total annual earnings – today that has escalated to 3.7 times their income (although let’s not forget, it was at 4.6 times their income for Rotherham first-time-buyers in 2007).
Percentage of Wages
Again, those figures don’t tell the whole story.
Back in 1983, the mortgage payments as percentage of mean take home pay for a Rotherham first time buyer was 27.6%. In 1989, that had risen to 57.6%. However, today it’s 23.0%… no, that’s not a typo! It’s now only 23.0%!
So, to answer the gentleman’s questions about the younger generation being unable to afford a house it isn’t all to do with affordability, as the numbers show.
And what of the landlords?
Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households. That would be the equivalent of raising income tax by 4p in the pound. I don’t think UK tax payers would swallow that.
So, if the Government haven’t got the money… who else will house these people?
Private Sector Landlords! Thankfully they have taken up the slack over the last 15 years.
Some say there is a tendency to equate property ownership with national prosperity, but this isn’t necessarily the case.
The youngsters of Rotherham are buying houses, but buying later in life. Also, many Rotherham youngsters are actively choosing to rent for the long term, as it gives them flexibility – something society seems to crave more than ever.
As ever, I’m keen to hear your thoughts. Send me a Tweet or a Facebook message.
With the recent Queen’s Speech confirming it is the Government’s intention to introduce a ban on the fees that tenants pay when applying for a rental property, what does this actually mean for tenants and landlords here in Rotherham?
The private rental sector in Rotherham forms an important part of the Rotherham housing market and the engagement from the Government is a welcome sign that it is recognised as such.
I have long supported the regulation of lettings agents which will ensconce and cement best practice across the rental industry and I believe that measures to improve the situation of tenants should be introduced in a way that supports the growing professionalism of the sector.
Over the last few years, there has been an increasing number of regulations and legislation governing private renting and it is important that the role of qualified, well trained and regulated lettings agents is understood.
Great News for Rotherham Tenants
So, let’s look at tenants… this is great news for them, isn’t it?! Well before you all crack open the Prosecco, read this…
Although I can see prohibiting letting agent fees being welcomed by Rotherham tenants, at least in the short term, they won’t realise that it will rebound back on them.
First up, it will take between 12 and 24 months to ban fees, as consultation needs to take place, then it will take an Act of Parliament to implement the change. A prohibition on agent fees may preclude tenants from receiving an invoice at the start of the tenancy, but the unescapable outcome will be an increase in the proportion of costs which will be met by landlords, which in turn will be passed on to tenants through higher rents.
Published at the same time as the Autumn Statement in 2016, hidden in the Office for Budget Responsibility’s Economic and Fiscal Outlook on the Autumn Statement (provide independent and authoritative analysis of the UK’s public finances), it said on Wednesday:
“The Government has also announced its intention to ban additional fees charged by private letting agents. Specific details about timing and implementation remain outstanding, so we have not adjusted our forecast. Nevertheless, it is possible that a ban on fees would be passed through to higher private rents.”
What can we learn from Scotland?
Scotland banned Letting Fees in 2012.
The charity Shelter have been a big voice in persuading and lobbying the Government since it managed to persuade the Scottish Parliament to ban fees in 2012. Shelter have been talking a lot across different media platforms about their independent research, which they said showed that:
“Renters, landlords and the industry as a whole [have] benefited from banning fees to renters in Scotland… any negative side-effects of clarifying the ban on fees to renters in Scotland have been minimal for letting agencies, landlords and renters, and the sector remains healthy.”
“Many industry insiders had predicted that abolishing fees would impact on rents for tenants, but our research show that this hasn’t been the case. The evidence showed that landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK. It found that where rents had risen more in Scotland than in other comparable parts of the UK in 2013, it was explained by economic factors and not related to the clarification of the law on letting fees”
However, the devil is in the detail:
Shelter have also used this same research to argue rents never went up following the tenant fee ban in at the end of 2012. I have read that research and I agree with that research, but it is now several years out of date and the research was undertaken only 12 months after the ban was put into place.
I find it strange they don’t seem to mention what has happened to rents in Scotland in 2014, 2015 and 2016… because that tells us a completely different story!
What really happened in Scotland to rents?
I have carried out my research up to the end of Q3 2016 and this is the evidence I have found.
In Scotland, rents have risen, according the CityLets Index by 15.3% between Q4 2012 and Q3 2016
(CityLets is the equivalent of Rightmove in Scotland – they have plenty of comparable evidence to back up their numbers).
When I compared the same time frame, using Office of National Statistics figures for the English Regions between 2012 and 2016, this is what has happened to rents
- North East 2.17% increase
- North West 2.43% increase
- Yorkshire and The Humber 3.21% increase
- East Midlands 5.92% increase
- West Midlands 5.52% increase
- East of England 7.07% increase
- South West 5.82% increase
- South East 8.26% increase
- London 10.55% increase
But in Scotland it is far more… a 15.3% increase!
Are you really telling me the Scottish economy has outstripped London’s over the last 4 years? There’s no way that Scottish wages have risen that much! There has to be another reason for this growth.
So what will happen in the Rotherham rental market in the long term?
The lettings fee ban will not be introduced for another 12 to 18 months so it’s business as usual!
However, in the long term, rents will increase as the fees tenants have previously paid will be passed onto landlords in the coming few years. Not immediately… but this will happen.
As a responsible letting agent, I have a business to run.
According to ARLA (Association of Residential Letting Agents), it takes an average of 17 hours work by a letting agent to get a tenant into a property. We need to complete a whole host of checks prescribed by the Government. It’s an extensive list including:
- A right to rent check,
- Anti-money laundering checks,
- Legionella risk assessments,
- Gas safety checks,
- Affordability checks,
- Credit checks,
- Smoke alarm checks,
- Construction (Design & Management) Regulations 2007 checks,
- Compliance with the Landlord and Tenant Act,
- Registering the deposit so the tenants deposit is safe and
- Carry out references to ensure the tenant has been a good tenant in previous rented properties.
The vast majority of lettings agents take these things very seriously. We are expected to know every check on the list inside out – we are the experts in our field. Yes, there are some awful agents who ruin the reputation for others, but isn’t that the case in most professions?
At the end of the day, business is business.
No landlord, no tenant and certainly no letting agent does work for free.
I, along with every other Rotherham letting agent will have to consider passing some of that cost onto my landlords in the future.
Now of course, landlords would also be able to offset higher letting charges against tax, but I wouldn’t want them out of pocket, even after the extra tax relief.
So what does this all mean for the future?
The current application fee ranges between £60 and £225 per property for the tenant(s), depending on the rental level, meaning on average, the fee is around £90 per property.
I am part of a group of 500+ Letting Agents, and recently we had to poll to find the average length of tenancy in our respective agencies. The Government claim it is 4 years, whilst the actual figure was nearer one year and eleven months, so let’s round that up to two years.
That means and average of £90 needs to found in additional fees to the landlord, on average, every two years.
In 2005, the average rent of a Rotherham Property was £401 per month and today it is £468 per month, a rise of only 16.7% (against an inflation rate (RPI) of 38.5%).
Using the UK average management rates of 10%, this means the landlord will be paying £561 per annum in management fees.
If the landlord is expected to cover the cost of that additional £90 every two years, rents will only need to rise by an additional 1% a year after 2018, on top of what they have annually grown by in the last 5 years.
Even if rents increased by 2% in Rotherham, average rents would rise to £604 per month by 2022 (see the red line on the graph below) and so the landlord would pay £724 per annum in management fees… which would go towards covering the additional costs without having to raise the level of fees.
But surely that’s bad news for Rotherham tenants?
Actually, it’s quite the opposite.
Look at the graph!
If the average rent Rotherham tenants pay had risen in line with inflation since 2005, that £401 per month would have risen today to an average of £555 per month. Instead, that average is only £468 per month. Even if inflation remains at 2% per year for the next six years, the average rent would be £535 per month by 2022… meaning that even if landlords increase their rents to cover the costs tenants are still much better off, when we compare to the £535 per month figure to the £604 per month figure.
The banning of letting fees is good news for landlords, tenants and agents.
It removes the need for tenants to find lump sums of money when they move. That will mean tenants will have greater freedom to move home and still be better off in real terms compared to if rents had increased in line with inflation.
Landlords will be happy as their yield and return will increase with greater rents whilst not paying significantly more in fees to their lettings agency. Letting agents who used to charge fair application fees won’t be penalised as the rent rises will compensate them for any losses.
As for the agents who have been charging the silly high application fees… well, that’s their problem. At least I know I can offer the same (if not better!) service to both my landlords and tenants in the future in light of this announcement from Phillip Hammond.
In November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market.
One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017. Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic, 40% higher rate and 45% additional rate).
So, for example, let’s say we have a Rotherham landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month. In the tax year just gone (16/17), assuming no other costs or allowable items:
- Annual rental income £10,800.
- Taxable rental income would be £3,600 after tax relief from mortgage relief
- The result: they would pay £1,440 in income tax on the rental income
And assuming there are no other changes, the landlord would have income tax liabilities (as things stand in May 2017) in the tax years of:
- (2017/18) £1,800
- (2018/19) £2,160
- (2019/20) £2,520
- (2020/21) £2,880
Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability. However, there is another option for landlords.
Landlords in Rotherham could set up a Limited Company and sell their
property personally to that Limited Company
In fact, looking at the numbers from Companies House, many landlords are doing this. In the UK, there are 93,262 BTL limited companies. Since the announcement in November 2015, the numbers have seen a massive rise:
- Q2 2015 / Q3 2015 – 4,193 Buy to Let Limited Companies Set Up
- Q4 2015 / Q1 2016 – 5,403 Buy to Let Limited Companies Set Up
- Q2 2016 / Q3 2016 – 3,007 Buy to Let Limited Companies Set Up
- Q4 2016 / Q1 2017 – 7,149 Buy to Let Limited Companies Set Up
So, by selling their BTL investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTLs as an ‘allowable expense’ – effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.
I am seeing more and more Rotherham landlords approach me for my thoughts on setting up a BTL limited company.
In fact, I have done some extensive research with Companies House in the 15 months (1st January 2016 to 31st March 2017 and 185 BTL limited companies have been set up in the S postcode alone).
Should you make the change to a limited company?
If you are looking to hold your BTL investments for a long time it could be very favourable to take the short-term pain of putting your BTLs in a limited company for a long-term gain. You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.
As the law sees the new limited company as a separate entity to yourself, you are legally selling your BTL property to your limited company, just like you would be selling it on the open market. Your limited company would have to pay Stamp Duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%. The mortgage might need to be redeemed and renegotiated (with appropriate exit charges).
On a more positive note, what I have seen though by incorporating (setting up the limited company) is landlords can roll up all their little BTL mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital. Finally, if the tax liability is too high to swap to a limited company, some savvy BTL investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company. I am just throwing this idea out there (not giving advice!)
It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance. Whatever you do, always get the opinions from these tax consultants in writing and never hurry into making any hasty decisions.
The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation, because with decent tax planning (from a tax consultant) and good rental / BTL portfolio management (which I can help you with).
Whatever you decide to do, let’s keep you the right side of the line!
“How far do Rotherham people go to move to a new house?” This was an intriguing question asked by one of my clients the other week.
Readers of this blog will know I love a challenge, especially when it comes to talking about the property market!
Not very far…
For the majority, the response is not very far.
It is much more common for homeowners and tenants in Great Britain to move across town than to the next town or county.
Until now, it’s been hard to say how many homeowners and tenants moved from (and to) relatively far away to buy or rent their new home. However, I carried out some research and requested some statistics from the Royal Mail. What came back was fascinating!
Using statistics for the 12 months up to the middle of Autumn 2016, 261 households moved out of Rotherham (S60), moving an average distance of 28.08 miles. This is the equivalent of moving from Rotherham to Leeds (as the crow flies). The greatest distance travelled was 294 miles – that’s more than 11 marathons (when someone moved to Penzance).
Considering there were 515 property sales in S60 in the year and countless tenant moves, the numbers seems consistent – once you find a town you like, you tend to want to settle down. If you do move, other factors are usually in play – you might only move to a different neighbourhood for better transport links or to be closer to the school you want to get your children into. The likelihood is you won’t travel far.
What about people moving into Rotherham?
I then turned my attention to people moving into Rotherham. Using the same statistics for the 12 months up to the autumn 2016, 291 households moved into Rotherham (S60). These households moved an average distance of 23.56 miles – the equivalent of moving from Gainsborough to Rotherham (again as the crow flies). The greatest distance travelled was 238 miles – that’s more than 9 marathons (when someone made the great decision of moving from Woolwell, Devon to Rotherham).
I have looked at the data of every person moving into Rotherham and these have been plotted on a map of the UK. Looking at the map below, it shows exactly where most people come from, when moving into Rotherham. As you can see, there are a high proportion of people moving from London and the South East.
So… what does all this mean for the landlords and homeowners of Rotherham?
When an agent markets a property for rent or let, it is vital to know the tenant or property buyer well. It’s important that the properties they are letting/selling fit the tenants/buyers, so that they almost sell themselves. These days this means not only knowing how many rooms and features a property offers but also being switched on to the budget that buyers and tenants are likely to want to spend on a property in that area. Knowing where someone comes from can be very useful.
Location, Location, Location…?
We’ve all heard the mantra “location, location, location”. However, I say it might be helpful to factor in where (and how) far people are moving from, so the property can be sold or let more easily.
Whilst I enjoy writing this blog, it’s also valuable research so that I can help my clients buy, let and sell well. The research in this article will actually enable my team at Bricknells Rentals to be more efficient in where to direct our marketing resources to ensure we maximise our clients’ properties rent-ability. I’ll also be able to advise prospective buy-to-let landlords a lot more effectively.
It’s a win-win situation. My research is valuable to me – and judging by the response to these blogs, it’s been valuable to people across Rotherham and further afield.
If you’re not already following me on Facebook or Twitter please do. I’m also happy to take any questions that you may have – you may end up having a blog written about it!
There are 23.36 million properties in England and Wales – 64% are owner occupied and 36% are rented either from a private landlord, local authority or housing association.
Over nine out of ten of those English and Welsh owner-occupied properties are either a whole house or bungalow. Now, most people would assume these properties would be freehold. However, of those renting nearly half of rental properties (44% to be precise) lived in other leasehold apartments and flats.
The difference between freehold and leasehold
It might be wise to quickly explain the difference between freehold and leasehold.
When someone owns the freehold of a property they own it outright, including the land it is built on, whilst with a leasehold property the leaseholder owns the property for the length of their lease agreement. Leaseholders must pay the person who owns land (the freeholder) ground rent and other fees.
When the leasehold ends, ownership returns to the freeholder although the leaseholder can extend the lease or they can buy the freeholder out, but there are rules and regulations with regards doing that.
Therefore, it would be safe to assume that houses are freehold and flats are leasehold… wouldn’t it?
Most houses are freehold but some might be leasehold – usually through shared-ownership schemes – but more and more new homes builders are selling houses on a leasehold as well. The protection of the law afforded to leaseholders who own a flat is massive, but sadly lacking to leasehold houses sold privately.
More and more new homes builders are selling houses on a leasehold
Looking specifically at the figures for Rotherham, at the last count in S60 and S61 there were 33,795 properties.
Since 1995, 21,342 properties in S60 and S61 have changed hands and have been sold.
Looking further at those 21,342 transactions, using data from Land Registry and solicitors practice My-Home-Move, 20.32% have been leasehold.
This is higher than the national average of 15%.
A growing concern
However, I am concerned about a few new homes builders selling new houses (not flats – houses) as leasehold.
There has been a growing (yet small) trend for new-build houses to be sold as leasehold in recent years. While not all house builders use this model, those that do maintain it helps make developments financially viable.
The issue comes when builders sell the freehold separately to an investment company without informing the leaseholder – which they are legally allowed to do without telling the leaseholder. In England and Wales, the “right of first refusal” to buy the freehold is written in law to leaseholders of flats i.e. the freeholder must offer it to the leaseholders of all the flats of the building first). This is not the case for leaseholders of houses.
Make sure you check very carefully!
This is the point I am trying to get across!
If you are buying a new home and it’s a house (i.e. not a flat) – please check very carefully indeed whether its freehold or leasehold.
If it is a leasehold, whilst you do have rights, they are not as strong as for those people buying a leasehold flat. I appreciate I am only talking about a very small percentage of the property market, but potentially this could end up costing thousands of pounds to those affected.
If you’re buying a property and you need some expert advice you can always contact me. I am happy to share my wealth of experience with readers of this blog.
Additionally, you can follow me on Facebook or Twitter for the latest insights.
According to the Land Registry’s latest House Price Index for Rotherham and the surrounding locality, the value of apartments/flats is rising at a faster rate than terraced/town houses, semi-detached properties and even detached property.
Values of apartments in Rotherham have increased by 6.92% over the past year, which is proportionally 21% more than the Rotherham average rise of 5.74%. Flats and apartments haven’t outperformed all of the other types of properties by such a gulf since summer 2003.
Compare the performance of flats with the other property types performed:
- Detached homes rose by 6.44%
- Semi-detached homes rose by 5.65%
- Terraced/Town-Houses rose by 4.91%
As you can see, there is a moderate increase in the rate of property value growth across the board. However, no one should confuse it with a strong and vigorous healthy property market.
Instead, it is somewhat an indicator of the long-lasting lack of property on the market. In fact, I have spoken about the lack of homes for sale in Rotherham on a number of occasions and whilst it isn’t as bad as it was 12 months ago – choice is still quite limited for buyers.
The average property value in Rotherham now stands at £141,400.
When split down into property types:
- Rotherham Apartments: £104,600
- Rotherham Detached: £237,400
- Rotherham Semi-Detached: £126,800
- Rotherham Terraced/Town-House: £90,300
So why have Rotherham apartments performed so well, and is it just a Rotherham thing?
When I scrutinised the figures for the rest of the UK, it appears that apartments are pacemakers in the clear majority of the country. Of the 379 local authority areas in the UK, the value of apartments is rising faster than detached, semi-detached and terraced houses in 320 of them.
So, should Rotherham apartment owners be getting out the Champagne?
Well, I would keep it on ice as the Land Registry figures are notorious for short term fluctuations. It’s hard to have faith in the fact that Rotherham house values rose rapidly last month given that, in the last six months, the Land Registry has frequently made downward revisions to their first published House Price Index figures.
Thankfully, the bigger picture from the Council of Mortgage Lenders (CML) stated that home buying activity last month was up 2% over the same month in 2016 – not bad as we have each quarter since Brexit. The CML stated first time buyer’s levels of affordability was being squeezed and that the average amount borrowed by those first time buyers dropped slightly last month, but the overall amount borrowed (by all buyers) was an impressive 12% – higher than the same month in 2016.
So, what next for Rotherham’s property market?
I believe the uplift in the values of apartments is a short-term blip. The real issue is with the way wage growth might not keep up with inflation. The impact of the change in exchange rate since Brexit will mean real wage growth stagnates. This will mean buyer demand growth will be curtailed and with property values already so full, I believe a renewed hastening in house price growth is unlikely.
I believe we are starting to return to the housing market we saw in the mid 1990s: steady demand, steady supply – nothing silly when it comes to house price growth.
I believe, with what is happening around us, that this isn’t a bad thing at all.
As always, if you have any questions please get in touch.
Additionally, you can follow me on Facebook or Twitter for the latest insights.
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