I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years.
The report said that in the Midlands and North, salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.
As regular readers of my blog know, I always like to find out what has actually happened locally in Rotherham. To talk of North and South is not specific enough for me.
Therefore, to start, I examined how salaries have changed in our area since 2007. Looking at the Office of National Statistics (ONS) data for Rotherham Metropolitan Borough Council, some interesting figures came out…
It’s clear from the graph that salaries in Rotherham are significantly lower than the national average. Still, salaries in Rotherham have risen by 14.91% since 2007 (although it’s been a bit of a rollercoaster ride to get there!) This is interesting when you compare that with what has happened to salaries regionally (an increase of 17.08%) and nationally, an increase of 17.61%.
Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in Rotherham are 3.6% higher than they were in Spring 2007 (not forgetting they did dip in 2008 and 2009). Therefore…
Wages in the Rotherham area have increased at a higher rate than property values to the tune of 11.31% … meaning, Rotherham is in line with the regional trend
All this is important, as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers. It is also vitally relevant for Rotherham landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Rotherham people are buying, then demand for Rotherham rental properties will drop (and vice versa).
As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Rotherham property market.
Now of course, it isn’t as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.
On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ hasn’t been that great. However, look back another 10 years to 1997, and that tells a completely different story. Nationally, the affordability of property more than halved between 1997 and today. In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.
“Not a realistic goal”
The issue of a lack of homeownership has its roots in the 1980s and 1990s.
It’s quite hard as a tenant to pay your rent and save money for a deposit simultaneously, meaning for many Rotherham people, home ownership isn’t a realistic goal.
Earlier in the year, the Tories released proposals to combat the country’s ‘broken’ housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad landlords.
This is all great news for Rotherham tenants and decent law-abiding Rotherham landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Rotherham in the last 10 (or 20) years, the demand for decent high-quality rental property keeps growing.
If you want a chat about where the Rotherham property market is going like many Rotherham landlords are doing then please get in touch via the contact page. You can also check out my other articles or follow me on Facebook and Twitter.
Moving to a bigger home is something Rotherham people with growing young families aspire to. Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three-bed Rotherham homes are much in demand and it can be a costly move.
If you live in Rotherham in a two-bedroom property and wish to move to a four-bedroom house in Rotherham, you would need to spend an additional £166,180 (or £656.41 per month in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home and then later in life, make the transition from a three to four-bedroom home.
So, after being asked my thoughts on moving home in Rotherham by a friend recently, please find my analysis of the local property market and then some thoughts. To start with, let us see what the average property price is for a Rotherham property by the number of bedrooms it has.
I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74% – so the mortgage cost could be higher or lower depending on the mortgage taken).
There are some interesting jumps in costs when moving upmarket as a Rotherham buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Rotherham is quite high and therefore financially prohibitive for most families. This helps provide a partial explanation as to why some four-bed properties are currently taking slightly longer to sell.
Advice for buy-to-let landlords
As an aside, there is a lesson here for all my blog readers.
You can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy-to-let. Simply put the monthly finance costs and rents achieved don’t match up so well (i.e. a mortgage for a 4 bed home in Rotherham would cost you 105.03% compared to a 3 bed mortgage, but the jump in rent would be a lot less than that). I don’t wish to be dismissive about the solidity of investing in larger properties because it does depend on your circumstances. Four bedroom properties sometimes offer other advantages. Pick up the phone if you want to know what they are in more detail.
A further look at the stock of properties in Rotherham is revealing.
The most active purchasers are 20 and 30 something home-owning parents with growing families. Many look to more modern developments for the perfect balance of access to decent primary schools, commutability and lifestyle.
For landlords looking to buy within Rotherham, they face stiff competition from these 20/30 something families, making the three bedroom Rotherham home massively in demand, often attracting spirited offers and selling within weeks of listing. This mix of homebuyers and landlords is a pressure point in the Rotherham property market. Again, if you are a landlord, call me and I will show you areas with decent returns where you aren’t in so much competition with young Rotherham family homebuyers. Also, keep your eye on the featured property section of our blog – we post some great deals with high yields that are worth taking a look at.
The cost of an additional bedroom can often be too much
The cost of an additional bedroom can be too much for some Rotherham buyers. It is quite challenging moving home the first time, but to then find you are priced out on the next move up the ladder can be quite disconcerting, with families often having to move to a different part of town to get the bigger home they need.
Nevertheless, that’s the position many homeowners find themselves in with the cost of the additional bedroom being too much to bear.
To those buying their home for the first time, all I suggest is they not only consider the mortgage payments and other costs of their first home, but also do their homework into their next rung up the Rotherham property ladder. Thinking about it now will keep you ahead of the game in the future as your number of bedrooms, family property needs and lifestyle wants change.
…and Rotherham landlords – well these changes in the way people live also mean there are opportunities to be had in the Rotherham rental market. Many Rotherham landlords are starting to pick my brain on this, so if you don’t want to miss out – get in touch for my advice. You can also follow us on Twitter or Facebook for up-to-date insights.
The mindset and tactics you employ to buy your first Rotherham buy-to-let property needs to be different to the tactics and methodology of buying a home for yourself to live in.
The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!)
Yet with a buy-to-let property, if your goal is a higher rental return you must be aware that a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Instead, inexpensive Rotherham properties can bring in bigger monthly returns.
Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy-to-let property take the monthly rent, multiply it by 12 to get the annual rent and then divide it by the value of the property.
As a result, if the price of a property is more, the yield will drop. To put it another way, if a buy-to-let landlord here in Rotherham has to decide between two properties that will generate the same monthly rent, the landlord can increase their rental yield by selecting the lower priced property.
What is the average yield for Rotherham properties?
To give you an idea of the sort of returns in Rotherham…
Now of course these are averages and there will always be properties outside the lower and upper ranges in yields… however, they are a fair representation of the gross yields you can expect in the Rotherham area.
As we move forward, with the total amount of buy-to-let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.
Other factors can impact your choice of buy-to-let property
However, before everyone in Rotherham starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Rotherham buy-to-let property to buy.
Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields.
Another way landlords can make money is if the value of the property goes up. Therefore, for those Rotherham landlords who are looking for capital growth, an altered investment strategy may be required.
In Rotherham, for example, over the last 20 years, this is how the average price paid for the four different types of Rotherham property have changed…
- Rotherham Detached Properties have increased in value by 224.7%
- Rotherham Semi-Detached Properties have increased in value by 231.2%
- Rotherham Terraced Properties have increased in value by 213.8%
- Rotherham Apartments have increased in value by 228.3%
A balancing act
It is very much a balancing act of yield, capital growth and void periods when buying in Rotherham.
Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, whether you’re a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and I’ll make you a cup of tea!
Get in touch with me today using the contact page!
You can also follow me on Facebook and Twitter for the latest information.
Every so often I like to have a lazy Saturday morning reading through the newspapers at my favourite coffee shop in Rotherham. Naturally, I find the most interesting bits are their commentaries on the British housing market.
There’s been a lot of talk about property price, quite a bit of discussion about the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit and feature articles about the severe lack of new homes being built (which is especially true in Rotherham!)
However, a few days ago as I was reading I realised that a group of people that don’t often get any column inches are those existing homeowners who can’t move!
The people who can’t move
Back in the early 2000s between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.
However, after the ‘credit crunch’ hit in 2007 the number of house sales fell to 624,994 in 2009.
Since then it has steadily recovered, albeit to a more ‘respectable’ 899,708 properties by 2016. This means there are around 450,000 fewer house sales (house-moves) each year compared to the previous decade .
The question is… why are there fewer house sales?
To answer this question we need to go back 40/50 years.
Inflation was high in the late 1960s, 70s and early 80s. To combat this the Government raised set interest rates to a high level in a bid high to try to lower inflation. Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. Despite this, it wasn’t all bad news as the high inflation eroded the mortgage debt in ‘real spending power terms’. As wages grew (to keep up with inflation), home owners could get bigger and even higher mortgages. This therefore allowed people to move up the property ladder more quickly.
Things changed in the late 1990s and early 2000s.
UK interest rates tumbled as UK inflation dropped. Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property. This inevitably meant all the home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).
This snowball effect (of significant numbers moving house) continued into the 2000s (2004 to 2007), as banks slackened their lending criteria.
Home movers could borrow even more to move up the property ladder – you may remember the 125% loan to value Northern Rock Mortgages that could be obtained very easily!
How have things changed in 2017?
It’s now 2017 and a decade has passed since the credit crunch began. Things have changed yet again!
You would think that with ultra-low interest rates at 0.25% that the number of people moving would be booming. However, this has not been the case. Less people are moving due to:
- low wage growth of 1.1% per annum,
- the tougher mortgage rules since 2014
- sporadic property price growth in the last few years
- high property values comparative to salaries (I talked about this a couple of months ago)
What does this mean for Rotherham?
All of these points have come together to mean less people are moving… but by how many?
In 2007, 4,821 properties sold in our area but by last year (2016) only 3,598 properties sold. This is a drop of 25.37%.
Therefore, we have just over 1,220 less households moving in the Rotherham and the surrounding council area each year.
Now of that number, it is recognised throughout the property industry around 80% of them are homeowners with a mortgage. That means there are around 1,003 mortgaged households a year (80% of the figure of 1,220) in the Rotherham and surrounding council area that would have moved 10 years ago, but won’t this year.
The reason they can’t/won’t move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, based on this report, of those estimated 1,003 annual Rotherham non-movers:
- There are around 361 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).
- There are around 140 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).
- An estimated 60 households of our annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).
- Finally, I believe there are 441 Rotherham mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage). This is the majority group.
What can we do about it?
Undoubtedly, the first three points above (demographics, lifestyle and high price growth) is something beyond the Government or Bank of England control.
However, could there be some influence exerted to help the people and households in that final 4th point? There are so many mortgaged homeowners who are unable to move due to their inability to finance a new mortgage or keep within the affordability rules – can something be done?
If Rotherham property values were lower, this would decrease the size of each step up the property ladder. This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.
In regards to the mortgage rules, before we all start demanding a relaxation in lending criteria for the banks… do we really want to return to free and easy 125% Northern Rock mortgages?
We all know what happened with Northern Rock…
These are difficult times. Your thoughts would be welcome on this topic.
If you need any advice I am happy to give it. Please get in touch via the contacts page – I’ve got years of experience in the Rotherham property market. It’s also a good idea to follow me on Twitter and Facebook for the latest info!
Michael Bennett, 36-year-old father of two from Rotherham, was out house hunting.
It was a pleasant September Saturday afternoon, and our man cycles along on his bike. He cycles up a street of suburban semis, where he spots a few retired neighbours, chatting to each other over the garden fence. He leans his bicycle against a lamppost and launches softly into his property search.
“Anyone on the road contemplating moving?” Michael asks, “I am not a landlord or developer, I’m just a Rotherham bloke trying to get out of renting, buy a house, do it up and live in it with my wife and two children”
“The only way I will leave here is in a box”, answers an 80-something lady, wearing her fading Paisley patterned housecoat from the 1970’s.
“I‘ve lived here since before you were born, it’s lovely up here… we aren’t moving, are we Doris?” (as her neighbour sagely shook his head at his wife).
Forgive my story telling but Michael, like many Rotherham people born in the late 1970s to the early 1990s, is keen to get a slice of prime Rotherham real estate. Yet people like Michael in Generation Y (or the Millennials as some people call them i.e. born between 1977 and 1994 and needing family housing now) are discovering, as each year passes by, they are becoming more neglected and ignored when it comes to moving up the property ladder.
Looking at the graph for the UK as whole…
Over 75 percent of Brits aged 65 and above (the baby boomers) are owner-occupiers, the biggest share since records began and a proportional rise of over 48.3% since the early 1980s. Looking at those Baby Boomers (the current 65+year olds)… and roll the clock back 36 years (to when they were in their 30s and 40s) and two thirds (65.6%) of them owned their own home.
In stark contrast, just under half of 25 to 49 year olds (47.3%) own their own home today.
However, the biggest drop has been in the 18 to 24-year old’s, where homeownership has dropped from a third (32%) in the 1980s to less than one in ten (8.9%) today.
What’s the situation in Rotherham?
Looking at the Rotherham statistics, the numbers make more interesting reading:
18 to 24 year olds are still significantly less likely to own a house compared to the older generations.
Why is this happening? Why are younger generations being left out?
Government policy contributes to the generational stalemate.
Stamp Duty rules prevent older Brits from moving as the price of land and planning rules make it harder to build affordable bungalows that are attractive to members of the older generation who want to move.
The average value of an acre of prime building land in the UK is between £750,000 and £800,000 per acre.
Bungalows are the favoured option for the older generation, but the problem is bungalows take up too much land to make them profitable for new homes builders. The housing market is gridlocked with youngsters wanting to get on (then move up) the property ladder whilst the older generation, who want to move from their larger houses to smaller, more modern bungalows, can’t.
The problem is there simply aren’t enough bungalows being built and the high price of land, means that they are prohibitive to build.
So, what is my point?
Well, all I would say to the homeowners of Rotherham is that one solution could be to start to talk to your local councillors, so they can mould the planners’ thoughts and the local authority thinking in setting land aside for bungalows instead of two up two down starter homes? That would free the impasse at the top of the property ladder (i.e. mature people living in big houses but unable to move anywhere), releasing the middle aged gridlocked people in the ladder to move up, thus releasing more existing starter homes for the younger generation.
…and to Michael, the wandering new home searcher… if things are going to change, it will be years before they do… so keep going out and spreading the word of your search for a new home for your family.
If you need any advice I am happy to give it. Please get in touch via the contacts page – I’ve got years of experience in the Rotherham property market. It’s also a good idea to follow me on Twitter and Facebook for the latest info!
Landlords and homeowners here in Rotherham will be eager to hear if the property market is slowing down.
The Landlord’s Tightrope
The tightrope of being a Rotherham buy-to-let landlord is a balancing act many do well at.
Government figures show that ‘real pay’ has dropped 1% in the last six months and talking to several Rotherham landlords, they are very conscious of the capacity and ability of their tenants to pay the rent versus their own need to raise rents on their rental properties.
Evidence does suggest many landlords feel more assured now than they were a few months ago about pursuing higher rents on their properties.
One of the reasons may be due to the summer months – historic evidence suggests that the rents new tenants have had to pay once they’ve move in have increased during the summer. June-August is a time when renters like to move, which means that demand surges and, thanks to the normal supply/demand seesaw, tenants are usually prepared to pay more to secure the property in the place they want to be.
This is particularly good news for Rotherham landlords as average Rotherham rents have been on a downward trend recently.
Look at the figures:
Rents in Rotherham on average for new tenants moving in have risen 1.6% for the month, taking overall annual Rotherham rents 1.1% higher for the year
Several Rotherham landlords have expressed their apprehensions about a slowing of the housing market in Rotherham. I think this negativity may be exaggerated.
Trying to find an equilibrium
The other side of the coin to property investing is capital values (which will also be of interest to all the homeowners in Rotherham as well as the Rotherham buy-to-let landlords). I believe the Rotherham property market has been trying to find some level of equilibrium since the New Year.
According to the Land Registry…
Property Values in Rotherham are 0.47% higher than they were 12 months ago.
However, they’ve actually risen by 1.34% last month!
The reality is the number of properties that are on the market in Rotherham today has dropped by 8.05% since the turn of the year – this fact will have an interesting effect on short-term Rotherham property values. As tenants have had less choice, buyers now have less choice.
Are you selling? Realistically price your property
Whether you are a homeowner or landlord, if you are planning to sell your Rotherham property in the short-term, it is crucial that whilst you allow room for negotiation, you must still realistically price your property when you bring it to the market.
Given that everyone now has access to property details, including historic stats for how much property has sold for, buyers will be more astute during the offer and negotiation stages of a purchase.
Property prices will remain strong medium to long term
Even with this short-term decrease in the number of properties for sale in Rotherham, property prices will remain stable and strong in the medium to long term. This is because the number of properties on the market today is still way below the peak of summer of 2008, when there were 1,260 properties for sale compared to the current level of 765 (if you recall, prices dropped by nearly 20% in Credit Crunch years of ‘08 and ‘09).
Compared to 2008, today’s lower supply of Rotherham properties for sale will keep prices relatively high… and they will continue to stay at these levels for the medium to long term.
Less people are moving than a few years ago, meaning less property is for sale. Fewer properties for sale mean property prices remain relatively high and this is because of a number of underlying reasons:
- Buy-to-let landlords tend not sell their properties as often than owner-occupiers, consequently removing the property out of the housing market selling cycle.
- Stamp Duty is much higher compared to 10 years ago (meaning it costs more to move).
- There is a dearth of local authority rental housing so demand for private rented housing remains high.
- The UK’s maturing owner occupier population – older people are less likely to move (compared to when they were younger).
- The lack of new homes being built in the country (we need 240k houses a year to be built in the UK and we are currently only building 145k a year!)
- Mortgage rules introduced in 2014 about how much a person can borrow on a mortgage has curtailed demand
Some final thought’s before I go…
To all the Rotherham homeowners that aren’t planning to sell – this talk of price changes is only on paper profit or loss.
To those that are moving… most people that sell are buyers as well, so even though you might not get as much for your house, the one you want to buy shouldn’t be as much either. Swings and roundabouts.
To all the Rotherham landlords – keep your eyes peeled – I have a feeling there may be some decent buy-to-let deals to be had in the coming months. One place for such deals, irrespective of which agent is selling it, is the featured property section on this blog – I post recommendations there.
If you have any questions feel free to get in touch – I’m happy to share advice with you. You can also follow me on Facebook or Twitter for the latest insights about property in our area.
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