Why our children’s children will be in an unbelievably difficult position when they want to buy their first home

Why our children’s children will be in an unbelievably difficult position when they want to buy their first home

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.

How affordable is property for Rotherham’s working families?

How affordable is property for Rotherham’s working families?

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.

How much does the typical Rotherham Millennial spend on rent by the age of 35?

How much does the typical Rotherham Millennial spend on rent by the age of 35?

There are many names for the people born between the mid-1980s and late-1990s. Whether you prefer Millennials or Gen Y or (more appropriate for this blog) Generation Rent, there are certain characteristics that broadly define them. They are the imaginative, artistic youngsters who grew up with the newest technology and computers. They’re aficionados of music festivals, gourmet pizzas, emojis, selfies and old-school nostalgia.

Millennials have also discovered that renting is a good choice for their shelter and accommodation needs without the hassle that comes from buying a home. Nonetheless, that is not the only reason they don’t buy property. When they should be concentrating on their profession, putting down roots and starting a family, Millennials are still going through the pressure and strain of student loan liabilities whilst, at the same time, finding it tough to pay rent.

The hot topic at the moment is the cost of renting, as both political sides of the political divide have seen mileage in wooing these Generation Renters. The average rent in Rotherham is currently £547 per month making this a big-ticket item on the monthly budget. I was therefore very interested to find out exactly how much Rotherham Millennials will spend on rent by the time they reach their mid 30s if things stay the same.

How much does a typical Rotherham Millenial spend on rent?

The average age people leave home in the UK is 22. Therefore, looking at a typical Rotherham Millennial who left home in 2005, between 2005 and now, that person will have shelled out £78,803 in rent!

It’s no wonder local Millennials can’t afford to buy a Rotherham home given their tremendous debt. This means younger Rotherham Millennials will probably carry on renting for the foreseeable future, simply because the prospect of buying a home is not yet achievable…

…that is until you look more deeply at the numbers!

A graph depicting the monthly rents paid by tenants in Rotherham

Looking at the chart above, the average rent of a Rotherham property in 2005 was £458 per month. If this figure had risen by inflation than today that would be £645 each month. As I have already mentioned in the article, today it only stands at £547 per month. Looking over the last 12 years, adding up all the differences between what the average actual rent was compared to what it should have been if rent had gone up by inflation, the average Millennial tenant in Rotherham would have paid £86,628.

Bar chart depicting the average rent paid by an average tenant in Rotherham since 2005

This means that an average 35-year-old tenant, who has been renting since 2005, is better off by £7,825 when comparing the actual rent paid compared to what it would have been if it had risen by inflation. In a nutshell, tenants have done well due to the sub-inflation growth in rents.

In fact, if you recall I mentioned in an article a few weeks ago, the older Rotherham Millennials are starting to use those savings and are gradually shifting towards home ownership. They are finally catching up with the British homeownership dream as Bank of Mum and Dad help with the deposit. Also, as the scrapping of Stamp Duty from the Government starts to kick in, together with the realisation that if the 5% mortgage deposit can be scrapped together (yes, 95% first time buyer mortgages have been available since 2009), it is still a lot cheaper to buy than rent. This will unquestionably drive demand for Rotherham homes for sale – good news for Rotherham homeowners.

… and what does this mean for Rotherham landlords?

Well the vast majority of younger Millennials are still renters and I foresee this to be the case for at least the next ten to fifteen years. Landlords will need to keep improving their properties to ensure they get the best tenants – but this will see a much higher rent achieved. Millennials will pay top dollar for a top dollar property. It is important to do things correctly as making money won’t be as easy as it has been over the last twenty years.  With a greater number of properties on the market comes greater choice. Don’t buy the first thing you see, buy with your head as well as your heart… because, as I promised a few weeks ago, the first rule of buy-to-let investment is: “You are not going to live in the property yourself”

Why have Rotherham asking prices risen by 2.5% in the last 12 months?

Why have Rotherham asking prices risen by 2.5% in the last 12 months?

The average asking price of property in Rotherham increased by 2.5% compared to a year ago, with particularly good demand from landlords and home-movers in the first few months of the year. This amounts to a £3,292 increase, taking the current average asking price to £132,839, compared with £129,547 this time last year.

The rise in asking prices is being aggravated by buyers jumping into action looking to benefit from potential stamp duty savings (especially first-time buyers) or beat impending mortgage interest rate rises later in 2018. Of the numerous Rotherham buyers starting their property hunting in the usually active spring market this year, many face paying even more than ever for the property of their dreams, and as I mentioned a few weeks ago, there are less properties for sale in Rotherham compared to 12 months ago.

Looking at the different sectors of the Rotherham property market, splitting it down into property types, one can see what is happening to each sector of the market with regard to their average asking prices now compared to a year ago. Firstly, let’s examine the price people are asking for:

Interestingly, when one looks at the percentages, the most upward average asking price pressure is in the detached property type sector.

Does this mean the value of Rotherham property has increased?

Now, I must stress this growth in the asking prices of Rotherham property doesn’t mean the value of Rotherham property is going up by the same amount… nothing could be further from the truth.

Only time will tell if the current levels of Rotherham asking prices is a catch-up abnormality after a couple of months of restrained asking price rises in the first few months of 2018, or whether it is an initial sign that we are in for a better 2018 property market than all of us were expecting at the start of the year?

I believe these asking prices must be viewed with a pinch of salt, as it will be fascinating to see whether Rotherham properties actually sell at these higher asking prices. Just because house sellers (be they owner-occupiers or landlords liquidating their assets) are asking for more money it doesn’t mean buyers will be enthusiastic to part with their hard earned cash. Like my parents used to say to me all those years ago, “You can ask … but you might not get”.

Also, Rotherham homeowners and landlords wanting to sell their property need to be aware of progressively strained buyer mortgage affordability and the more those sellers increase asking prices, the more buyers will hit their maximum on the amount they are able borrow on a mortgage.

However, those Rotherham buyers who need a mortgage (be they owner-occupier or landlord), will paradoxically benefit from lower mortgage payments before interest rates rise… perhaps another reason for the uplift in the number first time buyers and landlords buying? Only time will tell!

How much would it cost to buy every property in Rotherham?

How much would it cost to buy every property in Rotherham?

The value of all the homes in Rotherham has risen by more than 231% in the past two decades to £5.662bn… meaning it’s worth more than the stock listed company Royal Mail Group, which is worth £5.636bn.

Those Rotherham homeowners and buy-to-let landlords who bought their homes twenty or more years ago have come out on top, adding thousands and thousands of pounds to the value of their own Rotherham homes as the younger generation in Rotherham continue to be priced out of the market.

This is even more remarkable because, in those twenty years, we have had the global financial crisis in 2008, where we saw a short term drop in Rotherham house prices of between 15% and 20% (depending on the type of property). And although there have been a number of consecutive years of growth in property values recently in Rotherham, it hasn’t been anywhere near the levels seen in the early 2000s.

How the value of property in Rotherham has increased over the last 20 years

Twenty years ago the total value of Rotherham property was £1.708bn.

Over those twenty years, total property values have increased by £3.954bn, meaning that today the total value of all the properties in Rotherham is worth £5.662bn. Even more remarkable, when you consider the FTSE100 has only risen by 40.84% in the same time frame. Also, when I compared it with inflation, i.e. the UK Retail Price Index, inflation had risen by 72.2% during the same twenty years.

What does this mean for Rotherham?

So, what does this all mean for Rotherham?

Well, as we enter the unchartered waters of 2018 and beyond, even though property values are already declining in certain parts of the previously overcooked central London property market, the outlook in Rotherham remains relatively good. This is because over the last five years, the local property market has been a lot more sensible than the market in central London.

Rotherham house values will remain resilient for several reasons:

  1. Demand for rental property remains strong with persistent immigration and population growth.
  2. With 0.25% interest rates, borrowing has never been so cheap.
  3. A simple lack of new house building in Rotherham.

Ignoring years and years of under investment in Rotherham housebuilding, we’re not even keeping up with current demand! So although it might be a bumpy ride over the next 12 to 24 months, in the medium term, property ownership and property investment in Rotherham has and always will, ride out the storm.

In the coming weeks, I will look in greater detail at my thoughts for the 2018 Rotherham Property Market. As always, all my articles can be found here! Don’t forget to visit Facebook and Twitter for my more thoughts on the property market here and further afield!

Rotherham Council Tax Payers Hit by 10.7% above Inflation Rise

Rotherham Council Tax Payers Hit by 10.7% above Inflation Rise

“Does the Council Tax band make a difference to a property’s appeal?” That’s the question that a Rotherham landlord asked me recently – Council Tax increases are obviously very topical at the moment. The landlord was also interested in whether extensions or home improvements made a difference to the tax banding.

It’s important to be aware of what Council Tax Band your new house or apartment falls under. Being aware of this before you buy/move will help when planning month by month for life in your home (or investment).

But what exactly are Council Tax Bands, and how do they affect landlords/tenants/homebuyers?

How much Council Tax you pay depends on two variables.

The first is which Council Tax Band your property is in. A property is placed into a specific band depending upon what the value of the property was in April 1991 – the date when the tax band system was applied. In a nutshell, what your property is worth today has no relevance whatsoever to your banding.

Council Tax Bands have a letter of the alphabet and range from bands A-H.

The Council Tax Band values are:

Band A – up to £40,000
Band B – £40,001 to £52,000
Band C – £52,001 to £68,000
Band D – £68,001 to  £88,000
Band E – £88,001 to £120,000
Band F – £120,001 to £160,000
Band G – £160,001 to £320,000
Band H – more than £320,000

So, for example, if a property sold for £110,000 in April 1991 but is now worth £350,000 it will remain in Band E (NOT Band H), as this was the value when the bands were set in 1991.

For new homes, the same thing applies: they are valued based on the 1991 market value. This safeguards that all homes and all buyers are treated equally and consistently. The second factor that determines how much Council Tax you pay is what each individual local authority decides each band will pay in Council Tax. (So for example, a householder/tenant in Leeds in a Band E property will pay a different amount in Council Tax each year to someone in Swindon or North London in Band E).

Interestingly, the average current level of Council tax paid by Rotherham people stands at £983 per annum, up from £467 in 1993 (although if it had risen by inflation in those 25 years .. today that should only be £888). This means that Council Tax has outstripped inflation by 10.7%.

So unless the local authority changes the rates, the only way you can change the amount you pay in Council Tax is your banding i.e. you physically move to a higher or lower band.

What about extensions and improvements?

Contrary to what most people think, extensions and improvements do not change the Council Tax Band and existing householders/tenants only have to pay the same Council Tax as they would have without any extensions and improvements. However, the Valuation Office (The Government’s Property Valuers) do reserve the right to re-value the extended property if the property gets sold.

If you are a potential buyer, you should be aware of this review as it could change the amount of Council Tax you pay after the purchase. If a higher band is necessary, the new band will be based on what the extended property would have been expected to sell for in 1991. However, this does not necessarily mean that the banding will jump one band, as this is contingent on the extent of the changes and whether the property falls towards the top or bottom of its existing band. More often than not – it isn’t an issue and the banding stays the same.

In terms of which band the property is in, this can be challenged. In my experience in the Rotherham property market the only issue is one where there is an anomaly with the banding, when one property is in a different band to all the others in the street. This is much rarer than it used to be, as most anomalies have been found and rectified.

Anyone can check the banding of any property by clicking here.

I do need to mention a thoughtful warning though. Challenging your Council Tax Band is not something to do on a whim for one simple fact – you cannot request your band to be lowered, only ‘reassessed’, which means your band could be moved up as well as down. I have even heard of neighbouring properties band’s being increased by someone appealing, although this is the exception.

If you have any questions don’t hesitate to drop me a line.

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