A little bit of good news this week for the Rotherham Property Market as recently released data shows that the number of first time buyers taking out their first mortgage in 2017 increased more than in any other year since the global financial crisis in 2009. In total there were 660 first time buyers in Rotherham, the largest number since 2006.
What will happen in 2018?
I expect in 2018 that this increase of first time buyers will level out and maybe dip slightly as, nationally, figures demonstrate that first time buyer’s average household income was £40,691 and this represented 17.3% of their take home pay.
However, it might surprise readers that it is actually cheaper to buy than it is to rent at the ‘starter home’ end of the housing market.
Many of you will remember mortgage rates at 12%… even 15%.
At the time of writing this article, I found on the open market, 189 first time buyer mortgages at 95% (meaning only a 5% deposit was required) with 3 year fixed rates from a reputable High Street bank at 2.49%… they even did a 3 year fixed rate 100% mortgage for 2.89%!
What about buy-to-let?
Interestingly, looking at the other end of the market, the buy-to-let investment in Rotherham was subdued. There were only 135 buy-to-let properties being purchased with a mortgage.
However, I must stress, whilst there is no hard and fast data on the total numbers of landlords buying buy-to-let, HM Treasury believes only 30% to 40% of buy-to-let property is bought with a mortgage. This means there could have been further cash only buy-to-let purchases in Rotherham – it’s just that the data isn’t available at such a granular level.
What’s the level of mortgage debt in Rotherham?
In terms of the level of mortgage debt in Rotherham, looking specifically at the S60, S61 and S65 postcodes, you can see there has been a steady rise in borrowing over the last few years.
This is pleasing to see, as new mortgage debt is created by first time buyers, buy-to-let landlords and home movers themselves, that is being roughly equalled by the amount being paid off with mature mortgaged homeowners in their 50’s and 60’s finally paying off their mortgage.
What does all this mean for the Rotherham Property Market?
Well, the stats paint a picture, but they don’t inform us of the whole story.
The upper end of the Rotherham property market has been weighed down by the indecision around the Brexit negotiations and rise in stamp duty in 2014, when made it considerably more expensive to buy a home costing more than £1m.
The middle part of the Rotherham property market has been affected by issues of mortgage affordability and lack of good properties to buy, as selling prices have reached the limit of what buyers can afford under existing mortgage regulations. The lower-to-middle Rotherham property market was hit by tax changes for buy-to-let landlords, although this has been offset by the increase in first time buyers.
If you are in the market and selling now and want to ensure you get your Rotherham property sold, the bottom line is you have to be 100% realistic with your pricing from day one and you might not get as much as you did say a year ago (but the one you want to buy will be less – swings and roundabouts?).
I know it’s not comfortable hearing that your Rotherham home isn’t worth as much as you thought, but Rotherham buyers are now unbelievably discerning.
So, if you are thinking of selling your Rotherham property in the coming months, don’t ask the agent out a few days before you want to put the property on the market… get them out now and ask them what you need to do to ensure you get maximum value in the shortest possible time!
I, like most Rotherham agents, will freely give that advice to you at no cost or commitment to you. Please get in touch if I can help.
As our families grow bigger the need for more space, whether that’s bedrooms or reception rooms, has grown with it. Furthermore, as our older generation lives longer and nursing home bills continue to rise quicker than a rocket on the 5th of November (the average nursing home bill in our area is £534.58 per week) many families are bringing two households into one larger one.
So, should you move somewhere larger or extend your Rotherham property to make it large enough for you and your family?
In some circumstances the choice has been made for you. If you live in an apartment with no garden, there isn’t much of an opportunity of making it larger.
But if you have a house with a garden or an attic with sufficient headroom, extending your home becomes a real prospect.
Even if it makes more sense to extend or move, the choice hangs on a number of different dynamics:
- your future plans
- money (both saved and access to finance)
- emotional attachments to your home
- the area of Rotherham that you live in
- the type/style of house you prefer.
How big is the typical British home?
Interestingly, the average British home is 968 sq.ft, which as you can see from the table below, is in the middle of developed nations when it comes to the size of a property.
Of the 1.11m homes sold in 2016 in England and Wales, the average floor area of the houses was 1,119 sq.ft – that’s about an eighth the size of an Olympic sized swimming pool.
Apartments averaged 530 sq.ft that’s just over ten times bigger than an average garden shed!
Looking at apartments and houses together, the average size of properties sold in England and Wales 968 sq.ft. This means they are slightly smaller than the European average, and much smaller than households in the US.
Should I extend my house? What will it mean for the house value?
So back to the question in hand…
Extending does mean you will have a lot of inconvenience whilst the work is being carried out.
The location of your Rotherham property, the quality of construction, what type of room(s) you want to add, your plot, neighbouring building lines, planning regulations and the overall demand for your type of Rotherham home, will make a vast difference to the financial repercussions of extending versus moving.
A medium-sized 270 sq.ft single storey extension (say around 17ft x 16ft) will add on average £32,000 to the value of a property in Rotherham
It’s important to note the end result of the extension needs to be a sensible and realistic home.
A two bed semi-detached house extended to a four bedrooms with no lawn or driveway, or a home with outsized reception rooms downstairs and miniscule bedrooms upstairs, could be problematic if and when you come to sell your home in the future.
Irrespective of whether your strategy is to live in your extended home for a long time, you will want to side-step outlaying a lot of money on costly building work that will make it tougher to sell.
In terms of what it would cost to build an extension, you can expect to pay on average between £140 to £200 per sq.ft, depending whether the extension is a single or double storey extension and other factors including finish and type of extension (note: I have seen it cost a lot more than these figures – so please speak with a builder).
So taking a mid line figure, that same 270 sq.ft extension on your Rotherham home would cost on average £55,080.
However, moving means there are substantial costs incurred – Estate Agency fees, Removal Van, Survey Fees, Legal fees and Stamp Duty on the property you are buying. Neither option is the obvious choice and comparing the costs of extending your Rotherham home to that of moving is not a stress-free undertaking.
Is it financially possible for me to extend my house?
How realistic each option is will probably come down to one thing… your mortgage provider.
You will need a considerable sum of equity in your Rotherham home before you can think of increasing your mortgage more, because most lenders will require you to have at least 10% to 20% equity left in your property after the extension or move has been done.
The best advice I can give is this: don’t assume anything
Get good advice and opinion from builders, mortgage brokers, architects, mortgage people and of course… an agent. Look at your options and make an educated decision with all the superficial and objective facts in front of you.
If you have any further questions, please don’t hesitate to contact me.
According to the National House Building Council (NHBC) more than 9,300 new homes were registered to be built in Yorkshire and Humber last year – a decrease of 3.2% on 2016 levels of 9,700 dwellings.
Despite the decrease, this is still one of the highest number of new builds in the region since the pre-recession levels of the Credit Crunch and at a time of uncertainty with Brexit and the snap General Election.
So, when a landlord recently asked me why the brand new property she was considering buying was a lot more expensive compared to a second-hand/existing property of similar type, accommodation, location and structure I thought this would make a fascinating topic to do some homework on… homework I want to share with the homeowners and landlords of Rotherham.
Why does a new build cost more than a similar second hand property?
You might believe that the difference between purchasing a new build home against purchasing a second-hand/existing home is just individual preference.
Some buyers/tenants like the ostentatious trendy modern feel of a new home… whilst others like a home that has stood the test of time.
So, why does one usually cost more than the other?
Well, I am going to be looking at some statistics that shows there is a real difference in our local council area’s property market when it comes to new vs existing homes and the price paid.
Looking at the average price paid for existing (second-hand) homes vs a new build makes interesting reading. The graph below depicts these average prices since 1996:
On this second graph, one can see the percentage difference in average price paid between new and existing…
The overall average for the whole Rotherham Metropolitan Borough Council area for the ‘new build premium’ over the last 21 years has been 45.4%. (A new build premium is the additional price a buyer pays for a new property compared to a second hand one.)
Yet nothing is ever that easy – there are issues with these statistics…
Is there really a new build premium in Rotherham?
The problem with statistics for entire geographical areas on this scale is that it is impossible to completely separate all the different factors of type, accommodation, location and structure. This makes them really hard to compare.
For example, for truly indicative statistics, one would have to have a mirror image second-hand Rotherham home and a duplicate new build right next door to each other, then calculate out which house buyers or buy-to-let landlords would pay more for? Perhaps if all things were equal, in that situation there might not be any difference in what buyers would be prepared to pay…?
But then again, properties can often be considered in a similar way to new cars – there’s always a difference in price on the forecourt between a brand new car and a car with a few hundred miles on the clock.
Things are never wholly equal.
What I do know is that my statistics of the Rotherham property market show that new build apartments in our area are worth more to people than their second-hand equivalents, whilst the difference is negligible between new build Rotherham detached houses and second-hand Rotherham detached houses.
However, looking back at the graphs I believe that the really important lesson in all these statistics is the fact that the ‘new build premium’ for new-build versus buying a second-hand property increases in a buoyant market and reduces in a tougher market.
So, if you want to buy new and the only consideration is money… try buying in a tougher challenging property market.
Here’s a number to catch your attention… I’ve calculated that Rotherham’s Millenials are set to inherit £199,566 each in property! Huge numbers, but is all that it seems?
But before we start it’s important to define all these phrases that get banded about the different life stages (or subcomponents) of our society. What are millennial? Who is Generation X or Generation Z or the Baby Boomers? When terminologies like this are used as often and habitually as these phrases, it’s particularly vital we have some practical idea of what these terms actually mean. People use these phrases but don’t really know what they mean! I’ve used them but haven’t been exactly sure where the lines were drawn!
So, for clarity…
Generation Z: Born after 1996
Millennials: Born 1977 to 1995
Generation X: Born 1965 to 1976
Baby Boomers: Born 1946 to 1964
Silent Generation: Born 1945 and before
Even these dates tend to blur slightly around the edges and are sometimes contested.
Examining Rotherham by generation
Using these definitions, my research shows there are 12,218 households in Rotherham owned by Baby Boomers and the Silent Generation. It also shows there are 21,361 Gen X homeowners.
Looking at demographics, homeownership statistics and current life expectancy, around two-thirds of those Rotherham 21,361 Gen X homeowners have parents and grandparents who own the 12,218 properties.
These Gen X homeowners are therefore going to profit from one of the biggest inheritance explosions of any post-war generation to the tune of £1.788bn of Rotherham property or £125,458 each… but they will have to wait until their early 60s to get it!
What about Millennials?
It’s the Millennials that are in line for an even bigger inheritance windfall!
There are 16,238 Millennials in Rotherham and my research shows around two thirds of them are set to inherit the 14,774 Gen X properties. Those homes are worth £2.161bn meaning, on average, each Millennial could inherit £199,566… but again, not until at least 2040 and maybe as late as 2060!
While the Rotherham Millennials have done far less well in amassing their own savings and assets, they are more likely to take advantage of an inheritance boom in the years to come.
This will probably be very welcome news for those Rotherham Millennials, including some from poorer upbringings who in the past would have been unlikely to receive gifts and legacies.
Inheritance is not the magic solution for Rotherham Millennials
Of course, inheritance is not the magic weapon that will get the Millennials on to the Rotherham housing ladder or tackle growing wealth cracks in UK society. Inheritance is unlikely to be made available when people from this generation are trying to buy their first home.
Correspondingly, over 50% of females and around 35% of men are going to have to pay for nursing home care, which will reduce inheritance significantly. Interestingly, I read recently that a quarter of people who have to pay for their care, run out of money.
Therefore, if you are a Rotherham Millennial there potentially will be nothing left for you.
Is there a solution to help our Millenials?
Most parents want to give their children an inheritance. The thought that what you have worked hard for throughout your life not going to your children is a really awful one.
Maybe that’s why I am seeing a lot of Rotherham grandparents doing something meaningful and helping their grandchildren, the Millenials, with the deposit for their first house.
One solution to the housing crisis in Rotherham (and the UK as a whole) is if grandparents, where they are able to, help financially with the deposit for a house.
Buying is cheaper than renting – we have proved it many times in these articles… so it’s not a case of not affording the mortgage. The issue for Millenials is saving for the 5-10% mortgage deposit that is required.
Maybe families should be distributing a part of the family wealth now (in the form of helping with house deposits) as opposed to waiting to the end… it will make so much more of a difference to everyone in the long run. Just a thought – what do you think?
Yes, I did say ‘rentirement’ and not retirement… what am I talking about? ‘Rentirement’ relates to the 872 (and growing) Rotherham people who are approaching retirement but don’t own their own home. They are currently in their 50s or early to mid-60s and rent their home privately from a buy-to-let landlord.
With ‘retirement’ approaching and the expectation of little more than the state pension of £155.95 per week plus a small private pension which will only equate with a couple of hundred pounds a month, these retirees may only have about £200 per week once they retire at 67.
The difficulty with ‘rentirement’
The problem is that the average rent in Rotherham is £469 a month so most of the retirement ‘income’ will be take up in rent – the remainder will have to be paid for out of their savings or the taxpayer will have to stump up the bill. With life expectancy currently in the mid to late 80s that is going to be quite a big bill… over £98 million in the next 20 years will be paid from the tenant’s savings or the taxpayers coffers to be precise!
You might say it’s not fair for tax payers to pick up the bill and that these mature Rotherham rents should start saving thousands of pounds a year now to be able to afford their rent in retirement.
However, in many circumstances, the reason these people are privately renting in the first place is that they were never able to find the money for a mortgage deposit on their home or didn’t earn enough to qualify for a mortgage. Now, as they approach retirement with the hope of a nice council bungalow, the hope is diminishing thanks to the council house sell off in the 1980s.
For a change, it looks like those living in Rotherham who are aged 30-40 will be better off. Their parents are more likely to be homeowners who will cascade their equity down the line when they pass away.
This is what is happening in Europe where renting is common – the majority of people rent in their 20s, 30s and 40s, but by the time they hit 50s and 60s (and retirement), they are able to invest the money they have inherited from their parents passing away and buy their own home.
How will this impact buy-to-let landlords in Rotherham?
Have you noticed how the new homes builders don’t build bungalows anymore?
In fact some have said the desire for bungalows is over.
The waning in the number of bungalows being built has more to do with supply than demand. The fact is that for new homes builders there is more money in constructing houses than there is in constructing bungalows. Bungalows are voracious when it comes to the land they need because a bungalow takes up the same amount of square meterage as a two/three storey house yet is only on one level.
Here lies the problem – demand is increasing and will continue to increase whilst the supply of bungalows will remain the same. We all know what happens when demand outstrips supply… the rent price for bungalows will inevitably go up.
‘Rentirement’ is a pressing concern. Landlords, if you have a bungalow in your buy-to-let portfolio it might just be worth hanging onto it. If you don’t, make sure you keep your eyes peeled for any opportunities as these properties could prove to be worthwhile investments.
As I am sure you are aware, one the best things about my job as an agent is helping Rotherham landlords with their strategic portfolio management.
Gone are the days of making money by buying any old Rotherham property to rent out or sell on. Nowadays, property investment is both an art and science. The art is your gut reaction to a property, but with the power of the internet and the way the Rotherham property market has gone in the last 11 years, science must also play its part on a property’s future viability for investment.
There are many metrics that most property professionals (including myself) use to decide the viability of a rental property. These metrics include what properties are selling for, the average rent, the yield and an average value per square foot.
A forgotten metric
However, another metric I like to use is the average rent per square foot.
The reason being is that is a great way to judge a property from the point of view of the tenant … what space they get for their money.
Now of course, location has a huge influencing factor when it comes to rents (and therefore, rent per square foot).
Like people buying a property, tenants also have that balancing act between:
- better vs. worse location
- more vs. less money
- size of accommodation (bigger and more rooms equalling more money)
- where they live (location) vs. making ends meet
Interestingly, I know there are a lot of you in Rotherham who like to see my statistics on the Rotherham property market, so before I talk about the rental figures per square foot, I wanted to share the £ per square foot on the values.
In Rotherham, the current AVERAGE figures that are being achieved (and I must stress, these are average figures, so there will an enormous range within them) are worth considering. To begin with, here are the average figures split by type:
- Detached Property – £181 / sq ft
- Semi-Detached Property – £145 / sq ft
- Terraced Property – £118 / sq ft
- Rotherham Apartments – £152 / sq ft
So, the rental figures:
The extent of space you get for your rent is replicated in the space you get for your money when buying a property. The average size of rental property in the Rotherham area is 847.6 sq ft.
This means the average rent per square foot currently being achieved on a Rotherham rental property is £14.10 per sq ft per annum
(Interestingly, the national average size of rental properties is 792.1 sq ft – on average, rental properties are on average bigger in Rotherham).
What we can deduce from this?
Well the devil is always in detail!
Whilst I was able to quote the average overall figure and the fact my research showed it was quite clear from data that there is relationship between the average £ per sq ft figures on property values and average £ per sq ft on rental figures as a property grows in size.
However, something quite intriguing happens to those figures, in terms of what the property will sell for and what it will rent for, when we change and increase the size of the property.
My research showed that doubling the size of any Rotherham property doesn’t mean you will double the value of it… in either value or rent.
This is because the marginal value increases diminish as the size of the property increases.
In simple terms: subject to a few assumptions, double the size of the house doesn’t mean double the value. What really happens is that a doubling of size gives only 40-65% uplift in value.
But here comes the fascinating part – when it comes to rental figures, double the size of the house meant only 20-45% increase in rent.
In a future article, I will be discussing the actual added value an extension can bring… but in the meantime, I will make a sweeping statement: most of the time it makes sense to extend if you are going to live in the property as long as the extension is proportionate to the property, but if you are going to rent it out… possibly not.