Hammond’s Budget Promise to Build 300,000 more homes – what will it mean for Rotherham?

Hammond’s Budget Promise to Build 300,000 more homes – what will it mean for Rotherham?

The Tories have fallen in love with house building again. Phillip Hammond hasn’t shown the same enthusiasm as George Osborne with his hardhat and hi-vis jacket… until now! The change in focus seems to be influenced by their desire to get back in power in 2022 and as a result, the Chancellor in his Budget has promised to create 300,000 new households in a year.

Nationally, the number of new homes created has topped 217,344 in the last year, the highest since the financial crash of 2007/8.

Looking closer to home: in total there were 605 ‘net additional dwellings’ in the last 12 months in our area – that’s a decent increase of 53% on the 2010 figure.

The figures show that 96% of this additional housing was down to new build properties.

In total, there were 583 new dwellings built over the last year in Rotherham. In addition, there were 21 additional dwellings created from converting commercial or office buildings into residential property and a further one dwelling was added as a result of converting houses into flats.

I was encouraged that a number of the new households in the Rotherham area had come from a change of use. The planning laws were changed a few years back so that, in certain circumstances, owners of properties didn’t need planning permission to change office space in to residential use. Yes, it’s a small number, but with the scarcity of building land available locally, it was pleasing to see the number of developers that had reutilised vacant office space into residential homes.

Converting offices and shops to residential use could be vital in helping to solve the Rotherham housing crisis. This is especially true when you consider the graph below depicting a hardly spectacular level of house building over the last seven years.

Now we have had the Autumn Budget, Theresa May and Philip Hammond have set out their stall with housing as their key focus.

I was glad to see the Government introducing a variety of changes to improve housing, including more funding for the supply side and an injection of urgency into the planning system.

However, the biggest question is this: just where are the Government going to build all these new houses? Naturally, I’ll be writing about this topic in the future.

As for the topic in hand… the focus on the housing market by the Conservatives is good news for homeowners and buy-to-let landlords. Why? It will encourage more fluidity in the market in the longer term, sharing the wealth and benefits of homeownership for all.

However, these are just targets. In the short term, demand still outstrips supply for homes and that will mean continued upward pressures on rents for tenants.

How much will Rotherham rents rise in the next five years?

How much will Rotherham rents rise in the next five years?

Since the annual rental price inflation in Rotherham peaked at 2.3% 12-18 months ago we have seen increasingly more humble rent increases in our area. In fact, in certain parts of the Rotherham rental market, the rental market saw some slight falls in rents in the last few months. So, could this be the earliest indication that the trend of high rent increases seen over the last few years, may now be starting to buck that trend?

Well, possibly in the short term…

…but in the coming years, it is my opinion Rotherham rents will regain their upward trend and continue to increase because demand for Rotherham rental property will outstrip supply. Why? Read on to find out.

Taxes on landlords reduces the number of rental properties in Rotherham

The only counterbalance to that improved rental growth would be to meaningfully increase rental stock (i.e. the number of rental properties in Rotherham).

However, due to the Government’s new taxes on landlords being introduced between 2017 and 2021, buy-to-let has (and will) be less attractive in the short term for certain types of landlords. This means less new properties will be bought with the sole intention of renting them out.

Interestingly, countless market experts assumed at the start of 2017, that the number of rental properties would in fact drop throughout the year.

The assumption was that as the new tax rules for landlords started to kick in, landlords would look to kick their tenants out, sell up and invest their capital elsewhere. (Although ironically that would lower supply of rental properties, decreasing the supply, meaning rents would increase again!)

However, in Rotherham my anecdotal evidence suggests the opposite.

Confirmed by my discussions with fellow property, accountancy and banking professionals in our area, it seems that Rotherham landlords are not sell up on masse! Instead, they’re either remortgaging the buy-to-let properties or converting their rental portfolios into limited companies to side step the new taxation rules.

The sentiment of many Rotherham landlords appears to be that property has always weathered the many stock market crashes and runs in the last 50 years. There is something inheritably understandable about bricks and mortar, particularly compared to the unknown mysteries of other popular investment opportunities (such as the stock market and crypto-currency such as BitCoin).

Good news for tenants

Remarkably, there is some good news for tenants! The Conservatives recently published the draft Tenants’ Fee Bill, which is designed to prohibit the charging of tenants lettings fees on set up of the tenancy.

However, looking at evidence in Scotland, I expect rents to rise to compensate landlords, thus hammering faithful tenants looking for long-term tenancy agreements the hardest. This growth will be on top of any usual organic rent growth. It really is swings and roundabouts!

So, what does this all mean for landlords and tenants in Rotherham?

Taking into consideration all the factors, in my opinion:

Rents in Rotherham over the next 5 years will rise by 8.9%

An 8.9% rise will take the average rent for a Rotherham property from £453 per month to £493 per month.

To put all that into perspective though, rents in Rotherham over the last 12 years have risen by 19.4%.

In fact, that rise won’t be a straight-line growth either, because I have to take into account the national and local Rotherham economy, demand and supply of rental property, interest rates, Brexit and other external factors.

You can see my projections here:

In the past, making money from Rotherham buy-to-let property was as easy as falling off a log.

But with these new tax rules, new rental regulations and the overall changing dynamics of the Rotherham property market, as a Rotherham landlord, you are going to need work smarter and have every piece of information, advice and opinion to hand on the Rotherham, regional and national property markets, to enable you to continue to make money…

You’re in the right place for that information – make sure that you follow me on Twitter and Facebook for the latest information. And if you are a landlord and someone looking to sell in South Yorkshire, please get in touch and I’d be glad to assist you.

Discover how much the first interest rate rise in 10 years will cost Rotherham homeowners

Discover how much the first interest rate rise in 10 years will cost Rotherham homeowners

At the beginning of this month the Bank of England chose to raise interest rates for the first time in 10 years. Unfortunately, Rotherham homeowners will be among those affected by this rise.

The decision to raise interest rates from 0.25% to 0.5% was made as inflation hit a 51-month high of 2.9% and the national unemployment rate was at an all-time low of 4.3%.

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, if you take a look at all the big banks, just about all of them have increased their standard variable mortgage rate.

How much will Rotherham homeowners see their repayments increase?

The average Rotherham mortgage is currently £63,434 – how much will homeowners on variable or tracker mortgages in our area see their repayments increase?

In the S60-S66 postcodes there are 34,010 homeowners with a mortgage, of which 14,611 have a variable rate mortgage (the remaining have fixed rate mortgages).

The total amount owed by those S60-S66 homeowners with those variable rate mortgages is £926,815,233, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £494.61 per month and now its £507.82 per month.

All this means that:

The interest rate rise will cost Rotherham homeowners
(on average) an extra £158.59 per year

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s.

Many of my readers will remember interest rates at 17% after they were increased by Geoffrey Howe to combat the hyperinflation which resulted from the 1970s financial crisis in Britain. They may also recall Norman Lamont in September 1992 and the infamous Black Wednesday crisis – at the point interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to the Rotherham housing market?

Well, if I’m being frank – not a great deal.

The proportion of Rotherham homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.

If more Rotherham people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Rotherham people having to sell their Rotherham properties (or have them repossessed in the worst case scenario) because they can’t afford the monthly repayments.

However, and this will be of interest to both Rotherham homeowners and buy-to-let landlords, it’s important to be mindful that for every 1% increase in the Bank of England interest rate, it will cost the average Rotherham homeowner on a variable rate mortgage £52.86 per month

So, what next?

Because UK inflation levels are at 2.9% (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2% using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the ongoing negotiations (or lack thereof!), but fundamentally the British economy is in decent shape.

People will always need housing and as we aren’t building enough houses (as I have mentioned many times on this blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Rotherham property market will always remain strong for both homeowners and landlords alike.


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Introducing the Rotherham House Price Index

Introducing the Rotherham House Price Index

I had the most interesting conversation the other day with a local Rotherham accountant, who asked me about my articles here on the Rotherham Property Blog.

He commented enthusiastically on the articles I write and was particularly interested with the graphs, facts and figures contained within them – so much so he recommended some of his clients should read them – many of them are Rotherham homeowners or landlords (or both).

However, one question that kept me on my toes was this:

“With so many House-Price-Indices, how do you know which one to use and how can you calculate what is exactly happening in Rotherham?”

To start with, there are indeed a great number of these Indices, including the Land Registry, the Office of National Statistics, Halifax, Nationwide and LSL to name but a few. The issue occurs when these different house price indices give diverse pictures of the state of the UK housing market.

Whilst some indices measure the average value of every property in the UK (sold or unsold), others measure the average ‘price-paid’ of houses that happen to be sold over a fixed time scale… it can be very confusing!

A lot of the variance between house price indices occurs because of the distinctive ways in which the numerous indices endeavour to beat these issues. You see, the biggest problem in creating a house-price-index when comparing and contrasting with most other indexes (e.g. inflation where the price a ubiquitous tin of beans can easily be measured over the months and years), is every home is unique and as Rotherham people are only moving every 19.5 years, it appears the only thing that can be measured is the price of property sold in a given month.

By their very nature, all of the indices are only able to paint a picture of the whole of the UK or, at best, the regional housing market.

As I have said many times in my articles on the Rotherham property market, it is important to look to the medium term when considering house price inflation/deflation. Looking at the month-to-month changes, many indices look like one of those jumpy lie-detector needles you see in the cold war movies!

I can guarantee you in the coming few months, on a month-by-month basis, one or more of the indices will say property prices will have dropped. Let me tell you, no property market indices are representative of the housing market in the short term. Many indices have shown a drop around the Christmas and New Year months, even the boom years of 2001 to 2007 and 2013 to 2015.

Can there be a Rotherham House Price Index?

So, back to the question, how do we work out what is happening in the Rotherham Property Market and can there be a Rotherham House Price Index?

To calculate what I consider is a fair and proper House Price Index for Rotherham, I initially needed to decide on a starting place for the index. I have chosen 2008 as far enough away, but still gives us a medium/long term view. Next, I split all the house sales into their types (Detached/Semi/House /Apartment) to give us an indication of what is actually selling by postcode district. So, for example, below is a table for the S61 postcode district (the sample shows 2008, 2016 and 2017:

Then I look at the actual numbers of properties sold in the S61 postcode district. Below is the graph with the numbers for the years already mentioned:

Next, I have looked at the prices paid for those types for every year since 2008, again in this example using the sample years of 2008, 2016 and 2017 for the S61 postcode.

Finally, I amalgamated the same data points for the other postcode districts covered by Rotherham and the surrounding villages, weighted it accordingly, to produce the Rotherham House Price Index … which after all that work, currently stands at, for Q4 2017, 107.85 (Q4 2008 = 100).

I hope you found that of interest. Over the coming months and seasons, I shall refer back to the Rotherham House Price Index on this blog. In the meantime, please make sure you get in touch if you have any further questions. I’m also posting information quite frequently on Facebook and Twitter so please do head over there to follow me.

People in Rotherham are moving house less (Pt II)

People in Rotherham are moving house less (Pt II)

In the credit crunch of 2008/9 the rate of home moving plunged to its lowest level ever.

In 2009 the rate at which a typical house would change hands slumped to only once every 34 years. The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Rotherham property prices plunged after the onset of the financial crisis in 2008. However, since 2009, the rate of home moving has increased (see the table and graph below). This means that today:

The average period of time between home moves in
Rotherham is now 19.5 years.

This is an increase of 75.68% between the credit crunch fallout year of 2009 and today, but still it is a 28.58% drop in moves by homeowners, compared to 15 years ago.

So why aren’t Rotherham homeowners moving as much as they did in the Noughties?

The causes of the current state of play are numerous. In my last article I talked about how ‘real’ incomes and savings had been dropping. Another issue is the long-term failure in the number of properties being built. I’ve previously discussed the draconian planning rules that mean house builders struggle to locate building land to actually build on.

Back in the 1960s and 1970s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (through immigration, people living longer and the increase in single person households since the 1980s) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year.

Finally, as the UK population gets older, there is no getting away from the fact that a maturing population is a less mobile one.

So, what does this mean for Rotherham homeowners and landlords?

Well, if Rotherham people are less inclined to move or find it hard to sell a property or acquire a new one, they are probably less likely to move to an improved job or a more prosperous part of the UK.

Many of the older generation in Rotherham are stuck in property that is simply too big for their needs. The fact is that in our area nearly five out of every ten (or 47.0 per cent) owned houses has two or more spare bedrooms. To be more exact, that’s…

33,343 of the 70,919 owned households in the Rotherham Metropolitan Borough area that have two or more spare bedrooms.

So, as their children and grandchildren struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for them, we have a severe case of under-occupation with the older generation – grandparents staying put in their bigger homes, with a profusion of spare bedrooms.

Regrettably, I cannot see how the rate of properties being sold will rise any time soon. Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference of any thoughtful and detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Rotherham buy-to-let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years.

As for homeowners… well those in the lower and middle Rotherham market will find it a balanced sellers/buyers market, but will find it slightly more a buyers market in the upper price bands.

As always, there are interesting (and complicated) times ahead!

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People in Rotherham are moving less (Pt 1)

People in Rotherham are moving less (Pt 1)

As I mentioned recently, the average house price in Rotherham is 5.39 times the average annual Rotherham salary. This is lower than the last peak of 2008, when the ratio was 5.42. A number of commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Rotherham) property prices might drop like a stone. The point is this… they haven’t.

It is true the market for Rotherham’s swankiest and poshest properties looks a little fragile (although they are selling if they are realistically priced) and overall, Rotherham property price growth has slowed, but the lower to middle Rotherham property market appears to be quite strong.

A different long-term picture

Scratch under the surface though, and a different long-term picture is emerging away from what is happening to property prices.

Rotherham people are moving home less often than they once did. Data from the Office of National Statistics shows that the number of properties sold in 2016 is again much lower than it was in the Noughties. My statistics show…

Even though we are not anywhere near the low post credit crunch levels of property sales, the torpor of the Rotherham housing market following the 2016 Brexit vote has seen the number of property sales in Rotherham and the surrounding local authority area level off to what appears to be the start of a new long term trend (compared to 2000-2009).

Interestingly, it was the 1980s that saw the highest levels of people moving home.

During the 1980s, across the nation the average was that everyone would move house once a decade. Even though it was during the Labour administration of the late 1970s where the right to buy one’s council house started, it was the Housing Act in 1980 that that really got council tenants moving, as Thatcher’s Tory government financially encouraged council tenants to buy their council-rented homes – for which countless then sold them on for a profit and moved elsewhere.

The housing market was awash with money as banks were allowed to offer mortgages as well as the existing building societies, meaning it made it simpler for Brits to borrow even more money on mortgages and to climb up the housing ladder.

A new trend

However, it is clear that a new trend of the number of property sales appears to have started. Looking at the figures in the Rotherham area since 2010/11 this is obvious.

Interestingly, this has been mirrored nationally.

The reasons behind this are complex, but a good place to start is the growth rate of real UK household disposable income, which has fallen from 5.01% a year in 2000 to 1.68% in 2016.

Also, things have deteriorated since the country voted to leave the EU as consumer price inflation has risen to 2.7% per annum, meaning inflation has eaten away at the real value of wages (as they have only grown by 1.1% in the same time frame).

With meagre real income growth, it has become more difficult for homeowners to accumulate the savings needed to climb up the housing ladder as the level of saving has also dropped from 4.26% of household income to -1.11% (i.e. people are eating into their savings).

Next week I will be discussing how these (and other issues) have meant the level of Rotherham people moving home has slumped to once every 19.5 years.

Tune in next week… and in the meantime, please feel free to follow my Twitter and Facebook accounts for the latest news about Rotherham and the local property market!

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