Rotherham’s property market, the Beatles, Sweden and 50 year mortgages…

Rotherham’s property market, the Beatles, Sweden and 50 year mortgages…

It is 2017 which means that it’s 50 years since Sweden switched from driving on the left-hand side to the right-hand side of the road and the Beatles released one of my favourite albums.

Yes, this year is the 50th anniversary of Sgt Pepper’s Lonely Hearts Club Band. Back in 1967 the average value of a Rotherham property was £1,840 and the UK’s interest rates were at 5.5%!

What can the Beatles tell us about the property market here in Rotherham…?!

Quite a lot actually… so with my music turned up loud let me explain!

The Current Attitudes of Rotherham First Time Buyers

I have been doing some research on the current attitude of Rotherham first-time buyers.

First-time buyers are so important for both landlords and homeowners. If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (which is good news for landlords). If they buy, demand for Rotherham property goes up for starter homes and that enables other homeowners to move up the property ladder.

First-time buyers are the lifeblood of the property market. They are, however the most susceptible to interest rate rises and the affordability of mortgages.

With that in mind, let us see what is happening to them…

The average value of a Rotherham property is currently standing at £138,728 and UK interest rates at 0.25%.

As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off.

Things aren’t “Getting Better”! Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’ have been helping with the deposit – unfortunately, the only way for many people to get on the housing ladder is “With a Little Help from My Friends”.

Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid-60s – perhaps the most apt Beatles song for these first-time-buyers is “When I’m Sixty-Four”!

So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970s. After all life expectancy for a male then was exactly 69 years and today its 79 years and 5 months!

Over the last ten years, Rotherham property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans. If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan.

What if the housing price bubble bursts?

However, some are arguing that if mortgage companies lend over the long term, they threaten leaving some first-time buyers with a generation of debt stuck “Fixing a Hole” if the house price bubble bursts.

It’s not all bad news thankfully.

Interestingly, when I looked at what had happened to average property values in Rotherham over the last 50 years, there have been bubbles that have burst. Fortunately, first-time buyers can take heart because the UK has always recovered from it within a few years.

175-Rotherham-avg-property-prices-1967

“She’s Leaving Home” may still be the song that our first-time-buyers get to sing.

What if interest rates rise?

The current rate of 0.25% is at a 300-year low. Mortgages will never be cheaper.

I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). If Rotherham first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!

175-historical-uk-interest-rates

“I get the Beatles references, but what does this have to do with Sweden?”

Before I go, a final thought for property buyers in Sweden.

As Swedish property prices are so high, Swedish regulators announced last year limits on the length of Swedish mortgage terms. They don’t bother with 50-year mortgages.

No, our Volvo-loving Swedish friend’s average mortgage length is 140 years – this is not a typo, they really do go “On and On and On”! The new limits from regulators reduced the maximum term of a Swedish mortgage to 105 years – a significant decrease for the Swedes but still a massive mortgage length. You could say that that’s a lot of “Money, Money, Money” to pay back!

My apologies to all the Beatles and Abba fans in Rotherham – a bit of light hearted fun albeit on serious topic.

For discussion of many more serious topics (and light hearted fun), head over to my Facebook or Twitter pages and get all the latest information about the Rotherham property market directly to your news feed!

With Rotherham’s population set to rise how will this effect the housing market?

With Rotherham’s population set to rise how will this effect the housing market?

Over the last few months I’ve been predicting that the rate of rental inflation (i.e. how much rents are rising by) had been easing over the last year. At the same time, I made the claim that in some parts of the UK rents had actually dropped for the first time in over eight years.

Recent research is beginning to show that I was correct – but will this continue into the future?

First, let’s examine what’s been happening in Rotherham.

Rents for new tenancies here only grew by 0.8% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Rotherham you can see that there has been a lot of variation over the last few years:

  • 2016 – Rental Inflation was 4.8%
  • 2015 – Rental Inflation was 2.8%
  • 2014 – Rental Inflation was -3.4%

The reason behind this change depends on which side of the demand/supply equation you are looking from.

The Tenant’s Perspective

On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent.

As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (statistic from Denton House).

The Landlord’s Perspective

On the supply side of the equation (from the landlords point of view) Brexit also creates uncertainty.

However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation.

A slight softening of Rotherham property prices has compounded this. Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help – after all people don’t like doubt and uncertainty.

So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.

The Underlying Problem

So what about the future?

Whether we end up with a ‘hard’ or ‘soft’ Brexit in these negotiations with the EU the simple fact is, we aren’t building enough properties for us to live in. Both in Rotherham, Yorkshire and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics:

population estimates

For the more visual readers here’s a bar chart I put together to show this data:

This is a bar chart detailing the population growth in Rotherham starting in 2016 and ending in 2036.

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Rotherham (and wider afield) any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up!

The fact is that I see this as a short-term blip and rents will continue to grow in the coming years.

With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.

As always you can get in touch with me via Facebook, Twitter or sending a message through the blog. I’m happy to give any insights and advice I may have about buying, renting and letting.

Council House Waiting List in Rotherham Drops by 77.3% in last 4 years

Council House Waiting List in Rotherham Drops by 77.3% in last 4 years

Should you buy or rent a house? Buying your own home can be expensive but could save you money over the years. Renting a property through a letting agent or private landlord offers less autonomy to live by your own rules, with more flexibility if you need to move.

Yet there is third way that many people seem to forget and it plays a very important role in the housing of Rotherham people.

Collectively known as social housing, it is affordable housing, which is let by the council or a housing association to those considered to be in specific need for a rental price below those characteristic in the private rental market.

All you need to know about Rotherham’s social housing

In Rotherham there are…

  • 12,034 social housing households – that’s 26.21% of all the households in Rotherham.
  • 6,135 families in the Rotherham Metropolitan Borough Council area on their waiting list

The latter figure is similar to the early 1990s. However, the numbers peaked in 2012, when it stood at 27,103 families. This means that there’s actually been a drop of 77.3% in the last four years.

172-council-waiting-list

Nevertheless, this doesn’t necessarily mean that more families are being supplied with their own council house or housing association property.

Six years ago, Westminster gave local authorities the authority to limit entitlement for social housing, quite conspicuously dismissing those that did not have an association or link to the locality.

Interestingly, the rents in the social rented segment have also been growing at a faster rate than they have for private tenants. In our area, the average rent in 1998 for a council house/housing association property was £123.85 a month, whilst today its £323.96. That’s a rise of 162% in 19 years.

Unfortunately the stats for private renting only go back to 2005. For a fair comparison we’ll focus on the last 12 years. Over this time period, private rents have increased nationally by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%. This is actually above inflation rates for the same period.

172-rentsocialprivate

So what does this all mean for the homeowners, landlords and tenants of Rotherham?

Rents in the private rental sector in Rotherham will increase sharply during the next five years.

Even though the council house waiting list has decreased, the number of new council and housing association properties being built is at a 70 year low. The government crusade against buy-to-let landlords, together with the increased taxation and the banning of tenant fees to agents will restrict the supply of private rental property, which in turn, using simple supply and demand economics, will mean private rents will rise. As a result, I’d argue that buy-to-let investment is a good choice – irrespective of the increased fees and taxation laid at the door of landlords.

This will also meant that property values will remain strong and stable as the number of people moving to a new house (and selling their old property) will continue to remain restricted. As a result, thanks to limited supply and choice, buyers will have to pay decent money for any property they wish to buy.

All in all, there are interesting times ahead for the Rotherham property market!

Don’t miss out on all the action. I’ll be following every little bit of moment in the market here on the blog, as well as on Facebook or Twitter. Please drop me a message if you have any questions.

Are first-time-buyers being squeezed out of Rotherham’s housing market?

Are first-time-buyers being squeezed out of Rotherham’s housing market?

I received a very interesting letter the other day from a Rotherham resident who was retired and mortgage free. He stated how unaffordable Rotherham’s rising property prices were and that he worried how the younger generation would ever afford to buy.

He went on to ask if it was right for landlords to make money on the inability of others to buy property of their own. He wondered whether landlords are actually denying the younger generation the ability to buy their own home by buying buy-to-let properties.

Whilst doing my research for my many blog posts on the local property market in Rotherham, I know that a third of 25 to 30 year olds still live at home. It’s no wonder people are kicking out against buy-to-let landlords – they are the greedy bad people who are cashing in on a social woe! In fact, most people believe the high increases in Rotherham’s (and across the country) house prices are the very reason owning a home is outside the grasp of these younger would-be property owners.

However, the numbers tell a different story.

171 - fixed Graph showing Average Age of First time buyersAverage Age of First-Time-Buyers

Looking at the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market. In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31

Nevertheless, the average age doesn’t tell the whole story. In the early 1990’s, 26.7% of first-time buyers were under 25, while in the last five years just 14.9% were. In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.

House Price-to-Earnings Ratio

There are also indications of how unaffordable housing is, the house price-to-earnings ratio has almost doubled for first-time buyers in the past 30 years.

In 1983, the average Rotherham home cost a first-time buyer (or buyers in the case of joint mortgages) the equivalent of 2.6 times their total annual earnings – today that has escalated to 3.7 times their income (although let’s not forget, it was at 4.6 times their income for Rotherham first-time-buyers in 2007).

Percentage of Wages

Again, those figures don’t tell the whole story.

Back in 1983, the mortgage payments as percentage of mean take home pay for a Rotherham first time buyer was 27.6%. In 1989, that had risen to 57.6%. However, today it’s 23.0%… no, that’s not a typo! It’s now only 23.0%!

171-Mortgage-Payments-Rotherham-FTB

So, to answer the gentleman’s questions about the younger generation being unable to afford a house it isn’t all to do with affordability, as the numbers show.

And what of the landlords?

Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households. That would be the equivalent of raising income tax by 4p in the pound. I don’t think UK tax payers would swallow that.

So, if the Government haven’t got the money… who else will house these people?

Private Sector Landlords! Thankfully they have taken up the slack over the last 15 years.

Some say there is a tendency to equate property ownership with national prosperity, but this isn’t necessarily the case.

The youngsters of Rotherham are buying houses, but buying later in life. Also, many Rotherham youngsters are actively choosing to rent for the long term, as it gives them flexibility – something society seems to crave more than ever.


As ever, I’m keen to hear your thoughts. Send me a Tweet or a Facebook message.

The Ban on Letting Fees: What could this mean for Rotherham landlords and tenants?

The Ban on Letting Fees: What could this mean for Rotherham landlords and tenants?

With the recent Queen’s Speech confirming it is the Government’s intention to introduce a ban on the fees that tenants pay when applying for a rental property, what does this actually mean for tenants and landlords here in Rotherham?

The private rental sector in Rotherham forms an important part of the Rotherham housing market and the engagement from the Government is a welcome sign that it is recognised as such.

I have long supported the regulation of lettings agents which will ensconce and cement best practice across the rental industry and I believe that measures to improve the situation of tenants should be introduced in a way that supports the growing professionalism of the sector.

Over the last few years, there has been an increasing number of regulations and legislation governing private renting and it is important that the role of qualified, well trained and regulated lettings agents is understood.

Great News for Rotherham Tenants

So, let’s look at tenants… this is great news for them, isn’t it?! Well before you all crack open the Prosecco, read this…

Although I can see prohibiting letting agent fees being welcomed by Rotherham tenants, at least in the short term, they won’t realise that it will rebound back on them.

First up, it will take between 12 and 24 months to ban fees, as consultation needs to take place, then it will take an Act of Parliament to implement the change. A prohibition on agent fees may preclude tenants from receiving an invoice at the start of the tenancy, but the unescapable outcome will be an increase in the proportion of costs which will be met by landlords, which in turn will be passed on to tenants through higher rents.

Published at the same time as the Autumn Statement in 2016, hidden in the Office for Budget Responsibility’s Economic and Fiscal Outlook on the Autumn Statement (provide independent and authoritative analysis of the UK’s public finances), it said on Wednesday:

“The Government has also announced its intention to ban additional fees charged by private letting agents. Specific details about timing and implementation remain outstanding, so we have not adjusted our forecast. Nevertheless, it is possible that a ban on fees would be passed through to higher private rents.

What can we learn from Scotland?

Scotland banned Letting Fees in 2012.

The charity Shelter have been a big voice in persuading and lobbying the Government since it managed to persuade the Scottish Parliament to ban fees in 2012. Shelter have been talking a lot across different media platforms about their independent research, which they said showed that:

“Renters, landlords and the industry as a whole [have] benefited from banning fees to renters in Scotland… any negative side-effects of clarifying the ban on fees to renters in Scotland have been minimal for letting agencies, landlords and renters, and the sector remains healthy.”

“Many industry insiders had predicted that abolishing fees would impact on rents for tenants, but our research show that this hasn’t been the case. The evidence showed that landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK. It found that where rents had risen more in Scotland than in other comparable parts of the UK in 2013, it was explained by economic factors and not related to the clarification of the law on letting fees”

However, the devil is in the detail:

Shelter have also used this same research to argue rents never went up following the tenant fee ban in at the end of 2012. I have read that research and I agree with that research, but it is now several years out of date and the research was undertaken only 12 months after the ban was put into place.

I find it strange they don’t seem to mention what has happened to rents in Scotland in 2014, 2015 and 2016… because that tells us a completely different story!

What really happened in Scotland to rents?

I have carried out my research up to the end of Q3 2016 and this is the evidence I have found.

In Scotland, rents have risen, according the CityLets Index by 15.3% between Q4 2012 and Q3 2016

(CityLets is the equivalent of Rightmove in Scotland – they have plenty of comparable evidence to back up their numbers).

When I compared the same time frame, using Office of National Statistics figures for the English Regions between 2012 and 2016, this is what has happened to rents

  • North East 2.17% increase
  • North West 2.43% increase
  • Yorkshire and The Humber 3.21% increase
  • East Midlands 5.92% increase
  • West Midlands 5.52% increase
  • East of England 7.07% increase
  • South West 5.82% increase
  • South East 8.26% increase
  • London 10.55% increase

But in Scotland it is far more… a 15.3% increase!

Have rents increased in Scotland

Are you really telling me the Scottish economy has outstripped London’s over the last 4 years? There’s no way that Scottish wages have risen that much! There has to be another reason for this growth.

So what will happen in the Rotherham rental market in the long term?

The lettings fee ban will not be introduced for another 12 to 18 months so it’s business as usual!

However, in the long term, rents will increase as the fees tenants have previously paid will be passed onto landlords in the coming few years. Not immediately… but this will happen.

As a responsible letting agent, I have a business to run.

According to ARLA (Association of Residential Letting Agents), it takes an average of 17 hours work by a letting agent to get a tenant into a property. We need to complete a whole host of checks prescribed by the Government. It’s an extensive list including:

  • A right to rent check,
  • Anti-money laundering checks,
  • Legionella risk assessments,
  • Gas safety checks,
  • Affordability checks,
  • Credit checks,
  • Smoke alarm checks,
  • Construction (Design & Management) Regulations 2007 checks,
  • Compliance with the Landlord and Tenant Act,
  • Registering the deposit so the tenants deposit is safe and
  • Carry out references to ensure the tenant has been a good tenant in previous rented properties.

The vast majority of lettings agents take these things very seriously. We are expected to know every check on the list inside out – we are the experts in our field. Yes, there are some awful agents who ruin the reputation for others, but isn’t that the case in most professions?

At the end of the day, business is business.

No landlord, no tenant and certainly no letting agent does work for free.

I, along with every other Rotherham letting agent will have to consider passing some of that cost onto my landlords in the future.

Now of course, landlords would also be able to offset higher letting charges against tax, but I  wouldn’t want them out of pocket, even after the extra tax relief.

So what does this all mean for the future?

The current application fee ranges between £60 and £225 per property for the tenant(s), depending on the rental level, meaning on average, the fee is around £90 per property.

I am part of a group of 500+ Letting Agents, and recently we had to poll to find the average length of tenancy in our respective agencies. The Government claim it is 4 years, whilst the actual figure was nearer one year and eleven months, so let’s round that up to two years.

That means and average of £90 needs to found in additional fees to the landlord, on average, every two years.

In 2005, the average rent of a Rotherham Property was £401 per month and today it is £468 per month, a rise of only 16.7% (against an inflation rate (RPI) of 38.5%).

Using the UK average management rates of 10%, this means the landlord will be paying £561 per annum in management fees.

If the landlord is expected to cover the cost of that additional £90 every two years, rents will only need to rise by an additional 1% a year after 2018, on top of what they have annually grown by in the last 5 years.

Even if rents increased by 2% in Rotherham, average rents would rise to £604 per month by 2022  (see the red line on the graph below) and so the landlord would pay £724 per annum in management fees… which would go towards covering the additional costs without having to raise the level of fees.Screenshot 2017-06-30 14.31.48

But surely that’s bad news for Rotherham tenants?

Actually, it’s quite the opposite.

Look at the graph!

If the average rent Rotherham tenants pay had risen in line with inflation since 2005, that £401 per month would have risen today to an average of £555 per month. Instead, that average is only £468 per month. Even if inflation remains at 2% per year for the next six years, the average rent would be £535 per month by 2022… meaning that even if landlords increase their rents to cover the costs tenants are still much better off, when we compare to the £535 per month figure to the £604 per month figure.

Conclusion

The banning of letting fees is good news for landlords, tenants and agents.

It removes the need for tenants to find lump sums of money when they move. That will mean tenants will have greater freedom to move home and still be better off in real terms compared to if rents had increased in line with inflation.

Landlords will be happy as their yield and return will increase with greater rents whilst not paying significantly more in fees to their lettings agency. Letting agents who used to charge fair application fees won’t be penalised as the rent rises will compensate them for any losses.

As for the agents who have been charging the silly high application fees… well, that’s their problem. At least I know I can offer the same (if not better!) service to both my landlords and tenants in the future in light of this announcement from Phillip Hammond.

Is there a Legal Tax Loop-Hole for Rotherham Landlords?

Is there a Legal Tax Loop-Hole for Rotherham Landlords?

In November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market.

One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017. Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic, 40% higher rate and 45% additional rate).

So, for example, let’s say we have a Rotherham landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (16/17), assuming no other costs or allowable items:

  • Annual rental income £10,800.
  • Taxable rental income would be £3,600 after tax relief from mortgage relief
  • The result: they would pay £1,440 in income tax on the rental income

And assuming there are no other changes, the landlord would have income tax liabilities (as things stand in May 2017) in the tax years of:

  • (2017/18) £1,800
  • (2018/19) £2,160
  • (2019/20) £2,520
  • (2020/21) £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability. However, there is another option for landlords.

Landlords in Rotherham could set up a Limited Company and sell their
property personally to that Limited Company

In fact, looking at the numbers from Companies House, many landlords are doing this. In the UK, there are 93,262 BTL limited companies. Since the announcement in November 2015, the numbers have seen a massive rise:

  • Q2 2015 / Q3 2015 – 4,193 Buy to Let Limited Companies Set Up
  • Q4 2015 / Q1 2016 – 5,403 Buy to Let Limited Companies Set Up
  • Q2 2016 / Q3 2016 – 3,007 Buy to Let Limited Companies Set Up
  • Q4 2016 / Q1 2017 – 7,149 Buy to Let Limited Companies Set Up

BTL-Limited-Companies

So, by selling their BTL investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTLs as an ‘allowable expense’ – effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.

I am seeing more and more Rotherham landlords approach me for my thoughts on setting up a BTL limited company.

In fact, I have done some extensive research with Companies House in the 15 months (1st January 2016 to 31st March 2017 and 185 BTL limited companies have been set up in the S postcode alone).

Should you make the change to a limited company?

If you are looking to hold your BTL investments for a long time it could be very favourable to take the short-term pain of putting your BTLs in a limited company for a long-term gain. You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.

As the law sees the new limited company as a separate entity to yourself, you are legally selling your BTL property to your limited company, just like you would be selling it on the open market. Your limited company would have to pay Stamp Duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated (with appropriate exit charges).

On a more positive note, what I have seen though by incorporating (setting up the limited company) is landlords can roll up all their little BTL mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital. Finally, if the tax liability is too high to swap to a limited company, some savvy BTL investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company. I am just throwing this idea out there (not giving advice!)

It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance. Whatever you do, always get the opinions from these tax consultants in writing and never hurry into making any hasty decisions.

The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation, because with decent tax planning (from a tax consultant) and good rental / BTL portfolio management (which I can help you with).

Whatever you decide to do, let’s keep you the right side of the line!

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