Jul 31, 2018
The average value of a property in Rotherham currently stands at £145,700 and the base rates is 0.5%. In many of my articles, I talk about what is happening to property values over the short term (i.e. the last 12 months or the last 5 years), but this time I want to examine what will happen in the future if interest rates rise. How will this impact property values in our area? To answer this question we need to go back over 40 years to 1975.
In 1975, the average value of a Rotherham property was £7,054. Inflation since that point has been 807.5%. Back in 1975, the average salary was £2,291 and average car was £1,840. A loaf of bread was 16p, milk was 28p a pint and a 2lb bag of sugar was 30p. Inflation has increased prices, so comparing like for like, we need to change these prices into today’s money. In real spending power terms, an average value of a Rotherham house in 1975, expressed in terms of today’s prices is £64,019.
That means in real terms, property costs a lot more today, than in the mid 1970s, but has it always been that way?
Looking at the important dates of the UK property market, you can see from the table below that the last two property boom years of 1989 and 2007, show that there was a significant uplift in the cost/value of property (when calculated in today’s prices):
Before we move on, hold onto the thought that you can quite clearly see from the table, in real terms, properties are cheaper today in Rotherham than they were in 2007!
Is there a link between house prices, inflation and other external economic factors (such as interest rates)?
Interest rates have a strong influence on inflation and property values, principally because changes in the interest rate impact the cost of mortgage payments for homeowners as well as the flow of foreign currency in (or out) of an economy. This in turn changes the exchange rate and the prices we can sell our goods and services abroad and the prices we pay on imports.
So how exactly do interest rates impact property values?
When interest rates rise, it has a substantial effect by increasing the monthly cost of mortgages. Higher mortgage payments will discourage prospective homebuyers or people looking to move up market (meaning their mortgage payments go up) – thus making it comparatively cheaper to rent.
Furthermore, the high cost of mortgage payments sometimes also pushes some existing home owners to sell, meaning there is an increase in house sellers and a decline in house purchasers, and as the law of economics state, when supply is increased and demand falls, (house) prices fall.
Another fallout of a rise in mortgage payments is a rise in repossessions. Interestingly, repossessions in the UK rose from 15,000 per annum in the late 1980s to over 75,000 per annum in the early 1990s, meaning even more properties came onto the market, exasperating the issue of over supply – pushing property values even lower.
High interest rates caused property values to fall in mid-1970s, early 1980s and most recently, the early 1990s (who can remember the 15% mortgage rate!) Conversely though, the drop in property values in 2008/2009 – was not due to interest rates, but due to the credit crunch and global recession.
So, what will happen if when interest rates rise?
It is vital to remember that interest rates are not the only factor affecting property values. It is also possible that when interest rates increase (which they will from the current 0.5%), property values can also continue to rise (it happened throughout the mid to late 1980s and again between the boom years of 2002 and 2007). When confidence in the economy is good, and we as a country experience a period of rising real incomes (i.e. after inflation), then the British in the past have continued to buy houses.
Another important factor on property values is the supply of housing. A big reason in the current level of Rotherham house prices is due to the shortage of supply, which has kept property values higher than I would have expected. An additional factor is whether homeowners have a variable or fixed rate mortgage. 90.6% of new mortgages taken in the last quarter were at a fixed rate, and 66.2% of all mortgaged homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they re-mortgage further down the line – therefore, there is frequently a time-lag between higher interest rates and the effect on property values.
Another factor on mortgages is the ability to get one in the first place. Back in 2014, mortgage providers were told to be stricter on their lending criteria when arranging mortgages following the footloose days of 125% loan to value mortgages with the Northern Rock. These new rules are a lot more rigorous and scrutinise the borrower’s ability to repay the payments (although it makes me laugh, when with starter homes it is nearly always cheaper to buy then rent!)
Affordability is the key
I think the final point is this… affordability is the key.
Look at red bars on the graph above and you will see that in REAL HOUSE PRICE terms that it’s cheaper to buy a home today than it was in 2007. Yet why aren’t we seeing people buying property at the levels we were seeing in the 2000’s before the credit crunch?
In conclusion, interest rates are important – but nowhere near as important on the Rotherham (and British) property market than they were 15 or 20 years ago.
So, before I go, one final thought: how do we measure the success of the Rotherham property market? Well, I believe one measure that is a good bellwether is the number of property transactions, as that could show a more truthful picture of the health of the property market than property values. Maybe I should talk about that in an up and coming article?
In the meantime, if you do need any property advice please get in touch – I’m happy to help.
Jul 27, 2018
Should you buy a brand new home? Whether you’re a buy-to-let landlord or buying a home for yourself and your family, this article examines what the best steps are for you.
Well, let’s start by looking at the numbers…
Over the last 10 years, 5,074 new homes have been built in the Rotherham area
That is a lot of bricks and mortar! Roll the clock back twenty years in the Rotherham property market and there were two distinct camps of property buyers – folks who would only contemplate living in period character properties with their original fireplaces and beams, and those people who preferred the low maintenance of a new home. Old period homes were ridiculed as money pits by new-home aficionados, while new-home owners were accused of buying boring boxes – all vanilla, all the same, homogenous and bland.
However, it’s not as black and white as that anymore – or not as I see it in Rotherham. New homebuilders are now trying to change their cookie-cutter uniform rows of suburban boxes into developments that are as individual as the families that love in them, thus increasing their appeal. Nevertheless, whether you choose a stone cottage, archetypal Victorian semi or terrace, 1970’s/80’s functional home or a untouched new home, it can result in supplementary costs that are often not taken into consideration.
So looking at the numbers in greater detail, let’s see what type of new homes people have been buying in Rotherham and the wider local authority area:
I thought the mix of what was built/bought locally over the last 10 years when compared to the national figures was fascinating! It’s interesting (but not surprising) to see a greater proportion of flats built locally and fewer terraced homes being built, when compared to the national averages. This is for a variety of reasons:
- the nature of the Rotherham area
- location in the country
- the availability of building land
- planning restrictions by Rotherham Metropolitan Borough Council
- the price of building land.
So, should you buy a new home?
Well if you are considering new, take care when buying one, as often the show home isn’t the actual property you end up buying. It’s like visiting the car showroom and falling in love with the model in the showroom (with all its additional features) – only to get the base model when handed the keys. Look out for things like curtain rails, tv aerials (or lack of them), kitchen appliances, carpets and curtains. In addition, make sure you aren’t unwittingly buying a square piece of earth instead of the manicured landscaped gardens.
New homes are a lot more efficient on energy consumption compared to the old drafty, high fuel bill Victorian semis, as their owners can testify. Older properties will have maintenance issues, with 100yo brickwork and roofs that might need replacement and extra insulation, rotten wooden windows and a dodgy central heating boiler (all sounding rather a strain on your bank balance if you weren’t aware). The point I am trying to get across is open your eyes and don’t assume… ask questions and get a surveyor to make a detailed inspection of the property so you know what you are getting yourself into.
Is there a pattern to when people purchased a new home?
I also wanted to break down the new home stats to each individual year in our local area to see if there was a pattern to when people bought a new home.
As you can see, sales of new homes have generally increased since the Credit Crunch years (2008 to 2010). Looking at the much larger second hand housing market in Rotherham over the same 10 years, the coloration between the new homes market and second market has been quite strong – which shows the new home builders don’t make (or break) the Rotherham housing market – just follow it (although with the planned building locally in the next 10/20 years – who knows if that will continue to be the case?)
So, should you buy brand-new or second hand?
If price is your sole motivator, then new homes are always CHEAPER when the economy is bad. However, in normal and good housing market conditions, you will pay a ‘new build premium’. The Royal Institute of Chartered Surveyors admits that this can be as high as 10% extra, when compared to a similar second hand property – so be aware of that (it’s like paying extra for a new car and losing a bit (or a lot) of money as soon as you drive off the forecourt). Although, it’s not always about pure pound notes.
Older houses are bigger (more room) yet take more money to heat. Older houses have bigger gardens (to enjoy) – but you will spend more time tending to them. Older houses are in more established areas (with more facilities), whilst everyone is starting afresh on new homes. It all comes down to personal opinion.
One final thought though, at least with new homes there is no gazumping or no upward chain to ruin any sale completion dates…
The choice, as they say, is down to you!
Jul 18, 2018
Who is really funding first time buyers purchasing property in Rotherham? It’s The Bank of Mum and Dad of course.
I have recently been studying the figures for the last quarter where 692 Rotherham properties were purchased by first time buyers. With wages rising at 2.8%, unemployment at a low rate of 4.2% (down from 4.6% from a year earlier and the joint lowest since 1975), national GDP rising at 1.87% and inflation at 2.3%, there has been a great opportunity for first time buyers to get their foot on the first rung of the Rotherham property ladder. Indifferent house price growth (compared to a few years ago) has certainly helped.
How much are first time buyers paying and borrowing?
Over the last year, the average purchase price of a Rotherham first time buyer property has been £80,200. The average deposit paid was £12,992 yet my calculations show that the average Rotherham parents are contributing about £5,684 – nearly 44% of the total deposit!
The Rotherham brand of The Bank of Mum and Dad is for many young adults perceived to be the only way they will ever be able to afford their first home. In fact, parents in our area have contributed a substantial £3.93m in the last 12 months to ensure that their nearest and dearest offspring manage to get onto the property ladder. This assistance towards the deposit makes a huge difference, enabling youngsters who thought they couldn’t get on the housing ladder more able to do so.
There’s little being done to address the real problems with the housing market
With mortgage rates at all-time lows, few people would struggle to make mortgage repayments, but it is the requirement of the deposit which is usually the issue. With parents (and sometimes grandparents) helping out where they can, this does little to address the real problems of the housing market – for both people buying their first home and renters!
In our country the oldest generation control the biggest share of the nation’s welfare – we have been fortunate that they have been so generous to those following them. We must remember, however, that this generosity is a sign of the issues of the British housing shortage – not it’s solution.
The return of 95% mortgages mean there are options for first time buyers
You may have noticed that I used the word “perceived” earlier in the article – young adults borrowing from their parents is perceived to be only way they can afford their first home. This was intentional. Yes, the average first time buyer deposit is 16.1% but that is an average. Since late 2009 there have been 95% mortgages available for first time buyers. In addition, lenders like Barclays and many local building societies offer 100% mortgages (with no deposit!) at 2.75% fixed for three years.
The perception is you need 15%, 20% or even a 25% deposit to be a first-time buyer… this is simply not true!
However, there is a changing perception when it comes to renting.
Renting is no longer seen as the poor man’s choice, as many young (and increasing older) people are becoming more at ease and comfortable with the flexibility offered by private renting a property rather than jumping ‘lemming like’ into home ownership. Rotherham landlords will continue to see growth in sector, and like Germany, today’s renters will become homeowners in the future – when they will inherit the wealth of their parent’s home.
Interesting times are ahead – please get in touch if I can help you with anything to do with the property market. Whether you’re a prospective first time buyer or a landlord – I’m happy to help!
Jul 2, 2018
Is the Rotherham property market heading for a crash? And if it does crash, who will be the winners and who will lose out?
There are various reasons people want prices to maintain at their current rate. Likewise, some would benefit from a drop. In this article we’ll be examining who could win and who could lose, as well as looking at what is currently going on in our area and what might happen in the future.
Who wants house prices to drop?
There are two broad camps who would possibly want house prices to drop. The first is obvious – those millennials wanting to buy their first home or perhaps a young married couple wanting to buy their first home before having children. Property prices dropping would help the first time buyer category.
The second category are the Rotherham people who are in their mid-30s to 40s and sitting on a sizeable amount of equity but are hoping to trade up. Why? Because the percentage drop on the current ‘cheaper’ property will be much less than the same percentage drop of the more expensive property. Trading up is all about the difference!
Finally, shrewd landlords looking to add to their portfolio will see a price drop as an opportunity to bag a bargain or two.
Who wants house prices to rise?
If you’ve recently bought a Rotherham property with a gigantic mortgage you will be hoping that property values continue to rise. If you are retired and preparing to downsize you will also want Rotherham property values to rise as this will leave you with more cash after the move.
Whilst some landlords looking to buy would relish a price drop, landlords looking to sell their portfolio will want to maximise what they can make while prices remain high. Rotherham home owners who have remortgaged to raise money for other projects (meaning you have very little equity), will want property values to continue to increase in order to enable you to put a bigger deposit down on the next purchase.
A brief look at the past
Before we consider the future, let’s take a look at the past. The last property crash was caused by the global financial crisis and happened between Q3 2007 and Q3 2009. Property values in Rotherham dropped by 13.26%. The average property in September 2007 was £135,375 but only £117,425 in September 2009.
Since then, property values have rise in the medium-term, as you can see below.
So … what is happening now?
The simple fact is people in the UK are moving less (and hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that the problems in the British housing market are a lot greater than old Brexit!
There is a direct link between how people feel about the property market and the actual performance of the property market. However, the question of whether people’s sentiment moves as a result of changes in the property market, or whether changes in the property market drive sentiment is a question that baffles most economists – you see if someone feels assured about their financial situation (job, money etc.) and the future of property, they are more likely to feel assured to spend their hard-earned earnings on property and buy (and if you think about it… vice versa.)
So, I believe Brexit isn’t the issue – it’s just the “go to” excuse people are using.
Humans don’t like uncertainty, and Brexit itself is causing uncertainty – it is, after all, the great unknown.
So, is it the flux of global politics? Politics are causing hesitation in the posh £5m+ property markets of Mayfair and other high value Monopoly board pieces – but certainly not in a smaller place like Rotherham (because let’s face it, I don’t think Rotherham is too high up on the house buying list of rich foreigners).
Instead, the issues are much closer to home.
Changes to buy-to-let as an investment
One of the biggest driving factors in the current state of play in the housing market in our local area is been the part played by buy-to-let landlords in the last 15 years. Making money as a buy-to-let landlord used to be as easy as falling off a log – we’ve had some golden years! But not anymore! Landlords had been getting off quite lightly when it came to their tax position but now that taxation rules on buy-to-let have changed things have become a little more difficult.
What’s changed? Landlords have been hit with a supplementary rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers. High rate taxpayers in the past have been able to offset the interest payments from their buy-to-let mortgages against their self-assessment tax bills (at their marginal rate) but this is being reduced in small steps – they will only be able to claim back relief at the basic rate of tax.
The bottom line is that it will be much tougher for investors to make money on buy-to-let. Tied in with this, the mortgage rules were changed a few years ago, meaning it’s also become slightly tougher to obtain buy-to-let mortgages (although if I’m being honest – they needed to do this).
I recently mentioned that last year was the best year for over decade for first time buyers. For the last 30 years, buy-to-let investors have constantly had more purchasing power than first time buyers, as they were older and more established and had tax breaks helped them out. However, with many amateur landlords reconsidering staying in buy-to-let, the door is open for first time buyers to get their first foot on the property ladder.
What will happen to the property values?
The simple fact is we don’t have the conditions that caused the crash in 2007. Back then sub-prime lending in the US caused banks to stop lending to each other and stalled the global economy as a whole. Assuming everyone is sensible with the Brexit negotiations, the biggest issue is possibly interest rates. As long as interest rates remain comparatively low (and don’t get me wrong – I think we could stand Bank of England base interest rates at 1.5% to 2.5% and still be OK), then the thought of a massive property market crash still looks improbable.
Yet correspondingly, I cannot see Rotherham property values rising quickly either.
The double-digit growth years in property values between 1999 and 2004 are well gone. A lot of that growth was caused by an explosion of buy-to-let landlords buying property to accommodate the influx of EU migrants during those years. Mark Carney at the Bank of England can’t make interest rates any lower, so it’s difficult to envisage how credit conditions can get any easier!
Balance of probabilities: Rotherham property values will hover either side of inflation over the next five years.
But if we did have another crash, what exactly would that mean to Rotherham homeowners?
If Rotherham property prices dropped today by the same percentage as they did locally 10 years ago… we would actually only be returning to the property values being achieved in April 2013… and nobody was complaining about those!
Therefore, about 17% of local home owners and landlords have bought homes in the area since April 2013 – that’s only a small percentage of people who would actually lose. After all, you only lose money if you decide to move. Many of these people may be people looking for a price drop so in reality, not many people are going to lose out.
Not much to worry about then! Interesting, don’t you think?
As ever, if you do need help or assistance in knowing what’s the right move for you, I’m on hand to help out. Please get in touch with me and I will be happy to offer advice.
Jun 28, 2018
My latest research looks at both national and regional reports on the demand and supply of property and people and considers future projection on the economy, population and family demographics. There are some interesting results that will be useful for those who are fascinated by the local property market here in Rotherham (and the shape of property across the UK!)
According to the Office of National Statistics, in the last financial year, national private renting grew by 74,000 households, whilst the owner occupied dwelling stock increased by 101,000 and social stock increased by 12,000 dwellings.
The number of private rental households has caught my eye
It was the private rental figures that caught my eye. With eight or nine years of recovery since the financial crisis began in 2009, economic recovery and continuing low interest rates have done little to setback the mounting need for rented housing. In fact, with house price inflation pushing upwards much quicker than wage growth, this has meant to make owning one’s home even more out of reach for many Millennials. At the same time the number of council/social housing has shrunk by just over 2.5% since 2003, making more households move into private renting.
What about Rotherham?
In Rotherham there are 12,877 people living in 5,416 privately rented properties.
If we look at the future population growth statistics for the Rotherham area and make careful and moderate calculations of what proportion of those extra people will rent as opposed to. buy we can predict how many more people may be in private rented property. In the next ten years, I believe around 5,500 people (adults & children combined) will require a private rented property to live in.
Therefore, we need the number of private rented homes in our area to rise by 1,446 households over the next nine years.
That’s 258 additional Rotherham properties per year that will need to be bought by Rotherham landlords to meet that demand.
… and remember, I am being conservative with those calculations. Demand for privately rented homes in Rotherham could still rise more abruptly than I have predicted as I have previously suggested that Theresa May’s aim to build 400,000 affordable homes is rather optimistic, if not fanciful.
So, one has to ask wonder if it was wise to introduce a buy to let stamp duty surcharge of 3%? Furthermore, will the constraint on mortgage tax relief curtail the ability of private landlords to expand their portfolios?
The rise of the smarter landlord
Well, a lot of landlords are taking on these new hurdles to buy-to-let and working smarter. Something tells me that smart landlords are seeing these challenges as just that… challenges that can be overcome by working more smartly.
For example, buying the property at the right price and using an agent to negotiate on your behalf and the 3% stamp duty level isn’t an issue. Likewise, incorporating your property portfolio into a Limited Company is also a way to circumnavigate the issues of mortgage tax relief (although there are other hurdles that need to be navigated on that tack).
There’s actually been growth in the number of buy-to-let properties across the country since 2016 indicating that landlords are using their brains more! I have a steady stream of Rotherham landlords every week asking me my opinion on the future of the Rotherham property market and their individual future strategy and, whether you are a landlord of mine or not, if you ever want to send me an email or pop into my office to chat on how you could navigate these new buy-to-let waters it will be good to speak to you.
Don’t let other landlords have an advantage over you! Get in touch today…
Page 2 of 29«12345...1020...»Last » 
