Wednesday, 17 June 2015
With the election now over and the stability of Downing Street secure, with David Cameron and his Blue Tories as the largest party in Westminster, in Canterbury (as in the rest of the UK) average wages are beginning to grow faster than inflation. This is good news for the Canterbury housing market, as some buyers may be willing or able to pay higher prices given the more certain political outlook and attractive inexpensive mortgage rates. However, sellers who think they have the upper hand due to the lack of property for sale should be aware that we should start to see an increase in the number of people putting their properties on to the market in Canterbury giving buyers some extra negotiating power.
At the last election in May 2010, there were 386 properties for sale in Canterbury and by October 2010, this had risen to 495, an impressive rise of 28% in five months. An increase in the supply of properties coming on to the market could tip the balance in the demand and supply economics seesaw, thus potentially denting prices. However, as most sellers are buyers and confidence is high, this means there will be good levels of property and buyers, well into the summer, as demand will continue to slightly outstrip supply.
Just before we leave the aftermath of the election, it is important to consider what the uncertainty in April did to the Canterbury property market. I mentioned a few weeks ago that property values (i.e. what properties were actually selling for) had dropped by 0.2% in March 2015. Now new data has been released from Rightmove about April’s asking prices of property in Canterbury. It shows that pre-election nerves finally came home to roost in the final weeks of electioneering, with the average price of property coming to market only increasing by a very modest 1.1% (April is normally one of the best months of the year for house price growth).
I am sure our local MP, Julian Brazier would agree that the biggest issue is the lack of new properties being built in Canterbury. The Conservative manifesto pledged to build 200,000 discounted starter homes for first-time buyers in the next five years. For Canterbury to gets its share, that would mean only 110 such properties being built in Canterbury each year for the next five years, not much when you consider there are 60,771 properties in Canterbury.
Housing is not a big issue for Conservative voters and because London is an increasingly Labour city where the biggest housing issues are found by a country mile, so will it remain on the ‘to do list’ but won’t get recognition it deserves. Until another political party gets back into power, nothing will seismically change in the property market, thus demand for housing will continue to outstrip supply, meaning property values will increase (good news for landlords). However, as rents tend to go up and down with tenant wages, in the long term, rents are still only 7.4% higher than they were in 2008 (good news for tenants)... with renting everyone wins!
Tuesday, 9 June 2015
Since the 1960’s more people have owned their own home than rented but, for many young Canterbury people, the dream of buying their own home is dying...or is it? Since the turn of the Millennium, in Canterbury (as in the rest of the Country) there has been a significant change in the proportion of people who own their own home in Canterbury. In 2001, 72.4% of homes in Canterbury were owner occupied, today the figure is 65.9%, a significant decline in such a short time. Buy to let landlords can find tenants because young people say they cannot afford a deposit to buy, unless they inherit money or are given a loan from the Bank of Mum and Dad
In Canterbury, only 35.74% of 25 to 34 year olds have a mortgage. When you compare Canterbury against the national average of 35.93%, it just shows how different parts of the country have different housing markets. However, the really interesting fact is this ...Roll the clock back to 1991 and nationally, 67% of 25 to 34 year olds had a mortgage. After WW2, the supply of properties being built kept up with demand as millions of council homes were built (the most being built in 1950s, surprisingly under Tory Governments!). Also private house building increased in the 1950’s, but especially in the 1960’s and 1970’s, and as the Country got more prosperous it meant that by 1971, there were more home owners than renters.
However, since the 1970’s, the population has grown but the number of new properties being built hasn’t kept up at the same rate, the result is that there have been huge rises of property prices in the early ‘70s, the late 80s and more recently between 1999 and 2004. Interestingly, since the early 1970’s, out of the 34 richest countries in the world, the UK has seen highest property prices rises.
95% mortgages have been available to first time buyers since late 2009, but with property prices rising by 229.4% since the early Winter of 1996 in Canterbury, as property prices have been rising and first time buyers have been saving, the amount they have to save is continually rising at the same time. The stress on saving even for that kind of deposit, coupled with the new stricter mortgage rules introduced in 2014, means that most 20/30 something’s in Canterbury are renting instead of buying.
The issue quite simply comes back down to a lack of new homes being built. In Canterbury, only 518 properties a year are being built whilst the population is rising by 1,584 a year. The supply of new homes has been limited by planning laws, local councils not having the money to build council houses, hard hitting green belt limitations, and our old friend NIMBY’ism. With a rising population and net migration, especially from the EU, the mismatch between demand and supply is why we have the problem. Until Politian’s have the backbone to realise the Country needs a lot more decent homes built, the problem will just get worse.
In the meantime, demand for rental property will continue to grow because people need a roof over their head at the end of the day ......fact.
Wednesday, 3 June 2015
Buy to let is essentially different from investing in stocks and shares or putting money in the Building Society. Whilst these other investments (Building Society Passbooks, Stocks and Shares etc) are passive ie once the money has been invested it you leave it alone, with buy to let, things are more hands on, in fact it’s almost a business. One thing the landlords I speak to say is the fact that they like buy to let because it is both an investment, as well as a business. It is this factor that attracts many of my Canterbury landlords – they are making their own decisions rather than entrusting them to others (such as City Whiz Kidzs in London playing roulette with their Pension Pot!).
So if you are investing in the Canterbury property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth, also known as capital appreciation, has been strong in recent times in Canterbury, but the value of property does go up as well as down just like shares do, but the initial purchase price rarely decreases. Rental income is what the tenant pays you - hopefully this will grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return.
I was talking to a landlord who bought a terraced house in the St Peters Place area of Canterbury. He bought a very pleasant 3 bed terrace in 1999 for £72,000. It sold again in February just gone for £285,000, a rise of 295.83% in just over 15 years – a compound annual return of 9.61%
However, the real returns are for those Canterbury landlords who borrowed money to purchase their buy to let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £72,000 purchase price of the St Peters Place terraced house on an interest only 75% mortgage, he would have only needed to invest £18,000 (as his 25% deposit... borrowing the remaining £54,000), but his £18,000 would be worth today, £231,000 (£285,000 less £54,000 interest only mortgage)... a rise of 1183.33% - a compound annual return of 18.55%... and I haven’t even mentioned the rent he would have received in those 15 years!
This demonstrates how the Canterbury buy to let market has not only provided very strong returns for average investors since 1999, but how it has permitted a group of motivated buy to let Canterbury landlords to become particularly wealthy. In fact, if this landlord had continued to re-mortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties (albeit with larger mortgages but greater future potential).
As my article mentioned a few weeks ago, more and more Canterbury people may be giving up on owning their own home and are instead accepting long term renting whilst buy to let lending continues to grow from strength to strength. If you want to know what (and would not) make a decent property to buy in Canterbury for buy to let, then one place for such information would be the Canterbury Property Blog. www.canterburypropertyblog.com or email Canterbury@martinco.com