Tuesday, 29 December 2015
The Council of Mortgage Lenders (CML) latest snapshot of the buy to let mortgage market shows us that buy to let landlords haven’t been put off by the Chancellors announcementson the way buy to let’s are taxed.
Last month, the CML stated £1.4billion was borrowed by UK landlords to purchase 10,500 buy to let properties, up 26.5% from the same month in 2014, when only 8,300 properties were bought with a buy to let mortgage. Go back two years and the number of buy to let mortgages used for purchasing (again not re-mortgaging) is 36.4% higher! Even more interesting has been the fact that the average amount borrowed has risen as well. The average buy to let mortgage last month was £133,330, up from £128,480 a year ago.
In Canterbury, I am speaking to more and more landlords, be they seasoned professional landlords or FTL’s (first time landlords), as they read reports that the Canterbury rental market is doing reasonably well, with rents and property values rising. Interestingly, one landlord recently asked how much he should be paying per square foot (more of that in a second).
The first thing you have to decide is whether you want great capital growth or great rental yield, as every knowledgeable landlord knows, you can’t have both. Over the last twenty years, property values in Canterbury have risen by 232.29%, compared to Greater London’s 436.2%. This has proved that capital growth increases faster in the more expensive Capital, but your investment money doesn’t go very far, meaning there won’t be as much rental yield from a 1 bed flat in Chelsea (2% per year at best with a fair wind) as a 2 bed semi in Canterbury. However, whilst the figure of 232.29% is an average for the area, certain areas of Canterbury have seen capital growth much higher than that and others areas much worse (we have talked about those in previous articles).
If you recall in an earlier article, my research reveals that Canterbury apartments tend to generate a better yield than houses, probably because several sharers can afford to pay more than a single family. But houses tend to appreciate in value more rapidly and may well be easier to sell, simply because there are fewer being built.
So what should you be buying in Canterbury, and more importantly, how much?
The average apartments in the city are currently selling for approximately £292 per square foot.
Terraced houses in Canterbury are currently obtaining, on average, £247,200 or £289 per square foot.
An average semi in Canterbury is selling for £262,900 (and achieving £264 per square foot).
Now these are of course averages, but it gives you a good place to start from. In the coming weeks, I will look at rents being achieved on Canterbury houses and apartments, and the yields that can be obtained, depending how many bedrooms there are. In the meantime, if you would like to read more articles like this, then can I suggest you visit the Canterbury Property Blog at www.canterburypropertyblog.com .
Tuesday, 15 December 2015
As seems to be all the rage with Jeremy Corbyn asking the PM questions emailed in to him at Prime Minster Question Times, I to wish to answer a question emailed into me from a potential Canterbury landlord last week. Nice chap, lives in Tyler Hill, and it turns out, after having a coffee with him, he works in IT, has a spare bit of cash (now the kids have flown the nest) and wanted to buy his first buy to let property.
His main question was ... Do I buy a freehold house or a leasehold flat in Canterbury?
Most people will say freehold every time, because you own the land. However, it’s not as simple as that (it never would be would it!). The definitive answer though is to research what Canterbury tenants want in the area of Canterbury they want! The tenant is ultimately your customer, and, if they don't want to rent what you decide is best to buy, then you are not going to have a successful BTL investment. So starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply.
Leasehold flats and apartments in Canterbury are excellent in some respects as they offer the landlord certain advantages, including the fact a flat can be initially cheaper to buy. Yields can be quite good, offering better cash flow. The building will already be insured and yes there is a service charge, but it’s still for a service at the end of the day and that cost is spread between many others (i.e. when your freehold house roof goes, its falls 100% on your shoulders) and one of my favourites is that there is often no garden to maintain or blown down fences to replace!
However, some Canterbury leasehold flats can suffer from poor capital growth. Some leasehold properties have no cap on the level of the service charge and it may get out of control. The length of the lease will significantly affect value if not renewed before it gets too short. Thankfully there’s not many, but some Canterbury apartments/flats have burdensome clauses. Finally, with leases, there can be sub-letting issues – which means you can’t let them out.
So what do the numbers look like? Well since 2003, the average freehold property in Canterbury (detached, semis and terraced) has risen from £180,657 to £325,748, a rise of 81% whilst the average Canterbury leasehold property (flats and apartments) has gone up in value from £137,329 to £192,668, a more mediocre rise of 40%.
I was really interested to note that of the 10,665 rental properties in the Canterbury City Council area that the Office of National Statistics believe are either let privately or through a letting agency, 4,143 of them (or 38.8%) are apartments. However, there are only 11,463 apartments in the whole council area (be they owned, council rented or privately rented), which represents 18.9% of the whole housing stock in the area. This really intrigued me that, quite obviously, there is a high proportion of Canterbury’s leasehold apartments/flats rented to tenants compared to detached, semi’s or terraced. Fascinating don’t you think?
Every Canterbury apartment block, every terraced house or semi is different. Like I said at the start, the definitive answer though is to research what Canterbury tenants want in the area of Canterbury they want. Demand for city centre apartments, near the nightlife and transport links can be popular and can offer the Canterbury landlord very good yields with minimal voids. However, Canterbury terraced houses and semis, whilst not always offering the best yields (although sometimes they can), they do offer the Canterbury landlord decent capital growth.
My advice to the prospective landlord, as it is to you, is do your homework. One such website, which only talks about the Canterbury buy to let Property Market, is the Canterbury Property Blog. Another source of info many Canterbury landlords use is me! What many Canterbury landlords do, irrespective of whether you are a landlord of ours, a landlord with another agent or a DIY landlord, if you see any property in Canterbury, that catches your eye as a potential buy to let property, be it a terraced house, semi or flat ... email me and I will email you back with my thoughts (although I will tell you what you need to hear .. not want to hear!)
Tuesday, 8 December 2015
I had the most interesting chat with a local Canterbury landlord the other day about my thoughts on the Canterbury property market. The subject of the affordability of renting in Canterbury came up in conversation and how that would affect tenant demand. Everyone wants a roof over their head, and since the Second World War, owning one’s home has been an aspiration of many Brits. However, with rents at record highs, many are struggling to save enough for a house deposit.
Let’s be honest, it’s easy to get stuck in a cycle of paying the rent and bills and not saving, but even saving just a small amount each month will sooner or later add up. George Osborne announced such schemes as the upcoming Help to Buy
ISA, where the Government will top up a first time
Therefore, I thought I would do some research into the Canterbury property market and share with you my findings. Canterbury tenants spend on average just over a third of their salary to have a roof over their head. According to my latest monthly research, the average cost of renting a home in Canterbury is £979 per month. When the average annual salary of a Canterbury worker stands at £32,705 per year, that means the average Canterbury tenant is paying 35.9% of their salary in rent. I doubt there is much left to save for a deposit towards a house after that, and that my Canterbury Property Blog reading friends is such a shame for the youngsters of Canterbury.
You see one the reasons for rents being so high is property prices being high. As I have mentioned before, there is a severe lack of new properties being built in Canterbury. It’s the classic demand vs supply scenario, where demand has increased, but the number of houses being built hasn’t increased at the same level. Also, Canterbury people aren’t moving home as often as they did in the 80’s and 90’s, meaning there are fewer properties on the market to buy. If you recall, a few weeks ago I said back in Summer 2008, there were over 560 properties for sale in Canterbury and since then this has steadily declined year on year, so now there are only 284 for sale in the City.
So, the planners in Canterbury haven’t allowed enough properties to be built in the City and existing Canterbury homeowners are not moving home as much as they used to, thus creating a double hit on the number of properties to buy. This is a long term thing and the continuing diminishing supply of housing has been happening for a number of decades and there simply aren’t enough properties in Canterbury to match demand, these are the reasons houses prices in Canterbury have remained quite buoyant, even though economically, over the last 5 years, it was one of the worst on record for the country and the South East region as a whole.
However, things might not be all doom and gloom as originally thought, as a recent Halifax Survey (their Generation Rent 2015 Survey) suggested more and more people may be long term, if not lifelong tenants. In fact there is evidence in the report to suggest that the perception of how difficult it is to get on the housing ladder is vastly different between parents and people aged 20 to 45. It seems from this survey that the state of the UK economy has shifted priorities quite significantly in quite a short space of time. With fewer people able to save up the deposit required by mortgage lenders, more and more people are continuing to rent. This delay in moving up the property ladder has driven rents across the UK up as more people were seeking rental properties.
It is often said that more people in central Europe rent for longer or never own their own property. The last two census in 2001 and 2011 show that proportionally the percentage of people who own their own home in Britain is slowly reducing and, as a country, we are becoming more and more like Germany. That isn’t a bad thing as Germany is considered to have a more successful economy, one of the main stays, often quoted, is because they have a much more flexible and mobile workforce, (which renting certainly gives) and from that, they have a higher personal income than in the UK.
Therefore, if we are turning into a more European model and the youngsters of Canterbury and the Country have changed their attitudes, demand for rental properties will only and can only go from strength to strength, good news for Canterbury tenants as wages will start to rise and good news for Canterbury landlords, especially as property values in Canterbury are now 8.4% higher than year ago!
Wednesday, 2 December 2015
Well George Osborne, in his Autumn statement last week, caused Canterbury landlords to ask whether buy to let is a viable investment option, when he announced that landlords, when buying another buy to let property from April 2016 will have to pay an additional 3% stamp duty on top of the standard rate. So for example, it means that the stamp duty bill for a £285,000 buy to let home will rise from the current £4,250 to £12,800 from April next year.
Some say property in Canterbury will be worth less because potential landlords will not be willing to pay as much for them, and if house builders or existing homeowners don't feel they are going to get as much for them , then there is less motivation to build / sell them?... and the person we can blame for this is George himself. Back in 2012, he choose to utilise the British housing market to kick start the UK economy, with subsidies, Funding for Lending and Help to Buy. However, whilst that helped the Tory’s get back into power in 2015, some say this impressive growth in the UK property market has been at the expense of pricing out youngsters wanting to buy their first home.
Others say this is the straw that breaks the camel’s back as over the next four years Landlords will slowly lose the ability to offset all their mortgage interest against tax on rental income, after changes announced in the Summer Budget. At the moment, landlords can claim tax relief on buy to let mortgage monthly interest repayments at the top level of tax they pay (ie 40% or 45%). However, over the next four years this will reduced slowly to the basic rate of tax – currently 20%.
Surely this is the end of Buy to Let in Canterbury? Probably.. but before we all run to hills panicking .. let me give you another thought.
Stamp Duty rules were changed in December 2014. Before then, landlords were eagerly buying up properties under the ‘old slab style Stamp Duty’ system. For example, the stamp duty bill on that £285,000 property was lower on the old slab style duty (pre Dec 2014), at £8,550, yet it isn’t a million miles away from new £12,800 stamp duty bill. Interestingly though, George has left a legal loophole in the new rules, because when it comes to selling up, they can offset purchase costs against any eventual capital gains tax, including stamp duty.
I believe that total returns from buy to let will continue to outpace other investments, such as the stock market, gilts, bonds and even pensions. Also, the best part about investing in property is that it is bricks and mortar. You can touch it, you can feel it, and it isn’t controlled by some City whiz kid in Canary Wharf .. the British understand property and that goes a long way!
Buy to let has enough impetus behind it that prospective landlords will continue to buy even with a larger stamp duty bill. Canterbury landlords will need to be savvy with what property they buy to ensure the extra stamp duty costs are mitigated. Buying buy to let property is a long term venture. In the past, it didn’t matter what property you bought in Canterbury or at what price – you would always make money. Now with these extra taxes, the adage of ‘any old Canterbury house will make money’ has gone out the window. You wouldn’t dream of investing in the stock market without at least looking in the newspapers or taking advice and opinion from others, so why would you take the same advice and opinion about buying a buy to let property in Canterbury?
One source of information, opinion and advice is the Canterbury Property Blog www.canterburypropertyblog.com .