Wednesday, 22 July 2015
Monday, 13 July 2015
Well the dust has settled and the General Election was something that seems to have happened many months ago; a bit like the end of the football season! So, we can get back to a more normal property market, or that is what the London based ‘Fleet Street’ journalists would lead you to believe. I do find that their opinion is often tainted by the market ‘down south’ so I get my local information from much more reliable sources. I have been talking to many fellow property professionals in Derby; solicitors, conveyancers, mortgage brokers and, one the best sources of information, the chap who puts all the estate agent and letting boards up in the area. Each of them told me the same story - they didn’t see any change in the couple of months that led up to the Election itself on the 7th May.
I am now of the opinion that, maybe in the upmarket areas of Mayfair and Chelsea, the market went into spasm with the prospect of a Labour/SNP pact with their Mansion Tax for properties over £2,000,000, but, in little old Derby and the surrounding villages, there has only been two properties sold above £2,000,000 mark in the last 7 years so we had a somewhat different reaction!
In a nutshell, the General Election didn’t really have any impact on people’s confidence to buy property in Derby. As I write this article, of 1,687 properties that have come on to the market in Derby since the 2nd of April, 504 of them have a buyer and are sold subject to contract, that’s nearly one in three - 29.87% to be precise.
I actually think that things are starting to change in the way people in Derby (in fact the whole of the country as I talk to other agents around the UK) buy and sell property. Back in the 1970’s, 80’s and 90’s the norm was to buy a terraced house as soon as you left home and do it up. Meanwhile, property prices had gone up, so you traded up to a 2 bed semi, then 3 bed semi and repeated to the process, until you found yourself in large 4 bed detached house with a large mortgage.
Looking into this a little deeper like I have said in previous articles Derby people’s attitude to home ownership itself have changed over the last ten years. The pressure for youngsters to buy when young has gone as renting, not buying, is considered the norm for 20 something’s. This isn’t just a Derby thing, it’s a national thing, as I have noticed that people buy property by trading up (or down) because they need to, not because ‘it’s what people do’. This does means there are a lot less properties on the market compared to last decade.
A by-product of less people moving is less people selling their property. My research shows there are a lot fewer properties each month selling in Derby compared to last decade. For example, in February 2015, only 240 properties were sold in Derby sold. Compare this February 2002, and 423 properties sold and the same month in 2003, 421 properties. I repeated the exercise on different sets of years, comparing the same month to allow for seasonal variations, and the results were identical if not greater. So what does this all mean?
Demand for Derby property isn’t flying away, but with fewer properties for sale, it means property prices are proving reasonably stable too. Stable, consistent and steady growth of property values in Derby, year on year, without the massive peaks and troughs we saw in the late 1980’s and mid/late 2000’s might just be the thing that the Derby property market needs in the long term.
Thursday, 9 July 2015
During my school years, my parents seemed to move every other year, or it certainly seemed that way! In reality, looking back at the house moves, we actually moved three times before I left home. In fact I read on the internet that the average UK person moves 8 times in their life - or every 9 to 10 years. However, whilst my parents kept the removal van people in business whilst I was at school, from research I have carried out it shows things have changed considerably in Derby over the last few decades, and interestingly, the trend is getting worse ... for the removal van people at any rate!
In Derby, there are 104,777 properties. However, after we remove the 20,289 council houses, 17,504 privately rented houses and 1,213 houses where the occupants live rent free, that leaves us with 65,771 owned properties, be that 100% outright, with a mortgage or shared ownership. This means 62.8% of the properties in Derby are occupied by the owner (the national average is interestingly 64.2%) but the number of people who have sold and moved house in Derby, over the last 12 months, has only been 4,282. This means on these figures, the homeowners of Derby are only moving on average every 15.35 years.
There are a couple of reasons for this. Firstly, the cost of moving house has risen dramatically over the last twenty years and, secondly, with many remortgaging their properties in the mid 2000’s before the price crash of 2008, there is a reluctance or inability in a small minority of homeowners to finance a home sale/purchase, due to lack of equity. These are both factors leading to driving fewer moves by existing homeowners.
However, the big effect has been the change in house price inflation. Back in the 1970’s and 1980’s, house prices were doubling every 5 to 7 years. Even in Greater London, with its stratospheric property price increases over the last few years, it has taken 13 years (August 2012 to be exact) for property values to double to today’s levels.
This change to a relatively low inflation Derby property market - Derby property values not rising quickly - is significant because the long term consequences of sustained low house price growth is that it eats into mortgage debt more slowly than when property price inflation is higher. Derby home owners cannot rely on inflation to shrink their debt in real terms as much as they did in say the 1970’s and 1980’s.
So what does this all mean for Derby buy to let landlords? Well, for the same reasons existing Derby homeowners aren’t moving, less ‘twenty something’s’ are buying their first home as well. Derby youngsters may aspire to own their own home, but without the social pressure from their peers and parents to buy their first property as soon people reach their early 20’s, the memory of the 2008 housing crisis and the belief the hard times either aren't over or the worst is yet to come, current and would-be homeowners are warming to the idea of renting. I also believe UK society has changed, with the youngster’s wanting prosperity and happiness; but wanting it all now... instantly... today... without the sacrifice, work and patience that these things take.
As a society, we now expect things instantly, and if it doesn’t come easy, doesn’t come quick, some youngsters ask if it is really worth the effort to save for the deposit? Why go without holidays, the newest iPhone, socialising four times a week and the fancy satellite package for a couple of years, to save for that 5% deposit. Why should they if there is no longer a social stigma in renting or pressure to buy as there was say a generation ago?
Even though, in real terms, property prices are 5% cheaper than they were ten years ago (when adjusted by inflation), 16.7% of Derby properties are privately rented, nearly double it was twenty years ago. As a result, the demand for rental properties continues to grow from tenants, meaning those wishing to invest in the buy to let market, over the long term, might be on to a good thing?
Thursday, 18 June 2015
Last week, a Derby landlord emailed me, after reading the Derby Property Blog, to ask if he should extend his terraced house, making an extra bedroom in the loft. He had a builder friend who owed him a favour, and thought it a good way to achieve an ‘inexpensive’ extension.
Having more useable space is generally thought to be consistent with better quality accommodation and homeowners and tenants are prepared to pay for it. If you added a bedroom to a two bed terraced to make a three bed terrace, it will add around 10% to the value of the property. Turn a three bed terraced into four bed terraced, and approximately 9% will be added to the value. Looking at semi detached properties, and turn a two into a three bed and around 12% will be added to the value, whilst making a three bed semi into four bed will add 9% in value.
However, before you rush off to the planning department there are some important considerations, whether you are a homeowner or landlord. What would be the cost of making that extra bedroom? The average value of a terraced house in Derby is currently £115,800 whilst the average value of a semi detached house is £145,900, meaning to make money the cost of the extension would need to be less than £11,001 on the terraced property and £15,319 on the semi detached house.
Talking to a number of trade’s people in the City, most are booking up into the New Year. Also, no matter how good a friend he was, I know of no builders that would charge as little as that! Maybe the builder was just thinking of a bit pointing work on the chimney!
Well, that got me thinking about how bedrooms affect rental prices and rentability. Interestingly, you will see below that whilst bedrooms do have an effect on the rent that can be achieved and the rentability of the property – the difference does not really warrant the expense, hassle and trouble of extending.
18.8% of the one bed properties on the market to rent in Derby have a tenant paying an average rent of £411 per month
43.3% of the two bed properties, have a tenant paying an average rent of £541 per month
39.8% of three bed properties costs a tenant an average rent of £571 per month
21.5% of the four bed properties have a tenant with an average rent of £669 per month
Now, if you want to increase the value of your property, be you a Derby landlord or homeowner, there are things that cost a lot less than building extra bedrooms. Spruce up the exterior, decorate all the rooms, install fresh carpets and curtains. For homeowners, a matter of a few hundred pounds will add thousands whilst for landlords, these things can add an extra 10% to the rent that you can achieve.
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Thursday, 11 June 2015
I had a lot of enquiries and conversations following my recent article about the state of the Derby Property market and in particular what had happened to rents in Derby since 2008. If you recall, I said that rents in Derby are still 4.68% lower than they were in 2008. One particular Derby landlord rang me after reading the Derby Property Blog wanting to know more of the story of what was happening to rents in the City. The reason he asked was that his current agent hadn’t increased his rent for a number of years and he was questioning whether he was getting the best return from his buy to let investment.
The Derby rental market is all about supply and demand - isn’t it so in all parts of the economy? On the supply side, 565 rental properties have come up for let in the last 31 days in Derby. It sounds a lot doesn’t it until you consider there are 15,943 rental properties in Derby, that means only 3.54% of the rental stock of properties in Derby is coming onto the market and it is normally around 5%. One reason for this lack of new rental properties coming on the market is the fact that tenants seem to be staying in properties longer.
With this lack of supply, newer tenants have to pay more to secure the property they want. This is the crux of the matter.. properties they want. Older properties in Derby, that haven’t been maintained, still retain their wood chip wallpaper from the 1970’s and thread bare carpets have seen their rents drop. Tenants want either modern properties with all the mod cons or older style properties that have been presented to an exceptional standard – and, generally, they are prepared to pay for the privilege. Rents for top quality properties in Derby have risen by 0.4% in the last month. Any properties, old or modern, put on the market in good or excellent condition will rent in a matter of a few days.
Interestingly, looking at Derby property values, the Land Registry has just released it’s latest set of data on property values. Throughout April 2015, the latest set of data, property values remained static in Derby, with 0% growth, meaning they are now 3.3% higher than they were a year ago. When one looks at the regional picture, the East Midlands average property values rose by 1.4% in the last month. The difference doesn’t concern me, as the regional and local property values always even themselves out over the months.
Looking forward, after considering all the statistics and talking to other property professionals, I expect property values in Derby to rise by 3% to 5% over the coming 12 months, following the Election result. In a forthcoming article, I will discuss how the number of properties changing hands each month has dropped considerably in the last 10 to 15 years in the City.
..and so back to my chat with the landlord.. Each property is unique and so, as his tenancy agreement allows him to inspect the property with notice to the tenant, we will be visiting the property next week!
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Tuesday, 9 June 2015
I was at a recent business networking event in Derby, when a landlord who already owned a couple of properties, bent my ear on where the next hot spot town or city is to invest his money in and where the best rental yields are. Now it can be tempting to just look at Derby when growing a buy to let property portfolio, but there can be big differences in the amount of rental income you receive and how much your property will appreciate by considering other locations in the country.
Now regular readers of my articles of the Derby Property Blog know of my love of the ‘buy to let seesaw’. On one side of the seesaw is return and the other, capital growth. Landlords should be looking for a high rental return so that they can comfortably cover any mortgage payments and make some profit from the income return, but you also want the property to rise in value over time so you can get some capital growth when you come to sell. However, high yielding property in such areas as the Pear Tree area in Derby - sees the seesaw return arm go up - will suffer from low capital growth - so the capital growth arm goes down. The relationship works in reverse as well, so in such areas as Littleover, properties offer good capital growth, but at the expense of a decent yield.
The North East and North West of the UK are landlord magnets for great yields. The average yield in Derby today is around 4.64%, which when you compare with say Hartlepool in the North East, which achieves 7.73% or 9.43% in the Anfield area of Liverpool, doesn’t look too healthy. Now of course, these are only averages and some of my Derby landlords are achieving 6% to 7% on some of their Derby properties, but at the expense of capital growth. Anyway, after wasting a tank full of petrol up the A1 to Teeside or the M1 to Stanley Park, that Liverpool property, would have dropped in value by 2.2% in the last 12 months and the Hartlepool property would have dropped by 1.4%.
When you compare the long term house price growth, it gets even worse. Looking at the graph, since 1995, property values in Derby have risen by 142.6%, compared with Hartlepool at 21.02% and Liverpool at 90.11% – it just shows you shouldn’t always chase the yield because of the poor increases in property values in those two places.
As I always like to explain to landlords when they either email me, pick up the phone or pop into my offices for a coffee, a decent yield is important, but when you come to sell your buy to let property it would also be nice to make a decent profit.
At the end of the day, as a Derby landlord, you want to be making gains from both your rent and house price growth, particularly when you want to sell, because when combined, the rental return and capital growth, that gives you the real return on your investment.
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Thursday, 28 May 2015
With the election now over and the stability of Downing Street secure, with David Cameron and his Blue Tory’s as the largest party in Westminster, in Derby, as in the rest of the UK, average wages are beginning to grow faster than inflation. This is good news for the Derby 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 Derby giving buyers some extra negotiating power.
At the last election in May 2010, there were 2,067 properties for sale in Derby and by October 2010, this had risen to 2,609, an impressive rise of 26% 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 run up to the election discussion, it is important to consider what the uncertainty in April did to the Derby Property market. I mentioned a few weeks ago that property values, defined as what properties were actually selling for, had dropped by 0.4% in March 2015. Now new data has been released from Rightmove about April’s asking prices of property in Derby. 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 0.7% - this takes on more significance when you consider that April is normally one of the best months of the year for house price growth. I am sure our local MP’s, Margaret Beckett and Amanda Solloway, would agree that the biggest issue is the lack of new properties being built in Derby. The Conservative manifesto pledged to build 200,000 discounted starter homes for first-time buyers in the next five years. For Derby to gets its share, that would mean only 185 such properties being built in Derby each year for the next five years, not much when you consider there are 102,271 properties in Derby!
On the face of it, it seems that 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 probably won’t get recognition it deserves. We may have to wait until another political party gets back into power before something will seismically change in the property market, thus demand for housing will continue to outstrip supply, meaning property values will increase; good news for existing landlords and homeowners! However, as rents tend to go up and down with tenant wages, in the long term, rents are still 4.68% lower than they were in 2008; good news for tenants!... in the private rental sector, it seems, everyone wins!