Just who are the Renters in Derby?

Speaking to a Bank Manager the other day in Derby, we got talking about the state of the Derby property market and whether we, as a country, are turning more and more to the European style of property ownership, where it is the norm to rent as a opposed to automatically buying once you have a good job etc.

Even though a recent report by the Halifax stated homeownership remains a goal for 85% of twenty to forty five year olds, there is information emerging that attitudes in the UK towards renting your own home as opposed to owning it have softened, showing more and more, that renting is being seen as a life style choice.  In fact it is recognised in learned circles that the cycle of renting is also repeated by the fact that people who grow up primarily in rented accommodation are themselves more likely to rent than buy.

Many people think that the UK should lose its fixation with homeownership and that people would be happier as a result. If this pattern were to continue, then this would suggest that the people entering the housing market are less likely to want to own a home, and are more likely to remain  ‘Renters for Life’, irrespective of changing market conditions, leading to a longer term shift in the home ownership make-up of the country.

The biggest barrier often mentioned to buying a house is the claim that they are not buying property at the moment because of a lack of sufficient wages and by the high level of deposits but like we said a few weeks ago, in Derby, a single person on the average Derby salary of £26,241pa, assuming they had a reasonable credit history they would be showered with lenders offering them a 95% mortgage (a reasonable credit history means they haven’t defaulted on loans, paid all their bills on time nor got any County Court Judgements. Just because you missed just one credit card payment won’t mean you have messed up your credit score and your ability to get a mortgage)  and they would only need to find £4,500 as a deposit to buy a decent terraced house in Rosehill. ..it comes down to the perceived capability of the youngsters in Derby to buy nowadays.

Interestingly, when I looked at the Derby figures, the average Derby tenant has a younger profile than the England and Welsh average, as can be seen from the graph below. What interested me as well was the relatively large number of people renting over the age of 50! I know we have a large number of mature tenants at our agency, but I always thought that was the exception to the rule. Obviously not! - and that is good news for landlords as they make excellent tenants!

So what does all this mean for Derby landlords and future Derby landlords? I honestly believe there is a difference between the hope and perceived capability of the younger generation to buy a home. Although homeownership is seen as advantageous by a majority, many tenants admitted in the Halifax report they are not taking the steps they need to purchase their own home.

As the local authority aren’t building any properties in Derby, people still need a roof over the head, and that is why, as I mentioned a few weeks ago in the Derby Property Blog, the demand for rental properties will only continue to steadily rise in the coming decade. If want to know where the Derby Property market is heading and where you should (and shouldn’t buy), maybe the one place you should visit is the Derby Property Blog or send me an email!

Derby v London.. it's like being in a different country!

I had an interesting conversation with a local Derby accountant the other day. He is quite an observant chap - I know this because I have known him for a few years, but I suppose you have to be to be an accountant! Anyway, he mentioned a few things he had noticed recently in Derby, one that Derby property prices had gone up in the last few years but nowhere near the growth levels that were being achieved in central London, and secondly, that he thought the number of for sale boards in Derby - and more importantly ones with sold slips on them - had increased over the last couple of years.

The rate of house price inflation in Derby continues to slow with growth of 4.6% in the 12 months to February compared to 5.5% just over six months ago, according to the latest Land Registry data. However, there is considerable local variation with house price growth ranging from 1.6% in Leicester, to 8.3% in Northamptonshire over the last 12 months.

Whilst Derby hasn’t seen the 20%+ per year in house price growth of London over the last couple of years, Derby has seen a sharp uplift in the number of properties sold throughout 2014 as base line demand for housing grows, which suggests there is substance to the recent pick-up in house price growth in the City. Since the Second World War in the UK, when the number of properties sold has grown, property values grew soon after. The 7% uplift in property transactions in Derby in 2014, compared to 2013, indicates the most significant recovery in house market activity in Derby (outside London) since 2007.

When you compare Derby with London, you could be looking at two different countries. In London, its mid/late teens house price to earnings ratios are impacting demand; i.e. the average property value is often 15 or 17 times the average wage in London.. in fact, in Knightsbridge the ratio can be 30 to 1.  However, the number of people wanting to sell has dropped considerably, meaning that falling sales volumes combined with a general slowdown in activity in the run up to the General Election are resulting in lower mortgage approvals for home purchase.

Transactions are a great indicator for house prices. The acceleration in house price growth in London in the last two years was preceded by three years of rising transactions. A similar pattern is being registered in the Derby area, as pent up demand returns to the market supported by low mortgage rates and an improving economic outlook.

But before you get the Champagne out, while the uplift in activity is welcome news, the number of Derby property sales in 2014 is still 58.8% lower than the level seen in 2007 and property values are 11% below the 2007 levels. The ongoing housing recovery is far from broad based and remains focused on middle to higher value areas within Derby where households have equity and find it easier to access mortgage finance.

If you want to know more about the Derby Property Market, please to not hesitate to contact me! Mobile, office, text, e-mail, carrier pigeon - I'm not bothered!

Have we got a dual speed property market in Derby?

Even with the General Election on the horizon, property values in Derby are still 0.42% higher than they were 3 months ago, the diversion and ambiguity of an election typically makes house sellers who need to sell, price their property more realistically - although this only lasts a couple of months!

Looking specifically at it from a Derby landlord’s point of view, the Derby properties favoured by investors are in short supply in many parts of the city because of a number of factors. One of the factors has been that we seen the number of first time buyers coming to buy their first home increase over the last 12 months in Derby.  Another factor has been the fact that the banks have been pushing ‘let to buy’ - yes ‘let to buy’ is different to ’buy to let’! - to homeowners (more of ‘let to buy’ in an up and coming article). Next, because of the banks, who are chasing low risk landlords with high deposits with very low mortgage rates - and the low risk landlords with high deposits tend to be attracted to the safer modern two and three bed town houses and semis in Derby.

As I mentioned a few weeks back, the pension rules are changing which means buy to let landlords can use some, or all, of their pension pot to buy a property.  It shouldn’t be forgotten there are tax implications taking more than a quarter of your pension pot out (see the article from a couple of weeks ago), so whilst many pension pots may not be able to fund a suitably big enough tax free lump sum to buy the property outright, for most it will provide enough for the 25% deposit required by most BTL mortgage providers. It shouldn’t be forgotten landlords that the interest paid on the mortgage is tax deductible against the rent, thus lowering your income tax paid.

In the last 12 months, I have noticed a particular uplift in interest from ‘50 something’ Derby people wanting to become landlords for the first time. In Derby, the highest returns for the lowest investment are at the lower end of the market e.g. the classic Victorian terraced house. Unfortunately Victorian terraced houses, with two bedrooms are coming to the market in smaller numbers than the larger four bedroom ones in  top end sectors of the Derby property market.

When looking at the actual numbers, in the latter part of the Summer of 2014 in Derby, in one month alone 589 two bed houses were on the market in Derby. However, in January this year, a notoriously excellent bumper month for properties coming on to the market, there were only 440 two bed houses on the market in Derby to choose from. Today, that figure stands at only 360..whilst the number of four and five beds has increased significantly...  interesting don’t you think?

At that lower end of the property market in Derby, where first time buyers and landlord investors compete with each other to buy those smaller properties, I believe throughout 2015, there will be a slow and steady tipping of the scales between supply and demand. In fact, from what I am seeing and hearing, early anecdotal evidence has suggested over the last few months (although we will need to look at figures later in the Spring once we have the data from The Land Registry), we are beginning to see a polarised Derby property market, where we have high demand but low supply at the bottom end of the property market, yet high supply but lower demand at the top of market.. and that can only mean one thing ... prices will go up quicker on the smaller properties than the larger ones in Derby, thus narrowing the gap for people looking to move up market!