Affordability of housing in Gloucester

Talking to an elderly relative recently, he reminded me that in his day, you could have bought a property for the same price of what a decent second hand car would sell for today and that his father was buying property for the same price as a decent 50 inch LCD TV!  

Now of course, these are only headline prices and we have had wage growth and inflation.  Interestingly, since the Second World War, property values in Gloucester doubled in 1961, 1971, 1975, 1980, 1988, 2000 and 2006.

Looking at more recent times, since the start of the Millennium, these increases in property values have generated large increases in equity for many homeowners but on the other side of the coin also making housing unaffordable for other people.  It might interest readers to note that most of Europe experienced sharp increases in property values in the early years of 2000’s, with only Spain beating  us (although we know what has happened to the Spanish property market over the last few years!).  In the 2000’s, the British situation was different in two regards.  First the property value boom started earlier and saw more sustained increases, second, the regional pattern was fairly uniform.

However, since 2010, the regional pattern has been completely different in the UK.  Compared with  2007 (the last property boom), average property values today in England and Wales are 1.2% higher, whilst in Greater London, they are 35.7% higher, whereas in Gloucester they are 3.17% lower. The London property market has been like a different country.  Looking specifically at Gloucester though, it has continued to be difficult for first time buyers to get on the housing ladder.  The best measure of the affordability of housing is the ratio of Gloucester Property Prices to Gloucester Average Wages, (the higher the ratio, the less affordable properties are). 

·         1997       3.06 to 1   (i.e. the average value of a Gloucester property was 3.06 times higher than the average annual wage in Gloucester)

·         2000       3.40 to 1

·         2002       4.46 to 1

·         2003       5.49 to 1

·         2007       6.48 to 1

·         2009       5.45 to 1

·         2012       5.34 to 1

·         Today     5.96 to 1

You  can see quite clearly, even though we had an improvement just after the 2007 property crash (i.e. the ratio dropped), in following subsequent years with Gloucester house price’s rising but wages not keeping up with them,  the ratio started rise.  This has meant there has been a deterioration in affordability of property in Gloucester over the last couple of years.  This is one of the (many) reasons why the younger generation is deciding more and more to rent instead of buy their own house.

With fewer people able to save up the deposit required by mortgage lenders, more and more people are looking to rent, this has also resulted in a change in attitudes towards renting over the last decade.  This delay in moving up the property ladder has driven rents up in Gloucester over the last few years, as more people are seeking properties to rent.  All these things have combined to make the demand for rental property in Gloucester rise.  If you are an existing landlord or someone thinking of become a first time landlord looking for advice and opinion and what (or not to buy in Gloucester), please contact me on neil.west@belvoir.co.uk

Fewer people are moving house in Cheltenham

Now the dust has settled and the General Election seems a distant memory, 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. You see I have been talking to many fellow property professionals in Cheltenham (solicitors, conveyancers and one the best sources of info – the chap who puts all the estate agent and letting boards up in Cheltenham, and all of them, every last one of them told me they didn’t see any change over April in business, compared to any other month on the lead up to the Election itself.

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 Cheltenham, there has only been eight properties sold above £2,000,000 mark in the last 5 years.

In a nutshell, the General Election in Cheltenham didn't really have any impact on people’s confidence to buy property. I think that things are starting to change in the way people in Cheltenham (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 a 3 bed semi and repeated the process, until you found yourself in a large 4 bed detached house with a large mortgage.

Looking into this a little deeper like I have said in previous articles Cheltenham people’s attitude to home ownership itself has 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 Cheltenham thing, but, 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 the 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 Cheltenham compared to the last decade. For example, in February 2015, only 129 properties were sold in Cheltenham. Compare this to February 2002, and 190 properties sold and the same month in 2003, 167 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 Cheltenham 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 Cheltenham, year on year, without the massive peaks and troughs we saw in the late 1980’s and mid/late2000’s might just be the thing that the Cheltenham property market needs in the long term.

Cheltenham Buy To Let – Should you look further afield?

The other day a  landlord asked me 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 Cheltenham 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 Cheltenham and Gloucester Property Blog know of my love of the ‘buy to let see-saw’. On one side of the see-saw is yield and the other capital growth. Landlords should be looking for a high rental yield 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 say such areas as Hesters Way, Springbank, Whaddon and Wymans Brook in Cheltenham, (so the see-saw arm with yield on it goes up on one side), will suffer from low capital growth (so the other arm with capital growth on the seesaw goes down). The relationship works in reverse as well, so in such upmarket areas as Leckhampton and Charlton Kings, 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 Cheltenham today is 4.68%, 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 Cheltenham landlords are achieving 6% to 7% on some of their Cheltenham 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 Home of the ‘The Reds’, 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 below you can see that since 1995, property values in Cheltenham have risen by 199.36%,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 , 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 Cheltenham 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 yield and capital growth, that gives you the real return on your investment.