Interest rates set to rise !!!!

Interest rates set to rise – How will that affect the Cheltenham property market?

The Bank of England has been indicating recently that UK interest rates will be going up in the not too distant future. Therefore, if you are one of the 16,665 homeowners in Cheltenham, who own your own home with a mortgage, then you need to consider your options and start to budget for an interest rate rise. However, if you are a landlord, who owns one of the 10,321 rental properties in the town, whilst your exposure to interest rate rises is lower, it is most certainly something you should be aware of.

Since the spring of 2009, British interest rates have been at a record low of 0.5%. It’s not a case of if, but when, they will rise. Some people think it will be before Christmas, although I am of the opinion, it will early in the New Year around Easter time, when they do rise. I also expect those rises will be slow, steady and limited. It depends on what is happens to UK wage rises, UK inflation and the general state of the British economy. Nevertheless, as much most of us in Cheltenham would love to pull the shutters and stick two fingers up to the world, we have to recognise we are part of a global economy and global economic worries still exist to prevent an abrupt and instantaneous rate rise.

Those Cheltenham landlords, who do have a mortgage, need to realise that as interest rates rise, their monthly mortgage costs rise. It’s easy to say you will look at your mortgage next month, then before you know it, Christmas will be here!  Don’t forget, mortgage lenders have always removed the juicy low rate mortgage deals a few months before interest rate rise. Speak to a qualified mortgage arranger, there are lots of them in Cheltenham and seriously consider fixing your mortgage rate now.  You didn’t buy your Cheltenham buy to let property for it to become a millstone around your neck. It’s all about mitigating your costs and maximising your income to make your Cheltenham buy to let property the investment you want it to be.

However, on the other side of the coin, two in three landlords who have bought property since 2007, have done so without a mortgage. A rise in interest rates might be a good thing. Let me give you some background first, then I’ll explain why. Cheltenham landlords have see their return on investment for their Cheltenham buy to let property, over the last couple of years, perform very well indeed with Cheltenham property values rising by 19.58% since the Spring of 2009. However, when rates do rise, whilst more expensive mortgage rates will ease the demand for borrowing, on the other hand, it may temper house price growth, making the property market more competitive... and therefore, we should see the return of some bargain property buys in Cheltenham!

Finally though, can I ask all Cheltenham homeowners and Cheltenham landlords, who have a mortgage that isn’t fixed, they need to recognise that rates will rise throughout 2016 to 2018 and will continue to move steadily upwards towards more viable and feasible long term levels.  I am not qualified to give that advice and this is my personal opinion, so please speak to a qualified mortgage arranger and, if appropriate, fix your mortgage before interest rates rise. Don’t say I didn’t warn you!

In the meantime, if you are a landlord looking for a bargain now, don’t despair ... there are plenty out there, if you know where to look! One place is Rightmove, another Zoopla and another OnTheMarket. However, sometimes, you can’t see the wood for the trees. At the time of writing, Rightmove had  over 800 properties for sale in Cheltenham, Zoopla 600 plus  properties for sale in the town and OnTheMarket around 240  properties ... where do you start? 

I can help you here ! If you see a property that may be of interest, please email the link to me neil.west@belvoir.co.uk and I will give you my opinion on its suitability as a buy to let investment. 

Cheltenham – The 10 year Time Bomb on Home Ownership

Many people think the British obsession with owning your own home started with Margaret Thatcher in the early 1980’s, when she allowed council tenants to buy their council houses under the right to buy scheme. However, the growth actually started just after the Second World War. Looking at the country as a whole in 1951 30% of residential property was owner occupied then, every ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and 68.07% by 2001 but after that, it dropped to 63.4% by 2011 and continues to drop today.

Young adults tend to start to think about settling down and moving out of the family home in their early-mid twenties.  After a couple of years, they will have a choice of either buying their first house (albeit with a mortgage) or decide to privately rent for the long term (because the Council House waiting list is measured in decades at the moment!). The ratio of people owning a house with a mortgage verses privately renting is an extremely important guide to what people are doing about their housing needs and what their attitude to renting vs buying is.  With that in mind, within the next ten years, I am predicting there will be more people renting privately in Cheltenham than own a property with a mortgage and that the British love affair of property ownership will fade as the decades roll on.

This is a really important change in the way we live, as I explained to a local Cheltenham landlord the other day, knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in the town; Cheltenham property prices and Cheltenham rents.

In the Cheltenham Borough Council area as a whole there are 10,260 households that are privately rented via a landlord or letting agency verses 16,876 households that are owned with a mortgage, so my prediction appears to be outrageous. However, when we look deeper (as the devil is always in the detail), 7,885 of those 16,876 households are 35 to 49 year olds and 4,742 are households of 50 to 64 year olds. I would expect all the 50+ years to be paying their mortgage off as they enter retirement as I would with some of the people in their mid/late 40’s. 

Meanwhile, at the other end, in the 25 to 34 age range (the age most people bought their first home in the 1970’s/80’s/90’s) only 3,110 of the 7,172 households occupied by those 25 to 34 year olds are owner occupiers with mortgages, because 4.062 households are privately rented. This means only 43.3% of 25 to 34 year olds have bought their house (with a mortgage). Twenty years ago, that would have a much higher percentage of homeowners (between 75% to 85%).

It can be seen that as the older generation pay their mortgages off as they start to get to retirement and the younger generation aren’t jumping on the property ladder like they were 20 or 30 years ago, the private rental sector will take up the slack as more and more people will want a roof over their head, but won’t buy one but rent one. With Local Authorities and Housing Associations not building houses anywhere near like the number of houses they were building in the 1950’s, 60’ and 70’s, the private landlord appears to have good demand for their rental properties for many decades to come.

This will create a polarisation in the housing market between those, mostly older, households who own outright and those, mostly younger, households who rent. Our housing market is very much turning into the European model. However, all is not lost, the younger generation will inherit their parents properties, which in turn will enable them to buy, albeit later in life.

Cheltenham Landlord’s mortgages top £616 million!

We Brits can’t stop talking about property. The hot topic of discussion is the subject of the Cheltenham Property market, but in particular, buy to let. We hear of  people who  are buying up buy to let properties quicker than an ace Monopoly player .. or so it would seem if you read the Sunday papers. So is the buy to let market a surefire way to make money?  Is it something everyone should be jumping into? The answer is Yes and No to all those questions!

A landlord only has to flick through Rightmove or Zoopla, pick any property at random and agree a price. Then, find a modest deposit of 25% (often by remortgaging their own home) which, for an average Cheltenham terraced house, would mean finding £55,113 for the deposit (as the average Cheltenham terraced house is currently worth £220,454) and borrow the rest with a low interest rate buy to let mortgage.  Finally, the landlord would rent out the property in a matter of hours for top dollar and live happily ever after, with the rent then covering the mortgage payments, with loads of money to spare and come retirement have a portfolio of property that would have quadrupled in value in fifteen years. Sounds wonderful – doesn’t it? Or does it???

Let us not forgot that the half of one per cent Bank of England base rate is artificially low. The international money markets can be fickle and if interest rates do rise quicker and higher than expected because of some unforeseen global economic situation, that monthly profit will soon turn into a loss as the mortgage will be more than the rent. Even though tenants are staying longer in their rental property, tenants still come and go and my guidance to landlords is they should allow for void periods, plus the maintenance costs of a rental property and of course, agents fees. .. all things that eat into that profit.

Interestingly, by my calculations, there are approximately 3,290 Cheltenham landlords owing in excess of £616 million in mortgages on those Cheltenham buy to let properties.  An impressive amount when you consider Cheltenham only has 0.308% of all the rental properties in the Country. It really does come down to a number of important factors going forward to ensure you are water tight for the future. A lot of my existing landlords are fixing their mortgage rates. One told me that the Metro Bank are currently offering a 5 year fixed BTL remortgage rate at 3.79% for 5 years (based on a 75% loan). I don’t give financial advice, so you must speak with a qualified mortgage advisor.. but that sounds very fair!

However, one thing I do know is that buy to let is a long term investment, it’s a ten, fifteen, twenty year plan and property prices will go down as well as up. You wouldn’t dream of investing in the stock market without advice, so why invest in the Cheltenham Property Market without advice?

Need some free advice ? Please call me on 01242 221188 or email me on neil.west@belvoir.co.uk 

The ‘Liquorice Allsorts’ Gloucester Property Market

Despite the UK economy heading in the right direction with record low mortgage rates and unemployment  figures dropping, the rate of property prices rising in Gloucester has tempered since the start of the year. This slow but sure downward trend in the rate of growth has been in evidence since mid-2014.  Property value increases continue to outpace the growth in salaries, however the gap is closing, helped by a lift in salaries over the last 6 months.  

Property values in the South West region as a whole are 3.6% higher than a year ago. Compare this to the neighbouring regions of the South East at 9.1% higher and the West Midlands at 3.5%, the majority of the country continue to see annual house price gains - the exception being Wales which recorded a slight  decline of -0.6%.

Even with the tempering in house price inflation, it does not necessarily change my outlook that property prices are likely to be firmer over the second half of 2015 amid heightening activity in the Gloucester property market.  As stated in a previous article, there is a current shortage of properties on the market, restricting supply, which in turn will provide stability and support to Gloucester property prices. 

Property investment is a long term business.  Buying the right sort of property is vital. I have recently been speaking with a number of Gloucester landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns (high yields) but quite often offer poor capital growth (i.e. they don't increase in value that much over the years compared with the average) verses properties that do go up in value quicker but often offer a lower yield.  So, what type of properties have performed best over the last few years in Gloucester, especially in terms of their capital growth?

When comparing  what the average price of detached, semi detached, terraced and flats were selling for back at the start of the Millennium to the present.  The results are quite remarkably different, almost like a bag of Liquorice Allsorts, as the different types of property have performed poles apart over the last 15 years:

·     Detached Houses in 2000 were selling on average for £125,334 and so far in 2015, they have been selling on average in Gloucester for £292,6162, a rise of 133%

·     Semi -Detached Houses in 2000 were selling on average for £77,087 and so far in 2015, they have been selling on average in Gloucester for £174,214 a rise of 126%

·    Terraced Houses in 2000 were selling on average for £52,471 and so far in 2015, they have been selling on average in Gloucester for £128,819 a rise of 146%

·       Flats and Apartments in 2000 were selling on average for £43,585 and so far in 2015, they have been selling on average in Gloucester for £102,056 a rise of 134%

Moving forward, what should new and existing buy to let landlords do with this information?  Well, the questions I seem to be asked on an almost daily basis by landlords are:

· “Should I sell my property in Gloucester?”

· “Is the time right to buy another buy to let property in Gloucester and if not Gloucester, where?”

· “Are there any property bargains out there in Gloucester to be had?”

If you would like the answers to these questions, give me a call on 01452 387334 or email me on neil.west@belvoir.co.uk