Has owning a home become an unattainable dream for the 1,687 Cheltenham 28 year olds

My parents bought their first house in the 1960’s, they were in their early 20’s. Interestingly, looking at some research by the Post Office from a few years ago, in the 1960’s the average age people bought their first house was 23. By the early 1970s, it had reached 27, rising to 28 in the early 1980’s.

This year alone, 1,687 people in Cheltenham will turn 28 and 1,819 in 2017 .. and dare I say 1,943 in 2018 .. year in year out the conveyor belt carries on .. where are the Cheltenham youngsters going to live?

Ask a Cheltenham ‘twenty something’ and they will say they do not expect to buy until they are in their mid thirties - seven years later than the 1980’s. Some people even say they will never be able to buy a property and the newspapers have labelled them ‘Generation Rent’ as they are people born in the 1980s who have no hope of getting on the property ladder. One of the major problems facing young Cheltenham people is the large deposit needed to get a mortgage .. or is it?

The average price paid for an apartment in Cheltenham over the last 12 months has been £190,700 meaning our first time buyer would need to save £9,535 as a deposit (as 95% mortgages have been available to first time buyers since 2010) plus a couple of thousand for solicitors and survey costs. A lot of money, but people don’t think anything today of spending a couple of thousand pounds to go on holiday; the latest iPhone upgrade or the latest 4K HD television. That amount could soon be saved if these ‘luxuries’ were withheld over a couple of years but attitudes have changed.

Official figures, from the Office for National Statistics, show the average male in Cheltenham with a full-time job earns £592.00 per week whilst the average female salary is £491.80 a week, meaning, even if one of them worked part time, they would still comfortably be able to get a mortgage for an apartment.

I was reading a report/survey commissioned by Paragon Mortgages from the autumn of last year. The thing that struck me was that when tenants were asked about their long term housing plans, some 35% of participating tenants intend to remain within the rental sector and 24% intended to buy a house in the future, with the proportion of respondents citing the “unaffordability” of housing as the reason for renting privately increasing from 69% to 74%.

However, time and time again, in the starter home category of property (ie apartments), nine times out of ten the mortgage payments to buy a Cheltenham property are cheaper than having to rent in Cheltenham. It is the tenant’s perception that they believe they can’t buy, so choose not to. Renting is now a choice. Tenants can upgrade to bigger and better properties and move up the property ladder quicker than their parents or grand parents (albeit they don’t own the property). Over the last decade, culturally in the UK, there has been a change in the attitude to renting so, unless that attitude changes, I expect that the private rental sector in Cheltenham (and the UK as a whole) is likely to remain a popular choice for the next twenty plus years. With demand for Cheltenham rental property unlikely to slow and newly formed households continuing to choose the rental market instead of purchasing a property. I also forecast that renting will continue to offer good value for money for tenants and recommend landlords pursue professional advice and adopt a realistic approach to rental increases to ensure that they are in line with inflation and void periods are kept to a minimum.

Gloucester’s ‘Generation Rent’ to grow by 1,949 households by 2021

Some commentators are saying buy to let is about to die, with the new stamp duty changes and how mortgage tax relief will be calculated. Some say 500,000 rental properties will flood the market nationally in the next 12 months as landlords leave the rental market. Have you heard the phrase ‘Bad news sells newspapers’? Let me explain why buy to let in Gloucester is only going in one direction – and not the direction the papers say they are going.

According to Sheffield University, buy to let landlords will continue fuelling the growth of the private rented sector in the coming decades. By their estimates (and they are considered a centre of excellence on the topic), the rate of home ownership nationally will fall to 50% (today it is 69.1% in Gloucester) by 2032, while the rate of private sector renting will increase to 35% (interestingly, in Gloucester it stands at 16.8% today).

Therefore, the demand for rental accommodation in Gloucester will grow by 1,949 households in the next five years ... and these are the reasons why, irrespective of the distractions set out in the newspapers

         

Gloucester property values over the last six years have risen a lot more than average wages/salaries, meaning as homeownership and mortgage availability is dependent on your ability to pay has served to push home ownership further out of reach for many, at a time when the stock of council houses has actually withered. (Nationally, the number of council houses in the last ten years has dropped from 3.16m to 2.18m households - a drop of 31.1%).

Now it’s true the governments efforts to fix the deficiency of affordable housing have focused on those who want to buy a home, ranging from Help to Buy and their much vaunted Help to Buy Isa, and Starter Homes Scheme, an initiative offering a 20% discount for first time buyers … but if you are unable to save for the deposit ... none of this means anything to the ‘20 something’s’ of Gloucester ... and they still need a roof over their heads!

Currently, over 20,000 people live in private rented accommodation in Gloucester

These are big numbers and a sizeable chunk of the electorate. So whilst it appears Gloucester “Generation Rent” youngsters will continue to rent and to not to buy for the reasons set out above, Gloucester buy-to-let landlords will be lifted by the projections of greater rental demand. Gloucester and the area around it still offers the prospect of strong economic growth forecasts and is a desirable place to live. You see, with the new rules on tax, more and more landlords will be looking to move away from the previous honeypot of central London, because its higher prices meant lower rental yields. With the new tax rules and central London’s cooling of house price inflation, more and more landlords will look further afield, including Gloucester.

So, by 2021, the number of rental properties in Gloucester will rise to 13,406

This prediction in growth of the Gloucester rental market is even on the back of the government clamping down on tax reliefs for landlords. The point is this, gone are the days of making guaranteed returns on BTL property. For the last 20 to 30 years, irrespective of which property you bought, making decent money on buy to let property was like shooting fish in a barrel – anyone could do it  - but not now. You must take a more considered approach to your existing and future portfolio, especially in Gloucester. The balance of capital growth and yield, especially in this low interest rate world we live in, means Gloucester landlords need to do more homework to ensure the investment in property gives the desired returns. 

4.5% rise in Gloucester Property Values adds weight to the City’s Housing Crisis

Gloucester’s continuing housing shortage is putting the City’s (and the Country’s) repute as a nation of homeowners ‘under threat’, as the number of houses being built continues to be woefully inadequate in meeting the ever demanding needs of the growing population in the City.   In fact, I was talking to my uncle the other day at a family get together; the subject of the Gloucester Property market came up in the conversation . It used to be that if you went out to work and did the right thing, you would expect that relatively quickly over the course of your career you would be buying a house, you would go on holiday every year, you would save for a pension.   But now things seem to have changed.

Back in the Autumn, George Osborne, used the Autumn Statement to double the housing budget to £2bn a year from April 2018 in an attempt to increase supply and deliver an extra 100,000 new homes each year until 2020.  The Chancellor also introduced a series of initiatives to help get first time buyers on the housing ladder, including the Help to Buy Scheme and extending Right to Buy from not just Council tenants, but to Housing Association tenants as well.

Now that does all sound rather good, but the Country is only building 137,490 properties a year (split down 114,250 built by private builders, 21,560 built by Housing Associations and and a paltry 1,680 council houses).    If you look at the graph (courtesy of ONS), you will see nationally, the last time the country was building 230,000 houses a year was in the 1970’s.

  

Looking at the Gloucester house building figures, in the local authority area as a whole, only 470 properties were built in the last 12 months, split down into 370 privately built properties and 100 housing association with not one council house being built.   This is simply not enough and the shortage of supply has meant Gloucester property values have continued to rise, meaning they are 4.5% higher than 12 months ago.

I was taught at school (all those years ago!), that’s it’s all about supply and demand, this economics game.   The demand for Gloucester property has been particularly strong for properties in the good areas of the City and it is my considered opinion that it is likely to continue this year, driven by growing demand among buyers. You see Gloucester’s economy is quite varied, meaning activity is expected to remain relatively strong into the early Summer of 2016.

.. and of supply, well we have spoken about the lack of new building in the City holding things back, but there is another issue relating to supply.   Of the existing properties already built, the concern is the number of properties on the market and for sale.   The number of properties for sale last month in Gloucester was 455, whilst 12 months ago, that figure was 663 whilst three years ago it stood at 897… a massive drop!

With demand for Gloucester property rising, minimal new homes being built and less properties coming onto the market, that can only mean one thing ... now is a good time to be a homeowner or landlord in Gloucester.  

Info from Office of National Stats for Building Numbers and House price growth from Land Registry and number of properties marketed from THE HOME WEBSITE.

£250,000 inheritance - Is buying Cheltenham Property still the best place for my windfall?

I had an interesting email a few weeks ago that I want to share with you. In a nutshell, the gentleman lives in Cheltenham , he is in his mid 60’s and still working. He has a decent pension, so that when he does retire in a couple of years’ time, it will give him a comfortable life. He had recently inherited £250,000. One option he told me was put it into a savings account. The best he could find was a 2 year bond with the Post Office which paid 1.9%; meaning he would get £4,750 in interest a year. One of his other options was to buy a property in Cheltenham to rent out and he wanted to know my thoughts on what he should buy, but he had concerns as he didn’t want to take a mortgage out at his time of life. He was also worried about all the tax changes he had read about in the papers for landlords.

Notwithstanding the war on Cheltenham landlords being waged by George Osborne, the attraction of bricks and mortar endures for many. As our man is a cash buyer, he would not have to deal with the intricate cut to mortgage interest tax relief. It’s true he would face the extra 3% in stamp duty to buy a second property, but with some good negotiation techniques, that could soon be mitigated.

I told him that buying a Cheltenham buy to let property is all about the total return on investment. True, he could put the money in the Post Office bond and receive his interest of £4,750 a year or, as he rightly suggested, invest in property in Cheltenham. The average yield (yield being the equivalent of the interest rate on the property) at the moment in Cheltenham is 3.58% per annum, meaning our potential F.T.L (First Time Landlord) should be able to, depending on what he bought in the town, earn before costs £8,950 a year.

The bottom line is that the success of investing in Cheltenham buy to let property versus a savings account with the Post Office (or whatever Bank or Building Society is offering the best rate) will depend on the performance of those assets. Unlike with a savings account, with property the capital you invested can also go up (and yes, it can go down as well – more of that in second). Property values in Cheltenham have risen in the last twelve months by 4.5% meaning, that if our chap had bought a year ago, not only would he have received the £8,950 in rent, but also seen an uplift of £11,250 …meaning his overall return for the year would have been £20,200 (not bad when compared to the Post Office!).

..  but the doom mongers amongst you will say, property values can go down, as they did in 2008, and in 1988 and 1979. Yes, but after 1979 prices had bounced back to their ’79 levels by 1984 and went on to grow an additional 58% in the following four years. Then again, they dropped in 1988 and did take 13 years to reach back to those ’88 figures, but the following six years (between 2001 and 2007) they then increased by an additional 66%. Now, according to the Land Registry, average property values in Gloucestershire currently stand 0.14% below the January 2008 level, and anecdotal evidence suggests that in the nicer parts of Cheltenham, we are well above these sorts of levels. Therefore, all this talk of property crashes is unfounded.

… and what would that £250,000 get you in Cheltenham? A very nice 3 bed semi in Hatherley, a stunning 3 bed apartment within Park House or a luxury 2 bed duplex apartment in the heart of Cheltenham  .. in fact, the world is your oyster. But which Oyster? For good, sound advice as what to buy in Cheltenham , please call me (01242 221188 )  or drop me an email neil.west@belvoir.co.uk