Could your Gloucester property save you from Pension oblivion?

If you were born in the early 1970’s or late 1960’s, if you haven’t started to think about it yet, retirement is closer than you think. In fact the number of years you have left to work is less than the number of years you have worked. The basic state pension is worth £115.95 a week for a single person in 2015/16 (or £6,029 a year) and £231.90 a week for a couple (£12,118 a year) .

As a household, could you live on just over £12k a year?

However, could the property you are living in save you from poverty when you reach retirement? You see, a regular income is vital in retirement, and the bricks and mortar you own in Gloucester could provide a way for you to finance life when you retire.

If you are in your 30’s, instead of saddling yourself with bigger and bigger mortgages, going from your first time buyer flat, to a terraced, to the semi and then the large detached house, you could instead keep your terraced or small semi, turning it into buy a buy to let property, let the rent pay the mortgage and then rely on capital growth to provide you with a lump sum when you sell the property and retire.  One of the biggest plus points of buy to let is what is known as leverage. Let me explain ... say you have a deposit of 25% and the value of the property rises by 3% a year, your gains in fact multiply to 12%.  However, if property prices drop, 'leverage' can be catastrophic, as losses will also be multiplied. Property values have dropped a number of times in the last 50 years, but they always seem to bounce back ... property must be seen as a long term investment.

Let me explain how leverage could work for you. If you had bought a Gloucester house in Spring of 1983 for £30,000, using a 75% mortgage and 25% deposit, (meaning your deposit would be £7,500). Today, that Gloucester property would have risen in value to £193,173, a rise of 543.9%. However, when you look at the growth on just your deposit, the rise is even better ... instead of 543.9%, we see a rise of 2476% (remembering that the mortgage would have been paid off).

However, buy to let is not all about capital growth and in retirement, income is more important than capital growth, as rent is the key to a steady income.

So surely the best strategy is to buy those Gloucester properties with the high rents (when compared to the value of the property). These are called high yield properties in the buy to let world because the monthly return is so much greater. So surely they are the best in Gloucester? Possibly, but the properties that offer these higher yields (in the order of 5% to 6% per year) tend to be in “ not so nice areas “ of  Gloucester, historically they haven’t offered such good capital growth when compared to the city average, and have a higher tendency for void periods and such properties tend to attract tenants that have a greater propensity to be high maintenance.

Therefore, if a high maintenance rental portfolio wasn’t for you, another strategy could be buy a property with relatively smaller rental returns of 4% to 5% per year (i.e. lower yields), but in a more up market area . Properties such as these tend to suffer from less void periods (i.e. when there is no tenant in the property paying you rent) and they historically have had better long term capital growth when compared to the city average.

Every landlord is different and every property is different. All I suggest to you is do your homework. I am always happy to give advise and would be more than happy to talk to you.

Gloucester's £1.6 Billion Mortgage Timebomb

Eight years ago, in the summer of 2007, hardly anyone had heard of the term ‘credit crunch’, but now the expression has entered our daily language and even the Oxford Dictionary.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Gloucester Property market, but in November / December 2007, and for the following seventeen months, Gloucester property values dropped each and every month like the proverbial stone. The Bank of England soon realised in the late summer of 2008 that the British economy was stalling under the continued pressure of the Credit Crunch. Therefore, between October 2008 and March 2009, interest rates dropped six times in six months from 5% to 0.5% to try and stimulate the British economy. 

Thankfully, after a period of stagnation, the Gloucester property market started to recover slowly in 2011, but really took off strongly in late 2013 / early 2014 as property prices started to rocket. However, the heat was taken out of the market in late 2014/early 2015, with the new mortgage lending rules and some uncertainty, when some people had a dose of pre–election nerves.  

With the Conservatives having been re-elected in May, the Gloucester property market regained its composure and in fact, there has been some ferocious competition among mortgage lenders, which has driven mortgage rates to record lows. However these record low interest rates cannot continue forever and they will go up. In the past it was not the first rate rise that was the catalyst for many homeowners and landlords to remortgage but the second or third increase.  The reason being that it was only by the time of the third rate rise, it started to hit the wallet.  However, the issue is, by the time of the second or third rate rise the best fixed rates are no longer available as they had been pulled by the banks months before.

But here is the good news for Gloucester homeowners and landlords, over the last few months a mortgage price war has broken out between lenders, with many slashing the rates on their deals to the lowest they have ever offered.  I read that the well respected UK financial website Moneyfacts said only a few of weeks ago, the average two year fixed rate mortgage has fallen from 3.6% twelve months ago to just under 2.8%.

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to a seven year high in the UK.  So what about Gloucester?  In Gloucester, if you added up everyone’s mortgage, it would total £1.6 billion.  Even more interesting is when we look at Gloucester and split it down into the individual areas of the city,

• GL1 - Central Gloucester £354.3m
• GL2 -   Arlingham, Cambridge, Churcham, Churchdown, Down Hatherley, Elmore, Framilode, Frampton on Severn, Hardwicke, Hempsted, Highnam, Longford, Longlevens, Longney, Maisemore, Minsterworth, Moreton Valence, Norton, Over, Podsmead, Priors Norton, Quedgeley, Rudford, Sandhurst, Saul, Slimbridge, Tibberton, Twigworth, Walham, Waterwells Business Park, Whitminster £883.5m
• GL3- Barnwood, Brockworth, Churchdown, Coopers Hill, Great Witcombe, Hucclecote, Innsworth, Little Witcombe, Witcombe  £427.7m

Since 1971, the average interest rate has been 7.93%, making the current 0.5% very low.  So, if interest rates were to rise by only 2%, according to my research, the 12,337 Gloucester homeowners, who have a variable rate mortgage would, combined, have to pay an approximate additional £18,240,000 a year in mortgage payments.  That means every Gloucester homeowner with a variable rate mortgage, will on average have to pay an additional £1,478 a year or £123 a month in interest payments.

I know over the last couple of posts, I have talked about mortgages a lot however, I am not a mortgage arranger but a letting agent and as regular readers know, I always talk about what I consider to be the most important issues when it comes to the Gloucester Property market and at the moment, in my humble opinion, this is the most important thing!

Crisis in the Cheltenham Property Market ..probably

I don’t know about you, but if you watch Sky News every waking hour or read the newspapers, it always seems we as a Country, Europe or the World seem to lurch from one crisis to another. Another week, another crisis averted. It was only last summer the doommongers were predicting the end of the world over the supposed house price bubble that many believed was developing in the South. Property prices were rising at 20%+ per annum in London, only for things to ease as the property market in the capital showed a controlled slowdown and cooling in activity with price growth easing to a more realistic 8% to 9% per annum. Interestingly, there was no panic when some modest price drops were seen in some of London’s highest priced suburbs.

However, the latest  crisis is the buy to let boom and as George Osborne always likes to be topical, in the July emergency budget, he declared that he will start to scale back, from 2017, the tax relief that those high income tax rate landlords with a mortgage have benefited from. The Daily Mail ran headlines stating it was the end of the private landlord; predicting many landlords will give up on buy to let altogether and we will be inundated with rental properties up for sale as landlords feel squeezed from the market.

Even the Governor of the Bank of England, recently cautioned that the buy to let property market could destabilise the whole UK property market. He was concerned landlords who bought with high loan to value mortgages could be spooked if there is a property crash, they would panic because of negative equity, sell cheaply, which would worsen house price falls.

End of the world then?   .. this week, yes probably, but next week .. that’s another story!  Before we all go and live like a hermit in the Scottish highlands, let me explain to you my perspective on the whole subject. Two thirds of buy to let properties bought in the last eight years have been bought mortgage free – so they won’t be affected by the Chancellors’ tax changes.  Also, something I feel is often overlooked but very important, is the fact that landlords historically have only been able to normally borrow up to 75% of the value of the rental property.  In the last property crash of 2008, property values dropped by the not so insignificant figure of 18.47% in Cheltenham, but even then, when we had the credit crunch and the world’s banking sector was on the brink, no landlord would have been in negative equity in Cheltenham.

I believe we have a case of ‘bad news selling newspapers’ and I believe that buy to let, and the property market as a whole, will carry on relatively intact. It’s true reducing tax relief will hit landlords who pay the higher rate of income tax and this may slightly diminish buy to let as an investment vehicle but I doubt people will sell. Many landlords have been lazy with their investments, buying with their heart, not their head. You would never dream of investing in the stock market without doing your homework and talking to people in the know. If you want to make money in the Cheltenham property market as a buy to let landlord, it’s all about having the right property and as you grow, the right portfolio mix to offer a balanced investment that will give you both yield and capital growth.

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 

Bricks and Mortar

The Land Registry have released their latest set of figures for the Cheltenham Property market. It makes interesting reading, as average property values in Cheltenham rose by 0.4% in May. This leaves average property values 4.5% higher than 12 months ago, meaning the annual rate of growth in the town fell to its lowest level since April 2014. When we compare Cheltenham against the regional picture, South West property values fell by 0.6%, leaving them 1.1% higher than a year ago. Obviously this is a far cry from the price rises we were experiencing in Cheltenham throughout 2014. At one point (December 2014 to be exact) property values were rising by 6.7% a year. All the same, even with the tempering of the Cheltenham property values in 2015, property values are still higher. This is good news for local homeowners who had been affected by the downturn after 2007 and still find themselves in negative equity. 

However, the thing that concerns me is that the average number of properties changing hands (ie selling) has dropped substantially over the last 12 months in the town. In April 2014, 233 properties sold in Cheltenham but in April 2015, that figure dropped to 126.  I have been in the Cheltenham property market for quite a while now and the one thing I have noticed over the last few years has been the subtle change in the traditional seasonality of the Cheltenham property market. It has been particularly noticeable this year in that the normal post Easter flood of properties coming onto the market was not seen. This has made an imbalance between supply and demand, with less houses coming onto the market there is simply not as much choice of properties to buy in Cheltenham and with the population of Cheltenham ever increasing, this will generally strengthen house price growth for the foreseeable future.

So what does all this mean for Cheltenham landlords or those considering dipping their toe into the buy to let market for the first time? For many people, buy to let looks a good investment, providing landlords with a decent income at a time of low interest rates and stock market unpredictability. However, if you are thinking of investing in bricks and mortar in Cheltenham, it is important to do things correctly. As an investment to provide you with income, for those with enough savings to raise a big deposit, buy to let looks particularly good, especially compared to low savings rates and stock market yo-yo’s. I must also remind readers, landlords have two opportunities to make money from property, not only is there the rent (income), but with the property market bouncing back over the last few years, property value increases has spurred on more investors to buy property in the hope of its value continuing to rise.

Savvy landlords with decent deposits can fix their mortgages at just over 3% for five years, making many deals stack up. Nevertheless, low rates cannot stay low forever, because one day they must rise and you need to know your property can stand that test. I saw some landlords struggling in the mid noughties, when interest rates rose from 3.5% in July 2003 to 5.75% in July 2007. That might not sound a lot, but that was the difference of making a £100 a month profit in 2003 to having to make up a shortfall in the mortgage payments of £100 per month in 2007.

Its true many landlords were thrown a life raft when the base rate dropped to 0.5% in March 2009. Whilst interest rates have remained there since, mark my words, they will rise again in the future. However, even with the potential for costs to rise, demand for decent rental properties remains high as there are ever more tenants in the market, driving up demand and thus rents. The British love of bricks and mortar plus improving mortgage deals also add up to fuel the buoyant Cheltenham property market.

If you are planning on investing in the Cheltenham property market, or just want to know more, you can contact me on 01242 221188 or neil.west@belvoir.co.uk 

Are ‘would be’ Gloucester homeowners warming to the idea of renting?

I was reading a report the other day produced by the Halifax, about the UK property market and why more and more of the younger generation seem to be renting rather than buying. I find it fascinating that over the last ten years, the British obsession of buying a house almost as soon as you left school, and the fact that if you rented you were seen as a second class citizen, has turned on its head to a point where the hopes and dreams to own a nice home will be replaced by the ambition simply to live in one.

In the latter half of the 20th Century, you left school, got a job, bought a small house and kept buying and selling property, constantly upgrading until eventually they carried you out in a box. However, the perceived shame and stigma of renting is no longer the case, as it seems that the British are now beginning to accept a lifetime of renting. This is a very important consideration for both Gloucester homeowners and Gloucester landlords as it will transform the way the Gloucester property ladder looks in the future and I might ask whether or not it will exist at all for some people? The make up of households is one important factor, especially in the Gloucester property market. The normal stereotypical married couple, two kids and dog of the 1970’s and 80’s has changed. More and more we have the need for larger houses where two families come together after divorces (+ kids) and need a property to house everyone through to an increase in the number of one person households.

Looking at the data for Gloucester, of the 8,012 private rental properties in the Gloucester City Council area, 31.95% of those rented properties are one person households (2,560 properties). However, when we compare the number of one person Gloucester households who have bought their own property with a mortgage (ie therefore they are still in work), of the 33,858 owner occupied households in the area, only 3,324 of those properties are a one person household (ie 9.82%). Compared to a decade ago, this explosion in demand for decent high quality rental properties that one person households require has not been met with an increase in supply of such properties. More and more I believe Gloucester landlords need to consider this change in the make up of Gloucester households, as I believe this could be an opportunity. As an aside, another interesting stat that raised an eyebrow was that 16.1% of those 8,012 rental properties (1,289 properties) are lone parents households as well. Again, another possible opportunity that Gloucester landlords might want to consider in their future investment plans.

It is true that the Governments introduction in 2013 of the Help to Buy scheme, where first time buyers only needed a 5% deposit, changed the perception of peoples’ ability to buy without having to save ten’s of thousands of pounds for a deposit. However, it might surprise you, 95% mortgages were re-introduced within six months of the Credit Crunch in late 2009, so again it comes down to people’s own perception. Many youngsters think they won’t get a mortgage, so don’t even bother trying.

Coming back to the deposit, it’s still a fact that once you start renting it becomes that much harder to save for a deposit, regardless of the size. Interestingly, 7 out of 8 renters polled by the Halifax (86% to be exact) refuse to sacrifice the quality of accommodation they currently live in to reduce the amount of rent they pay in order to save for a deposit. This is the crux and the real reason why people aren’t buying but renting... and why demand for renting will continue to grow in the future (ie good news for landlords). 

Gloucester tenants can upgrade the quality and size of the property they live in for a minimal rent increase. The average rent of a two bed property in Gloucester is £569pm, a three bed £184pm more at £753pm,  If you had to make that jump when buying, the monthly mortgage payments would be stratospherically more than that! Without any social pressure and better quality rental properties compared to a decade ago, we will become a nation of renters within the next generation, as the UK is becoming more like Europe, where renting is ‘the norm’.

Who is going to supply all these properties to rent? Landlords! Whether you are an existing landlord looking to grow your portfolio or looking to become a ‘first time landlord’, my thoughts are take advice from as many people as possible. However, as the majority of landlords buy their buy to let properties in the same town they live, you will need specific advice about Gloucester. I can help you with this and can be contacted on 01452 387334 or neil.west@belvoir.co.uk.

Why are less Cheltenham people moving house?

During my school years, my parents seemed to move every other year (or it seemed that way). In reality, looking back at the house moves, we actually moved three times before I left home. From research I have carried out it shows things have changed considerably in Cheltenham over the last few decades, and interestingly, the trend is getting worse ... for the removal van people at any rate!

In Cheltenham, there are 51,251 properties. However, after we remove the 6,261 council houses, 10,990 privately rented houses and 543 houses where the occupants live rent free, that leaves us with 33,457 owned properties (be that 100% outright, with a mortgage or shared ownership). This means 65.3% of the properties in Cheltenham are occupied by the owner (the national average is interestingly 64.2%) but the number of people who have sold and moved house in Cheltenham, over the last 12 months, has only been 2,787. This means on these figures, the homeowners of Cheltenham are only moving on average every 12 years.

These are the reasons. Firstly, the cost of moving house has risen over the last twenty years. 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 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 2002 to be exact) for property values to double to today’s levels.

This change to a relatively low inflation Cheltenham property market (i.e. Cheltenham 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. Cheltenham homeowners 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 Cheltenham buy to let landlords? Well for the same reasons existing Cheltenham homeowners aren't moving, less ‘twenty something’s’ are buying their first home as well. Cheltenham 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 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 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), 21.4% of Cheltenham 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? For advice and opinion on the Cheltenham Buy To let property market, please contact me on neil.west@belvoir.co.uk or 01242 221188 

To Let on Lease - 25 apartments / mews houses

Belvoir are delighted to offer to let as a whole 25 residential units in Gloucester . A stone's throw from the docks  and recently refurbished . 

They would be ideal  as serviced apartments or to let on individual ASTs .

       http://www.rightmove.co.uk/commercial-property-to-let/property-53091968.html

Long lease - 10 years plus, FRI Lease , The rent for the whole 25 is negotiable but would be around £90,000 to £100,000 PA , depending on the agreed terms of the lease . 

I think that let on ASTs , should bring in around £140,000 pa ( less voids and costs). If you want to find out more , get in touch with me on 01452 387334 or neil.west@belvoir.co.uk 

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.  

Bungalow - Cheltenham Great rental property

I've just spotted this 2 bed bungalow for sale with Mack Residential. Its on the market for £165,000 and should let for around £ 725 . That's a yield of  5.2 % . Not great I hear you say. Well not bad I say. Bungalows come up for rent very rarely and let very quickly, There are 7 availble to rent in Cheltenham as I type and all are on the market for more than £725

                            http://www.zoopla.co.uk/for-sale/details/37227405

If you want a relative safe rental, then this could be the one for you. Contact Mack Residential for a viewing. If you would like any advice regarding the buy to let market in Cheltenham or Gloucester, please get in touch . neil.west@belvoir.co.uk 

Cheltenham Property Market – Post Election Blues?

With the election now over, average wages are beginning to grow faster than inflation. This is good news for the Cheltenham 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 Cheltenham giving buyers some extra negotiating power. 

At the last election in May 2010, there were 1,108 properties for sale in Cheltenham and by October 2010, this had risen to 1,377, an impressive rise of 24% 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 election, it is important to consider what the uncertainty in April did to the Cheltenham property market. I mentioned a few weeks ago that property values (ie what properties were actually selling for) had remained static in March 2015. Now new data has been released from Rightmove about April’s asking prices of property in Cheltenham. 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 1% (April is normally one of the best months of the year for house price growth). 

I am sure our local MP, Alex Chalk, would agree that the biggest issue is the lack of new properties being built in Cheltenham. The Conservative manifesto pledged to build 200,000 discounted starter homes for first-time buyers in the next five years. For Cheltenham to gets its share, that would mean around 100 such properties being built in Cheltenham each year for the next five years, not much when you consider there are 50,929 properties in Cheltenham.

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, it remain on the ‘to do list’ but won’t get the recognition it deserves. Until another political party gets back into power, nothing will seismically change in the property market, thus demand for housing will continue to outstrip supply, meaning property values will increase (good news for landlords). However, as rents tend to go up and down with tenant wages, in the long term, rents are still only 1.56% higher than they were in 2008 (good news for tenants)... with renting everyone wins! 

Is the Gloucester Property Market in crisis?

Since the 1960’s more people have owned their own home than rented but for many young Gloucester people, the dream of buying their own home is dying...or is it? Since the turn of the Millennium, in Gloucester (as in the rest of the country) there has been a significant change in the proportion of people who own their own home in Gloucester. In 2001, 74.6% of homes in Gloucester were owner occupied, today the figure is 67.2%, a significant decline in such a short time. Buy to let landlords can find tenants because young people say they cannot afford a deposit to buy unless they inherit money or are given a loan from their relatives.

In Gloucester, only 46.5% of 25 to 34 year olds have a mortgage. When you compare Gloucester against the national average of 35.93%, it just shows how different parts of the country have different housing markets. However, the really interesting fact is this ...Roll the clock back to 1991 and nationally, 67% of 25 to 34 year olds had a mortgage. After WW2, the supply of properties being built kept up with demand as millions of council homes were built (the most being built in 1950s, surprisingly under Tory Governments!). Also private house building increased in the 1950’s, but especially in the 1960’s and 1970’s, and as the country got more prosperous it meant that by 1971, there were more home owners than renters.

However, since the 1970’s, the population has grown but the number of new properties being built hasn’t kept up at the same rate, the result is that there have been huge rises of property prices in the early ‘70s, the late 80s and more recently between 1999 and 2004. Interestingly, since the early 1970’s, out of the 34 richest countries in the world, the UK has seen highest property prices rises.

95% mortgages have been available to first time buyers since late 2009, but with property prices rising by 199.36% since the early Spring of 1995 in Gloucester, as property prices have been rising and first time buyers have been saving, the amount they have to save is continually rising at the same time. The stress on saving even for that kind of deposit, coupled with the new stricter mortgage rules introduced in 2014, means that most 20/30 something’s in Gloucester are renting instead of buying.

The issue quite simply comes back down to a lack of new homes being built. In Gloucester, only 459 properties a year are being built whilst the population is rising by 1,176 a year. The supply of new homes has been limited by planning laws, local councils not having the money to build council houses, hard hitting green belt limitations, and our old friend NIMBY’ism. With a rising population and net migration, especially from the EU, the mismatch between demand and supply is why we have the problem. Until politicians have the backbone to realise that the country needs a lot more decent homes built, the problem will just get worse. In the meantime, demand for rental property will continue to grow because people need a roof over their head at the end of the day.

574% Return for Cheltenham Buy To Let

      574% Return for Cheltenham Buy To Let landlords since 2000

Buy to let is essentially different from investing in stocks and shares or putting money in the Building Society. Whilst these other investments (Building Society , Stocks and Shares etc) are passive i.e. once the money has been invested it you leave it alone, with buy to let, things are more hands on, in fact it’s almost a business. One thing the landlords I speak to say is the fact that they like buy to let because it is both an investment as well as a business. It is this factor that attracts many of my landlords – they are making their own decisions rather than entrusting them to others (such as City Whiz Kids in London playing roulette with their Pension Pot).

So if you are investing in the Cheltenham property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth, also known as capital appreciation, this has been strong in recent times in Cheltenham, but the value of property can go down as well as up just like shares. Rental income is what the tenant pays you - hopefully this will grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return.

I was talking to a landlord who bought a flat in the Tewkesbury Road area of Cheltenham. He bought a very pleasant studio flat in 2000 for £27,500. It sold again in February just gone for £67,000, a rise of 143.63% in just over 14 years – a compound annual return of 6.57%.

However, the real returns are for those Cheltenham landlords who borrowed money to purchase their buy to let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £27,500 purchase price of the Tewkesbury Road studio flat on an interest only 75% mortgage, he would have only needed to invest £6,875 (as his 25% deposit... borrowing the remaining £20,625), but his £6,875 would be worth today, £46,375 (£67,000 less £20,625 interest only mortgage)... a rise of 574.54% - a compound annual return of 14.61%... and I haven’t even mentioned the rent he would have received in those 14 years!

This demonstrates how the Cheltenham buy to let market has not only provided very strong returns for average investors since 2000 but how it has permitted a group of motivated buy to let Cheltenham landlords to become particularly wealthy. In fact, if this landlord had continued to re-mortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties (albeit with larger mortgages but greater future potential).

As my article mentioned a few weeks ago, more and more Cheltenham people may be giving up on owning their own home and are instead accepting long term renting whilst buy to let lending continues to grow from strength to strength. If you want to know what (and would not) make a decent property to buy in Cheltenham for buy to let, then please contact me on neil.west@belvoir.co.uk.