Your Pension could now buy a Buy to Let property in Grantham

In a recent article, I mentioned that pension rules changed this April. It certainly created a few emails, with people asking questions about it. Therefore, this week, I want to look a little deeper into the subject of your pension and the Grantham property market. George Osbourne, in last years’ Budget, announced pension reforms that come into effect this April, which will give people with pensions unprecedented access to their pension pot and the freedom to look for alternatives. In a nutshell, after the 6^th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish. Until now, you were allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.

However, my readers always know that I like to tell it ‘as it is’. There are always two sides to a story, good and bad. Let me tell you the bad news first. There are some hefty tax implications by taking money from your pension pot. As before, as per the old rules, the first 25% can still be withdrawn from the pension pot tax free but, here is the sting in the tail, if you take more than a quarter of your pot (25%), anything above that initial 25% level will be taxed as income. So if you took the whole lot out, the first 25% will be tax free but the remaining 75% will be taxed at your income tax rate of 20%, 40% (or even 45% if you earn over £150,000 a year) .

.. and now the good news!

Under the old scheme, if you bought an annuity, when you died your annuity normally died as well. You would have no asset to pass on to your family. Also, the returns from pensions are awful at the moment. The best rates according to Hargreaves and Lansdown (big wigs in the City) state if you were 55 years old, the best rate you would get on your annuity pension would be 4.4% fixed for life (so it would never go up) or 2.2% but the payment would go up with inflation.  The sort of rates (also known as yields in the property investing game) being achieved in Grantham are in the order of 4% to 7%. 

The other aspect of property investment is how the fact property values have risen consistently over the last 50 years.  According to the Office of National Statistics, the life expectancy of a 65 year old male in Grantham is 18 years and 9 months (its only 17  years 4 months in Lincoln.  If we roll the clock back 18 years 9 months to  July 1996, property values in Grantham have risen by 151.9% to today .. you wouldn’t have had that with your pension!   But this is the biggest win, even by taking a hit in income tax now,  by buying a property, you buy an asset that you can pass on to your family when you die.... (or the cats home if they aren’t nice to you!).

So where next? It totally depends which strategy you are going to look at, one strategy is to look to achieve relatively small rental returns (ie low yields) in an up market area which has decent capital growth or, alternatively, another strategy is to buy properties in not so good areas known to produce a high returns (ie high yields) but low capital growth (ie how much the value of the property goes up). Now, I am not financial advisor, so cannot offer financial advice on what the best thing for you with your pension is. However, I can share my knowledge and experience of the Grantham property market, what to buy, what not to buy and where to buy etc etc.  My thoughts on the Grantham Property market can always be found on the Grantham Property Blog 

“The way it works in Grantham is this, you have to rent where you want to live, or buy where you don’t want to live,”

I had this really interesting chat with one on my tenants the other day, on renewal of their tenancy agreement. They are a lovely couple , early thirties and I know they have decent jobs in Grantham. They have been tenants of ours for quite a while, so I know them quite well.  We got talking and I enquired if they ever thought of buying a property for themselves, to which they replied back with the title of this article. It made me think and so I did some more research into the subject wich I want to share with you.

After the end of the Second World War, just over a quarter of the UK population owned their own home, the rest rented from private landlords or the local Council. If someone told you in the 1970’s and 1980’s that they rented, they were considered a second class citizen. Everyone wanted to own their own home .. it was the done thing.   We think that home ownership will inevitably happen, but it won't. 

It all changed in the 1970’s, when two things happened. Firstly, the number of people who owned their own home broke through the 50% barrier in 1971 and by 1981 it was at 57%. Tied in with that, the average house prices in Grantham were doubling at one point every four years in the 1970’s so property and profit started to feed off each other.

To put that growth in context, if we were to look at the last 85 years in Grantham, in 1930, the average Grantham property was worth £313. It took 16 years for Grantham property values to double, rising to £774 by 1946. Another 15 years and the average Grantham property doubled again to £1,469 in 1961. The next doubling only took 10 years, as by 1971 the average Grantham property had reached £2,987 in value.

It was (as mentioned above) the 1970’s when things really took off, as by 1975 (ie only four years) they had doubled to £6,252 and they doubled again to £12,515 by 1980. It took another eight years for values to double again, as an average Grantham property reached £26,177 in 1988. Twelve years had to pass until the doubled again in 2000 (£53,800) and just six years to double again by 2006, when they reached £108,629  Where are we today? The average property value in Grantham currently stands at £148,400.

We could blame Maggie Thatcher for making home ownership the ultimate goal, but what we now need to consider is that the country is turning on its head and we need to, as a Country,  love renting again. Some blame the banks, but obtaining a 95% mortgage is hard work, but nowhere near impossible. A typical Grantham first time buyer would only need to save £3,500 for a deposit and fees and they could buy a very decent property. For example, you could a property in Cherry Orchard in Grantham, and it would be cheaper each month in mortgage payments than renting.

People might say on the surveys they want to buy, when it comes down to it. If you have been living in a top of the range large property in Barrowby Gate  , but the bank will only lend you enough to buy a smaller property in Cherry Orchard, what would you do? Don’t get me wrong, Cherry Orchard has really pulled its socks up over the last ten years, but it isn’t Barrowby Gate, is it? Again, if you were a twenty something, what would you do? Look again at the title of the post ... “The way it works is, you have to rent where you want to live, or buy where you don’t want to live,” 

With tenant demand only going in one direction, that is probably why more and more people are getting into buy to let in Grantham. With the new rules on pensions and the ability to use them to buy residential rental properties from April onwards, this could be the time for you to buy a rental property. You must take advice on your pension from a Independent Financial Advisor (there are plenty in Grantham) and you must take advice from people who know what to buy (and not to buy) in Grantham to ensure you get the best from your investment. One place for such advice is the Grantham Property Blog

Are Grantham landlords worse than Politician’s and double glazing salesmen?

I was having an interesting chat the other day with a couple of solicitors at a Grantham business networking event, when the subject of a lack of property for first time buyers came into the conversation.  I followed the chat up with an email with my findings, findings which I would like to share with you today. 

At the time of the last census in 2011, there are 3,401,675 properties in England that were privately rented, of which it is estimated, were owned by over 1.25 million private landlords. The rapid growth of buy-to-let is hugely controversial, especially as only ten years before that, there were only 1,798,864 properties under private renting in England. Buy to let landlords have been held responsible for forcing up property prices and preventing our younger generations from being able to buy. There is also growing resentment toward the billions of pounds in tax relief (estimated to be nearly £10 billion) landlords claim on their mortgage interest -tax relief not available to homeowners.

They may be asset rich thanks to recently rising property values, but let us not make the landlords the bogiemen they could easily be called. Despite all these benefits enjoyed by private landlords, let us not forget the good they have done, especially in Grantham.

Property values today in Grantham are still 11.7% below the 2007 property boom levels (2007 being the peak of last property boom before everything dropped in 2008/9), yet inflation has risen by 26% in the same time frame, so in real terms, properties today are 37.7% CHEAPER than they were in 2007. Just think how low they would be without landlords buying all those rental properties in the city. Interest rates are at an all time low and first time buyers only need to save a £3,500 deposit to secure a lovely 2 bed terraced in the Grantley Street area with a 95% mortgage. Forget what the papers say, first time buyers can borrow money relatively easily on a 95% mortgage and nine times out of ten, it’s cheaper to buy than rent. So why aren’t people buying?

The number of people choosing to rent, either for lifestyle or economic reasons, has grown over the last 15 years. I also believe they will continue to grow for some time to come (as does every report on the subject). In fact I would go as far to predict the number of rental properties in Grantham will have risen from the 3,132 properties recorded in 2011 to £4,350 by 2021. Sound fanciful? Well in 2001, there were only 1,496 privately rented properties in Grantham.

It is a fact that we as a Country are more and more turning into a European model when it comes to homeownership, where the norm is renting for the first ten years, as opposed to the norm from the 1960’s to 1990’s, where first time buyers were encouraged to buy as soon as they left school and got a job. 

Tenants, in particular, will also feel the benefit from potential changes in the market. The likelihood of interest rate increases in late 2015, existing economic conditions, combined with the uncertainty of new Government manifestos following the General Election in May will result in low demand for people to buy yet also put a dampening effect on increases in rent. As long as landlords buy the right sort of property, that allows for a reasonable yield, decent capital growth, everyone will be a winner. 

If want a  chat about what would make the best sort  a property that would offer that in Grantham, then please email me on christopher'christopherwatkin.co.uk  or visit my Grantham Property Blog

Keddlestone Road Grantham - nice BTL deal

OOOO.....  like this one on with William H. Brown - its a 2 bed town house at £110,000.

Really nice in side .. look at the photos on the Zoopla link. Dont think it will be on the market long

http://www.zoopla.co.uk/for-sale/details/36547745

Grantham Landlords invest £242 million in the Grantham Property market

East Midlands property asking prices jumped by more than £4,000 to £177,100 in February according to Rightmove, an increase of 2.3% from January and 4.7% higher than a year ago. After the traditionally quiet months of January and February, the property market has started to warm up, but talking to some Grantham Estate Agents, they are reporting their lowest ever stocks of quality property for sale. However, asking prices have no relation to what property sells for (ie their REAL value), is the issue a lack of supply?

Putting aside Grantham’s continual housing supply shortage, (we only built 1,666 properties in the last decade but the population of Grantham grew by 2,121), this is now, according to some people, being exaggerated by an increase in homes being owned by buy to let investors, who tend to be buying a property as part of a long term pension plan and are more likely to keep it for longer than an owner occupier would. I have also seen unwillingness among homeowners looking to move, to put their own property on the market as they can find few suitable properties to make it worth their while going through the whole moving process. 

Talking to some Grantham landlords only last week, I said that I believe this is the new norm in the Grantham property market, and is the consequence of over 35 years of not enough homes being built to meet the escalating growth in household numbers, resulting in a lack of quality homes for sale in many popular areas of Grantham.

When one looks at the historic data, in November 2007 there were 1,017 properties on the market in Grantham compared to today’s 391.  Should we be worried?  Well in October 2010 there were only 483 properties for sale in Grantham but seven months later in May 2011, this had jumped to 913 properties, for it to drop to 361 properties in January 2014. The number of properties on the market is a cyclical thing in Grantham, it always has been and always will be. As we go into the Spring of 2015, the number of new properties coming onto the market will increase ... just as the daffodils will flower. 

So are landlords to blame? Well, on one side of the coin, yes they are. If they buy a property to rent out, that means someone can’t buy it to live in. However, it doesn’t matter if someone wants to live in a property if they can’t afford the deposit and upkeep .. and the youngsters of Grantham still need a roof over their head. So on the other side of the coin, if the Council aren’t building any properties and people can’t afford the large deposit for the mortgage, then Grantham landlords have stepped in and bought property to rent out to them. Grantham landlords have bought 1,636 properties over the last decade (investing approximately £242.8 million buying those Grantham rental properties), meaning there were at the last count, 6,178 Grantham properties being privately rented out to tenants. Grantham tenants are in fact getting a good deal as well, as average rents in Grantham are 4.5% below where they were seven years ago. That sounds like a win-win situation for everyone to me. Stop blaming landlords and start building more properties in Grantham .. that is the only answer. 

In the meantime, the demand from Grantham tenants for Grantham property is only set to rise over the coming years. If you want some advice and opinion on where (or not) to buy, please email on christopher@christopherwatkin.co.uk