Thursday, 27 August 2015

Grantham Landlords love their Bricks and Mortar

The Land Registry have just released their latest set of figures for the Grantham Property market. It makes interesting reading, as average property values in Grantham dropped by 0.2% in May. This leaves average property values 3.1% higher than 12 months ago, meaning the annual rate of growth in the town fell to its lowest level since November 2013. When we compare Grantham against the regional picture, East Midlands property values rose by 0.2%, leaving them 2.9% higher than a year ago. 

Obviously this is a far cry from the price rises we were experiencing in Grantham throughout 2014. At one point (May 2014 to be exact) property values were rising by 7.4% a year. All the same, even with the tempering of the Grantham 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, 68 properties sold in Grantham but in April 2015, that figure dropped to 32.  I have been in the Grantham 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 Grantham 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 Grantham and with the population of Grantham ever increasing, this will generally strengthen house price growth for the foreseeable future.

So what does all this mean for Grantham 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 Grantham, 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 Grantham 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 Grantham property market.

If you are planning on investing in the Grantham property market, or just want to know more, things to consider for a successful buy to let investment, one source of information is the Grantham Property Blog

Thursday, 20 August 2015

The ‘Liquorice Allsorts’ Grantham 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 Grantham have 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 East Midlands region as a whole are 2.9% higher than a year ago.  Compare this to the neighbouring regions of the West Midlands at 3.5% higher and Yorkshire at 1.1%, 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 Grantham 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 Grantham property prices. Therefore, my overall opinion is that Grantham property prices will rise by 5% over 2015 and roughly the same in 2016.

Property investment is a long term business.  Buying the right sort of property is vital. I have recently been speaking with a number of Grantham 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 Grantham, 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 £95,957 and so far in 2015, they have been selling on average in Grantham for £256,717 a rise of 168%
·         Semi -Detached Houses in 2000 were selling on average for £48,844 and so far in 2015, they have been selling on average in Grantham for £142,994, a rise of 193%
·         Terraced Houses in 2000 were selling on average for £43,024 and so far in 2015, they have been selling on average in Grantham for £114,889 a rise of 167%
·         Flats and Apartments in 2000 were selling on average for £39,000 and so far in 2015, they have been selling on average in Grantham for £80,198 a rise of 106%

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 Grantham?”
·         “Is the time right to buy another buy to let property in Grantham and if not Grantham, where?”
·         “Are there any property bargains out there in Grantham to be had?”

Many other Grantham landlords, who are with both us and other  Grantham letting agents, like to pick up the phone or email us to  discuss the Grantham property market, how Grantham compares with its closest rivals (Nottingham, Newark and Bingham), and hopefully answer the three questions above.  I don’t bite, I don’t do hard sell, I will just give you my honest and straight talking opinion and look forward to hearing from you.

Thursday, 13 August 2015

George Osborne – The Grantham landlord’s friend?

Well the last few weeks has been rather hectic as Grantham landlords, some who use us to manage their properties and other landlords who just read our Grantham Property Blog, have been sending me emails or picking the phone up to me about the new rules on buy to let taxation announced in the recent budget. George Osborne confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments, on their buy to let (BTL) properties, would be reduced over the coming years for higher rate income tax payers. The Chancellor said the tax relief that private buy to let landlords (who pay the higher rate of income tax) would change in 2017 from the current 45%/40% and would steadily reduce over the following four years to the existing 20% by 2020.

With 18.8% of residential property in Grantham being privately rented (as there are 3,375 privately rented properties in the town), these changes are potentially something that will not only affect most Grantham landlords, but also the tenants and the wider property market as a whole. The choice of rental properties could drop, especially at the top end of the market which could push up rents.

However, Grantham landlords could protect themselves by reassigning one or more rental properties into a company structure (e.g., a Limited Company, Partnership or Sole Trader) and by doing so, the total tax paid is greatly reduced, because a company only pays tax on the profit. Nonetheless, before everyone goes off setting up companies for their BTL portfolios, it must also be noted, if a sole trader firm is started, stamp duty needs to be paid, yet if the owner is in business with a partner, they could enjoy some stamp duty relief.  The biggest tax variation is Capital Gains Tax (CGT) where the tax bill will be much higher when you come to sell your portfolio. In essence, by going into business with your BTL properties, you will potentially have a modest stamp duty to pay when you start, but you will have a lot less monthly tax to pay, irrespective of the interest rate, but the CGT bill will be much higher when you come to sell ... as you can see, it is not a ‘get out of jail card’. Now it must be remembered, I am not a tax advisor, so you must take advice from a qualified person (more of that later).

Those planning to purchase a BTL property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make. However, I am not that concerned, as the scaremonger reports fail to see the fact that two out of three BTL properties that have been bought since 2007 have been purchased without the support of BTL mortgage. With those two thirds of landlords paying cash for the purchase of their rental properties, that means two thirds of landlords will be totally unaffected by the changes.

So what of the future? The British love their Bricks and Mortar, it’s an asset that they can touch and feel and has a 70 year track record of capital growth that has out stripped inflation. Buy to let will still be attractive to Grantham investors and let me explain why. If you invested £30,000 in Grantham property in September 1987, today it would be worth £132,797. If you had invested the same £30,000 in to the London Stock Market (the FTSE 100 to be exact), it would be only be worth £85,879 today, whilst Inflation would have taken the original £30,000 and pushed it up to £62,345.

It’s true some central London landlords relying solely on the tax breaks rather than high yields may be forced out of the market, but even those landlords could seek to recoup any losses by increasing rents. However, those landlords may leave the market and this could constrict the availability of rented houses even more than it is already, increasing rents and thus pushing yields even higher for landlords and BTL investors still in the market... thus attracting new landlords into the market because of those higher yields.

The reality is, there is too much demand and not enough supply of homes for people to live in in the town. Official figures show the population within the Westminster Parliamentary area in which Grantham lies, is rising by 649 persons per year (i.e., demand rising), but only 405 properties are being built each year (i.e., supply is low). This sets up the Grantham (and UK) property market to continue to create strong and steady returns, irrespective of any tax loophole being there (or not as the case maybe).

If the demand is there, I am happy to organise an informal seminar with a local Grantham accountant one evening, whereby they can show you the options available and what might be best for you. Therefore, if you are interested in attending, please drop me an email and we will be able to get something organised very soon.

Thursday, 6 August 2015

Grantham Landlord’s mortgages top £189 million!

The Brits can’t stop talking about property. The hot topic of discussion at the posh dinner parties of Harlaxton, Barrowby and Manthorpe’s movers and shakers is the subject of the Grantham Property market, but in particular, buy to let. These people 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 sure fire way to make money?  Is it something everyone should be jumping into? Is it a sure fire way to make money? The answer is Yes and No to all those questions! 

Firstly, the government gives tax breaks to landlords, as it allows the mortgage interest payments on a buy to let property to be tax deductible. Also, 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 Grantham terraced house, would mean finding £28,722 for the deposit (as the average Grantham terraced house is currently worth £144,889) 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 1,010 Grantham landlords owing in excess of £189 million in mortgages on those Grantham buy to let properties.  An impressive amount when you consider Grantham only has 0.095% 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 Grantham Property Market without advice? We give bespoke detailed advice to our landlords to enable them to spot trends in the Grantham Property Market before others, enabling them to buy better properties at better prices. For example, did you know that terraced properties are selling for around 15% lower than 12 months ago in Grantham yet detached properties are selling for 23% more (with every other type in between). This means we can advise on which properties will go up in value better (or lose less if property prices drop), we can also advise which have lower voids and which properties have higher maintenance issues.  

Information on the local property market and ability to process it is the strongest asset we can give you. As Lois Horowitz, the famous author says, ”Not having the information you need when you need it leaves you wanting. Not knowing where to look for that information leaves you powerless. In a society where information is king, none of us can afford that”. One place to find information on the Grantham Property Market is the Grantham Property Blog, where you will find many articles just like this.