Wednesday, 21 October 2015

Grantham’s £814 million Mortgage Powder Keg

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 Grantham Property market, but in November / December 2007, and for the following seventeen months, Grantham 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 Grantham property market started to recover slowly in 2012, 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 Grantham 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. Whilst I have no actual figures to back this up, I know an awful lot of long serving bank managers, mortgage arrangers and people in the finance industry, all of whom have told me on previous occasions when interest rates rose (1987, 1992, 1997 and 2003), it wasn’t 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, were in all instances, no longer available as they had been pulled by the banks months before.

But here is the good news for Grantham 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 couple 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 Grantham?  In Grantham, if you added up everyone’s mortgage, it would total £814.3 million.  Even more interesting is when we look at Grantham and split it down into the individual areas of the town,

  • NG31 - Grantham £479.9m
  • NG32 – Grantham villages mainly to the West and North inc. Croxton Kerrial, Sedgebrook  £193.6m
  • NG33 - Grantham villages mainly to the  South and East inc. Castle Bytham, Corby Glen £140.8m 
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 3,548 Grantham homeowners, who have a variable rate mortgage would, combined, have to pay an approximate additional £9,279,600 a year in mortgage payments.  That means every Grantham homeowner with a variable rate mortgage, will on average have to pay an additional £2,616 a year or £218 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 property writer and as regular readers know, I always talk about what I consider to be the most important issues when it comes to the Grantham Property market and at the moment, in my humble opinion, this is the most important thing!

Wednesday, 14 October 2015

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

A couple of weeks ago, I mentioned in this blog about how 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 6,224 homeowners in Grantham, 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 3,127 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 Grantham 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 Grantham 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 Grantham and seriously consider fixing your mortgage rate now.  You didn’t buy your Grantham 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 Grantham 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. Grantham landlords have see their return on investment for their Grantham buy to let property, over the last couple of years, perform very well indeed with Grantham property values rising by 10.55% 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 Grantham! 

Finally though, can I ask all Grantham homeowners and Grantham 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 332 properties for sale in Grantham, Zoopla 193 properties for sale in the town and OnTheMarket 59 properties ... where do you start?

Thursday, 8 October 2015

Edge of Barrowby Gate By to let deal of the week? .. Oh yes

Well, I saw this the other day on Rightmove and thought what a great buy to let deal this would make. Its a three bed semi on Valley Road, just off the Barrowby Gate.

Yes, Ok, you can get a better yield on the likes of Grantley Street and alike, but the sort f tenat that will be attracted to this will tend to stay for years, meaning hardly any voids and the capital growth on these semis has been brilliant over the last 10 to 15 years.

New kitchen, new combi boiler completely refurbed with new carpets etc. 

One for the landlords that want an easy life

On the market with Newton Fallowell for £50 less than £130,000 and she will rent ntil the cows come home at £625 per month .. a yield of 5.7% to 5.9% .. nice.

Look at the internals via the rightmove link .. nice

Crisis in the Grantham 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 soothsayers 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, this month’s 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 Mr Carney, 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. As I mentioned a few weeks ago, 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 17.19% in Grantham, 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 Grantham.

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 Grantham 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.

The Grantham buy to let market still offers good investment opportunities to new and old alike. Those who have bought in the last twelve to eighteen months have reaped the benefit from buying in Grantham, because the town offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 7.69% in the last eighteen months in Grantham, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 3% higher than Q2 2014, which is particularly interesting as they only rose by 1% between Q2 2013 and Q2 2014.

I cannot stress enough the importance of doing your homework.