What is really happening in the Grantham Property Market?

Well its been a few months since Brexit and as we settle into the Autumn with Great British Bake Off, Strictly and the Football season ... the newspapers are returning to their mixed messages of good news, bad news and indifferent news about the Brit’s favourite subject after the weather ... the property market.

The thing is the UK does not have one housing market. Instead, it is a patchwork of mini property markets all performing in a different way. At one end of scale is Kensington and Chelsea, which has seen average prices drop in the last twelve months by 6.2% whilst in our East Midlands region, house prices are 7.9% higher. But what about Grantham?

Property prices in Grantham are 6.8% higher than a year ago

and 2.2% higher than last month.

So what does this mean for Grantham landlords and homeowners? Not that much unless you are buying or selling in reality. Most sellers are buyers anyway, so if the one you are buying has gone up, yours has gone up.  Everything is relative and what I would say is, if you look hard enough, there are even in this market, there are still some bargains to be had in Grantham.

However, the most important question you should be asking though is not only is what happening to property prices, but exactly which price band is selling? I like to keep an eye on the property market in Grantham on a daily basis because it enables me to give the best advice and opinion on what (or not) to buy in Grantham.

If you look at Grantham and split the property market into four equalled sized price bands. Each price band would have around 25% of the property in Grantham, from the lowest in value band (the bottom 25%) all the way through to the highest 25% band (in terms of value).

• ·       Nil to £100k - 94 properties for sale and 39 sold (stc) i.e. 29% sold
• ·       £100k to £140k  - 99 properties for sale and 73 sold (stc) i.e. 42% sold
• ·       £140k to £200k - 96 properties for sale and 68 sold (stc) i.e. 41% sold           
• ·       £200k +  - 01 properties for sale and 58 sold (stc) i.e. 36% sold

Fascinating don’t you think that it is the middle Grantham market that is doing the best?

The next nine months’ activity will be crucial in understanding which way the market will go this year after Brexit ... but, Brexit or no Brexit, people will always need a roof over their head and that is why the property market has ridden the storms of oil crisis’ in the 1970’s, the 1980’s depression, Black Monday in the 1990’s, and latterly the credit crunch together with the various house price crashes of 1973, 1987 and 2008.

And why? Because of Britain’s chronic lack of housing will prop up house prices and prevent a post spike crash. ... there is always a silver lining when it comes to the property market!

The 4,000 Grantham Savers batten down the hatches with low interest rates set to continue into the 2020’s

You might ask, what has the plight of the Grantham savers to do with the Grantham Property Market … everything in fact.  Read the newspapers, and every financial wizard is stating that with the decision of the Bank of England’s Monetary Policy Committee in early August to cut the Bank of England base rate to an all time low of 0.25 per cent, savers should prepare themselves for interest rates to stay low well into the early 2020’s.

... And this isn’t some made up story to capture the headlines of newspaper editors. The yield (posh word for interest rate or return) on 10-year Government bonds is currently 0.61 per cent. This indicates that the money markets believe that the Bank of England’s base rate will, on average over the next ten years, be below the 0.61% rate they are buying the 10 year bonds at (because they would loose money if the average was over 0.61%). UK Interest rates are going to be low for a long time.

For those who have saved throughout their working lives and are looking for ways to maximise their savings, tying their money into property could prove advantageous. You see as a saver, I did a search of the internet and the best savings rate I could find was a 5 year fixed rate at 2.5% a year with Weatherbys Bank. Your £200,000 nest egg would earn you £5,000 a year – not much. However, on the other side of the fence, growth in Grantham house prices and princely buy to let yields have made property investment in Grantham an appealing option for many. According to my research, the...

Average Yield over the last five years for

Grantham Buy to let property has been 5.3% a year

… and average Property Values in over the same period have risen by 21.1%.

Using these averages, the Grantham landlord’s property would be worth £242,200 and they would have received a total of £53,000 in rent – making the total return £295,200. Meanwhile, whilst our 4,000 Grantham Saver’s, using the average savings rates for the last 5 years, even if they had reinvested the interest, their £200,000 would only be £221,184.

There are risks as well as benefits to buy to let though. As my blog readers know, I tell it like it is and investing in buy to let means locking up capital in a property that may fall in value. Another option would be stock market income based investment funds, which are paying around 5%, especially if put your nest egg into a tax free Stocks and Shares ISA. Although you can only add £15,240 a year into an ISA, but you would also have the ability to sell up quickly if you want ... but one last thought…

The other side of the coin is that you cannot buy an unloved ‘stock market income based investment fund’ and set about renovating it and adding value yourself. The investment fund isn’t something that you can touch and feel, isn’t something tangible, isn’t something physical, isn’t something concrete, it isn’t bricks and mortar ... and that is why my fellow Grantham homeowners and Grantham landlords is why the love affair of the British and Property will continue.

What will the 0.25% Interest Rate do to the Grantham Property Market?

I had an interesting chat with a Manthorpe landlord who owns a few properties in the town. He popped his head in to my office as his wife was shopping in the area (and let’s be honest talking about the Grantham Property Market is a lot more interesting than clothes shopping!). We had never spoken before (because he uses another agent in the town to manage his Grantham properties) yet after reading my blog on the Grantham Property Market for awhile, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Grantham property market and I would also like to share these thoughts with you……

Well it’s been a few weeks now since interest rates were cut to 0.25% by the Bank of England as the Bank believed Brexit could lead to a materially lower path of growth for the UK, especially for the manufacturing and construction industries. You see for the country as a whole, the manufacturing and construction industries are still performing well below the pre credit crunch levels of 2008/09, so the British economy remains highly susceptible to an economic shock. This is especially important in Grantham, because even though we have had a number of local success stories in manufacturing and construction, a large number of people are employed in these sectors. In Grantham, of the 20,683 people who have a job, 2,885 are in the manufacturing industry and 1,515 in Construction meaning

13.9% of Grantham workers are employed in the Manufacturing

sector and 7.3% of Grantham workers are in Construction

The other sector of the economy the Bank is worried about, and an equally important one to the Grantham economy, is the Financial Services industry. Financial Services in Grantham employ 493 people, making up 2.4% of the Grantham working population.

Together with a cut in interest rates, the Bank also announced an increase in the quantity of money via a new programme of Quantitative Easing to buy £70bn of Government and Private bonds. Now that won’t do much to the Grantham property market directly, but another measure also included in the recent announcement was £100bn of new funding to banks. This extra £100bn will help the High St banks pass on the base rate cut to people and businesses, meaning the banks will have lots of cheap money to lend for mortgages .. which will have a huge effect on the Grantham property market (as that £100bn would be enough to buy half a million homes in the UK).

It will take until early in the New Year to find out the real direction of the Grantham property market and the effects of Brexit on the economy as a whole, the subsequent recent interest rate cuts and the availability of cheap mortgages. However, something bigger than Brexit and interest rates is the inherent undersupply of housing (something I have spoken about many times in my blog and the specific affect on Grantham). The severe undersupply means that Grantham property prices are likely to increase further in the medium to long term, even if there is a dip in the short term. This only confirms what every homeowner and landlord has known for decades .. investing in property is a long term project and as an investment vehicle, it will continue to outstrip other forms of investment due to the high demand for a roof over people’s heads and the low supply of new properties being built.