Is the Grantham Property Market in crisis?

Since the 1960’s more people have owned their own home than rented but, for many young Grantham people, the dream of buying their own home is dying...or is it? Since the turn of the Millennium, in Grantham (as in the rest of the Country) there has been a significant change in the proportion of people who own their own home in Grantham. In 2001, 67.3% of homes in Grantham were owner occupied, today the figure is 62.5%, 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 the Bank of Mum and Dad

In Grantham, only 45.62% of 25 to 34 year olds have a mortgage. When you compare Grantham 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 151.9% since the Summer of 1996 in Grantham, 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 Grantham are renting instead of buying.

The issue quite simply comes back down to a lack of new homes being built. I

n Grantham, only 166 properties a year are being built whilst the population is rising by 204 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 Politian’s have the backbone to realise 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 ......fact.

1497% Return for Grantham Buy To Let landlords since 1999?

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 Passbooks, Stocks and Shares etc) are passive  ie 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 Grantham landlords – they are making their own decisions rather than entrusting them to others (such as City Whiz Kidzs in London playing roulette with their Pension Pot). 

So if you are investing in the Grantham 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 Grantham, but the value of property does go up as well as down just like shares do but the initial purchase price rarely decreases.  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 terraced house in the Earlesfield Lane area of Grantham. He bought a very pleasant 3 bed terraced house in 1999 for £19,600. It sold again in December just gone for £93,000, a rise of 374.48% in just over 15 years – a compound annual return of 10.94%

However, the real returns are for those Grantham 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 £19,600 purchase price of the Earlesfield Lane terraced house on an interest only 75% mortgage, he would have only needed to invest £4,900 (as his 25% deposit... borrowing the remaining £14,700), but his £4,900 would be worth today, £78,300  (£93,000 less £14,700 interest only mortgage)... a rise of 1497.95% - a compound annual return of 20.29%... and I haven’t even mentioned the rent he would have received in those 15 years!

This demonstrates how the Grantham buy to let market has not only provided very strong returns for average investors since 1999 but how it has permitted a group of motivated buy to let Grantham landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage 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 Grantham 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 Grantham for buy to let, then one place for such information would be the Grantham Property Blog.   Link here http://granthampropertyblog.blogspot.co.uk/

Two Speed Grantham Property Market?

Even with the General Election just gone, property values in Grantham are still 1.31%  higher than they were 3 months ago, the diversion and ambiguity of an election typically makes house sellers who need to sell, price their property more realistically (although this only lasts a couple of months). Looking specifically at it from a Grantham landlord’s point of view, the Grantham properties favoured by investors are in short supply in many parts of the town because of a number of factors. One of the factors has been that we seen the number of first time buyers coming to buy their first home increase over the last 12 months in Grantham.  Another factor has been the fact that the banks have been pushing ‘let to buy’ (yes ‘let to buy’ is different to ’buy to let’) to homeowners (more of ‘let to buy’ in an up and coming article). Next, because of the banks, who are chasing low risk landlords with high deposits with very low mortgage rates- and the low risk landlords with high deposits tend to be attracted to the safer modern two and three bed town houses and semis in Grantham.

As I mentioned a few weeks back, the pension rules are changing which means buy to let landlords can use some, or all, of their pension pot to buy a property.  It shouldn’t be forgotten there are tax implications taking more than a quarter of your pension pot out (see the article from a couple of weeks ago) , so whilst many pension pots may not be able fund a suitably big enough tax free lump sum to buy the property outright, for most it will provide enough for the 25% deposit (required by most BTL mortgage providers). It shouldn’t be forgotten landlords that the interest paid on the mortgage is tax deductible against the rent, thus lowering your income tax paid. 

In the last 12 months, I have noticed a particular uplift in interest from ‘50 something’ Grantham people wanting to become landlords for the first time. In Grantham, the highest returns for the lowest investment are at the lower end of the market eg the classic Victorian terraced house . Unfortunately Victorian terraced houses , with two bedrooms are coming to the market in smaller numbers than the larger four bed’s  in  top end sectors of the Grantham property market. When looking at the actual numbers, in the later part of the Summer of 2014 in Grantham, in one month alone 121two bed properties were on the market in Grantham. However, in January this year, a notoriously excellent bumper month for properties coming on to the market, there were only 91 two bed properties on the market in Grantham to choose from. Today, that figure stands at only 96..whilst the number of four and five beds has increased significantly ...  interesting don’t you think? 

At that lower end of the property market in Grantham, (ie where first time buyers and landlord investors compete with each other to buy those smaller properties), I believe throughout 2015, there will be a slow and steady tipping of the scales between supply and demand. In fact, from what i am seeing and hearing, early anecdotal evidence has suggested over the last few months (although we will need to look at figures later in the Spring once we have the data from The Land Registry), we are beginning to see a polarised Grantham property market, where we have high demand but low supply at the bottom end of the property market, yet high supply but lower demand at the top of market .. and that can only mean one thing ... prices will go up quicker on the smaller properties than the larger ones in Grantham, thus narrowing the gap for people looking to move up market!

WHAT WILL GENERAL ELECTION RESULT DO TO THE GRANTHAM PROPERTY MARKET?

After the shock of the Conservatives returning to power with a majority at Westminster, all the potential issues and possible uncertainties of a hung parliament has lifted the cloud from the Grantham property market.  Talking to other Grantham agents, surveyors and solicitors in the area over the last few days, there are signs this has started a new impetus in the Grantham property market after a subdued six months, when an amalgamation of tougher lending conditions, a natural correction after the strong recovery in Grantham property prices in 2014, and political uncertainty ahead of the General Election slowed demand.

Against the back drop of Labour’s election promises of rent controls and three year tenancies, some Grantham buy to let landlords were waiting to see how these new policies would be implemented before they committed themselves to buying more property for their buy to let portfolio. Now that uncertainty has been removed, the long term picture is very positive

So, with all that uncertainty now removed, where next for the Grantham property market?  Well with inflation at zero and with the Money markets happy David Cameron is still at No.10, the Bank of England have no reason to raise interest rates until 2016 at the earliest. As mortgage rates are at their lowest levels since 2010, landlords with large deposits will now be wooed by the mortgage companies in the coming months with low rates.

You see over the past couple of years, Grantham landlords have benefitted from a booming Grantham job market. Unemployment in Grantham area has dropped to 1.9%, as a year ago, 1,503 people were claiming unemployment benefit in the Grantham and Stamford  Parliamentary Constituency compared to today’s 1,012. With more jobs and better pay, as the level of rents is directly linked to tenant’s wages, there has been an increase in the rental prices tenants are willing to pay for good quality Grantham properties.

Some landlords might be nervous about Tory’s plans for the housing market over the next five years in terms of tenant demand for their rental properties. One plan is for Housing Association tenants to have the right to buy their property. These kind of tenants were never in the private rented sector and will actually increase the supply of properties in the housing stock in decades to come. The Government ‘Help to Buy Scheme’ has only helped to buy 159 Grantham (and Stamford) properties since April 2013. Considering 1,557 properties have changed hands in the last year alone in Grantham (and Stamford) , I don’t think it has made a huge difference to our local property market.

The biggest matter, when it comes to tenant demand of rental property going forward, comes from the shift in the mindset and attitudes towards renting itself. Twenty years ago you were seen as a second class citizen if you rented a property. Nowadays it is considered the norm. In Grantham, as in the rest of the UK (apart from Central London), renting continues to offer good value for money for tenants and therefore will continue to grow in this decade .. meaning everyone is a winner.

For more news and views on the Grantham property market .. visit the Grantham Property Blog .. http://granthampropertyblog.blogspot.co.uk/

Rents Paid By Tenants In Grantham On The Rise

With Easter just gone and considering we are a quarter of the way through 2015, I was talking to landlord from Harlaxton the other day about what is happening to the level of rents that are being achieved in the Grantham property market. 

In terms of rents in Grantham, it appears that rents being achieved for new rentals (ie when the tenant moves out and new tenant moves in) have risen in the order of 3% in the last 12 months on top of the range modern properties, yet remained static for older Victorian terraced houses and converted apartments. However, landlords with existing sitting tenants, irrespective of age are not increasing their rents, as most landlords prefer to keep their existing tenant paying the same rent and have the peace of mind that their tenant remains, paying the rent (thus reducing the risk of a void period).

It must be remembered rents dropped by 7.7% over 2008/9, due to oversupply in the rental market in 2009.) A lot of the people who couldn’t sell their property in Grantham in 2008/9 when the Credit Crunch hit in 2008, decided to let their house out instead of selling at a loss. In fact, the number of houses on the market in Grantham dropped by 52.5% between November 2007 and October 2010, a lot of which came on to the rental market in Grantham. However, looking at the longer term though, tenants have had it good  because since the turn of the Millennium, average wages have grown by 46%, but rents outside London have only grown by 36% rental growth over this period.

I told the landlord that there is a lack of new rental properties in Grantham coming on the market, in fact according to the Office of National Statistics, there are only 13 new rental properties are coming to the market each month in Grantham but the population of Grantham is rising by 17 people a month – something will have to give soon! This is compounded by the fact a number of landlords are looking to sell their rental properties in the coming months, as the property market in Grantham has improved. This further compounded as tenants in existing rental properties appear to be staying in properties for longer periods of time.

Looking at the rents charged in Grantham, historic evidence in the UK suggests private market rents have moved in line with general inflation. Government figures only go back as far as the year 2000, but looking at other countries with similar housing markets (America, Australia, Ireland and Holland) the fact is rents paid by tenants tend to rise in line or just ahead of inflation. 

As short term wage growth in Grantham has eased off recently, rising by only 1.3% in the last 12 months, taking average salaries in Grantham to £26,541pa, with the tax breaks announced by The Chancellor in the Budget, I believe, even though rents have kept pace with inflation in the past, renting as an option has become more affordable, and is increasingly seen as a lifestyle choice. With returning economic growth and expected increases in the rate of growth of wages, above inflation rental growth could rise. 

If you want a chat about the local Grantham property market, email me on christopher@christopherwatkin.co.uk