Sound the Alarms! New legislation is imminent.....probably!

Hope everyone is enjoying the late summer sun, please see below the latest update on some probable further legislation changes to be aware of..

New laws relating to ‘Smoke and Carbon Monoxide’ (CO) alarm provision are likely to come into effect from 1st October 2015.




You may have read about proposed changes to legislation which If they are approved, private sector landlords will be required to have at least one smoke alarm installed on every storey of their properties and a carbon monoxide alarm in any room containing a solid fuel burning appliance (e.g. a coal fire, wood burning stove). After that, the landlord must make sure the alarms are in working order at the start of each new tenancy. Until yesterday, like most industry professionals, we had understood that the requirement could be implemented at commencement (or renewal) of Assured Shorthold Tenancies.

However, we received formal guidance yesterday indicating that the expectation is for the law to apply to all tenancies (including existing tenancies) with immediate effect on 1st October 2015 with no grace period being given. To complicate matters further, it has today been reported by Property Industry Eye that the Lords has rejected the proposed legislation.

http://www.propertyindustryeye.com/chaos-as-lords.../

I thought it was important to bring everyone up to date with the current positon. The ambiguity is deeply regrettable, but should the new legislation be passed with no grace period (which seems possible) there will be a need to proceed as quickly as possible.

For further information call the office on 01782 262880/453001, email stokeontrent@martinco.com or pop in to either of our offices, 44 Piccadilly, Hanley or 57 Merrial Street, Newcastle under Lyme or follow this link explanatory booklet for landlords 

 

Crisis in the Stoke on Trent 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 18.69% in Stoke on Trent, 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 Stoke on Trent.

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 Stoke on Trent 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 Stoke on Trent 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 Stoke on Trent, because the town offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 0.24% in the last eighteen months in Stoke on Trent, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 4.6% higher than Q2 2014, and they rose by 4.2% between Q2 2013 and Q2 2014.

I cannot stress enough the importance of doing your homework, we are always happy to give an impartial view on any proposed buy to let purchase or just to give advice on the local property market.

My concerns about the Stoke on Trent Property market

I am genuinely concerned about the Stoke on Trent property market, but in a way that might surprise you.  Rightmove announced that average ‘asking prices’ fell last month by 0.5% in the West Midlands, leaving them 3.2% higher than a year ago.  Whilst it could be said that monthly change is very modest, in the same period a year ago, we saw a slight monthly rise of 0.2% in the West Midlands, which is more the norm given the onset of schools breaking up and everyone going on holiday.

Looking at all the data on the Stoke on Trent property market; putting aside the need for more houses to be built in the next decade to balance out the increase in population (helped in part by inward European migration) but not matched by a similar increase in housing being built; my research shows there is a widening gap between what property buyers want and what is available to buy.  In a nutshell, many more buyers are looking for the smaller one and two bed properties (the typical semi detached and smaller terraced houses/apartments), whilst there is an oversupply of the four and five bed properties, which are the typical large detached properties available. 

Demand for smaller properties comes from both first time buyers and the growing number of buy to let landlords, where it is more cost effective and efficient to buy smaller properties to let out compared to larger properties which tend to offer poorer returns.  Also, landlords with larger loans (on those larger more expensive properties) will also be hit harder with the changes in the way tax is paid on buy to let investments, which start in 2017.

If you recall, a few weeks ago I did some research on how different types of properties had performed in Stoke on Trent since the year 2000.  I revisited those calculations and it hit me how different types of properties had performed over the last 15 years.  In a nutshell, this mismatch of demand and supply isn’t a new phenomenon, it’s been happening under our noses for years!

In the last 15 years, the average terraced house in Stoke on Trent has risen in value from £24,019 to £77,409, whilst the detached house has risen in value from £57,583 to £177,134.  Nothing seems amiss until you look at the percentage growth.  The terraced has grown in value by 222% whilst the detached by only 208% meaning the gap between the inexpensive terrace’s and expensive detached properties has in percentage terms narrowed enormously (this isn’t just a Stoke on Trent thing, it has happened all across the Country).

I am concerned because more houses need to be built, not only in Stoke on Trent, but in the West Midlands and the UK as a whole.  In particular, there is specific need for more affordable starter homes for the growing demand from both tenants (and the landlords that will buy them) and first time buyers.  The Tories need to face up to the fact that unless they can get the builders, the planners (to release more building land), the banks (to finance it) and themselves together, to ensure long term plans can be made, and implemented, this issue will continue to worsen.

The country needs 200,000 houses a year to be built to keep up with demand, let alone reverse the imbalance between demand and supply.  Last year, only 141,040 properties were built, the year before 135,510 and 146,850 in the year before that.  This means only one thing for Stoke on Trent landlords.  Unless David Cameron starts to rip up huge swathes of the British countryside and build on acres and acres of green belt, demand will always exceed supply when it comes to property for the foreseeable future.

Therefore, investment in the local Stoke on Trent property market as a buy to let investment could be the best move to make as the stock market investments are possibly on the wane.  Everyone is different and trust me, there are many pitfalls in buy to let.  You must take lots of advice and seek out the best opinion. 

Stoke-on-Trent Property Values 0.6% higher than year ago

Stoke-on-Trent property values rose by 0.2% last month, meaning they are 0.6% higher than 12 months ago. Overall, I expect future property price growth to remain firm, built on the foundations of an improving labour market, strengthening economy and very low mortgage rates. In fact, talking to a number of other agents in the city, mortgage arrangers and solicitors (all of whom have their direct finger on the pulse of the Stoke-on-Trent property market), the steady long term growth in Stoke-on-Trent property prices tied in by strong demand conditions so far this summer, alongside an underlying lack of supply and the continued low mortgage rate environment, means the slow but steady upward momentum of the Stoke-on-Trent property market is likely to continue in the second half of 2015.

However, there are a couple points I wish to highlight as all my blog readers will know, I like to give a balanced and honest opinion of what is happening in the Stoke-on-Trent property market.  The two main points being low interest rates and a lack of supply of property.

Interest rates first - Mark Carney (Chief of the Bank of England) said in a speech a few weeks ago at Lincoln Cathedral, the Bank will be seriously considering raising interest rates around Christmas time. An upward movement in interest rates will temper demand and result in a marked slowdown in house price growth. Mr Carney said that only six out of ten people that had a mortgage (57% to exact) had a variable rate mortgage, compared with more than one in seven (73% to be exact) in the Summer of 2012. Now I am not a mortgage arranger and cannot give advice, but rates are only going on one direction, so whether you are a landlord or homeowner, this might be a time to consider fixing your mortgage rate?  Don’t say I didn’t warn you!

Tie this in with the stricter mortgage lending rules which were introduced in 2014, which affected people’s ability to have larger mortgages, this means homeowners will need to be realistic in their pricing if they want to sell. Reading other recent reports though, property owners have continued to pay off mortgages at a faster rate while mortgage rates have been low. Therefore, when mortgage rates rise, the affect on home movers sentiment which, given the shortage of supply, would result in a marked slowdown in the rate of house price growth.

Shortage of Supply – As I have mentioned in previous articles, the number of houses on the market in Stoke-on-Trent is at an all time low. One reason is the large number of buy to let landlords who have bought Stoke-on-Trent property over the past fifteen years. Unlike first time buyers who tend to move on after a few years, landlords tend to keep their properties long term, meaning there are less properties coming onto the market ... thus restricting supply and sales. In fact over the last four months, only 819 properties in the Stoke-on-Trent City Council area have changed hands and sold, compared to 977 in the same time frame in 2014, a not so insignificant drop of 16.17%. 

Stoke-on-Trent – The 10 year Time Bomb on Home Ownership

Many people think the British obsession with owning your own home started with Mrs Thatcher in the early 1980’s, when she allowed council tenants to buy their council houses under the right to buy scheme. However, the growth actually started just after the Second World War. Looking at the country as a whole in 1951 30% of residential property was owner occupied then, every ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and 68.07% by 2001 but after that, it dropped to 63.4% by 2011 and continues to drop today.

Young adults tend to start to think about settling down and moving out of the family home in their early-mid twenties.  After a couple of years, they will have a choice of either buying their first house (albeit with a mortgage) or decide to privately rent for the long term (because the Council House waiting list is measured in decades at the moment!). The ratio of people owning a house with a mortgage verses privately renting is an extremely important guide to what people are doing about their housing needs and what their attitude to renting vs buying is.  With that in mind, within the next ten years, I am predicting there will be more people renting privately in Stoke-on-Trent than own a property with a mortgage and that the British love affair of property ownership will fade as the decades roll on.

This is a really important change in the way we live, as I explained to a local Stoke-on-Trent landlord the other day, knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in the city; Stoke-on-Trent property prices and Stoke-on-Trent rents.

In the Stoke-on-Trent City Council area as a whole there are 14,176 households that are privately rented via a landlord or letting agency verses 33,719 households that are owned with a mortgage, so my prediction appears to be outrageous. However, when we look deeper (as the devil is always in the detail), 15,982 of those 33,719 households are 35 to 49 year olds and 8,886 are households of 50 to 64 year olds. I would expect all the 50+ years to be paying their mortgage off as they enter retirement as I would with some of the people in their mid/late 40’s. 

Meanwhile, at the other end, in the 25 to 34 age range (the age most people bought their first home in the 1970’s/80’s/90’s) only 6,926 of the 11,618 households occupied by those 25 to 34 year olds are owner occupiers with mortgages, because 4,692 households are privately rented. This means only 59.6% of 25 to 34 year olds have bought their house (with a mortgage). Twenty years ago, that would have a much higher percentage of homeowners (between 75% to 85%).

It can be seen that as the older generation pay their mortgages off as they start to get to retirement and the younger generation aren’t jumping on the property ladder like they were 20 or 30 years ago, the private rental sector will take up the slack as more and more people will want a roof over their head, but won’t buy one but rent one. With Local Authorities and Housing Associations not building houses anywhere near like the number of houses they were building in the 1950’s, 60’ and 70’s, the private landlord appears to have good demand for their rental properties for many decades to come.

This will create a polarisation in the housing market between those, mostly older, households who own outright and those, mostly younger, households who rent. Our housing market is very much turning into the European model. However, all is not lost, the younger generation will inherit their parents properties, which in turn will enable them to buy, albeit later in life.

If you are a landlord or thinking of become a landlord then please give us a call or pop in to either our Hanley or Newcastle under Lyme office

George Osborne – The Stoke-on-Trent landlord’s friend?

Well the last few weeks has been rather hectic as Stoke-on-Trent landlords, some who use us to manage their properties and other landlords who just read our Stoke-on-Trent 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 13.7% of residential property in Stoke-on-Trent being privately rented (as there are 16,020 privately rented properties in the City), these changes are potentially something that will not only affect most Stoke-on-Trent 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, Stoke-on-Trent 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 Stoke-on-Trent investors and let me explain why. If you invested £30,000 in Stoke-on-Trent property in September 1987, today it would be worth £139,966. 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 City. Official figures show the population in Stoke-on-Trent is rising by 837 persons per year (i.e., demand rising), but only 437 properties are being built each year (i.e., supply is low). This sets up the Stoke-on-Trent (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).

Stoke-on-Trent Property Market – Bricks and Mortar!

The Land Registry have just released their latest set of figures for the Stoke-on-Trent Property market. It makes interesting reading, as average property values in Stoke-on-Trent rose by 0.7% in May. This leaves average property values 0.6% lower than 12 months ago. When we compare Stoke-on-Trent against the regional picture, West Midlands property values rose by 0.1%, leaving them 3.5% higher than a year ago.

Obviously this is a far cry from the price rises we were experiencing in Stoke-on-Trent throughout 2014. At one point (January 2014 to be exact) property values were rising by 3.6% a year. All the same, even with the tempering of the Stoke-on-Trent 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 City. In April 2014, 196 properties sold in Stoke-on-Trent but in April 2015, that figure dropped to 169.  I have been in the Stoke-on-Trent 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 Stoke-on-Trent 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 Stoke-on-Trent and with the population of Stoke-on-Trent ever increasing, this will generally strengthen house price growth for the foreseeable future.

So what does all this mean for Stoke-on-Trent 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 Stoke-on-Trent, 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 Stoke-on-Trent 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 Stoke-on-Trent property market.

If you are planning on investing in the Stoke-on-Trent or Newcastle under Lyme property market, or just want to know more things to consider for a successful buy to let investment then please just call us or pop in for an informal chat