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Thursday 31 December 2015

Eastleigh Buy to let –Freehold House or Leasehold Flat?

As seems to be all the rage with Jeremy Corbyn asking the PM questions emailed in to him at Prime Minster Question Times, I to wish to answer a question emailed into me from a potential Eastleigh landlord last week. Nice chap, lives in Chandlers Ford, and it turns out, after having a coffee with him, he works in IT, has a spare bit of cash (now the kids have flown the nest) and wanted to buy his first buy to let property.

His main question was ... Do I buy a freehold house or a leasehold flat in Eastleigh?

Most people will say freehold every time, because you own the land. However, it’s not as simple as that (it never would be would it!). The definitive answer though is to research what Eastleigh tenants want and in what part of Eastleigh they want it! The tenant is ultimately your customer and if they don't want to rent what you decide to buy, then you are not going to have a successful BTL investment. So starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply.

Leasehold flats and apartments in Eastleigh are excellent in some respects as they offer the landlord certain advantages, including the fact a flat can be initially cheaper to buy. Yields can be quite good, offering better cash flow. The building will already be insured and yes there is a service charge, but it’s still for a service at the end of the day and that cost is spread between many others (i.e. when your freehold house roof goes, its falls 100% on your shoulders) and one of my favourites is that there is often no garden to maintain or blown down fences to replace!

However, some Eastleigh leasehold flats can suffer from poor capital growth. Some leasehold properties have no cap on the level of the service charge and it may get out of control. The length of the lease will significantly affect value if not renewed before it gets too short – don’t let it drop below 80!! Thankfully there’s not many, but some Eastleigh apartments/flats have burdensome clauses. Finally, with leases, there can be sub-letting issues – which means you can’t let them out.

So what do the numbers look like? Well since 2003, the average freehold property in Eastleigh (detached, semis and terraced) has risen from £186,683 to £296,107, a rise of 58% whilst the average Eastleigh leasehold property (flats and apartments) has gone up in value from £107,990 to £159,900, a more mediocre rise of 48%. 

I was really interested to note that of the 5,864 rental properties in the Eastleigh Borough Council area that the Office of National Statistics believe are either let privately or through a letting agency, 2,518 of them (or 42.9%) are apartments. However, there are 8,593 apartments in the whole council area (be they owned, council rented or privately rented), which represents 16.5% of the whole housing stock in the area. This really intrigued me that, quite obviously, there is a high proportion of Eastleigh’s leasehold apartments/flats rented to tenants compared to detached, semi’s or terraced. Fascinating don’t you think?

Every Eastleigh apartment block, every terraced house or semi is different. Like I said at the start, the definitive answer though is to research what Eastleigh tenants want in the area of Eastleigh they want. Demand for town centre apartments, near the night-life and transport links can be popular and can offer the Eastleigh landlord very good yields with minimal voids. However, Eastleigh terraced houses and semis, whilst not always offering the best yields (although sometimes they can), they do offer the Eastleigh landlord decent capital growth.

My advice to the prospective landlord, as it is to you, is do your homework.  What many Eastleigh landlords do, irrespective of whether you are a landlord of ours, a landlord with another agent or a DIY landlord, if you see any property in Eastleigh, that catches your eye as a potential buy to let property, be it a terraced house, semi or flat ... email me and I will email you back with my thoughts (although I will tell you what you need to hear .. not want to hear!)

Southampton 1 bed flat for sale at £115k will yield 6.5%

This first floor 1 bed flat has recently been redecorated and is presented in very good condition. It is well located on Cobbett Rd in Bitterne. It benefits from car parking and a good location close to shops and the local train station. Rental levels will be c£625. Gross yield is good at 6.5%. It would be a nice property to acquire before stamp duty increases in April 2016.. If you would like a more detailed view on this or any other property you are considering purchasing please do drop me line.

Year ends with high price growth almost everywhere says Nationwide

House prices ended the year with strong growth of 0.8 per cent in the month of December according to the building society Nationwide.
This took the average value of property in the UK is now £196,999, up 4.5 per cent compared with a year ago. London remained the strongest performing region for the fifth year running, with average prices up 12 per cent in 12 months.

London’s average values are now 50 per cent above their pre-crisis peak in 2007 - a sharp contrast to, say, Northern Ireland which remains 44 per cent below its pre-crisis peak, despite rising by 6.5 per cent in the last three months of the year.
But the capital will not be such a success in 2016 because of widespread unaffordability across boroughs, says the building society.

UK-wide, prices are around 7.0 per cent higher than a year ago with Scotland the only part that saw a fall, with values down 1.9 per cent in the three months to the end of December compared with the same period a year ago.

"Further healthy gains in employment and rising wages are likely to bolster buyer sentiment, while borrowing costs are expected to rise only gradually. However, the main concern is that construction activity will lag behind strengthening demand, putting upward pressure on house prices and eventually reducing affordability" according to Robert Gardner, Nationwide's chief economist.

On Twitter, Howard Archer - chief UK and European economist at IHS Global Insight - says the Nationwide figures back up his firm’s forecast house price growth of 6.0 per cent in 2016. 

Meanwhile Jeremy Leaf, former RICS chairman and north London estate agent, says: ‘Supply is simply not increasing fast enough to keep house prices in check and is making it harder for first-time buyers to get on the ladder. The situation is likely to get worse before it gets better in view of the build up to the increase in stamp duty in April, particularly as these [Nationwide] figures are a little historic.”

Thursday 24 December 2015

Will rents in Southampton increase in 2016?

The Association of Residential Letting Agents (ARLA) has warned that rents will rise in the New Year due to a number of rule changes affecting landlords.
David Cox, ARLA managing director, says the various pieces of legislation coming into play in 2016 will result in increased compliance costs for landlords, and as a result push up rents for tenants. 
“We urge the Government to re-think its proposals around reducing mortgage interest relief, scrapping the wear and tear allowance and hiking up stamp duty by 3% on buy-to-let properties. Whilst these remain, the Government’s goal of increasing the percentage of people in home ownership is getting further out of reach,” he said. 
“The issue of supply and demand in the rental market will be increasingly pushed to its limit with rising demand outstripping supply.” 

However, ARLA said it is good news that regulation in the industry will be tightening up in 2016. 
The letting agent trade body said it hopes that the provisions of the Housing and Planning Bill – when brought into force – will give enforcing bodies and the courts more teeth in tackling rogue and criminal landlords and agents. This will develop in 2016 to enforce harsher penalties for landlords and unregulated agents that aren’t complying with basic laws. 

“The Right to Rent checks introduced in the Immigration Act 2014 will be rolled out nationally from 1 February 2016 following a successful pilot scheme in the West Midlands,” said Cox, “However, we worry that the goodwill established towards the scheme may be tested by the increase in volume, disenfranchising landlords from the process.”

Monday 21 December 2015

House prices up 3% to 6% in 2016 even if interest rates rise - Nationwide

The Nationwide says house prices will rise three to six per cent in 2016, despite the prospect of interest rate rises during the next 12 months.
“After moderating during the first six months of 2015, house price growth has remained in a narrow range between three per cent and four per cent in recent months. This is broadly in line with earnings growth and close to the pace we would expect to prevail over the longer term” according to Nationwide chief economist Robert Gardner. 
But he warns that future risks will include accelerating house price growth, at least at the national level, despite interest rate rises “from the middle of next year.”
Gardner says: “Further healthy gains in employment and rising wages are likely to bolster buyer sentiment, while borrowing costs are expected to rise only gradually.  However, the main concern is that construction activity will lag behind strengthening demand, putting upward pressure on house prices and eventually reducing affordability.”

But while he says national average price rises in 2016 will be three to six per cent, it is arguable whether the current divergence in regional house prices will continue.
“Prices in the South of England, and especially in London, have been outpacing the rest of the UK by a wide margin. Indeed, prices in the South of England are now well above their pre-crisis levels while they remain below in Scotland, Wales and large parts of the North of England” he says.

“With affordability metrics in the capital stretched by historic standards, another year of above-average price gains appears unlikely – though in truth, we held a similar view at the end of 2014."

Illegal eviction landlord ordered to pay £3,000

A landlord in Cornwall, who has not been named, has been fined £1,000 and ordered to pay £2,000 costs after illegally evicting a tenant.
An investigation undertaken by Cornwall Council’s private sector housing team revealed that on the 6 July 2015, the tenant had been illegally evicted from a self-contained flat in Truro. 
It was found that the former tenant was deprived of her accommodation and that her belongings had been removed and left outside the address. Also the lock to the accommodation had been changed.

The investigation also found that the self- contained flat was formerly a garage which had recently been converted into a separate dwelling without planning or building control consent being sought. Enforcement officers from the council’s planning and building control teams are following up the matters relating to the unauthorised works.
Cornwall Council cabinet member for housing and environment Joyce Duffin said: “Cornwall Council is committed to supporting all private sector landlords to help them comply fully with their legal responsibilities, but when landlords unscrupulously evict tenants without following legal process we will investigate and where appropriate take formal action.”
Investigating officer, Stuart Kenney from Cornwall Council’s private sector housing team, said: “Through the Cornwall Responsible Landlords Scheme, Cornwall Council is communicating with private sector landlords in a way that provides the necessary support to navigate the complex nature of housing law. The council also advocates membership of local or national landlord associations who will often provide advice and guidance on lawful eviction procedures to their members”.

Basel Committee joins assault on buy-to-let

Buy-to-let is in the line of fire again with reports that officials at the Basel Committee are looking to get tough on the sector.
Mortgage experts have already warned that Chancellor George Osborne's buy-to-let tax crackdown could destroy the market.
The Bank of England is also taking aim at the sector, calling for new powers over the interest coverage ratio in buy-to-let calculations.
The Basel Committee, which sets global financial standards, wants banks to hold twice as much capital against mortgages when repayments are dependent on income from tenants, according to a report in The Daily Telegraph
It is concerned that landlords may struggle to meet their repayments if they cannot find tenants for their properties.
This could double the amount of capital lenders must hold against the loan from 35% to 70%, forcing up the cost of buy-to-let mortgages and reducing supply.

The Financial Policy Committee at the Bank of England, headed by Mark Carney, warned this week that buy-to-let mortgages are twice as likely to turn bad as loans taken out by owner-occupiers.
The FPC has asked the Treasury for powers to limit lending to landlords, which could include restrictions on loan-to-value and loan-to-income ratios.
The buy-to-let market is still growing strongly although activity fell by 4% in November, according to latest research from Connells Survey & Valuation.
John Bagshaw at Connells said buy-to-let remains an attractive proposition for property investors.
“Much of the energy is being fuelled by a desire to out-manoeuvre the Treasury’s attempts to take more money from buy-to-let business.

“With the Chancellor imposing more fees and regulations on landlords in his most recent Autumn Statement, many would-be landlords are hurrying to get into the market before these changes kick in from April next year.”

House prices will be up 50% and rents 25% by 2025

Rents are set to sky-rocket, and buying a house is getting further out of reach for many, according to the Association of Residential Letting Agents (ARLA) and National Association of Estate Agents (NAEA) Housing 2025 report. 
Compiled with Centre for Economics and Business Research (CEBR), the report predicts the state of the property market in 10 years’ time, and suggests what can be done to repair it.
With the average house price currently around £280,000, the Housing 2025 report predicts house prices will increase by half their current value by 2025 – reaching an average price of £419,000. It’s even worse news for those aiming to buy in the capital, as house prices are expected to nearly double in the next decade in London, rising from £515,000 to £931,000. 
For those planning to enter the rental market in the next few years, the news is bleak. Rents are predicted to increase by 27% from a current UK average of £134 per week to £171 in 2025. Again, those living in London will be worse off as they’ll need to pay 34% extra in rent per week by 2025, an increase from the current average of £234, up to £314. 

Lower homeownership rates amongst the working age population and the ageing of the baby-boom generation will continue to drive a decline in the proportion of UK households that own their own home. Currently around 62% of the working population owns their own home; the ARLA and NAEA Housing 2025 report predicts this will fall to 55% in the next 10 years. 
A declining homeownership rate will boost demand for rental properties, and drive house prices up. The Housing 2025 report also predicts the proportion of private renters in the UK will increase from 20% of households in 2015, to nearly 29% by 2025.
ARLA managing director David Cox said: “Buying and renting a home is a giant step, and is out of reach for many. Rent costs are already growing at a rate that people are struggling to keep up with, and they’re due to become even less sustainable over the next decade – particularly when the new landlord tax sets in, which will put off many would-be landlords from entering the market. If we’re to see the property market lifted out of its current state, we need to help the rental market from top down as well as bottom up, ensuring landlords are not penalised for their choice of income, and they can in turn give tenants the best possible price and service they deserve.”
NAEA managing director Mark Hayward said: “House prices are only going to go one way, and unfortunately that is up. For so many already priced out of the market, this is news aspiring house buyers will not want to hear. Ongoing house price inflation, combined with low wage inflation, tighter lending restrictions and a shortage of affordable housing, means owning a home will continue to be distant dream for many. Increased rental costs will also make it more difficult for current renters to save for a house deposit; as much of their income will be eaten up in rent.”

Treasury proposals risk reducing PRS supply, say landlords

Proposals by the Treasury to hand greater powers to the Bank of England to make access to buy-to let-lending harder risks choking off the supply of new housing, according to the Residential Landlords Association (RLA). 
The RLA is arguing that the consultation (published 17 December), coming on top of extra tax payments by landlords and stamp duty increases on buy-to-let properties, has the potential to cut off investment in the private rented sector. 
According to Government figures, 83% of all new dwellings created between 1996 and 2013 were private homes to rent. With PwC predicting that almost 60% of young people will be in rented housing by 2025, there is a need for the private rented sector to keep expanding. 
The RLA says that all that the different measures by the Government will achieve is to create a greater shortage of housing, driving up rents for tenants. 
The consultation comes as the Council of Mortgage Lenders concluded that buy-to-let mortgage lending is “still much lower than in the 2006-8 period.” 
Commenting on the consultation, RLA Chairman Alan Ward said: “There is no clear evidence that the property boom is caused by buy-to-let investors, when rising prices are mainly concentrated in London and the South East. This is largely fuelled by foreign investors and speculators treating our property as a commodity. 
“The Residential Landlords Association supports the principle of the Bank of England ensuring that lending does not pose a risk to the stability of the financial sector. It is important that lenders do not saddle landlords with debts which they cannot pay back. But landlord investment is essential to the supply of homes to rent. 

“The overwhelming majority of landlords are responsible borrowers providing homes as a long-term business.”

Tuesday 15 December 2015

Southampton vs Basingstoke – Clash of the Property Market Titans

Many landlords have been asking me my thoughts on the Southampton property market recently, and in particular, what is happening to property values. My calculations show property values in Southampton quite interestingly grew in the month of September by 1.8%.  When one looks at the annual growth, Southampton values are 6.4% higher (when comparing Sept 14 to Sept 15), impressive when you consider the annual growth of property values was only 4.8% per annum in July.  On the other hand, there are signs that the fundamental growth of property values in Southampton has now peaked, despite those average property values being below levels recorded in 2007 (just before the 2008 crash).

Whilst the Southampton headline rate appears to be better, i.e. the year on year (Sept 14 to Sept 15) growth rate of 6.4% is obviously better than the 4.8% in July 14 to July 15), this impressive rise of Southampton property values masks the underlying truth in what is really happening to local property values in the City.  Throughout 2015, property values have been yo-yo like on a month by month basis, being quite volatile in nature.  For example,

·        September 2015    1.8% rise
·        August 2015            1.1% rise
·        July 2015                  0.3% rise
·        June 2015                1.3% rise
·        May 2015                 0.6% drop
·        April 2015                1.1% rise
·        March 2015             0.2% drop

This is in part due to seasonal factors, as well as mortgage approvals increasing over June and July and then falling by over 15% in August, according to the Council of Mortgage Lenders (CML).

The outlook for the Southampton property market remains positive against the foundations of low mortgage rates and growing consumer confidence. However, I do have to question the recent CML mortgage data and whether that raises issues over whether the rate of growth since the Tory’s were re-elected in the early summer can continue? However, on a positive note, Southampton property values are still running ahead of salaries and average property values are 2.8% below the levels recorded in 2007.

Talking to fellow property professionals in the city, demand for property has been showing signs of moderating in the final few months of 2015, which in turn will lead to a slight slowdown in the pace of house price growth in the run up to the festive season. You see, it is really important not to read too much into one month’s (September’s) headline figures.

Readers might be interested to note that before the 2008 property crash, all the UK region’s housing markets tended to move up and down in tandem like the Southampton Synchronised Swimming team at the Quays Swimming and Diving Complex Swimming Pool!  Since then though, the Greater London property market took off like a rocket in 2009/10, whilst the rest of the UK only really started to grow in 2012/13, and even then that growth was a lot more modest than the Capital’s.  Looking closer to home, it can even be different in neighbouring towns, areas and cities, so whilst Southampton property values are 6.4% higher than a year ago (as mentioned above), Basingstoke property values are 7.1% higher than a year ago.

I cannot stress enough the importance of doing your homework.  On this blog you will see similar articles to this about the Southampton property market and what I consider to be the best buy to let deals around at any one time in the City, irrespective of which agent it is on the market with.  If you haven’t looked through the blog and you are interested in the local property market in Southampton….. you are missing out! 

Thursday 3 December 2015

Has Osborne killed buy to let in Southampton?

Well George Osborne, in his Autumn statement last week, caused Southampton landlords to ask whether buy to let is a viable investment option, when he announced that landlords, when buying another buy to let property from April 2016 will have to pay an additional 3% stamp duty on top of the standard rate. So for example, it means that the stamp duty bill for a £285,000 buy to let home will rise from the current £4,250 to £12,800 from April next year. 

Some say property in Southampton will be worth less because potential landlords will not be willing to pay as much for them, and if house builders or existing home-owners don't feel they are going to get as much for them , then there is less motivation to build / sell them?... and the person we can blame for this is George himself. Back in 2012, he choose to utilise the British housing market to kick start the UK economy, with  subsidies, Funding for Lending and Help to Buy. However, whilst that helped the Tory’s get back into power in 2015, some say this impressive growth in the UK property market has been at the expense of pricing out youngsters wanting to buy their first home.
Others say this is the straw that breaks the camel’s back as over the next four years Landlords will slowly lose the ability to offset all their mortgage interest against tax on rental income, after changes announced in the Summer Budget. At the moment, landlords can claim tax relief on buy to let mortgage monthly interest repayments at the top level of tax they pay (i.e. 40% or 45%). However, over the next four years this will be reduced slowly to the basic rate of tax – currently 20%.
Surely this is the end of Buy to Let in Southampton? Maybe…. but before we all run to hills panicking, let me give you another thought.

Stamp Duty rules were changed in December 2014. Before then, landlords were eagerly buying up properties under the ‘old slab style Stamp Duty’ system. For example, the stamp duty bill on that £285,000 property was lower on the old slab style duty (pre Dec 2014), at £8,550, yet it isn't a million miles away from new £12,800 stamp duty bill. Interestingly though, George has left a legal loophole in the new rules, because when it comes to selling up, they can offset purchase costs against any eventual capital gains tax, including stamp duty.

I believe that total returns from buy to let will continue to outpace other investments, such as the stock market, gilts, bonds and even pensions. Also, the best part about investing in property is that it is bricks and mortar. You can touch it, you can feel it, and it isn't controlled by some City whiz kid in Canary Wharf, as a nation we understand property and that goes a long way!

Buy to let has enough impetus behind it that prospective landlords will continue to buy even with a larger stamp duty bill. Southampton landlords will need to be savvy with what property they buy to ensure the extra stamp duty costs are mitigated.   Buying buy to let property is a long term venture. In the past, it didn't matter what property you bought in Southampton or at what price – you would always make money. Now with these extra taxes, the adage of ‘any old Southampton house will make money’ has gone out the window.   You wouldn't dream of investing in the stock market without at least looking in the newspapers or taking advice and opinion from others, so why would you take the same advice and opinion about buying a buy to let property in Southampton?

So as always for advise on buy to let in Southampton please do drop in for a coffee or give me a call and let us help you maximise your returns in these choppy waters.