Southampton Buy-to-Let Return / Yields – 2.5% to 8.5% a year

The mind-set and tactics you employ to buy your first Southampton buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!).

Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Southampton properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Southampton buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Southampton...

Southampton Property type	Average Price paid (last 12 months) in Southampton	Average Rent Achieved in last 12 months in Southampton	Lower End of Yield Range in Southampton	Average Yield in Southampton	Upper End of Yield range in Southampton
Detached	£404,442	£1,328	2.56%	3.94%	4.78%
Semi-Detached	£263,388	£1,224	4.72%	5.58%	7.40%
Terraced	£228,921	£1,077	4.41%	5.65%	8.56%
Flats	£167,590	£758	4.05%	5.43%	6.38%

Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Southampton area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield - and are doing so by buying cheaper properties.

 

However, before everyone in Southampton starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Southampton buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Southampton landlords who are looking for capital growth, an altered investment strategy may be required.

In Southampton, for example, over the last 20 years, this is how the average price paid for the four different types of Southampton property have changed…

• Southampton Detached Properties have increased in value by 240.4% 
• Southampton Semi-Detached Properties have increased in value by 277.8%
• Southampton Terraced Properties have increased in value by 267.5%
• Southampton Apartments have increased in value by 239.9%

It is very much a balancing act of yield, capital growth and void periods when buying in Southampton. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!

If you are looking for an agent that is well established, professional andcommunicative, then contact us to find out how we can get the best out of your investment property.

Email me on brian.linehan@belvoirlettings.com or call on 023 8001 8222.

Don't forget to visit the links below to view back dated deals and Southampton Property News.

Blog, http://southamptonproperty.blogspot.co.uk/

Facebook, https://www.facebook.com/belvoirlettingssouthampton/

Twitter, https://twitter.com/sotonbelvoir
LinkedIn, https://www.linkedin.com/in/brianlinehan

Website, https://www.belvoir.co.uk/letting-agents-southampton 

30.9% Drop in Southampton People Moving Home in the Last 10 Years

I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Southampton.  I find the most interesting bits are their commentaries on the British Housing Market.  Some talk about property prices, whilst others discuss the younger generation, grappling to get a foothold on the property ladder, with difficulties of saving up for the deposit.  And others feature articles about the severe lack of new homes being built (which is especially true in Southampton). However, a group of people that don’t often get any column inches are those existing homeowners who can’t move! 

Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then things have started to steadily recover, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties.  … But the question is ... why are there fewer house sales?

To answer that, we need have to go back 40/50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised set interest rates to a high level in a bid to try to lower inflation.  Higher interest rates meant that householder’s monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news as high inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew in order to keep up with inflation, this allowed homeowners to get even higher mortgages. At the same time their  mortgage debt was decreasing, allowing them to move up the property ladder quicker. 

Roll the clock on to the late 1990’s and the early Noughties and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the homeowner’s equity grew significantly exponentially, meaning people could continue to move up the property ladder (even without the effects of inflation).

The snowball effect, caused by significant numbers moving home, continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  You will probably recall the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!.  This allowed home movers to borrow even more to move up the property ladder.

So, now it’s 2017 and things have changed yet again!

You would think that with ultra-low interest rates at 0.25% (a 320-year low) (a 320+ year all time low), the number of people moving would be booming – wouldn’t you?  However, this has not been the case.  Less people are moving because:

(1) Low wage growth of 1.1% per annum 

(2) Tougher mortgage rules since 2014 

(3) Sporadic property price growth in the last few years

(4) High property values comparative to salaries (I touched on this a couple of months ago)

So how does this translate into pure numbers locally?

All these four points have come together to mean less people are moving… but by how many? 

In 2007, 5,380 properties sold in the Southampton City Council area and last year, in 2016 only 3,173 properties sold – a drop of 30.99%.

Therefore, we have just over 1,665 less households moving in the Southampton and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry that around fourth fifths of them are homeowners with a mortgage. That means there are around 1,367 mortgaged households a year (fourth fifths of the figure of 1,665) in the Southampton and surrounding council area that would have moved 10 years ago, but won’t this year. 

The reason they can’t/won’t move can be split into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 1,367 annual Southampton (and surrounding area) non-movers, based on that CML report;

1. There are around 492 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).
2. I estimate that another 191 households a year are older generation mortgaged owner-occupiers. Older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).
3. I also estimate that 82 households of our Southampton and surrounding area annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).
4. And finally, the majority of people that would have moved (but can’t). I believe there are 601 Southampton and surrounding area mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

  

Undoubtedly the first three points above (demographics, lifestyle and high price growth) are something beyond the Government or Bank of England control.  However some influence could be exerted to help the people and households in that final 4th point (the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability). If Southampton property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

And then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy 125% Northern Rock mortgages - footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s, available at a drop of hat using three tokens from a cereal packet?

We all know what happened with Northern Rock…. Your thoughts would be welcome on this topic.

If you are looking for an agent that is well established, professional and communicative, then contact us to find out how we can get the best out of your investment property.

Email me on brian.linehan@belvoirlettings.com or call on 023 8001 8222.

Don't forget to visit the links below to view back dated deals and Southampton Property News.

Blog, http://southamptonproperty.blogspot.co.uk/

Facebook, https://www.facebook.com/belvoirlettingssouthampton/

Twitter, https://twitter.com/sotonbelvoir
LinkedIn, https://www.linkedin.com/in/brianlinehan

Website, https://www.belvoir.co.uk/letting-agents-southampton 

How to Switch Letting Agents in Southampton with Ease

Whether you are receiving my Southampton Property newsletter for the first time or are a seasoned reader, you’ll not be surprised to learn that we have started to attract many landlords seeking advice with their residential lettings. Ultimately, they are seeing a better and more professional service from an agent who is firmly established, than they receive from their current letting agent.

We are getting more and more landlords approaching us who are unhappy or dissatisfied with their current agent and have been asking us how to go about moving management of their property to us.

If you have a property in or around the Southampton area and are unhappy with your current agent, then why not switch?

There is a general feeling amongst landlords that it is better to wait until their current tenant has given notice to leave the property before they even contemplate changing agents, as it is far more problematic to change agents midway through a tenancy. While this can be true, it is not your hassle as we can do most of the work for you! 

Have a look at our 5 step process if you are considering moving from your current letting agent if you are dissatisfied with their service:

Step One: Giving Notice

You will need to find out how much, if any, notice you are required to give your current agent as detailed within the Terms and Conditions you signed at the start of your contract.

When you have determined your notice period, give the required notice in writingto terminate your agreement. If you need any advice regarding this, please contact us. It may help if your notice coincides with your current rent due date as it will make the switching process much more straightforward.

Step Two: Collecting Tenant Details

If you are on a fully managed service then it would be wise to obtain the contact details for your current tenant. Your agent should give you these.

Step Three: The Paperwork

We will arrange to meet you, either at your home or at our offices, where we will go through our terms of business. We will also outline our lettings process and our commitment to providing an unrivalled lettings and management service.

We will provide you with all the necessary paperwork for you to read and complete.

Step Four: Informing Your Tenant

We will arrange to meet your current tenant at their property to explain everything to them. We provide them with a welcome pack which includes a new standing order to pay their rent. We can also advise on cancelling their existing standing order.

Part of this transfer may include a new tenancy agreement for the tenant to sign.This is to protect all parties as all of our tenancy agreements are updated regularly for changes in legislation. We will also deal with any necessary deposit transfer/registration.

Step Five: Your Personal Property Manager

Both you and your tenant will be assigned a dedicated property manager who will be your contact throughout the tenancy, should any matters arise that require our attention.

That’s it. It really is that easy!

If you are looking for an agent that is well established, professional and communicative, then contact us to find out how we can get the best out of your investment property.

Email me on brian.linehan@belvoirlettings.com or call on 023 8001 8222.

Don't forget to visit the links below to view back dated deals and Southampton Property News.

Blog, http://southamptonproperty.blogspot.co.uk/

Facebook, https://www.facebook.com/belvoirlettingssouthampton/

Twitter, https://twitter.com/sotonbelvoir
LinkedIn, https://www.linkedin.com/in/brianlinehan

Website, https://www.belvoir.co.uk/letting-agents-southampton