The first interest rate rise in a decade! How will this affect Stotfold homeowners & landlords?

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At the start of this month the Bank of England’s Monetary Policy Committee announced a rise in the Bank of England base rate of 0.25% – the first increase in over a decade.

The base rate is the figure on which mortgage rates in particular are based and a whole generation of aspiring homeowners will be wondering what to make of it.

Don’t panic!  Although the base rate has effectively doubled, 0.25% remains a very small increase and simply returns us to the same 0.5% rate that had been in force between March 2009 and August last year, when it was dropped in response to the Brexit referendum result.

While those on a variable rate or tracker mortgage will notice a small increase in monthly payments, those who chose a fixed rate mortgage will not feel any effect at all.

If this new rate is passed on to mortgage interest rates, as it almost certainly will be, the monthly commitment of new buyers will be around £31.25 extra per month on a £150,000 mortgage. This is unlikely to have any direct effect on the property market.

This increase appears to be in response to increasing inflation and the indirect effects could be more noticeable.

However, is this the start of a rising trend?  If you are contemplating a move, it would be worth doing so quickly; sell before any downward pressure on house prices kicks in, and lock in to a low fixed rate mortgage on your purchase.

As ever, as your local property experts, we’d be happy to advise, without obligation, on how this, and any other market influences, might impact on your moving plans or property value.  Please feel free to call me or the team on 01462 894565 or pop into the office for a cup of tea and a chat.

Stotfold house prices outstrip wage growth by 18.91% since 2007

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I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years. The report said that in the Midlands and North, salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.

As regular readers of my blog know, I always like to find out what has actually happened locally in Stotfold. To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007. Looking at the Office of National Statistics (ONS) data for Central Bedfordshire Council, some interesting figures came out…

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Salaries in Central Bedfordshire have risen by 24.47% since 2007 (although it’s been a bit of a roller coaster ride to get there!) – interesting when you compare that with what has happened to salaries regionally (an increase of 18.65%) and nationally, an increase of 17.61%.

Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in Central Bedfordshire are 43.38% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Property values in the Stotfold area have increased at a higher rate than wages to the tune of 18.91% … meaning, Stotfold is in line with the regional trend

 

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All this is important, as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers. It is also vitally relevant for Stotfold landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Stotfold people are buying, then demand for Stotfold rental properties will drop (and vice versa).

As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Stotfold property market. Now of course, it is not as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.

On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ has not been that great. However, look back another 10 years to 1997, and that tells a completely different story. Nationally, the affordability of property more than halved between 1997 and today. In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.

The issue of a lack of home ownership has its roots in the 1980’s and 1990’s. It’s quite hard as a tenant to pay your rent and save money for a deposit simultaneously, meaning for many Stotfold people, home ownership is not a realistic goal. Earlier in the year, the Tories released proposals to combat the country’s ‘broken’ housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad landlords.

This is all great news for Stotfold tenants and decent law-abiding Stotfold landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Stotfold in the last 10 (or 20) years … the demand for decent high-quality rental property keeps growing. If you want a chat about where the Stotfold property market is going – please read my other blog posts on http://www.stotfoldpropertyblog.co.uk or drop me note via email, like many Stotfold landlords are doing.

 

 

Decreasing Numbers of Younger Homeowners in Stotfold

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Justin Mitchell, 37-year-old father of two from Stotfold, was out house hunting. It was a pleasant August Saturday afternoon, and our man cycles along on his bike. He cycles up a street of suburban semis, where he spots a few retired mature neighbours, chatting to each other over the garden fence. He leans his bicycle against a lamppost and launches softly into his property search.

Anyone on the road contemplating moving?” Justin asks, “I am not a landlord or developer, I’m just a Stotfold bloke trying to get out of renting, buy a house, do it up and live in it with my wife and two children

The only way I will leave here is in a box”, answers an 80-something lady, wearing her fading Paisley patterned housecoat from the 1970’s.

I‘ve lived here since before you were born, its lovely up here .. we aren’t moving, are we Doris?” (as her neighbour sagely shook his head at his wife).

Justin, like many Stotfold people born in the late 1970’s to the early 1990’s, is keen to get a slice of prime Stotfold real estate. Yet people like Justin in Generation Y (or the Millennials as some people call them i.e. born between 1977 and 1994 and needing family housing now) are discovering, as each year passes by, they are becoming more neglected and ignored when it comes to moving up the property ladder.

Looking at the graph for the UK as whole …

 

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Over 75 percent of Brits aged 65 and above (the baby boomers) are owner-occupiers, the biggest share since records began and a proportional rise of over 48.3% since the early 1980’s. Looking at those Baby Boomers (the current 65+year olds)  .. and roll the clock back 36 years (to when they were in their 30’s and 40’s and two thirds (65.6%) of them owned their own home.

Whilst today, just under a half of 25 to 49 year olds (47.3%) own their own home.

However, the biggest drop has been in the 18 to 24-year old’s, where homeownership has dropped from a third (32%) in the 1980’s to less than one in ten (8.9%) today. Looking at the Stotfold statistics, the numbers make even more interesting reading.

 

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Government policy contributes to the generational stalemate. Stamp Duty rules prevent older Brits from moving as the price of land and planning rules make it harder to build affordable bungalows that are attractive to members of the older generation who want to move.

The average value of an acre of prime building land in the UK is between £750,000 and £800,000 per acre. Bungalows are the favoured option for the older generation, but the problem is bungalows take up too much land to make them profitable for new homes builders. The housing market is gridlocked with youngsters wanting to get on (then move up) the property ladder whilst the older generation, who want to move from their larger houses to smaller, more modern bungalows, can’t. The problem is – there simply aren’t enough bungalows being built and the high price of land, means they are prohibitive to build.

So, what is my point? Well, all I would say to the homeowners of Stotfold is that one solution could be to start to talk to your local councillors, so they can mould the planners’ thoughts and the local authority thinking in setting land aside for bungalows instead of two up two down starter homes? That would free the impasse at the top of the property ladder (i.e. mature people living in big houses but unable to move anywhere), releasing the middle aged gridlocked people in the ladder to move up, thus releasing more existing starter homes for the younger generation.

… and to you Justin … the wandering new home searcher – if things are going to change, it will be years before they do .. so keep going out and spreading the word of your search for a new home for your family.

11.98% Drop in Stotfold People Moving Home in the Last 10 Years

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I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Letchworth.  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 foot-hold on the property ladder with difficulties of saving up for the deposit.  Others feature articles about the severe lack of new homes being built (which is especially true in Stotfold!).  A group of people that don’t often get any column inches however 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 this has steadily recovered, 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.  The question is … why are there fewer house sales?

 

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To answer that, we need to go back 50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised interest rates to a high level in a bid to lower inflation.  Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news since inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages.  At the same time their mortgage debt was decreasing, therefore 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 home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect of significant numbers moving house continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You will probably remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This meant home movers could 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) 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) the tougher mortgage rules since 2014

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

(4) high property values comparative to salaries (I talked about this a couple of months ago)

 What does this translate to in pure numbers locally?

 In 2007, 6,528 properties sold in the Central Bedfordshire District Council area and last year, in 2016 only 5,746 properties sold – a drop of 11.98%.

 

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Therefore, we have 782 less households moving in the Stotfold and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 626 mortgaged households a year (fourth fifths of the figure of 782) in the Stotfold 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 down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 626 annual Stotfold (and surrounding area) non-movers, based on that CML report –

  1. There are around 225 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).
  1. I estimate another 88 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).
  1. Then, I estimate 37 households of our Stotfold (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).
  1. I believe there are 276 Stotfold (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).

The first three above are beyond the Government or Bank of England control.  However could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If Stotfold 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.

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 mortgages – 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s … available at a drop of hat and three tokens from a cereal packet?

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

 

Supply and Demand Issues mean Stotfold Property Values Rise by 9.23% in the Last 12 Months

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The most recent set of data from the Land Registry has stated that property values in Stotfold and the surrounding area were 9.23% higher than 12 months ago and 31.21% higher than January 2015.

Despite the uncertainty over Brexit as Stotfold (and most of the UK’s) property values continue their medium and long-term upward trajectory. As economics is about supply and demand, the story behind the Stotfold property market can also be seen from those two sides of the story.

Looking at the supply issues of the Stotfold property market, putting aside the short-term dearth of property on the market, one of the main reasons of this sustained house price growth has been down to of the lack of building new homes.

The draconian planning laws, that over the last 70 years (starting with The Town and Country Planning Act 1947) has meant the amount of land built on in the UK today, only stands at 1.8% (no, that’s not a typo – its one point eight percent) and that is made up of 1.1% with residential property and 0.7% for commercial property. Now I am not advocating building modern ugly carbuncles and high-rise flats in the Cotswolds, nor blot the landscape with the building of massive out of place ugly 1,000 home housing estates around the beautiful countryside of such villages as Astwick, Hinxworth and Ickleford.

 

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The facts are, with the restrictions on building homes for people to live in, because of these 70-year-old restrictive planning regulations, homes that the youngsters of Stotfold badly need, aren’t being built. Adding fuel to that fire, there has been a large dose of nimby-ism and landowners deliberately sitting on land, which has kept land values high and from that keeps house prices high.

Looking at the demand side of the equation, one might have thought property values would drop because of Brexit and buyers uncertainty. However, certain commenters now believe property values might rise because of Brexit. Many people are risk adverse, especially with their hard-earned savings. The stock market is at an all-time high (ready to pop again?) and many people don’t trust the money markets. The thing about property is its tangible, bricks and mortar, you can touch it and you can easily understand it.

The Brits have historically put their faith in bricks and mortar, which they expect to rise in value, in numerical terms, at least. Nationally, the value of property has risen by 635.4% since 1984 whilst the stock market has risen by a very similar 593.1%. However, the stock market has had a roller coaster of a ride to get to those figures. For example, in the dot com bubble of the early 2000’s, the FTSE100 dropped 126.3% in two years and it dropped again by 44.6% in 9 months in 2007… the worst drop Stotfold saw in property values was just 16.73% in the 2008/9 credit crunch.

Despite the slowdown in the rate of annual property value growth in Stotfold to the current 9.23%, from the heady days of 13.88% annual increases seen in mid 2015, it can be argued the headline rate of Stotfold property price inflation is holding up well, especially with the squeeze on real incomes, new taxation rules for landlords and the slight ambiguity around Brexit. With mortgage rates at an all-time low and tumbling unemployment, all these factors are largely continuing to help support property values in Stotfold (and the UK).

For more thoughts on the Stotfold Property Market, please visit the Stotfold Property Market Blog: http://www.stotfoldpropertyblog.co.uk

 

Stotfold’s interest only ticking time-bomb?

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According to my research, of the 3,978 properties in Stotfold, 1,906 of those properties have mortgages on them.  90.25% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

However, this is the concerning part, 412 of those Stotfold mortgages are interest only. My research also shows that, each year between 2017 and 2022, 12 of those households with interest only mortgages will mature, and of those, 3 households a year will either have a shortfall or no way of paying the mortgage off. Now that might not sound a lot – but it is still someone’s home that is potentially at risk.

 

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Theoretically this is an enormous problem for anyone in this situation as their home is at risk of repossession if they don’t have some means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building Societies are under no obligation to lengthen the term of the mortgage and, when deciding whether they are prepared to do so or not, will look at it in the same way as someone coming to them for a new mortgage.

Back in the 1970’s and 1980’s, when endowment mortgages were all the rage, having an endowment meant you were taking out an interest only mortgage and then paying into an endowment policy which would pay the mortgage off (plus hopefully leave some profit) at the end of the 25/35-year term. There were advantages to that type of mortgage as the monthly repayments were lower than with a traditional capital repayment and interest mortgage. Only the interest, rather than any capital, is paid to the mortgage company – but the full debt must be cleared at the end of the 25/35-year term.

Historically plenty of Stotfold homeowners bought an endowment policy to run alongside their interest only mortgage. However, because the endowment policy was a stock market linked investment plan and the stock market poorly performed between 1999 and 2003 (when the FTSE dropped 49.72%), the endowments of many of these homeowners didn’t cover the shortfall. Indeed, it left them significantly in debt!

Nonetheless, in the mid 2000’s, when the word endowment had become a dirty word, the banks still sold ‘interest only’ mortgages, but this time with no savings plan, endowment or investment product to pay the mortgage off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as property prices were on the rampage in an upwards direction!

Thankfully, the proportion of interest only mortgages sold started to decline after the Credit Crunch, as you can see looking at the graph below, from a peak of 43.81% of all mortgages to the current 8.71%.

 

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Increasing the length of the mortgage to obtain more time to raise the money has gradually become more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers considered too old for a mortgage extension.

Stotfold people who took out interest only mortgages years ago and don’t have a strategy to pay back the mortgage face a ticking time bomb. It would either be a choice of hastily scraping the money together to pay off their mortgage, selling their property or the possibility of repossession (which to be frank is a disturbing prospect).

I want to stress to all existing and future homeowners who use mortgages to go in to them with your eyes open. You must understand, whilst the banks and building societies could do more to help, you too have personal responsibility in understanding what you are signing yourself up to. It’s not just the monthly repayments, but the whole picture in the short and long term. Many of you reading my blog ask why I say these things. I want to share my thoughts and opinions on the real issues affecting the Stotfold property market, warts and all. If you want fluffy clouds and rose tinted glasses articles – then my articles are not for you. However, if you want someone to tell you the real story about the Stotfold property market, be it good, bad or indifferent, then maybe you should start reading my blog regularly.

For more thoughts on the Stotfold Property Market – visit the Stotfold Property Blog on: http://www.stotfoldpropertyblog.co.uk.

 

Stotfold First Time Buyers Mortgages taking 33.9% of their Wages

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I received a very interesting letter the other day from a Stotfold resident.  He declared he was a Stotfold homeowner, retired and mortgage free.  He stated how unaffordable Stotfold’s rising property prices were and that he worried how the younger generation of Stotfold could ever afford to buy.  He went on to ask if it was right for landlords to make money on the inability of others to buy property and if, by buying a buy to let property, Stotfold landlords are denying the younger generation the ability to in fact buy their own home.

Whilst doing my research for my many blog posts on the Stotfold property market, I know that a third of 25 to 30 year olds still live at home. It’s no wonder people are kicking out against buy to let landlords as they are the greedy bad people who are cashing in on a social woe.  In fact, most people believe the high increases in Stotfold’s (and the rest of the UK’s) house prices are the very reason owning a home is outside the grasp of these younger would be property owners.

However, the numbers tell a different story.  Looking at the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market.  In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31.

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Nevertheless, the average age doesn’t tell the whole story.  In the early 1990’s, 26.7% of first time buyers were under 25, while in the last five years just 14.9% were.  In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.

171 - fixed graph Age Distribution of First Time Buyers in UK since 1990

Although, there are also indications of how unaffordable housing is, the house price to earnings ratio has almost doubled for first time buyers in the past 30 years.  In 1983, the average Stotfold home cost a first-time buyer (or buyers in the case of joint mortgages), the equivalent of 2.8 times their total annual earnings, whilst today, that has escalated to 5.4 times their income.

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Again, those figures don’t tell the whole story.  Back in 1983, the mortgage payments as percentage of take home pay for a Stotfold first time buyer was 29.4%.  In 1989, that had risen to a staggering 75.9%.  Today, it’s 33.9%, and no that’s not a typo, 33.9% is the correct figure.

To answer the gentleman’s questions about the younger generation of Stotfold being able to afford to buy and if it was right for landlords to make money on the inability of others to buy property, it is not all to do with affordability as the numbers show.

What of the landlords?  Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households.  That would be the equivalent of raising income tax by 4p in the pound and I don’t think UK tax payers would swallow that.

So, if the Government haven’t got the money, who else will house these people?  Private sector landlords will and thankfully they have taken up the slack over the last 15 years.

Some say there is a tendency to equate property ownership with national prosperity but this isn’t necessarily the case.  The youngsters of Stotfold are buying houses, but buying later in life. Also, many Stotfold youngsters are actively choosing to rent for the long term, as it gives them flexibility, something our 21st Century society craves more than ever.

 

Council House Waiting List in Stotfold Drops by 78% in last 3 years

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Should you buy or rent a house?  Buying your own home can be expensive but could save you money over the years.  Renting a property through a letting agent or private landlord offers less autonomy to live by your own rules, with more flexibility if you need to move.

Yet, there is a third way that many people seem to forget, yet it plays an important role in the housing of Stotfold people.  Collectively known as social housing, it is affordable housing, which is let by either South Bedfordshire Council or a Housing Association to those considered to be in specific need, at rents below those characteristic in the private rental market.

In Stotfold, there are 332 social housing households, which represent 11.65% of all the households in Stotfold.  There are a further 741 families in the South Bedfordshire Council area on their waiting list, which is similar to the figures in the late 1990’s. The numbers peaked in 2013, when it stood at 3,371 families, so today’s numbers represent a drop of 78%.

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Nevertheless, this doesn’t necessarily mean that more families are being supplied with their own Council House or Housing Association property.  Six years ago, Westminster gave local authorities the authority to limit entitlement for social housing, quite conspicuously dismissing those that did not have an association or link to the locality.

Interestingly, the rents in the social rented segment have also been growing at a faster rate than they have for private tenants.  In the South Bedfordshire Council area, the average rent in 1998 for a council house / housing association property was £200.94 a month.  Whilst we have no up to date figures, because of the ‘Large Scale Voluntary Transfer’ of all or most of the local authority’s stock was transferred to a Private Registered Provider sector, so the average rent is no longer applicable.  Therefore, using the average rent increase for England of 108% (England’s average rent being £183.08 a month in 1998 and £381.03 a month today) we can guesstimate an average of approximately £415.

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When comparing social housing rents against private rents, the stats don’t go back to the late 1990’s for private renting, so to ensure we compare like for like, we can only go back to 2005.  Over the last 12 years, private rents have increased nationally by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%.

What does this all mean for the homeowners, landlords and tenants of Stotfold?

Rents in the private rental sector in Stotfold will increase sharply during the next five years.  Even though the council house waiting list has decreased, the number of new council and Housing Association properties being built is at a seventy year low.  The government crusade against buy-to-let landlords together with the increased taxation and the banning of tenant fees to agents will restrict the supply of private rental property, which in turn using simple supply and demand economics, will mean private rents will rise.  This makes buy to let investment a good choice of investment again (irrespective of the increased fees and taxation laid at the door of landlords).  It will also mean property values will remain strong and stable as the number of people moving to a new house (and selling their old property) will continue to remain restricted and hence, due to lack of choice and supply, buyers will have to pay decent money for any property they wish to buy.

Interesting times ahead for the Stotfold property market!

32 miles – The average distance Stotfold people go when they move to a new house

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“How far do Stotfold people go to move to a new house?”  This was an intriguing question asked by one of my clients the other week.  Readers of my property blog will know I love a challenge, especially when it comes to talking about the Stotfold property market.

For the majority, the response is not very far.  It is much more common for homeowners and tenants in Great Britain to move across town than to the next town or county.  Until now, it’s been hard to say how many homeowners and tenants moved from and to relatively far away to buy or rent their new home.  However, I carried out some research and requested some statistics from the Royal Mail and what came back was fascinating.

Using statistics for the 12 months up to the middle of Autumn 2016, 151 households moved out of Stotfold and the average distance was 32.03 miles, the equivalent of moving from Stotfold to Buckingham as the crow flies.  The greatest distance travelled was 514 miles, that’s almost 20 marathons, when someone moved to Banachton in Scotland.

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Considering there were 141 property sales in Stotfold in the year and countless tenant moves, the numbers seems consistent.  Once you find a town you like, you tend to want to settle down and if you do move, you might only move to a different neighbourhood, a better transport links or to be closer to the school you want to get your children into.  The likelihood is however is that you won’t travel far.

I then turned my attention to people moving into Stotfold.  Using the same statistics for the 12 months up to the middle of Autumn 2016, 164 households moved into Stotfold and the average distance was 28.90 miles, the equivalent of moving from Aylesbury to Stotfold, again as the crow flies.  The greatest distance travelled again was 354 miles, that’s the same as 13 marathons when someone moved from Parkhead in Scotland to Stotfold.

I have looked at the data of every person moving into Stotfold and these have been plotted on a map of the UK. Looking at the map below, it shows exactly where most people come from, when moving into Stotfold.  As you can see, there are a high proportion of people moving from London and from the South West.

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What does all this mean for the landlords and homeowners of Stotfold?

When an agent markets a property for rent or let, it is vital to know the tenant or property buyer well, that the properties they are letting / selling fit those tenants / buyers, so they almost sell themselves.  These days that means not only knowing how many bedrooms, reception rooms a property offers but the budget buyers and tenants want to spend on a property in that area as well as where they come from.

The estate and lettings industry loves the mantra “location, location, location”.  I say it might be helpful to factor in where and how far people are moving from, so the property can be sold or let more easily.  Many say knowledge is power and whilst I do enjoy writing my blog on the Stotfold property market, I also use the information to help my clients buy, let and sell well.  So for example, the information gained from this article will enable my team and I to be more efficient in where to direct our marketing resources to ensure we maximise our client’s properties sale-ability or rent-ability.

For more information and advice about the Stotfold property market, give us a call on 01462 894565 or pop into the office for a chat – we don’t bite!

237 Stotfold Landlords – Is This a Legal Tax Loop-Hole?

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In November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market.  One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017.  Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic / 40% higher rate and 45% additional rate).

So, for example, let’s say we have a Stotfold landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (2016/17), assuming no other costs or allowable items, the figures are below:

  • Annual rental income £10,800.
  • Taxable rental income would be £3,600 after tax relief from mortgage relief
  • Meaning they would pay £1,440 in income tax on the rental income

And assuming no other changes, the landlord would have income tax liabilities (at the time of writing May 2017) in the tax years of:

  • (17/18) £1,800
  • (18/19) £2,160
  • (19/20) £2,520
  • (20/21) £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability.  However, there is another option for landlords.

The Stotfold landlords who own the 237 Rental properties

in the town could set up a Limited Company and sell their

property personally to that Limited Company

In fact, looking at the numbers from Companies House, many landlords are doing this.  In the UK, there are 93,262 buy-to-let limited companies, and since the announcement in November 2015, the numbers have seen a massive rise.

  • Q2 2015 / Q3 2015 – 4,193 Buy to Let limited companies set up
  • Q4 2015 / Q1 2016 – 5,403 Buy to Let limited companies set up
  • Q2 2016 / Q3 2016 – 3,007 Buy to Let limited companies set up
  • Q4 2016 / Q1 2017 – 7,149 Buy to Let limited companies set up

 

173 Stotfold Graph

By selling their buy to let investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL’s as an ‘allowable expense’ – effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.

I am undeniably seeing more Stotfold landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company?

In fact, I have done some extensive research with companies house and in the 15 months between 1st January 2016 to 31st March 2017, 67 buy-to-let limited companies have been set up in the SG postcode alone.

If you are looking to hold your BTL investments for a long time, it could be very favourable to take the short-term pain of putting your BTL’s in a limited company for a long-term gain.  You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.

As the law sees the new limited company as a separate entity to yourself, you are legally selling your BTL property to your limited company, just like you would be selling it on the open market.  Your limited company would have to pay stamp duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated too and this could come with exit charges.

On a more positive note, what I have seen by incorporating (setting up the limited company) is landlords can roll up all their little buy to let mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital.  Finally, if the tax liability is too high to swap to a limited company, some savvy buy to let investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company, just an idea, not advice!

It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance.  Whatever you do, always get the opinions from these tax consultants in writing and you shouldn’t hurry into making any hasty decisions.  The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation.  With decent tax planning from a tax consultant and good rental / BTL portfolio management (which I can help you with), whatever you do, let’s keep you the right side of the line!