Is BTL better than stocks and shares for retirement?

According to new research from Nationwide Building Society, the average cost of a typical home in the UK in April 1991 was £53,677.

Prices have increased by almost 260% over the past 24 years, bringing the average UK house price in 2015 to £193,048.
It’s no surprise that the buy-to-let market is booming in the UK, as more and more investors opt for property, rather than stocks and shares to fund their retirement.  More than two million people are now private landlords, up by 600,000 since the financial crash.

In 2000, less than 2% of mortgages in Britain were buy-to-let. Now there are 900 BTL mortgages available accounting for 15% of all home loans and new buy-to-let mortgages account for 18% of new mortgages.

Over the last 15 years, property has given investors excellent returns. The chart below shows how much money would have grown if it had been invested in property since 1991, the year Nationwide started publishing monthly house price figures, and in the FTSE All-Share index over the same period. Returns from the FTSE All-Share only narrowly beat those from property, at 264% compared with 259%.

Jane Morris, Managing Director of Property Let By Us comments: “Our own research shows that for 20% of landlords, their property portfolio forms part of their pension provision and for 70% of younger landlords, it is their only pension fund.  

Many people still prefer property as a sensible way of saving for the future because, unlike pensions, with bricks and mortar your money isn't locked away until you reach the age of 55.  Excellent rental yields and capital growth from buy-to-let is appealing to any investor who is concerned about the volatility of the stock market.  

 

Despite the additional costs in property such as buying fees, maintenance and void periods, the asset growth and rental income is still very attractive for investors concerned about the volatility of stock markets. However, as with any investment, there are no guarantees, so investors should be aware of the potential pitfalls.”

43% of landlords say demand is booming

 New research by Paragon Mortgages has found that continued growth in the BTL market is rife in the second quarter, with 43% of landlords experiencing a rise in tenant demand.

The most recent findings show that the trend for strong tenant demand is well-established, with ongoing steady growth for the past three consecutive quarters.

The level of growth is expected to continue over the next 12 months with more than half of landlords (51%) believing they will continue to see a rise in demand.

The research also identified the tenant groups that landlords are most frequently letting to with almost half of landlords (47%) renting to young couples, young singles (43%) and families with children (42%).

John Heron, Managing Director of Paragon Mortgages, said: “It is no surprise that rental demand is steadily increasing. With continued stress on the housing stock driving prices up, tough affordability hurdles for would-be buyers and a social rented sector under pressure as a result of renewed interest in right-to-buy, a steady increase in rental demand was practically inevitable. It is important that landlords continue to expand the supply of rented property in order to maintain balance and so avoid unsustainable increases in rents. A healthy, competitive and innovative buy-to-let market is critical to this.”

New 95% LTV range launched at TSB

    

TSB Intermediary has announced that it has launched a 95% LTV range with rates from 4.49%.
Two year fixed rates start at 4.49%, five year fixes from 4.89%, and the ten year Fix and Flex from 5.34%.
TSB’s Fix and Flex mortgage is new to the intermediary market at 95% LTV. According to the bank, it is the only lender to offer a ten year fix rate mortgage for buyers with a 5% deposit.
TSB are also offering a three year stepped mortgage from 3.59% (year 1), rising to 4.69 in years 2 and 3.
TSB’s new stepped mortgage is also new to the range of mortgages available to brokers. These give homebuyers some financial flexibility during the first year in their new home, and the assurance of a fixed rate for three years.
Roland McCormack, TSB Intermediary Director, said: “The mix of TSB’s mortgages allied to our reliable expert to expert service is proving to be a hit with brokers. The introduction of 95% mortgages through TSB Intermediary is the latest milestone in the launch of our intermediary offering.”

House prices cool amid heatwave

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The latest Nationwide house price index has confirmed that despite the recent heatwave, house price growth has continued to cool off, moderating to 3.3% from 4.6% in May.
Robert Gardner, Nationwide's Chief Economist, said: "This maintains the gradual downward trend that has been in evidence since mid-2014, though this is the smallest annual rate of increase for two years. House price growth continues to outpace earnings, but the gap is closing, helped by a pickup in annual wage growth, which moved up to 2.7% in the three months to April from 1.9% at the start of the year.
The slowdown in house price growth is not confined to, nor does it appear to be driven primarily by, developments in London. In quarter on quarter terms, London has continued to see price growth at or above the rate in the UK overall over the past three quarters, while the annual rate of price growth in the capital remains the second highest in the country.
Eleven of the thirteen UK regions saw a slowdown in the annual rate of growth in Q2. Most parts of the country continued to see annual house price gains - the exceptions were Wales and Scotland, which recorded small declines.
Robert Gardner suggested that housing stock is likely to be used more intensively unless supply picks up: “Given the gap between population growth and rates of housebuilding (which has been evident for some time) the housing stock is likely to be used increasingly intensively until building activity catches up. There are signs that this has been occurring, with the number of vacant properties trending down since 2008, though council tax changes in 2013 impacted reporting and probably overstate the decline in the last two years.
The strong relationship between supply constraints and vacancy rates is clearly visible at the regional level. As you might expect, regions where affordability is more stretched see far fewer vacancies. For example, in London, the UK region where affordability is most stretched, only 1.7% of the housing stock was vacant in 2014, around half the 3.5% rate prevailing in the North of England.
Given the apparent supply pressures, it is interesting that instances of under-occupancy are relatively high. For example, in 2014 almost half of owner occupiers in England lived in a property with two or more spare bedrooms.
While this may represent peoples’ preferences, it may indicate that the housing stock is not be being used as efficiently as it might be, perhaps because of a mismatch between the types of property people want and what is available. For example, it may be that older people are unable to find suitable properties to downsize, frustrating the ability of families to move into larger homes.”

 

Paul Smith, CEO of haart estate agents had this to say: “Today’s report of national house price growth slowing is a step in the right direction for affordability but we are still finding that demand for homes is outpacing supply. Our data shows there are now 11 prospective buyers chasing each new property instruction across the UK, compared to eight at the same time three years ago. The formation of property chains is still proving difficult – while many are keen to move, and would do so if the opportunity presented itself, the difficulty is in securing an onward purchase.
This is having a stagnating effect and there is a desperate need for a more liquid market, through an injection of supply. We are in desperate need of government driven supply side initiatives which should include attractive incentives for housebuilders to get building. We are also hearing reports from branches that downsizing has become a dirty word and is seen as carrying negative connotations – that the seller has somehow lost their zest for life. Changing this attitude to release more family homes for second-steppers, would ensure our limited housing stock is used in the most efficient way. Without this healthy churn in the market, first-time buyers will continue to be priced out.”
Alex Gosling, CEO, online estate agents HouseSimple.com, quipped: "Only the second monthly fall in house prices this year suggests any momentum gathered following the General Election in April, has started to ease.

However, there's no immediate cause for concern that the housing market is starting to stutter. Typically, the summer months are often slower months for property purchases as buyers head to the beaches rather than view properties. And April and May did see an unusually high level of buyer activity.

What we're seeing overall is a return to normality, although a black cloud does loom overhead in the form of a shortage of stock. The lack of properties coming onto the market remains an issue, and come September when buying activity typically starts to pick up again, the picture could be an entirely different one."

Although most regions have seen annual price growth fall, the most noticeable drop is London with annual price growth down to 7.3%. London's buoyant housing market propped up the UK market as a whole during the hard times - now it seems the Capital could do with a little propping up itself."
Jonathan Samuels, CEO of Dragonfly Property Finance, added: "The property market is a veritable conundrum right now. The June dip and ongoing slowdown in the rate of annual growth have come despite the fact that demand is picking up and supply is still constrained.
While the gap between earnings and house price growth may be narrowing, you suspect there will always be a degree of repulsion between the two, like two positive magnets. Wages may be improving but it's hard to see them ever getting consistently close to house prices.
London prices may have softened quite considerably but they are still comfortably above the UK regional average. Even when London falls, the landing is relatively soft. The fact that Northern Ireland outperformed all other regions in the second quarter highlights the way in which different regions can wax and wane.
It's hard to predict where the property market is headed. With a low cost of living, very competitive mortgage rates, renewed political certainty and a strong jobs market, there are many positives. However, should events in Greece spiral out of control, the UK property market will not be immune

What type of property in Southend sells the best?

 

Knowing how saleable a property is half the battle when deciding what (or not) to buy for your next property investment. Why? 

 Well because one day, you may need to sell that property. If you go into the purchase with open eyes, you know most of the risks and can barter the price accordingly if you have to. Bearing this in mind, last week, a couple from Brentwood popped into our offices to ask about investing in property. Their concern was if we have another property slump (and we will because that is what has happened to the British property market ever since the 1950’s), if they did need to sell, what type of property would be easier to sell. 

Now everything sells, even during a slump, but I did some research and followed up their query – I was actually quite surprised with the results.

A good guide to judge the saleability of property is the number of properties for sale, compared to the numbers that are sold, subject to contract. Now I carried out this comparison last week, 

so the numbers will be marginally different today, but of the 84,183 households in Southend there are 1,660 properties on the market for sale. Of those 1,660 properties, 647 properties are fully available on the open market waiting for a buyer and 1013 have buyers and are sold subject to contract. That means 31% of property on the market has a buyer in Southend (interestingly in Westcliff 55% of properties on the market have a buyer and in Southend 57%).

However, delve deeper, and in Southend today, 58% of detached houses on the market have a buyer and great news for semi-detached property owners, as 69% of them have buyers.  Terraced houses fair even better, with 247 of the 340 on the market now have buyers (making 72%). The properties that appear to be sticking though are apartments at a comparatively lower 55% and bungalows at 57%. 

I am always giving advice to my existing and new landlords in Southend on what to buy (or not as the case may be).  Having this detail of information at my fingertips, allows me to spot trends in the local market, which then enables to me to give the very best advice to my clients. I don't charge for that advice as I have plenty of opportunity to earn money by finding the best tenants for my landlords in the years to come on the investments I have advised on. 

Just who are Westcliff on sea Tenants?

 

Speaking to a Bank Manager the other day in Westcliff, we got talking about the state of the Southend  property market and whether we, as a Country, are turning more and more to the European style of property ownership, where it is the norm to rent as a opposed to automatically buying once you have a job etc.

Even though a recent report by the Halifax stated homeownership remains a goal for 85% of twenty to forty five year olds, there is information emerging that attitudes in the UK towards renting your own home as opposed to owning it have softened, showing more and more, that renting is being seen as a life style choice. In fact it is recognised in learned circles that the cycle of renting is also repeated by the fact that people who grow up primarily in rented accommodation are themselves more likely to rent than buy.

Many people think that the UK should lose its fixation with homeownership and that people would be happier as a result. If this pattern were to continue, then this would suggest that the people entering the housing market are less likely to want to own a home, and are more likely to remain  ‘Renters for Life’, irrespective of changing market conditions, leading to a longer term shift in the home ownership make-up of the country.

The biggest barrier often mentioned to buying a house is the claim that they are not buying property at the moment because of a lack of sufficient wages and by the high level of deposits but like we said a few weeks ago, in Southend on sea, a single person on the average Southend  salary of £25,487p.a., assuming they had a ‘reasonable’ credit history, they would be showered with lenders offering them a 95% mortgage - a ‘reasonable’ credit history means no loan defaults, and no County Court Judgements. Just because you missed just one credit card payment won’t mean you have messed up your credit score and your ability to get a mortgage - and they would only need to find £9,500 as a deposit to buy a decent two bed semi-detached house in Westcliff on sea. It comes down to the perceived capability of the youngsters in Southend to buy nowadays.

Interestingly, when I looked at the Westcliff  figures, the average Southend  tenant has an older profile than the England and Welsh average, I know we have a large number of mature tenants at our agency, but I always thought that was the exception to the rule. Obviously not! - Good news for landlords as they make excellent tenants!

So what does all this mean for Southend landlords and future local landlords? I honestly believe there is a difference between the hope and perceived capability of the younger generation to buy a home. Although homeownership is seen as advantageous by a majority, many tenants admitted in the Halifax report they are not taking the steps they need to purchase their own home.

As the local authority aren’t building any properties in Southend, people still need to live somewhere, and that is why, as I mentioned a few weeks ago in the Leigh Property Blog, the demand for rental properties will only continue to steadily rise in the coming decade.

If want to know where the Southend Property market is heading and where you should or shouldn’t buy, maybe the one place you should visit is the Leigh Property Blog or you can call into our office on the London road for a chat.

Leigh on sea Property Market – What is really happening?

I had an interesting conversation with a local Leigh accountant the other day. He is quite an observant chap (I know this because I have known him for a few years .. but I suppose you have to be, to be an accountant!). Anyway, he mentioned a few things he had noticed recently in Leigh, one that Leigh property prices had gone up in the last few years but nowhere near the growth levels that were being achieved in central London, and secondly, that he thought the number of for sale boards in Leigh (and more importantly ones with sold slips on them) had increased over the last couple of years.

The rate of house price inflation in Leigh continues to slow with growth of 10.4% in the 12 months to February compared to 11% just under six months ago, according to the latest Land Registry data. However, there is considerable local variation with house price growth ranging from 7.7% in just over the last 12 months.

Whilst Leigh hasn't seen the +20% per year in house price growth of London over the last couple of years,  Canterbury has seen  a sharp uplift in the number of properties sold throughout  2014 as base line demand for housing grows, which suggests there is substance to the recent pick-up in house price growth in the City. Since the Second World War in the UK, when the number of properties sold has grown, property values grew soon after. The 16.9% uplift in property transactions in Leigh in 2014, compared to 2013, indicates the most significant recovery in house market activity in Leigh (outside London) since 2007.

When you compare Leigh with London, you could be looking at two different area's, In London, its mid / late teens house price to earnings ratios are impacting demand (i.e. the average property value is often 15 or 17 times the average wage in London .. in fact in Knightsbridge the ratio can be 30 to 1).  However, the number of people wanting to sell has dropped considerably, meaning that falling sales volumes combined with a general slowdown in activity in the run up to the General Election are resulting in lower mortgage approvals for home purchase.

Transactions are a great indicator for house prices. The acceleration in house price growth in London in the last two years was preceded by three years of rising transactions. A similar pattern is being registered in the Leigh area, as pent up demand returns to the market supported by low mortgage rates and an improving economic outlook.

But before you get the champagne out, while the uplift in activity is welcome news, the number of Leigh property sales in 2014 are still 23.1% lower than the level seen in 2007 and property values are 3.2% above the 2007 levels. The ongoing housing recovery is far from broad based and remains focused on middle to higher value areas within Canterbury where households have equity and find it easier to access mortgage finance. If you want to know more about the Leigh Property Market please visit the Property Blog www.leighpropertyblog.com or send me an email to property@penneckestates.com