Could you get a 868% return in Burton by saving your money?

Buy to let is essentially different from investing in stocks and shares or putting money in the Building Society. Whilst these other investments, Building Society Passbooks, Stocks and Shares etc. are passive  i.e. once the  money has been invested it you leave it alone, with buy to let, things are more hands on, in fact it’s almost a small business.

One thing the landlords I speak to say is the fact that they prefer buy to let because it is both an investment as well as a business. It is this factor that attracts many of my Burton landlords – they are making their own decisions rather than entrusting them to others such as City Whiz Kids in London playing roulette with their Pension Pot!

So, if you are investing in the Burton property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth has been strong in recent times in Burton, but the value of property does go up as well as down, just like shares do, however, it very rarely decreases below the initial purchase price. The rental income that the tenant pays you will, hopefully, grow over time. If you divide the annual rent into the value, or purchase price, of the property, this is your yield, or your annual return.

So, let’s look at an example; I was talking to a landlord who bought a terraced house in the Belvedere Road area of Burton. He bought a very pleasant 4 bed terraced house in 1999 for £41,000. It sold again in December 2014 for £130,000; a rise of 217.07% in just over 15 years – a compound annual return of 8%.

However, the real returns are for those Burton landlords who borrowed money to purchase their buy to let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £41,000 purchase price of the Belvedere Road terraced house on an interest only 75% mortgage, he would have only needed to invest £10,250 based on a 25% deposit and borrowing the remaining £30,750. However, his £10,250 would be worth £99,250 today; £130,000 less the £30,750 interest only mortgage, a rise of 868.29% representing a compound annual return of 16.34%.. and I haven’t even mentioned the rent he would of received in those 15 years! This demonstrates how the Burton buy to let market has not only provided very strong returns for average investors since 1999 but how it has allowed many motivated buy to let Burton landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties, albeit with larger mortgages but with greater future potential.

As my article mentioned a few weeks ago, more and more Burton people may be giving up on owning their own home and are instead accepting long term renting whilst buy to let lending continues to grow from strength to strength.

If you want to know what, or would not, make a decent property to buy in Burton for buy to let, then one place for such information would be the Burton Property Blog.

Just who are Burton’s tenants?

Speaking to a Bank Manager the other day in Burton, we got talking about the state of the Burton 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 Burton, a single person on the average Burton 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 £5,500 as a deposit to buy a decent two bed semi detached house in Stapenhill. It comes down to the perceived capability of the youngsters in Burton to buy nowadays.

Interestingly, when I looked at the Burton figures, the average Burton tenant has an older profile than the England and Welsh average, as can be seen from the graph below. 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 Burton landlords and future Burton 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 Burton, people still need to live somewhere, and that is why, as I mentioned a few weeks ago in the Burton Property Blog, the demand for rental properties will only continue to steadily rise in the coming decade.

If want to know where the Burton Property market is heading and where you should or shouldn’t buy, maybe the one place you should visit is the Burton Property Blog or you can call into our offices on the High Street for a chat.

What will happen to the Burton Property Market after the shock Election result?

After the shock of the Conservatives returning to power with a majority at Westminster, all the potential issues and possible uncertainties of a hung parliament has lifted the cloud from the Burton property market.  Talking to other Burton agents, surveyors and solicitors in the area over the last few days, there are signs this has started a new impetus the Burton property market after a subdued six months, when an amalgamation of tougher lending conditions, a natural correction after the strong recovery in Burton property prices in 2014, and political uncertainty ahead of the General Election slowed demand.

Against the back drop of Labour’s election promises of rent controls and three year tenancies, some Burton buy to let landlords were waiting to see how these new policies would be implemented before they committed themselves to buying more property for their  buy to let portfolio. Now that uncertainty has been removed, the long term picture is very positive.

So, with all that uncertainty now removed, where next for the Burton property market? Well with inflation at zero and with the Money markets happy David Cameron is still at No.10, the Bank of England have no reason to raise interest rates until 2016 at the earliest. As mortgage rates are at their lowest levels since 2010, landlords with large deposits will now be wooed by the mortgage companies in the coming months with low rates.

You see over the past couple of years, Burton landlords have benefitted from a booming Burton job market. Unemployment in the town has dropped to 1.8%, as a year ago,1,451 people were claiming unemployment benefit compared to today’s 940. With more jobs and better pay, as the level of rents is directly linked to tenant’s wages, there has been an increase in the rental prices tenants are willing to pay for good quality Burton properties.

Some landlords might be nervous about Tory’s plans for the housing market in the next five years in terms of tenant demand for their rental properties. One plan is for Housing Association tenants to have the right to buy their property. These kind of tenants were never in the private rented sector and will actually increase the supply of properties in the housing stock in decades to come. The Government ‘Help to Buy Scheme’ has only helped to buy 106 Burton properties since April 2013. Considering 1,220 properties have changed hands in the last year alone in Burton, I don’t think it has made a huge difference to our local property market.

The biggest matter, when it comes to tenant demand of rental property going forward, comes from the shift in the mindset and attitudes towards renting itself. Twenty years ago you were seen as a second class citizen if you rented a property - not any more! In Burton, as in the rest of the UK (apart from Central London), renting continues to offer good value for money for tenants. If you are an existing landlord in Burton or thinking of becoming one (or as we like to call you .. a FTL .. a ‘first time landlord’), then I must suggest you out seek specialist advice and opinion. Like many agents in Burton, we will happily give you our opinion on the current state of the market and the advantages/disadvantages to investing in the Burton property market if you pop into our offices. However, if time is at a premium, another source of information on the Burton Property Market is the Burton Property Market Blog!

Is Burton following the London housing trends?

I had an interesting conversation with a local Burton solicitor the other day. He is quite an observant chap but, I suppose you have to be if you are a solicitor! Anyway, he mentioned a few things he had noticed recently in Burton, one that Burton 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 Burton, and more importantly ones with sold slips on them, had increased over the last couple of years.

The rate of house price inflation in Burton continues to slow with growth of 3.5% in the 12 months to February compared to 5% just over six months ago, according to the latest Land Registry data. However, there is considerable local variation with house price growth ranging from 1.6% in Leicester  to 4.6% in Derby over the last 12 months.

Whilst Burton hasn’t seen the 20%+ per year in house price growth of London over the last couple of years, Burton 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 18.1% uplift in property transactions in Burton in 2014, compared to 2013, indicates the most significant recovery in house market activity in Burton (outside London) since 2007.

When you compare Burton with London, you could be looking at two different countries! In London, its mid/late teens house price to earnings ratios are impacting demand. 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 Burton 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 Burton property sales in 2014 is still 22.3% lower than the level seen in 2007 and property values are 8.9% below the 2007 levels. The ongoing housing recovery is far from broad based and remains focused on middle to higher value areas within Burton where households have equity and find it easier to access mortgage finance.

If you want to know more about the Burton Property Market, please pop into our offices on the High Street.

Which Government party will resolve the Burton property market problems?

With the General Election almost upon us, all the parties are trying to woo voters with policies that will attract those important votes come the 7^th May 2015. There are 12512 tenants of voting age in Derby living in private rented accommodation. In a tight election, their votes could be crucial.

Labour’s motivation to keep the private rental sector rents in line with inflation is pretty straightforward; cap rents and extend tenancy terms whilst the Conservatives are focussing on a ‘Right to Buy’ solution.

Since the turn of the Millennium, in Burton, there has been a significant change in the proportion of people who own their own home. In 2001, 75.57% of homes in Burton were owner occupied, today the figure is 69.58%, a significant decline in such a short time. Buy to let landlords can find tenants because young people say they cannot afford a deposit to buy unless they inherit money or are given a loan from the ‘Bank of Mum and Dad’ …but wasn’t that the way how most people got on to the property ladder; 10, 20 even 30 years ago or you just got on and went without and saved up?

In Burton, only 41.33% of 25 to 34 year olds have a mortgage. When you compare Burton against the national average of 35.93%, it just shows how different parts of the country have different housing markets. However, the really interesting fact is that if you roll the clock back to 1991 and nationally, 67% of 25 to 34 year olds had a mortgage.

After WW2, the supply of properties being built kept up with demand as millions of council homes were built. Also private house building increased in the 1950’s, but especially in the 1960’s and 1970’s, and as the Country  got more prosperous it meant that by 1971, there were more home owners than renters. However, since the 1970’s, the population has grown but the number of new properties being built hasn’t kept up at the same rate, the result is that there have been huge rises of property prices in the early ‘70s, the late 80s and more recently between 1999 and 2004. Interestingly, since the early 1970’s, out of the 34 richest countries in the world, the UK has seen highest property prices rises.

95% mortgages have been available to first time buyers since late 2009, but with property prices rising by 142% since 1996 in Burton, as property prices have been rising and first time buyers have been saving, the amount they have to save is continually rising at the same time. The stress on saving even for that kind of deposit, coupled with the new stricter mortgage rules introduced in 2014, means that most 20/30 something’s in Burton are renting instead of buying. Yet at the same time, don’t blame the landlords for this. For every mortgage approved for a landlord last year, three were approved for first time buyers!

The issue quite simply comes back down to a lack of new homes being built. In Burton and the immediate villages, only 453 properties a year are being built whilst the population is rising by 985 a year. The supply of new homes has been limited by planning laws, local councils not having the money to build council houses, hard-hitting green belt limitations, and our old friend nimbyism (Not in my back yard!). In fact, I read the Lyons Housing Review Report a few months ago, and in it, it said that at least 243,000 properties a year need to build to keep up with the number of new households being formed in the UK. In 2014, the whole country only built 109,000!  

With a rising population and net migration, especially from the EU, the mismatch between demand and supply is why we have the problem. Until politician’s have the backbone to realise the Country needs a lot more decent homes built, the problem will just get worse.

In the meantime, demand for rental property will continue to grow because people need a roof over their head at the end of the day ......fact.

There are two property markets in Burton..

With the General Election on the horizon, property values in Burton are 0.34% lower than they were 3 months ago, the diversion and ambiguity of an election typically makes house sellers who need to sell, price their property more realistically, although this only lasts a couple of months.

Looking specifically at it from a Burton landlord’s point of view, which I always do, the Burton properties favoured by investors are in short supply in many parts of the town because of a number of factors. One of the factors has been that we seen the number of first time buyers coming to buy their first home increase over the last 12 months in Burton.  Another factor has been the fact that the banks have been pushing ‘let to buy’ - yes ‘let to buy’ is different to ’buy to let’ - to homeowners (more of ‘let to buy’ in an up and coming article). Next, because of the banks, who are chasing low risk landlords with high deposits with very low mortgage rates and the low risk landlords with high deposits tend to be attracted to the safer modern two and three bed town houses and semi-detached properties in Burton.

As I mentioned a few weeks back, the pension rules are changing which means buy to let landlords can use some, or all, of their pension pot to buy a property.  It shouldn’t be forgotten there are tax implications taking more than a quarter of your pension pot out (see the article from a couple of weeks ago), so whilst many pension pots may not be able fund a suitably big enough tax free lump sum to buy the property outright, for most it will provide enough for the 25% deposit required by most BTL mortgage providers. It shouldn’t be forgotten landlords that the interest paid on the mortgage is tax deductible against the rent, thus lowering your income tax paid.

In the last 12 months, I have noticed a particular uplift in interest from ‘50 something’ Burton people wanting to become landlords for the first time. In Burton, the highest returns for the lowest investment are at the lower end of the market e.g. the classic Victorian terraced house. Unfortunately Victorian terraced houses, with two bedrooms are coming to the market in smaller numbers than the larger four bedroom ones in the top end sectors of the Burton property market.

When looking at the actual numbers, in the later part of the summer of 2014 in Burton, in one month alone 188 two bed houses were on the market in Burton. However, in January this year, a notoriously excellent bumper month for properties coming on to the market, there were only 153 two bed houses on the market in Burton to choose from. Today, that figure stands at only 102 In the same period, the number of four and five beds has increased significantly... interesting don’t you think?

At that lower end of the property market in Burton, where first time buyers and landlord investors compete with each other to buy those smaller properties, I believe throughout 2015, there will be a slow and steady tipping of the scales between supply and demand. In fact, from what I am seeing and hearing, early anecdotal evidence has suggested over the last few months (although we will need to look at figures later in the Spring once we have the data from The Land Registry), we are beginning to see a polarised Burton property market, where we have high demand but low supply at the bottom end of the property market, yet high supply but lower demand at the top of market… and that can only mean one thing... prices will go up quicker on the smaller properties than the larger ones in Burton, thus narrowing the gap for people looking to move up market!

I am always available for a chat about the local property market, so please don’t hesitate to give me a call or call in at the office on the High Street.

Burton rents are on the rise... for a few!

With the passing of the Easter bank holiday, we are a quarter of the way through 2015. I was talking to a landlord from Branston the other day about what is happening to the level of rents that are being achieved in the Burton property market.

In terms of rents in Burton, it appears that rents being achieved for new rentals - when the tenant moves out and new tenant moves in - have risen by 4.5% in the last 12 months on top of the range modern semi-detached properties, yet have remained static for older Victorian terraced houses. However, landlords with existing sitting tenants, irrespective of age, are not increasing their rents, as most landlords prefer to keep their existing tenant paying the same rent and have the peace of mind that their tenant remains and pays the rent thus reducing the risk of a potential void period.

It must be remembered rents dropped by 7.8% over 2008/9, due to oversupply in the rental market. A lot of the people who couldn’t sell their property in Burton in 2008/9 when the Credit Crunch hit in 2008, decided to let their house out instead of selling at a loss. In fact, the number of houses on the market in Burton dropped by 62.4% between March 2008 and April 2010, a lot of which came on to the rental market in Burton. However, looking at the longer term though, tenants have had it good  because since the turn of the Millennium, average wages have grown by 46%, but rents outside London have only grown by 36% rental growth over this period.

I told the Branston landlord that there is a lack of new rental properties in Burton coming on the market, in fact according to the Office of National Statistics, there are only 29.5 new rental properties are coming to the market each month in Burton but the population of Burton is rising by 82 people a month – something will have to give soon! This is compounded by the fact a number of landlords are looking to sell their rental properties in the coming months, as the property market in Burton has improved. This is then further compounded as tenants in existing rental properties appear to be staying in properties for longer periods of time.

Looking at the rents charged in Burton, historic evidence in the UK suggests private market rents have moved in line with general inflation. Government figures only go back as far as the year 2000, but looking at other countries with similar housing markets (America, Australia, Ireland and Holland) the fact is rents paid by tenants tend to rise in line or just ahead of inflation.

As short term wage growth in Burton has eased off recently, rising by only 1.3% in the last 12 months, taking average salaries in Burton to £25,487p.a., with the tax breaks announced by The Chancellor in the Budget, I believe, even though rents have kept pace with inflation in the past, renting as an option has become more affordable, and is increasingly seen as a lifestyle choice. With returning economic growth and expected increases in the rate of growth of wages, above inflation rental growth could rise.

If you want a chat about the local Burton property market, pop in for a coffee or email me using the link below!