Chichester Property News

Thursday, 28 May 2020

Is it time to re-mortgage?

The average interest rate for both two-year and five-year fixed rate mortgages have dropped to the lowest level since records began in 2007, according to Moneyfacts. I was surprised to learn from my mortgage broker a while ago that most people don’t re-mortgage when their initial mortgage term expires, meaning they could be overpaying by thousands of pounds! With these record-low rates, it seemed sensible to take another look at the issue.

The average interest rate for a two-year fixed mortgage is now just 2.09%, with interest rates on offer for five-year fixes barely higher at 2.35%. I’ve always been a fan of long-term fixed-rate mortgages for their certainty and the avoidance of both faff and fees in having to re-mortgage as regularly. Unfortunately, I’ve held that belief since I started to buy property; locking in at rates of 6%+ in 2008, only to see the base rate collapse in the following couple of years!

Whilst I wrote about the possibility of negative interest rates last September (as banks in Denmark were actually paying people to take on mortgages), with the UK base rate having dropped to a record low of 0.1% in response to the Covid-19 pandemic it seems a reasonably safe bet that things can’t get much cheaper…then again, as I type, it seems the Bank of England are reviewing the introduction of negative interest rates for the first time in its 324-year history to help stimulate an economic recovery.

Even if rates do drop further, it’s a certainty that re-mortgaging now if you are sat on your lender’s SVR (Standard Variable Rate) will save you a lot of money. Bear in mind the average SVR is around 4%-5% and, with the rates mentioned earlier, a homeowner with a £200,000 mortgage could save £4,820 a year by switching to a two-year fixed rate deal.

It’s also possible that your property has increased in price (house prices in Chichester are up 17% in the past five years), so you may have additional equity in your home. For some, this will open up the possibility of lowering their LTV (Loan To Value) so they can access even better terms and mortgage rates.

This could be especially useful at a time when mortgage lenders have been pulling their mortgage products in droves, having reassessed their appetite for risk. The number of different mortgages homeowners could choose from on 20th March was 5,222 - that figure has halved since. The greatest decline in availability though is for those needing to borrow a higher proportion of their property’s value. For those with less than a 10% deposit, there are around 90% fewer options available than in mid-March, whilst average interest rates on offer have actually increased.

So, if you haven’t re-mortgaged for a while it might be worth a call to your local mortgage broker. The initial costs in doing so should be more than offset by the savings you’ll make over the term of the mortgage.

This article was featured in...

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

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}

Thursday, 21 May 2020

Chichester's housing mix

Different shape and size of property, different houses, types of properties

As property comes in all shapes and sizes, I thought it would be interesting to take a look at how Chichester’s property market compares locally and to the rest of the UK.

Central Chichester (PO19 postcode) has a very similar housing mix to the UK average; with around 20% detached houses, 25% semi-detached houses, 25% terraced houses and 30% flats.

I’ve said in the past though that the outskirts of Chichester can be a good place to look for investment properties as you get more ‘bricks for your buck’. This is evident in the PO18 postcode, where just 6.8% of the properties are flats, whilst detached houses make up the largest segment of the market (42.5%). It’s a similar story in PO20, with just under 10% of properties being flats, as detached houses dominate the area (44.8% of homes are detached).

pie chart, detached, semi-detached, terraced, flat, PO18, PO19, PO20

The plethora of older terraced properties in Chichester’s city centre, as well as an increasing number of new-build sites favouring terraced configurations, means one in four Chichestrians now live in a terraced home.

Interestingly, when we take a look at how the price of each property type has fared in the last 12 months, it is those terraced houses that have performed the best, increasing by 1.9%. This compares to a 1.5% rise in the price of semi-detached houses in the past year, a 1.1% rise in detached houses and a drop of 0.5% in the price of flats.

Flats have underperformed the market if you look on a longer-term basis too. Average property prices in Chichester are up 17% in the last five years and yet flats are up just 13.3%. Over a ten-year period the gap has widened further, with the average Chichester property rising in price by 41.4%, whilst flats lag behind with an increase of 31.7% (bear in mind, that 9.7% difference actually means houses have risen by around a third more than flats have!)

1 year, 5 year, 10 year, Chichester property price growth, detached, semi-detached

It will be interesting to see how the developers of the large number of new housing schemes in Chichester decide to spread their mix of housing. Whereas there seemed to be a boom in large-scale developments of apartments throughout the UK in 2002-2007, Chichester largely ignored this fad.

Developers now seem to prefer to build houses, which are more in demand whilst commanding a higher price tag. They’ve even found a way to maximise the land they build on (one reason apartment blocks were popular) by creating large numbers of three-storey townhouses. You also don’t see many new-build two-bedroom houses when, for the sake of making the plot a few feet wider, developers can stretch it to a three-bedroom house (even if the third bedroom is often a ‘box’ room).

If you’d like to ‘stay alert’ of the developments in Chichester’s property market you can do so by visiting www.bit.ly/chipropertynews to sign up for my free weekly update.

This article was featured in...

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}

Thursday, 14 May 2020

1,333% return for Chichester’s landlords since 1997?

market returns on property investment for landlords

A landlord contacted me having seen one of my recent buy-to-let deals of the week. He was amazed that a simple three-bedroom house off St. James’ Road in Chichester had risen in value by 333% in 23 years. He commented on what an amazing return that was, before I flummoxed him by saying that the overall return achieved was likely to be FAR greater than that.

This tied in with my article from a few weeks ago, questioning whether ‘cash is king’ when it comes to property investment. You see, one of the key advantages of property compared to most other investments is the fact the banks are willing to lend you money against your purchase. Landlords that have done this in the past, rather than paying entirely with their own funds, have massively increased their returns.

Referring back to the three-bedroom house off St. James’ Road; it was purchased in 1997 for £59,995. It is now for sale at £260,000, equating to an increase of 333% in 23 years (or 6.6% compounded per year).

However, if the property had been bought with a 75% interest-free mortgage, it would mean the landlord would only have required £15,000 of their own money i.e. the 25% deposit, whilst borrowing the remaining £44,995 from the bank.

That original £15,000 investment would be worth £215,005 today (the £260,000 value minus the £44,995 mortgage). That’s a whopping return of 1,333%, or 12.3% compounded annually. That’s before factoring in the rent that would have been received in those 23 years!

Of course, this leverage can also work against you in a downturn, which is what caught many out in 2007/2008. Consider an over-developed city centre apartment priced at £200,000, which could be bought with just a 5% deposit at the time. A great use of finance if the price keeps going up, but if it was to drop in value by just £10,000 you would’ve lost all of your initial investment. Worse still, which is what caught many people out, is when values fall further than this and the owner faces negative equity i.e. you owe the bank money!

This is why many risk averse people are happy to purchase property outright with cash (as I discussed when I wrote whether cash was still king). There’s no chance of being forced to sell the property at a loss, meanwhile you retain more of the rent and still benefit from potential house price increases.

The phenomenal historical returns above demonstrates why property continues to be such a popular form of investment. It also explains how long-term buy-to-let investors have become particularly wealthy, especially if they were well-disciplined in re-investing their rental profits to fund more deposits to buy yet more property.

If you’re looking at property as an investment, please get in touch if you’d like to know what would (and would not) make a decent buy-to-let in Chichester.

This article was featured in...

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}

Thursday, 7 May 2020

£655m spent on property in Chichester in 2019

House, coins, pile, money spent on chichester property

…£654,976,753 to be precise.

That was the huge amount of money spent on property in Chichester in 2019, according to recently released Land Registry data. Whilst that sounds like a lot, it’s actually around £100m less than was spent in 2018! That represents a significant drop of 13% and means the trend of declining transaction values has accelerated, having peaked at £758m in 2017.

The fall has come from both sides of the equation too; average property prices and the number of transactions are both down. It has to be said though that prices held up reasonably well, with the average sale price of £377,074 down just 2.2% compared to the record high average set in 2018 (£385,507).

dual axis, bar graph, line graph,

Yet again though, it is the number of properties selling that is really slowing down the market. With 1,737 properties changing hands in 2019, it marked the fifth year in a row whereby sales figures were down. In 2018 there had been 1,954 transactions, meaning last year saw an 11% drop. It’s also some 27% lower than the 2,376 sold in 2014; they year that saw the most properties sold since the credit crunch.

Bearing in mind an average of 2,525 properties were sold in Chichester each year between 2000-2007, it is clearly evident the fallout from the credit crunch is still rumbling on. Considering the number of new homes built in Chichester since then too, it is clear that we are far below the number of properties you would expect a healthy property market in Chichester to have changing hands.

With Covid-19 bringing the world to a halt, it seems pretty obvious that property sales will be down this year too. By how much remains to be seen; the enforced period inside our homes may lead to an increase in movement when things open for business again. The job market will also have an effect upon housing affordability and whether people need to move for work. There could be pent-up demand ready to burst into action when people are able to act….or everyone may just hunker down until the full aftermath and repercussions are understood.

Today there are 630 properties on the market in Chichester, with 195 showing as sold (subject to contract). This time last year there were 516 properties on the market, with 162 having been sold. There may be some hope from those figures then, although bear in mind a backlog will be building in those properties showing as sold, due to surveyors and conveyancers having largely downed tools during the lockdown period.

Last year when I did this same analysis, I suggested prices would start to flatten and the market was constraining in regards to availability and volume. I still think prices could go either way with the resilience, low interest rates and potential for high inflation in the mix, but it seems pretty clear to me that volume will be down yet again when the data is released in 12 months’ time in respect to 2020.

To keep on top of the latest happenings in Chichester’s property market, sign up to the free weekly Chichester Property News e-mail at www.bit.ly/ChiPropertyNews

This article was featured in...

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}

Thursday, 30 April 2020

How much are Chichester’s landlords spending on property maintenance?

Drill, Blueprint, Nails, Tape measure, building tools

As the tax year recently came to a close, annual account statements were sent out to all of my landlords who employ me on a full management basis. It’s something I do (free of charge) as part of my lettings service, but I think it will make my landlords (or their accountants!) lives easier come self-assessment time.

The statement breaks down the total rent they have received in the tax year for each property, along with any deductions that were made i.e. my management fees and any maintenance costs. It’s similar to what I send each month when the rent comes in, but this time for the whole tax year.

Not only is this a nice overview for the landlord, whilst again demonstrating my complete transparency in regards to fees, but it also ensures all costs are accounted for so that they can claim the maximum tax relief. This is increasingly important at a time when mortgage interest relief for landlords is reducing.

It also gives me some great figures to analyse, which I wanted to share with you.

The average rent my landlords are achieving is £1,125pcm, which is 13% higher than the current average rent in Chichester of £995pcm. Plus, they have received all of the rent due to them i.e. there were no non-paying tenants all year - phew! Unfortunately, I’m already wondering whether the fallout from Covid-19 will end that great track record, but the financial stimulus packages announced should go some way to helping tenants in that regard.

What’s more is that my unique fixed-fee structure is proving to be excellent value for my landlords; demonstrated by my landlords being charged a total of just 9% for their full management service on average. One landlord is paying just 6.2% as their property achieves a particularly high rent, meaning my fixed fee proves to be even cheaper for them.

What was also interesting to see is that my landlords are spending £450 a year on average on property maintenance, which is just 3.9% of the total rent they receive.

As common lettings advice is to set aside 10% of your annual rent to account for property maintenance, it seems my landlords are doing far better than this. I suspect this is partly because I tend to manage more modern properties, which should inherently have fewer issues, and because I tend to endorse the attitude of ‘prevention being better than cure’ i.e. spending a little in the short-term to save a lot in the long-term.

I hope it’s also partly down to the carefully selected maintenance contractors I use, who offer good value for money, plus the fact I don’t add a mark-up to maintenance costs or charge additional commission. I also often run through a few simple steps with tenants when issues occur, in case we can resolve them without the need for paid help.

If you’d like to discuss the ins and outs of how I can make the management of your rental property a little bit easier and perhaps more cost-effective, please get in touch.

This article was featured in...

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}

Thursday, 23 April 2020

Is cash king when it comes to buy-to-let property?

‘Cash is king’ is an expression that has come back to the fore in these troubled times for a couple of reasons. The obvious one is where businesses and individuals are struggling with their cash flow and wishing they had some reserves to call upon. In another camp are those with cash on hand, looking to take advantage of falling commodity and asset prices.

In the 2008 financial crisis, cash certainly was king in the property market. As banks withdrew offers of lending, those with cash were able to purchase properties at reduced prices from those needing to sell.

In normal times however, whether you’re buying property with cash or a mortgage tends to make very little difference. There can be some leeway in negotiations if you’re a cash buyer, given the speed and certainty you should be able to offer compared to someone reliant on a mortgage, but most sellers will seek out the highest possible price, regardless of where that money is coming from.

The question then from the buyers perspective, is whether it is in fact better to buy with cash or a mortgage in the first place.

The mortgage relief changes to the tax system have nullified some of the tax advantages of using a mortgage to buy investment property, but that is still one side of things to consider.

The other, and historically the more impactful, is leverage. Put simply, (and ignoring all other buying costs) if you had £200,000 in the bank you could buy one £200,000 property outright. OR you could buy four £200,000 properties, using £50,000 of your cash on each as a 25% deposit and borrowing another £150,000 four times over from the bank, to leave you with mortgage debt of £600,000.

Using all your cash to buy one property means you don’t have to worry about paying a mortgage, so any and all rent received is pure profit. This is a pretty comfortable, low-risk place to be then. Meanwhile, with four properties you have four sets of tenants to deal with and four mortgages to pay. From that point of view it seems a no-brainer as to which route to take. BUT, this is where leverage comes into play.

If property prices increase by 10%, the cash buyer will see their one property increase in value by £20,000. Whereas the buyer using mortgage finance will see each property increase by £20,000, for an overall gain of £80,000, whilst their mortgage debt remains the same.
cash in, mortgage debt, properties, value of properties, 10 percent house price increase

cash in, mortgage debt, properties, value of properties, 10 percent house price increase

Record low interest rates are causing more people with cash savings to seek other investments such as property, rather than earning a pittance in the bank. Perversely though, those same record-low interest rates mean the leveraged buyer is earning much more on a monthly basis too from their multiple rents, as interest rates on the mortgages are also low.

From that point of view then, the no-brainer suddenly becomes a different question - how much risk do you want to take on?

Because, you need to bear in mind the financial crisis came about as people were overleveraged with too much debt. Once asset prices started to drop, the same formula of multiple gains in the good times started to work against them. And if rents drop (or aren’t paid) or interest rates rise, you may struggle to pay the mortgages; that would be game over - which is very rarely the case for the king with the cash…

This article was featured in...

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}

Thursday, 16 April 2020

Tax just got more taxing for landlords

The 2020/21 tax year is underway and with it comes the culmination of the mortgage tax relief changes affecting landlords. First announced during the 2015 summer budget, landlords have now lost the right to deduct their mortgage interest costs from their rental income, receiving a 20% ‘tax credit’ instead.

Whilst fans of the scheme suggest this won’t affect basic tax-rate payers as a result (the 20% tax credit matching the amount that would previously have been offset), the fact is the new rules will artificially increase a landlords ‘taxable income’ figure, which will push the majority into the higher tax-bands as a result.

Consider Jeff, who is self-employed and earns £20,000 per year. He also inherited five rental properties, which now act as his pension. He receives £60,000 a year in rent, meanwhile his mortgage costs are £45,000 a year and other property expenses come to £6,000. Whilst this means he makes a modest £9,000 a year from his rental properties, he thinks that’s ok as he’s ‘investing for the future’. He considers his total income to be £29,000 and should therefore be taxed accordingly.

Indeed, that’s what the taxman used to think too, with Jeff paying £1,800 income tax on his £9,000 rental profits (an effective rate of 20%). Now however, the taxman regards Jeff’s ‘taxable income’ as £74,000, meaning a bulk of his rent gets taxed at higher rates, with only 20% of the £45,000 mortgage costs being returned as a ‘tax credit’. This results in a tax bill of £6,600 from the same financial figures; an effective rate on his profit of 73%! Worse still, his newly enhanced ‘income’ figure makes him completely ineligible for child benefits, whilst the student loan office will up his loan repayments just for good measure too.

how tax has changed over the past few years in UK graphics

Meanwhile landlords without buy-to-let mortgages won’t be affected by the changes and nor will large corporations. This has led many to complain that the wealthy are unaffected by the changes, whilst the already squeezed middle are having their purses raided both unexpectedly and unfairly (note how all other businesses can offset their finance costs in full before paying tax).

This is why many landlords are now purchasing properties via a company structure to avoid the new tax system. But this doesn’t help existing landlords, as transferring properties they already own to a limited company will typically incur capital gains tax and stamp duty as HMRC deems it to be a ‘sale’ to the company. The same issues apply if trying to transfer property to a spouse or partner who is in a lower tax-band.

Some landlords have exited the market as a result of the above, having calculated that buy-to-let just isn’t worthwhile for them anymore. This will lead to fewer rental properties being available, for which supply and demand suggests prices (i.e. rents) will rise as a result.

If you’re a landlord and would like me to review the health of your rental portfolio, please call me for a free chat to see how you might be affected by the changes.

This article was featured in...

^{_{c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP}}