BUY-TO-LET DEAL OF THE WEEK: 4* bed house in Chichester, £325,000, 6.6%* yield

Summary

4* bed house in Chichester

Listed for sale on 10/07/24 @ £325,000

Rent = £1,800pcm*

Yield = 6.6%*

Last sold for £167,500 in 2009 (+94% in 15 years)

* built as a 3 bed house, this property is currently let as a HMO

The property is on the market with Leaders and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/144444053

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How did the last Labour Government impact house prices?

After 14 years in power, the Conservative Government has been ousted by Labour, with Sir Keir Starmer being elected as the UK’s new Prime Minister. A major battleground of the election was focused on housing - both for homeowners and tenants (but not so much for landlords?).

I’ll repeat what I wrote in my previous article though, having described what happened to house prices under the Conservatives:

“No party has ever seen UK house prices decrease during their reign, so those hoping that Labour will get the housing market ‘under control’ by lowering prices may be left disappointed. In fact, it’s almost as if house prices correlate to the popularity of a Prime Minister, which makes you question whether Starmer would actually want them to go down?”

With that in mind, let’s see what happened to house prices the last time Labour were in Government (between May 1997 and May 2010). 

Labour roared to victory as the nation thought ‘things could only get better’ under their watch. For those who jumped onto the property ladder that was largely true, as the average house price in the UK rose from £61,946 in May 1997 to £170,846 in May 2010 when the Conservatives took back control. That equates to a rise of 176% in 13 years; or a compound annual growth rate of 8.1% per year.

It was a tale of two (not quite) halves though. 

As leader of the party, Tony Blair became the Prime Minister when Labour got elected in May 1997 (when the average UK home cost £61,946). He won a second and third election too, before bowing out in June 2007 (with the average UK home then worth £186,348). After a decade in power, he had overseen a rise in house prices of 201% (11.6% annualised); the highest under any Prime Minister in history. 

His departure was quite impeccable in regards to timing the market too, as the financial system around the world began to crack soon after. Leadership passed to his compatriot Gordon Brown on 27th June 2007, who quickly became the man saddled with an economy on the ropes and, with it, a slide in house prices during his term (from £186,348 to £170,846, equating to a decline of 8.3% / -2.9% annualised). This meant he became the first Prime Minister in history whereby house prices fell between the start and finish of his term.

With Liz Truss and Rishi Sunak adding their names to that unenviable list, would Keir Starmer want the same fate to befall him? Perhaps if the rhetoric in this country of house prices increasing being a good thing were reversed then he might. Then again, consider the fact the UK housing market is worth some £8.5trillion. The merry-go-round of increasing prices is what produces equity for people to feel richer and spend money (often via re-mortgaging). If house prices were to fall by 10% that would effectively wipe £850billion off the wealth of the population, which would likely stop them from investing or splurging on holidays, cars and the latest ‘goodies’ i.e the stuff that contributes to the UK’s GDP. To allow that, as the latest Government will surely know, would be political suicide.

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BUY-TO-LET DEAL OF THE WEEK: 4 bed house in Chichester, £460,000, 4.6% yield

Summary

4 bed house in Chichester

Listed for sale on 01/07/24 @ £460,000

Rent = £1,750pcm

Yield = 4.6%

The property is on the market with Sims Williams and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/149738606

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What happened to house prices under the Conservatives?

I’m writing this article in the days leading up to the 2024 General Election, but it seems a pretty safe bet to declare that the current Conservative Government is no more. Sir Keir Starmer may well be the Prime Minister by the time you read this, with the Labour party taking a (strong?) majority. 

To mark the end of their reign, let’s take a look at what happened to house prices under the Conservatives these past 14 years.

David Cameron led the Conservatives to victory in the 2010 General Election against Gordon Brown’s Labour party. Without a majority though, he had to negotiate a Conservative-Liberal Democrats coalition before he became Prime Minister on 11th May 2010. The average UK house price stood at £170,846 at that time. 

Despite winning the 2015 General Election outright and freeing himself of Nick Clegg and the Liberal Democrats, he had tied himself to providing a referendum on the UK’s continuing membership of the European Union. Having ‘won’ referendums regarding Scottish Independence (2014) and how the voting system works (2015) it was third time unlucky as the ‘Brexit’ vote went against him. Shortly afterwards, Cameron stood down as Prime Minister on 13th July 2016, having seen the average property in the UK rise in value by 25.9% during his Premiership to sit at £215,127.

Teresa May then danced her way into the hot seat, with many forecasting a dramatic fall in UK house prices due to having exited the EU. Tasked with delivering Brexit she failed to outright win the snap-election called in June 2017 but maintained her authority by buddying-up with Northern Ireland’s Democratic Unionist Party (DUP). Things started well but then began to unravel for her and she stepped down as leader on 24th July 2019. At this point, UK house prices had edged up to an average of £232,618; a rise of 8.1% in the three years she was Prime Minister.

Boris Johnson then became the man at the helm, moving himself and an unconfirmed number of his children into 10 Downing Street. He soon set about tackling the pressing Brexit issues, but failing to win Parliamentary support chose to hold a snap-election in December 2019, in which he won a landslide victory. Pressing ahead with domestic affairs soon took a backseat though as the Covid-19 pandemic locked down the country. House prices were forecast to drop sharply at this point, but instead the vast amount of money committed by then Chancellor of the Exchequer (Rishi Sunak….we’ll come back to him) saw asset prices rise. A variety of scandals saw him depart as Prime Minister on 6th September 2022, whereby house prices in the UK had jumped by 24.1% in a little over three years (standing at £288,901).

The Conservative party held nominations and chose Liz Truss over Rishi Sunak in the final leadership vote. She became the fifteenth and final Prime Minister to serve under Queen Elizabeth II, who died two days after appointing Truss. Just a couple of weeks later Truss commandeered the ‘mini-budget’ that was to spook the markets and the public into losing faith in her ability. On 25th October 2022 she resigned, just 50 days after she had become Prime Minister - the shortest reign in British history (surpassing George Canning, who was prime minister for 119 days in 1827). The data suggests a decrease in house prices during her ’term’, albeit dropping by a mere £196 to stand at £288,705, which is little more than a rounding error.

Nevertheless, Liz Truss became only the second Prime Minister since house price data began to oversee a fall during their time in the top job. It probably won’t surprise you that the Prime Minister in charge during the credit crunch period (Gordon Brown) was the first to suffer this fate, with an 8.3% drop during his premiership between June 2007 and May 2010.

The Conservative party went back to the drawing board and decided the candidate they’d shunned first time round was really the person for the job - Rishi Sunak. Amid a cost of living crisis, energy crisis and ongoing war in Ukraine, house prices have not passed their peak again under Sunak’s Premiership. Despite soaring inflation elsewhere, the average UK house price sits at £281,373 (as of April data); a drop of 2.5% in the less than two-year time that Sunak went from ‘Dishy Rishi’ to ‘Sky dish Rishi’. 

All told then, when the Conservatives regained power in May 2010 the average UK house price was £170,846. They now stand at £281,373; a rise of 64.7% in fourteen years, having peaked and subsequently stagnated in September 2022 - exactly when Liz Truss took office (but also when interest rates stood at 1.75% compared to 5.25% today).

No party has ever seen UK house prices decrease during their reign, so those hoping that Labour will get the housing market ‘under control’ by lowering prices may be left disappointed. In fact, it’s almost as if house prices correlate to the popularity of a Prime Minister, which makes you question whether Starmer would actually want them to go down?

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BUY-TO-LET DEAL OF THE WEEK: 2 bed flat in Tangmere, £225,000, 5.9% yield

Summary

2 bed flat in Tangmere

Listed for sale on 01/03/24 @ £245,000

Now = £225,000

Rent = £1,100pcm

Yield = 5.9%

The property is on the market with White & Brooks and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/145307102

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Should landlords take a security deposit?

There is nothing to say that a landlord must take a security deposit, but it is always advisable to do so. Most landlords choose to take a security deposit from their tenants to provide some protection against the risk of non-payment of rent and/or damage caused to their property. It is important, however, to understand the rules about taking a security deposit, which have changed in recent years.

Major legislation was first brought in back in 2007, whereby security deposits needed to be protected in one of the approved government schemes. This was introduced amid claims of unscrupulous landlords simply pocketing the security deposit by default at the end of the tenancy, regardless of the tenant’s conduct. These schemes either hold the money (custodial schemes) or insure against its disappearance (insurance schemes). They also act as arbitrators between landlord and tenant if there is any disagreement in regards to the return of the security deposit at the end of the tenancy.

CRJ Lettings is a member of the DPS (Deposit Protection Service) and their custodial scheme. It’s free to use and it means neither the landlord nor the letting agent is holding the tenant’s security deposit; it’s held in a government-backed ring-fenced account throughout the tenancy.

This seems preferable for both landlords and tenants, compared to letting agents who hold the deposit monies in their own bank accounts (via the insurance schemes). There have been too many stories of fraudulent (or just poorly managed) letting agencies dipping into these funds to cover their own cashflow, or even going bust and losing the deposit monies in the process (which the landlord will have to cough up when the time comes to repay the tenant).

Whichever scheme you opt for though, they bring with them additional paperwork and responsibilities, for which it is absolutely critical you get correct. The deposit needs to be properly protected and the paperwork served to the tenants within 30 days of receiving their money. If this is not done, the landlord cannot serve notice upon the tenant if it becomes necessary and can also be held liable for compensation in the amount of three times the deposit!

In 2019, security deposits were capped to a maximum of five week’s rent (in most cases). This rather curious addition to the Tenant Fees Act has meant it is now far more difficult for tenants without a squeaky-clean credit history and good references to be accepted. Previously, such worries could be bypassed by taking a larger-than-normal security deposit, but the government has made this practice illegal. The same goes for tenants with pets; which is why you now regularly see premiums attached to the rental amount for such individuals instead.

Recently, there have been a plethora of ‘zero deposit’ schemes pitched as an alternative to tenants stumping up the deposit themselves. Personally, I’m not a fan of these schemes in their current form. Most landlords prefer to rent to tenants with some ‘skin in the game’ and most (good) tenants prefer to hand over a security deposit, knowing they’ll get it back at the end of the tenancy, rather than paying an upfront or monthly fee that they won’t see again.

A major criticism of security deposits though is the challenge many tenants face in raising a second one whilst their current security deposit is tied up in their present tenancy. The government are talking about introducing a ‘transferable’ deposit, whereby the same security deposit passes from one tenancy to the next (making it easier for tenants to move home). The problem here is that you never truly know if a tenant’s security deposit will be re-paid in full until they have vacated the property, by which time they’ll have already moved home (for which they’ll need the security deposit for). So, it doesn’t seem altogether workable without some form of insurance product involved, which is likely to cost tenants money one way or another.

If you’re a landlord and all of the above sounds like too much trouble, or you’ve not been taking all the necessary steps (or worse, you’re with a letting agent who hasn’t), please feel free to give me a call to instruct me to take this important burden away from you.

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BUY-TO-LET DEAL OF THE WEEK: 2 bed flat in Chichester, £155,000, 7.4% yield

Summary

2 bed flat in Chichester

Listed for sale on 03/06/24 @ £155,000

Rent = £950pcm

Yield = 7.4%

Last sold for £140,000 in 2005 (+11% in 19 years)

The property is on the market with Bell & Blake and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/142720451

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