Thursday, 6 February 2025

Chichester named least affordable area outside London

Homes for first-time buyers in Chichester have been labelled the least affordable outside of London, according to data from Nationwide. The average home in the city costs 8.5 times the annual earnings of the typical local full-time worker.

A “modest improvement” in affordability across the UK was noted using the data, as wage increases had outpaced house price growth in the past 12 months, whilst mortgage rates had also come down slightly.

Nevertheless, affordability remains stretched by historical standings, with first-time buyers across the country typically faced with paying around five times their earnings for a home, compared to a long-run average of around four times.

The least affordable area in the UK was Kensington and Chelsea in London, where first-time buyers have to pay an average of 13.6 times earnings. On the other end of the scale, Aberdeen was the most affordable area to buy, with homes costing an average of 2.5 times local salaries.

Rising rents have made it especially difficult to save the necessary deposit to buy a home. It is thought that 40% of first-time buyers have some assistance in raising a deposit; either from an inheritance or a gift/loan from family. 


Further research by The Telegraph noted Chichester and Bognor Regis (as a combined area) as being the least affordable place in Sussex to live and work, when factoring in that 33.1% of a person’s income is spent on food, household bills and commuting costs.

The unaffordability of homes does not just affect youngsters of course. Older people who bought later in life can struggle to pay their mortgage before retirement. Then there are those who have never gotten on the ladder and need to keep a roof over their head when retired.

Despite these affordability challenges, house prices and mortgage market activity were resilient in 2024. House prices ended the year up by 4.7%, whilst mortgage approvals returned to pre-pandemic levels (despite average mortgage rates being around three times higher). 


Given all of the above, it is amazing to note that first-time buyers share of mortgages was higher in 2024 (54%) than before the pandemic in 2019 (51%); further reflecting a drop in landlords purchasing new rental properties.








Monday, 27 January 2025

BUY-TO-LET DEAL OF THE WEEK: 2 bed house in Westhampnett, £290,000, 5.2% yiel


Summary
2 bed house in Westhampnett
Listed for sale on 13/08/24 @ £290,000
Rent = £1,250pcm
Yield = 5.2%
Last sold for £267,500 in May 2017 (+8.4% in 8 years)

TThe 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/151262378










Thursday, 23 January 2025

Why you should let tenants turn your house into their home

I often get asked by prospective tenants whether they’d be allowed to put pictures up on walls should they rent a property of mine. I’m amazed some landlords charge thousands in rent but won’t allow their tenants to put a few pictures up, especially when you consider it from a business perspective. 

Having such stringent rules about how a tenant can live won’t make them want to stay for long. This will naturally create a higher churn of tenants, leading to more void periods (and less rent in the landlord’s pocket). Furthermore, the coming and going of tenants will lead to greater wear and tear; which presumably is what the landlord was trying to avoid in the first place!

In my view it’s quite simple; yes, the tenant should respect the property they are renting, but for the time they are there they should see it as their home and treat it accordingly. 

If tenants want to put pictures up, they would simply be instructed to return the wall in the same condition as when they started the tenancy. That would mean filling any holes and touching them up. If the touch up doesn’t match the rest of the wall, they should paint the wall. Alternatively, I’d probably give them the advice to buy special hanging strips, which can be used to hang pictures on walls securely without making any holes!

To further protect the landlord, an inventory is created before the tenancy begins, which includes a thorough description and photos of the property’s condition (including the walls). The tenants get the opportunity to check through it, so all parties understand how things need to be returned at the end of the tenancy (less fair wear and tear).

Inspections will soon show if tenants are abusing the tolerances afforded to them, whilst a visit before their move-out with a few pointers as to what is needed to be done to get the property back to the required standard is a good idea. This will help tenants know what is needed to get their security deposit back and it should reduce any required maintenance come the end of the tenancy (again reducing the dreaded void periods).

As ever, choosing the right tenants is important in allowing them the flexibility to live in the property as if it were their own. Whilst the best tenants will ask before making any changes and implement them in a reasonable manner, bear in mind that the worst tenants will just go ahead and do it anyway. Having a more collaborative approach should see happy and content tenants wanting to stay longer in the landlord’s house, having turned it into their home.









Monday, 13 January 2025

BUY-TO-LET DEAL OF THE WEEK: 3 bed house in Chichester, £300,000, 5.0% yield


Summary
3 bed house in Chichester
Listed for sale on 19/11/24 @ £325,000
Now = £300,000
Rent = £1,250pcm
Yield = 5.0%
Last sold for £185,000 in March 2007 (+57% in 18 years)

The property is on the market with Hancock & Partners and full details can be found on Rightmove via the following link: www.rightmove.co.uk/properties/155120276










Thursday, 9 January 2025

What’s in store for landlords in 2025?

Last year saw a change of Government, as well as inflation dropping back in line with target. But, with the fear we aren’t out of the woods yet, interest rates have not dropped downward as quickly. Despite the general negativity in the air, stock markets and commodity prices around the world are at, or near, all-time highs, whilst in the UK rents and house prices both rose.

So, what does 2025 have in store for landlords? Let’s find out…


Stamp duty to increase - confirmed

In the Autumn Budget, landlords were instantly hit with an additional stamp duty surcharge, which increased from 3% to 5% of the purchase price. 

In addition to this, it was confirmed that stamp duty would rise across the board from 1st April 2025, with buyers starting to pay stamp duty on properties over £125,000, instead of over £250,000 at the moment (potentially costing an additional £2,500). Meanwhile, first-time buyers, who currently pay no stamp duty on homes up to £425,000, will start to do so on homes bought from £300,000 (potentially costing an additional £6,250). 

This will likely cause a rush to complete in the first quarter of the year, with some sales being renegotiated or collapsing if they don’t beat the deadline, alongside a possible slowdown in the second quarter as people re-adjust to the new landscape.


Other taxes to increase - confirmed

Capital Gains Tax was already higher for landlords selling a rental property, but rates for all other assets have now been increased too.

National Insurance will increase for ‘employers’ from 6th April from 13.8% to 15% and the threshold for when ‘employers’ need to start paying the tax will be lowered from £9,100 to £5,000. I put ‘employers’ in apostrophes because ultimately it will impact what an employer can pay their employees, so it will affect wages (or employment levels). I await confirmation from my accountant as to whether this will also impact company directors (and those who own property in Limited Companies) in regards to the ‘optimum’ salary they should withdraw from a company.

There are also increases coming for car duty taxes, tobacco & alcohol purchases, the TV licence and council tax. 

Meanwhile, thresholds have been frozen for an even longer period on many taxes, including income tax and inheritance tax. This means that over time (due to inflation) a greater amount of tax will be paid by more people.

The unfairness of how Section 24 changed mortgage relief for landlords will also become more notable as incomes rise, the bandings are frozen and mortgage payments increase (without being able to fully offset them, whilst first paying tax on income rather than profit). 


Minimum wage to increase - confirmed

From 1st April the hourly minimum wage will increase:
- from £11.44 to £12.21 for those aged 21 and above (+6.7%)
- from £8.60 to £10.00 for those aged 18-20 (+16.3%)
- from £6.40 to £7.55 for those aged 16-17 and apprentices (+18%)

The increases are generous across the board, but especially so for the youngest workers.

They present an additional challenge for businesses, however, especially when factoring in National Insurance increases and wider economic pressures.

I suspect some businesses will need to cut back or even close, meaning some people will be out of a job and rent defaults will increase. For those who stay in employment though, rental affordability will improve and I also think it could lead to….


House prices to rise - likely

Despite many expecting house price falls based on the ongoing cost of living crisis and with interest rates higher than we had been used to for the past 15 years, UK house prices actually ended 2024 up 3.3%.

The worst of inflation has passed (for now?) and interest rates are set to drop (but by how much?). Theoretically then, house prices should rise? I think this will be true, but especially so in more affordable areas (e.g. Northern cities), where the reliance on mortgages is higher (so interest rates make more of a difference) and incomes are lower (so the impact of minimum wage increases are more pronounced).


Interest rates to fall, yet mortgage payments to rise for many - likely

A recent survey of 51 economists shows an expectation of four quarter-point interest rate cuts this year, which would take the base rate from its current 4.75% to 3.75%.

Nevertheless, there were an awful lot of five-year fixed-rate mortgages taken out in 2020 that are now due to expire this year. These homeowners and landlords will see a payment shock as mortgage rates have (at least) doubled on average since then.

Landlords are also starting to realise that the past 15 years have been the exception rather than the norm and so higher mortgage rates (and higher monthly payments) are most likely here to stay.


Rent increases to level out - likely

Average rents in the UK have increased by 34% in the past four years as more tenants have been fighting over fewer rental homes. In the four years prior to that, rents increased by just 3.5%. Please note: the recent rapid rise in rents is not normal! 

Whilst the same supply and demand imbalance remains, I cannot see rental prices continuing to balloon simply based on tenant affordability limits. In fact, they are now rising at the slowest pace for over three years, whilst more rental properties are seeing a reduction in advertised rental price.

I still expect existing tenants who have lived in their homes for a few years though to face rent increases, as they are aligned closer to market rates. In regards to new rentals, again I expect growth to come from areas that are currently more affordable, with the most expensive areas where rents have risen the most in recent years to flatten out.


Energy efficiency in the spotlight - highly likely

It came as a big surprise in September 2023 when the then Prime Minister, Rishi Sunak, scrapped plans to increase the minimum energy efficiency standard for rental properties in England and Wales. 

Labour, however, have put this back on the table and have a consultation running, which is due to end in February. The smart money suggests all rental homes will need to be upgraded to a minimum C rating by 2030 (…which is AFTER the next General Election…).

There are an estimated 2.6 million privately rented homes (60% of total supply) that fall below this standard. With a distinct lack of funding and skilled tradespeople available to undertake the works, it could be difficult to complete these potentially expensive improvements (many of which can actually be detrimental to a property).


Renters Reform Bill to be implemented - highly likely

2025 should be the year in which a raft of legal changes for the private rental sector sees landlords (and tenants) navigate a whole new lettings system. It is no exaggeration to say it represents the biggest change for the industry in several decades. 

It is expected that all tenancies (both new and pre-existing) will become rolling periodic agreements, with a new ombudsman to resolve disputes between landlords and tenants as well as penalties against landlords not adhering to a ‘Decent Homes Standard’.

Other headlines include:
- the scrapping of Section 21 ‘no fault’ evictions, with the remaining grounds requiring landlords to give tenants longer notice periods. 
- the inability to sell or move back into a rented property within the first 12 months of the tenancy.
- two months’ notice to be given for rent increases using a statutory notice not more than once a year, for which the tenants can more easily dispute.
- the inability to accept offers above the marketed rental price.
- the inability to unreasonably refuse a tenant’s request to keep a pet.
- for it to become illegal to discriminate against tenants who receive benefits or have children.
- the requirement to investigate and fix health hazards such as damp and mould (even if caused by condensation…?) within strict timeframes.


All of this is bound to lead to….


Uncertainty - definitely!










Thursday, 19 December 2024

UK property is cheaper than twenty years ago


You may think I’m mad writing the title “UK property is cheaper than twenty years ago” if you’ve even the most basic grasp of the UK’s housing market. On the face of it, you’d be right too. The average property in the UK twenty years ago cost £153,482, compared to £266,640 today. 

One of the continuing words on many newsreaders’ lips throughout 2024 though has been ‘inflation’, which may give you a little clue as to where I’m heading with this…

You see, Nationwide Building Society produces some fascinating house price data. Amongst them are the ‘UK house prices adjusted for inflation’ figures, in which Nationwide use the Office for National Statistics Retail Price Index (RPI) to convert the actual house prices into an inflation adjusted one. Doing so paints quite a different story for the UK’s housing market over the past two decades. 

For example, as mentioned earlier, a typical property twenty years ago (Q3 2004) would, on average, have cost £153,482 at the time. To buy the amount of ‘retail goods’ today that you could have bought then for that figure would now cost you £319,064 though i.e. more than the average UK home now costs (£266,640 as of Q3 2024). That is to say that overall inflation, measured via RPI, has increased more than UK house prices in the past twenty years.

In theory then, property in the UK should feel ‘cheaper’ than twenty years ago (despite actually increasing by 74% in price). So why is it that not many people feel like that? 

I believe that largely comes down to incomes not keeping pace with property prices. This is evident when looking at median annual incomes: £21,996 in 2004 vs £36,712 today (+67%). Add in a greater level of taxation and our net pay is even further adrift when it comes to housing ‘affordability’.

That is, however, in contrast to the minimum wage, which has outpaced house prices over the past twenty years. Consider that the minimum wage was £4.85ph at the end of 2004 and is now £11.44ph. That’s a 136% increase vs the 74% increase in house prices over the same period. And the minimum wage is set to increase by another 6.7% next April…do you think property prices will increase by 6.7% next year? If not, they should in theory become more ‘affordable’ for lower income households.

You’ll note the chart below shows the inflation adjusted house prices as having fallen quite sharpish these past couple of years. That is because actual house prices have dropped a fraction in that time (from a peak of £273,135 in Q3 2022), whilst inflation in the same period has raced up by 13%. But with inflation having steadied this year (it is currently at 2.6% in the year to November) things are starting to level out. 

As around 100,000 households a month continue to come off their (super cheap) fixed mortgage rates, it may be that interest rates hold the key here. Indeed, if inflation is truly under control, all economic indicators suggest interest rates will drop and a new wave of house price inflation could yet commence, which would bring them more in line with their longer-term ‘above inflation’ trend.

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Monday, 9 December 2024

BUY-TO-LET DEAL OF THE WEEK: 3 bed house in Hunston, £350,000, 4.8% yield



Summary
3 bed house in Hunston
Listed for sale on 27/11/24 @ £350,000
Rent = £1,400pcm
Yield = 4.8%
Last sold for £265,000 in August 2014 (+32% in 10 years)

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/155419436