Monday, 26 July 2021

BUY-TO-LET DEAL OF THE WEEK: 3 bed house in Chichester, £365,000, 4.3% yield

3 bed house in Chichester
Listed for sale on 20/07/21 @ £365,000
Rent = £1,300pcm
Yield = 4.3%
Last sold for £282,500 in 2006 (+29% in 15 years)

The property is on the market with Cubitt & West and full details can be found on Rightmove via the following link: 

Thursday, 22 July 2021

Should property listings utilise psychological pricing?

If you’re wondering what psychological pricing is, it’s where retailers set the price of something to make it appear cheaper than it is using a simple trick of the mind. This typically means using a 5, 7 or 9 to round off a price, rather than using a round number. The classic is something that costs, say, £4.99. Wow, that’s much less than £5 right! Well to most humans it is, hence why retailers do this. It’s to do with our primitive brains looking at the first digit and ignoring the rest.
In the world of property listings that means a price tag of £400,000 becomes £399,999, or more commonly £399,950. So, should property listings utilise these psychological pricing techniques i.e. do they work? Well, the answer is yes and no, which I’ll now explain.

Yes they do, in that £399,950 does at first appear much cheaper than £400,000. In the olden days, when property buyers would look in estate agents shop windows and the local newspaper listings, this worked well. Plus, when people would contact estate agents to enquire what properties they had for sale, the estate agent would be able to say it cost “3-9-9-950”, which sounds a lot cheaper than the one next door who said “400-thousand”.
However, in today’s mainly online world i.e. where people scroll through the property portals, there are a few major downsides to continuing with this old method of psychological pricing.
Firstly, the default of the property portals is to list properties by ‘highest price first’. That means the property listed at £400,000 actually appears higher up the page than the one at £399,950, unless the user has played around with the sort function.
Secondly, most people will use the search parameters to narrow down the number of properties that are shown. The £399,950 and £400,000 price tags will both show up when someone enters a maximum budget of £400,000. But the next level up may be someone with a £450,000 budget, who therefore sets a minimum price of £400,000 to narrow the field. Now, the property listing of £399,950 is cut from the search entirely!
And thirdly… doesn’t work as well anymore as people have grown wise of this ruse!
For me, it’s more important to consider the pricing within the context of the market and how it stands up against the competition. 
Referring to another bit of customer psychology though, the ‘big round numbers’ are of more significance when listing a property for sale or let. I once saw a property marketed at £251,750, which I thought was quite bizarre; how many people do you think set a maximum budget of £250,000?! Similarly, it’s why some rental properties that may well be worth £1,050pcm get dragged down to £1,000pcm, as this will open a far greater number of prospective tenants.
So, next time you’re scrolling through the property portals, why not have a play with its search tool and see the price increments they use so you can understand how this may fit in. Be sure to let me know whether you think using psychological pricing when it comes to property listings is a good or bad idea.

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Monday, 12 July 2021

Thursday, 8 July 2021

Have house prices peaked?

All the chatter about house prices at the moment is of record increases, with prices up 13.4% over the past year according to Nationwide data. It seems the pandemic and the (rather unnecessary) slashing of stamp duty has stimulated the housing market. As the furlough scheme and other government subsidies wind down though, along with the stamp duty relief also ending, some are saying house prices have peaked.

Whilst history cannot predict the future, I believe it can give an indication of things to come. And so, I put it to you that history suggests house prices will be higher come the year 2030 than they are now…

You see, whilst we’re only 18 months into the current decade, if house prices were to finish the decade where they are today, the 2020’s would have witnessed the lowest growth in recent history. Statistically speaking, that is unlikely. 

Here are the figures dating back to the 1960’s as to each decade’s house price growth:

With house prices in the UK currently averaging £242,709, they have increased 12.4% so far this decade. The average growth over the past six decades is rather skewed due to the 1970’s, but even matching the decade with the lowest growth on record (the 1990’s) would see house prices end this decade at £262,133. It would take some doing to beat the 1970’s huge 409.4% growth though (which came about due to high inflation), with average prices needing to surpass the £1m mark in the next eight years if this were to happen!

Whilst extrapolating forward from the past may bring up seemingly fanciful figures, bear in mind it would have done when done in the past too - and look what happened since then! Furthermore, there’s typically a reason, which only becomes clear in hindsight, as to why things pan out as they do. In the case of house prices, I believe it is the relative affordability due to low interest rates which will be the ‘obvious’ reason house prices continued on a similar trajectory in the future as they have in the past. 

In October 1981 the base rate was at its highest ever (15%), after which rates decreased before increasing again to a similar level by 1991. Since then, the base rate has gradually decreased to the record low of 0.1% we see now (rates were close to 6% in the run up to the credit crunch). This means there will be fewer people falling victim to repossession as mortgages become relatively ‘cheaper’, whilst mortgage spend becomes more affordable despite house prices increasing (put it this way, it costs the same to service a £100,000 debt at 4% interest, than it does a £200,000 debt at 2% interest). 

This simple equation is why people are now spending just 36% of their income to service a typical 80% mortgage, compared to spending 62% in 2008 and 75% of their earnings in 1989. If interest rates stay as low as they are now, I believe there is still plenty of scope for people to afford higher mortgage payments and subsequently they will be willing to pay a higher price for their property.

What do you think? Do you expect house prices to continue increasing like they ‘always do’? Or do you think history will show 2021 as being the year everything started to unravel? 

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Monday, 28 June 2021

Thursday, 24 June 2021

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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Monday, 14 June 2021

BUY-TO-LET DEAL OF THE WEEK: 3 bed house in Tangmere, £270,000, 4.9% yield

3 bed house in Tangmere
Listed for sale on 03/06/21 @ £270,000
Rent = £1,100pcm
Yield = 4.9%
Last sold for £183,000 in 2006 (+48% in 15 years)

The property is on the market with Cubitt & West and full details can be found on Rightmove via the following link: