Friday, 3 August 2018

What Will Happen to Margate Property Values Now That Interest Rates Have Risen?

The current average value of a property in Margate currently stands at £228,000 and the base rates are now at 0.75%. In many of my articles, I talk about what is happening to property values over the short term (i.e. the last 12 months or the last 5 years), but to answer this question we need to go back over 40 years, to 1975. 

The average value of a Margate property in 1975 was £11,038

However, since 1975, we have experienced in the UK, inflation of 807.5%.

Back in 1975, the average salary was £2,291 and average car was £1,840. A loaf of bread was 16p, milk was 28p a pint and a 2lb bag of sugar was 30p. Inflation has increased prices, so comparing like for like, we need to change these prices into today’s money. In real spending power terms, an average value of a Margate house in 1975, expressed in terms of today’s prices is £100,181. 

That means in real terms, property costs a lot more today, than in the mid 1970’s, but has it always been that way? Looking at the important dates of the UK property market, you can see from this table, the last two property boom years of 1989 and 2007, show that there was a significant uplift in the cost/value of property (when calculated in today’s prices).


Before we move on, hold onto the thought that you can quite clearly see from the table, in real terms, properties are cheaper today in Margate than they were in 2007!
So, it made me wonder if there was a link between house prices, inflation and other external economic factors, such as interest rates? Interest rates have a strong influence on inflation and property values, principally because changes in the interest rate affect the cost of mortgage payments for homeowners and they affect the flow of foreign currency in (or out) of an economy, thus changing the exchange rate and prices we can sell our goods and services abroad and prices we pay on imports.
So how exactly do interest rates affect property values?
When interest rates rise, it has a substantial effect on increasing the monthly cost of mortgages. Higher mortgage payments will discourage prospective homebuyers or people looking to move up market (meaning their mortgage payments go up) – thus making it comparatively cheaper to rent.
Furthermore, the high cost of mortgage payments sometimes also pushes some existing home owners to sell, meaning there is an increase in house sellers and a decline in house purchasers, and as the law of economics state, when supply is increased and demand falls, (house) prices fall. Another fallout of a rise in mortgage payments is a rise in repossessions. Interestingly, repossessions in the UK rose from 15,000 per annum in the late 1980’s to over 75,000 per annum in the early 1990’s, meaning even more properties came onto the market, exasperating the issue of over supply – pushing property values even lower. 


High interest rates caused property values to fall in mid 1970’s, early 1980’s and most recently, the early 1990’s (who can remember the 15% mortgage rate!) Conversely though, the drop in property values in 2008/2009 – was not due to interest rates, but due to the credit crunch and global recession.
So, what will happen if when interest rates rise?


It is vital to remember that interest rates are not the only factor affecting property values. Now that interest rates have increased (which they have from 0.5% to 0.75%), property values can also continue to rise (it happened throughout the mid to late 1980’s and again between the boom years of 2002 and 2007). When confidence in the economy is good, and we as a Country experience a period of rising real incomes (i.e. after inflation), then the British in the past have continued to buy bricks and mortar, notwithstanding the rise in interest rates.
Another important factor on property values is the supply of housing. A big reason in the current level of Margate house prices is due to the shortage of supply, which has kept property values higher than I would have expected. An additional factor is whether homeowners have a variable or fixed rate mortgage. 90.6% of new mortgages taken in the last Quarter were at a fixed rate, and 66.2% of all mortgaged homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they re-mortgage in a few year’s time, meaning there is frequently a time-lag between higher interest rates and the effect on property values. Another factor on mortgages is the ability to get one in the first place. Back in 2014, mortgage providers were told to be stricter on their lending criteria when arranging mortgages following the footloose days of 125% loan to value mortgages with the Northern Rock. These new rules are a lot more rigorous on borrowers' ability to repay the payments (although it makes me laugh, when with starter homes it nearer is always cheaper to buy then rent!).
I think the final point is this … affordability is the key. Look at the graph (the red bars) and you will see in REAL HOUSE PRICE terms – it’s cheaper to buy a home today than it was in 2007, yet why aren’t we seeing people buying property at the levels we were seeing in the 2000’s before the credit crunch? Again, looking at the reasons why, I will talk about in future articles.
In conclusion, interest rates are important – but nowhere near as important on the Margate (and British) property market than they were 15 or 20 years ago.


So, before I go, one final thought - how do we measure the success of the Margate property market? Well I believe one measure that is a good bellwether is the number of property transactions, as that could show a more truthful picture of the health of the property market than property values. Maybe I should talk about that in an up and coming article?


Friday, 27 July 2018

The Thanet Bank of Mum and Dad Lent £2.72m Last Year


My analysis has shown that up to the end of the last quarter, Thanet first time buyers purchased 226 Thanet properties.  With wages rising at 2.8%, unemployment at a low rate of 4.2% (down from 4.6% from a year earlier and the joint lowest since 1975), national GDP rising at 1.87% and inflation at 2.3%, tied in with indifferent house price growth (compared to a few years ago), this has given first time buyers a chance to get a foot hold on the Thanet property market.

Over the last year, the average purchase price of a Thanet first time buyer property has been £170,200 and the average deposit was £27,572. Furthermore, my calculations show the average Thanet parents contributed £12,063 of that £27,572 figure.

You see “The Bank of Mum and Dad (Thanet Branch)” is for countless Thanet twenty something’s, perceived to be the only way they will ever be able to afford their first home. In fact, Thanet parents put up a substantial £2.72m in the last 12 months to help their nearest and dearest progeny onto the property ladder. This assistance towards the deposit makes a huge difference, enabling Thanet youngsters who thought they couldn’t get on the housing ladder more able to do so.

With mortgage rates at all-time lows, few Thanet twenty something’s would struggle to make mortgage repayments, but it is the requirement of the deposit which is the issue, although as parents (and grandparents) are helping out where they can, it does little to address the real problems of the housing market, whether for people renting or buying their first home.

If you think about it, as a Country we have been fortunate that the older generation who control the biggest share of the nation’s wealth are so plentiful to those following after. We need to remember, though, that this generosity is
 a sign of the issues of the British housing shortage, not its solution. 

But before I leave this article … note I used the word PERCEIVED in a previous paragraph. Yes, the average first time buyer deposit is 16.1%, but that is an average. Did you know 95% mortgages returned to first time buyers in late 2009 and have been available ever since? Also, lenders like Barclays and many local Building Society’s now offer 100% mortgages (i.e. no deposit) at 2.75% fixed for three years.

The perception is you need 15%, 20% even a 25% deposit to be a first-time buyer – you don’t! You don’t need any deposit, but (there is always a but!)...

Over the last decade, many renters have upgraded themselves into homes that they (or any generation before them) could never have ever afforded as a first time buyer in the past. You see the British housing market started to change with the dawn of the new Millennium and I am seeing a slow but steady attitude change when it comes to renting. Those tenants have found the price difference of upgrading from the typical 1970’s TV show Rigsby “Rising Damp” style rental property to plush terraced house or even semi-detached home, with all the mod cons, comparatively inexpensive (when compared to the increase in mortgage payments if they had to make the move as buyers).

Renting isn’t seen as the poor man’s choice, as many young (and increasing older) people are becoming more at ease and comfortable with the flexibility offered by private renting a property rather than jumping ‘lemming like’ into home ownership. Thanet landlords will continue to see growth in sector, and like Germany, todays renters will become homeowners in 20 years’ time – when they will inherit the wealth of their parent’s home.

Monday, 16 July 2018

Extra Funding Is Required for Affordable Homes in Thanet



In my blog about the Thanet Property Market I mostly only talk about two of the three main sectors of the local property market, the ‘private rented sector’ and the ‘owner occupier sector’. However, as I often stress when talking to my clients, one cannot forget the third sector, that being the ‘social housing sector’ (or council housing as some people call it). 
In previous articles, I have spoken at length about the crisis in supply of property in Thanet (i.e. not enough property is being built), but in this article I want to talk about the other crisis – that of affordability. It is not just about the pure number of houses being built but also the equilibrium of tenure (ownership vs rented) and therein, the affordability of housing, which needs to be considered carefully for an efficient and effectual housing market.
An efficient and effectual housing market is in everyone’s interests, including Thanet homeowners and Thanet landlords, so let me explain ..

An average of only 86 Affordable Homes per year have been built Thanet District Council since 2009

The requirement for the provision of subsidised housing has been recognised since Victorian times. Even though private rents have not kept up with inflation since 2005 (meaning tenants are better off) it’s still a fact there are substantial numbers of low-income households in Thanet devoid of the money to allow them a decent standard of housing.
Usually, property in the social housing sector has had rents set at around half the going market rate and affordable shared home ownership has been the main source of new affordable housing yet, irrespective of the tenure, the local authority is simply not coming up with the numbers required. If the local authority isn’t building or finding these affordable homes, these Thanet tenants still need housing, and some tenants at the lower end of the market are falling foul of rogue landlords. Not good news for tenants and the vast majority of law abiding and decent Thanet landlords who are tarnished by the actions of those few rogue landlords, especially as I believe everyone has the right to a safe and decent home.

Be it Tory’s, Labour, SNP, Lib Dems, Greens etc, everyone needs to put party politics aside and start building enough homes and ensure that housing is affordable. Even though 2017 was one of the best years for new home building in the last decade (217,000 home built in 2017) overall new home building has been in decline for many years from the heady days of the early 1970s, when an average of 350,000 new homes were being built a year.  As you can see from the graph, we simply aren’t building enough ‘affordable’ homes in the area.



The blame cannot all be placed at the feet of the local authority as Council budgets nationally, according to Full-Fact, are 26% lower than they have been since 2010.  
So, what does this mean for Thanet homeowners? Well, an undersupply of affordable homes will artificially keep rents and property prices high. That might sound good in the short term, but a large proportion of my Thanet landlords find their children are also priced out of the housing market. Also, whilst your Thanet home might be slightly higher in value, due to this lack of supply of homes at the bottom end of the market, as most people move up the market when they do move, the one you want to buy will be priced even higher.
Problems at the lower end of the property market will affect the middle and upper parts. There is no getting away from the fact that the Thanet housing market is all interlinked .. it’s not called the Property ‘Ladder’ for nothing!


Friday, 6 July 2018

1,175 Margate Landlords Plan to Expand Their Buy To Let Portfolios


A noteworthy number of buy to let landlords in Britain plan to buy more properties over the next year notwithstanding the frustrations, challenges and seismic changes in the private rented sector. According to Aldermore, the specialist Buy To Let lender, their research shows around 41% of portfolio buy to let landlord’s objective is to grow their buy to let portfolio (Portfolio landlords are landlords that own more than one property). So, I thought, “Are Thanet landlords feeling the same?” If so, if these numbers were applied to the Thanet private rental market, what sort effect would it have on the Thanet property market as whole? Talking to the landlords I deal with, most are feeling quite optimistic about the future of the Thanet rental market and the prospect it presents notwithstanding the doom and gloom prophecies that the property market will shrink. Many of those landlords who are looking to enlarge their portfolio are doing so because they still see the Thanet rental market as a decent investment opportunity. With top of the range Bank and Building Society Savings Accounts only reaching 1.5% a year, the rollercoaster ride of Crypto currency and the yo-yoing of the Stock Market, the simple fact is, with rental yields in Thanet far outstripping current savings rates, the short term prospect of a minor drop in property prices isn’t putting off Thanet landlords. The art to buying a Thanet buy to let investment is to buy the profit on the purchase price, not the anticipation of the future sale price. No matter what the historical economy has thrown at us, with the global meltdown in 2008/9, dotcom crash of 2000, ERM in 1992, the three day week, oil crisis and hyperinflation in the 1970’s (the list goes on) ... the housing market has always bounced back stronger in the long term. That’s the point ... long term. Investing in buy to let is a long-term strategy. The simple fact is, over the long term with the increasing demand for rental properties, predominantly among Millennials as many cannot afford to get on the property ladder, and with councils not building enough properties of any kind, many youngsters are having to resort the private rental market for their accommodation needs. So, what of the numbers involved in Thanet? Lets look at the numbers for Margate for example. There are 1,316 landlords that own just one buy to let (BTL) property in Margate and 2,866 Margate landlords, who are portfolio landlords. Between those 2,866 Margate portfolio BTL landlords, they own a total of 6,015 Margate BTL properties and they can be split down into the size of landlord portfolio in the graph below….


If I apply the Aldermore figures that means 1,175 Margate landlords have plans to expand their BTL portfolio in the coming year or so. However, the Aldermore Research also showed that 8% of private landlords intended to reduce the number of properties they own. They put this down to continuing Government intervention in the housing market (as many landlords mentioned too many limitations and higher taxation) while some believed that tenants are excessively protected to the disadvantage of the landlord. I would say there is no repudiating that the buy to let market has taken a bit of a beating, thanks to a plethora of Government regulation, new mortgage underwriting rules in 2014 and George Osborne’s tax changes. Yet there still remains an overall consciousness of optimism among the vast majority of Thanet buy to let landlords. Despite these latest changes, many landlords still view buy to let as a good investment, as long as you buy right and expand your portfolio taking into account the second rule of buy to let … assess your position on the ‘buy to let seesaw’ of capital growth and yield. If you want to buy right and assess your own portfolio on the yield/capital growth seesaw ... drop me a note. I don’t bite and the opinion I give, whether you are landlord of mine or not as the case may be, is given freely, without obligation or cost. The choice is yours. Thank you for reading this article. To read others, please visit my Thanet Property Blog.

Friday, 25 May 2018

£685 pcm – The Average Thanet Rent


The rents paid by Thanet tenants are now standing at £685 per calendar month (PCM), a rise of 0.59% year on year and 0.71% higher month on month.

However, this attention-grabbing monthly rent figure masks stark differences in the various different parts of the Thanet rental market.  Demand in Thanet for high quality family homes with two or three bedrooms in good catchment areas for schools remains really robust due to tenants wanting access to the schools.  Other influencing factors that make certain areas popular are the proximity to transport links. However, I have noticed a drop in demand (and thus rents achieved) for property where the landlord hasn’t kept the property fresh; in terms of decoration, carpets, replacement windows and poor heating.

So, what does all this mean for Thanet landlords and tenants?
With the new tax rules for landlords, many believed that the number of rental properties would narrow throughout 2017, as landlords sold up their Buy to let properties and looked to invest their money elsewhere, but evidently this hasn’t happened (yet).  Feasibly Thanet landlords are re-mortgaging their Thanet buy to let properties instead, as they still believe it’s a safer investment than looking, say at the stock market?
However, demand remained strong in 2017 for Thanet private rental properties, meaning the rents being achieved were at a decent level for landlords. Keeping your outgoings low is also an important consideration and so I looked on a well-known financial services comparison site this morning and found a High Street bank offering a 5-year fixed rate for Buy to let landlords with a 40% deposit/equity for 2.17% … I can remember (as I am sure many of my readers of this blog can) when mortgage rates were at 15% - this is cheap money!
Looking at property values in Thanet, over the last 12 months and specifically at the lower of the market where buy to let landlords tend to buy their rental properties.  Flats/apartments have risen in value by 1.22% whilst terraced properties have risen by 4.53%.

Some Thanet landlords have seen the yields they are achieving remain squeezed.

However, most landlords can start to feel assured that as capital growth in Thanet remains at a more realistic figure (good for long term stability in the property market) and long-term rents are on the rise, the overall corresponding annual return on investment (Annual ROI being annual capital + annual yield) has stabilised in all areas and is now starting to grow.

With additional people seeing renting as a long-term option, even with the challenges of the new tax regime, Thanet landlords, with the support of a good advice and opinion, should continue to see renting as a good investment vehicle.

Friday, 18 May 2018

Margate Millennials Have Spent £102,986 On Rent By The Age of 35


The Millennials were born between the mid 1980’s and late 1990’s thus making them between the age of around 22 to late 30’s. They are the imaginative, artistic youngsters who grew up with the newest tech and computers and who are huge aficionados of music festivals, gourmet pizzas, emoji’s, selfies and old school nostalgia. Also known as Generation Rent, many Millennials have discovered that renting is a good choice for their shelter and accommodation needs without the hassle that comes from buying a home. Nonetheless, that is not the only reason they don’t buy property. When they should be concentrating on their profession, putting down roots and starting a family, Millennials are still going through the pressure and strain of student loan liabilities whilst, at the same time, finding it tough to pay rent.
The hot topic at the moment is the cost of renting, as both political parties have seen mileage in wooing these Millennial Generation Renters. The average rent in Margate is currently £721 per month making this a big-ticket item on the monthly budget. I was inquisitive to find out exactly how much Margate Millennials will spend on rent by the time they reach their mid 30’s. The average age people leave home in the UK is 22; so looking at a Margate 22-year-old (or Millennial) who left home in 2005 then between 2005 and today that Margate Millennial will have shelled out £102,986 in rent.
It’s no wonder local Millennials can’t afford to buy a Margate home given their tremendous debt. This means younger Margate Millennials will probably carry on renting for the foreseeable future, simply because the prospect of buying a home is not yet achievable.. that is until you look more deeply at the numbers…


Looking at the chart above, the average rent of a Margate property in 2005 was £593 per month (pm)  … if it had risen by inflation, today, that would be £835 pm. As I have already mentioned in the article, today it only stands at £721 per month. Looking over the last 12 years, adding up all the differences between what the average actual rent was compared to what it should have been if rent had gone up by inflation, the average Margate Millennial tenant would have paid £112,162.


This means that an average 35-year-old Margate Millennial tenant, who has been renting since 2005, is better off by £9,177 when comparing the actual rent paid compared to what it would have been if it had risen by inflation. In a nutshell, tenants have done well due to the sub-inflation growth in rents.
In fact, if you recall I mentioned in an article a few weeks ago, the older Margate Millennials are starting to use those savings and are gradually shifting towards home ownership. They are finally catching up with the British homeownership dream as Bank of Mum and Dad help with the deposit. Also, the scrapping of Stamp Duty from the Government starts to kick in together with the realisation that if the 5% mortgage deposit can be scrapped together (yes, 95% first time buyer mortgages have been available since 2009), it is still a lot cheaper to buy than rent, meaning this will unquestionably drive demand for Margate homes for sale – good news for Margate homeowners.

… and what does this mean for Margate landlords?

Well the vast majority of younger Millennials are still renters and I foresee this to be the case for at least the next ten to fifteen years. Landlords will need to keep improving their properties to ensure they get the best tenants and they will see a much higher rent achieved. Millennials will pay top dollar for a top dollar property. It is important to do things correctly as making money won’t be as easy as it has been over the last twenty years.  With a greater number of properties on the market .. comes greater choice. Don’t buy the first thing you see, buy with your head as well as your heart … because as I promised a few weeks ago, the first rule of Buy To Let Investment ….. “You are not going to live in the property yourself”

Friday, 11 May 2018

Margate Property Market – Asking Prices Up 8% in the Last 12 Months



The average asking price of property in Margate increased by 8% or £21,685 compared to a year ago, with particularly good demand from landlords and home-movers in the first few months of the year. This takes the current average asking price to £294,394, compared with £272,709 this time last year.

The rise in asking prices is being aggravated by buyers jumping into action looking to benefit from potential stamp duty savings (especially first-time buyers) or beat impending mortgage interest rate rises later in 2018. Of the numerous Thanet buyers starting their property hunting in the usually active spring market this year, many face paying even more than ever for the property of their dreams, although as I mentioned a few weeks ago, there are more properties for sale in Margate compared to 12 months ago.

Looking at the different sectors of the Margate property market, splitting it down into property types, one can see what is happening to each sector of the market with regard to their average asking prices now compared to a year ago. Firstly, looking at the Pound note amounts …



Interestingly, when one looks at the percentages, the most upward average asking price pressure is in the terraced property type sectors.



Now, I must stress this growth in the asking prices of Margate property doesn’t mean the value of Margate property is going up by the same amount ... nothing could be further from the truth.  Only time will tell if the current levels of Margate asking prices is a catch-up abnormality after a couple of months of restrained asking price rises in the first few months of 2018, or is it an initial sign that we are in for a better 2018 Margate Property market than all of us were expecting at the start of the year? 

I believe these asking prices must be viewed with a pinch of salt, as it will be fascinating to see whether Margate properties actually sell at these higher asking prices. Just because house sellers (be they owner-occupiers or landlords liquidating their assets) are asking for more money it doesn’t mean buyers will be enthusiastic to part with their hard earned cash. Like my Mum and Dad used to say to me all those years ago, “You can ask ... but you might not get”.

Also, Thanet homeowners and landlords wanting to sell their property need to be aware of progressively strained buyer mortgage affordability and the more those sellers increase asking prices, the more buyers will hit their maximum on the amount they are able borrow on a mortgage.

However, those Thanet buyers who need a mortgage (be they owner-occupier or landlord), will paradoxically benefit from lower mortgage payments before interest rates rise … maybe another reason for the uplift in the number first time buyers and landlords buying? Only time will tell!