Friday, 8 December 2017

Increase in Interest Rates to cost Thanet Home Owners £257.56 a year



Thanet homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.
    
Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate..  

The average Thanet mortgage is £103,025

I have to ask by how much Thanet homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the CT8-CT12 postcodes there are 15,531 homeowners with a mortgage, of which 6,672 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those CT8-CT12 homeowners with those variable rate mortgages is £687,393,235, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £803.31 per month and now its £824.77 per month … meaning

The interest rate rise will cost Thanet
homeowners on average an extra £257.56 per year

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.
So, what will this interest rate actually do to the Thanet housing market?
Well, if I’m being frank – not a great deal. The proportion of Thanet homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.
If more Thanet people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Thanet people having to sell their Thanet properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.
However, and this will be of interest to both Thanet homeowners and Thanet buy to let landlords …
.. for every 1% increase in the Bank of England interest rate, it will cost the average Thanet homeowner on a variable rate mortgage £85.85 per month

So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Thanet Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Thanet property market will always remain strong for both Thanet homeowners and Thanet landlords alike.

Friday, 1 December 2017

The Thanet House Price Index: 152.01




I had the most interesting conversation the other day with a local Thanet accountant, who asked me about my articles on the Thanet property market. It was quite humbling to be given praise by such a professional, when he commented enthusiastically on the articles I write. He was particularly interested with the graphs, facts and figures contained within them – so much so he recommended his clients read them, as most of them were either Thanet homeowners, Thanet landlords and a lot of the time - both. However, one question that kept me on my toes was, “With so many House-Price-Indices, how do you know which one to use and how can you calculate what is exactly happening in Thanet?


To start with, there are indeed a great number of these Indices, including the Land Registry, Office of National Stats, Halifax, Nationwide and LSL to name but a few. The issue occurs when these different house price indices give diverse pictures of the state of the UK housing market. Whilst some indices measure the average value of every property in the UK (sold or unsold), others measure the average ‘price-paid’ of houses that happen to be sold over a fixed time scale… confusing isn’t it!


A lot of the variance between house price indices occurs because of the distinctive ways in which the numerous indices endeavour to beat these issues. You see, the biggest problem in creating a house-price-index when comparing and contrasting with most other indexes (e.g. inflation where the price a ubiquitous tin of Beans can easily be measured over the months and years), is every home is unique and as Thanet people are only moving every 12.5 years, it appears the only thing that can be measured is the price of property sold in a given month.


By their very nature, all of the indices are only able to paint a picture of the whole of the UK or, at best, the regional housing market. As I have said many times in my articles on the Thanet property market, it is important to look to the medium term when considering house price inflation/deflation. Looking at the month-to-month jumps, many indices look like one of those jumpy lie-detector needles you see in the cold war movies!  


I can guarantee you in the coming few months, on a month-by-month basis, one or more of the indices will say property prices will have dropped. Let me tell you, no property market indices are representative of the housing market in the short term. Many indices have shown a drop around the Christmas and New Year months, even the boom years of 2001 to 2007 and 2013 to 2015.


So, back to the question, how do we work out what is happening in the Thanet Property Market and can there be a Thanet House Price Index?

To calculate what I consider is a fair and proper House Price Index for Thanet, I initially needed to decide on a starting place for the index. I have chosen 2008 as far enough away, but still gives us a medium/long term view. Next, I split all the house sales into their types (Detached/Semi/House /Apartment) to give us an indication of what is actually selling by postcode district. So, for example, below is a table for the CT11 postcode district (the sample shows 2008, 2016 and 2017.


Then I look at the actual numbers of properties sold in the CT11 postcode district. Below is the graph with the numbers for the years already mentioned.


Next, I have looked at the prices paid for those types for every year since 2008, again in this example using the sample years of 2008, 2016 and 2017 for the CT11 postcode.


Finally, I amalgamated the same data points for the other postcode districts covered by Thanet and the surrounding villages, weighted it accordingly, to produce the Thanet House Price Index ... which after all that work, currently stands at for Q4 2017 at 152.01 (Q4 2008 = 100).

I hope you found that of interest and over the coming months and seasons, I shall refer back to Thanet House Price Index in my Thanet Property Blog to give you a flavour of what is really happening in the Thanet Property Market.




Saturday, 25 November 2017

One in 17 rental properties in the Thanet area will be illegal in 2018


As the winter months draw in and the temperature starts to drop, keeping one’s home warm is vital. Yet, with the price of gas and electricity rising quicker than a Saturn V rocket and gas, oil and electricity taking on average 4.4% of a typical Brit’s pay packet (and for those Brit’s with the lowest 10% of incomes, that rockets to an eye watering 9.7%), whether you are a tenant or homeowner, keeping your energy costs as low as possible is vital for the household budget and the environment as a whole.
For the last 10 years, every private rental property must have an Energy-Performance-Certificate (EPC) rating.  The property is given an energy rating, very similar to those on washing machines and fridges with the rainbow coloured graph, of between A to G (A being the most efficient and G the worst). New legislation comes in to force next spring (2018) for English and Welsh private landlords making it illegal to let a property that does not meet a certain energy rating. After the 1st of April next year, any new tenant moving into a private rented property or an existing tenant renewing their tenancy must have property with an energy performance rating of E or above on the property’s EPC and the new law will apply for all prevailing tenancies in the spring of 2020. After April 2018, if a landlord lets a property in the ‘F’ and ‘G’ ratings (i.e. those properties with the worst energy ratings) Trading Standards could fine the landlord up to £4,000.

Personally, I have grave apprehensions that many Thanet landlords may be totally unaware that their Thanet rental properties could fall below these new legal minimum requirements for energy efficiency benchmarks. Whilst some households may require substantial works to get their Thanet property from an F/G rating to an E rating or above, my experience is most properties may only need some minor work to lift them from illegal to legal. By planning and acting now, it will mitigate the need to find tradespeople in the spring when every other Thanet landlord will be panicking and paying top dollar for work to comply.

Whilst there is money and effort involved in upgrading the energy efficiency of rental property, a property that is energy efficient will have greater appeal to tenants and other buy-to-let landlords/investors and this will enable you to obtain higher rents and sale price (when you come to sell your investment).

So, how many properties are there in the area that are F and G rated .. well quite a few in fact. Looking at the whole of the Thanet District Council area, of the 14,151 privately rented properties, there are ..

594 rental properties in the F banding
248 rental properties in the G banding



That means just under one in 17 rental properties in the Thanet and surrounding area has an Energy Performance Certificate (EPC) rating of F or G. From April next year it will be illegal to rent out those homes rated F and G homes with a new tenancy.

Talking with the Energy Assessors that carry out our EPC’s, they tell me most of a building’s heat is lost through draughty windows/doors or poor insulation in the roof and walls. So why not look at your EPC and see what the assessor suggested to improve the efficiency of your property? I can find the EPC of every rental property in Thanet, so irrespective of whether you are a client of mine or not, don’t hesitate to contact me via email (or phone) if you need some guidance on finding out the EPC rating or need a trustworthy contractor that can help you out?

Read more on the Thanet Property Blog

Monday, 6 November 2017

Thanet Homeowners Are Only Moving Every 12.5 Years (Part 2)


In the credit crunch of 2008/9 the rate of home moving plunged to its lowest level ever. In 2009 the rate at which a typical house would change hands slumped to only once every 20 years. The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Thanet property prices plunged after the onset of the financial crisis in 2008. However, since 2009, the rate of home moving has increased (see the table and graph below), meaning today:

The average period of time between home moves in
Thanet is now 12.5 years.


This is an increase of 56.00 per cent between the credit crunch fallout year of 2009 and today, but still it is a 27.63 per cent drop in moves by homeowners, compared to 15 years ago (The Noughties).




So why aren’t Thanet homeowners moving as much as they did in the Noughties?

The causes of the current state of play are numerous. In last weeks article I talked about how ‘real’ incomes and savings had been dropping. Another issue is the long-term failure in the number of properties being built. Only a few weeks ago in the blog, I was discussing the draconian planning rules meaning house builders struggle to locate building land to actually build on.

Back in the 1960’s and 1970’s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (through immigration, people living longer, a just under 50% increase in the number of households with a single person since the 1980’s and family makeup (i.e. divorce makes one household now two)) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year.

Finally, as the UK Population gets older, there is no getting away from the fact that a maturing population is a less mobile one.

So, what does this mean for Thanet homeowners and landlords?

Well, if Thanet people are less inclined to move or find it hard to sell a property or acquire a new one, they are probably less likely to move to an improved job or a more prosperous part of the UK.

Many of the older generation in Thanet are stuck in property that is simply too big for their needs. The fact is that, in Thanet, more than four out of every ten (or 42.1 per cent) owned houses has two or more spare bedrooms; or to be more exact ...

15,629 of the 37,113 owned households in the Thanet
area have two or more spare bedrooms.

So, as their children and grandchildren struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for them i.e. overcrowding, we have a severe case of under-occupation with the older generation - grandparents staying put in their bigger homes, with a profusion of spare bedrooms.

Regrettably, I cannot see how the rate of properties being sold will rise any time soon. Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference of any thoughtful and detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Thanet buy to let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years. As for homeowners; well those in the lower and middle Thanet market will find it a balanced sellers/buyers market, but will find it slightly more a buyers market in the upper price bands.

Interesting times ahead!



Friday, 3 November 2017

Thanet Home Owners Are Only Moving Every 12.5 Years (Part 1)


As I mentioned in a previous article, the average house price in Thanet is 8.02 times the average annual Thanet salary. This is lower than the last peak of 2008, when the ratio was 8.24. A number of City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Thanet) property prices might drop like a stone. The point is - they haven’t.

Now it’s true the market for Thanet’s swankiest and poshest properties looks a little fragile (although they are selling if they are realistically priced) and overall, Thanet property price growth has slowed, but the lower to middle Thanet property market appears to be quite strong.

Scratch under the surface though, and a different long-term picture is emerging away from what is happening to property prices. Thanet people are moving home less often than they once did. Data from the Office of National Statistics shows that the number of properties sold in 2016 is again much lower than it was in the Noughties. My statistics show…





Even though we are not anywhere near the post credit crunch (2008 and 2009) low levels of property sales, the torpor of the Thanet housing market following the 2016 Brexit vote has seen the number of property sales in Thanet and the surrounding local authority area level off to what appears to be the start of a new long term trend (compared the Noughties).

Interestingly, it was the 1980’s that saw the highest levels of people moving home. Nationally, everyone was moving on average every decade. Even though it was during the Labour administration of the late 1970’s where the right to buy one’s council house started, it was the Housing Act of 1980 that that really got council tenants moving, as Thatcher’s Tory government financially encouraged council tenants to buy their council-rented homes - for which countless then sold them on for a profit and moved elsewhere. The housing market was awash with money as banks were allowed to offer mortgages as well as the existing building societies, meaning it made it simpler for Brits to borrow even more money on mortgages and to climb up the housing ladder.

But coming back to today, looking at the property sales figures in the Thanet area since 2010/11, a new trend of number of property sales appears to have started. Interestingly, this has been mirrored nationally. The reasons behind this are complex, but a good place to start is the growth rate of real UK household disposable income, which has fallen from 5.01% a year in 2000 to 1.68% in 2016. Also, things have deteriorated since the country voted to leave the EU as consumer price inflation has risen to 2.7% per annum, meaning inflation has eaten away at the real value of wages (as they have only grown by 1.1% in the same time frame).

With meagre real income growth, it has become more difficult for homeowners to accumulate the savings needed to climb up the housing ladder as the level of saving has also dropped from 4.26% of household income to -1.11% (i.e. people are eating into their savings).

Next week I will be discussing how these (and other issues) has meant the level of Thanet people moving home has slumped to once every 12.5 years.

Monday, 23 October 2017

Margate Baby Boomers vs. Margate Millennials (Part 2)



Well last week’s article “The Unfairness of the Margate Baby Boomer’s £2,704,300,000 windfall?” caused a stir. In it we looked at a young family member of mine who was arguing the case that Millennials (those born after 1985) were suffering on the back of the older generation in Margate. They claimed the older generation had seen the benefit of the cumulative value of Margate properties significantly increasing over the last 25/30 years (which I calculated at  £2.70bn since 1990). In addition many of the older generation (the baby boomers) had fantastic pensions, which meant the younger generation were priced out of the Margate housing market.

I replied there should be no surprise though that the older members of our society hold considerably more of our country’s wealth than the younger generation. This wealth is accrued and saved across someone’s life, and reaches it’s peak about the time of retirement. If we are to comprehend differing wealth levels between generations we need to compare ‘apples with apples’. It is much more important to track the wealth held by different generations at the same age, i.e. what was ‘real’ wealth of the 30-something couple in the 1960’s compared to a 30-something couple say in the 1980’s or 2010’s?
Looking back over the last 120 years at various economic studies, this growth in wealth from one generation to the next (at the age range), only happened over a 30 year period of between 1960 and late 1980’s. Since the 1990’s, wealth has not improved across the generations, in the same age range.

So could it be all about these people saving? The fact is, in the last 10 years, UK households have saved on average 7.5% to 8% of the household income into savings accounts, compared to an average of 6% to 7% in the late 1960’s and 1970’s. The baby boomers haven’t been actively squirreling away their cash for the last 30 or 40 years in savings accounts to accumulate their wealth. Most of their gains have been passive, lucky bonuses gained on the back of things out of their control (unanticipated and massive property value rises or people living longer making final salary pensions more valuable) – it’s not their fault!

...and herein lies the issue … it is assumed that these Millennials aren’t buying property in the same numbers like the older generation did in the past (because most of their wealth has come from house price inflation). The Millennials have often been described as ‘Generation Rent’, because they rent as opposed to buying property – because we are told they cant buy.


However, when Margate mortgage payments are measured against monthly income, home ownership is affordable by historic standards because mortgage rates are currently so low. As you can see, the ratio of average house price to average earnings in Margate hasn’t vastly changed over the last decade …

  • 2008 average house price to average earnings of a single person in Margate 8.24 to 1  

  • 2017 average house price to average earnings of a single person in Margate 8.02 to 1

(i.e. in 2008, the average house price in Margate was 8.24 times more than the average person’s salary in Margate and this has dropped to 8.02 in 2017 – and all this off the property boom of the early 2010’s)

2008 2017


95% first-time buyer mortgages were reintroduced in 2010. The average interest rate charged for those 95% FTB mortgages has slowly dropped from around 5.5% in 2009 to the current 4% rate. Back in the 1980’s/1990’s mortgage interest rates were between 8% and 10%, and one time in the early 1990’s, reached 15%! The main difference between the two periods was the absolute borrowing relative to income is greater now than in the 1980’s. They call this the ‘mortgage to joint household income ratio’. In the 1980’s the mortgage was between 1.8x to 2x joint income; today it is 3.4x to 3.6x salary.

The simple fact is, in the majority of cases, it is still cheaper for a first-time buyer to buy a property with a 95% mortgage, than it is rent it. The barrier for these Millennials, has to be finding the 5% mortgage deposit – instead of being able to afford monthly mortgage outgoings at the current 95% mortgage rates?

Millennials make up 9,119 households in the Thanet District Council area (or 15.3% of all households in the area).  However, behind the doom and gloom, surprisingly, 25.9% did save up the 5% deposit and do in fact own their own home (that surprised you didn’t it!)

Nonetheless, the majority of Millennials in the area still do rent from a landlord (5,446 Millennial households to be exact). Yet, they have a choice. Buckle down and do what their parents did and go without the nice things in life for a couple of years (i.e. the holidays, out on the town two times a week, the annual upgraded mobile phones, the £100 a month Satellite packages) and save for a 5% mortgage deposit ... or live in a lovely rented house or apartment (because they are nowadays), without any maintenance bills and live a life with no intention of buying (because renting doesn’t have a stigma anymore like it did in the 1960’s/70’s (secretly hoping their parents don’t spend all their inheritance so they can buy a property later in life – like they do in central Europe).

Neither decision is right or wrong – although it is still a choice. Until Millennials decide to change their choices – that is the reason why the country’s private rental sector will continue to grow for the next 30 years – meaning happy tenants and happy landlords.

Saturday, 21 October 2017

The Unfairness of the Margate Baby Boomer’s £2,704,300,000 Windfall? (Part 1)


Recently I was having a chat with one of my second cousins at a big family get-together. The last time I had seen them their children were in their early teens. Now their children are all grown up, have partners, dogs and children. Wow – how time flies!

So, I got talking over a glass of lemonade with my 2nd cousins and a couple of their children, about the times of 15% interest rates and how the more mature members of our family had to endure the 3 day week, 20% inflation and the threat of nuclear annihilation in 4 minutes .. so, foolishly, I said what with all the opportunities youngsters had today, they had never had it so good!

Trust one of my cousin’s children to have gained some financial/economics qualifications before going to Law School, as they debated with me the genuine economic predicament of Millennials and how a combination of student debt, unemployment, global proliferation, EU migration and rising house values is reducing the salaries and outlook of masses of the UK’s younger generation, causing an unparalleled disparity of wealth between the generations. So of course I asked why that was?

They said Millennials were paying the price for the UK’s most spectacular bookkeeping catastrophe to date (bigger than the Bank bailout after the Credit Crunch). Back in the 1950’s and 1960’s, nobody predicted us Brit’s would live as long as we do today, and in such abundant numbers. The OAP pensions that were promised in the past (be that Government State Pension or Company Final Salary Schemes) which appeared to be nothing fancy at the time, are now burdensomely over-lavish, and that is hurting the Millennials of today and will do so for years to come.

Bringing it back to property, the young 2nd cousin once removed ‘soon to be’ lawyer, stated that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices over the 1970’s/80’s/90’s and 2000’s. Add to that their decent pensions, meaning cumulatively, their wealth has grown exponentially through no skill of their own.

This disparity of wealth between the older and younger generations could have unparalleled consequences for the living standards of younger Millennials…. So Houston Margate – do we have a problem??

Well Margate Property Blog readers, you know I like a challenge. I can’t disagree with some of what the younger family member said, but there are always two sides to every story, so I thought I would do some homework on the matter ..

Since 1990, the average value of a property in Margate has risen from £57,500 to its current level of £215,600. As there are a total of 17,105 homeowners aged over 50 in Margate; that means there has been a £2.70bn windfall for those Margate homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000’s.



I must admit that the growth in property values in the 1990’s and 2000’s certainly helped many of Margate’s baby boomers. The figures do appear to put into reverse gear the perceived wisdom that each generation gets wealthier than the previous one  … and so with all this wealth, the figures do back up the youngsters argument that Millennials are being priced out of home ownership.
Or do they? Are they?

Soon, I will carry on this discussion where I will give the Baby Boomer’s defence to the prosecution’s case!