Friday, 29 December 2017

Thanet Property Market and Hammond’s Budget Promise to Build 300,000 more homes




I miss the good old days of George Osborne as Chancellor, with his hardhat and hi-vis jacket. He must have visited every new home building site in the UK with his trademark attire! For the last few years, the nearest Philip Hammond got to donning a ‘Bob the Builder’ outfit was at his grandchild’s birthday party. However, with what appears to be a change in focus by the Tories to ensure they get back in power in 2022, they appear to have fallen in love with house building again with the Chancellor’s promise to create 300,000 new households in a year.

Nationally, the number of new homes created has topped 217,344 in the last year, the highest since the financial crash of 2007/8. Looking closer to home: in total there were 389 ‘net additional dwellings’ in the last 12 months in the Thanet District Council area, a decrease of 39% on the 2010 figure.

The figures show that 73% of this additional housing was down to new build properties. In total, there were 283 new dwellings built over the last year in Thanet. In addition, there were 174 additional dwellings created from converting commercial or office buildings into residential property and a further 8 dwellings were added as a result of converting houses into flats.

While these all added to the total housing stock in the Thanet area, there were 76 demolitions to take into account.



I was encouraged to see some of the new households in the Thanet area had come from a change of use. The planning laws were changed a few years back so that, in certain circumstances, owners of properties didn’t need planning permission to change office space in to residential use.

With the scarcity of building land available locally (or the builders being very slow to build on what they have, for fear of flooding the market), it was pleasing to see the number of developers that had reutilised vacant office space into residential homes in the local council area. Converting offices and shops to residential use will be vital in helping to solve the Thanet housing crisis especially, as you can see on the graph, that the level of building has hardly been spectacular over the last seven years!

Now we have had the autumn budget, Theresa May and Philip Hammond have set out their stall with housing as their key focus. I was glad to see the Government introducing a variety of changes to improve housing, including more funding for the supply side and an injection of urgency into the planning system.

The biggest question is, just where are the Government going to build all these new houses? Maybe a topic for a future article?

Back to the main point though and the focus on the housing market by the Tory’s is good news for all homeowners and buy to let landlords, as it will encourage more fluidity in the market in the longer term, sharing the wealth and benefits of homeownership for all. However, in the short term, demand still outstrips supply for homes and that will mean continued upward pressures on rents for tenants.

Thursday, 21 December 2017

Ramsgate Rents Set to Rise to £810 pm in Next 5 Years



It’s now been a good 12/18 months since annual rental price inflation in Ramsgate peaked at 3.4%. Since then we have seen increasingly more humble rent increases. In fact, in certain parts of the Ramsgate rental market over the autumn, the rental market saw some slight falls in rents. So, could this be the earliest indication that the trend of high rent increases seen over the last few years, may now be starting to buck that trend?

Well, possibly in the short term, but in the coming few years, it is my opinion Ramsgate rents will regain their upward trend and continue to increase as demand for Ramsgate rental property will outstrip supply, and this is why.

The only counterbalance to that improved rental growth would be to meaningfully increase rental stock (i.e. the number of rental properties in Ramsgate). However, because of the Government’s new taxes on landlords being introduced between 2017 and 2021, that means buy-to-let has (and will) be less attractive in the short term for certain types of landlords (meaning less new properties will be bought to let out).

Interestingly, countless market experts assumed at the start of 2017, that the number of rental properties would in fact drop throughout the year. The assumption being as the new tax rules for landlords started to kick in, landlords looked to kick their tenants out, sell up and invest their capital elsewhere. (Although ironically that would lower supply of rental properties, decreasing the supply, meaning rents would increase again!).

Anecdotal evidence suggests, confirmed by my discussions with fellow property, accountancy and banking professionals in Ramsgate, that Ramsgate landlords are (instead of selling up on masse), actually either (1) re-mortgaging their Ramsgate buy-to-let properties instead or (2) converting their rental portfolios into limited companies to side step the new taxation rules.

The sentiment of many Ramsgate landlords is that property has always weathered the many stock market crashes and runs in the last 50 years. There is something inheritably understandable about bricks and mortar – compared to the voodoo magic of the stock market and other exotic investment vehicles like debentures and crypto-currency (e.g. BitCoin). 

Remarkably, there is some good news for tenants, as Tory’s recently published the draft Tenants’ Fee Bill, which is designed to prohibit the charging of tenants lettings fees on set up of the tenancy. However, looking at evidence in Scotland, I expect rents to rise to compensate landlords, thus hammering faithful tenants looking for long-term tenancy agreements the hardest. This growth will be on top of any usual organic rent growth.  It really is swings and roundabouts!

So, what does this all mean for landlords and tenants in Ramsgate? In my considered opinion,

Rents in Ramsgate over the next 5 years will rise by 9.2%, taking the average rent for a Ramsgate property from £742 per month to £810 per month.

To put all that into perspective though, rents in Ramsgate over the last 12 years have risen by 21.5%. In fact, that rise won’t be a straight-line growth either, because I have to take into account the national and local Ramsgate economy, demand and supply of rental property, interest rates, Brexit and other external factors. Please see the graph for my projections



In the past, making money from Ramsgate buy-to-let property was as easy as falling off a log. But with these new tax rules, new rental regulations and the overall changing dynamics of the Ramsgate property market, as a Ramsgate landlord, you are going to need work smarter and have every piece of information, advice and opinion to hand on the Ramsgate, Regional and National property market’s, to enable you to continue to make money.

One place for that information is the Thanet Property Market blog.

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.