Rugby Town – is the housing market depressed or booming?

Rugby Property Market Update

It is always important to understand what is going on in the local housing market. As part of our ongoing service to you, please watch, listen or read our local housing trends in Rugby Town.

We can also have a bit of fun, comparing our area to the UK as a whole.

I’m Brendan Petticrew, author of this blog, based and working out of Rugby – the home of our Newman Property Experts Head Office HUB.

So…..what’s been happening?

Watch this video to find out more

The national average house price of a property across the UK was £226,798 in the year to March 2019, this is 1.4% higher than a year ago. East and West Midlands have climbed above the national average at and increase of 3.9% and 3.2% respectively.

The majority of sales in Rugby during the last year were detached properties, selling for an average price of £368,530. Semi-detached properties sold for an average of £230,656, with terraced properties fetching £188,666.

Rugby, with an overall average price of £263,785, was similar in terms of sold prices to nearby Hillmorton (£268,127), but was cheaper than Bilton (£290,718) and Cawston (£301,108).

Overall sold prices in Rugby (including CV23) over the last year were 8% up on the previous year and 22% up on the 2016 level of £215,938. Prices have risen by 41% over the last 5 years!!!

What type of homes have made up the moving population?

Well – 9% of all transaction were apartments, 21% terraced houses, 33% semi-houses and 38% detached homes (probably because of the new build sites predominantly lead with these type of homes in our area.

So what does it mean for the house prices of the future, well many commentators will point towards what happens in the economy and what happens with the “B” word. I have been working in the industry for the last 25 years and have identified that the main reason that prices keep rising in our areas is the basic principle…..supply and demand. On this day, according to Rightmove, there are only 297 homes in Rugby (not including new build). There are currently 453 homes sold subject to contract – so you can see there are more buyers than sellers.

Lets hope this momentum in the market place continues for you and your biggest investment.

If you need me to answer any other property related questions regarding your home, please call me on 07989 596836.

You may listen to our podcast below:

New Home Building in Rugby 2018 rises to 16.2% above the post Millennium average

Nationally, the number of new homes created in 2018 was 222,194, the highest since 1989. Yet since 2002, the average number of properties built in the UK has only been 146,700 per year. You would think, seeing all the new homes sites around, you could ask are we building too many houses, especially off the back of those impressive 2018 build figures? However, to keep up with the ever-growing population, lifestyles and people living longer, official reports state the Country actually needs 240,000 new homes built every year to just stand still.

It is estimated, by the Chartered Institute of Housing, that the current national backlog of new homes required is in the order of 4.7 million (i.e. because of the bottled-up household formation by younger adults living with parents, shared housing and unaffordability). As a Country, we cannot meet all these needs immediately and it will take time to build up an effectual plan to address these issues.

Looking closer to home, you will also see from the graph below the long-term trend of new homes building (the yellow dotted line) has been going in a downward direction. Although, the 2018 new homes build stats for Rugby are 16.2% above the post Millennium average.

The cure is simple: we need more homes… yet who is going to build (and pay) for them. Some Rugby people will say why can’t the local authority build most of them?

In 2018, 578 new dwellings were created in the Rugby Council area and of those 578; interestingly 23 were Council and Housing Association homes

So, if our local authority had a more ambitious annual target of say an additional 500 homes on top of those figures, where could they be built and how would they be paid for? Of course, there are the normal apprehensions about infrastructure issues such as roads, schools, hospital capacity and doctors’ surgeries but our local authority has a Local Plan and that has the locations of where they envisage the new housing will be built (and the infrastructure that goes with it).

The Tories lifted the cap on what local authorities could borrow to build Council houses in late 2018 meaning Councils could borrow more money to build more Council houses. Let’s say we built those 500 homes a year for the next 5 years in Rugby, that would cost the local authority £375 million to build, which would produce in total £17.4 million in rent. At current interest rates, the interest would be £9.5m per year leaving a surplus of £7.9m for property maintenance and management – meaning the Council houses pay for themselves!

Therefore, what does all this mean for Rugby homeowners and Rugby buy-to-let landlords?

Well, the chances of our local authority getting the full funding for an extra 500 homes a year is slim as there is only so much money to borrow. If every UK local authority got funding for 500 additional homes a year for the next 5 years, an impressive 867,500 homes would be built in those 5 years but that would require the councils to borrow £130.1bn – and Central Government doesn’t have that kind of money for Councils to borrow (more like £10bn to £15bn).

The 4.7million long term housing shortage means house prices will remain strong in the long term (despite blips like Brexit etc). Demand for private rental properties will continue to grow and if you read my recent article on Rugby rents, this can only be good news for Rugby landlords. This attention on the housing crisis by the Government is good news for all Rugby homeowners and Rugby 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 and stability on house prices.

Rugby Buy To Let Annual Returns Hit 12.18% in Last 10 Years

Many Rugby people ponder the best places to invest their hard-earned savings and the best piece of advice I can give you is to do your homework and speak to lots of people. It depends on your attitude to risk versus reward. Normally, the lower the risk, the lower the reward whilst a higher risk is normally associated with the possibility of higher returns, yet nothing is guaranteed. At the same time, higher risk also means higher possible losses on your investment – yet if one looks at the bigger picture, the biggest threat to investing, predominantly when the investment is made in the short term, isn’t risk but actually volatility.

So where should you invest? Building society, the stock market, gold or property are options. This article isn’t designed to give you advice – just show you how different investments have performed over the last decade.

Let me start with the humble semi-detached house in Rugby … which in 2009 was worth £157,300 … so assuming I bought that property for that figure, then I looked at what if I had invested the same amount of money in a building society, into gold and finally the stock market…

Putting your money into the stock market (FTSE100) would have brought a return of 30.2% on your capital over those 10 years and an average of 3.79% a year in dividends (making an overall increase of 74%).

Gold doesn’t earn interest – yet it has increased in value by 26.9% over the same 10 years whilst putting your money in the building society, the money hasn’t increased in value, but would have earned you interest of 24.46% or the equivalent of 2.21% per year.

Investing in an average semi-detached house in Rugby over the last 10 years has seen the capital increase by 50% (an equivalent of 4.14% per annum) and the income (i.e. the rent) has provided a return, based on the original purchase price, of 116.78% or the annual equivalent of 8.04% … meaning the overall return, based on the original purchase price of an average semi-detached property in Rugby, is 12.18% per annum.

Notwithstanding No.11 Downing Street’s grab at the profits of buy to let landlords by hitting the buy to let sector with several fiscal punishments with a 3% stamp duty level, a decrease in high rate tax relief for landlords and an increase in rate of CGT on residential property profits, the facts remain that ‘bricks and mortar’ is still one of the preeminent and most constant investments available.

The bottom line is, the buy to let investment remains the mainstay of the British property market, serving to support aspiring homeowners as they work to conquer the, sometimes difficult, financial obstacles of home ownership. With Central Government over the last 30 years only paying lip service to address the lack of new homes being built or tackling the affordability on a consequential scale, it is highly probable this will continue for the next 5/10/15 years as there will always be a call for a respectable, and above all, honest buy to let landlords delivering decent housing to those that need it.

Which Rugby Properties are Selling the Best?

Moving home is said to be the third most stressful life event, following a member of your family dying or getting divorced. So it is always best to keep your stress levels down by investigating and doing your homework on both the particular area of Rugby (or nearby conurbations) where you live (i.e. where you are selling) and where you want to search for your next Rugby home. Being mindful of how fast (or slow) the different aspects of the Rugby property market is moving is key.. because it could save you much heartache and many thousands of pounds.

You see, if you know you are selling a property in a sluggish price range and buying in a faster moving price range in Rugby then putting your property on the market first is vital, otherwise you will always find the one you want to buy tends to sell before your property sells – there is nothing worse than pondering over a property only to find that someone else has bought it. Being primed with all the knowledge is key. On the other side of the coin, if you are selling in a fast moving market and buying in a sluggish market .. you can probably get a better deal on the one you are buying.

For buy to let landlords in Rugby, this evidence is particularly critical as purchasing a high-demand property in a well-liked area of Rugby will safeguard a surfeit of availability of tenants, as well as respectable house price growth. 

Being an agent in Rugby, I like to keep an eye on the Rugby property market on a daily basis because it enables me to give the best advice and opinion on what (or not) to buy in Rugby; be that a buy to let property for a landlord or an owner occupier house.  So, I thought, how could I scientifically split the Rugby housing market into sections, so I could analyse which part of the Rugby property market was doing the best (or the worst).

I took the decision that the preeminent way was to fragment the Rugby property market into roughly four uniform size price bands (in terms of properties for sale). Each price band would have roughly around 25% of the property in Rugby available for sale .. then add up all the sold (stc) properties and see which sector of the Rugby property market was performing best? … And these were the results ..

The best performing price range in Rugby is the lower market up to £200,000 where 61.0% of all property in that price range has a buyer and is sold stc.

 

The best performing price range in Rugby is the lower market up to £200,000 where 61.0% of all property in that price range has a buyer and is sold stc.

The middle to upper range of the property market (£280,000 to £360,000) in Rugby is finding things a little tougher compared to the others. Even though the number of first time buyers in 2018 did increase over the 2017 levels, it was from a low starting point and the large majority of 20 to 30yo’s don’t want to or can’t buy their first home and the local authority has no money to build Council houses meaning an increase in demand as private landlords take up the slack – because everyone needs a roof over their head!

If you would like to pick my brains on the Rugby Property Market – pop in for a coffee or drop me a line on social media or email.

What Has Happened to the Rugby Property Market Since the Last Property Market Crash?

A handful of Rugby landlords and homeowners have been asking me what would happen if we had another property crash like we did in 2008/9?

The UK property crash in 2008/9 caused property prices in the UK to drop by an average of 18.37% in a period of 16 months.

On the run up to the Parliamentary vote on Brexit scheduled for March, a number of people asked what a no-deal Brexit would do to the property market and if there would be a crash as a result. I have discussed in a previous article on the chances of that (slim but always a possibility) … but assuming it happens, it is my opinion the outcome of a no-deal Brexit would be no worse than the country’s 2008/9 credit crunch property crash, the late 1988 property crash, the 1974 property crash, 1951 property crash … I could go on. The British economy would bounce back from the shock of a no-deal Brexit with lower property values and a continued low interest rate environment (together with an additional round of Quantitative Easing) and that would mean we would see a similar bounce back as savvy buyers saw it as a fantastic buying opportunity.

So, let me explain the reasons I believe this…

Many said after the Brexit vote in June 2016, we were due a property crash – but we all know what happened afterwards.

Initially, let’s see what would happen if we did have a crash, how quickly it would bounce back and then finally discuss how the chances of a crash are actually quite minimal.

Therefore, to start, I have initially split down the types of property in Rugby (Det/Semi etc.) and in the red column put the average value of that Rugby property type in 2009. Next in the orange column what those average values are today in 2019.

Now, assuming we had a property crash like we did in 2008, when average property values dropped nationally by 18.37%, I applied a similar drop to the current 2019 Rugby figures (i.e. the green column) to see what would happen to property values by the middle 2020 (because the last crash only took 13/14 months).

…and finally, what would subsequently happen to those same property prices if we had a repeat of the 2009 to 2014 property market bounce back.

Of course, these are all assumptions and we can’t factor in such things as China going pop on all its debt … yet either way, the chance of such a crash coming from internal UK factors are much slimmer than in another of the four property crashes we have experienced in the last 80 years. Why, you might ask?

The seven reasons I believe are these …

1.     The new Bank of England mortgage rules on lending 2014 to stop reckless lending that fuelled that last crash.

2.     Low inflation.

3.     Low mortgage rates (the average Brit’s fixed rate mortgage is currently 2.26% and the variable rate mortgage of 3.07%).

4.     Wage rises are forecast to continue to outgrow inflation.

5.     Unemployment figures dropping to 4% (down from 8.4% in 2011).

6.     The high percentage (67.7%) of all British mortgages being on a fixed rate.

7.     And notwithstanding the distractions of Brexit over the last few years, it cannot be denied that the British economy has slowly and steadily been heading in the right direction for a number of years, built on some decent foundations of a steady housing market (unlike the 1988 and 2008 crashes when the housing market got overheated very quickly on the run up to the crashes).

So as the circumstances are much different to the last two crashes, the chances of a crash are much slimmer. Yet if we do have a crash, for the very same 7 reasons above why the chances of a crash are unlikely, those 7 reasons would definitely contribute to making the ensuing recession neither too long nor substantial in scale.

One final thought for the homeowners of Rugby. Most people when they move home, move up market, meaning in a decreasing market you will actually be the winner, as a 10% drop on yours would be much smaller in £notes than a 10% drop on a bigger property … think about it.

One final thought for the new and existing buy to let landlords of Rugby. Well, the questions I seem to be asked on an almost daily basis by landlords are: –

·      “Should I sell my property in Rugby?”

·      “Is the time right to buy another buy to let property in Rugby and if not Rugby, where?”

·      “Are there any property bargains out there in Rugby to be had?”

Many other Rugby landlords, who are with us and many who are with other Rugby letting agents, all like to pop in for a coffee, pick up the phone or email us to discuss the Rugby property market, how Rugby compares with its closest rivals (Coventry, Lutterworth and Daventry), and hopefully answer the three questions above. I don’t bite, I don’t do hard sell, I will just give you my honest and straight-talking opinion. I look forward to hearing from you.

How Did Brexit Affect the Rugby Property Market in 2018 – and its Future for 2019?

A few weeks ago, I suggested property values in Rugby would be between 0.9% and 1.9% different by the end of the year. It might surprise some people that Brexit hasn’t had an effect on the Rugby property market that most feared at the start of 2018.

The basis of this point of view can clearly be seen in the number of property transactions (i.e. the number of property sold) that have taken place locally since 2008. The most recent property recession was the Credit Crunch years of 2008/2009/2010.

In property recessions, the headline most people look at is the average value of property. Yet, as most people that sell also go on to buy, for most home movers, if your property has gone down in value, the one you want to buy has also gone down in value so you are no better or worse off. If you are moving up market – which most people do when they move home – in a repressed market, the gap between what yours is worth and what you will buy gets lower … meaning you will be better off.

Yet, most property commentators, including myself, suggest (and I have mentioned this before in some of my other blog articles) a better measure of the health of the property market is the transaction numbers (i.e. the number of people selling and buying). So, I decided to look at the 2018 statistics, and compare them with the Credit Crunch years (2008 to 2010) and the boom years (2014 to 2017). The results can be seen in the table below.

Then, I looked at the average quarterly figures for those chosen date ranges … and created this graph …

 

In that 2008 to 2010 property Credit Crunch recession, the average number of properties sold in the Rugby area were 109 per month. Interesting when we compare that to the boom years of 2014 to 2017, when an average of 159 properties changed hands monthly … yet in the ‘supposed’ doom laden year of 2018, an impressive average of 147 properties changed hands monthly … meaning 2018 compared to the boom years of 2014 to 2017 saw a drop of 8.1% – yet still 34.6% higher than the Credit Crunch years of 2008 to 2010.

The simple fact is the fundamental problems of the Rugby property market are that there haven’t been enough new homes being built since the 1980’s (and I don’t say that lightly with all the new homes sites dotted around the locality). Also, the cost of buying your first home remaining relatively high compared to wages and to add insult to injury, all those issues are armor-plated by the tougher mortgage rules which were introduced in 2014 and the current mortgage market conditions.

It is these issues which will ultimately determine and form the rather unexciting, yet still vital, long term outlook for the Rugby (and national) housing market, as I feel the Brexit issue over the last few years has been the ‘current passing diversion’ for us to worry about. Assuming something can be sorted with Brexit, in the long term property values in Rugby will be constrained by earnings increases with long term house price rises of no more than 2.5% to 4% a year.

Fundamentally, the question I am asked by many Rugby buy to let landlords and Rugby homebuyers is … “should I wait to buy or not?”

As a Rugby homebuyer, one shouldn’t be thinking of what is happening in Westminster, Brussels, Irish Backstop, China or Trump and more of your own personal circumstances. Do you want to move to get your child in ‘that’ school or do you need an extra bedroom for your third child? For lots of people, the response is a resounding yes – and in fact, I feel many people have held back, so once we know what is finally happening with Brexit and the future of it, there could a be a release of that pent-up demand to move home as people humbly just want to get on with their lives.

There is little to be lost in postponing a house purchase until there is better clarity on the situation. If it isn’t Brexit it will something else – so just get on with your lives and start living. We got through the global financial crisis/Credit Crunch in ‘08/’09, Black Wednesday in ’92 where mortgage interest rates went from 8.5% to 15% in one day, we got through the worst stock market crash with Black Monday in ’87, hyperinflation, power shortages, petrol quadrupling in price in less than a year and a 3 day week in the ‘70’s … need I go on?

Rugby Landlords? Well, where else are you going to invest your money? Like I said earlier in the article, we aren’t building enough homes to keep up with demand … so as demand outstrips supply, house values will continue to grow. Putting the money in the building society will only get you 1% to 2% if you are lucky. In the short term though, there could be some bargains to be had from shortsighted panicking sellers and in the long term … well, the same reasons I gave to homeowners also apply to you.

Rugby Tenant’s Deposits held total £3,697,525

With the Government preparing to control tenant’s deposits at five weeks rent, Rugby landlords will soon only be protected in the event of a single month of unpaid rental-arrears, at a time when Universal Credit has seen some rent arrears quadrupling and that’s before you consider damage to the property or solicitor costs.

It can’t be disputed that the deposits Rugby tenants have to save for, certainly raises the cost of renting, putting another nail in the coffin of the dream of home ownership for many Rugby renters whilst at the same time, those same deposits being unable to provide Rugby landlords with a decent level of protection against unpaid rent or damage to the property.

In fact, the total of all the tenants’ deposits in Rugby, deposited or protected, is £3,697,525

When you consider the value of all the privately rented properties in Rugby total £1,259,744,382, the need for decent landlord insurance to ensure you are adequately covered as a Rugby landlord is vital.

However, I want to consider the point of view of the Rugby tenant.  Several housing charities believe spending more than a third of someone’s salary on rent as exorbitant, yet for the tenants they find themselves in that very position.  I feel especially sorry for the Rugby youngsters in their 20’s who want to rent a place for themselves, as they face having to pay out the rent and try and save for a deposit for a home.

The average 22 to 29-year-old in Rugby spends 36% of their typical salary on a one bed rental property

….and 40% of their salary for a 2-bed home in Rugby.

40 years ago, British people who rented spent an average of 10% of their salary on rent, and only 14% in London.  Looking in even greater detail, according to the ONS, over the past 60 years the proportion of total spending on all housing (renting and mortgages) has doubled from 9% in the late 1950’s to 18% today.  Whilst on the other hand, the proportion of total expenditure on food has halved (33% to 16%), as has the proportion of total spending on clothing (10% to 5%) … it’s a case of swings and roundabouts!

Yet landlords also face costs that need to be covered from rents including mortgages, landlord insurance (especially the need for the often-inadequate deposits to cover the loss of rent and damage), maintenance and licensing.  In fact, rents in the last 10 years have failed to keep up with UK inflation, so in real terms, landlords are worse off when it comes to their rental returns (although they have gained on the increase in Rugby property values – but that is only realised when a property sells).

There are a small handful of Rugby landlords selling some/or all of their rental portfolio as their portfolios become less economically viable with the recent tax changes for buy to let landlords, which will result in fewer properties available to rent.

However, this will reduce the supply and availability of Rugby rental properties, meaning rents will rise (classic textbook supply and demand), thus landlords return and yields will rise.  Yet, because tenants still can’t afford to save the deposit for a home (as we discussed above) and we are all living longer, the demand for rental properties across Rugby will continue to grow in the next twenty to thirty years as we turn to more European ways where the norm is to rent rather than buy in the 20’s and 30’s age range. This will mean new buy-to-let landlords will be attracted into the market, buy properties for the rental market in Rugby and enjoy those higher yields and returns … isn’t it interesting that things mostly always go full circle?