Extra Funding Is Required for Affordable Homes in Rugby

In my blog about the Rugby 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 Rugby (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 Rugby homeowners and Rugby landlords, so let me explain ..

An average of only 146 Affordable Homes per year have been built by Rugby Borough Council in the last 9 years

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 Rugby 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 Rugby 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 Rugby 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 Rugby 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 Rugby landlords find their children are also priced out of the housing market. Also, whilst your Rugby 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 Rugby housing market is all interlinked .. it’s not called the Property ‘Ladder’ for nothing!

Rugby Property Market – Which Houses are Actually Selling?

Beast from the East, Russia, Facebook, Brexit, Trump, House prices up, House prices down … the Press is full of column inches on Brit’s favourite subjects of politics, scandal, weather and not forgetting (and I appreciate the irony of this!) the property market. As an agent belonging a national group of letting and estate agents, talking to my fellow property professionals from around the UK, the one thing that is immediately apparent is the UK does not have one property market. It is a hodgepodge patchwork (almost like a fly’s eye) of lots of small property markets all performing in different ways.  

… And that made me think … is there just one Rugby Property Market or many?

I like to keep an eye on the property market in Rugby 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 Rugby landlord or an owner occupier house for a home owner.  So, I thought, how could I scientifically split the Rugby housing market into segments, so I could see which part of the market was performing the best and the worst.

I decided the best way was to split the Rugby property market into four equal size price bands (into terms of households for sale). Each price band would have around 25% of the property in Rugby, from the lowest in value (the Lowest Quartile or 25%) all the way through to the highest 25% in terms of value, the Upper Quartile.  Looking at the market, I have calculated that these are the price bands in Rugby are as follows:

· Lowest Quartile (lowest 25% in terms of value) … Up to £160,000

· Lower/Middle Quartile (25% to 50% Quartile in terms of value) …  £160,001 to £230,000

· Middle/Upper Quartile (50% to 75% Quartile in terms of value) … £230,001 to £325,000

· Upper Quartile (highest 25% in terms of value) … £325,001 Upwards

So, having split the Rugby Property Market approximately into four equal sizes, the results in terms what price band has sold (subject to contract or stc) the most is quite enlightening –

The best performing price range in Rugby is the middle market. As I would expect, the upper quartile (the top 25%) is finding things toughest. Interestingly for Rugby landlords, the lower market is also selling well, meaning there are plenty of Rugby landlords buying properties to add to their buy to let portfolios. Even though the number of first time buyers did increase in 2017, it was from a low base and the vast majority of 20 something’s cannot buy, so need a roof over their head (hence the need to rent somewhere).

It is a fact that British (and Rugby’s) housing markets have ridden the storms of Oil crisis in the 1970’s, the 1980’s depression, Black Monday in the 1990’s, and latterly the Credit Crunch together with the various house price crashes of 1973, 1987 and 2008. No matter what happens to us Brexit or anything else … unless the Government starts to build hundreds of thousands extra houses each year, demand will always outstrip supply … so maybe a time for Rugby landlord investors to bag a bargain?

Want to know where those Rugby buy to let bargains are?  Follow my Rugby Property Blog or drop me an email because irrespective of which agent you use, myself or any of the other excellent agents in Rugby, many local landlords ask me my thoughts, opinion and advice on what (and not) to buy locally … and I wouldn’t want you to miss out on those thoughts … would you?

£439 per month – The Profit made by every Rugby Property Owner over the last 20 years

As we go headlong into 2018, I believe UK interest rates will stay low, even with the additional 0.25% increase that is expected in May or June. That rise will add just over £20 to the typical £160,000 tracker mortgage, although with 57.1% of all borrowers on fixed rates, it will probably go undetected by most buy-to-let landlords and homeowners. I forecast that we won’t see any more interest rate rises due to the fragile nature of the British economy and the Brexit challenge. Even though mortgages will remain inexpensive, with retail price inflation outstripping salary rises, it will still very much feel like a heavy weight to some Rugby households.

Now it’s certain the Rugby housing market in 2017 was a little more subdued than 2016 and that will continue into 2018. Property ownership is a medium to long-term investment so looking at that long-term time frame; the average Rugby homeowner who bought their property 20 years ago has seen its value rise by more than 274%.

This is important, as house prices are a national obsession and tied into the health of the UK economy as a whole. The majority of that historic gain in Rugby property values has come from property market growth, although some of that will have been added by homeowners modernising, extending or developing their Rugby home.

Taking a look at the different property types in Rugby and the profit made by each type, it makes interesting reading..

However, I want to put aside all that historic growth and profit and looking forward to what will happen in the future. I want to look at the factors that could affect future Rugby (and the Country’s) house price growth/profit; one important factor has to be the building of new homes both locally and in the country as a whole. This has picked up in 2017 with 217,350 homes coming on to the UK housing ladder in the last year (a 15% increase on the previous year’s figures of 189,690. However, Philip Hammond has set a target of 300,000 a year, so still plenty to go!

Another factor that will affect property prices is my prediction that the balance of power between Rugby buy-to-let landlords and Rugby first-time buyers should tip more towards the local first-time buyers in 2018.

The Council of Mortgage Lenders expects the number of buy to let mortgages to drop by 34% from levels seen in 2015. This is because of taxes being increased recently on buy-to-let and harder lending criteria for buy to let mortgages, which means I foresee a gradual move in the balance of power in favour of first-time buyers rather than buy-to-let landlords. First time buyers will also be helped by The Chancellor eradicating Stamp Duty for all properties up to £300,000 bought by first-time buyers in the recent budget.

This means Rugby buy-to-let landlords will have to work smarter in the future to continue to make decent returns (profits) from their Rugby buy-to-let investment. Even with the tempering of house price inflation in Rugby in 2017, most Rugby buy to let landlords (and homeowners) are still sitting on a copious amount of growth from previous years.

The question is, how do you, as a Rugby buy to let landlord ensure that continues?

Since the 1990’s, making money from investing in buy-to-let property was as easy as falling off a log. Looking forward though, with all the changes in the tax regime and balance of power, making those similar levels of return in the future won’t be as easy. Over the last ten years, I have seen the role of the forward thinking letting agents evolve from a ‘rent collector’ and basic property management to a more holistic role, or as I call it, ‘landlord portfolio strategic leadership’. Thankfully, along with myself, there are a handful of letting agents in Rugby whom I would consider exemplary at this landlord portfolio strategy where they can give you a balanced structured overview of your short, medium and long-term goals, in relation to your required return on investment, yield and capital growth requirements. If you would like such advice, speak with your current agent – or whether you are a landlord of ours or not – without any cost or commitment, feel free to drop me a line at 01788 820028.

Rugby House Prices Outstrip Wage Growth by 2.35% since 2007

I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years. The report said that in the Midlands and North, salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.

As regular readers of my blog know, I always like to find out what has actually happened locally in Rugby. To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007. Looking at the Office of National Statistics (ONS) data for Rugby Borough Council, some interesting figures came out…

Salaries in Rugby have risen by 21.42% since 2007 (although it’s been a bit of a rollercoaster ride to get there!) – interesting when you compare that with what has happened to salaries regionally (an increase of 17.79%) and nationally, an increase of 17.61%.

Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in Rugby are 23.77% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Property values in the Rugby area have increased at a higher rate than wages to the tune of 2.35% … meaning, Rugby is bucking the regional trend

All this is important, as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers. It is also vitally relevant for Rugby landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Rugby people are buying, then demand for Rugby rental properties will drop (and vice versa).

As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Rugby property market. Now of course, it isn’t as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.

On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ hasn’t been that great. However, look back another 10 years to 1997, and that tells a completely different story. Nationally, the affordability of property more than halved between 1997 and today. In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.

The issue of a lack of homeownership has its roots in the 1980’s and 1990’s. It’s quite hard as a tenant to pay your rent and save money for a deposit simultaneously, meaning for many Rugby people, home ownership isn’t a realistic goal. Earlier in the year, the Tories released proposals to combat the country’s ‘broken’ housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad landlords.

This is all great news for Rugby tenants and decent law-abiding Rugby landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Rugby in the last 10 (or 20) years … the demand for decent high-quality rental property keeps growing. If you want a chat about where the Rugby property market is going – please read my other blog posts on http://www.rugbypropertyblog.wordpress.com or drop me note via email, like many Rugby landlords are doing.

If you would like to read more interesting articles on the property market in Rugby please check out the Rugby Property Blog – http://www.rugbypropertyblog.wordpress.com

kindest regards

Iain Havell

iain.havell@newman.uk.com

28.7% Drop in Rugby People Moving Home in the Last 10 Years

I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Rugby.  I find the most interesting bits are their commentaries on the British Housing Market.  Some talk about property prices, whilst others discuss the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit.  and Oothers feature articles about the severe lack of new homes being built (which is especially true in Rugby!).  A However, a group of people that don’t often get any column inches however are those existing homeowners who can’t move!

Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then, although this has steadily recovered,  since then, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties .  … Tbut the question is … why are there fewer house sales?

To answer that, we needhave to go back 40/50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat thisat, the Government raisedset interest rates to a high level in a bid high to try to lower inflation.  Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, thisat wasn’t all bad news sinceas the high inflation tends to eroded the mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home ownersthem to get even biggeran even higher mortgages.  At the same time (whilst their mortgage debt was decreasing, ) and therefore allowing them to move up the property ladder quicker.

Roll the clock on to the late 1990’s and the early Noughties, and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the home owner’s equity grew significantly exponentially, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect (of significant numbers everyone moving house) continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You (who will probably can remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This mean that home movers could borrow even more to move up the property ladder.

So, now it’s 2017 and things have changed yet again!

You would think that with ultra-low interest rates at 0.25% (a 320-year low) (a 320+ year all time low), the the number of people moving would be booming – wouldn’t you ?  However, this has not been the case.  Less people are moving because:

with

(1) low wage growth of 1.1% per annum,

(2) the tougher mortgage rules since 2014

(3) sporadic property price growth in the last few years

( and (4) high property values comparative to salaries (I talked about this a couple of months ago)

 What does this translate to in pure numbers locally?), all these four points have come together to mean less people are moving … but by how many?

 In 2007, 2,620 properties sold in the Rugby District Council area and last year, in 2016 only 1,867 properties sold – a drop of 28.74%.

Therefore, we have just over 750 less households moving in the Rugby and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 617 mortgaged households a year (fourth fifths of the figure of 750) in the Rugby and surrounding council area that would have moved 10 years ago, but won’t this year.

The reason they can’t/won’t move can be split down into different categories, explained in abased on a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 617 annual Rugby (and surrounding area) non-movers, based on that CML report –

1.     There are around 222 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).

2.     I then estimate another 86 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).

3.     Then, I estimate 37 households of our Rugby (and surrounding area) annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).

4.     Finally, and the majority of people that would have moved (but can’t). I believe there are 272 Rugby (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage orkeeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

Undoubtedly,  whilst the first three points above (demographics, lifestyle and high price growth) there is something beyond the Government or Bank of England control.  However could there be some influence exerted to help, it is the fourth point where something could be done , as it is the people and households in that final 4th point (the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability?) that if Rugby property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

And then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy mortgages 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s … available at a drop of hat and three tokens from a cereal packet?

We all know what happened with Northern Rock …. Your thoughts would be welcome on this topic.

If you would like to read more interesting articles on the property market in Rugby please check out the Rugby Property Blog – http://www.rugbypropertyblog.wordpress.com

kindest regards

Iain Havell

Iain.havell@newman.uk.com

Decreasing Numbers of Younger Homeowners in Rugby

David Gray, 34-year-old father of two from Rugby, was out house hunting. It was a pleasant August Saturday afternoon, and our man cycles along on his bike. He cycles up a street of suburban semis, where he spots a few retired mature neighbours, chatting to each other over the garden fence. He leans his bicycle against a lamppost and launches softly into his property search.

Anyone on the road contemplating moving?” David asks, “I am not a landlord or developer, I’m just a Rugby bloke trying to get out of renting, buy a house, do it up and live in it with my wife and two children

The only way I will leave here is in a box”, answers an 80-something lady, wearing her fading Paisley patterned housecoat from the 1970’s.

I‘ve lived here since before you were born, its lovely up here .. we aren’t moving, are we Doris?” (as her neighbour sagely shook his head at his wife).

David, like many Rugby people born in the late 1970’s to the early 1990’s, is keen to get a slice of prime Rugby real estate. Yet people like David in Generation Y (or the Millennials as some people call them i.e. born between 1977 and 1994 and needing family housing now) are discovering, as each year passes by, they are becoming more neglected and ignored when it comes to moving up the property ladder.

Looking at the graph for the UK as whole …

 Over 75 percent of Brits aged 65 and above (the baby boomers) are owner- , the biggest share since records began and a proportional rise of over 48.3% since the early 1980’s. Looking at those Baby Boomers (the current 65+year olds)  .. and roll the clock back 36 years (to when they were in their 30’s and 40’s and two thirds (65.6%) of them owned their own home.

Whilst today, just under a half of 25 to 49 year olds (47.3%) own their own home.

However, the biggest drop has been in the 18 to 24-year old’s, where homeownership has dropped from a third (32%) in the 1980’s to less than one in ten (8.9%) today. Looking at the Rugby statistics, the numbers make even more interesting reading.

Government policy contributes to the generational stalemate. Stamp Duty rules prevent older Brits from moving as the price of land and planning rules make it harder to build affordable bungalows that are attractive to members of the older generation who want to move.

The average value of an acre of prime building land in the UK is between £750,000 and £800,000 per acre. Bungalows are the favoured option for the older generation, but the problem is bungalows take up too much land to make them profitable for new homes builders. The housing market is gridlocked with youngsters wanting to get on (then move up) the property ladder whilst the older generation, who want to move from their larger houses to smaller, more modern bungalows, can’t. The problem is – there simply aren’t enough bungalows being built and the high price of land, means they are prohibitive to build.

So, what is my point? Well, all I would say to the homeowners of Rugby is that one solution could be to start to talk to your local councillors, so they can mould the planners’ thoughts and the local authority thinking in setting land aside for bungalows instead of two up two down starter homes? That would free the impasse at the top of the property ladder (i.e. mature people living in big houses but unable to move anywhere), releasing the middle aged gridlocked people in the ladder to move up, thus releasing more existing starter homes for the younger generation.

… and to you David … the wandering new home searcher – if things are going to change, it will be years before they do .. so keep going out and spreading the word of your search for a new home for your family.

If you would like to read more interesting articles on the property market in Rugby please check out the Rugby Property Blog – http://www.rugbypropertyblog.wordpress.com

kindest regards

Iain Havell

Iain.havell@newman.uk.com