Celebrating a much needed return to something a bit more traditional

There’s a lot to be said for tradition…

It’s such an important part of our culture and history. It gives us a sense of belonging, something to celebrate.

I for one am definitely celebrating at the moment as, you might not have even realised it, but something much more traditional is happening to the property market.

In fact, it’s becoming a bit more like the good old days. Young people buying their first homes, families moving up the property ladder, the older generation downsizing. It’s exactly what a property market should be like.

But as we all know, for a number of years now, it has been anything but a traditional story.

The housing market has been dominated by investors, the Buy to Let brigade who seized the opportunity offered by generous lenders to put their hard earned cash into bricks and mortar.

Even the financial collapse did little to dampen their enthusiasm, or indeed their return, as a sharp rise in rents in the face of falling house sales, coupled with low interest rates and generous tax breaks, still made the landlord king.

It looked like nothing could dethrone this army of new generation, property moguls and in 2015 their grip on power seemed unassailable as the Chancellor opened up another treasure chest, radically overhauling pension rules.

Could nothing stop this tidal wave of property based entrepreneurship?

Er yes, the Chancellor could – and that’s exactly what happened. Two years after the Government relaxed Stamp Duty charges it slapped an extra charge on the Buy to Let landlords and second home owners.

It suddenly dawned on the powers that be that first time buyers had more chance of spotting Lord Lucan with a red squirrel on his shoulder than owning their own home. Something had to change and it did, in dramatic style.

Many of the new generation of landlords couldn’t wait to get out and hordes of first time buyers gleefully leapt in to fill the void, their chance of home ownership further buoyed by the Government’s Help to Buy scheme.

Fast forward to now and I am delighted to say that here in Plymouth, the first timers are still beating a path to our door. There’s young dockyard apprentices and also naval ratings taking advantage of the force’s Help to Buy scheme. They have some real spending power too thanks, in part, to the new trend of the ‘Bank of Mum and Dad’.

We are seeing first time purchases of anything between £150,000 and £300,000. Clearly home ownership isn’t the impossible dream it seemed just a couple of years ago. How times have changed, but I think you would be hard pushed to find someone who doesn’t think it’s a change for the better.

As for the landlords, well we have seen a good 75 per cent fall in that sector. That’s not surprising really, Not content with just a Stamp Duty hike, the Government pulled the plug on their tax relief too. Their time may come again. But right now let’s just enjoy the return to something a bit more traditional…after all, there’s a lot to be said for it.

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Growth of the Private Rental Sector in Plymouth

The PRS (Private Rental Sector) in the UK has grown considerably in both size and importance over the last five years and is now worth a staggering £1.29 trillion. To contextualise, that is 1.29 million stacks of pound coins, with each stack being a million coins high. The PRS now makes up 18% of the housing stock in England alone and is expected to rise to more than a third by 2032.

Because of this rampant growth, it is no surprise to see that 28.6% of homes in Plymouth are privately rented, which is encouraging for private landlords and would-be investors. Even homeowners have something to think about, as they may be tempted to turn the family home into a source of income, or indeed use their pension pot to become a landlord.

A decade ago, buying a home was a very different experience. Post-credit crunch the landscape in Plymouth has changed, with many younger people unable to buy their own homes due to house price growth outpacing wages. This has made it both logical and practical for many people to rent, choosing between renting privately or using the options available from the local housing association.

10 years ago, of the 61,910 households in Plymouth, around 47,480 were owner-occupied. Today the number of households in Plymouth has risen to 68,270, with the number of owner-occupied properties falling to 47,060. In 2001, only 13,750 properties were rented by private tenants compared to 2011’s figure of 19,530 — an increase of 42.1%.

Long gone are the days when tenants viewed rented accommodation as a stopgap; today many renters are in it for the long haul, often taking initial two-year contracts and sometimes staying for up to five years or longer. While this is ultimately good news for private landlords wanting to minimise void periods, it also means that tenants have higher expectations and are more discerning about their rented homes. They are inclined to pay that little bit extra to get exactly what they desire from a home, and landlords will need to ensure their properties are in the best condition possible if they are going to maximise their return.

There is certainly a benefit for landlords who run their property portfolios as a business; the attention to detail that comes from this approach will help mitigate the expected refurbishment losses from reduced tax relief in the years ahead. The reduction in tax relief from 45% to 20% will affect buy-to-let landlord investors over the next few years and probably put some people off becoming landlords. However, the ones who are savvy and make the most informed decisions will continue to prosper in the PRS.

Looking ahead, we expect the recent changes to stamp duty on second homes to create a small increase in the proportion of owner-occupiers relative to the PRS. But the sky-high level of demand for houses in Plymouth means the capital value of properties is set to remain strong.

If you are interested in purchasing your first, second or umpteenth buy-to-let, please visit our office for a friendly chat so we can give you the inside track and lowdown on being a landlord in Plymouth today.

Long-term property price review in Plymouth

It is the time of year when we can look at how property prices in 2016 fared in comparison to the decade preceding it. With property price data still to come through for the end of the year our estimates paint a promising picture.

 

Overview of the Plymouth market structure

The total number of property transactions and the mix of properties are strong indicators of the buoyancy of the local property market in the area. The adjacent chart gives an indication of the changing market structure in Plymouth. We estimate that 801 flats, 1815 terraces, 742 semis and 290 detached properties were sold in 2016.

 

How do residents in Plymouth get to work?

An analysis of commuting preferences in Plymouth shows that the majority of people use a car (64.7%). This is followed by on foot (17.3%), and then bus (12.5%). It will be interesting to monitor how this pattern changes over time given the trend in Plymouth and everywhere else to use more public transport and healthier options.

 

Lifecycle mix in Plymouth

Where people are in their lifecycles can be a real indicator of the character of the local area. In Plymouth, the lifecycle mix of residents can be split into the following six categories:

 

Young and Single 27.6%
Young Family 19.2%
Mid-stage Family 13.2%
Mature Family 12.6%
Empty Nesters 8.7%
Retired 18.8%
(Dated January 2017)

£5m paid in Stamp Duty by Plymouth Residents

“A pound saved is worth two pounds earned . . . after taxes” is what my Grandfather used to say. He loved his irony, yet was always a wise man, and it is tax I want to talk about today, in particular, property taxation… Stamp Duty in fact.

Apart from some minor exemptions, Stamp Duty is paid by anyone buying a property over £125,000 in the UK. It presently raises £10.68bn a year for the HM Treasury (interesting when compared with £27.6bn in fuel duty, £10.69bn in alcohol duty and £9.48bn in tobacco duty). In the latest set of data from HMRC, in the MP constituencies that cover Plymouth, property buyers paid £5m stamp duty in one year alone – a lot of money in anyone’s eyes (although not as much as the £250m in income tax that all of us in the same area paid last year).

However, as you may know, George Osborne introduced an additional tax for landlords and from 1st April 2016 they had to pay an additional 3% stamp duty surcharge on top of the normal stamp duty rate when purchasing a buy to let property. There were tales of woe and Armageddon with a report by Deutsche Bank suggesting that the new surcharge could see house prices fall by as much as 20%. HMRC data released in the Summer for Quarter 2 (Q2) of 2016 did seem to back up those fears as they published some worrying figures; only one in seven properties purchased was a second home or buy-to-let (in real numbers, only 30,300 of the 207,900 properties in Q2 were bought by landlords).

In previous articles, I spoke about the slump of property transactions after the 1st of April (as landlords rushed through their property purchases in March to beat the April deadline). In Q2 of 2016, £1.976bn was raised in Stamp Duty from Residential Property. Of that £1.976bn, £652m was paid by buy to let landlords (£424m in normal stamp duty and £228m in the additional 3% surcharge).

However, looking at Q3, the numbers have improved significantly. Of the 235,000 property sales, nearly one in four of them (56,100 to be precise) were bought by buy to let landlords and of the £2.208bn in stamp duty, £864m was paid in ‘normal’ stamp duty by BTL landlords and an impressive £442m paid by those same landlords in the additional stamp duty surcharge. The statistics suggest buy to let investors have thankfully not been deterred by the stamp duty surcharge introduced in April this year. The figures also show that 65.4% of “buy to let” purchases cost less than £250,000, 23.7% of properties were in the £250k to £500k range and 10.9% (or 6,100 additional properties) of buy to let properties bought cost over £500k – interestingly nearly one in four (22.2%) of £500k properties purchased in Q3 were buy to let properties.

All this backs up what I stated a few weeks ago when I suggested that many investors had rushed to make purchases before 31st March, making figures in the following months (Q2) artificially low when the 3% supplement was introduced, but in Q3 the number of buy to let properties purchased increased by 85%. It also goes to show you shouldn’t believe everything you read in the newspapers! I can assure you the Plymouth property market is doing just fine. For more thoughts on the Plymouth Property Market like this visit our Mansbridge Balment blog at http://www.plymouthpropertynews.wordpress.com

 

  1. Stats relate to Member of Parliament Constituency totals.
  2. National Stats from Office of National Stats.

The 22,643 Plymouth Savers batten down the hatches with low interest rates set to continue into the 2020’s

You might ask, what has the plight of the Plymouth savers to do with the Plymouth Property Market … everything in fact.  Read the newspapers, and every financial wizard is stating that with the decision of the Bank of England’s Monetary Policy Committee in early August to cut the Bank of England base rate to an all-time low of 0.25 per cent, savers should prepare themselves for interest rates to stay low well into the early 2020’s.

 

… And this isn’t some made up story to capture the headlines of newspaper editors. The yield (interest rate or return) on 10-year Government bonds is currently at time of writing 0.61 per cent. This indicates that the money markets believe that the Bank of England’s base rate will, on average over the next ten years, be below the 0.61% rate they are buying the 10 year bonds at (because they would lose money if the average was over 0.61%). UK Interest rates are going to be low for a long time.

For those who have saved throughout their working lives and are looking for ways to maximize their savings, tying their money into property could prove advantageous. You see as a saver, I did a search of the internet and the best savings rate I could find was a 5 year fixed rate at 2.5% a year. On this basis your £200,000 nest egg would earn you £5,000 a year – not much. However, on the other side of the fence, growth in Plymouth house prices and princely buy to let yields have made property investment in Plymouth an appealing option for many. According to my research, the…

 

Average Yield over the last five years for

Plymouth Buy to let property has been 4.5% a year

… and average Property Values in over the same period have risen by 17.1%.

 

Using these averages, the Plymouth landlord’s property would be worth £224,200 and they would have received a total of £45,000 in rent – making the total return £269,200. Meanwhile, whilst our 22,643 Plymouth Saver’s, using the average savings rates for the last 5 years, even if they had reinvested the interest, their £200,000 would only be £221,184.

There are risks as well as benefits to buy to let though. As followers of our articles know, at Mansbridge Balment we tell it like it is and investing in buy to let means locking up capital in a property that may fall in value. Another option would be stock market income based investment funds, which are paying around 5%, especially if put your nest egg into a tax free Stocks and Shares ISA. Although you can only add £15,240 a year into an ISA, but you would also have the ability to sell up quickly if you want … but one last thought…

The other side of the coin is that you cannot buy an unloved ‘stock market income based investment fund’ and set about renovating it and adding value yourself. The investment fund isn’t something that you can touch and feel, isn’t something tangible, isn’t something physical, isn’t something concrete, it isn’t bricks and mortar … and that is why for many Plymouth homeowners and landlords the British love affair of investing in Property will continue.

For more Plymouth Property Market related articles please visit www.plymouthpropertynews.wordpress.com or call one of our two Plymouth offices today on 01752 229292 / 791333.

 

  • Scottish Widows Savings Survey 2014 – 12% of the population have £50k or more in Savings ie ideal BTL landlords. 55% of population have between £1 and £50k – but most of those 55% savings were under £1000… so the figure in the headline is 12% of your Adult population of your town/city. I specifically removed Children from the figures
  • Later in the article I have assumed a nest egg of £200,000
  • Average Yield using the Lend Invest Index for your postcode area
  • Growth % in 5 years using the Zoopla AVM model
  • £200,000 would only be £221,184 – figures using average Building Society rates since 2011

11,500 People Live In Every Square Mile Of Plymouth – Is Plymouth Over Crowded?

Plymouth is already in the clutches of a population crisis that has now started to affect the quality of life of those living in Plymouth. There are simply not enough homes in Plymouth to house the greater number of people wanting to live in the city. The burden on public services is almost at breaking point with many parents unable to send their child to their first choice of primary or secondary school and the chances of getting a decent Dentist or GP Doctor Surgery next to nil.

Well that’s what the papers would say.. but let’s look at real numbers, and in particular my specialist subject of Plymouth Property, with the housing issue in Plymouth. To start with, the UK has roughly 1,065 people per square mile – the second highest in Europe. The total area of Plymouth itself is 20.286 square miles and there are 234,900 Plymouth residents, meaning …

11,500 people live in each square mile of Plymouth, it’s no wonder we appear to be bursting at the seams!

… but yet again, newspapers, politicians and property market bloggers quote big numbers to sell more newspapers, get elected or get people to read their blog (I recognize the irony!). A square mile is enormous, so the numbers look correspondingly large (and headline grabbing). Most people reading this will know what an ‘acre’ is, but those younger readers who don’t, it is an imperial unit of measurement for land and it is approximately 63 metres square.

In Plymouth, only 16.50 people live in every acre of Plymouth … not as headline grabbing, but a lot closer to home and relative to everyday life, and if I am being honest, a figure that doesn’t seem that bad.

Yet, the issue at hand is, we need more homes building. In 2007, Tony Blair set a target that 240,000 homes a year needed to be built to keep up with the population growth, whilst the Tory’s new target since 2010 was a more modest 200,000 a year. However, since 2010, as a country, we have only been building between 140,000 and 150,000 houses a year. So where are we going to build these homes… because we have no space! Or do we?

Well, let me tell you this fascinating piece of information I found out recently in an official Government report. Looking specifically at England (as it is the most densely populated country of the Union), all the 20 million English homes cover only 1.1% of its land mass. That is not a typo, only one point one per cent (1.1%) of land in England is covered by residential property. In more detail, of all the land in the Country –

  • Residential Houses and Flats 1.1%
  • Gardens 4.3%
  • Shops and Offices 0.7%
  • Highways (Roads and Paths) 2.3%
  • Railways 0.1%
  • Water (Rivers /Reservoirs) 2.6%
  • Industry, Military and other uses 1.4%

.. leaving 88.5% as Open Countryside (and if you think about it, add to that the gardens, which are green spaces, and the country is 92.8% greenspace)

As a country, we have plenty of space to build more homes for the younger generation and the five million more homes needed in the next 20 years would use only 0.25% of the country’s land. Now I am not advocating building massive housing estates and 20 storey concrete and glass behemoth apartment blocks next to local beauty spots such as Plymouth Hoe or Burrator Reservoir, but with some clever planning and joined up thinking, we really do need to think outside the box when it comes to how we are going to build and house our children and our children’s children in the coming 50 years in Plymouth. If anyone has their own ideas, I would love to hear from you.

 

 

Brexit and Plymouth Property market – 24% more properties on the market

April Fools Day was no joke for some landlords, as they rushed their buy to let property purchases throughout late March to beat the extra 3% stamp duty George Osborne imposed on buy to let properties after the 31st March 2016. Because some investors brought forward their 2016 property purchases to save the extra tax, speaking to fellow property professionals in Plymouth, all of us have noticed, since the clocks went forward, demand to buy in April and May from these landlords has eased.

 

Then we have the Brexit issue, which is also having a tempering effect on the Plymouth property market – although if you recall I wrote about this a few weeks ago, and whilst an exit will have an effect – it won’t be the end of the world scenario some commentators are suggesting. In another article I wrote previously, I spoke of the growth rate of Plymouth property values, and whilst the rate of growth is slowing, Plymouth property values are still 1.1% higher year on year, albeit the growth rate month on month has started to moderate when compared to the heady days of month on month rises of 2014 and 2015. Interestingly though, a very recent members survey of the Royal Institution of Chartered Surveyors states that only 17% of members believed property values would increase over the next Quarter compared to 44% at the end of 2015.

 

All this had led to increase in the number of properties for sale. For example in the PL3 postcode, which mainly comprises of Efford, Hartley, Laira, Mannamead, Milehouse, Peverell and Higher Compton, there were 220 properties for sale in the postcode in December (of which 33 came on to the market for the first time). In January, February and March, 241 properties came onto the market in the postcode district (or an average of 80 per month), meaning by end of the first Quarter, there were 273 properties available for homeowners and landlords alike to buy in PL3 (i.e. a rise of 24% more properties for sale). These figures are mirrored in neighbouring postcodes throughout the Plymouth area.

 

Nevertheless, I believe this easing of the Plymouth property market is a good thing, as investment landlords wont have to pay top dollar to secure a property because of the lower competition. On the face of it, this easing should be bad news for the 131,241 Plymouth homeowners, but nothing could be further from the truth. The majority of homeowners that move, move up market, (i.e. from a flat to terrace/town house, then a semi and then detached), so whilst last year you would have achieved a top dollar figure for your property, you would have had to have paid an even higher top dollar to secure the one you wanted to buy. The Swings and Roundabouts of the Plymouth Property Market!

 

However, all the signals suggest that whatever the aftermath of the approaching EU referendum, in the long term, the disparity between demand for Plymouth property and the supply (i.e. the number of actual properties) will still exercise a sturdy and definitive influence on the Plymouth property market. It would surprise me that if by 2021, whichever way we vote in late June, assuming we don’t have another credit crunch or issues like a major world conflict, property prices will be between 20% to 22% higher than they are today.