Wednesday 29 July 2015

Affordability of housing in Canterbury

 
 
Talking to an elderly relative recently, he reminded me that in his day, you could have bought a property for the same price of what a decent second hand car would sell for today and that his father was buying property for the same price as a decent 50 inch LCD TV!  Now of course, these are only headline prices and we have had wage growth and inflation.  Interestingly, since the Second World War, property values in Canterbury doubled in 1961, 1971, 1975, 1980, 1988, 2000 and 2006.
 
Looking at more recent times, since the start of the Millennium, these increases in property values have generated large increases in equity for many homeowners but on the other side of the coin also making housing unaffordable for other people.  It might interest readers to note that most of Europe experienced sharp increases in property values in the early years of 2000’s, with only Spain beating  us (although we know what has happened to the Spanish property market over the last few years!).  In the 2000’s, the British situation was different in two regards.  First the property value boom started earlier and saw more sustained increases, second, the regional pattern was fairly uniform.
 
However, since 2010, the regional pattern has been completely different in the UK.  Compared with  2007 (the last property boom), average property values today in England and Wales are 1.2% higher, whilst in Greater London, they are 35.7% higher, whereas in Canterbury they are 7.01% higher. The London property market has been like a different country.  Looking specifically at Canterbury though, it has continued for first time buyers to get on the housing ladder.  The best measure of the affordability of housing is the ratio of Canterbury Property Prices to Canterbury Average Wages, (the higher the ratio, the less affordable properties are). 
 
1997      4.17 to 1  (i.e. the average value of a Canterbury property was 4.17 times higher than the average annual wage in Canterbury)
2000      5.28 to 1
2002      6.83 to 1
2003      7.37 to 1
2007      9.07 to 1
2009      7.12 to 1
2012      8.33 to 1
Today    9.29 to 1
You  can see quite clearly, even though we had an improvement just after the 2007 property crash (i.e. the ratio dropped), in following subsequent years with Canterbury house price’s rising but wages not keeping up with them,  the ratio started rise.  This has meant there has been a deterioration in affordability of property in Canterbury over the last couple of years.  This is one of the (many) reasons why the younger generation is deciding more and more to rent instead of buy their own house.  The local Council sold off council houses in the Thatcher years and for many on low incomes or with little capital, owning a home has simply never been an option.
With fewer people able to save up the deposit required by mortgage lenders, more and more people are looking to rent, this has also resulted in a change in attitudes towards renting over the last decade.  This delay in moving up the property ladder has driven rents up in Canterbury over the last few years, as more people are seeking properties to rent.  All these things have combined to make the demand for rental property in Canterbury rise.  If you are an existing landlord or someone thinking of become a first time landlord looking for advice and opinion and what (or not to buy in Canterbury), one source of information is the Canterbury Property Blog www.canterburypropertyblog.com .

Tuesday 21 July 2015

Canterbury Buy To let – Bedrooms?

Last week, a landlord from Canterbury emailed me to ask, after reading the Canterbury Property Blog, if he should extend his terraced house making an extra bedroom in the loft. He had a builder friend who owed him a favour, and thought a good way would be get an ‘inexpensive’ extension.
Having more useable space is generally thought to be consistent with better quality accommodation and homeowners and tenants are prepared to pay for it. If you added a bedroom to a two bed terraced to make a three bed terraced, it will add 10% to the value of the property.  Turn a three bed terraced into a four bed terraced and 9% will be added to the value. Looking at semi-detached properties, and turn a two into a three bed and 12% will be added to the value, whilst making a three bed semi into four bed will add 9% in value.
However, before you rush off to the planning department there are some important considerations, whether you are a homeowner or landlord.  What would be the cost of making that extra bedroom? The average value of a terraced house in Canterbury is currently £228,700 whilst the average value of a semi-detached house is £245,700, meaning to make money the cost of the extension would need to be less than £21,726 on the terraced property and £25,798 on the semi-detached house. Talking to a number of trades’ people in the City, most are booking up into the New Year. Also, no matter how good a friend he was, I know of no builders that would charge as little as that. Maybe the builder was just thinking of a bit of pointing work on the chimney!
Well, that got me thinking about how bedrooms affected rental prices and rent-ability as well.   Interestingly below, you will see that whilst bedrooms do have an effect on the rent that can be achieved and the rent-ability of the property – the difference does not warrant the expense, hassle and trouble of extending.
17.1% of the one bed properties on the market to rent in Canterbury have a tenant with an average rent of £613 per month
35.9% of the two bed properties on the market to rent in Canterbury have a tenant with an average rent of £1,035 per month
32.9% of the three bed properties on the market to rent in Canterbury have a tenant with an average rent of £1,151 per month
14.9% of the four bed properties on the market to rent in Canterbury have a tenant with an average rent of £1,397 per month
No, if you want to increase the value of your property, be you a Canterbury landlord or homeowner, there are things that cost a lot less than building extra bedrooms. Spruce up the exterior, emulsion all the rooms, install fresh carpets and curtains. For homeowners, a matter of a few hundred pounds will add thousands whilst for landlords, these things can add an extra 10% to the rent that you can achieve. For more advice and opinion on the Canterbury Property Market, visit the Canterbury Property Blog www.canterburypropertyblog.com

Monday 20 July 2015

INVESTMENT OPPORTUNITY - STUDENT LET - POTENTIAL OF +7% YIELD

INVESTMENT OPPORTUNITY. It’s not too often that you will hear me harping on about one of my own properties for sale, but this one is too good an opportunity to miss!

We have just placed the property on the market this morning and as we have also handled the management of the property for the past four years, we know quite a bit with regard to its ‘rent-ability’, plus the important yield!

For starters, the properties location is superb and we have a regular queue of students looking to rent this property when placed on the market. The monthly rent is £1360 per month, which equals £14960 per annum (based upon 11 months’ rent, i.e. 12 month Tenancy with half rent July / August). Based upon these figures, the property would deliver a yield of 5.65%.

Now for the interesting part………………… to the front of the property is a garage, which could be (subject to planning permission) transformed into a bedroom, offering FIVE BEDROOMS. How do I know this? Well, we also manage the property next door and that’s exactly what the Landlord has done!

So, let’s now do the maths on the 5 bed configuration. This would then offer a monthly rent of £1700 per month, which equals £18700 per annum (based upon 11 months’ rent, i.e. 12 month Tenancy with half rent July / August). Based upon these figures, the property would deliver a cracking yield of 7.06%.

Check the property out at http://www.martinco.com/property/for-sale/202621 and give me call for further details.

Tuesday 7 July 2015

Canterbury Buy To Let – Demand and Supply


Following on from my recent article about the state of the Canterbury property market and in particular what had happened to the rents Canterbury tenants have had to pay since the Credit Crunch, if you recall, I said rents in Canterbury are 7.4% higher than they were in 2008. A Canterbury landlord has since rung me after reading the Canterbury Property Blog, wanting to know more of the story of what was happening to current rents in the City. The reason he asked was that his current agent hadn’t increased his rent for a number of years and was concerned if he was getting the best return from his buy to let investment.
The Canterbury rental market is all about supply and demand (isn’t it so in all parts of the economy?). On the supply side, 408 rental properties have come up for let in the last 31 days in Canterbury. That is a lot when you consider there are 5,955 rental properties in Canterbury, meaning 6.85% of the rental stock of properties in Canterbury are coming onto the market each month (it is normally around 5% around the UK).  However, when you strip out the student properties, which account for around 50% to 55% from these numbers (because by definition each student property changes its tenants each year), the remaining rental properties (in what is called the professional lets sector), the percentage is much lower than the norm.  One reason for this lack of new rental properties coming on the market is the fact that professional tenants seem to be staying in properties longer.
With this lack of supply, newer tenants have to pay more to secure the property they want. And this is the crux of the matter ...properties they want. Older properties in Canterbury, that haven’t been maintained, still retain their wood chip wallpaper from the 1970’s and thread bare carpets have seen their rents drop. Tenants want either modern properties with all the mod cons or older style properties that have been presented to an exceptional standard – and they are prepared to pay for the privilege. Rents for top quality properties in Canterbury have risen by 0.5% in the last month Any properties, old or modern, put on the market in good or excellent condition will rent in a matter of days.   
Interestingly, looking at Canterbury property values, the Land Registry have just released their latest set of data on property values. Throughout April 2015 (the latest set of data), property values rose in Canterbury, with 0.4% growth, meaning they are now 8.9% higher than they were a year ago.  When one looks at the regional picture, the South East average property values rose by 0.8% in the last month. The difference doesn’t concern me, as the regional and local property values always even themselves out over the months. 
Looking forward, after considering all the statistics and talking to other property professionals, I expect property values in Canterbury to rise by 3% to 5% over the coming 12 months, following the Conservative victory.  In a forthcoming article, I will discuss how the number of properties changing hands each month has dropped considerably in the last 10 to 15 years in the City. 
...And so back to our landlord. Each property is unique and so as his tenancy agreement allows him to inspect the property with notice to the tenant, we will be visiting the property next week.  For more in depth thoughts and opinions like this on the Canterbury Property market ...visit the Canterbury Property Blog www.canterburypropertyblog.com

Thursday 2 July 2015

Canterbury Buy To Let – Should you look further afield?

I was at a recent business networking event in Canterbury, when a landlord (who it transpired had a couple of Buy to let properties) bent my ear on where the next hot spot town or city is to invest his money in and where the best rental yields are. Now it can be tempting to just look at Canterbury when growing a buy to let property portfolio, but there can be big differences in the amount of rental income you receive and how much your property will appreciate by considering other locations in the country.

Now regular readers of my articles of the Canterbury Property Blog know of my love of the ‘buy to let seesaw’. On one side of the seesaw is yield and the other capital growth. Landlords should be looking for a high rental yield so that they can comfortably cover any mortgage payments and make some profit from the income return, but you also want the property to rise in value over time so you can get some capital growth when you come to sell. However, high yielding property in say such areas as Wincheap and Sturry in Canterbury, (so the seesaw arm with yield on it goes up on one side), will suffer from low capital growth (so the other arm with capital growth on the seesaw goes down).  The relationship works in reverse as well, so in such upmarket areas as the New and Old Dover Road’s, properties offer good capital growth, but at the expense of a decent yield.  

The North East and North West of the UK are landlord magnets for great yields. The average yield in Canterbury today is 5.82%, which when you compare with say Hartlepool in the North East, which achieves 7.73% or  9.43% in the Anfield area of Liverpool, doesn’t look too healthy. Now of course, these are only averages and some of my Canterbury landlords are achieving 6% to 8% on some of their Canterbury properties, but at the expense of capital growth. Anyway, after wasting a tank full of petrol up the A1 to Teeside or the M1 to Home of the ‘The Reds’,  that Liverpool property, would have dropped in value by 2.2% in the last 12 months and the Hartlepool property would have dropped by 1.4%.

When you compare the long term house price growth, it gets even worse. Since 1995, property values in Canterbury have risen by 219.37%,compared with Hartlepool at 21.02% and Liverpool  at 90.11% – it just shows you shouldn’t always chase the yield because of the poor increases in property values in those two places. As I always like to explain to landlords, a decent yield is important, but when you come to sell your buy to let property it would also be nice to make a decent profit.

At the end of the day, as a Canterbury landlord, you want to be making gains from both your rent and house price growth, particularly when you want to sell, because when combined, the rental yield and capital growth, which gives you the real return on your investment. Finally though, do you know Hartlepool and Liverpool as well you know Canterbury? Do you know where the good and bad areas are in both those places? Are you happy that it would require you to take a day out of work if there was an issue with your property in the North?  If you can’t answer yes to all three questions, then maybe you should be considering a property closer to home? The graph below makes a very interesting comparison...... Happy hunting!!