How much of a minefield is the Solihull buy-to-let market?

The buy to let sector in Solihull (and in fact the whole of the Midlands) is doing very well at the moment, but, we warned, it can be a minefield. I could regale you with many stories where investors have got it tremendously wrong, like some modern apartments on the Waterside development in Dickens Heath, that were sold for an eye watering £335,000 in 2008, only to be selling last year for £227,500, a drop of over 32%. It is interesting to note that at that time in 2008 for £335,000, you could have bought a lovely three-bed semi in Knowle or a three-bed detached in Hockley Heath. In hindsight, an apartment for the same price as a decent semi, or nice modern detached house doesn’t quite stack up. 

So what should you buy in our part of the world? One option is Houses of Multiple Occupation (HMOs). Whilst they can be profitable, chiefly in the student market with Birmingham University students, they can make things much more complex and costly, especially with the need for HMO licences etc. Mortgage rates on buy-to-let are really low at the moment and for the right property and person you can get rates below 3.9% if you put down a decent deposit of 25% (although, the best rates are saved for deposits of 40% and higher). As I type this, you can get a 5-year fixed rate buy to let mortgage from the Post Office for 3.65%. It’s also worth remembering that a higher deposit will also ensure you have plenty of equity in the property if the property market stagnates in the future. The important thing to remember is the amount you can borrow is driven by the rental income, so it is vital you can identify a property with a decent yield that lets easily.

Finally though, if are investing so much time and money in building wealth for you and your family, it is equally important for you to identify ways to protect it. Do not forget, if you spend years building a successful property empire in Solihull, when you pop your clogs, your family could face an inheritance tax bill of 40%, which they would have to pay within six months of the death. In a buoyant market, selling in six months is not an issue, but what if the market was like it was in Solihull between 2008 and 2012, when things took seasons to sell, not weeks?! Quite apart from losing nearly half of the assets you built for your family to the tax man, if they had to sell some of your portfolio - possibly at a discount because the taxman wanted his money so quick - it might be wise to consider some life insurance that will offer protection against inheritance tax.

Whilst there are plenty of good advisors in Solihull that can help you with mortgage brokering and life insurance (we aren’t exactly one of those, since our specialty is property), what we can help with is choosing the right property to buy. It’s in our interest to do so, because if we offer the best advice and opinion and you make a decent profit, you might consider (although there is no obligation) to trust us to manage the property too. If you fancy hearing more, email me at jane.morcom@centrickproperty.co.uk .

A slowdown in property sales? Yet house prices are likely to rise again.

Property values in Solihull fell by 1.7% in March. This follows several months of sluggish activity in the property market in the run up to the Election, putting the average price of a property in Solihull at £316,600, 4.5% higher than in March 2014. Despite the not so insignificant fall in March, the figures showed property values in Solihull were still higher in the first quarter of 2015 than in the last quarter of 2014.

Interestingly, the Council of Mortgage Lenders and Estate Agent trade bodies over the last few months have reported seeing a fall in mortgage lending and enquiries from prospective homebuyers. This is important because it comes amid an overall fall in housing market activity. Data from the Land Registry said completed house sales in Solihull in the three months to January 2015, (the most up-to-date figures available) fell by 25.51% compared to the same three month period up to January 2014 (a whole quarter!).

However, I believe that the slowdown in property sales in Solihull is supporting property values, as there is a shortage of houses coming onto the market. Even though in the whole of the first quarter of 2015, property value increases may seem subdued when compared to 2014, let us remember, property values are still rising well above the level of inflation. 

As I have said many times before, the population in Solihull is growing at a much higher rate than the number of properties being built. This increasing demand for a roof over people’s head, which is outpacing the supply of new houses being built in Solihull, is creating a severe imbalance in the housing market, thus making homeownership an ever increasingly distant dream for many potential first time buyers.

In fact, I still maintain the view that house prices are likely to rise by around 3 to 5% in Solihull in 2015, even after taking into account this blip at the start of the year. The reason being is that the rise reflects both strong economic conditions and steady market conditions with (and this is the most important factor) very low numbers of properties on the market. 

Many Buy to Let landlords know that investing in the Solihull property market is a long-term strategy of 10, 20 even 30 years. Governments come and go, but unless Solihull Metropolitan Borough Council start to build hundreds of new properties a year to make up for the shocking lack of supply, Solihull people will always want a roof over their head, and irrespective of which party is in power, if there aren’t any council houses, a demand for rental properties will always remain.

As my existing landlord clients will testify, whether you manage your property yourself, or another agent manages your properties, everyone is always made to feel welcome when they pop in for a coffee at our offices on Solihull high street to discuss anything to do with the property market and how Solihull compares with its closest rival towns. I don’t bite, I don’t do hard sell, I will just give you my honest and straight talking opinion. However, if you are too busy to pop into town, you could always visit my Property Blog www.solihullpropertyblog.com for advice, intelligent commentary and analysis of the Solihull Property market.

An ideal investment property in Solihull...

I have been browsing the property market this morning and have noticed the above property appear on the market. This is a great opportunity for any landlords looking to invest in property. I highly recommend seeing this property for yourself! http://www.zoopla.co.uk/for-sale/details/37066394

This two bedroom, second floor apartment consists of a secure entrance, lounge/ diner, kitchen, en-suite, family bathroom and allocated parking. 

Ideally located within a close proximity to Solihull town centre, with great transport links to Solihull and Birmingham City Centre, this property would be great for business professionals working in the City Centre, wanting to be close to the centre however far enough away to escape the hustle and bustle. 

This property is currently on the market with ourselves with an asking price of £175,000. A property of this standard would achieve an approximate rental income of £700pcm, giving an approximate yield of 4.8%.

If you would like to discuss Buy to Let properties further or would like advise on investing in the Solihull property market, please email me Jane.morcom@centrickproperty.co.uk

The perfect investment in Solihull

This spacious two bedroom apartment has just popped up on the market this morning and what a bargain it is! Take a look at the property here for yourself: http://www.zoopla.co.uk/for-sale/details/36904979

A spacious two bedroom property, located a short distance from Solihull town Centre overlooking the beautiful Elmdon Park, which is a great selling point for potential tenants.. Located on the second floor the property consists of two good sized bedrooms, Living room, Kitchen, bathroom, garage and allocated parking. 

Apartments are great investment properties as they rent easily and attract those who want to move away from the family nest and either can't yet get on the property ladder or do not want to get on the property ladder. This would be a great property aimed at young professionals who wish to be close to Solihull centre, great local amenities and beautiful scenery.

This property is currently on the market with Melvyn Danes with an asking price of £125,000. A property of this standard would achieve and approximate rental income of £700pcm which would provide an approximate yield of 6.7%.That's not a bad rental yield for an apartment in Solihull. This does not include any additional charges for ground rent or service charges.

If you would like to discuss investment opportunities please feel free to contact me Jane.morcom@centrickproperty.co.uk

Is the lack of housing supply hurting or benefiting the market?

Since the 1960’s more people have owned their own home than rented - but, for many young Solihull people, the dream of buying their own home is becoming increasingly difficult. Since the turn of the Millennium, in Solihull (as in the rest of the Country) there has been a significant change in the proportion of people who own their own home in Solihull. In 2001, 78.09% of homes in Solihull were owner occupied; today the figure is 73.85% - a significant decline in such a short time.  Buy to let landlords are rubbing their hands in glee, whilst young people struggle to afford a house deposit (unless they inherit money or are given a loan from the Bank of Mum and Dad).

In Solihull, only 47.03% of 25 to 34 year olds have a mortgage. Although the national average is 35.93% in the same age bracket! it just shows how different parts of the country have different housing markets. However, the really interesting fact is this  ...Roll the clock back to 1991 and nationally, 67% of 25 to 34 year olds had a mortgage. After WW2, the supply of properties being built kept up with demand as millions of council homes were built (the most being built in 1950s, surprisingly under Tory Governments!). Also private house building increased in the 1950’s, but especially in the 1960’s and 1970’s, and as the Country  got more prosperous it meant that by 1971, there were more home owners than renters.

However, since the 1970’s, the population has grown but the number of new properties being built hasn’t kept up at the same rate, the result is that there have been huge rises of property prices in the early ‘70s, the late 80s and more recently between 1999 and 2004. Interestingly, since the early 1970’s, out of the 34 richest countries in the world, the UK has seen highest property prices rises.

95% mortgages have been available to first time buyers since late 2009, but with property prices rising by 176.9% since the Spring of 1996, as property prices have been rising and first time buyers have been saving, the amount they have to save is continually rising at the same time. The stress on saving even for that kind of deposit, coupled with the new stricter mortgage rules introduced in 2014, means that most 20/30 something’s in Solihull are increasingly renting instead of buying.

The issue quite simply comes back down to a lack of new homes being built. In Solihull, only 512 properties a year are being built; whilst the population is rising by 708 a year. The supply of new homes has been limited by planning laws, local councils not having the money to build council houses, hard hitting green belt limitations, and of course those with Not In My Back Yard (NIMBY) syndrome.  With a rising population and net migration, especially from the EU, the mismatch between demand and supply is why we have the problem. Until politicians have the backbone to realise the country needs a lot more decent homes built, the problem will just get worse.

In the meantime, demand for rental property will continue to grow because people need a roof over their head at the end of the day ......fact!

590% Return for Solihull Buy To let landlords since 1999?

Buy-to-let is a different kettle of fish compared to investing in stocks and shares or putting money in the Building Society. Whilst these other investments (ISAs, Funds, Share trading) are passive (i.e. once the money has been invested, you leave it alone) with buy-to-let, things are more hands on, in fact it’s generally a business for most. In fact, most of the landlords I speak to, say that they like the buy-to-let option specifically because it is both an investment as well as a business. Having an ‘active’ involvement and being able to make key decisions, rather than entrusting them to others (such as city whizz kids in London playing roulette with their Pension Pot) can be very beneficial.

So if you are investing in the Solihull property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth, (also known as capital appreciation) has been strong in recent times in Solihull, but you’ll still have to bear in mind that property values do go up as well as down - just like shares do – although the initial purchase price rarely decreases over long periods of time.  Also, rental income, which is what a tenant pays you, will hopefully grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return.

I was talking to a landlord who bought a terraced house in the Moorlands Drive area of Solihull. He bought a very pleasant 3 bed terraced house in 1999 for £98,950. It sold again in December just gone for £244,950, a rise of 147.54% in just over 15 years – a compound annual return of 6.23%.

However, the real returns are for those Solihull landlords who borrowed money to purchase their buy-to-let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £98,950 purchase price of the Moorlands Drive terraced house on an interest only 75% mortgage, he would have only needed to invest £24,738 (as his 25% deposit... borrowing the remaining £74,212), but his £24,738 would be worth today, £170,738  (£244,950 less £74,212 interest only mortgage)... a rise of 590.18% - a compound annual return of 13.74%... and I haven’t even mentioned the rent he would have received in those 15 years!

This demonstrates how the Solihull buy to let market has not only provided very strong returns for average investors since 1999 but how it has permitted a group of motivated buy-to-let Solihull landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties (albeit with larger mortgages but greater future potential).

As my article mentioned a few weeks ago, more and more Solihull people may be giving up on owning their own home and are instead accepting long term renting, whilst buy-to-let lending continues to grow from strength to strength. If you want to know what (and would not) make a decent property to buy in Solihull for buy-to-let, please email me direct on jane.morcom@centrickproperty.co.uk . 

Rents Paid By Tenants In Solihull On The Rise

With roughly a third of the year already gone (scary isn’t it?!) I was talking to a  landlord from Bentley Heath the other day about what is happening to the level of rents that are being achieved in the Solihull property market.

In terms of rents in Solihull, it appears that rents being achieved for new rentals (ie when the tenant moves out and new tenant moves in) have risen in the order of 3.9% in the last 12 months on top of the range modern properties, yet remained static for older Victorian terraced houses and converted apartments. However, landlords with existing sitting tenants, irrespective of age are not increasing their rents, as most landlords prefer to keep their existing tenant paying the same rent and have the peace of mind that their tenant remains, paying the rent (thus reducing the risk of a void period).

It must be remembered rents dropped by 0.3% over 2008/9, due to oversupply in the rental market in 2009.) A lot of the people who couldn’t sell their property in Solihull in 2008/9 when the Credit Crunch hit in 2008, decided to let their house out instead of selling at a loss. In fact, the number of houses on the market in Solihull dropped by 61.5% between April 2008 and December 2009, a lot of which came on to the rental market in Solihull. However, looking at the longer term though, tenants have had it good  because since the turn of the Millennium, average wages have grown by 46%, but rents outside London have only grown by 36% rental growth over this period.

I told the landlord that there is a lack of new rental properties in Solihull coming on the market, in fact according to the Office of National Statistics, there are only 42 new rental properties  coming to the market each month;  but the population of Solihull is rising by 59 people a month – so something will have to give soon! This is compounded by the fact a number of landlords are looking to sell their rental properties in the coming months, as the property market in Solihull has improved. This further compounded as tenants in existing rental properties appear to be staying in properties for longer periods of time.

Looking at the rents charged in Solihull, historic evidence in the UK suggests private market rents have moved in line with general inflation. Government figures only go back as far as the year 2000, but looking at other countries with similar housing markets (America, Australia, Ireland and Holland) the fact is rents paid by tenants tend to rise in line or just ahead of inflation.

As short term wage growth in Solihull has eased off recently, rising by only 1.3% in the last 12 months, taking average salaries in Solihull to £32,925pa, with the tax breaks announced by the Chancellor in the Budget, I believe, even though rents have kept pace with inflation in the past, renting as an option has become more affordable, and is increasingly seen as a lifestyle choice. With returning economic growth and expected increases in the rate of growth of wages, above inflation rental growth could rise.

If you want a chat about the local Solihull property market, pop in to our offices for a coffee or email me at jane.morcom@centrickproperty.co.uk