Is there a crisis in the Solihull Property Market..

I don’t know about you, but if you watch Sky News every waking hour or read the newspapers, it appears we seem to lurch from one crisis to another. Another week, another crisis averted. It was only last summer the soothsayers were predicting the end of the world over the supposed house price bubble that many believed was developing in the South. Property prices were rising at 20%+ per annum in London, however the property market in the Capital started to show a controlled slowdown and a cooling in activity with growth easing to a more realistic 8% / 9% per annum. Interestingly, there was no panic when modest price drops were seen in some of London’s highest priced suburbs.

However, this month’s crisis is the buy to let boom and as always George Osborne likes to be topical. In the emergency budget, Mr Osborne declared that from 2017, he will start to scale back the tax relief that those landlords, on high income tax rate with a mortgage have benefited from. The Daily Mail ran headlines stating it was the end of the private landlord; predicting many will give up on buy to let altogether and we will be inundated with rental properties up for sale as landlords feel the squeeze.

Even Mr Carney, the Governor of the Bank of England, recently cautioned that the buy to let sector could destabilise the whole UK property market. He was concerned landlords who bought with high loan to value mortgages will panic if there is a property crash because of the treat of negative equity, sell cheaply and which will result in large scale house price falls.

End of the world then? Not so..But next week … that’s another story!  Before we all go and live like hermits in the Scottish highlands, let me explain to you my perspective on the whole subject. As I mentioned a few weeks ago, two thirds of buy to let properties bought in the last eight years have been bought mortgage free – so they won’t be affected by the Chancellors’ tax changes and if the right advice is taken from an accountant with sound tax experience there is no need to panic.  Also something I feel is often overlooked but very important, is the fact that landlords could only normally borrow up to 75% of the value of the rental property.  In the last property crash of 2008, property values dropped by the not so insignificant figure of 17.84% in Solihull. However, even then, when we had the credit crunch and the world’s banking sector was on the brink, no landlord would have been in negative equity in Solihull.

I believe we have a case of ‘bad news sells newspapers’ and I believe that buy to let, and the property market as a whole, will carry on relatively intact. It is true, reducing tax relief will affect landlords who pay the higher rate of income tax and this may slightly diminish buy to let as an investment vehicle, but it is a staged policy and taking the right advice will mean reducing the impact; I highly doubt it will push people to sell.  Many landlords have been lazy with their investments, buying with their heart, not their head. Nobody would ever dream of investing in the stock market without doing their homework and talking to other people in the know. If you want to make money in the Solihull property market as a buy to let landlord, it’s all about having the right property and as you grow, the right portfolio mix to offer a balanced investment that will give you both yield and capital growth.

The Solihull buy to let market still offers good investment opportunities to new and old landlords alike. Those who have bought in the last 12 to 18 months have reaped the benefit from buying in Solihull, because the town offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 8.17% in the last 18 months in Solihull, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 4.6% higher than Q2 2014 and they rose by 4.2% between Q2 2013 and Q2 2014.

I cannot stress enough the importance of doing your homework. One source of information and advice is the Solihull Property Blog where I have similar articles to this about the Solihull property market and what I consider to be the best buy to let deals around at anyone time in the City, irrespective of which agent it is on the market with. If you haven’t visited and you are interested in the local property market in Solihull .. you are missing out! .. http://solihullpropertyblog.blogspot.co.uk/

A steady upward momentum of the Solihull property market.

A steady upward momentum of the Solihull property market.
Solihull property values fell by 0.7% last month, however they are still 3.7% higher than 12 months ago. Even though values dropped slightly, overall I expect future property price growth to remain firm, built on the foundations of an improving labour market, strengthening economy and very low mortgage rates. In fact talking to a number of other agents in the town, mortgage arrangers and solicitors, the steady long term growth in Solihull property prices can be attributed to high demand.  Coupled with short supply and the continued low mortgage rate environment.  This all means a slow but steady upward momentum of the Solihull property market which is likely to continue for the remainder of 2015.

However there are a couple points I wish to highlight as all my blog readers will know, I like to give a balanced and honest opinion of what is happening in the Solihull property market.  The two main points being low interest rates and a lack of supply of property.

Firstly – interest rates - Mark Carney (Governor of the Bank of England) indicated in a speech in July at Lincoln Cathedral, that the Bank will be seriously considering raising interest rates. An upward movement in interest rates will temper demand and result in a marked slowdown in house price growth.  Mr Carney said that only six out of ten people had a mortgage (57% to exact) had a variable rate mortgage, compared with more than seven out of ten people  ( 73% to be exact) in the Summer of 2012. Now I am not a mortgage arranger and cannot give advice but rates are only going in one direction, so whether you are a landlord or homeowner this might be a time to consider fixing your mortgage rate?  Don’t say I didn’t warn you!

This as well as the more stringent mortgage lending rules, introduced in 2014 which affected people’s ability to have larger mortgages, means homeowners will need to be realistic in their pricing if they want to sell. Reading other recent reports though, property owners have continued to pay off mortgages at a faster rate while mortgage rates have been low. Therefore when mortgage rates rise, the effect on home movers given the shortage of supply, will be a marked slowdown in the rate of house price growth.

Secondly - shortage of supply – as mentioned in previous articles, the number of houses on the market in Solihull is at an all time low. One reason for this is the large number of buy to let landlords who have bought Solihull property over the past fifteen years, as unlike first time buyers who tend to move on after a few years, landlords tend to keep their properties long term meaning there are less properties coming onto the market.  In fact over the last four months only 856 properties in the Solihull Metropolitan Borough Council area have sold and changed hands, compared to 1,021 within the same time frame in 2014, a not so insignificant drop of 16.16%.
 
If you are planning on investing in the Solihull property market or want advice for a successful buy to let investment, please email me on jane.morcom@centrickproperty.co.uk

My concerns about the Solihull Property market

I am genuinely concerned about the Solihull property market, but in a way that might surprise you.  Rightmove announced that average ‘asking prices’ fell last month by 0.5% in the West Midlands, leaving them 3.2% higher than a year ago.  Whilst it could be said that monthly change is very modest, in the same period a year ago we saw a slight monthly rise of 0.2% in the West Midlands.

Taking in to account all the data on the Solihull property market and putting aside the need for more houses to be built in the next decade to balance out the increase in population (helped in part by inward European migration) but not matched by a similar increase in housing being built, my research shows there is a widening gap between what property buyers want and what is available to buy.  Buyers in Solihull are looking for the larger proportion of the four and five bedroom properties, whilst there are a larger proportion of the smaller one and two bed properties, traditional semi-detached and smaller terraced houses/apartments available.

Demand for smaller properties comes from both first time buyers and the growing number of buy to let landlords, where it is more cost effective and efficient to buy smaller properties to let out compared to larger properties which tend to offer poorer returns.  Also, landlords with larger loans (on those larger more expensive properties) will also be hit harder with the changes in the way tax is paid on buy to let investments which start in 2017.

If you recall a few weeks ago I did some research on how different types of properties had performed in Solihull since the year 2000.  I revisited those calculations and it hit me how different types of properties had performed over the last 15 years.  This mismatch of demand and supply isn’t a new phenomenon, it’s been happening under our noses for years!

In the last 15 years the average detached house in Solihull has risen in value from £205,669 to £528,398, whilst the terraced house has risen in value from £96,879 to £239,700.  This does not seem unusual until you look at the percentage growth.  The detached has grown in value by 157% whilst the terraced by 147% which means that the gap between the inexpensive terraced and expensive detached properties has in percentage terms narrowed (this isn’t just a Solihull thing, it has happened across the Country).

I am concerned as more houses do need to be built, not only in Solihull but the West Midlands and across the UK as a whole.  In particular, there is specific need for more affordable starter homes for the growing demand created within the rental market by the increasing number of tenants and first time buyers.  The Government needs to face up to the fact that unless they can get the builders, the planners (to release more building land), the banks (to finance it) and they can ensure long term plans can be made and implemented this issue will get worse.

The country needs 200,000 houses a year to be built to keep up with demand, let alone address the imbalance between demand and supply.  Last year only 141,040 properties were built, the year before 135,510 and 146,850 in the year before that.  This means only one thing for Solihull landlords.  Unless David Cameron starts to rip up huge swathes of the British countryside and build on acres and acres of green belt, demand will always exceed supply when it comes to property for the foreseeable future and the rental market will continue to grow.

Therefore investment in the local Solihull property market could be the best move to make, as the stock market hits yet another rocky time and becomes a higher risk investment strategy.  Everyone is different and trust me, there are many pitfalls in buy to let.  You must take plenty of advice and seek out the best opinion.  One source of opinion, specific to the Solihull property market is the Solihull Property Blog http://solihullpropertyblog.blogspot.co.uk/

Solihull – The 10 year Time Bomb on Home Ownership

Many people think the British obsession with owning your own home started with Thatcher in the early 1980s, when she allowed council tenants to buy their council houses under the right to buy scheme. However, the growth actually started just after the Second World War. Looking at the country as a whole in 1951 30% of residential property was owner occupied then, every ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and 68.07% by 2001, by 2013/14 the figures dropped to 63% and continue to drop today.

Young adults tend to start to think about settling down and moving out of the family home in their early-mid twenties.  After a couple of years, they will have a choice of either buying their first house (albeit with a mortgage) or decide to privately rent for the long term (the Council House waiting list is measured in decades at the moment!). The ratio of people owning a house with a mortgage verses privately renting is an extremely important guide as to the behaviour of people in respect of their housing needs and what their attitude to renting vs buying is.  With that in mind, within the next ten years, I predict that more people will privately rent in Solihull compared to those who purchase a property with a mortgage, meaning that the British love affair of property ownership will wane as the decades roll on.

This is a really important change in attitude to the way we live.  Understanding where the demand of tenants is going to come from in the coming decade is just as important as understanding the supply side of the buy to let equation, such as the number of properties built in the town, Solihull property prices and Solihull rental prices.

In the Solihull Borough Council area as a whole there are 7,795 households that are privately rented via a landlord or letting agency and there are 31,859 households that are owned with a mortgage, so my prediction appears to be outrageous. However, when we look deeper 15,776 of those 31,859 households are 35 to 49 year olds and 10,091 are households of 50 to 64 year olds. I would expect all the 50+ years to be paying their mortgage off as they enter retirement as I would with some of the people in their mid/late 40’s. 

Meanwhile in the 25 to 34 age range (the age group most people bought their first home in the 1970s/80s/90s) only 3,762 of the 6,329 households occupied by those 25 to 34 year olds are owner occupiers with mortgages, 2,567 households are privately rented. This means only 59.4% of 25 to 34 year olds have bought their house (with a mortgage). Twenty years ago, that would have a much higher percentage of between 75% and 85%.

It can be concluded therefore that as the older generation approach retirement and pay their mortgages off, the younger generation aren’t jumping on the property ladder like they were 20 or 30 years ago. The private rental sector will take up the slack as more and more people need a roof over their head and will rent rather than buy a property. With the new build by local authorities and housing associations nowhere near the number of houses they were building in the 1950s, 60s and 70s, the private landlord appears to have good demand for their rental properties for many decades to come.

This will create a polarisation in the housing market between those, mostly older householders, who own outright and those, mostly younger householders, who rent. Our housing market is very much turning into the European model. However, all is not lost the younger generation will inherit their parents properties, which in turn will enable them to buy albeit later on in life.

If you are a landlord or thinking of become a landlord, and would like to read more articles like this please visit the Solihull Property Blog   http://solihullpropertyblog.blogspot.co.uk/