Is buying Solihull Property still the best place for my windfall?

I had an interesting email from someone in Solihull a few weeks ago that I want to share with you.  The gentleman lives in Shirley, he is in his mid 60’s and still working. He has a decent pension, so that when he does retire in a couple of years’ time, it will give him a comfortable life. He had recently inherited money from a relative. One option he told me was to put it into a savings account. The best he could find was a two year bond with the Post Office which paid 1.9%; meaning he would get £4,370 in interest a year. Another option is to buy a property in Solihull to rent out and he wanted to know my thoughts on what he should buy.  He had concerns as he didn’t want to take a mortgage out at his time of life and he was also worried about all the tax changes he has read about in the papers for landlords.

Notwithstanding the war on Solihull landlords being waged by George Osborne, the attraction of bricks and mortar is still an attractive option for many. As the gentleman is a cash buyer, he would not have to deal with the intricate cut to mortgage interest tax relief that will diminish the profits of many Solihull landlords. It’s true he will face the extra 3% in stamp duty to buy a second property, but with some good negotiation techniques, that could soon be mitigated.

I told him that buying a Solihull buy to let property is all about the total return on investment. He could put the money in the Post Office bond and receive his interest of £4,370 a year or invest in a Solihull property. The average yield (yield being the equivalent of the interest rate on the property) at the moment in Solihull is 4.52% per annum, meaning our potential first time landlord should be able to, depending on what he bought in the town, earn before costs £10,396 a year. However, I told him there is plenty of opportunity in Solihull to earn half as much again, if not more, if he was willing to consider more specialist investment types of properties – again, if you want to know where – look at my blog or drop me an email.

The bottom line is that the success of investing in Solihull buy to let property versus a savings account with the Post Office (or whatever Bank or Building Society is offering the best rate) will depend on the performance of those assets. Unlike with a savings account, with property the capital you invested can also go up and yes, it can go down as well. Property values in Solihull have risen in the last twelve months by 5.6% meaning, that if our chap had bought a year ago, not only would he have received the £10,396 in rent, but he would also have seen an uplift of £12,879 meaning his overall return for the year would have been £23,275.

Some will say property values can go down like they did in 2008, 1988 and 1979 however, after 1979 prices bounced back to their ’79 levels by 1984 and went on to grow an additional 58% in the following four years. Then again, they dropped in 1988 and took 13 years to reach back to those ’88 figures, but the following six years (between 2001 and 2007) they then increased by an additional 66%. According to the Land Registry, average property values in Solihull currently stand 5.13% above the January 2008 level, and anecdotal evidence suggests that in the more desirable parts of Solihull, we are well above these sorts of levels. Therefore, all this talk of property crashes is unfounded.

What would that £230,000 get you in Solihull? A decent 2 bed apartment in Malvern Park, a really nice 3 bed terrace in Shirley or a lovely 3 bed detached in Acocks Green .

Solihull’s ‘Rental Generation’ to grow by 1,075 households by 2021

There are rumours that the buy to let market is about to die, with the new stamp duty changes and how mortgage tax relief will be calculated. I have heard it mentioned that 500,000 rental properties will flood the market nationally in the next 12 months as landlords leave the rental market - have you heard the phrase ‘Bad news sells newspapers’? I would like to explain why buy to let market in Solihull is only going in one direction – and that’s not the direction the papers say they are going.

According to Sheffield University, buy to let landlords will continue fuelling the growth of the private rented sector in the coming decades. By their estimates (and they are considered a centre of excellence on the topic), the rate of homeownership nationally will fall to 50% (today it is 81.4% in Solihull) by 2032, while the rate of private sector renting will increase to 35% (interestingly, in Solihull it stands at 10.3% today). Therefore, the demand for rental accommodation in Solihull is likely to grow by 1,075 households in the next five years ... and not reduce as is suggested by the national press.

         

Solihull property values over the last six years have risen far more on average than wages/salaries.  This has meant as homeownership and mortgage availability is dependent on the ability to pay, that home ownership has further been pushed out of reach for many, at the same time as the stock of council houses has withered. (Nationally, the number of council houses in the last ten years has dropped from 3.16m to 2.18m households - a drop of 31.1%).

Now it is true the Tory’s efforts to fix the deficiency of affordable housing have focused on those who want to buy a home, ranging from help to buy and their much boasted about help to buy Isa, and starter home scheme, an initiative offering a 20% discount for first time buyers … but if you are unable to save for the deposit ... none of this means anything, this will probably include most Solihull ’20 somethings’.

Currently, 12,018 people live in private rented accommodation in Solihull. This is substantial number and a sizeable chunk of the electorate. So whilst it appears the Solihull “Rental Generation” youngsters will continue to rent and to not to buy for the reasons set out above, Solihull buy-to-let landlords will be lifted by the projections of greater rental demand. Solihull and the area around it still offers the prospect of strong economic growth forecasts and has a reputation as a lively and highly desirable place to live. With the new rules on tax, more and more landlords will be looking to move away from the previous honeypot of central London, its higher prices mean lower rental yields. With the new tax rules and central London’s cooling of house price inflation, more and more landlords will look further afield, including Solihull (interestingly, I have already been chatting to a few central London landlords after they read the Solihull Property Blog).

So, by 2021, the number of rental properties in Solihull will rise to 7,391. This prediction in growth of the Solihull rental market is even on the back of the government clamping down on tax reliefs for landlords. Gone are the days of making guaranteed returns on BTL property. For the last 20 to 30 years, irrespective of which property you bought, making decent money on buy to let property was like shooting fish in a barrel – anyone could do it  - but not so much now. You must take a more considered approach to your existing and future portfolio, especially in Solihull. The balance of capital growth and yield, especially in this low interest rate world we live in, means Solihull landlords need to do more homework to ensure the investment in property gives the desired returns. 

3,689 Solihull Homes bought by private landlords in the last 20 years – Is this the end for first time buyers?

There I was, out with the family at Umberslade Farm last weekend, when a smart gentleman approached me. We had met previously at a business networking event in Solihull a few months ago. He runs a small but perfectly formed well known independent retailers business in the town, we chatted whilst the respective family were preoccupied.

He wanted to know my thoughts on the future of the Solihull property market, and I thought I‘d share that conversation with you. People are always going to need a roof over their heads, it’s a necessity for every single person. The 22 to 30 year olds of the town do a choice to what type of roof they have, weather renting from the council or renting from a private landlord or they can get a mortgage and buy one. In the 1970’s through to 90’s the norm was to save like mad for two years for the deposit (going without luxuries) whilst living at home or renting a cheap two up two down, then buy your first house. However, more recently fewer Solihull youngsters have been buying and choosing to rent instead – mainly from private landlords (as Councils have been selling off council housing on the right to buy Schemes). The numbers are truly staggering and I want to share them with you.

Roll the clock back 20 years and Solihull was a different place. There were 38,631 households in Solihull and 31,800 of those were owner occupied. However, looking at today’s figures with all the building in town, the total number of households has increased by 31.5% to 50,798 and quite surprising, the number of owner-occupiers has increased to 41,098 (although as a proportion, it is only 80.9% compared to 82.3% of twenty years ago). However, its the rental sector that is truly fascinating … twenty years ago, only 1,553 properties were privately rented in Solihull and now it’s 5,242, a rise of 3,689.

The twenty somethings of Solihull housing difficulties haven’t been helped by the local authority selling off council housing, with the number of council houses dropping from 3,312 to 2,859 over, the same twenty-year period. The demand for decent rented property remains high, as Cameron’s much vaunted house building program is years away and has decades of under investment to catch up on before it starts to affect demand. Even with the Buy to Let tax rule changes over the coming few years (which will see the maximum tax relief available to landlords drop from 45% to 20%), private landlords still have an important role to play in housing the people of Solihull and those who educate themselves and treat it as a business will survive and prosper.

The best way Solihull landlords can protect their income from property (and mitigate the effects of the tax rises) is to keep the homes they let out in a very good condition. I have found, especially over the last three or four years, Solihull tenants have ever growing demands from their rental property, but many are prepared to pay more for houses and apartments that meet their high expectations. We must not forget, letting property in Solihull (in fact anywhere) is a business, so all private landlords should also seek the advice, opinion and commentary of property professionals.

... And just as the family reappeared, he asked ‘What of the news of Stamp Duty changes for Landlords coming in April?’ My thoughts are with such low supply (i.e. numbers of property for sale) and high demand it is hard to imagine Solihull property values will see much impact – but I predict, ever so slightly, the proportion of owner occupiers should increase slightly compared to buy to let landlords in the coming decade as the balance of the housing market resets itself. For more in-depth thoughts on the Solihull Property Market, which have a library of similar articles like this, all on the Solihull Property Market.

Private Renting in Solihull increases by 237.5% in 20 years

You find me in a reflective mood today, as I would like to talk about the future of investing in property in Solihull. The truth is that we have gotten fat and lethargic, with many people having mistaken the ever rising Solihull (and for that matter, the whole of the UK) property market as the eternal gift that kept giving since the 1960’s, as property prices constantly rose and doubled every five to seven years.

Whilst George Osborne has decided now is the time to milk the ‘Golden Cow’ of UK’s private landlords, with changes in taxation for buy to let property, many pundits are predicting the end of buy to let as we know it. However, it is still possible to make a reasonable, profitable and safe return on property with these changes. I have always seen investing in the buy to let market, as one might view Mother Nature. It has the capacity to create truly wonderful warm weather and balmy summer climates but still holds the potential to unleash catastrophic storms and hurricanes in the blink of an eye.  You need to take the time to study the market, obtain advice and opinions from knowledgeable people and then decide what the proverbial property weather forecast will be… remember, tenants will always need a roof over their head and I don’t see the government building the millions of houses required to house them?

Nobody knows the future, and while people may predict what is yet to happen, I wouldn't be afraid of this change … because as the French proverb says (or Jon Bon Jovi sang…), ‘The more things change, the more they stay the same’. I mean, no one could have predicted how the property market has changed in Solihull over the last couple of decades? Twenty years ago, in 1995, 31,800 households (meaning 82.31% of property) were owned and only 1,553 households were privately rented (meaning 4.14% of property was rented out by private landlords). Roll the clocks on to 2016 and 41,098 of properties in the town are owner-occupied (a slight drop to only 80.9%) and the jump in private renting has been out of this world, as 5,242 properties are now privately rented (10.3% proportionally) with neighbouring towns showing similar changes.

Who would have predicted in 1995 the private rental sector in

Solihull would have grown by 237.5% over the proceeding 20 years?

Also, if you had asked someone in 1995 to predict what would happen to property values over the next 20 years, they might have predicted similar growth to the that experienced over the previous 20 years (between 1975 and 1995), which was a very impressive 351.55%. Yes, property values have of course increased in Solihull between 1995 and 2015 but by a more modest 158.98% (and most of that can be attributed to house price growth between 2000 and 2006.)

The property market is constantly evolving and the buy to let market has for too long been solely and heavily dependent on house price growth, whilst yield has been almost forgotten.  I see the changes in taxes, landlord and tenant law as opportunities, contrary to the doom-mongers out there. You may need to change your benchmarks, your approach to financing or even consider different types of property in which to invest your money, but this will shine a light on investing in properties with healthier yields and will create more realistic long term buy to let opportunities, instead of relying on short term growth bets and wagers.

The advice I give to my landlords, and to you my blog reading friends is this; these changes will panic or scare some landlords, but this also means that competition for decent Solihull buy to let bargains will reduce, as fear of change kicks in and amateur investors choose alternative investments. These opportunities will provide a more stable platform for knowledgeable and experienced Solihull landlords to thrive in. If you would like to learn more about the Solihull Property Market, feel free to pop into our property lounge on the High St for a drink and a chat with me.