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November 2019 Market Comment

As the Brexit debacle continues to be drawn out, so the evenings are drawing in. Home, as a place of warmth and sanctuary, becomes particularly significant at this time of year. It is interesting to note that a recent survey by Jackson Stops found that 70% of homeowners are unphased in their moving decision by Brexit issues. As we have reported before – most people just want to get on with their life and are more influenced by personal circumstances than the national interest in “will we-won’t we?”. The media really does hype things up!

 

The factors that affect people’s ability to move remain strong

Unemployment - The Secret Driver of the Nottingham Property Market?

If you have been reading my articles on the Nottingham property market recently, you will see that in the three years since the referendum of the ‘B’ word (that word is banned in our household), we have proved beyond doubt that it (whose name shall remain nameless) has had no effect on the Nottingham property market (or the UK as a whole).

So one might ask, what does affect the property market locally? Well many things on the demand side include wages, job security, interest rates, availability of mortgages, confidence in the economy, inflation, speculative demand ... the list goes on. Yet as my blog readers will note, I like to delve deeper into the numbers and I have found an interesting correlation between unemployment and the number of properties sold (i.e. transactions).

 

Image result for legal images

Are You Ready for 1st June 2019 With The Changes To Tenant Fees?

The Tenant Fees Act 2019 (‘the Act’) comes into force on 01 June 2019 and applies to England only.  The aim of the Act is to reduce the “hidden” costs that a tenant can face at the start of its tenancy. 

Landlords and letting agents in England will now be prohibited from charging certain fees to a tenant and security deposits are to be capped.  Holding deposits are also to be capped and must be fully refunded within strict time frames except in limited circumstances.  Landlords and letting agents can face financial penalties for non-compliance and for repeat offences, they could be found guilty of a criminal offence. 

Landlords or letting agents on their behalf, will not be able to evict a tenant using the section 21 eviction procedure to regain possession of their property until they have repaid any unlawfully charged fees or returned an unlawfully retained holding deposit.

This Act is part of the Government’s drive to make renting fairer and more affordable, improve transparency and affordability in England’s residential lettings market.  

This Guidance summarises the key provisions of the Act; which payments can be charged to a tenant and which are prohibited, the treatment of holding and security deposits, which tenancies are affected and the penalties for non-compliance. 

New Home Building in Nottingham 2018 rises to 38.1% above the post Millennium average

 

 

Nationally, the number of new homes created in 2018 was 222,194, the highest since 1989. Yet since 2002, the average number of properties built in the UK has only been 146,700 per year. You would think, seeing all the new homes sites around, you could ask are we building too many houses, especially off the back of those impressive 2018 build figures? However, to keep up with the ever-growing population, lifestyles and people living longer, official reports state the Country actually needs 240,000 new homes built every year to just stand still.

It is estimated, by the Chartered Institute of Housing, that the current national backlog of new homes required is in the order of 4.7 million (i.e. because of the bottled-up household formation by younger adults living with parents, shared housing and unaffordability). As a Country, we cannot meet all these needs immediately and it will take time to build up an effectual plan to address these issues.

Looking closer to home, you will also see from the graph below the long-term trend of new homes building (the yellow dotted line) has been going in a downward direction. Although, the 2018 new homes build stats for Nottingham are 38.1% above the post Millennium average.

 

The cure is simple: we need more homes… yet who is going to build (and pay) for them. Some Nottingham people will say why can’t the local authority build most of them?

 

 In 2018, 1,393 new dwellings were created in the Nottingham Council area and of those 1,393; interestingly 278 were Council and Housing Association homes

 So, if our local authority had a more ambitious annual target of say an additional 500 homes on top of those figures, where could they be built and how would they be paid for? Of course, there are the normal apprehensions about infrastructure issues such as roads, schools, hospital capacity and doctors’ surgeries but our local authority has a Local Plan and that has the locations of where they envisage the new housing will be built (and the infrastructure that goes with it).

 The Tories lifted the cap on what local authorities could borrow to build Council houses in late 2018 meaning Councils could borrow more money to build more Council houses. Let’s say we built those 500 homes a year for the next 5 years in Nottingham, that would cost the local authority £375 million to build, which would produce in total £17.4 million in rent. At current interest rates, the interest would be £9.5m per year leaving a surplus of £7.9m for property maintenance and management – meaning the Council houses pay for themselves!

 

 Therefore, what does all this mean for Nottingham homeowners and Nottingham buy-to-let landlords?

Well, the chances of our local authority getting the full funding for an extra 500 homes a year is slim as there is only so much money to borrow. If every UK local authority got funding for 500 additional homes a year for the next 5 years, an impressive 867,500 homes would be built in those 5 years but that would require the councils to borrow £130.1bn – and Central Government doesn’t have that kind of money for Councils to borrow (more like £10bn to £15bn).

The 4.7million long term housing shortage means house prices will remain strong in the long term (despite blips like Brexit etc). Demand for private rental properties will continue to grow and if you read my recent article on Nottingham rents, this can only be good news for Nottingham landlords. This attention on the housing crisis by the Government is good news for all Nottingham homeowners and Nottingham buy to let landlords, as it will encourage more fluidity in the market in the longer term, sharing the wealth and benefits of homeownership for all. However, in the short term, demand still outstrips supply for homes and that will mean continued upward pressures on rents for tenants and stability on house prices.

I hope this article gives you some reassurance in the buy to let market for Nottingham, coupled with the increase in the growth of the student’s population with a high percentage of them remaining in the City after their studies. The demand is still outstripping the supply of good quality housing.

 

Kind Regards Angela Barbaro-Robins – Founder & Managing Director

 

Sources

Stats from Office of National Stats except CIH

 Nottingham Buy To Let Annual Returns Hit 12.53% in Last 10 Years

 

Many Nottingham people ponder the best places to invest their hard-earned savings and the best piece of advice I can give you is to do your homework and speak to lots of people. It depends on your attitude to risk versus reward. Normally, the lower the risk, the lower the reward whilst a higher risk is normally associated with the possibility of higher returns, yet nothing is guaranteed. At the same time, higher risk also means higher possible losses on your investment - yet if one looks at the bigger picture, the biggest threat to investing, predominantly when the investment is made in the short term, isn’t risk but actually volatility.

 

So where should you invest? Building society, the stock market, gold or property are options. This article isn’t designed to give you advice – just show you how different investments have performed over the last decade.

 

Let me start with the humble semi-detached house in Nottingham ... which in 2009 was worth £118,300 … so assuming I bought that property for that figure, then I looked at what if I had invested the same amount of money in a building society, into gold and finally the stock market…

 

 

Savings Account

Gold

Stock Market

Nottingham Semi Detached House

2009 capital

£118,300

£118,300

£118,300

£118,300

2019 capital

£118,300

£150,100

£154,000

£173,800

2019 capital & interest/rent

£147,300

£150,100

£205,800

£270,000

 

Putting your money into the stock market (FTSE100) would have brought a return of 30.2% on your capital over those 10 years and an average of 3.79% a year in dividends (making an overall increase of 74%).

 

Gold doesn’t earn interest – yet it has increased in value by 26.9% over the same 10 years whilst putting your money in the building society, the money hasn’t increased in value, but would have earned you interest of 24.46% or the equivalent of 2.21% per year.

 

Investing in an average semi-detached house in Nottingham over the last 10 years has seen the capital increase by 47% (an equivalent of 3.93% per annum) and the income (i.e. the rent) has provided a return, based on the original purchase price, of 128.23% or the annual equivalent of 8.6% … meaning the overall return, based on the original purchase price of an average semi-detached property in Nottingham, is 12.53% per annum.

 

Notwithstanding No.11 Downing Street’s grab at the profits of buy to let landlords by hitting the buy to let sector with several fiscal punishments with a 3% stamp duty level, a decrease in high rate tax relief for landlords and an increase in rate of CGT on residential property profits, the facts remain that ‘bricks and mortar’ is still one of the preeminent and most constant investments available.

 

The bottom line is, the buy to let investment remains the mainstay of the British property market, serving to support aspiring homeowners as they work to conquer the, sometimes difficult, financial obstacles of home ownership. With Central Government over the last 30 years only paying lip service to address the lack of new homes being built or tackling the affordability on a consequential scale, it is highly probable this will continue for the next 5/10/15 years as there will always be a call for a respectable, and above all, honest buy to let landlords delivering decent housing to those that need it.

 

Hope you have enjoyed my first article for 2019!  Catch up with you soon Angela Barbaro-Robins - Founder & Managing Director of Robins Estates

 

Sources from:

Gold/Stock Market prices from Stock Market Indexes

House Prices from ZPG and Land Registry

The Property Ombudsman Trading Standards MyDeposits Rightmove Zoopla Primelocation CMP Shortlist