SIDCUP PROPERTY NEWS - OCTOBER 2017

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LATEST SIDCUP BUY-TO-LET RETURN / YIELDS – 2.8% TO 7.04% A YEAR The mind-set and tactics you employ to buy your first Sidcup buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!). Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Sidcup properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property. This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Sidcup buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property. To give you an idea of the sort of returns in Sidcup… Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Sidcup area. As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties. However, before everyone in Sidcup starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Sidcup buy to let property to buy. Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Sidcup landlords who are looking for capital growth, an altered investment strategy may be required. In Sidcup, for example, over the last 20 years, this is how the average price paid for the four different types of Sidcup property have changed… • Sidcup Detached Properties have increased in value by 287.2% • Sidcup Semi-Detached Properties have increased in value by 302.7% • Sidcup Terraced Properties have increased in value by 282.2% • Sidcup Apartments have increased in value by 280.1% It is very much a balancing act of yield, capital growth and void periods when buying in Sidcup. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? Current Average Asking Prices in Sidcup LETTINGS ADMINISTRATOR (Part Time considered) Varied and interesting position for a competent, enthusiastic person with good computer, communication & organisational skills Enquiries/CV please to: Erica Lewis e.lewis@drewery.co.uk 128 Station Road, Sidcup DA15 7AF Tel 0208 269 6608 1 BED FLAT £265,923 2 BED FLAT £332,386 data from zoopla.co.uk using current properties being marketed 2 BED HOUSE £361,921 3 BED HOUSE £444,370 4 BED HOUSE £592,515 For more Sidcup Property News visit: www.sidcuppropertyblog.co.uk
33.6% DROP IN SIDCUP PEOPLE MOVING HOME IN THE LAST 10 YEARS I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Sidcup. I find the most interesting bits are their commentaries on the British Housing Market. Some talk about property prices, whilst others discuss the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit. Others feature articles about the severe lack of new homes being built. A group of people that don’t often get any column inches however are those existing homeowners who can’t move! Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002. However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009. Since then this has steadily recovered, albeit to a more ‘respectable’ 899,708 properties by 2016. This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties. The question is … why are there fewer house sales? To answer that, we need to go back 50 years. Inflation was high in the late 1960’s, 70’s and early 80’s. To combat this, the Government raised interest rates to a high level in a bid to lower inflation. Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news since inflation tends to erode mortgage debt in ‘real spending power terms’. Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages. At the same time their mortgage debt was decreasing, therefore allowing them to move up the property ladder quicker. Roll the clock on to the late 1990’s and the early Noughties, and things had changed. UK interest rates tumbled as UK inflation dropped. Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property. This inevitably meant all the home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation). This snowball effect of significant numbers moving house continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria. [You will probably remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!]. This meant home movers could borrow even more to move up the property ladder. So, now it’s 2017 and things have changed yet again! You would think that with ultra-low interest rates at 0.25% (a 320-year low) the number of people moving would be booming – wouldn’t you? However, this has not been the case. Less people are moving because: (1) low wage growth of 1.1% per annum (2) the tougher mortgage rules since 2014 (3) sporadic property price growth in the last few years (4) high property values comparative to salaries (I talked about this a couple of months ago) What does this translate to in pure numbers locally? In 2007, 5,051 properties sold in the London Borough of Bexley Council area and last year, in 2016 only 3,350 properties sold – a drop of 33.68%. Therefore, we have just over 1,700 less households moving in the Sidcup and surrounding Council area each year. Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 1,395 mortgaged households a year (fourth fifths of the figure of 1,700) in the Sidcup and surrounding council area that would have moved 10 years ago, but won’t this year. The reason they can’t/won’t move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 1,395 annual Sidcup (and surrounding area) non-movers, based on that CML report – 1. There are around 502 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (e. demographics). 2. I then estimate another 195 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (e. lifestyle). 3. Then, I estimate 84 households of our Sidcup (and surrounding area) annual nonmovers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (e. high house price growth). 4. I believe there are 614 Sidcup (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (e. mortgage). The first three above are beyond the Government or Bank of England control. However could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If Sidcup property values were lower, this would decrease the size of each step up the property ladder. This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties. Then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy mortgages 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s … available at a drop of hat and three tokens from a cereal packet? We all know what happened with Northern Rock …. Your thoughts would be welcome on this topic. Current Average Asking Rents in Sidcup 1 BED FLAT £907pcm 2 BED FLAT £1,096pcm data from zoopla.co.uk using current properties being marketed 2 BED HOUSE £1,274pcm 3 BED HOUSE £1,331pcm 4 BED HOUSE £1,426pcm For more Sidcup Property News visit: www.sidcuppropertyblog.co.uk
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SIDCUP PROPERTY NEWS - OCTOBER 2017

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