Are landlords to blame for Derby's rising house prices?

East Midlands property asking prices jumped by more than £4,000 to £177,100 in February according to Rightmove, an increase of 2.3% from January and 4.7% higher than a year ago. After the traditionally quiet months of January and February, the property market starts to heat up, but talking to some Derby Estate Agents, they are reporting their lowest ever stocks of quality property for sale. However, asking prices have no relation to what property sells for! With property, the definition of price is what someone is prepared to pay, not what the agent thinks it’s worth!

So, is the issue a lack of supply?

Putting aside Derby’s continual housing supply shortage, (we only built 9,866 properties in the last decade but the population of Derby grew by 27,044), this is now, according to some people, being exaggerated by an increase in homes being owned by buy to let investors, who tend to be buying a property as part of a long term pension plan and are more likely to keep it for longer than an owner occupier would. I have also seen unwillingness among homeowners looking to move, to put their own property on the market as they can find few suitable properties to make it worth their while going through the whole moving process.

What I would say to that is that I believe this is the new norm in the Derby property market, and is the consequence of over 35 years of not enough homes being built to meet the escalating growth in household numbers, resulting in a lack of quality homes for sale in many popular areas of Derby.

When one looks at the historic data, in March 2008, there were 4084 properties on the market in Derby compared to today’s 1579. Should we be worried?  Well in March 2010, there were only 1574 properties for sale in Derby but seven months later in October 2010, this had jumped to 2609 properties, for it to drop to 2176 properties in January 2011. The number of properties on the market is a cyclical thing in Derby, it always has been and always will be. As we go into the Spring of 2015, the number of new properties coming onto the market will increase ... just as the daffodils will flower.

So are landlords to blame? Well, on one side of the coin, yes they are. If they buy a property to rent out, that means someone can’t buy it to live in. However, it doesn’t matter if someone wants to live in a property if they can’t afford the deposit and upkeep.. and the youngsters of Derby still need a roof over their head. So on the other side of the coin, if the Council aren’t building any properties and people can’t afford the large deposit for the mortgage, then Derby landlords have stepped in and bought property to rent out to them. Derby landlords have bought 9,204 properties over the last decade (investing approximately £1.6bn buying those Derby properties) and now house 37,828 Derby people in 15,943 Derby properties. Derby tenants are in fact getting a good deal as well, as average rents in Derby are 4.5% below they were seven years ago.

That sounds like a win-win situation for everyone to me. So, we should stop pointing the finger at landlords and start building more properties in Derby.. that is the only answer!

In the meantime, the demand from Derby tenants for Derby property is only set to rise over the coming years. If you want some advice and opinion on where (or not) to buy, please email me or call me on the number below!

A Derbyshire man’s home ..is his semi... or terraced... or his bungalow…

Ok, a slight turn of phrase there on the classic, an Englishman’s home is his castle but when it comes to the UK,  the Brit’s are still a nation of homeowners - although wasn’t it Napoleon who thought we were all shop keepers?!

It is interesting to note that up until the mid to late 1960’s, more people rented their home, albeit mostly from the local council, than owned their own property. In fact, I was surprised to read that in 1921, over 75% of homes in England and Wales were privately rented with the remaining 25% being owner occupied.

 

It was only after the Second World War, when the Beatles were rocking, that people started to buy instead of rent.. but instead of owning our property outright, we borrowed money from banks and building society’s to buy them and the roots of the growth of the private rental sector can be drawn back to the late 1970’s early 1980’s, when the council houses began to be sold off under the right to buy scheme.

Even though 63,979 households in Derby were owner occupied in 2001 and that number had only dropped to 62,765 households by 2011, the percentage of homeowner properties in Derby dropped drastically from 69.23% to 61.37%. Why, because whilst an additional 9,866 properties were built in Derby between 2001 and 2011, a lot of them were bought as buy to let investments, thus more than doubling the number of private rental properties in Derby. In fact, the number of properties in Derby that were privately rented, jumped from 7,464 in 2001 to 17,163 in 2011!

With stagnation in the number of people who own their home in Derby and no more council houses being built, this is increasing the number of people looking to renting, as everyone needs a roof over their head. With the Derby City Council house waiting lists being in the 5 to 10 year range for a decent property in a decent location, it shouldn’t be forgotten that it is Derby landlords who house tenants waiting for a council house. Derby landlords do not receive any subsidies from HMRC and income tax is paid on rent paid by the tenant combined these reduce the cost on the tax payer.

However, it’s not all doom and gloom in Derby, as we have noticed more and more of the younger generation are renting, largely because they can‘t afford to buy - raising a deposit being the sticking point for most. Also, a high percentage of the expansion in private renting is due to those who need and want temporary accommodation. There are even a few landlords who rent their own Derby property out for the short term, for ease, and not necessarily purely for profit.

Therefore, with every report stating the rental market will continue to grow throughout the rest of this decade, with high demand and limited supply in the Derby, if you are considering buying a property for investment in the near future in Derby, I am always happy to give you my considered opinion on which property to buy (or not as the case may be) to give you what you want from your investment. If you are a landlord, new or old, I am certainly more than happy for you to pick up the phone or visit me at our office on St. James' Street!

It pays to plan your property investment in Derby

The buy to let sector in Derby, in fact the whole of the East Midlands buy to let sector is doing very well at the moment, but it can be a minefield.

I could regale you with many stories where investors have got it tremendously wrong in Derby, like some modern apartments on Drage Street in Chester Green, that were sold for an eye watering £168,000 in 2005, only to be selling today for £95,000/£97,000, a drop of over 42%. It is interesting to note that at that time in 2005 for £165,000, you could have bought a lovely 3 bed bay fronted semi in Littleover or a four bed detached house in Sunnyhill. A two bed apartment for the same price as a decent semi or nice modern detached house, doesn’t in hindsight, quite stack up. The thing is, I still see mistakes being made on a day by day basis in Derby. If you make even a small mistake, it could still prove to be very costly.

So what should you buy in Derby? One option is Houses of Multiple Occupation (HMO’s). While they can be profitable, chiefly in the student market with Derby University students, they can make things much more complex and costly, with the need for HMO licences etc. If you look back at some of my previous articles listed on ‘The Derby Property Blog’, you will see a lot of interesting facts on which types of properties let well, as well as sell well!

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%, but the best rates are for deposits of 40% deposit and, as I type this, you can get a 5 year fixed rate buy to let mortgage from the Post Office for 3.65%. Also, the deposit will 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 Derby, 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 Derby 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.

There are plenty of good advisors in Derby that can help you with the mortgages and life insurance. We aren’t one, because we are a letting agent, but what we can help with is choosing the right  Derby property to buy. It’s in our interest to do so, because if we offer the best advice and opinion, without any conflict of trying to sell you anything because we aren’t estate agents so have nothing to sell you, you might consider, although there is no obligation, to trust us to manage the property.

Which value of properties are actually selling in Derby?

Prices up, prices down, prices stable… the newspapers are full of good news, bad news and indifferent news about the Brit’s favourite subject after the weather... the property market.

The thing is, the UK does not have one housing market. Instead, it is a patchwork of mini property markets all performing in a different way.  At one end of scale is London, which has seen average prices grow in the last twelve months by a shade under 19% (and again that is an average because some Borough’s in London have risen by 26%) whilst in the land of daffodils, by contrast, Wales, only saw a 2% increase in property values, although in the Merthyr Valleys they dropped by over 11%!

Well, we can’t ignore the rest of the UK, and we can’t forget that the Chancellor’s Stamp Duty reforms have polarised the London property markets above £1,000,000 because at the top end of the market, punitive Stamp Duty charges will dampen demand further. Whilst the Bank of England warned of the growing London property price bubble in the Spring of 2014, even talk of a recovery in some areas was premature. In 2015, irrespective of where you are in the UK, one story will unite the patchwork quilt of markets –  really slow property value growth.

So, what about our own patch in this patchwork market, Derby? Well, we haven’t had the December figures from the Land Registry yet but the last few months’ activity and prices achieved would suggest neither house price growth nor drops.  In fact, most sellers are buyers anyway, so if you need to take less for yours, you won’t have to pay as much for the one you want to buy ... and that is good news for everyone as most move up market when they move. This is also great news for landlord investors, as they can bag a bargain as well!

The question you should be asking though is not only is what happening to property prices, but which price band exactly is selling? I like to keep an eye on the property market in Derby on a daily basis because it enables me to give the best advice and opinion on what (or not ) to buy in Derby.

 

Over the last two months (56 days to be precise), 231 properties with asking prices under £100k have come onto the market in Derby and 12.9% of them (30 properties have a buyer and sold stc. Between £100k and £150k, of the 284 properties that come on to the market, 21.8% of them (62 properties) have a buyer.

The £150k to £200k price range has seen 173 properties come on to the market, and impressive 24.8% have a buyer (43 properties).

The more expensive £200k to £300k range has seen 35 of the 158 properties that came on to the market find buyers (22.1%) but the £300k+ range has been slower, with only 9.8% (8 properties) of the 81 that have come on to the market, find buyers.

The next three months’ activity will be crucial in understanding which way the market will go this year and I honestly believe we will not see any house price growth or drops this side of the election. Election or no election, people will always need a roof over their head and that is why the property market has rode the storms of oil crisis in the 1970’s, the 1980’s depression, Black Monday in the 1990’s, and latterly, the Credit Crunch together with the various house price crashes of 1973, 1987 and 2008.

And why? Because Britain’s chronic lack of housing will prop up house prices and prevent a post spike crash.... there is always a silver lining when it comes to the property market!