With the Derby Rental Market, everyone’s a winner!

With the election now over and the stability of Downing Street secure, with David Cameron and his Blue Tory’s as the largest party in Westminster, in Derby, as in the rest of the UK, average wages are beginning to grow faster than inflation. This is good news for the Derby housing market, as some buyers may be willing or able to pay higher prices given the more certain political outlook and attractive inexpensive mortgage rates.  However, sellers who think they have the upper hand due to the lack of property for sale should be aware that we should start to see an increase in the number of people putting their properties on to the market in Derby giving buyers some extra negotiating power.

At the last election in May 2010, there were 2,067 properties for sale in Derby and by October 2010, this had risen to 2,609, an impressive rise of 26% in five months. An increase in the supply of properties coming on to the market could tip the balance in the demand and supply economics seesaw, thus potentially denting prices. However, as most sellers are buyers and confidence is high, this means there will be good levels of property and buyers, well into the Summer, as demand will continue to slightly outstrip supply.

Just before we leave the run up to the election discussion, it is important to consider what the uncertainty in April did to the Derby Property market. I mentioned a few weeks ago that property values, defined as what properties were actually selling for, had dropped by 0.4% in March 2015. Now new data has been released from Rightmove about April’s asking prices of property in Derby. It shows that pre-election nerves finally came home to roost in the final weeks of electioneering, with the  average  price of property coming  to market only increasing by a very modest 0.7% - this takes on more significance when you consider that April is normally one of the best months of the year for house price growth. I am sure our local MP’s, Margaret Beckett and Amanda Solloway, would agree that the biggest issue is the lack of new properties being built in Derby. The Conservative manifesto pledged to build 200,000 discounted starter homes for first-time buyers in the next five years. For Derby to gets its share, that would mean only 185 such properties being built in Derby each year for the next five years, not much when you consider there are 102,271 properties in Derby!

On the face of it, it seems that housing is not a big issue for Conservative voters and because London is an increasingly Labour city where the biggest housing issues are found by a country mile, so will it remain on the ‘to do list’ but probably won’t get recognition it deserves.  We may have to wait until another political party gets back into power before something will seismically change in the property market, thus demand for housing will continue to outstrip supply, meaning property values will increase; good news for existing landlords and homeowners! However, as rents tend to go up and down with tenant wages, in the long term, rents are still 4.68% lower than they were in 2008; good news for tenants!... in the private rental sector, it seems, everyone wins!

Don’t forget, you can call in and see me at our offices on St. James’ Street to chat about everything lettings!

Property values fell by 0.4% in Derby

Property values in Derby fell by 0.4% in March. This follows several months of sluggish activity in the Derby property market in the run up to the Election, putting the average price of a property in Derby at £170,400, 3.7% higher than in March 2014. Despite the not so insignificant fall in March, the figures showed property values in Derby were still higher in the first quarter of 2015 than in the last quarter of 2014.

Interestingly, the Council of Mortgage Lenders and Estate Agent trade bodies over the last few months have reported seeing a fall in mortgage lending and enquiries from prospective homebuyers. This is important because it comes amid an overall fall in housing market activity in Derby. Data from the Land Registry state that completed house sales in Derby in the three months to January 2015, (the most up-to-date figures available) fell by 10.49% (compared to the same three month period up to January 2014).

However, I believe that the slowdown in property sales in Derby is actually supporting Derby property values, as there is a shortage of houses coming onto the market. Even though in the whole of the first Quarter of 2015, Derby property value increases may seem subdued when compared to 2014, let us remember, property values are still rising well above the level of inflation.

As I have said many times before, the population in Derby is growing at a much higher rate than the number of properties being built. This increasing demand for a roof over people’s head in Derby, which is outpacing the supply of new houses being built in Derby, is creating  a severe imbalance in both the Derby and the rest of the UK housing markets, thus making homeownership an ever increasingly distant dream for many of Derby’s potential first time buyers.

In fact, I still maintain the view that house prices are likely to rise by around 3 to 5% in Derby in 2015, even after taking into account this blip at start of the year. The reason being is that the rise reflects both strong economic conditions and steady market conditions with and, this is the most important factor, very low numbers of properties on the market.

Many Buy to Let landlords know that investing in the Derby property market is a long term strategy of 10, 20 even 30 years. Governments come and go, but unless the powers that be start to build thousands of new properties a year to make up for the shocking lack of supply, we will continue to have problems. Derby people will always want a roof over their head, and irrespective of which party is in power, if there aren’t any council houses and they can’t, or are unable to buy, a demand for rental properties will always remain.

As my existing Derby landlord clients will testify, whether you manage your property yourself, or another Derby agent manages your properties, everyone is always made to feel welcome when they pop in for a coffee at our offices in Derby to discuss anything to do with the Derby property market, and how Derby compares with its closest rival towns. I don’t bite, I don’t do hard sell, I will just give you my honest and straight talking opinion. However, if you are too busy to pop into town, you could always visit the Derby Property Blog for advice, intelligent commentary and analysis of the Derby Property market!

What does the General Election result mean for the Derby Property Market?

After the shock of the Conservatives returning to power with a majority at Westminster, all the potential issues and possible uncertainties of a hung parliament has lifted the cloud from the Derby property market. Talking to other Derby agents, surveyors and solicitors in the area over the last few days, there are signs this has started a new impetus the Derby property market after a subdued six months, when an amalgamation of tougher lending conditions, a natural correction after the strong recovery in Derby property prices in 2014, and political uncertainty ahead of the General Election slowed demand.

Against the back drop of Labour’s election promises of rent controls and three year tenancies, some Derby buy to let landlords were waiting to see how these new policies would be implemented before they committed themselves to buying more property for their portfolio. Now that uncertainty has been removed, the long term picture is very positive.

So, where next for the Derby property market? Well, with inflation at zero and with the Money Markets happy that David Cameron is still at No.10, the Bank of England have no reason to raise interest rates until 2016 at the earliest. As mortgage rates are at their lowest levels since 2010, landlords with larger deposits will now be wooed by the mortgage companies in the coming months with low rates.

Over the past couple of years, Derby landlords have benefitted from a booming Derby job market. Unemployment in the city has dropped to 3.15%, as a year ago, 5,357 people were claiming unemployment benefit compared with today’s 3,287. With more jobs and better pay, as the level of rents is directly linked to tenant’s wages, there has been an increase in the rental prices tenants are willing to pay for good quality Derby properties.

Some landlords might be nervous about the Tory’s plans for the housing market in the next five years in terms of tenant demand for their rental properties. One plan is for Housing Association tenants to have the right to buy their property. However, these tenants were never in the private rented sector and will actually increase the supply of properties in the housing stock in decades to come. The Government ‘Help to Buy Scheme’ has only helped to buy 180 Derby properties since April 2013. Considering 4,366 properties have changed hands in the last year alone in Derby, I don’t think it has made a huge difference to our local property market.

The biggest matter, when it comes to tenant demand of rental property going forward, comes from the shift in the mindset and attitudes towards renting itself. Twenty years ago, in some quarters, you were seen as a second class citizen if you rented a property. Not any more! In Derby, as in the rest of the UK (apart from Central London), renting continues to offer good value for money for tenants. 

If you are an existing landlord in Derby or thinking of becoming one (or as we like to call you.. a FTL.. a ‘first time landlord’), then I must recommend you out seek specialist advice and opinion. Like many agents in Derby, we will happily give you our opinion on the current state of the market and the advantages/disadvantages to investing in the Derby property market, so why not you pop into our offices for a chat. However, if time is at a premium, another source of information on the Derby Property Market is the Derby Property Blog!

1303% return for Derby landlords since 1999...

Investing in property is essentially different from investing in stocks and shares or putting money in the Building Society. Whilst these other investments (Building Society Passbooks, Stocks and Shares etc) are passive  i.e. once the  money has been invested it you leave it alone, with buy to let, things are more hands on, in fact it’s almost a business!

One thing the landlords I speak to say is the fact that they like buy to let because it is both an investment as well as a business. It is this factor that attracts many of my Derby landlords – they are making their own decisions rather than entrusting them to others - such as City Whizz Kids in London playing roulette with their pension pots.

So if you are investing in the Derby property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth, also known as capital appreciation, this has been strong in recent times in Derby, but the value of property does go up as well as down just like shares do but the initial purchase price rarely decreases. Rental income is what the tenant pays you - hopefully this will grow over time. If you divide the annual rent into the value, or purchase price, of the property,  this is your yield, or annual return.

I was talking to a landlord who bought a terraced house in the Dairyhouse Road area of Derby. He bought a very pleasant 4 bed terraced house in 1999 for £27,000. It sold again in January just gone for £115,000, a rise of 325.92% in just over 15 years – a compound annual return of 10.14%.

However, the real returns are for those Derby landlords who borrowed money to purchase their buy to let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £27,000 purchase price of the Dairyhouse Road terraced house on an interest only 75% mortgage, he would have only needed to invest his deposit of £6,750 and then borrowing the remaining £20,250. His £6,750 would be worth £94,750 today; £115,000 less £20,250 interest only mortgage) ..a rise of 1303.7%! -  a compound annual return of 19.26%.  ..and I haven’t even mentioned the rent he would of received in those 15 years!

This demonstrates how the Derby buy to let market has not only provided very strong returns for average investors since 1999 but how it has permitted a group of motivated buy to let Derby landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties, albeit with larger mortgages but greater future potential.

As my article mentioned a few weeks ago, more and more Derby people may be giving up on owning their own home and are instead accepting long term renting whilst buy to let lending continues to grow from strength to strength. If you want to know what (and would not) make a decent property to buy in Derby for buy to let, then one place for such information would be the Derby Property Blog!

Will the Election cure the issues within the Derby property market?

With the General Election almost upon us, all the parties are trying to woo voters with policies that will attract those important votes come the 7^th May 2015. 

There are 30,724 tenants of voting age in Derby living in private rented accommodation. In a tight election, their votes could be crucial.

Labour’s motivation to keep the private rental sector rents in line with inflation is pretty straightforward; cap rents and extend tenancy terms whilst the Conservatives are focussing on a ‘Right to Buy’ solution.

Since the turn of the Millennium, there has been a significant change in the proportion of people who own their own home in Derby. In 2001, 69.23% of homes in Derby were owner occupied, today the figure is 61.37%, a significant decline in such a short time.  Buy to let landlords can find tenants because young people say they cannot afford a deposit to buy unless they inherit money or are given a loan from the ‘Bank of Mum and Dad’ …but wasn’t that the way how most people got on to the property ladder; 10, 20 even 30 years ago or you just got on and went without and saved up?

In Derby, only 38.08% of 25 to 34 year olds have a mortgage. When you compare Derby against the national average of 35.93%, it just shows how different parts of the country have different housing markets. However, the really interesting fact is that if you roll the clock back to 1991 and nationally, 67% of 25 to 34 year olds had a mortgage.

After WW2, the supply of properties being built kept up with demand as millions of council homes were built. Also private house building increased in the 1950’s, but especially in the 1960’s and 1970’s, and as the Country  got more prosperous it meant that by 1971, there were more home owners than renters. However, since the 1970’s, the population has grown but the number of new properties being built hasn’t kept up at the same rate, the result is that there have been huge rises of property prices in the early ‘70s, the late 80s and more recently between 1999 and 2004. Interestingly, since the early 1970’s, out of the 34 richest countries in the world, the UK has seen highest property prices rises.

95% mortgages have been available to first time buyers since late 2009, but with property prices rising by 153% since 1997 in Derby, as property prices have been rising and first time buyers have been saving, the amount they have to save is continually rising at the same time. The stress on saving even for that kind of deposit, coupled with the new stricter mortgage rules introduced in 2014, means that most 20/30 something’s in Derby are renting instead of buying. Yet at the same time, don’t blame the landlords for this. For every mortgage approved for a landlord last year, three were approved for first time buyers!

The issue quite simply comes back down to a lack of new homes being built. In Derby, only 984 properties a year are being built whilst the population is rising by 2,250 a year. The supply of new homes has been limited by planning laws, local councils not having the money to build council houses, hard-hitting green belt limitations, and our old friend nimbyism (Not in my back yard!).  In fact, I read the Lyons Housing Review Report a few months ago, and in it, it said that at least 243,000 properties a year need to build to keep up with the number of new households being formed in the UK. In 2014, the country only built 109,000!  

With a rising population and net migration, especially from the EU, the mismatch between demand and supply is why we have the problem. Until politician’s have the backbone to realise the Country needs a lot more decent homes built, the problem will just get worse.

In the meantime, demand for rental property will continue to grow because people need a roof over their head at the end of the day ......fact.