Thursday, 30 April 2015

“The way it works in Epsom is this, you have to rent where you want to live, or buy where you don’t want to live”

I had this really interesting chat with one on my tenants the other day, on renewal of their tenancy agreement. They are a lovely couple, early thirties and I know they have decent jobs in Epsom. They have been tenants of ours for quite a while, so I know them quite well. During our conversation I enquired if they ever thought of buying a property for themselves, to which they replied back with the title of this article. It made me think and so I did some more research into the subject which I want to share with you.

After the end of the Second World War, just over a quarter of the UK population owned their own home, the rest rented from private landlords or the local Council. If someone told you in the 1970’s and 1980’s that they rented, they were considered a second class citizen. Everyone wanted to own their own home ... it was the ‘done’ thing. We think that home ownership will inevitably happen, but it won't.

It all changed in the 1970’s, when two things happened. Firstly, the number of people who owned their own home broke through the 50% barrier in 1971 and by 1981 it was at 57%. Tied in with that, the average house prices in Epsom were doubling at one point every four years in the 1970’s so property and profit started to feed off each other.

To put that growth in context, if we were to look at the last 85 years in Epsom, in 1930, the average Epsom property was worth £914. It took 16 years for Epsom property values to double, rising to £2,260 by 1946. Another 15 years and the average Epsom property doubled again to £4,291 in 1961. The next doubling only took 10 years, as by 1971 the average Epsom property had reached £8,724 in value.

It was (as mentioned above) the 1970’s when things really took off, as by 1975 (i.e. only four years) they had doubled to £18,257 and they doubled again to £36,549 by 1980. It took another eight years for values to double again, as an average Epsom property reached £76,448 in 1988. Twelve years had to pass until they doubled again in 2000 (£157,296) and just six years to double again by 2006, when they reached £317,245. Where are we today? The average property value in Epsom currently stands at £456,600.

We could blame Maggie Thatcher for making home ownership the ultimate goal, but what we now need to consider is that the country is turning on its head and we need to, as a Country, love renting again. Some blame the banks, and obtaining a 95% mortgage is hard work, but nowhere near impossible. A typical Epsom first time buyer would only need to save £15,000 for a deposit and fees and they could buy a very decent three bed house on the Longmead Estate. (It would only need to be £9,500 for a small one bed apartment). In fact, that property on the Longmead Estate in Epsom would be cheaper each month in mortgage payments than renting the same apartment.

People might say on the surveys they want to buy, when it comes down to it. If you have been living in a top of the range property in the Chase Estate, but the bank will only lend you enough to buy a property in the Longmead Estate (or a tiny one bed apartment in Worcester Park) what would you do? Don’t get me wrong, the Longmead Estate has really pulled its socks up over the last ten years, but it isn’t the Chase Estate, is it? Again, if you were a twenty something, what would you do? Look again at the title of the post... “The way it works is, you have to rent where you want to live, or buy where you don’t want to live,”

With tenant demand only going in one direction, that is probably why more and more people are getting into buy to let in Epsom. With the new rules on pensions and the ability to use them to buy residential rental properties from April onwards, this could be the time for you to buy a rental property. You must take advice on your pension from an Independent Financial Advisor (there are plenty in Epsom) and you must take advice from people who know what to buy (and not to buy) in Epsom to ensure you get the best from your investment. One place for such advice is this blog or please feel free to email me at ian@directresidential.co.uk.

Thursday, 23 April 2015

Epsom rents rise for tenants... but wages rise quicker!

Considering we are a quarter of the way through 2015, I was talking to a landlord from Ewell the other day about what is happening to the level of rents that are being achieved in the Epsom property market.

In terms of rents in Epsom, it appears that rents being achieved for new rentals (i.e. when the tenant moves out and new tenant moves in) have risen in the order of 3.8% in the last 12 months on top of the range, modern properties, yet remained static for older Victorian terraced houses and converted apartments. However, landlords with existing sitting tenants, irrespective of age are not increasing their rents, as most landlords prefer to keep their existing tenant paying the same rent and have the peace of mind that their tenant remains, paying the rent (thus reducing the risk of a void period). That said, we always recommend renewals in line with RPI increases.

It must be remembered rents dropped by 2% over 2008/9, due to oversupply in the rental market in 2009.) A lot of the people who couldn’t sell their property in Epsom in 2008/9 when the Credit Crunch hit in 2008, decided to let their house out instead of selling at a loss. In fact, the number of houses on the market in Epsom dropped by 65.3% between June 2008 and January 2010, a lot of which came on to the rental market in Epsom. However, looking at the longer term though, tenants have had it good because since the turn of the Millennium, average wages have grown by 46%, but rents outside central London have only grown by 36% rental growth over this period.

I mentioned to the landlord that there is a lack of new rental properties in Epsom coming on the market, in fact according to the Office of National Statistics, there are only 22 new rental properties coming to the market each month in Epsom, but the population of Epsom is rising by 67 people a month – something will have to give soon! This is compounded by the fact a number of landlords are looking to sell their rental properties in the coming months, as the property market in Epsom has improved. This further compounded as tenants in existing rental properties appear to be staying in properties for longer periods of time, as mentioned above.

Looking at the rents charged in Epsom, historic evidence in the UK suggests private market rents have moved in line with general inflation. Government figures only go back as far as the year 2000, but looking at other countries with similar housing markets (America, Australia, Ireland and Holland) the fact is rents paid by tenants tend to rise in line or just ahead of inflation.

As short term wage growth in Epsom has eased off recently, rising by only 1.3% in the last 12 months, taking average salaries in Epsom to £37,498pa, with the tax breaks announced by The Chancellor in the Budget, I believe, even though rents have kept pace with inflation in the past, renting as an option has become more affordable, and is increasingly seen as a lifestyle choice.

If you want a chat about the local Epsom property market, pop in for a coffee or email me on ian@directresidential.co.uk or keep checking the blog.

Friday, 17 April 2015

Epsom Property Market – Turning more European everyday?

I was having an interesting conversation with a solicitor earlier this week, when the subject of a lack of property for first time buyers came into the conversation. I followed the chat up with an email with my findings, findings which I would like to share with you today.

At the time of the last census in 2011, there are 3,401,675 properties in England that were privately rented, of which it is estimated, were owned by over 1.25 million private landlords. The rapid growth of buy-to-let is hugely controversial, especially as only ten years before that, there were only 1,798,864 properties under private renting in England. It could be argued that Buy to Let landlords have been held responsible for forcing up property prices and preventing our younger generations from being able to buy. There is also growing resentment toward the billions of pounds in tax relief (estimated to be nearly £10 billion) landlords claim on their mortgage interest relief not available to homeowners.

They may be asset rich thanks to recently rising property values, but let us not make the landlords the scapegoats for the situation. Despite all these benefits enjoyed by private landlords, let us not forget the good they have done, especially in Epsom.

Property values today in Epsom are only 16.9% above the 2007 property boom levels (2007 being the peak of the last property boom before everything dropped in 2008/9), yet inflation has risen by 26% in the same time frame, so in real terms, properties today are 9.1% CHEAPER than they were in 2007. Just think how low they would be without landlords buying all those rental properties in the city. Interest rates are at an all time low and first time buyers only need to save a £9,000 deposit to secure a lovely 1 bed apartment around Worcester Park/Stoneleigh areas with a 95% mortgage. Forget what the papers say, first time buyers can borrow money relatively easily on a 95% mortgage and nine times out of ten, it’s cheaper to buy than rent.

So here is the question - Why aren’t people buying?

The number of people choosing to rent, either for lifestyle or economic reasons, has grown over the last 15 years. I also believe they will continue to grow for some time to come (as does every report on the subject). In fact I would go as far to predict the number of rental properties in Epsom and Ewell will have risen from the 4,320 properties recorded in 2011 to 5,950 by 2021. Sound fanciful? Well in 2001, there were only 2,400 privately rented properties in Epsom.

It is a fact that we as a Country are more and more turning into a European model when it comes to home-ownership, where the norm is renting for the first ten years, as opposed to the norm from the 1960’s to 1990’s, where first time buyers were encouraged to buy as soon as they left school and got a job.

Tenants, in particular, will also feel the benefit from potential changes in the market. The likelihood of interest rate increases in late 2015, existing economic conditions, combined with the uncertainty of new Government manifestos following the General Election in May could dampen demand to buy, yet also quell increases in rent. As long as landlords buy the right sort of property, that allows for a reasonable yield and/or decent capital growth, everyone will be a winner. If you would like to have a conversation about what would make the best sort of Buy to Let property that would offer good returns in Epsom, then please email me on ian@directresidential.co.uk or keep checking here at the Epsom Property Blog.

Tuesday, 14 April 2015

New Pension rules could change the Epsom Property Market forever

In a recent article, I mentioned that pension rules are changing on the 6th April. It certainly created a few emails, with people asking questions about it. Therefore, this week, I want to look a little deeper into the subject of your pension and the Epsom property market. George Osbourne, in last years’ Budget, announced pension reforms that come into effect this April, which will give people with pension’s unprecedented access to their pension pot and the freedom to look for alternatives. In a nutshell, after the 6th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish. Until now, you were allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.

However, my readers always know that I like to tell it ‘as it is’. There are always two sides to a story, good and bad. Let me tell you the bad news first. There are some hefty tax implications by taking money from your pension pot. As before, as per the old rules, the first 25% can still be withdrawn from the pension pot tax free but, here is the sting in the tail, if you take more than a quarter of your pot (25%), anything above that initial 25% level will be taxed as income. So if you took the whole lot out, the first 25% will be tax free, but the remaining 75% will be taxed at your income tax rate of 20%, 40% (or even 45% if you earn over £150,000 a year).

 ...and now the good news!

Under the old scheme, if you bought an annuity, when you died your annuity normally died as well. You would have no asset to pass on to your family. Also, the returns from pensions are awful at the moment. The best rates according to Hargreaves and Lansdown (big wigs in the City) state if you were 55 years old, the best rate you would get on your annuity pension would be 4.4% fixed for life (so it would never go up) or 2.2% but the payment would go up with inflation. The sort of rates (also known as yields in the property investing game) being achieved in Epsom are in the order of 3% to 5%, although recently I helped a client get over 7%!

The other aspect of property investment is how the fact property values have risen consistently over the last 50 years (capital appreciation). According to the Office of National Statistics, the life expectancy of a 65 year old male in Epsom is 20 years and 4 months (its only 19 years 5 months in Reigate and Banstead). If we roll the clock back 20 years 4 months to December 1994, property values in Epsom have risen by 271.08% to today... you wouldn’t have had that with your pension! But this is the biggest win, even by taking a hit in income tax now, by buying a property, you buy an asset that you can pass on to your family when you die.... (or the cats home if they aren’t nice to you!).

So where next? It totally depends which strategy you are going to look at, one strategy is to look to achieve relatively small rental returns (ie low yields) in an up market area which has decent capital growth or, alternatively, another strategy is to buy properties in not so good areas known to produce a high returns (ie high yields) but low capital growth (ie how much the value of the property goes up). Now, I am not a financial advisor, so cannot offer financial advice whatsoever on what the best thing for you with your pension is. However, I can share my knowledge and experience of the Epsom property market, what to possibly buy, what not to buy and where to buy etc etc. My thoughts on the Epsom Property market can always be found here at the Epsom Property Blog or you can email me at ian@directresidential.co.uk.

Friday, 10 April 2015

Another buy-to-let opportunity

A two double bedroom second floor flat in Leatherhead. You can expect a rent around the £1250pm mark, offering a 6% gross annual yield! Take a look:
http://www.patrickgardner.com/35403_5531391