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The £2.9 billion mortgage debt of Luton homeowners
Irrespective of the shenanigans and political goings on in Westminster recently, the housing market (for the time being anyway) shows a striking resilience, fostered by the on-going wide-ranging monetary policy by the Bank of England. With interest rates and unemployment low, UKplc is heading into 2020 in reasonable condition. Additionally, despite the UK’s new homes industry improving its year on year new build figures (building 173,660 new homes this year to date - notably 8% more new homes than at the same time last year), there has been an unequal increase in demand for housing, especially in the most thriving areas of the Country.
With the discussion on whether the younger generation can afford to buy, it is true the average cost of a UK property in the early 1970’s was 3.8 times the average salary yet, nationally, it now stands at 8.4 times. On the face of it that doesn’t look good in anyone’s books – yet that isn’t the full story because it doesn’t reflect inflation and interest rates when it comes to the cost of borrowing money in relation to a mortgage for property.
The current level of mortgage interest rates has not been seen for many generations, meaning there are whole cohorts of the Luton home-owning population who have no appreciation of the pandemonium that will eat into their household budgets should we ever return to the average historical cost of borrowing (interest rates jumped to 15% in 1992 – which wasn’t that long ago and between 2003 and 2007 they were on average 4.9%).
Now, once first-time buyers have jumped the hurdle of saving enough for a 5% deposit, which is hard with rents and many carrying loans of personal debt (unsecured loans), first-time buyers are currently spending an average one sixth of their salary on their mortgage, meaning mortgage arrears are at historical lows. However, on the other side of the coin repossessions have started to grow, with 6,180 repossession orders made in the last quarter, a 55% jump from 2017, yet nowhere near the 2009 high of 29,145 in the first quarter of 2009.
Therefore, this week’s discussion on the Luton property market is – where are we with lending (mortgages and unsecured loans) and how is it affecting the Luton, and national, property market?
One vital measure of the property market (and economy) is the mortgage market. If all the mortgages were added up, they would total £968.1bn; a lot when you consider the UK’s GDP is only £2,190.1bn. Mortgages are important as uncertainty causes building societies and banks to curtail lending (remember what happened in the Credit Crunch) and that seriously affects property prices. Then we have unsecured personal loans; interestingly the average Brit owes £991.42 in unsecured loans, a total of £36.1bn.
Lending is the lifeblood of our economy. Go back to 2007, and the phrase ‘Credit Crunch’ hadn’t been invented, yet now the term has entered our everyday language. In the autumn of 2007 it took a couple months before the crunch began to affect the Luton property market, but in early 2008, and for the following year and half, Luton property values dropped each month like a stone.
Mercifully, after a phase of sluggishness, in 2011 the Luton property market started to recover slowly as certitude returned to the economy as a whole and in 2013 Luton property values started to rise as the economy sped upwards. Happily, the Bank of England recognised the start of another boom and bust cycle, so in Spring of 2015, new rules for mortgage lending were introduced and for the following few years we have seen a reappearance to more credible and steady medium-term property price growth.
Luton Property Values are 61.3% higher since the Credit Crunch
And what of the other side of the coin in terms of excess lending in Luton?
Since 1977, the average Bank of England interest rate has been 6.65%, making the current low rate of 0.75% very low indeed. Yet the issue isn’t the amount of lending, as much as the persons ability to pay. Therefore, whether a person’s mortgage is fixed or not is more important than the amount owed.
Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.5% in the autumn of 2012 to the current 70.2%. If you haven’t fixed your mortgage – maybe you should follow the majority?
The total cost of mortgages owed by people in Luton is £2,972,259,344
(Based on the LU1 – LU4 postcodes)
In my modest opinion, if things do get a little rocky and uncertainty seeps back in the coming years (and nobody knows what will happen on that front), interest rates can only go one way from their current ultra low level of 0.75% ….and that is why I consider it important to highlight this to all the homeowners and landlords of Luton. Maybe, just maybe, you might want to consider taking some advice from one of the many qualified mortgage advisors in Luton?
If you are interested in the Luton Property Market the https://www.venture-residential.co.uk/blog is worth a visit.
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That number surprised you didn’t it? With the General Election done, I thought it time to reflect on renting in the manifestos and party-political broadcasts and ask why?
As the best way to tell the future is to look at to the past, so we decided to look at the number of people who rented a century ago (1920’s), and surprisingly 76% of people rented their home in the UK (as renting then was considered the norm). Yet in the latter part of the 1920’s, builders of the suburban housing estates with their bay fronted semis started to sell the dream of home ownership to smart renters.
Up until the mid 1920’s, the mortgage had been seen as a millstone around your neck. Now, due to some clever marketing by those same builders, it was started to be seen as a shrewd long-term investment to buy your own home with a mortgage. It fuelled the ambitions and goals of the up and coming well-to-do working class who reclassed themselves as lower-middle class. Meanwhile, the Government encouraged (through tax breaks) people to save in Building Societies whom in turn lent the money to these up and coming new homeowners thorough mortgages.
Roll the clock forward to the decade of the young Elvis, Chuck Berry, and Bill Haley (1950’s) and still 72% of Brits rented their home. Homeownership had boomed in the preceding 30 years, yet so had council house building. Then, as we entered the 1960’s and 1970’s homeownership started to grow at a higher rate than council housing.
The rate of homeownership started to drop substantially after the mid 1990’s, and now we roll the clock forward to today, there is no stigma at all to renting ... everyone is doing it. In fact, of the…
209,505 residents of Luton, 75,811 of you rent your house
from either the council, housing association or private landlords - meaning 36.2% of Luton people are tenants. Yet read the Daily Mail, and you would think the idea of homeownership is deeply embedded in the British soul?
131,047 Luton people live in an owner-occupied property
So, we have a paradox - homeowners or renters? The reason I suggest this, is, I noticed on the run up to the Election that housing was used at the General Election as way to get votes. This is nothing new, as all parties have always used housing to get votes, although previously it was about which party would build more council houses in the 1950’s through to council Right to Buy with Thatcher (and everyone since) - running election campaigns promising everybody their own home in one way or another.
Yet, did you notice at this election something changed? The parties weren’t talking so much about increasing homeownership but about protecting the tenant. It seems the link between homeownership as the main goal of British life is starting to change as we are slowly turning to a more European way of living. Renting is here to stay in Luton and incrementally growing year on year. You see, in Britain there is no property tax based on ownership, which many other western countries have. Instead Council Tax is paid by the occupier of the home (meaning the tenant pays - not necessarily the owner).
Both parties wanted to end no-fault evictions (which is a good thing), yet Labour went further and mentioned rent controls in their manifesto. As I have mentioned before in other articles on the Luton property market, rents since 2008 (even in central London) have not kept up with inflation - so again was that another headline to grab votes/election bribe? The fact is the majority of new British households formed since the Millennium can now expect to rent from a private landlord for life - therefore the parties focus on this important demographic.
Yet even with the new mortgage relief tax rules for landlords and the 200+ of legislation that govern the private rental sector, buy to let is still a viable investment option for most investors in Luton. There has never been a better time to purchase buy to let property in Luton … but buy wisely. Gone are the days when you would make a profit on anything with four walls and a roof. Most importantly do your homework, take advice and consider your options.
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In this week’s article, we talk about the number of property transactions in the Luton area since 1995 and how the long-term decline in the number of people are buying and selling locally affects the local economy.
The long-lasting issue of the Luton property market are laid bare as the final 2018 property transaction figures have just been published and they continue the post credit crunch trend of less people moving.
48.2% less of Luton people are selling their homes annually since the credit crunch, when compared to the post Millennium years of 2000 to 2005
This is not just an issue of the Luton housing market slowing down since the credit crunch - the challenge is to split out shorter-term factors such as Brexit and the elections from longer-term structural issues of the UK society, because when these most recent property transaction figures are seen against longer-term trends for Luton, they suggest more significant issues in the Luton housing market.
In the late 1990’s, 3,876 properties were sold annually in the Luton area, then in the same area, the Millennium boom saw transactions rise to 4,585 per annum. Property sales then more than halved to 1,818 per annum in the challenge of the global financial crash and subsequent retrenchment of the mortgage market. Post credit crunch (2012 and beyond) locally, on average, 2,373 properties have sold annually.
So, whilst there was a recovery from 2013 onwards, it was rather uninspiring when compared to the pre-credit crunch years, with a lacklustre performance in property transactions since mid 2010’s.
You might ask why we should be concerned about the number of property transactions and not the change in property values?
The number of transaction numbers are a far more exact bellwether for the health and potency of the local housing market.
As less people have been selling their homes locally, this is not only bad for the Luton housing market but for the economy locally, especially when you consider how many allied businesses (builders, decorators, solicitors, removal vans, estate agents, mortgage arrangers and other people) lose out as a result.
Some say the deficiency of supply of property, mainly affordable first-time buyer property, is the chief reason why transaction figures remain stubbornly low. Others suggest the absence of suitable housing stock up the property ladder (particularly bungalows for the older generation), combined with rising demand, is causing a bottleneck in our local housing market.
I know there has been much talk from Westminster about grand home-building programmes, yet we now require them to deliver on these undertakings and even then, it will be a few decades before we see a seismic change in the Luton property market.
In the short-term, a quicker improvement may come from modifications to stamp duty. First time buyers don’t need to pay Stamp Duty up to a certain level, yet those Stamp Duty concessions could be extended to those mature homeowners looking to downsize. This could liberate a meaningful number of mature family homes occupied principally by these mature generation and the tax lost through Stamp Duty could be replenished by a revaluation of the Council Tax bands?
Council Tax bandings were set in 1991 and the seven bands, the highest band starts at £320,000 (based on 1991 values). It seems irrational to us that upper value band, set in the 1991 revaluations, has not been increased, particularly as house prices in London have risen by over 400 per cent during in the last 25 years.
That would mean higher tax for those who don’t move yet less tax for those that do move - because we believe it would boost a far more liquid Luton property market.
Just a thought of mending the local property market - what are your thoughts?
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In this week’s article on the Luton property market we look and consider the effects of the Brexit uncertainty over the last few years and how certain elements of the local property market seem to have ignored those issues and appear to be bagging some bargains along the way
It seems that quite a few Luton homeowners and Luton landlords have become acclimatised to living with the uncertainty of Brexit throughout most of 2019, as figures show many of them decided to get on with living life, started reinvesting their money into Luton property and buying and selling their Luton homes and BTL investments. Land Registry stats confirm that. Current data shows that...
Luton property values are 3.5% lower than 12 months ago
Whilst the newspapers were stating prime central London property values were now 17% below the levels being achieved a couple of years, that message seems not to have been heard by certain sectors of the Luton property market!
Speaking with other property professionals in Luton, many weren’t expecting the usual autumn rebound after the summer holidays. Many were anticipating a dormant Luton property market on the run up to Christmas believing many Luton home-movers would put off the their home moving activities until the new year, yet in many sectors of the local property market, I have seen (and the stats back this up) that those Luton property buyers who are able to hold their nerve (whereas others were hesitant) have found themselves in a better negotiating position to get a great property deal. Putting aside the fluff of newspaper headlines, the real foundations of Luton housing market remain sound with record low unemployment, ultra-low interest rates and low inflation.
Interestingly, there are 9% more homes for sale in Luton compared to two years ago, meaning more choice for buyers
However, there are still parts of the Luton property market that remain stagnant, with some homeowners being slightly unrealistic with their marketing pricing. To them, the property market appears to be slow, as they stare at their ‘for sale’ board for months on end, yet nothing could be further from the truth.
The key to a balanced (and healthy) property market is realistic pricing by the homeowners when they place the property on the market, mortgage affordability for buyers (which was discussed a couple of weeks ago in the Luton Property Blog) and buy to let landlord activity which creates and maintains forward momentum. One measure of momentum is how long a property remains on the market, and interestingly…
The current average length of time a Luton property remains on the market is 96 days, up from 69 days two years ago
Now the number of properties sold locally is slightly down year on year (even though we had a burst of property sales in the summer locally) and interestingly, Rightmove reported recently that nationally, the number of properties sold in the UK was only just over 3% less year on year, so a similar picture nationally.
So, what does all this mean for Luton homeowners and Luton landlords?
We have always had issues that were game changers for the housing market; for the last few years it’s been Brexit, 10 years ago the credit crunch, 18 years ago the dot com crash, the ERM and 15% interest rates issue 27 years ago, dual MIRAS 32 years ago, hyper-inflation 40 years ago, the 3 day week 45 years ago – the list goes on. Everyone needs a home to live in, the local authority just has not got the money to build council houses, so buy to let will continue to grow for the foreseeable future which in turn creates a stable foundation for all homeowners. Maybe you should use this time, like many are in Luton to take advantage of the property deals to be had in Luton.
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The buy to let market in Luton has been going through a transition over the last five years with Luton landlords starting to feel the pinch in terms of new legislation and regulation. In the article we look at the historic nature of the Luton property market and what lies ahead for its future in terms of its opportunity for Luton buy to let landlords
Investing in a Luton buy to let property has become a very different sport over the last few years.
In the glory days of the five years after the turn of the Millennium, where we had double-digit house price growth, mortgage companies (notably Northern Rock, HBOS and their ilk) desperate to get on the buy to let mortgage bandwagon with rates so low it would make the belly of a snake seem high and an open mildness to give loans away with not so much more than a note from your Mum and with hardly any regulatory intervention… anyone could make money from investing in property – in fact it was easier to make money than fall off a log! Then we had the unexpected flourish of the property market, with the post credit crunch jump in the property market after 2010, when everything seemed rosy in the garden.
Yet, over the past five years, the thumbscrews on the buy to let market for British (and de facto) Luton investors have slowly turned with new barriers and challenges for buy to let investors. With the change in taxation rules on mortgage relief starting to bite plus a swathe of new rules and regulations for landlords and mortgage companies, it cannot be denied some Luton landlords are leaving the buy to let sector, whilst others are putting a pause on their portfolio expansion.
With the London centric newspapers talking about a massive reduction in house prices (mainly in Mayfair and Prime London – not little old Luton) together with the red-tape that Westminster just keeps adding to the burden of landlords’ profit, it’s no wonder it appears to be dome and gloom for Luton landlords … or is it?
One shouldn’t always believe what one reads in the newspaper. It’s true, investing in the Luton buy to let property market has become a very different ballgame in the last five years thanks to all the changes and a few are panicking and selling up.
Luton landlords can no longer presume to buy a property, sit on it and automatically make a profit
Luton landlords need to see their buy to let investments in these tremulous times in a different light. Before landlords kill their fatted calves (i.e. sell up) because values are, and pardon the metaphor, not growing beyond expectation (i.e. fattening up), let’s not forget that properties produce income in the form of rent and yield. The focus on Luton buy to let property in these times should be on maximising your rents and not being preoccupied with just house price growth.
Rents in Luton’s private rental sector increased
by 1.31% in the past 12 months
Rents in Luton since 2008 have not kept up with inflation, it is cheaper today in REAL TERMS than it was 11 years ago and some landlords are beginning to realise that fact with our help.
Looking at the last few years, it can be seen that there is still a modest margin to increase rents to maximise your investment (and it can be seen some Luton landlords have already caught on), yet still protect your tenants by keeping the rents below those ‘real spending power terms’ of the 2008 levels.
Buy to let must be seen as a medium and long-term investment ….
Rents in Luton are 3.23% higher than they were 3 years ago and property values are 13.34% higher than Jan 2016
…and for the long term, even with the barriers and challenges that the Government is putting in your way – the future couldn’t be brighter if you know what you are doing.
Investment is the key word here… In the old days, anything with a front door and roof made money – yet now it doesn’t. Tenants will pay top dollar for the right property but in the right condition. Do you know where the hot spots are in Luton, whether demand is greater for 2 beds in Luton or 3 beds? Whether town centre terraced houses offer better ROI than suburban semis? With all the regulations many Luton landlords are employing us to guide them by not only managing their properties, taking on the worries of property maintenance, the care of property and their tenants’ behaviour but also advising them on the future of their portfolio. We can give you specialist support (with ourselves or people we trust) on the future direction of the portfolio to meet your investment needs (by judging your circumstances and need between capital growth and yields), specialist finance and even put your property empire into a limited company.
If you are reading this and you know someone who is a Luton buy to let landlord, do them a favour and share this article with them – it could save them a lot of worry, heartache, money and time.