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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.
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Many mature readers of this Luton property market blog will remember buying their first home as 20 or 30 somethings, probably in Luton many years ago, yet read the newspapers now and feel it is all doom and gloom for todays’ first-time buyers.
So, I wanted to look at the facts, instead of newspaper headlines.
Back in 1995, the average Luton first time buyers house cost £26,190, whilst official figures state today it is £157,500
So, looking at today’s property prices, it could be perceived that owning a home is beyond the reach of most Luton first time buyers and that renting is the only way for younger members of Luton society to have a roof over their head .. or is it?
100% mortgages (so no deposit needed to be saved) were rife in the 2000’s and Northern Rock were famous for their 125% mortgages (i.e. you borrowed 25% more than what you were paying for the house, again with no deposit). Yet when the credit crunch hit in 2008 such mortgages disappeared overnight – ending the dream of homeownership for many. Yet would it surprise you to hear that 95% mortgages (i.e. the first-time buyer would need to save a 5% deposit) have been available since late 2009 and 100% mortgages (i.e. no deposit) were made available in 2016.
It is £145 per month cheaper to buy a typical Luton first-time buyer home than to rent the equivalent property.
Prospective Luton first-time buyers could make a saving of £1,745 per year on average if they moved from renting to owning. My calculations assume that first-time buyers raise a deposit of just 5 per cent and make mortgage payments over 35 years with the Barclays 95% mortgage with a fixed interest rate of 2.48 per cent interest. At this level…
Today, the average deposit needed by a
Luton first-time buyer is £7,875
Those able to raise that deposit, would pay £555 pm on average in mortgage payments, while the average rent for the same property would be £701 pm and the household income to support such a mortgage would only need to be from £33,250 pa.
Of course, buying your first home is a massive financial commitment and investment with up-front costs to ponder on, yet long-term the financial benefits can be substantial. With annual savings of £1,745 a year, this can really mount up over time and, of course, once the mortgage is paid off, one will have a valuable asset.
Yet, the elephant in the room is the raising of the 5% deposit
Well most first time buyers, even most of you who are now in your 50’s and 60’s may have used the Bank of Mum and Dad to help with the deposit, yet it’s only fair that most parents still expect their offspring to contribute to the deposit and this is where it comes down to choice. I have spoken to many of my friends and family to reconfirm my initial thoughts that it comes down to priorities and choices in life. To save the deposit mentioned above, sacrifices are required to save that amount of money.
According to a survey in 2018, the average millennial goes out two nights a week and spends on average £63.36 per night out, that’s nearly £6,600 per year - a very expensive hobby. Nearly a third of millennials surveyed had smashed their mobile phone in the last 12 months. Then there is the obsession of having the latest tech, with the need to constantly be upgrading one’s mobile phone. In fact, the cost of the brand new iphone11, recently released, is just shy of £900. Even those on contracts can expect to pay upwards of £80 per month for the newest phone upgrade, yet if they kept their old phone after two years, a sim only deal with the same minutes and data would set them back no more than £25 per month … it comes down to choices. Save for a deposit and reduce your expenditure on socialising and mobiles etc and have a valuable asset at the end of your mortgage or continue as you are.
I am not here to make a judgement – everyone is free to make their own choices in life – all I am doing is highlighting the real situation - so you are aware of the full story.
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Freehold or Leasehold .. which is best? Well, when buying a property in the UK there are two main types of ownership – freehold and leasehold and, when boiled down, they mean the following...
Freehold: The person who owns the freehold of a property owns the property and the land it stands on.
Leasehold: As a leaseholder you do not own the land the property is built on. A leaseholder essentially rents the property from the freeholder for a number of years, decades or in some Victorian terraced houses, for centuries.
All apartments have to be sold as leasehold properties because of the very nature that you have a neighbour above or below you (so both of you can’t own the land) with the length of the lease being over 100 years (even more sometimes).
However, with some apartments – particularly Victorian and Edwardian houses converted into numerous apartments – which are sold on the basis that the leasehold apartment owner also owns part of the freehold (with other leaseholders in the same building), having what is known as 'share of freehold'. Similarly, the Government also brought in legislation a number of years ago for more modern apartment blocks built in the 20th century where it allowed leaseholders to club together and have the right to purchase the freehold together.
In this week’s article on the Luton property market we look at the leasehold and ground rent scandal that has fallen over the whole of the country leaving many first-time buyers unable to sell their home. In the article itself we look at the possible implications for local people having unsellable homes.
Now we must stress, there is nothing wrong with leasehold – it’s been a useful type of homeownership since Norman times, it’s just that with a leasehold comes a potential extra responsibility. If there are four apartments in a block, who pays for the leaking roof when all benefit from a watertight roof? Who pays for the bad foundations, when all benefit from good foundations? Who pays for building insurances? .. the list goes on – so clauses are added to the leasehold agreement to ensure everyone is protected and pays their fair share of the joint costs of the building with service charges and a nominal ground rent (ground rent is a nominal rent, commonly quite low, often in the region of £50 per year to the freeholder of the property).
Whilst houses tend to be sold as freehold as it's a more unambiguous set-up, given there is only one property on the land. Contentiously however, in the last 10 to 15 years this has not always been the case with new-builds as some new homes’ builders have sold the leasehold to the buyer and retained the freehold. There is nothing wrong with that, it’s just in some cases (not all) they also added some oppressive clauses to the lease of the property they were selling, which could be the next PPI scandal - albeit for property.
Government reports have emerged recently that suggest 12,000 leaseholders in the UK are facing ground rents – which they pay to the freeholder – that double in cost, usually every 10 years, but occasionally more frequently.
Builders started to add clauses into leasehold property sales with ground rent being set at £300 and £400 a year, yet it doubled every ten years. Though unwary first-time buyers were habitually told that their 500 and 999-year leases were practically freehold, the clauses inescapably meant that the ground rent would spiral to ridiculous levels meaning the average ground rent would be £23,750 a year by 2070 and £379,900 a year by 2130, making the properties practically unsellable today, with owners often left unable to re-mortgage too.
So, how many people are affected by this in our local area?
Well, using Government data, our research suggests that in Luton 207 householders have bought a detached house, semi-detached house or town house (which would normally be freehold) as leasehold. Not all these have onerous lease clauses, yet some do. I know it doesn’t sound a lot, yet that is potentially 207 lives ruined with houses they can’t sell - making them prisoners in their own property.
The good news is the Government is on the case and serious about sorting this issue out as they have proposed a ban on the future sale of houses as leasehold, as well as cutting ground rents to zero. Yet stern questions remain about the future of homeowners in existing leaseholds. Westminster wants the builders to set up compensation plans, and we will say many (not all) have stepped up to the mark and started to sort this, although some campaigners have said the schemes are not fit for purpose, let’s hope they are wrong.