Doncaster Property Blog » October 2017

Monthly Archives: October 2017

Doncaster Property News

Doncaster Wages Outstrip House Price Growth by 17.8% since 2007

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I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years. The report said that in the Midlands and North, salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.

As regular readers of my blog know, I always like to find out what has actually happened locally in Doncaster. To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007. Looking at the Office of National Statistics (ONS) data for Doncaster Metropolitan Borough Council, some interesting figures came out…

Salaries in Doncaster have risen by 18.74% since 2007 (although it’s been a bit of a rollercoaster ride to get there!) – interesting when you compare that with what has happened to salaries regionally (an increase of 17.08%) and nationally, an increase of 17.61%.

Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in Doncaster are 0.94% higher than they were in Spring 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Wages in the Doncaster area have increased at a higher rate than property values to the tune of 17.8% … meaning, Doncaster is in line with the regional trend

All this is important, as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers. It is also vitally relevant for Doncaster landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Doncaster people are buying, then demand for Doncaster rental properties will drop (and vice versa).

As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Doncaster property market. Now of course, it isn’t as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.

On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ hasn’t been that great. However, look back another 10 years to 1997, and that tells a completely different story. Nationally, the affordability of property more than halved between 1997 and today. In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.

The issue of a lack of homeownership has its roots in the 1980’s and 1990’s. It’s quite hard as a tenant to pay your rent and save money for a deposit at the same time, meaning for many Doncaster people, home ownership isn’t a realistic goal. Earlier in the year, the Tories released proposals to combat the country’s ‘broken’ housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad landlords.

This is all great news for Doncaster tenants and decent law-abiding Doncaster landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Doncaster in the last 10 (or 20) years … the demand for decent high-quality rental property keeps growing. If you want a chat about where the Doncaster property market is going – please read my other blog posts on http://www.doncasterpropertyblog.co.uk or drop me note via email, like many Doncaster landlords are doing.

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33.6% Drop in Doncaster People Moving Home in the Last 10 Years

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I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Doncaster.  I find the most interesting bits are their commentaries on the British Housing Market.  Some talk about property prices, whilst others discuss the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit.  Others feature articles about the severe lack of new homes being built (which is especially true in Doncaster!).  A group of people that don’t often get any column inches however are those existing homeowners who can’t move!

 

Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then this has steadily recovered, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties.  The question is … why are there fewer house sales?

To answer that, we need to go back 50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised interest rates to a high level in a bid to lower inflation.  Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news since inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages.  At the same time their mortgage debt was decreasing, therefore allowing them to move up the property ladder quicker.

Roll the clock on to the late 1990’s and the early Noughties, and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect of significant numbers moving house continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You will probably remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This meant home movers could borrow even more to move up the property ladder.

So, now it’s 2017 and things have changed yet again!

You would think that with ultra-low interest rates at 0.25% (a 320-year low) the number of people moving would be booming – wouldn’t you?  However, this has not been the case.  Less people are moving because:

(1) low wage growth of 1.1% per annum
(2) the tougher mortgage rules since 2014
(3) sporadic property price growth in the last few years
(4) high property values comparative to salaries (I talked about this a couple of months ago)

What does thistranslate to in pure numbers locally?

In 2007, 6,384 properties sold in the Doncaster City Council area and last year, in 2016 only 4,235 properties sold – a drop of 33.66%.

Therefore, we have just over 2,150 less households moving in the Doncaster and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 1,762 mortgaged households a year (fourth fifths of the figure of 2,150) in the Doncaster and surrounding council area that would have moved 10 years ago, but won’t this year.

The reason they can’t/won’t move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 1,762 annual Doncaster (and surrounding area) non-movers, based on that CML report –

  1. There are around 634 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (e. demographics).
  2. I then estimate another 247 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (e. lifestyle).
  3. Then, I estimate 106 households of our Doncaster (and surrounding area) annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (e. high house price growth).
  4. I believe there are 775 Doncaster (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (e. mortgage).

The first three above are beyond the Government or Bank of England control.  However could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If Doncaster property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

Then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy mortgages 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s … available at a drop of hat and three tokens from a cereal packet?

We all know what happened with Northern Rock …. Your thoughts would be welcome on this topic.

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Moving from a 2 bed Doncaster Property to a 4 bed will cost you £602 pm

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Moving to a bigger home is something Doncaster people with growing young families aspire to. Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three-bed Doncaster homes are much in demand and it can be a costly move.

If you live in Doncaster in a two-bedroom property and wish to move to a four-bedroom house in Doncaster, you would need to spend an additional £152,424 (or £602.08 pm in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home, then later in life, from a three to four-bedroom home.

So, after being asked my thoughts on moving home in Doncaster by a friend recently, please find my analysis of the local property market and then some thoughts. To start with, let us see what the average property price is for a Doncaster property by the number of bedrooms it has.

Average Property Price in Doncaster by Bedroom
1 bed 2 bed 3 bed 4 bed 5 bed
£69,168 £99,099 £125,848 £251,523 £315,359

I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74% – so the mortgage cost could be higher or lower depending on the mortgage taken).

Doncaster
Price Difference to make the move Cost per month to move up market (Mortgage)
1 bed to 2 bed £29,931  £118.23
2 bed to 3 bed £26,749  £105.66
2 bed to 4 bed £152,424  £602.08
3 bed to 4 bed £125,675  £496.42
4 bed to 5 bed £63,836  £252.15

There are some interesting jumps in costs when moving upmarket as a Doncaster buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Doncaster is quite high (and hence why some four bed properties are taking slightly longer to sell nowadays). On an aside, a lesson here for all my landlord property blog readers, you can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let because the monthly finance costs and rents achieved don’t match up so well (i.e. A mortgage for a 4 bed home in Doncaster would cost you 99.86% compared to a 3 bed mortgage, but the jump in rent would be a lot less than that – although depending on your circumstances, 4 bed homes can offer other advantages to buy to let – pick up the phone if you want to know what they are in more detail).

So, coming back and looking at the stock of properties in Doncaster, this also makes interesting reading …

Housing Stock in Doncaster by Bedrooms
1 bed 2 bed 3 bed 4 bed 5 bed
4.89% 25.60% 50.05% 15.72% 3.74%

 

The most active purchasers are 20 something and 30 something home-owning parents with growing families. Many look to more modern developments for the perfect balance of access to decent primary schools, commutability and lifestyle. For landlords looking to buy within Doncaster, they face stiff competition from these 20/30 something families, making the three bedroom Doncaster home massively in demand, often attracting spirited offers and selling within weeks of listing. This mix of homebuyers and landlords is a pressure point in the Doncaster property market.  Again, if you are a landlord, call me and I will show you areas with decent returns where you aren’t in so much competition with young Doncaster family homebuyers.

Yet, the cost of an additional bedroom can be too much for some Doncaster buyers. It is quite challenging moving home the first time, but to then find you are priced out on the next move up the ladder can be quite disconcerting, with families often having to move to a different part of town to get the bigger home they need.

Nevertheless, that’s the place many homeowners find themselves in with the cost of the additional bedroom being too much to bear. To those buying their home for the first time, all I suggest is they not only consider the mortgage payments and other costs of their first home, but also do their homework into their next rung up the Doncaster property ladder. Thinking about it now will keep you ahead of the game in the future; as your number of bedrooms, family property needs and lifestyle wants change.

..and Doncaster landlords – well these changes in the way people live also mean there are opportunities to be had in the Doncaster rental market. Many Doncaster landlords are starting to pick my brain on this, so if you don’t want to miss out – drop me a line.

Doncaster Property News

Doncaster Buy-to-Let Return / Yields – 2.5% to 8.7% a year.

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The mind-set and tactics you employ to buy your first Doncaster buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!).

Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Doncaster properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Doncaster buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Doncaster…


Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Doncaster area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.

However, before everyone in Doncaster starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Doncaster buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Doncaster landlords who are looking for capital growth, an altered investment strategy may be required.

In Doncaster, for example, over the last 20 years, this is how the average price paid for the four different types of Doncaster property have changed…

  • Doncaster Detached Properties have increased in value by 221.6%
  • Doncaster Semi-Detached Properties have increased in value by 241.5%
  • Doncaster Terraced Properties have increased in value by 255.6%
  • Doncaster Apartments have increased in value by 239.4%

It is very much a balancing act of yield, capital growth and void periods when buying in Doncaster. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!