Doncaster Property Blog » August 2018

Monthly Archives: August 2018

Doncaster Property News

Doncaster Property Market – How Does It Compare Historically to the Yorkshire and Humber and National Property Market’s?

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Living in our own homes or owning buy to let property in Doncaster and the surrounding areas, it’s often easy to ignore the regional and national picture when it comes to property. As a homeowner or landlord in Doncaster, consideration must be given to these markets, as directly and indirectly, they do have a bearing on us in Doncaster.

Locally, the value of property in Doncaster and the number of people moving remain largely steady overall, although looking across at the different regions, there are certainly regional variations. Talking to fellow property professionals in the posh upmarket central London areas of Mayfair and Kensington, the number of people looking to buy and registering interest with agents is continuing to climb after 18 months in the doldrums, whilst in other parts of the UK, there is restraint amongst both buyers and sellers in some locations.

The things that affect the national property market are the big economic numbers. Nationally, over the last few months, thankfully, the economic forecast and predictions have improved, notwithstanding the Brexit uncertainties. Inflation has mercifully throttled back its high growth seen in 2016 to the current level of 2.1% (from 2.7% average last year), coupled with marginally stronger wage growth at 2.5%. Unemployment is at a 42-year low at 4.2% and UK consumer spending power rose to an all-time high last month to £331.04bn – all positives for consumer sentiment.

Look further afield, a resilient property market depends on the UK’s economic health with the outside world, so if Sterling weakens, that makes imports more expensive, meaning inflation increases, and this matter I talked about a few weeks ago in my blog article … interest rates could be raised to bring inflation under control, which in turn could seriously affect the property market. On the assumption Brexit negotiations are successful, economic growth should continue to be upward and positive, meaning confidence would be increased … which is the vital element to a good housing market.

Looking closer to home now, Doncaster landlords and Doncaster homeowners might be interested in the how the regional and Doncaster markets have performed over the last 20 years (compared to the National picture). Let’s look at the regional picture first,

Yorkshire and Humber has outperformed the Doncaster housing market by 4.48%…

…and nationally, the country has outperformed Doncaster by 5.46%

I found it interesting to see the ups and downs of the Doncaster, Yorkshire and Humber and National markets in this graph. How the lines of graphs roughly go in the same direction, with Doncaster following the regional trend more closely than the national trend to a certain point (as one would expect), how the 2007/08 property crash timings and effects were slightly different between the three lines and finally how the property markets performed in the post-crash years of 2011 to 2014 … fascinating!

So, what does this all mean for Doncaster homeowners and Doncaster landlords?

Well, house prices going up or down are only an issue when you sell or buy. In the last 12 months, only 1,076,288 (let’s call it’s a straight million between friends!) properties changed hands out of 27.2 million households in the UK in 2017, meaning only 3.7% would have been affected if property values had dropped in the last year.

Property values in Doncaster are 223.86% higher than the summer of 1998

Yet this has been a long-term gain. The number one lesson in property is that it is a long-term game.  The biggest issue in property isn’t house values or prices … it’s the number of homes built, because the number of households nationally has only increased by 6% since 2007, whilst the population has grown by 7.6%. That doesn’t sound a lot, until you express it another way…

If the UK population had had only grown by the same percentage as the percentage growth in UK households in the last decade, there would be 1,000,000 less people living in the UK today

The final thought for this article is this, apart from central London, over the last 20 years it hasn’t mattered what part of the UK you were in with regards to the property market. Be you a landlord or homeowner, property is a long game, so look long term and you will win because until they start to build more homes, from the current levels of 180,000 new homes built per year to at least 250,000 households built per year, demand will, over the long term, outstrip supply for owning and renting!

Doncaster Property News

The Doncaster Bank of Mum and Dad lent £7.504m Last Year

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My analysis has shown that up to the end of the last quarter, Doncaster first time buyers purchased 1,174 Doncaster properties.  With wages rising at 2.8%, unemployment at a low rate of 4.2% (down from 4.6% from a year earlier and the joint lowest since 1975), national GDP rising at 1.87% and inflation at 2.3%, tied in with indifferent house price growth (compared to a few years ago), this has given first time buyers a chance to get a foot hold on the Doncaster property market.

Over the last year, the average purchase price of a Doncaster first time buyer property has been £90,200 and the average deposit was £14,612. Furthermore, my calculations show the average Doncaster parents contributed £6,393 of that £14,612 figure.

You see “The Bank of Mum and Dad (Doncaster Branch)” is for countless Doncaster twenty something’s, perceived to be the only way they will ever be able to afford their first home. In fact, Doncaster parents put up a substantial £7.504m in the last 12 months to help their nearest and dearest progeny onto the property ladder. This assistance towards the deposit makes a huge difference, enabling Doncaster youngsters who thought they couldn’t get on the housing ladder more able to do so.

With mortgage rates at all-time lows, few Doncaster twenty something’s would struggle to make mortgage repayments, but it is the requirement of the deposit which is the issue, although as parents (and grandparents) are helping out where they can, it does little to address the real problems of the housing market, whether for people renting or buying their first home.

If you think about it, as a Country we have been fortunate that the older generation who control the biggest share of the nation’s wealth are so plentiful to those following after. We need to remember, though, that this generosity is
 a sign of the issues of the British housing shortage, not its solution.

But before I leave this article … note I used the word PERCEIVED in a previous paragraph. Yes, the average first time buyer deposit is 16.1%, but that is an average. Did you know 95% mortgages returned to first time buyers in late 2009 and have been available ever since? Also, lenders like Barclays and many local Building Society’s now offer 100% mortgages (i.e. no deposit) at 2.75% fixed for three years.

The perception is you need 15%, 20% even a 25% deposit to be a first-time buyer – you don’t! You don’t need any deposit, but (there is always a but!)…

Over the last decade, many renters have upgraded themselves into homes that they (or any generation before them) could never have ever afforded as a first time buyer in the past. You see the British housing market started to change with the dawn of the new Millennium and I am seeing a slow but steady attitude change when it comes to renting. Those tenants have found the price difference of upgrading from the typical 1970’s TV show Rigsby “Rising Damp” style rental property to plush terraced house or even semi-detached home, with all the mod cons, comparatively inexpensive (when compared to the increase in mortgage payments if they had to make the move as buyers).

Renting isn’t seen as the poor man’s choice, as many young (and increasing older) people are becoming more at ease and comfortable with the flexibility offered by private renting a property rather than jumping ‘lemming like’ into home ownership. Doncaster landlords will continue to see growth in sector, and like Germany, todays renters will become homeowners in 20 years’ time – when they will inherit the wealth of their parent’s home.

Doncaster Property News

£102,481 – The Typical Profit Each Doncaster Landlord Could Make in The Next 25 Years

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I am of the opinion that buy to let investment in Doncaster, in the long-term, will bring substantial returns for landlords, irrespective of latest regulation and tax changes.

Taking a very conservative (with a small ‘c’) view, I believe landlords will see a projected net profit of £173,992 per property over the next 25 years through capital gains and rental. When inflation is taken into account that works out at £102,481 (in today’s money) or around £4,099 per year. The breakdown applies to a basic tax-paying landlord placing a characteristic 25% deposit on a £94,600 terraced/town house property.

Capital gains make up a substantial part of a landlord’s returns. Again, being conservative, I have assumed that Doncaster house prices over the next quarter century (between 2018 and 2043) will rise at half the rate they did between 1993 and 2018 (the preceding 25 years), therefore the example Doncaster property in the previous paragraph would grow in value to £195,775, providing gross capital gains of £101,175.

A typical Doncaster landlord receives, on average, rent of £5,400 per annum per terraced/town house property and so, over a 25-year period, that example property would generate a total rental income of £206,415 (again – very conservatively assuming a compound annual growth rate in the rent of 1.71% per annum).

Nevertheless, there are costs to running a buy to let property (mortgages, void periods, repairs, agents fees etc) .. and over those same 25 years, I have estimated that to be £133,598  .. giving the net profit levels mentioned in the second paragraph.

Now of course I have had to make assumptions to reach these figures, yet I hope you would agree, I have been very unadventurous with my assumptions.

The Doncaster (and UK as a whole) buy to let property market is experiencing a massive sea of change. Regulation and tax changes have altered the dynamic in the property market, diminishing its appeal to inexperienced and amateur landlords, and these new tax changes mean higher tax bills for higher rate tax landlords. Yet, despite these rising costs, there are still healthy returns to be found in Doncaster buy to let investment for knowledgeable and steadfast landlords. Nonetheless, the days of anything making money and idle speculation are long gone.

Buy to let is a long-term business undertaking, necessitating commitment and expertise. Don’t put your head in the sand and think it doesn’t affect you. Doncaster buy to let landlords must be equipped to start business and tax planning, take portfolio management advice to ensure their investments will meet their investment goals, appreciate the risks as well as the rewards, and, most crucially, the obligations they have towards their tenants.

If you are a Doncaster landlord, irrespective of whether you are a client of mine or another agent in Doncaster (or even you do it yourself), feel free to drop me a line or pop into the office for an informal chat on the future direction of the Doncaster rental market and where opportunities may lie.

Doncaster Property News

Additional 3,608 Doncaster Rented Homes Required by 2027

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I have been doing some research, looking both at National and Regional reports on the demand and supply of property and people together with future projections on the economy, population and family demographics with some interesting results.  According to the Office of National Statistics, in the last financial year nationally, private renting grew by 74,000 households, whilst the owner occupied dwelling stock increased by 101,000 and social (aka council and housing association) stock increased by 12,000 dwellings.

It was the private rental figures that caught my eye.  With eight or nine years of recovery since the Credit Crunch, economic recovery and continuing low interest rates have done little to setback the mounting need for rented housing.  In fact, with house price inflation pushing upwards much quicker than wage growth, this has meant to make owning one’s home even more out of reach for many Millennials, all at a time when the number of council/social housing has shrunk by just over 2.5% since 2003, making more households move into private renting.

There are 20,060 people living in 8,419 privately rented properties in Doncaster.

In the next nine years, looking at the future population growth statistics for the Doncaster area and making careful and moderate calculations of what proportion of those extra people due to live in Doncaster will rent as opposed to buy, in the next ten years, 8,597 people (adults and children combined) will require a private rented property to live in.

Therefore, the number of Private Rented homes in Doncaster will need to rise by 3,608 households over the next nine years,

That’s 401 additional Doncaster properties per year that will need to be bought by Doncaster landlords, for the next nine years to meet that demand.

… and remember, I am being conservative (with a small ‘c’) with those calculations, as demand for privately rented homes in Doncaster could still rise more abruptly than I have predicted as I would ask if Theresa May’s policies of building 400,000 affordable homes (which would syphon in this 5-year Parliamentary term is rather optimistic, if not fanciful?

So, one has to ask wonder if it was wise to introduce a buy to let stamp duty surcharge of 3% and the constraint on mortgage tax relief could curtail and hold back the ability of private landlords to expand their portfolios?

Well a lot of landlords are taking on these new hurdles to buy to let and working smarter.  Buying the property at the right price and using an agent to negotiate on your behalf (we do this all the time) … and the 3% stamp duty level isn’t an issue.  Incorporating your property portfolio into a Limited Company is also a way to circumnavigate the issues of mortgage tax relief (although there are other hurdles that need to be navigated on that tack), but just look at the growth of proportion of Buy to Let properties in the Country since the Summer of 2016 … something tells me smart Landlords are seeing these challenges as just that … challenges which can be overcome by working smarter.

I have a steady stream of Doncaster landlords every week asking me my opinion on the future of the Doncaster property market and their individual future strategy and, whether you are a landlord of mine or not, if you ever want to send me an email or pop into my office to chat on how you could navigate these new Buy to Let waters … it will be good to speak to you (because you wouldn’t want other landlords to have an advantage over you – would you?).

Doncaster Property News

Will the Doncaster Property Market Crash?

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And if it does … who will be the winners and losers?

Those Doncaster people wanting property values to drop would be those 30 or 40 something’s, sitting on a sizeable amount of equity and hoping to trade up (because the percentage drop of your current ‘cheaper’ property will be much less than the same percentage drop of the more expensive propertyand trading up is all about the difference). If you have children planning to buy their first home or you are a 20 something wanting to buy your first home – you want them to drop. Also, landlords looking to add to their portfolio will want to bag a bargain (or two) and they would love a drop!

Yet, if you have recently bought a Doncaster property with a gigantic mortgage, you’ll want Doncaster property values to rise. If you are retired and are preparing to downsize, you will also want Doncaster property values to rise (because you will have more cash left over after the move). Also, if you, a landlord looking to sell your portfolio or a Doncaster home owner, who has remortgaged to raise money for other projects (meaning you have very little equity), you will want Doncaster property values to rise to enable you to put a bigger deposit down on the next purchase.

So, before I discuss my thoughts on the future, it’s important to look at the past…

The last property crash, caused by the Global Financial Crisis, was between Q3 2007 and Q3 2009 … when property values in Doncaster dropped 13.95%

…taking an average property from £128,512 in September 2007 to £110,590 by September 2009 … and since then – property values have over the medium-term risen (as can be seen on the graph).

So … what is happening now?

The simple fact is people in the UK are moving less (and hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that the problems in the British housing market are a lot greater than measly old Brexit!

There is a direct link between how people feel about the property market (sentiment) and the actual performance of the property market. However, the question of whether people’s sentiment moves as a result of changes in the property market, or whether changes in the property market drive sentiment is a question that baffles most economists – you see if someone feels assured about their financial situation (job, money etc.) and the future of property, they are more likely to feel assured to spend their hard-earned earnings on property and buy and if you think about it … vice versa. So, I believe Brexit isn’t the issue  – it’s just the “go to” excuse people are using. Humans don’t like uncertainty, and Brexit itself is causing uncertainty – it is, after all, the great unknown.

So, is it the flux of global politics? Politics are causing hesitation in the posh £5m+ markets of Mayfair and other high value Monopoly board pieces – but certainly not in sleepy old Doncaster (I don’t think Doncaster is too high up on the house buying list of all these Saudi Prince’s and Russian Oligarchs) … no the issues are much closer to home.

So, coming back to reality, one the biggest driving factors in the current state of play in housing market has been the part Buy To let landlords have played in the last 15 years. Making money as buy to let landlord in these golden years was as easy as falling off a log – but not anymore! Landlords had been getting off quite lightly when it came to their tax position, but with Osborne changing the taxation rules on buy to let … things have become a little more difficult for landlords.

Landlords have been hit with a supplementary rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers. High rate taxpayers in the past have been able to offset the interest payments from their buy to let mortgages against their self-assessment tax bills – at their marginal rate. Between now and 2020 … this is being reduced in small steps, so they will only be able to claim back relief at the basic rate of tax. The bottom line is that it will be much tougher for investors to make money on buy to let. Tied in with this, the mortgage rules were changed a few years ago, meaning it’s also become slightly tougher to obtain buy to let mortgages (although if I’m being honest – they need too).

…and what of Doncaster first time buyers? Well, a few weeks ago in my blog on the Doncaster Property Market, if you recall, I mentioned that last year was the best year for over decade for first time buyers. For the last 30 years, buy to let investors have constantly had more purchasing power than first time buyers, as they were older and more established, together with their tax breaks. Yet, now as many amateur landlords are having second thoughts in staying in buy to let, this has given first time buyers a chance to get on to the property ladder.

What will happen to Doncaster property values? The simple fact is we don’t have the conditions that caused the crash in 2007 (i.e. sub-prime lending in the US, causing banks not to lend to each other, thus stalling the global economy as a whole). Assuming everyone is sensible on the Brexit negotiations, the biggest issue is interest rates.  As long as interest rates remain comparatively low (and don’t get me wrong – I think we could stand Bank of England base interest rates at 1.5% to 2.5% and still be OK, then the thought of a massive property market crash still looks improbable.

Yet correspondingly, I cannot see Doncaster property values rising quickly either.

The double-digit growth years in property values between 1999 and 2004 are well gone. A lot of that growth was caused by an explosion of buy to let landlords buying property to accommodate the influx of EU migrants in those years.  Mark Carney at the Bank of England can’t make interest rates any lower, so it’s difficult to envisage how credit conditions can get any easier!

Balance of probabilities … Doncaster property values will hover either side of inflation over the next five years, but if we did have another crash, what exactly would that mean to Doncaster homeowners – if they dropped by the same percentage amount, as they did in the last crash?

If Doncaster property prices dropped today by the same percentage as they did locally in the Global Financial Crisis back in 2007/9 … we would only be returning to the property values being achieved in May 2013 … and nobody was complaining about those!

Therefore, looking at the number of people who have bought homes in the area since May 2013, that would affect approximately only 17% of local home owners and landlords … and only a small percentage would actually lose – because you only lose money if they decide to move (and come to think of it, some of those sellers would fall into the category mentioned above that would relish a price drop!). So, really not many people would lose out.

Interesting don’t you think?