Stamford Baby Boomers vs. Stamford Millennials (Part 2)

Well last week’s article “The Unfairness of the Stamford Baby Boomer’s £1,180,510,000 windfall?” caused a stir.  







In it we looked at a young family member of mine who was arguing the case that Millennials (those born after 1985) were suffering on the back of the older generation.  They claimed the older generation had seen the benefit of the cumulative value of Stamford properties significantly increasing over the last 25/30 years (which I calculated at £1.18bn since 1990).  In addition many of the older generation (the baby boomers) had fantastic pensions, which meant the younger generation were priced out of the housing market.

I replied there should be no surprise though that the older members of our society hold considerably more of our country’s wealth than the younger generation.  This wealth is accrued and saved across someone’s life, and reaches it’s peak about the time of retirement.  If we are to comprehend differing wealth levels between generations we need to compare ‘apples with apples’.  It is much more important to track the wealth held by different generations at the same age, i.e. what was ‘real’ wealth of the 30-something couple in the 1960’s compared to a 30-something couple say in the 1980’s or 2010’s?

Looking back over the last 120 years at various economic studies, this growth in wealth from one generation to the next (at the age range), only happened over a 30 year period of between 1960 and late 1980’s. Since the 1990’s, wealth has not improved across the generations, in the same age range. 

So could it be all about these people saving?  

 

The fact is, in the last 10 years, UK households have saved on average 7.5% to 8% of the household income into savings accounts, compared to an average of 6% to 7% in the late 1960’s and 1970’s.  

 

The baby boomers haven’t been actively squirreling away their cash for the last 30 or 40 years in savings accounts to accumulate their wealth.  Most of their gains have been passive, lucky bonuses gained on the back of things out of their control (unanticipated and massive property value rises or people living longer making final salary pensions more valuable) – it’s not their fault!

 ...and herein lies the issue … it is assumed that these Millennials aren’t buying property in the same numbers like the older generation did in the past (because most of their wealth has come from house price inflation).  The Millennials have often been described as ‘Generation Rent’, because they rent as opposed to buying property – because we are told they can’t buy.

However, when Stamford mortgage payments are measured against monthly income, home ownership is affordable by historic standards because mortgage rates are currently so low. As you can see, the ratio of average house price to average earnings in Stamford hasn’t vastly changed over the last decade …

 

·         2008 average house price to average earnings of a single person in Stamford 7.24 to 1 

 

·         2017 average house price to average earnings of a single person in Stamford 8.38 to 1

 

(i.e. in 2008, the average house price in Stamford was 7.24 times more than the average person’s salary in Stamford and this has only risen to 8.38 in 2017 – and all this off the property boom of the early 2010’s)
 

95% first-time buyer mortgages were reintroduced in 2010.  The average interest rate charged for those 95% FTB mortgages has slowly dropped from around 5.5% in 2009 to the current 4% rate.  Back in the 1980’s/1990’s mortgage interest rates were between 8% and 10%, and one time in the early 1990’s, reached 15%!  The main difference between the two periods was the absolute borrowing relative to income is greater now than in the 1980’s. They call this the ‘mortgage to joint household income ratio’. In the 1980’s the mortgage was between 1.8x to 2x joint income; today it is 3.4x to 3.6x salary.

The simple fact is, in the majority of cases, it is still cheaper for a first-time buyer to buy a property with a 95% mortgage, than it is rent it. The barrier for these Millennials, has to be finding the 5% mortgage deposit – instead of being able to afford monthly mortgage outgoings at the current 95% mortgage rates?

Millennials make up 7,824 households in the South Kesteven District Council area (or 13.6% of all households in the area).  However, behind the doom and gloom, surprisingly, 40.2% did save up the 5% deposit and do in fact own their own home (that surprised you didn’t it!)

Nonetheless, the majority of Millennials in the area still do rent from a landlord (3,272 Millennial households to be exact).  Yet, they have a choice.  Buckle down and do what their parents did and go without the nice things in life for a couple of years (i.e. the holidays, out on the town twice a week, the annual upgraded mobile phones, the £100 a month Satellite packages) and save for a 5% mortgage deposit ... or live in a lovely rented house or apartment (because they are nowadays), without any maintenance bills and live a life with no intention of buying (because renting doesn’t have a stigma anymore like it did in the 1960’s/70’s (secretly hoping their parents don’t spend all their inheritance so they can buy a property later in life – like they do in central Europe).

Neither decision is right or wrong – although it is still a choice.  Until Millennials decide to change their choices, which is the reason why the country’s private rental sector will continue to grow for the next 30 years.  Meaning happy tenants and happy landlords.

 

 

This week's 3 Best Property Buys in Stamford & Rutland

Property 1:
2 Bedroom End Terrace - £165,000
Drift Road, Stamford.  On the market with Sharman Quinney
  

Modern 2 bedroom end-terrace in popular location with good access to the town centre, shops and services. 

Looks to be in good order, with a re-fitted kitchen - but the open house viewing this weekend would give you the chance to investigate for yourselves. 

An ideal first time buy or buy-to-let property.


Price: £165,000
Rental Income: c£7,200
Rent: Approx £600pcm
Yield: c4.3%
 
Click this link for more details on this property:-

http://www.rightmove.co.uk/property-for-sale/property-67817417.html

 

Property 2:

1 Bedroom Apartment - Guide Price £98,500

Horseshoe Court, Oakham.  On the market with UPP Property Agents

 

We have successfully let and managed this property for a number of years now.  Its' ideal location is always appealing and is situated within an easy walking distance to the railway station, bus station, shops and amenities. 

 

The property is modern, well-maintained and presented and is consistently sought after when placed on the rental market. 

 

It's a great rental investment, offering a fantastic 5.3% yield.

 

Guide Price: £98,500

Rental Income: c£5,280

Rent: Approx. £440pcm

Yield: c5.3%

Click this link for more details on this property:-

http://www.rightmove.co.uk/property-for-sale/property-49594608.html

 

Property 3:

3 Bedroom Semi-Detached - Offers In Excess Of £185,000

Plover Close, Oakham.  On the market with UPP Property Agents

 

Modern & Spacious - This superb 3 Bedroom Semi-Detached home has the added advantage of a great conservatory, off-road parking and a stunning rear garden. 

 

Decorated in neutral tones throughout, this family home is well-presented and well-maintained. Situated on a popular established development within easy walking distance to the town centre, shops and amenities.

 

Price: £185,000 OIEO

Rental Income: c£8,100

Rent: Approx. £675pcm

Yield: c4.3%

Click this link for more details on this property-

http://www.rightmove.co.uk/property-for-sale/property-49474578.html

 

To discuss any of the above, or if you are considering a different property and would like to discuss it with me, please call me on 01780 484 554 or email me via david@upp-property.co.uk 

I look forward to hearing from you.

David Crooke
Owner, UPP Property Agents

The unfairness of Stamford’s Baby Boomer’s £1.18 billion windfall? (Part 1)

Recently I was having a chat with one of my second cousins at a big family get-together. The last time we had seen each other, their children were in their early teens.  Now these children are grown up and have partners, pets and children of their own. 

Wow – how time flies!

We were discussing ‘the old days’ when the country had 15% interest rates and how the more mature members of our family had to endure the 3 day week, 20% inflation and the threat of nuclear annihilation in 4 minutes.  Foolishly, I said that today’s youngsters had never had it so good with so many opportunities!

 

Trust one of my cousin’s children to have gained some financial/economics qualifications before attending Law School, as they debated with me the genuine economic predicament of ‘Millennials’ and how a combination of student debt, unemployment, global proliferation, EU migration and rising house values is reducing the salaries and outlook of masses of the UK’s younger generation, causing an unparalleled disparity of wealth between the generations. So, of course I asked why that was. 

They said Millennials were paying the price for the UK’s most spectacular bookkeeping catastrophe to date (bigger than the banking bailout following the credit crunch).  Back in the 1950’s and 1960’s nobody predicted life expectancy would be so high, or in such abundant numbers. The pensions that were promised in the past (be that Government State Pension or Company Final Salary Schemes) which appeared to be nothing fancy at the time, are now burdensomely over-lavish, and that is hurting the Millennials of today and will do so for years to come. 

Bringing it back to property, my young “second-cousin-once-removed-soon-to-be-lawyer”, stated that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices over the 1970’s/80’s/90’s and 2000’s.  Add to that their decent pensions, meaning cumulatively, their wealth has grown exponentially through no skill of their own.  

This disparity of wealth between the older and younger generations could have unparalleled consequences for the living standards of younger Millennials.  So, do we have a problem? 

Since 1990, the average value of a property in Stamford has risen from £108,700 to its current level of £316,500.  As there are a total of 5,681 homeowners aged over 50 in Stamford; that means there has been a £1.18bn windfall for those Stamford homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000’s. 

 

I must admit that the growth in property values in the 1990’s and 2000’s certainly helped many of Stamford’s baby boomers. The figures do appear to put into reverse gear the perceived wisdom that each generation gets wealthier than the previous one  … and so with all this wealth, the figures do ‘back up’ the youngster’s argument that Millennials are being priced out of home ownership.

 

Or do they? Are they? 

 

Next week, I will carry on this discussion where I will give the Baby Boomer’s defence to the prosecution’s case!

 

 

This week's 3 Best Property Deals with yields of 4.6%-5.3%

As the owner of an estate agency with offices in Oakham and Stamford, I track rental demands and monitor property trends across the area on a daily basis. 

Each week I pick the 3 best properties available from all the estate agents that I believe may make decent property buys, be they buy-to-let investments or for homeowners.

Therefore, this week I have solely focussed my attention on the Oakham property market, and all 3 of these great contenders are in walking distance to Oakham Railway Station - a factor that is becoming increasingly important to our property hunters.  "Location, location, location!"

Property 1
Guide Price £142,995
John Clare Close, Oakham.  On the market with UPP Property Agents
Modern, energy efficient and very well presented 2 double bedroom apartment with allocated parking and communal garden.  Great location within easy walk to railway station, town centre, college, schools and all amenities.  It's 'tenant-ready'!

 

Guide Price: £142,995
Rent: Approx. £550pcm
Yield: c4.6%
Income: £6,600




Click this link for more details:

http://www.rightmove.co.uk/property-for-sale/property-49322013.html

Property 2

Offers in Excess of £135,000 - Recently reduced in price.
Kings Road, Oakham.  On the market with Excel Estate Agency, Skipton 2 Bedroom end of terrace house with gas central heating, double glazing and good sized rear garden.  Situated within easy walking distance to the town centre.  
 

OIEO: £135,000
Rent: Approx. £525pcm
Yield:4.6%
Income: c£6,300

Click this link for more details:-

http://www.rightmove.co.uk/property-for-sale/property-66426776.html

Property 3
Please note, this property is for investors only - The property is under tenancy until May 2018 and, therefore, can only be purchased at present to the buy-to-let investment market.

It's a wonderful ground floor apartment within a modern and well located development allowing convenient walkable access to the town centre. Presented in good order and with allocated parking and a communal garden.  Remember, there's already a tenancy in place until May 2018!

Guide Price: £117,500
The Sidings, Oakham.  On the market with UPP Property Agents

Guide Price: £117,500
Rent: Approx. £525pcm
Yield: 5.3%
Income: c£6,300

Click this link for more details:
http://www.rightmove.co.uk/property-for-sale/property-48599085.html

To discuss any of the above, or if you are considering a different property and would like to discuss it with me, please call me on 01572 725 825 or email me via david@upp-property.co.uk

David Crooke
Owner, UPP Property Agents

Rutland Buy-To-Let Predictions up to 2037

 

On several occasions over the last few months, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year.  At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over 8 years. 

 

Recent research backs up this prediction.

 

Rents in Rutland for new tenancies only grew by 3.3% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord).  When we compare that current rate with the historical rental inflation in Rutland, an interesting pattern emerges...

 

• 2016 - Rental Inflation in Rutland was 7.9%
• 2015 - Rental Inflation in Rutland was 3.0%
• 2014 - Rental Inflation in Rutland was 3.9%

 

The reason behind this change depends on which side of the demand/supply equation you are looking from.  On the demand side (from the tenants’ point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in 3 years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House research).

 

On the supply side of the equation (landlords’ point of view) Brexit also creates uncertainty.

 

However, the biggest issue was an upsurge of new rental properties coming on to the market in 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016.  This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time.  The greater choice of rental properties for tenants curtailed rental growth/inflation.  A slight softening of property prices has compounded this.  Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent.  Together, these factors played a part in the ongoing moderation of rental growth.

 

The lead up to May’s General Election didn’t help; people are fearful of change and don’t like uncertainty.  So, now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.

 

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tories might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. 

 

In Stamford and Rutland, the East Midlands and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. 

 

Look at the projections by the Office of National Statistics:

 

 

Tenants will still require a vibrant and growing rental sector to deliver housing options in a timely manner.  As the population grows in Stamford and Rutland, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants.  Simply put, rents must go up!

 

The fact is that I see this as a short-term blip and rents will continue to grow in the coming years.  With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.
 

If you have a rental property in Stamford or Rutland and would like to find out its current market valuation, please contact me.  I am here to help.

 

David Crooke, owner

david@upp-property.co.uk

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Through our weekly blog, monthly newsletter, local and national press and social media, you can gain a better understanding of what lies ahead.

 

 

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1,497 Stamford Landlords - Is This a Legal Tax Loop-Hole?

In November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market. 

 One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017.  Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax (i.e. 20% basic, 40% higher rate and 45% additional rate).

So, for example, let's say we have a Stamford landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (‘16/’17), assuming no other costs or allowable items:

 *   Annual rental income £10,800.
 *   Taxable rental income would be £3,600 after tax relief from mortgage relief
 *   Meaning they would pay £1,440 in income tax on the rental income

And assuming no other changes, the landlord would have income tax liabilities (at the time of writing May 2017) in the tax years of:

 *   (17/18) £1,800
 *   (18/19) £2,160
 *   (19/20) £2,520
 *   (20/21) £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability.  However, there is another option for landlords…

The Stamford landlords who own the 1,497 rental properties in the town could set up a limited company and sell their property personally to that limited company.

In fact, looking at the numbers from Companies House, many landlords are doing this.  In the UK, there are 93,262 BTL limited companies, and since the announcement in November 2015 the numbers have seen a massive rise.

 *   Q2 2015 / Q3 2015 - 4,193 BTL limited companies set up
 *   Q4 2015 / Q1 2016 - 5,403 BTL limited companies set up
 *   Q2 2016 / Q3 2016 - 3,007 BTL limited companies set up
 *   Q4 2016 / Q1 2017 - 7,149 BTL limited companies set up
 

So, by selling their BTL investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL's as an 'allowable expense' - effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent's fees etc.

I am undeniably seeing more Stamford landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company?

In fact, I have done some extensive research with Companies House in the 15 months (1st January 2016 to 31st March 2017) and 119 BTL limited companies have been set up in the PE postcode alone.

Well, if you are looking to hold your BTL investments for a long time it could be very favourable to take the short-term pain of putting your BTL's in a limited company for a long-term gain.  There are huge tax advantages to swapping property ownership into a limited company, but there are some big costs that go with the privilege.

As the law sees the new limited company as a separate entity to yourself, you are legally selling your BTL property to your limited company, just like you would be selling it on the open market. Your limited company would have to pay Stamp Duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated (with appropriate exit charges).

On a more positive note, what I have seen though by incorporating (setting up the limited company) is landlords can roll up all their little BTL mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital.  Finally, if the tax liability is too high to swap to a limited company, some savvy BTL investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company?  This is just an idea, and not advice!

It's vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance. Whatever you do, always get the opinions from these tax consultants in writing and you shouldn't hurry into making any hasty decisions. 
 
The modifications to BTL tax relief are being progressively eased in over the next 3 years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation, because with decent tax planning (from a tax consultant) and good rental / BTL portfolio management (which I can help you with) ... whatever you do - let's keep you on the right side of the line!

The Stamford Property Market, The Beatles and 50 year mortgages

50 years ago, the average value of a Stamford property was £4,197, interest rates were at 5.5% and The Beatles released ‘Sgt. Pepper’s Lonely Hearts Club Band’.

But, what on earth has that to do with the Stamford property market today? Quite a lot actually, so with the volume turned up - let me explain.

I have been doing some research on the current attitude of Stamford first-time buyers.  First-time buyers are so important for both landlords and homeowners.  If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (good news for landlords). If they buy, demand for Stamford property goes up for starter homes and that enables other Stamford homeowners to move up the property ladder.

First-time buyers are the lifeblood of the property market.  They are, however the most susceptible to interest rate rises and the affordability of mortgages. 

The average value of a Stamford property is currently standing at £316,501 and UK interest rates at 0.25%. 

As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. 

I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off.

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’ have been helping with the deposit (The Beatles, “With a Little Help from My Friends”!). 

Now, some high street banks are offering mortgage terms of 40 years. 

This means first-time buyers could be paying until their mid-60’s (I can hear that other great track from the same album "When I'm Sixty-Four" ringing in my ears!)  So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s.  After all, life expectancy for a male then was exactly 69 years and today its 79 years and 5 months!

Over the last 10 years, Stamford property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans.  If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan.

However, some commentators have said there are worries the mortgage companies are lending money over such a long term, they threaten leaving some first-time buyers with a generation of debt if the house price bubble bursts. 

Interestingly, when I looked at what had happened to average property values in Stamford over the last 50 years, there have been bubbles.  First-time buyers should take heart, since as a county we have always recovered from it a few years later.
 
What if interest rates rise?

Well looking at historic UK interest rates, the current rate of 0.25% is at a 300-year low.

Mortgages will never be cheaper.  I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). 

If Stamford first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!
 
My apologies to all Beatles fans - a bit of light hearted fun, albeit on serious topic.