As we go full steam ahead into 2019, it’s certain that the Tamworth housing market in 2018 was a little more restrained than 2016 and 2017 and I believe this will continue into 2019. Property ownership is a medium to long term investment so, looking at the long-term, the average Tamworth homeowner, having owned their property since the Millennium, has seen its value rise by more than 180%.
This is important, as house prices are a national obsession and tied into the health of the UK economy as a whole. The preponderance of that historical gain in Tamworth property values has come from the growth in Tamworth property values, while some of it will have been enhanced by extending, modernising or developing their Tamworth home.
Taking a look at the different property types in Tamworth, and the profit made by each type, makes interesting reading..
So the ‘real’ value of the profit, after inflation, in Tamworth has been £4,140 per year.. still nothing to sniff at.
I wanted to show you that even though we had the 2008/09 Credit Crunch property market crash where, depending on the type of Tamworth property, property values dropped between 15% and 20% in 18 months … Tamworth homeowners over the long term are still better off than those renting.
Moving forward, the question I get asked time and again is what will happen in the future to the Tamworth Property market? Irrespective of what is happening in the World, Europe or even Central London, the biggest factor over the medium to long term to ensure that this level of house price growth is maintained in Tamworth is the building of new homes both locally and in the country as a whole. Whilst we haven’t had the 2018 stats yet, Government sources suggest this will be nearer 180,000 to 190,000, a decrease from the 2017 figure of 217,350 new households being created. When you consider that we need to build 240,000 households to equal demand (immigration, people living longer, higher divorce rates and people co-habiting later in life etc) … demand will outstrip supply and unless the Government start to spend billions building council houses .. this trend will continue for years (and decades to come).
Another factor is that whilst Tamworth landlords have been hit with higher taxes to enable them to actually be a landlord most, in every national survey, still intends to increase their portfolio in the medium to long term. The youngsters of Tamworth see renting as a choice, giving them flexibility and options that being tied to a home cannot give… thus meaning demand will continue to grow and landlords will be able to enjoy increased rents and capital growth, although those very same Tamworth buy to let landlords will have to work smarter in the future to continue to make decent returns (profits) from their buy to let investments. Even with the tempering of house price inflation in Tamworth in 2018, most Tamworth buy to let landlords (and homeowners) are still sitting on a copious amount of growth from previous years.
The question is, how do you, as a Tamworth buy to let landlord, ensure that continues?
Since the 1990’s, making money from investing in buy to let property was as easy as falling off a log. Looking forward though, with all the changes in the tax regime and balance of power, making those similar levels of return in the future won’t be so easy. Over the last ten years, I have seen the role of the forward thinking agents evolve from a person collecting the rent to a more all-inclusive role; I call it, ‘strategic portfolio leadership’. Thankfully, along with myself, there are a handful of agents in Tamworth whom I would consider exemplary at this landlord portfolio strategy where they can give you a balanced structured overview of your short, medium and long-term goals, in relation to your required return on investment, yield and capital growth requirements. If you would like such advice, speak with your current agent – whether you are a landlord of ours or not – without any cost or commitment, feel free to drop me a line.
More than 18 babies have been born for every new home that has been built in Tamworth since 2012, deepening the Tamworth housing shortage.
This discovery is an important foundation for my concerns about the future of the Tamworth property market – when you consider the battle that todays twenty and thirty somethings face in order to buy their first home and get on the Tamworth property ladder. This is particularly ironic as these Tamworth youngsters’ are being born in an age when the number of new babies born to new homes was far lower.
It can be seen that in 2016, 7.68 babies had been born in Tamworth for every home that had been built in the five years to the end of 2016 (the most up to date data). Interestingly, that ratio nationally was 2.9 babies to every home built in the ‘50s and 2.4 in the ‘70s. I have seen the unaudited 2017 statistics and the picture isn’t any better! (I will share those when they are released later in the year).
In the meantime, what does this mean for Tamworth landlords and homeowners? Well the demand for rental properties in Tamworth in the short term will remain high and until the rate of building grows substantially, this means rents will remain strong and correspondingly, property values will remain robust.
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.
Salaries in Tamworth have risen by 4.8% 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 17.79%) and nationally, an increase of 17.61%.
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 Tamworth landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Tamworth people are buying, then demand for Tamworth 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 Tamworth 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 simultaneously, meaning for many Tamworth 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 Tamworth tenants and decent law-abiding Tamworth landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Tamworth 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 Tamworth property market is going – please read my other blog posts on www.tamworthpropertyblog.co.uk or drop me note via email, like many Tamworth landlords are doing.
What will the General Election do to 20,781 Tamworth Homeowners?
In Tamworth, of the 30,379 households, 8,519 homes are owned without a mortgage and 12,262 homes are owned by a mortgage. Many homeowners have made contact me with asking what the General Election will do the Tamworth property market? The best way to tell the future is to look at the past.
I have looked over the last five general elections and analysed in detail what happened to the property market on the lead up to and after each general election. Some very interesting information has come to light.
Of the last five general elections (1997, 2001, 2005, 2010 and 2015), the two elections that weren’t certain were the last two (2010 with the collation and 2015 with unexpected Tory majority). Therefore, I wanted to compare what happened in 1997, 2001 and 2005 when Tony Blair was guaranteed to be elected/re-elected versus the last knife edge uncertain votes of 2010 and 2015 … in terms of the number of houses sold and the prices achieved.
Look at the first graph below comparing the number of properties sold and the dates of the general elections.
UK housing transactions per month since 1995 and the date of the last 5 General Elections.
It is clear, looking at the number of monthly transactions (the blue line), there is a certain rhythm or seasonality to the housing market. That rhythm/seasonality has never changed since 1995 (seasonality meaning the periodic fluctuations that occur regularly based on a season – i.e. you can see how the number of properties sold dips around Christmas, rises in Spring and Summer and drops again at the end of the year).
To remove that seasonality, I have introduced the red line. The red line is a 12 month ‘moving average’ trend line which enables us to look at the ‘de-seasonalised’ housing transaction numbers, whilst the yellow arrows denote the times of the general elections. It is clear to see that after the 1997, 2001 and 2005 elections, there was significant uplift in number of households sold, whilst in 2010 and 2015, there was slight drop in house transactions (i.e. number of properties sold).
Next, I wanted to consider what happened to property prices. In the graph below, I have used that same 12-month average, housing transactions numbers (in red) and yellow arrows for the dates of the general elections but this time compared that to what happened to property values (pink line).
A Tamworth homeowner emailed me last week, following my article posted in the Tamworth Property Blog about the change in attitude to renting by the youngsters of Tamworth and how they thought it was too expensive for first time buyers to buy in Tamworth. There can be no doubt that buy to let landlords have played their part in driving up property values in Tamworth (and the UK) and from that made housing a lot less affordable for the 20 and 30 somethings of Tamworth.
In the email, they said they thought the plight of the first-time buyers in Tamworth was like a novice tennis player, playing tennis with Andy Murray. If you played him once you will unquestionably lose and if you were to play him 100 times you would lose 100 times. That is what they thought it was like for all the 20 something’s first time buyers of Tamworth going against all the buy to let landlords.
They went on and asked if the Bank of England (BoE) should be tasked to control house price inflation in the same way as the BoE controls inflation.The BoE has a target for the annual inflation rate of the Consumer Prices Index of 2%, whilst it is also required to support the Government’s economic policy, including its objectives for growth and employment. So, should BoE be charged with containing buy to let housing market, by possibly changing the rules on the loan-to-value (LTV) ratio’s?
So, let’s look at how affordable Tamworth is? The best measure of the affordability of housing is the ratio of Tamworth Property Prices to Tamworth Average Wages, (the higher the ratio, the less affordable properties are). (i.e. looking at the table below, for example in 2014, the average value of a Tamworth property was 6.27 times higher than the average annual wage in Tamworth).
This deterioration in affordability of property in Tamworth over the last couple of years has been one of the reasons why the younger generation is deciding more and more to rent instead of buy their own house.
… but it’s not the only reason.
A quick look on Money Supermarket today found 169 lenders prepared to offer 75% LTV Buy to let Mortgages and none at 85% LTV. Lenders have self-imposed a high level of entry for buy to let landlords (i.e. putting down at least 25% of the purchase price in cash). The BoE don’t need to meddle there! Also, the Tories have certainly done lots to level the playing field in favour of first time buyers. For nearly a year now, Landlords have had to pay an additional 3% in stamp duty on any buy to let purchase and over the coming four years, tax rules on landlord’s claiming mortgage interest relief will affect their pocket. Neither, it doesn’t help that the local Authority sold off council houses in the Thatcher years and so for many on low incomes or with little capital, owning a home has simply never been an option (today or in the past).
It’s easy to look at the headlines and blame landlords. First time buyers have been able to access 95% LTV mortgages since 2010, meaning even today, a first-time buyer could purchase a 2 bed terraced in Tamworth for around £130,000 and only need to find £6,500 deposit. Yes, a lot of money, but first time buyers need to decide what is important to them. Either save up for a couple of years to save the deposit and go without two annual foreign holidays, the full Satellite or Cable TV package with Sports and Movies costing three figures a month, the latest mobile phone and out socialising … or not as the case maybe?
I think we as a Country have changed … renting is returning to be the norm. So my opinion is, landlords have it tough. Let’s not blame them for the ‘perceived’ woes of the nation … because to be frank … we haven’t always been a country of homeowners. Roll the clock back to 1964, and nationally, 30% of people rented their home from a private landlord – today – its only 15.3% nationally.
History of tenure in UK – 1918 to today.
Why not join me at the Moathouse, Tamworth for a cuppa and a cosy chat, on the Tamworth property market?