Crisis in the Milton Keynes Property Market ..probably?

I don’t know about you, but if you watch Sky News every waking hour or read the newspapers, it always seems we as a Country, Europe or the World seem to lurch from one crisis to another. Another week, another crisis averted. It was only last summer the soothsayers were predicting the end of the world over the supposed house price bubble that many believed was developing in the South. Property prices were rising at 20%+ per annum in London, only for things to ease as the property market in the Capital showed a controlled slowdown and cooling in activity with price growth easing to a more realistic 8% to 9% per annum. Interestingly, there was no panic when some modest price drops were seen in some of London’s highest priced suburbs.

However, this month’s crisis is the buy to let boom and as George Osborne always likes to be topical, in the July emergency budget, he declared that he will start to scale back, from 2017, the tax relief that those high income tax rate landlords with a mortgage have benefited from. The Daily Mail ran headlines stating it was the end of the private landlord; predicting many landlords will give up on buy to let altogether and we will be inundated with rental properties up for sale as landlords feel squeezed from the market.

Even Mr Carney, the Governor of the Bank of England, recently cautioned that the buy to let property market could destabilise the whole UK property market. He was concerned landlords who bought with high loan to value mortgages could be spooked if there is a property crash, they would panic because of negative equity, sell cheaply, which would worsen house price falls.

End of the world then?   .. this week, yes probably, but next week .. that’s another story!  Before we all go and live like a hermit in the Scottish highlands, let me explain to you my perspective on the whole subject. As I mentioned a few weeks ago, two thirds of buy to let properties bought in the last eight years have been bought mortgage free – so they won’t be affected by the Chancellors’ tax changes.  Also, something I feel is often overlooked but very important, is the fact that landlords historically have only been able to normally borrow up to 75% of the value of the rental property.  In the last property crash of 2008, property values dropped by the not so insignificant figure of 19.7% in Milton Keynes, but even then, when we had the credit crunch and the world’s banking sector was on the brink, no landlord would have been in negative equity in Milton Keynes.

I believe we have a case of ‘bad news selling newspapers’ and I believe that buy to let, and the property market as a whole, will carry on relatively intact. It’s true reducing tax relief will hit landlords who pay the higher rate of income tax and this may slightly diminish buy to let as an investment vehicle, but I doubt people will sell. Many landlords have been lazy with their investments, buying with their heart, not their head. You would never dream of investing in the stock market without doing your homework and talking to people in the know. If you want to make money in the Milton Keynes property market as a buy to let landlord, it’s all about having the right property and as you grow, the right portfolio mix to offer a balanced investment that will give you both yield and capital growth.

The Milton Keynes buy to let market still offers good investment opportunities to new and old alike. Those who have bought in the last twelve to eighteen months have reaped the benefit from buying in Milton Keynes, because the town offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 15.57% in the last eighteen months in Milton Keynes, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 11% higher than Q2 2014, which is particularly interesting as they only rose by 4.5% between Q2 2013 and Q2 2014.

I cannot stress enough the importance of doing your homework. One source of information and advice is the Milton Keynes Property Blog where I have similar articles to this about the Milton Keynes property market and what I consider to be the best buy to let deals around at anyone time in the City, irrespective of which agent it is on the market with. If you haven’t visited and you are interested in the local property market in Milton Keynes .. you are missing out! ..

Milton Keynes’s £2.1 billion Mortgage Powder Keg

Eight years ago, in the summer of 2007, hardly anyone had heard of the term ‘credit crunch’, but now the expression has entered our daily language and even the Oxford Dictionary.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Milton Keynes Property market, but in November / December 2007, and for the following seventeen months, Milton Keynes property values dropped each and every month like the proverbial stone. The Bank of England soon realised in the late summer of 2008 that the British economy was stalling under the continued pressure of the Credit Crunch. Therefore, between October 2008 and March 2009, interest rates dropped six times in six months from 5% to 0.5% to try and stimulate the British economy. 

Thankfully, after a period of stagnation, the Milton Keynes property market started to recover slowly in 2010, but really took off strongly in late 2013 / early 2014 as property prices started to rocket. However, the heat was taken out of the market in late 2014/early 2015, with the new mortgage lending rules and some uncertainty, when some people had a dose of pre–election nerves.  

With the Conservatives having been re-elected in May, the Milton Keynes property market regained its composure and in fact, there has been some ferocious competition among mortgage lenders, which has driven mortgage rates to record lows. Whilst I have no actual figures to back this up, I know an awful lot of long serving bank managers, mortgage arrangers and people in the finance industry, all of whom have told me on previous occasions when interest rates rose (1987, 1992, 1997 and 2003), it wasn’t the first rate rise that was the catalyst for many homeowners and landlords to remortgage but the second or third increase.  The reason being that it was only by the time of the third rate rise,  it started to hit the wallet.  However, the issue is, by the time of the second or third rate rise the best fixed rates, were in all instances, no longer available as they had been pulled by the banks months before.

But here is the good news for Milton Keynes homeowners and landlords, over the last few months a mortgage price war has broken out between lenders, with many slashing the rates on their deals to the lowest they have ever offered.  I read that the well respected UK financial website Money facts said only a couple of weeks ago, the average two year fixed rate mortgage has fallen from 3.6% twelve months ago to just under 2.8%.

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to a seven year high in the UK.  So what about Milton Keynes?  In Milton Keynes, if you added up everyone’s mortgage, it would total £2.1 billion.  Even more interesting is when we look at Milton Keynes and split it down into the individual areas of the city,

• MK1 -  Denbigh, Mount Farm £6.3m
• MK2 -  Brickfields, Central Bletchley, Fenny Stratford, Water Eaton £153.5m
• MK3 - Church Green, Far Bletchley, Old Bletchley, Newton Leys, West Bletchley £353.7m 
• MK4 -  Emerson Valley, Furzton, Kingsmead, Oxley Park, Shenley Brook End, Tattenhoe, Tattenhoe Park, Westcroft, Whaddon  £542m
• MK5 - Crownhill,  Grange Farm, Oakhill, Loughton, Medbourne, Shenley Brook End, Shenley Church End, Shenley Lodge, Shenley Wood  £369.1m
• MK6 -  Ashland, Beanhill, Bleak Hall, Coffee Hall, Eaglestone, Fishermead, Leadenhall, Netherfield, Oldbrook, Peartree Bridge, Redmoor, Springfield, Tinkers Bridge, Woughton on the Green, Woughton Park, Simpson £272.9m
• MK10 -  Broughton, Kingston, Middleton, Monkston, Oakgrove £444.7m
  
  

Since 1971, the average interest rate has been 7.93%, making the current 0.5% very low.  So, if interest rates were to rise by only 2%, according to my research, the 13,649 Milton Keynes homeowners, who have a variable rate mortgage would, combined, have to pay an approximate additional £23,940,000 a year in mortgage payments. 

That means every Milton Keynes homeowner with a variable rate mortgage, will on average have to pay an additional £1,754 a year or £146 a month in interest payments.

I know over the last couple of posts, I have talked about mortgages a lot however, I am not a mortgage arranger but a letting / estate agent and as regular readers know, I always talk about what I consider to be the most important issues when it comes to the Milton Keynes Property market and at the moment, in my humble opinion, this is the most important thing!

Buy to let is all about maximising your investment, increasing income and reducing costs.  I give advice, opinions, thoughts, concerns, worries, expectations and fears about the Milton Keynes Property market in my blog on the Milton Keynes Property Blog.  If you are interested in the Milton Keynes Property Market, you might learn something by visiting the blog.

 

My concerns about the Milton Keynes Property Market

I am genuinely concerned about the Milton Keynes property market, but in a way that might surprise you.  Rightmove announced that average ‘asking prices’ fell last month by 0.4% in the South East, leaving them 5.8% higher than a year ago.  Whilst it could be said that monthly change is very modest, in the same period a year ago, we saw a monthly fall of 0.6% in the South East, which is more the norm given the onset of  schools breaking up and everyone going on holiday.

Looking at all the data on the Milton Keynes property market; putting aside the need for more houses to be built in the next decade to balance out the increase in population (helped in part by inward European migration) but not matched by a similar increase in housing being built; my research shows there is a widening gap between what property buyers want and what is available to buy. In a nutshell, many more buyers are looking for the smaller one and two bed properties (the typical semi detached and smaller terraced houses/apartments), whilst there is an oversupply of the four and five bed properties, which are the typical large detached properties available.

Demand for smaller properties comes from both first time buyers and the growing number of buy to let landlords, where it is more cost effective and efficient to buy smaller properties to let out compared to larger properties which tend to offer poorer returns.  Also, landlords with larger loans (on those larger more expensive properties) will also be hit harder with the changes in the way tax is paid on buy to let investments, which start in 2017.

If you recall, a few weeks ago I did some research on how different types of properties had performed in Milton Keynes since the year 2000.  I revisited those calculations and it hit me how different types of properties had performed over the last 15 years.  In a nutshell, this mismatch of demand and supply isn’t a new phenomenon, it’s been happening under our noses for years!

In the last 15 years, the average terraced house in Milton Keynes has risen in value from £69,011 to £189,797 whilst the detached house has risen in value from £169,773 to £344,260.  Nothing seems amiss until you look at the percentage growth.  The terraced has grown in value by 175% whilst the detached by only 103% meaning the gap between the inexpensive terrace’s and expensive detached properties has in percentage terms narrowed enormously (this isn’t just a Milton Keynes thing, it has happened all across the Country).

I am concerned because more houses need to be built, not only in Milton Keynes, but in the South East and the UK as a whole.  In particular, there is specific need for more affordable starter homes for the growing demand from both tenants (and the landlords that will buy them) and first time buyers.  The Tories need to face up to the fact that unless they can get the builders, the planners (to release more building land), the banks (to finance it) and themselves together, to ensure long term plans can be made, and implemented, this issue will continue to worsen.

The country needs 200,000 houses a year to be built to keep up with demand, let alone reverse the imbalance between demand and supply.  Last year, only 141,040 properties were built, the year before 135,510 and 146,850 in the year before that.  This means only one thing for Milton Keynes landlords.  Unless David Cameron starts to rip up huge swathes of the British countryside and build on acres and acres of green belt, demand will always exceed supply when it comes to property for the foreseeable future.

Therefore, investment in the local Milton Keynes property market as a buy to let investment could be the best move to make as the stock market investments are possibly on the wane.  Everyone is different and trust me, there are many pitfalls in buy to let.  You must take lots of advice and seek out the best opinion.  One source of opinion, specific to the Milton Keynes property market is the Milton Keynes Property Blog 

Milton Keynes Property Values 3.4% higher than year ago

Milton Keynes property values fell by 0.5% last month, meaning they are 9.1% higher than 12 months ago. Even though values dropped slightly, overall, I expect future property price growth to remain firm, built on the foundations of an improving labour market, strengthening economy and very low mortgage rates. In fact, talking to a number of other agents in the city, mortgage arrangers and solicitors (all of whom have their direct finger on the pulse of the Milton Keynes property market), the steady long term growth in Milton Keynes property prices tied in by strong demand conditions so far this summer, alongside an underlying lack of supply and the continued low mortgage rate environment, means the slow but steady upward momentum of the Milton Keynes property market is likely to continue in the second half of 2015.

However, there are a couple points I wish to highlight as all my blog readers will know, I like to give a balanced and honest opinion of what is happening in the Milton Keynes property market.  The two main points being low interest rates and a lack of supply of property.

Interest rates first - Mark Carney (Chief of the Bank of England) said in a speech a few weeks ago at Lincoln Cathedral, the Bank will be seriously considering raising interest rates around Christmas time. An upward movement in interest rates will temper demand and result in a marked slowdown in house price growth. Mr Carney said that only six out of ten people that had a mortgage (57% to exact) had a variable rate mortgage, compared with more than seven out of ten people (73% to be exact) in the Summer of 2012. Now I am not a mortgage arranger and cannot give advice, but rates are only going on one direction, so whether you are a landlord or homeowner, this might be a time to consider fixing your mortgage rate?  Don’t say I didn’t warn you!

Tie this in with the stricter mortgage lending rules which were introduced in 2014, which affected people’s ability to have larger mortgages, this means homeowners will need to be realistic in their pricing if they want to sell. Reading other recent reports though, property owners have continued to pay off mortgages at a faster rate while mortgage rates have been low. Therefore, when mortgage rates rise, the affect on home movers sentiment which, given the shortage of supply, would result in a marked slowdown in the rate of house price growth.

Shortage of Supply – As I have mentioned in previous articles, the number of houses on the market in Milton Keynes is at an all time low. One reason is the large number of buy to let landlords who have bought Milton Keynes property over the past fifteen years. Unlike first time buyers who tend to move on after a few years, landlords tend to keep their properties long term, meaning there are less properties coming onto the market ... thus restricting supply and sales. In fact over the last four months, only 1,184 properties in the Milton Keynes Council area have changed hands and sold, compared to 1,339 in the same time frame in 2014, a not so insignificant drop of 11.58%. 

If you are planning on investing in the Milton Keynes property market, or just want to know more, things to consider for a successful buy to let investment, one source of information is the Milton Keynes Property Blog

Milton Keynes – The 10 Year Time Bomb On Home Ownership

Many people think the British obsession with owning your own home started with Thatcher in the early 1980’s, when she allowed council tenants to buy their council houses under the right to buy scheme. However, the growth actually started just after the Second World War. Looking at the country as a whole in 1951 30% of residential property was owner occupied then, every ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and 68.07% by 2001 but after that, it dropped to 63.4% by 2011 and continues to drop today.

Young adults tend to start to think about settling down and moving out of the family home in their early-mid twenties.  After a couple of years, they will have a choice of either buying their first house (albeit with a mortgage) or decide to privately rent for the long term (because the Council House waiting list is measured in decades at the moment!). The ratio of people owning a house with a mortgage verses privately renting is an extremely important guide to what people are doing about their housing needs and what their attitude to renting vs buying is.  With that in mind, within the next ten years, I am predicting there will be more people renting privately in Milton Keynes than own a property with a mortgage and that the British love affair of property ownership will fade as the decades roll on.

This is a really important change in the way we live, as I explained to a local Milton Keynes landlord the other day, knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in the town; Milton Keynes property prices and Milton Keynes rents.
In the Milton Keynes Borough Council area as a whole there are 15,930 households that are privately rented via a landlord or letting agency verses 41,741 households that are owned with a mortgage, so my prediction appears to be outrageous. However, when we look deeper (as the devil is always in the detail), 19,138 of those 41,741 households are 35 to 49 year olds and 12,708 are households of 50 to 64 year olds. I would expect all the 50+ years to be paying their mortgage off as they enter retirement as I would with some of the people in their mid/late 40’s. 
Meanwhile, at the other end, in the 25 to 34 age range (the age most people bought their first home in the 1970’s/80’s/90’s) only 7,115 of the 13,335 households occupied by those 25 to 34 year olds are owner occupiers with mortgages, because 6,220 households are privately rented. This means only 53.3% of 25 to 34 year olds have bought their house (with a mortgage). Twenty years ago, that would have a much higher percentage of homeowners (between 75% to 85%).

It can be seen that as the older generation pay their mortgages off as they start to get to retirement and the younger generation aren’t jumping on the property ladder like they were 20 or 30 years ago, the private rental sector will take up the slack as more and more people will want a roof over their head, but won’t buy one but rent one. With Local Authorities and Housing Associations not building houses anywhere near like the number of houses they were building in the 1950’s, 60’ and 70’s, the private landlord appears to have good demand for their rental properties for many decades to come.

This will create a polarisation in the housing market between those, mostly older, households who own outright and those, mostly younger, households who rent. Our housing market is very much turning into the European model. However, all is not lost, the younger generation will inherit their parents properties, which in turn will enable them to buy, albeit later in life.
If you are a landlord or thinking of become a landlord, and would like to read more articles like this and other information on the Milton Keynes Property Market, then please visit the Milton Keynes Property Blog.

George Osborne – The Milton Keynes landlord’s friend?

Well the last few weeks has been rather hectic as Milton Keynes landlords, some who use us to manage their properties and other landlords who just read our Milton Keynes Property Blog, have been sending me emails or picking the phone up to me about the new rules on buy to let taxation announced in the recent budget. George Osborne confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments, on their buy to let (BTL) properties, would be reduced over the coming years for higher rate income tax payers. The Chancellor said the tax relief that private buy to let landlords (who pay the higher rate of income tax) would change in 2017 from the current 45%/40% and would steadily reduce over the following four years to the existing 20% by 2020.

With 19% of residential property in Milton Keynes being privately rented (as there are 12,700 privately rented properties in the town), these changes are potentially something that will not only affect most Milton Keynes landlords, but also the tenants and the wider property market as a whole. The choice of rental properties could drop, especially at the top end of the market which could push up rents.

However, Milton Keynes landlords could protect themselves by reassigning one or more rental properties into a company structure (e.g., a Limited Company, Partnership or Sole Trader) and by doing so, the total tax paid is greatly reduced, because a company only pays tax on the profit. Nonetheless, before everyone goes off setting up companies for their BTL portfolios, it must also be noted, if a sole trader firm is started, stamp duty needs to be paid, yet if the owner is in business with a partner, they could enjoy some stamp duty relief.  The biggest tax variation is Capital Gains Tax (CGT) where the tax bill will be much higher when you come to sell your portfolio. In essence, by going into business with your BTL properties, you will potentially have a modest stamp duty to pay when you start, but you will have a lot less monthly tax to pay, irrespective of the interest rate, but the CGT bill will be much higher when you come to sell ... as you can see, it is not a ‘get out of jail card’. Now it must be remembered, I am not a tax advisor, so you must take advice from a qualified person (more of that later).

Those planning to purchase a BTL property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make. However, I am not that concerned, as the scaremonger reports fail to see the fact that two out of three BTL properties that have been bought since 2007 have been purchased without the support of BTL mortgage. With those two thirds of landlords paying cash for the purchase of their rental properties, that means two thirds of landlords will be totally unaffected by the changes.

So what of the future? The British love their Bricks and Mortar, it’s an asset that they can touch and feel and has a 70 year track record of capital growth that has out stripped inflation. Buy to let will still be attractive to Milton Keynes investors and let me explain why. If you invested £80,000 in Milton Keynes property in September 1987, today it would be worth £314,836. If you had invested the same £80,000 in to the London Stock Market (the FTSE 100 to be exact), it would be only be worth £229,012 today, whilst Inflation would have taken the original £80,000 and pushed it up to £166,254.

It’s true some central London landlords relying solely on the tax breaks rather than high yields may be forced out of the market, but even those landlords could seek to recoup any losses by increasing rents. However, those landlords may leave the market and this could constrict the availability of rented houses even more than it is already, increasing rents and thus pushing yields even higher for landlords and BTL investors still in the market... thus attracting new landlords into the market because of those higher yields.

The reality is, there is too much demand and not enough supply of homes for people to live in in the town. Official figures show the population in Milton Keynes is rising by 4,176 persons per year (i.e., demand rising), but only 1,522 properties are being built each year (i.e., supply is low). This sets up the Milton Keynes (and UK) property market to continue to create strong and steady returns, irrespective of any tax loophole being there (or not as the case maybe).

If the demand is there, I am happy to organise an informal seminar with a local Milton Keynes accountant one evening, whereby they can show you the options available and what might be best for you. Therefore, if you are interested in attending, please drop me an email Danielle@inspiredagents.co.uk and we will be able to get something organised very soon.

Milton Keynes Landlord’s mortgages top £712 million!

The Brits can’t stop talking about property. The hot topic of discussion at the posh dinner parties of Woughton on the Green, Loughton and Woolstone’s movers and shakers is the subject of the Milton Keynes Property market, but in particular, buy to let. These people are buying up buy to let properties quicker than an ace Monopoly player .... or so it would seem if you read the Sunday papers. So is the buy to let market a sure fire way to make money?  Is it something everyone should be jumping into? Is it a sure fire way to make money? The answer is Yes and No to all those questions!

Firstly, the government gives tax breaks to landlords, as it allows the mortgage interest payments on a buy to let property to be tax deductible. Also, a landlord only has to flick through Rightmove or Zoopla, pick any property at random and agree a price. Then, find a modest deposit of 25% (often by re-mortgaging their own home) which, for an average Milton Keynes terraced house, would mean finding £47,449 for the deposit (as the average Milton Keynes terraced house is currently worth £189,797) and borrow the rest with a low interest rate buy to let mortgage.  Finally, the landlord would rent out the property in a matter of hours for top dollar and live happily ever after, with the rent then covering the mortgage payments, with loads of money to spare and come retirement have a portfolio of property that would have quadrupled in value in fifteen years. Sounds wonderful – doesn’t it? Or does it???

Let us not forgot that the half of one per cent Bank of England base rate is artificially low. The international money markets can be fickle and if interest rates do rise quicker and higher than expected because of some unforeseen global economic situation, that monthly profit will soon turn into a loss as the mortgage will be more than the rent. Even though tenants are staying longer in their rental property, tenants still come and go and my guidance to landlords is they should allow for void periods, plus the maintenance costs of a rental property and of course, agents fees. .. all things that eat into that profit.

Interestingly, by my calculations, there are approximately 3,802 Milton Keynes landlords owing in excess of £712million in mortgages on those Milton Keynes buy to let properties.  An impressive amount when you consider Milton Keynes only has 0.356% of all the rental properties in the Country. It really does come down to a number of important factors going forward to ensure you are water tight for the future. A lot of my existing landlords are fixing their mortgage rates. One told me that the Metro Bank are currently offering a 5 year fixed BTL re-mortgage rate at 3.79% for 5 years (based on a 75% loan). I don’t give financial advice, so you must speak with a qualified mortgage advisor.. but that sounds very fair!

However, one thing I do know is that buy to let is a long term investment, it’s a ten, fifteen, twenty year plan and property prices will go down as well as up. You wouldn’t dream of investing in the stock market without advice, so why invest in the Milton Keynes Property Market without advice? We give bespoke detailed advice to our landlords to enable them to spot trends in the Milton Keynes Property Market before others, enabling them to buy better properties at better prices. For example, did you know that semis are selling for around 1% lower than 12 months ago in Milton Keynes yet terraced properties are selling for 9% more (with every other type in between). This means we can advise on which properties will go up in value better (or lose less if property prices drop), we can also advise which have lower voids and which properties have higher maintenance issues.  

Information on the local property market and ability to process it is the strongest asset we can give you. As Lois Horowitz, the famous author says, ”Not having the information you need when you need it leaves you wanting. Not knowing where to look for that information leaves you powerless. In a society where information is king, none of us can afford that”. One place to find information on the Milton Keynes Property Market is the Milton Keynes Property Blog, where you will find many articles just like this.