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.

The ‘Liquorice Allsorts’ Milton Keynes Property Market

Despite the UK economy heading in the right direction with record low mortgage rates and unemployment  figures dropping,  the rate of property prices rising in Milton Keynes have tempered since the start of the year. This slow but sure downward trend in the rate of growth has been in evidence since mid-2014.  Property value increases continue to outpace the growth in salaries, however the gap is closing, helped by a lift in salaries over the last 6 months.  Property values in the South East region as a whole are 9.1% higher than a year ago.  Compare this to the neighbouring regions of the South West at 3.6% higher and the East at 8.8%, the majority of the country continue to see annual house price gains - the exception being Wales which recorded a slight  decline of -0.6%.

Even with the tempering in house price inflation, it does not necessarily change my outlook that property prices are likely to be firmer over the second half of 2015 amid heightening activity in the Milton Keynes property market.  As stated in a previous article, there is a current shortage of properties on the market, restricting supply, which in turn will provide stability and support to Milton Keynes property prices. Therefore, my overall opinion is that Milton Keynes property prices will rise by 6% over 2015 and roughly the same in 2016.

Property investment is a long term business.  Buying the right sort of property is vital. I have recently been speaking with a number of Milton Keynes landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns (high yields) but quite often offer poor capital growth (i.e. they don't increase in value that much over the years compared with the average) verses properties that do go up in value quicker but often offer a lower yield.  So, what type of properties have performed best over the last few years in Milton Keynes, especially in terms of their capital growth?

When comparing  what the average price of detached, semi detached, terraced and flats were selling for back at the start of the Millennium to the present.  The results are quite remarkably different, almost like a bag of Liquorice Allsorts, as the different types of property have performed poles apart over the last 15 years:

·         Detached Houses in 2000 were selling on average for £169,773 and so far in 2015, they have been selling on average in Milton Keynes for £344,260 a rise of 103%

·         Semi -Detached Houses in 2000 were selling on average for £79,554 and so far in 2015, they have been selling on average in Milton Keynes for £208,872, a rise of 163%

·         Terraced Houses in 2000 were selling on average for £69,011 and so far in 2015, they have been selling on average in Milton Keynes for £189,797 a rise of 175%

·         Flats and Apartments in 2000 were selling on average for £47,389 and so far in 2015, they have been selling on average in Milton Keynes for £131,080 a rise of 177%

Moving forward, what should new and existing buy to let landlords do with this information?  Well, the questions I seem to be asked on an almost daily basis by landlords are:

 

·         “Should I sell my property in Milton Keynes?”

·         “Is the time right to buy another buy to let property in Milton Keynes and if not Milton Keynes, where?”

·         “Are there any property bargains out there in Milton Keynes to be had?”

 

Many other Milton Keynes landlords, who are with both us and other  Milton Keynes letting agents, like to pop in for a coffee,  pick up the phone or email us to  discuss the Milton Keynes property market, how Milton Keynes compares with its closest rivals (Northampton, Banbury and Leighton Buzzard), and hopefully answer the three questions above.  I don’t bite, I don’t do hard sell, I will just give you my honest and straight talking opinion and look forward to hearing from you.

Are ‘would be’ Milton Keynes homeowners warming to the idea of renting?

I was reading a report the other day produced by the Halifax, about the UK property market and why more and more of the younger generation seem to be renting rather than buying. I find it fascinating that over the last ten years, the British obsession of buying a house almost as soon as you left school, and the fact that if you rented you were seen as a second class citizen, has turned on its head to a point where the hopes and dreams to own a nice home will be replaced by the ambition simply to live in one.

In the latter half of the 20th Century, you left school, got a job, bought a small house and kept buying and selling property, constantly upgrading until eventually they carried you out in a box. However, the perceived shame and stigma of renting is no longer the case, as it seems that the British are now beginning to accept a lifetime of renting. This is a very important consideration for both Milton Keynes homeowners and Milton Keynes landlords as it will transform the way the Milton Keynes property ladder looks in the future and I might ask whether or not it will exist at all for some people? The make up of households is one important factor, especially in the Milton Keynes property market. The normal stereotypical married couple, two kids and dog of the 1970’s and 80’s has changed. More and more we have the need for larger houses where two families come together after divorces (+ kids) and need a property to house everyone through to an increase in the number of one person households.

Looking at the data for Milton Keynes, of the 15,930 private rental properties in the Milton Keynes Borough Council area, 22.34% of those rented properties are one person households (3,559 properties). However, when we compare the number of one person Milton Keynes households who have bought their own property with a mortgage (ie therefore they are still in work), of the 56,913 owner occupied households in the area, only 5,371 of those properties are a one person household (ie 9.44%). Compared to a decade ago, this explosion in demand for decent high quality rental properties that one person households require has not been met with an increase in supply of such properties.  More and more I believe Milton Keynes landlords need to consider this change in the make up of Milton Keynes households, as I believe this could be an opportunity. As an aside, another interesting stat that raised an eyebrow was that 17.27% of those 15,930 rental properties (2,752 properties) are lone parents households as well. Again, another possible opportunity that Milton Keynes landlords might want to consider in their future investment plans.

It is true that the Governments introduction in 2013 of the Help to Buy scheme, where first time buyers only needed a 5% deposit, changed the perception of peoples’ ability to buy without having to save ten’s of thousands of pounds for a deposit. However, it might surprise you, 95% mortgages were re-introduced within six months of the Credit Crunch in late 2009, so again it comes down to people’s own perception. Many youngsters think they won’t get a mortgage, so don’t even bother trying.

Coming back to the deposit, it’s still a fact that once you start renting it becomes that much harder to save for a deposit, regardless of the size. Interestingly, 7 out of 8 renters polled by the Halifax (86% to be exact) refuse to sacrifice the quality of accommodation they currently live in to reduce the amount of rent they pay in order to save for a deposit.  This is the crux and the real reason why people aren’t buying but renting... and why demand for renting will continue to grow in the future (ie good news for landlords). Milton Keynes tenants can upgrade the quality and size of the property they live in for a minimal rent increase. The average rent of a two bed property in Milton Keynes is £991pm, but a three bed is only £140pm more at £1,131pm, whilst the average four bed rent is £1,472pm. If you had to make that jump when buying, the monthly mortgage payments would be stratospherically more than that!  Without any social pressure and better quality rental properties compared to a decade ago, we will become a nation of renters within the next generation, as the UK is becoming more like Europe, where renting is ‘the norm’. Who is going to supply all these properties to rent? Landlords! Whether you are an existing landlord looking to grow your portfolio or looking to become a ‘first time landlord’, my thoughts are take advice from as many people as possible. However, as the majority of landlords buy their buy to let properties in the same town they live, you will need specific advice about Milton Keynes itself. One place for such advice and opinion is the Milton Keynes Property Blog.

Milton Keynes Property Market – Bricks and Mortar!

The Land Registry have just released their latest set of figures for the Milton Keynes Property market. It makes interesting reading, as average property values in Milton Keynes rose by 0.2% in May. This leaves average property values 10.5% higher than 12 months ago, meaning the annual rate of growth in the town fell to its lowest level since August 2014. When we compare Milton Keynes against the regional picture, South East property values rose by 0.9%, leaving them 9.1% higher than a year ago.

Obviously this is a far cry from the price rises we were experiencing in Milton Keynes throughout 2014. At one point (December 2014 to be exact) property values were rising by 11.7% a year. All the same, even with the tempering of the Milton Keynes property values in 2015, property values are still higher. This is good news for local homeowners who had been affected by the downturn after 2007 and still find themselves in negative equity.

However, the thing that concerns me is that the average number of properties changing hands (ie selling) has dropped substantially over the last 12 months in the town. In March 2014, 371 properties sold in Milton Keynes but in April 2015, that figure dropped to 256.  I have been in the Milton Keynes property market for quite a while now and the one thing I have noticed over the last few years has been the subtle change in the traditional seasonality of the Milton Keynes property market. It has been particularly noticeable this year in that the normal post Easter flood of properties coming onto the market was not seen. This has made an imbalance between supply and demand, with less houses coming onto the market there is simply not as much choice of properties to buy in Milton Keynes and with the population of Milton Keynes ever increasing, this will generally strengthen house price growth for the foreseeable future.

So what does all this mean for Milton Keynes landlords or those considering dipping their toe into the buy to let market for the first time? For many people, buy to let looks a good investment, providing landlords with a decent income at a time of low interest rates and stock market unpredictability.

However, if you are thinking of investing in bricks and mortar in Milton Keynes, it is important to do things correctly. As an investment to provide you with income, for those with enough savings to raise a big deposit, buy to let looks particularly good, especially compared to low savings rates and stock market yo-yo’s. I must also remind readers, landlords have two opportunities to make money from property, not only is there the rent (income), but with the property market bouncing back over the last few years, property value increases has spurred on more investors to buy property in the hope of its value continuing to rise.

Savvy landlords with decent deposits can fix their mortgages at just over 3% for five years, making many deals stack up. Nevertheless, low rates cannot stay low forever, because one day they must rise and you need to know your property can stand that test. I saw some Milton Keynes landlords struggling in the mid noughties, when interest rates rose from 3.5% in July 2003 to 5.75% in July 2007. That might not sound a lot, but that was the difference of making a £100 a month profit in 2003 to having to make up a shortfall in the mortgage payments of £100 per month in 2007.

Its true many landlords were thrown a life raft when the base rate dropped to 0.5% in March 2009. Whilst interest rates have remained there since, mark my words, they will rise again in the future. However, even with the potential for costs to rise, demand for decent rental properties remains high as there are ever more tenants in the market, driving up demand and thus rents. The British love of bricks and mortar plus improving mortgage deals also add up to fuel the buoyant Milton Keynes property market.

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.

 

Why are less Milton Keynes people moving house?

During my school years, my parents seemed to move every other year (or it seemed that way). In reality, looking back at the house moves, we actually moved three times before I left home. However, whilst my parents kept the removal van people in business whilst I was at school, from research I have carried out it shows things have changed considerably in Milton Keynes over the last few decades, and interestingly, the trend is getting worse ... for the removal van people at any rate!

In Milton Keynes, there are 66,979 properties. However, after we remove the 12,991 council houses, 12,700 privately rented houses and 522 houses where the occupants live rent free, that leaves us with 40,766 owned properties (be that 100% outright, with a mortgage or shared ownership). This means 60.9% of the properties in Milton Keynes are occupied by the owner (the national average is interestingly 64.2%) but the number of people who have sold and moved house in Milton Keynes, over the last 12 months, has only been 3,473. This means on these figures, the homeowners of Milton Keynes are only moving on average every 11.73 years.

These are the reasons. Firstly, the cost of moving house has risen over the last twenty years. Secondly, with many remortgaging their properties in the mid 2000’s before the price crash of 2008, there is a reluctance or inability in a small minority of homeowners to finance a home sale/purchase, due to lack of equity. These are both factors driving fewer moves by existing homeowners.

However, the big effect has been the change in house price inflation. Back in the 1970’s and 1980’s, house prices were doubling every 5 to 7 years. Even in Greater London, with its stratospheric property price increases over the last few years, it has taken 13 years (August 2002 to be exact) for property values to double to today’s levels.

This change to a relatively low inflation Milton Keynes property market (i.e. Milton Keynes property values not rising quickly) is significant because the long term consequences of sustained low house price growth is that it eats into mortgage debt more slowly than when property price inflation is higher. Milton Keynes homeowners cannot rely on inflation to shrink their debt in real terms as much as they did in say the 1970’s and 1980’s.

So what does this all mean for Milton Keynes buy to let landlords? Well for the same reasons existing Milton Keynes homeowners aren’t moving, less ‘twenty something’s’ are buying their first home as well. Milton Keynes youngsters may aspire to own their own home, but without the social pressure from their peers and parents to buy their first property as soon people reach their early 20’s, the memory of the 2008 housing crisis and the belief the hard times either aren't over or the worst is yet to come, current and would-be homeowners are warming to the idea of renting. I also believe UK society has changed, with the youngster’s wanting prosperity and happiness; but wanting it all now... instantly... today... without the sacrifice, work and patience that these things take. As a society, we expect things instantly, and if it doesn’t come easy, doesn’t come quick, some youngsters ask if it is really worth the effort to save for the deposit? Why go without holidays, the newest iPhone, socialising four times a week and the fancy satellite package for a couple of years, to save for that 5% deposit if there is no longer a social stigma in renting or pressure to buy as there was... say... a generation ago?

Even though, in real terms, property prices are 5% cheaper than they were ten years ago (when adjusted by inflation), 19% of Milton Keynes properties are privately rented (nearly double it was twenty years ago). As a result, the demand for rental properties continues to grow from tenants, meaning those wishing to invest in the buy to let market, over the long term, might be on to a good thing? For advice and opinion on the Milton Keynes Buy To let property market, one source of information is The Milton Keynes Property Blog.

 

Affordability of housing in Milton Keynes

Talking to an elderly relative recently, he reminded me that in his day, you could have bought a property for the same price of what a decent second hand car would sell for today and that his father was buying property for the same price as a decent 50 inch LCD TV!  Now of course, these are only headline prices and we have had wage growth and inflation.  Interestingly, since the Second World War, property values in Milton Keynes doubled in 1961, 1971, 1975, 1980, 1988, 2000 and 2006.

Looking at more recent times, since the start of the Millennium, these increases in property values have generated large increases in equity for many homeowners but on the other side of the coin also making housing unaffordable for other people.  It might interest readers to note that most of Europe experienced sharp increases in property values in the early years of 2000’s, with only Spain beating  us (although we know what has happened to the Spanish property market over the last few years!).  In the 2000’s, the British situation was different in two regards.  First the property value boom started earlier and saw more sustained increases, second, the regional pattern was fairly uniform.

However, since 2010, the regional pattern has been completely different in the UK.  Compared with  2007 (the last property boom), average property values today in England and Wales are 1.2% higher, whilst in Greater London, they are 35.7% higher, whereas in Milton Keynes they are 8.2% higher. The London property market has been like a different country.  Looking specifically at Milton Keynes though, it has continued for first time buyers to get on the housing ladder.  The best measure of the affordability of housing is the ratio of Milton Keynes Property Prices to Milton Keynes Average Wages, (the higher the ratio, the less affordable properties are).  

·         1997       3.13 to 1  (i.e. the average value of a Milton Keynes property was 3.13 times higher than the average annual wage in Milton Keynes)

·         2000       3.99 to 1

·         2002       5.10 to 1

·         2003       5.76 to 1

·         2007       6.82 to 1

·         2009       5.64 to 1

·         2012       6.29 to 1

·         Today    7.02 to 1

You  can see quite clearly, even though we had an improvement just after the 2007 property crash (i.e. the ratio dropped), in following subsequent years with Milton Keynes house price’s rising but wages not keeping up with them,  the ratio started rise.  This has meant there has been a deterioration in affordability of property in Milton Keynes over the last couple of years.  This is one of the (many) reasons why the younger generation is deciding more and more to rent instead of buy their own house.  The local Council sold off council houses in the Thatcher years and for many on low incomes or with little capital, owning a home has simply never been an option.

With fewer people able to save up the deposit required by mortgage lenders, more and more people are looking to rent, this has also resulted in a change in attitudes towards renting over the last decade.  This delay in moving up the property ladder has driven rents up in Milton Keynes over the last few years, as more people are seeking properties to rent.  All these things have combined to make the demand for rental property in Milton Keynes rise.  If you are an existing landlord or someone thinking of become a first time landlord looking for advice and opinion and what (or not to buy in Milton Keynes), one source of information is the Milton Keynes Property Blog.