Baldock Buy-to-Let Return / Yields – 1.7% to 6.3% a year

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The mind-set and tactics you employ to buy your first Baldock buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!).

Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Baldock properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Baldock buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Baldock…

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Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Baldock area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.

However, before everyone in Baldock starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Baldock buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Baldock landlords who are looking for capital growth, an altered investment strategy may be required.

In Baldock, for example, over the last 20 years, this is how the average price paid for the four different types of Baldock property have changed…

  • Baldock Detached Properties have increased in value by 274.1%
  • Baldock Semi-Detached Properties have increased in value by 267.3%
  • Baldock Terraced Properties have increased in value by 293.8%
  • Baldock Apartments have increased in value by 280.8%

It is very much a balancing act of yield, capital growth and void periods when buying in Baldock. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!

Baldock’s New 3 Speed Property Market

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“What’s happening to the Baldock Property Market” is a question I am asked repeatedly.  Well, would it be a surprise to hear that my own research suggests that there isn’t just one big Baldock property market – but many small micro-property markets?

According to recent data released by the Office of National Statistics (ONS), I have discovered that at least three of these micro-property markets have emerged over the last 20+ years in the town.

For ease, I have named them the …

  1. lower’ Baldock Property Market.
  2. lower to middle’ Baldock Property Market.
  3. ‘middle’ Baldock Property Market.

 

The ‘lower’ and ‘lower to middle’ sectors of the Baldock property market have been fuelled over the last few years by two sets of buyers. The first set, making up the clear majority of those buyers, are cash rich landlord investors who are throwing themselves into the Baldock property market to take advantage of alluringly low prices and even lower interest rates. The other set of buyers in the ‘lower’ and ‘lower to middle’ Baldock property market are the first-time buyers (FTB), although the FTB market is in a state of unparalleled deadlock as it’s been trampled into near-immobility and incapacity by the new 2014 stricter mortgage affordability regulations and also fewer mortgages with low deposits.

Some of you may be interested to know how I have classified the three sectors ..

  1. lower’ Baldock housing market – the bottom 10% (in terms of value) of properties sold
  2. lower to middle’ Baldock housing market – lower Quartile (or lowest 25% in terms of value) of properties sold
  3. middle’ Baldock housing market – which is the median in terms of value

 

If one looks at the figures for North Hertfordshire District Council area you can see the three different sectors (lower, lower/middle and middle) have performed quite differently.

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You can quite clearly see that it is the ‘lower to middle’ market that has performed the best.

You might ask, what do all these different figures mean to homeowners and landlords alike?  Quite a lot – so let me explain. The worst performing sector (with the lowest Percentage uplift) was the ‘middle’ housing market. Therefore, interestingly, if we applied the best percentage uplift figure (i.e. from the ‘lower to middle’ market percentage uplift), to the ‘middle’ 1995 housing market figure, the 2017 figure of £361,822, would have been £400,229 instead – quite a difference you must agree?

 

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Now, I have specifically not mentioned the upper reaches of the Baldock housing market for several reasons.  Firstly, the lower or middle market is where most of the buy to let investment landlords buy their property and where the majority of property transactions take place. Secondly, due to the unique and distinctive nature of Baldock’s up-market property scene (because every property is different and they don’t tend to sell as often as the lower to middle market), it is much more difficult to calculate what changes have occurred to property prices in that part of the Baldock property market – looking at the stats for the up-market Baldock property market from Land Registry, only 24 properties in Baldock (and a 5 mile radius around it) have sold for £1,500,000 or more since 1997.

So, what should every homeowner and buy to let landlord take from the information that there are many micro-property markets? Well, when you realise there isn’t just one Baldock Property Market, but many Baldock “micro-property markets”, you can spot trends and bag yourself some potential bargains. Even in this market, I have spotted a number of bargains over the last few months that I have shared in my Property Blog and to my landlord database, especially in the ‘lower’ and ‘lower/middle’ market. If you want to be kept informed of those buy to let bargains, have a look at my blog http://www.baldockpropertyblog.co.uk  it’s free to do so and I’m sure you wouldn’t want to miss out – would you?

I would love to know if you have spotted any micro-property markets in Baldock.

579 Baldock Landlords – Is This a Legal Tax Loop-Hole?

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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 Baldock 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 (2016/17), assuming no other costs or allowable items, the figures are below:

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  • Annual rental income £10,800.
  • Taxable rental income would be £3,600 after tax relief from mortgage relief

This means they would pay £1,440 in income tax on the rental income.  Assuming no other changes, the landlord would have income tax liabilities (at the time of writing July 2017) in the tax years of:

  • (2017/18) £1,800
  • (2018/19) £2,160
  • (2019/20) £2,520
  • (2020/21) £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.

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The Baldock landlords who own the 579 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 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

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By selling their buy to let 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 Baldock landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company?

I have done some extensive research with Companies House and in the fifteen months between 1st January 2016 – 31st March 2017, 67 BTL companies have been set up in the SG 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.  You see, 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 too and this could come with exit charges.

On a more positive note, what I have seen 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, just an idea, not advice!

It is 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 three 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.  With decent tax planning from a tax consultant and good rental / BTL portfolio management (which I can help you with), you can keep yourself the right side of the line!

For more information about the Baldock property market or for any advice please give us a call on 01462 894565 or pop into the office for a chat.

40.1 miles – The average distance people go to escape living in Baldock

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“How far do Baldock people go to move to a new house?”  This was an intriguing question asked by one of my clients the other week.  Readers of my property blog will know I love a challenge, especially when it comes to talking about the Baldock property market.

 For the majority, the response is not very far.  It is much more common for homeowners and tenants in Great Britain to move across town than to the next town or county.  Until now, it’s been hard to say how many homeowners and tenants moved from and to relatively far away to buy or rent their new home.  However, I carried out some research and requested some statistics from the Royal Mail and what came back was fascinating.

Using statistics for the 12 months up to the middle of Autumn 2016, 192 households moved out of Baldock and the average distance was 40.08 miles, the equivalent of moving from Baldock to Brackley as the crow flies.  The greatest distance travelled was 448 miles, that’s almost 17 marathons, when someone moved to Bangor in Northern Ireland.

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Considering there were 177 property sales in SG7 in the year and countless tenant moves, the numbers seem consistent.  Once you find a town you like, you tend to want to settle down and if you do move, you might only move to a different neighbourhood, a better transport links or to be closer to the school you want to get your children into.  The likelihood is however is that you won’t travel far.

I then turned my attention to people moving into Baldock.  Using the same statistics for the 12 months up to the middle of Autumn 2016, 202 households moved into Baldock and the average distance was 28.82 miles, the equivalent of moving from Amersham to Baldock, again as the crow flies.  The greatest distance travelled again was 496 miles, that’s the same as 19 marathons when someone moved from Garlogie in Scotland to Baldock.

I have looked at the data of every person moving into Baldock and these have been plotted on a map of the UK. Looking at the map below, it shows exactly where most people come from, when moving into Baldock.  As you can see, there are a high proportion of people moving from London and from the South West.

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So, what does all this mean for the landlords and homeowners of Baldock?

When an agent markets a property for rent or let, it is vital to know the tenant or property buyer well, that the properties they are letting / selling fit those tenants / buyers, so they almost sell themselves.  These days that means not only knowing how many bedrooms, reception rooms a property offers but the budget buyers and tenants want to spend on a property in that area as well as where they come from.

The estate and lettings industry loves the mantra “location, location, location”.  I say it might be helpful to factor in where and how far people are moving from, so the property can be sold or let more easily.  Many say knowledge is power and whilst I do enjoy writing my blog on the Baldock property market, I also use the information to help my clients buy, let and sell well.  So for example, the information gained from this article will enable my team and I to be more efficient in where to direct our marketing resources to ensure we maximise our client’s properties sale-ability or rent-ability.

For more information on the Baldock property market, call us on 01462 894565 or pop in for a cuppa

Should the 1,677 home owning OAP’s of Baldock be forced to downsize?

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This was a question posed to me on social media a few weeks ago, after my article about our mature members of Baldock society and the fact many retirees feel trapped in their homes.  After working hard for many years and buying a home for themselves and their family, the children have subsequently flown the nest and now they are left to rattle round in a big house.  Many feel trapped in their big homes (hence I dubbed these Baldock home owning mature members of our society, ‘Generation Trapped’).

Should we force OAP Baldock homeowners to downsize?

In the original article, I suggested that we as a society should encourage, through building, tax breaks and social acceptance that it’s a good thing to downsize. But should the Government force OAP’s?

One of the biggest reasons OAP’s move home is health (or lack of it).  Looking at the statistics for Baldock, of the 1,677 homeowners who are 65 years and older, whilst 1,062 of them described themselves in good or very good health, a sizeable 484 home owning OAPs described themselves as in fair health and 131 in bad or very bad health.

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7.81% of Baldock home owning OAP’s are in poor health

If you look at the figures for the whole of North Hertfordshire District Council (not just Baldock), there are only 818 specialist retirement homes that one could buy (if they were in fact for sale) and 956 homes available to rent from the Council and other specialist providers (again, you would be waiting for dead man’s shoes to get your foot in the door) and many older homeowners wouldn’t feel comfortable with the idea of renting a retirement property after enjoying the security of owning their own home for most of their adult lives.

My intuition tells me the majority ‘would be’ Baldock down-sizers could certainly afford to move but are staying put in bigger family homes because they can’t find a suitable smaller property.  The fact is there simply aren’t enough bungalows for the healthy older members of the Baldock population and specialist retirement properties for the ones who aren’t in such good health … we need to build more appropriate houses in Baldock.

The government’s housing White Paper, published recently, could have solved so many problems with the UK housing market, including the issue of homing our ageing population. Instead, it ended up feeling annoyingly ambiguous. Forcing our older generation to move with such measures as a punitive taxation (say a tax on wasted bedrooms for people who are retired) would be the wrong thing to do.  Instead of the stick, maybe the Government could use the carrot tactics and offered tax breaks for down-sizers.  Who knows, but something has to happen?

Come to think about it, isn’t the word ‘downsize’ such an awful word?  I prefer to use the word ‘decent-size’ instead of ‘down-size’ as the other phrase feels like they are lowering themselves as though they are having to downgrade themselves in their retirement (and let’s be frank – no one likes to be downgraded).

The simple fact is we are living longer as a population and constantly growing with increased birth rates and immigration.  What I would say to all the homeowners and property owning public of Baldock is more houses and apartments need to be built in the Baldock area, especially more specialist retirement properties and bungalows.  The government had a golden opportunity with the White Paper and were sadly found lacking.

A message to my Baldock property investor readers, whilst this issue gets sorted in the coming decade(s), maybe seriously consider doing up older bungalows as people will pay handsomely for them be that for sale or even rent?  Just a thought!