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…

186 Baldock table

 

186 Baldock graph

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 House Prices Outstrip Wage Growth by 21.13% since 2007

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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.

As regular readers of my blog know, I always like to find out what has actually happened locally in Baldock. To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007. Looking at the Office of National Statistics (ONS) data for North Hertfordshire District Council, some interesting figures came out:

 

188 North Hertfordshire table

 

 

188 North Hertfordshire Graph

Salaries in North Hertfordshire have risen by 25.96% since 2007 (although it’s been a bit of a roller coaster ride to get there!) – interesting when you compare that with what has happened to salaries regionally (an increase of 18.65%) and nationally, an increase of 17.61%.

Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in North Hertfordshire are 47.09% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Property values in the Baldock area have increased at a higher rate than wages to the tune of 21.13% … meaning, Baldock is in line with the regional trend

 

188 Baldock Grpah 2

 

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 Baldock landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Baldock people are buying, then demand for Baldock 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 Baldock 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 home ownership 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 Baldock 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 Baldock tenants and decent law-abiding Baldock landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Baldock 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 Baldock property market is going – please read my other blog posts on http://www.baldockpropertyblog.co.uk  or drop me note via email, like many Baldock landlords are doing.

 

Baldock Homeowners and their £260.9 million Debt

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Over the last 12 months, the UK has decided to leave the EU, have a General Election with a result that didn’t go to plan for Mrs May and to add insult to injury, our American cousins elected Donald Trump as the 45th President of the United States. It could be said this should have caused some unnecessary unpredictability into the UK property market.

The reality is that the housing and mortgage market (for the time being) has shown a noteworthy resilience. Indeed on the back of the Monetary Policy pursued by the Bank of England there has been a notable improvement of macro-economic conditions! In July for example it was announced that we are witness to the lowest levels of unemployment for nearly 50 years. Furthermore, despite the UK construction industry building 21% more properties than same time the previous year, there has still been a disproportionate increase in demand for housing, particularly in the most thriving areas of the Country. Repossessions too are also at an all-time low at 3,985 for the last Quarter (Q1 2017) from a high of 29,145 in Q1 2009. All these things have resulted in…

 

Property values in Baldock according to the

Land Registry are 3.3% higher than a year ago

 

So, what does all this mean for the homeowners and landlords of Baldock, especially in relation to property prices moving forward?

One vital bellwether of the property market (and property values) is the mortgage market. The UK mortgage market is worth £961,653,701,493 (that’s £961bn) and it representative of 13,314,512 mortgages (interestingly, the UK’s mortgage market is the largest in Europe in terms of amount lent per year and the total value of outstanding loans). Uncertainty causes banks to stop lending – look what happened in the credit crunch and that seriously affects property prices.

Roll the clock back to 2007, and nobody had heard of the term ‘credit crunch’, but now the expression has entered our everyday language.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Baldock property market, but in late 2007, and for the following year and half, Baldock property values dropped each month like the notorious heavy lead balloon, meaning …

 

The credit crunch caused Baldockscreen

property values to drop by 14.4%

 

 

 

Under the sustained pressure of the Credit Crunch, the Bank of England realised that the UK economy was stalling in the early autumn of 2008. Loan book lending (sub-prime phenomenon) in the US and across the world was the trigger for this pressure. In a bid to stimulate the British economy there were six successive interest rates drops between October 2008 and March 2009; this resulted in interest rates falling from 5% to 0.5%!

Thankfully, after a period of stagnation, the Baldock property market started to recover slowly in 2011 as certainty returned to the economy as a whole and Baldock property values really took off in 2013 as the economy sped upwards. Thankfully, the ‘fire’ was taken out of the property market in Spring 2015 (otherwise we could have had another boom and bust scenario like we had in the 1960’s, 70’s and 80’s), with new mortgage lending rules. Throughout 2016, we saw a return to more realistic and stable medium term property price growth. Interestingly, property prices recovered in Baldock from the post Credit Crunch 2009 dip and are now 64.7% higher than they were in 2009.

Now, as we enter the Autumn of 2017, with the Conservatives having been re-elected on their slender majority, the Baldock property market has recouped its composure and in fact, there has been some aggressive competition among mortgage lenders, which has driven mortgage rates down to record lows. This is good news for Baldock 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. For example, last month, HSBC launched a 1.69% five-year fixed mortgage!

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to an all-time high in the UK.

 

In the Baldock postcode of SG7, if you added up everyone’s mortgage,

it would total £260,941,623!

Since 1977, the average Bank of England interest rate has been 6.65%, making the current 323 year all time low rate of 0.25% very low indeed. Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.52% in the autumn of 2012 to the current 59.3%. If you haven’t fixed – maybe you should follow the majority?

In my modest opinion, especially if things do get a little rocky and uncertainty seeps back in the coming years (and nobody knows what will happen on that front), one thing I know is for certain, interest rates can only go one way from their 300 year ultra 0.25% low level … and that is why I consider it important to highlight this to all the homeowners and landlords of Baldock. Maybe, just maybe, you might want to consider taking some advice from a qualified mortgage adviser? There are plenty of them in Baldock.

If you are interested in the Baldock Property Market, you might learn something by visiting the blog. http://www.baldockpropertyblog.co.uk

 

Supply and Demand Issues mean Baldock Property Values Rise by 3.3% in the Last 12 Months

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The most recent set of data from the Land Registry has stated that property values in Baldock and the surrounding area were 3.3% higher than 12 months ago and 21.47% higher than January 2015.

Despite the uncertainty over Brexit as Baldock (and most of the UK’s) property values continue their medium and long-term upward trajectory. As economics is about supply and demand, the story behind the Baldock property market can also be seen from those two sides of the story.

Looking at the supply issues of the Baldock property market, putting aside the short-term dearth of property on the market, one of the main reasons of this sustained house price growth has been down to of the lack of building new homes.

The draconian planning laws, that over the last 70 years (starting with The Town and Country Planning Act 1947) has meant the amount of land built on in the UK today, only stands at 1.8% (no, that’s not a typo – its one point eight percent) and that is made up of 1.1% with residential property and 0.7% for commercial property.

 

182 fixed graph on land usage.png

 

Now I am not advocating building modern ugly carbuncles and high-rise flats in the Cotswolds, nor blot the landscape with the building of massive out of place ugly 1,000 home housing estates around the beautiful countryside of such villages as Ashwell, Hinxworth, Newnham and Weston.

The facts are, with the restrictions on building homes for people to live in, because of these 70-year-old restrictive planning regulations, homes that the youngsters of Baldock badly need, aren’t being built. Adding fuel to that fire, there has been a large dose of nimby-ism and landowners deliberately sitting on land, which has kept land values high and from that keeps house prices high.

Looking at the demand side of the equation, one might have thought property values would drop because of Brexit and buyers uncertainty. However, certain commenters now believe property values might rise because of Brexit. Many people are risk adverse, especially with their hard-earned savings. The stock market is at an all-time high (ready to pop again?) and many people don’t trust the money markets. The thing about property is its tangible, bricks and mortar, you can touch it and you can easily understand it.

The Brits have historically put their faith in bricks and mortar, which they expect to rise in value, in numerical terms, at least. Nationally, the value of property has risen by 635.4% since 1984 whilst the stock market has risen by a very similar 593.1%. However, the stock market has had a roller coaster of a ride to get to those figures. For example, in the dot com bubble of the early 2000’s, the FTSE100 dropped 126.3% in two years and it dropped again by 44.6% in 9 months in 2007… the worst drop Baldock saw in property values was just 14.41% in the 2008/9 credit crunch.

Despite the slowdown in the rate of annual property value growth in Baldock to the current 3.3%, from the heady days of 16.16% annual increases seen in mid 2015, it can be argued the headline rate of Baldock property price inflation is holding up well, especially with the squeeze on real incomes, new taxation rules for landlords and the slight ambiguity around Brexit. With mortgage rates at an all-time low and tumbling unemployment, all these factors are largely continuing to help support property values in Baldock (and the UK).

For more thoughts on the Baldock Property Market, please visit the Baldock Property Market Blog http://www.baldockpropertyblog.co.uk

 

 

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.

181 table

 

181 graph 1.png

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?

 

181 graph 2

 

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.

Baldock’s 439 Mortgage Time-Bombs?

 178 v1According to my research, of the 5,604 properties in Baldock, 2,034 of those properties have mortgages on them.  86.3% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

However, this is the concerning part, 439 of those Baldock mortgages are interest only. My research also shows that, each year between 2017 and 2022, 12 of those households with interest only mortgages will mature, and of those, 3 households a year will either have a shortfall or no way of paying the mortgage off. Now that might not sound a lot – but it is still someone’s home that is potentially at risk.

Baldock 178 Graph 1

Theoretically this is an enormous problem for anyone in this situation as their home is at risk of repossession if they do not have some means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building Societies are under no obligation to lengthen the term of the mortgage and, when deciding whether they are prepared to do so or not, will look at it in the same way as someone coming to them for a new mortgage.

Back in the 1970’s and 1980’s, when endowment mortgages were all the rage, having an endowment meant you were taking out an interest only mortgage and then paying into an endowment policy which would pay the mortgage off (plus hopefully leave some profit) at the end of the 25/35-year term. There were advantages to that type of mortgage as the monthly repayments were lower than with a traditional capital repayment and interest mortgage. Only the interest, rather than any capital, is paid to the mortgage company – but the full debt must be cleared at the end of the 25/35-year term.

Historically plenty of Baldock homeowners bought an endowment policy to run alongside their interest only mortgage. However, because the endowment policy was a stock market linked investment plan and the stock market poorly performed between 1999 and 2003 (when the FTSE dropped 49.72%), the endowments of many of these homeowners didn’t cover the shortfall. Indeed, it left them significantly in debt!

Nonetheless, in the mid 2000’s, when the word endowment had become a dirty word, the banks still sold ‘interest only’ mortgages, but this time with no savings plan, endowment or investment product to pay the mortgage off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as property prices were on the rampage in an upwards direction!

Thankfully, the proportion of interest only mortgages sold started to decline after the Credit Crunch, as you can see looking at the graph below, from a peak of 43.81% of all mortgages to the current 8.71%.

178 fixed graph - just cut and paste in

Increasing the length of the mortgage to obtain more time to raise the money has gradually become more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers considered too old for a mortgage extension.

Baldock people who took out interest only mortgages years ago and don’t have a strategy to pay back the mortgage face a ticking time bomb. It would either be a choice of hastily scraping the money together to pay off their mortgage, selling their property or the possibility of repossession (which to be frank is a disturbing prospect).

I want to stress to all existing and future homeowners who use mortgages to go in to them with your eyes open. You must understand, whilst the banks and building societies could do more to help, you too have personal responsibility in understanding what you are signing yourself up to. It’s not just the monthly repayments, but the whole picture in the short and long term. Many of you reading my blog ask why I say these things. I want to share my thoughts and opinions on the real issues affecting the Baldock property market, warts and all. If you want fluffy clouds and rose tinted glasses articles – then my articles are not for you. However, if you want someone to tell you the real story about the Baldock property market, be it good, bad or indifferent, then maybe you should start reading my blog regularly.

For more thoughts on the Baldock Property Market – visit the Baldock Property Blog on: http://www.baldockpropertyblog.co.uk

Baldock Buy-To-Let Predictions up to 2037

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On several occasions over the last few months, in my Baldock Property Blog, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.

Rents in Baldock for new tenancies only grew by 0.7% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Baldock, an interesting pattern emerges ..

  • 2016 – Rental Inflation in Baldock was 4.3%
  • 2015 – Rental Inflation in Baldock was 6.4%
  • 2014 – Rental Inflation in Baldock was 0.7%

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

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

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty. So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Baldock, the East and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics.

174 Table

174 graph

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

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

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I’m off on annual leave now for a couple of weeks – hoping for some more settled UK sunshine!  Will be back to blogging again mid-August.

In the meantime for any more information about the Baldock property market and lettings please do call us on 01462 894565 or pop into the Letchworth office for a chat.

Council House Waiting List in Baldock Drops by 30.8% in last 3 years

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Should you buy or rent a house?  Buying your own home can be expensive but could save you money over the years.  Renting a property through a letting agent or private landlord offers less autonomy to live by your own rules, with more flexibility if you need to move.

Yet, there is a third way that many people seem to forget, yet it plays an important role in the housing of Baldock people.  Collectively known as social housing, it is affordable housing, which is let by either North Hertfordshire District Council or a Housing Association to those considered to be in specific need, at rents below those characteristic in the private rental market.

In Baldock, there are 737 social housing households, which represent 16.85% of all the households in Baldock.  There are a further 2,161 families in the North Hertfordshire District Council area on their waiting list, which is similar to the figures in the late 1990’s. The numbers peaked in 2013, when it stood at 3,124 families, so today’s numbers represent a drop of 30.8%.

Baldock 172 Graph

Nevertheless, this doesn’t necessarily mean that more families are being supplied with their own council house or Housing Association property.  Six years ago, Westminster gave local authorities the permission to limit entitlement for social housing, quite conspicuously dismissing those that did not have an association or link to the locality.

Interestingly, the rents in the social rented segment have also been growing at a faster rate than they have for private tenants.  In the North Hertfordshire District Council area, the average rent in 1998 for a council house / housing association property was £200.94 a month.  Whilst we have no up to date figures, because of the ‘Large Scale Voluntary Transfer’ of all or most of the local authority’s stock was transferred to a Private Registered Provider sector, so the average rent is no longer applicable.  Therefore, using the average rent increase for England of 108% (England’s average rent being £183.08 a month in 1998 and £381.03 a month today) we can guesstimate an average of approximately £415.

When comparing social housing rents against private rents, the stats don’t go back to the late 1990’s for private renting, so to ensure we compare like for like, we can only go back to 2005.  Over the last 12 years, private rents have increased nationally by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%.

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What does this all mean for the homeowners, landlords and tenants of Baldock?

Rents in the private rental sector in Baldock will increase sharply during the next five years.  Even though the council house waiting list has decreased, the number of new council and housing association properties being built is at a seventy year low.  The government crusade against buy-to-let landlords together with the increased taxation and the banning of tenant fees to agents will restrict the supply of private rental property, which in turn using simple supply and demand economics, will mean private rents will rise.  This makes buy to let investment a good choice of investment again (irrespective of the increased fees and taxation laid at the door of landlords).  It will also mean property values will remain strong and stable as the number of people moving to a new house (and selling their old property) will continue to remain restricted and hence, due to lack of choice and supply, buyers will have to pay decent money for any property they wish to buy.

Interesting times ahead for the Baldock property market!

 

Baldock First Time Buyers Mortgages taking 33.9% of their Wages

Baldock 171 graphic v1I had an interesting chat the other day with a Baldock resident. He told he was a Baldock homeowner, retired and mortgage free.  He stated how unaffordable Baldock’s rising property prices were and that he worried how the younger generation of Baldock could ever afford to buy? He went on to ask if it was right for landlords to make money on the inability of others to buy property and if, by buying a buy to let property, Baldock landlords are denying the younger generation the ability to in fact buy their own home.

Whilst doing my research for my many blog posts on the Baldock Property Market, I know that a third of 25 to 30 year old’s still live at home. It is no wonder people are kicking out against buy to let landlords; as they are the greedy bad people who are cashing in on a social woe. In fact, most people believe the high increases in Baldock’s (and the rest of the UK’s) house prices are the very reason owning a home is outside the grasp of these younger would-be property owners.

However, the numbers tell a different story. Looking of the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market. In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31.

171 - fixed Graph showing Average Age of First time buyers

Nevertheless, the average age doesn’t tell the whole story. In the early 1990’s, 26.7% of first-time buyers were under 25, while in the last five years just 14.9% were. In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.

171 - fixed graph Age Distribution of First Time Buyers in UK since 1990

Although, there are also indications of how in-affordable housing is, the house price-to-earnings ratio has almost doubled for first-time buyers in the past 30 years. In 1983, the average Baldock home cost a first-time buyer (or buyers in the case of joint mortgages) the equivalent of 2.8 times their total annual earnings, whilst today, that has escalated to 5.4 times their income.

Again, those figures don’t tell the whole story. Back in 1983, the mortgage payments as percentage of mean take home pay for a Baldock first time buyer was 29.4%. In 1989, that had risen to 75.9%. Today, it’s 33.9% … and no that’s not a typo .. 33.9% is the correct figure.

Baldock 171

So, to answer the gentleman’s questions about the younger generation of Baldock being able to afford to buy and if it was right for landlords to make money on the inability of others to buy property? It isn’t all to do with affordability as the numbers show.

What of the landlords? Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households. That would be the equivalent of raising income tax by 4p in the Pound. I don’t think UK tax payers would swallow that.

If the Government haven’t got the money, who else will house these people? Private sector landlords and thankfully they have taken up the slack over the last 15 years.

Some say there is a tendency to equate property ownership with national prosperity, but this isn’t necessarily the case. The youngsters of Baldock are buying houses, but buying later in life. Also, many Baldock youngsters are actively choosing to rent for the long term, as it gives them flexibility – something our 21st Century society craves more than ever.

Almost a Quarter of Baldock Properties are Leasehold

Baldock 169.png

There are 23.36 million properties in England and Wales with 64% being owner occupied and 36% being rented either from a private landlord, local authority or  Housing  Association.

Over nine out of ten of those English and Welsh owner-occupied properties are a whole house or bungalow. Now, most people would assume they would be freehold – however, of those renting nearly half of rental properties, 44% to be precise, lived in other leasehold apartments and flats.

It might be wise to quickly explain the difference between freehold and leasehold. When someone owns the freehold of a property they own it outright, including the land it is built on, whilst with a leasehold property the leaseholder owns the property for the length of their lease agreement. Leaseholders must pay the person who owns land (the freeholder) ground rent and other fees. When the leasehold ends, ownership returns to the freeholder although the leaseholder can extend the lease or they can buy the freeholder out, but there are rules and regulations with regards doing that.

Therefore, it would be safe to assume that houses are freehold and flats are leasehold .. wouldn’t it? Not necessarily! Most houses are freehold but some might be leasehold – usually through shared-ownership schemes – but more and more new homes builders are selling houses on a leasehold as well. The protection of the law afforded to leaseholders who own a flat is massive, but sadly lacking to leasehold houses sold privately.

Looking specifically at the figures for Baldock, at the last count in SG7 there were 5,797 properties. Since 1995, 5,730 properties in SG7 have changed hands and have been sold. Looking further at those 5,730 transactions in SG7 since 1995, using data from Land Registry 22.16% have been leasehold (higher than the national average of 15%).

Baldock 169 Graph

However, I am concerned about a few new homes builders selling new houses (not flats – houses) as leasehold. There has been a growing (yet small) trend for new-build houses to be sold as leasehold in recent years. While not all house builders use this model, those that do maintain it helps make developments financially viable.

The issue comes when builders sell the freehold separately to an investment company without informing the leaseholder  – which they are legally allowed to do without telling the leaseholder. In England and Wales, the “right of first refusal” to buy the freehold is written in law to leaseholders of flats i.e. the freeholder must offer it to the leaseholders of all the flats of the building first), but not leaseholders of houses.

This is the point I am trying to get across. If you are buying a new home and it’s a house (i.e. not a flat) – please check very carefully indeed whether its freehold or leasehold. If it is a leasehold, whilst you do have rights, they are not as strong as for those people buying a leasehold flat. I appreciate I am only talking about a very small percentage of the property market, but potentially this could end up costing thousands of pounds to those affected.