Decreasing Numbers of Younger Homeowners in Shefford

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Tom Smith, 35-year-old father of two from Shefford, was out house hunting.  It was a pleasant August Saturday afternoon and our man cycles along on his bike. He cycles up a street of small cottages, where he spots a few retired mature neighbours, chatting to each other over the garden fence. He leans his bicycle against a lamppost and launches softly into his property search.

Anyone on the road contemplating moving?” Tom asks, “I am not a landlord or developer, I’m just a Shefford bloke trying to get out of renting, buy a house, do it up and live in it with my wife and two children

The only way I will leave here is in a box”, answers an 80-something lady, wearing her fading Paisley patterned housecoat from the 1970’s.

I‘ve lived here since before you were born, its lovely up here .. we aren’t moving, are we Doris?” (as her neighbour sagely shook his head at his wife).

Tom, like many Shefford people born in the late 1970’s to the early 1990’s, is keen to get a slice of prime Shefford real estate. Yet people like Tom in Generation Y (or the Millennials as some people call them i.e. born between 1977 and 1994 and needing family housing now) are discovering, as each year passes by, they are becoming more neglected and ignored when it comes to moving up the property ladder.

Looking at the graph for the UK as whole …

 

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Over 75 percent of Brits aged 65 and above (the baby boomers) are owner-occupiers, the biggest share since records began and a proportional rise of over 48.3% since the early 1980’s. Looking at those Baby Boomers (the current 65+year olds)  .. and roll the clock back 36 years (to when they were in their 30’s and 40’s and two thirds (65.6%) of them owned their own home.

Whilst today, just under a half of 25 to 49 year olds (47.3%) own their own home.

However, the biggest drop has been in the 18 to 24-year old’s, where homeownership has dropped from a third (32%) in the 1980’s to less than one in ten (8.9%) today. Looking at the Shefford statistics, the numbers make even more interesting reading.

 

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Government policy contributes to the generational stalemate. Stamp Duty rules prevent older Brits from moving as the price of land and planning rules make it harder to build affordable bungalows that are attractive to members of the older generation who want to move.

The average value of an acre of prime building land in the UK is between £750,000 and £800,000 per acre. Bungalows are the favoured option for the older generation, but the problem is bungalows take up too much land to make them profitable for new homes builders. The housing market is gridlocked with youngsters wanting to get on (then move up) the property ladder whilst the older generation, who want to move from their larger houses to smaller, more modern bungalows, can’t. The problem is – there simply aren’t enough bungalows being built and the high price of land, means they are prohibitive to build.

So, what is my point? Well, all I would say to the homeowners of Shefford is that one solution could be to start to talk to your local councillors, so they can mould the planners’ thoughts and the local authority thinking in setting land aside for bungalows instead of two up two down starter homes? That would free the impasse at the top of the property ladder (i.e. mature people living in big houses but unable to move anywhere), releasing the middle aged gridlocked people in the ladder to move up, thus releasing more existing starter homes for the younger generation.

To Tom, the wandering new home searcher – if things are going to change, it will be years before they do so keep going out and spreading the word of your search for a new home for your family.

 

 

Shefford Property Market and Mysterious Politics of the General Election

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The dust has settled on the various unread General Election party manifestos, with their ‘bran-bucket’ made up numbers, life goes back to normal as political rhetoric on social media is replaced with pictures of cats and people’s lunch.  Joking aside though, all the political parties promised so much on the housing front in their manifestos, should they be elected at the General Election.  In hindsight, irrespective of which party, they seldom deliver on those promises.

Housing has always been the Cinderella issue at General Elections.  Policing, NHS, Education, Tax and Pensions etc., are always headline grabbing stuff and always seem to go ‘the ball’. However, housing, which affects all our lives, always seems to get left behind and forgotten.

Nonetheless, the way the politicians act on housing can have a fundamental effect on the wellbeing of the UK plc and the nation as a whole.

One policy that comes to mind is Margaret Thatcher’s Council House sell off in the 1980’s, when around 1.4m council houses went from public ownership to private ownership.  It was a great vote winner at the time (it helped her win three General Elections in a row) but it has meant the current generation of 20 somethings in Shefford (and elsewhere in the Country) don’t have that option of going into a council house.  This has been a huge contributing factor in the rise of the private renting and buy to let in Shefford over the last 15 years.

Nevertheless, looking back to the start of the Millennium, Labour set the national target for new house building at 200,000 new homes a year (and at one point that increased to 240,000 under Gordon Brown for a couple of years).  In terms of what was actually built, the figures did rise in the mid Noughties from 186,000 properties built in 2004 to an impressive 224,000 in 2007 (the highest since the early 1980’s) as the economy grew.

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Then the

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It is interesting, that the 2010 Cameron/Clegg government did things a little differently.  The fallout of the Credit Crunch meant a lot less homes were built, so instead of tackling that head on, the coalition side-stepped the target of the number of new homes to build and offered a £400m fund to help kick start the housing market (a figure that was a drop in the ocean when you consider an average UK property was worth around £230,000 in 2010).  The number of new houses being completed dipped from 146,800 in 2011 to 135,500 the subsequent year.

So, one might ask exactly how many new homes do we need to build per year?  It is commonly accepted that not enough new properties are being built to meet the rising need for homes to live in.  A report by the Government in 2016, showed that on average 210,000 net additional households will be formed each year) up to 2039 (through increased birth rates, immigration, people living longer, lifestyle (i.e. divorce) and people living by themselves more than 30 years ago).  In 2016, only 140,600 homes were built … simply not enough!

Looking at the numbers locally in Shefford and the surrounding area, it is obvious to me, that we as an area, are not pulling our weight either when it comes to building new homes. In the 12 months up to the end of Q1 2017, only 1,390 properties were built in the Central Bedfordshire Council area.  Go back to 2009, that figure was 690, 13 years before that in 1997, 1,160 new homes and further back to 1988, 1,170 new homes were built.

 

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Who knows if Teresa May’s Government will last the five years?  She will think she has bigger fish to fry with Brexit to get bogged down with housing issues.

Let me leave you with one final thought.  The conceivable rewards in providing a place to live for the public on a massive house building programme can be enormous, as previous Tory PM’s have found out.  Winston Churchill in 1951, asked his Minister for Housing (Harold Macmillan) if he could guarantee the construction of 300,000 new properties a year, he was notoriously told: “It is a gamble—it will make or mar your political career, but every humble home will bless your name if you succeed.”

Isn’t it interesting, that the Tories remained in power until 1964!  Mrs May will have to work out if she wants to be the heiress to Harold Macmillan or David Cameron?

 

 

Shefford’s 403 Mortgage Time-Bombs?

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According to my research, of the 4,816 properties in Shefford, 1,869 of those properties have mortgages on them.  86.9% 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, 403 of those Shefford 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.

 

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Theoretically this is an enormous problem for anyone in this situation as their home is at risk of repossession if they don’t 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 Shefford 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%.

 

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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.

Shefford 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 Shefford 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 Shefford property market, be it good, bad or indifferent, then maybe you should start reading my blog regularly.

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

Holidays!

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I’m off on holidays from Monday for a couple of weeks – hoping to need to use these in some UK sunshine!

Normal service will be resumed from mid-August.

In the meantime if you would like any information about the Shefford property market and lettings in general or need some advice, please call us on 01462 894565 or pop into our Letchworth office for a chat.

 

 

294 Shefford 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).

For example, let’s say we have a Shefford 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:

  • 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 and assuming no other changes, the landlord would have income tax liabilities (at the time of writing May 2017) in the tax years of:

  • (2017/18) £1,800
  • (2018/19) £2,160
  • (2019/20) £2,520
  • (2020/21) £2,880

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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.

The Shefford landlords who own the 294 rental properties in the town could set up a Limited Company and sell their property personally to that Limited Company

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In fact, looking at the numbers from Companies House, many landlords are doing this. In the UK, there are 93,262 BTL limited companies, and since the announcement in November 2015, the numbers have seen a massive rise.

  • Q2 2015 / Q3 2015 – 4,193 Buy to Let limited companies set up
  • Q4 2015 / Q1 2016 – 5,403 Buy to Let limited companies set up
  • Q2 2016 / Q3 2016 – 3,007 Buy to Let limited companies set up
  • Q4 2016 / Q1 2017 – 7,149 Buy to Let limited companies set up

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So, 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 Shefford 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 buy-to-let limited companies have been set up in the SG postcode alone.

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 buy to let 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’s 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), whatever you do, you can keep the right side of the line!

For more information and advice about the Shefford property market and lettings in general, please give us a call 01462 894565 or pop in for a chat.

Shefford First Time Buyers Mortgages taking 33.9% of their Wages

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I received a very interesting letter the other day from a Shefford resident.  He declared he was a Shefford homeowner, retired and mortgage free.  He stated how unaffordable Shefford’s rising property prices were and that he worried how the younger generation of Shefford 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, Shefford 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 Shefford property market, I know that a third of 25 to 30 year olds still live at home. It’s 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 Shefford’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 at 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.

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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.

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Although, there are also indications of how unaffordable housing is, the house price to earnings ratio has almost doubled for first time buyers in the past 30 years.  In 1983, the average Shefford 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 take home pay for a Shefford first time buyer was 29.4%.  In 1989, that had risen to a staggering 75.9%.  Today, it’s 33.9%, and no that’s not a typo, 33.9% is the correct figure.

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To answer the gentleman’s questions about the younger generation of Shefford 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 and I don’t think UK tax payers would swallow that.

So, if the Government haven’t got the money, who else will house these people?  Private sector landlords will 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 Shefford are buying houses, but buying later in life. Also, many Shefford youngsters are actively choosing to rent for the long term, as it gives them flexibility, something our 21st Century society craves more than ever.

 

52.8 miles – The average distance people go to escape living in Shefford

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“How far do Shefford 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 Shefford 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, 204 households moved out of Shefford and the average distance was 52.79 miles, the equivalent of moving from Shefford to Coventry as the crow flies.  The greatest distance travelled was 665 miles, that’s almost 25 marathons, when someone moved to Gorseness in Scotland.

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Considering there were 173 property sales in SG17 in the year and countless tenant moves, the numbers seems 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 Shefford.  Using the same statistics for the 12 months up to the middle of Autumn 2016, 247 households moved into Shefford and the average distance was 32.90 miles, the equivalent of moving from Newmarket to Shefford, again as the crow flies.  The greatest distance travelled again was 428 miles, that’s the same as 16 marathons when someone moved from Magheragall in Northern Ireland to Shefford.

I have looked at the data of every person moving into Shefford 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 Shefford.  As you can see, there are a high proportion of people moving from London and from the South West.

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What does all this mean for the landlords and homeowners of Shefford?

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 Shefford 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 Shefford property market, give us a call on 01462 894565 or pop into the office for a cuppa

Investment opportunity – Shefford town centre!

Sheridans in Shefford are marketing this two bedroom apartment for £160,000.  In a good development, right in the centre of town this property has NO UPWARD CHAIN and should achieve a rental yield of around 5%.  Give Sheridans a call before it goes.

For more information about the Shefford market and lettings give us a call on 01462 894565 or pop in for a chat.

 

6.82 Babies born for each new home built in the Shefford area

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As more babies are being born to Shefford and Central Bedfordshire mothers, I believe this increase will continue to add pressure to the over stretched Shefford property market and materially affect the local property market in the years to come.

On the back of eight years of ever incremental increasing birth rates, a significant 6.82 babies were born for every new home that was built in the Central Bedfordshire Council area in 2016.  I believe this has and will continue to exacerbate the Shefford housing shortage, meaning demand for housing, be it to buy or rent, has remained high.  The high birth rate has meant Shefford rents and Shefford property prices have remained resilient, even with the challenges the economy has felt over the last eight years, and they will continue to remain high in the years to come.

This ratio of births to new homes has reach one its highest levels since 1945 (back in the early 1970’s the average was only one and a half births for every household built).  Looking at the local birth rates, the latest figures show we in the Central Bedfordshire Council area had an average of 66.7 births per 1,000 women aged 15 to 44.  Interestingly, the national average is 61.7 births per 1,000 women aged 15 to 44 and for the region its 67.6 births per 1,000 women aged 15 to 44.

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The number of births from Shefford and Central Bedfordshire women between the ages of 20 to 29 are close to the national average, but those between 35 and 44 were much higher.  However overall, the birth rate is still increasing, and when that fact is combined with the ever-increasing life expectancy in the Shefford area, the high levels of net migration into the area over the last 14 years (which I talked about in the previous articles), and the higher predominance of single person households … this can only mean one thing … a huge increase in the need for housing in Shefford.

Again, in a previous article a while back, I said more and more people are having children as tenants because they feel safe in rented accommodation.  Renting is becoming a choice for Shefford people.

The planners and politicians of our local authority, central government and people as a whole need to recognise that with individuals living longer, people having more children and whilst divorce rates have dropped recently, they are still at a relatively high level (meaning one household becomes two households) … demand for property is simply outstripping supply.

The simple fact is more Shefford properties need to be built, be that for buying or renting.

Only 1.1% of the Country is built on by houses.  Now I am not suggesting we build tower blocks in the middle of the Cotswolds, but the obsession of not building on any green belt land should be carefully re-considered.

Yes, we need to build on brownfield sites first, but there aren’t hundreds of acres of brownfield sites in Shefford, and what brownfield sites there are, building on them can only work with complementary public investment.  Many such sites are contaminated and aren’t financially viable to develop, so unless the Government put their hand in their pocket, they will never be built on.

I am not saying we should crudely go ‘hell for leather’ building on our Green Belt, but we need a new approach to enable some parts of the countryside to be regarded more positively by local authorities, politicians and communities and allow considered and empathetic development.  Society in the UK needs to look at the green belts outside their leisure and visual appeal, and assess how they can help to shape the way we live in the most even-handed way.  Interesting times!

 

Thinking of investing in Shefford….?

This riverside two bedroom apartment in The Wharf is on the market with Wilson Peacock in Biggleswade for £200,000.  With a potential yield of around 5% this is really worth considering!

Have a look at the Rightmove advert and call Wilson Peacock ASAP to view it before it goes!