Shefford House Prices Outstrip Wage Growth by 18.91% since 2007

188 v1

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 Shefford. 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 Central Bedfordshire District Council, some interesting figures came out…

188 table

 

188 Biggleswade Graph

Salaries in Central Bedfordshire have risen by 24.47% since 2007 (although it’s been a bit of a rollercoaster 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 43.38% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Property values in the Shefford area have increased at a higher rate than wages to the tune of 18.91% … meaning, Shefford is in line with the regional trend

 

188 Shefford Graph 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 Shefford landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Shefford people are buying, then demand for Shefford 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 Shefford property market. Now of course, it is not 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’ has not 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 Shefford people, home ownership is not 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 Shefford tenants and decent law-abiding Shefford landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Shefford 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 Shefford property market is going – please read my other blog posts on http://www.sheffordpropertyblog.co.uk or drop me note via email, like many Shefford landlords are doing.

Shefford’s 403 Mortgage Time-Bombs?

image1 (002).png

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.

 

Stotfold 178 Graph 1.png

 

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%.

 

178 fixed graph - just cut and paste in.png

 

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

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

166 - Biggleswade

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.

166 - National Graph JPEG (fixed graph) - to be used to add weight to your local graph

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!

Flipping’ heck! Shefford property values rise by £50.15 a day

158 image3

Investing in Shefford buy to let property is different from investing in the stock market or depositing your hard-earned cash in the Building Society. When you invest your money in the Building Society, this is considered by many as the safe option but the returns you can achieve are awfully low (the best 2-year bond rate from Nationwide is a whopping 0.75% a year!). Another investment is the Stock Market, which can give good returns, but unless you are on the phone every day to your Stockbroker, most people invest in stock market funds, making the investment quite hands off and one always has the feeling of not being in control.

However, with buy to let, things can be more hands on. One of the things many landlords like is the tactile nature of property , the fact that you can touch the bricks and mortar. It is this factor that attracts many of Shefford’s landlords, they are making their own decisions rather than entrusting them to city whizz kids in Canary Wharf playing roulette with their savings.

I always say investing in property is a long-term game. When you invest in the property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as ‘capital growth’.

Capital growth, also known as capital appreciation, has been strong in recent times in Shefford, but the value of property does go up as well as down just like shares do but the initial purchase price rarely decreases.

Rental income is what the tenant pays you and   hopefully this will also grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return. So, over the last 5 years, an average Shefford property has risen by £91,526 (equivalent to £50.15 a day), taking it to a current average value of £356,900.

Yields range from 5% a year and can reach double digits’ percentages (although to achieve those sorts of returns, the risks are higher).

cropped-shefford.jpg

However, something I have not   spoken of before is the more specialist area of flipping property to make money.   Flipping – buying a property, carrying out some minor cosmetics and re selling it quickly.

I have seen several investors recently who have made decent returns from this strategy. For example …..

One Shefford buyer paid £345,000 for a four  bedroom house  in Hoo Road, Meppershall  in April  2016.

Some shots of the property before the work was completed:

Some shots of the property after the work was completed:

Some cosmetic work was done to the property and it has recently been resold  for £390,000 – 13.04% return before costs .

As my article mentioned a few weeks ago, more and more Shefford people maybe giving  up on owning their own home and instead accepting long term renting whilst buy to let lending continues to grow from strength to strength. If you want to know what (and what would not) make a decent buy to let property in Shefford, then please continue to visit our blog and contact us for any further advice.

How the rented sector has transformed the property market in Shefford

People

The Shefford housing market has gone through a sea change in the past decades with the Buy-to-Let (B-T-L) sector evolving as a key trend, for both Shefford tenants and Shefford landlords.

A few weeks ago, the government released a white paper on housing. I have had a chance now to digest the report and wish to offer my thoughts on the topic. It was interesting that the private rental sector played a major part in the future plans for housing. This is especially important for our growing Shefford population.

In 1981, the population of Central Bedfordshire stood at 211,700 and today it stands at 274,000.

Graph 157 Biggleswade

Currently, the private rented (B-T-L) sector accounts for 9.64% of households in the town.  The government want to assist people living in the houses and help the economy by encouraging the provision of quality homes, in a housing sector that has grown due to worldwide economic forces, pushing home ownership out of the reach of more and more people. Interestingly, when we look at the 1981 figures for home ownership, a different story is told.

64.03% Shefford people owned their own home in 1981

26.28% Shefford people rented from the Council or Housing Association in 1981

9.44% Shefford people rented from a private landlord  in 1981   

 

The significance of a suitable housing policy is vital to ensure suitable economic activity and create a vibrant place people want to live in. With the population of Central Bedfordshire set to grow to 349,266 by 2037 – it is imperative that Central Bedfordshire District Council and Central Government all work actively together to ensure the residential property market doesn’t hold the area back, by encouraging the building and provision of quality homes for its inhabitants.

One idea the government has proclaimed is a variety of measures aimed at encouraging the Build-to-Rent (B-T-R) sector (instead of the B-T-L sector). These include allowing local authorities to proactively plan for B-T-R schemes, and making it simpler for B-T-R developers to offer inexpensive private rented homes.

To do this, the government will invent a distinct affordable housing class for B-T-R, called ‘Affordable Private Rent’, which will oblige new homes builders to provide at least 1 in 5 of a new home developments at a 20% discount on open-market rents and three year tenancies for tenants. In return, the new home builders will get better planning assurances.

Private landlords will not be expected to offer discounts, nor offer 3-year tenancies – but it is something Shefford landlords need to be aware of as there will be greater competition for tenants.

Over the last ten years, home ownership has not been a primary goal for young adults as the world has changed. These youngsters expect ‘on demand’ services from click and collect, Amazon, dating apps and TV with the likes of Netflix. Many Shefford youngsters see that renting more than meets their accommodation needs, as it combines the freedom from a lifetime of property maintenance and financial obligations, making it an attractive lifestyle option.

Private rented housing in Shefford and Central Bedfordshire, be it B-T-L or B-T-R, has the prospective to play a very positive role.

Shefford’s ‘Generation Trapped’ and the £607.6M legacy

Generation Trapped Pic 3

Last week, I wrote an article on the plight of the Shefford 20 something’s often referred to by the press as ‘Generation Rent’. Attitudes to renting have certainly changed over the last twenty years and as my analysis suggested, this change is likely to be permanent. In the article, whilst a minority of this Generation Rent feel trapped, the majority don’t – making renting a choice not a predicament. The Royal Institution of Chartered Surveyors (RICS) predicted that the private rental sector is likely to grow substantially by 1.8m households across the UK in the next 8 years, with demand for rental property unlikely to slow and newly formed households continuing to choose the rental market as opposed to buying.

However, my real concern for Shefford homeowners and Shefford landlords alike, as I discussed a couple of months ago, is our mature members of the population of Shefford. In that previous article, I stated that the current OAP’s (65+ yrs in age) in Shefford were sitting on £322.5m of residential property … however, I didn’t talk in depth about the ‘Baby Boomers’, the 50yr to 64yr old Shefford people and what their properties are worth – and more importantly, how the current state of affairs could be holding back those younger Generation Renters.

In Shefford, there are 454 households whose owners are aged between 50yrs and 64yrs and about to pay their mortgage off. That property is worth, in today’s prices, £160.4m. There are an additional 353 mortgage free Shefford households, owned by 50yr to 64yr olds, worth £124.7m in today’s prices, meaning…

Shefford Baby Boomers and Shefford OAP’s are sitting

on £607.6m worth of Shefford Property

Shefford 156 Graph

These Shefford Baby Boomers and OAP’s are sitting on 1,720 Shefford properties and many of them feel trapped in their homes, and hence I have dubbed them ‘Generation Trapped’.

Recently, the English Housing Survey stated 49% of these properties owned by the Generation Trapped, as I have dubbed them, are ‘under-occupied’ (under-occupied classed as having at least two bedrooms more than needed). These houses could be better utilised by younger families, but research carried out by the Prudential suggest in Britain it’s estimated that only one in ten older people downsize while in the USA for example one in five do so.

The growing numbers of older homeowners who want to downsize their home are often put off by the difficulties of moving. The charity United for all Ages, suggested recently many are put off by the lack of housing options, 19% by the hassle and cost of moving, 14% by having to de-clutter their possessions and 14% by family reasons such as staying close to children and grandchildren.

Helping mature Shefford (and the Country) homeowners to downsize at the right time will also enable younger Shefford people to find the homes they need – meaning every generation wins, both young and old. However, to ensure downsizing works, as a country, we need more choices for these ‘last time buyers’.

Theresa May and Philip Hammond can do their part and consider stamp duty tax breaks for downsizers, our local Council in Shefford and the Planning Dept. should play their part, as should landlords and property investors to ensure Shefford’s ‘Generation Trapped’ can find suitable property locally, close to friends, family and facilities.

41 properties a year need to be bought in Shefford to satisfy tenant demand!

155 pic 1

The good old days of the 1970’s and 1980’s eh … with such highlights lowlights as 24% inflation, 17% interest rates, 3 day working week, 13% unemployment, power cuts … those were the days (not)… but at least people could afford to buy their own home. So why aren’t the 20 and 30 something’s buying in the same numbers as they were 30 or 40 years ago?

Many people blame the credit crunch and global recession of 2008, which had an enormous impact on the Shefford (and UK) housing market. Predominantly, the 20 something first-time buyers who, confronting a problematic mortgage market, the perceived need for big deposits, reduced job security and declining disposable income, discovered it challenging to assemble the monetary means to get on to the Shefford property ladder.

However, I would say there has been something else at play other than the issue of raising a deposit – having sufficient income and rising property prices in Shefford. Whilst these are important factors and barriers to home ownership, I also believe there has been a generational change in attitudes towards home ownership in Shefford (and in fact the rest of the Country).

Back in 2011, the Halifax did a survey of thousands of tenants and 19% of tenants said they had no plans to buy a home for themselves. A recent, almost identical survey of tenants, carried out by The Deposit Protection Service revealed, in late 2016, that figure had risen to 38.4%, with many no-longer equating home ownership to success and believing renting to be better suited to their lifestyle.

You see, I believe renting is a fundamental part of the housing sector, and a meaningful proportion of the younger adult members of the Shefford population choose to be tenants as it better suits their plans and lifestyle. Local Government in Shefford (including the planners – especially the planners), land owners and landlords need an adaptable Shefford residential property sector that allows the diverse choices of these Shefford 20 and 30 year old’s to be met.

This means, if we applied the same percentages to the current 1,610 Shefford tenants in their 678 private rental properties, 618 tenants have no plans to ever buy a property – good news for the landlords of those 260 properties. Interestingly, in the same report, just under two thirds (62%) of tenants said they didn’t expect to buy within the next year.

.. but does that mean the other third will be buying in Shefford in the next 12 months?

Graph for Article 155 - Shefford

Some will, but most won’t … in fact, the Royal Institution of Chartered Surveyors (RICS) predicts that, by 2025, that the number of people renting will increase, not drop. Yes, many tenants might hope to buy but the reality is different for the reasons set out above.  The RICS predicts the number of tenants looking to rent will increase by 1.8 million households by 2025, as rising house prices continue to make home ownership increasingly unaffordable for younger generations.  So, if we applied this rise to Shefford, we will in fact need an additional 325 private rental properties over the next eight years (or 41 a year) … meaning the number of private rented properties in Shefford is projected to rise to an eye watering 1,008 households.

25% OF SHEFFORD HOMES ARE ONE PERSON HOUSEHOLDS

home-1353389_1920

I was having an interesting chat with a Shefford buy to let landlord the other day when the subject of size of households came up.  Looking at the statistics going back to the early 1960’s, when the average number of people in a home was exactly 3, it has over the years steadily dropped by a fifth to today’s figure of 2.4 people per household.  This doesn’t sound a lot, but if the population remained the same level for the next 50 years and then we had the same 20% drop in household size, the UK would need to build an additional 5.28 million properties (or 105,769 per year)….When you consider the country is only building 139,800 properties a year… it doesn’t leave much for people living longer and immigration.  Looking closer to home…….

In the Central Bedfordshire Council area, the average number of occupants per household is 2.3 people.

When we look at the current picture nationally and split it down into tenure types (i.e. owned, council houses and private renting), a fascinating picture appears.  The vast majority of homeowners who do not have a mortgage are occupied by one or two people (81% in fact), although this can be explained as residents being older, with some members of the family having moved out, or a pensioner living alone.  People living on their own are more likely to live in a council house (43%) and the largest households (those with four or more people living in them are homeowners with a mortgage – but again, that can be explained as homeowners with families tend to need a mortgage to buy.

Picture3

When we look at the Central Bedfordshire Council figures for all tenures in Shefford (Owned, Council and Private Rented) a slightly different picture appears…

Picture1

It gets even more interesting when we focus on just private rental properties in Shefford, as it is the rental market in Shefford that really fascinates me.  When I analysed those Central Bedfordshire Council private rental household composition figures, a slightly different picture appears.  Of the 678 private rental properties in the Shefford area:

Picture2

As you can see, Shefford is not too dissimilar from the national picture but there is a story to tell.  If you are considering future buy to let purchases in the coming twelve to eighteen months, I would seriously consider looking at two bedroom apartments/houses.  Even with the numbers stated, there are simply not enough two bedroom apartments/houses to meet the demand.

If the property is located in the right part of Shefford and priced realistically, it will always let and when you come to sell, irrespective of market conditions at the time, it will always be the target of buyers.

Investment property of the week -Shefford

A high specification one bedroom apartment which for a landlord investing is well worth considering. For more information please visit our website at www.satchells.com or contact our Shefford office on 01462 813235. Click this link to see video in YouTube: https://youtu.be/J5n2gsNHCgk