Shefford House Prices Outstrip Wage Growth by 18.91% 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 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…

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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

 

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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 Buy-to-Let Return / Yields – 1.8% to 6.9% a year

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The mind-set and tactics you employ to buy your first Shefford 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 Shefford 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 Shefford 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 Shefford…

 

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Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Shefford 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 Shefford starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Shefford 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 Shefford landlords who are looking for capital growth, an altered investment strategy may be required.

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

  • Shefford Detached Properties have increased in value by 199.4%
  • Shefford Semi-Detached Properties have increased in value by 413.8%
  • Shefford Terraced Properties have increased in value by 371.9%
  • Shefford Apartments have increased in value by 403.8%

It is very much a balancing act of yield, capital growth and void periods when buying in Shefford. 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!

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

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.

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

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

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!

Looking to invest in Shefford?

This three bedroom house is on the market through Purple Bricks with an asking price of £250,000. An ideal purchase for an investor with a potential yield of 4.8%. View ASAP before it goes.  Take a look at the video above and click here for the rightmove advert

Pop into our office for a cup of tea and a chat about the Shefford property market and lettings or call us on 01462 894565.

What will the General Election do to 3,364 Shefford Homeowners?

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In Shefford, of the 4,816 households, 1,495 homes are owned without a mortgage and 1,869 homes are owned with a mortgage. Many homeowners have made contact me with asking what the General Election will do the Shefford property market?  The best way to tell the future is to look at the past.

I have looked over the last five general elections and analysed in detail what happened to the property market on the lead up to and after each general election. Some very interesting information has come to light.

Of the last five general elections (1997, 2001, 2005, 2010 and 2015), the two elections that weren’t certain were the last two (2010 with the collation and 2015 with unexpected Tory majority). Therefore, I wanted to compare what happened in 1997, 2001 and 2005 when Tony Blair was guaranteed to be elected/re-elected versus the last knife edge uncertain votes of 2010 and 2015 … in terms of the number of houses sold and the prices achieved.

Look at the first graph below comparing the number of properties sold and the dates of the general elections:

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It is clear, looking at the number of monthly transactions (the blue line), there is a certain rhythm or seasonality to the housing market. That rhythm/seasonality has never changed since 1995 (seasonality meaning the periodic fluctuations that occur regularly based on a season – i.e. you can see how the number of properties sold dips around Christmas, rises in Spring and Summer and drops again at the end of the year).

To remove that seasonality, I have introduced the red line. The red line is a 12 month ‘moving average’ trend line which enables us to look at the ‘de-seasonalised’ housing transaction numbers, whilst the yellow arrows denote the times of the general elections. It is clear to see that after the 1997, 2001 and 2005 elections, there was significant uplift in number of households sold, whilst in 2010 and 2015, there was slight drop in house transactions (i.e. number of properties sold).

I then wanted to consider what happened to property prices. In the graph below, I have used that same 12-month average, housing transactions numbers (in red) and yellow arrows for the dates of the general elections but this time compared that to what happened to property values (pink line):

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It is quite clear none of the general elections had any effect on the property values.  Also, the timescales between the calling of the election and the date itself also means that any property buyer’s indecisiveness and indecision before the election will have less of an impact on the market.

Finally, what does this mean for the landlords of the 388 private rented properties in Shefford?  As I have discussed in previous articles (and just as relevant for homeowners as well) property value growth in Shefford will be more subdued in the coming few years for reasons other than the general election. The growth of rents has taken a slight hit in the last few months as there has been a slight over supply of rental property in Shefford, making it imperative that Shefford landlords are realistic with their market rents.  However, in the long term, as the younger generation still choose to rent rather than buy the prospects, even with the changes in taxation, mean investing in buy-to-let still looks a good bet.  If you want to find out more about the Shefford property market please feel free to pop into the office, call us on 01462 894565 or e-mail us at: lettings@satchells.co.uk.

 

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

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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).

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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.