Will the Huddersfield Property Market Crash?

And if it does ... who will be the winners and losers?

Those Huddersfield people wanting property values to drop would be those 30 or 40 something’s, sitting on a sizeable amount of equity and hoping to trade up (because the percentage drop of your current ‘cheaper’ property will be much less than the same percentage drop of the more expensive property – and trading up is all about the difference). If you have children planning to buy their first home or you are a 20 something wanting to buy your first home – you want them to drop. Also, landlords looking to add to their portfolio will want to bag a bargain (or two) and they would love a drop!

Yet, if you have recently bought a Huddersfield property with a gigantic mortgage, you’ll want Huddersfield property values to rise. If you are retired and are preparing to downsize, you will also want Huddersfield property values to rise (because you will have more cash left over after the move). Also, if you, a landlord looking to sell your portfolio or a Huddersfield home owner, who has remortgaged to raise money for other projects (meaning you have very little equity), you will want Huddersfield property values to rise to enable you to put a bigger deposit down on the next purchase.

So, before I discuss my thoughts on the future, it’s important to look at the past…

The last property crash, caused by the Global Financial Crisis, was between Q3 2007 and Q3 2009 … when property values in Kirklees dropped 11.88%

...taking an average property from £144,139 in September 2007 to £127,014 by September 2009 … and since then – property values have over the medium-term risen (as can be seen on the graph). 

So ... what is happening now?

The simple fact is people in the UK are moving less (and hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that the problems in the British housing market are a lot greater than measly old Brexit!

There is a direct link between how people feel about the property market (sentiment) and the actual performance of the property market. However, the question of whether people’s sentiment moves as a result of changes in the property market, or whether changes in the property market drive sentiment is a question that baffles most economists – you see if someone feels assured about their financial situation (job, money etc.) and the future of property, they are more likely to feel assured to spend their hard-earned earnings on property and buy and if you think about it … vice versa. So, I believe Brexit isn’t the issue  - it’s just the “go to” excuse people are using. Humans don’t like uncertainty, and Brexit itself is causing uncertainty – it is, after all, the great unknown.

So, is it the flux of global politics? Politics are causing hesitation in the posh £5m+ markets of Mayfair and other high value Monopoly board pieces – but certainly not in sleepy old Huddersfield (I don’t think Huddersfield is too high up on the house buying list of all these Saudi Prince’s and Russian Oligarchs) ... no the issues are much closer to home.

So, coming back to reality, one the biggest driving factors in the current state of play in housing market has been the part Buy To let landlords have played in the last 15 years. Making money as buy to let landlord in these golden years was as easy as falling off a log – but not anymore! Landlords had been getting off quite lightly when it came to their tax position, but with Osborne changing the taxation rules on buy to let ... things have become a little more difficult for landlords.

Landlords have been hit with a supplementary rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers. High rate taxpayers in the past have been able to offset the interest payments from their buy to let mortgages against their self-assessment tax bills – at their marginal rate. Between now and 2020 ... this is being reduced in small steps, so they will only be able to claim back relief at the basic rate of tax. The bottom line is that it will be much tougher for investors to make money on buy to let. Tied in with this, the mortgage rules were changed a few years ago, meaning it’s also become slightly tougher to obtain buy to let mortgages (although if I’m being honest – they need too).

And what of Huddersfield first time buyers? Well, a few weeks ago in my blog on the Huddersfield Property Market, if you recall, I mentioned that last year was the best year for over decade for first time buyers. For the last 30 years, buy to let investors have constantly had more purchasing power than first time buyers, as they were older and more established, together with their tax breaks. Yet, now as many amateur landlords are having second thoughts in staying in buy to let, this has given first time buyers a chance to get on to the property ladder.

What will happen to Huddersfield property values? The simple fact is we don’t have the conditions that caused the crash in 2007 (i.e. sub-prime lending in the US, causing banks not to lend to each other, thus stalling the global economy as a whole). Assuming everyone is sensible on the Brexit negotiations, the biggest issue is interest rates.  As long as interest rates remain comparatively low (and don’t get me wrong – I think we could stand Bank of England base interest rates at 1.5% to 2.5% and still be OK, then the thought of a massive property market crash still looks improbable.

Yet correspondingly, I cannot see Huddersfield property values rising quickly either.

The double-digit growth years in property values between 1999 and 2004 are well gone. A lot of that growth was caused by an explosion of buy to let landlords buying property to accommodate the influx of EU migrants in those years.  Mark Carney at the Bank of England can’t make interest rates any lower, so it’s difficult to envisage how credit conditions can get any easier!

Balance of probabilities ... Huddersfield property values will hover either side of inflation over the next five years, but if we did have another crash, what exactly would that mean to Huddersfield homeowners - if they dropped by the same percentage amount, as they did in the last crash?

If Huddersfield property prices dropped today by the same percentage as they did locally in the Global Financial Crisis back in 2007/9 … we would only be returning to the property values being achieved in May 2014 … and nobody was complaining about those!

Therefore, looking at the number of people who have bought homes in the area since May 2014, that would affect approximately only 17% of local home owners and landlords ... and only a small percentage would actually lose - because you only lose money if they decide to move (and come to think of it, some of those sellers would fall into the category mentioned above that would relish a price drop!). So, really not many people would lose out.

Interesting don’t you think?

111,468 – The Typical Profit Each Huddersfield Landlord Could Make in The Next 25 Years

I am of the opinion that buy to let investment in Huddersfield, in the long-term, will bring substantial returns for landlords, irrespective of latest regulation and tax changes.

Taking a very conservative (with a small ‘c’) view, I believe landlords will see a projected net profit of £189,250 per property over the next 25 years through capital gains and rental. When inflation is taken into account that works out at £111,468 (in today’s money) or around £4,459 per year. The breakdown applies to a basic tax-paying landlord placing a characteristic 25% deposit on a £117,000 terraced/town house property.

Capital gains make up a substantial part of a landlord’s returns. Again, being conservative, I have assumed that Huddersfield house prices over the next quarter century (between 2018 and 2043) will rise at half the rate they did between 1993 and 2018 (the preceding 25 years), therefore the example Huddersfield property in the previous paragraph would grow in value to £242,132, providing gross capital gains of £125,132.

A typical Huddersfield landlord receives, on average, rent of £6,000 per annum per terraced/town house property and so, over a 25-year period, that example property would generate a total rental income of £229,350 (again – very conservatively assuming a compound annual growth rate in the rent of 1.71% per annum).

Nevertheless, there are costs to running a buy to let property (mortgages, void periods, repairs, agents fees etc) .. and over those same 25 years, I have estimated that to be £165,232  .. giving the net profit levels mentioned in the second paragraph.

Now of course I have had to make assumptions to reach these figures, yet I hope you would agree, I have been very unadventurous with my assumptions.

The Huddersfield (and UK as a whole) buy to let property market is experiencing a massive sea of change. Regulation and tax changes have altered the dynamic in the property market, diminishing its appeal to inexperienced and amateur landlords, and these new tax changes mean higher tax bills for higher rate tax landlords. Yet, despite these rising costs, there are still healthy returns to be found in Huddersfield buy to let investment for knowledgeable and steadfast landlords. Nonetheless, the days of anything making money and idle speculation are long gone.

Buy to let is a long-term business undertaking, necessitating commitment and expertise. Don’t put your head in the sand and think it doesn’t affect you. Huddersfield buy to let landlords must be equipped to start business and tax planning, take portfolio management advice to ensure their investments will meet their investment goals, appreciate the risks as well as the rewards, and, most crucially, the obligations they have towards their tenants.

If you are a Huddersfield landlord, irrespective of whether you are a client of mine or another agent in Huddersfield (or even you do it yourself), feel free to drop me a line or pop into the office for an informal chat on the future direction of the Huddersfield rental market and where opportunities may lie. 

Additional 5,560 Huddersfield Rented Homes Required by 2027

I have been doing some research, looking both at National and Regional reports on the demand and supply of property and people together with future projections on the economy, population and family demographics with some interesting results.  According to the Office of National Statistics, in the last financial year nationally, private renting grew by 74,000 households, whilst the owner occupied dwelling stock increased by 101,000 and social (aka council and housing association) stock increased by 12,000 dwellings.

It was the private rental figures that caught my eye.  With eight or nine years of recovery since the Credit Crunch, economic recovery and continuing low interest rates have done little to setback the mounting need for rented housing.  In fact, with house price inflation pushing upwards much quicker than wage growth, this has meant to make owning one’s home even more out of reach for many Millennials, all at a time when the number of council/social housing has shrunk by just over 2.5% since 2003, making more households move into private renting.

There are 28,364 people living in 12,973 privately rented

properties in Huddersfield.

In the next nine years, looking at the future population growth statistics for the Huddersfield area and making careful and moderate calculations of what proportion of those extra people due to live in Huddersfield will rent as opposed to buy, in the next ten years, 12,156 people (adults and children combined) will require a private rented property to live in.

Therefore, the number of Private Rented homes in Huddersfield will need to rise by 5,560 households over the next nine years,

That’s 618 additional Huddersfield properties per year that will need to be bought by Huddersfield landlords, for the next nine years to meet that demand.

… and remember, I am being conservative (with a small ‘c’) with those calculations, as demand for privately rented homes in Huddersfield could still rise more abruptly than I have predicted as I would ask if Theresa May’s policies of building 400,000 affordable homes (which would syphon in this 5-year Parliamentary term is rather optimistic, if not fanciful?

So, one has to ask wonder if it was wise to introduce a buy to let stamp duty surcharge of 3% and the constraint on mortgage tax relief could curtail and hold back the ability of private landlords to expand their portfolios?

Well a lot of landlords are taking on these new hurdles to buy to let and working smarter.  Buying the property at the right price and using an agent to negotiate on your behalf (we do this all the time) ... and the 3% stamp duty level isn’t an issue.  Incorporating your property portfolio into a Limited Company is also a way to circumnavigate the issues of mortgage tax relief (although there are other hurdles that need to be navigated on that tack), but just look at the growth of proportion of Buy to Let properties in the Country since the Summer of 2016 ... something tells me smart Landlords are seeing these challenges as just that ... challenges which can be overcome by working smarter.

I have a steady stream of Huddersfield landlords every week asking me my opinion on the future of the Huddersfield property market and their individual future strategy and, whether you are a landlord of mine or not, if you ever want to send me an email or pop into my office to chat on how you could navigate these new Buy to Let waters ... it will be good to speak to you (because you wouldn’t want other landlords to have an advantage over you – would you?).

55% Drop in Properties For Sale Today in Huddersfield Compared to 10 Years Ago

There is good news for Huddersfield buy to let landlords as ‘top of the range’ well-presented properties are getting really decent rents compared to a year ago however, this rise in rents is thwarting many potential first time buyers from saving for both a deposit and money for a rainy day. On top of this, there is also a shortage of Huddersfield homes coming on the market thus adding fuel to the slowdown and affecting not just Huddersfield first time buyers but also those going up the housing ladder.

Whilst it is true that the Government’s initiatives, targeted at improving the supply of homes built and helping first time buyers obtaining necessary funding, are starting to work (albeit slowly), I also believe that to boost more existing home-owners and their properties onto the market, we as a Country, need to see a better focus placed on those looking to downsize (i.e. the mature generation).

If we took away some hurdles to home owners downsizing, such as removing stamp duty for those downsizers (as was done for first time buyers last year), together with encouraging even more first-time buyers with 100% mortgages to buy the smaller properties, this would in turn release more mid-range properties onto the market, which subsequently would encourage more mature homeowners to downsize from their bigger properties to buy those mid-range properties - thus completing the circle.

Looking at the most recent set of data from the Land Registry for Huddersfield (the HD3 postcode in particular), the figures show the indifferent nature of the current Huddersfield property market.

Only 291 Huddersfield (HD3) Homes changed hands in the last 6 months

Huddersfield property values and transactions continue to be sluggish, and the monthly peaks and troughs of house prices and properties changing hands doesn’t mask the deficiency of suitable realistically priced property coming onto the Huddersfield property market, meaning the housing market is slowly becoming inaccessible to some would-be home owners.

Looking at what each property type is selling for in HD3 (note the data from the Land Registry is always 4/5 months behind) makes interesting reading ….

	Aug-17	Sep-17	Oct-17	Nov-17	Dec-17	Jan-18		Percentage Change Between Aug 17 and Jan 18
Detached	£271,152	£299,143	£281,735	£281,049	£324,031	£292,746		7.96%
Semi Detached	£184,003	£172,918	£159,314	£160,623	£174,399	£118,625		-35.53%
Terraced	£128,806	£122,822	£93,227	£186,562	£142,526	£132,116		2.57%
Apartment	£129,988	£113,250	£84,650	£137,667	£133,925	£103,000		-20.76%
Average	£187,626	£184,872	£167,121	£192,014	£194,432	£153,907		-17.97%

One must remember these are the average prices paid, so it only takes a run of a few expensive or cheaper property types (as can be seen with the variance in the Detached and Semi Detached in the table) to affect the figures..

Looking at the numbers of properties for sale … I looked at my research for early Summer 2008, and at that time, 1,233 properties were on the market for sale in Huddersfield.. and when I did my research on this article today, just 559 properties for sale.. a drop of 55%.

The Government needs to seriously consider the supply and demand of the UK property market as a whole to ensure it doesn’t seize up. It needs to do that with bold and forward-thinking plans but, in the meantime, people still need a roof over their head, so as local authorities don’t have the cash to build new houses anymore, it’s the job of Huddersfield landlords to take up the slack. I must stress though, I have noticed a distinct ‘flight to quality’ by Huddersfield tenants, who are prepared to pay top dollar for an exceptional home to rent.  If you want to know what tenants are looking for and what type of things you as a Huddersfield landlord need to do to maximise your rental returns – drop me a line.

Huddersfield Property Values 4.5% higher than year ago – What’s the PLAN to fix the Huddersfield Property Market?

It’s been nearly 18 months since Sajid Javid, the Tory Government’s Housing Minister published the White Paper “Fixing the Broken UK Housing Market”, meanwhile Huddersfield property values continue to rise at 4.5% (year on year for the council area) and the number of new homes being constructed locally bumps along at a snail’s pace, creating a potential perfect storm for those looking to buy and sell.

The White Paper is important for the UK and Huddersfield people, as it will ensure we have long-term stability and longevity in property market as whole. Huddersfield home-owners and Huddersfield landlords need to be aware of these issues in the report to ensure they don’t lose out and ensure the local housing market is fit for purpose. The White Paper wanted more homes to be built in the next couple of decades, so it might seem counter-intuitive for existing home-owners and landlords to encourage more homes to be built and a change in the direction of housing provision – as this would appear to have a negative effect on their own property.

Yet the country needs a diversified and fluid property market to allow the economy as whole to grow and flourish ... which in turn will be a greater influence on whether prices go up or down in the long term. I am sure every homeowner or landlord in Huddersfield doesn’t want another housing crisis like we had in 1974, 1988 and most recently in 2008.

Now, as Sajid Javid has moved on to the Home Secretary role, the 17th Housing Minister in 20 years (poisoned chalice or journeyman’s cabinet post) James Brokenshire has been given the task of making this White Paper come alive. The White Paper had a well-defined notion of what the issues were.

The first of the four points brought up was to give local authorities powers to speed up house building and ensure developers complete new homes on time. Secondly, statutory methods demanding local authorities and builders build at higher densities (i.e. more houses per hectare) where appropriate. The other two points were incentives for smaller builders to take a larger share of the new homes market and help for people renting.

However, lets go back to the two initial points of planning and density.

(1) Planning

For planning to work, we need a robust Planning Dept. Looking at data from the Local Government’s Association, in Kirklees, the council is below the regional average, only spending £30.94 per person for the Planning Authority, compared the regional average of £36.92 per head – which will mean the planning department will be hard pressed to meet those targets.

However, 91% of planning applications are decided within the statutory 8-week initial period, above the regional average of 87% (see the graph below).  I am slightly disappointed and also pleased with the numbers for our local authority when it comes to the planning and the budget allowed by our Politician to this vital service.

(2) Density of Population

10.3 people live in every hectare (or 2.471 acres) in Kirklees

It won’t surprise you that 373,540 of 422,458 Kirklees residents live in the urban conurbations of the authority, giving a density of 20.8 people per hectare (again – much lower than I initially thought), whilst the villages have a density of 2.1 people per hectare.

I would agree with the Governments’ ambition to make more efficient use of land and avoid building homes at low densities where there is a shortage of land for meeting identified housing needs, ensuring that the density and form of development reflect the character, accessibility and infrastructure.

It’s all very good building lots of houses – but we need the infrastructure to go with it.

Talking to a lot of Huddersfield people, their biggest fear of all this building is a lack of infrastructure for those extra houses (the extra roads, doctors surgeries, schools etc.). I know most Huddersfield homeowners and landlords want more houses to be built to house their family and friends ... but irrespective of the density ... it’s the infrastructure that goes with the housing that is just as important ... and this is where I think the White Paper failed to go as far as I feel it should have done.

Interesting times ahead I believe!