‘Taxing’ Time for the 7,402 Huddersfield Buy To Let Landlords

Over the last twenty years, there has been a shift in the way the Huddersfield (and the UK’s) property market works. In the 1960’s, 70’s, 80’s and 90’s, a large majority of twenty somethings saved up their 5% deposit, went without life’s luxuries of going out and holidays etc., for a couple of years and then bought their first home with their hard earned savings.

By 2000, 51.4% of Huddersfield 25 to 29 years owned their own home (compared to 46% Nationally (and 71.8% of Huddersfield 30 to 34 year olds in 2000 owned their own home – again compared to 64.2% nationally) whilst the remaining youngsters mostly rented from the Council and in some rare cases, privately rented.

Now it’s 2018, and those levels of homeownership have slipped dramatically and now only 27.4% of Huddersfield 25 to 29 year olds own their own home and 48.3% of Huddersfield 30 to 34 year olds own their own home (interestingly mirroring the National picture of 24.5% for the younger age cohort and 64.2% for the older 30 to 34 year cohort).

There was concern in Government since the late Noughties that this shift from homeownership to private renting wasn’t good for the well-being of the Country and things needed to change, to make it a more level playing field for first time buyers. House prices needed to be more realistic and there needed to be a carrot and stick for both landlords and first time buyers.

In the 1980’s and 1990’s, interest rates were the weapon of choice of Government to cool or heat up the UK housing market – and it did work – up to a point. It’s just interest rates also affected so many other sectors of the UK economy (and not always a in good way). The policy of interest rates to control the economy is called ‘Monetary Policy’. Monetary policy is primarily concerned with the management of interest rates (and the supply of money) and is carried out by the Bank of England (under direction from the Government).

It’s just in this post Credit Crunch, Brexit environment, the use of higher interest rates wouldn’t directly affect landlords (as around two thirds of buy to let properties are bought without a mortgage). Therefore, an increase in interest rates would have hardly any effect on landlords and hit the first time buyers - the people the Government would be trying to help!

Also, given muted growth of real income (i.e. real income being the growth salaries after inflation) in the past few years, an uplift in interest rates (from their ultra-low 0.5% current levels) would have a massive effect on Brit’s household disposable income. Yet, over 90% of new mortgages in 2018 being taken are fixed rate and with such low rates, it has made buying a property comparatively attractive.

Instead, over the last 8 years, the Government has encouraged first time buyers and clipped the wings of landlords with another type of economic policy – Fiscal Policy (Fiscal Policy is the collective term for the taxing (and spending) actions of the Government).  First time buyers have had the Help to Buy Scheme, Stamp Duty Exemption and contributions to their deposit by HMRC. On the other side the coin, landlords have had the way they are able to offset the tax relief of their mortgage payments against income change (for the worse), an increase in Stamp Duty (for the worse) and they will be hit with additional costs as the Government will be phasing out fees to tenants in the next 12 to 18 months.

So, what does this all mean for the 7,402 Huddersfield landlords?

The days of making money in Huddersfield buy to let with your eyes closed are long gone. There are going to be testing times for Huddersfield landlords, yet there is still a defined opportunity for those Huddersfield landlords who are willing to do their homework and take guidance from specialists and experts.

It’s all about looking at your Huddersfield portfolio (or getting a property professional to do so) and ascertaining if your current portfolio, mortgage and gearing are designed to hit what you want from the investment (because that is what it is – an investment) in terms of income now and income in the future, capital growth and when you plan to dispose of your assets.

I have seen many Huddersfield landlords (both who use me and my competitors) to manage their rental property or find them tenants – and on many occasions recently, I have told them to SELL – yes sell some of their portfolio to either reduce mortgage debt or buy other types of property that match what they want in the short and long-term from their investments. I know that sounds strange – but my role isn’t just to collect the rent  .. it’s also to give strategic advice and opinion on the landlord’s portfolio to help them meet their current and future investment goals.

The opportunities will appear in the Huddersfield property market for Huddersfield landlords from gentler growth in property values linked with a restrained Huddersfield property market, meaning if you put in the time, there will be deals and great bargains to have. Many landlords in Huddersfield (both clients and non-clients) send me Rightmove links each week, asking my opinion on the suitability of the investment. Some are exceptional – whilst others are duds. The bottom line is, private renting will continue to outgrow first time buyers in the next 5 to 10 years and as we aren’t building enough homes in the UK, which means rents can only go in one direction – upwards!

The current average value of a property in Huddersfield currently stands at £172,150 and the base rates at 0.5%. In many of my articles, I talk about what is happening to property values over the short term (i.e. the last 12 months or the last 5 years), but to answer this question we need to go back over 40 years, to 1975.

The average value of a Huddersfield property in 1975 was £8,334

However, since 1975, we have experienced in the UK, inflation of 807.5%.

Back in 1975, the average salary was £2,291 and average car was £1,840. A loaf of bread was 16p, milk was 28p a pint and a 2lb bag of sugar was 30p. Inflation has increased prices, so comparing like for like, we need to change these prices into today’s money. In real spending power terms, an average value of a Huddersfield house in 1975, expressed in terms of today’s prices is £75,641.

That means in real terms, property costs a lot more today, than in the mid 1970’s, but has it always been that way? Looking at the important dates of the UK property market, you can see from this table, the last two property boom years of 1989 and 2007, show that there was a significant uplift in the cost/value of property (when calculated in today’s prices).

Huddersfield House Prices Adjusted for Retail Prices.
1975	1979	1982	1989	1997	2007	2009	Today
£69,974	£82,102	£68,597	£121,890	£76,592	£200,050	£163,055	£172,150
Office for National Statistics Retail Price Index was applied to convert nominal property values to current values

Before we move on, hold onto the thought that you can quite clearly see from the table, in real terms, properties are cheaper today in Huddersfield than they were in 2007!

So, it made me wonder if there was a link between house prices, inflation and other external economic factors, such as interest rates? Interest rates have a strong influence on inflation and property values, principally because changes in the interest rate affect the cost of mortgage payments for homeowners and they affect the flow of foreign currency in (or out) of an economy, thus changing the exchange rate and prices we can sell our goods and services abroad and prices we pay on imports.

So how exactly do interest rates affect property values?

When interest rates rise, it has a substantial effect on increasing the monthly cost of mortgages. Higher mortgage payments will discourage prospective homebuyers or people looking to move up market (meaning their mortgage payments go up) – thus making it comparatively cheaper to rent.

Furthermore, the high cost of mortgage payments sometimes also pushes some existing home owners to sell, meaning there is an increase in house sellers and a decline in house purchasers, and as the law of economics state, when supply is increased and demand falls, (house) prices fall. Another fallout of a rise in mortgage payments is a rise in repossessions. Interestingly, repossessions in the UK rose from 15,000 per annum in the late 1980’s to over 75,000 per annum in the early 1990’s, meaning even more properties came onto the market, exasperating the issue of over supply – pushing property values even lower.

High interest rates caused property values to fall in mid 1970’s, early 1980’s and most recently, the early 1990’s (who can remember the 15% mortgage rate!) Conversely though, the drop in property values in 2008/2009 – was not due to interest rates, but due to the credit crunch and global recession.

So, what will happen if when interest rates rise?

It is vital to remember that interest rates are not the only factor affecting property values. It is also possible that when interest rates increase (which they will from the current 0.5%), property values can also continue to rise (it happened throughout the mid to late 1980’s and again between the boom years of 2002 and 2007). When confidence in the economy is good, and we as a Country experience a period of rising real incomes (i.e. after inflation), then the British in the past have continued to buy bricks and mortar, notwithstanding the rise in interest rates.

Another important factor on property values is the supply of housing. A big reason in the current level of Huddersfield house prices is due to the shortage of supply, which has kept property values higher than I would have expected. An additional factor is whether homeowners have a variable or fixed rate mortgage. 90.6% of new mortgages taken in the last Quarter were at a fixed rate, and 66.2% of all mortgaged homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they re-mortgage in a few year’s time, meaning there is frequently a time-lag between higher interest rates and the effect on property values. Another factor on mortgages is the ability to get one in the first place. Back in 2014, mortgage providers were told to be stricter on their lending criteria when arranging mortgages following the footloose days of 125% loan to value mortgages with the Northern Rock.  These new rules are a lot more rigorous on borrowers' ability to repay the payments (although it makes me laugh, when with starter homes it nearer is always cheaper to buy then rent!).

I think the final point is this … affordability is the key. Look at the graph (the red bars) and you will see in REAL HOUSE PRICE terms – it’s cheaper to buy a home today than it was in 2007, yet why aren’t we seeing people buying property at the levels we were seeing in the 2000’s before the credit crunch? Again, looking at the reasons why, I will talk about in future articles.

In conclusion, interest rates are important – but nowhere near as important on the Huddersfield (and British) property market than they were 15 or 20 years ago.

So, before I go, one final thought - how do we measure the success of the Huddersfield property market? Well I believe one measure that is a good bellwether is the number of property transactions, as that could show a more truthful picture of the health of the property market than property values. Maybe I should talk about that in an up and coming article?

New Home Building in Huddersfield and Kirklees over the last 10 years

Should you, as a landlord for buy to let or for personal occupation, buy a brand-new home?

Well, let’s start by looking at the numbers …

Over the last 10 years, 4,088 new homes have been built in the Kirklees area

That is a lot of bricks and mortar! Roll the clock back twenty years in the Huddersfield property market, and there were two distinct camps of property buyers - folks who would only contemplate living in period character properties with their original fireplaces and beams, and those people who preferred the low maintenance of a new home. Old period homes were ridiculed as money pits by new-home aficionados, while new-home owners were accused of buying boring boxes, all vanilla, all the same, homogenous and bland.

However, it’s not as black and white as that anymore – or not as I see it in Huddersfield. New homebuilders are now trying to change their cookie-cutter uniform rows of suburban boxes into developments that are as individual as the families that love in them, thus increasing their appeal. Nonetheless, whether you choose a stone cottage, archetypal Victorian semi or terrace, 1970’s/80’s functional home or a untouched new home, whatever home you buy, it can result in supplementary costs that are often not taken into math’s when buying by potential homeowners or buy to let landlords.

So looking at the numbers in greater detail, let’s see what type of new homes people have been buying in Huddersfield and the wider local authority area ..

	Number of New Homes Built in Our Local Authority in the last Decade	New Homes Built in Our Local Authority in the last Decade as a Percentage	New Homes Built Nationally in the last Decade as a Percentage
Detached	1,171	28.6%	29.2%
Semi	801	19.6%	21.9%
Terraced	1,200	29.4%	26.6%
Flat	916	22.4%	22.3%

I thought the mix of what was built/bought locally over the last 10 years when compared to the national figures was fascinating … it’s interesting (but not surprising) to see a greater proportion of terraced homes built locally and fewer semi detached homes being built, when compared to the national averages. This is because of the nature of the Huddersfield area, its position in the country, the availability of building land, planning restrictions by Kirklees Metropolitan Borough Council and the price of building land.

So, should you buy a new home (because a lot of people locally have over the last ten years)?

Well if you are considering new, take care when buying one, as often the show home isn’t the actual property you end up buying. It’s like visiting the car showroom and falling in love with the model in the showroom (which is spec’d up to an inch of its life) – only to get the base model when handed the keys. Look out for things like curtain rails, tv aerials (or lack of them), kitchen appliances, carpets and curtains … and outside – make sure you aren’t unwittingly buying a square piece of earth instead of the manicured landscaped gardens.

New homes are a lot more efficient on energy consumption compared to the old drafty, high fuel bill Victorian semis, as their owners can testify. Older properties will have maintenance issues, with 100yo brickwork and roofs that might need replacement and extra insulation, rotten wooden windows and a dodgy central heating boiler (all sounding rather a strain on your bank balance if you weren’t aware). The point I am trying to get across is open your eyes and don’t assume .. ask questions and get a surveyor to make a detailed inspection of the property so you know what you are getting yourself into.

Next, I also wanted to break down the new home stats to each individual year in our local area to see if there was a pattern to when people bought a new home. As you can see, there has been a drop in new homes selling since 2012. Looking at the much larger second hand housing market in Huddersfield over the same 10 years, the coloration between the new homes market and second market has been quite strong – which shows the new home builders don’t make (or break) the Huddersfield housing market – just follow it (although with the planned building locally in the next 10/20 years – who knows if that will continue to be the case?).

So, should you buy brand-new or second hand? If price is your sole motivator, then new homes are always CHEAPER when the economy is bad. However, in normal and good housing market conditions, you will pay a ‘new build premium’. The Royal Institute of Chartered Surveyors admits that this can be as high as 10% extra, when compared to a similar second hand property – so be aware of that (it’s like paying extra for a new car and losing a bit (or a lot) of money as soon as you drive off the forecourt). Although, it’s not always about pure pound notes.

Older houses are bigger (more room) yet take more money to heat. Older houses have bigger gardens (to enjoy) – but you will spend more time tending to them. Older houses are in more established areas (with more facilities), whilst everyone is starting afresh on new homes. It all comes down to personal opinion. One final thought though, at least with new homes there is no gazumping or no upward chain to ruin any sale completion dates …

The choice as they say … is yours!

The Huddersfield Bank of Mum and Dad Lent £5.55m Last Year

My analysis has shown that up to the end of the last quarter, Huddersfield first time buyers purchased 711 Huddersfield properties.  With wages rising at 2.8%, unemployment at a low rate of 4.2% (down from 4.6% from a year earlier and the joint lowest since 1975), national GDP rising at 1.87% and inflation at 2.3%, tied in with indifferent house price growth (compared to a few years ago), this has given first time buyers a chance to get a foot hold on the Huddersfield property market.

Over the last year, the average purchase price of a Huddersfield first time buyer property has been £110,300 and the average deposit was £17,869. Furthermore, my calculations show the average Huddersfield parents contributed £7,818 of that £17,869 figure.

You see “The Bank of Mum and Dad (Huddersfield Branch)” is for countless Huddersfield twenty something’s, perceived to be the only way they will ever be able to afford their first home. In fact, Huddersfield parents put up a substantial £5.55m in the last 12 months to help their nearest and dearest progeny onto the property ladder. This assistance towards the deposit makes a huge difference, enabling Huddersfield youngsters who thought they couldn’t get on the housing ladder more able to do so.

With mortgage rates at all-time lows, few Huddersfield twenty something’s would struggle to make mortgage repayments, but it is the requirement of the deposit which is the issue, although as parents (and grandparents) are helping out where they can, it does little to address the real problems of the housing market, whether for people renting or buying their first home.

If you think about it, as a Country we have been fortunate that the older generation who control the biggest share of the nation’s wealth are so plentiful to those following after. We need to remember, though, that this generosity is
 a sign of the issues of the British housing shortage, not its solution.

But before I leave this article … note I used the word PERCEIVED in a previous paragraph. Yes, the average first time buyer deposit is 16.1%, but that is an average. Did you know 95% mortgages returned to first time buyers in late 2009 and have been available ever since? Also, lenders like Barclays and many local Building Society’s now offer 100% mortgages (i.e. no deposit) at 2.75% fixed for three years.

The perception is you need 15%, 20% even a 25% deposit to be a first-time buyer – you don’t! You don’t need any deposit, but (there is always a but!)...

Over the last decade, many renters have upgraded themselves into homes that they (or any generation before them) could never have ever afforded as a first time buyer in the past. You see the British housing market started to change with the dawn of the new Millennium and I am seeing a slow but steady attitude change when it comes to renting. Those tenants have found the price difference of upgrading from the typical 1970’s TV show Rigsby “Rising Damp” style rental property to plush terraced house or even semi-detached home, with all the mod cons, comparatively inexpensive (when compared to the increase in mortgage payments if they had to make the move as buyers).

Renting isn’t seen as the poor man’s choice, as many young (and increasing older) people are becoming more at ease and comfortable with the flexibility offered by private renting a property rather than jumping ‘lemming like’ into home ownership. Huddersfield landlords will continue to see growth in sector, and like Germany, todays renters will become homeowners in 20 years’ time – when they will inherit the wealth of their parent’s home.