Local property market information for the serious investor

Month: July 2017

The Unfairness of the Edgware Baby Boomer’s £5,424,230,000 Windfall? (Part 1)

Recently I was having a chat with one of my second cousins at a big family get-together. The last time I had seen them their children were in their early teens. Now their children are all grown up, have partners, dogs and children. Wow – how time flies!

So, I got talking over a glass of lemonade with my 2nd cousins and a couple of their children, about the times of 15% interest rates and how the more mature members of our family had to endure the 3 day week, 20% inflation and the threat of nuclear annihilation in 4 minutes .. so, foolishly, I said what with all the opportunities youngsters had today, they had never had it so good!

Trust one of my cousin’s children to have gained some financial/economics qualifications before going to Law School, as they debated with me the genuine economic predicament of Millennials and how a combination of student debt, unemployment, global proliferation, EU migration and rising house values is reducing the salaries and outlook of masses of the UK’s younger generation, causing an unparalleled disparity of wealth between the generations. So of course I asked why that was?

They said Millennials were paying the price for the UK’s most spectacular bookkeeping catastrophe to date (bigger than the Bank bailout after the Credit Crunch). Back in the 1950’s and 1960’s, nobody predicted us Brit’s would live as long as we do today, and in such abundant numbers. The OAP pensions that were promised in the past (be that Government State Pension or Company Final Salary Schemes) which appeared to be nothing fancy at the time, are now burdensomely over-lavish, and that is hurting the Millennials of today and will do so for years to come.

Bringing it back to property, the young 2nd cousin once removed ‘soon to be’ lawyer, stated that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices over the 1970’s/80’s/90’s and 2000’s. Add to that their decent pensions, meaning cumulatively, their wealth has grown exponentially through no skill of their own.

This disparity of wealth between the older and younger generations could have unparalleled consequences for the living standards of younger Millennials…. So Houston Edgware – do we have a problem??

Well Edgware Property Blog readers, you know I like a challenge. I can’t disagree with some of what the younger family member said, but there are always two sides to every story, so I thought I would do some homework on the matter ..

Since 1990, the average value of a property in Edgware has risen from £97,200 to its current level of £511,200. As there are a total of 13,102 homeowners aged over 50 in Edgware; that means there has been a £5.42bn windfall for those Edgware homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000’s.

I must admit that the growth in property values in the 1990’s and 2000’s certainly helped many of Edgware’s baby boomers. The figures do appear to put into reverse gear the perceived wisdom that each generation gets wealthier than the previous one  … and so with all this wealth, the figures do back up the youngsters argument that Millennials are being priced out of home ownership.

Or do they? Are they?

Next week, I will carry on this discussion where I will give the Baby Boomer’s defence to the prosecution’s case!

If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Edgware Property Market together with regular postings on what I consider the best buy to let deals in Edgware, out of the many of properties on the market, irrespective of which agent is selling it, then feel free to get in touch! Email me at Steve@benjaminstevens.co.uk

If you are in the area feel free to pop into the office we are based at 194 Station Road Edgware Middlesex HA8 7AT– the kettle is always on.

Don’t forget to visit the links below to view back dated deals and Edgware Property News.

Blog – http://www.benjaminstevens.co.uk/edgware-property-blog

Facebook – https://www.facebook.com/BenjaminStevensEstateAgents

Twitter – https://twitter.com/BenjamStevensEA

Website – http://www.benjaminstevens.co.uk

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The Edgware Property Market, The Beatles, Sweden and 50 year mortgages

50 years ago, in 1967, the first human heart transplant was performed by Dr Christian Barnard in South Africa. In the same year Sweden switched from driving on the left-hand side to the right-hand side of the road. The average value of an Edgware property was £6,779, interest rates were at 5.5% and The Beatles released one of my favourite albums – their Sgt Peppers album … but what the hell has that to do with the Edgware property market today?? Quite a lot actually … so with my CD Player turned up loud – let me explain my friends!

I have been doing some research on the current attitude of Edgware first-time buyers.  First-time buyers are so important for both landlords and homeowners. If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (good news for landlords). If they buy, demand for Edgware property goes up for starter homes and that enables other Edgware homeowners to move up the property ladder.

First-time buyers are the lifeblood of the property market. They are, however the most susceptible to interest rate rises and the affordability of mortgages. With that in mind, let us see what is happening to them…

The average value of an Edgware property is currently standing at £511,223 and UK interest rates at 0.25%. As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off.

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’ have been helping with the deposit (Beatles Sgt Pepper song – “With a Little Help from My Friends”). Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid 60’s – I can hear that other great track from the same album “When I’m Sixty-Four” ringing in my ears! So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s. After all life expectancy for a male then was exactly 69 years and today its 79 years and 5 months!

Over the last ten years, Edgware property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans. If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan.

However, some commenters have said there are worries the mortgage companies are lending money over such a long term, they threaten leaving some first-time buyers with a generation of debt if the house price bubble bursts.  Interestingly, when I looked at what had happened to average property values in Edgware over the last 50 years, there have been bubbles. First-time buyers should take heart, since as a county we have always recovered from it a few years later.

 

 

What if interest rates rise? Well looking at historic UK interest rates, the current rate of 0.25% is at a 300-year low. Mortgages will never be cheaper. I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). If Edgware first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!

 

Before I go, a final thought for property buyers in Sweden, the land of Volvo and Abba. As Swedish property prices are so high, Swedish Regulators announced last year limits on the length of Swedish mortgage terms. They don’t bother with 50-year mortgages (On and On and On – Abba).

No, our Volvo-loving Swedish friend’s average mortgage length is 140 years (this is not a typo). Although such mortgages have had their Waterloo (Abba), regulators have significantly reduced the maximum term of a Swedish mortgage to 105 years. Either way, that’s a lot of Money, Money, Money (Abba again – Sorry!)  to pay back!

Now I will leave you in peace as I listen to the 1980’s Madness song ‘Our House’. My apologies to all the Beatles and Abba fans in Edgware – a bit of light hearted fun albeit on serious topic.

If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Edgware Property Market together with regular postings on what I consider the best buy to let deals in Edgware, out of the many of properties on the market, irrespective of which agent is selling it, then feel free to get in touch! Email me at Steve@benjaminstevens.co.uk

If you are in the area feel free to pop into the office we are based at 194 Station Road Edgware Middlesex HA8 7AT– the kettle is always on.

Don’t forget to visit the links below to view back dated deals and Edgware Property News.

Blog – http://www.benjaminstevens.co.uk/edgware-property-blog

Facebook – https://www.facebook.com/BenjaminStevensEstateAgents

Twitter – https://twitter.com/BenjamStevensEA

Website – http://www.benjaminstevens.co.uk

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Edgware Buy-To-Let Predictions up to 2037

On several occasions over the last few months, in my Edgware Property Blog, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.

Rents in Edgware for new tenancies fell by 1.2% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Edgware, an interesting pattern emerges ..

  • 2016 – Rental Inflation in Edgware was 7.7%
  • 2015 – Rental Inflation in Edgware was 9.2%
  • 2014 – Rental Inflation in Edgware was 9.4%

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House).

 

On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Edgware property prices has compounded this.  Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty. So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Edgware, Greater London and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics.

Population Estimates for Barnet London Borough Council over the next 20 years
2016 (actual) 2021 2026 2031 2036
388,416 417,092 441,372 462,884 482,869

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Edgware, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up!

The fact is that I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.

If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Edgware Property Market together with regular postings on what I consider the best buy to let deals in Edgware, out of the many of properties on the market, irrespective of which agent is selling it, then feel free to get in touch! Email me at Steve@benjaminstevens.co.uk

If you are in the area feel free to pop into the office we are based at 194 Station Road Edgware Middlesex HA8 7AT– the kettle is always on.

Don’t forget to visit the links below to view back dated deals and Edgware Property News.

Blog – http://www.benjaminstevens.co.uk/edgware-property-blog

Facebook – https://www.facebook.com/BenjaminStevensEstateAgents

Twitter – https://twitter.com/BenjamStevensEA

Website – http://www.benjaminstevens.co.uk

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4,905 Edgware Landlords – Is This a Legal Tax Loop-Hole?

In  November 2015, George Osborne disclosed plans to restrain the buy-to-let (BTL) market, implying its growing attractiveness was leaving aspiring first time buyers contesting with landlords for the restricted number of properties on the market.  One of things he brought in was that tax relief on BTL mortgages would be capped, starting in April 2017.  Before April 2017, a private landlord could claim tax relief from their interest on their BTL mortgage at the rate they paid income tax – (i.e. 20% basic /40% higher rate and 45% additional rate).

So, for example, let’s say we have an Edgware landlord, a high rate tax payer who has a BTL investment where the rent is £900 a month and the mortgage is £600 per month.  In the tax year just gone (16/17), assuming no other costs or allowable items …

  • Annual rental income £10,800.
  • Taxable rental income would be £3600 after tax relief from mortgage relief
  • Meaning they would pay £1,440 in income tax on the rental income

And assuming no other changes … the landlord would have income tax liability’s (at the time of writing May 2017) in the tax years of …

  • (17/18) £1,800
  • (18/19) £2,160
  • (19/20) £2,520
  • (20/21) £2,880

Landlords who are higher rate tax payers are going to have be a lot smarter with their BTL investments and ensure they are maximising their rental properties full rental capability.  However, there is another option for landlords.

The Edgware landlords who own the 4,905 Rental properties

in the town could set up a Limited Company and sell their

property personally to that Limited Company

In fact, looking at the Numbers from Companies House – many landlords are doing this.  In the UK, there are 93,262 Buy To Let Limited Companies, and since the announcement in November 2015 – the numbers have seen a massive rise.

  • Q2 2015 / Q3 2015 – 4,193 Buy to Let Limited Companies Set Up
  • Q4 2015 / Q1 2016 – 5,403 Buy to Let Limited Companies Set Up
  • Q2 2016 / Q3 2016 – 3,007 Buy to Let Limited Companies Set Up
  • Q4 2016 / Q1 2017 – 7,149 Buy to Let Limited Companies Set Up

So, by selling their buy to let investments to their own limited company, owned 100% by them, these landlords could then offset the costs of running their BTL’s as an ‘allowable expense’ – effectively writing off the cost of 100% of their mortgage outgoings, wear and tear and upkeep, letting agent’s fees etc.

I am undeniably seeing more Edgware landlords approach me for my thoughts on setting up a BTL limited company, so should you make the change to a limited company?

In fact, I have done some extensive research with companies house in the 15 months (1st January 2016 to 31st March 2017 and 366 Buy To Let Limited Companies have been set up in the HA postcode alone).

Well if you are looking to hold your BTL investments for a long time it could be very favourable to take the short-term pain of putting your BTL’s in a limited company for a long-term gain.  You see, there are huge tax advantages to swapping property ownership into a limited company but there are some big costs that go with the privilege.

As the law sees the new Limited Company as a separate entity to yourself, you are legally selling your BTL property to your Limited Company, just like you would be selling it on the open market. Your Limited company would have to pay Stamp Duty on the purchase and if you (as an individual) made a profit from the original purchase price, there could be a capital gains tax liability of 18% to 28%.  The mortgage might need to be redeemed and renegotiated (with appropriate exit charges).

On a more positive note, what I have seen though by incorporating (setting up the Limited Company) is landlords can roll up all their little buy to let mortgages into one big loan, often meaning they obtain a lower interest rate and the ability to advance new purchase capital.  Finally, if the tax liability is too high to swap to a limited company, some savvy buy to let investors are leaving their existing portfolios in their personal name whilst purchasing any new investment through a limited company?  Just an idea (not advice!).

It’s vital that landlords get the very best guidance and information from tax consultants with the right qualifications, experience and insurance.  Whatever you do, always get the opinions from these tax consultants in writing and you shouldn’t hurry into making any hasty decisions.  The modifications to BTL tax relief are being progressively eased in over the next three years so there is no need to be unnerved and rush into any decisions before finding out the specifics as they relate precisely to your personal situation, because with decent tax planning (from a tax consultant) and good rental / BTL portfolio management (which I can help you with) … whatever you do – let’s keep you the right side of the line!

If you are a landlord or thinking of becoming one for the first time, and you want to read more articles like this about the Edgware Property Market together with regular postings on what I consider the best buy to let deals in Edgware, out of the many of properties on the market, irrespective of which agent is selling it, then feel free to get in touch! Email me at Steve@benjaminstevens.co.uk

If you are in the area feel free to pop into the office we are based at 194 Station Road Edgware Middlesex HA8 7AT– the kettle is always on.

Don’t forget to visit the links below to view back dated deals and Edgware Property News.

Blog – http://www.benjaminstevens.co.uk/edgware-property-blog

Facebook – https://www.facebook.com/BenjaminStevensEstateAgents

Twitter – https://twitter.com/BenjamStevensEA

Website – http://www.benjaminstevens.co.uk

 

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