What's Happening in the Market?
Nottinghamshire Property Market Update on BBC Radio Nottingham
Historical Property Performance
As with 2010, prices are falling back as we come out of the summer and head towards the autumn. There is only really a market for motivated sellers and buyers who are confident they can afford a property whatever happens and want to stay in it for five or more years. The only exceptions to this across the UK are wealthy areas of London which continue to buck the trend.
Nottingham's market is not bearing up as well as the national picture. In fact in the City area ,we are dangerously close to the lows of April 2009 and the big question will be whether prices will hold or slip back further than we've seen since the credit crunch.
Bad stories over the summer from abroad and lack of economic growth in the UK have just got worse with yesterday's news of unemployment going up. The government's hope that jobs in the private sector will grow at the same rate as job losses in the public sector don't seem to be stacking up at the moment. People are also starting to really feel the pinch with less money in their pockets partly due to cuts and also due to the relatively high inflation levels of nearly five per cent. This all causes a lack of confidence in the market and people typically don't move when the future is uncertain.
From a buyer's perspective, this market is great, but scary if you don't know how to play it. Buyers will see properties that have been on the market for months if not years starting to come down in price over the coming months. On the other hand this makes buyers nervous to make offers, if I buy now, will the price keep falling the day I buy it? There is no doubt that if you are going to buy a property now though and can hold on to it for at least five years, whatever the circumstances (death, divorce, debt) and if you can get a 10% discount or more, then it might be worth buying.
For sellers though, this is about as tough as a market gets, unless you are in a high equity level area of Nottingham (West Bridgford, The Park, Mapperley, Beeston) or have a particularly unique property and keen buyers with the cash to pay for it. There simply aren't the number of confident buyers out there to secure deals quickly and unless you are prepared to take the offers that are out there, hanging out for a higher price is likely to mean you'll be on the market for a long time.
What Should Buyers and Sellers be Doing?
Much of the media chatter over the last few months hasn't been about house prices and what buyers and sellers can do to help themselves to move, it's more about the UK becoming ‘a generation of renters'. For example, the Halifax recently did a survey that suggests-
"77% of all non-homeowners still aspire to owning their own home. However, despite this aspiration, nearly half of 20-45 year olds say Britain is becoming more like Europe where renting is seen as the norm and predict Britain will become a nation of renters within the next generation"
Interestingly, the 20-45 year olds (over 8,000 were surveyed) feedback that part of the reason for the belief that they can never afford a home is "longer-term, only 5% of this group are making sacrifices to save for a deposit. 95% say they have no spare cash, no interest in saving for a deposit or were trying to save but failing to do so."
In my mind, this begs the question whether people really want to own their own home in today's market, or are more interested in ‘living for today' and having cars, designer gear, holidays and a great work life balance.
The trend for people to rent rather than buy is often blamed on affordability rather than a cultural shift. However in Nottingham we have one of the most affordable areas in the UK to buy. A property can be bought for £60,000 with a 10% deposit, meaning a couple would only have to save £3,000 each and have an income of around £20,000 to secure a mortgage three times their salary. Yet despite this, a report from the National Housing Federation and Oxford Economics (see the chart below) suggests home ownership in the East Midlands will fall from around 73% down to around 65% over the next 15 years, with the private rental sector likely to benefit from the falls.
One way potential buyers and sellers could survive over the next couple of years is to turn to the rental market for help. Renting is usually portrayed as a ‘bad thing' but in fact can be very helpful in creating a flexible workforce that can upgrade or downgrade as they need.
For those wanting to buy a property but are struggling to raise the funds you could look at shared ownership or some developers even offer a ‘rent to buy' scheme whereby you can rent from them for six months or more and if you want to buy the property afterwards they will put some or all of your rental money towards a deposit.
For those that would like to buy, but don't have enough of a deposit you could:-
- Look at moving back with parents for a short period of time to help save for a deposit or rent a room from a friend/other family member.
- Rent a room with others rather than a whole property to keep your outgoings as low as possible.
- Alternatively if you aren't confident your job is safe or your circumstances may change over the next five years, it is probably better to stay renting for a while until the market starts moving upwards and you are sure if you do buy, prices won't fall back.
For those that would like to, or need to sell:-
- You may be better off renting out your existing property and renting another one until the market picks up.
- If you have enough equity and can afford to do so, you could secure a buy to let mortgage on your existing property and release enough money to buy your next home.
From an investor's or homeowner's perspective, the big question is now a good time to buy more property or should you hold off until the property market falls further?
Is now the right time to Buy to Let in Nottingham?
Since the credit crunch, we have had a lot of doom and gloom about buying property and especially investing in it! Up until recently, banks have withdrawn many buy to let mortgages. Capital growth and yields, the main measures of buy to let success, have been poor and caused some investors to lose their portfolios.
In the last 12 months though, reports of a revival in the buy to let market have been hitting the headlines. Lenders are realising buy to let investors tend to have quite high levels of equity, so can be quite a safe financial bet. Investors are managing to keep up with mortgage payments as property voids (where a property is empty) are low as tenants who are nervous or can't buy compete to rent the little stock that is available.
So is it a market worth investing in? To begin with we know that BTL for the future is likely to be a growing market. There aren't enough homes in the UK and for the first time we are seeing this lack of stock affect prices in the rental sector. Rents around Nottingham are currently increasing in line with inflation (around 5% year on year). We do have a very healthy private rental market, with lots of investors from within Nottingham and from outside the area investing in buy to let. Nottingham itself is an attractive place for BTL investors as yields tend to be higher than the national average at 7%+ and if you buy well it can deliver 10% gross yield (UK average is around 5-6%).
Capital growth in the past has also been healthy. For example if you bought a property 10-15 years ago, even with recent falls, it is likely to have doubled in value during that time, so as an asset compared to the average stocks and shares market, despite recent falls it performs very well over time.
This doesn't mean though you can just jump in and buy and property in Nottingham, let it out at a profit and then cash in on capital growth in the future. When investing for BTL it needs to be for the long term, at least 10 years, if not 15 to 20, especially when we don't know how long it will take to come out of the current economic difficulties.
Although Nottingham provides good rental returns, it is suffering from poor price increases, so you need to build in capital growth on the day you buy the property and be prepared to hold the property for as long as you need to secure some capital growth. If you are investing for yield (ie income) you will need to have at least a 7% return or ideally more to make sure you can still be cashflow positive when interest rates go back to a norm of around 5%.
To help investors, I'm running a FREE 'What's the future of Buy to Let in Nottingham' seminar on 21st September 2011. It's funded by the Belvoir Nottingham offices in Long Eaton, Bulwell and Nottingham City. So if you are interested in finding more about buy to let, or you are an existing landlord and want to know whether you have invested in the right types of properties, then come along to the:-
Future of Buy to Let Seminar
Gateway Hotel, Nuthall Road NG8 6AZ
From 6pm to 9pm
Register on-line: www.belvoirnottingham.co.uk/BTL or call Nottingham 0115 985 9259, Bulwell 0115 975 6144 or Long Eaton 0115 9724027
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