Slowing Staines Property Market? Yes and No!

My thoughts to the landlords and homeowners of Staines…

The tightrope of being a Staines buy-to-let landlord is a balancing act many do exceptionally well.

Talking to several Staines landlords, they are very conscious of their tenants’ capacity and ability to pay the rent and their own need to raise rents on their rental properties (as Government figure shows ‘real pay’ has dropped 1% in the last six months). Evidence does suggest many landlords feel more assured than they were in the spring about pursuing higher rents on their properties.

 

During the summer months, historic evidence suggests that the rents new tenants have had to pay on move in have increased. June/July/August is a time when renters like to move, demand surges and the normal supply and demand seesaw mean tenants are normally prepared to pay more to secure the property they want to live in, in the place they want to be. This is particularly good news for Staines landlords as average Staines rents have been on a downward trend recently. So look at the figures here..

 

Rents in Staines on average for new tenants moving in have risen 0.9% for the month, taking overall annual Staines rents 0.9% lower for the year

 

However, several Staines landlords have expressed their apprehensions about a slowing of the housing market in Staines. I think this negativity may be exaggerated.

Before we get the Champagne out, the other side of the coin to property investing is capital values (which will also be of interest to all the homeowners in Staines as well as the Staines buy-to-let landlords).  I believe the Staines property market has been trying to find some level of equilibrium since the New Year.  According to the Land Registry…

Property Values in Staines are 2.54% higher than they were 12 months ago, even though they dropped by 1.33% last month

 

 

However, don't forget that those sales figures reflect the sales of Staines properties that took place in early Spring 2017 and only  now are exchanging and completing during the summer months.

The reality is the number of properties that are on the market in Staines today has risen by 33.3% since the New Year and that will have a dampening effect on property values. As tenants have had less choice, buyers now have more choice ... and that will temper Staines property prices as we head towards 2018.

 

Be you a homeowner or landlord, if you are planning to sell your Staines property in the short term, it is crucial, especially with the rise in the number of properties on the market, that you realistically price your property when you bring it to the market ... with the increase in choice of properties, the balance of power during negotiation generally sways towards the buyer. Given that everyone now has access to property details, including historic stats on how much properties have sold for, they will be more astute during the offer and negotiation stages of a purchase.

However, even with this uplift in the number of properties for sale in Staines, property prices will remain stable and strong in the medium to long term. This is because the number of properties on the market today is still way below the peak of summer of 2008, when there were 288 properties for sale compared to the current level of 192 (if you recall, prices dropped by nearly 20% in Credit Crunch years of ‘08 and ‘09).

Compared to 2008, today’s lower supply of Staines properties for sale will keep prices relatively high...and they will continue to stay at these levels for the medium to long term.

Less people are moving than a few years ago, meaning less property is for sale. Fewer properties for sale mean property prices remain relatively high and this is because of a number of underlying reasons:

Firstly, buy-to-let landlords tend not sell their properties as often as  owner-occupiers,   consequently removing the property from the housing market selling cycle.

Secondly, Stamp Duty is much higher compared to 10 years ago (meaning it costs more to move). Next, there is a dearth of local authority rental housing so demand for private rented housing will remain high.

Then we have the UK’s maturing owner occupier population, meaning these older people are less likely to move (compared to when they were younger).

Another reason is the lack of new homes being built in the country (we need 240k houses a year to be built in the UK and we are currently only building 145k a year!)

and finally, the new mortgage rules introduced in 2014 about how much a person can borrow on a mortgage has curtailed demand.

Some final thoughts before I go – to all the Staines homeowners that aren’t planning to sell – this talk of price changes is only on paper profit or loss. To those that are moving ... most people that sell, are buyers as well, so as you might not get as much for yours, the one you will want to buy won’t be as much, (swings and roundabouts as Mum used to say!)

To all the Staines landlords – keep your eyes peeled – I have a feeling there may be some decent buy-to-let deals to be had in the coming months.

Supply and Demand Issues produce 1.9% rise in Staines' Property Values over the Last 12 Months

The most recent set of data from the Land Registry has stated that property values in Staines and the surrounding area were 1.89% higher than 12 months ago and 18.59% higher than January 2015. Whilst the increase for the last 12 months may not feel impressive, it is much better than the sharp drop that some were predicting after the Brexit vote and does point to a pretty resilient market.  By comparison Londoners have seen a drop of between 3% and 5% in the last 12 months.

So despite the continued uncertainty surrounding Brexit,   Staines (and most of the UK’s) property values continue their medium and long-term upward trajectory. As economics is about supply and demand,  it is worth looking at the story behind the Staines property market from both these angles.  
 

From the supply side of the Staines’ property market,  the main reason for this sustained house price growth is our historic failure to build enough new homes.

The draconian planning laws, that over the last 70 years (starting with The Town and Country Planning Act 1947) have meant the amount of land built on in the UK today, only stands at 1.8% (no, that’s not a typo – it’s one point eight percent) and that is made up of 1.1% with residential property and 0.7% for commercial property. Now I am not advocating building modern ugly carbuncles and high-rise flats in the Cotswolds, nor blotting our landscape by building massive,  out of place,  ugly 1,000 home housing estates around the beautiful countryside, locally for example close to villages like Englefield Green or Laleham.

 

But the fact is,  the restrictions on building homes for people to live in,  due to these 70-year-old restrictive planning regulations, mean that the homes the youngsters of Staines badly need, simply aren’t being built.

 

Looking at the demand side of the equation, one might have thought property values would drop because of Brexit and buyers uncertainty. However, certain commentators now believe property values might rise because of Brexit. Many people are risk adverse, especially with their hard-earned savings. The stock market is at an all-time high (ready to pop again?) and many people don’t trust the money markets. The thing about property is its tangible, bricks and mortar, you can touch it and you can easily understand it.  

The Brits have historically put their faith in bricks and mortar, which they expect to rise in value, in numerical terms, at least. Nationally, the value of property has risen by 635.4% since 1984 whilst the stock market has risen by a very similar 593.1%. However, the stock market has had a roller coaster of a ride to get to those figures. For example, in the dot.com bubble of the early 2000’s, the FTSE100 dropped 126.3% in two years and it dropped again by 44.6% in 9 months in 2007… the worst drop Staines saw in property values was just 21.91% during the 2008/9 credit crunch.
 

Despite the slowdown in the rate of annual property value growth in Staines to the current 1.89%, from the heady days of 15.71% annual increases seen in mid 2010, it can be argued the headline rate of Staines property price inflation is holding up well, especially with the squeeze on real incomes, new taxation rules for landlords and the slight ambiguity around Brexit. With mortgage rates at an all-time low and tumbling unemployment, all these factors are largely continuing to help support property values in Staines (and the UK).

 

 

 

Staines’ 987 Mortgage Time-Bombs?

According to my research, of the 11,039 properties in Staines, 4,570  have mortgages on them. 88.0% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

… but this is the concerning part .. 987 of those Staines 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.
 

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 Staines 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 2000s, 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%.

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.

Staines 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. 

Staines Homeowners and their £1.06 Billion Debt - Sould you be Re-Mortgaging Now?

 

 

The last 12 months have been quite tumultuous: the UK decided to leave the EU, Mrs May called a General Election which didn't quite go to plan and finally, to add insult to injury our American cousins elected Donald Trump as the 45th President of the United States.  One might have expected this to introduce some unwanted unpredictability into the UK property market.

The reality is that the housing and mortgage market (for the time being) has shown a noteworthy resilience. Indeed on the back of the Monetary Policy pursued by the Bank of England there has been a notable improvement of macro-economic conditions! In July for example it was announced that we are witness to the lowest levels of unemployment for nearly 50 years. Furthermore, despite the UK construction industry building 21% more properties than same time the previous year, there has still been a disproportionate increase in demand for housing, particularly in the most thriving areas of the Country. Repossessions too are also at an all-time low at 3,985 for the last Quarter (Q1 2017) from a high of 29,145 in Q1 2009. All these things have resulted in...

 

Staines property values rising 1.89% over the last 12 months

(Source: Land Registry)

So, what does all this mean for the homeowners and landlords of Staines, especially in relation to property prices moving forward?

One vital bellwether of the property market (and property values) is the mortgage market. The UK mortgage market is worth £961,653,701,493 (that’s £961bn) and it representative of 13,314,512 mortgages (interestingly, the UK’s mortgage market is the largest in Europe in terms of amount lent per year and the total value of outstanding loans). Uncertainty causes banks to stop lending – look what happened in the credit crunch and that seriously affects property prices.

 

Roll  the clock back to 2007, and nobody had heard of the term ‘credit crunch’, but now the expression has entered our everyday language.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Staines property market, but in late 2007, and for the following year and half, Staines property values dropped each month like the notorious lead balloon, meaning …

The credit crunch caused Staines property values to drop by 21.9%

Under the sustained pressure of the Credit Crunch, the Bank of England realised that the UK economy was stalling in the early autumn of 2008. Loan book lending (sub-prime phenomenon) in the US and across the world was the trigger for this pressure. In a bid to stimulate the British economy there were six successive interest rates drops between October 2008 and March 2009; this resulted in interest rates falling from 5% to 0.5%!

Thankfully, after a period of stagnation, the Staines property market started to recover slowly in 2011 as certainty returned to the economy as a whole and Staines property values really took off in 2013 as the economy sped upwards. Thankfully, the ‘fire’ was taken out of the property market in Spring 2015 (otherwise we could have had another boom and bust scenario like we had in the 1960’s, 70’s and 80’s), with new mortgage lending rules. Throughout 2016, we saw a return to more realistic and stable medium term property price growth. Interestingly, property prices recovered in Staines from the post Credit Crunch 2009 dip and are now 76.7% higher than they were in 2009.

Now, as we enter the summer of 2017, with the Conservatives having been re-elected on their slender majority, the Staines property market has re-gathered its composure.       Also  over the last few months a mortgage price war has broken out between lenders, with many slashing the rates on their deals to the lowest they have ever offered.  For example, last month, HSBC launched a 1.69% five-year fixed mortgage!  This is good news for Staines homeowners and landlords alike - if you haven't renewed your mortgage recently, now would be a great time.

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to an all-time high in the UK. 

In the Staines postcodes of TW18 & TW19, if you added up everyone’s mortgage, it would total £1,064,373,705!

Since 1977, the average Bank of England interest rate has been 6.65%, making the current 323 year all time low rate of 0.25% very low indeed. Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.52% in the autumn of 2012 to the current 59.3%. If you haven’t fixed – maybe you should follow the majority?

In my modest opinion, especially if things do get a little rocky and uncertainty seeps back in the coming years (and nobody knows what will happen on that front), one thing I know is for certain, interest rates can only go one way from their 300 year ultra 0.25% low level ... and that is why I consider it important to highlight this to all the homeowners and landlords of Staines. Maybe, just maybe, you might want to consider taking some advice from a qualified mortgage adviser? There are plenty of them in Staines.

Back from my Holidays!

After a lovely rest, I am now back in sunny Staines, enjoying the delights of the Staines property market once again.  I hope you all  managed to enjoy the sun somewhere as well this summer.

Apologies for the gap in posts, but it's taken me a while to catch up with myself after my holiday.  Normal service will be resumed tomorrow!