4th September 2019
Buying property in Wolverhampton to rent over the last two decades seems to have gone full circle, as to what to buy and where, and again, there seems to be some great opportunities to be had, here in the midlands, let's explore where we have come from and where we are and how the buying opportunities have changed in that time...
I bought my first property to rent on 1989, but in fact it wasn't until 1997 that the buy to let market really changed massively, and that was because the opportunity to acquire buy to let mortgages became available, with the introduction of the ARLA buy to let panel of lenders, making purchasing to rent a much easier process
I became the FIRST buy to let advisor in the ARLA investor book, for the midlands, and was the only one for many years in fact, this meant my phone rang off the hook most days with people wanting to buy property to rent, and with many people wanting to get their foot on the ladder and start building their portfolio of properties it really was a hey day for buy to let, or so it seemed...
As a result of the demand, I started running a structured buy to let advisory service for investors from 1998 and over the next 5 years, this was all I did, and during that time, I bought over 450 properties for clients as well as refurbished over 250... All within the Wolverhampton area, as well as a few overseas and holiday rental units I acquired for myself.
So what was the market like than and how has it changed throughout the years?
In 1997, we were talking mega yields, I was buying 2 bed modern semi detached properties in Leybourne Crescent, Pendeford, for as little as £28,000 and renting them for £450pcm, 2 bed roomed flats in Willowdale Grange for £30,000 and renting these at £475pcm and larger 2 bed flats in High Meadows Compton with stunning views and a garage, for £40,000 and renting them for £550pcm... Yes these were the days!
Yields of around 12-15% across the board and easy to access funding... You could remortgage after 6 months, and because the market was rising, you would have acquired equity, and use this to buy the next property...
Funding was easily available, suitable stock was everywhere, and properties rented fast... We even benefitted from taper relief when we sold a property too, making the returns much higher
Of course this didn't last long... Towards 2002, returns were getting tighter, and we were looking at around 8-9% instead of 12-15% and there was strong competition for everything we wanted to buy, but still a healthy market
Also from 2002-2007 builders went crazy building flats everywhere, and all major cities reported massive oversupply of flats, which were left just sitting empty, for months, meaning rental yields dropped massively from what we had enjoyed in the years before and also meaning the rents dropped on the traditional older yet bigger (67/70's style flats) as tenants preferred canal views and en-suites... Leading to a big re-adjustment.
In 2007, however the market took another twist, as the crash hit, mortgages became almost like gold dust for a while, and many of the opportunities that we had previously were now gone, we couldn't buy and sell on the same day, we had to keep a property for 6 months, the taper relief was now gone and many landlords stopped buying
This hit the supply of rental stock hard... The result of this however, was an increase in rents across the board, as the properties available in our area plummeted, and at the same time the number of tenants looking rose hugely
We were experiencing, lots of demand from the Polish and other European countries, people moving to secure work, but also another twist... The HMO's were starting to enter the "professional" tenant arena.
In the main up to this point, most people renting rooms in HMOs were students, or housing benefit, but here in Wolverhampton around this time the student market had died being replaced by purpose built student accommodation...
Stuck with empty properties, something had to be done with the previous student houses, so many landlords set about upgrading them and converting them into professional house shares, around this time.
By 2010, however, this had taken another leap and now luxury properties in top end areas, were being bought and converted into high end HMO properties, boasting pool tables, cinema rooms, conservatories Etc... Renting for as high as £750 per room per month! We called this the Professional House Share, and there are some really fine examples around the town.
Also over the next few years, many investors from other areas, also started to invest in Wolverhampton, and many other northern cities, as the returns diminished in the London boroughs and a phenomenon I had not seen before, people buying property without actually seeing it!
This lead to some very awkward conversations as I had to explain to a few investors from out of town, that this beautiful brand new two bed semi (as per the photo they had) was in the middle of one of the worst areas of Walsall, and we would struggle to get anyone through the door, as they would have to drive past redundant factories and boarded up graffiti houses to get there... And struggle we did.
Although we haven't dealt with the the housing benefit market much in the Wolverhampton area, also throughout this time, the LHA market continued to grow, as the southern high value council boroughs started to encourage relocation of their waiting lists, to cheaper multi racial areas, such as Wolverhampton city, Coventry, Liverpool, and Newcastle Etc and of course no new supply of council properties and due to lack of funding a reduction in supply of social houses meant even further growth.
So this leads us to now... 2019
We have a fraction of the properties on the market available compared to what we did 20 years ago, because tenants are staying longer, meaning it seems we have around 25% available at any one time compared to what there used to be, yet we have double the number of tenants registered looking for homes... This is leading to rent increases as multiple tenants apply for the best properties and competition is strong.
Investor landlords now own on average 3 properties each as opposed to just one, and many buy in multiple areas across the country looking for the best yells, and the returns for a standard let unit is now in the region of around 6% per annum, however the capital appreciation figures across the country are currently just over 1.4% (according to the office of national statistics) but Birmingham and the midlands is reported as the highest growth in the UK (Guardian Jan 2019) at a whopping 16% making it currently the best area in the UK for property price growth.
So what should we buy now...
Well, HMOs were a buzz word, lording huge returns for a decade, but are now majorly oversubscribed, unless you are going to bring something very attractive and different to the market, I would be very careful
Flats are still in good supply and good demand, but you need to keep them in excellent order to be able to demand good rents, so consider your fitting out expense and features you can add (and maintain) you also need to consider the leasehold restrictions and cost of the service charge which can be as high as £100 per month on newer properties.
The best money right now seems to be on small to medium young family and family homes, built in the last 40 years.
North side of town like Pendeford, Dunstall, Oxley, the West side like Compton, Merridale, Tettenhall and Newbridge, and eastern areas, such as Wednesfield, Willenhall, Wednesbury and certain parts of Bilston. On the South side, Penn rents well as does the outer villages, such as Wombourne, Perton, Pattingham, Brewood and Sedgley
You can really grab some great properties, that will offer good rates of capital appreciation, and a decent return, with an easy to manage tenancy, probably with low maintenance issues too due to single family accommodation and newer build.
It's also good to note that statistics show that In fact buy to let lending is at it biggest right now, plus the number of rented property overall is at its biggest to reaching 20% of total housing stock probably due to tenants staying longer.
So you can see that over the last 20 years, we have seen a full cycle... Starting with what we call "standard lets" right through the flat craze, the HMO whirlwind, and right back again to the "standard lets" the money always in the middle it seems...
If you want to speak to our local advisor on what to buy and where, we run regular buy to let advisory workshops, either in small groups or 1-2-1... Please call your local branch to find out more