Spring Newsletter – Property Market Update

Sales Focus

I think it is safe to say that 2020 was a year like no other for obvious reasons! And from a property market point of view certainly a year which has defied expectations – with the UK experiencing its strongest annual price growth recording since the summer of 2016. To close out 2020, December alone saw over 129,000 homes change hands which is 32% higher than December of 2019 – this only added to what is always a mad rush in the middle of the month to hit clients exchange deadlines so they could enjoy Christmas with peace of mind.

The Mortgage Market has recovered with the bank of England reporting approvals to be up 3.7% on the previous year. Already this year we have seen more mortgage products released again, particularly on 90% loan to value mortgages which of course will be a big help to first-time buyers. And with an estimated 10% more sales agreed in 2020 than in 2019, the start of 2021 has been incredibly positive. The New Year itself was reported as being the busiest ever start to a year by our friends at Rightmove with visits to the website up by 30% and sales property enquiries up by 11% compared to the same period a year ago.

They have also reported that sales agreed in January are up 9% year on year. However – we have seen a new supply of properties coming to market reduce by 12% and the total number of homes for sale down by 6% as new sellers remain cautious while lockdown restrictions remain. This has caused a supply/demand imbalance and is only likely to maintain upward pressure on prices. But with surveys suggesting a large percentage of would-be sellers are holding off due to the pandemic, perhaps we can expect a surge of new supply towards the summer as lockdown measures are eased. Many sales are currently in the conveyancing process, in fact, there are approximately 650,000 transactions currently going through and the process has been a lot slower meaning a heightened level of stress for a lot of home movers – especially those who were pushing for the stamp duty deadline that was previously set for the end of this month. 

But that stress has been lifted for so many with the latest budget announcement as the stamp duty holiday has been extended to the 30th June – so there is some breathing space and opportunity. The chancellors budget announcement was on the 3rd March and represents a number of changes and factors for the housing market. Here are my 4 key takeaways: Starting with Stamp duty – so it is a 3-month extension from the end of March to the end of June meaning that stamp duty is only payable above the threshold of £500,000 which represents savings of up to £15,000 on purchases. This excludes the 3% second property surcharge for anybody who is unsure. – furthermore, to avoid a ‘cliff edge’ when this period ends, the tax-free threshold will then drop from £500,000 to £250,000 for a further three months before finally returning to the normal level of £125,000 from October 1st. This is huge news as savings of up to £5,000 can still be had for completions across the summer months.

Secondly, 95% mortgage guarantee scheme. – I said earlier that the return of 90% LTV mortgages has helped more first time buyers get back into the market with a 5% rise in demand from said buyers in the first 6 weeks of the year. And sales of between £100,000 and £250,000 have seen an increase of around 18% in the first couple of months of this year which is in keeping as buyers of lower value properties tend to be more reliant on the availability of finance – especially at higher loan to values.

So this mortgage guarantee scheme is part of a government initiative to turn generation rent into generation buy and means that the lenders who sign up for it (so far the likes of Lloyds, Santander, Barclays and HSBC are all involved) can purchase insurance from the government to cover some of their losses if the property is repossessed. A bit like an indemnity policy. So a safety net for the lenders to be comfortable offering high loan to value products to buyers again. And this is not just for the first-time buyer but also existing homeowners and those trying to re-mortgage with low equity. (this of course excludes buy to let mortgages which remain at a minimum 25% deposit required)

The third takeaway is Tax thresholds being frozen – a number of tax thresholds including those for capital gains tax and inheritance tax, will be frozen until April 2026. – Capital gains threshold will be held at £12,300 for the 21/22 tax year whilst inheritance tax remains at £325,000 (meaning tax payable only kicks in above those amounts.

So who does this affect?

The move to freeze CGT means anyone selling an investment property or a second home will have to pay capital gains tax of 28% on any increase in the property’s value since they first bought it above £12,300.

Couples who jointly own a property can combine their CGT allowance to £24,600. Inheritance tax is paid at 40% on all assets worth more than £325,000 that are not left to a spouse or civil partner, although this threshold increases to £500,000 if you leave your home to your children or grandchildren. Of course, the speculation over a hike in capital gains tax has already seen some landlords act and we have seen a spike in the sale of previously rented homes. With the 5 year freeze this may well reduce the number of landlords thinking of selling again.

And finally, the extension to the furlough scheme will be extended until the end of September. I have put this in here for 2 reasons: firstly if the government is continuing to support people’s incomes who can’t currently, work then they are less likely to struggle to keep up mortgage payments meaning we are less likely to see a spike in forced sales or repossessions that some have been speculating. And secondly, for all of you landlords with tenants who are being supported by the furlough scheme it means they are less likely to struggle to upkeep your rent payments! That’s a definite positive for all of us! It really is no surprise that reports are stating that we are experiencing one of the busiest ever Spring markets!

 

Lettings Focus

To start with we are still seeing average rents across the UK rising with a 1.4% increase across the last year. Interestingly though Zoopla reports some major cities to have decreased with London most notably dropping by around 8% and more locally Birmingham is apparently down by almost 1% year on year. So taking London out of the equation and the UK increase would in fact be more like 2.5% year on year. And this is expected to continue for the foreseeable future. 

So, guys, I would always encourage regular tenancy compliance checks and a rent review is something I personally tie in with those checks as its always good to know where you stand versus current market rates. A few other interesting points to note starting with a look at where the demand is at its strongest and it appears that commuter belts are stronger than main cities themselves right now. So take our area for example...

Rents in central Birmingham fell by -3.4% in the year to December 2020, but average rents across neighboring boroughs, including Bromsgrove, Sandwell, and Wolverhampton rose by an average of 5.3%. And as my area is Wolverhampton, I just want to advocate why our area is great to invest in for anybody who is actively looking...

1)We are seen as the best value commuter area outside of Birmingham – this takes into account the average cost of rent or mortgage payment plus annual train ticket. Second to us is Cannock! 

2)The average Gross rental yields are now above 6%

3)Tenant demand is unbelievably high right now and there is a real supply issue in the local rental market. – We have personally seen a further 50% increase in the number of tenants registered as looking for a property so far this year and Rightmove reported an increase or 22% in enquiries on properties for let in the New Year. All perfect ingredients for a buy-to-let and I will leave that there but if anybody wants to discuss further I do have a Buy-to-let advisory service which you can contact me if you want some help or are interested!

So that concludes the Spring property report and I do hope you found it useful or at least interesting! If anybody wants to share their views or opinions with me or perhaps would like some advice, please do contact me – I would love to hear from you!

 

Ali Durrant

Branch Manager of Concentric Sales & Lettings

ali@concentricproperty.co.uk

How To Get Better Tenants

Who is your perfect tenant?

Let’s think about how we define our perfect tenant. It might differ from landlord to landlord and will depend on what’s important to you. You’ll also consider the type of property you own and the area you’re in – for example, is it a HMO? Are you located in a city centre full of professionals? Or is it an area popular with families?

The type of person you are able to target will determine how you categorise them, such as:

Nice to meet you

The best way to get a feel for a prospective tenant is to actually meet them. As humans, we have an in-built ability to make hundreds of judgments based on seeing and talking to another human being, so what better way to get an idea of whether a person is right for your property?

This creates the opportunity to ask them questions about their situation, such as their reasons for moving, past rental situations, their jobs, and even their hobbies. It’s a great way to get a feel for who they are in a more natural and less formal way.

Don’t make promises at this stage, though. It’s perfectly ok for you to tell them that you’re not ready to make a decision yet and that you’ll be in touch, especially if you’re not getting a good vibe from them. You don’t have to take the first tenant you meet – in fact, you probably shouldn’t.

Check them out

Make sure that you do all the proper checks. Having a credit check, verifying their income, and immigration checks, will all determine whether they are the right tenant for you, and whether they can afford to pay their rent. However, be careful not to discriminate – letting things like race or colour, religion, or even benefit claims cloud your judgement is a big mistake, and as well as being unfair, is illegal.

Something else you might consider; using Google. Many people use social media, whether that’s Facebook, Twitter, or Instagram, and it’s surprising what you can find out about a person just by searching their name. It’s a useful tool if you want to make sure that the person applying to rent your property is right for you, as you can often get a good feel for their background, friends and opinions, which could all give you an indication of how they will be as a tenant.

Go with your gut

Above all, trust your instincts. If you want better tenants, it really is worth making the effort to meet them, talk to them, and don’t be afraid to do a bit of basic research into their background. Ask questions, and take the time to get a real feel for who they are. And be brave enough to admit if you don’t like them – there’s absolutely nothing wrong with admitting they are not a good fit for you, and looking for someone who is. So many landlords are in such a rush to get someone into their property that they just sign up the first person who takes an interest – and then have regrets when they create problems in not maintaining the property, or worse still causing damage or complaints.

Hopefully, this post has given you a little bit more confidence to go out there and seek out your perfect tenant. Making that little bit of extra effort can save you so much heartache in the long term.

Client Money Protection Review – Our statement

After attending the annual ARLA Propertymark Conference and Exhibition yesterday, Concentric HQ are pleased to confirm that the government have accepted the Client Money Protection Review (CMP) and will be introducing mandatory CMP for all letting agents.

Housing minister Gavin Barwell announced: “We’re accepting these recommendations... Today we confirmed we'll require all agents to protect the client money they handle.”

Presented by Baroness Hayter and Lord Palmer, the review called for all letting agents to use the scheme, which recompenses landlords and tenants should their funds be misappropriated, by law. This now means that rent, deposits and other client funds will be insured in the event of letting agents entering bankruptcy or committing fraud, meaning tenants and landlords can always claim their money back. While still under discussion, letting agents that do not comply will face heavy penalisation, and could potentially face a lifetime ban from lettings.

Chief executive of ARLA Propertymark, David Cox, commented: "Working together we have managed to convince the Government of the merit of compulsory CMP... With the ban on letting agent fees on the horizon, this is more important than ever before, so we are very pleased the Government has agreed to take it forward.”

As members of regulatory body ARLA Propertymark, Concentric welcomes this news and sees it as another big step toward total regulation of the private rented sector. We have always been proud to offer transparent client account services and feel strongly that all letting agents should offer the same.