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

Marketing Has Changed – Have You?

One of the biggest lightbulb moments for people who attend our courses is this: The most vital thing you can do to grow your business is to have a sound marketing strategy and to be consistent with it. But often, when things get busy for us, marketing is the very first element of our business that we neglect. It’s unfortunate that it has become one of those things that we all tend to put on the back burner, something that we know is kind of important, but it can wait until we’re less busy.

There is a real danger in adopting this strategy though, because what ends up happening is you get tied up in a ‘feast and famine’ cycle. If you only tackle your marketing when you feel that you have to (i.e. when you see a drop in clients…and income), then you’re always going to have an inconsistent income.

On top of this, marketing is one of those subjects that is ever changing and evolves quickly. Trends change, technology changes, and if you’re not keeping up with it, your current marketing strategy can quickly become stale.

So what can you change – today – to make sure that your lettings business continues to grow?

Focus on one thing

On those days when you’re short on customers and you are desperate to get new business through the door, it’s easy to use a scattergun approach and try to do EVERYTHING. But stop – is this really the best strategy?

We’re constantly being told that we need to adopt social media, we need to be writing blogs, we need to be advertising in the press, doing trade shows…  but the problem is, we simply can’t do it all. If your marketing is haphazard then it’s not going to have any effect. What you need to do is choose something that you can truly put your energy into and focus on that, at least to start with.

There are two elements to think about here; what are your natural talents, and who are your customers? If you can answer those two questions truthfully, then you are part-way to finding the right way to market your business.

Who are your target audience?

Something that we tend to like to focus on when we talk about how to market a lettings agency is finding our Ideal Client, or AVATAR. If you have a clear idea of who you are targeting, then it makes implementing your marketing strategy so much simpler, because you know exactly who you’re talking to.

Gone are the days when we advertised to our general audience – that really doesn’t work anymore. Your customers are more savvy – they know what they want, and that’s a PERSONAL SERVICE. You need to figure out who they are, and talk to them like they are the only customer. Don’t preach to a crowd – talk to ONE PERSON.

You can be pretty specific on this – it’s much easier to have a real person in mind… even if they are completely fictitious!

How do you WANT to market?

We are really fortunate that we live in an age where there are so many options available to communicate. Snail-mail and phones are still very prominent (and should be), but we also have many other ways to talk to people now – email, social media, live video, blogs… the question is, what do you want to focus on? Which tool do you believe that you can use with the most passion and sincerity?

Think about what you’re good at. If you’re a terrible writer, then it might not be a good idea to create a blog. If you’re a whizz at social media, however, then make that your focus. Got a talent for taking photos? Use Instagram, or make impactful features or ads on Facebook. If you’re always reading industry specific news, share it with your followers and become known as an industry expert. Write up reports and articles and share them on LinkedIn, or on your blog. Something got your goat? Talk about it on a video – most social media sites now have the option of creating live videos.

Set a schedule

The one thing you have to establish in your growing business is when you’re going to do your marketing. If you’re not consistent, it’s not going to work. You have to be strict on this – it’s important.

Work out exactly what you’re doing with your time. If it helps, write down what you’re doing every day, what time, how long for, and how important it is. You could install an app such as Rescue Time to see exactly where your time is being spent – and find out just how much of your day is wasted on unproductive tasks. Once you know this, you can find some space to slot in some regular marketing.

Put it in your diary – whether you’ve allocated half an hour or a couple of hours or half a day, stick to it. Make it an unnegotiable task every day.

Get your team involved. If you’re using social media, get them to share your posts to expand reach.

Think outside the box

This is one thing we definitely advocate – we don’t want to be the same as every other letting agent. Being the same doesn’t help us grow. We have to stand out, we have to get noticed. So what can you do that’s different to all those other high street agents?

Look at your competition – how are they marketing? And what can you do that’s different to what they’re doing? Use your imagination!

A quick guide to converting HMOs

With property prices ever increasing and successive governments taxing income from property more and more each year, landlords and property investors are often  turning to houses of multiple occupation sometimes known as HMOs for higher rates of return.

So why do HMO give landlords and property investors a higher rate of return?  Well essentially this is down to the fact that HMO properties are rented out by the room rather than as a whole property. 

So how do you achieve these higher rents and higher rates of return? 

What you do is you create a situation for individual single tenants where the rent is affordable. Note the word affordable here. We're not saying that it wouldn't be cheaper to rent a whole property if you were say in a couple or in a group but if you are renting on your own and have no one to share the costs with then renting a room in a shared house will ultimately be cheaper.

So what creates an attractive proposition for such a single tenant? 

Well I would say first of all it is having a room in a house which is literally ready to go. Nothing more required than bringing your own small possessions and clothes and getting settled in.  

Why is this important? Because it keeps costs down and it allows people to move quickly. 

What this means to you as someone thinking of converting a property into an HMO is that you need to ensure that the rooms large enough to be comfortable and that the property is sufficiently furnished and well equipped - to all intensive purposes so it’s ready for someone can move into it in the same way they would a hotel room.

You also need to ensure the property that you are thinking of converting into an HMO is in a location which your tenants will want to live in. Please see my article on choosing the location  for are HMO for more details on this.

But what about the legal constraints for creating or converting an HMO?

You may have heard that there is a lot of legislation surrounding converting and running an HMO and you'd be right. Due to the nature of HMOs and the number of people that live in them, there are naturally concerns about ensuring that the occupants are safe and secure. Iit is no longer a situation where there is a single family unit where people are looking out for each other but instead 5 or 6 individuals and it can't be it can't be assumed that they are all cooperating in keeping the property safe.

So what can you do as a landlord to ensure that you stay on the right side of the law when converting a regular residential property to an HMO? 

Firstly I would say invest in your own education.  There are plenty of courses run by industry experts who will teach you everything you need to know relating both to the legislation and the practicalities of converting a property to be a compliant and functional HMO.

Secondly, speak to a local agent you have a working knowledge of he knows not just from a theoretical point of view from the practical experience of actually letting and managing them.  take it from me there a lot of different skills and knowledge required to safely and successfully let and manage an HMO.

Thirdly, don't underestimate the amount of time which managing as an HMO will take.  you may think at the outset it is just a large terraced house but if it is 6 bedroom HMO then in reality what you have are six houses with six separate tenancies 6 separate tenants 6 lots of questions problems rent to chase and other usual repair and maintenance issues.

As a landlord myself and having managed my own and families properties myself I can attest to the fact that whilst it is perfectly possible to manage one rental property what even 2 or 3 whilst holding down a full time job it is very difficult to manage any more than that and retain a healthy work life balance.  This is why I say to any landlords or property investors thinking of buying or creating / converting a property to an HMO, factor in the costs of professional management.

Is there any specific legislation which you should be aware of?

The short answer is yes lots but in a nutshell the main things you need to bear in mind or and this is in no particular order

For more help, information and advice about converting the residential property to an HMO what any other aspects of owning, letting or managing an HMO in Birmingham please contact us on 0121 405 0389.