Colchester’s £2.6 billion Mortgage Powder Keg

Eight years ago, in the summer of 2007, hardly anyone had heard of the term ‘credit crunch’, but now the expression has entered our daily language and even the Oxford Dictionary.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Colchester Property market, but in November / December 2007, and for the following seventeen months, Colchester property values dropped each and every month like the proverbial stone. The Bank of England soon realised in the late summer of 2008 that the British economy was stalling under the continued pressure of the Credit Crunch. Therefore, between October 2008 and March 2009, interest rates dropped six times in six months from 5% to 0.5% to try and stimulate the British economy. 

Thankfully, after a period of stagnation, the Colchester property market started to recover slowly in 2011, but really took off strongly in late 2013 / early 2014 as property prices started to rocket. However, the heat was taken out of the market in late 2014/early 2015, with the new mortgage lending rules and some uncertainty, when some people had a dose of pre–election nerves.  

With the Conservatives having been re-elected in May, the Colchester property market regained its composure and in fact, there has been some ferocious competition among mortgage lenders, which has driven mortgage rates to record lows. Whilst I have no actual figures to back this up, I know an awful lot of long serving bank managers, mortgage arrangers and people in the finance industry, all of whom have told me on previous occasions when interest rates rose (1987, 1992, 1997 and 2003), it wasn’t the first rate rise that was the catalyst for many homeowners and landlords to remortgage but the second or third increase.  The reason being that it was only by the time of the third rate rise,  it started to hit the wallet.  However, the issue is, by the time of the second or third rate rise the best fixed rates, were in all instances, no longer available as they had been pulled by the banks months before.

But here is the good news for Colchester homeowners and landlords, 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.  I read that the well respected UK financial website Moneyfacts said only a couple of weeks ago, the average two year fixed rate mortgage has fallen from 3.6% twelve months ago to just under 2.8%.

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to a seven year high in the UK.  So what about Colchester?  In Colchester, if you added up everyone’s mortgage, it would total £2.6 billion.  Even more interesting is when we look at Colchester and split it down into the individual areas of the town,

• CO1- Colchester £235.1m
• CO2 - Layer de la Haye £516.7m
• CO3 - Stanway £489.5m
• CO4 - Boxted £557m
• CO5 - Tiptree £476.5m
• CO6 - Coggeshall £557.3m
• CO7 - Brightlingsea, Wivenhoe and Great Bentley £422.9m

Since 1971, the average interest rate has been 7.93%, making the current 0.5% very low.  So, if interest rates were to rise by only 2%, according to my research, the 9,595 Colchester homeowners, who have a variable rate mortgage would, combined, have to pay an approximate additional £29,640,000 a year in mortgage payments.  That means every Colchester homeowner with a variable rate mortgage, will on average have to pay an additional £3,089 a year or £257 a month in interest payments.

 I know over the last couple of posts, I have talked about mortgages a lot however, I am not a mortgage arranger but a letting / estate agent and as regular readers know, I always talk about what I consider to be the most important issues when it comes to the Colchester Property market and at the moment, in my humble opinion, this is the most important thing!

Buy to let is all about maximising your investment, increasing income and reducing costs.  I give advice, opinions, thoughts, concerns, worries, expectations and fears about the Colchester Property market in my blog on the Colchester Property Blog.  If you are interested in the Colchester Property Market, you might learn something by visiting the blog. www.colchesterproperty.blogspot.co.uk

Colchester Property Market - Asking Prices Drop but Values rise

Those of you who regularly read my weekly articles in the Colchester Property Blog will know I like to keep abreast of the Colchester property market. Something attracted my attention this week about the local property market, something I wanted to share with my many readers.

 Over the last month, there appears to have been an anomaly in the local property market, whereby asking prices in the town have dropped, yet property values have increased.  The average asking price of a Colchester property, according to Rightmove, fell 1.2% this month yet the average value of a Colchester property rose by 1.5%.

So how does this relate in monetary terms?  This anomaly has driven the average asking price of a Colchester property down slightly to £250,300 whilst the average value is now £270,900.

So why the difference? Technically an ‘asking price’ can be any price that a homeowner wants to place his or her property on the market for. Unfortunately, many times this is done without research and can result in overpriced properties that don't sell. As the Summer months are normally slightly quieter those left on the market wanting to sell often temper their asking prices in these months to try and generate interest in their property.

On the other side of the coin, the property ‘value’ is the price that a willing buyer is prepared to pay and a willing seller is prepared to sell at.   Therefore, in a nutshell, Colchester property values are continuing to rise and those homeowners in Colchester who have properties on the market, last month on average, reduced their asking prices .. great news for property owners and buyers alike!

In previous articles, I have spoken about the continued fundamental shortage of property coming on to the market compared to buyer demand. That is especially true for homeowners wanting to upgrade to a better house/better location.  I can appreciate Colchester home owners are reluctant to put their own property on the market speculatively and wait for the right property to become available and some high demand locations can suffer from a property stalemate.

Most homeowners don’t want to sell and have nothing to buy.

But that’s the beauty of the much maligned English and Welsh house buying process. You can find a purchaser for your property, then ask them to wait. By agreeing a sale (subject to contract) before you try to buy sounds concerning to many, but with fewer properties for sale you need to have a buyer for your property or you will be treated as a less serious buyer yourself. If you cannot find the right home for you, you can slow the deal with your purchaser until it comes along. If nothing suitable does comes along and you lose your buyer then the worst outcome is that you have to find another purchaser or take your property off the market and stay put for now, and as long as you mention this at the start they must not commit to any costs until you have agreed your onward purchase.

However, for the landlord/buy to let investors, these potential problems are nothing further from the truth. As I write this article, there are over 250 flats for sale, over 170 terraced houses and 101 semis for sale in Colchester.  Landlord/Buy to let investors can normally pick up some bargains in the Autumn months, as sellers who are selling their homes often have a pressing need to sell by this time.

The types of houses a Colchester landlord typically buys, are not the same types as the homeowners wanting to move to a posher area of the town as they are attracted by larger semis and detached properties. The best types of properties for buy to let are the smaller flats, terraced and semis (not the big detached ones). There are in fact too many of these smaller properties for sale .. just look at the numbers of properties for sale (mentioned in the previous paragraph).

If you are a landlord or thinking of become one for the first time, and you want to read more articles like this about the Colchester Property Market together with regular postings on what I consider the best buy to let deals in Colchester, out of the hundreds of properties on the market,  irrespective of which agent is selling it, then you might like to visit the Colchester Property Blog www.colchesterproperty.blogspot.co.uk/

Interest rates set to rise – How will that affect the Colchester property market?

A couple of weeks ago, I mentioned in this blog about how the Bank of England has been indicating recently that UK interest rates will be going up in the not too distant future. Therefore, if you are one of the 16,834 homeowners in Colchester, who own your own home with a mortgage, then you need to consider your options and start to budget for an interest rate rise. However, if you are a landlord, who owns one of the 9,584 rental properties in the town, whilst your exposure to interest rate rises is lower, it is most certainly something you should be aware of.

Since the spring of 2009, British interest rates have been at a record low of 0.5%. It’s not a case of if, but when, they will rise. Some people think it will be before Christmas, although I am of the opinion, it will early in the New Year around Easter time, when they do rise. I also expect those rises will be slow, steady and limited. It depends on what is happens to UK wage rises, UK inflation and the general state of the British economy. Nevertheless, as much most of us in Colchester would love to pull the shutters and stick two fingers up to the world, we have to recognise we are part of a global economy and global economic worries still exist to prevent an abrupt and instantaneous rate rise.

Those Colchester landlords, who do have a mortgage, need to realise that as interest rates rise, their monthly mortgage costs rise. It’s easy to say you will look at your mortgage next month, then before you know it, Christmas will be here!  Don’t forget, mortgage lenders have always removed the juicy low rate mortgage deals a few months before interest rate rise. Speak to a qualified mortgage arranger, there are lots of them in Colchester and seriously consider fixing your mortgage rate now.  You didn’t buy your Colchester buy to let property for it to become a millstone around your neck. It’s all about mitigating your costs and maximising your income to make your Colchester buy to let property the investment you want it to be.

However, on the other side of the coin, two in three landlords who have bought property since 2007, have done so without a mortgage. A rise in interest rates might be a good thing. Let me give you some background first, then I’ll explain why. Colchester landlords have see their return on investment for their Colchester buy to let property, over the last couple of years, perform very well indeed with Colchester property values rising by 27.86% since the Spring of 2009. However, when rates do rise, whilst more expensive mortgage rates will ease the demand for borrowing, on the other hand, it may temper house price growth, making the property market more competitive... and therefore, we should see the return of some bargain property buys in Colchester!

Finally though, can I ask all Colchester homeowners and Colchester landlords, who have a mortgage that isn’t fixed, they need to recognise that rates will rise throughout 2016 to 2018 and will continue to move steadily upwards towards more viable and feasible long term levels.  I am not qualified to give that advice and this is my personal opinion, so please speak to a qualified mortgage arranger and, if appropriate, fix your mortgage before interest rates rise. Don’t say I didn’t warn you!

In the meantime, if you are a landlord looking for a bargain now, don’t despair ... there are plenty out there, if you know where to look! One place is Rightmove, another Zoopla and another OnTheMarket. However, sometimes, you can’t see the wood for the trees. At the time of writing, Rightmove had 779 properties for sale in Colchester, Zoopla 336 properties for sale in the town and OnTheMarket 401 properties ... where do you start? A lot of savvy Colchester landlords like to visit the Colchester Property Blog www.colchesterproperty.blogspot.co.uk, where, irrespective of which agent is selling it, I regularly post what I consider out of the hundreds of properties on the market, to be the best buy to let deal in Colchester.  

New Town Investment from Michaels ... 5.8% Yield!

Situated in the ever popular area of New Town located on Winchester Road, this three bedroom mid terrace house has come to market with Michael's. Within close proximity to both the town centre and town station which offers interlinking services to Colchester Mainline this property makes for the ideal investment and would appeal to anybody looking for a rental. 

The property benefits from a spacious lounge diner area, two double bedrooms and a private enclosed rear garden. In the current market this property would achieve £775pcm and if purchased at the asking price of £160,000 would obtain a return of 5.8%. 

This is a great investment opportunity and especially due to its location will never have any issues in letting out instantly! Have a look at the internal photos by following the link below. 

http://www.rightmove.co.uk/property-for-sale/property-54914390.html?premiumA=true

Elms Price & Co...buy to let 5.77% Yield!

This two bedroom terrace property has come to market with Elms Price & Co situated to the east of Colchester on Harwich Road. The property is located within close proximity to the town centre but also has easy access to the A12 and local amenities. 

The property benefits from two good sized bedrooms, double glazing throughout and its own enclosed rear garden. It is also being sold with no onward chain therefore making it the perfect ready to go investment. In the current market the property would achieve £625pcm and if purchased at the asking price if £129,995 then this would achieve a return of 5.77%. 

I think this is a fantastic return and would be an investment opportunity not to be missed out on. For more information please follow the link below. 

http://www.rightmove.co.uk/property-for-sale/property-54881573.html

Crisis in the Colchester Property Market ..probably?

I don’t know about you, but if you watch Sky News every waking hour or read the newspapers, it always seems we as a Country, Europe or the World seem to lurch from one crisis to another. Another week, another crisis averted. It was only last summer the soothsayers were predicting the end of the world over the supposed house price bubble that many believed was developing in the South. Property prices were rising at 20%+ per annum in London, only for things to ease as the property market in the Capital showed a controlled slowdown and cooling in activity with price growth easing to a more realistic 8% to 9% per annum. Interestingly, there was no panic when some modest price drops were seen in some of London’s highest priced suburbs.

However, this month’s crisis is the buy to let boom and as George Osborne always likes to be topical, in the July emergency budget, he declared that he will start to scale back, from 2017, the tax relief that those high income tax rate landlords with a mortgage have benefited from. The Daily Mail ran headlines stating it was the end of the private landlord; predicting many landlords will give up on buy to let altogether and we will be inundated with rental properties up for sale as landlords feel squeezed from the market.

Even Mr Carney, the Governor of the Bank of England, recently cautioned that the buy to let property market could destabilise the whole UK property market. He was concerned landlords who bought with high loan to value mortgages could be spooked if there is a property crash, they would panic because of negative equity, sell cheaply, which would worsen house price falls.

End of the world then?   .. this week, yes probably, but next week .. that’s another story!  Before we all go and live like a hermit in the Scottish highlands, let me explain to you my perspective on the whole subject. As I mentioned a few weeks ago, two thirds of buy to let properties bought in the last eight years have been bought mortgage free – so they won’t be affected by the Chancellors’ tax changes.  Also, something I feel is often overlooked but very important, is the fact that landlords historically have only been able to normally borrow up to 75% of the value of the rental property.  In the last property crash of 2008, property values dropped by the not so insignificant figure of 17.2% in Colchester, but even then, when we had the credit crunch and the world’s banking sector was on the brink, no landlord would have been in negative equity in Colchester.

I believe we have a case of ‘bad news selling newspapers’ and I believe that buy to let, and the property market as a whole, will carry on relatively intact. It’s true reducing tax relief will hit landlords who pay the higher rate of income tax and this may slightly diminish buy to let as an investment vehicle, but I doubt people will sell. Many landlords have been lazy with their investments, buying with their heart, not their head. You would never dream of investing in the stock market without doing your homework and talking to people in the know. If you want to make money in the Colchester property market as a buy to let landlord, it’s all about having the right property and as you grow, the right portfolio mix to offer a balanced investment that will give you both yield and capital growth.

The Colchester buy to let market still offers good investment opportunities to new and old alike. Those who have bought in the last twelve to eighteen months have reaped the benefit from buying in Colchester, because the town offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 13.07% in the last eighteen months in Colchester, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 11% higher than Q2 2014, which is particularly interesting as they only rose by 4.5% between Q2 2013 and Q2 2014.

I cannot stress enough the importance of doing your homework. One source of information and advice is the Colchester Property Blog where I have similar articles to this about the Colchester property market and what I consider to be the best buy to let deals around at anyone time in the City, irrespective of which agent it is on the market with. If you haven’t visited and you are interested in the local property market in Colchester .. you are missing out! .. www.colchesterproperty.blogspot.co.uk

Temme English...Buy to Let 6.06% Yield!!

This one bedroom property has come to market with Temme English for £99,000. Situated to the south of Colchester it is located on Friday wood Green. The property offers a spacious lounge/diner area and also a large bedroom, it has also been updated with a modern feel and is very well presented. 

In the current rental market the property would achieve £500pcm and if purchased at the asking price would still obtain a return of 6.06%. This is a fantastic return and an investment opportunity not to be missed. 

For more information please follow the link below, you can also look at the internal photos. 

http://www.rightmove.co.uk/property-for-sale/property-54816044.html

My concerns about the Colchester Property market

I am genuinely concerned about the Colchester property market, but in a way that might surprise you. Rightmove announced that average ‘asking prices’ rose last month by 1.2% in the East, leaving them 7.4% higher than a year ago.  Whilst it could be said that monthly change is very modest, in the same period a year ago, we saw a monthly rise of 0.7% in the East, which is more the norm given the onset of schools breaking up and everyone going on holiday.

Looking at all the data on the Colchester property market; putting aside the need for more houses to be built in the next decade to balance out the increase in population (helped in part by inward European migration) but not matched by a similar increase in housing being built; my research shows there is a widening gap between what property buyers want and what is available to buy. In a nutshell, many more buyers are looking for the smaller one and two bed properties (the typical terraced and smaller semi detached houses/apartments), whilst there are a larger proportion of the four and five properties, which are the typical detached properties available.

Demand for smaller properties comes from both first time buyers and the growing number of buy to let landlords, where it is more cost effective and efficient to buy smaller properties to let out compared to larger properties which tend to offer poorer returns.  Also, landlords with larger loans (on those larger more expensive properties) will also be hit harder with the changes in the way tax is paid on buy to let investments, which start in 2017.

If you recall, a few weeks ago I did some research on how different types of properties had performed in Colchester since the year 2000.  I revisited those calculations and it hit me how different types of properties had performed over the last 15 years.  In a nutshell, this mismatch of demand and supply isn’t a new phenomenon, it’s been happening under our noses for years!

In the last 15 years, the average terraced house in Colchester has risen in value from £63,025 to £193,398 whilst the detached house has risen in value from £133,087 to £342,627.  Nothing seems amiss until you look at the percentage growth.  The terraced has grown in value by 207% whilst the detached by only 157% meaning the gap between the inexpensive terrace’s and expensive detached properties has in percentage terms narrowed enormously (this isn’t just a Colchester thing, it has happened all across the Country).

I am concerned because more houses need to be built, not only in Colchester, but in the East and the UK as a whole.  In particular, there is specific need for more affordable starter homes for the growing demand from both tenants (and the landlords that will buy them) and first time buyers.  The Tories need to face up to the fact that unless they can get the builders, the planners (to release more building land), the banks (to finance it) and themselves together, to ensure long term plans can be made, and implemented, this issue will continue to worsen.

The country needs 200,000 houses a year to be built to keep up with demand, let alone reverse the imbalance between demand and supply.  Last year, only 141,040 properties were built, the year before 135,510 and 146,850 in the year before that.  This means only one thing for Colchester landlords.  Unless David Cameron starts to rip up huge swathes of the British countryside and build on acres and acres of green belt, demand will always exceed supply when it comes to property for the foreseeable future.

Therefore, investment in the local Colchester property market as a buy to let investment could be the best move to make as the stock market investments are possibly on the wane.  Everyone is different and trust me, there are many pitfalls in buy to let.  You must take lots of advice and seek out the best opinion.

BUY TO LET DAVID MARTIN GROUP ... 6.92% GROSS YIELD

This 1 bedroom apartment has recently been reduced through David Martin. The apartment is situated to the south of the town centre in a popular residential location. It is being offered chain free and offers a potential gross yield of 6.92% at a market rent of £525.00 PCM. 

For further details see the link below.

http://www.rightmove.co.uk/property-for-sale/property-50688430.html

Colchester Property Values 9.4% higher than year ago

Colchester property values rose by 0.2% last month, meaning they are 9.4% higher than 12 months ago. Overall, I expect future property price growth to remain firm, built on the foundations of an improving labour market, strengthening economy and very low mortgage rates. In fact, talking to a number of other agents in the city, mortgage arrangers and solicitors (all of whom have their direct finger on the pulse of the Colchester property market), the steady long term growth in Colchester property prices tied in by strong demand conditions so far this summer, alongside an underlying lack of supply and the continued low mortgage rate environment, means the slow but steady upward momentum of the Colchester property market is likely to continue in the second half of 2015.

However, there are a couple points I wish to highlight as all my blog readers will know, I like to give a balanced and honest opinion of what is happening in the Colchester property market.  The two main points being low interest rates and a lack of supply of property.

Interest rates first - Mark Carney (Chief of the Bank of England) said in a speech a few weeks ago at Lincoln Cathedral, the Bank will be seriously considering raising interest rates around Christmas time. An upward movement in interest rates will temper demand and result in a marked slowdown in house price growth. Mr Carney said that only six out of ten people that had a mortgage (57% to exact) had a variable rate mortgage, compared with seven out of ten people (73% to be exact) in the Summer of 2012. Now I am not a mortgage arranger and cannot give advice, but rates are only going on one direction, so whether you are a landlord or homeowner, this might be a time to consider fixing your mortgage rate?  Don’t say I didn’t warn you!

Tie this in with the stricter mortgage lending rules which were introduced in 2014, which affected people’s ability to have larger mortgages, this means homeowners will need to be realistic in their pricing if they want to sell. Reading other recent reports though, property owners have continued to pay off mortgages at a faster rate while mortgage rates have been low. Therefore, when mortgage rates rise, the affect on home movers sentiment which, given the shortage of supply, would result in a marked slowdown in the rate of house price growth.
 Shortage of Supply – As I have mentioned in previous articles, the number of houses on the market in Colchester is at an all time low. One reason is the large number of buy to let landlords who have bought Colchester property over the past fifteen years. Unlike first time buyers who tend to move on after a few years, landlords tend to keep their properties long term, meaning there are less properties coming onto the market ... thus restricting supply and sales. In fact over the last four months, only 6,999 properties in the Essex area have changed hands and sold, compared to 7,805 in the same time frame in 2014, a not so insignificant drop of 10.33%.

Buy to let from Palmer and Partners...6% Yield!

This 2 bedroom terrace house has come to market with Palmer and partners, situated to the east of Colchester it is located on Hythe Hill. This is within close proximity to both the town and hythe train stations making it an ideal rental for a commuter. It benefits from a good sized rear garden and 2 decent sized bedrooms. 

In the current market this property would let for £675pcm, if purchased at the asking price of £134,995 this would achieve a return of 6%. A great yield and a fantastic investment that would appeal to all tenants. 

For more information please follow the link below.

http://www.rightmove.co.uk/property-for-sale/property-54533486.html?premiumA=true

William H Brown buy to let ... 6.17% Yield!

This 3 bedroom property has come to market with William H Brown situated to the south of Colchester on Queensland drive. The property has been very well maintained throughout and would not need any work doing making it a ready for tenants straight away. The property benefits from a its own garage, a large enclosed garden and a modern fitted kitchen and bathroom.

The property would let for £925pcm and would achieve a return of 6.17% if purchased at the asking price of £180,000. This makes for a great long term investment and would make an ideal family home.

For more information about the property and to see the internal photos please follow the link below.

Buy to let with Connells...6.14% yield!

This well presented 3 bedroom terrace house has come to market with Connells, The property benefits from a large rear garden, off road parking and two reception rooms making it an ideal family home. It is situated in the west of Colchester on Collingwood road, this is a popular area to live due to the school catchments of which the property falls in. 

The property would let for £950pcm and if purchased at asking price of £185,000 this will achieve a return of 6.16%. I think that this property would make for a fantastic investment, never having any issues with letting and also making a perfect long term let for a family looking to build their lives. 

For more information about the property please follow the link below. 

http://www.rightmove.co.uk/property-for-sale/property-36057564.html

Colchester – The 10 year Time Bomb on Home Ownership

Many people think the British obsession with owning your own home started with Thatcher in the early 1980’s, when she allowed council tenants to buy their council houses under the right to buy scheme. However, the growth actually started just after the Second World War. Looking at the country as a whole in 1951 30% of residential property was owner occupied then, every ten years that rose incrementally to 39% by 1961; 51% by 1971; 58% by 1981 and 68.07% by 2001 but after that, it dropped to 63.4% by 2011 and continues to drop today.

Young adults tend to start to think about settling down and moving out of the family home in their early-mid twenties.  After a couple of years, they will have a choice of either buying their first house (albeit with a mortgage) or decide to privately rent for the long term (because the Council House waiting list is measured in decades at the moment!). The ratio of people owning a house with a mortgage verses privately renting is an extremely important guide to what people are doing about their housing needs and what their attitude to renting vs buying is.  With that in mind, within the next ten years, I am predicting there will be more people renting privately in Colchester than own a property with a mortgage and that the British love affair of property ownership will fade as the decades roll on.

This is a really important change in the way we live, as I explained to a local Colchester landlord the other day, knowing when and where the demand of tenants is going to come from in the coming decade is just as important as knowing the supply side of the buy to let equation, in relation to the number of properties built in the town; Colchester property prices and Colchester rents.

In the Colchester Borough Council area as a whole there are 11,689 households that are privately rented via a landlord or letting agency verses 24,992 households that are owned with a mortgage, so my prediction appears to be outrageous. However, when we look deeper (as the devil is always in the detail), 12,012 of those 24,992 households are 35 to 49 year olds and 7,404 are households of 50 to 64 year olds. I would expect all the 50+ years to be paying their mortgage off as they enter retirement as I would with some of the people in their mid/late 40’s. 

Meanwhile, at the other end, in the 25 to 34 age range (the age most people bought their first home in the 1970’s/80’s/90’s) only 3,930 of the 8,033 households occupied by those 25 to 34 year olds are owner occupiers with mortgages, because 4,103 households are privately rented. This means only 48.9% of 25 to 34 year olds have bought their house (with a mortgage). Twenty years ago, that would have a much higher percentage of homeowners (between 75% to 85%).

It can be seen that as the older generation pay their mortgages off as they start to get to retirement and the younger generation aren’t jumping on the property ladder like they were 20 or 30 years ago, the private rental sector will take up the slack as more and more people will want a roof over their head, but won’t buy one but rent one. With Local Authorities and Housing Associations not building houses anywhere near like the number of houses they were building in the 1950’s, 60’ and 70’s, the private landlord appears to have good demand for their rental properties for many decades to come.

This will create a polarisation in the housing market between those, mostly older, households who own outright and those, mostly younger, households who rent. Our housing market is very much turning into the European model. However, all is not lost, the younger generation will inherit their parents properties, which in turn will enable them to buy, albeit later in life.

George Osborne – The Colchester landlord’s friend?

Well the last few weeks has been rather hectic as Colchester landlords, some who use us to manage their properties and other landlords who just read our Colchester Property Blog, have been sending me emails or picking the phone up to me about the new rules on buy to let taxation announced in the recent budget. George Osborne confirmed in the recent summer budget that the tax relief given to landlords on mortgage interest payments, on their buy to let (BTL) properties, would be reduced over the coming years for higher rate income tax payers. The Chancellor said the tax relief that private buy to let landlords (who pay the higher rate of income tax) would change in 2017 from the current 45%/40% and would steadily reduce over the following four years to the existing 20% by 2020.

With 21.9% of residential property in Colchester being privately rented (as there are 10,975 privately rented properties in the town), these changes are potentially something that will not only affect most Colchester landlords, but also the tenants and the wider property market as a whole. The choice of rental properties could drop, especially at the top end of the market which could push up rents.

However, Colchester landlords could protect themselves by reassigning one or more rental properties into a company structure (e.g., a Limited Company, Partnership or Sole Trader) and by doing so, the total tax paid is greatly reduced, because a company only pays tax on the profit. Nonetheless, before everyone goes off setting up companies for their BTL portfolios, it must also be noted, if a sole trader firm is started, stamp duty needs to be paid, yet if the owner is in business with a partner, they could enjoy some stamp duty relief.  The biggest tax variation is Capital Gains Tax (CGT) where the tax bill will be much higher when you come to sell your portfolio. In essence, by going into business with your BTL properties, you will potentially have a modest stamp duty to pay when you start, but you will have a lot less monthly tax to pay, irrespective of the interest rate, but the CGT bill will be much higher when you come to sell ... as you can see, it is not a ‘get out of jail card’. Now it must be remembered, I am not a tax advisor, so you must take advice from a qualified person.

Those planning to purchase a BTL property will have to factor these new rules into their calculations, and this could affect the offers they are willing to make. However, I am not that concerned, as the scaremonger reports fail to see the fact that two out of three BTL properties that have been bought since 2007 have been purchased without the support of BTL mortgage. With those two thirds of landlords paying cash for the purchase of their rental properties, that means two thirds of landlords will be totally unaffected by the changes.

So what of the future? The British love their Bricks and Mortar, it’s an asset that they can touch and feel and has a 70 year track record of capital growth that has out stripped inflation. Buy to let will still be attractive to Colchester investors and let me explain why. If you invested £40,000 in Colchester property in September 1987, today it would be worth £145,589. If you had invested the same £40,000 in to the London Stock Market (the FTSE 100 to be exact), it would be only be worth £114,506 today, whilst Inflation would have taken the original £40,000 and pushed it up to £83,127.

It’s true some central London landlords relying solely on the tax breaks rather than high yields may be forced out of the market, but even those landlords could seek to recoup any losses by increasing rents. However, those landlords may leave the market and this could constrict the availability of rented houses even more than it is already, increasing rents and thus pushing yields even higher for landlords and BTL investors still in the market... thus attracting new landlords into the market because of those higher yields.

The reality is, there is too much demand and not enough supply of homes for people to live in in the town. Official figures show the population in Colchester is rising by 608 persons per year (i.e., demand rising), but only 286 properties are being built each year (i.e., supply is low). This sets up the Colchester (and UK) property market to continue to create strong and steady returns, irrespective of any tax loophole being there (or not as the case maybe).