Hadley Taylor Blog
At Hadley Taylor we like to keep our clients updated on the latest local property news and opinion.
March 1st 2017
Period houses vs new build
There are advantages to buying new build and there are also advantages to buying a period house. New builds are easy. You buy them, move in and order take out. Period houses often have issues that need sorting out before you can feel comfortable and the issues will never stop coming your way while you live in them. New builds are much more efficient to heat whereas period houses leak energy from every crevice and it’s hard to make them more efficient.
Property moves with the fashion of the times and although new build is still very popular, the more discerning buyer is turning once again to period properties in mature neighbourhoods. This trend is due to many different reasons. New build is having a very bad press at the moment with at least one major house builder rushing the completion of thousands of new homes that are now deemed unfit to live in because of the significant number of defects. From a pure investment point of view, period house appreciate more than new build so don’t expect your new house to go up in value at the same rate as other more mature properties in the same area. Period houses may be harder to keep warm but they offer bigger room dimensions, higher ceilings and what few new builds provide and that’s character. Period houses generally have a bigger plot and there is more fresh air between you and your neighbours unlike most new builds which seem to be built with just a few feet between properties.
Very occasionally I see a new build which has quality, space and character but these examples are all individually designed contemporary homes built at great expense in the countryside away from amenities and any sense of community.
Period houses are located where most people want to live, near schools, shops, work and social life. New builds are generally located out of town so families need at least two cars to be able to do anything at all. New build developments are also often located within earshot of noisy main roads which diminishes any enjoyment of the limited outside space.
There is no doubt that period houses are harder work and you will need to wear a jumper indoors in the winter but they reward their owners with superior space, location, character and financial return.
February 15th 2017
Is buy-to-let dead?
A recent survey of buy-to-let landlords found that 25% of them have either just sold up or are considering selling in the near future.
In April the tax laws will change for many buy-to-let landlords. Instead of being able to claim full tax relief on mortgage payments, high rate tax payers will begin to see their margins squeezed over the next few years as their tax relief is reduced, thus making their return that much less.
Stamp duty also changed last year on the purchase of any residential property other than primary residences. An extra 3% tax is now payable over and above standard rate stamp duty and this makes investment purchases that much more costly. Some landlords will try to get around this one by forming limited companies to buy further properties but there are costs attached to this as well. Institutional landlords who already buy property within a limited company structure will not be affected by the new tax surcharge. Some investors are moving into commercial or mixed use properties where this 3% surcharge does not apply but investors should be aware of the difficulty in obtaining lending on commercial property.
During the last five years landlords have relied on capital growth to supplement their profits but here too there will be a change as house price inflation slows for the remainder of this year and into next year.
New lending rules which came into effect in the New Year, that restrict the amount that landlords can borrow, will cause a problem for any landlord who wants to re-mortgage, if they can’t meet the new stricter criteria. Landlords may be forced to sell up if they can’t re-mortgage or have to move onto a less competitive variable interest rate.
Rents have risen significantly in recent years but according to landlord referencing group, Homelet, rents will rise at a much slower rate this year and next.
Interest rates have been at an all-time low since 2008 and this has created historically cheap borrowing for landlords. Unless the Bank of England is prepared to see inflation sail through its own 2% target, Mark Carney will surely have to start raising interest rates this year. This will alter the business model for many buy to let landlords with a mortgage.
All these factors make buy-to-let a much less attractive investment vehicle moving forward. Big landlords with multiple properties who have seen it all before will no double carry on regardless. Smaller investors, many of whom are merely trying to build up a retirement nest egg, might do better looking at alternative investments such as bonds, ISAS and pensions linked to stocks and shares.
February 7th 2017
Alternative housing white paper
The Government has this week issued a housing white paper which, it is hoped, will in some way solve our housing crisis. I can remember several governments issuing umpteen white papers on housing over the years and none of them have really got to the root of the problem. For decades governments of all colours have always focussed on how we can build more houses. Some proposals looked at building on green belt which is undesirable for most of us. Some proposals suggested building on land far away from towns and cities which is environmentally unsustainable. Some proposals suggested higher density developments, some proposals suggested building smaller units, despite the fact that humans are getting bigger, and some proposals suggested prefabricated homes which would take us back to post war Britain.
No government dare state the obvious which is that if there is too much demand we should do something about the demand rather than always focussing on the supply side.
So my alternative housing white paper has just four proposals:
Deal with the demand for housing by focussing on our population growth. At present our population grows by half a million people every year. About two thirds of this is due to immigration and one third is due to a higher birth rate. Every year about 300,000 people decide to leave the UK. We can’t do anything about this because it’s their choice to leave. Every year about 630,000 people decide to come to live in the UK. We can do something about this because it’s our choice whether they come or not. This concept is called an immigration policy and if we had one we would be able to regulate the number of people in our country and so control demand on housing and for that matter the demand on lots of other important things such as healthcare, education and infrastructure.
Bring the 900,000 empty residential properties up and down the country back into use. Many of these vacant properties are owned by the public sector but the remainder are in private ownership. There are empty houses in every street in Norwich. Government legislation could easily force these properties onto the open market where they would find buyers and investment and eventually tenants and homeowners. This one initiative would solve our medium term housing crisis in the space of just a few years.
Reduce stamp duty to encourage older people to downsize and encourage younger people to upsize. Neither of these two groups is active enough in the housing market and this causes inefficiencies in how the market operates.
If measures one, two and three don’t do the trick, build well designed, affordable, efficient homes in appropriate urban locations.
So why don’t we try it? The answer is that there are too many vested interests at play. Governments rely on population growth because it almost guarantees GDP growth and GDP has become the holy grail of all UK Governments since the Second World War. House building is now big business and it would not be in the interests of corporate house builders if we did anything to control demand or re-use old housing stock. Reducing stamp duty, which is a very easy tax to collect, would reduce the amount of money the government could spend on public services. So until we become more enlightened about housing we can expect the housing crisis to continue.
25th January 2017
Are online estate agents conning us?
There’s not a day goes by that we don’t see online estate agents advertising their services on the TV or radio. There are several online agents and each has their own unique sales patter.
One leading brand would have you believe that they don’t charge you for selling your house. They say they don’t charge commission. This is because they don’t charge commission but they do charge you a fee instead and they want all £849 of it up front whether they sell your house or not, unlike proper estate agents who only charge you the day your sale completes.
Another leading brand will tell you that you can save £5000 if you use their services – “that’s a new kitchen”. The fact is they also want you to pay £595 up front whether they sell your house or not. What they don’t tell you is that the average fee charged by a proper estate agent across the country is £2700, so the £5000 is just a number their marketing department has made up.
Both these leading brands will tell you they will send a “local property expert” to value your house. For a start this person is very rarely local. In fact they often come from a neighbouring town or sometimes a neighbouring county. These people are far from being “property experts”. They are commission only sales people who, given the choice, would rather be working for a proper estate agent if they could. If sellers don’t employ a real expert, who is properly trained, qualified, regulated and licenced, they may not achieve the best price for their property and this is where using an online agent can prove very costly indeed. Just how much expertise can you buy for £595? We don’t employ online dentists, financial advisers or surgeons so why would we put our biggest financial asset in the hands of the cheapest type of agent we can find?
The other big difference between online agents and proper estate agents is that your local independent estate agent is part of your community. They live in your neighbourhood, their kids probably go to the same school as yours, they pay their taxes in the UK and they spend most of their profit in your town. Online agents are big corporations. If they pay any taxes at all, who knows where they pay them, the owners don’t live in your town and their profits are spent on second homes in the Med.
Online estate agents are nothing new. They have come and gone since the internet was born. They have never really caught on because there’s no future in being the cheapest.
Consumers have a choice and thankfully most consumers still choose a traditional estate agent.
11th January 2017
What is going on in the property market?
Foxtons estate agents have just seen their share price drop due to a 40% fall in sales in the last quarter of 2016, Countrywide, who own Abbotts estate agents, have recently closed 59 offices across the country and Bovis Homes have just issued a profit warning because they built fewer new homes than expected last year.
This all sounds a bit dramatic but what’s really going on? Well first of all, London, which is where Foxtons sell houses, is an international property market and is increasingly detached from the rest of the UK property market. London has for many years relied heavily on foreign investment but the number of these overseas investors has fallen in recent months mainly due to changes in property taxes. As a consequence London will see prices falling slightly this year whereas the rest of the country will see prices rising slightly. In general there will be a marked slowdown in the rate of increase in property values this year. This means that prices will still rise for most of us but they won’t rise in the same way that they have for the past 6 years. In other words we have had the best of property price inflation for the time being. This change in tempo is due to affordability issues, uncertainty surrounding what sort of Brexit deal can be negotiated and the prospect on the horizon of higher interest rates and higher inflation.
The good news is that a slower rate of growth is actually a very good thing for the property market and for the broader economy. Many younger people need wages to rise faster than property prices in order to get on or move up the property ladder so they will be delighted at news of a slower rate of growth. Slower growth also reduces the risk of the property market over heating as it has done several times in the past with dramatic consequences.
So what does this mean for buyers and sellers? It means stability, with prices rising gently, which makes 2017 a good time to make that move with confidence.
8th December 2016
So that was 2016
This year hasn’t been an easy year in the property market. Despite selling more houses than last year I won’t have many fond memories of 2016, at least from a business stand point. The property market relies on sentiment and confidence and it falters on indecision and uncertainty. This year we have seen plenty of indecision and uncertainty and very little cause for strong sentiment and confidence. We have an entirely new government which in itself is unsettling and we have seen a series of political shocks in other parts of the world. The Brexit vote or rather the hysteria surrounding the Brexit vote has caused many sellers to hold back and this has caused under supply which is not at all helpful for anyone trying to find somewhere to live.
Changes in stamp duty on second homes and investment properties, which came into effect in April, also caused ructions at the start of the year with more transactions on this type of property than usual in the first quarter and far fewer than usual ever since.
So what does 2017 have in stall for the property market?
Thankfully next year we won’t have a general election or a referendum and as a result, much less uncertainty I hope. There will be a fair amount of gnashing of the teeth about how good a Brexit deal the government can negotiate so we will not be completely in the clear for some time. Inflation will rise thanks to a rising oil price, and interest rates will start their long awaited upward trend very soon into the New Year. Looking at the positives, we have an economy that is growing faster than any other G7 country, we have virtually full employment, the FTSE100 index continues to show incredible resilience given the political upheavals we have had, and consumer spending ends the year as high as a kite.
What this all means for the property market in 2017 is more transactions than this year and prices rising, but not as sharply as in recent years. So as we move into the New Year let’s all be glad that Norwich remains an incredibly popular place for people to move to for work or lifestyle and make next year the time to make that move with confidence.
22nd November 2016
What could the Autumn Statement hold for the UK property market?
The Autumn statement is an opportunity for the government to make some adjustments to the fiscal planning of the economy. I dare say that Philip Hammond will declare that the government intends to build thousands of new houses, but seeing as every chancellor since I can remember has said this with very little effect on the number of houses we actually build in this country, I think we can take that announcement with a pinch of salt. What the property market needs more than anything else is a reform of stamp duty. Tax is the biggest cost when we move house and the increasing cost of stamp duty has stalled the market when it comes to the availability of homes to buy.
Anyone looking for a house will know exactly what I mean. This tax has become punitive in that it punishes people for aspiring to live in a bigger house. It also discourages older people from downsizing. The way stamp duty is calculated is based more on ideology than on revenue generation. Stamp duty should be a flat tax of say 1% levied on all property transactions compared to the complex system we have in place at present. Other more enlightened countries have adopted flat taxes on income and on transactions and they have found that they actually raise more tax revenue than punitive taxes because people don’t avoid paying them nearly so much. In other words if we reduce property taxes people will move house more often and this will free up the market and create more economic activity in the long run.
9th November 2016
House prices set to keep rising but not like you think.
House prices in the UK are set to keep rising but at a much slower rate than in recent years according to property group JLL. The reason for the slowdown in house price inflation is the uncertainty over the outcome of the forthcoming Brexit negotiations. They forecast that house prices will rise by just 1% in 2017 across the Eastern region which is significantly less than the last five years. In 2018 prices should rise by 1.5% and in 2019 they should rise by 2.5%.
This change in tempo will be good news for millions of young people trying to get on the property ladder for the first time and for all those movers looking for something bigger who will find that their wages will outpace property prices for a sustained period for the first time in years.
For many sellers, who have been holding on, waiting for the market to peak, the time may have come to make their move having had the best of house price inflation in recent times.