Are ‘would be’ Nottingham homeowners warming to the idea of renting?

When reading a report produced by Halifax regarding the UK property market and why more and more of the younger generation seem to be renting rather than buying. I find it fascinating that over the last ten years, the British obsession of buying a house almost as soon as you have left school, has turned on its head to the point where the hopes and dreams of owning a nice home have been replaced by the ambition to simply living in one.

In the not so distant past the 'done thing' was to leave school, get a job, buy a small affordable house allowing one to slowly move up the property ladder until retirement. However the property market has changed and there is no longer a stigma associated with renting in the UK -indeed people are beginning to accept a lifetime of renting. This is a very important consideration for both Nottingham homeowners and landlords as it will transform the way the Nottingham property ladder looks in the future and whether or not it will exist at all for some people. The make up of households is an important factor, especially in the Nottingham property market. The normal stereotypical married couple, two children and dog of the 1970s and 1980s has changed. More and more we have the need for larger houses where two families come together as a result of an increase in the number of divorces as well as an increase in the number of one person households.

Looking at the data for Nottingham, of the 7,795 private rental properties in the Nottingham City Council area, 29.16% of those rented properties are one person households. However when we compare the number of one person Nottingham households who have bought their own property with a mortgage, of the 56,867 owner occupied households in the area, only 7,266 of those properties are a one person household (i.e. 12.7%).  This recent explosion in demand for decent high quality rental properties for one person households has not been met with an increase in supply of such properties.  More and more I believe Nottingham landlords need to consider this change in the makeup of Nottingham households, as I believe this could be an opportunity.  Another interesting statistic that raised an eyebrow is 8.71% of those 27,300 rental properties (2,377 properties) are lone parent households.

It is true that the Governments introduction in 2013 of the Help to Buy scheme, where first time buyers only needed a 5% deposit, changed the perception of peoples’ ability to buy without having to save ten’s of thousands of pounds for a deposit. However, it might surprise you that 95% mortgages were re-introduced within six months of the credit crunch in late 2009, so again it comes down to people’s own perception. Many of the younger generation think they won’t get a mortgage, so don’t even bother trying.

It’s still a fact that once you start renting it becomes that much harder to save for a deposit regardless of the size; interestingly seven out of eight renters polled by Halifax refuse to sacrifice the quality of accommodation they currently live in to reduce the amount of rent they pay in order to save for a deposit.  This is the crux and the real reason why people aren’t buying but renting and why demand for renting will continue to grow in the future, which is great news for landlords. Nottingham tenants can upgrade the quality and size of the property they live in for a minimal rent increase. If you had to make that jump when buying, the monthly mortgage payment increase would be considerable more.  Without any social pressure and better quality rental properties compared to a decade ago, the next UK generation will become a nation of renters , as the UK becomes more like Europe where renting is ‘the norm’. Who is going to supply all these properties to rent? Landlords!

Whether you are an existing landlord looking to grow your portfolio or looking to become a ‘first time landlord’, my thoughts are take advice from as many people as possible. However, as the majority of landlords buy their buy to let properties in the area they live, you will need specific advice about Nottingham itself. For such advice and opinion please email me on Jaclyn.bartlett@centrickproperty.co.uk

George Osborne – The Nottingham landlord’s friend?

Well the last few weeks have been rather hectic, Nottingham landlords have been sending emails or picking up the phone to me regarding 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 for their buy to let properties would be reduced over the coming years for higher rate income tax payers. The Chancellor said the current 40%-45% tax relief that private buy to let landlords (who pay the higher rate of income tax) now get would change in 2017 and would steadily reduce over the following four years to 20% by 2020.

With 24% of residential property in Nottingham being privately rented (28,492 rental properties in total), these changes are potentially something that will not only affect most Nottingham landlords, but also the tenants and the wider property market as a whole. The choice of rental properties could decrease, especially at the top end of the market, which could increase rents.

However, Nottingham 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 buy to let 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 where the tax bill will be much higher when you come to sell your portfolio. In essence by going into business with your buy to let 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, the Capital Gains Tax 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 Buy to let 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 Buy to let properties that have been bought since 2007 have been purchased without the support of a Buy to let mortgage. With those two thirds of landlords paying cash for the purchase of their rental properties, this means two thirds of landlords will be totally unaffected by the changes.

So what will happen in 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 Nottingham investors and let me explain why. If you invested £30,000 into Nottingham property in September 1987, today it would be worth £132,979. If you had invested the same £30,000 into the London Stock Market, it would be only be worth £85,879 today. Whilst inflation would have taken the original £30,000 and pushed it up to £62,345.

It’s true that some central London landlords rely solely on the tax breaks rather than high yields and 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, constricting 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 that there is too much demand and not enough supply of homes, for people to live in in the city. This sets up the Nottingham and UK property market to continue creating strong and steady returns, irrespective of any tax loophole being there (or not as the case maybe).

For further information and advice on the Nottingham property market, feel free to pop into our property lounge or email me on jaclyn.bartlett@centrickproperty.co.uk