Wednesday, 30 August 2017

Loughborough’s 1,731 Mortgage Time-Bombs?

According to my research, of the 22,210 properties in Loughborough, 8,014 of those properties have mortgages on them. 81.1% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

… but this is the concerning part .. 1,731 of those Loughborough mortgages are interest only. My research also shows that, each year between 2017 and 2022, 21 of those households with interest only mortgages will mature, and of those, 5 households a year will either have a shortfall or no way of paying the mortgage off. Now that might not sound a lot – but it is still someone’s home that is potentially at risk. 





Theoretically this is an enormous problem for anyone in this situation as their home is at risk of repossession if they don’t have some means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building Societies are under no obligation to lengthen the term of the mortgage and, when deciding whether they are prepared to do so or not, will look at it in the same way as someone coming to them for a new mortgage.

Back in the 1970’s and 1980’s, when endowment mortgages were all the rage, having an endowment meant you were taking out an interest only mortgage and then paying into an endowment policy which would pay the mortgage off (plus hopefully leave some profit) at the end of the 25/35-year term. There were advantages to that type of mortgage as the monthly repayments were lower than with a traditional capital repayment and interest mortgage. Only the interest, rather than any capital, is paid to the mortgage company - but the full debt must be cleared at the end of the 25/35-year term.

Historically plenty of Loughborough homeowners bought an endowment policy to run alongside their interest only mortgage. However, because the endowment policy was a stock market linked investment plan and the stock market poorly performed between 1999 and 2003 (when the FTSE dropped 49.72%), the endowments of many of these homeowners didn’t cover the shortfall. Indeed, it left them significantly in debt!

Nonetheless, in the mid 2000’s, when the word endowment had become a dirty word, the banks still sold ‘interest only’ mortgages, but this time with no savings plan, endowment or investment product to pay the mortgage off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as property prices were on the rampage in an upwards direction!

Thankfully, the proportion of interest only mortgages sold started to decline after the Credit Crunch, as you can see looking at the graph below, from a peak of 43.81% of all mortgages to the current 8.71%.
 





Increasing the length of the mortgage to obtain more time to raise the money has gradually become more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers considered too old for a mortgage extension.

Loughborough people who took out interest only mortgages years ago and don’t have a strategy to pay back the mortgage face a ticking time bomb. It would either be a choice of hastily scraping the money together to pay off their mortgage, selling their property or the possibility of repossession (which to be frank is a disturbing prospect).

I want to stress to all existing and future homeowners who use mortgages to go in to them with your eyes open. You must understand, whilst the banks and building societies could do more to help, you too have personal responsibility in understanding what you are signing yourself up to. It’s not just the monthly repayments, but the whole picture in the short and long term. Many of you reading my blog ask why I say these things. I want to share my thoughts and opinions on the real issues affecting the Loughborough property market, warts and all. If you want fluffy clouds and rose tinted glasses articles – then my articles are not for you. However, if you want someone to tell you the real story about the Loughborough property market, be it good, bad or indifferent, then maybe you should start reading my blog regularly.


If you would like to discuss the Loughborough property market or chat about any potential investment please feel free to call me on 01509 260777 or email me james.loughborough@belvoir.co.uk

Wednesday, 23 August 2017

The Loughborough Property Market, The Beatles, Sweden and 50 year mortgages


50 years ago, in 1967, the first human heart transplant was performed by Dr Christian Barnard in South Africa. In the same year Sweden switched from driving on the left-hand side to the right-hand side of the road. The average value of a Loughborough property was £3,201, interest rates were at 5.5% and The Beatles released one of my favourite albums – their Sgt Peppers album ... but what the hell has that to do with the Loughborough property market today?? Quite a lot actually ... so with my CD Player turned up loud - let me explain my friends!

I have been doing some research on the current attitude of Loughborough first-time buyers. First-time buyers are so important for both landlords and homeowners. If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (good news for landlords). If they buy, demand for Loughborough property goes up for starter homes and that enables other Loughborough homeowners to move up the property ladder.

First-time buyers are the lifeblood of the property market. They are, however the most susceptible to interest rate rises and the affordability of mortgages. With that in mind, let us see what is happening to them…

The average value of a Loughborough property is currently standing at £241,374 and UK interest rates at 0.25%. As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off.

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’ have been helping with the deposit (Beatles Sgt Pepper song - “With a Little Help from My Friends”). Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid 60’s - I can hear that other great track from the same album "When I'm Sixty-Four" ringing in my ears! So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s. After all life expectancy for a male then was exactly 69 years and today its 79 years and 5 months!

Over the last ten years, Loughborough property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans. If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan.

However, some commenters have said there are worries the mortgage companies are lending money over such a long term, they threaten leaving some first-time buyers with a generation of debt if the house price bubble bursts. Interestingly, when I looked at what had happened to average property values in Loughborough over the last 50 years, there have been bubbles. First-time buyers should take heart, since as a county we have always recovered from it a few years later.


 

What if interest rates rise? Well looking at historic UK interest rates, the current rate of 0.25% is at a 300-year low. Mortgages will never be cheaper. I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). If Loughborough first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!
 




Before I go, a final thought for property buyers in Sweden, the land of Volvo and Abba. As Swedish property prices are so high, Swedish Regulators announced last year limits on the length of Swedish mortgage terms. They don’t bother with 50-year mortgages (On and On and On – Abba).

No, our Volvo-loving Swedish friend’s average mortgage length is 140 years (this is not a typo). Although such mortgages have had their Waterloo (Abba), regulators have significantly reduced the maximum term of a Swedish mortgage to 105 years. Either way, that’s a lot of Money, Money, Money (Abba again – Sorry!) to pay back!

Now I will leave you in peace as I listen to the 1980’s Madness song ‘Our House’. My apologies to all the Beatles and Abba fans in Loughborough - a bit of light hearted fun albeit on serious topic.

If you would like to discuss the Loughborough property market or chat about any potential investment please feel free to call me on 01509 260777 or email me james.loughborough@belvoir.co.uk

Tuesday, 22 August 2017

Great apartment for sale in Loughborough close to the station

This 2 bed property is for sale close to the station with waterside views and off road parking. It is on the market with Leaders at the moment for a guide price of £105k and is well worth considering as an inventment property.

http://www.rightmove.co.uk/property-for-sale/property-67661750.html

I think as a minimum you should be able to achieve £500 per month here and probably more but this would give you a gross yield of 5.7% and if bought less (since the price is only a guide) you could easily achieve a gross yield of 6%. There are leasehold costs to take into account so you would need to look into this but it certainly seems worth a look in my opinion.


If you are interested in talking about this or other potential investments or would like a second opinion on any other properties you have seen, please feel free to call me on 01509 260777 or email me james.loughborough@belvoir.co.uk

Friday, 18 August 2017

Flat for sale in Shepshed, Loughborough with impressive yield

This 1 bed ground floor flat is on the market with Purplebricks for just under £65k. It looks in decent condition and even has a garden and garage!!

It is leasehold but has 93 years left apparently with a service charge of £85 per month and could make an excellent investment property.

Even if you only got £400 a month in rent for this property, this equates to a gross yield of 7.4% if bought at the asking price (and it has been on the market since October so there is a chance of a deal potentially). There is of course leasehold costs to take into account but you would still be left with a decent yield and this could make an excellent addition to a BTL portfolio or for someone wanting to start out on a low budget.

http://www.rightmove.co.uk/property-for-sale/property-49569321.html


If you are interested in talking about this or other potential investments or would like a second opinion on any other properties you have seen, please feel free to call me on 01509 260777 or email me james.loughborough@belvoir.co.uk

Thursday, 17 August 2017

Loughborough Buy-To-Let Predictions up to 2037


On several occasions over the last few months, in my Loughborough Property Blog, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.

Rents in Loughborough for new tenancies only grew by 3.3% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Loughborough, an interesting pattern emerges ..


· 2016 - Rental Inflation in Loughborough was 7.9%

· 2015 - Rental Inflation in Loughborough was 3.0%

· 2014 - Rental Inflation in Loughborough was 3.9%


 

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House). 

On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Loughborough property prices has compounded this. 

Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty. So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home. 


Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Loughborough, the East Midlands and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics.


Population Estimates for Charnwood Borough Council over the next 20 years
2016 (actual)
2021
2026
2031
2036
178,255
187,191
196,575
205,577
212,306






 


Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Loughborough, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up! 

The fact is that I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.

If you would like to discuss the Loughborough property market or chat about any potential investment please feel free to call me on 01509 260777 or email me james.loughborough@belvoir.co.uk