Despite Government regulations that have been in place since the 26 March 2020, when in-person viewings were made illegal, Carlisle buy to let landlords have during that time been chomping at the bit to build their property empire by looking at buying additional properties for their Carlisle buy to let portfolio.
There are plenty of investors who think nothing of legally committing to buying a property ‘off plan’ before it’s built – yet over the last few weeks, it has become the norm in the second-hand Carlisle property market and they have now stolen a march and bagged some property bargains.
Normally, the face-to-face viewing is step one of the second-hand house buying process .. yet now it’s becoming the ‘new normal’ that some Carlisle agents are carrying out semi-professional video viewings or 360-degree video tours. Even homeowners are getting in on the act and managing a Facetime or Zoom video viewing by walking around their house with their mobile phone.
Yet the Government announced on Wednesday, 13th May 2020 that the Estate & Letting Agency industry could reopen meaning people could view houses, visit agents (by appointment only) and move home be they tenants, buyers, landlords or home-sellers. This is all subject to general and specific social distancing rules, specific hygiene regulations and suitable PPE being used.
What has been happening in the last few weeks in the Carlisle property market?
The average time between sale agreed and exchange/completion of contracts on a house sale (i.e. the keys and monies get sorted) is 17 to 19 weeks, which means buying today would mean you wouldn’t be getting your hands on the property until late September or October at the earliest.
Spring is the time when most properties come onto the market, yet as one would expect, the number of Carlisle properties coming onto the market has been somewhat reduced since lockdown as ..
Only 35 Carlisle properties have been put up for sale in the last month
This reduction in supply of new properties coming onto the market combined with this pent-up demand from both Carlisle landlords and the ‘Boris-Bounce’ could in fact be good news for the Carlisle property market, let me explain…
Rightmove stated that people going to their website initially dropped by 40% at the start of lockdown, yet now has recovered, with a near doubling of people searching for properties with gardens (for both sales and renting). For many Carlisle buy to let landlords (and in fact Carlisle homebuyers) now is the very best time to do research into the Carlisle property market. All the portals have access to 25 years of property sales with pictures, so you can compare and contrast what has happened to various different property types around Carlisle to spot those under-priced bargains, meaning you can get moving quickly after lockdown.
Rather than feeling trapped or powerless, this time can be used fruitfully by Carlisle buyers and Carlisle sellers to get their ducks in a row
One of the biggest barriers in April was mortgage lending. In the early days of the pandemic, most mortgage lenders removed many of their best deals and enormously restricted their capacity. Currently, though, we are seeing a revitalisation in the mortgage market. In May, with many mortgage products becoming accessible again for borrowers, and with many mortgage companies integrating more digital processes (including Virtual Surveyor Mortgage Valuations in some cases) the mortgage market now has plenty of options available to those who are keen to obtain borrowing.
There is no doubt the Carlisle housing market got off to a sturdy start in 2020. With Brexit at least partly resolved, the ‘Boris-Bounce’ was starting to take off. With Carlisle house prices being robust and rental demand was high, the Carlisle property market was already in a good place to deal with the subsequent Covid-19 issue.
I know there are a few doom mongers in the National Press spouting about a massive crash in the UK property market. There is a natural tendency for newspapers to latch onto the worst-case scenario in any economic forecast. Who can forget the country received similar projections in the lead-up to the 2016 Brexit vote with HMRC itself stating that UK house values would drop by at least 10% in the first 12 months should the UK vote for Brexit and 20% in two years!
With the rollercoaster of the stock market in recent months, investing one’s money into good old-fashioned bricks and mortar has started to seem a good place again.
Buying a property for investment means you have a tangible asset, something you can touch and feel (and understand). The returns from investing in property come from both capital appreciation and income from the rent, and yes whilst property values can go up as well as down, successful buy to let landlords are inclined to take a long-term view on their property investments.
£399 per month – The average gross profit from a Carlisle terraced/town house
To give you an example of the current buy to let returns, the average Carlisle terraced/town house sells for £103,200. By taking the ‘The Mortgage Works’ BTL 5-year fixed rate of 1.64%, with only £1,264 in up-front fees, a 20-year repayment mortgage would cost you £309 per month or interest only mortgage would only cost £86 per month .. considering the average rent for a terraced/town house in Carlisle is £485 per month .. even before management, tax, maintenance and other associated costs, that’s a decent gross profit (the £399 gross profit is an illustrative example using the interest only mortgage and the capital element would need repaying at the end of the term).
Isn’t it funny the newspapers aren’t latching on to some reports to say the property market might go in the other direction? Remember – bad news sells newspapers!
So, should you wait to buy your Carlisle buy to let investment?
Before you buy consider factors like the strength of your financial future, your credit score, the current state of the property market and even more importantly, the state of the mortgage market. Look at the current interest rates, they have never been so low and deliberate the experts’ opinions and just as equally your own opinions as to whether Carlisle property values are on the rise, will stay the same or are likely to fall.
Interest rates are at record lows, meaning borrowing money is cheap money now, so it may be a good time to buy, as you will pay a reduced cost for the pleasure of borrowing money to buy that investment. Yet, if you waited and Carlisle property values are on the decline, it may be a good idea to wait, as you could end up getting a better deal on the same type of home, yet if that happens, access to the cheap finance might dry up (meaning you could save some of the purchase price, but the cost of borrowing could go up). It can be very hard to accurately predict what interest rates or property values will do, so these shouldn’t be deciding factors – but they are worth considering.
So, what will happen to the Carlisle (and UK) property market?
To be honest – nobody knows. What I do know is the Swine Flu in 2009 caused some volatility in the UK property market, but the market stabilised within months. Even in disaster scenarios such as the current one, property remains comparatively stable and will continue to be one of the best places to invest in.
Yes, we could see unemployment rise in the next 6 months (yet the Furlough Scheme has been extended until the autumn) and historically, it has been proved house price falls are not caused by high unemployment; yes GDP will drop drastically because of lockdown yet it could bounce back like it has in China; yes, the number of property transactions will drop, yet that will only really effect the pockets of Carlisle removal people, Carlisle solicitors & estate agents and the Chancellor of the Exchequer in lost stamp duty receipts; yes there is £82bn worth of property sales on ice during this lockdown (some of which might not complete) .. it’s all ifs, buts and maybes.
Calamity changes things: with every predicament, humanity shifts to become more productive – it’s the way it’s always been
The national debt at the end of the Napoleonic Wars of 1815 in today’s money was an eye watering £4,421,000,000,000 (£4.42 trillion) and today even with the eye watering borrowing to fund Covid-19, it stands at £1,821.3 trillion – we have been here before and we came out stronger.
The Bank of England failed in 1825, yet we recovered stronger; the Great Depression of the 1930’s cut the Stock Market by 90%, yet we recovered; WW2 took national debt to 200% of GDP like it had in the Napoleonic Wars in the early 1800’s – yet we recovered; the oil crisis quadrupled oil prices in the 1970’s – and we came back …. The list goes on with Hyper-inflation in the 1970s of 25%, mass unemployment in the 1980’s, Black Monday in 1987, Dot-com bubble in 2001 and the credit crunch in 2008/9.
With every economic crisis, the long-term effects of them make people look at their decision making differently.
The simple fact is for decades, demand for homes has outstripped supply – hence why property values have remained so robust. People are living longer (71.1 years in 1960 and 81.1 years nowadays), the mass exodus of EU nationals has not taken place since Brexit and the birth rate has increased by 9.1% since the Millennium which means since 2000, the country has needed at least 240,000 households per year to satisfy the demand. On average, we have only built 150,000 households a year, meaning we have a shortfall of 90,000 households each year for 20 years .. a true shortfall of 1.8m households .. and until we start building anything over that 240,000 requirement … demand will always outstrip supply – and we all know what happens to prices when that happens!
Even though the new legislation was placed on hold because of the recent General Election and I have no doubts that it will be put on hold even longer with the effects of the Covid-19 lockdown and the ramifications it has had on our economy.
It was to be expected that the Government would start fining around half of all UK local authorities for failing to build enough new homes as Westminster wanted to force local authorities to build more homes with the new laws.
There is a once in a lifetime opportunity for the government and local authorities to kick start the economy after the end of the lockdown with an investment aimed at more building, hence more direct employment and growth in associated support businesses. To me, it’s a no brainer. I have sent this article to our local MP John Stevenson asking for his support and influence.
The Conservative Government has gone on record with an ambition to build 300,000 new homes each year from the mid-2020s (aspiring as the average for the last 13 years has only been 177,000 pa). So Downing Street see the planning system as requiring root and branch change to ensure local authorities deliver on that promise. The Ministry of Housing, Communities and Local Government’s ‘Housing Delivery Test’, which should be launched on an undetermined date this year, will hold local authorities to account for ensuring they hit their own specific house building targets.
If a local authority is unable to show that it has a five-year stock of land for building new homes, it gives builders greater rights and liberties to build their new homes where the builder wants (not where the local authority wants).
This will mean there will be a house-building free-for-all
as the council will have less control over the setting, types of properties, contribution to infrastructure and location of any new home development.
Only 44% of local authorities have a local plan that is less than five years old.
Locally, Carlisle is in that 44% of local authorities, having had a local plan in place within the last five years.
Yet, the original question of this article was to find out if we are building enough homes in Carlisle and the surrounding local authority area i.e. should we get the builders in? Well, the Government set targets for local authorities for the number of homes they should build each year. The latest set of data is for 2018, so for the three years up to and including 2018 i.e. 2016/2017/2018,
Carlisle’s new home building target was 623 new homes, yet it achieved 1,548, a surplus of 925 new homes
So, what does that all mean for the Carlisle property market?
Even with the surplus, there are positive and negatives to this. The Carlisle property market is not broken, yet it does need to get the builders in. Irrespective of the results from the last three years, we have over three decades of under building, which has created issues regarding affordability of homeownership and older generations being stuck in homes too big because there aren’t enough suitable homes for them to move to, i.e. bungalows. The stabilisation of the General Election had a net positive to overall confidence in the local property market, meaning Carlisle homeowners and Carlisle landlords looking to sell their home in the coming spring and summer should have found decent demand (although sellers still need to realistic with their pricing). This was scuppered by the covid-19 outbreak with the housing market almost coming to a complete halt in Carlisle and nationally. I do think this halt will only be temporary until the lockdown is finished. I predict the Carlisle housing market will come back with a bang with many properties having been readied for sale with the surge in home improvements during the lock down. I also believe this time in confinement has given time for people to lay down plans for the future. This will include many house moves.
Unfortunately, the negatives are that many Carlisle renters that want to buy, are unable to as they can’t save after paying their rents and feel as if they’ve been left behind, or worse still, they have struggled to pay rents due to loss of employment of being furloughed.
I know the Government recently launched their “First Homes” scheme for selected first time buyers at the start of February, where a 30% discount would apply to “a proportion of new homes” and would be subsidised out of contributions from builders, the Tory’s have previously promised to build 200,000 cut price homes for first time buyers back in 2015, yet the National Audit Office has recently confirmed they never built a single one!
The simple fact is, we as a country need to build far more affordable homes in the areas where people want them. This means the dream of homeownership will be a greater possibility for our children and grandchildren in the future. Our local authority needs to continue to plan the housing needs (and associated infrastructure) to ensure that as we live longer and continue to grow as country – we have the homes in place to live in that are suitable for every generation.
So now we are only a matter of a couple of weeks into lockdown, yet can you believe it I am still speaking with agents from all over the UK, and I do not jest, properties are still being sold and let even in these unprecedented times. Yet I would like to address the question I have been asked many times recently “What will be the effect of Covid-19 on the Carlisle property market in the short, medium and long term?”
Please follow the link to read the full news letter.
Stay home and stay safe everyone.
The last three or four weeks, unquestionably, have been one of the most life-changing times we have seen since WW2. The imminent threat of the Coronavirus has taken over the world, the UK and Carlisle and will challenge you, our families, our relationships and test us all.
The drive of this worldwide action of social distancing is not just to stop you from getting ill with the virus; the bigger drive is to slow down the development of this virus so the NHS will not become overwhelmed with those who are most likely to need hospital care. Yet the issue of social distancing has certainly raised many questions around the landlord/tenant/agent relationship, so in this article I wanted to share with all the 2,105 Carlisle landlords their rights, obligations and responsibilities to their Carlisle tenants. I also wanted to highlight the rights, obligations and responsibilities of the 5,199 Carlisle tenants in return.
These will be trying times for Carlisle landlords and Carlisle tenants alike, so let’s start…
A landlord has the responsibility to ensure the property is fit for habitation, so what if the Carlisle landlord/agent is incapable of undertaking an emergency repair (or say the annual gas safety check) because the tenant is self-isolating or actually has the virus? The answer is the landlord should use their best efforts to fix the problem if it’s an urgent repair, yet if the landlord/agent are unable to do so they should record this fact and that it is related to the Coronavirus epidemic. One should then re-try as soon as is possible and appropriate, having full respect for information on self-isolation, personal-safety and social-distancing and ensure that you make a written note for future issue. My advice is that you or your agent (as we are with our Carlisle tenants) need to uphold good lines of communication with the tenants touched by these current circumstances, so they are clear on what action you are taking and the timescales for this.
Yet at the same time, there will be very few situations in the coming weeks when the contractors who the landlord/agent use will also be in self-isolation, meaning a handful of the 5,199 Carlisle tenants might have to wait for repairs to be sorted. We have some excellent Carlisle contractors with their own backup plans and so together we will use our best endeavours to find an alternative contractor to fix any issues. If your agent has issues, then maybe we can help – do call me. Yet whatever you do, if this occurs, document everything and that it is related to the Coronavirus epidemic.
The total rent paid by Carlisle tenants each month is £2,661,900
It’s true the UK government has demanded that building societies and banks give a three-month mortgage holiday to those landlords that are unable to make mortgage payments. This is not free cash, the mortgage payments are basically postponed with interest to be collected at the end of this crisis, meaning your obligation as a Carlisle tenant to pay the rent still exists. HM Government is offering employers an 80% wage support with the furloughing to avoid having to make people redundant.
The average Carlisle rental payment currently stands at £512 per month
Therefore, if you are incapable of being able to pay your rent, the first thing to do is speak with your agent or landlord if they self manage. Rent will still build up and accumulate during this virus predicament and you may want to negotiate a payment plan to pay it back on top of your normal monthly rent. One option, subject to status and agreement by all parties, could be to renegotiate a new longer lease to pay off the arrears over a longer period. Again, the point here is communication from all sides – making sure there are no nasty surprises. A second option would be to ask your landlord to transfer your deposit to rent. The landlord or agent will need your written permission to do this. Please be fully aware that you are still responsible to exactly the same extent in the tenancy agreement for all breaches of Tenancy, dilapidations and rent arrears so you still need to ensure you adhere fully to all terms of the agreement as money will still be payable at the end of Tenancy for any breaches / dilapidations due.
So, if you are in this predicament, there is a lot of help accessible from the HM Government including Universal Credit or Employment Support as soon as possible to escape any interruptions to your payments. Remember, your landlord will need proof of your Universal Credit or Employment Support claims to give to their mortgage company to be able to start the mortgage holiday, so my advice to all the 5,199 Carlisle tenants is keep in contact with your agent to ensure your Carlisle landlord doesn’t suffer any avoidable hardship (which ultimately may end up with your home being repossessed because the mortgage payments were missed because you were unable to furnish the landlord with your own claim documents).
Communication is the #1 priority here. Whilst most agent’s premises are closed including our own, all are open for telephone and email enquiries, with staff working from home. This is a fast-changing time for everybody, for the 2,105 Carlisle landlords and 5,199 Carlisle tenants correspondingly and we will be ever vigilant to oversee the financial and monetary backdrop in the coming months.
The UK Government has announced a package of benefits in recent weeks. Employees and their families should access information via the Direct.gov website. A summary of specific measures put in place recently can be found below:-
Universal Credit – Chancellor has announced that Universal Credit will be increased by £1,000 per year for the next 12 months.
Other benefits may be available – a simple online check can be undertaken to determine what benefits you may be entitled to: https://www.entitledto.co.uk/benefits-calculator/Intro/Home?cid=f436a549-5374-4728-9cb2-31bd9c4b2c0a
Although Water is supplied by a regional selection of water companies, who have not yet all confirmed what help is available, their Regulator, Ofwat, have assured people that they are expecting firms will offer payment holidays, and moreover, some water providers are running a scheme for those who have built up large debts, where the utility provider will contribute £1 for every £1 you pay towards the arrears. Please speak to your water provider for more details.
Gas and Electricity
The big six energy suppliers have said that they are likely to push back bill dates for customers who have been affected by the Coronavirus or remove debt charges for late payments. Each case will be reviewed on an individual basis, although the support particularly applies to vulnerable customers.
These are going to be tough times for the people of Carlisle (and the world), financially and mentally; yet together we will come out of this stronger. By working together, working in partnership, again keeping lines of communication open with regards to your finances and your housing, by keeping safe and protecting our families and most of all by being kind to each other … we will get through this, a little battered and bruised – yet hopefully better human beings for it?
In the latest, and most recently published, set of UK mortgage data (for the month of November 2019) 18,470 pound-for-pound re-mortgages were made (i.e. the borrower went from one rate to another with no additional borrowing).
However, since the 1970’s, the British have seen their homes as cash cows and cash machines, with many homeowners re-mortgaging at the end of their mortgage’s introductory term (usually after the initial two, three or five years) to avoid being passed on to their mortgage lender’s more expensive standard variable rate.
For some borrowers re-mortgaging allows them an opportunity of raising additional cash whilst for others it enables them to follow interests and activities; such as big holidays, home improvements, new cars, debt consolidation or financially helping family members (e.g. paying off credit cards or helping with house deposits).
Interestingly, in November 2019 alone (the most recent figures) an eye watering £957,856,700 was borrowed on top of existing mortgages by 18,610 UK homeowners re-mortgaging and borrowing, on average, an additional £51,470. Therefore, one has to ask, are we borrowing too much? Looking at these numbers, one might think we are over-extending ourselves, yet as regular readers of my blog about the Carlisle property market will know – I like to drill down and look at the historical figures. Back in 2006, just before the crash, British homeowners were actually borrowing in excess of £5bn per month over and above the re-mortgage amount – much more than the £1bn we experienced in November!
Looking at statistics from the Bank of England for the UK as a whole, even with the data mentioned above, British property owners have increased the equity in their homes by just over £270 billion since 2010 compared with a £275 billion withdrawal during the 2000s. This reveals that the last decade (the 2010’s) is the first since records began in which Brits have increased their equity. This is partly due to the fact that the number of housing transactions crumpled during the Credit Crunch, and many homeowners chose to reduce their mortgages, rather than continually increasing them – even if their property started going up in value after 2013.
So, what has happened in Carlisle regarding mortgages and does it match the national picture? Well interestingly…
Carlisle homeowners have injected over £800m into their Carlisle properties over the last six years; overturning a trend stretching back to the 1970s.
Considering the exact figures, it can be seen whilst the total value of mortgages has increased slightly since 2014, as a percentage this has gone down, meaning Carlisle homeowners and Carlisle landlords have increased their equity since 2014 by £802,655,800 (one might call it a windfall?).
It can quite clearly be seen that the financial insecurity sparked by the Credit Crunch crisis has created a generation of Carlisle homeowners/landlords who are savers and improvers rather than movers and excessive borrowers, using excess cash to invest in their property and pay down debt or to excessively borrow on their equity growth, as can be seen on the graphs and table.
As the percentage of mortgages (the loan to value) has decreased since 2014 from 14.01% to 12.61% in Carlisle, this is good news for every Carlisle homeowner and Carlisle landlord because, irrespective of whether the ‘Boris Bounce’ is short or long lived, it shows the Carlisle property market is in a better state than ever before to ride out any storm that it might encounter because less people will be in negative equity or have prohibitively high mortgages.
With the budget almost upon us, I am asking John Stevenson the Conservative MP for Carlisle to remind the Chancellor Rishi Sunak and Prime Minster Boris Johnson to use their persuasive skills to highlight and take a more holistic approach and attitude to the private rented sector and tackle issues which affect a Carlisle landlords’ capability and capacity to strategically run an effective buy-to-let business. I asked Mr Stevenson for comment but as of yet he hasn’t replied.
For the last thirty years, the Government have passed responsibility of housing the masses from local authorities (i.e. council housing) to the estimated 1.5 million British buy-to-let landlords.
However, since 2015/16, Carlisle landlords have faced increasing tax burdens as each year goes by, with the removal of mortgage interest rate relief on income tax (Section 24), the introduction of the 3 percent surcharge on stamp duty, and the reduction of the letting relief on capital gains tax.
My research has calculated the total income tax contribution by 2,000 Carlisle private landlords in the tax year 2015/16 was £5,218,996
However, the eradication of higher rate mortgage interest relief (also known as Section 24) announced in 2015 by George Osborne has been estimated to add a further £1.9 billion nationally to landlord’s tax liability. Whilst raising money from landlords is an easy target, and the tax receipts attractive, it does make the landlords financial burden even heavier.
And by 2021/2, when the full extent of the Section 24 relief kicks in, that income tax liability will rise to £7,619,734
for those Carlisle landlords
This doesn’t even take into account additional liabilities such as Capital Gains Tax, the 3% additional duty on top of the prevailing Stamp Duty Land Tax and VAT.
Ambiguity and a lack of certainty is the foe of all investment, which has been seen with Brexit. Now, just as things are starting to get rosy in Q1 with the pent-up demand released with the ‘Boris Bounce’, the last thing we need as a ‘collective’ property industry is for the Government to see us landlords as a constant cash cow. This new Tory government must acknowledge the value the majority of private landlords offer by housing in excess of 9.45 million people in the country.
Westminster needs to take a balanced approach to the significant issues of possession (especially with the impeding removal of section 21 evictions), taxation and all rental properties needing to be at least an ‘E’ energy efficiency rating, to connect the value the private rented sector offers the country by effectively housing over a fifth of the population and avoid unintentional consequences by making renting a private rented property harder for tenants … because, it’s not financially viable to buy (or retain) a buy-to-let property with the way things are going against the landlord.