YOUR PROPERTY BREXIT FILE
What happens next?
None of us know the answer – not even the residents of Downing Street!
However, what we do know is that we are living in uncertain times. On quitting the EU, 52% of UK population opted not just for change, but for transformation of the status quo. You may be one of that 52% or of the 48% who would have preferred to remain but now it is time for us all to pull together and PROSPER!
Uncertainty, we say, is good. During times of uncertainty, fortunes are made by forward-thinking entrepreneurs who can see the bigger picture and pinpoint the opportunities that crop up right here and now.
This is not the first time we have experienced political or financial turbulence in our lifetime. You only have to think back eight years to when the property world as we knew it fell apart … or did it? Some struggled; some flew through and came out stronger and wealthier. That will happen again.
This time, make sure that you are among those who prosper. Arm yourself with knowledge, prepare yourself mentally, and step forward with confidence into the unchartered territory. YPN will be right by your side to keep you informed and help you navigate the terrain!
Ant Lyons and Jayne Owen
What our experts say… Simon Zutshi... ...highlights potential areas of impact on you and your property investing
Graham Kinnear... ...considers the upsides for the property sector
Paul Merrick... ...reflects on how politics affects property and encourages you to Brexit-proof your business
Chris Worthington... ...offers a preliminary overview of the post-Brexit property market
By Simon Zutshi
On 23rd June, 72% of the UK electorate turned out to cast their vote in one of the most important national decisions in our lifetime. It was a very close vote with many people deciding last minute which way to go. The result of 52% of people voting to leave the European Union will no doubt have an effect on all of us, but what will be the specific effect on property investors? We have asked Simon Zutshi to share his views on the effect of Brexit.
There is no doubt that now the UK has voted to leave the European Union, there is even more uncertainty and lots of speculation about what could happen to the economy, interest rates and the UK property market. The general sentiment propagated by the UK media is that this could be the end of the world as we know it!
The reality is that no one actually knows exactly what will happen and it will take several years for the withdrawal of the UK from the EU to be negotiated. I don’t think it is as bad as the newspapers would have you believe, certainly not for property investors. So let’s look at each of the main areas which could impact us as investors.
One of the first consequences of the decision to leave Europe was that, as expected, the FTSE and the Pound were both weakened. Whilst the FTSE very quickly bounced back to higher than it was prior to the BREXIT vote, the Pound has not recovered and may take some time to do so.
The weaker Pound means that exports become cheaper, which may mean businesses that export experience a boost thanks to increased demand that will help to support the economy. I have heard that London estate agents have already had a flood of European investors showing interest in the London property market which has suddenly become 10% cheaper due to Sterling being weaker. We may also see a boost in tourism this summer for the same reason. However, as the UK is a net importer, this means that the cost of living may go up as imports become more expensive. This may cause a slowdown in the economy, and we may see job losses and even a move into recession due to a lack of investment. That is not good for anyone in the UK.
However, as a result of this potential economic slowdown there is one consequence which could be very good for property investors in the UK. Before BREXIT the economy was starting to look good and I believe that most investors expected interest rates to start to creep up over the next few years. However, it looks like the opposite will now happen, at least for the foreseeable future until the economy recovers. Most people (including Mark Carney, Governor of the Bank of England) expect interest rates to fall with a cut in the Bank of England base rate which has been at a historic low rate of 0.5% for over seven years. As a result of a cut in the Bank of England base rate, mortgages will become even more affordable and I am confident that due to increased competition between mortgage lenders we will see them continue to reduce the cost of borrowing for new mortgages. This will help to stimulate the property market – good for those of us who chose to remain in it.
But the big question is, what will happen to UK property prices? The online property portal Zoopla were very vocal about their prediction of a 20% drop in property prices if the UK voted to leave the EU. I know plenty of investors who would love the opportunity to pay 20% less for their next few properties but is that likely to happen? To understand the effect on property prices we first need to look at the fundamentals of supply and demand with particular reference to change in population. As I always say, we live on an island with a growing population and a limited supply of accommodation, so over the long term value of property and rents have to rise. If there was a big fall in population, then the supply could be greater than demand, prices would fall and the Zoopla prediction may well be correct. But again, how likely is there to be a fall in population?
It appears that one of the main reasons many people decided to vote to leave the EU was on the issue of immigration. I believe that many people who voted leave, were under the impression that if we left Europe it would mean an end of the free movement of people and immigration into the UK. Well, that is just not going to happen. What most people failed to understand is that the free trade agreement is also linked to the free movement of labour. So it is unlikely that the UK will pull up the drawbridge and stop all migration into the country. It is also very unlikely that the UK government will look to remove the three million or so foreign nationals living in the UK, many of whom, let’s be honest, are doing jobs that the British don’t want to do. Even if there was no more immigration into the UK, the Office of National Statistics still estimate that the UK population will grow over the next few years due to increasing birth rates and longer life expectation.
What is more of a concern for me is what the effect would be if some of the bank and major financial institutions decided to leave London. At the moment there is a passport system which means that by having presence in London they have a legal right to trade in Europe. If these passports are not renewed and extended under a new agreement with Europe then some of the major banks may reluctantly decide to relocate to another city in Europe. This would certainly cause a negative impact on the London property market.
London vs rest of UK
As we all know, the London property market has seen incredible growth over the last few years, such that I believe it is actually over-valued. I have heard that some sellers are accepting offers as much as 20% below the asking price. Maybe this is what Zoopla were talking about, but I feel that this is probable on properties where they were overpriced in the first place. What usually happens is we see price changes in London ripple out to the rest of the country. However, on this occasion I don’t think we will see this as the rest of the country has not gone up as much as London recently. So I expect we will see a small price correction in London, which again might encourage foreign investors to swoop in and pick up some bargains especially as the Pound is so weak at the moment.
So if prices may fall in London and elsewhere, is it best to wait and see what happens? My answer is a definite NO. Waiting until the right time to buy is never a good idea because you can never really tell when is the best time. My advice is to educate yourself, always do your due diligence and if the property stacks up now and gives you a good cash flow and ROI then just buy it and don’t worry about short term price fluctuations. Remember the real value in property is buying an asset which gives you income each month and goes up in value in the long term.
This then brings me on to the topic of which strategy you should use in the current market conditions. I, like many other investors, have enjoyed the rising market and flipped a few properties over the last three years, However, I am not so sure that flipping property is a wise strategy right now when there is still so much uncertainty in the market. If you do still want to flip property, then you should ensure that the property stacks up as a rental in case you are not able to sell it.
Always make sure you have an alternative exit strategy.
The biggest risk to the property market, I believe, will be caused by surveyors who have become over cautious and are now down-valuing properties to make sure they protect themselves and their PI. I know that is a very generalised statement but I have personal experience of this happening as do many of my students. Right now, even when there is a willing seller and a willing buyer at a certain price, I have seen surveyors down-value a property by 20% in the last few weeks in London and the South East. This has been confirmed by a number of mortgage brokers I am in contact with who have also experienced the same down-valuations. If they are not careful the surveyors could create a self-fulfilling prophecy. Let’s hope this does not happen.
So what does all of this mean for you and your property investing?
I do believe that the next twelve months could be one of the best buying opportunities we have seen for many years. Due to all of the uncertainty, I think many amateur investors will be put off investing. I believe some long term landlords may decide to sell up early due to all the proposed tax changes. Whilst amateur investors are waiting to see what happens, the professionals are out there snapping up great deals and making the most of the uncertainty and that is what I recommend you do as well
How to keep up to date with market changes!
With so many unprecedented changes to the property market over the last twelve months, it is even more important than ever to make sure you keep up to date with all the changes and understand how they impact on you and your investing. One of the best ways to do this is to attend your local property investors network (pin) meeting. There are over 50 pin meetings all over the UK each month (except August and December) and so there is bound to be one close to where you live or work. You can reserve your seat at your local meeting in September now at...www.pinmeeting.co.uk
The Effects of Brexit on Property
Unsurprisingly, this month I thought we could consider the effects of the Brexit vote on our individual property plans.
As we prepare to move into unchartered territory many people seem to be transfixed with the potential downsides to the property industry.
There has been anecdotal evidence in the press since the referendum of over £1bn of commercial property deals falling through; estate agents have reported, albeit on a small scale, of purchasers pulling out due to the Brexit decision and one overseas bank has halted UK lending due to our decision to leave the EU. Furthermore we have seen the stock market fall, the pound fall and some inferences of mass job losses.
But is it really all doom and gloom for our independent future?
The key thing is perhaps not to believe all we are told in isolation. The Chancellor stated that house prices could drop 10-18% if we were to vote to leave. Bear in mind he also said an emergency budget would be immediately necessary and that is seemingly now not going to happen. Regardless of the correct sum of money which can be saved from our EU membership, there will clearly be a cash benefit to the UK economy.
I accept prices could wobble in the short term, especially in areas where values are already overheated and during the period in which the timetable for exit is negotiated. This is particularly likely given that the rent coverage on buy-to-let is increasing and a likely reduction in interest rates could certainly impact lender profitability and reduce their motivation to lend.
Prior to Brexit some commentators were calling the top of the market so this concept post referendum is nothing new. Having said that, the EU Mortgage Credit Directive was itself something that was restricting lending so this is one facet from which we will potentially be released. Plenty of others could benefit us too.
That said, a reduction in pricing could increase demand from investors looking to secure a viable deal in what has been a fast-growing marketplace. A reduction in interest rates could see enhanced cash flow for investors on tracker and variable rate deals. With rents seeming reasonably robust or even still rising, investors could see increasing returns during these uncertain times.
Indeed a small scale correction or even a stagnant market while we all get used to the new norm could be a far better consequence than a larger scale correction that unchecked house price growth could cause.
I disagree with those who compare our property proposition with our European neighbours. Culturally we aspire to own property in a way that other countries do not. I see no reason why this will change. It is asserted that 80% of renters aspire to own a property and our population is likely to continue to increase faster than housebuilding regardless of whether we reduce net immigration. Further, as an investment medium, property is likely to continue to be the first and only choice for many dismayed with alternative pension opportunity.
For those who are involved with “Jet to Let” there could still be opportunities abroad. Although the pound has initially fallen against the euro it is possible, particularly when you look at how European stock markets have reacted, that the euro could fall as a result of Britain’s exit from the EU and the ongoing economic challenges that the Union faces. Such a move could make overseas property far more affordable for the UK buyer and surely our European neighbours will still be happy to sell to us.
Many have mentioned the ability to make our own laws and the ability to repeal those we would rather do without. This is however likely to be an incredibly time-consuming process, not least as many of them, as in the case of EPCs, originated from a European Directive but were subsequently enshrined in UK law. The vast majority of legislation which impacts property is, as far as I am aware,
UK-initiated law and therefore unlikely to change as a result of the referendum vote. The exit process is likely to take two years, so we have the benefit of time to adapt to the new regime. It is clear that an acute shortage of housing remains and that a significant number of employers will retain their base in the UK; therefore it is hard to see how rental demand or, providing mortgage finance remains available, pricing will wane to any significant degree.
The truth is we haven’t been here before and being the first country in the EU to leave we cannot know for certain what the future holds. There is however a very good chance Britain will ultimately prosper with its new found autonomy. As it does, the housing market would benefit as a result. The recovery of the economy following the 2007 recession saw significant growth in the housing market both in terms of pricing and the number of homes being built. This was also the case in 1963 and 1968, both coincidentally perhaps, prior to our joining the European Community!
As property people we seem to display a strong entrepreneurial flair and should therefore look at the opportunities that exist. Bear in mind if we decide to stop building our dream we are likely to end up being employed by someone to help build theirs! So let’s stay true to our dreams and negotiate our way through these changes.
Brexit-Proof Your Business
By Paul Merrick
On the 23rd June, the UK voted to leave the EU. This started a drawn out process of political upheaval as the markets dipped and rallied. Whilst we remain in this period of uncertainty, long-term property investor and developer Paul Merrick shares his tips on how to Brexit-proof your business and explains how as property developers and investors, we can shape how the markets react to this unprecedented opportunity.
Are you In or Out?
I’m not referring to the EU. I’m referring to the property market. The result of the referendum seems to have prompted some soul-searching across the property industry. Fair-weather investors and property newbies seem spooked by the market fluctuations and are worried by the doom-laden predictions of the media. They’re already considering how to move Out of the property market. Meanwhile, experienced investors and established property businesses are staying In. They recognise that political unrest always causes market fluctuations. When the market fluctuates, that’s when we can make the most money in property.
There has been a lot of political turmoil since we took the decision to leave the EU and that political fallout has had an effect on the property market. We can all complain about the mismanagement of the process to leave the EU and the over- reaction of the markets, which dipped and rallied over the course of the first few days. But we need to realise one simple fact: if property prices did not fluctuate then most of us would not want to be in the property business. It’s the fluctuations in the market that make being in property both interesting and profitable.
So what do we need to do to make sure we are the winners in this property bust and boom?
1. Recognise that politics make prices in property
The first thing to recognise is that property prices are a reflection of the overall marketplace. Interest rates, GDP, cash liquidity and the national economy all play their part in dictating the price of the average house but more importantly we need to understand the underlying fact that politics is what makes prices in property. A lot of investors think the only thing they need to be aware of is the price of property in the area they want to invest in. That may work in a stable market but will have its drawbacks in a market that is seeing instability because even local prices could fluctuate. To be a long term investor, or to own a property business, you need to understand that the property market is at its most profitable when major change is happening.
The vast majority of people want into the market when they see prices rising but are put off by any downturn in the price of property. We, as property professionals, need to have a longer view of the market place and see the potential in every situation.
If you can learn how to take an overview of situations and not get emotionally involved with all the turmoil in the market, there are real opportunities around the corner. In our course, People Process Property, we cover strategies which have made our property companies money in every market condition.
When everyone was running away from the property market during the 2008 crash, we were still buying some of the best properties we have ever bought.
2008, 2009 and 2010 were not the worst property markets to be in; they were just different markets to take advantage of and this current market fluctuation is just another opportunity. People make money from property in every market. It is about educating yourself to use those market conditions and understanding how the property market is linked to the politics of the day that will lead you to success. This is not the time to stop your property education. It’s the time to take it in another direction.
2. Waiting out the unrest means you will miss the opportunities
Most people will want to wait out any unrest in the market and miss the opportunities that the turmoil creates. To paraphrase Warren Buffett: “When everyone is running away from a market; it’s time to run in to it. When everyone is running in to the market; it’s time to get out.”
So don’t be spooked by articles in the newspapers about how prices may drop by up to 18% over the next few months. See this instead as your opportunity to learn more. Take advantage of any price movements over the next few weeks, months and even years.
3. Invest time and money in the right research and education
Knight Frank’s report on the impact of Brexit on the property market suggested that they believe “asset prices for the more robust sectors could be back to roughly where they were pre-referendum by summer 2017.”
Further, they stressed that post-Brexit: “The underlying strengths of the UK economy remain in place, and ultimately real estate is an investment that works best for those who pursue long-term goals.”
Compare this relatively optimistic report with the media headlines of the same period which were describing potential economic downturns. If you find your information from the mainstream media, then you are going to find yourself and your business hostage to their changing editorial stance. Seek out accurate, well-researched, sector specific studies instead.
Whilst you may not agree with everything the experts are saying at the moment, there is one thing for sure: in every market situation (whether that be prices going up or prices going down) some people always seem to be making money from property. There is one simple reason for that. They know something about the situation that others don’t and that’s about education.
A fellow Glaswegian (Billy Connolly) once said, “There is no bad weather; just inappropriate clothing.” In the same vain, “there are no bad market conditions; just inappropriate knowledge.” The more you educate yourself in a changing market the better you will be equipped to deal with it and the more money you will make.
As the media scrabble for advertising revenue, market share, viewers and readers they can be over dramatic, always looking for the worst possible outcome. Remember ‘Dog bites Man’ is not news, but ‘Man bites Dog’ is a headline! So the media will look for any small change in the market or predictions of markets changing and amplify it out of proportion because that’s what makes news. It doesn’t make successful property businesses. I have always found the best source of information about the changes in the property market is those who work and operate in that market every day. Take your time to read articles from people who are still making money from property no matter what the market conditions are. Those who have a track record in every type of market. With 22 years in property behind me, I have learned to only hear the voices that matter and blank out the rest.
4. Seek out opportunities
Let’s look at some of the opportunities that may arise for this market. There are predictions that finance may become harder to get from main street lenders or that rates may change. The real impact of this is still to be seen in the market. However, the flip side of this is that returns on traditional investments are likely to lower and cash rich investors will be looking for good returns (and joint venture partners to help them get better yields).
If property prices do weaken over the coming months, rents are unlikely to fall. Even at the height of the recession, rents remained stable. In fact there was a growing demand for rented property. The uncertainty in property prices deterred some people from buying. Instead they decided to rent whilst they waited for the markets to settle.
We benefitted from similar changes in the commercial property market in 2008. Some companies downsized and hence wanted smaller properties.
As long as you can see where the market is going and place yourself in the emerging market, you will emerge from this confusion as a winner. You just have to ensure you are aware of the nuances of the changes and are not stuck in the past trying to use strategies that are outdated.
5. Diversifying to balance demands
There are going to be casualties of this financial unrest. Some people may lose their homes and others may lose their businesses. As property entrepreneurs, we can’t be held responsible for any of that but our responsibility is to use it to our advantage and the advantage of others.
One of the things we teach in the People Process Property course is how to deal with administrators. This was a strategy we used in the last recession to help new-start businesses succeed. When businesses, that had not reacted quickly enough to the changing circumstances, failed, we were able to buy commercial properties at prices as low as 50% of market value. We then rented them out reflecting that massive discount in the rent so the new tenant was paying about half of what the rent had been before the crash.
We don’t know if things are going to get that bad this time, but the point is even if they do there will still be huge opportunities in property. We have a mixed portfolio of residential, industrial, commercial and greenbelt property and have not seen any change in demand as yet. As mentioned above, sometimes the headlines in the newspaper do not reflect the reality of the sector.
I have been following politics and not prices as one of my strategies for success in property for many years. There is no doubt that predicting where any of the political fallout from the Brexit decision will take us is harder than it’s ever been. But we do know one thing, regardless of how wide the predictions are from the reality, and in spite of how badly the politicians may handle the forthcoming months, people will still need somewhere to live and somewhere to work. They are the two certainties on which we can build our businesses. As Knight Frank pointed out: “In the short to medium-term, the fundamental demand and supply dynamics in the market are unlikely to change, with a continued structural undersupply of homes across the country, underpinning pricing in some of the most desirable and best connected areas.”
6. Value your education and the sector
Our job as property professionals is to work out when to buy and what to pay.
The key to that knowledge will always be education through magazines like YPN and spending time with the people who are still making money in the market. When I set up Professional Property Training in 2015, the objective was to teach people how to make money in the property market as a whole (residential, commercial, industrial and greenbelt) and how to do so in every market condition. Our aim was to build real, lasting property businesses that can provide Homes and Workplaces for years to come. We prioritised giving property business owners a sense of value – not just in economic terms but also a sense that they are the people building the future of our towns, cities and countries. It’s important that as property professionals, we have a long term view of what the rental and property sector should be in five, ten, and fifteen years’ time.
Turbulent times are not the times to run away but are the times to shape that future property landscape, despite the muddle others may be making of the situation.
The way you, I and all the other property investors and professionals respond to what is going on in the property market is, to a large part, what will influence where we are in a year’s time. It will also predict the longer term outcome for our industry. So this is the time to take control of your future and that of the property market by not giving up but by learning more and using that knowledge to not just predict the market but to direct it. The HMRC report from 2013-2014 showed there were 1.75 million landlords in the UK. In addition, there are many other property businesses who control our private rented sector and most of the commercial property in this country.
Brexit and the Buy-to-Let Market
By Chris Worthington
This is a preliminary report on the possible impact of Brexit on the buy-to-let (BTL) market. There will be further reports in future editions of YPN.
The immediate impact of the Brexit vote in the markets was a sharp fall in the FTSE and in the value of the pound. High street banks were amongst the companies that experienced the largest falls in the value of their shares. Shares of smaller banks that specialise in the BTL market also declined in value. The underlying market sentiment is one of uncertainty about investment decisions, leading to lower levels of investment by companies in the UK and reduced Foreign Direct Investment (FDI). Following the Brexit vote the Bank of England reacted quickly to shore up financial stability by making available up to £250bn to ensure financial institutions did not run out of cash.
In the longer term many commentators have forecast a loss of jobs in the banking industry as the divisions of banks that are specifically involved with European business move from London to other European cities. A loss of jobs in companies that came to the UK as the “gateway to Europe” has also been forecast. In the days after the vote a further reflection of market sentiment was in the downgrading of the UK credit rating by Standard & Poor and Fitch. Consumer confidence in the UK has also been affected. The YouGov/Cebr consumer confidence index declined from 111.9 to 104.3 in the days after the vote.
Before the referendum the treasury forecast was that house prices would fall by between 10% and 18% in the event of a vote for Brexit. The response from the industry has been generally more optimistic. The prevailing view is that the first reaction will be a downturn in housing transactions as buyers and sellers adopt a “wait and see” stance. This may be especially marked in the prime London market although foreign investors will be encouraged by a fall in the pound. An analysis of the impact of the Brexit vote on house prices was published by property market analysts Hometrack in the days after the vote, in the UK Cities House Price Index. This forecasts a deceleration of house price growth in all cities during 2016. However it is important to note that house price inflation has varied considerably between cities and also within London, and any fall in house prices or price inflation is likely to vary considerably according to location. The Hometrack report concludes that the fundamentals of the housing market remain unchanged with record low mortgage rates and a wide imbalance between supply and demand.
Before the referendum vote the treasury also produced a forecast on mortgage rates – a possible increase in average mortgage payments of up to £1,000 pa if Britain leaves the EU. This will depend largely on the bank base rate set by the Bank of England (BOE) and here two factors come into play. The Bank has a duty to control inflation by increasing the base rate but may decide to reduce it to stimulate the economy in the event of an economic downturn or a recession. The fall in the value of the pound will tend to increase inflation as imports will be more expensive but it remains to be seen if the UK economy will go into recession and if the BOE will need to adjust the base rate up or down over the next year. For the time being mortgage interest rates have remained low and as reported previously in this column, the more important issue for BTL investors may be the availability of BTL mortgages rather than the interest rate. Whilst there has been no further tightening of the availability of BTL mortgages for the time being, the fall in the value of bank shares is likely to make the banks more risk averse in their lending policies.
Following the Brexit vote shares in the volume housebuilders fell sharply in value and most commentators have taken the view that there will be pressure on housebuilders to cut back on investment. This will lead to a fall in the number of new houses built and therefore to a reduction in housing supply. Brexit could also have a negative impact on the relatively small but previously fast-growing “Build to Rent” sector of the house building industry. In the long term it is also possible that the availability of labour and construction materials from the EU will be a constraint on house building.
As anticipated before the referendum, the vote to leave the EU has caused an economic shock in the UK. The implications for the BTL industry will become more apparent during the next few months. The future impact of Brexit on the economy will depend not only on the outcome of the negotiations between the UK government and the EU but also on the timing of the negotiations.
Timing is important because Brexit has created uncertainty in the markets in the UK economy, the EU and the global economy. The more optimistic commentators have pointed out that Britain will still be in the EU and the Single European Market for at least two years. EU leaders are pressing for an early start to negotiations but this has been resisted by the UK government.
Chris Worthington is an economist with twenty years of experience in local economic development. You can contact him via email on email@example.com.
And now on to Chris's regular regional focus. This month, he's in Nottingham ...
The Buy-to-Let Market in NOTTINGHAM
I have to confess that my connections with the city of Nottingham have been limited to a night out with a girlfriend in the 1970s and a conference on economic development in the 1980s. Neither of these was a great success but a great deal has happened in the intervening period both to me and to the city. Nottingham has a proud industrial history. It is home to Boots the Chemists, EDF Energy, engineering company Siemens, and Specsavers. The city was the birthplace of Raleigh Cycles and the main location in the UK for the lace making industry. The Lace Market area has undergone a renaissance in recent years. Nearly all of the old warehouses that became run down during the recession years have been cleaned and renovated and found new uses, such as luxury apartments, high-spec offices and academic buildings.
More recently Nottingham has supported the growth of video and gaming companies; it is home to Gamecity, an annual festival for the industry, and has been designated a “Science City”, one of six in the UK. This is underpinned by the city’s two universities, which have a total student population of around 50,000. A joint venture between the University of Nottingham and Nottingham Trent University has created BioCity, housing around 80 companies in the UK’s biggest bioscience innovation and incubation centre. Not surprisingly Nottingham’s university graduates are highly sought after by employers.
The city of Nottingham has an estimated population of 310,000. The wider urban area including the suburbs has a population of around 730,000. This provides a large catchment area for buy-to-let (BTL) investors, the largest in the East Midlands region. Access by public transport is very good with the largest publically-owned bus network in England, and an express tram system.
Nottingham’s buoyant and modern local economy has created an equally buoyant BTL market. Rightmove estimates that the average house price is around £117,003 for terraced, £153,222 for semi-detached and £257,500 for detached properties. Property is therefore still comparatively cheap but the increase in property prices in the past year has been around 6%.
These prices should spark interest from BTL investors who are used to house prices in the South of England but investors should also draw confidence from the availability of well paid jobs in the area and good transport links. This sentiment was echoed in a recent report from property consultants JLL stating that,
“Nottingham is well placed to benefit from companies looking to Northshore as rising house prices in London and the South East drive large corporates out of the capital.”
Northshore? This is first is the first time that I have come across the word but I quite like the sound of it. During my career in local government I came across more than one initiative to relocate government departments out of London to the regions but the results were decidedly mixed. There were some successes; the Met Office moved to Exeter, and although it is not a government department the BBC moved parts of its operations to Salford.
The possibilities of radically extending this programme were set out in a recent article in Inside Housing magazine. This proposed several relocations of major government departments from London to the North of England and other regions in the UK, and the re-use of the former government offices in London for housing. Personally I would go further and relocate parliament to Birmingham to facilitate the refurbishment of the Palace of Westminster. In the light of the voting pattern in the EU Referendum, is anyone listening?
Returning to Nottingham, the main subject in hand, John Neale, Head of Research at JLL said
“The housing crisis is becoming less of a social policy and more of an economic one. Businesses are now raising this as a major concern as London’s competitiveness is being damaged by the inability of its workforce to find anywhere affordable to live and Nottingham is towards the top of the list for locations to move more secondary staff to”.
The strong and growing demand for rented property in Nottingham is reflected in fairly high average rents. Combining this with low property prices creates a rental yield of around 7%, not far behind Manchester, the current market leader with a rental yield of around 8%. The prospects for rental growth also look promising. In the East Midlands as a whole rents have increased by 7.3% in the year ending May 2016 compared with an average growth in rents of 1.8% in the England and Wales. This is the highest increase in rents of all the English regions by a considerable margin, the second highest being the West Midlands at 5.5%. Altogether a good prospect for BTL investors!
To round off this month’s article I feel that I need to include Nottingham’s largely unrecognised contribution to culture. In 2015 the city was named a UNESCO City of Literature, one of only a handful in the world. The title reflects the literary heritage with Lord Byron, D.H. Lawrence and Alan Sillitoe (who worked at the Raleigh factory) having links to the city. A surprising number of feature films have been filmed in Nottingham including Saturday Night and Sunday Morning (1990), The Loneliness of the Long Distance Runner (1962), This Is England (2006) and Harry Potter and the Order of the Phoenix (2007).