I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years.  The report said that in the Midlands and North salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.

As regular readers of my blog know, I always like to find out what has actually happened locally in Locks Heath.  To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007.  Looking at the Office of National Statistics (ONS) data for Fareham Borough Council, some interesting figures came out…

	Fareham	South East	Nationally
2007	£24,918	£26,120	£23,920
2008	£27,487	£27,290	£24,960
2009	£27,711	£27,903	£25,506
2010	£26,697	£28,486	£26,088
2011	£28,501	£28,839	£26,010
2012	£28,720	£28,902	£26,432
2013	£29,115	£28,995	£26,931
2014	£28,803	£29,494	£27,097
2015	£29,983	£29,895	£27,508
2016	£29,432	£30,264	£28,132

Salaries in Fareham have risen by 18.11% since 2007 (although it’s been a bit of a rollercoaster ride to get there!) – interesting when you compare that with what has happened to salaries regionally (an increase of 15.87%) and nationally, an increase of 17.61%.

Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today.  Net property values in Fareham are 33.32% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Property values in the Locks Heath area have increased at a higher rate than wages to the tune of 15.21%… meaning, Locks Heath is in line with the regional trend

All this is important as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers.  It is also vitally relevant for Locks Heath Landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Locks Heath people are buying, then demand for Locks Heath rental properties will drop (and vice versa).

As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Locks Heath property market.  Now of course, it isn’t as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.

On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ hasn’t been that great.  However, look back another 10 years to 1997, and that tells a completely different story.  Nationally, the affordability of property more than halved between 1997 and today.  In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.

The issue of a lack of homeownership has its roots in the 1980’s and 1990’s.  It’s quite hard as a tenant to pay your rent and save money for a deposit simultaneously, meaning for many Locks Heath people, home ownership isn’t a realistic goal.  Earlier in the year the Tories released proposals to combat the country’s ‘broken’ housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad Landlords.

This is all great news for Locks Heath Tenants and decent law-abiding Locks Heath Landlords (and indirectly owner occupier homeowners).  Whatever has happened to salaries or property prices in Locks Heath in the last 10 (or 20) years… the demand for decent high-quality rental property keeps growing.  If you want a chat about where the Locks Heath property market is going – please read my other blog posts on The Locks Heath Property Blog or drop me note via email, like many Locks Heath Landlords are doing.

Moving to a bigger home is something Locks Heath people with growing young families aspire to.  Many people in two bedroom homes move to a three bedroom home and some even make the jump to a four bed home.  Bigger homes, especially three bed Locks Heath homes are much in demand and it can be a costly move.

If you live in Locks Heath in a two-bedroom property and wish to move to a four bedroom house in Locks Heath, you would need to spend an additional £227,181 (or £897.37 pm in mortgage payments (based on the UK Bank average standard variable rate)).  However, going straight to a four bed from a two bed home is quite rare as most people jump from a two to three bedroom home, then later in life, from a three to four bedroom home.

So, after being asked my thoughts on moving home in Locks Heath by a friend recently, please find my analysis of the local property market and then some thoughts.  To start with, let us see what the average property price is for a Locks Heath property by the number of bedrooms it has.

Average Property Price in Locks Heath by Bedroom
1 bed	2 bed	3 bed	4 bed	5 bed
£155,295	£239,700	£347,678	£466,882	£522,763

I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74% – so the mortgage cost could be higher or lower depending on the mortgage taken).

	Locks Heath
	Price Difference to make the move	Cost per month to move up market (Mortgage)
1 bed to 2 bed	£84,405	£333.40
2 bed to 3 bed	£107,978	£426.51
2 bed to 4 bed	£227,181	£897.37
3 bed to 4 bed	£119,204	£470.85
4 bed to 5 bed	£55,881	£220.73

There are some interesting jumps in costs when moving upmarket as a Locks Heath buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Locks Heath is quite high (and hence why some four bed properties are taking slightly longer to sell nowadays).  On an aside, a lesson here for all my Landlord property blog readers, you can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let because the monthly finance costs and rents achieved don’t match up so well.

So, coming back and looking at the stock of properties in Locks Heath, this also makes interesting reading …

Housing Stock in Locks Heath by Bedrooms
1 bed	2 bed	3 bed	4 bed	5 bed
2.44%	19.51%	26.83%	31.71%	19.51%

 

The most active purchasers are 20 something and 30 something home-owning parents with growing families.  Many look to more modern developments for the perfect balance of access to decent primary schools, commutability and lifestyle.  For landlords looking to buy within Locks Heath, they face stiff competition from these 20/30 something families, making the three bedroom Locks Heath home massively in demand, often attracting spirited offers and selling within weeks of listing.  This mix of homebuyers and Landlords is a pressure point in the Locks Heath property market.

Yet, the cost of an additional bedroom can be too much for some Locks Heath buyers.  It is quite challenging moving home the first time, but to then find you are priced out on the next move up the ladder can be quite disconcerting, with families often having to move to a different part of town to get the bigger home they need.

Nevertheless, that’s the place many homeowners find themselves in with the cost of the additional bedroom being too much to bear.  To those buying their home for the first time, all I suggest is they not only consider the mortgage payments and other costs of their first home, but also do their homework into their next rung up the Locks Heath property ladder.  Thinking about it now will keep you ahead of the game in the future; as your number of bedrooms, family property needs and lifestyle wants change.

… and Locks Heath Landlords – well these changes in the way people live also mean there are opportunities to be had in the Locks Heath rental market.  Many Locks Heath Landlords are starting to pick my brain on this, so if you don’t want to miss out – drop me a line.

The mind-set and tactics you employ to buy your first Locks Heath buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in.  The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise.  When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget.

Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite.  Inexpensive Locks Heath properties can bring in bigger monthly returns.  Most landlords use the phrase ‘yield’ instead of monthly return.  To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops.  Or to put it another way, if a Locks Heath buy to let Landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Locks Heath…

Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Locks Heath area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, Landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions.  Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.

However, before everyone in Locks Heath starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Locks Heath buy to let property to buy.  Void periods (i.e. the time when there isn’t a Tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too.  Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Locks Heath Landlords who are looking for capital growth, an altered investment strategy may be required.

In Locks Heath, for example, over the last 20 years, this is how the average price paid for the four different types of Locks Heath property have changed:

• Locks Heath Detached Properties have increased in value by 240.6%
• Locks Heath Semi-Detached Properties have increased in value by 278.2%
• Locks Heath Terraced Properties have increased in value by 267.5%
• Locks Heath Apartments have increased in value by 240.1%

It is very much a balancing act of yield, capital growth and void periods when buying in Locks Heath.  Every Landlord’s investment strategy is unique to them.  If you would like a fresh pair of eyes to look at your portfolio, be you a private Landlord that doesn’t use a Letting Agent or a Landlord that uses one of my competitors – then feel free to drop in and let’s have a chat.  What have you got to lose? 30 minutes and my tea making skills are legendary!