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Competition to buy up new Help to Buy-type Developments in Manchester and Salford/Quays is beginning to intensify as new help to buy flats and houses become targets for Buy to Let landlords from both the UK and from abroad.
Recent changes to UK pension rules which came into effect from the end of 2014 mean that many more people in their 50's and 60's are buying a second property, both as an income generator and as a capital asset which will only rise in value over the coming years - (and they have the benefit of knowing this fact to be true as they've witnessed the rise in values of their first house over the last 30 years and more in which the price of the average house in the UK has risen from about £20,000 in 1980 to around the £180,000 mark by 2015 - a 900% rise in capital values, tax free, over 35 years * see chart 1 below).
Manchester estate agent Julie Twist believes a lack of houses and new-builds is driving up prices
To add fuel to the gently simmering fire beginning to take a hold under property values in the city there are simply too few new Help to Buy developments on sale in Manchester, whether they are on-sale right now or due to come on to the Manchester property market later this year and into 2016 and 2017.
Manchester estate agent Julie Twist believes a lack of houses and new-builds is driving up prices in the city - and when you look at the Residential Development Pipeline chart for Manchester in 2015 and 2016 (chart 2, below) the fundamental reason for her fears quickly becomes apparent. After the brief pick-up in numbers of new Help to Buy developments in Manchester in 2014 - after 4 years of near zero growth in 2010, 2011, 2012 and 2013 - the city is once again facing a falling number of new Help to Buy developments throughout the Manchester and Greater Manchester areas. And although residential development is currently at a 5 year high, there are still only 1426 new units under construction in Manchester as we reach June, 2015 with a total of 23 developments under construction.
Yet Manchester City Council believes that the city needs 55,000 new homes by 2027 - which would equate to 4583 new homes being delivered each year over the next 12 years. In early 2015 the city is therefore producing only about 30% of the desired annual sales numbers required every year (on average) for the next 12 years to reach the 55,000 target on time.
It doesn't take too much research to realise that at some point in the next 10-12 years there's going to be a massive gap created between supply and demand and prices will respond as they have always done in the past.
As if competition from Buy to Let landlords for every new Help to Buy development announced in Manchester was not enough, the city has just been revealed as the new No1 Hotspot in the UK for Buy to Let investments offering the highest yield.
The 'HSBC EFFECT'
HSBC's Buy to Let Analysis goes out to clients all over the world who are interested in Buy to Let investments. That's thousands of clients world-wide. The same report gets high-lighted by the UK press, especially the investor-heavy Daily Telegraph, Times and Daily Mail, all with an older investor-led demographic. And every investor seeks the highest, safest yield they can find...so ask yourself the same question? Where can I find a growing city that contains the highest numbers of renters possible and at the same time achieve the highest rental returns anywhere in the UK? Right now, according to the HSBC that city is Manchester. For the record, last year's winner of HSBC's Top Buy to Let Hotspot was Southampton with a rental yield of 8.73%. One year later Southampton is placed 6th highest in the UK with a significantly lower yield of 7.13%.
Median prices of flats in Southampton have risen by 23% over the 12 months from March 2014 to March 2015 as a consequence of the surge in interest in the city as the leading Buy to Let hotspot in the UK last year, with median flat prices surging by 20% in the two months following release of the HSBC report as increasing numbers of Buy to Let landlords sought to buy up every Help to Buy flat in the area. Demand for flats outstripped supply and the result was dramatically higher prices. At the same time supply of detatched houses in Southampton exceeded demand and this oversupply created a FALL of 6% in the value of detatched houses in the Southampton area....Do not buy a property in any area where there is an oversupply. Seek out areas of under supply to maximise your chances of longer-term capital gain.
Southampton Median Property Prices March 2014 - March 2015
|Property Type||Mar 2014||Mar 2015||Change|
Data Source: Home.co.uk
So to create a spring-board for capital growth both the first-time buyer and the the Buy to Let investor should look for areas of UNDERSUPPLY where the demand for new property outstrips supply. Look at the chart of New Residential Developments in Manchester Pipeline (above) again. Choose the area in which you plan to invest carefully, unemotionally. Look for a popular, growing city where young professionals aspire to live and where there's a gap between growing demand for new flats and houses and a slowing supply side that cannot keep pace with that demand. In June 2015, Manchester is that city.
The danger for the first-time buyer - desperately trying to save or pull the 5% minimum deposit together for their first foray into the property market - is that they get beaten to the deal by older, wealthier cash-purchasing land-lords and would-be landlords - from all over the globe - looking to invest in Buy to Let property in Manchester.
It's little coincidence that In May 2015 an entire block of flats in central Manchester, just off Oxford Road, sold off-plan to a single investor from the Far East. The new development, where work only began a month ago, is not due for completion until April 2016.
Overall it can be seen that demand for Help to Buy developments of both new flats and houses in Manchester city centre and the surrounding areas such as Salford and The Quays, Stretford and Trafford remains very high whilst supply remains limited. And this demand for both Help to Buy Developments and for Buy to Let developments in Manchester is expected to grow stronger still in the coming months as a result of the world-wide publicity Manchester receives as the Uk's Top Buy to Let Hotspot for 2015.
"While the overall level of dwelling stock has increased, the number of houses built in the United Kingdom continues on a long term downward trend"
The Office of National Statistics.
Full analysis from ONS available: http://www.ons.gov.uk/ons/dcp171766_373513.pdf
Conclusion: Bearing in mind the low number of new Help to Buy flat and house developments in the pipe-line in Manchester it looks as if the supply/demand imbalance is unlikely to redress itself for the forseeable future. As things currently stand it's more likely the situation will resolve itself as it has always done in the past: through higher prices.
And one final reassuring point for anyone out there who's researching the pros and cons of buying a new Help to Buy flat or house in Manchester this year: if you were to ask one of those 50 to 60 year-old landlords or would-be landlords, now chasing a second property in which to invest part of their pension pots, about their experience of owning their first property, nearly all will tell you that back in 1980 that £20,000 they were spending/investing seemed a massive amount of money to be paying for a house...after all their parents had paid £995 for their first house in the '50's!!!
So first time buyers in 2015 can be forgiven if they feel stretched financially as they look to invest roughly £180,000 in their first major investment in the property market. But they should take some comfort in knowing that the new Help to Buy Home that they are planning to buy this year will probably be worth some 9 X £180k in about 30 years time; that's a staggering £1,620,000 - just under £1.5 million in capital appreciation over a rough 30 year period, and once again, that's a tax free capital gain - and is likely to remain so for at least as long as the Conservatives remain in power.
On a super-long term view (30 years+) you can expect two big changes - prices and mortgage interest rates. When looking at UK property prices the best guide to the future is usually found by looking at the past. The UK Office for National Statistics states: 'On average house prices have increased by 6.9% every year since 1980.' There is no reason to believe that the next 35 years will be much different for UK house prices - especially when the gap between growing demand and dwindling supply is factored into the long-term price equation.
'Nothing Trends like Long-Term Rates' An old Bond Market Adage which Still Holds True...
Interest rates can go as high as 15% and as low as 0% during a full 60 year cycle. For the last 30 years or so since the highs of the late 70's to where we stand now in the interest rate cycle we have seen steadily lower interest rates. Now we are showing signs of 'bottoming' before the long-term cycle turns up again, presaging 30 years or so of steadily rising interest rates.
Nothing trends like long-term rates! So whatever you do, lock-in your mortgage rate for as long as you can afford to - for at least 3 years and preferably 5 years - to protect yourself from potential rises in interest rates for as long as possible...and in 5 years' time your annual rise in salary should be worth at least 10% (compound interest) on top of your current salary - and may be worth substantially more than that estimation - which should help to cover any rise in interest rates when you come to renew your mortgage deal in 5 years' time.