Local property market information for the serious investor

Month: April 2016

Where will Cardiff Property Prices be by 2021?

cardiff bay

I was having lunch the other day with a local Cardiff solicitor friend of mine, when the subject of property came up. He asked me my thoughts on the Cardiff property market for the next five years.  Property prices are both a British national obsession and a key driver of the British consumer economy.  So what will happen next in the property market? So here is what I told him, and now wish, my blog reading friends, to share with you.

Before I can predict what will happen over the next five years to Cardiff house prices, firstly I need to look at what has happened over the last five years.  One of the key drivers of the housing market and property values is unemployment (or lack of it), as that drives confidence and wage growth – key factors to whether people buy their first house, existing homeowners move up the property ladder and even buy to let landlords have an appetite to continue purchasing buy to let property.

When the Tory’s came to power in May 2010, the total number of people who were unemployed in Cardiff stood at 2,458 (or 5.32% of the working age population in Cardiff parliamentary constituency). Last month, this had dropped to 1,440 people (or 3.05% of the working age population).

As the Cardiff job market has improved with better job prospects, salaries are rising too, growing at their highest level since 2009, at 3.4% per year in the private sector (as recently reported by the ONS).  That is why, even with the turbulence of the last few years, property values in the Cardiff area are 10.63% higher today than they were five years ago.

Many home occupiers have held back moving house over the past seven to eight years following the credit crunch but with the outlook more optimistic, I expect at least some to seize the opportunity to move home, releasing pent up demand as well as putting more stock onto the market. With a more stable economy in the City, this will, I believe, drive a slow but clearly defined five year wave of activity in home sales and continued house price growth in Cardiff.

I forecast that the value of the average home in Cardiff will increase by 16.2% by 2021

16.2% might sound optimistic to some, but according to Land Registry, values are currently rising in Cardiff at 2.8% year on year, I believe my forecast to be fair, reasonable and a reflection of both positive (and negative) aspects of the local property market and wider UK economy as whole.

However, it wouldn’t be correct not to mention those potential negative issues as I do have some slight concerns about the future of Cardiff housing market.  The number of properties for sale in Cardiff is lower than it was five years ago, restricting choice for buyers (yet the other side of the coin is that that keeps prices higher). Interest rates were being predicted to rise around Easter 2016, but now I think it will be nearer Christmas 2016 and finally the new buy to let taxation rules which are being introduced between 2017 and 2021 (although choosing the right sort of property / portfolio mix in Cardiff will, I believe, mitigate those issues with the next taxation rules).

I am telling the landlords I speak to, that with interest rates at their current level 0.5%, the cash in your Building Society Passbook is going to grow so slowly that it might as well be kept under their bed. Property prices, by contrast, have rocketed over the years, even after the property crashes, far outstripping bank accounts and inflation.

So my final thought …  property is a long term investment, it has its’ up and downs, but it has always outperformed, in the long term, most investments. Those in their 40’s and 50’s in Cardiff would be mad not to include property in their long term financial calculations. Just make sure you buy the right property, at the price in the right location.

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2 bed flat with lovely water views

This beautifully presented property (it looks like a show home from the photos!) has just come on the market with Taylors for £167,000. It has two bedrooms with the master benefiting from an ensuite, which makes the property attractive to both couples and sharers. It has views across the water and would make a good rental investment.

Based on the photos I think you could achieve a rental value of around £800pcm so even if you end up paying the asking price is a yield of 5.7%

Take a look at the photos, especially the lovely water views http://www.zoopla.co.uk/for-sale/details/40089177

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Will the young people of Cardiff Bay ever own their own home?

I had the most interesting chat with a mature couple (in their early/mid 50’s) from Llandough the other day, whilst viewing one of our rental properties. The property wasn’t for them, but their son, who wanted a second viewing with his parents to get the parental blessing. Now I know that isn’t the norm, but in this case the parents were going to act as guarantor. We got chatting about the Cardiff Bay property market and how they had bought their first property in the area just after they got married in the late 1980’s when they were in their early/mid 20’s. Anyway, we got chatting about how the youngsters of the UK seem to rent more than buy nowadays and from that the conversation covered a number of similar topics. I want to share the highlights of that conversation with you today.

Their son, like many 20 to 30 year olds in Cardiff Bay, desperately wants to own his own property and the parents said he had read in the Telegraph recently, when you compare house prices to earnings, the current 20 to 30 something’s generation have to spend more of their salary in mortgage payments than any previous generation. The demand for private rental sector accommodation in Cardiff Bay is huge. There are in fact 30,042 private rental properties in Cardiff Bay at the last count, impressive when you consider there are 13,354 council houses in the area. However, let us not forget 80,965 properties are owner occupied (44,069 with a mortgage).

Let us all be honest, private renting doesn’t have the stigma it had a few decades ago and it might surprise people that even though us Brit’s class ourselves as a nation of homeowners, roll the clock back 100 years and over 75% of people rented their own home (and it was all from private landlords as council housing only started to come in with the ‘homes for hero’s’ after the first World War). It might also surprise you to learn that at the time of the 1971 census, still more people rented than owned their own home.

Looking at the affordability issue, I have proved time and time again, it is in fact cheaper to buy a property than rent, when one looks at starter homes for first time buyers. 95% mortgages have been available to first time buyers for over four years and whilst you could certainly find better properties in better condition in better areas, terraced houses can be bought for as little as the mid £130,000’s in the Ferry Road area of Cardiff Bay (meaning a modest deposit of £6,500 would be required).

When it came to affordability, I was able to tell them that when they bought their first house in Cardiff Bay in 1988, the ratio of house prices to salary was 4.26 to 1 in Cardiff Bay … and here was the surprise for both of us, today’s ratio is only 4.87 to 1!

I said I believed there had been a cultural attitude change towards renting property in Britain and that this quiet revolution was likely to be permanent. In the 60’s, 70’s and 80’s, saving for the deposit was everything and buying a house was everything. Youngsters today have far much more disposal income today than people had in the Callaghan and Thatcher years, but choose to spend it upgrading their mobile phones every 12 months, the newest tablet or PC, a newest 50” plasma LCD TV and two sun drenched holidays a year, than go without and save for a deposit.

Yes, there are horror stories of tenants living in rat infested properties with landlords who charge massive rents and don’t repair their properties. But that is very much the exception as most tenants rent homes of a quality they couldn’t ever to afford to buy. Twenty years ago, if you said you rented a property, you were considered the lowest of the low … but now it’s the norm.

So with mortgage affordability being well within the bounds of most first time buyers, the level of deposit required for a 95% being surprisingly modest (starting off at c.£6,500 in Cardiff Bay as mentioned above) until we change our attitudes, the UK housing market is slowly but surely turning into a more European model, where people rent for long periods of their life, then eventually inherit their parents properties and subsequently become homeowners themselves, albeit later in life.

Hence, I cannot see the demand for decent, high quality rental properties ever dropping in the next 10 to 20 years, but only ever increasing as the population continues to soar. Just make sure you by the right property, at the price, in the right location.

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