Local property market information for the serious investor

Month: December 2017

Increase in Interest Rates to cost Cardiff Bay Home Owners £489.39 a year

Cardiff Bay homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate..

 

The average Cardiff Bay mortgage is £195,757

I have to ask by how much Cardiff Bay homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the CF10 postcode there are 1,347 homeowners with a mortgage, of which 579 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those CF10 homeowners with those variable rate mortgages is £113,278,990, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £1,526.36 per month and now its £1,567.14 per month … meaning

The interest rate rise will cost Cardiff Bay

homeowners on average an extra £489.39 per year

 

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to the Cardiff Bay housing market?

Well, if I’m being frank – not a great deal. The proportion of Cardiff Bay homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.

If more Cardiff Bay people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Cardiff Bay people having to sell their Cardiff Bay properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.

However, and this will be of interest to both Cardiff Bay homeowners and Cardiff Bay buy to let landlords …

.. for every 1% increase in the Bank of England interest rate, it will cost the average Cardiff Bay homeowner on a variable rate mortgage £163.13 per month

So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Cardiff Bay Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Cardiff Bay property market will always remain strong for both Cardiff Bay homeowners and Cardiff Bay landlords alike.

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Cardiff Bay Apartments are 17.1% more affordable than 10 years ago

My research shows that certain types of Cardiff Bay property are more affordable today than before the 2007 credit crunch.

Roll the clock back to 2007 just before the credit crunch hit which saw Cardiff Bay property values plummet like a lead balloon and the Cardiff Bay property market had reached a peak with the prices for Cardiff Bay property hitting the highest level they had ever reached.  Between 2008 and 2010, Cardiff Bay property values lay in the doldrums and only started to rise in 2011, albeit quite slowly to begin with.

Nevertheless, even though property values have now passed those 2007 peaks, my research indicates that Cardiff Bay property, especially flats/apartments, are now more affordable than they were before the 2008 credit crunch.

Back in 2007, the average value of a Cardiff Bay flat/apartment stood at £164,276 and today, it stands at £178,796, a rise of £14,520 or 8.8%.

However, between 2007 and today, we have experienced inflation (as measured by the Government’s Consumer Price Index) of 25.97% meaning that in real spending power terms Cardiff Bay apartments are 17.1% more affordable than in 2007. Looking at it another way, if the average Cardiff Bay apartment (valued at £164,276 in 2007) had risen by 25.97% inflation over those 10 years, today it would be worth £206,938 (instead of the current £178,796).

The point I’m trying to get across is that Cardiff Bay property is more affordable than many people think.  Cardiff Bay first time buyers can get on the ladder as 95% mortgages have been readily available to first-time buyers since 2010.

It really comes down to a choice and if Cardiff Bay first-time buyers can get over the hurdle of saving the 5% deposit for the mortgage on the property – they will be on to a winner, especially with these ultralow mortgage interest rates, a mortgage can be between 10% and 30% cheaper per month than the rental payments on the same house.

So why aren’t Cardiff Bay 20 somethings buying their own home?

Back in the 1960’s and 1970’s, renting was considered the poor man’s choice in Cardiff Bay (and the rest of the Country) a huge stigma was attached to renting. However, over the last 10 years as a country, we have done a complete U-turn in our attitude towards renting – meaning that many people find renting a better option and a lifestyle choice.

Saving the 5% deposit means going without many luxuries in life (such as holidays, every satellite movie and sports channel, socialising or the latest mobile phone – even if only in the short term) therefore instead of saving every last pound to put towards a mortgage deposit Cardiff Bay 20 somethings choose to rent.

There is no denying the simple fact that over the next 10 to 15 years, the people who choose to rent instead of buy in Cardiff Bay will continue to rise.

Therefore, everyone in Cardiff Bay has a responsibility to ensure that an adequate number of quality Cardiff Bay rental properties are safeguarded to meet those future demands. Interestingly, what I have noticed though over the last few years are the expectations of Cardiff Bay tenants on the finish and specification of their Cardiff Bay rental property.

I have perceived that in the past, what a tenant wanted from their Cardiff Bay rental property was moderately unassuming because renting a property was only a short-term choice to fill the gap before jumping on the property ladder. Before the millennium, wood chip wall paper and twenty-year-old kitchen and bathroom suites were considered the norm.

However, Cardiff Bay tenants’ expectations are becoming more discerning as each year goes by.  I have also noticed the length of time a tenant remains in their Cardiff Bay property is becoming longer (and this was backed up recently by stats from a Government Report), although I have noticed a tendency for many Cardiff Bay landlords not to keep the rental payments at the going market rates  – maybe a topic for a future article for my blog?

The bottom line is this … Cardiff Bay landlords will need to be more conscious of tenants needs and wants and consider their financial planning for future enhancements to their Cardiff Bay rental properties over the next five, ten and twenty years –  e.g. decorating, kitchen and bathroom suites etc etc ..

The present-day and future situation of the Cardiff Bay private rental property market is important, and I frequently liaise with Cardiff Bay buy-to-let investors looking to spread their Cardiff Bay rental-portfolios. I also enjoy meeting and working alongside Cardiff Bay first time landlords, to ensure they can navigate through the minefield of rental voids, the important balance of capital growth and yield and ensuring the property is returned back to you in the future in the best possible condition.

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No. 15 Kings Road

Take a look at the latest street on my countdown of the top 20 streets in Cardiff based on their turnover and popularity. I am on the very popular Kings Road, watch the video for more info

 

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