Cardiff Property Blog

Local property market information for the serious investor

One in 28 rental properties in the Cardiff Bay area will be illegal in 2018

As the winter months draw in and the temperature starts to drop, keeping one’s home warm is vital. Yet, with the price of gas and electricity rising quicker than a Saturn V rocket and gas, oil and electricity taking on average 4.4% of a typical Brit’s pay packet (and for those Brit’s with the lowest 10% of incomes, that rockets to an eye watering 9.7%), whether you are a tenant or homeowner, keeping your energy costs as low as possible is vital for the household budget and the environment as a whole.

For the last 10 years, every private rental property must have an Energy-Performance-Certificate (EPC) rating.  The property is given an energy rating, very similar to those on washing machines and fridges with the rainbow coloured graph, of between A to G (A being the most efficient and G the worst). New legislation comes in to force next spring (2018) for English and Welsh private landlords making it illegal to let a property that does not meet a certain energy rating. After the 1st of April next year, any new tenant moving into a private rented property or an existing tenant renewing their tenancy must have property with an energy performance rating of E or above on the property’s EPC and the new law will apply for all prevailing tenancies in the spring of 2020. After April 2018, if a landlord lets a property in the ‘F’ and ‘G’ ratings (i.e. those properties with the worst energy ratings) Trading Standards could fine the landlord up to £4,000.

Personally, I have grave apprehensions that many Cardiff Bay landlords may be totally unaware that their Cardiff Bay rental properties could fall below these new legal minimum requirements for energy efficiency benchmarks. Whilst some households may require substantial works to get their Cardiff Bay property from an F/G rating to an E rating or above, my experience is most properties may only need some minor work to lift them from illegal to legal. By planning and acting now, it will mitigate the need to find tradespeople in the spring when every other Cardiff Bay landlord will be panicking and paying top dollar for work to comply.

Whilst there is money and effort involved in upgrading the energy efficiency of rental property, a property that is energy efficient will have greater appeal to tenants and other buy-to-let landlords/investors and this will enable you to obtain higher rents and sale price (when you come to sell your investment).

So, how many properties are there in the area that are F and G rated .. well quite a few in fact. Looking at the whole of the City of Cardiff Council area, of the 31,220 privately rented properties, there are ..

862 rental properties in the F banding

242 rental properties in the G banding

That means just over one in 28 rental properties in the Cardiff Bay and surrounding area has an Energy Performance Certificate (EPC) rating of F or G. From April next year it will be illegal to rent out those homes rated F and G homes with a new tenancy.

Talking with the Energy Assessors that carry out our EPC’s, they tell me most of a building’s heat is lost through draughty windows/doors or poor insulation in the roof and walls. So why not look at your EPC and see what the assessor suggested to improve the efficiency of your property? I can find the EPC of every rental property in Cardiff Bay, so irrespective of whether you are a client of mine or not, don’t hesitate to contact me via email (or phone) if you need some guidance on finding out the EPC rating or need a trustworthy contractor that can help you out?

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Cardiff Homeowners Are Only Moving Every 15.5 Years (Part 2)

In the credit crunch of 2008/9 the rate of home moving plunged to its lowest level ever. In 2009 the rate at which a typical house would change hands slumped to only once every 20 years. The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Cardiff property prices plunged after the onset of the financial crisis in 2008. However, since 2009, the rate of home moving has increased (see the table and graph below), meaning today:

The average period of time between home moves in

Cardiff is now 15.5 years.

This is an increase of 30.64 per cent between the credit crunch fallout year of 2009 and today, but still it is a 38.02 per cent drop in moves by homeowners, compared to 15 years ago (The Noughties).

Average Length of Time (In Years) between Home Moves in the Cardiff City Council Area
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
19.91 15.90 13.28 15.42 14.40 12.99 10.93 9.55 10.14 10.59 13.64
 
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
10.49 11.02 20.10 20.12 20.82 20.82 21.44 18.19 14.80 15.66 15.40

So why aren’t Cardiff homeowners moving as much as they did in the Noughties?

The causes of the current state of play are numerous. In last weeks article I talked about how ‘real’ incomes and savings had been dropping. Another issue is the long-term failure in the number of properties being built. Only a few weeks ago in the blog, I was discussing the draconian planning rules meaning house builders struggle to locate building land to actually build on.

Back in the 1960’s and 1970’s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (through immigration, people living longer, a just under 50% increase in the number of households with a single person since the 1980’s and family makeup (i.e. divorce makes one household now two)) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year.

Finally, as the UK Population gets older, there is no getting away from the fact that a maturing population is a less mobile one.

So, what does this mean for Cardiff homeowners and landlords?

Well, if Cardiff people are less inclined to move or find it hard to sell a property or acquire a new one, they are probably less likely to move to an improved job or a more prosperous part of the UK.

Many of the older generation in Cardiff are stuck in property that is simply too big for their needs. The fact is that, in Cardiff, nearly five out of every ten (or 48.0 per cent) owned houses has two or more spare bedrooms; or to be more exact …

40,778 of the 84,901 owned households in the Cardiff City area have two or more spare bedrooms.

So, as their children and grandchildren struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for them i.e. overcrowding, we have a severe case of under-occupation with the older generation – grandparents staying put in their bigger homes, with a profusion of spare bedrooms.

Regrettably, I cannot see how the rate of properties being sold will rise any time soon. Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference of any thoughtful and detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Cardiff buy to let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years. As for homeowners; well those in the lower and middle Cardiff market will find it a balanced sellers/buyers market, but will find it slightly more a buyers market in the upper price bands.

Interesting times ahead!

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Cardiff Home Owners Are Only Moving Every 15.5 Years

As I mentioned in a previous article, the average house price in Cardiff is 7.54 times the average annual Cardiff salary. This is higher than the last peak of 2008, when the ratio was 6.91. A number of City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Cardiff) property prices might drop like a stone. The point is – they haven’t.

Now it’s true the market for Cardiff’s swankiest and poshest properties looks a little fragile (although they are selling if they are realistically priced) and overall, Cardiff property price growth has slowed, but the lower to middle Cardiff property market appears to be quite strong.

Scratch under the surface though, and a different long-term picture is emerging away from what is happening to property prices. Cardiff people are moving home less often than they once did. Data from the Office of National Statistics shows that the number of properties sold in 2016 is again much lower than it was in the Noughties. My statistics show…

 

The Total Number of Property Sales Per Annum in the

City of Cardiff Council Area Since 1995

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
4,233 5,299 6,343 5,464 6,562 6,489 7,708 8,826 8,309 7,953 6,177
                     
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
8,029 7,644 4,193 4,187 4,048 4,048 3,930 4,633 5,692 5,380 5,470

Even though we are not anywhere near the post credit crunch (2008 and 2009) low levels of property sales, the torpor of the Cardiff housing market following the 2016 Brexit vote has seen the number of property sales in Cardiff and the surrounding local authority area level off to what appears to be the start of a new long term trend (compared the Noughties).

 

Interestingly, it was the 1980’s that saw the highest levels of people moving home. Nationally, everyone was moving on average every decade. Even though it was during the Labour administration of the late 1970’s where the right to buy one’s council house started, it was the Housing Act of 1980 that that really got council tenants moving, as Thatcher’s Tory government financially encouraged council tenants to buy their council-rented homes – for which countless then sold them on for a profit and moved elsewhere. The housing market was awash with money as banks were allowed to offer mortgages as well as the existing building societies, meaning it made it simpler for Brits to borrow even more money on mortgages and to climb up the housing ladder.

But coming back to today, looking at the property sales figures in the Cardiff area since 2010/11, a new trend of number of property sales appears to have started. Interestingly, this has been mirrored nationally. The reasons behind this are complex, but a good place to start is the growth rate of real UK household disposable income, which has fallen from 5.01% a year in 2000 to 1.68% in 2016. Also, things have deteriorated since the country voted to leave the EU as consumer price inflation has risen to 2.7% per annum, meaning inflation has eaten away at the real value of wages (as they have only grown by 1.1% in the same time frame).

With meagre real income growth, it has become more difficult for homeowners to accumulate the savings needed to climb up the housing ladder as the level of saving has also dropped from 4.26% of household income to -1.11% (i.e. people are eating into their savings).

Next week I will be discussing how these (and other issues) has meant the level of Cardiff people moving home has slumped to once every 15.5 years.

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No. 16 Arabella Street

Here is number 16 on my top  20 streets in Cardiff, I am at Arabella St in Roath.

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Cardiff Buy-to-Let Return / Yields – 1.8% to 12.6% a year

The mind-set and tactics you employ to buy your first Cardiff 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 (because as my parents always used to tell me – you get what you pay for in this world!).

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 Cardiff 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 Cardiff 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 Cardiff…

Cardiff Property type Average Price paid (last 12 months) in Cardiff Average Rent Achieved in last 12 months in Cardiff Lower End of Yield Range in Cardiff Average Yield in Cardiff Upper End of Yield range in Cardiff
Detached £375,706 £998 1.81% 3.19% 4.03%
Semi-Detached £235,789 £815 3.29% 4.15% 5.97%
Terraced £195,905 £1,583 8.46% 9.70% 12.61%
Flats £142,072 £632 3.96% 5.34% 6.29%

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 Cardiff 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 Cardiff starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Cardiff 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 Cardiff landlords who are looking for capital growth, an altered investment strategy may be required.

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

  • Cardiff Detached Properties have increased in value by 242.2%
  • Cardiff Semi-Detached Properties have increased in value by 253.8%
  • Cardiff Terraced Properties have increased in value by 258.2%
  • Cardiff Apartments have increased in value by 249.6%

It is very much a balancing act of yield, capital growth and void periods when buying in Cardiff. 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!

 

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No 17. Moorland Road

Here is number 17 on my countdown of the top 20 streets in Cardiff based on their turnover and popularity

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Cardiff’s New 3 Speed Property Market

“What’s happening to the Cardiff Property Market” is a question I am asked repeatedly.  Well, would it be a surprise to hear that my own research suggests that there isn’t just one big Cardiff property market – but many small micro-property markets?

According to recent data released by the Office of National Statistics (ONS), I have discovered that at least three of these micro-property markets have emerged over the last 20+ years in the area.

For ease, I have named them the …

  1. lower’ Cardiff Property Market.
  2. lower to middle’ Cardiff Property Market.
  3. ‘middle’ Cardiff Property Market.

The ‘lower’ and ‘lower to middle’ sectors of the Cardiff property market have been fuelled over the last few years by two sets of buyers. The first set, making up the clear majority of those buyers, are cash rich landlord investors who are throwing themselves into the Cardiff property market to take advantage of alluringly low prices and even lower interest rates. The other set of buyers in the ‘lower’ and ‘lower to middle’ Cardiff property market are the first-time buyers (FTB), although the FTB market is in a state of unparalleled deadlock as it’s been trampled into near-immobility and incapacity by the new 2014 stricter mortgage affordability regulations and also fewer mortgages with low deposits.

Some of you may be interested to know how I have classified the three sectors ..

  1. lower’ Cardiff housing market – the bottom 10% (in terms of value) of properties sold
  2. lower to middle’ Cardiff housing market – lower Quartile (or lowest 25% in terms of value) of properties sold
  3. middle’ Cardiff housing market – which is the median in terms of value

…. and if one looks at the figures for City of Cardiff Council area you can see the three different sectors (lower, lower/middle and middle) have performed quite differently.

City of Cardiff Council Property Market – Sold Prices Price Paid in 1995 Price Paid in 2017 Percentage Uplift

1995 – 2017

Lower (Bottom 10%) £29,725 £109,000 266.69%
Lower to Middle (Lower Quartile) £38,000 £137,000 260.53%
Middle (The Median) £55,499 £211,484 281.06%

 

You can quite clearly see that it is the ‘middle’ market that has performed the best.

You might ask, what do all these different figures mean to homeowners and landlords alike?  Quite a lot – so let me explain. The worst performing sector (with the lowest Percentage uplift) was the ‘lower to middle’ housing market. Therefore, interestingly, if we applied the best percentage uplift figure (i.e. from the ‘middle’ market percentage uplift), to the ‘lower to middle’ 1995 housing market figure, the 2017 figure of £137,000, would have been £144,803 instead.

Now, I have specifically not mentioned the upper reaches of the Cardiff housing market for several reasons.  Firstly, the lower or middle market is where most of the buy to let investment landlords buy their property and where the majority of property transactions take place. Secondly, due to the unique and distinctive nature of Cardiff’s up-market property scene (because every property is different and they don’t tend to sell as often as the lower to middle market), it is much more difficult to calculate what changes have occurred to property prices in that part of the Cardiff property market – looking at the stats for the up-market Cardiff property market from Land Registry, only 14 properties in Cardiff (and a 3 mile radius around it) have sold for £1,250,000 or more since 1997.

So, what should every homeowner and buy to let landlord take from the information that there are many micro-property markets? Well, when you realise there isn’t just one Cardiff Property Market, but many Cardiff “micro-property markets”, you can spot trends and bag yourself some potential bargains. Even in this market, I have spotted a number of bargains over the last few months that I have shared in my Property Blog and to my landlord database, especially in the ‘lower’ and ‘lower/middle’ market.

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No 18 Velindre Road

Here is number 18 on my countdown of the top 20 streets in Cardiff based on their turnover and popularity, I am in Whitchurch on Velindre Road

 

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29.3% Drop in Cardiff Bay People Moving Home in the Last 10 Years

I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Cardiff Bay.  I find the most interesting bits are their commentaries on the British Housing Market.  Some talk about property prices, whilst others discuss the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit.  Others feature articles about the severe lack of new homes being built (which is especially true in Cardiff Bay!).  A group of people that don’t often get any column inches however are those existing homeowners who can’t move!

 

Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then this has steadily recovered, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties.  The question is … why are there fewer house sales?

To answer that, we need to go back 50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised interest rates to a high level in a bid to lower inflation.  Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news since inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages.  At the same time their mortgage debt was decreasing, therefore allowing them to move up the property ladder quicker.

 

Roll the clock on to the late 1990’s and the early Noughties, and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).

 

This snowball effect of significant numbers moving house continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You will probably remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This meant home movers could borrow even more to move up the property ladder.

 

So, now it’s 2017 and things have changed yet again!

 

You would think that with ultra-low interest rates at 0.25% (a 320-year low) the number of people moving would be booming – wouldn’t you?  However, this has not been the case.  Less people are moving because:

(1) low wage growth of 1.1% per annum

(2) the tougher mortgage rules since 2014

(3) sporadic property price growth in the last few years

(4) high property values comparative to salaries (I talked about this a couple of months ago)

What does thistranslate to in pure numbers locally? 

In 2007, 7,642 properties sold in the Cardiff City Council area and last year, in 2016 only 5,400 properties sold – a drop of 29.34%.

Therefore, we have just over 2,240 less households moving in the Cardiff Bay and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 1,838 mortgaged households a year (fourth fifths of the figure of 2,240) in the Cardiff Bay and surrounding council area that would have moved 10 years ago, but won’t this year.

The reason they can’t/won’t move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 1,838 annual Cardiff Bay (and surrounding area) non-movers, based on that CML report –

  1. There are around 662 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (e. demographics).
  2. I then estimate another 257 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (e. lifestyle).
  3. Then, I estimate 110 households of our Cardiff Bay (and surrounding area) annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (e. high house price growth).
  4. I believe there are 809 Cardiff Bay (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (e. mortgage).

The first three above are beyond the Government or Bank of England control.  However could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If Cardiff Bay property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

Then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy mortgages 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s … available at a drop of hat and three tokens from a cereal packet?

 

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No. 19 Rhymney St

 

Number 19 on the countdown of my top 20 streets in Cardiff is Rhymney Street in the heart of Cathays. It has an average price £177,442 and has had 280 transactions since 1995.

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