Cambridge’s £1.8 billion Mortgage Powder Keg

Eight years ago, in the summer of 2007, hardly anyone had heard of the term ‘credit crunch’, but now the expression has entered our daily language and even the Oxford Dictionary.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Cambridge Property market, but in November / December 2007, and for the following seventeen months, Cambridge property values dropped each and every month like the proverbial stone. The Bank of England soon realised in the late summer of 2008 that the British economy was stalling under the continued pressure of the Credit Crunch. Therefore, between October 2008 and March 2009, interest rates dropped six times in six months from 5% to 0.5% to try and stimulate the British economy. 

Thankfully, after a period of stagnation, the Cambridge property market started to recover slowly in 2011, but really took off strongly in late 2013 / early 2014 as property prices started to rocket. However, the heat was taken out of the market in late 2014/early 2015, with the new mortgage lending rules and some uncertainty, when some people had a dose of pre–election nerves.  

With the Conservatives having been re-elected in May, the Cambridge property market regained its composure and in fact, there has been some ferocious competition among mortgage lenders, which has driven mortgage rates to record lows. Whilst I have no actual figures to back this up, I know an awful lot of long serving bank managers, mortgage arrangers and people in the finance industry, all of whom have told me on previous occasions when interest rates rose (1987, 1992, 1997 and 2003), it wasn’t the first rate rise that was the catalyst for many homeowners and landlords to re-mortgage but the second or third increase.  The reason being that it was only by the time of the third rate rise,  it started to hit the wallet.  However, the issue is, by the time of the second or third rate rise the best fixed rates, were in all instances, no longer available as they had been pulled by the banks months before.

But here is the good news for Cambridge homeowners and landlords, over the last few months a mortgage price war has broken out between lenders, with many slashing the rates on their deals to the lowest they have ever offered.  I read that the well respected UK financial website Moneyfacts said only a couple of weeks ago, the average two year fixed rate mortgage has fallen from 3.6% twelve months ago to just under 2.8%.

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to a seven year high in the UK.  So what about Cambridge?  In Cambridge, if you added up everyone’s mortgage, it would total £1.8 billion.  Even more interesting is when we look at Cambridge and split it down into the individual areas of the city,

• CB1 - Cambridge (Central, South), Teversham £744.9m
• CB2 - Cambridge (West) £289.9m
• CB3 - Cambridge (North-West), Girton £186.9m
• CB4 - Cambridge (North) £508.4m
• CB5 - Cambridge (East) £153.7m

Since 1971, the average interest rate has been 7.93%, making the current 0.5% very low.  So, if interest rates were to rise by only 2%, according to my research, the 7,491 Cambridge homeowners, who have a variable rate mortgage would, combined, have to pay an approximate additional £20,520,000 a year in mortgage payments.  That means every Cambridge homeowner with a variable rate mortgage, will on average have to pay an additional £2,739 a year or £228 a month in interest payments.

I know over the last couple of posts, I have talked about mortgages a lot however, I am not a mortgage arranger but a letting / estate agent and as regular readers know, I always talk about what I consider to be the most important issues when it comes to the Cambridge Property market and at the moment, in my humble opinion, this is the most important thing!

Buy to let is all about maximising your investment, increasing income and reducing costs.  I give advice, opinions, thoughts, concerns, worries, expectations and fears about the Cambridge Property market in my blog on the Cambridge Property Blog.  If you are interested in the Cambridge Property Market, you might learn something by visiting the blog.http://cambridgeproperty.blogspot.co.uk/

3 bedroom semi-detached house for sale with huge investment potential.

So today for you I have this potential little gem? Now you will have to spend some money so expect to spend considerably more than the original guide price of £375,000 which is being asked from Cheffins.
Now as it stands this property with a quick glam up would rent for in the region of £1,500pcm offering you a yield of 4.8% which that alone is about right for Cambridge right now. Of course the 4.8% is based upon you paying the full guide price and spending very little on refurbishing the property?
Lets just say you pay the full asking price of £375,00 which is reasonable and will certainly make you a profit over the next 5 years so your job is potentially done right? Wrong!! why just settle for a little profit?

So picture this.......

Buy the property for £375,000 apply for planning permission onto the side of the property for two ensuite ground floor bedrooms and two first floor rooms and then finally partition the living/dining room as its huge and will give you another bedroom ultimately now giving you a 8 bedroom HMO. So if you plan to spend 100k on the build and do the property up to a high furnished standard you would be left with six rooms renting for £550 pcm and two rooms renting for £625 pcm factoring in your HMO licence and the works entailed in becoming HMO compliant into your 100k you will find yourself spending £475,000 to obtain a high speck HMO in central Cambridge that would now earn you a monthly rent of £4,550 giving you an annual rental fee of £54,600 and a new yield of 11.5%.
That's a great yield and that's not mention that your property value has now increased vastly far superseding your extra 100K.

For further information on this property please click the link below:
http://www.rightmove.co.uk/property-for-sale/property-51615457.html

Interest rates set to rise – How will that affect the Cambridge property market?

A couple of weeks ago, I mentioned in this blog about how the Bank of England has been indicating recently that UK interest rates will be going up in the not too distant future. Therefore, if you are one of the 13,142 homeowners in Cambridge, who own your own home with a mortgage, then you need to consider your options and start to budget for an interest rate rise. However, if you are a landlord, who owns one of the 12,684 rental properties in the city, whilst your exposure to interest rate rises is lower, it is most certainly something you should be aware of.

Since the spring of 2009, British interest rates have been at a record low of 0.5%. It’s not a case of if, but when, they will rise. Some people think it will be before Christmas, although I am of the opinion, it will early in the New Year around Easter time, when they do rise. I also expect those rises will be slow, steady and limited. It depends on what is happens to UK wage rises, UK inflation and the general state of the British economy. Nevertheless, as much most of us in Cambridge would love to pull the shutters and stick two fingers up to the world, we have to recognise we are part of a global economy and global economic worries still exist to prevent an abrupt and instantaneous rate rise.

Those Cambridge landlords, who do have a mortgage, need to realise that as interest rates rise, their monthly mortgage costs rise. It’s easy to say you will look at your mortgage next month, then before you know it, Christmas will be here!  Don’t forget, mortgage lenders have always removed the juicy low rate mortgage deals a few months before interest rate rise. Speak to a qualified mortgage arranger, there are lots of them in Cambridge and seriously consider fixing your mortgage rate now.  You didn’t buy your Cambridge buy to let property for it to become a millstone around your neck. It’s all about mitigating your costs and maximising your income to make your Cambridge buy to let property the investment you want it to be.

However, on the other side of the coin, two in three landlords who have bought property since 2007, have done so without a mortgage. A rise in interest rates might be a good thing. Let me give you some background first, then I’ll explain why. Cambridge landlords have see their return on investment for their Cambridge buy to let property, over the last couple of years, perform very well indeed with Cambridge property values rising by 31.39% since the Spring of 2009. However, when rates do rise, whilst more expensive mortgage rates will ease the demand for borrowing, on the other hand, it may temper house price growth, making the property market more competitive... and therefore, we should see the return of some bargain property buys in Cambridge!

Finally though, can I ask all Cambridge homeowners and Cambridge landlords, who have a mortgage that isn’t fixed, they need to recognise that rates will rise throughout 2016 to 2018 and will continue to move steadily upwards towards more viable and feasible long term levels.  I am not qualified to give that advice and this is my personal opinion, so please speak to a qualified mortgage arranger and, if appropriate, fix your mortgage before interest rates rise. Don’t say I didn’t warn you!

In the meantime, if you are a landlord looking for a bargain now, don’t despair ... there are plenty out there, if you know where to look! One place is Rightmove, another Zoopla and another OnTheMarket. However, sometimes, you can’t see the wood for the trees. At the time of writing, Rightmove had 264 properties for sale in Cambridge, Zoopla 123 properties for sale in the city and OnTheMarket 119 properties ... where do you start?

A lot of savvy Cambridge landlords like to visit the Cambridge Property Blog http://cambridgeproperty.blogspot.co.uk/, where, irrespective of which agent is selling it, I regularly post what I consider out of the hundreds of properties on the market, to be the best buy to let deal in Cambridge.   

Crisis in the Cambridge Property Market ..probably?

 

I don’t know about you, but if you watch Sky News every waking hour or read the newspapers, it always seems we as a Country, Europe or the World seem to lurch from one crisis to another. Another week, another crisis averted. It was only last summer the soothsayers were predicting the end of the world over the supposed house price bubble that many believed was developing in the South. Property prices were rising at 20%+ per annum in London, only for things to ease as the property market in the Capital showed a controlled slowdown and cooling in activity with price growth easing to a more realistic 8% to 9% per annum. Interestingly, there was no panic when some modest price drops were seen in some of London’s highest priced suburbs.

However, this month’s crisis is the buy to let boom and as George Osborne always likes to be topical, in the July emergency budget, he declared that he will start to scale back, from 2017, the tax relief that those high income tax rate landlords with a mortgage have benefited from. The Daily Mail ran headlines stating it was the end of the private landlord; predicting many landlords will give up on buy to let altogether and we will be inundated with rental properties up for sale as landlords feel squeezed from the market.

Even Mr Carney, the Governor of the Bank of England, recently cautioned that the buy to let property market could destabilise the whole UK property market. He was concerned landlords who bought with high loan to value mortgages could be spooked if there is a property crash, they would panic because of negative equity, sell cheaply, which would worsen house price falls.

End of the world then?   .. this week, yes probably, but next week .. that’s another story!  Before we all go and live like a hermit in the Scottish highlands, let me explain to you my perspective on the whole subject. As I mentioned a few weeks ago, two thirds of buy to let properties bought in the last eight years have been bought mortgage free – so they won’t be affected by the Chancellors’ tax changes.  Also, something I feel is often overlooked but very important, is the fact that landlords historically have only been able to normally borrow up to 75% of the value of the rental property.  In the last property crash of 2008, property values dropped by the not so insignificant figure of 18.29% in Cambridge, but even then, when we had the credit crunch and the world’s banking sector was on the brink, no landlord would have been in negative equity in Cambridge.

I believe we have a case of ‘bad news selling newspapers’ and I believe that buy to let, and the property market as a whole, will carry on relatively intact. It’s true reducing tax relief will hit landlords who pay the higher rate of income tax and this may slightly diminish buy to let as an investment vehicle, but I doubt people will sell. Many landlords have been lazy with their investments, buying with their heart, not their head. You would never dream of investing in the stock market without doing your homework and talking to people in the know. If you want to make money in the Cambridge property market as a buy to let landlord, it’s all about having the right property and as you grow, the right portfolio mix to offer a balanced investment that will give you both yield and capital growth.

The Cambridge buy to let market still offers good investment opportunities to new and old alike. Those who have bought in the last twelve to eighteen months have reaped the benefit from buying in Cambridge, because the city offered a combination of reasonable house prices with subsequently increasing rents.  Property values have risen by 13.02% in the last eighteen months in Cambridge, whilst looking at rents, in Q2 2015, average rental values for new tenancies were 7% higher than Q2 2014, and they rose by 9.4% between Q2 2013 and Q2 2014.

I cannot stress enough the importance of doing your homework. One source of information and advice is the Cambridge Property Blog where I have similar articles to this about the Cambridge property market and what I consider to be the best buy to let deals around at anyone time in the City, irrespective of which agent it is on the market with. If you haven’t visited and you are interested in the local property market in Cambridge .. you are missing out! .. http://cambridgeproperty.blogspot.co.uk/

3 bedroom semi-detached house for sale offering a 4% yield?

This 1950s semi-detached house occupies a popular and convenient location just north of the river, close to Stourbridge Common and the proposed new train station. It has been extended to the side to provide a tandem garage and large studio and offers particularly well-presented living space that has been significantly improved in recent years.
The property is for sale for £400,000 with TuckerGardner and is ready to let straight away with a monthly rental value of £1,500pcm offering you an instant and easy 4.5% yield.
This property would sell itself as a rental property for a professional family and will certainly earn you a nice little profit over the next 5 years with the new train station being built on its doorstep.

So if your looking for a nice easy hassle free investment then this is the one for you.

For more information on this property please follow the link below:

http://www.rightmove.co.uk/property-for-sale/property-36224697.html

5 bedroom semi-detached house for sale giving you a 6.3% Yield

This house is up for sale with Cheffins with a guide price of £450,000 and was constructed post war and enjoys an established position conveniently placed for the city centre, excellent local schools and commuter links. This makes this property either great for a professional family or if you look at the bigger picture the property would make a great HMO.
The property has been extended to almost double its original size and the current owners have carried out a programme of refurbishments. The re-development includes solar panels and an air source heat pump system. It is not only friendly to the environment but offers a potential purchaser a huge financial saving.

The kitchen/dining/family room has been refitted with stylish and contemporary storage cupboards which includes granite working surfaces and both bathrooms have been refitted with luxury suites potentially selling itself to tenants. The garden has been professionally landscaped and is generously proportioned yet easy to maintain and enjoys excellent levels of privacy making this property the perfect HMO for high end working professionals.

Why not offer these rooms for £600pcm per room which would give you a monthly income of £3,000, take into consideration the alterations for your HMO licence and the fact that you will now be liable to pay the council tax and you would be left with a yield of around 6.3% which is not bad at all for Cambridge.

You will find more pictures and information on this property by following the link below:
http://www.rightmove.co.uk/property-for-sale/property-51486079.html

Cambridge Property Values 7.1% higher than year ago

 

Cambridge property values rose by 0.2% last month, meaning they are 7.1% higher than 12 months ago. Overall, I expect future property price growth to remain firm, built on the foundations of an improving labour market, strengthening economy and very low mortgage rates. In fact, talking to a number of other agents in the city, mortgage arrangers and solicitors (all of whom have their direct finger on the pulse of the Cambridge property market), the steady long term growth in Cambridge property prices tied in by strong demand conditions so far this summer, alongside an underlying lack of supply and the continued low mortgage rate environment, means the slow but steady upward momentum of the Cambridge property market is likely to continue in the second half of 2015.

However, there are a couple points I wish to highlight as all my blog readers will know, I like to give a balanced and honest opinion of what is happening in the Cambridge property market.  The two main points being low interest rates and a lack of supply of property.

 

Interest rates first - Mark Carney (Chief of the Bank of England) said in a speech a few weeks ago at Lincoln Cathedral, the Bank will be seriously considering raising interest rates around Christmas time. An upward movement in interest rates will temper demand and result in a marked slowdown in house price growth. Mr Carney said that only six out of ten people that had a mortgage (57% to exact) had a variable rate mortgage, compared with more than one in seven (73% to be exact) in the Summer of 2012. Now I am not a mortgage arranger and cannot give advice, but rates are only going on one direction, so whether you are a landlord or homeowner, this might be a time to consider fixing your mortgage rate?  Don’t say I didn’t warn you!

Tie this in with the stricter mortgage lending rules which were introduced in 2014, which affected people’s ability to have larger mortgages, this means homeowners will need to be realistic in their pricing if they want to sell. Reading other recent reports though, property owners have continued to pay off mortgages at a faster rate while mortgage rates have been low. Therefore, when mortgage rates rise, the affect on home movers sentiment which, given the shortage of supply, would result in a marked slowdown in the rate of house price growth.

Shortage of Supply – As I have mentioned in previous articles, the number of houses on the market in Cambridge is at an all time low. One reason is the large number of buy to let landlords who have bought Cambridge property over the past fifteen years. Unlike first time buyers who tend to move on after a few years, landlords tend to keep their properties long term, meaning there are less properties coming onto the market ... thus restricting supply and sales. In fact over the last four months, only 2,704 properties in the Cambridge City Council area have changed hands and sold, compared to 3,420 in the same time frame in 2014, a not so insignificant drop of 20.94%. 

If you are planning on investing in the Cambridge property market, or just want to know more, things to consider for a successful buy to let investment, one source of information is the Cambridge Property Blog http://cambridgeproperty.blogspot.co.uk/