Cambridge Buy To let –Freehold House or Leasehold Flat?

Well my Cambridge Property Blog reading friends, as seems to be all the rage with Jeremy Corben asking the PM questions emailed in to him at Prime Minster Question Times, I to wish to answer a question emailed into me from a potential Cambridge landlord last week. Nice chap, lives in Impington, and it turns out, after having a coffee with him, he works in IT, has a spare bit of cash (now the kids have flown the nest) and wanted to buy his first buy to let property.

His main question was ... Do I buy a freehold house or a leasehold flat in Cambridge?

Most people will say freehold every time, because you own the land. However, it’s not as simple as that (it never would be would it!). The definitive answer though is to research what Cambridge tenants want in the area of Cambridge they want! The tenant is ultimately your customer, and, if they don't want to rent what you decide is best to buy, then you are not going to have a successful BTL investment. So starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply.

Leasehold flats and apartments in Cambridge are excellent in some respects as they offer the landlord certain advantages, including the fact a flat can be initially cheaper to buy. Yields can be quite good, offering better cash flow. The building will already be insured and yes there is a service charge, but it’s still for a service at the end of the day and that cost is spread between many others (i.e. when your freehold house roof goes, its falls 100% on your shoulders) and one of my favourites is that there is often no garden to maintain or blown down fences to replace!

However, some Cambridge leasehold flats can suffer from poor capital growth. Some leasehold properties have no cap on the level of the service charge and it may get out of control. The length of the lease will significantly affect value if not renewed before it gets too short. Thankfully there’s not many, but some Cambridge apartments/flats have burdensome clauses. Finally, with leases, there can be sub-letting issues – which means you can’t let them out.

 

So what do the numbers look like? Well since 2003, the average freehold property in Cambridge (detached, semis and terraced) has risen from £249,867 to £574,709, a rise of 130% whilst the average Cambridge leasehold property (flats and apartments) has gone up in value from £129,943 to £329,535, a greater rise of 154%. 

I was really interested to note that of the 11,170 rental properties in the City of Cambridge Council area that the Office of National Statistics believe are either let privately or through a letting agency, 5,468 of them (or 49%) are apartments. However, there are only 15,085 apartments in the whole council area (be they owned, council rented or privately rented), which represents 32.3% of the whole housing stock in the area. This really intrigued me that, quite obviously, there is a high proportion of Cambridge’s leasehold apartments/flats rented to tenants compared to detached, semi’s or terraced. Fascinating don’t you think?

Every Cambridge apartment block, every terraced house or semi is different. Like I said at the start, the definitive answer though is to research what Cambridge tenants want in the area of Cambridge they want. Demand for city centre apartments, near the nightlife and transport links can be popular and can offer the Cambridge landlord very good yields with minimal voids. However, Cambridge terraced houses and semis, whilst not always offering the best yields (although sometimes they can), they do offer the Cambridge landlord decent capital growth.

My advice to the prospective landlord as it is to you is do your homework.  One such website, which only talks about the Cambridge buy to let Property Market, is the Cambridge Property Blog. Another source of info many Cambridge landlords use is me! What many Cambridge landlords do, irrespective of whether you are a landlord of ours, a landlord with another agent or a DIY landlord, if you see any property in Cambridge, that catches your eye as a potential buy to let property, be it a terraced house, semi or flat ... email me and I will email you back with my thoughts (although I will tell you what you need to hear .. not want to hear!)

Cambridge Tenants Pay 40.2% of their Salary in rent

 

I had the most interesting chat with a local Cambridge landlord the other day about my thoughts on the Cambridge property market. The subject of the affordability of renting in Cambridge came up in conversation and how that would affect tenant demand. Everyone wants a roof over their head, and since the Second World War, owning one’s home has been an aspiration of many Brits.  However, with rents at record highs, many are struggling to save enough for a house deposit.

Let’s be honest, it’s easy to get stuck in a cycle of paying the rent and bills and not saving, but even saving just a small amount each month will sooner or later add up.  George Osborne announced such schemes as the upcoming Help to Buy ISA, where the Government will top up a first time buyers deposit.  

Therefore, I thought I would do some research into the Cambridge property market and share with you my findings.  Cambridge tenants spend on average over a third of their salary to have a roof over their head.  According to my latest monthly research, the average cost of renting a home in Cambridge is £1,259 per month.  When the average annual salary of a Cambridge worker, in the lower quartile, stands at £37,512 per year, that means the average Cambridge tenant is paying 40.2% of their salary in rent. I doubt there is much left to save for a deposit towards a house after that, and that my Cambridge Property Blog reading friends is such a shame for the youngsters of Cambridge.

 

You see one of the reasons for rents being so high is property prices being high. As I have mentioned before, there is a severe lack of new properties being built in Cambridge. It’s the classic demand vs supply scenario, where demand has increased, but the number of houses being built hasn’t increased at the same level. Also, Cambridge people aren’t moving home as often as they did in the 80’s and 90’s, meaning there are fewer properties on the market to buy.  If you recall, a few weeks ago I said back in Winter 2007, there were over 1,400 properties for sale in Cambridge and since then this has steadily declined year on year, so now there are only 342 for sale in the City.

Back in Winter 2007, there were over 1,400 properties for sale in Cambridge and since then this has steadily declined year on year, so now there are only 342 for sale in the City.
 
So, the planners in Cambridge haven’t allowed enough properties to be built in the City and existing Cambridge homeowners are not moving home as much as they used to, thus creating a double hit on the number of properties to buy. This is a long term thing and the continuing diminishing supply of housing has been happening for a number of decades and there simply aren’t enough properties in Cambridge to match demand, these are the reasons houses prices in Cambridge have remained quite buoyant, even though economically, over the last 5 years, it was one of the worst on record for the country and the East region as a whole.

 

However, things might not be all doom and gloom as originally thought, as a recent Halifax Survey  (their Generation Rent 2015 Survey) suggested more and more people may be long term, if not lifelong tenants. In fact there is evidence in the report to suggest that the perception of how difficult it is to get on the housing ladder is vastly different between parents and people aged 20 to 45. It seems from this survey that the state of the UK economy has shifted priorities quite significantly in quite a short space of time. With fewer people able to save up the deposit required by mortgage lenders, more and more people are continuing to rent. This delay in moving up the property ladder has driven rents across the UK up as more people were seeking rental properties.

It is often said that more people in central Europe rent for longer or never own their own property. The last two census in 2001 and 2011 show that proportionally the percentage of people who own their own home in Britain is slowly reducing and, as a country, we are becoming more and more like Germany. That isn’t a bad thing as Germany is considered to have a more successful economy, one of the main stays, often quoted, is because they have a much more flexible and mobile workforce, (which renting certainly gives) and from that, they have a higher personal income than in the UK.      

Therefore, if we are turning into a more European model and the youngsters of Cambridge and the Country have changed their attitudes, demand for rental properties will only and can only go from strength to strength, good news for Cambridge tenants as wages will start to rise and good news for Cambridge landlords, especially as property values in Cambridge are now 7.8% higher than year ago!

How EU Migration has changed the Cambridge Property Market

The argument of migration and what it does, or doesn’t do, for the country’s economic wellbeing is something that has been hotly contested over the last few years. In my article today, I want to talk about what it has done for the Cambridge Property market.

Before we look at Cambridge though, let us look at some interesting figures for the country as a whole. Between 2001 and 2011, 971,144 EU citizens came to the UK to live and of those, 171,164 of them (17.68%) have bought their own home. It might surprise people that only 5.07% of EU migrants managed to secure a council house. However, 676,091 (69.62%) of them went into the private rental sector.  This increase in population from the EU has, no doubt, added great stress to the UK housing market.

Looking at the figures, the housing market as a whole is undoubtedly affected by migration but it has been the private rented housing sector, especially in those areas where migrants come together, that is affected the most.  Indeed, I have seen that many EU migrants often compete for such housing not with UK tenants but with other EU migrants. In 2001, 3.68 million rented a property from a landlord in the UK.  Ten years later in 2011, whilst EU migration added an additional 676,091 people renting a property from a landlord, there were actually an additional 4.14 million people who became tenants and were not EU migrants, but predominately British!

As a landlord, it is really important to gauge the potential demand for your rental property, especially if you are a landlord who buys property in areas popular with the Eastern European EU migrants. To gauge the level of EU migration (and thus demand), one of the best ways to calculate the growth of migrants is to calculate the number of people who ask for a National Insurance number (which EU members are able to obtain).

 

In Cambridge, migration has risen over the last few years. For example, in 2007 there were 4,074 migrant national Insurance cards (NIC) issued and the year after in 2008, 3,934 NIC cards were issued. However, in 2014, this had increased to 4,948 NIC’s. However, if the pattern of other migrations since WW2 continues, over time there will be an increasing demand for owner occupied property, which may affect the market in certain areas of high migrant concentration. On the other hand, over time some households move into the larger housing market, reducing concentrations and pressures.

In essence, migration has affected the Cambridge property market; it couldn’t fail to because of the additional 39,929 working age migrants that have moved into the Cambridge area since 2005. However, it has not been the main influence on the market. Property values in Cambridge today are 27.79% higher than they were in 2005. According to the Office of National Statistics, rents for tenants in the East have only grown on average by 1.03% a year since 2005 .... I would say if it wasn’t for the migrants, we would be in a far worse position when it came to the Cambridge property market. This was backed up by the then Home Secretary Theresa May back in 2012 - more than a third of all new housing demand in Britain is caused by inward migration and there is evidence that without the demand caused by such immigration, house prices would be 10% lower over a 20 year period.

If you want to know more about the Cambridge property market, then for more articles like this, please visit the Cambridge Property Blog http://cambridgeproperty.blogspot.co.uk/

4 bedroom terraced house for sale just shy of Cambridge offering a minimum yield of 5.5%.

So typically I find for you properties situated directly within Cambridge city itself but today I am taking you just outside of Cambridge into a picturesque village called Bottisham. Bottisham is a great little village literally a stones throw out of Cambridge so perfect for the commuter looking for cheaper rent. The village is situated in between Cambridge and Newmarket so offers an abundance of local amenities including great schooling and restaurants as well as local shops etc.

This property is up for sale with Purple Bricks with a guide price of £389,950 and is in amazing condition inside and out meaning that it would be ready to let instantly to a variety of potential tenants. With Cambridge one side offering Cambridge's air port and Newmarket on the other offering Stable hands, Jockey's etc. from the race courses and a variety of veterinary personnel from the near by veterinary school you would fill this property with ease advertising rooms at a minimum of £450 per room pcm.

So if you do your homework correctly and find the right set of tenants you would make a minimum yield of 5.5% - For full information and further pictures please see the following link: http://www.rightmove.co.uk/property-for-sale/property-55552097.html

Too little too late New House Building in Cambridge

One of the key factors that determine the price of anything is the demand and supply of the item that is being bought and sold. When it comes to property, demand can change overnight, but it takes years and years to build new properties, thus increasing the supply.

The Conservatives have pledged to build over 1 million homes by 2020.  I am of the opinion that as a country, irrespective of which party, we have not built enough homes for decades, and if the gap between the number of households forming and the number of new homes being built continues to grow, we are in danger of not being able to house our children or grand children. I believe the country is past the time for another grand statement of ambition by another Housing Minister. Surely it’s right to give normal Cambridge families back the hope of a secure home, be that rented or owned? As a city, we need to exert pressure on our local MP Daniel Zeichner, so they can make sure Westminster is held accountable, to ensure there is a comprehensive plan, with enough investment, that can actually get these homes built.

To give you an idea of the sorts of numbers we are talking about, in the Cambridge City Council area, in 2006, 750 properties were built. In 2010 that figure dropped to 300. However, whilst the number of new homes being built in the council area has increased ... in 2013 it was 480 and in 2014, it had increased to 1300 properties built ... we need double that amount to even keep up with the population growth of 1,512 people per year into the area, let alone alleviate the chronic housing shortage for the existing locals.

 

The outcome of too few homes being built in Cambridge means the working people of the city are being priced out of buying their first home and renters are not getting the quality they deserve for their money. The local authority isn’t building the estates they were after the war and housing associations are having their budgets tightened year on year, meaning they have less money to spend on building new properties.  I know of many Cambridge youngsters, who are living with their parents for longer because they cannot afford to get onto the housing ladder and growing families are unable to buy the bigger homes they need.

I talk to many Cambridge business people and they tell me they need a flexible and mobile workforce, but the high cost of moving home and lack of decent and affordable housing are barriers to attracting and retaining employees. Furthermore, building new homes is a powerful source of growth, creating jobs across the county and supporting hundreds of Cambridge businesses. It is true that landlords have taken up the mantle and over the last 15 years have bought a large number of properties. The Government need to be thankful to all those Cambridge landlords, who own the 13,862 rental properties in the city. Most local landlords only have a handful of rented properties (to aid their retirement), and without them, I honestly don’t know who would house all the extra people in Cambridge!

Moving forward, those Cambridge landlords have many pitfalls, both in the short term and medium term. For instance, were you aware that the rules of changes for new tenancies from the 1^st October 2015 (with some imposing penalties including loosing the right to require the tenant to vacate, if they are done incorrectly) or in the medium term, the planned change in the way buy to let’s are taxed?

More than ever, the days of buying any old property in Cambridge and you would be set for life are gone. Now, it’s all about ensuring you stay the right side of the law, buying the right property (and that might mean even selling some to buy others), so you build the right portfolio for you as a landlord. One source of info on all of these issues, where you will find other articles similar to this on the Cambridge property market, is the CambridgeProperty Blog