£13.8bn – The Value of The North Manchester Property Market

“How Much Would it Cost To Buy All The Houses and Flats in North Manchester?”

This fascinating question was posed by the 11-year-old son of one of my landlords when they both popped into my offices. At the time I didn’t have an answer for him, instead throwing my hands in the air I smiled and vaguely answered “hundreds of millions”. I hadn’t ever thought about the total value of the market, so I thought to myself that it would be interesting to sit down and calculate what the total value of all the properties in North Manchester are worth.

Now this isn’t something that you can just google lightly and ping receive an answer, you can readily find information on house prices and trends, you can find population data on a city wide basis and lots of vague demographics dotted around, but nothing readily prepackaged to tell you 1) how many houses are in an area and 2) what the values of those houses are. It took me considerably more work than I first anticipated and became a bit of a mission for me to solve this problem.

I started with the city council, then went to the office for national statistics, then pulled census data and land registry files. I quickly found myself with reams upon reams of data which all gave lots of clues, but no definitive answer.

When I delved into the numbers, the first thing I found was that the average price currently being paid for a North Manchester property stands at £99,229.  Which seemed a little low, so I split the property market down into individual property types in North Manchester; the average numbers come out like this.

 

Curious as to how the figure settled at £99,229 I then looked at the distribution of the types of homes in North Manchester, and found this:

 

Working out of Moston, and area heavily packed with street upon street of terraced houses, I wasn’t too surprised to see terraced houses dominating the statistics for North Manchester. However, what was initially surprising was the figure for the number of flats.

I initially wrote this figure off as being inflated by bedsits, converted homes, flats above shops and some of the larger mixed use commercial buildings. However, I chose to dig a little deeper into the distribution of the types of flats in North Manchester and this is what I found:

 

Although, from working in the North Manchester property market for the best part of my life, I did appreciate there were a fair number of flats, I hadn’t until now got my head around the fact that there were just shy of 28,000 flat in the area, of which over 24,500 were within custom built blocks or tenements.

 

A cool £2.1bn could bag you ALL of the flats in North Manchester. Sitting at the lowest price point the local flats are offering astounding returns on investment as rental properties and are in very high demand with the young professional market.

If you happen to be a multi billionaire, check down the back of your sofa, in that pair of jeans that you don’t wear but are hanging onto incase they fit again or in an old coat pocket- if you happen to find a spare £2.1bn give us a call and we’ll talk about investments.

If you’re not a multi billionaire, and like me you’re just a regular person trying to save for the future and provide security for your family this information may seem pie in the sky, but I promise there is a point to it all.

What does this all mean for North Manchester Investors?  

Well as we enter the unchartered waters of 2017 and beyond, even though property values are already declining in certain parts of the London property market, the outlook in North Manchester remains relatively good as over the last five years, the local property market was a lot more sensible than central London’s.

North Manchester house values will remain resilient for several reasons.  Firstly, demand for rental property remains strong with continued immigration and population growth.  Secondly, with 0.25 per cent interest rates, borrowing has never been so cheap and finally the simple lack of new house building in North Manchester not keeping up with current demand, let alone eating into years and years of under investment – means only one thing – yes it might be a bit of a bumpy ride over the next 12 to 24 months but, in the medium term, property ownership and property investment in North Manchester has always, and will always, ride out the storm.

 

“Right to Rent”: New Rules

Landlords and letting agents need to make sure they’re on top of the new set of amendments to the Immigration Act which came into effect at the beginning of December.

The penalty for letting to illegal migrants has been toughened. Previously this was a civil offence, but it’s now become a criminal offence, which means the fines are potentially higher and there is even a possibility, in the worst cases, of a prison sentence.

The vast majority of letting agents and landlords will be unaffected by these particular changes, but there are a few other amendments in the area of evictions that they ought to be aware of.

Who Has the Right to Rent?

These new regulations revolve around the right to rent and the Home Office identifying people who are in the country illegally and therefore do not have the right to rent property. If the Secretary of State has given them permission to take up the tenancy, that’s okay, otherwise the Home Office refers to these people as “disqualified” from renting and they are basically those who:

• Need permission to enter or stay in the UK but don’t have it
• Do have leave to stay but are subject to a condition saying that they can’t occupy the dwelling they are currently occupying

Agents and landlords already have to check tenants’ documentation to make sure they are here legally. Remember to check all of the tenants – you’re not allowed to pick out individuals you have suspicions about. You need to make copies of the documents and to keep them for a year after the tenancy ends.

There’s been some grumbling from landlords about the fact that they are not experts at document authentication. How are they supposed to know whether a passport is genuine or not, unless it’s a really obvious fake? There’s no answer to that, so it’s a case of doing the best you can.

1. If none of your tenants has a legal right to rent

If none of the adult tenants has the right to rent and the Secretary of State notifies the landlord of their identity, the landlord can give the tenants 28 days notice provided that the notice is correctly worded and formatted. This notice can only be used where the Home Office has given the landlord notification that all of the occupiers are disqualified from renting and not in any other circumstances.

You can use this notice even if the tenancy started before the changes to the legislation came in. If it is properly served with the accompanying Home Office list of tenants, then the landlord can repossess the property without any recourse to the High Court – the notice itself is like a High Court order. See here for more information: http://www.legislation.gov.uk/uksi/2016/1060/images/uksi_20161060_en_001.

You can serve the notice by delivering it in person to the tenants, sending it through the post, leaving it at the property and so on. The Protection from Eviction Act won’t apply to tenants who are identified as having no right to rent.

2. Some have the right, some don’t

A much more common situation will be that a group of tenants are renting a house, and while some of them have the right to rent, others don’t. Again, the landlord has to have a written notice identifying the disqualified tenant, and this must come from the Secretary of State (i.e. the Home Office).

It now begins to get a lot more complicated, and any landlord in North Manchester would do well at this stage to talk to their letting agent who will be able to give professional advice or point them in the right direction.

Also be aware that the landlord has to take action within a reasonable period. Currently we are waiting for guidance on what that actually means, but a period of four weeks has been mentioned.

Landlords Have Trouble Keeping up with the Changes

The fact that these changes have happened and yet most members of the general public are unaware of them shows just how difficult it is, particularly for smaller landlords, to keep up with the constant amendments to legislation. One law is changed, and because of the complexity of the legal framework that governs housing, another law is amended in consequence.

It’s not surprising that landlords need to use letting agents. An individual landlord would be really hard pushed to keep up with these constant changes.

A Quarter of Landlords Want Out Because of Tax Changes

The Telegraph reported this week that 25% of buy-to-let landlords intend to sell the properties they are currently renting out, because of the government’s campaign of swingeing tax increases in the sector.

Unintended Consequences of the Tax Grab

This news has caused alarm not just in rental circles but throughout the professional property market, because such a large volume of property hitting the market at the same time could destabilise the entire sector. Another factor here is that rental properties are often concentrated in certain areas. Many landlords favour terraced or semi detached houses in reasonably modest areas because the prices are lower but rents are still reasonable, giving a workable investment yield.

The property market is always essentially local, as landlord advice in Manchester shows. In a local area, a large number of buy-to-let landlords selling up at the same time will definitely affect house prices. In fact if landlords feel that they need to beat a rush to market they will get in early and market their properties at higher prices, hoping to avoid a stampede of rental properties on the market once the buying season starts in spring.

The other undesirable effect of a wholesale dumping of buy-to-let investments will be that rents will rocket upwards because the property being sold will not be bought by other investors but by homeowners. This will remove large amounts of rental property from the market and cause major problems for those tenants who simply do not have the option to buy a property. As a result, the demand for council properties will almost certainly increase.

Nearly 1,000 experienced buy-to-let landlords were surveyed by the Residential Landlords’ Association and the results were pretty staggering. Almost 25% have either already sold their properties or are planning to sell them as a result of the government’s decision to stop mortgage interest being offset against rental income when landlords are working out their taxes.

The draconian changes to taxes on rental income were announced in the 2015 budget but will not come into effect until next year. The tax changes are hardest on those landlords who pay tax at the higher rates (40% or 45%) and those who have bigger mortgages. Taxpayers who aren’t on the higher rates so far, may find that because their taxable income has gone up, they are transferred into a higher rate tax band, a double whammy.

Tenants to Bear the Brunt

Tenants are going to bear the brunt of the new tax regime – not only will they find that there are far fewer rental properties around, but those that remain will be at significantly higher rents. The reduction in supply will of course mean that since demand is still constant, rents on available properties will rise, and landlords will need to make more from their property in order to get a yield that makes the investment sensible.

In fact a previous study found that nearly 60% of landlords were intending to increase their rental charges to offset the loss in income caused by the tax changes. Kent Reliance building society carried out a survey in June that found that landlords planning to increase rents were looking at an average figure of 5.6%.

Each Year Will See Further Effects

The tax changes are not coming in all at once one but are being phased in over a number of years and won’t be fully implemented until 2020. Therefore we should be able to see the effect that the changes are having year-on-year. Any changes in the first year in terms of landlords selling their properties and tenants finding that rents are rising can be expected to be magnified in every year that follows.

And the Icing on the Cake…

The detrimental effects on tenants and on local property markets described above, will be magnified by the sneaky new rules that state that when a lender offers a loan on a buy-to-let property, to a landlord who owns four or more properties, the lender will have to financially assess their entire portfolio.

The official reason given for this is that the more properties a landlord owns, the higher their mortgage arrears are likely to be. The actual effect will be that lenders will make fewer loans to landlords who own multiple properties, so the few landlords left in the game will not be able to buy new property.

It’s no way to run a housing policy.

What landlords do, from the perspective of one landlord:

This story was taken from the recent publication by Property 118 titled: “SECTION 24 of the Finance (no.2) Act 2015: “The unjust legislation that will make the UK housing crisis much worse”

 

We often invest in old, sometimes decrepit housing and we restore it and bring it back into use. When we do this, it is a financial gamble as property values can go up or down.

If private landlords were not willing to take these business risks there would be a massive shortage of housing in this country, as the Government relies on private individuals to take these risks (having sold off council houses for example and then not replaced them).

We provide comfortable, safe housing for millions of people. This housing is safer than ordinary owner-occupied housing, as we have the gas safety checked every year and also ensure electrics and so on are safe. We then provide 24-hour help to our tenants, so any problem they experience at the house (a burst pipe, a leak etc.) becomes our problem and we sort it out. These tenants have complete mobility as they only need to give us one month’s notice and they can leave if they want to move away for a new job or whatever reason. This flexibility of the workforce also supports the economy.

We employ builders, plumbers, electricians, carpenters, painters and decorators…. the list goes on, including also buying supplies from DIY stores, furniture suppliers, locksmiths – we support all manner of businesses, who then pay taxes and keep the economy moving. We invest massive amounts of money in this way every month of every year. We also pay a considerable amount of tax ourselves.

We support estate agents, the financial services, through the massive amount of interest we pay to mortgage companies and banks over the years, brokers, and also through insurance policies, conveyancing lawyers and so on. We employ and pay large amounts to letting agencies also. This also keeps a substantial number of people in permanent employment.

Of late, through unnecessary and pointless licencing by councils and the massive fees that they charge, with a monopoly on this (they effectively write their own cheques and we sign them), we even prop up the finances of local councils.

We run the risk of getting tenants from hell – this can happen despite us taking all kinds of precautions, and the law gives us very few rights to recover the money owed to us. Sometimes we even take on tenants known to have alcohol or drug dependencies as we can be a bit soft. Often then, we get our houses wrecked in return for our charitable attitude. Councils and the Citizens Advice Bureaux then advise these tenants to stick it out for as long as possible whilst paying no rent, meaning we as landlords are even more out of pocket.

We get the finger pointed at us when we let to groups of students or professionals. For example, we may convert a Victorian house into a 6-bed, 2 bathroom house. This enables individuals to pay a low rent for a room plus communal facilities. This is often seen as some money-grabbing, cynical move by landlords. In fact, it is profitable for the landlord, great for the tenant (who only spends a small part of their disposable income on housing), and is a great use of space. How can it be seen as preferable for one person (an owner-occupier) to have use of a whole house for themselves? Heating and lighting a house for 6 people is a great, environmentally friendly use of housing and tenants often prefer it as they have ready-made friends and company. And yet we get criticised for this instead of being praised and encouraged.

Yes, landlords aim to make a profit from all of this work, but so do all businesses and indeed all people who go out to work.

Buy-to-let investors – is Landlord Ltd. the answer?

As far as buy-to-let landlords are concerned, April 2017 is not so much a red-letter date as a red ink one. That’s the date when a series of tax changes start to come into force which are going to decrease their profits and increase their tax liability.

Until now, landlords have been able to subtract mortgage interest from rental income, before calculating how much tax they owe. Not after April. Changes will be phased in from April onwards which by 2020, will result in landlords paying tax on the entire rental income their property earns. If the fat-cat landlord ever really existed, they are certainly a thing of the past.

Needless to say, given the world-beating complexity of the UK tax regime, the changes aren’t that simple. The landlord will be due a tax credit of 20% of the total interest they pay, but the entire rent will be taxable. Higher rate tax payers will be much harder hit because the rent will be taxable at the higher rate. And of course, a landlord who is paying 45% tax, will be worse off still.

The people at MoneySupermarket.com have been busy crunching the numbers and they reckon that if you are a higher-rate taxpayer and the mortgage interest is 75% or more of your income from the property, the tax changes will eliminate your return on the investment. For someone paying the additional rate of tax, this will happen when the interest is at 68% of the rent.

If you are a small landlord with just one property, you may be breathing a sigh of relief, if you are on the basic rate of tax. But wait a moment. Since your taxable income will go up as a result of the changes, you may well become a higher rate tax payer.

Is there any way to protect yourself from the changes?

Companies which own property and let it out are not affected by the rental tax changes. They can carry on paying corporation tax on the profits and paying dividends and salaries to the company directors. But before landlords rush to become limited companies, they need to be aware of the many tax complications and possible pitfalls in taking this step. They certainly need to take professional advice.

The company needs to be set up properly to buy the property, and this has to be achieved with the correct paperwork. So don’t necessarily assume the cheapest set-up that you find is the best choice. It is better to get an accountant to do this for you.
And although companies aren’t affected by the tax changes on rents and interest, they are affected by the stamp duty changes which mean that there’s 3% extra stamp duty payable by any person or company buying a second property when they already own one.

As for transferring properties you already own into a company, there are a host of tax complications.

Buy to let investments still competitive

The fact is that many people, not just those on very low incomes or on benefits, need to rent property and in Manchester lettings agents are as busy as ever. Tenants need landlords to provide a stable and active property rental market.

Professional landlords, holding large portfolios of property can probably look after themselves but the small landlord with one or two properties is going to be more adversely affected. One of the effects may be that the average age of landlords rises, as people in work are not going to want to be pushed into higher tax bands by the income from a rental property. They may wait until they retire to move into buy-to-let.

For retired people looking for additional income, even though the tax benefits of buy-to-let have been greatly reduced, given the woeful returns on savings, the income from owning rental properties looks very attractive and there is always the possibility of increases in property values.

Furthermore, mortgages for buy-to-let are becoming increasingly available for older people. For many retired people with lower outgoings and perhaps no mortgage left on their own home, the affordability criteria for these mortgages are not stumbling blocks to anything like the same degree as they are for younger borrowers.

The Chancellor has done his worst, but buy-to-let is still with us and while interest rates on savings are below 1%, landlords are unlikely to give up on their investments.

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Butman Street

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