New Help to Buy Developments in Manchester become Targets for Buy to Let Landlords
New Help to Buy Developments in Manchester become Targets for
Buy to Let Landlords
Competition to buy up new Help to Buy-type Developments in Manchester and
Salford/Quays is beginning to intensify as new help to buy flats and houses
become targets for Buy to Let landlords from both the UK and from abroad.
Recent changes to UK pension rules which came into effect from the end of 2014 mean
that many more people in their 50’s and 60’s are buying a second property, both as an income
generator and as a capital asset which will only rise in value over the coming years –
(and they have the benefit of knowing this fact to be true as they’ve witnessed the rise
in values of their first house over the last 30 years and more in which the price of the
average house in the UK has risen from about £20,000 in 1980 to around the £180,000 mark by
2015 – a 900% rise in capital values, tax free, over 35 years * see chart 1 below).
Manchester estate agent Julie Twist believes a lack of houses and
new-builds is driving up prices
To add fuel to the gently simmering fire beginning to take a hold under property values
in the city there are simply too few new Help to Buy developments on sale in Manchester,
whether they are on-sale right now or due to come on to the Manchester property market later
this year and into 2016 and 2017.
Manchester estate agent Julie Twist believes a lack of houses and new-builds is driving
up prices in the city – and when you look at the Residential Development Pipeline chart
for Manchester in 2015 and 2016 (chart 2, below) the fundamental reason for her fears
quickly becomes apparent. After the brief pick-up in numbers of new Help to Buy developments
in Manchester in 2014 – after 4 years of near zero growth in 2010, 2011, 2012 and 2013 –
the city is once again facing a falling number of new Help to Buy developments throughout
the Manchester and Greater Manchester areas. And although residential development is
currently at a 5 year high, there are still only 1426 new units under construction
in Manchester as we reach June, 2015 with a total of 23 developments under construction.
Yet Manchester City Council believes that the city needs 55,000 new homes by 2027 –
which would equate to 4583 new homes being delivered each year over the next 12
years. In early 2015 the city is therefore producing only about 30% of the desired
annual sales numbers required every year (on average) for the next 12 years to reach
the 55,000 target on time.
It doesn’t take too much research to realise that at some point in the next 10-12
years there’s going to be a massive gap created between supply and demand and prices
will respond as they have always done in the past.
As if competition from Buy to Let landlords for every new Help to Buy development
announced in Manchester was not enough, the city has just been revealed as the
new No1 Hotspot in the UK for Buy to Let investments offering the highest yield.
HSBC’s annual UK Buy-to-Let Market Analysis: June 2015 found that:
- Manchester offers the highest rental yields (7.93%) of any city in the UK
- Manchester is now the UK’s top buy-to-let hotspot – up from 2nd place in 2014
- 26.85% of Manchester’s housing stock is privately rented, the largest % of all locations.
- Annual rents in Manchester have risen 4% from £8,316 in 2014 to £8,628.
The ‘HSBC EFFECT’
HSBC’s Buy to Let Analysis goes out to clients all over the world who are
interested in Buy to Let investments. That’s thousands of clients world-wide.
The same report gets high-lighted by the UK press, especially the investor-heavy
Daily Telegraph, Times and Daily Mail, all with an older investor-led demographic.
And every investor seeks the highest, safest yield they can find…so ask yourself
the same question? Where can I find a growing city that contains the highest numbers
of renters possible and at the same time achieve the highest rental returns anywhere
in the UK? Right now, according to the HSBC that city is Manchester. For the record,
last year’s winner of HSBC’s Top Buy to Let Hotspot was Southampton with a rental
yield of 8.73%. One year later Southampton is placed 6th highest in the UK with a
significantly lower yield of 7.13%.
Median prices of flats in Southampton have risen by 23% over the 12 months from March
2014 to March 2015 as a consequence of the surge in interest in the city as the leading
Buy to Let hotspot in the UK last year, with median flat prices surging by 20% in
the two months following release of the HSBC report as increasing numbers of Buy
to Let landlords sought to buy up every Help to Buy flat in the area. Demand for
flats outstripped supply and the result was dramatically higher prices. At the
same time supply of detatched houses in Southampton exceeded demand and this
oversupply created a FALL of 6% in the value of detatched houses in the Southampton
area….Do not buy a property in any area where there is an oversupply.
Seek out areas of under supply to maximise your chances of longer-term capital gain.
Southampton Median Property Prices March 2014 – March 2015
| Property Type | Mar 2014 | Mar 2015 | Change |
| Detached | £292,500 | £275,000 | – 6% |
| Semi | £185,000 | £207,475 | +12% |
| Terraced | £170,000 | £180,000 | + 6% |
| Flat | £117,500 | £145,000 | +23% |
Data Source: Home.co.uk
So to create a spring-board for capital growth both the first-time buyer and the
the Buy to Let investor should look for areas of UNDERSUPPLY where the demand for
new property outstrips supply. Look at the chart of New Residential Developments
in Manchester Pipeline (above) again. Choose the area in which you plan to invest
carefully, unemotionally. Look for a popular, growing city where young professionals
aspire to live and where there’s a gap between growing demand for new flats and
houses and a slowing supply side that cannot keep pace with that demand. In June
2015, Manchester is that city.
The danger for the first-time buyer – desperately trying to save or pull the 5% minimum
deposit together for their first foray into the property market – is that they get beaten
to the deal by older, wealthier cash-purchasing land-lords and would-be landlords – from
all over the globe – looking to invest in Buy to Let property in Manchester.
It’s little coincidence that In May 2015 an entire block of flats in central Manchester,
just off Oxford Road, sold off-plan to a single investor from the Far East. The new
development, where work only began a month ago, is not due for completion until April 2016.
Overall it can be seen that demand for Help to Buy developments of both new flats and houses in
Manchester city centre and the surrounding areas such as Salford and The Quays,
Stretford and Trafford remains very high whilst supply remains limited. And this
demand for both Help to Buy Developments and for Buy to Let developments in
Manchester is expected to grow stronger still in the coming months as a result
of the world-wide publicity Manchester receives as the Uk’s Top Buy to Let Hotspot for 2015.
“While the overall level of dwelling stock has increased, the number
of houses built in the United Kingdom continues on a long term downward trend”
The Office of National Statistics.
Full analysis from ONS available: http://www.ons.gov.uk/ons/dcp171766_373513.pdf
Conclusion: Bearing in mind the low number of new Help to Buy flat and house developments
in the pipe-line in Manchester it looks as if the supply/demand imbalance is unlikely
to redress itself for the forseeable future. As things currently stand it’s more
likely the situation will resolve itself as it has always done in the past: through
higher prices.
And one final reassuring point for anyone out there who’s researching the pros and cons of
buying a new Help to Buy flat or house in Manchester this year: if you were to ask one of
those 50 to 60 year-old landlords or would-be landlords, now chasing a second property in
which to invest part of their pension pots, about their experience of owning their first
property, nearly all will tell you that back in 1980 that £20,000 they were spending/investing
seemed a massive amount of money to be paying for a house…after all their parents had paid
£995 for their first house in the ’50’s!!!
So first time buyers in 2015 can be forgiven if they feel stretched financially as they look
to invest roughly £180,000 in their first major investment in the property market. But they
should take some comfort in knowing that the new Help to Buy Home that they are planning to
buy this year will probably be worth some 9 X £180k in about 30 years time; that’s a
staggering £1,620,000 – just under £1.5 million in capital appreciation over a rough 30
year period, and once again, that’s a tax free capital gain – and is likely to remain so for at
least as long as the Conservatives remain in power.
Caveat Emptor!
On a super-long term view (30 years+) you can expect two big changes – prices
and mortgage interest rates. When looking at UK property prices the best guide
to the future is usually found by looking at the past. The UK Office for National
Statistics states: ‘On average house prices have increased by 6.9% every year since
1980.’ There is no reason to believe that the next 35 years will be much different
for UK house prices – especially when the gap between growing demand and dwindling supply
is factored into the long-term price equation.
‘Nothing Trends like Long-Term Rates’ An old Bond Market Adage which Still Holds True…
Interest rates can go as high as 15% and as low as 0% during a full 60 year cycle.
For the last 30 years or so since the highs of the late 70’s to where we stand now
in the interest rate cycle we have seen steadily lower interest rates. Now we are
showing signs of ‘bottoming’ before the long-term cycle turns up again, presaging
30 years or so of steadily rising interest rates.
Nothing trends like long-term rates! So whatever you do, lock-in your mortgage
rate for as long as you can afford to – for at least 3 years and preferably 5
years – to protect yourself from potential rises in interest rates for as long
as possible…and in 5 years’ time your annual rise in salary should be worth
at least 10% (compound interest) on top of your current salary – and may be
worth substantially more than that estimation – which should help to cover any
rise in interest rates when you come to renew your mortgage deal in 5 years’ time.