Boston Property Market – Quarter 4 Update

Well, hasn’t 2016 been eventful.

The ups and downs of Brexit, the Queen’s 90th, Andy Murray winning Wimbledon, Trump, Bake Off to Channel 4 and something close to the hearts of every buy to let landlord and homeowner in Boston … the Boston property market.

So, let’s look at the headlines for the Boston property market…

In the last month, Boston property values dropped by 0.22%, leaving them, year on year 6.31% higher, whilst interestingly, Boston asking prices are down 1.3% month on month. All three statistics go to show the Boston property market has recovered well after the summer lull, which was worsened by the uncertainty surrounding the EU vote back in June. Irrespective of all the issues, the average value of a Boston home now stands at £170,900.

boston-article-144

Generally, Boston asking prices continue to hold up well, as asking prices are 4.7% higher year on year. At this time of year, asking prices tend to drop on the run up to Christmas and locally, they have dropped by 1.3% this month (November 2016), although this compares well with last year’s drop in Boston asking prices, as we saw asking prices drop by 0.6% in November 2015.

Now it’s true to say, after chatting with fellow property professionals in Boston, all of us have seen the number of property sales fall slightly, suggesting a slowing market, but it is very early days and it could be the time of year. Also, the numbers are limited, so it’s interesting to take note from a recent survey by the Royal Institution of Chartered Surveyors, stating new buyer enquiries and new instructions are falling at the same rate, suggesting that there will not be a downward pressure on property values.

Looking at the figures for the UK (as we can’t just look at Boston in isolation), property values are generally rising slower than a few years ago, but on a positive note, there’s still growth across the UK. You see, slowing property value growth isn’t solely Brexit related, but after a number years of double digit rises in property values, affordability has weakened and cooling price growth is widely seen to be a natural correction of the market.

On the other hand, interest rates being at a record low of 0.25% are helping the property market. The cut in interest rates in the late summer was the medicine for the post-Brexit worry and will, as a consequence, ensure that the UK economy continues to be underpinned by buoyant property prices.

So, what will happen in 2017 in the Boston property market?

boston-crystal-ball

Some say until we know what type of exit the UK will make from the EU it is hard to evaluate the outcome. Although, I believe, the whole Brexit issue is a sideshow to the main issue in the UK (and Boston) housing market as a whole. As I have mentioned time and time again over the last few months, the biggest issue is demand outstripping supply when it comes to the number of households required to house us all. Boston has an ever-growing population: with immigration (we still have at least two years of free movement from EU members into the UK), people living longer and the fact we need thousands of additional households as the country has nearly 115,000 divorces a year (where one household becomes two households).  These are interesting times ahead!

Boston semi detached house prices rise by 278% in 21 years

The semi-detached house with its bay windows has long been ridiculed as an emblem of safe, lacklustre and desperately uncool suburban life; the homes of the likes of Hyacinth Bucket in Keeping up Appearances and more latterly Alan Partridge – but they could have the last laugh ..

The semi can now laugh in the face of its posher detached counterpart, which saw a rise of only 254% in the same 21-year period. Looking at smaller properties, flats/apartments rose 439%, whilst terraced houses did better at 405% (although they were starting from a lower base and demand from buy to let landlords has had a big part in driving the values on that type of house (i.e. the price a buy to let landlord is prepared to pay is driven by the rent the landlord can achieve).

In 1995 the average value of a Boston semi stood at £36,200 

today it stands at £136,900

article-143

Such is the attractiveness of semis, which are cheaper than detached houses but have most of the same benefits for families. Semi-detached houses were built in their hundreds of thousands by the Victorians and Edwardians between the wars and through to the present day. Interestingly in the late 19th Century and early 20th century – they often weren’t referred to as semi-detached – but as villas!

Nearly one in three houses in Boston is a semi-detached house

There are 5,443 semi-detached properties in Boston and they represent 30.91% of all the households in Boston. Boston has such a mix of semi-detached properties with the older classic bay fronted semis to more modern ones built in the last couple of decades. Especially with the older ones, the semi offered a hall to provided separation between the reception rooms and privacy for their occupants. Also the downstairs offered larger rooms to accommodate dining tables, whilst upstairs, bedrooms were smaller, yet cosy.

However, probably the most overlooked aspect of popularity for semis is the garden. The front garden, designed to separate the house from the world, and the back garden designed for private relaxation. The semi in the suburbs was relaxing, well presented, plumbed and enhanced by a garden so that when a window was opened the air had a chance of being genuinely fresh… and it’s for all those reasons why 111 semi-detached houses have been sold in Boston in the last 12 months alone.  Still as popular today as they were with the Victorians all those years ago – some things just stand the test of time!

Average rent paid by tenants in Boston rise to £593 per month

Back in the Spring, there was a surge in Boston landlords buying buy to let property in Boston as they tried to beat George Osborne’s new stamp duty changes which kicked in on the 1st April 2016. To give you an idea of the sort of numbers we are talking about, below are the property statistics for sales either side of the deadline in PE21.

Jan 2016 – 47 properties sold

Feb 2016 – 45 properties sold

March 2016 – 81 properties sold

April 2016 – 35 properties sold

May 2016 – 41 properties sold

Normally, the number of sales in the Spring months is very similar, irrespective of the month. However, as one can see, this year was a completely different picture as landlords moved their purchases forward to beat the stamp duty increase. You would think that even with a basic knowledge of supply and demand economics, rents would be affected in a downwards direction?

However, there appears to be no apparent effect on the levels of rent being asked in Boston – and more importantly achieved – and this direction of rents is not likely to inverse any time soon, particularly as legislation planned for 2017 might reduce rental stock and push property values ever upward. The decline of buy to let mortgage interest tax relief will make some properties loss-making, forcing landlords to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, reducing rental stock at a time of severe property shortage.

But it’s not all bad news for tenants. Whilst average rents in Boston since 2005 have increased by 14.5%, inflation has been 38.5% over the same time frame, meaning Boston tenants are 24% better off in real terms when it comes to their rent which is a sizeable chunk of most people’s monthly household budgets.

average-rents-boston

Year Average Rent in Boston per month
2005 £518
2006 £529
2007 £540
2008 £552
2009 £550
2010 £546
2011 £551
2012 £560
2013 £565
2014 £571
2015 £581
2016 £593

I found it particularly interesting looking at the rent rises over the last five years in Boston, as it was five years ago we started to see the very early green shoots of growth of the Boston economy.  As a whole, following the Credit crunch (2011), rents in Boston have risen by an average of 1.6% a year.

The view I am trying to portray is that while renting is often portrayed as the unfavorable alternative to home ownership, many young Boston professionals like renting as it gives them adaptability with their life.

Rents will continue to rise which is good news for landlords as buy to let is an investment but, as can be seen from the statistics, tenants have also had a good deal with below inflation increases in rents in the past. It’s a win-win situation for everyone although on a very personal note, it’s imperative in the future that tenants are not thwarted from saving for a deposit by excessive rental hikes – there has to be a balance.

£2 million paid in Stamp Duty by Boston Residents

Apart from some minor exemptions, Stamp Duty is paid by anyone buying a property over £125,000 in the UK. It presently raises £10.68 billion a year for the HM Treasury. An interesting figure when compared with £27.6 billion in fuel duty, £10.69 billion in alcohol duty and £9.48 billion in tobacco duty.

In the latest set of data from HMRC, in the MP constituency that covers Boston, property buyers paid £2 million stamp duty in one year alone

However, as you may know, George Osborne introduced an additional tax for landlords and from 1st April 2016 they had to pay an additional 3% stamp duty surcharge on top of the normal stamp duty rate when purchasing a buy to let property. There was much worry and concern with a report by Deutsche Bank suggesting that the new surcharge could see house prices fall by as much as 20%.

HMRC data released in the Summer for Quarter 2 of 2016 did seem to back up those fears as they published some worrying figures. Only one in seven properties purchased was a second home or Buy To Let. This means that in real numbers, only 30,300 of the 207,900 properties in Quarter 2 were bought by landlords.

In previous articles, I have spoken about the slump of property transactions after the 1st of April as landlords rushed through their property purchases in March to beat the April deadline. In Quarter 2 of 2016, £1.976 billion was raised in stamp duty from residential property. Of that £1.976 billion, £652 million was paid by Buy To Let landlords (£424 million in normal stamp duty and £228 million in the additional 3% surcharge).

However, looking at Quarter 3, the numbers have improved significantly. Of the 235,000 property sales, nearly one in four of them (56,100 to be precise) were bought by Buy To Let landlords and of the £2.208 billion in stamp duty, £864 million was paid in ‘normal’ stamp duty by Buy To Let landlords and an impressive £442 million paid by those same landlords in the additional stamp duty surcharge.

The statistics suggest Buy To Let investors have thankfully not been deterred by the stamp duty surcharge introduced in April this year. The figures also show that 65.4% of Buy To Let purchases cost less than £250,000, 23.7% of properties were in the £250,000 to £500,000 range and 10.9% (or 6,100 additional properties) of Buy To Let properties bought cost over £500,000. Interestingly nearly one in four (22.2%) of £500,000 properties purchased in Quarter 3 were Buy To Let properties.

It just goes to back up what I stated a few weeks ago when I suggested that many investors had rushed to make purchases before 31st March, making figures in the following months in Quarter 2 artificially low when the 3% supplement was introduced, but in Quarter 3 the number of Buy To Let properties purchased increased by 85%.

It just goes to show you shouldn’t believe everything you read or hear in the media! I can assure you the Boston property market is doing just fine.