Thursday 25 February 2016

Doom and Gloom for Chelmsford Property Market?

One of my landlords rang me last week from Springfield, after he had spoken to a friend of his. Over Christmas, they were discussing the Chelmsford property market and neither of them could make their mind up if it was time to either sell or buy property. If you read the newspapers and the landlord forums on the internet, there is a good slice of doom and gloom, especially with changes in the taxation towards landlords, new legislation on checking tenants and the general uncertainty in the world economic situation.

I would admit, there are certain landlords in Chelmsford who have over exposed themselves in the last few years with high percentage loan to value mortgages. Those mortgages, with their current (yet artificially low) interest rates, will start to suffer, as their modest monthly positive cash flow/profit, i.e. income (rent) less costs (mortgage, fees, tax), will become negative when the tax and mortgage rates rise throughout 2017 and beyond.

It appears to me these landlords seem to have treated the Chelmsford Buy to Let market as a sure bet and have not approached this as a business and, as a result, they will suffer as they thought "Buy a house - rent it out so it covers the mortgage and make a few quid on top".  These are the people who will be thinking twice. I see opportunity everywhere and won't be stopping, I’m here to stay. It’s going to be an exciting new year.

Gone are the days when you could buy any old house in Chelmsford and it would make money.  Yes, in the past, anything in Chelmsford that had four walls and a roof would make you money because since WW2, property prices doubled every seven years … it was like printing money – but not anymore.

True, since January 1997, the average price paid for a Chelmsford flat/apartment has risen from £39,620 to today’s current average of £173,447 in the city, an impressive rise of 338% and terraced/town house have risen in the same time frame, from £55,490 to £267,380, an even better rise of 382%. However, look back to 2005, and in that year, the average flat was selling for £150,970, meaning our Chelmsford landlord would have seen a modest rise of 15% and the terraced owner would have seen an increase of 46%, as they were selling for on average £183,619 ... not bad until you consider inflation.

Since 2005, then inflation, i.e. the cost of living, has increased by 33.4%. That means to retain its value, Chelmsford terraced property bought for £183,619 in 2005 needs to be worth £244,890 today. Therefore, our landlord has seen the ‘real’ value of his property only increase by 12.6% (i.e. 37% less 33.4% inflation).

The reality is, since around 2004/2005 we haven’t seen anything like the capital growth in property we have seen in the past and it’s not predicted to grow at the rates it has previously done either. So it is high time anyone considering investing in property stopped believing the hype and did some serious research using independent investment expertise. You can still make money by buying the right Chelmsford property at the right price and finding the right tenant. However, remember, investing in Chelmsford property is not only about capital growth, but also about the yield (the return from the rent). It’s also about having a balanced property portfolio that will match what you want from your investment – and what is a ‘balanced property portfolio’? Well we discuss such matters on the Chelmsford Property Blog ... if you haven’t been, then it might be worth a few minutes of your time?

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