Posted on

Crediton Property Market to Crash in 2022?

Helmores property market crash

According to some newspapers and pundits, the property market boom could soon be over with the increasing interest rates and inflation.

In this article, I share:


The 3 fundamental economic reasons why things are different to the last property market crash
The insider’s way to find out if there will be a property crash
and 4 reasons why buy-to-let landlords are coming back into the Crediton rental market to protect their wealth and hedge against inflation.

With inflation and the cost-of-living crisis, some say this could cause property values to drop, by between 10% and 20% in the next 12 to 18 months.

There can be no doubt that the current Crediton property market is very interesting. 

At the time of writing, there are only 26 properties for sale in Crediton (the long-term 15-year average is between 75 and 85), meaning house prices have gone up considerably.

According to the Land Registry…

Crediton property prices have increased by 16.6% (or £43,300) in the last 12 months

So, as Robert Kiyosaki says, ‘the best way to predict the future is to look to the past’. I need to look at what caused the last property crash in 2008 and how that compares to today.

1. Increase in Interest Rates

One reason mentioned as a possible cause of a crash is the rise in the Bank of England interest rates affecting homeowners’ mortgages.

Higher mortgage rates mean homeowners will have to pay a lot more on their mortgage payments, leaving less for other household essentials. In 2007 (and the 1989 property crash), many Crediton people put their houses up for sale to downsize to try and reduce their mortgage payments.

Yet the newspapers fail to mention that 79% of British people with a mortgage have it on a fixed interest rate (at an average mortgage rate of 2.03%)

Also, just under 19 out of 20 (93.2%) of all UK house purchases in 2021 fixed their mortgage rate.

So, in the short to medium-term (two to five years), most homeowners won’t see a rise in mortgage payments for many years. Also, 27.8% of all UK house purchases were 100% cash (i.e. no mortgage).

Of the 932,577 house purchases registered since February 2021 in the UK, 259,205 were bought without a mortgage.

Yet some people say this will be a problem when all these homeowners come off their fixed rate. The mortgage lending rules changed in 2014, and every person taking out a mortgage would have been assessed at application as to whether they could afford their mortgage payments at mortgage rates of 5% to 6% rates, not the 2% to 3% they may well be paying now.

No pundit says the Bank of England interest rates will go above 2% with a worst-case scenario of 3%. If the Bank of England did raise interest rates to 3%, homeowners would only be paying 4.5% to 5.5% on their mortgages and thus well within the stress test range made at the time of their mortgage application.

This means the probability of a mass sell-off of Crediton properties or repossessions because of interest rate rises (both of which cause house prices to drop) is much lower.

2. House Price / Salary Ratio

Another reason being bandied about by some people for another house price crash is the ratio of average house prices compared to average wages.

The higher the ratio, the less affordable property is. In 2000, the UK average house price to average salary ratio was 5.30 (i.e. the average UK house was 5.3 times more than the average UK salary). At its peak just before the last property crash in 2008, the ratio reached 8.64.

The ratio now is 8.85, so some commentators are beginning to think we’re in line for another house price crash. However, I must disagree with them because mortgage rates are much lower today than in 2007. For example…

The average 5-year fixed-rate mortgage in 2007 was 6.19% (just before the property crash), yet today it’s only 1.79%.

So, whilst the house price/salary ratio is the same as the last property crash in 2008, mortgages today are proportionally 71.1% cheaper.

3. Banks Reckless Lending

Another reason for a property crash in 2008 was the reckless lending practices in the run-up to that crash.

The first example of reckless lending was self-certified mortgages. A self-certified mortgage is when the lender doesn’t require proof of income.

In 2007, 24.6% of new mortgages were self-certified mortgages

So, when the economy got a little sticky in 2008, the people that didn’t have the income they said they had to pay for their mortgages (because they were self-certified) promptly put their properties on the market.

The banks’ second aspect of reckless lending was how much they lent buyers to buy their homes. Today, banks want first-time buyers to have at least a 10% deposit and ideally more. There are 95% mortgages available now (meaning the first-time buyer only requires a 5% deposit), yet they are pretty challenging to obtain.

Back in 2005/6/7, Northern Rock was allowing first-time buyers to borrow 125% of the value of their home. Yes, first-time buyers got 25% cashback on their mortgage!

In 2007, 9.5% of all mortgages were 95%, and 6.1% of mortgages were 100% to 125%.

Meaning that nearly 1 in 6 mortgages (15.6%) taken out in 2007 had a 95% to 125% mortgage

When the value of a property goes below what is owed on the mortgage, this is called negative equity. A lot of Crediton homeowners with negative equity (or who were getting close to negative equity) in 2008 panicked because of the Credit Crunch and put their houses up for sale.

To give you an idea of what happened last year (2021) regarding mortgage lending, only 2.4% of mortgages were 95%, and 0.2% of mortgages were 100%. This is because the mortgage lending rules were tightened in 2014.

So why did Crediton house prices drop in 2008?

Well, in a nutshell, a lot more Crediton properties came onto the market at the same time in 2008, flooding the Crediton property market with properties to sell.

Meanwhile, mortgages became a lot harder to obtain (because it was the Credit Crunch), so we had reduced demand for Crediton property.

Prices will drop when we have an oversupply and reduced demand for something. Crediton property prices fell by between 16% and 19% (depending on the property type) between January 2008 and May 2008.

So, what were the numbers of properties for sale in Crediton during the last housing market crash?

There were 69 properties for sale on the market in Crediton in the summer of 2007 (just before the crash), whilst a year later, when the Credit Crunch hit, that had jumped to 212.

This vast jump in supply and the reduction in demand caused Crediton house prices to drop in 2008.

Compared with today, there are only 26 properties for sale in Crediton, whilst the long term 15-year average is between 75 and 85 properties for sale.

So, what is going to happen to the property market?

The Crediton house price explosion since we came out of Lockdown 1 has been caused by a shortage of Crediton homes for sale (as mentioned above) and increased demand from buyers (the opposite of 2008).

However, there are early signs the discrepancy of supply and demand for Crediton properties is starting to ease, yet this takes a while before it has any effect on the property market, so it will be some time before it takes effect.

This will mean buyer demand will ease off whilst the number of properties to buy (i.e. supply) increases. This should gradually bring the Crediton property market back in line with long-term levels, rather than the housing market crash.

My advice is to keep an eye on the number of properties for sale in Crediton at any one time and only start to worry if it goes beyond the long-term average mentioned above.

But before I go, I need to chat about what inflation and the cost of living will do to the Crediton property market.

How will inflation and cost of living affect the Crediton property market?

There is no doubt that cost-of-living increases will have a dampening effect on buyer demand. If people have less money, they won’t be able to afford such high mortgages. This will slow Crediton house price growth, especially with Crediton first-time buyers.

Yet, the reduction in first-time buyers is being balanced out by an increase in landlord’s buying, especially at the lower end of the market.

This, in turn, will stabilise the middle to upper Crediton property market. This means the values of such properties (mainly owner-occupiers) will see greater stability and a buyer for their home, should they wish to take the next step on the property ladder.

So why are more Crediton landlords looking to extend their buy-to-let portfolios, even in these economic circumstances?

I see new and existing buy-to-let Crediton landlords come back into the market to add rental properties to their portfolios. As the competition with first-time buyers is not so great, they’re not being outbid as much.

Yet, more importantly, residential property is a good hedge against inflation.

Firstly, in the medium term, property values tend to keep up with inflation.

Secondly, inflation benefits both landlords and existing homeowners, with the effect of inflation on mortgage debt. As Crediton house prices rise over time, it reduces the loan to value percentage of your mortgage debt and increases your equity. When the landlord/homeowner comes to re-mortgage in the future, they will receive a lower interest rate.

Thirdly, as the equity in your Crediton property increases, your fixed-rate mortgage payments stay the same.

Finally, inflation also helps Crediton buy-to-let landlords. This is because rents tend to increase with inflation. So as rents go up, your fixed-rate buy-to-let mortgage payments stay the same, creating the prospect of more significant profit from your buy-to-let investment.

Posted on

Crediton Rental Homes Nightmare

  • Crediton needs 32 additional private rented properties per year to keep up with current and future demand from Crediton tenants.
  • Yet over the last 5 years, Crediton has lost 41 private rented homes.
  • What are the 5 reasons the supply of private rental properties in Crediton are falling? What does this mean for tenants and landlords in Crediton?

There has been a rise in demand for rental properties and an 8.9% fall in the number of Crediton private rented properties, which has caused Crediton rents to rise by 9.2% in the last year, a new all-time high. 

The National Residential Landlords Association asked the respected economics think tank, Capital Economics, to carry out research on the UK rental market. It found that if the current trends in the property market in terms of growth of the population, Brits living longer, the lack of new homes building and the reduction in social housing (aka council housing) then demand for homes in the private rented sector needs to increase by 227,000 homes per year. 

So, based on those numbers, Crediton needs to have an additional 32 private rented properties per year.

The problem is the number of private rented properties in Crediton has reduced from 774 in 2017 to 733 in 2021, a net loss of 41.

So, why has supply of private rented homes in Crediton reduced?

  1. Section 24 Income Tax

Section 24 was introduced in 2017 to level the playing field on the taxation of property between homeowners and landlords. Section 24 stops landlords from offsetting their buy-to-let mortgage costs against the profits from their rental property. Interestingly, no other kind of UK business is affected by the Section 24 taxation. In other words, whatever other form of business you might be in, be it butcher, baker or candlestick maker, every other business can offset their finance costs against their profits, except buy-to-let.

The issue caused by Section 24 Tax is that some landlords ended up paying more income tax than they really made in profit after paying their buy-to-let mortgages. Meaning on the back of rising Crediton house prices in the last five years, some Crediton landlords have sold their buy-to-let investments.

  • 3% More Stamp Duty for Landlords

When someone buys a property, they normally must pay a tax to the Government for the privilege. This tax is called Stamp Duty. Yet landlords must pay an additional 3% stamp duty supplement on top of that when they purchase a Crediton buy-to-let property. Evidence suggests some Crediton landlords have decided to hold off or scale back buying additional buy-to-let properties for their portfolio because of the thousands of extra pounds that landlords have to pay to buy the rental property.

  • Holiday and AirBnb Lets

Some Crediton landlords are converting their long-term rental properties into short-term furnished holiday and AirBnB properties. Whilst the hassle, stress and service levels are much higher, these types of properties do tend to make more money and aren’t as heavily taxed as normal lets. When properties convert to short-term lets, it removes another Crediton property out of the general supply chain of long-term rental properties.

  • Greater Legislation for Rental Properties

With more than 150 pieces of legalisation, and new laws being added each year, the burden on landlords is huge. On the horizon is the Renters Reform Bill which will remove the no fault evictions. Also, all rental properties with an Energy Performance Certificate (EPC) rating of below a ‘C’ will have to be improved (i.e. money spent on them) by the landlord. This could be more than £10,000 per property. Hence, why some Crediton landlords have been selling their rental properties with low EPC ratings in the last 18 months.

  • Accidental Landlords Selling Up

There are some Crediton landlords who are classed as ‘Accidental Landlords’. In 2008/9, with a slowing property market and house price values dropping in the order of 16% to 19%, (depending on the type of property) some Crediton homeowners decided to let their home out as opposed to selling it at a loss. Yet, with the price booms of the last 18 months, many decided to cash in on the higher property prices and sell – again taking another private rental property out of the system.

So, why is demand of private rented homes in Crediton increasing, even though more people own their home in Crediton than 5 years ago?

Even with better provision of affordable social housing and higher rates of owner occupation in Crediton (rising from 63.53% of homes in Crediton being owner occupied in 2017 to 65.86% in 2021), demand for private rental property continues to outstrip supply.

There are many reasons behind this including …

  1. People are living longer, meaning not so many properties are coming back into the mix to be recycled for the younger generation.
  • Net migration to the UK has continued at just over a quarter of a million people a year since 2017, meaning we need an additional 115,000 households to house them alone.
  • For the last two years, one in six of the owners of properties that have been sold have moved in to rented accommodation instead of buying on because of the lack of properties to buy.

So, what is the outcome of the imbalance between supply and demand on Crediton rental properties?

Quite simply – Crediton rents have rocketed. They are 9.2% higher today than the spring of 2020 … and that’s on the back of rents being 10.1% higher in spring 2020, compared to spring 2019.

The severe shortage of housing in the private rented sector is pushing up rents in Crediton as demand continues to grow. Many Crediton people are finding it hard work to find appropriate accommodation at a reasonable rent, and with mounting numbers of tenants predicted to continue, this situation will only get worse unless more houses are built.

My heart goes out to those Crediton tenants struggling with the cost-of-living crisis only to then be hit by higher rents.

Yet, these higher rents are now enticing new landlords back into the Crediton buy-to-let market because of the higher returns.

With higher inflation, property investment has been seen in the past a safe harbour to invest one’s money in. With the bonus of rising yields (because of the increase in rents) together with the nervousness of the Bank of England to increase interest rates too much because of the issues in Eastern Europe, this could be the start of a second renaissance in the Crediton buy-to-let market.

If you have concerns about the issues in legislation and taxation, then the advantage of employing a letting agent, with the choice of property, what you pay for it and how it’s managed, will go a long way to mitigate them.

If you are considering getting into the Crediton buy-to-let market for the first time or expanding your property portfolio (whether you are a client of mine or not) please do not hesitate to give me a call and we can discuss these matters further.

Posted on

831 Crediton Terraced Houses Why are they so popular?

The terraced house is one of the most familiar styles of home in Crediton (and the UK as a whole).

23.8% of Crediton people live in a terraced home, interesting when compared with the national average of 22.7%.

So, what is it about the humble terraced/townhouse us Brits love so much? In this article, I look at the history of the terraced house, how it relates to Crediton and what the future holds for terraced homes.

A terraced house is a property built as part of a continuous row of three (or more) properties in a similar and uniform style.

The reason the British call them ‘terraced houses’ and not ‘row houses’ came about because 18th century British architects borrowed the phrase ‘terrace’ from ‘terraced gardens’. Terraced gardens were known for their uniform nature (in looks, style and height etc.), so the architects decided to name them the same way as opposed to a ‘row house’. In fact, in most countries, they are called ‘row houses’.

The terraced house originated in the Low Countries of Europe in the late 1500s.

Terraced houses were first built en-masse in the UK after the Great Fire of 1666 with the rebuilding of London.

They became fashionable for the landed gentry in the early Georgian era with chic and stylish terraces appearing in London’s Mayfair and Bath with its Queen Square (the forerunner of the famous Royal Crescent) and were sometimes built around a garden square.

However, it wasn’t until the early 1800s that the terraced house turned out to be the solution to the increasing population of the towns as more and more people were attracted to towns and cities for work.

The terraced house fell out of favour with the upper-middle classes in the late Victorian age (1870s onwards) as they wanted more privacy and space. They moved to live in detached houses or semi-detached villas, as the terrace house had started to become associated with the lower-middle and working classes.

With all these terraced houses being built, their quality of construction and design dropped as builders tried to squeeze more profit. The biggest issue was that most of the terraced houses built in the early to mid-Victorian age (1840s to 1870s) were made back-to-back with no rear garden, causing unsanitary conditions. Therefore, the Public Health Act of 1875 was introduced to regulate the building of terraced houses with design and standards.

These new building standards in the Act improved the terraced house’s ventilation and, more importantly, required the house to have a toilet (frequently built outside). To meet these new building standards, the designs of these new houses created the well-known landscape of ‘grid’ streets lined with two-storey terraces serviced by a pedestrian path between them, the name of which is a hotly debated topic. The various names for the pathway include alleyway/jitty/cut/ginnel/snicket/passageway/ten foot/five foot/witchel/lonnin/vennel.

As a Crediton resident, why not say what you call them in the comments?

As we entered the 20th century, the terrace house continued to be popular, albeit with some new architectural additions.

The advent of Arts and Craft architecture with stain glass windows, Tudor style cladding, ornate porches, and elaborate chimney stacks.

After the First World War and the introduction of the Housing and Town Planning Act 1919 (which made local councils build council houses), the Victorian terraced rapidly became associated with overcrowding and slums (especially those back-to-back terraced houses built before 1875). Many of the back-to-back terraced houses were knocked down between 1930 and 1960 in what is known as the slum clearances.

Private builders started building the iconic suburban semi-detached houses with more extensive gardens, and local authorities decided to build high-rise blocks after World War II. Yet after the partial collapse of Ronan Point in 1968, the popularity of high-rise tower blocks waned.

Since the early 1990s though, the terraced house has steadily come back into favour as building land prices have increased by 322% in the last 30 years.

Many private builders have started to build modern three-storey townhouses in rows of five to seven. This terraced ‘townhouse-style’ allows three and four bedrooms on a land footprint that would have usually only accommodated a smaller two-bed property.

So, let’s look at some interesting stats on Crediton terraced houses:

  • There are 831 terraced houses in Crediton (broken down as 570 privately owned terraced houses, 102 terraced council houses and 159 in the private rented sector).
  • 19.1% of terraced houses in Crediton are in the private rented sector, which is equal to the national average of 19.1%.
  • The most expensive terraced house in Crediton ever sold was on Union Terrace, Crediton for £532,000 in 2016.
  • The cheapest Crediton terraced house sold in the last two years was on Kirton Drive, for £85,000.
  • Terraced houses in Crediton sell for an average of £196 per square foot.

I hope you found that thought-provoking?

So, why is the terraced house, be it a red brick Victorian house or a more modern three-storey townhouse, still popular today in Crediton?

They are typically well built, cheaper to maintain (especially the older terraced houses), comparatively spacious, and are in good locations. Many terraced houses have been improved and extended through the inventive use of rear gardens/yards and converted roof spaces; their unpretentious design remains adaptable enough for 21st century living; what isn’t there to like about them?

These are my thoughts; tell me your thoughts about the humble yet versatile Crediton terraced house.

Posted on

67% Drop in Crediton Council Houses in the Last 40 Years

  • In 1981, 26.1% of properties in Crediton (and the Mid Devon District as a whole) were council houses. Today, that figure stands at 8.7%, a proportional drop of 67%.
  • Why has the number of council houses dropped so much in those 40 years?
  • How has that changed the dynamics of the Crediton property market in those 40 years?

The ability of local authorities to build council houses came into law in July 1919 with the 1919 housing and Town Planning Act. It was one of the most important pieces of domestic legislature passed after WW1 and was the first time in the UK that a nationally public funded system of providing homes was made for the masses. It was paid for mostly by central government and provided by local authorities (councils) and public utility societies (which in later years became today’s housing associations). 

Between 1919 and 1979, 6.94 million council houses were built.

Just over 1 million council houses were built between 1920 and 1939, whilst 5,804,150 council houses were built between 1946 and 1979. This is compared to 4,533,440 private homes and 260,910 housing association properties in the same time frame (’46 to ’79).

So, between 1946 and 1979, the council house was the dominate force of British housing. But that all changed in 1979!

Many people believe it was Margaret Thatcher who was the architect of allowing the sitting tenant of a council house to buy their home. Interestingly, council house tenants have been able to buy their council house from as early as the mid 1930s, albeit with little or no discount. Also, as late as 1977, the Labour Housing Minster published a Green Paper extolling the virtues of homeownership and council tenants being able to buy their home at a discount.

But after the General Election of 1979, the new Tory government drafted the Housing Act 1980, which gave the Right to Buy, which became law in the autumn of 1980. Then things really took off!

This new law established a right for most council tenants who had been in their home for three years or more to a discount. The discount started at 33% and increased by 1% for each extra year, up to a maximum of 50%. If the tenant sold the house within the first five years of ownership, a prorated repayment of their discount was required.

Between 1980 and 1989, 970,558 council houses nationally were sold at a discount.

Yet the issue was, when a council house was sold, it took that house out of the council’s portfolio for future generations. From the start, there were limitations on local authorities’ use of monies from the council house sales as most of it had to be given to central government in London, meaning only 390,560 new council houses were built between 1980 and 1989. Looking at the numbers locally …

in 1981, there were 5,449 council houses in Mid Devon, today it’s 2,843.

No wonder the country has a housing crisis … yet as my regular readers know – the devil is in the detail … and that devil is the humble housing association. 

The Tory General Election Manifesto in 1979 had proposed the rights for both council house and housing association tenants to buy their own house under the Right to Buy scheme. The Conservatives argued housing associations, who obtained government funding, should be subject to the same Right to Buy proposals as councils. The Government won the vote in the Commons, yet lost the vote in the Lords, meaning housing association tenants could not buy their homes at a large discount.

At the time, there were only 400,000 housing association properties in the country, so the Government were not that worried. But the significance of housing associations developed in the 1980s and beyond as they were allowed to borrow money from the private sector.

Between 1949 and 1979, the average number of housing association properties built annually was 8,524. Since 1979 to today, it has been 25,062 per year (and 31,606 per year in the 2010s).

Also, the Government encouraged councils to transfer their remaining council houses to housing association schemes from 1986. The advantage to these ‘stock transfers’ was the Government allowed housing associations to access private funding to improve their existing properties and buy new ones (good news for existing tenants complaining that the local authority never upgraded their homes).

Moreover, the Tory Government liked stock transfers, as it allowed them to dismantle council housing from the inside. Interestingly, Labour expanded the ‘Stock Transfer’ process in 1997 and further reduced the eligibility for council tenants’ Right to Buy, meaning the number of council tenants exercising their Right to Buy declined considerably.

Meaning today, even though the provision of council housing has dropped like the proverbial

stone … 

the number of housing association properties in Mid Devon has increased from 362 in 1981 to 1,292.

So, how has this changed the dynamic of the Crediton property market in the last 40 years?

Would it surprise you to learn that the number of people who own their own Crediton home today is very similar to what it was 20 years ago before the property boom started? It’s just that even though we’ve had a large drop in the number of council houses and an increase in the number of housing association properties, the number of people owning their own home has remained relatively the same (in some areas of Crediton this has actually increased), the significant issue is the growth of the private rented sector.

It’s almost as if people who used to rent from the council now rent from a private landlord.

The question is, is it right for private individuals to make money from tenants who rent from them as opposed to the local authority? Or are private landlords providing better types, choices and quality of accommodation for these tenants, albeit at a higher rental rate than if they rented a council house?

I really do believe if it wasn’t for the growth of the buy-to-let landlord, which began in the early 2000s, we would have an even bigger housing crisis on our hands than the one we have currently.

Both local and central government have had their hands tied behind their backs since 2008 with a lack of funding, and it’s the humble private landlord who has stepped up and supplied in excess of 2.3million additional rental properties since 2001, housing nearly 5,520,000 Brits. These landlords have saved the day since the big council house sell off in the 1980s!

What are your thoughts on this matter?

Posted on

1 in 50 homes are sitting empty in the Crediton area

  • 750 homes in the Mid Devon area are empty, which represents 1 in 50 homes.
  • 198 of those have been empty for more than six months and are worth £57million.
  • Why are those properties standing empty and deteriorating and why could that become an issue for the whole of Crediton?

A couple of weeks ago was National Empty Homes Week, so I thought I would find out how many homes are empty in the Crediton area – the numbers surprised me, so I wanted to share my thoughts about them with you.

The latest Government statistics show that 198 properties in Mid Devon have been empty for more than six months.

Homes that are left empty for an extended period can affect our locality and occasionally invite anti-social behaviour.

With a shortage of housing in the Crediton area, these empty homes must be brought back into use to generate much-needed housing for local people.

As you can see in the first bullet point, some homes are only empty for a short period of time. Yet, those local properties that stand empty for more than six months and then deteriorate become a problem for our local community.

I appreciate there can be many genuine explanations why a property may be left empty for a long time. However, with council house waiting lists at high levels and the shortage of both properties to buy and rent in Crediton, we must ask what is being done about this at Government level and how this could affect the Crediton property market?

The collective value of these 198 long-term (6 months or more) empty houses in Mid Devon are worth £57million.

This impacts the Crediton housing market with a lack of properties coming onto the market for sale and rent. This results in house prices being pushed up, making it less affordable for first-time buyers to get on the first step of the housing ladder.

It’s a real shame that many local properties are empty for over six months when there is an increasing demand for accommodation, at a time when there’s such a competitive housing market.

So, one might ask if this issue of long-term empty properties is a new problem? Well, not really.

There were 413 homes long-term empty in Mid Devon in 2010.

I know our local authority likes to work with property owners of empty homes to bring them back into housing stock as it helps with the housing shortage, even with the help of grants if improvement work is needed for the empty home. Yet, they could use enforcement action where a homeowner is incapable or unwilling to bring their property back into use.

So, what is the Government doing nationally? Homeowners are charged a 50% premium on top of their Council Tax if their home has been empty for two years or more. This can rise to a 300% premium if the property has been empty for ten years or more.

However, the bigger question is, why are all these homes in the Crediton and Mid Devon area being left empty?

The real answer is – they are not.

A handful of the properties belong to the local authority and are in poor condition because the tenant trashed the property. 

Probate (where the person’s estate is put in order and passed onto the beneficiaries of the will) takes between six and twelve months. Most of these long-term properties are being modernised and renovated, whilst other Crediton properties are part of a deceased estate. In other circumstances, some Crediton homes have been left empty after the owner has been placed into a care home, yet there is no Power of Attorney to put the home onto the market. 

There is no ‘one fix all’ to the empty home syndrome in Crediton.

Empty properties in Crediton is not an issue that will sort the housing crisis we are suffering from.

The simple fact is the population is growing faster than the number of houses being built. We need to build more homes.

Whether that means council properties, housing association homes, private landlords or even owner-occupation housing the masses – that’s a massive question we could all talk about, day in day out until the cows come home.

So, tell me, what are your thoughts on the matter?

Posted on

Why Are There So Few Homes For Sale?

  • 85% drop in the number of properties for sale in Crediton in the last 12 months.
  • 36 Crediton homes have sold (stc) in the last three months alone, taking the time from the ‘for sale board’ going up to sale agreed to a median of 14 days.
  • The £200k to £300k price range in Crediton is the most active, where it only takes 12 days to sale agreed, but the £300k to £400k is taking 27 days.

Yet, what issues cause people to want to move home and what can people, who want to move in 2022, do to ensure they sell and find the home of their dreams?

There are 10 properties for sale today in Crediton; roll the clock back exactly a year, and the figure was 68 – there’s been a drop of 85%. This drop is being dubbed ‘for sale board crunch’.

The ‘for sale board crunch’ has left many prospective home buyers stressing to find the right property as the number of properties available to buy has dropped significantly.

I am sure you know people looking for their next home, but when they see it on the portals (Rightmove, OnTheMarket etc.) the properties are gone within days.

With demand at an all-time high, many home buyers are in a state of misery as house prices have grown in the last few years, forcing many of them to review their plans.

They are victims of the ‘for sale board crunch’ in the property market, the likes of which have not been seen since 2007.

Normally when there has been excess demand in the residential sales market, that frothiness has been taken care of by people moving into rented accommodation. However, the number of Crediton properties available to rent is at a 15-year low.

So why is the property market this way?

Demand for homes has exceeded the number of properties for sale since the General Election in December 2019. After years of long drawn out Brexit negotiations, homeowners and buyers were more confident about their move. Many people who put their home move on hold in 2018/19 had more confidence to return to the market.

The first lockdown in the spring of 2020 did nothing to quell this pent-up urge, and since the late spring of 2020, the property market has been on fire! The lockdown changed what homeowners are looking for in their home. Proximity to public transport dropped down the wish list for buyers, and demand for apartments dropped. Whilst properties with larger gardens and rooms that could double up as home offices tended to be at the top of most buyers’ wish lists.

Around 36% more properties have sold in the last 18 months than the long-term 20-year average.

Looking at the supply side of the equation, in the last five years, an average of 204,410 new homes per year have been added to the number of properties available in the UK. Also, 239,600 properties came back into the market when they became available after their owners had sadly passed away. Yet still, that isn’t enough. The country needs at least 300,000 new dwellings to keep pace with demand.

There is also another problem that has come to light with the cladding issue of apartments. Just over three-quarters of million apartments have issues with cladding. Whilst these are being sorted out (which will take many years), they are essentially unsaleable unless a fire safety expert on these buildings signs them as safe.

These cladding issues prevent these apartments from coming onto the market (thus reducing the supply of properties to buy). It also precludes their owners from moving up the property ladder from their apartment to a house. Also, many first-time buyers who can save a bigger deposit or be gifted cash from the Bank of Mum and Dad are skipping the apartment as their first home and going straight for a house, thus intensifying the lack of larger properties for sale.

So, how long does it take to sell a Crediton property now?
  • Apartments: 13 days
  • Terraced/Town House: 11 days
  • Semi-Detached: 11 days
  • Detached: 20 days

This means it is a seller’s market in, empowering them to push up their asking prices in high demand areas. However, most sellers are also buyers, which means the advantage they have on selling their property is turned on its head when they come to buy.

Many sellers prefer to find their future home before putting their current home on the market. That is making the lack of properties on the market seem even harsher than it may otherwise be.

The ‘for sale board crunch’ would be somewhat eased if sellers put their property onto the market whilst they were hunting for their next ‘forever home’.

However, not all homeowners are doing so, partially because they (wrongly) believe they will be made homeless if they find a buyer and can’t find another property to buy (remember, you are not legally committed to moving until exchange of contracts).

A big issue will be finding a suitable home. We very much have a chicken and egg scenario. Some homeowners are waiting for the right property to come onto the market before they put their home on the market. This will probably mean that that property will sell even before the photographs have been taken of your home.

Yet, many homeowners are worried if they put their house on the market and it sells, they won’t be able to find another suitable home and thus be homeless.

Classic chicken and egg – so what do you do first?

There is another way of doing this. It’s a technique estate agents used to use before the internet, and it’s called ‘chain building’. Many homeowners are contacting me to move home yet don’t want to be made homeless. What we do is slowly build a group of people in a chain over many months. It requires a lot of patience to build a chain downwards and upwards around you.

There is no cost to this and no legal commitment to go through. It can take six, even twelve months to build a chain of people who are prepared to wait for the chain to form.

Yet, everyone normally gets their next ‘forever home’ by playing this long game

Because if you don’t play the long game, build relationships with estate agents (who can build these chains) and only rely on waiting for properties to appear on Rightmove or OnTheMarket, you will be sorely disappointed.

According to national research from Denton House Research, 7 out of 8 people who viewed a house through an estate agent in 2021 were not on the mailing list of that agent before they viewed it.

That means all these properties, built on a chain builder (as above), will sell yet won’t appear on Rightmove or Zoopla, meaning you will miss out.

You must get yourself on the mailing list of our estate agency (and other agents if they do this chain building) so you don’t miss out on your next forever home. You can also join our free private Facebook Group here https://www.facebook.com/groups/propertypremiere where we post all upcoming properties to the market before they arrive on Rightmove etc. I’d love to see you in there!

If you would like a chat about anything mentioned in this article, feel free to drop me a message or call me on 01363 777999

Posted on

The Future of the Crediton Buy-To-Let Market in 2022

The Headlines…

  • Crediton rents up by 6.7% in the last 12 months
  • Crediton house prices up 16.1% in the last 12 months
  • Crediton landlords helped by ultra-low mortgage rates and a stamp duty holiday 
  • Yet, some landlords in Crediton anxious about a possible end to no fault evictions
  • New EPC rules could cost Crediton landlords £10,000+ per property 

In this article, I will look at what happened in 2021 in the buy-to-let property market and give you my opinion as to what lies ahead for landlords in 2022 and beyond.

On a positive note, house prices have rocketed, rents have risen faster than inflation, at the start of the year we had the benefit of a stamp duty holiday and finally, ultra-low mortgage rates, meaning Crediton landlords had lots to be happy about in 2021.  

On a more cautious note, the laws regarding renting are currently being debated in Parliament which will see the end of no-fault tenant evictions and changes in regulations will require Crediton landlords to make their buy-to-let rental properties more eco-friendly at a cost of up to £10,000+ each.

So, let’s have a look at these points …

Crediton Rents will Continue to Rise in 2022

Crediton buy-to-let landlords have seen the average rent of a rental property rise by 6.7% in the last 12 months.  

The number of properties available to rent on the property portals (e.g. Rightmove etc) at any one time is roughly 35% to 40% below the last decade’s average, meaning there is greater competition for each rental property.

Demand has increased for several reasons.

Firstly, some homeowners cashed in on the high prices, sold up and moved into rented property.

Secondly, some buy-to-let landlords have also cashed in on the buoyant property market and sold their rental property when their existing tenant handed in their notice.

Finally, the rental sector has an inverse relationship to the state of the general British economy, meaning with the uncertainty in the British economy in the early part of 2021, this meant more people decided to rent rather than tie themselves into a mortgage.

Looking at the supply side of the rental market, in the short term, rents will continue to grow as some landlords are abandoning the rental market – some because of the impending regulation changes which I will talk about later and others with the natural flow of people cashing in their investments on retirement.

With increased demand and restricted supply, this will only lead to competition becoming more severe between renters, thus making rents continue to rise.

Crediton House Price Growth Will Slow

For those that own property, the way house prices grew in 2021 surprised most people.

Crediton house prices, according to the Land Registry, grew by 16.1% in 2021, with the typical home reaching £339,300.

Many local landlords have been helped by this increase in house prices and will be in a place to cash in on those capital gains by either selling their buy-to-let property (as mentioned in the previous section) or releasing some equity by re-mortgaging.

Whether Crediton house price rises carry on at such a rate in 2022 will mainly depend on whether the imbalance between the number of properties that come on to the market (supply) is by the number of buyers (demand).

Most commentators believe that nationally house prices will be between 3% and 5% higher by the end of 2022 and I can see no reason why Crediton house prices won’t be in that range by the end of the year either.

Mortgage Rates Will Rise

The reduction in tax relief for buy-to-let landlords with mortgages in the last five years hit some landlords hard, yet this has been tempered by the inexpensive ultra-low mortgages available to buy-to-let landlords.

Yet even with the Bank of England increase in base rates, landlords with big deposits of 40% or more can benefit from low rates. For example, at the time of writing, you can get a BTL mortgage at 1.49% fixed for 5 years with a 40% deposit (meaning borrowing £180,000 on a £300,000 purchase would only cost you £719 per month on a 25-year mortgage – or £224 per month on interest only).

However, those with only a 25% deposit must pay slightly more, but only at a mortgage rate of 1.64% – who can remember mortgage rates of 14% to 15% in 1992?

With inflation rising, the Bank of England has already indicated further interest rate rises are on the cards. I suspect they will be around the 1% mark by Christmas 2022. Therefore, if you are one of the one in five landlords on a variable rate mortgage, your margins will be squeezed as your variable rate mortgage will rise in line with the Bank of England interest rate rise.

Maybe it’s time to consider fixing your mortgage?

The End of No-fault Evictions?

The Renters’ Reform Bill in England and The Renting Homes Act in Wales are both set to abolish Section 21 (no fault eviction). Section 21 laws allow landlords to take back possession of their rental properties without having to prove fault by the tenant.

Yet in 2022, Westminster will issue plans for a change of this law which will probably incorporate the eradication of Section 21, which would signify a major change in the balance of power between the landlord and tenant. 

Some doom mongers are worried that with the abolition of Section 21, landlords may be unenthusiastic about renting and therefore sell up and leave the rental sector altogether. Yet these people said the same when tax relief for landlords was changed five years ago.

The Scottish equivalent of Section 21 was abolished at the end of 2017.

At the time, there was some anxiety about how this would affect the Scottish rental market, as anxious landlords and letting agents felt that they could lose control of their rental properties under this new law. Nonetheless, just over four years later, the rental sector has not collapsed in Scotland. The buy-to-let market remains upbeat, and there are signs that a Scottish landlords’ right to evict their tenant has been reinforced by these changes in the law.

The reason the Scottish changes worked was the new grounds for repossessing rental properties was clear and wide-ranging. The Scots sped up the slow and unwieldy eviction process where the landlord had a legal and genuine reason to re-claim their property.

All I hope is the same changes are made south of the border to the court procedure.

New EPC Rules Could Cost Crediton Landlords £10,000+ per Property

The law currently stands that Crediton landlords need an Energy Performance Certificate (EPC) with at least a rating of E.

Westminster is anticipated to increase the EPC requirement for private rental properties in England and Wales to an EPC rating of C for all new rental tenancies by 2025/6, and for all existing tenancies by 2028, whilst Scottish landlords are also expected to see energy efficiency measures in their new proposed Housing Bill.

The problem is 1,959,045 of the 2,965,455 registered rental properties on the EPC database have an energy rating of D or below. 

To take a property from an EPC D rating to a C rating might only cost a few hundred pounds, yet the average for all rental D and E rated properties has been calculated at just over £10,000 per property.

My advice to every Crediton landlord is to look at the full EPC report of their rental property (and if you haven’t got it, contact me and I will send it to you -whether you are a client or not) as that will tell you whether this will be a big or small job.

Renovating the UK’s rental stock to meet the Government’s carbon neutral targets will be a big trial for landlords. There is talk of exemptions, as there currently is for the existing minimum EPC E rating – yet only time will tell on that front.

Maybe those Crediton landlords currently buying properties to add to their rental portfolio should reconsider their buying strategy? In the past, it has been normal for Crediton buy-to-let investors to be attracted to the inexpensive older properties that need an overhaul. However, with the potential energy efficiency laws coming into the game, it’s rational to suggest that buy-to-let landlords will be more predisposed to buying slightly newer properties rather than have the cost for the upgrades to meet the potential energy targets.

Conclusion

Roll the clock back 20 years and making money from buy-to-let in Crediton was as easy as falling off a log. Yet with increased legislation and regulation, together with the changing dynamics of the British economy and the requirements tenants want in a rental property, making money won’t be as easy over the next 20 years.

It amazes me that 11 out of 20 landlords do not use a letting agent to help them with their rental portfolio, considering the cost can be offset against your tax.

Moving forward, the savvy landlords will more and more utilise their letting agent not only to collect the rent and manage the property but also build up their portfolio to withstand the regulatory and demographic changes on the horizon, and to ensure that their investment is fit for purpose in the medium to long-term.

If your existing letting agent does not offer such advice, or you are a self-managing landlord, let’s have a chat about the future of the rental market.

Whether you are a client of mine or not, if you would like me to look at your rental portfolio and see where you stand, then drop me a line and maybe we can meet for a coffee (or we can meet virtually over Zoom) to discuss the matter – all at no charge.

Posted on

Should Crediton Landlords Be Worried About These New Rental Regulations?

Everyone should be doing their bit to help reduce the UK’s carbon footprint on the globe – yet the question is, is that burden being put too much on the shoulders of Crediton landlords with potential bills of £7,600+ in the next four years?

The background – the UK has obligated itself to a legally binding target to be carbon neutral by 2050. One of the biggest producers of greenhouse gasses is residential homes.

To hit that carbon-neutral target (as one-fifth of the UK’s carbon output comes from residential property), every UK home will need to achieve a minimum grade of ‘C’ on their Energy Performance Certificate (EPC) by 2035. Each EPC has a rating between ‘A’ and ‘G’ – ‘A’ being the best energy rating and ‘G’ the worst – like an energy rating on a fridge or washing machine.

All UK rental properties have required an EPC. Yet, from April 2020, the Minimum Energy Efficiency Standards (MEES) regulations have required all private rental properties (including rental renewals) to have a minimum EPC rating of ‘E’ or above.

Yet new legislation being discussed by the Government’s Climate Change Committee has suggested that landlords should play their part and increase the energy efficiency of their private rented homes. Sounds fair until you dive into the details.

The Government is muting the idea that all new tenancies (i.e. when a new tenant moves in) in private rented properties should be at an EPC rating of ‘C’ or above by 2025 (and all existing tenancies by 2028). The issue is…

69.95% of all private rented properties in Mid Devon have an EPC rating of ‘D’ or below.

The problem is some Crediton landlords will find it very expensive, neigh impossible, to improve the energy efficiency of their Crediton rented properties, especially those Crediton landlords who hold older housing stock such as terraced properties built in the 1800s. These Victorian terraced houses never perform well on EPC ratings as they have solid walls.

Now, of course, you can improve the EPC rating of a terraced house by improving roof insulation, boiler replacement, solar heating, and high-grade uPVC windows. Yet, with some terraced houses, there will come the point where you will be unable to get to the haloed ‘C’ rating without installing external or internal wall insulation, sometimes even floor insulation.

With wall insulation costing between £5k and £15k and floor insulation around £5k…

the bill to improve all Mid Devon’s private rented properties will be a minimum of £21,307,960.

But before I talk about what the options are for Crediton landlords, here’s the weird part of EPC’s. An EPC rating is calculated on the cost of running a property and not the carbon output or energy efficiency, despite its name.

My advice to Crediton landlords – although it’s correct to create a future strategy, all I can say at this point is ‘more haste less speed’. These rule changes are only a discussion paper, and it remains open for consultation by any member of the British public until 30th December 2021. That means the Government’s strategies and tactics may change.

Given that 57% of private rented properties are below a ‘C’ EPC grade, it is hard to believe the Government could achieve this without making big cash grants available.

For example, there is presently a cap of £3,500 for energy improvements that Crediton landlords have to spend to get it to the existing EPC ‘E’ target grade on private rented homes (i.e. if you have a privately rented home at an ‘F’ or ‘G’ EPC rating, you only need to spend a maximum of £3,500 as a landlord on improving your EPC rating and still being legal even if those £3,500 don’t get you to the current ‘E’ rating minimum). So, if the current rules allow an exemption to the EPC renting rules, if a Crediton landlord can’t improve their Crediton property enough, conceivably, could this be extended?

So, what are Crediton landlord’s options?

One thing you could do is put your head in the sand and hope it all goes away!

Another thing some savvy Crediton landlords do (be they my client, clients of other letting agents in Crediton or even self-managing landlords) is to sit down and plan a strategy for their Crediton rental portfolio. I print off all the EPCs of their rental portfolio, look at the recommendations, then discuss a plan to ensure they are covered whatever the Government decides to make the new EPC rules. Like all things in life, plan for the worse and hope for the best.

If your agent isn’t offering that service, please drop me a line because I would hate for you to miss out on the advice and opinion that so many Crediton landlords have already had from me. The choice is yours.

Posted on

With Crediton Tenants Deposits Totalling £522,120, How Will ‘Lifetime Deposits’ Change the Crediton Rental Market?

The Government’s scheduled publication of their White Paper for the Renter’s Reform Bill, which incorporates proposals to forbid Section 21 evictions and introduce ‘Lifetime Deposits’, has been suspended until 2022.

The additional time is required to give a chance to create a level playing field to reforms for both landlords and tenants in the private rented sector in England.

In this article, I want to look at these lifetime deposits. How could the Lifetime Deposit Scheme work, and how could they benefit both Crediton landlords and Crediton tenants?

When a tenant moves between rented homes, they need the deposit for their new home before being released from their old home.

The average deposit for a Crediton rented home stands at £859.

This means finding that amount of money at the time of moving home can be difficult for many tenants; thus, they become stuck in their existing rental.

Therefore, Westminster wants to propose in this White Paper a new deposit choice for tenants. A deposit is transferred from the old landlord (letting agent) to the new landlord (letting agent), thus making life simpler as the tenant doesn’t need to save for an additional new deposit every time they move home.

Now, of course, it’s vital that any new ‘deposit scheme’ does not dissuade Crediton landlords from making valid claims for damage to properties. Landlords cannot be expected to give up their right of recourse to a security deposit until such time that they are satisfied there will be no need to claim it.  

So how would Lifetime Deposits work?

There would need to be some form of system safeguarding that the new Crediton landlord is protected by a whole deposit, even if the deposit on the old Crediton home comes into dispute.

This will be critical and central to Crediton landlords having conviction in the Lifetime Deposit Scheme. That could be something like an interest-free loan for the tenant on the crossover between the properties.

Another advantage to the scheme is that ‘lifetime deposits’ could be used for tenants to build a deposit for a house for the future.

What about the existing system of deposits?

The rules regarding the amount of deposit held by a Crediton landlord were changed a couple of years ago, where only five weeks’ worth of rent can be held as a deposit.

The deposits Crediton tenants have had to save for certainly raises the cost of renting a Crediton home.

Some say this extra burden puts another nail in the coffin of the dream of homeownership for many Crediton renters. To give you an idea of the level of deposits held for Crediton rental properties…

The total of all the tenants’ deposits in Crediton are £522,120.

Yet the other side of the argument contends that if the Crediton tenant misses more than one month’s worth of rent, the landlord is immediately out of pocket, even before they’ve got the costs of solicitors and any improvement works from the tenant trashing the place. 

Does a deposit of just over one month provide Crediton landlords with a decent level of protection against unpaid rent or damage to the property? When you consider…

The total value of all the privately rented properties in Crediton is £192,726,880.

Before I conclude my thoughts to the initial question of lifetime deposits, the need for decent landlord insurance to ensure you are adequately covered as a Crediton landlord is vital.

So, what are my thoughts on ‘Lifetime Deposits’?

It is my opinion the common need for Crediton tenants to stump up a ‘two-fold deposit’ is not helping many Crediton renters when it comes to moving home. It’s clear the standard cash down deposit is not fit for purpose for the 21st Century.

One might suggest the Government’s quest for the ‘lifetime deposit’ could open the door to other deposit alternatives that have come onto the market for tenants in the last few years.

Some landlords don’t require a deposit yet are compensated by asking the tenant to pay a higher rent to cover the risk. Also, there are companies that offer insurance backed deposits where the tenant pays one week’s rent to an insurance firm, and the insurance firm pays out if a loss is incurred by the landlord.

Interestingly, other countries are already offering deposit loans and guarantee schemes. Could this be something for the British Government to contemplate?

We must wait until at least the spring of 2022 for the Renter’s Reform White Paper to be published. Then every stakeholder involved (tenants, landlords and agents, et cetera) can look at it in the cold light of day and decide how this will affect the way they view the landlord/tenant/agent relationship.

Many will say the bigger issue isn’t ‘Lifetime Deposits’ in the White Paper, but the removal of no-fault Section 21 evictions. The removal of Section 21 is something the current Governmen4t have pledged to bring in during this parliamentary cycle (i.e. before Q4 2024). 

I am not concerned about removing no-fault Section 21 evictions, but what will replace it to ensure there is suitable redress for landlords if the tenant doesn’t pay the rent?

Of course, a handful of Crediton landlords will decide to sell their rental portfolio because of the White Paper. The same happened in 2016 when the increase in landlord taxes were announced. 

However, this will reduce the supply and availability of Crediton rental properties, meaning rents will rise (classic textbook supply and demand), thus, landlords return and yields will rise.

Yet, because tenants still can’t afford to save the deposit for a home and we are all living longer, the demand for rental properties across Crediton will continue to grow in the next twenty to thirty years. The reason being is we are still not building enough homes to accommodate our growing and ageing population. This means we will turn to more European ways where the norm is to rent rather than buy in their 20s and 30’s.

This means new buy-to-let landlords will be attracted into the market, buy properties for the rental market in Crediton and enjoy those higher yields and returns. Isn’t it interesting that things mostly always go full circle?

Posted on

Crediton Homeowners to Face Post-Lockdown Mortgage Rate Rise of £678 a Year

With grocery, energy and other household prices/costs rising and hitting everyone’s back pocket, inflation (rising prices) may feel like an unimportant issue when it comes to the cost of keeping a roof over your head.

Yet nothing could be further from the truth for many Crediton homeowners and Crediton landlords.

Because inflation over the long term is bad for the economy, the normal weapon of choice to reduce inflation is to increase interest rates. The Bank of England (BoE) is in charge of interest rates.

Should inflation continue to rise, there will come a point later in the year when the BoE will need to raise it’s Base Rate from its 300-year record low of 0.1%, and probably continue to do so with a series of further increases in 2022.

When interest rates go up, the cost of mortgages go up. When the cost of mortgages go up, that hits the affordability of what people can borrow to buy their homes (and landlords to finance their buy-to-let properties). In essence…

could it be the end of the Crediton house price boom?

The danger of a base rate rise by the BoE on the back of a rise in inflation over the last few months has alarmed banks and building societies into increasing the mortgage rates for both home buyers and landlords.

In the last week alone, lenders have increased the rates (i.e. prices) of their mortgages, some mortgages by more than one whole percentage point. That doesn’t sound a lot, until you punch the numbers into a calculator (more of that later).

Crediton property buyers (be they landlords or homebuyers) have relished months of cut-price cheap mortgages rates.

Mortgage lenders have played the big game in the last 12/16 months to capture the mortgage business of 1 million+ Brits that have moved home since the end of Lockdown-1 plus the many millions of re-mortgages, with the cheapest mortgage rates falling below 1%.

Yet, the money markets have already priced into their calculations that the BoE will increase the base to 0.25% by December, up from the existing 0.1%. They also anticipate a further two quarter point (i.e. 0.25%) rise in the spring of 2022, meaning they believe the base rate will be 0.75% by the end of summer 2022.

So why is this an issue for the homeowners of Crediton? Looking at the combined totals of the EX17 postcode districts…

2,710 Crediton property owners have mortgages totalling £282.84m (up from £252.07m in 2013).

Yet, 569 of those Crediton homeowners with mortgages are on variable rate mortgages, with their mortgage payments rising and falling based on how the BoE interest rate shifts. That will cause instant pain if mortgage providers pass on increased mortgage repayment costs. So how much will that be?

The average size of mortgage for a Crediton homeowner is £104,370.06.

If the base rate were to rise to 0.75%, the average Crediton homeowner (with a variable rate mortgage) would be £57 per month worse off (£678 per year).

The mortgage price war the banks and building societies have been fighting recently has resulted in falls in the month-on-month average mortgage rates available to borrowers. The economy is awash with cash looking for a home (mainly down to the Government’s and BoE’s intervention to keep the UK economy going during lockdown). For those with large deposits this has meant mortgages have been available at less than 1%.

However, with reports of a potential BoE interest rate rise happening soon, those Crediton homeowners who are on a variable rate mortgage are probably going to be the first who would feel the influence of any base rate increase.

If the BoE Base Rate rose to 3%, the average annual mortgage payment of those Crediton homeowners on variable rate mortgages would rise by £3,131 per year.

This could mean homeowners with variable rate mortgages would be spending half their salary on their mortgage should interest rates get up to these levels.

Now the BoE won’t increase rates by that amount over night, as that would spook the market. They will probably increase every few months by a quarter of one percent each time.

Thankfully, over the last 4 or 5 years, over 90% of new mortgages have been fixed rate, yet they are only fixed for a certain length of time. If you have less than one/two years left on your mortgage, you seriously need to take advice now from a qualified mortgage broker, as any penalty to change might now be considerably smaller compared to the mortgage rates you might be paying when your deal finishes in the next 12/24 months. Again, I am not giving you advice in this article – just making a suggestion.

A further message to the 1 in 5 (ish) of Crediton homeowners on a variable rate – please take some advice from a qualified mortgage advisor as well. Mortgage rates can’t get any lower and all the signs are showing they will be going up. The mortgage market is still extremely competitive, there is opportunity for borrowers to lock in ultra-low mortgage rates before any likely Base Rate increases filter through.

Will an interest rate hike crash the Crediton housing market like the early 1990s?

The early 1990s saw repossessions go through the roof as homeowners defaulted on their mortgage payments because of the increased mortgage rates. Also, in the run up to the Credit Crunch in 2008, Northern Rock were lending 125% of the value of the property (we all know what happened to them!). Other banks were recklessly lending 8 or 9 times a person’s income, without the person having to prove that income. Both scenarios were significant contributory factors in the housing market crash.

Thankfully in 2014, the BoE implemented the recommendations of its own Mortgage Market Review (MMR). The MMR forced banks and building societies to stress test mortgage borrowers against potential increases of the base rate of up to 3%. Thankfully, even the most hardened monetary doom-mongers aren’t contemplating base rates of those levels (although I won’t apologise for highlighting what it could cost earlier in the article).

Fundamentally, as we go into 2022, the housing market is built on decent foundations, unlike 2007 with the poor lending practices by the lenders. Yet the increase in base rates will have another influence.

The psychological factor of a perceived increase in mortgage costs, might be enough to cool the enthusiasm and excitement of many buyers to pay top dollar for their next Crediton home, and that might not be a bad thing. If I am being frank, we could do with something that takes a bit of fizz out of the Crediton housing market.

Many Crediton homeowners have been wary of placing their house on the market because they are scared they won’t be able to find another home. A slight increase in Base Rates will take the frothiness out the Crediton property market and return it to some form of normality. I would even go as far as to say house prices might ease back ever so slightly in the coming 12 to 18 months.

So dont be alarmed if house prices in Crediton do drift slightly over the coming years like they did in the mid 1990s.

It’s just the property market settling down and coming back into some form of equilibrium, which is good for everyone.

My final thoughts…

The mortgage lenders have already priced in the potential BoE rate rises, so even if rates do rise, let’s not panic. And even if they did rise to 3%, that would still leave them at levels that look exceedingly cheap at any other time in history. Many homeowners in their 50’s and 60’s can remember mortgage rates of 15% in 1992, so take advice from your family. (Interestingly, the 50-year BoE Base Rate average is 7.2%).

Buying your Crediton home is a long-term venture. It is a huge financial decision that can give you peace of mind and a superb place to live.

But it is not an investment. I am not saying you should avoid homeownership, however, if you are considering buying because you think you are making a clever investment choice, think again.

The idea that your Crediton family home can be an investment too comes from the fact that, historically Crediton property prices have risen. We all have stories of someone in the family, somewhere in the UK, who bought a house for £500 many years ago, for it to be worth 300% / 500% / 1000% more today!

If you read some of my past articles on the Crediton property market, I have proven many times over, there are much better ways to invest your money, e.g. buying buy-to-let properties or stocks and shares.

But if you want to bring your family up in a home that is yours, the bottom line is this. Even if interest rates rise to 3% (if not a little more), you will still be able to get on the property ladder with a small deposit (using the Government’s 5% deposit mortgages) and you will still find it’s cheaper to buy than rent.

If you would like to chat to me about anything in this article, do drop me a line. In the meantime, please do give me your thoughts on the matters raised in the article – I would love to know.

Thanks in advance.