Council houses: Up-and-coming estates

By Jane Slade
Posted: 2010/03/02

JANE SLADE reports on a mini-boom in the sale of former council houses, which are proving Britain's hottest properties for auction investors as well as for first-time buyers

WITH REPOSSESSIONS at their highest for 14 years the auction market has been flooded with privately owned homes and ex-local authority housing, which is providing rich pickings for investors. Much of the stock is made up of former council houses that are being sold by local authorities, housing associations or people who bought their homes under the 1979 Right to Buy legislation but have not been able to keep up their mortgage repayments.

Specialist property lender Auction Finance has seen a 47 per cent surge in the number of council homes it has provided finance for in the past year.
"A lot of stock has come on the market, particularly in the North-west, because of repossessions, and also Yorkshire, Leeds and Humberside, " says director Chris Baguley, "but we lend on properties all over the country. Ex-council homes tend to be very good value and are structurally sound. They are very good investments too. One client bought a property in South Manchester for £75,000 and resold it for £115,000 after making a few cosmetic improvements.

"The market has gone back to basics.

People are more interested in rental yield than capital growth as they know prices are unlikely to rise quickly. With ex-council houses costing up to 30 per cent less than private homes the yields are good."

A two- or three-bedroomed council house can be bought for between £50,000 and £100,000 in the North and in excess of £100,000 in the South. They can produce a good rental yield because of their low value and provide excellent homes for first-time buyers.

Brett Plant, co-director of Nottingham based Happy Homes Investments, makes £10,000 a property buying ex-council houses at auction, doing them up and selling them on. Last year he turned round 250 homes.

"There is a lot of stock, " he says. "Local knowledge is key but we concentrate on buying properties that are good quality and on long-established, well-maintained estates."

Until recently Mr Plant had been selling solely to investors who rent them out, getting up to 10 per cent return or 7.28 per cent yield but he has just sold his first property to a first-time buyer, which is a market he thinks will grow, particularly as prices fall below the stamp duty threshold.

"They represent very good value to first-time buyers as they are generally of a superior build quality than a new home and much cheaper, " he says.
 
AOCAL AUTHORITY properties are often overlooked by purchasers due to misconceptions regarding neighbourhoods, which keeps prices lower than non ex-local authority properties. "Ex-local authority properties here in Nottingham can be in really pleasant places near parkland and open spaces, " says Mr Plant.

"We even have properties that are adjacent to river frontage. A three-bedroomed ex-council semi with garden and off-road parking will cost around £103,000 compared to £130,000 for exactly the same property that is a private home, which is quite a saving."

With unemployment set to rise in the North he expects more stock to become available, particularly in Stoke on Trent and Derbyshire, which is where he hopes to expand his business.

"Ex-council houses have usually been well maintained by councils, which have installed double glazing, new boilers and insulation, while others have been empty for a long period of time and in a sorry state, so it varies how much we have to spend on doing them up. We like to think that we can breathe new life into them and bring some of the existing housing stock back into the rental market."

The other advantage to investors is that tenants tend to stay in the same area as their families and end up renting long-term, which reduces rental voids.

Manchester-based Auction Finance provides short-term funding nationwide to investors buying properties at auction.

"When you buy a property at auction you have to complete within 14 to 28 days, which is not long enough to secure a loan from a high-street lender, " says Chris Baguley.

"The idea is that we provide funding for a buyer so he can do up the property and sell it on, making a profit. We do not lend to people who want to live in the properties."

The maximum loan-to-value ratio is 70 per cent, plus one per cent arrangement fee and monthly interest rate of 1.35 per cent with one-month exit fee on redemption.

The typical term is one to three months.

Over a two-month period the buyer should expect to repay five per cent over the total amount borrowed.

INFORMATION: Auctionfinance.co.uk (08448 734 220); Happyhomesinvestments.com (0115 871 5153).

The government website lha-direct.voa.gov.uk details rents payable in various parts of the country so potential buyers can work out the rental yield before they buy. This rent is the same for an ex-local authority and a non ex-local authority property.