Flip the house for a profit
Property flipping refers to the buying and selling of homes in a short period of time. These homes are often renovated to increase their value.
Estate agent Hamptons International reported that more than 20,000 homes sold in England and Wales in 2020 (2.5% of sales) were resold within 12 months, increasing the selling price by an average of £40,995 (26%). This is a small but lucrative part of the market, which Hamptons says is growing fastest in the North East and North West of England.
In Cumbria, Land Registry data reveals that 3% of sales between January 2018 and April 2021 involved properties that had been sold multiple times during that period. More than a third of these (36%) were bought for less than £100,000. However, when they were sold again, they sold within 16 months on average, and for £28,837 more (a 46% increase). Remarkably, 43% of these returned to the market at prices above £100,000.
Howe Street in the centre of Carlisle illustrates the disparities that house resale can create: in 2019, the price of one three-bedroom terraced house jumped from £90,000 to £122,500 within nine months. The three-bedroom house next door, which had not been similarly renovated, sold for £93,000 the following year.
These are eye-opening examples, but Graham MacLeod, managing director of Hunters Estate Agents in Cumbria, says low-income buyers are not competing with investors. “The typical two-bedroom terraced house is over 100 years old,” he explains. While there may be bargains to be found for under £80,000, “it will probably require upgrading of heating, glazing, roofing work and damp proofing – all of which are common in a 100-year-old house.”
Historically, it's been common for first-time home buyers to undertake some of these renovation works in exchange for a more affordable first home. Property expert Kate Faulkner is one such person. She bought her first home in the 1990s. “My first property was a terraced house in Croydon. I was able to get on the ladder, and a lot of people did, because the property needed renovation.”
The cheapest housing isn't always the most affordable
Lower incomes don't mean buyers don't have the drive or ambition to renovate. “You don't want to buy a house that looks like it's come out of a Next catalog,” Carruthers says. “You want a house that you can spend a little bit of money on.”
However, for non-cash buyers, project properties can be red flags for mortgage lenders, who may want to find ways to mitigate their risk and ensure repayment. This rules out lower-income earners with less savings, but cash buyers may be able to negotiate a further discount.
For buyers with mortgages who can afford it, paying more up front for a home that's already been renovated might make sense. Not everyone can, and as Carruthers discovered, these properties also catch the eye of landlords with rental purposes.
Affordable housing isn't always the cheapest
Renovations are making cheaper properties unsellable, leading to so-called affordable housing being built instead. With government-backed shared ownership and Help to Buy schemes, the state “essentially steps in as your bank parent”, Faulkner says.
Both schemes help buyers get on the home-buying ladder with a low down payment. And because they're limited to new homes, they're expected to cost less to maintain and operate. But both can come with extra costs and restrictions that don't apply to open-market buyers. But ultimately, for Carruthers, they're too complicated. “I'm not that knowledgeable. I just want to know that I have a fixed-term mortgage, I pay that amount and that's it.”
Perhaps this is the crux of the problem: Low-income buyers have more limited options and more complicated choices than those buying on the open market or with family assistance. Those with the privilege to climb the property-buying ladder are doing so faster than ever before.
“Two-thirds of private renters have no savings whatsoever and, with prices continuing to rise, cannot afford to scrape together a down payment or take out a huge mortgage,” said Shelter chief executive Polly Neate. But she added that “expensive house buyouts won't solve the housing crisis – building decent council homes that people can actually live in will.”