Research uncovers financial impact on yield and capital values in shifting Jesmond property market

21st August 2014

GFW Research, part of the George F. White Group, publicises fresh research on the popular Jesmond lettings market, highlighting a significant difference in rental returns and capital values depending on a property’s status.

Compiled to help property investors make informed decisions about the locations they choose to invest in, the research has found that property values in Jesmond can be significantly affected by a planning policy which is often overlooked by prospective purchasers.

Key findings include:

  • A two-tier property system emerging in Jesmond.

  • A difference of over £100,000 between similar properties with different classifications, on certain streets in Jesmond.

  • Dependent on street location, a difference in rental yield of around £5,000 per annum.

  • Understanding the property class system (C3 or C4) in Jesmond is a key factor in terms of understanding property values.

  • Current Article 4 Directions in place in Jesmond, make changing a family home to a house for three or more individuals (HMO), difficult.

Article 4 Directions (planning policies) in place across parts of Jesmond, appear to be creating a two-tier property system which is now beginning to emerge and has the potential to significantly reduce an investor’s rental return and capital value. On certain streets, this translates to a difference of over £100,000 between family homes and houses with multiple occupancy (HMO), where three or more unconnected individuals are living in the same property.

Prior to 2010, property owners making the adjustment from residential C3 (family dwelling) to C4 (HMO) status did not need to apply for special permission to do so; however due to current planning restrictions, home owners who decide to rent their property out are limited to letting it to either a family or two unconnected individuals.

GFW Research has revealed that investors are achieving an additional £5,000 per annum rental if they are able to let to three or more unconnected persons, rather than a family, a couple or two unconnected individuals – the equivalent of a 37 per cent increase in rental return, compared to a property with C3 status on the same street.

Director of GFW Letting, Holly Armstrong, is well versed in advising her clients on the urban lettings market. Speaking about the findings, she said: “Jesmond remains a popular location for both owner occupiers and investors and is well known for its broad mix of student, young professional and family accommodation.

“The recent findings from GFW Research look in detail at the returns to be found in Jesmond and asks whether planning controls have caused a shift in returns and capital values.

“It shows that those properties able to let to multiple occupants are exchanging for higher values but the crux of the matter is that it is very difficult for properties with C3 status to adjust to C4 status. They are therefore less likely to benefit from the resulting higher returns, now being reflected in capital values.

“Investors need to carefully understand a property’s status and how it can impact on their investment. With these planning policies in place, landlords may have to adjust their plans in terms of who their target tenants are. It’s about being well informed and able to make the right decisions.”

Claire Bainbridge, Director of Research for GFW Research, summarised: “Jesmond is often thought of as a student led area today and this council planning policy has been implemented to help maintain the accommodation mix, particularly for families living in the area. Individuals can apply for planning permission to adjust from C3 to C4 status; however because of the Article 4 Directions in place, it’s unlikely to be granted.

“We’ll often hear of situations where a sale stalls or falls through at the last minute because searches have revealed the Article 4 Directions are in place. It’s understandably frustrating if you’re purchasing what was previously a family home and wish to let it out as an HMO. For these reasons, it is vital people fully understand their options.”

Article 4 Directions are being used across the whole country, particularly in locations where there is a high student population and it’s likely that these differences in property values are developing there too.

The full research report and briefing note can be downloaded using the links below.

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