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Spring 2016
and the role of micro developers
Flipping
An introduction to flipping
Contents
03
Flipping homes
Making the figures stack up
The big squeeze
04
06
07
32
An introduction to flipping
It’s often said that there are four ‘Ds’ which drive someone to sell a house: death, debt, divorce and the need to downsize. For most people therefore, selling a home is a once in a generation event. The average person who sold their home in 2015 had owned it for 15 years.
For a small number of people however, buying and
selling houses is a process they’re very familiar with.
In the early 2000s the practice of ‘flipping’ homes took
off. Typically this means buying, renovating and then
selling on a home, in most cases for a profit. This report
looks at the role of flipping, specifically those homes
bought and sold on in under a year. It looks at where
it’s happening, how the figures stack up and how the
new rates of Stamp Duty might affect micro developers.
QUARTERLY REPORT SPRING 2016QUARTERLY REPORT SPRING 2016
Flipping homes Homes sold twice in under a year as a proportion of all properties sold
QUARTERLY REPORT SPRING 2016QUARTERLY REPORT SPRING 2016
Buying a home to do up and sell on, is of course, driven by the
underlying desire to make a profit, but there are also big benefits for
the wider housing market. Since the downturn, house building has risen
up the political agenda, increasingly becoming a numbers game.
Parties of all colour have promised to build greater numbers of homes,
but the supply of homes is far more than just about house building.
While big house builders are generally interested in large sites, making
better use of existing homes is just as important. Those people who
buy, refurbish and sell on individual homes also play a big role in
housing delivery by improving the existing housing stock and carrying
out the work needed to bring empty homes back into use. Last year
we estimate that these micro developers refurbished around 30,000
homes, around a fifth of the number delivered by house builders.
In 2015 95% of flipped homes sold though Countrywide were
refurbished and 9 in 10 were sold onto an owner-occupier. Typically
these are homes which are bought by an investor, refurbished and then
sold on within 12 months. Last year, homes bought and sold again
within 12 months accounted for 3% of all homes sold (and 6% of all
transactions) in England and Wales. While this is roughly half the level
of 2003, the year of peak flipping, it still represents an important part
of the market.
4 5
3% of the homes sold in the last 12 months were properties which
had been bought less than a year before, a post-recession high.
This means 6% of all transactions in England and Wales are
generated by people flipping homes.
Kensington and Chelsea 14.2%
Westminster 13.1%
Lambeth 10.8%
City of London 9.8%
Camden 9.8%
Bournemouth 9.7%
Brighton and Hove 9.1%
Brent 9.1%
Hammersmith and Fulham 9.0%
Haringey 8.6%
Kensington and Chelsea 9.6%
Westminster 7.9%
Brent 6.2%
Lambeth 6.1%
Hammersmith and Fulham 5.8%
Camden 5.5%
Hackney 5.5%
Haringey 5.3%
Bolsover 4.3%
Rugby 4.2%
Burnley 16.6%
Pendle 11.6%
Kensington and Chelsea 11.5%
Hartlepool 10.0%
Brent 9.8%
Newham 9.3%
Kingston upon Hull 9.1%
Brighton and Hove 8.9%
Middlesbrough 8.8%
Westminster 8.8%
Kensington and Chelsea 9.4%
Westminster 8.7%
Lambeth 8.2%
Camden 7.5%
Brent 7.0%
Hammersmith and Fulham 6.7%
Haringey 6.7%
Brighton and Hove 6.1%
Burnley 5.3%
Hackney 5.3%
The Countrywide viewThe issue of how to increase the number
of people who own their home has been
steadily creeping up the government’s
agenda. Until the Chancellor’s Autumn
Statement in 2015, attempts to grow
homeownership had generally manifested
themselves in the form of incentive
schemes which helped those who might
otherwise not have been able to buy
a home of their own.
The Autumn Statement went one step
further however. For the first time ever
a buyer who only owns one home will be
treated differently to someone who owns
two, with the aim of tipping the balance
away from ‘landlords’ towards homeowners.
While the aim of raising homeownership
rates is laudable, understanding the role
different buyers play in the market is
fundamental to making good housing
policy. The terms ‘landlord’ and ‘investor’
are often used interchangeably, while in
reality many investors aren’t landlords at all.
Last year 65% of the homes bought by
a landlord and 75% of those bought by
an investor, were not subject to another
offer. Small investors, and in many cases
landlords, often buy homes that aren’t
attractive to first time buyers or owner
occupiers. Sometimes this is due to a
lack of demand but in others cases it’s
because of the work required to bring
them up to a better standard.
Increasing the amount of Stamp Duty
payable by everyone who owns more than
one home will help some first time buyers,
but at the same time, the housing market
is a complicated ecosystem. With at least
two million homes changing tenure over the
last decade, there is a danger that the
Chancellor’s broad brush approach will
deter those who play a vital, and often
overlooked role, in improving housing stock.
Homes sold twice in under a year as a proportion of all properties sold
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
8%
7%
6%
5%
4%
3%
2%
1%
0%
LondonEngland & Wales Source: Countrywide Research & Land Registry
Source: Countrywide Research & Land Registry
2000
2010
2005
2015
More than 5%
4% to 5%
3% to 4%
2% to 3%
Less than 2%
London Boroughs
How to make better use of the homeswe already have
Making the figures stack up The big squeeze
Buying a home to refurbish and quickly sell on is a skill and requires
a lot of work, time and money. Like house builders though, people who
flip homes aim to turn a profit. Knowing the local housing market inside
out and understanding what does or does not add value is fundamental
to flipping a property. Last year £4.8 billion worth of homes were flipped
across England and Wales, up from £2.8 billion in 2010, with homes
flipped in virtually every market. Both Kensington and Chelsea (average
price £1.3 million) and Burnley (average price £65,000) regularly top the
league table for the numbers of homes bought and sold within a year.
But a flipped home in Central London tends to look rather different
to one in North Manchester.
With such vast disparities in the price of flipped homes across the country,
investors tend to operate differently. In London and much of the South
East, investors have targeted the bottom end of local markets, buying
low and selling high. In these two regions the average flipped home was
purchased for 20% below the local authority average before being sold for
25% above. Head north and the story is rather different. In Burnley,
the flipping capital of the North, flippers buy homes for 5% above the local
average and sell them on for 30% more. Targeting different parts of the
market across the country is indicative of where investors believe there’s
most likely to be someone willing to pay for a newly refurbished home.
In 2015 the average flipped home was sold for £251,000, a hefty
37% more than it was bought for. Given the Land Registry puts the rise
in value of the average house in the last year at 5.6%, the vast majority
of the increase comes from value added by the investor.
Under 1% of flipped homes rose in value by the Local Authority average
or less. In cash terms the 37% increase in value equates to an average of
£55,000, a figure which ranges from £13,000 in Wales to £100,000 in
London. These figures are before any costs are taken into account. Given
this big disparity, the scope and scale of work which can be carried out
in different markets across the country varies hugely.
Anyone buying a second home after April 2016 will face a rate of Stamp
Duty three percentage points higher than existing levels. Both landlords
and second homeowners, groups of people who buy and sell homes about
as often as owner occupiers, will undoubtedly feel the effect of higher rates
of Stamp Duty. But for those who buy and sell homes on a regular basis,
it seems likely that the impact of new rates of Stamp Duty will be profound.
Today someone flipping a home pays an average Stamp Duty bill
of £4,200, with 40% of purchases under the £125,000 mark and
attracting no Stamp Duty at all. In the cheapest parts of Northern
England, the average bill was just £15, with the majority paying nothing.
At the other end of the country, flipped homes in Westminster attracted
a Stamp Duty bill of £45,000 and £43,000 in Kensington and Chelsea.
The impact of high rates of Stamp Duty for those looking to buy, do up
and sell a home will be keenly felt. The average bill will rise from £4,200
to £10,500 which in many cases will make the renovation and resale of
homes by small investors unviable. Its impact will be felt most strongly in
‘middle England’, places where prices are close to or slightly above the
national average. In places like Horsham, Herefordshire and Hambleton
the increased Stamp Duty bill will account for over a third of the difference
between the purchase and sale price. Beyond this level, and once other
costs are taken into account, at current prices it’s likely to make buying,
doing up and selling a home unviable.
The new Stamp Duty level will also mean that someone purchasing
a home to renovate and sell on in many of the cheapest parts of the
country, currently will have to pay for the first time. While having to pay
Stamp Duty is likely to be a psychological barrier to some investors,
in cash terms it’s unlikely to be at a sufficient level to make the flip unviable.
Equally at the other end of the scale, our modelling suggests that the
bigger Stamp Duty bill can be absorbed into the margins of those flipping
the most expensive homes in London and the South East.
With the aim of increasing rates of homeownership, the new rates of Stamp
Duty are likely to squeeze the number of homes bought by landlords. There
is, however, a small army of small investors who are neither landlords nor
second homeowners who will feel the full force of this policy. Those micro
developers who buy, do up and then sell homes, often to first time buyers
willing to pay a premium for a refurbished home, have dwindled in number
as transaction costs have spiralled. Today the cash cost of Stamp Duty
is twice what it was in 2003 in real terms, the year when flipping reached
its peak. Increasing the Stamp Duty burden further for those very small
developers will do very little to increase rates of homeownership with less
supply coming to market. In places where margins are tightest, hiking the rate
of Stamp Duty has the potential to substantially slow down the rate at which
housing stock is improved.
76
The ability of an investor to flip a home
at a profit generally depends on a few
factors coming together at the same
time. Not only does it rest on finding
the right home with the potential to add
some value, but it also comes down
to the state of the housing market at
the time. While flippers can and do
make money during downturns, they
generally concentrate their efforts
at times and in places where they
believe prices are rising. While in 2015
flipping was predominantly a South
of England phenomenon, in the years
preceding the last downturn when
northern house prices were booming,
the north was home to most of the
flipping hotspots. For someone looking
to buy and sell within a relatively short
space of time, finding a buyer and
achieving a sale tends to be quicker
and easier when prices are going up
than when they’re not.
A new tax on ‘middle England’Places where new Stamp Duty rates
will account for over a third of the
difference between the purchase
and sale price.
Cash and percentage difference between purchase and sale price
Different markets mean different tactics A question of unintended consequences?
2015£4.8 billion
The total value of flipped houses across England and Wales
2010£2.8 billion
The total value of flipped houses across England and Wales
1
2
3
4 5
8 910
6
11
1312
14
7
17
20
1615
1918
21
1 The Lake District2 Yorkshire Dales3 Cheshire East4 Pembrokeshire & Carmarthenshire5 Herefordshire & Malvern Hills6 Warwick7 East & South Cambridgeshire8 Monmouthshire9 Forest of Dean & Stroud
10 Cheltenham11 West Oxfordshire & Cherwell12 Welwyn & Hatfield13 Three Rivers14 Havering15 Mendip16 East Hampshire & Chichester17 Tandridge & Sevenoaks18 Cornwall, Devon & Somerset19 Fareham20 Lewes21 Isle of Wight
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0% 10% 20% 30% 40% 50%
£10,000
£15,000
£15,000
£18,000
£21,000
£19,000
£25,000
£23,000
£25,000
£19,000
£24,000
£29,000
£13,000
£14,000
£28,000
£26,000
£43,000
£40,000
£52,000
£55,000
Source: Countrywide Research & Land Registry Source: Countrywide Research & Land Registry
Source: Countrywide Research & Land Registry
QUARTERLY REPORT SPRING 2016QUARTERLY REPORT SPRING 2016
Authors
Johnny Morris
Research Director
David Fell Research Analyst
