Reading, in the heart of the Thames Valley, is proof that, while you cannot judge a book by its cover, you can probably judge a town by its shops.
The collection of upmarket shops and newly built shopping malls in Reading town centre proclaim the town for what it has become ‘ a prosperous London satellite town with enough to offer to enable it to stand as a sizeable economic centre in its own right.
The town’s development has been quite straightforward. It has long been a prosperous town with low unemployment and the town centre was developed in the 1800s in a traditional Victorian style, but growing up around it are now a number of new residential areas and estates. The town’s council are currently pushing hard to be granted city status, having established that there will be concrete advantages to it in terms of future growth.
Economically, the town has benefited in two ways from its position, first as a dormitory satellite town to London and second as a convenient place just outside central London for companies looking to relocate. The town council has gone some way towards attracting major business, especially from the high technology sector. Microsoft and Compaq both have major stakes in the town, while Thames Water, Yellow Pages and British Gas all have their headquarters in Reading. One of the most visible companies headquartered here is Prudential, which occupies large swathes of town centre offices.
Reading has, over the last few decades, been a fast growing centre for business, transport and living. The town’s trump card is its transport links; London is 25 minutes from the town centre by train, and Heathrow airport is half an hour away up the M4. Added to this is the ability to go north or south, without going around the M25 and the package is very attractive for companies and borrowers alike.
Bulbs, biscuits and beer
Geographically, the town follows a familiar pattern, a largely Victorian centre blending into a mixture of light industrial/office blocks and newer housing estates as one travels further out.
Reading also has a fair amount of ex-local authority housing. The Victorian terraces in the town centre were built for Huntley & Palmer’s workers, once a dominant employer in the town. Reading used to be famous for the three B’s ‘ bulbs, biscuits and beer. The bulbs were Sutton Seeds, the biscuits Huntley & Palmer and the beer was, and to an extent still is, Courage.
in the centre of town.
Demographically, the university and the ‘high tech’ nature of many of the companies attracted to Reading have skewed the average age in the town. Over 29% of the town’s population is made up of the 20 to 34 year old age group compared to a national average of just over 20%. So with so many more young people it is easy to see how the towns property market is affected by the buy-to-let and first-time buyer sectors.
Gobi Boolaky, regional surveyor for buy-to-let specialist lender Paragon Mortgages, sums up: ‘The biggest buy-to-let market is in student accommodation, that and people buying on the fringes of the hospitals. These properties tend to be not too far from the city centre, but there is also some activity around the M4 corridor.’ He notes that flats in this area would primarily be rented by people coming in on one year contracts with the companies lining the corridor, but it tends to be the lower end of the market, not the executives.
He adds: ‘Buy-to-let investors are not picking up much below £100,000 so prices paid are ranging typically from £100,000 to £200,000 for small flats. The last three years in Reading have been a hot market but now I think it has cooled off slightly in terms of buy to let. We have now reached a point where there are sufficient buy-to-let properties on the market.’
Mike Gosnall, director at SP Mortgage Administration, a packager focusing on the A4 corridor up to London, is not as upbeat. He says: ‘Town centre Victorian properties are being split up into student rooms. Thus the price for these properties is proportionally high. If you remove the university side the buy-to-let market is flat and rents are not keeping up with prices.’
This view is echoed by Paul Herring, a mortgage adviser with Haslams Financial Services, part of a local estate agency. He said: ‘In the past, town centre Victorian terraces went to first-time buyers but they are a bit out of their reach now. There is not the return on renting out these properties in their entire state, you need four or five students in a terrace for a good return.
‘A year ago most of our business was buy to let and we do not do many at all now. We used to see a lot of 85% loan to values (LTV) loans and that fits with rental incomes but rents have dropped so people would need to take lower LTV’s.’
Andy Goodhall, senior district sales manager at Chelsea Building Society notes that, in addition, a good proportion of the two bedroom flats recently built have been bought to let out, leading him to believe that the centre of Reading has got to the stage where the market is saturated. He says: ‘We have seen a lot of remortgaging on buy to lets where the surveyor has said the property would be worth £700pm, where formerly the landlord was getting £900pm. This is as a result of the number of properties on the market. Over the last 18 months to two years we have seen significant drops in what you expect properties to make in rent. People are finding it hard to let properties. However, you do not have to go too far out to find areas where buy to let becomes a viable proposition again.’
In general terms house prices have always been quite high in Reading, compared to with areas further down the M4 corridor such as Swindon, so there has always tended to be a lot of properties that are too expensive for first-time buyers. Up until now those properties have been snapped up by the buy-to-let investors, pushing prices up, further pushing out first-time buyers.
The local mainstream house buying market is still busy with remortgage business, but among local agents and brokers, the general feeling is that properties are now taking that little bit longer to sell, certainly at the higher end of the market. Prices as a whole are beginning to level off and adjust themselves.
Robert Hershaw, director of Active Investments, mortgage brokers and packagers in the Reading and Slough areas, says: ‘Now the market is a little saturated for buy to let, properties in general are having difficulties selling, so I expect overall prices to drop slightly, but as an adjustment more than anything else more serious. At the moment people maybe believe their properties are worth more than they actually are, they need to be just a little bit more realistic.’
Most mortgage professionals based in Reading agree that, while the general housing market was not too bad, it has definitely seen a fall off in activity. Advisers that work in estate agencies have found business a lot harder going this year than last year, and some estate agent negotiators are talking to vendors and negotiating price cuts. Certainly when Herring asked the estate agents in the front office whether prices in general were on their way down there were several nodding heads. Plus, as Goodhall puts it: ‘When the market grew it followed London so there is no real reason why the same shouldn’t go for the opposite direction.’
As for the mortgage market itself, as ever the outlook varies significantly. Herring, for example, has seen his buy-to-let business fall off: ‘If the clients are first-time buyers we are having problems at the moment as, although the net payments are not too bad, the multiples are horrible, sometimes as much as five times income and we end up doing 90% self-cert deals. Whoever they are we are doing an awful lot of self-cert,’ he says.
He is also beginning to look at longer-term mortgages and higher income multiples. ‘A few years ago a first-time buyer would easily have bought a two bedroom terrace on the outskirts of town but now they are about £160,000 and the average income multiples do not usually stretch that far,’ he says.
Gosnall, as a packager has a wider viewpoint. He also notes the increased amount of self-certification in the town and its environs, but adds: ‘In common with the rest of the market nationally we are seeing people take two to five year deals, although the borrowing levels are quite high here compared to elsewhere. There is also a lot of remortgaging as people have a lot of debt and there is a lot of debt consolidation going on at the moment.’
‘Reading is relatively bullet proof when it comes to recessions. We worked through the last bad times in 1990 and got away virtually unscathed and while we may have negative unemployment at the moment, there are clouds on the horizon. A fair chunk of the town centre is owned by the Prudential, which is not doing so well at the moment,’ says Gosnall.
Although there is always a certain amount of development in the town, with businesses putting their headquarters in the area for its access to both London and Heathrow, it is piecemeal, as Reading, in terms of building is to a certain extent reaching saturation point. The town borders on Oxfordshire, which does not want to mirror Reading’s level of development. This leaves only the south to expand into as it cannot grow over the Thames into Oxfordshire ‘ proof of the difference is visible on maps, which become very green at the Thames.
One area of the town being redeveloped is the river frontage along the Thames, especially towards the town centre, where there is a remarkable amount of one and two bedroom flats being built to a decent quality. Herring comments: ‘They are not targeted at the buy-to-let market. People are buying them because they have a five-minute walk to the station and a 25-minute ride into central London. The river is one of the main areas of development at the moment and the buildings are starting to be built higher as well.’
While the local market is in a good state, brokers have a number of concerns as regards external factors. Gosnall says: ‘It is regulation that is the threat in the industry, not people who would ask for and get an extra few thousand for a property last year and who are not getting it now. I would say that virtually none of the brokers in the area have a good grip on what is going on with regulation.’
He believes that they are increasingly going to have to decide whether to register themselves directly with the Financial Services Authority or whether to link with a network or other organisation. ‘I think it will only work out cost effective for the larger intermediaries to directly authorise, but we will not know until all the costs come out. For the average broker on £30,000 a year it could mean a fair chunk of income, intermediaries will notice the difference,’ he says.
Goodhall agrees. He says: ‘I think that many local brokers have not thought regulation through and do not realise the implications of the legislation that is coming in.’
Regardless of the effect of regulation, any summary cannot help but reach the conclusion that Reading is a secure market, with few if any threats on the horizon. The town is big enough to produce its own employment environment so although it is on the M4 and the train line into Paddington, one should not overestimate the extent to which this is a London satellite town, although it undoubtedly has an effect.
Everyone has a feeling that the town is growing and improving, and will probably manage city status. ‘The council is looking to get areas that come under Wokingham council into Reading. And as you drive into Reading the car park signs are for the city centre not the town centre any more,’ says Goodhall.
Perhaps those upmarket shops really do sum up the town.