30.9% Drop in Southampton People Moving Home in the Last 10 Years

I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Southampton.  I find the most interesting bits are their commentaries on the British Housing Market.  Some talk about property prices, whilst others discuss the younger generation, grappling to get a foothold on the property ladder, with difficulties of saving up for the deposit.  And others feature articles about the severe lack of new homes being built (which is especially true in Southampton). However, a group of people that don’t often get any column inches are those existing homeowners who can’t move! 

Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then things have started to steadily recover, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties.  … But the question is ... why are there fewer house sales?

To answer that, we need have to go back 40/50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised set interest rates to a high level in a bid to try to lower inflation.  Higher interest rates meant that householder’s monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news as high inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew in order to keep up with inflation, this allowed homeowners to get even higher mortgages. At the same time their  mortgage debt was decreasing, allowing them to move up the property ladder quicker. 

Roll the clock on to the late 1990’s and the early Noughties and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the homeowner’s equity grew significantly exponentially, meaning people could continue to move up the property ladder (even without the effects of inflation).

The snowball effect, caused by significant numbers moving home, continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  You will probably recall the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!.  This allowed home movers to borrow even more to move up the property ladder.

So, now it’s 2017 and things have changed yet again!

You would think that with ultra-low interest rates at 0.25% (a 320-year low) (a 320+ year all time low), the number of people moving would be booming – wouldn’t you?  However, this has not been the case.  Less people are moving because:

(1) Low wage growth of 1.1% per annum 

(2) Tougher mortgage rules since 2014 

(3) Sporadic property price growth in the last few years

(4) High property values comparative to salaries (I touched on this a couple of months ago)

So how does this translate into pure numbers locally?

All these four points have come together to mean less people are moving… but by how many? 

In 2007, 5,380 properties sold in the Southampton City Council area and last year, in 2016 only 3,173 properties sold – a drop of 30.99%.

Therefore, we have just over 1,665 less households moving in the Southampton and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry that around fourth fifths of them are homeowners with a mortgage. That means there are around 1,367 mortgaged households a year (fourth fifths of the figure of 1,665) in the Southampton and surrounding council area that would have moved 10 years ago, but won’t this year. 

The reason they can’t/won’t move can be split into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 1,367 annual Southampton (and surrounding area) non-movers, based on that CML report;

1. There are around 492 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).
2. I estimate that another 191 households a year are older generation mortgaged owner-occupiers. Older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).
3. I also estimate that 82 households of our Southampton and surrounding area annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).
4. And finally, the majority of people that would have moved (but can’t). I believe there are 601 Southampton and surrounding area mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

  

Undoubtedly the first three points above (demographics, lifestyle and high price growth) are something beyond the Government or Bank of England control.  However some influence could be exerted to help the people and households in that final 4th point (the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability). If Southampton property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

And then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy 125% Northern Rock mortgages - footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s, available at a drop of hat using three tokens from a cereal packet?

We all know what happened with Northern Rock…. Your thoughts would be welcome on this topic.

If you are looking for an agent that is well established, professional and communicative, then contact us to find out how we can get the best out of your investment property.

Email me on brian.linehan@belvoirlettings.com or call on 023 8001 8222.

Don't forget to visit the links below to view back dated deals and Southampton Property News.

Blog, http://southamptonproperty.blogspot.co.uk/

Facebook, https://www.facebook.com/belvoirlettingssouthampton/

Twitter, https://twitter.com/sotonbelvoir
LinkedIn, https://www.linkedin.com/in/brianlinehan

Website, https://www.belvoir.co.uk/letting-agents-southampton