The proportion of 25 to 34-year olds who own their home in Southampton
has nearly halved in the last 20 years, so what does this mean for all the
existing Southampton landlords and homeowners together with all those
youngsters considering buying their first home?
Well, looking at the numbers in greater detail, in Southampton
there has been a 43.5% proportional drop in the number of 25 to 34-year olds owning
their own home between 1999 and 2019 .. and a corresponding, yet smaller drop
of 21.2% of 35 to 44-year olds owning their own home over the same time frame.
So, if you were born in the late 1980’s or early
1990’s, the dream of owning a home in Southampton has reduced dramatically over
the past 20 years as young adults’ wages and salaries are now much lower in
relation to Southampton house prices. Nationally, average property values have
grown by 186.9%, whilst average incomes have only risen by 44.8%, yet that
doesn’t allow for inflation. However, whilst not over the same 20 years (it’s
close enough though), the Institute of Fiscal Studies said recently the average
British home was just over 2.5 times higher in 2015/6 than in 1995/6 after allowing
for inflation; yet the average household income (after tax) of 25 to 34-year
olds grew by only 22% in ‘real-terms’ over those 20 years.
Yet, even though property prices are at record highs, on the other side of
the coin, the monthly cost of mortgage payments has actually fallen because
interest rates have remained low. In 1999, the average mortgage rate paid by UK
homeowners was 6.54% whilst today it’s more than halved to 2.64% - a drop of
59.4%. Many of you reading this will remember the 15% mortgage rates of 1992!
The fact is, mortgage repayments take up a considerably smaller
proportion of take home pay, on average, than they did before the Credit Crunch
or in the late 1980’s. Although the risk that mortgage rates will increase if
the Bank of England put up interest rates might leave some homeowners in a
difficult position – hence I might suggest (if you haven’t already) you
seriously consider fixing your mortgage rate (remember to take advice from a professional
before you do).
Yet look at the data
in even greater detail and you will see, going back
to the 1960’s, we
weren’t always the huge homeowning nation we always thought we were.
Today, 4.5% less 35 to 44-year olds and 33.5% more 45 to 54-year olds own
their own home compared to 1969. So as the younger generation in Southampton
has seen homeownership drop in the medium term, they will in fact end up
inheriting the homes of their parents. We are turning into a more European
(especially German) model of homeownership, where people buy their first home
in their 50’s instead of their 20’s.
My message to first time buyers of Southampton is go and get some
mortgage advice! The cost of renting smaller
starter homes is between 20% and 25% more than the mortgage payments would be.
95% mortgages (meaning a 5% deposit is required) have been available since late
2009 and some banks even do 100% mortgages (i.e. no deposit) .. I suggest that
you don’t assume you can’t get a mortgage – for the sake of a 45 minute chat
with a mortgage adviser – you get a straight answer and all the information you
need.
Therefore, what does this mean for homeowners and landlords of Southampton?
Well, for many tenants, renting is a positive choice and as we aren’t building enough
homes to meet current demand, let alone eating into the lack of building over
the last 35 years, demand will outstrip supply, home values will, over the
medium to long term, rise above inflation – meaning it will be a good overall
investment as demand for rental properties increases. Good news for Southampton
landlords and Southampton homeowners alike.
The single biggest issue in the Country (and Southampton) today is that
we aren’t building enough homes. I know it seems the local area is covered with
building sites – yet looking at the actual numbers – we still aren’t building
enough homes to live in. Residential property only takes up 1.2% of all the
land in the Country – and whilst I’m not suggesting we build housing estates on
National Trust land or cut down forests, until we realize that we aren’t
building enough .. this issue will only continue to get worse.
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@belvoir.co.uk or call on 023 8001 8222.
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