Southampton Property Market – Bricks and Mortar!

The Land Registry have just released their latest set of figures for the Southampton Property market. It makes interesting reading, as average property values in Southampton remained static in May. This leaves average property values 6.4% higher than 12 months ago, meaning the annual rate of growth in the City rose to its second highest level since November 2014 (where it was rising by 7% a year), bucking the national trend as most of the UK has seen property price growth ease off in the last six months. This is good news for local homeowners who had been affected by the downturn after 2007 and thankfully most are now out of negative equity.

However, the thing that concerns me most is that the average number of properties changing hands (i.e. selling) has dropped substantially over the last 12 months. In March 2014, 390 properties sold in Southampton but in March 2015, that figure dropped to 343.  Now I have been in the Southampton property market for quite a while now and the one thing I have noticed over the last few years has been the subtle change in the traditional seasonality of the Southampton property market. It has been particularly noticeable this year in that the normal post Easter flood of properties coming onto the market did not materialise. This has led to an imbalance between supply and demand, with less houses coming onto the market, there is simply not enough stock which puts upward pressure on prices. But beware initial asking prices can often be over inflated as agents out value each other in order to obtain the instruction. This can then lead to problems with mortgage valuations further down the track.

So what does all this mean for Southampton landlords or those considering dipping their toe into the buy to let market for the first time? Well for many people, buy to let is a sound investment, providing landlords with a decent income at a time of low interest rates and stock market unpredictability.  Landlords also have two opportunities to make money from property, not only is there the rent (income), but with the property market bouncing back over the last few years, property value increases has spurred on more investors to buy property in the hope of its value continuing to rise – as can be seen from the latest Land Registry numbers.

Landlords with decent deposits can fix their mortgages at just over 3% for five years, making many deals stack up. Nevertheless, low rates cannot stay low forever, because one day they will rise and you need to know your property can stand that test. I saw some Southampton landlords struggling in the mid noughties, when interest rates rose from 3.5% in July 2003 to 5.75% in July 2007. That might not sound a lot, but that was the difference of making a £100 a month profit in 2003 to having to make up a shortfall in the mortgage payments of £100 per month in 2007.

Its true many landlords were thrown a life raft when the base rate dropped to 0.5% in March 2009. However, even with the potential for costs to rise, demand for decent rental properties remains high as there are ever more tenants in the market, driving up demand and thus rents. The British love of bricks and mortar together with improving mortgage deals have all helped to make the Southampton property market more buoyant.