What Has Happened to the Southampton Property Market Since the Last Property Market Crash?

A handful of Southampton landlords and homeowners have been asking me what would happen if we had another property crash like we did in 2008/9?

The UK property crash in 2008/9 caused property prices in the UK to drop by an average of 18.37% in a period of 16 months.

On the run up to the Parliamentary vote on Brexit, a number of people asked what a no-deal Brexit would do to the property market and if there would be a crash as a result. I have discussed in a previous article on the chances of that (slim but always a possibility) … but assuming it happens, it is my opinion the outcome of a no-deal Brexit would be no worse than the country’s 2008/9 credit crunch property crash, the late 1988 property crash, the 1974 property crash, 1951 property crash … I could go on. The British economy would bounce back from the shock of a no-deal Brexit with lower property values and a continued low interest rate environment (together with an additional round of Quantitative Easing) and that would mean we would see a similar bounce back as savvy buyers saw it as a fantastic buying opportunity.

So, let me explain the reasons I believe this...

Many said after the Brexit vote in June 2016, we were due a property crash - but we all know what happened afterwards.

Initially, let’s see what would happen if we did have a crash, how quickly it would bounce back and then finally discuss how the chances of a crash are actually quite minimal.

Therefore, to start, I have initially split down the types of property in Southampton (Det/Semi etc.) and in the red column put the average value of that Southampton property type in 2009. Next in the orange column what those average values are today in 2019.

Now, assuming we had a property crash like we did in 2008, when average property values dropped nationally by 18.37%, I applied a similar drop to the current 2019 Southampton figures (i.e. the green column) to see what would happen to property values by the middle 2020 (because the last crash only took 13/14 months).

…and finally, what would subsequently happen to those same property prices if we had a repeat of the 2009 to 2014 property market bounce back.

                                                                                       

Of course, these are all assumptions and we can’t factor in such things as China going pop on all its debt ... yet either way, the chance of such a crash coming from internal UK factors are much slimmer than in another of the four property crashes we have experienced in the last 80 years. Why, you might ask?

The seven reasons I believe are these …

1.      The new Bank of England mortgage rules on lending in 2014 to address reckless lending that fuelled that last crash.

2.      Low inflation.

3.      Low mortgage rates (the average Brit’s fixed rate mortgage is currently 2.26% and the variable rate mortgage of 3.07%).

4.      Wage rises are forecast to continue to outgrow inflation.

5.      Unemployment figures dropping to 4% (down from 8.4% in 2011).

6.      The high percentage (67.7%) of all British mortgages being on a fixed rate.

7.      And notwithstanding the distractions of Brexit over the last few years, it cannot be denied that the British economy has slowly and steadily been heading in the right direction for a number of years, built on some decent foundations of a steady housing market (unlike the 1988 and 2008 crashes when the housing market got overheated very quickly on the run up to the crashes).

So as the circumstances are much different to the last two crashes, the chances of a crash are much slimmer. Yet if we do have a crash, for the very same 7 reasons above why the chances of a crash are unlikely, those 7 reasons would definitely contribute to making the ensuing recession neither too long nor substantial in scale.

One final thought for the homeowners of Southampton. Most people when they move home, move up market, meaning in a decreasing market you will actually be the winner, as a 10% drop on yours would be much smaller in £notes than a 10% drop on a bigger property ... think about it.

One final thought for the new and existing buy to let landlords of Southampton. Well, the questions I seem to be asked on an almost daily basis by landlords are: -

·         “Should I sell my property in Southampton?”

·         “Is the time right to buy another buy to let property in Southampton and if not Southampton, where?”

·         “Are there any property bargains out there in Southampton to be had?”

Many other Southampton landlords, who are with us and many who are with other Southampton letting agents, all like to pop in for a coffee, pick up the phone or email us to discuss the Southampton property market, how Southampton compares with its closest rivals (Eastleigh, Winchester and Portsmouth), and hopefully answer the three questions above. I don’t bite, I don’t do hard sell, I will just give you my honest and straight-talking opinion. I look forward to hearing from you.

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.

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/belvoirsouthampton/

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

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

Home Ownership among Southampton young people has nearly halved in 20 years

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.

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/belvoirsouthampton/

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

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

Southampton Property Market vs London Property Market

Anyone would think that national news, especially when it comes to talking about the property market, is just focused on London centric. In fact, over the last 5 years, the London property market has really manipulated the UK on averages to such an extent that many lenders like the Halifax and Nationwide publish two indices, a national one without London and one with.

Now it’s true the London property market has undergone some quite acute property price falls. In the upmarket areas of Mayfair and Kensington, the Land Registry have reported values are 11.3% lower than a year ago, yet in the UK as a whole they are 1.3% higher. Yet look around the different areas and regions of the UK and Northern Ireland, property values are up 5.8% year on year, whilst over the same time frame, the East Midlands is 3.9% up and Yorkshire is 3.7% up. So, what exactly is happening locally in Southampton and what should Southampton landlords and homeowners really be concerned about?

Well, to start with, as I have been saying for a while now, property is a long game, and making decisions on the short-term fluctuations is something that could cause a nervous breakdown.

I wanted to look at how Southampton had performed over the long term, when compared to London and the UK as a whole.  Yet it is hard to compare differing locations when the average value of a property in Southampton differs greatly to one in the capital.  I decided if I wanted to compare like for like, I needed to see what would happen if I had spent £100 on property in London in 1979 and what would that £100 be worth today, and then do the same exercise for the UK. So, looking over the last 40 years …

See how the growth of that £100 was broadly similar between 1979 and 2007 on all three strands of the graph and then we had the credit crunch drop between late 2007 and 2009? However, after 2009 London went on a different trajectory to the rest of the UK. Whilst Southampton (and the UK) were generally subdued between 2009 and 2012, London kicked on. All areas of the country had a temporary blip in 2012, yet whilst Southampton and the UK went up a gear again 2013, London went into overdrive and up like a rocket!

Now you can see London has dipped slightly in the last year, so the hot question for everyone has to be - are price falls likely to spread (as they did in the previous property recessions of 1989 and 2007) to Southampton and other places in the UK? The Bank of England’s opinion is that a London house price drop is unlikely to be the beginning of a countrywide trend. Looking at the graph again, it can be seen London has been in decline for 2 years, whilst the rest of the country has been moving forward.

So, what does all this mean for Southampton

homeowners and landlords?

Well what happens in London does have an impact, but there are other issues that will have a bigger impact on the local property market. The simple fact is over the last 40 years, we have had 392.9% inflation, yet looking at a typical Southampton terraced house...

A Southampton terraced house has jumped in

value from an average of £22,314 to £240,100

since 1979 - a rise of 1062.2%

Property has in the long term been a good bet. Yes, we might have some short-term blips and as long as you play the long game - you will always win. In the short term, my concern isn’t over monthly up or down property values, Brexit or another General Election. With property values still rising faster than salaries in many parts of the country, what really matters is how much of householder’s take home pay goes into housing costs as opposed to other spending items. If housing gets too expensive - other things will suffer, like holidays and the nice things in life to spend your money on. Only time will tell!

P.S. Wonder what that Southampton terraced would be worth if it had gone by London house prices? Here’s your answer - £349,439.

If you are looking for an agent that is well established, professional andcommunicative, 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.

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/belvoirsouthampton/

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

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