Many mature
readers of this Southampton property market blog will remember buying their
first home as 20 or 30 somethings, probably in Southampton many years ago, yet
read the newspapers now and feel it is all doom and gloom for todays’
first-time buyers.
So, I wanted
to look at the facts, instead of newspaper headlines.
Back in 1995, the average Southampton first time buyers house cost
£29,970, whilst official figures state today it is £128,600
So, looking
at today’s property prices, it could be perceived that owning a home is beyond
the reach of most Southampton first time buyers and that renting is the only
way for younger members of Southampton society to have a roof over their head
.. or is it?
100%
mortgages (so no deposit needed to be saved) were rife in the 2000’s and
Northern Rock were famous for their 125% mortgages (i.e. you borrowed 25%
more than what you were paying for the house, again with no deposit). Yet when
the credit crunch hit in 2008 such mortgages disappeared overnight – ending the
dream of homeownership for many. Yet would it surprise you to hear that 95%
mortgages (i.e. the first-time buyer would need to save a 5% deposit)
have been available since late 2009 and 100% mortgages (i.e. no deposit)
were made available in 2016.
It is £119 per month cheaper to buy a typical Southampton
first-time buyer home than to rent the equivalent property.
Prospective Southampton first-time buyers could make a
saving of £1,425 per year on average if they moved from renting to owning. My calculations
assume that first-time buyers raise a deposit of just 5 per cent and make
mortgage payments over 35 years with the Barclays 95% mortgage with a fixed
interest rate of 2.48 per cent interest. At this level…
Today, the average deposit needed
by a
Southampton first-time buyer is £6,430
Those able to raise that deposit, would pay £453 pm on
average in mortgage payments, while the average rent for the same property
would be £572 pm and the household income to support such a mortgage would only
need to be from £27,149 pa.
Of course, buying your first home is a massive financial commitment
and investment with up-front costs to ponder on, yet long-term the financial
benefits can be substantial. With annual savings of £1,425 a year, this can
really mount up over time and, of course, once the mortgage is paid off, one
will have a valuable asset.
Yet, the elephant in the room is
the raising of the 5% deposit
Well most first time buyers, even most of you who are now
in your 50’s and 60’s may have used the Bank of Mum and Dad to help
with the deposit, yet it’s only fair that most parents still expect their
offspring to contribute to the deposit and this is where it comes down
to choice. I have spoken to many of my friends and family to reconfirm my
initial thoughts that it comes down to priorities and choices in life. To save
the deposit mentioned above, sacrifices are required to save that amount of
money.
According to a survey in 2018, the average
millennial goes out two nights a week and spends on average £63.36 per night
out, that’s nearly £6,600 per year - a very expensive hobby. Nearly a third of
millennials surveyed had smashed their mobile phone in the last 12 months. Then
there is the obsession of having the latest tech, with the need to constantly
be upgrading one’s mobile phone. In fact, the cost of the brand new iphone11, recently
released, is just shy of £900. Even those on contracts can expect to pay
upwards of £80 per month for the newest phone upgrade, yet if they kept their
old phone after two years, a sim only deal with the same minutes and data would
set them back no more than £25 per month … it comes down to choices. Save for a
deposit and reduce your expenditure on socialising and mobiles etc and have a
valuable asset at the end of your mortgage or continue as you are.
I am not here to make a judgement – everyone
is free to make their own choices in life – all I am doing is highlighting the
real situation - so you are aware of the full story.
If you would like to pick my brains on the Southampton Property Market – pop in for a coffee or drop me a line on social media or email.
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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