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Tuesday 29 December 2020

As Unemployment Hits 6.9% in Southampton, What Effect Will This Have On The Southampton Property Market in 2021?

 




12 months ago, the unemployment rate in Southampton stood at 3.1% of the working population, yet with Coronavirus hitting the UK, what impact will this rise in unemployment have on the Southampton property market?


As I have discussed a number of times in my articles on the Southampton property market, this summer saw the Southampton property market do exactly the opposite of what was expected when Covid hit. 


The Stamp Duty holiday added fuel to the pent-up demand for people to move to larger properties with extra rooms (to work from home) and gardens. This prompted a brief hiatus in the number of people selling and buying their home in Southampton over the last summer and autumn. 


Yet, insecurity around rising unemployment, led to many mortgage companies becoming more cautious in the later months of summer, predominantly when lending to the self-employed or first-time buyers borrowing more than 85% of the value of the home (as they wouldn’t want to lend money to someone that could not afford a mortgage due to an insecure income or not having a job.


Back in the late spring, economists were predicting that UK unemployment would rise to a peak of 6.5% in Q3 2020, returning back to the 2019 levels (3.4%) by 2022.


By the end of 2020 nationally the unemployment rate stands at 6.3%. The toll Covid has had on people’s livelihoods has been massive, with an additional 1,434,515 people out of work, although it is important to note this unemployment rate is still lower than over the five years following the Credit Crunch years - 2008 to 2013.


So, with such a growth in unemployment and issues around Brexit, this may hold back the enthusiasm of many companies to take on more staff, reducing any rebound in employment. If unemployment remains high, this will influence perceptions of employment and personal/household financial security, which are the ultimate drivers for both house prices and whether people buy and sell.


5,280 Southampton people were unemployed a year ago,

today that stands at 11,890.



Looking at all the study papers on the topic, there is a link between unemployment and house prices, yet it’s not as strong as you would think. The larger factors are the demand and supply of property on the market and interest rates. Interestingly, in the past two recessions, the comparatively richer regions of London and South East house prices have been more sensitive to unemployment and house price changes than the rest of the UK, yet London and the South East also bounced back quicker and higher after the two recessions.  



The concept behind this is that more expensive house prices in the South drop more than lower priced houses in the rest of the UK. Why? Because those more expensive regions have, by definition, more expensive house prices meaning the homeowners have higher mortgages, so if they become unemployed, their homes are more likely to be repossessed (because of the high mortgages), and consequently that reduces house prices in that area quicker because repossessed houses tend to sell much more cheaply compared to normal house sales.



The health of the Southampton property market in 2021 and beyond really depends on what happens to the economy as a whole and more specifically what is happening in the Southampton economy.


When we drill this down, though unemployment has hit different sectors of the economy to a lesser or greater extent. For example, for office workers, people who work in tech & sciences and the professional services, the impact on jobs has been comparatively mild, with many personnel able to work from home. Yet for others, such as those who work in the hospitality, leisure, retail, entertainment and catering industry, remote working is simply not an option and these have been hit the hardest.


Unfortunately, the industries mentioned above are the ones that tend to employ the younger generation, who invariably live in private rented accommodation, rather than own their own home. Being made redundant puts their dream of buying their first home back even further as they try and get themselves back on their feet by initially finding a job (let alone save for a deposit).


Housing markets will recover quickest in towns and cities, where jobs are in more resilient employment sectors.


For example, in London, unemployment jumped really quickly (and high) in 2009 with the Credit Crunch, yet came down just as quick in 2011, just as the property market in London started to take off, whilst in Southampton, it took a lot longer for unemployment to drop and the Southampton property market didn’t really start to get going until 2012.


If we have a determined economic contraction, with a lengthier and leisurely economic recovery, impeded by financial stress, that will lead to much higher unemployment in the 10% to 12% range in the summer of 2021. However, before I get to the initial question, I need to highlight another interesting fact, because … 


what is particularly interesting is the increase in unemployment in Southampton amongst men has been higher than women, with a growth of 4.8 percentage points for men compared to 2.8 percentage points with women.


So, what is the prediction for the Southampton property market under the cloud of this growth in unemployment? 


One massive redeeming factor that could save the Southampton property market is low interest rates. This will keep mortgage payments low, meaning repossessions should be kept to a minimum (therefore there shouldn’t be a flood of cheaply priced Southampton properties coming onto the market all at the same time and dragging Southampton house prices down with it, as it did in the previous two recessions of 2009 and 1989).  


Yet, irrespective of the ultra-low interest rates, I still consider property prices in Southampton at Christmas 2021 won’t be much different from today, and in fact could be slightly lower.


This is because people have been paying top dollar in the last six months to secure their dream Southampton home, quite often spending the money they saved on Stamp Duty on the purchase price. When Stamp Duty Tax returns in April 2021 there will be less money to pay for the property ... thus Southampton property values will, by implication, be lower in a year’s time.


What about Southampton landlords and the rents?


Nationally, rents fell just over 2.3% between 2008 and 2010, following the Credit Crunch, while national house prices fell 15.9%. I anticipate Southampton rents will also remain comparatively robust in the coming months and years. 


Rents are very much tied to the rise and fall of wage growth and I can’t see why this relationship shouldn’t continue. Rents will rise in Southampton by between 13% and 15% in the next five years, yet if property prices do rise in 2023/24, that means future rental yields will be marginally lower in 2023/4 comparative to today, especially as ultra-low interest rate expectations (according to the money markets) seem to be here to stay for a long time. 


Therefore, something tells me there could be some interesting Southampton buy-to-let investment opportunities for Southampton investors willing to play the Southampton buy-to-let market long game.


To conclude, these are just my personal opinions. If you are a Southampton landlord looking for advice and an opinion on what to buy to maximise your returns, please don’t hesitate to contact me. If you are a Southampton homeowner, looking to buy or sell and need any advice or opinion on where the market is and where your Southampton home sits in the bigger Southampton property market picture – again feel free to drop me a line.  


    CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

 

If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.

 

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

 

 

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/offices/southampton

Friday 18 December 2020

No Deal Brexit – The Prediction for Southampton House Prices


Roll the clock back to April 2020, and major financial economists and property market commentators were sounding the alarm. The very best-case scenario was a 5% drop in property values by the end of the year, and most were in the 10% to 15% range. They forewarned the Covid-19 stimulated recession would trim tens of thousands of pounds off the value of Southampton homes.

Yet the Southampton property market didn’t seemed to get the memo on that, and now as we find ourselves at the end of 2020 and the worst of lockdown restrictions appear to be passed, vaccinations on the way and economy starting to grow, Southampton property prices seem to be doing quite well.

What happened to the Southampton house price crash that didn’t materalise?

Before I answer that, it reminded me of what the Treasury said in 2016 about a leave vote on the Brexit referendum. The considered opinion of the Treasury was house prices would drop by 18% if the country voted to leave the EU, so let us see what that would have done to Southampton house prices if that had taken place and then what exactly has happened in the last four and half years …

 


 

Average Value
2016

Predicted Drop by
The Treasury because
of Brexit

Average Value
Today

Uplift in Value
in Last 4.5 Years

% Increase since
Brexit Vote

Southampton
Detached

£410,900

£336,900

£460,200

£49,300

13.0%

Southampton
Semi

£252,000

£206,600

£292,100

£40,100

14.9%

Southampton
Terraced / Town House

£211,300

£173,300

£247,300

£36,000

18.0%

Southampton
Apartments

£171,000

£140,200

£188,400

£17,400

9.2%

 

So why has the Southampton property market not matched the property pundits twice in the last five years or so?

 

Well for most of us, owning a property is about having somewhere to live rather than an investment (an Englishman’s home is his castle??). Nevertheless, once a homeowner is on the proverbial ‘property ladder’, it cannot be denied that it is eternally beneficial to know, as a homeowner, that you have made a healthy investment in your home and that the value will rise to alleviate the ache of trading up market — or down market when you retire.

 

Those Southampton homeowners who own detached homes would have made an average of £49,300 profit, a rise of 13.0% or a weekly profit of £189.62 — calculated between the price they would have paid in the summer of 2016 and the price they would sell for today. Looking at the weekly profit for all property types in Southampton since the Brexit vote …

 

·        Southampton detached homes weekly profit of £189.62 per week

·        Southampton semi-detached homes weekly profit of £154.23 per week

·        Southampton terraced homes/town houses weekly profit of £138.46 per week

·        Southampton apartments weekly profit of £66.92 per week

 

Whilst it is no surprise the property market boom was inspired by the Chancellor’s Stamp Duty holiday; this is not exclusively the Chancellor’s achievement. The three ‘D’s have been with us throughout 2020, Covid or no Covid (Debt, Divorce and Death), together with a huge shift in the way Southampton homeowners see their homes.  With us cooped up during the lockdown and working from our dining room tables, the want and need of Southampton people to have a home with an extra bedroom to work from, together with a garden has been one of the biggest drivers this year… hence the rise in demand.

 

So, what of 2021? It’s true that the country will have high unemployment, yet at the same time, we have ultra-low interest rates and for the last 20 years, on average we have only built 150,000 households per year as a nation, but needed 300,000 per year to keep up with immigration, people living longer and changes in the way households are made up (compared to the Millennium).

 

Many people can predict what will happen – yet none of us really know what will actually happen to the Southampton property market in 2021.

 

Covid was a black swan event and the fallout from that, I believe, has changed Southampton peoples' lives and their lifestyles, especially how they see their home. Instead of making predictions, nothing can get away from property market fundamentals, which have driven price booms on the back of high demand for homes and low supply (i.e. properties coming onto the market) and price crashes on the back of over-supply and low demand. Only time will tell if, in 2021 the Southampton property market will see a flood of properties coming to the market because of debt or the demand for larger homes continues to rise unabated.

 

Please do let me know your thoughts on the matter.




    CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

 

If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.

 

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

 

 

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/offices/southampton


 

 

Thursday 10 December 2020

Southampton Landlords and Second Homeowners Will Probably Save Money From The Proposed New Capital Gains Tax Changes


CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

If the proposals were adopted in full, some Southampton landlords would pay £10,500 less Capital Gains Tax than they would currently

 

The government borrowed £394bn in this financial year todate(April ‘20 to April ’21). This figure does not include the cost of the November lockdown and support measures, which means the final bill will probably be over half a trillion pounds. Ultimately, these billions will need to be paid back to cover the cost of Coronavirus.

 

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Taxation (CGT) rates to fall inline with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.

 

This has led to many Southampton buy to let landlords contacting me in the last few weeks, wondering if this is the time to exit the Southampton buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.

With tax bills about to go through the roof, is this the time to

leave the Southampton buy to let property market?

 

Yet, like all things, the devil is in the detail as Southampton 2nd homeowners and Southampton landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government.

 

Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation (indexation).

 

So, what would that actually look like for a Southampton landlord? Let us assume we have a Southampton landlord who bought a Southampton buy to let property in 2000.

 

Under the current CGT rules

 

·         The average value of a Southampton property in 2000 was £109,300

 

·         Today, that same Southampton property has increased in value to £307,300

 

·         Meaning a profit / gain of £198,000

 

·         As our Southampton landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill would, after the annual allowance, be £51,996

 

Under the new proposed CGT rules

 

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000) the same Southampton landlord would only pay £41,698 – a saving of almost £10,500.

 

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.

 

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen.

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide them with income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa... where else are you going to invest to get the income Southampton property investments provide?

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your Southampton buy to let investments? Many Southampton landlords do so, whether they use our agency, another Southampton agency or you manage your property yourself. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear – not what you want to hear … what do you have to lose?

   CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

 

If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.

 

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

 

 

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/offices/southampton

 

Thursday 3 December 2020

The 2020 Review of the Southampton Property Market

  


CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

 

Looking back at the Southampton property market for 2020, it certainly can be seen as a frenetic game of two halves, albeit with a very long half time in the spring. Between the General Election in mid-December and Christmas, many Southampton agents saw an unusually high uplift in activity in the property market just as we were getting ready for Christmas 2019. Yet once the New Year festivities were out of the way, that pre-Christmas uplift in the local property market was nothing when compared to the bang on Monday 6th January 2020 with the fabled ‘Boris Bounce’ of the Southampton property market. January, February and most of March were amazing months, with pent up demand from people wanting to move following the Brexit uncertainty of 2018/9 being released in the first few months of 2020.

 

The pandemic hit mid-March, and the Southampton property market was put on ice for nearly three months (as was almost everyone else’s lives). Yet at the end of spring, the property market was one of the first sectors of the economy to be re-opened. Every economist predicted house price drops in the order of 10% in the best-case scenario and 25% in the worst, yet nothing could be further from the truth.

 

When the lockdown restrictions were lifted from the property market, those three months allowed Southampton homeowners to re-evaluate their relationships with their homes. The true worth of an extra bedroom (for an office) became priceless, as people working from home were having to take calls and work from the dining room table. Southampton properties with gardens and/or close to green spaces all of a sudden became even more desirable. More fuel was put on the fire of the Southampton property market with the introduction of the Stamp Duty Holiday, meaning buyers could save thousands of pounds in tax if they moved before the end of March 2021. This stoked the local property market and now …

 

Property values in Southampton are set at 1.3% higher today compared to a year ago.

 

The fallout of this increased demand for a new home meant those Southampton properties on the market coming out of lockdown in early summer with those extra rooms and gardens were snapped up in days for ‘full’ price. Southampton buyers were having to spend their Stamp Duty savings on paying top dollar for the home of their dreams. Yet the increased number of properties coming onto the market in the late summer quenched a lot of that demand and the prices being achieved became a little more reasonable and realistic. This increased the number of properties sold (stc), so much so that nationally, almost two thirds more homes have been sold (stc) than would be expected at this time of year!

 

However, as we all know, just because a property is sold (stc), it doesn’t mean the property is actually sold. The number of people who have moved home in the last 12 months in Southampton, is as you would expect, much lower. Over the last 10 years, on average 5,849 Southampton homes have changed hands per year, compared to only 2,491 Southampton homes in the last 12 months.

 

So, what is a Southampton property worth today? Drilling down to the four types of homes locally, some interesting numbers appear. Looking at the table, you can see what the average property types are worth locally, and within each type, the average price paid in the last 12 months. (So, if the average price paid for the last 12 months is higher than the overall average, that means more higher priced property in that type has sold in the last year compared to the overall average – and vice versa) 

 

 

Average Overall Value Today

Average Price Paid in the Last Year

Southampton Detached

£469,420

£435,000

Southampton Semi-Detached

£289,220

£295,790

Southampton Town House / Terraced

£239,920

£231,090

Southampton Apartments/ Flats

£191,250

£172,730

 

Of course, these are the overall average values. To give you an idea of what Southampton properties are selling by their square footage, these are those averages values …

 

Average Value per sq. ft (internal)

Southampton Detached

£305.91

Southampton Semi-Detached

£288.40

Southampton Town House / Terraced

£261.90

Southampton Apartments/ Flats

£263.15

 

So, what about 2021? Well normally when the country’s GDP drops like a stone (as it did in the Summer of 2020), the property market follows in unison. Yet as the economy went south, the house price growth and activity in the property market went north. This would appear to be a quite remarkable outcome given that economic framework, but it is gradually becoming clear that, as far as the Southampton property market is concerned, people’s time in lockdown has been spent reflecting on what they really wanted from their home and this has meant that the normal rules of the game simply do not apply… for now!!

  CLICK HERE TO FIND OUT HOW MUCH YOUR SOUTHAMPTON PROPERTY IS WORTH

 

If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.

 

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

 

 

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/offices/southampton