With the
banks reducing the number of low deposit mortgages (i.e. deposit of 10% and
below) since Covid-19 hit in the spring, this has meant that the number of Southampton
first-time buyers has been decreasing quickly, meaning many of those
would-be Southampton buyers wanting to make the first step on the Southampton
property ladder will stay in the Southampton rental sector.
This has caused
demand to grow amongst Southampton renters for larger homes to ride out Covid, as they hunker down for the
long haul to wait for normality to return to the property market. This has
caused …
Southampton
rents to rise from £1,335 to the current £1,372 per month over the last 12
months, an increase of 2.8%.
Interestingly, the opposite is happening in Central London, where
the rents tenants are having to pay have dropped by 3.8% in the last 12 months,
as demand has dropped like a stone. It appears Central London tenants are
looking to move out to the suburbs, in search of bigger homes, gardens and
green open spaces. For example, the average rent for a 1-bed apartment in St.
John’s Wood currently stands at a very reasonable £1,817 per month whilst a 2-bed
apartment in Kensington and Chelsea is currently at an average bargain rent of £3,715
per month (yes, they might be low compared to last year, yet for us in Southampton,
that still seems like a lot of money!). Also, there has been further
downward pressure on Central London rents, as many Airbnb landlords have dumped
their short-term holiday let properties onto the long-term rental market as the
tourism in the capital has dwindled because of the pandemic.
This has
been the sharpest drop in Central London rents since the summer of 2009, when
the property market was still stumbling from the Credit Crunch.
This means
there is a reverse of the trend of the 2010’s (2010 to 2018 to be exact), when initially
the London property market was shooting up whilst the rest of the country was in
the doldrums. When the rest of the UK did start to rise slowly in 2013, London
kicked on even further like a rocket … yet now it appears the opposite is
happening.
Getting
back to Southampton, according to the Land Registry, property values currently
stand 1.3% higher than a year ago, this is split down as follows:
·
Detached Southampton homes 2.5% higher
·
Semi-detached Southampton homes 3.3% higher
·
Townhouse / terraced Southampton homes 2.3% higher
·
Southampton apartments / flats 1.2% lower
Yet, do
remember, these figures do NOT take into account the prices paid by
desperate Southampton buyers this summer, often paying top dollar to secure the
property. This will only filter through in the figures released in the spring.
So, why are the banks curtailing the number of low deposit
mortgages, meaning that first-time buyers must find a much larger down payment
before they are able to buy their first Southampton property?
The reason is the banks are fearful of a house price crash in 2021
(although if you recall I wrote about that a few weeks ago and the reasons why
that is less likely to happen). They too are afraid of the frothy nature of the
property market since the end of the first lockdown in late spring. The bank is
lending its own money to buyers and no mortgage lender wants to be holding an
enormous amount of these types of high percentage mortgages if house prices fall
in 2021, because the bank would be saddled with negative equity and
repossession on their hands (and we all know what that did to the housing
market in the late 1980’s and early 1990’s as repossessions rocketed).
This can quite clearly be seen in the pricing and availability of
low deposit mortgages. As the Bank of England has reduced its base rate to
0.1%, in the last 12 months 10% deposit mortgages rates have actually increased
from 2% to 2.8%. Also, when lenders have been offering 10% mortgages throughout
the summer, borrowers have had only a 24-hour window to commit before the
lender withdraws the mortgage product from the market because of over
subscription. As with all economics, if demand is greater than supply, the
price goes up. That extra 0.8% doesn’t sound a lot until you realise a
first-time buyer would have to pay an additional £167 per month in interest
payments on a 10% deposit mortgage, assuming they borrowed £250,000.
However, it’s not all doom and gloom for first-time buyers as there
are embryonic signs that the 10% deposit mortgage market could gradually be
returning to normal, as I have recently heard some lenders are taking up to a
week for their 10% deposit mortgage offers to run out. Fingers crossed!
So, what does this all mean for Southampton landlords? Those Southampton
landlords with properties with gardens and larger rooms will be seeing
increased demand. The ability to have pets in the rental property is also an
advantage, and depending on the property, can add a decent premium to the rent
that can be charged.
One final thought though for all homebuyers in Southampton, be aware it’s going to be very challenging to get your house purchase through in time to meet the 31st March 2021 stamp duty holiday cut off if you are starting the process in November. Make sure your lender and solicitor have the capacity to meet that deadline and when you are asked for information, you drop everything to provide it. The odd day delay here and there will mean the difference between you getting the keys for your new Southampton home before the end of March 2021 and saving thousands of pounds in Stamp Duty Tax … or feeling a fool from the 1st of April 2021 and having to pay the tax!
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
Thanks for this very informative post on your website. and we hope you will keep it up.
ReplyDeleteHi, thanks for sharing this awesome post.
ReplyDelete