What will a no deal Brexit on the
horizon, the end of the stamp duty holiday in March, mortgage payment holidays
coming to an end, unemployment set to rise after furlough and ongoing on/off coronavirus
restrictions do to the Southampton property market and the value of your Southampton
home?
In the late spring of 2020, every man and his dog were forecasting
impending doom on the British property market. Drops of 10% were considered
optimistic as we all held our breath after lockdown was relaxed. Yet, the
property market didn’t listen to the forecasters. UK property values today are
2.5% higher than they were a year ago, and more locally,
Southampton
house prices are 1.3% higher than a year ago.
So, what exactly is going to
happen to the Southampton property market in 2021?
Well, with the end of furlough and
1.7m people still on the furlough scheme at the start of October, a number of economists
are saying that unfortunately many of those furloughed will become unemployed.
Unemployment currently stands at 4.5% in Q3 2020 (compared to 3.8% in Q3 2019).
The Government’s independent Office for Budget Responsibility believes the unemployment
rate will peak at 9.7% in early 2021, and then return to pre-coronavirus levels
in 2022. In the past recessions of the early 1980’s, early 1990’s and Credit
Crunch of 2009, when unemployment went up, the property market went down.
Yet, in this recession, the link between unemployment
and property values may not be so direct.
So why is the link between unemployment and house prices
potentially broken? It comes down to interest rates.
The reason Southampton house prices have gone up by 370.57%
since the middle of the 1990’s isn’t because the labour market has got so much sturdier,
nor that the economy has outperformed every G8 country, or that the UK has had less
boom and bust economic cycles than the previous decades. Instead, it’s because
of the fundamental and underlying decline in the Bank of England (BoE) interest
rates.
High BoE interest rates equal high mortgage payments
which holds everything back regarding the property market. In the 1980’s, the
average BoE interest rate was just over 11%, making mortgage payments very
expensive and keeping property prices dampened. In the 1990’s, the average BoE
interest rate was a little over 6%, in the 2000’s just over 4%. However, in the
2010’s, it had been a really low 0.5%. Now with interest rates down to 0.1% because
of coronavirus and the BoE threatening negative interest rates, there appears
little threat of an eruption in mortgage repayment costs.
With mortgage payments at an
all-time low of just under 30% homeowners' disposable income (compared to 48% in 2007), those middle-aged people lucky enough to still be in a
job (who are mainly made up of workers that are spending a lot more time
working from home), they could be more inclined to dedicate more of their
monthly income to mortgage payments than they did pre-coronavirus for a bigger
garden or a move out of the big cities?
So,
if unemployment isn’t going to make a huge difference to the Southampton
property market, what is?
Most commentators believe a no deal Brexit will have
hardly any short-term effect on the property market (apart from certain
upmarket parts of central London).
The Stamp Duty holiday ends at the end of March 2021 and
that certainly will reduce the number of Southampton people moving (as many
moved their plans forward to beat the deadline) meaning there will be less Southampton
people moving in 2021, yet that will curtail the supply of property for sale and
hence keep Southampton property prices higher.
Next, the Help to Buy scheme, (started in 2013 and
where the Government underwrites part of the mortgage for the first time
buyer, meaning they can obtain a 95% mortgage) ends in April next year, yet
the Tories indicated at their conference last month they would probably create
‘Help to Buy - Part 2’.
The bottom line is in the early 1980’s and 1990’s
recessions, when interest rates were over 15%, obviously homeowners couldn’t
afford to keep up the mortgage payments when made redundant or on reduced wages,
so many handed in their keys to the banks and homes got repossessed, thus
exacerbating the issue with falling property values.
However, with interest rates so low, this will not be the
case forever. I envisage that UK property prices will be between 4% to 5%
higher by December and Southampton values just behind that at 2% to 3% higher, before
levelling out in 2021 (although we might see a modest dip in certain sectors
and types of Southampton homes depending on location and condition).
My advice to Southampton buy to let landlords is to wait on
the subs bench until April 2021. Something tells me there will be some Southampton
landlords who will be looking to exit the rental market after having their
fingers burnt after the eviction ban has been lifted.
I also suspect those Southampton
first time buyers, eager (and able) to break free of the
rental-rat-race will want to take up the anticipated ‘Help to Buy - Part 2’ scheme,
particularly if the BoE base rate stays low. The other winners in 2021 will be low
mortgage/equity rich households upsizing to the countryside or leafy suburbs to
test out their boss’s promise of ‘flexible-working’.
Yet the losers will be the 18yo
to 29yo renters … most likely to be made redundant and least likely to buy a
home.
My advice to the Government for
this cohort is to not ignore them once the country is out of this coronavirus
situation. It’s all very good keeping the Home Counties Tory voting Baby
Boomers happy with green belt policies and other policies to keep their property
values higher, yet as the Generation X and Millennials get older and take over
as the largest demographic to keep happy (for the polls), the hitherto inconceivable
action of the Government levying Capital Gains Tax on your main home may come
to fruition.
I mean, we have £400bn to pay
back because of coronavirus … it has to be repaid and it has to come from
somewhere. Those denied real
access to buying their own home in the last 10 years, because of massive house
price gains over the last 25 years, could vent their anger via the ballot box -
if not at the 2024 General Election, maybe in 2029, when they realise that the futile
housing policies of both Labour and Tories of the last 23 years have left them
with enduring financial diffidence.
Maybe we should all look to the grocer’s
daughter from Lincolnshire who in 1979 set out a bold vision of home ownership
for everybody. Whichever political party picks up the truly batten and reframes
it for the current 2020’s generation and comes up with the goods, will be the
ultimate winner in this game.
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.
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ReplyDeleteThanks for this, it's so informative and easy to understand.
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