Are Southampton House Prices Set to Fall this Autumn?

The stamp duty tax holiday is over, furlough finished at the end of September, unemployment is due to rise and inflation is rife … is this the end of the post lockdown Southampton property boom?

Surely, we are heading for house price correction?

Forecasting what will happen in the Southampton property market this Autumn may not be as simple as it first appears.

It’s true the Southampton property market is starting to settle down after an all-time number of property deals were completed in June.

More Southampton people will have moved home in 2021 than in any year since 2007, with an estimated 1.5 million home buyers nationally having bought a property.

Roll the clock back to last Christmas, and the Government’s Office for Budget Responsibility, projected that national house prices would drop between 6% and 8%.

By Christmas, the price of the average home in Southampton will be about £319,900 up 3.9% on last Christmas.

Let us not forget there were so many ambiguities at the start of 2021. We were about to start a 5-month lockdown, hospitals were bursting at the seams with patients, the vaccines hadn’t started, 4 in 10 employers had furloughed their staff and we had just had Brexit ... things didn’t look good.

Yet, nothing could be further from the truth 10 months later - the Southampton property market has been on fire. But after a heated summer in the Southampton property market, things certainly can’t carry on as they have been since the end of lockdown.

So, where are we with the Southampton property market as it stands? Taking reference from historical data on the website The Advisory (I would certainly recommend you check it out)…

 

67% of properties on the market today in Southampton

are sold subject to contract (stc).

How does this compare to October 2019 and October 2017?

In October 2017, 56% of Southampton properties were sold stc, whilst in October 2019, 44% of properties were sold stc.

Yet how does that compare to the national picture?

In 2017, 39.72% of the country’s properties for sale were sold stc whilst in 2019, that figure was 38.11%.

Now I love a good league table, so then decided to compare our locality to the rest of the country

So, I chose to look at the SO18 postcode specifically. For information, there are 2,234 postcode districts in the country.

 

The 2021 sold stats put SO18 in at 327^th place in

the country, 22^nd in 2017 and 168^th in 2019.

As we enter the last 3 months of the year, there are not so many uncertainties as there were at the start of 2021. On the good news front, 49 million Brits have had at least one jab (45m two jabs) and the UK will be the world’s fastest growing advanced economy this year according to the IMF.

Conversely, the furlough scheme ended at the end of September and with energy prices going through the roof, a real shortage of homes for sale (as I have discussed a number of times in recent blogs) and rising inflation on the back of a shortage of raw materials and trained staff, forecasting this and what will happen to Southampton house prices might not be as easy as it seems.

Post stamp duty holiday, it is now recognised that the majority of the demand for people moving home is focused by a profound unhappiness and frustration with the homes we live in, revealed during the first lockdown in 2020.

Buyers (and tenants – so take note Southampton buy-to-let landlords) want space ... in fact, three types of space … and they will pay handsomely for them!

 

·         Office space (be that bedroom or study)

·         Outside space (gardens or proximity to green areas)

·         Broadband with ‘outa-space’ download speeds

 

And whilst there is a shortage of properties coming on to the market, demand and supply economics mean…

 

Southampton house prices should remain relatively stable

 going into 2022.

 

The number of properties coming onto the market in Southampton is slowly improving, yet not enough to diminish house values.

Also, don’t forget Southampton first-time buyers still have stamp duty relief all to themselves again and mortgages are cheap. At the beginning of the 2020 lockdown (spring 2020), mortgage providers removed their higher risk 5% deposit mortgages for fear of a housing market crash. Currently, the vast majority of these low 5% deposit mortgages are back, together with the Governments own 5% deposit mortgages.

 

Yet many Southampton homeowners are concerned about inflation

and its effect on their mortgage payments.

 

Inflation is important because if inflation gets too high, the Bank of England will need to raise interest rates to reduce inflation. Because mortgages payments are based on the bank of England interest rate, higher mortgage payments will affect what people can afford. Normally the higher the mortgage rate, the less likely house prices are to increase (and in fact if interest rates are too high, house prices will fall).

Whilst I can’t give you advice, with the Bank of England base rate at a 300-year historic low of 0.1%, I’m still surprised that nearly 3 in 10 Southampton homeowners with mortgages are not on a fixed rate mortgage. There has never been a better time to get a fixed rate mortgage, as there are deals out there with interest rates as low as 1%. This means even if interest rates do go up in the short term, you will be protected from higher mortgage costs. Anyway, back to inflation.

 

Inflation did rise quite quickly and steeply in 2008/9

but came back down within a year.

 

This was because of a shortage of staff and raw materials during the Credit Crunch of 2008/9, the very same issues we’re experiencing at the moment in Q4 2021. The type of inflation (yes, there are types of inflation!) in 2008/9 was called ‘push inflation’. Whilst inflation is not great, ‘push inflation’ could be described the better type of inflation (as long as is it doesn’t go on for too long).

The economic crippling hyper-inflation seen in the 1970s was ‘pull inflation’. The circumstances that create ‘pull inflation’ are not being experienced at the moment in the UK. This is good news because ‘pull inflation’ is bad inflation, which in turn would create massive problems to the UK economy as a whole.

Therefore, whilst inflation will probably rise to 4-5% by Christmas, I don’t believe the Bank of England will raise interest rates substantially as the message we are hearing from them is they see this as a short-term blip.

 

Opportunities for Southampton buy-to-let landlords?

 

Ultra-low mortgage rates and a booming rental market is encouraging more Southampton buy-to-let landlords to expand their rental portfolios, yet their strategy is changing. Yields are increasing as there is a shortage of rental properties, driving up rents. Also, there are Southampton landlords looking to exit the rental market, often because they want to liquidate their portfolio for retirement. These portfolios don’t make it onto Rightmove and get sold ‘off market’.

Therefore, if you are a serious Southampton buy-to-let landlord and you’re looking to expand your own portfolio, it’s really important to put yourselves on the mailing list of estate agents and also build up great one-to-one relationships with the same agents to ensure that you’re at the front of the queue for these off market rental portfolios and not at the back.

To conclude, nobody knows the answer to what will happen to the property market in Southampton as we go into 2022. There are many factors that could affect the market in a positive and negative way, yet buying property is always a long-term investment (be it for yourself or to rent), so if you need any advice or opinion on what you should do, drop me a line or pop into the office and we can discuss the options you have over a cup of coffee.

Has Buy-to-Let Changed the Southampton Property Market?

 

The ‘Buy-To-Let’ Mortgage is celebrating its Silver Anniversary (25 years) this autumn.

Isn’t it fascinating that a decision between a group of letting agents and bankers all that time ago to offer ‘Buy-To-Let’ (BTL) mortgages has changed the face of the Southampton (and national) property market?

But has it been a good thing? Or has it ruined the dreams of many 20 somethings wanting to get on to the property ladder in the last couple of decades?

Let’s look deeper at the whole story, then I will let you, the reader, decide.

As soon as the BTL mortgage was launched, it was clear there was an enthusiasm and a need for this mortgage product. So much so the size of the Southampton private rented sector has grown exponentially.

According to my analysis…

there are 25,247 private rented homes in Southampton, worth £7,967,095,000.

So now we are in 2021, it seems farcical that banks and building societies once thought that properties rented out to private tenants would not create a steady income or increase in value, yet this thought was conventional back in the 1990s.

 It’s no wonder BTL landlords have been given a hard time, with numbers like this.

Yet before we burn every landlord at the stake, let’s just look at the background story.

The Conservatives introduced the right of a council house tenant to buy their own council house in the early 1980s. Fantastic news for council tenants, yet when a council tenant bought their home, that meant that council housing was taken away from future generations to rent and therefore eroding the council housing stock available. Meaning from the mid 1990s /early 2000s, people who would normally be eligible to rent from the council, yet who couldn’t buy, had only one option … rent from a private landlord.

Meanwhile, in the early/mid 1990s we had 15% mortgage interest rates, unemployment rates of 9% and the 1989 housing crash fresh in people’s memories. Repossessions were rife, making home ownership not the most attractive prospect for 20 somethings.

Southampton house prices dropped by 30.7% between 1989 and 1993.

This meant as we entered the mid 1990s, the Southampton property market entered a period of stagnation. There were many Southampton homeowners that bought their home in the property boom of the late 1980s who were disinclined to sell their home for a loss. They were in negative equity (i.e. they owed more than what the house was worth) yet needed to move because of their growing families.

Renting their home out could have allowed them to buy another home for their growing family, but most banks and building societies were still mostly unreceptive to the notion of these homeowners becoming accidental landlords. Most mortgage terms and conditions usually included clauses that prohibited homeowners from renting out their homes.

So, with growing demand from potential tenants, supply reduced from the sale of council houses and many homeowners in negative equity, all bound up by the semi-deregulation of the private rented sector with the Housing Act 1988 – you can see that the BTL mortgage came along at the right time.

Early take up of BTL mortgages was slow in the first couple of years.

By the Millennium, according to the Council of Mortgage Lenders, there were just over 120,000 BTL mortgages, with a total value of £9.1 billion.

Yet as we entered the 2000s, they really took off, with every man and his dog jumping onto the BTL bandwagon. So much so that today in the UK, there are…

4.4m private rented homes, 2.1m of them with BTL mortgages totaling £234.1bn, which is 11.9% of the UK’s GDP!

That’s more than a 1,650% increase in the number of BTL mortgages to landlords and a 2,470% increase in the value of those BTL mortgages.

Since 2001, the number of privately rented households in the UK has grown from 8.3% to 19%.

On the face of it, you could say with the growth of these BTL landlords with their cheap BTL mortgages and often unkempt properties, it has pushed potential homebuyers into squalor. Yet, let’s look a little deeper.

Most Southampton landlords are very fair with their Southampton tenants providing them with clean, well presented and affordable housing. Of course, there are the rogue landlords but with TV shows such as ‘Landlords from Hell’, the British public are given a distorted and uneven view of private landlords as a whole.

Private sector landlords have played a critical role in providing homes to millions of Brits in this country, let me expand.

The UK population has grown by 405,000 people per year (for the last 20 years), yet only 22,750 council/social houses have been built per year in the same time frame.

If it wasn’t for the rented sector, who would have housed all the extra people in the country over the last 20 years? 

What about the exorbitant rents? Would it surprise you that rents have risen below inflation between 2008 and 2019?

Also there has been a drive to tax BTL landlords more comprehensively and regulate the private rented sector to develop better housing conditions for tenants.

Unlike owner-occupier homes, tenants get the benefit of new regulations from Gas Safety Checks and Electrical Safety Reports. Also, BTL landlords will need to improve their Energy Performance Certificate Rating to at least a C rating by the end of 2025 for all new tenancies, and by end of 2028 for all existing tenancies, all at no cost to the tenant and directly saving them money on their heating costs – something that is very important considering the recent rises in gas prices.

 Southampton landlords have also had to pay more tax on their Southampton BTL properties, paying 3% Stamp Duty tax supplement for the last 5 years, and higher rate tax relief on mortgage interest was taken away four years ago.

Landlords have also had to deal with the financial fallout of the pandemic. It is estimated 1 in 5 tenants in the private rented sector have some form of rent arrears.

Interestingly landlords that don’t use a letting agent to manage their property are 272.5% more likely to be 2 months or more in arrears.

Also, evictions for rent arrears were banned during the pandemic, meaning some tenants ran up arrears of 12 months or more. According to the National Residential Landlords Association (NRLA), this has left around 210,000 private tenants in the country facing a court order for rent arrears. That would equate to…

1,355 Southampton private rented households with a court order for arrears.

The idea that Southampton landlords are middle-class establishment types who are out to take advantage of Southampton tenants who can’t afford to buy their own Southampton homes is, in my opinion, just wrong.

Of course, there are some rogue Southampton landlords, yet there are plenty of rogue tenants. Just because you are a Southampton landlord, it doesn’t mean you are quaffing champagne and rolling in cash.

 4,534 Southampton landlords own just one BTL property.

And just under half of those use their rental income to supplement their pensions, and according to the NRLA, a third of landlords have a gross income (excluding income from the BTL property) of less than £20k per annum.

It’s hard work being a Southampton BTL landlord and I still believe the burden of housing just under a fifth of the UK population isn’t appreciated or taken seriously by Government.

Notwithstanding the challenges, most Southampton BTL landlords are in it for the long run. BTL mortgages can be secured for less than 1% and demand is on the rise (with rents rising at the highest rate for 10+ years). Of course, Brexit caused a few issues with some Southampton landlords losing some Eastern European migrants. Yet once things settle down, we will have an influx of people coming from Hong Kong and Afghanistan, wanting to settle down, get jobs and ultimately require a home to live in, which will be a private rented house.

I know the Stamp Duty tax holiday has cleared out the Southampton landlords who were on the fence for staying in the private rented sector or selling up, but those Southampton landlords that are left will be more professional and will run their BTL portfolio as a business, not a hobby.

My final piece of advice to anyone thinking of becoming a BTL landlord in Southampton for the first time is that you have to have a strategy and plan ahead. Those who stumbled into the BTL market in the early 2000s made a lot of money without any strategy or tactics. 

Moving forward you need the guidance and support of an agent who can tell you the best places for investment, be that for better yield or better capital growth.

They will also be able to tell you what tenants demand to ensure that you attract the right sort of tenants who won’t trash the place and leave you in arrears. If you would like some advice, do not hesitate to drop me a line or pick up the phone.