How Will Rising Inflation Affect the Southampton Property Market in 2022?

The UK is currently experiencing its highest inflation rate since the early 1990s. This increase in prices has primarily come about by the combination of an increase in demand for goods and services from consumers following lockdown last year together with global supply chain disruptions.

Most economists weren't too concerned about this increase in the inflation rate as the very same thing happened in the early 1990s following the Credit Crunch with a similar rise in demand and supply chain issues. Thankfully, back in the early 1990s, inflation returned to lower levels quite quickly. However, the situation in Eastern Europe now could change matters.

So, let me look at all the factors and what it means for

the Southampton property market.

The crisis in Eastern Europe has sparked even further rises in crude oil, (which diesel and petrol are made from) gas and grain prices as pressure on supply chains around the world increases.

In my previous articles, I suggested UK inflation would rise to around 7% in the spring and drop back to 5% in the autumn and as we entered 2023, be approximately 3% to 4%.

Yet, with these issues, inflation could rise to 8% to 9% by late spring and still be around 6% to 7% in autumn, well above the Bank of England's target of 2%.

With Southampton wages rising at only 3% to 4% and inflation at 7%+,

Southampton household incomes, in real terms, will fall.

This is because ‘real’ UK household incomes characteristically have been the most consistent lead indicator of growth (or a drop) in house prices. This is because growing inflation erodes the value of the money you earn, which reduces its buying power. When the cash in your pocket has a lower spending power, people tend to spend less when they buy (and rent) a home.

Next month, Income Tax thresholds will be frozen, and National Insurance contributions are increasing. Collectively, all these issues will create a drop of around 2% to 2.5% in the real disposable incomes of Britain's households in 2022 (real disposable income - somebody's take-home wages after tax and then the effects of inflation are considered).

Will Southampton people be more anxious to spend their money?

With less money in people's pockets, people's inclination to spend the money they do have could also be curtailed. People's savings are at an all-time high, yet many will decide to sit on the cash, instead of spending it, especially as consumer confidence has dropped to minus 26 on the GfK index (whatever that means – but in all seriousness though - more on that below).

All this can only mean there is going to be a house price crash.

It’s all doom and gloom! … Or is it?

 

My heart goes out to people caught up in the awful humanitarian crisis in Eastern Europe. Yet, I respectfully need to put that to one side for just a moment for the purpose of this article.

This blog is about the Southampton property market, and Southampton people want to know what will happen to the Southampton property market.

In the first half of the article, I looked at the impending fall in real disposable incomes of 2% to 2.5% in 2022. I appreciate it's going to be tough for many families in Southampton. Yet, it is always important to consider what has happened in previous times.

 

1982 – a drop of 2.3% in real disposable income

1992 – a drop of 3.7% in real disposable income

2008 – a drop of 5.8% in real disposable income

Yes, it's going to be tough, yet we got through 1982, 1992 and 2008 – and so we shall in 2022/23.

Next, the price of petrol is very high compared to a year ago.

The average price of unleaded petrol is £1.65/litre today, quite a jump from the £1.21/litre a year ago. But, here is an interesting fact, petrol was a lot more expensive (in real terms) in 2011 than today. In TODAY's money, a litre of unleaded petrol in 2011 would be the equivalent of £1.79/litre.

We have some way to go before we get to those levels – and again, the Southampton economy (and property market) kicked on quite nicely after 2011.

 

What are Southampton people spending on their rent and mortgages?

Housing costs - owner occupiers were spending on average 17.3% of their household income on mortgages in 2015, yet in 2021 this had risen, albeit to 17.7% - not a huge increase.

Council house (social) tenants have seen a drop in their rent from 29.2% in 2015 to 26.7% in 2021, whilst private tenants from 36.4% in 2015 to 31.2% in 2021.

Interesting that private tenants are proportionally 14.29%

better off in 2021 than in 2015.

 

How we spend our money - the average UK home spent 4.2% of their household income on energy in 2021, and that is due to rise to 6.3% after April (and probably 7% in October). Yet, as a country, we spend 9% of our income on restaurants and hotels and 8% on recreation and culture. As with all aspects of life, it will mean choices, and maybe we will have to forego some luxuries?

Just before I move on from this aspect of the article, again I appreciate I am talking in averages. Many people with low incomes suffer from fuel poverty and they will find the increases in energy prices hard – my thoughts go out to you.

Interest rates - higher inflation is generally brought under control using higher interest rates, meaning mortgage payments will be higher.

First, 79% of homeowners with a mortgage are on a fixed rate, so any rise won't be instantaneous. Yet, there will be a bizarre side effect from the issues in Eastern Europe. Surprisingly, though the current situation in Eastern Europe, by its very nature, will bring greater UK inflation, it will also probably defer the Bank of England raising interest rates. This means mortgage rates won't increase as much as the bank won't want to exacerbate any pressures to the UK economy in 2023/24 caused by the conflict.

The stock market had priced an interest rate rise to 2% by the end of 2022. I suspect this will now be no more than 1% to 1.25% by Christmas, slowly going up in quarters of one per cent every few months. The crisis in Eastern Europe might even come to be seen as a defence for higher inflation throughout 2022, all meaning everyone's mortgage will be less.

Next, looking at Consumer Confidence Indexes - these indexes are fickle things. I prefer to look at the Organisation for Economic Co-operation and Development Consumer Confidence Index as it has a larger sample range and a longer time frame to compare against. Looking at the data from the mid 1970s, the drop in consumer confidence is big, yet nothing like the drops seen in the Oil Crisis of the mid 1970s, Recession of the early 1980s, ERM crisis of 1992 and the Global Financial Crisis of 2008/09. Also, when compared to the other main economies of the world (G7), the UK has always bounced back much more quickly from recessions when it comes to consumer confidence.

What about house prices in Southampton in 2022/23?

Increasing energy prices, rising inflation, an increase of sanctions, and a probable drop in consumer confidence and spending in the aftermath of the conflict will knock the post-pandemic recovery globally, which will lead to a recession around the world, including the UK.

A recession is when a country’s GDP drops in two consecutive quarters. For the last 300 years, there has been a direct link between British house prices and GDP – (i.e. when GDP drops, UK house prices fall). Yet in 2020, the British GDP dropped by nearly 12%, yet house prices went the other way. 

But, let’s look at what would happen if Southampton house prices did drop by the same extent they did in the Global Financial Crisis of 2008/09.

House prices in Southampton dropped by 17.4% in the Global Financial Crisis, the biggest drop in house prices over 16 months ever recorded in the UK.

The average value of a property in Southampton today is £237,369.

Meaning if Southampton's house prices dropped by the same percentage in the next 16 months, an average home locally would only be worth £196,066.

On the face of it, not good – until you realise that it would only take us back to Southampton house prices being achieved in March 2017 – and nobody was complaining about those.

Yes, that will mean if they do drop in price, the 8.4% of Southampton homeowners who have moved home since March 2017 would lose out if they sold after that price crash. But how many people move home after only being in their home for a few years? Not many!

 

The simple fact is that 91.6% of Southampton homeowners will

be better off when they move if house prices crash.

 

And all this assumes there will be a crash.

The simple fact is, the circumstances of 2009 that caused the property crash are entirely different to 2022 (no lending by the banks, higher interest rates and increasing unemployment compared to today’s increased lending, ultra-low interest rates and low unemployment environment).

I do believe with all that's happening in the world we might see a rebalancing of the Southampton property market later in 2022 and could see the odd month with little negative growth in house prices, yet it will be nothing like 2009.

The expected fall in household spending could be counterbalanced by UK businesses’ plans to invest more in their businesses (with last year’s tax breaks on investing), which will create even more jobs.

Who knows what the future holds? These are just my opinions – what are yours?

 

1 in 53 Homes are Sitting Empty in the Southampton Area

 

·       2,075 homes in the Southampton area are empty, which represents 1 in 53 homes.

·       888 of those have been empty for more than six months and are worth £211million.

·       Why are those properties standing empty and deteriorating and why could that become an issue for the whole of Southampton?

A couple of weeks ago was National Empty Homes Week, so I thought I would find out how many homes are empty in the Southampton area - the numbers surprised me, so I wanted to share my thoughts about them with you.

The latest Government statistics show that 888 properties in Southampton have been empty for more than six months.

Homes that are left empty for an extended period can affect our locality and occasionally invite anti-social behaviour.

With a shortage of housing in the Southampton area, these empty homes must be brought back into use to generate much-needed housing for local people.

As you can see in the first bullet point, some homes are only empty for a short period of time. Yet, those local properties that stand empty for more than six months and then deteriorate become a problem for our local community.

I appreciate there can be many genuine explanations why a property may be left empty for a long time. However, with council house waiting lists at high levels and the shortage of both properties to buy and rent in Southampton, we must ask what is being done about this at Government level and how this could affect the Southampton property market?

The collective value of these 888 long-term (6 months or more) empty houses in Southampton are worth £211million.

This impacts the Southampton housing market with a lack of properties coming onto the market for sale and rent. This results in house prices being pushed up, making it less affordable for first-time buyers to get on the first step of the housing ladder.

It’s a real shame that many local properties are empty for over six months when there is an increasing demand for accommodation, at a time when there’s such a competitive housing market.

So, one might ask if this issue of long-term empty properties is a new problem? Well, not really.

There were 776 homes long-term empty in Southampton in 2010.

I know our local authority likes to work with property owners of empty homes to bring them back into housing stock as it helps with the housing shortage, even with the help of grants if improvement work is needed for the empty home. Yet, they could use enforcement action where a homeowner is incapable or unwilling to bring their property back into use.

 

So, what is the Government doing nationally? Homeowners are charged a 50% premium on top of their Council Tax if their home has been empty for two years or more. This can rise to a 300% premium if the property has been empty for ten years or more.

However, the bigger question is, why are all these homes in the Southampton area being left empty?

The real answer is - they are not.

A handful of the properties belong to the local authority and are in poor condition because the tenant trashed the property. 

Probate (where the person's estate is put in order and passed onto the beneficiaries of the will) takes between six and twelve months. Most of these long-term properties are being modernised and renovated, whilst other Southampton properties are part of a deceased estate. In other circumstances, some Southampton homes have been left empty after the owner has been placed into a care home, yet there is no Power of Attorney to put the home onto the market. 

There is no 'one fix all' to the empty home syndrome in Southampton. 

Empty properties in Southampton is not the issue that will sort the housing crisis we’re suffering from.

The simple fact is the population is growing faster than the number of houses being built. We need to build more homes.

Whether that means council properties, housing association homes, private landlords or even owner-occupation housing the masses - that's a massive question we could all talk about, day in day out until the cows come home.

So, tell me, what are your thoughts on the matter?

 

Southampton Household Heating Bills Set to Rise to £166,314,444 in 2022

 

The energy bills of every Southampton resident will rise in April as the price cap increases to account for the global increase in the cost of gas. Those not on the gas mains will still be hit as the UK uses gas to make 45% of its electricity.

So, what can Southampton residents do to reduce their energy consumption and ultimately save money?

Firstly, let's look at the scale of the costs.

Considering the increase in energy prices from April, the combined energy bills for the whole of Southampton come to …

·         £166,314,444 for central heating

·         £33,347,025 for hot water

·         £18,122,360 for lighting

There are extra energy costs for washing, fridges, etc., yet I wanted to focus just on the home as this is a property blog.

Everyone's bills will be around 50% more expensive in 2022 than in 2021, but it’s not too late for Southampton people to take some quick steps to cut their energy bills and, at the same time, cut our carbon footprint.

Just over a quarter of the UK’s carbon comes from heating and lighting our 27.6 million homes, and each UK home produces 4.39 tonnes of carbon dioxide a year.

Upgrading the energy efficiency of UK homes is seen as a vital step to attempting to mitigate the issues of climate change, fuel poverty and our nation's energy security.

So, what are some quick wins for Southampton residents to reduce the energy bills on their homes, and how will energy efficiency play a more significant part in the value of Southampton homes in the future?

1.    1.    By turning down the thermostat by 1 degree, the average saving would be an average annual saving of £105.91 per home and each homes carbon dioxide would be reduced by an eighth of a tonne (it all adds up!).

2    2.    Replacing your bulbs when you can with energy-efficient bulbs will, on average, reduce your lighting costs from £172 per year to £103 per year.

3.   3.    What time does your heating come on and off? Could it come on later and go off earlier?

4.   4.    Smart meters (which are installed for free) are estimated to help lower UK homes’ electricity use by nearly 3% and gas use by 2% … again it’s all margin gains.

 

These are just a handful of ideas. Check out the internet for others as it's fascinating how much energy we use for overfull kettles, chargers left on and tech on standby etc.

Yet, these things will only scratch the surface … many of us will need to go further, especially Southampton landlords, to retrofit our properties to make them more energy-efficient.

This is particularly important as in June the Government announced they would make the country carbon neutral by 2050, meaning Britain’s homes need some enormous retro-fitting to meet these ambitious climate targets.

In 2018, the Government required private landlords to improve the energy rating of their rental properties by prohibiting the rental of any property with an Energy Performance Certificate (EPC) rating of F and G (the lowest ratings). Yet from 2025, that will be increased to C for all new tenancies and 2028 for all existing tenancies (more on these EPCs below).

I don’t believe there is an appetite to mandate private homeowners to do this work, though you never know in the future.

So, how do you find out about your Southampton home’s eco-credentials?

Since 2007, every new home that has been built, rented out or put on to the market in Southampton has had to have an EPC, giving it a rating between A and G (rather like those stickers you see on fridges and washing machines).

A is the highest rating (i.e. best energy efficient and greener), and G is the worst efficient rating.

43.3% of Southampton homes are in that eco-friendly A to C energy performance band rating, compared to the national average of 40.1%.

So, what next? Well, the Government will attempt to make the green revolution as painless as possible with technology.

In the future, we might have hydrogen central heating instead of mains gas; or have solar panels for electricity, all triple glazed windows and even ground source heating - sounds fanciful? Well, who would have thought some of the most wanted cars would be electric 20 years ago?

There is no doubt that the energy efficiency of our homes will rise in the coming years as the cost of fuel increases and people's opinion on going green changes.

You don’t need to spend thousands of pounds to find out what you can do to make your property greener and cost less. Look at your EPC and it will tell you what small changes you can make to improve your Southampton home’s energy efficiency rating and ultimately save yourself money. If you want to find the EPC rating of your Southampton home, go to epcregister.com.

If you need an EPC, drop me a line as I know some great local energy assessors that can easily do an EPC on your property at a price that won't cost the earth!

Wow your buyers! 12 styling tips they’ll love

  

“Give your home the ‘wow’ factor!”

We’ve all heard this advice from property experts, but what does it mean? And how do you do it? Most importantly, is it worth the time and effort it may cost you?

All good questions, and the answers will be revealed in this article – so let’s dive in…

 

“What’s a ‘wow’ factor anyway?”

It’s that elusive magic ingredient that turns a home from standard to exceptional; from forgettable to unforgettable; from ‘meh’ to ‘wow!!’

 

“Ok I get that, but how do I create it in my home?”

Sometimes it’s as simple as adding a lifestyle touch to your kitchen, with a beautiful cake on a pretty stand, surrounded by fruit. Something like this:

 

Or you may need to spruce up a room by refreshing the décor with contemporary cushions, new furniture placement and some styling touches like flowers and magazines.

 

Bedrooms can be forgotten and unloved, especially if they’re rarely used, so treat them to some new bedding, a luxurious throw and even some new artwork for the walls.

 

“Is it worth spending time, effort and money on styling my home if it’s going to sell quickly anyway?”

As I write this, there is a definite scarcity of homes on the market. Homes are selling fast, and often over the asking price. But while today’s ‘sellers’’ market may make it seem that house selling is easy, no matter its condition, spending a little T.L.C. on your home to make it even more appealing is a smart move for two reasons:

1. When the market turns, your home will still stand out in all the right ways, and
2. Even in a sellers’ market, you need to be confident you’re not leaving any money on the table and losing out to competitive homes just because they are more attractively styled.

As you can see, styling doesn’t have to be difficult or expensive, and adding the ‘wow’ factor to your home could be simple and fast to do. If you’re feeling inspired and keen to get started, the team and I have compiled a list of 12 simple ways to wow your buyers. Let’s go! 

 

1. Make a big, bold statement

To create a ‘wow’ feature, add a special piece to the entryway of your home. A large photographic print, original artwork or over-sized vase will instantly capture attention, pique a potential buyer’s interest and make them want to see more.

 

2. Showcase your best spaces

To make a room feel large and open, moving or even removing unnecessary furniture will simplify it. This helps your buyers to make it their own in their heads, imagining how it will look with their furniture and accessories. When rooms are full of furniture, buyers find difficult to see past what’s there and envision your home’s potential.

 

3. Romance your buyers

Think: date night. Soft lamps, gently flickering candles, a crackling fire and subtle music playing – these all set the scene for a romantic date, but also for a successful viewing. Buyers buy with their hearts, not their heads, so appeal to their softer side, stir their emotions and make sure they leave wanting more!

 

4. Create a culinary experience

So many of us are budding chefs these days with the popularity of Masterchef and Bake-off, so create a mouth-watering experience for your buyers as they step into your kitchen! Try an Ottolenghi cookbook, casually open on the side, with some posh cookware and even posher ingredients, to create the impression that culinary magic is about to happen.

 

5. Play it safe in the bedrooms

Bedrooms are no place for strong and vibrant colours, unless you are a professional interior designer, and even then you risk sending your buyers running for their car if your bedrooms are overpowering. Even if you love bold colours, when you’re selling your home, you need to pander to a buyer’s tastes, rather than foist yours on them. So keep bedrooms light and simple. Crisp white bedding with plump pillows, dressed with a throw and some cushions in a subtle shade will give your bedrooms a hotel quality a buyer will love.

 

6. Set the table

Why not set your lovely dining table for dinner with your best dinner set? If you don’t want to go the whole hog with silverware and glasses, just add placemats, plates and glasses for an understated look. Add a floral centrepiece and voila! Your home is ready for its House Beautiful debut.

 

7. Add colour sparingly and subtly

If you’ve neutralised your home so much it looks bland and maybe a bit boring, it’s time to add some colour. The safest way to add interest is with soft furnishings: rugs, cushions and throws add colour and warmth and can really help co-ordinate a room. If you’re not sure what colours might work, look at high street stores like Next and Wayfair for ideas, and Pinterest for inspiration.

 

8. Use mirrors to make rooms feel bigger and brighter

Mirrors are a great way to bounce that light around your home and banish dark corners. Try a mirror instead of a picture over a fireplace or above a sideboard. Mirrors can make narrow spaces like hallways and landings look wider and help open up the space, and they can also transform a tiny bathroom.

 

9. Give your dining room table a fabulous centrepiece

The dining room tends to be a place for celebrations, but it’s also a room that can feel a touch bland when it’s not being used. The perfect solution when you’re selling is to lift the look and atmosphere of the room by having a stunning centrepiece that gives a sense of occasion. Perhaps a large bowl of fresh hydrangeas, a tall vase of flowers and foliage (either real or good-quality imitation) or an arrangement of storm lanterns and pillar candles – something that will leave a striking impression on buyers.

 

10. Make the fireplace a focal point

Fireplaces are certainly an attractive selling feature, so make the most of them. If you have a working fireplace, make sure the hearth is clean, the fire is always laid and you have a lovely store of logs beside it, ready to light for viewings. And if you can’t or don’t want to light a real fire, why not fill the recess with a selection of pillar candles? That can look really pretty, and even if there’s no actual heat, the flames will give the illusion of warmth.

 

11. Bathrooms that wow

In the bathroom, tidy away the products you use every day – toothbrushes, toilet cleaner etc. – and make sure your sanitaryware is sparkling. Add a set of fresh white towels and luxurious toiletries (Jo Malone or The White Company), a room diffuser and a couple of pretty plants, and your bathroom is ready to show off.

 

12. Bring your doorstep to life

And let’s not forget the front door. Plain styles tend to work best for contemporary homes, whereas if you have a period home, a red or navy front door can look classically smart. Adding bay trees or shaped conifers completes the look. If you’re lacking in inspiration, google “front doors” plus your type of home. For example, “front doors for contemporary home”. You’ll see pages and pages of beautiful ideas to copy and make sure your buyers are wowed on the doorstep.

As you can see, we’re big fans of styling a home to wow buyers! And we know it works. The homes we sell that have been skilfully styled tend to get more viewings, and better feedback too from buyers.

If you’d like a complimentary consultation on how your home could benefit from being styled – either a little or a lot – we’d love to share our ideas with you too! Just call me on 02380018222  or email me brian.linehan@belvoir.co.uk and we’ll have your home wowing buyers in no time.