Southampton’s Millennials to Inherit £260,701 Each From Their Baby Boomer Parents

The total value of homes owned by Baby Boomers in Southampton alone is £9,198,828,639 - and two-thirds of the Southampton Millennials are set to inherit all that in the next few decades!

Could this be the answer to the housing crisis?

Could Southampton Millennials live it up for the next few decades, safe in the knowledge they will get a huge lump sum to pay off their debts and buy a house with what is left?

Before I look at that, which set of people in Southampton exactly are the Southampton Millennials or Southampton Baby Boomers?

Come to that, who are Generation Z, the Silent Generation or Generation X?

All these are phrases used for the different groups of people in their various life stages of our society.

So, splitting the groups down:

 

Silent Generation: Born 1945 and before (77 years old and above)

Baby Boomers: Born 1946 to 1964 (58 years old to 76 years old)

Generation X: Born 1965 to 1980 (42 years old to 55 years old)

Millennials: Born 1981 to 1995 (27 years old to 41 years old)

Generation Z: Born after 1996 (everyone under 26 years old)

 

Using data from the Census, my research shows there are …

 

27,027 households in Southampton owned by Southampton Baby Boomers and they are worth a combined value of £9,198,828,639.

 

The generation that will inherit those Southampton properties will be the millennials.

 

There are 52,901 millennials in Southampton.

After looking at the local demographics, homeownership statistics and current life expectancy, around two-thirds of those Southampton Millennials have parents who own those 27,027 Southampton properties, meaning each is in line for an inheritance of £260,701.07.

Yet what about Southampton’s Silent Generation?

 

There are 23,311 homes in Southampton owned by the ‘Silent Generation’, and they are worth £7,934,062,027.

Two-thirds of the 51,989 Southampton Generation X will inherit £231,227.88 - still nothing to sniff at yet not quite as much as the millennials!

So, whilst the Southampton Millennials are less likely to own their own home compared to Generation X and so have done not as well in amassing their assets and savings, they are more likely to benefit from an inheritance boom in the years to come.

This is likely to be very comforting information for those Southampton Millennials, including some from humbler upbringings who historically would have been unlikely to receive an inheritance.

Nevertheless, inheritance is not the silver bullet that will get the millennials onto the Southampton housing ladder.

Nor will it deal with the increasing wealth inequalities in British society, as the inheritance they are likely to receive won’t be accessible when they are trying to buy their first Southampton home.

So, before all you Southampton Millennials start running up your credit card bills, safe in the knowledge they will be paid for when your parents pass away in 20/30 years, over half of the females and around a third of men are going to have to pay for their nursing home fees.

Remarkably, I recently read 25% of people who must pay for their nursing home fees run out of money, and therefore have to rely on funding from the local authority

Therefore, if you are a Southampton Millennial, no inheritance will be left for you. It goes without saying, most Southampton parents want to give some inheritance to their children.  

Yet if waiting until you pass away to help your children or even grandchildren with your legacy could be seen as too late, so what are the options?

One solution to help and fix the housing crisis in Southampton (and the UK as a whole) is if parents and grandparents, where they can, help financially with the deposit for a house whilst their children/grandchildren are in, say, their 20's and early 30's.

Buying a Southampton property is much cheaper than renting – I have shown it many times in these articles.

 

It’s not a case of not being able to afford the mortgage; the problem is raising the mortgage deposit (of 5% to 10%) for these Southampton Millennials.

Maybe families should be discussing the distribution of family wealth whilst everyone is alive (in the form of helping the family with house deposits) as opposed to waiting until the end, as it will make a massive difference to everyone in the short and long run.

And a final thought, your legacy will have a more significant impact, and you will be here to see it with your own eyes.

A win-win for everyone.

  

Southampton Property Prices Have Risen by 380% Since 1995

 

“Tell me what is happening to the Southampton property market”, asked the friend of a friend at a recent do I went to in Southampton (after finding out I was an agent in Southampton).

I always reply, “It depends if you are buying, selling or both”.

The Southampton property market is like a seesaw. For the last two years, it has been quite firmly in the realms of a 90% seller's/10% buyer's market.

However, unless you are a Southampton buy-to-let landlord, Southampton first-time buyer, or executors selling a deceased person's estate, most home movers are both (i.e. they are both sellers and buyers).

 

So, what determines where we are on the seesaw of a seller’s market or a buyer’s market?

 

It comes down to simple supply and demand economics. i.e. the number of properties on the market versus the number of buyers in the market.

Like when someone sells goods or services, it's the same with property. So, when we have a low supply of properties on the market and high demand for properties to move into (like we have had for the last two years since the end of lockdown one), house prices go up.

 

Southampton house prices are 10.3% higher than a year ago.

 

The other side of the coin was seen in the Credit Crunch years of 2008/9. Many people wanted to sell their houses in Southampton, yet the banks weren’t lending, so people couldn't buy. This meant the supply of property on the market exceeded demand; hence Southampton house prices dropped by 16% to 19% in 18 months (depending on what type of property you were selling) as we had a 20% seller's/80% buyer's market.

Whilst demand and supply are the key driving force on the balance of the buyer/seller’s market seesaw, it is not the only influencer of the property market. The price band is also an essential determiner of house prices, albeit over the longer term.

To show this, initially, I will go back to 1995 to ascertain what has happened to average house prices over the long term in Southampton.

 

The average Southampton house price has risen from £52,467

in 1995 to £251,882 in 2021, a growth of 380.1%.

 

Interesting, when you compare that against the national figure of 407.2%. Also, looking at where our local authority stands against other areas, we are 205^th out of 331 local authorities in England & Wales for house price growth.

It’s called the property ladder for an excellent reason, and the health of the whole Southampton property market is very dependent on those bottom rungs of that ladder.

 

Therefore, looking at the data for our local authority, paying particular attention to the lower end (in terms of price), some intriguing data comes to light. It is crucial as the lower end of the property market (in terms of price) is a good bellwether for the whole Southampton property market.

 

So, I looked at the following:-

1.   Lower 10^th Percentile of the Southampton housing market – i.e. the bottom 10% in terms of the value of properties sold – e.g. small apartments and ex-local authority properties in the less popular areas, which mainly attract buy-to-let landlords.
2.  Lower Quartile of the Southampton housing market – i.e. the bottom 25% of Southampton property in terms of their value, e.g. first-time buyer homes and mid-market buy-to-let property.

… and if one looks at our figures for Southampton and the whole local authority, you can see the three parts (lowest 10%/lowest 25% and overall average) have performed quite similarly.

• ·       The average value of a Southampton property sold in 1995 in the lower 10^th percentile (i.e. the bottom 10% of the Southampton property market) was £29,000, and in 2021, it was £135,000, a growth of 365.5% (compared to the national average of 428.4%).

• ·         The average value of a Southampton property sold in 1995 in the lower quartile (i.e. the bottom 25% of the Southampton property market) was £37,995, and in 2021, it was £185,000, a growth of 386.9% (compared to the national average of 417.7%).

Some of you might be asking yourself, what do all these different figures mean to Southampton homeowners, first-time buyers and landlords? 

 

As the overall average is above the lower 10^th percentile but roughly the same as the lower quartile growth figures, meaning the middle to upper market in Southampton has performed better than the lower end in terms of house price growth since 1995.

The thought I am trying to get across to every Southampton homeowner and buy-to-let landlord is that there isn’t just ‘one’ Southampton property market.

There are markets within markets - almost like a fly's eye. It is essential not to look at just the headlines but delve deeper when considering what is really happening and not to just look at the overall averages.

As we enter the height of the summer, the Southampton property market seesaw has started to change ever so slightly, changing from the 90% seller's/10% buyer's market we have had in the last two years to more of a 70% seller's/30% buyer's market.

With that in mind, if you can spot trends before anyone else is aware of them you could find yourself some potential Southampton property bargains.

74.1% of Southampton Properties Were Bought With a Mortgage in the Last Ten Years

 

 

Could the high levels of mortgages that Southampton people take out cause another property crash?

Many Southampton homeowners and landlords have been contacting me recently and asking what will happen to the Southampton (and the UK) property market? More specifically, will we have a repeat of the 2008/9 Credit Crunch property crash?

High mortgage payments were one of the critical catalysts to Southampton house prices dropping by between 16% and 19% (depending on the type of property) in just over one year in Southampton.

To answer that question, let me look at the mortgage numbers locally to see where we stand in the Southampton area.

 

24,690 of the 33,338 property sales in the last decade in Southampton were purchased with a mortgage.

 

74.1% of our local authority area house purchases have been made with a mortgage (meaning 25.9% are made with 100% cash).

Interesting, when compared with the national average of 67.4% of house purchases with a mortgage over the last decade.

However, what is thought-provoking is the number of house purchasers buying with a mortgage has steadily been increasing over the last decade.

 

Between 2012 and 2017, the percentage of people buying with a mortgage was 72.5%, yet over the last five years in Southampton, that has risen to 76.9%.

 

 

Initially, this doesn't sound good. Yet, as always with my articles on the Southampton property market, the devil is always in the detail.

The issue is that most people need a mortgage to buy their home.

However, it’s not the amount of mortgage that is the issue, more the level of monthly payments. So, if you fix your mortgage rate, then your payments are fixed (a good idea especially as interest rates are on the rise).

 

In the last quarter, just under nineteen out of twenty (94.35%) of new borrowers that took out a mortgage had a fixed-rate mortgage at an average interest rate of 1.84%.

That’s good news for recent buyers as most of their payments won’t rise even though Bank of England interest rates have risen over the last few months. Yet it’s essential to see what existing homeowners with mortgages have done with their mortgage rates (i.e. fixed or not) as they form the bulk of the property market.

This is because in 2008/9 (the last crash), many people were unable to afford their high monthly mortgage payments when they were made redundant because interest rates were much higher. This meant many Southampton homeowners ‘dumped’ their houses onto the market, all in one go in 2008, because they couldn’t afford their high mortgage payments.

Also, the banks could not lend money for mortgages as easily because of the Credit Crunch, meaning fewer people could get a mortgage, so the demand for Southampton houses dropped as well.

 

In a nutshell, the number of Southampton properties on the market almost doubled overnight in 2008, yet demand plummeted as mortgages were hard to come by. High supply and low demand meant Southampton house prices nosedived in 2008/9.

Going into the Credit Crunch, one in six (60.4%) homeowners with a mortgage had a fixed rate at an average of 5.76%. By 2013, this had dropped to one in three people (33.29%) having a fixed-rate mortgage at an average of 3.34%.

 

Yet today, just under 17 out of 20 homeowners with a mortgage have a fixed rate at an average of 1.97%.

 

Whilst the country might owe collectively £1,630.5 billion in mortgages, irrespective of increasing rates, most homeowners have protected themselves with a low fixed interest rate.

Also, the overall ratio of mortgage debt in the UK, compared to the value of the homes the mortgages are lent on, is also low compared to the year before the last property crash. This ratio is called the Loan to Value ratio (LTV). The higher the LTV, the less equity the homeowner has in the property.

In 2007 (the year before the crash), only 49.4% of people had a mortgage less than 75% of the house's value (i.e. they had an LTV of less than 75%). Today that stands at 60.9%, which means more people have more equity in their property.

Another thought on why the country is in a better position is only 4.22% of mortgages have a 90% or higher LTV (compared to 16.28% just before the crash in 2007).

 

1 in 6 people were vulnerable to negative equity in the last property crash, whilst today that would only be 1 in 25.

 

This means if we do have another property market correction for any other reason ... the number of people in negative equity will be much smaller, so it won't affect the property market as much.

So, in conclusion, as we have fewer people with high LTV mortgages and fixed rates that are a third of what they were in the Credit Crunch, we are, as a country, in a better position to weather any storm.

If you would like any advice or opinion on the Southampton property market, be it buying or selling or anything to do with investing in the Southampton buy-to-let property market, don't hesitate to drop me a line.