Southampton First-time Buyers Keeping our Local Property Market Afloat

The Southampton housing market is relativity buoyant, thanks to an unexpected group of people – Southampton first-time buyers.

Many Southampton tenants are annoyed with competing for Southampton rental properties at high rents. Therefore, over the last 12 months, many renters have been stretching their finances to get on the Southampton housing ladder, despite sky-high mortgage rates.

 

Using data from the Office of National Statistics, Land Registry and the Bank of England …

 

of the 4,479 properties bought in the last 12 months in the Southampton area, 1,214 were bought by first-time buyers.

 

With just under 1 in 3 house purchases made by first-time buyers in the last 12 months, it might surprise many that this has been steadily growing since 2010 when only 1 in 5 house purchases were made by first-time buyers.

Surprisingly, first-time buyers have remained the most resilient group of property buyers, even during these difficult times.

Usually, first-time buyers would be the most affected in times of stress in the property market (like in the last two property market crashes of 1998 and 2008). However, this time is different. Despite the sky high mortgage rates, the rental market and its high rents are making buying a more attractive option for many Southampton renters.

In Q1 2021, the average rent in the Southampton area was £934 per month.

 

The Southampton area rental market has experienced soaring rents in the last two years, with the average rent increasing to £1,151 a month in Q1 2023, an increase of 23.2%.

 

(Southampton area being SO14-SO19).

There are multiple reasons why rents are rising.

One reason includes higher mortgage rates for landlords, passed on to tenants in increased rents.

Some Southampton landlords with high % mortgages are selling their buy-to-let portfolios because of the Section 24 taxation rule changes and leaving the market entirely. Another reason is fewer landlords are buying rental properties to let out, with only 1 in 8 house purchases being made by landlords.

Meanwhile, demand for Southampton rental properties is high.

With demand outpacing supply, some Southampton renters are forced to accept higher prices or offer more than the asking price to secure new tenancies.

 

Other Southampton tenants are offering to pay six to twelve months rent in advance to strengthen their negotiating position.

 

This situation has made many Southampton renters move forward with their plans to buy a home for themselves, despite the increasing costs of home ownership.

But what about the deposit?

It appears the ‘Bank of Mum & Dad’ are helping first-time buyers with their deposits. The national average deposit paid by first-time buyers was just over £63,000 in January '23, which was 23.4% of their purchase.

The lowest rate for a two-year fixed first-time mortgage with a 23% deposit is 4.13%, up from 2.86% a year ago.

So, how can Southampton first-time buyers reduce their monthly payments? They can do it by increasing the length of their mortgage. For example, increasing your mortgage term from 25 to 30 years will save you £45 per month in mortgage payments for every £100,000 borrowed.

 

Eleven out of twenty first-time buyers are taking out mortgages of 30 years or more, the highest level since records began in 2005.

 

But what about those buyers with a low deposit?

According to the Moneyfacts website, the number of available 95% mortgage deals has risen from the early 160s in early March to nearly 210 last week. This is the highest level since September 2022, showing that banks are not worried about a property price crash. Moreover, the Coventry and Nationwide Building Societies have reduced their mortgage rates on low deposit (90% to 95%) mortgages over the past few weeks. The average 2-year fixed 95% mortgage is 5.64%, and the best rate is 4.9%.

However, Skipton Building Society has even launched structured products for certain first-time buyers that will not need a 5% deposit if the buyer can prove their rental history (about time too if you ask me).

The government mortgage guarantee scheme was also extended into 2023, which partially insures the bank/building society on any defaults on their 95% mortgages. It has been recognised for keeping some of these low deposits available for first-time buyers.

 

The outlook for the Southampton property market is uncertain, but a comparatively soft landing is still the most likely outcome.

 

With first-time buyers fuelling the market, interesting times lay ahead!

These are my thoughts, do share yours.