Southampton Property Market to Crash in 2022?

·   

•           According to some newspapers and pundits, the property market boom could soon be over with the increasing interest rates and inflation.

 

•        In this article, I share the 3 fundamental economic reasons why things are different to the last property market crash.

 

•        The insider’s way to find out if there will be a property crash.

 

•        … and 4 reasons why buy-to-let landlords are coming back into the Southampton rental market to protect their wealth and hedge against inflation.

 

With inflation and the cost-of-living crisis, some say this could cause property values to drop by between 10% and 20% in the next 12 to 18 months.

 

There can be no doubt that the current Southampton property market is very interesting. 

 

At the time of writing, there are only 971 properties for sale in Southampton (the long-term 15-year average is between 2,010 and 2,035), meaning house prices have gone up considerably.

 

According to the Land Registry …

 

Southampton property prices have increased by 12.4%

(or £26,500) in the last 12 months.

 

So, as Robert Kiyosaki says, ‘the best way to predict the future is to look to the past’. I need to look at what caused the last property crash in 2008 and how that compares to today.

 1. Increase in Interest Rates

 

One reason mentioned as a possible cause of a crash is the rise in the Bank of England interest rates, affecting homeowners' mortgages.

 

Higher mortgage rates mean homeowners will have to pay a lot more on their mortgage payments, leaving less for other household essentials. In 2007 (and the 1989 property crash), many Southampton people put their houses up for sale to downsize to try and reduce their mortgage payments.

 

Yet the newspapers fail to mention that 79% of British people with a mortgage have it on a fixed interest rate (at an average mortgage rate of 2.03%).

Also, just under 19 out of 20 (93.2%) of all UK house purchases in 2021 fixed their mortgage rate. 

 

So, in the short to medium-term (two to five years), most homeowners won't see a rise in mortgage payments for many years. Also, 27.8% of all UK house purchases were 100% cash (i.e. no mortgage).

 

Of the 932,577 house purchases registered since February 2021

in the UK, 259,205 were bought without a mortgage.

 

Yet some people say this will be a problem when all these homeowners come off their fixed rate. The mortgage lending rules changed in 2014, and every person taking out a mortgage would have been assessed at application as to whether they could afford their mortgage payments at mortgage rates of 5% to 6% rates, not the 2% to 3% they may well be paying now.

 

No pundit says the Bank of England interest rates will go above 2% with a worst-case scenario of 3%. If the Bank of England did raise interest rates to 3%, homeowners would only be paying 4.5% to 5.5% on their mortgages and thus well within the stress test range made at the time of their mortgage application.

 

This means the probability of a mass sell-off of Southampton properties or Southampton repossessions because of interest rate rises (both of which cause house prices to drop) is much lower.

2. House Price/Salary Ratio

 

Another reason being bandied about by some people for another house price crash is the ratio of average house prices compared to average wages.

 

The higher the ratio, the less affordable property is. In 2000, the UK average house price to average salary ratio was 5.30 (i.e. the average UK house was 5.3 times more than the average UK salary). At its peak just before the last property crash in 2008, the ratio reached 8.64.

 

The ratio now is 8.85, so some commentators are beginning to think we’re in line for another house price crash. However, I must disagree with them because mortgage rates are much lower today than in 2007. For example …

 

The average 5-year fixed-rate mortgage in 2007 was 6.19%

(just before the property crash), yet today it’s only 1.79%.

 

 

So, whilst the house price/salary ratio is the same as the last property crash in 2008, mortgages today are proportionally 71.1% cheaper.

 3.  Banks Reckless Lending

 

Another reason for a property crash in 2008 was the reckless lending practices in the run-up to that crash.

 

The first example of reckless lending was self-certified mortgages. A self-certified mortgage is when the lender doesn’t require proof of income.

 

In 2007, 24.6% of new mortgages were self-certified mortgages.

 

So, when the economy got a little sticky in 2008, the people that didn’t have the income they said they had to pay for their mortgages (because they were self-certified) promptly put their properties on the market.

 

The banks' second aspect of reckless lending was how much they lent buyers to buy their homes. Today, banks want first-time buyers to have at least a 10% deposit and ideally more. There are 95% mortgages available now (meaning the first-time buyer only requires a 5% deposit), yet they are pretty challenging to obtain.

 

Back in 2005/6/7, Northern Rock was allowing first-time buyers to borrow 125% of the value of their home. Yes, first-time buyers got 25% cashback on their mortgage!

In 2007, 9.5% of all mortgages were 95%, and 6.1% of mortgages were 100% to 125%.

 

Meaning that nearly 1 in 6 mortgages (15.6%) taken out in 2007

had a 95% to 125% mortgage.

 

When the value of a property goes below what is owed on the mortgage, this is called negative equity. A lot of Southampton homeowners with negative equity (or who were getting close to negative equity) in 2008 panicked because of the Credit Crunch and put their houses up for sale.

 

To give you an idea of what happened last year (2021) regarding mortgage lending, only 2.4% of mortgages were 95%, and 0.2% of mortgages were 100%. This is because the mortgage lending rules were tightened in 2014.

 

So why did Southampton house prices drop in 2008?

 

Well, in a nutshell, a lot more Southampton properties came onto the market at the same time in 2008, flooding the Southampton property market with properties to sell.

 

Meanwhile, mortgages became a lot harder to obtain (because it was the Credit Crunch), so we had reduced demand for Southampton property.

 

Prices drop when we have an oversupply and reduced demand for something. Southampton property prices fell by between 16% and 19% (depending on the property type) between January 2008 and May 2008.

 

So, what were the numbers of properties for sale in Southampton during the last housing market crash?

 

There were 2,619 properties for sale on the market in Southampton in the summer of 2007 (just before the crash), whilst a year later, when the Credit Crunch hit, that had jumped to 4,460.

 

This vast jump in supply and the reduction in demand caused Southampton house prices to drop in 2008.

 

Compared with today, there are only 971 properties for sale in Southampton, whilst the long-term 15-year average is between 2,010 and 2,035 properties for sale.

So, what is going to happen to the Southampton property market?

 

The Southampton house price explosion since we came out of Lockdown 1 has been caused by a shortage of Southampton homes for sale (as mentioned above) and increased demand from buyers (the opposite of 2008).

However, there are early signs the discrepancy of supply and demand for Southampton properties is starting to ease, yet this takes a while before it has any effect on the property market, so it will be some time before it filters through.

This will mean buyer demand will ease off whilst the number of properties to buy (i.e. supply) increases. This should gradually bring the Southampton property market back in line with long-term levels, rather than the housing market crash.

My advice is to keep an eye on the number of properties for sale in Southampton at any one time and only start to worry if it goes beyond the long-term average mentioned above.

But before I go, I need to chat about what inflation and the cost of living will do to the Southampton property market.

How will inflation and cost of living affect the

Southampton Property Market?

 

There is no doubt that cost-of-living increases will have a dampening effect on buyer demand. If people have less money, they won’t be able to afford such high mortgages. This will slow Southampton house price growth, especially with Southampton first-time buyers.

Yet, the reduction in first-time buyers is being balanced out by an increase in buy-to-let landlord's buying, especially at the lower end of the market.

This, in turn, will stabilise the middle to upper Southampton property market. This means the values of such properties (mainly Southampton owner-occupiers) will see greater stability and a buyer for their home, should they wish to take the next step on the property ladder.

So why are more Southampton landlords looking to extend their

buy-to-let portfolios, even in these economic circumstances?

 

I see new and existing buy-to-let Southampton landlords come back into the market to add rental properties to their portfolios. As the competition with first-time buyers is not so great, they’re not being outbid as much.

Yet, more importantly, residential property is a good hedge against inflation.

Firstly, in the medium term, property values tend to keep up with inflation.

Secondly, inflation benefits both landlords and existing homeowners, with the effect of inflation on mortgage debt. As Southampton house prices rise over time, it reduces the loan to value percentage of your mortgage debt and increases your equity. When the landlord/homeowner comes to re-mortgage in the future, they will receive a lower interest rate.

Thirdly, as the equity in your Southampton property increases, your fixed-rate mortgage payments stay the same.

Finally, inflation also helps Southampton buy-to-let landlords. This is because rents tend to increase with inflation. So as rents go up, your fixed-rate buy-to-let mortgage payments stay the same, creating the prospect of more significant profit from your buy-to-let investment.

Southampton Rental Homes Nightmare

 

•        Southampton needs 964 additional private rented properties per year to keep up with current and future demand from Southampton tenants.

•       Yet over the last 5 years, Southampton has lost 1,716 private rented homes.

•        What are the 5 reasons the supply of private rental properties in Southampton are falling? What does this mean for tenants and landlords in Southampton?

There has been a rise in demand for rental properties and an 8.9% fall in the number of Southampton private rented properties, which has caused Southampton rents to rise by 5.9% in the last year, a new all-time high. 

The National Residential Landlords Association asked the respected economics think tank Capital Economics, to carry out research on the UK rental market. It found that if the current trends in the property market in terms of growth of the population, Brits living longer, the lack of new homes building, the reduction in social housing (aka council housing), then demand for homes in the private rented sector needs to increase by 227,000 homes per year.

So, based on those numbers, Southampton needs to have an additional 964 private rented properties per year.

The problem is the number of private rented properties in Southampton has reduced from 32,141 in 2017 to 30,425 in 2021, a net loss of 1,716.

 

So, why has supply of private rented homes in Southampton reduced?

 

1.     Section 24 Income Tax

Section 24 was introduced in 2017 to level the playing field on the taxation of property between homeowners and landlords. Section 24 stops landlords from offsetting their buy-to-let mortgage costs against the profits from their rental property. Interestingly, no other kind of UK business is affected by the Section 24 taxation. In other words, whatever other form of business you might be in, be it butcher, baker or candlestick maker, every other business can offset their finance costs against their profits, except buy-to-let.

The issue caused by Section 24 Tax is that some landlords ended up paying more income tax than they really made in profit after paying their buy-to-let mortgages. Meaning on the back of rising Southampton house prices in the last five years, some Southampton landlords have sold their buy-to-let investments.

2.     3% More Stamp Duty for Landlords

When someone buys a property, they normally must pay a tax to the Government for the privilege. This tax is called Stamp Duty. Yet landlords must pay an additional 3% stamp duty supplement on top of that when they purchase a Southampton buy-to-let property. Evidence suggests some Southampton landlords have decided to hold off or scale back buying additional buy-to-let properties for their portfolio because of the thousands of extra pounds that landlords have to pay to buy the rental property.

3.     Holiday and AirBnb Lets

Some Southampton landlords are converting their long-term rental properties into short-term furnished holiday and AirBnB properties. Whilst the hassle, stress and service levels are much higher, these types of properties do tend to make more money and aren’t as heavily taxed as normal lets. When properties convert to short-term lets, it removes another Southampton property out of the general supply chain of long-term rental properties.

4.     Greater Legislation for Rental Properties

With more than 150 pieces of legalisation, and new laws being added each year, the burden on landlords is huge. On the horizon is the Renters Reform Bill which will remove the no fault evictions. Also, all rental properties with an Energy Performance Certificate (EPC) rating of below a ‘C’ will have to be improved (i.e., money spent on them) by the landlord. This could be more than £10,000 per property. Hence, why some Southampton landlords have been selling their rental properties with low EPC ratings in the last 18 months.

5.   Accidental Landlords Selling Up

There are some Southampton landlords who are classed as ‘Accidental Landlords’. In 2008/9, with a slowing property market and house price values dropping in the order of 16% to 19% (depending on the type of property) some Southampton homeowners decided to let their home out as opposed to selling it at a loss. Yet, with the price booms of the last 18 months, many decided to cash in on the higher property prices and sell - again taking another private rental property out of the system.

So, why is demand of private rented homes in Southampton increasing, even though more people own their home in Southampton than 5 years ago?

Even with better provision of affordable social housing and higher rates of owner occupation in Southampton (rising from 49.64% of homes in Southampton being owner occupied in 2017 to 51.46% in 2021), demand for private rental property continues to outstrip supply.

There are many reasons behind this including:

1.     1.    People are living longer, meaning not so many properties are coming back into the mix to be recycled for the younger generation.

2.     2.    Net migration to the UK has continued at just over a quarter of a million people a year since 2017, meaning we need an additional 115,000 households to house them alone.

3.    3.     For the last two years, one in six of the owners of properties that have been sold have moved into rented accommodation instead of buying on because of the lack of properties to buy.

 

So, what is the outcome of the imbalance between supply and demand on Southampton rental properties?

 

Quite simply - Southampton rents have rocketed. They are 5.9% higher today than the spring of 2020 … and that’s on the back of rents being 6.3% higher in spring 2020, compared to spring of 2019.

The severe shortage of housing in the private rented sector is pushing up rents in Southampton as demand continues to grow. Many Southampton people are finding it hard work to find appropriate accommodation at a reasonable rent, and with mounting numbers of tenants predicted to continue, this situation will only get worse unless more houses are built.

My heart goes out to those Southampton tenants struggling with the cost-of-living crisis, only to then be hit by higher rents.

Yet, these higher rents are now enticing new landlords back into the Southampton buy-to-let market because of the higher returns.

With higher inflation, property investment has been seen in the past a safe harbour to invest one’s money in. With the bonus of rising yields (because of the increase in rents) together with the nervousness of the Bank of England to increase interest rates too much because of the issues in Eastern Europe, this could be the start of a second renaissance in the Southampton buy-to-let market.

If you have concerns about the issues in legislation and taxation, then the advantage of employing a letting agent, with the choice of property, what you pay for it and how it’s managed, will go a long way to mitigate them.

If you are considering getting into the Southampton buy-to-let market for the first time or expanding your property portfolio (whether you are a client of mine or not) please do not hesitate to give me a call and we can discuss these matters further.

21,957 Southampton Terraced Houses Why are they so popular?

 

The terraced house is one of the most familiar styles of home in Southampton (and the UK as a whole).

20.8% of Southampton people live in a terraced home, interesting when compared with the national average of 22.7%.

So, what is it about the humble terraced/townhouse us Brits love so much? In this article, I look at the history of the terraced house, how it relates to Southampton and what the future holds for terraced homes.

A terraced house is a property built as part of a continuous row of three (or more) properties in a similar and uniform style.

The reason the British call them 'terraced houses' and not 'row houses' came about because 18th century British architects borrowed the phrase 'terrace' from 'terraced gardens’. Terraced gardens were known for their uniform nature (in looks, style and height etc.), so the architects decided to name them the same way as opposed to a ‘row house'. In fact, in most countries, they are called 'row houses'.

 The terraced house originated in the Low Countries of Europe in the late 1500s.

Terraced houses were first built en-masse in the UK after the Great Fire of 1666 with the rebuilding of London.

They became fashionable for the landed gentry in the early Georgian era with chic and stylish terraces appearing in London's Mayfair and Bath with its Queen Square (the forerunner of the famous Royal Crescent) and were sometimes built around a garden square.

However, it wasn’t until the early 1800s that the terraced house turned out to be the solution to the increasing population of the towns as more and more people were attracted to towns and cities for work.

The terraced house fell out of favour with the upper-middle classes in the late Victorian age (1870’s onwards) as they wanted more privacy and space. They moved to live in detached houses or semi-detached villas, as the terrace house had started to become associated with the lower-middle and working classes.

With all these terraced houses being built, their quality of construction and design dropped as builders tried to squeeze more profit. The biggest issue was that most of the terraced houses built in the early to mid-Victorian age (1840s to 1870s) were made back-to-back with no rear garden, causing unsanitary conditions. Therefore, the Public Health Act of 1875 was introduced to regulate the building of terraced houses with design and standards.

These new building standards in the Act improved the terraced house’s ventilation and, more importantly, required the house to have a toilet (frequently built outside). To meet these new building standards, the designs of these new houses created the well-known landscape of ‘grid' streets lined with two-storey terraces serviced by a pedestrian path between them, the name of which is a hotly debated topic. The various names for the pathway include alleyway/jitty/cut/ginnel/snicket/passageway/ten foot/five foot witchel/ lonnin/vennel.

As a Southampton resident, why not say what you call them in the comments.

As we entered the 20th Century, the terrace house continued to be popular, albeit with some new architectural additions.

The advent of Arts and Craft architecture with stain glass windows, Tudor style cladding, ornate porches, and elaborate chimney stacks.

After the First World War and the introduction of the Housing and Town Planning Act 1919 (which made local councils build council houses), the Victorian terraced rapidly became associated with overcrowding and slums (especially those back-to-back terraced houses built before 1875). Many of the back-to-back terraced houses were knocked down between 1930 and 1960 in what is known as the slum clearances.

Private builders started building the iconic suburban semi-detached houses with more extensive gardens, and local authorities decided to build high-rise blocks after World War II. Yet after the partial collapse of Ronan Point in 1968, the popularity of high-rise tower blocks waned.

Since the early 1990s though, the terraced house has steadily come back into favour as building land prices have increased by 322% in the last 30 years.

Many private builders have started to build modern three-storey townhouses in rows of five to seven. This terraced 'townhouse-style' allows three and four bedrooms on a land footprint that would have usually only accommodated a smaller two-bed property.

So, let's look at some interesting stats on Southampton terraced houses.

·       There are 21,957 terraced houses in Southampton (broken down as 13,682 privately owned terraced houses, 4,022 terraced council houses and 4,253 in the private rented sector)

·       19.4% of terraced houses in Southampton are in the private rented sector, which is just above the national average of 19.1%

·         The most expensive terraced house in Southampton ever sold was on Oxford Street, Southampton for £772,000 in 2010

·         The cheapest Southampton terraced house sold in the last two years was on Radcliffe Road, Northam, a terraced house for £96,000

·         Terraced houses in Southampton sell for an average of £280 per square foot

I hope you found that thought-provoking?

So, why is the terraced house, be it a red brick Victorian house or a more modern three-storey townhouse, still popular today in Southampton?

They are typically well built, cheaper to maintain (especially the older terraced houses), comparatively spacious, and in good locations. Many terraced houses have been improved and extended through the inventive use of rear gardens/yards and converted roof spaces; their unpretentious design remains adaptable enough for 21st century living; what isn't there to like about them?

These are my thoughts; tell me your thoughts about the humble yet versatile Southampton terraced house.

44% Drop in Southampton Council Houses in the Last 40 years

 ·         In 1981, 30.1% of properties in Southampton (and  Southampton as a whole) were council            houses. Today, that figure stands at 16.9%, a proportional drop of 44%.

 ·         Why has the number of council houses dropped so much in those 40 years?

 ·         How has that changed the dynamics of the Southampton property market in those 40 years?

 

The ability of local authorities to build council houses came into law in July 1919 with the 1919 Housing and Town Planning Act. It was one of the most important pieces of domestic legislation passed after WW1 and was the first time in the UK that a nationally public funded system of providing homes was made for the masses. It was paid for mostly by central government and provided by local authorities (councils) and public utility societies (which in later years became today’s housing associations). 

 

Between 1919 and 1979, 6.94 million council houses were built.

 

Just over 1 million council houses were built between 1920 and 1939, whilst 5,804,150 council houses were built between 1946 and 1979. This is compared to 4,533,440 private homes and 260,910 housing association properties in the same time frame (’46 to ’79).

So, between 1946 and 1979, the council house was the dominate force of British housing. But that all changed in 1979!

Many people believe it was Margaret Thatcher who was the architect of allowing the sitting tenant of a council house to buy their home. Interestingly, council house tenants have been able to buy their council house from as early as the mid-1930s, albeit with little or no discount. Also, as late as 1977, the Labour Housing Minster published a Green Paper extolling the virtues of homeownership and council tenants being able to buy their home at a discount.

But after the General Election of 1979, the new Tory government drafted the Housing Act 1980, which gave the Right to Buy, which became law in the autumn of 1980. Then things really took off!

This new law established a right for most council tenants who had been in their home for three years or more to a discount. The discount started at 33% and increased by 1% for each extra year, up to a maximum of 50%. If the tenant sold the house within the first five years of ownership, a prorated repayment of their discount was required.

 

Between 1980 and 1989, 970,558 council houses nationally were sold at a discount.

Yet the issue was, when a council house was sold, it took that house out of the council’s portfolio for future generations. From the start, there were limitations on local authorities’ use of monies from the council house sales as most of it had to be given to central government in London, meaning only 390,560 new council houses were built between 1980 and 1989. Looking at the numbers locally …

In 1981, there were 22,688 council houses in Southampton today it’s 16,633.

No wonder the country has a housing crisis ... yet as my regular readers know - the devil is in the detail … and that devil is the humble housing association. 

The Tory General Election Manifesto in 1979 had proposed the rights for both council house and housing association tenants to buy their own house under the Right to Buy scheme. The Conservatives argued housing associations, who obtained government funding, should be subject to the same Right to Buy proposals as councils. The Government won the vote in the Commons, yet lost the vote in the Lords, meaning housing association tenants could not buy their homes at a large discount.

At the time, there were only 400,000 housing association properties in the country, so the Government were not that worried. But the significance of housing associations developed in the 1980s and beyond as they were allowed to borrow money from the private sector.

Between 1949 and 1979, the average number of housing association properties built annually was 8,524. Since 1979 to today, it has been 25,062 per year (and 31,606 per year in the 2010s).

Also, the Government encouraged councils to transfer their remaining council houses to housing association schemes from 1986. The advantage to these ‘stock transfers’ was the Government allowed housing associations to access private funding to improve their existing properties and buy new ones (good news for existing tenants complaining that the local authority never upgraded their homes).

Moreover, the Tory Government liked stock transfers, as it allowed them to dismantle council housing from the inside. Interestingly, Labour expanded the ‘Stock Transfer’ process in 1997 and further reduced the eligibility for council tenants’ Right to Buy, meaning the number of council tenants exercising their Right to Buy declined considerably.

Meaning today, even though the provision of council housing has dropped like the proverbial stone … 

the number of housing association properties in Southampton has increased from 1,868 in 1981 to 6,234.

So, how has this changed the dynamic of the Southampton property market in the last 40 years?

Would it surprise you to learn that the number of people who own their Southampton home today is very similar to what it was 20 years ago before the property boom started? It’s just that even though we’ve had a large drop in the number of council houses and an increase in the number of housing association properties, the number of people owning their home has remained relatively stable (in some areas of Southampton this has actually increased), the significant issue is the growth of the private rented sector in Southampton.

 

It's almost as if people who used to rent from the council now rent

from a private landlord.

 

The question is, is it right for private individuals to make money from tenants who rent from them as opposed to the local authority? Or are private landlords providing better types, choices and quality of accommodation for these tenants, albeit at a higher rental rate than if they rented a council house?

I really do believe if it wasn’t for the growth of the buy-to-let landlord, which began in the early 2000s, we would have an even bigger housing crisis on our hands than the one we currently have.

Both local and central government have had their hands tied behind their backs since 2008 with a lack of funding, and it’s the humble private landlord who has stepped up and supplied in excess of 2.3 million additional rental properties since 2001, housing nearly 5,520,000 tenants. These landlords have saved the day since the big council house sell off in the 1980s!

 

What are your thoughts on this matter?

How to Be a Stress-Free First-Time Buyer in Southampton

 

Taking that first step on the property ladder is simultaneously exciting and terrifying. No matter how old you are, buying your first property will make you feel like a proper grown-up. Before you even find the right property, there’s lots to learn, so in this quick read, we’ve pulled together our top five tips for first-time buyers.

 

Be mortgage savvy

There are so many different options when buying a first home – whether you’re getting a loan from the bank of mum and dad, wading through Help to Buy admin, or going it alone. In every case, a mortgage is the first step you need to take.

For a rough estimate of how much you’ll need to borrow, there are plenty of online tools that can help. You could also speak directly to your bank or high-street lender about their mortgage deals. If you need some extra help, speak to us about a financial adviser or mortgage broker. We work with plenty of first-time buyers and have all the info you need.

 

Be real

When you first start looking, it’s important to be realistic about your budget. By looking at properties way outside your price range, you could find it harder to see the potential in those that suit your current financial situation. Get yourself a vision board and focus on the things you really need from a new home.

 

Be in the know

Newsflash: not all properties are on Rightmove or Zoopla. While these sites give you a good idea of what’s available and for how much, by registering with agents such as ourselves, we keep you in mind (and updated) before something even goes online.

There’s nearly always competition for a property, so it’s best to speak to experienced agents and register what you’re looking for instead of just relying on the internet.

 

Be open

You might have a very specific list of requirements, such as area, parking, outside space, and so on. However, it’s important to be flexible when you view a property. It might not tick every item on your list, but it may also have tonnes of potential. Always view a property before you rule it out.

 

Be calm

Once you’ve found a property, stay calm. If you’ve got your mortgage sorted, you’ve got a conveyancer, and you’re regularly in touch with your agent, there’s no need to worry. We understand there’s a lot to get done before you exchange; our job is to help you take any stress away.

 

We have served many first-time buyers at Belvoir over the years, and we’re ready to help you get your feet on the property ladder. Contact us on 02380018222 today or email me brian.linehan@belvoir.co.uk

Why Does it Take 124 Days to Get the Keys When You Buy a Southampton House?

·             -    4,224 properties have sold in the Southampton area in the last 12 months.

·             -    It only takes 54 days to sell a Southampton home, so why does it take 124 days from the sold board going up to the buyer getting the keys?

·             -    With a shortage of solicitors and a sub-standard conveyancing system, this article discusses   what Southampton house sellers (and buyers) can do to speed up the house buying process.

 

Nationally, the average length of time it takes from agreeing the sale of a property to the keys being handed over is 111 days (down from 117 days last year), yet in Southampton, we are above the national average at 124 days.

So why does it take just under 18 weeks, when all that is required is the lawyers to look at some paperwork and get a mortgage? Also, what can Southampton homebuyers and sellers do to speed this up? 

The legal process to buy and sell a UK property is called conveyancing. The conveyancing system itself hasn’t really changed in hundreds of years. After the housing market was reopened after the first lockdown in the spring of 2020, the property market returned with a bang, helped on with the stamp duty holiday.

In 2021, the number of properties selling in Southampton in some months went up massively, e.g., by 96% June 2021 and by 65% in March 2021. Many conveyancers and solicitors had to sort the legal paperwork out for upwards of 120 to 150 properties each at any one time.

 

This glut of sold properties caused by the pandemic that needed legal work to be sorted exacerbated a problem already present in the conveyancing industry.

 

For years conveyancers have complained of overwork and underpay. Conveyancing is seen as the Cinderella of the legal profession. This workload was the straw that broke the camel’s back, making many conveyancers leave the profession and go into better paid legal work like corporate work.

Also, the legal process of conveyancing has built-in inefficiencies, and the conveyancing profession has been relatively slow to innovate. However, there are some excellent tech solutions that are being slowly rolled out across the industry to make the process more efficient and effective.

 

What can Southampton home buyers and sellers do to speed up their property sale?

 

If you are buying or selling your Southampton property as we speak, you won’t be able to wait for the conveyancing profession to be revamped, yet you can be as pre-emptive as possible to get your Southampton house sale through earlier.

In a nutshell, ensure you have all the paperwork sorted on your Southampton home before you put your home on the market. Next, get the ball rolling on your mortgage. If you receive some paperwork, read it, check it, sign it and send it back in a day, do not leave it a week; finally, always communicate frequently with your estate agent and conveyancer.

When you instruct a solicitor, most will request money to start the ball rolling for searches and disbursements. They won’t lift a finger until that is paid.

You will have to prove who you are in the conveyancing process, so your conveyancer will ask you to show them proof of ID and address. If you are buying, they will need to prove you have the funds/deposit to buy the home (and if your deposit is coming from family/friends, then they are required to write a letter to that effect).

 

How can the house buying and selling process be improved?

 

A couple of years ago, the Government set up the Home Buying and Selling Group to find the answer to this problem. Chaired by the well-known property guru Kate Faulkner, it is looking at an amalgamated Seller’s Information Pack (SIPs) and an IT-based single platform to share and communicate that SIP between buyers, sellers, their conveyancers, the estate agent, mortgage providers and brokers and finally surveyors.

 

The advantage of the SIP is that it can be created before the buyer has been found, meaning property buyers would be more knowledgeable when making an offer. Also, once the sale has been agreed upon, the SIP could be sent straightaway electronically to the buyers’ legal team (from the seller’s legal team) to start the procedure of asking for searches and raising inquiries.

 

The bottom line is the conveyancing process is not fit for purpose in the 21^st century and change is on the horizon.

 

So, before the SIP becomes mandatory, there are things everyone can do to ensure they get the home of their dreams quicker.

At my agency, I recommend the seller, us as the agent and the conveyancer start to liaise with each other to get the key information on the property being sold as quickly as possible. Then once a buyer is found, I believe it is vital we, as the agent, regularly communicate with all the stakeholders in the chain to ensure everyone is playing their part to expedite the sale.

In the future, utilising technology and every agent/conveyancer preparing information upfront with the SIP will drastically reduce the time it takes between agreeing a sale and the keys/monies handed over.

 

The conveyancing process will have to change to meet the needs of the 21^st century, but how long that will take is the big question.

If you would like to chat with me about how we do things differently to ensure your property not only gets the best price and how we do all we can, as agents, to expedite a smooth sale for your Southampton property, do not hesitate to pick up the phone to me on 02380018222or drop me a line at the office on brian.linehan@belvoir.co.uk

1 in 3 Southampton Homeowners Unable to Sell

         -          The average time to find a buyer for a Southampton property reduced from 64 days in                   2020 to 54 days in 2021.

 

·                        -              Yet still, almost 1 in 3 Southampton homeowners are on the market after 12 weeks.

 

·                        -             Why are so many Southampton homes still on the market after all that time, and what                   does it mean for the Southampton property market?

 

You would have needed to have been living in a cave since the end of Lockdown No.1, not to realise the property market has been on fire in Southampton (and the UK as a whole) for the last 20 months.

It has been very much a seller’s market, especially in 2021. Yet as we enter the second quarter of 2022, I have noticed a slight rebalancing of the Southampton property market, more towards buyers, something that is good news for everyone (sellers and buyers) locally.

In 2020, it took on average 64 days from the average Southampton property appearing on the property portals (i.e. Rightmove, Zoopla etc) to the property going sold (STC).

Interesting when compared to the national average of 72 days in 2020. Yet, last year, this was reduced to 54 days in Southampton (51 days nationally).

Well, that was last year, and things have changed slightly since.

 

Of the properties for sale in Southampton 29.3% of houses have been on the market for more than 12 weeks.

 

That doesn't sound a lot, yet that is an eternity in this market!

So, why are there so many properties on the market in Southampton still for sale after all this time … it usually comes down to one thing … the practice of 'overvaluing'.

So before I explain what overvaluing is, let me give you some background.

Many agents (not just ourselves), in 2021, were achieving top prices for Southampton property with multiple offers becoming the standard. The property they were selling was only available to buy for days before the owner obtained multiple offers that were not only at a satisfactory level, yet more than they ever dreamed likely.

Although this was great news for Southampton homeowners, this caused fewer homes to come onto the market in the last six months in Southampton, as people were afraid to put their home on the market without having a property to buy.  

With fewer properties coming onto the market, some estate agents have become more and more desperate to get a larger slice of this smaller property market. It has seen an unwelcome side of the estate agency profession, the estate agency practice of ‘overvaluing’.

While ‘overvaluing’ is nothing new, the custom has been generally limited to a small number of estate agents. Yet now, it's become more prevalent and creates uncountable distress and pressure for some Southampton homeowners.

Many Southampton homeowners want to sell quickly to get the property of their dreams. Yet, in many cases, when they do put their property on to the market, they don’t sell quickly enough because of this ‘overvaluing’ (even with the fantastic current property market conditions).

To give you an idea of the issue…

64% of Southampton homes put on the market in the last 30 days have not sold.

There are hundreds of Southampton families having their dreams dashed by 'overvaluing.'

Therefore, let me look at exactly what overvaluing is, why it’s on the rise and most importantly, the harm overvaluing causes to homeowners like yourself.

You would think the most important thing in estate agency is all about finding the best buyer for your home, at the best price, who can make the move with the least amount of hassle.

To us it is, and to many other Southampton estate agents, it is as well. Yet, to some agents, sales aren’t the essential objective. Instead, it is having a vigorous catalogue of properties to sell to generate more future leads.

Deprived of an endless number of new properties for sale, the enquiries estate agents receive will significantly drop, leaving them high and dry without any buyer (or seller) leads, the lifeblood of estate agents.

Therefore, some (not all), but some estate agents will feed on a homeowner’s appetite to get the highest possible price for their Southampton home by giving them an over-inflated suggested asking price to market their property at (i.e. ‘overvaluing’).

If one estate agent can get you an extra £30,000 for your Southampton home, you will take it, won’t you?

The suggestion of pushing the asking price of your Southampton home for 10%, 15% even 20% could be seen by many as a temptation too good to miss. Yet once you are on the market, the agent is trained to slowly get you to reduce your asking price over a lengthy sole agency agreement.

The problem is that the home of your dreams might have sold by the time you reduced your price in 3 months. Also, Which reports in 2017 and 2019 proved you ended up getting less for your home when it did eventually sell (which means you lose money) and finally, the agents know homeowners perceive it’s a hassle to swap agents (which it isn’t).

But estate agents only get paid when they sell the house; why do they overvalue?

Would it surprise you that some Estate Agency chains pay their staff a commission when they put the property on to the market, not when it sells? So, their team overinflate their suggested asking prices to get that commission.

Over the last 18 months, with the rising property market, there has undoubtedly been a valid reason for pushing the envelope on the asking price. Yet, if every house like yours is on the market or sold subject to contract at £300,000 to £320,000, yours isn’t going to achieve £355,000, let alone £375,000 – even in this market.

With 64% of Southampton homes still for sale after a month, the market is starting to level out and if you are keen to sell, then let me give you some advice.

 

Research has shown that if the asking price is initially set too high, it will be ignored by people surfing Rightmove and Zoopla.

 

(Come on, be honest – you have done that yourself haven’t you?)

When the property is eventually reduced because it has the stigma of being on the property market too long (begging the question of potential buyers that there may be a problem with the property itself hence no interest?), often when it does eventually sell, it will sell for less than what it would have done if it were priced correctly from day one (as per the two reports from Which in 2017 and 2019).

Of course, on the other hand, setting the asking price below its market value means potentially leaving money on the table needlessly – hence the need for a good agent.

Putting your Southampton home or buy-to-let investment up for sale at the right price from the beginning is the key to selling within the best time frame and for the best price to a serious and motivated buyer.

Ask a handful of estate agents to value your home, ask them to back up any valuation of your Southampton home with cold hard comparables of similar properties to yours.

Find your comparables by searching ALL the property portals (i.e. Rightmove, Zoopla, Boomin, OnTheMarket).

If you only take away one thing from this article, when you search the portals for comparables, make sure you include under offer/sold STC properties, as that will triple the comparable evidence. 

Thus, by doing your homework and then working with a dependable, trustworthy and experienced Southampton estate agent, who will help to ensure that your Southampton property is put on the market to get you, the homeowner, the best price from day one without over cooking it (so you don’t lose out), you will be just fine.

These are my thoughts, let me know if you have any yourself.