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. 

32% of Southampton Property Sellers Reduce Their Asking Prices as the Property Market Equilibrium Starts to Return

 

•  717 of the 2,238 properties on the market in the Southampton area have had a price reduction in the last 3 months.
• The average reduction has been 6.7% of the original asking price.
• This is great news for Southampton home buyers and Southampton buy-to-let landlords, strangely Southampton house sellers as well.

For the last couple of years, the Southampton property market has seen some amazing prices being achieved with multiple offers and many properties selling for way over the asking price.

Yet, as I have been writing about the Southampton property market over the last few weeks, the tide is beginning to turn, and the pendulum swings more towards a balanced Southampton property market as more homeowners in the Southampton area (SO14-SO19 & SO30/31/32/40/45/52) have been reducing their asking prices.

Of the 2,238 properties for sale in the Southampton area,

717 have been reduced in price in the last 3 months.

 

This can be broken down as follows…

Price Range of the Southampton Property	Number of Price Reductions in Last 3 Months
£0-£50k	6
£50k-£100k	32
£100k-£150k	68
£150k-£200k	76
£200k-£250k	57
£250k-£300k	89
£300k-£350k	82
£350k-£400k	69
£400k-£500k	100
£500k-£600k	58
£600k-£750k	39
£750k-£1m	26
£1m-£2m	13
£2m-£3m	2

 

So why is this important and why is this good news, even for Southampton house sellers?

 

Property industry statistics show that 5 out of 6 house sellers will buy another property and over 80% of those sellers will move up the property ladder.

When you move up the property ladder, that normally means you pay more for the one you want to move to (that’s why it’s called the property ladder).

So, whilst you won’t be getting as much for yours as you might have done earlier in the year, you won’t have to pay as much for the one you want to buy (and the price difference between the two properties will be smaller – meaning you will end up saving money because of these reductions).

So what is the level of price reduction being seen in the Southampton property market?

 

The average percentage of the price reduction in the

Southampton area has been 6.7%.

 

I must stress house prices/values in Southampton haven’t dropped 6.7%, just the asking prices of some of the properties on the market.

This is good news for Southampton first-time buyers and landlords, as they will be more likely to buy a property at a more reasonable price whilst. As I explained above, this is also good news for sellers as most of them will end up paying less for the higher priced property they end up buying after selling theirs.

So, what should Southampton homeowners be aware of if they are selling their home now or in the future?

For me it is important that I inform all Southampton property owners of the real story. This enables them to judge for themselves where they stand in the current Southampton property market, thus enabling them to make better informed decisions.

You see some Southampton estate agents will deliberately over inflate the suggested initial asking price to the house seller, because it gives them a bigger chance to secure the property on that agent’s book, as opposed to a competitor.

 

This practice is called overvaluing.

Now of course, each Southampton homeowner wants to get the most for their home, yet some estate agents know this and prey on those Southampton house sellers.

You might ask, what is the problem with that?

Well, you only get one opportunity at hitting the Southampton property market as a new property. Everybody has access to the internet, social media and the four main property portals (Rightmove, Boomin, On The Market, Zoopla), and your potential buyers will know the property market like the back of their hand.

If you have a 2-bed Southampton semi that is on the market for a 3-bed Southampton semi-detached house price ... those Southampton buyers will ignore you.

 

Your Southampton property will stick on the market as your potential buyers keep seeing your property on the portals each week.

These buyers will then start to believe there is something wrong with your property and dismiss it even further. That is until you, as the house seller, reduce your asking price. The issue is that sometimes these buyers will think something is wrong with your home and could bid you down even further, meaning you will get less even though you asked for more! (This was backed up by some research done by Which?).

Now according to research by Denton House, the average British house buyer only views around six properties before buying – so please don’t assume viewers will come round your optimistically priced (i.e., overvalued) Southampton home, thinking they will knock you down - quite the opposite - they just won’t view your home in the first place.

And you know that because I bet you have done the same yourself when searching for property.

 

So, all I suggest is this ... be realistic with your asking price to start with.

Do that and you will sell your Southampton property at a decent price to a decent buyer ... first time, every time - enabling you to move onto the next chapter of your life.

If you know of anyone currently selling their home in the Southampton area and finding things difficult, please share this article with them as it could be of interest.

The Shifting Southampton Property Market

 

 

•   The Southampton property market is on the verge of a ‘tipping point’.
•   The rate of house price growth has started to ease with a reduction in the     number of properties that will sell in Southampton in the coming 12 to 18     months.
•  Yet, rising interest rates and the cost-of-living issues won't knock everybody out of the property market and there shouldn't be a housing bubble for two vital reasons.

 

The Southampton property market is on the cusp of a tipping point. It’s a tipping point that will influence Southampton house prices, the number of properties available to buy, demand for those Southampton properties and the lives of every homeowner and the property-owning buy-to-let landlords in Southampton. This shift in the Southampton property market is a big deal so let me explain.

 

What are the two vital reasons for this shift in the Southampton property market?

First, the easy-going Southampton property market goldmine of the past couple of years will end.

The bonanza of the Southampton property market for house sellers, which was primarily fuelled by cheap money, is receding and the scales are starting to tip somewhat more in favour toward Southampton buyers (which is not a bad thing – more of that later).

Secondly, and more significantly, this shift in the Southampton property market is not a collapse.

Let me enlighten you as to why this is.

One of the key influencing factors of the property market is what people pay on their mortgages. The higher the mortgage interest rate, the higher the mortgage payments.

Mortgage rates are usually 1% to 2% higher than the Bank of England base rate. Therefore, mortgage rates are increasing on the back of higher Bank of England interest rates.

So, whilst we have seen rates rise four times in the last year, the Bank of England base rate stands at only 1%. Compare that with Bank of England base rates in the 1980s (when the average base rate was 12.63%), 1990s (when the average base rate was 8.8%) and the 2000s (when the average base rate was 4.7%). These high base rates (together with high unemployment) contributed to the woes of the UK property market crashes of the early 1990s and 2008.

From the gloomiest economist, the worst-case scenario doesn't see Bank of England base rates rising past 3%.

This means the prospect of a housing crash is minimal because of the comparatively low unemployment and base rates still at all-time lows.

What are the signs of the shift in the Southampton property market?

The statistics show a slight shift in the scales between it being a 100% seller’s market for the last two years to more an 80% sellers and 20% buyer’s market and here are the reasons why:-

 

1.     The number of houses for sale has grown by 17% in six months.

 

Nationally, the number of properties available to buy has increased by 17.07% in the last six months, rising from 389,558 in January to 456,048 by the end of May. This rise in the number of properties on the market is a crucial component of the housing market puzzle. Let me explain why.

Before Covid, house buyers having more choice of properties to buy in the summer months would have been thought unremarkable. Yet the stark shortage of properties to buy in the last couple of years has caused national house prices to grow by 19.66%. Any growth or reduction in the number of properties for sale is significant (hence a key bellwether).

This means that buyers will have more choice of properties to buy this summer.

 

2.     The number of properties sold in the UK has dropped 11.4% year to date 2022 vs 2021

When I say sold in this context, I mean the month the house sale price is agreed, and the sold board goes up (not on completion when the keys are handed over).

Looking at the national number of properties sold on a month-by-month basis, things have started to shift since March.

In February 2021, 111,648 houses sold (STC) in the UK compared to 117,734 for the same month in 2022. So almost identical.

Yet, March 2022 saw 15.3% fewer houses sell in the UK than in March 2021 (129,655 in March 2022 compared to 153,023 in March 2021).

April 2022 saw 20.6% fewer houses sold than April 2021 (117,737 compared to 148,228).

So, all doom and gloom? No! Not at all.

The spring months (March and April) of 2021 saw the rush for houses to be sold to beat the Stamp Duty Holiday ending in June 2021, so of course, March and April’s 2022 figures would be lower.

The panic buying of March and April 2021 returned to normal levels in May 2021, meaning the number of houses sold in May 2022 was only 4.3% lower than in 2021 (131,941 in May 2022 vs 137,800 in May 2021).

 

3.     The number of house price changes has increased by 69% since January.

In January 2022, the number of house price changes was 27,063 and has been increasing steadily each month to 45,792 in May 2022, an increase of 69%. This means Southampton house sellers have to be more realistic with their pricing to get their properties sold.

Take all these things together and you can see that there are signs that the Southampton property market has started shifting more into buyers’ territory yet is a long way from the traditional idea of a ‘buyer’s market’.

 

These points can be backed up with the house price data for Southampton.

In December 2021, Southampton house prices increased by 2.2% in one month.

Yet last month, for example, Southampton house prices dropped 0.9%, and the month before they only rose 1.3%. Not all doom and gloom when you consider …

 

Southampton house prices are still 10.7% higher than a year ago.

We have been in fifth gear for the last two years with extra rockets attached. We are certainly not going into reverse gear, more a drop down the gears to fourth!

I know many aspiring Southampton homeowners are waiting for house prices to fall, however, I do not foresee any large Southampton house price drops in the next few years. In essence, whilst I do believe the rate of house price growth will slow down, that does not mean it will go into reverse.

Some would ask what increasing interest rates and inflation will do to the Southampton property market?

As I’ve already discussed in several recent articles on my property blog, if interest rates don’t go above 3.5%-4%, this will not be a game-changing issue for the Southampton property market. Most homeowners are on a reasonably long-term fixed-rate mortgage (typically 5+ years) and will be able to transfer them across to the new house purchase if they want to move.

Now, of course, that won't help first-time buyers. I agree there will be fewer Southampton first-time buyers, yet these will be replaced by landlords re-entering the Southampton property market (as I discussed in a previous article a few weeks ago).

Southampton house prices will also be further protected by the effect of inflation on house prices (again discussed in a separate article about a month ago).

As the number of properties coming to market has increased, the choice of properties to buy has expanded. This will encourage those potential cash home buyers who have also been waiting on the sidelines (alongside the landlords) to start viewing and making offers. They, too, have not wished to get into a bidding war but patiently waited for the market to ease.  

And it is for those reasons in this article (and my other recent articles mentioned above) I do not see a Southampton housing bubble on the horizon.

If you would like those other articles, don't hesitate to contact me, and I will send you the links.

What Was the Average Southampton House Price in 1952?

 

Well, what a weekend that was. Street parties, gatherings in the park, the purple bunting, egg and cress sandwiches, union jack flags, cheese and pineapple on cocktail sticks, and let's not forget the trifle – the Platinum Jubilee Party. And no decent party is worth its salt without a game or a quiz.

So, if you have post-Jubilee blues, let me ask you, how much was the average Southampton house worth in 1952?

To start with, let me look at what a property is worth today in Southampton.

 

The average price paid for a property in the Southampton area in the last 12 months was £324,670.

 

Now, let's go back to 1952. Sir Winston Churchill was the Prime Minister, Newcastle won the FA Cup, London was covered in the Great Smog, free prescriptions on the NHS ended (it cost 1 shilling or 5p in new money), and King George IV, at the age of 56 passed away on the 6^th February, meaning Princess Elizabeth became the Queen - as for housing…

 

The average price of a Southampton home in 1952 was £2,651.

This means Southampton house prices are 121 times higher since 1952.

Yet over the last 70 years, the country has been subjected to 4.5% per annum inflation.

 

The 1952 Southampton home is equivalent to £50,981 today when adjusted for inflation.

 

This means Southampton house prices have increased by 504.8% in real terms since 1952.

So, does that mean house prices are more expensive today compared to 1952?

In 1952, the average annual male wage was £452, 8 shillings and 1 pence, meaning the average Southampton house was 5.86 times the average wage. Today the average home is 8.85 times the average wage.

Yet let us not forget the average mortgage payment in 1952 was £11 per month. The average Brit earned £34 per month, meaning 32.3% of the household income was going on mortgage payments, whilst nationally today, according to the Nationwide, it stands at 28%.

It's cheaper, in real terms, to buy a property in 2022 than in 1952.

And that’s the point, some things in ‘real terms’ (real terms being true spending power of the money after taking into account wages, costs and inflation) were more expensive and some cheaper 70 years ago. For example, in 1952, petrol was equivalent (in today’s inflation-adjusted prices) to £1.02 per litre, a pint of beer £2, half a dozen eggs £2.20, cheddar cheese £2.40 per 500g, a basic radio £430, a Hoover £530 and a 12-inch TV £1,600.

So back to property, the Queen’s reign has seen some amazing house price rises in the UK, yet that growth hasn’t always been in constant upwards direction as we have had a couple of dips along the way.

 

We had a house price crash in 1990, when the average value of a Southampton property dropped from £79,776 to £66,070 in 1996, only for them to start rising again.

Southampton saw another house price crash between 2008 and 2009, and the average house price dropped from £238,644 to £203,447 in a year.

So, what else has changed about property and housing since the Queen came onto the throne?

 

In 1952, only 32% of people owned their own home, whilst 50% of people rented from a private landlord and 18% rented a council house.

 

By the time of the Silver Jubilee in 1977, 56% of people owned their own home, with 12% of people privately renting and 32% rented from the council.

Come the Golden Jubilee in 2002, 70% of people owned their own home, with 11% of people privately renting and 19% rented from the council.

 

Today, 63% of people own their own home, 20% of people privately rent and 17% rent from the council.

 

So, to conclude, as we look forward into the 21st century, I am sure the property market will be totally different again in 70 years.

I hope you enjoyed reading this article and do share it with your friends if you find it interesting.

PS for all you Rightmove fans, the average Southampton terraced home in 1952 was worth £2,187, and a semi in Southampton could be bought for on average £2,549.

The 6 Reasons Southampton Rental Properties Could Inflation Proof Your Savings?

 

 ·       Inflation (and recessions) can be nerve racking for people and their hard-earned savings and wealth.

·        Yet there are six reasons which make investing in private rental properties a potentially wise investment in these changeable times.

·        This article looks at how investing in Southampton property could help you 'hedge' against inflation and protect your savings and wealth against the possible recession.

The cost-of-living predicament is threatening the budgets of many Southampton householders.

Inflation is running at 7.8%, yet the best savings rates in the market are only 2.75% (because of low Bank of England interest rates). This means that the value of people’s savings is falling fast.

To add insult to injury, the possibility of a recession on the horizon could add another nail in the coffin of people’s wealth and savings.

Looking back at the last recession (ignoring the 2020 Covid recession), the Stock Market (FTSE index) dropped 40.1% during the Credit Crunch (2008/9) - scarcely a soothing thought if you worry about a recession looming in the next couple of years.

A recession can have a catastrophic impact on household budgets, as a weaker economy characteristically means that salaries drop, and people get made redundant.

So, why do I suggest Southampton rental properties will help to

protect your wealth and hedge against inflation?

Southampton rentals aren’t perfect, yet in many ways, they go a long way to help – let me tell you why.

1. One of the most significant benefits of investing in residential property is to hedge against inflation. An ‘inflation hedge’ is an investment that defends against the decreased purchasing power of your money that results from the loss of its worth/value due to inflation.

The last time the UK suffered high and persistent inflation was the 1970s.

In 1973, the average British house was worth £9,942. In 1980, that same house was worth £23,287. If the same £9,942 had been invested instead in the stock market in 1973, it would have been worth £19,384 in 1980.

So how did that compare to inflation?

Neither property nor the stock market beat inflation in those seven years (as the goods and services of that £9,942 in 1973 had risen to £25,897 by 1980).

But investing in the stock market between 1973 and 1980, that stock market investor would have lost 25.2% of their investment in 'real terms’, compared with only 10.1% for property investors.

However, there was the bonus of seven years’ worth of rent!

To give you some idea of what that would be worth in today's figures (even if the rent didn't go up during that time frame) ...

The average Southampton landlord will earn £98,616 in rent over seven years.

    2.    Rental properties have repetitive, regular monthly income, whilst dividends from the stock market are dependent on there being profits which, in a recession, can be hit and miss.

3.    Existing Southampton landlords know that the rents their rental properties achieve don’t historically decline during recessions in the medium term.

 In 2008, Southampton rents dipped by 5.2%, yet they soon bounced back a year later.

And even if average rents do go down, every rent is fixed at the start of the tenancy. Also, it is infrequent for a tenant to negotiate a reduction in rent mid-tenancy even if average rents did drop.

4.      4. Property prices sometimes fall during recessions.

In the 2008 Credit Crunch recession, Southampton property values dropped 20.2%.

Dropping from £168,795 at the peak in November 2007 to £134,665 in March 2009 (before they started to rise again).

Yet as I stated above, the Stock Market dropped 40.1% with the Credit Crunch. Also previously, the Stock Market dropped 36% on Black Monday before the early 1990’s recession and 55.3% in 1974.

Which sort of drop would you prefer?

5.     5.    (Almost) guaranteed rental payments. Insurance can be taken out for rental payments (you can’t            get that on stocks and shares). Also, the government will cover most (or all) of the rent when                someone is made redundant and needs to apply for social security.

6.      For those Southampton landlords who take a mortgage, inflation can be a benefit. The first is 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. You will receive a                 lower interest rate when you re-mortgage in the future because of the lower loan to value                     percentage.

Also, as the equity in your Southampton rental property increases, assuming you fix your mortgage, your payments stay the same.

Finally, inflation also helps Southampton buy-to-let landlords 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. 

Yet, there are downsides to renting.

Rent arrears can be a worry though. However, during 2021, landlords who used a letting agent were, according to an investigation from Denton House Research, 272.5% less likely to be in arrears of two months or more. 

One of the biggest reasons is the more stringent tenant referencing that letting agents tend to do compared to landlords who do it themselves. At our agency, we like to reference tenants carefully for job security, stability, and any history of non-payment on rents, always liaising with previous landlords/agents to see if they were a good tenant.

That is why many tenants with a poor tenancy record are attracted to properties that are not through agents, as they know most (not all) DIY landlords don’t reference their tenants as thoroughly as letting agents do. Solid referencing is not a 100% guarantee you won’t get rent arrears or have your rental property trashed, yet it will go a long way to mitigate it.

One of the things about investing in Southampton rental properties is that buy-to-let investors have more control over their returns than stock market investors do. Buy-to-let provides long term stability and constant income to counterweight the massive swings seen in the FTSE stock market.

 

There is something reassuring about touching and feeling

your investment – the 'bricks and mortar’.

 

You must make your own decision when investing in the private rental market in Southampton. If you'd like to chat over the phone for five or ten minutes to discuss where I would be investing in the Southampton property market, don't hesitate to send me a message or pick up the phone.

How are you planning for the spectre of a potential recession?

 

Has the Southampton Property Market Peaked?

Should you buy now or wait for the bargains?

• Many commentators believe we have seen the peak of the Southampton property market.

• So, should savvy bargain hunters wait for Southampton house prices to fall?

• Or could postponing your house buying for any anticipated Southampton house price drop be a costly mistake?

Over the last two years, the Southampton property market has been a rollercoaster ride of hyperactive demand together with the new sport of getting your offer accepted when you compete with 30 other bidders.

 Yet there are clouds on the horizon that the Southampton property market could be at its peak.

Bank of England interest rates have increased four times in the last few months to try and combat inflation. Meanwhile many Southampton households are finding it tough to counter the most significant drop in real incomes in a single year since records began in the mid-1950s, all at the same time as gas, heating oil and electricity prices are predicted to rise again in the autumn.

Hence why some economists are predicting house price drops in the coming 18 to 24 months of 3% to 5%.

So, surely this is not the best time to buy a Southampton property – and surely savvy buyers should wait for Southampton house values to fall?

Is it realistic to see continued double-digit national house price growth? Certainly not.

The question is how far the Southampton property market will slow and whether the slowing will drop into modest falls.

Let me look at household income first.

At best, the outlook is gloomy as real household disposable income is set to drop by 2.4% in 2022/23, the largest drop since records began in 1956. This is despite the £17.6 billion of financial support for British households revealed in Rishi Sunak’s Spring 2022 Statement with the National Insurance thresholds, energy bill support package and duty cut on petrol. Without these changes announced by the Chancellor, real household disposable income would have fallen by an additional 1% in 2022/23.

Second, as interest rates increase, mortgage rates will increase in line, increasing mortgage costs, so surely that will curtail demand, meaning Southampton house prices will drop, and buyers should wait to catch a bargain?

Finally, with inflation on the rise, the real value of people’s savings will decrease quicker, and the value of their deposits will diminish, meaning Southampton prices will surely drop, and people should wait to buy?

 

Surely the Southampton property market has peaked and

buyers should wait for the bargains?

Well, I don't think so, and these are my reasons why.

I believe, subject to no significant shocks in the world economy, Southampton house price growth will be very slow in the next 18/24 months and go into low single digits (even the odd month dipping ever so slightly into the red), but not the 16% to 19% annual drop we saw in 2008/9.

 

Let me look at real household income. Every economist predicts growth in real household income in 2023/24 by around 1%.

If the two years are combined, the predicted effect on real household income in the next two years is a net loss of 1.4%, whilst in the credit crunch years 2010/11/12, the net loss was 2.7%.

I was looking at the increase in mortgage rates. 79% of owner-occupiers have fixed their mortgage costs and had their affordability stress-tested to Bank of England interest rates of 3% to 4% under the Mortgage Market Review rule changes in 2014. I believe the most significant impact of increasing interest rates will be at the point of taking on a new mortgage by first-time buyers (as opposed to servicing or the porting of an existing mortgage from one house to the next house).

The four successive Bank of England base rate rises, inflation and the rising cost of living are likely to bring more cautiousness over summer and autumn when it comes to people buying a property. Yet, there is still a massive imbalance of demand for property over the number of properties for sale to quench that demand.

The potency of the job market and the ongoing mismatch between the supply of properties (mentioned in last week’s article on the Southampton property market) on the market and demand for those properties will support property values.

Finally, the by-product of increasing inflation is that it makes buy-to-let more attractive. If there is a reduction in first-time buyers, this will be counterweighted by more landlords buying again, supporting the current level of Southampton properties.

 

But what if Southampton house prices do drop significantly?

So let’s assume that Southampton house prices do fall, irrespective of the reasons above, it will not inevitably help Southampton buyers.

If we have a house price crash, people tend to find their careers are at risk, and their salaries don’t rise as much. The younger generation (i.e. first-time buyers age range) often gets hit the toughest by recessions.

If first-time buyers wait until 2024 to buy and Southampton property values drop by 10%, that will prove more expensive.

In the last 2008/09 crash, lenders weren't offering 5% deposit mortgages. The lowest deposit mortgage that first-time buyers could get was with a 10% deposit and even then, they were hard to come by.

When writing this article, first-time buyers can obtain a 5% deposit mortgage for a fixed rate of 2.66% for five years.

 

The typical first-time buyer terraced house in Southampton

sells for £273,900.

 

So, if they were to buy now, on this mortgage deal, the first-time buyer would have to stump up a £13,695 deposit and their mortgage payments would be £952.68 per month.

Yet, let’s say property values in Southampton do drop by 10% in the next 18 months, the terraced house would now be worth £246,510, so a significant saving. Or is it?

Everyone believes interest rates will rise further, so let’s assume they go to 3% by the autumn of 2023. That means the mortgage rate for a 10% deposit mortgage will be in the early 5%’s, so let me assume 5.29% (because the banks tend to increase the gap between the base rate and the mortgage rate in recessions to allow for the extra risk).

The monthly mortgage payment on the 5.29% mortgage would be £1,161.06 per month, and you would need to double your deposit to £24,651.

So even if Southampton's house prices did drop by 10%, the first-time buyer would be £2,500 worse off a year in mortgage payments and would have to find double the deposit.

 

...and then there is the other cost of waiting.

You have two years’ worth of rent to pay. The average rent for a Southampton property is £1,167 per month.

If you waited a couple of years for Southampton house prices to drop by 10%, you would spend £28,008 in rent.

Choosing to buy a Southampton property makes even more economic sense if it is a long-term choice, as homeowners can ride out any house price drops.

Homeowners who plan to stay in a property can generally rely on getting their money back within six to ten years whilst not paying any rent.

Will Southampton prices go up, or will they go down?

Remember, George Osbourne said house prices would drop by 18% in May 2016 if we voted to leave the EU, whilst many economists said they would drop by 5% to 10% when Covid hit in March 2020.

And we all know what happened.

If you think you will be better off owning your own Southampton home rather than renting one, don't bother to wait for the suggested house price drop that may never happen.

These are my thoughts, what are yours? Let me know in the comments.