Is Buy-to-Let in Southampton Still Worth the Risk?

Over the last five years, life has become a little trickier for Southampton landlords, with changes to their taxation status, mortgage interest relief and an additional 3% stamp duty for a buy-to-let property, and has made lots of Southampton landlords ask themselves:

‘Is buy-to-let in Southampton still worth the risk?’

Regarding taxation, in 2016, the Government added a 3% supplement in stamp duty on all buy-to-let properties. Then, in 2017, the Government started to reduce mortgage interest by stopping landlords from deducting the interest they paid on their mortgage before paying tax on the rental profits and replacing it with a flat rate tax credit based on 20% of the interest they spent on their mortgage.

There would be no effect if a Southampton landlord were a basic rate 20% taxpayer. Yet Southampton landlords who were higher-rate (40%) or top-rate taxpayers (45%) saw an effect as their tax relief was cut in half.

So, is buy-to-let in Southampton still an advisable investment?

The response to this question is much more significant than the issue of taxation.

To a large degree, as with all investments, it depends on why you are investing and what your final objective is. Let me expand.

The rewards of Southampton buy-to-let.

You can earn money two ways with buy-to-let. The first is the rental income from the property.

The average rent achieved in Southampton is £1,294 pcm,

a rise of 9.8% in the last 12 months.

 

This rent is expressed as a yield and is described as a percentage figure that's calculated using the annual rental income and dividing it by the value of the buy-to-let property.

 

Landlords and buy-to-let investors use rental yield to judge and measure the value of their rental investments and portfolios. E.g. rent is £1,000 per calendar month (pcm), which means the annual rent is 12 x £1,000 = £12,000. If the property is worth £180,000, the rental yield is £12,000 divided by £180,000, which, when expressed as a yield percentage, is 6.67%.

 

The average yield in Southampton is 6.1%.

Some areas in Southampton can easily achieve a 7.6% to 9.0% yield, sometimes even more, depending on your choice of property and type of tenancy you wish to have.

If yield is your number one focus, the highest average yield in the UK can be found in Bradford City Centre, where it is 12%, Hyson Green and Radford in Nottingham at 9.6% and Pontypridd at 8.7%, while other areas in the UK can be as low as 2.2%.

So indeed, is the best strategy to go for high-yielding properties?

The problem with pursuing high-yielding Southampton buy-to-let properties is that you usually must compromise on the property’s capital growth to attain that high yield.

The second way to earn money with buy-to-let is capital growth as your Southampton property increases in value.

 

SO15 property values are 15% higher than 3 years ago.

 

A reasonable return in anyone's books.

Of course, this all depends on the rent coming in, yet you can buy landlord insurance to cover against loss of rental income, tenant damage and legal costs.

Interestingly, using Government data and Industry data, Denton House Research found that in the first lockdown landlords who managed their rental properties themselves were 272.5% more likely to be in arrears of 2 months or more (compared to those who utilised the services of a letting agent to manage their property).

 

The drawbacks of Southampton buy-to-let.

 

Your tax bill is higher today than a few years ago, but isn't everyone’s?

If Southampton property prices fall, the capital you invested will reduce, yet if it sat in the bank, it would decline in value anyway.

Being a landlord is a big responsibility, with over 170 pieces of legislation and orders to comply with. That's where a suitable letting agent can help you with your rental property to ensure you remain compliant.

I recommend Southampton landlords consider all options to maximise their rental income whilst reducing their outgoings concerning their rental property.

Rents are rising in Southampton (as mentioned above), and many Southampton landlords appreciate the demand-led increases in their rent. And let me ask you, why shouldn’t they, as they have been exposed to many legislative and taxation changes over the last five years?

Ok, last point and the elephant in the room.

Will there be a house price crash, and should Southampton landlords wait for it?

A house price crash conjures up a big event that makes house prices go down, and it certainly happened like that in 1988 with the removal of dual-MIRAS tax relief on mortgages and the Credit Crunch in 2008. Yet this time, it’s different.

As there is more normality and balance in the Southampton property market at the moment (compared to 2021/early 2022), the price that is being paid today on most houses in Southampton is not as extreme or as extravagant as what was being paid in 2021/early2022 (when people were outbidding each other).

Therefore, if you were to look at the house price indexes going into the spring and summer of 2023, then there will be a reduction. The doom-mongers and newspaper editors will call that a house price crash, yet I see it as the market easing back to normality.

 

A massive driver behind landlords and home buyers ‘waiting for a house price crash’ is that they fear they have ‘missed the boat’ when it comes to buying/investing.

 

There is always newspaper (and now social media) attention when house prices explode. This means people quickly feel pressure to enter the 'property market', as everyone is making money, yet they aren't.

The problem is that during the previous boom phases (the late 1980s and early/mid-2000s), house prices increased quicker than some people could save money for their deposit (for a house purchase). They saw their friends and acquaintances snapping up buy-to-let deals and they were missing out on the spoils of house price growth. As a result, many of these excluded house buyers judged that a house price correction was foreseeable, inevitable, and sometimes even needed. Not with any rational economic argument, but classic FOMO (Fear of Missing Out).  

Yet a ‘house price crash’ isn’t the silver bullet that many think it will be.

‘House price crashes’ virtually never drop house prices to reasonable levels, and in fact, they have a lot of additional effects that make house buying even harder.

Investing in buy-to-let is a long-term investment. Remember what I said at the start. It would help if you decided why you're getting into buy-to-let investment and when you will get out (and what you want to get out of it). Buy-to-let has advantages and disadvantages, but it is something tangible and something that investors can understand.

 

The UK needs to build more houses, so the demand for rental properties will only continue to grow.

 

The heady days of the early 2000s, when anybody could make money from any property, though, have gone. With increased legislation and taxation, you need the advice of a great agent to guide you on what to buy (and not to buy) for an excellent yield, incredible capital growth or a balance of the two. That agent should be able to find you a great tenant who will pay the rent on time and look after the property to ensure that when they leave, your investment is returned to you in the best condition possible.

If you would like to pick my brain, whether you are considering becoming a landlord in Southampton, an existing landlord (irrespective of which agent you use) or even a self-managed landlord, do not hesitate to pick up the phone to me.

I will tell you what you need to hear, not necessarily what you want to hear.

 

Southampton Property Market Update: February 2023

 

·       With the Bank of England raising interest rates and inflation high, what is happening in the Southampton property market?

 

·       Are properties selling in Southampton? And if so, what is selling?

 

·       What will happen to the value of your Southampton home?

 

·       Read the article to find out what is happening to the Southampton property market.

 

As we enter February, the Southampton (and British) property market is full of mixed messages.

Whilst the Bank of England increased the base rate nine times in 2022, meaning they are now at 3.5% (3% higher than 12 months ago), mortgage rates are now dropping.

The Southampton property market rocketed over the last few years because of the imbalance of the number of properties for sale versus the demand, with many more people looking to move home than there were properties available.

Now, as we are over the first month of 2023, we are experiencing a steadier Southampton housing market, where homebuyers have the time and opportunity to ensure they find the right home for them.

The days of 50 viewers per property on the first weekend of marketing, frenzied Southampton buyers outbidding each other by increasing their offers by tens of thousands of pounds over the asking price has become the exception and not the norm.

 

I often get asked my thoughts on the Southampton property market (hence these blog articles) and at this time of year, I get asked my forecast for the year ahead.

 

The one big thing I have noticed is the imbalance of what is coming on the market for sale versus what is selling.

For example, 38.2% of properties that came on the market nationally in November and December 2022 had an asking price of £250,000 or less, yet 45.6% of the properties sold subject to contract since 1^st January 2023 have been £250,000 or less.

 

That doesn't sound like a lot, yet it makes a massive difference to the property market. 

However, it’s very easy to look at national averages, regional averages and, of course, Southampton averages. Yet the property market is just one market nationally, as there isn't just one Southampton property market.

However, the same pattern is seen in the higher-priced Southampton properties. These higher-priced properties are selling more slowly than the lower-priced Southampton properties. Therefore, the need for those larger Southampton properties to be more realistic in price is paramount to stand out from the crowd, especially with the next point.

Evidence suggests there is a growth of Southampton buyers, who are looking to find a home before putting theirs onto the market. This was unthinkable last year, yet as the Southampton property market returns to normality, this will be seen more and more.

What are my thoughts?

Firstly, the time scale of how long it will take to sell a Southampton home.

I expect to see the time it takes to sell a Southampton home increase from 43 days in 2022 to a more 'normal' housing market of around 65 days.

Secondly, the imbalance of the Southampton property market.

A greater number of larger homes in Southampton are coming on the market because (as mentioned recently in a previous blog post) of the higher number of mature homeowners looking to downsize. This is because these larger homes have become much more expensive to heat, and as many of the occupants are on fixed incomes with their pensions, they are downsizing to cut costs.

Thirdly, that brings me to talk about energy efficiency.

Many buyers have started to ask about a property's Energy Performance Certificate (EPC) rating. I recommend to Southampton homeowners considering moving in the spring or summer to have an EPC done on their property now, as there may be points that could easily be rectified and improved from one EPC rating band to another.

This would mean you will get a lot more interest and a better price for your property. If you need any help or guidance in organising an EPC on your Southampton property (even if you are not selling for six/twelve months), do not hesitate to me give me a call.

So, what is happening in the Southampton property market in terms of new properties (aka new listings) and what is selling?

 

326 properties have sold (STC) in the Southampton area since 1^st January 2023.

(Southampton being SO14 to SO19).

However, it's essential to look at what is selling in Southampton, and the most active price range is the £250k to £300k range, where 71 properties have been sold subject to contract (representing 21.7% of sales).

Looking at what is coming onto the market in the same time frame …

350 properties have come onto the market in the Southampton area since 1^st January 2023.

Interestingly, the price range with the most listings is the £250k to £300k range.

This means Southampton is bucking the national trend (mentioned above) where nationally, the lower to middle property market is where the sales are, but the properties coming onto the market are slightly higher in price, yet it’s the same in Southampton.

Any Southampton homeowners with properties in price ranges that aren’t selling so well need to be ‘on point’ to stand out from the crowd regarding their marketing, be spot on regarding their pricing (compared to the growing competition of other larger homes for sale) and now more than ever, their EPC rating (especially if they are on the cusp between two EPC bands).

Before I conclude, you might wonder why I have not mentioned Southampton house prices.

Well, what will happen to Southampton house prices in 2023 is something I am not sure of.

(Yes, I know that level of frankness is strange coming from an estate/letting agent).

I know the prices being achieved for homes in Southampton in the spring of 2022 (when everyone was out bidding each other) are not being achieved today. It all depends how you look at it.

Are Southampton house prices dropping or are they just returning to normal? I would say the latter.

However, looking at house prices as a ‘bellwether’ for the health of the Southampton property market has flaws.  

Many economists and property market commentators believe transaction numbers (the number of properties sold) give a more accurate and truthful indicator of the property market's health than just house values alone.

The reason is three-fold.

Firstly, most people also buy a home when they sell their own, so if Southampton property values drop by 10% or rise by 10% on the one you are selling, it will do the same on the one you are buying - meaning to judge the health of a property market on house prices is very one dimensional.  

Secondly, as most people move up market when they do move home, if the price of the one they’re selling might not be as much as they would've achieved in 2022 (if they drop), the price that they will pay on the one they want to buy will be lower. Thus, it will cost them less to move upmarket!

E.g. Last year, your Southampton home was worth £400,000, and the one you wanted to buy would have been £750,000. Let’s say Southampton house prices did drop 10% in 2023 (which I don’t know if they will); your home would be only worth £360,000. Yet the one you want to buy would now be worth £675,000. So last year, it would have cost £350k to move, but if Southampton house prices drop 10%, the move would cost £315k, saving you £35,000.

Third and finally, moving home is a human thing. Property habitually delivers a robust emotional connection with homeowners - a connection that few would attribute to their other investments like their stock market investments or building society savings passbook.  

Moving home could be described as a human journey, moving from one chapter of one’s life to another.  

Therefore, when people do move home, it shows they are moving forward in their lives, which gives a great indicator of the property market's health.

 

It’s going to be an interesting year for the 2023 Southampton property market.

My opinion. Do what is suitable for you, your family and your finances.

Ignore the newspapers and look at the facts in hand and if you want a frank chat about the Southampton property market, irrespective of whether you want to sell or not, call me. I might not tell you what you want to hear, but I will tell you what you need to hear

Southampton Baby Boomers and their 24,485 Spare ‘Spare’ Bedrooms

An additional 2,163 spare bedrooms have been locked out of the Southampton housing market since 2011 as Britain’s ageing population means the country’s stock of homes is being used more unproductively.

The number of spare bedrooms in Southampton between 2011 and 2021 increased from 79,153 to 81,316.

The number of Southampton households living in properties with at least two spare bedrooms (i.e. spare 'spare' bedrooms) increased slightly by 417, from 24,068 households to 24,485 households between those ten years.

That means 23.9% of Southampton households have two or more spare bedrooms.

And this isn't just a local issue; Britain has 8,902,471 properties with a spare ‘spare’ bedroom (i.e. they have two or more spare bedrooms).

 

Before I dive deep into the issue of these 'spare' spare bedrooms, let me look at the 'occupancy rating' of all households in the country.

 

There are 8.26 million households with one spare bedroom, 6.57million households with no spare bedrooms (i.e. the household’s accommodation has an ideal number of bedrooms), 880,672 households where they are classed as over-crowded under the ‘Bedroom Standard’ by one bedroom and 173,751 households where they are classed as over-crowded under the ‘Bedroom Standard’ by two bedrooms.

The ‘Bedroom Standard’ allocates a separate bedroom to each of these groups (according the Office of National Statistics):

• ·       adult couple
• ·       any remaining adult (aged 21 years or over)
• ·       two adolescents (aged 10 to 20 years) of the same sex
• ·       one adolescent (aged 10 to 20 years) and one child (aged 9 years or under) of the same sex
• ·       two children (aged 9 years or under) regardless of sex
• ·       any remaining child (aged 9 years or under)

 

So, with this serious overcrowding, why is this under-occupation happening and is there a better use for these homes?

Britain has an ageing population. Just over 1 in 5 (18.6%) of Britain’s population are aged 65 years or older, compared with 1 in 6 (16.4%) a decade ago.

In the last ten years, many of Britain’s baby boomer generation (currently aged 59 years to 77 years of age) have entered retirement. Most of these extra bedrooms are in homes owned by these baby boomers, who are probably still living in the original family homes they bought in the 1980s or 1990s to raise their children, yet still live there years after their children left home.

And it will get worse throughout the 2020s as the number of Brits living in homes greater than their needs will grow further as the demographics of the British population shift.

There are 68,247,855 bedrooms in England & Wales, and even if nobody shared a room, there would be enough for every one of the 59,597,542 of us to have a bedroom and still have 8,650,313 spare bedrooms! They are very unequally distributed between households.

What’s the answer?

Some on the left suggest we forcibly make these older mature Southampton homeowners people move to smaller homes. Yet, it's their property; they paid the mortgage on it for years (especially when mortgage interest rates were 15% and above), and thus, it's their choice if they want to move or not.

Some of the difficulties are that downsizing in Southampton often needs to make financial sense for mature homeowners.

Most mature Southampton homeowners live in average-priced homes and suitable bungalows, even though they are smaller, often cost as much, if not more, than their large family home.

This issue will slowly worsen in the coming twenty years, so what are the options?

There is a necessity to motivate builders to build suitable properties for these mature homeowners to move into and to change the dynamics of the available properties to buy. For example, there are only 2 million bungalows in the UK, and we only built just over 1,800 new bungalows in 2020, yet seven in ten UK people (c. 10.7 million) aged over 65 want to live in a bungalow.

Secondly, there needs to be reform of the taxation rules on housing. Taxation works on the carrot or stick method.

The 'stick' could make it less attractive to stay in larger houses by increasing the higher council tax rates in the higher council tax bands. The 'carrot' could incentivise mature homeowners to downsize with allowances on stamp duty or inheritance tax, thus making a move easier.

However, the cost-of-living crisis and heightened energy bills could be doing the Government's job for them.

The number of larger Southampton homes owned by mature homeowners, often for 25 years plus, has been snowballing in the last six months.

This is good news for younger families that can afford to jump from their smaller homes, yet many can't afford to make the jump for the same reasons why mature homeowners are moving home.

For example, of the 181,195 properties put on the market in the UK in November and December 2022, 56.9% were under £350,000. However, of the properties sold in the UK since Christmas 2022, 66.3% of them have been £350,000 or less.

 

This means those homeowners in the middle to upper levels of the Southampton property market need to be very realistic with this pricing as the supply of the mid/high range properties is outstripping the demand.

Whilst it is not a good distribution of housing if you have some people in overcrowded households and others with spare bedrooms, everyone should be able to choose how to live.

Many Southampton homeowners delay downsizing because they prefer to grow old in their family home rather than downsize. However, I often see mature homeowners downsizing too late when say, they have had a fall, are unable to manage the basics of gardening or cleaning, or the home becomes a physical hazard.

This downsizing phase will continue to grow, peaking in the mid-2030s.

The issue is, I cannot see builders or the Government building hundreds of thousands of bungalows in the next decade.

So maybe, you should consider making a move in the next few years, when you will have a better choice of bungalows to move to and you are able to put your stamp on it when you are in your 70’s and before you are unable to in your mid/late 80s?

If mature homeowners have large properties earned from working hard and paying taxes, then quite frankly, that is nobody else’s business and no one should force you out!! You might want that extra space for children and grandchildren to come and stay or as office space, a television room or a hobby room. Yet please, I must stress these are only suggestions.

These are my thoughts; what are yours?

𝐃𝐞𝐩𝐨𝐬𝐢𝐭 𝐃𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬: 𝐖𝐡𝐚𝐭 𝐒𝐨𝐮𝐭𝐡𝐚𝐦𝐩𝐭𝐨𝐧 𝐋𝐚𝐧𝐝𝐥𝐨𝐫𝐝𝐬 𝐒𝐡𝐨𝐮𝐥𝐝 𝐊𝐧𝐨𝐰

The end of a tenancy agreement can be stressful for landlords. You need to make sure the property isn’t vacant for long and there may be a need for repairs and maintenance. Then there’s the deposit release process and decisions about whether you need to make any deductions.

Landlords have a bad rap when it comes to deposits. Many tenants think they have made unfair deductions or that their landlord is wrong to keep anything back.

Thankfully, services such as the Tenancy Deposit Scheme (TDS) and Deposit Protection Service (DPS) have reduced the controversy around returning deposits. There’s a formal dispute resolution process that both landlords and tenants can apply to if there are disagreements. However, as a landlord, it’s still worth knowing what you can and can’t make deductions for.

In this three-minute read, we look at the dos and don’ts of deposit deductions.

𝐑𝐞𝐚𝐬𝐨𝐧𝐚𝐛𝐥𝐞 𝐝𝐞𝐩𝐨𝐬𝐢𝐭 𝐝𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧𝐬

Your property should be returned to you in the condition that it was found in (excluding fair wear and tear), and your expectations should have been set out in your original tenancy agreement. For example, if the property was handed over after being professionally cleaned, it is reasonable that it’s cleaned to the same standard on the way out.

Reasonable deductions can also be made for the following:

- Unpaid rent or bills

- Damage caused by tenants

- Missing items (in the case of furnished properties)

- Gardening

𝐅𝐚𝐢𝐫 𝐰𝐞𝐚𝐫 𝐚𝐧𝐝 𝐭𝐞𝐚𝐫

An area that causes trouble when it comes to returning deposits is the concept of ‘fair wear and tear’. This is anything that could be caused by everyday living. For example, scuff marks on the walls can occur quite easily and would fall into the category of ‘fair wear and tear’. However, a dent in the wall or broken window could be seen as beyond the usual level of wear and tear and therefore be deductible.

It’s also important to be fair. So, if one kitchen cupboard has been broken, it wouldn’t be fair to try and reduce the deposit by the cost of replacing an entire kitchen. Additionally, the level of wear and tear differs depending on the number of tenants in a property and the length of time they’ve been there. You might experience more damage after a family with young children move out rather than a couple.

𝐇𝐨𝐰 𝐭𝐨 𝐚𝐯𝐨𝐢𝐝 𝐝𝐞𝐩𝐨𝐬𝐢𝐭 𝐝𝐢𝐬𝐩𝐮𝐭𝐞𝐬

The best way to avoid deposit disputes is to pay for a thorough inventory before a tenant moves in and after they leave. Using a third party to assess a property and take photographs offers a fair and balanced approach to any potential deposit disputes that may arise. An inventory will be vital evidence should a deposit matter be taken to arbitration.

𝐖𝐡𝐚𝐭 𝐭𝐨 𝐝𝐨 𝐢𝐟 𝐲𝐨𝐮’𝐫𝐞 𝐮𝐧𝐬𝐮𝐫𝐞

Your letting agent can be a great source of help if you’re unsure whether to make a deposit deduction. They have the experience of viewing and assessing hundreds of rental properties and will be able to ascertain whether an issue is classed as damage or fair wear and tear.

Our lettings team Belvoir are here to help if you’re looking for new tenants. Call us today on 02380018222 to start the tenant-finding process.

Thatcher’s Dream Smashed as Homeownership in Southampton Drops

 

In her first conference speech as the Tory's new leader in 1975, the grocer’s daughter from Grantham, Margaret Thatcher, asserted her conviction in a ‘property-owning democracy’.

 

Although Thatcher didn't conceive the saying – (that credit belonged to Conservative MP Noel Skelton in 1923), it encapsulated what she thought Britain should be.

Through prudence, saving and hard work, she believed that everyday British families should be able to purchase their own homes. Thus, giving them security, self-esteem and independence and freeing them from the nanny state of local authority landlords.

Although that idea was a Labour idea initially in the mid-1970s, Margaret Thatcher introduced legislation (Right-To-Buy) in 1980 to allow local authority tenants to buy their own council homes at significant discounts. In the 1980s, homeownership boomed (although it had been on the increase for the previous two decades), and she led the country in an economy with which house buying became a national passion.

 

Between 1981 and 1990, home ownership went up from 11.88m to 15.47m.

 

The other lesser-known fact of the Right-to-Buy legislation in 1980 was it stopped local authorities from building new council houses.

 

Fundamental to her idea was that government (central or local), which had built between 30% and 45% of all homes in the 1950s, 60s and 70s, should stop providing homes and let the market provide them.

The proportion of homes owned rose from 55.4% in 1980 to 65.7% during Thatcher's reign as PM.

A few days ago, the housing element of the 2021 Census was released, and it has shown the proportion of home ownership had fallen to its lowest level since 1985. 

The proportion of households owned in the country fell from 64.1% to 62.5% between 2011 and 2021, the lowest level for the past 37 years, when the figure was 61.6%.

In the meantime, the proportion of privately rented households has surged to its highest since the late 1960s, with 20.4% of households renting from a private buy-to-let landlord.

This means the proportion of British households in private rented accommodation has more than doubled in the past two decades, from the 9.5% recorded in the 2001 census.

So, let’s look at the local stats for the Southampton council area.

 

The percentage of households owned in Southampton has dropped from 49.7% in 2011 to 48.7% in 2021.

 

But would it surprise you to know that even though the percentage/proportion of homeownership has dropped, the actual number of households owned has increased!

 

The number of owned households in Southampton has grown from 48,873 in 2011 to 49,899 in 2021, a rise of 2.1%.

 

So, what explains the contradiction of reducing homeownership, yet the number of households owned has increased?

One simple reason – the number of privately rented accommodation has grown even more!

 

The number of privately rented households in Southampton has grown from 25,501 in 2011 to 29,994 in 2021, a rise of 17.6%.

 

 

Over the coming weeks and months, I intend to drill down further into these stats nationally and locally.

Even though homeownership has increased in terms of pure numbers, the proportion of homeowners with a mortgage has dropped.

Just some headlines to whet your appetite.

As I said above, 64.1% of householders in Britain owned their own home in 2021 (of which 30.8% owned their home outright and 33.3% with a mortgage).

 

In 2021, of the 62.5% of homeowner households, those without a mortgage has increased to 32.8%, and those with a mortgage has dropped to 29.7%.

 

So, has Thatcher's dream been smashed?

Of course, nationally, home ownership is at the lowest level in many decades due to several factors, including the late 1980s and 2008 housing crash, negative equity, the credit crunch and increased mortgage regulation. 

Yet, at the same time, as every single local authority in Britain has seen an increase in the number and proportion of private renters over the past 20 years, the entrepreneurial property-owning spirit has moved into the ownership of private buy-to-let property. The market has undoubtedly filled the housing gap that the councils and local authorities left in the 1980s.

These are interesting times, and I shall share more insights in the coming weeks and months.

Let me know your thoughts on the information above.

Southampton Property Market Holding up Despite Doom and Gloom in the Newspapers

The Southampton housing market over the last three months is now becoming more ‘normal’ after the last couple of years of insane demand when the lockdowns started a race for space!

Even with the blackening economic doom-mongers forecasting a harsh slowdown in the British property market, the number of people buying and selling their homes is still very good for the time of year.

Whilst many homeowners are reducing their asking prices, it is not the 20% (some even said 30%) drop some property commentators and newspaper journalists had predicted.

Looking at the stats for Southampton for the last three months since the disastrous Truss mini budget – they make good reading.

Of the 943 Southampton properties that have sold (stc) since late September, the average length of time it took to achieve a sale was 42 days.

Interesting when you split it down by price, in Southampton:

·        Under £100k – 102 days

·        £100k to £200k – 54 days

·        £200k to £300k – 34 days

·        £300k to £400k – 41 days

·        £400k to £500k – 44 days

·        £500k to £1m – 55 days

·        £1m and above – 98 days

And by type:

·        Southampton Apartment/Flat – 54 days

·        Southampton Terraced/Townhouse – 34 days

·        Southampton Semi-Detached – 35 days

·        Southampton Detached – 45 days

 

The latest sold price data from the Land Registry shows that Southampton house prices currently remain 11.4% higher than they were 12 months ago; the rate of growth has dropped significantly.

Last month, Southampton house prices only rose by 1.2%; thus we are seeing the first sign that the property market is starting to cool.

With interest rates at 3.5% and further increases likely in 2023, that will undoubtedly spur ongoing cooling in Southampton property values yet it’s doubtful we will see the Southampton property market go into the deep freeze that many doom-mongers were predicting.

As I said in recent articles on the Southampton property market, we will see a 5% to 10% reduction in Southampton house prices over the next 12 to 18 months.

That will only take us back to the prices achieved in mid/late 2021 or early 2022 (depending on the property type).

Landlords have experienced double-digit rent growth in the last 12/18 months with a shortage of rental properties coming onto the market. I cannot see this changing in the short term, so I expect rents to be a further 10% higher by Christmas 2023.

Last week I stated it is not always wise to only focus on house prices but also take reference from the number of property transactions completed that feeds the fire of the British property market.

 

For example, in March 2021, 135,670 properties sold, yet a month later, it dropped to 87,600. A couple of months later, it rose again in June 2021 to 165,290 homes sold (for it to drop to 64,000 in July).

Whilst this is good news for estate agents and removals companies, it can skew the property market and put undue pressure on the property market (pressure which could cause a housing crash if not put under check).

Like most things, slow, steady and consistent is the preferred option for the property market. Throughout 2022, the number of properties selling in the UK has been a steady average of 68,832 per month, ranging from a low of 61,800 in January 2022 to 72,200 in July 2022.

 

This consistency will continue into 2023 and a return to a more 'normal' housing market.

One final thing I have noticed about the Southampton property market in the last six months is the number of larger properties coming onto the market that last sold over 25 years ago.

Homeowners in their 20s, 30s and early 40s tend to move every five or six years, yet when they reach their late 40s and 50s, they tend to stay put for longer. These properties only tend to come on the market when people pass away or must be sold for nursing home fees.

These mature homeowners are downsizing for several reasons. Their children have flown the nest and they are rattling around in homes with accommodation they don’t need. Many are being driven to sell their large homes in light of mounting energy bills, high inflation and never-ending maintenance costs that larger properties demand.

The second reason is that the recent rises in Southampton house prices has meant the money released to downsize has grown, meaning if these mature homeowners sell up and cash in to more manageable properties, the amount of money released is quite impressive.

In conclusion, 2023 is going to be a more 'normal' year, akin to the 2016 to 2019 years. Southampton homeowners need to be realistic with their pricing, yet as over eight out of ten sellers buy another home, the one you buy will be lower.

If you are considering selling your Southampton home in 2023 and would like a chat about your options, feel free to drop me a line or call the office.