Southampton Property Market What will the stamp duty cuts and interest rate rises mean for Southampton homeowners and landlords?

 

Last week the Bank of England increased interest rates to 2.25% and they are expected to be 3.25% by early next year. This increase will make the monthly mortgage payments more expensive for first-time buyers, an issue dubbed by some as the 'property affordability crunch.'

It will also damage the household budgets of homeowners coming off their fixed-rate mortgages in the next 12 months.

So how many homeowners are coming off their fixed rates in the next year?

Of the 7.97 million homeowners with a mortgage in the UK, 6.1 million of them are on a fixed-rate mortgage at an average rate of 2.04%. Industry statistics indicate around 1.3 million homeowners are coming off their fixed rate in the next 12 months.

The current crop of fixed-rate mortgage deals available today have already had the recent increase in the base rate ‘priced-in’ for weeks.

The cheapest 5-year fixed-rate today for a 65% Loan to Value re-mortgage (i.e., you are borrowing 65% of the value of your home) is a mortgage rate of 3.8% with Royal Bank of Scotland (RBS).

 

So, what will be the difference in mortgage payments between a 2.04% mortgage and a 3.8% mortgage?

 

Say an average Southampton first-time buyer bought their first home in November 2019 on a 25-year mortgage. They had a 3-year fixed-rate mortgage, and let's assume they fixed it at 2.04% (as mentioned above), meaning their fixed-rate deal finishes next month. They have £260,000 outstanding on their mortgage, and their Southampton house is worth £400,000. They would have been paying £1,107 per month for the last three years (assuming they took out a 25-year repayment mortgage).

On the RBS deal above, they will have to start paying £1,548 per month from November when they come off their initial rate – a rise of £441 per month in mortgage payments – almost a 40% increase! That’s quite a rise and potential blow to their household budgets.

Yet if they pushed back the repayment term from 22 years to, say, 35 years, that reduces the payment to £1,120 per month – something to consider if you are re-mortgaging in the coming 12 months.

 

What will the stamp duty changes mean for

Southampton property owners?

 

PM Liz Truss and Chancellor Kwasi Kwarteng believe that cutting stamp duty will support economic growth by encouraging more people to move home or jump onto the property ladder.

Stamp duty also has other harmful side effects as it decreases labour market elasticity and curtails people from selling up and buying elsewhere, where the jobs are.

Also, stamp duty makes mature homeowners stay put in their large homes rather than downsizing. This reduction in stamp duty will encourage those mature homeowners to move, thus freeing up their large family homes for the younger families that need them.

 

The Chancellor doubled the zero-rate stamp duty band from £125,000 to £250,000, passing a stamp duty tax saving of up to £2,500 for all English homebuyers.

 

Also, tax savings are even more significant for first-time buyers, particularly in areas with high house prices, such as London and the South East. They can save a maximum of £11,250 in stamp duty – with a new zero-rate band of £425,000, based on a higher £625,000 spend cap (i.e., the house they buy can't be over £625,000 for them to qualify for the tax relief).

So, what effect will these stamp duty changes have on the Southampton property market? Looking at recent events in the local property market is the best place to start.

 

Of the 7,399 transactions in the Southampton area since June 2021, 2,987 were below £250,000. These would now be tax-free!

 

Unsurprisingly, most housing transactions in Southampton were above the £250,000 threshold, yet irrespective of that point, it’s a saving of up to £2,500 for all future Southampton homebuyers.

Anyone currently buying a house in Southampton and not yet completed on their purchase (completion is when you have paid the money for your home and collected the keys) will be in line to make this saving.

Southampton landlords purchasing buy-to-let properties will also save money with the stamp duty cut (but they will still be liable for their second home stamp duty levy of 3%).

Overall, this is a welcome move to help the Southampton property market.

 

Yet will the stamp duty threshold rise have the seismic effect that the Rishi Sunak stamp duty holiday did in 2021, where just under 40% more people moved home than the long-term 30-year average?

 

I am sure the stamp duty cut will somewhat offset the rising costs in mortgage rates mentioned in this article and cushion the blow to the property market.

A blow to what you might ask?

Well, many people judge the property market's health by house prices.

 

The average value of a Southampton property stands at £340,869 and has risen 15.6% in the last five years. Not bad, eh?

 

But I believe there is a better way to judge the health of the local property market, and that is the number of people moving home (i.e., housing transactions).

You might be asking yourself why we should be more concerned about the number of property transactions and not the change in property values.

Many economists believe the number of property transactions is a far more accurate bellwether for the health and potency of the local housing market. A greater number of people moving home is better for the whole economy (i.e., what these changes are being made for) than a smaller number of transactions, whilst the same can’t be said for higher house prices. 

So, what is going to happen to Southampton house prices?

 

I believe the growth in Southampton house prices achieved in 2021/22 is not sustainable into 2023.

In conjunction with the price cap on energy bills, the stamp duty change, the reversal of the rise in National Insurance and the drop in Income Tax will mitigate house price drops. Yet, I foresee a ‘slight’ realignment in the house prices being achieved in 2023, compared to 2022.

The more significant impact these changes will have is the number of people moving home in the next 12 months.

I have been forecasting a 15% to 20% year-on-year drop in Southampton property transactions in 2023. Following this stamp duty cut and the measures mentioned above, I believe it will be lower, maybe around 5% lower.

 

To conclude, I predict we will have slightly lower house prices and fewer people moving home in Southampton, but not in any way a crash that many thought was on the horizon.

 

Before I go though, let me share some thoughts on whether stamp duty is a fair tax.

Now, this is almost a topic for a standalone article itself. Some economists believe that removing stamp duty (which raised £14.1bn in tax in 2021) and replacing that lost income to the Exchequer by increasing council tax on more expensive properties would do a lot more than other intended tax cuts to boost economic growth.

According to some commentators, the way UK Government taxes housing is flawed. They suggest instead of taxing an infrequent property transaction particularly harshly (the average stamp duty bill is £10,600), the Government should tax living in a house more, especially those who live in the higher priced properties.

So let us see how viable that could be…

Even if council tax was frozen for bands A to D (the lower priced properties), and the uplift between the more expensive council tax bands was doubled on each step between band D and H (so a typical band E property owner would see their council tax rise from £2,473 to £3,628 per year and a typical Band H see a rise of from £3,435 per year to £5,790 per year), such massive increases in council tax would be political suicide for the wealthy Tory voting homeowners and only raise £5.28bn – a long way from the £14.1bn currently raised.

Now, if the £14.1bn tax raise were spread evenly over all council tax bands, the average band D property would need to rise by £490 per year, and even a band A would increase by an extra £382 a year … something that again would be political suicide.

Yes, stamp duty is flawed. It's just every other option has more significant flaws.

Anyway, these are just my thoughts. Tell me, people of Southampton, what are your thoughts on the Budget, the stamp duty changes or whether stamp duty is fit for purpose and what you would do if you were the Chancellor to bolster the British property market?

 

Southampton OAPs are Getting Jobs and Downsizing Properties to Beat the Cost-of-Living Crisis

Southampton OAP retirees have to make tough choices with the onset of the cost-of-living crisis.

 

Growing inflation, unpredictable financial markets and the high cost of living mean many former retired Southampton people are returning to work in what has been dubbed the ‘great unretirement’. Some are even bringing forward their downsizing house move.

Looking at the changing job market, July saw the most significant month-on-month rise in OAPs working since records began in the 1990s when 1 in 23 of all the UK’s OAPs went back into employment.

That now means ….

 4,106 Southampton over 65s are in gainful employment

 (i.e., 1 in 8 of them).

As a backdrop, the number of working 65-year-olds and above has been increasing since the mid-nineties when 1,765 Southampton OAPs were employed. Yet, July's figures were the largest monthly jump on record by quite a distance.

Looking at the changing property market, I have been speaking to many Southampton OAP homeowners who are having to bring their downsizing plans forward several years to survive the cost-of-living crisis. The money generated from the downsizing will cover their housekeeping and massive energy bills.

So why would someone want to downsize? Mostly, their homes are too big for their needs as their children have flown the nest decades before. The government classifies a property as under-occupied if it has two or more spare bedrooms.

 

How big is the under-occupation issue in the UK?

 

Of the 4.52 million British homes owned by those aged 65 and over, 3.04 million have at least two spare bedrooms (i.e., under-occupied). Looking locally…

12,824 of the 29,791 Southampton OAPs have two or more spare bedrooms.

 You might ask why this is important.

Well, to start, it's holding back Southampton families that need the bedrooms and space these larger houses offer if the older occupants won't move on. Also, these larger homes cost more to run in terms of energy bills and other things such as building insurance and council tax.

 

From October (even with the recent energy bill cap) it will cost on average £354 per month in gas and electricity alone for a large Southampton 4-bed detached home (where occupants are home all day).

 

So why are there so many mature homeowners in their 70s, 80s and even 90s still living in houses that are too large for their day-to-day requirements? There are several reasons for this. One is the obvious emotional attachment to the family home they have often owned since the 1970s and 1980s. The second is to escape the hassle and costs of the house move, and finally, the small number of suitable Southampton properties for them to buy to attract them to make a move.

The growing energy bills have provoked many of those mature Southampton homeowners, who maybe can’t or do not wish to get a job, to re-evaluate their home life strategy. I am seeing an ever-increasing number of mature Southampton homeowners downsizing (or, as I prefer, rightsizing) to diminish their monthly expenditures.

So how much could mature Southampton homeowners gain by downsizing?

The numbers are intriguing when looking at the average difference between the sale price and the subsequent purchase price of the average downsizer.

Southampton downsizers could unlock an average of £175,400 per household.

Not only will Southampton homeowners earn this lump of cash for their extended retirement, but they will also save themselves around £176 per month in lower energy bills, buildings insurance and council tax bills.

So, what are the options for mature Southampton homeowners?

Waiting 12 months to make a move might mean you are putting your Southampton home on the market as every other OAP homeowner puts their home on the market, meaning the dynamics of the local property market will probably be a lot different. Thus, the equity you release on the downsize could be much lower.

Yet some of you will be worried about finding your next home. Not to worry.

At our agency, we do things differently than many other Southampton estate agents. We can find you a buyer, then put everything on ice and go and find you a property to buy. We guarantee you won't be made homeless if you or we can't find another home for you to move to.

We call it peace of mind!

If you would like a chat about this, without any obligation, feel free to call Belvoir on 02380018222 or email me brian.linehan@belvoir.co.uk.

Southampton Tenants' Spiralling Energy Bills are About to Become Southampton Landlords’ Problem

 

As gas and electric bills rocket for Southampton tenants, Southampton landlords who do not start to make energy efficiency upgrades face lengthy void periods and will have to discount their rents. This is irrespective of the Government's plans to change the rules on renting properties with low Energy Performance Certificate (EPC) ratings.

Until six months ago, out of the thousands of tenants I have shown around Southampton properties in all my years as an agent, I can count the number of tenants who have requested to see the EPC of the rental property on the one hand. Now, it’s the first question tenants ask.

The better the EPC rating, the lower the gas and electric bills.

Southampton tenants are leaving their poor EPC-rated properties which are too expensive to run and moving into higher-rated EPC rental properties.

The average heating bill for the 25,247 Southampton tenants will rise from £67.61 per month to £175.78 per month. 

And their hot water bill will rise by £37.47 per month and lighting by £24.02 per month. Each Southampton tenant will have to find an extra £169.67 per month for their gas and electric bills.

To give you an idea of the extent of the money being spent by Southampton tenants on heating alone (ignoring hot water or lighting), last year it was £20,482,820.46, and by 2023, it will be £53,255,333.20 a year.

Yet these stats don’t tell the whole story.

It is a legal requirement for every rented property to have an EPC which rates a property on its energy performance (like those washing machine or fridge ratings, albeit for a property). A is the best rating, and G is the worst.

Whilst the law states property cannot be rented with an EPC rating lower than an E in England and Wales, there are exceptions to this, meaning Southampton rental properties are still being let legally with an F and G rating. Although legislation for a minimum E rating EPC requirement in Scotland was scheduled in 2020, it never passed through the Scottish Parliament because of the pandemic. 

Let me show you the average saving in energy bills between the EPC rating of an average Southampton rental property.

 

·      A Southampton rental property with a D rating will cost £38.50 more per month than a C-rated property

·      A Southampton rental property with an E rating will cost £67.66 more per month than a D-rated property

·      A Southampton rental property with an F rating will cost £97.16 more per month than an E-rated property

 

Both Westminster and Holyrood governments now propose introducing a minimum EPC of band C for all new tenancies from 2025 (and 2028 for existing tenancies).

Irrespective of this new potential legislation, those Southampton landlords with low EPC ratings will now need to seriously consider making those energy efficiency upgrades to ensure their Southampton rental properties continue to appeal to tenants.

I can see Southampton rental property’s energy efficiency ratings filtering into rental prices over the winter months.

Southampton rental properties with low EPC ratings will probably rent for between 4% to 10% less than higher energy proficient properties.

This means Southampton landlords could have to accept between £54.80 and £137.00 per month less for an average Southampton property with a low EPC rating compared to a high-rated EPC rental property.

Any Southampton rental property with a lower EPC rating will also take longer to find a tenant, especially during the winter. This means some Southampton landlords will have the prospect of void periods early next year.

I have seen more Southampton rental properties coming onto the market in July and August, so if this trend continues, this will give Southampton tenants much more choice. With the increased supply of rental properties, I certainly believe some tenants could decide to offer less on Southampton rental properties with low EPC ratings.

So, what are the options?

Why Aren’t Liz and Rishi Courting Southampton’s Generation Rent?

 

With the cost-of-living crisis beginning to hit, the 20 and 30-somethings of Southampton urgently need the help and support of the Government to help them get on the property ladder.

For the last few weeks, we have listened to the debates and hustings of Liz and Rishi. Between them, they have told us how they are going to stop building on the green belt, slash taxes, outbid each other on the number of refugees they are going to deport and push back against WOKE culture wars, but what are they doing for the 20 to 30-somethings of Southampton?

Dubbed ‘Generation Rent’ by the press, desperate to get on the property ladder, this is an open goal for any candidate to obtain more votes to become the next Prime Minister.

 

Yet only 16% of the c.200,000 Tory membership is aged 18 to 34 whilst 47% of members are aged between 55 and 74.

Therefore, it's not a surprise that neither Liz nor Rishi aren’t speaking daily about the cost of petrol for the daily commute, rising childcare fees or the lack of opportunities for first-time buyers to purchase their own properties.

(For balance, 16% of Labour’s members are 18 to 34, 20% for the Lib Dems and 16% for the SNP).

Everyone is feeling the effect on their household budgets with the rise in energy bills. Yet, it is the younger generation (i.e., Generation Rent) that are having to cope with the frenzy of rising energy costs the most.

Whilst increasing energy prices will affect all households across the country, younger (and less affluent) households are more prone to be disproportionately affected than those on the lowest incomes (i.e., Generation Rent).

In the financial year ending in 2020, the least well off 25% of households spent 5.59% on energy compared to 3.9% for the average UK household. With 2023 energy bills set to be triple those figures, energy bills for those in the lower quartile will rise to around 16.8% of their household budget.

And let's look at the housing element of the ‘Generation Rent’ household budget.

 

The average rental of a Southampton property in the summer of 2020 was £1,144 PCM; by the summer of 2021, it was £1,238 PCM, and today, it is £1,332 PCM.

Overall, Southampton rents are 7.6% higher than a year ago and 16.4% higher than two years ago.

This is the fastest annual rate of rental growth since records began in 2006. This increase in rents isn’t standard. Before 2020, I would have expected to see this level of rent growth over a seven-to-ten-year period – not two years. Good news for Southampton landlords, yet not so for Southampton tenants.

Why have rents increased so much in Southampton?

It comes down to fewer rental properties and existing Southampton tenants not moving as much.

 

There are 1,716 fewer rental properties in Southampton than five years ago, leaving 30,425 private rental properties in Southampton.

 

9 out of 10 rentals come onto the market because the existing tenant is moving. Yet, because there are fewer Southampton rental properties and the asking rents for those are much higher than their current home, many Southampton tenants are not moving, exasperating the issue even further.

Today, I looked on Rightmove, and there were only 318 properties available to rent. I would have expected that to be over double that pre-pandemic.

Neither candidate has been silent on the topic of homeownership for the young.

Rishi Sunak said he would stop building on the greenbelt. This, however, would not help Generation Rent massively.

Liz Truss has pledged to help more renters buy their first home by stating she will ensure tenant’s rental payments could be used as part of mortgage affordability assessments. This is important as the mortgage payments can be 10% to 20% lower than the rental payments.

 

Tied in with new relaxed mortgage affordability rules announced by the Bank of England in early August, this is undoubtedly a step in the right direction to help Generation Rent.

 

Truss also plans to scrap the red tape holding back housebuilding and give local populations more say on developments. However, when Boris Johnson suggested something similar a few years ago, the policy was quietly dropped after the Liberal Democrats used this against them resulting in the Tory’s resounding by-election defeat in 2021 in Chesham and Amersham.

So, by the end of the first week of September, we will know who the Prime Minister will be. Whoever gets the job has a gigantic task on their hands. I wish them luck and ask them not to forget the younger generation and their aspiration to be homeowners.

 

What’s the Difference Between a Flat and an Apartment in Southampton?

·       "An apartment is over £100 grand and a flat under £100k", said my friend.

·         Joking aside, there is no difference, call it what you will, the humble apartment/flat has served Southampton well over the years.

·         The average sale price of an apartment in Southampton in 2021 was £198,838, making it an excellent first-time buyer purchase and buy-to-let investment.

·         In this article, I want to look at the apartment/flat in Southampton and how it could solve the county’s housing crisis.

The word ‘Apartment’ derives from the French word ‘Appartement', which comes from the Italian form of the word, ‘Appartamento’. The core of that Italian word ‘appartare’ means ‘to separate’, as in ‘separate a building’.

The word comes from Roman times when housing costs were so expensive within the city walls of Rome. Savvy property owners split (or separated) their houses into what we know as apartments or flats today.

The word flat is derived from the Old Scottish/Old English word 'flet'. The flet is the interior of the home. Some also think the phrase stuck as most flats are on one floor, and so by definition, the accommodation is on the flat (i.e., no stairs inside).

The country has an enduring housing shortage. Not enough homes are being built, and even though the Government is aspiring to build 300,000 new homes annually to match demand and keep costs of housing affordable, less than 250,000 were built in 2019, the best rate in the last decade.

And that is why some say the simple solution to Britain’s housing problem is building more apartments/flats.

The British population has been growing by more than half a million every year for the last twenty years. Yet just over 175,000 homes have been built annually.

One solution is building more apartments – and on the face of it, the facts stack up as they are cheaper to heat, the views are often unique and they use less land.

To look at what we do as a country with our apartments, it's important to look at Europe to see how they live so that we can compare the percentages of flats/apartments lived in -

·         Spain 66.1%

·         Switzerland 63.1%

·         Greece 59.2%

·         Germany 56.3%

·         Italy 53.1%

·         EU average 46.2%

·         Sweden 46.7%

·         France 34.0%

·         The United Kingdom 14.8%

Quite a stark difference, isn't it!

Now let’s look at Southampton itself.

Of the 108,545 households in Southampton, 38.3% of them (41,577) are apartments / flats.

Even though only 1.2% of the country has residential property built on it (and an additional 3.5% are gardens), building houses is low-density land use. Is it sustainable in the long term to continue to build that way in Britain, a country with a similar population to France yet having less than half its landmass?

If we continue to build just over 5 in 6 new households as houses, surely sooner or later, the precious green belt around our towns and cities will have to go. And I know many of you will say use brownfield sites. Of course, there are brownfield sites, and …

in the whole of the Southampton area, there are 37 brownfield sites, totalling only 177.1 acres, which would provide 3,779 houses.

The country needs a decent supply of homes for its growing and ageing population. Many of you will frown when it has been suggested, even if it's for environmental reasons alone, most of these should be apartments/flats.

Don’t get me wrong, the love/hate relationship with the apartment/flat and the British is well-founded. Many apartments/flats in Britain are not suitable for happy family living. The high-rise ghetto council blocks built in the 1960s didn’t help with their poor communal areas, lack of maintenance and lifts that didn’t work.

Why do so many more Europeans live in apartments?

In mainland Europe, the apartments are larger. For example, in Germany, they are 974 sq ft; in Denmark, they are 1,452 sq. ft; in the UK, they are only 793 sq ft. Also, European apartment/flat owners have more storage areas, higher ceilings and better communal areas.

It is a vicious cycle. Poorly made small apartments make families side-step them, which makes new home builders construct apartments unsuitable for families, which means the situation worsens. This results in the British property market trying to expand our towns and cities outwards into the countryside with houses, rather than upwards into the sky.

I am not suggesting 20-storey high-rise tower blocks for one second. Looking deeper into the information from Europe, most people live in low-rise three and four-storey purpose-built apartment blocks.

To begin with, these new apartments/flats need to be justly desirable for families and be seen as such by the local population. The building materials used, communal spaces, the building’s functionality, and design specifications must not only meet but exceed current building specs on houses, or planning permission should withhold.

Maybe the Government could incentivise builders to build apartments/flats instead of houses to improve the supply of quality apartments/flats with tax breaks?  

Things will take decades to change, yet I thought it was appropriate to discuss the matter in such an environment as this.

These are my thoughts, what are yours?

Southampton’s ‘Generation Stuck’ and Their £9,198m Tied-up Equity

 

The predicament of the Southampton 20 to 30 year olds who rent and their inability to get onto the housing ladder is often discussed in the press.

There are 4.43m properties in the UK that are still in the private rented sector (compared to 2.13m in 2002).

This group of people in their 20s and 30’s, who rent from a private landlord, are often called ‘Generation Rent’.

Yet would it surprise you that since 2017, the number of UK households in the private rented sector has reduced by 260,000 whilst the number of homeowners has increased by 1.1m?

In this article I want to talk about another set of people, not ‘Generation Rent’, but ‘Generation Stuck’.

 

Generation Stuck are our middle-aged and mature homeowners of Southampton. They are the generation that could be described as late ‘Baby Boomers’ (born in late 1950s and early 1960s) and the early ‘Gen X’ (born in the mid 1960s to early 1970s).

These 50 to 64 year old people feel stuck in their Southampton homes, and therefore I have nicknamed them ‘Generation Stuck’. Their inability to move could be holding back those younger Southampton ‘Generation Renters’.

So, let me look at the numbers involved.

 

In Southampton, there are 13,833 households, whose owners are aged between 50 and 64 years old and about to pay their mortgage off on property that is worth £4,708.16m.

There are an additional 13,194 mortgage free Southampton households, owned by 50 to 64 year olds, worth £4,490.67m, meaning ...

 

Southampton ‘Baby Boomers’ and Southampton ‘Gen X ‘are sitting on £9,198.8m worth of Southampton property.

According to the Census, 47.8% of homes occupied by 50 to 64 year olds have two or more spare bedrooms.

This is backed up by the annual English Housing Survey that states nationally, 49% of properties occupied by these ‘Generation Stuck’ are ‘under-occupied’.

Under-occupied is categorised as having at least two spare bedrooms.

Looking at the statistics closer to home

 

36.3% of Southampton 50 to 64 year olds have two or more spare bedrooms, making it the 315^th highest local authority in the country (out of 348 local authorities).

The rising number of older Southampton homeowners who want to downsize their Southampton home are often held back by the lack of suitable housing options for older people and the difficulties of moving.

Lots of over 50 year old Southampton people cannot move home in the way that they would like, due to a lack of suitable housing options and so can find themselves ‘stuck’ in homes which are no longer suitable for them as they age.

 

Only 1 in 29 people over the age of 50 move home each year, compared to 1 in 15 for the rest of the population.

Helping mature Southampton homeowners (Generation Stuck) to downsize their homes at the right time will also allow younger Southampton people (Generation Rent) to find the Southampton family homes they need – meaning every generation wins, both young and old.

However, to ensure downsizing works, we need more choices for these “last-time-buyers”.

 

That means building more bungalows or more ground floor apartments suitable for the middle to older generation.

One way this could be done is by changing the planning rules to force builders to build these types of properties, whilst the other could be the changing of the stamp duty tax breaks for downsizers.

In this way, older Southampton people will be more able to move into homes which suit their specific needs, improve their quality of life whilst meeting their goals in life, all without them becoming detached from their friends and family locally in the Southampton area.

These are my thoughts, please let me know yours.

 

Will The Cost-of-Living Crisis Mark the End of the Booming Southampton Property Market?

 

Southampton property prices have increased by 19.1% over the last two years.

Southampton house prices have risen on the back of several things, including changes in how people see their homes and how they live and work (i.e. working from home), a lack of properties on the market and government tax incentives (the stamp duty holiday in 2020).

Yet, the tide could be beginning to turn as the number of houses coming on the market is increasing as supply is starting to catch up with demand - in Q1 2022, 389,811 properties came onto the market in the UK compared to 425,295 in Q2 2022. One would typically expect Q1 to be larger than Q2 in average years.

Yet some commentators are saying one thing that could stifle this growth is the cost-of-living crisis.

I wanted to delve deeper into what was happening in Southampton instead of reading headlines in the newspapers. Let me start with average incomes.

 

The average Southampton household income is £602.20 per week, compared to £660.10 in the South East region and £613.10 nationally.

 

Roll the clock back twenty years to 2002, and the average Southampton household income was £387.60.

I wanted to go into greater detail a few weeks ago; I stated that mortgage costs for first-time buyers were much lower today (as a percentage of household income) than in 1989 and 2007. Many of you commented on social media or sent me messages asking what happened to other household bills.

In 1989, 16% of people’s household income went on housing (rent or mortgage) compared to 17.5% in 2021.

Food represented 19% of people’s spending in 1989, compared to 14.4% in 2021. 

 

Also, gas and electricity were 6% of household income in 1989 compared to 4.81% in 2021.

(although that was before we saw the recent energy price hikes).

Interestingly, the UK household spent 15% of their monthly income on leisure activities in 2021, compared to 10% in 1989.

Household goods and services (i.e. household appliances, insurance etc.) have risen from 11% in 1989 to 14.9% in 2021.

Before I leave these stats, I had a peek at the 1957 stats (the earliest stats available), and in that year, food represented 33% of the household income and tobacco 6% (today, it's 2.34%).

So, compared to 1989, the big-ticket items of housing, food and fuel combined have gone down from 41% to 36.7% of the household income, whilst leisure has increased from 10% to 15%.

The fuel element of household bills will rise to around 11% to 12% of household income, and I suspect the leisure budget will be hit the hardest to pay for that. We are seeing food inflation of around 10% to 15%, meaning that food will go from its current 14.4% of household income to around 16% to 17%.

It's going to be tough, especially for those people in rented accommodation who may not earn near the average wage yet, as they have similar fixed costs for gas, electricity and food.

Next, let me look at the inflationary effects on housing costs.

A rise in the base rate will, in theory, slow inflation by reducing consumer demand. In the short-term, this increase in the base rate will increase mortgage rates, thus adding fuel to the fire of the cost-of-living crisis by growing mortgage costs.

Those Southampton homeowners on tracker or variable rate mortgages will instantly increase their mortgage payments.

Encouragingly though, just under 17 out of 20 people are on fixed-rate mortgages, the majority on 5-year fixed rate deals, so their housing costs won’t go up significantly in the short-term.

This will alleviate some of the interest rate effects, making it more challenging and expensive for new borrowers like first-time buyers.

However, as I have explained in previous articles on the Southampton property market, many Southampton landlords have been sitting on their hands in the last couple of years as owner-occupiers have outbid each other in buying their next 'forever home'. If there aren’t going to be so many Southampton first-time buyers, then I suspect we might see more Southampton landlords coming out of the woodwork and buying again.

This is especially true as investing in buy-to-let in inflationary times is an excellent hedge to protecting the buying power of your hard-earned savings (drop me a message if you want to read that article).

In conclusion, although the amalgamation of the Southampton house price rises in the last two years, the increasing interest rate rises, and the continuing cost-of-living crisis, there is no doubt the momentum in the Southampton housing market will be slower in the next 12 months compared to the last 24 months. Nevertheless, I anticipate Southampton house price growth will ease (and, in some months, be slightly negative). A better bellwether of the state of the Southampton property market is the number of people moving house (i.e. the transaction levels).

I expect transaction levels to be lower in the latter part of this year and the first half of 2023, yet they are most likely to stay close to the long-term average. The boom is over, yet it shouldn’t be a bust situation.

What are your thoughts on this? Let me know.