Salisbury Homeowners Are Only Moving Every 14.5 Years (part 2)

In the credit crunch of 2008/9 the rate of home moving plunged to its lowest level ever. In 2009 the rate at which a typical house would change hands slumped to only once every 21.5 years. The biggest reason being that confidence was low and many homeowners didn’t want to sell their home as Salisbury property prices plunged after the onset of the financial crisis in 2008. However, since 2009, the rate of home moving has increased (see the table and graph below), meaning today:

The average period of time between home moves in
Salisbury is now 14.5 years.

This is an increase of 46.95 per cent between the credit crunch fallout year of 2009 and today, but still it is a 20.16 per cent drop in moves by homeowners, compared to 15 years ago (The Noughties).

So why aren’t Salisbury homeowners moving as much as they did in the Noughties?

The causes of the current state of play are numerous. In last weeks article I talked about how ‘real’ incomes and savings had been dropping. Another issue is the long-term failure in the number of properties being built. Only a few weeks ago in the blog, I was discussing the draconian planning rules meaning house builders struggle to locate building land to actually build on.

Back in the 1960’s and 1970’s, as a country, we were building on average 300,000 and 350,000 households a year. The Barker Review a few years ago said that for the UK to stand still and keep up with housing demand (through immigration, people living longer, a just under 50% increase in the number of households with a single person since the 1980’s and family makeup (i.e. divorce makes one household now two)) we needed to build 240,000 households a year. Over the last few years, we have only been building between 135,000 and 150,000 households a year.

Finally, as the UK Population gets older, there is no getting away from the fact that a maturing population is a less mobile one.

So, what does this mean for Salisbury homeowners and landlords?

Well, if Salisbury people are less inclined to move or find it hard to sell a property or acquire a new one, they are probably less likely to move to an improved job or a more prosperous part of the UK.

Many of the older generation in Salisbury are stuck in property that is simply too big for their needs. The fact is that, in Salisbury and Wiltshire, more than five out of every ten (or 56.2 per cent) owned houses has two or more spare bedrooms; or to be more exact …

74,461 of the 132,546 owned households in the Wiltshire
area have two or more spare bedrooms
.

So, as their children and grandchildren struggle to move up the housing ladder, with those young families bursting at the seams in homes too small for them i.e. overcrowding, we have a severe case of under-occupation with the older generation – grandparents staying put in their bigger homes, with a profusion of spare bedrooms.

Regrettably, I cannot see how the rate of properties being sold will rise any time soon. Many commentators have suggested the Government should give tax breaks to allow the older generation to downsize, yet in a recent White Paper on housing published just weeks before the General Election, there was no reference of any thoughtful and detailed policies to inspire or support them to do so.

This means that there could be an opportunity for Salisbury buy to let landlords to secure larger properties to rent out, as the demand for them will surely grow over the coming years. As for homeowners; well those in the lower and middle Salisbury market will find it a balanced sellers/buyers market, but will find it slightly more a buyers market in the upper price bands.

Interesting times ahead!

Salisbury Home Owners Are Only Moving Every 14.5 Years (Part 1)

The average house price in Salisbury is 9.29 times the average annual Salisbury salary. This is higher than the last peak of 2008, when the ratio was 8.25. A number of City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Salisbury) property prices might drop like a stone. The point is – they haven’t.

Now it’s true the market for Salisbury’s swankiest and poshest properties looks a little fragile (although they are selling if they are realistically priced) and overall, Salisbury property price growth has slowed, but the lower to middle Salisbury property market appears to be quite strong.

Scratch under the surface though, and a different long-term picture is emerging away from what is happening to property prices. Salisbury people are moving home less often than they once did. Data from the Office of National Statistics shows that the number of properties sold in 2016 is again much lower than it was in the Noughties. My statistics show…

Even though we are not anywhere near the post credit crunch (2008 and 2009) low levels of property sales, the torpor of the Salisbury housing market following the 2016 Brexit vote has seen the number of property sales in Salisbury and the surrounding local authority area level off to what appears to be the start of a new long term trend (compared the Noughties).

Interestingly, it was the 1980’s that saw the highest levels of people moving home. Nationally, everyone was moving on average every decade. Even though it was during the Labour administration of the late 1970’s where the right to buy one’s council house started, it was the Housing Act of 1980 that that really got council tenants moving, as Thatcher’s Tory government financially encouraged council tenants to buy their council-rented homes – for which countless then sold them on for a profit and moved elsewhere. The housing market was awash with money as banks were allowed to offer mortgages as well as the existing building societies, meaning it made it simpler for Brits to borrow even more money on mortgages and to climb up the housing ladder.

But coming back to today, looking at the property sales figures in the Salisbury area since 2010/11, a new trend of number of property sales appears to have started. Interestingly, this has been mirrored nationally. The reasons behind this are complex, but a good place to start is the growth rate of real UK household disposable income, which has fallen from 5.01% a year in 2000 to 1.68% in 2016. Also, things have deteriorated since the country voted to leave the EU as consumer price inflation has risen to 2.7% per annum, meaning inflation has eaten away at the real value of wages (as they have only grown by 1.1% in the same time frame).

With meagre real income growth, it has become more difficult for homeowners to accumulate the savings needed to climb up the housing ladder as the level of saving has also dropped from 4.26% of household income to -1.11% (i.e. people are eating into their savings).

Next week I will be discussing how these (and other issues) has meant the level of Salisbury people moving home has slumped to once every 14.5 years.

Increase in Interest Rates to cost Salisbury Home Owners £284.46 a year

Salisbury homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.

Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate.

The average Salisbury mortgage is £113,784

I have to ask by how much Salisbury homeowners (on variable rate or tracker mortgages) will see their repayments increase?

In the SP1 and SP2 postcodes there are 6,408 homeowners with a mortgage, of which 2,753 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those SP1 and SP2 homeowners with those variable rate mortgages is £313,234,274, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £887.20 per month and now its £910.91 per month … meaning

The interest rate rise will cost Salisbury

homeowners on average an extra £284.46 per year

Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.

So, what will this interest rate actually do to the Salisbury housing market?

Well, if I’m being frank – not a great deal. The proportion of Salisbury homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.

If more Salisbury people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Salisbury people having to sell their Salisbury properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.

However, and this will be of interest to both Salisbury homeowners and Salisbury buy to let landlords …

.. for every 1% increase in the Bank of England interest rate, it will cost the average Salisbury homeowner on a variable rate mortgage £94.82 per month

So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.

Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Salisbury Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Salisbury property market will always remain strong for both Salisbury homeowners and Salisbury landlords alike.

Salisbury House Prices Outstrip Wage Growth by 16.1% since 2007

I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years. The report said that in the Midlands and North, salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.

As regular readers of my blog know, I always like to find out what has actually happened locally in Salisbury. To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007. Looking at the Office of National Statistics (ONS) data for Wiltshire Council, some interesting figures came out…

Salaries in Wiltshire have risen by 5.62% since 2007 (although it’s been a bit of a rollercoaster ride to get there!) – interesting when you compare that with what has happened to salaries regionally (an increase of 18.63%) and nationally, an increase of 17.61%.

Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in Wiltshire are 21.72% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore…

Property values in the Salisbury area have increased at a higher rate than wages to the tune of 16.1% … meaning, Salisbury is in line with the regional trend

All this is important, as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers. It is also vitally relevant for Salisbury landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Salisbury people are buying, then demand for Salisbury rental properties will drop (and vice versa).

As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Salisbury property market. Now of course, it isn’t as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.

On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ hasn’t been that great. However, look back another 10 years to 1997, and that tells a completely different story. Nationally, the affordability of property more than halved between 1997 and today. In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.

The issue of a lack of homeownership has its roots in the 1980’s and 1990’s. It’s quite hard as a tenant to pay your rent and save money for a deposit simultaneously, meaning for many Salisbury people, home ownership isn’t a realistic goal. Earlier in the year, the Tories released proposals to combat the country’s ‘broken’ housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad landlords.

This is all great news for Salisbury tenants and decent law-abiding Salisbury landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Salisbury in the last 10 (or 20) years … the demand for decent high-quality rental property keeps growing. If you want a chat about where the Salisbury property market is going – drop me note via email, like many Salisbury landlords are doing. Stephen.Cox@Martinco.com

Moving from a 2 bed Salisbury Property to a 4 bed will cost you £812 pm

Moving to a bigger home is something Salisbury people with growing young families aspire to. Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three-bed Salisbury homes are much in demand and it can be a costly move.

If you live in Salisbury in a two-bedroom property and wish to move to a four-bedroom house in Salisbury, you would need to spend an additional £205,521 (or £811.81 pm in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home, then later in life, from a three to four-bedroom home.

So, after being asked my thoughts on moving home in Salisbury by a friend recently, please find my analysis of the local property market and then some thoughts. To start with, let us see what the average property price is for a Salisbury property by the number of bedrooms it has.

I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74% – so the mortgage cost could be higher or lower depending on the mortgage taken).

There are some interesting jumps in costs when moving upmarket as a Salisbury buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Salisbury is quite high and therefore financially prohibitive for most families. This helps provide a partial explanation as to why some four-bed properties are currently taking slightly longer to sell.

As an aside, there is a lesson here for all my blog readers. You can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let. Simply put the monthly finance costs and rents achieved don’t match up so well (i.e. a mortgage for a 4 bed home in Salisbury would cost you 39.48% compared to a 3 bed mortgage, but the jump in rent would be a lot less than that). I don’t wish to be dismissive about the solidity of investing in larger properties because it does depend on your circumstances. Four bedroom properties sometimes offer other advantages. Pick up the phone if you want to know what they are in more detail.

A further look at the stock of properties in Salisbury is revealing.

The most active purchasers are 20 and 30 something home-owning parents with growing families. Many look to more modern developments for the perfect balance of access to decent primary schools, commutability and lifestyle. For landlords looking to buy within Salisbury, they face stiff competition from these 20/30 something families, making the three bedroom Salisbury home massively in demand, often attracting spirited offers and selling within weeks of listing. This mix of homebuyers and landlords is a pressure point in the Salisbury property market.  Again, if you are a landlord, call me and I will show you areas with decent returns where you aren’t in so much competition with young Salisbury family homebuyers.

Yet, the cost of an additional bedroom can be too much for some Salisbury buyers. It is quite challenging moving home the first time, but to then find you are priced out on the next move up the ladder can be quite disconcerting, with families often having to move to a different part of town to get the bigger home they need.

Nevertheless, that’s the position many homeowners find themselves in with the cost of the additional bedroom being too much to bear. To those buying their home for the first time, all I suggest is they not only consider the mortgage payments and other costs of their first home, but also do their homework into their next rung up the Salisbury property ladder. Thinking about it now will keep you ahead of the game in the future; as your number of bedrooms, family property needs and lifestyle wants change.

..and Salisbury landlords – well these changes in the way people live also mean there are opportunities to be had in the Salisbury rental market. Many Salisbury landlords are starting to pick my brain on this, so if you don’t want to miss out – drop me a line.