14.2% Drop in Aylesbury People Moving Home in the Last 10 Years

I find the most interesting bits in newspapers are their commentaries on the British Housing Market. Some talk about property prices, whilst others discuss the younger generation grappling to get a foot-hold on the property ladder with difficulties of saving up for the deposit.  Others feature articles about the severe lack of new homes being built (which is especially true in Aylesbury!).  A group of people that don’t often get any column inches however are those existing homeowners who can’t move! 

Back in the early 2000’s, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002.  However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to 624,994 in 2009.  Since then this has steadily recovered, albeit to a more ‘respectable’ 899,708 properties by 2016.  This means there are around 450,000 fewer house sales (house-moves) each year compared to the noughties.  The question is ... why are there fewer house sales?

To answer that, we need to go back 50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat this, the Government raised interest rates to a high level in a bid to lower inflation.  Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner’s household budget. However, this wasn’t all bad news since inflation tends to erode mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages.  At the same time their mortgage debt was decreasing, therefore allowing them to move up the property ladder quicker. 

Roll the clock on to the late 1990’s and the early Noughties, and things had changed.  UK interest rates tumbled as UK inflation dropped.  Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property.  This inevitably meant all the home owner’s equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect of significant numbers moving house continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You will probably remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This  meant home movers could borrow even more to move up the property ladder.

So, now it’s 2017 and things have changed yet again!

You would think that with ultra-low interest rates at 0.25% (a 320-year low) the number of people moving would be booming – wouldn’t you?  However, this has not been the case.  Less people are moving because:

(1) low wage growth of 1.1% per annum 

(2) the tougher mortgage rules since 2014 

(3) sporadic property price growth in the last few years

(4) high property values comparative to salaries (I talked about this a couple of months ago)

What does this translate to in pure numbers locally? 

In 2007, 4,453 properties sold in the Aylesbury Vale District Council area and last year, in 2016 only 3,819 properties sold – a drop of 14.24%.

Therefore, we have just over 630 less households moving in the Aylesbury and surrounding Council area each year.  Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 520 mortgaged households a year (fourth fifths of the figure of 630) in the Aylesbury and surrounding council area that would have moved 10 years ago, but won’t this year. 

The reason they can’t/won’t move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 520 annual Aylesbury (and surrounding area) non-movers, based on that CML report -

1. There are around 187 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).

2. I then estimate another 73 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don’t tend to move, regardless of what is happening to the property market (i.e. lifestyle).

3. Then, I estimate 31 households of our Aylesbury (and surrounding area) annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).

4. I believe there are 229 Aylesbury (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

The first three above are beyond the Government or Bank of England control.  However could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If Aylesbury property values were lower, this would decrease the size of each step up the property ladder.  This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

Then there is the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we want to return to free and easy mortgages 125% Northern Rock footloose and fancy-free mortgage lending that seemed to be available in the mid 2000’s ... available at a drop of hat and three tokens from a cereal packet?

We all know what happened with Northern Rock …. Your thoughts would be welcome on this topic.

Aylesbury’s 3 Speed Property Market

“What’s happening to the Aylesbury Property Market” is a question I am asked repeatedly.  Well, would it be a surprise to hear that my own research suggests that there isn’t just one big Aylesbury property market – but many small micro-property markets?

According to recent data released by the Office of National Statistics (ONS), I have discovered that at least three of these micro-property markets have emerged over the last 20+ years in the town.

For ease, I have named them the …

1.      ‘lower’ Aylesbury Property Market.

2.      ‘lower to middle’ Aylesbury Property Market.

3.      ‘middle’ Aylesbury Property Market.

The ‘lower’ and ‘lower to middle’ sectors of the Aylesbury property market have been fuelled over the last few years by two sets of buyers. The first set, making up the clear majority of those buyers, are cash rich landlord investors who are throwing themselves into the Aylesbury property market to take advantage of alluringly low prices and even lower interest rates. The other set of buyers in the ‘lower’ and ‘lower to middle’ Aylesbury property market are the first-time buyers (FTB), although the FTB market is in a state of unparalleled deadlock as it’s been trampled into near-immobility and incapacity by the new 2014 stricter mortgage affordability regulations and also fewer mortgages with low deposits. 

Some of you may be interested to know how I have classified the three sectors ..

1.      ‘lower’ Aylesbury housing market – the bottom 10% (in terms of value) of properties sold

2.      ‘lower to middle’ Aylesbury housing market – lower Quartile (or lowest 25% in terms of value) of properties sold

3.      ‘middle’ Aylesbury housing market - which is the median in terms of value

…. and if one looks at the figures for Aylesbury Vale District Council area you can see the three different sectors (lower, lower/middle and middle) have performed quite differently.

Aylesbury Vale District Council Property Market  – Sold Prices	Price Paid in 1995	Price Paid in 2017	Percentage Uplift 1995 - 2017
Lower (Bottom 10%)	£40,000	£176,500	341.25%
Lower to Middle (Lower Quartile)	£50,000	£230,000	360.00%
Middle (The Median)	£81,448	£343,829	322.14%

You can quite clearly see that it is the ‘lower to middle’ market that has performed the best.

You might ask, what do all these different figures mean to homeowners and landlords alike?  Quite a lot – so let me explain. The worst performing sector (with the lowest Percentage uplift) was the ‘middle’ housing market. Therefore, interestingly, if we applied the best percentage uplift figure (i.e. from the ‘lower to middle’ market percentage uplift), to the ‘middle’ 1995 housing market figure, the 2017 figure of £343,829, would have been £374,661 instead – quite a difference you must agree?

Now, I have specifically not mentioned the upper reaches of the Aylesbury housing market for several reasons.  Firstly, the lower or middle market is where most of the buy to let investment landlords buy their property and where the majority of property transactions take place. Secondly, due to the unique and distinctive nature of Aylesbury’s up-market property scene (because every property is different and they don’t tend to sell as often as the lower to middle market), it is much more difficult to calculate what changes have occurred to property prices in that part of the Aylesbury property market - looking at the stats for the up-market Aylesbury property market from Land Registry, only 46 properties in Aylesbury (and a 1 mile radius around it) have sold for £1,000,000 or more since 1997.

So, what should every homeowner and buy to let landlord take from the information that there are many micro-property markets? Well, when you realise there isn’t just one Aylesbury Property Market, but many Aylesbury “micro-property markets”, you can spot trends and bag yourself some potential bargains. 

As always I look forward to hearing your thoughts, be that by email, or by popping into our temple street office for a chat.

Slowing Aylesbury Property Market? Yes and No!

The tightrope of being a Aylesbury buy-to-let landlord is a balancing act many do well at. Talking to several Aylesbury landlords, they are very conscious of their tenants’ capacity and ability to pay the rent and their own need to raise rents on their rental properties (as Government figure shows ‘real pay’ has dropped 1% in the last six months). Evidence does however suggest many landlords feel more assured than they were in the spring about pursuing higher rents on their Aylesbury buy-to-let properties.

During the summer months, historic evidence suggests that the rents new tenants have had to pay on move in have increased. June/July/August is a time when renters like to move, demand surges and the normal supply and demand seesaw mean tenants are normally prepared to pay more to secure the property they want to live in, in the place they want to be. This is particularly good news for Aylesbury landlords as average Aylesbury rents have been on a downward trend recently. So look at the figures here...

Rents in Aylesbury on average for new tenants moving in have risen 0.9% for the month, making overall annual Aylesbury rents 0.9% lower for the year

However, several Aylesbury landlords have expressed their apprehensions about a slowing of the housing market in Aylesbury and I believe, based on this new evidence, they may be exaggerated.

Before we get the Champagne out, the other side of the coin to property investing is capital values (which will also be of interest to all the homeowners in Aylesbury as well as the Aylesbury buy-to-let landlords).  I believe the Aylesbury property market has been trying to find some form of balance (one might even say equilibrium) since the New Year.  According to the Land Registry…

Property Values in Aylesbury are 7.13% higher than they were 12 months ago, rising by 1.46% last month alone!

Yet, I would take those figures with a pinch of salt as they reflect the sales of Aylesbury properties that took place in early Spring 2017 and now are only exchanging and completing during the summer months.

The reality is the number of properties that are on the market in Aylesbury today has risen by 48.6% since the New Year and that will have a dampening effect on property value increases. As tenants have had less choice, buyers now have more choice ... and that will temper Aylesbury property prices as we head towards 2018.

Be you a homeowner or landlord, if you are thinking of selling your Aylesbury property in the short term, it’s important, especially with the rise in the number of properties on the market, that you realistically price your property when you bring it to the market.  It is so crucial as the short-term balance of the local property market see-saw slips more towards the buyer with the increase in the number of properties for sale. Everyone has access to every property on the market now through the likes of Rightmove and Zoopla and they will compare your home with other property like yours.

However, even with this uplift in the number of properties for sale in Aylesbury, property prices will remain stable and strong in the medium to long term. This is because the number of properties on the market today is still way below the peak of summer of 2008, when there were 1,305 properties for sale compared to the current level of 602 (if you recall, prices dropped by nearly 20% in Credit Crunch years of ‘08 and ‘09).

Compared to 2008, today’s lower supply of Aylesbury properties for sale will keep prices relatively high...and they will continue to stay at these levels for the medium to long term.

Less people are moving than a few years ago, meaning less property is for sale. Fewer properties for sale mean property prices remain relatively high and this is because of a number of underlying reasons. Firstly, buy-to-let landlords tend not sell their properties as often as owner-occupiers, consequently removing the property out of the housing market selling cycle. Secondly, Stamp Duty is much higher compared to 10 years ago (meaning it costs more to move). Next, there is a dearth of local authority rental housing so demand for private rented housing will remain high. Then we have the UK’s maturing owner occupier population, meaning these older people are less likely to move (compared to when they were younger). Another reason is the lack of new homes being built in the country (we need 240k houses a year to be built in the UK and we are currently only building 145k a year!) and finally, the mortgage rules introduced in 2014 about how much a person can borrow on a mortgage has curtailed demand.

Some final thought’s before I go – to all the Aylesbury homeowners that aren’t planning to sell – this talk of price changes is only on paper profit or loss. To those that are moving ... most people that sell, are buyers as well, so as you might not get as much for yours, the one you will want to buy won’t be as much.

Whatever your plans, if you want some impartial guidance or have another topic you would like to discuss, please do contact me at declen@mortimersaylesbury.co.uk or pop in to our Temple Street office.

New Author of The Aylesbury Property Blog

As many of you may have seen, Ian has announced that he will be exploring new ventures and has subsequently passed the baton of the Aylesbury Property Blog on to me, Declen Collins.

Having been involved in the Aylesbury Property Blog and the Aylesbury Property Videos over the last two years, The time for me to pick up the excellent work that Ian has done is upon me and I am excited to get going and keep the quality of information flowing.

As a property professional for the past 10 years has allowed me to me acquire a wide range of knowledge in the property arena, coupled with two years at the side of "Mr Aylesbury" Ian Davies, I feel I am well placed to keep you informed.

Please feel free to comment on posts and if you have subject matter you would like me to cover, please let me know.

Declen

Supply and Demand Issues mean Aylesbury Property Values Rise by 7.9% in the Last 12 Months

The most recent set of data from the Land Registry has stated that property values in Aylesbury and the surrounding area were 7.98% higher than 12 months ago and 26.46% higher than January 2015.

Despite the uncertainty over Brexit as Aylesbury (and most of the UK’s) property values continue their medium and long-term upward trajectory. As economics is about supply and demand, the story behind the Aylesbury property market can also be seen from those two sides of the story.

Looking at the supply issues of the Aylesbury property market, putting aside the short-term dearth of property on the market, one of the main reasons of this sustained house price growth has been down to of the lack of building new homes.

The draconian planning laws, that over the last 70 years (starting with The Town and Country Planning Act 1947) has meant the amount of land built on in the UK today, only stands at 1.8% (no, that’s not a typo – its one point eight percent) and that is made up of 1.1% with residential property and 0.7% for commercial property. Now I am not advocating building modern ugly carbuncles and high-rise flats in the Cotswolds, nor blot the landscape with the building of massive out of place ugly 1,000 home housing estates around the beautiful countryside of such villages as Quainton, Whitchurch and Aston Abbotts.

 

 

The facts are, with the restrictions on building homes for people to live in, because of these 70-year-old restrictive planning regulations, homes that the youngsters of Aylesbury badly need, aren’t being built. Adding fuel to that fire, there has been a large amount of landowners deliberately sitting on land, which has kept land values high and from that keeping house prices high.

Looking at the demand side of the equation, one might have thought property values would drop because of Brexit and buyers uncertainty. However, certain commenters now believe property values might rise because of Brexit. Many people are risk adverse, especially with their hard-earned savings. The stock market is at an all-time high (ready to pop again?) and many people don’t trust the money markets. The thing about property is its tangible, bricks and mortar, you can touch it and you can easily understand it.  

The Brits have historically put their faith in bricks and mortar, which they expect to rise in value, in numerical terms, at least. Nationally, the value of property has risen by 635.4% since 1984 whilst the stock market has risen by a very similar 593.1%. However, the stock market has had a roller coaster of a ride to get to those figures. For example, in the dot com bubble of the early 2000’s, the FTSE100 dropped 126.3% in two years and it dropped again by 44.6% in 9 months in 2007… the worst drop Aylesbury saw in property values was just 19.6% in the 2008/9 credit crunch.

Despite the slowdown in the rate of annual property value growth in Aylesbury to the current 7.98%, from the heady days of 12.71% annual increases seen in early 2010, it can be argued the headline rate of Aylesbury property price inflation is holding up well, especially with the squeeze on real incomes, new taxation rules for landlords and the slight ambiguity around Brexit. With mortgage rates at an all-time low and tumbling unemployment, all these factors are largely continuing to help support property values in Aylesbury (and the UK).

Aylesbury Homeowners and their £2.62 billion Debt

Over the last 12 months, the UK has decided to leave the EU, have a General Election with a result that didn’t go to plan for Mrs May and to add insult to injury, our American cousins elected Donald Trump as the 45th President of the United States. It could be said that this should have caused some unnecessary unpredictability into the UK property market.

The reality is that the housing and mortgage market (for the time being) has shown a noteworthy resilience. Indeed on the back of the Monetary Policy pursued by the Bank of England there has been a notable improvement of macro-economic conditions! In July for example it was announced that we are witness to the lowest levels of unemployment for nearly 50 years. Furthermore, despite the UK construction industry building 21% more properties than same time the previous year, there has still been a disproportionate increase in demand for housing, particularly in the most thriving areas of the Country. Repossessions too are also at an all-time low at 3,985 for the last Quarter (Q1 2017) from a high of 29,145 in Q1 2009. All these things have resulted in...

Property values in Aylesbury according to the

                               Land Registry are 9% higher than a year ago

So, what does all this mean for the homeowners and landlords of Aylesbury, especially in relation to property prices moving forward?

One vital bellweather of the property market (and property values) is the mortgage market. The UK mortgage market is worth £961,653,701,493 (that’s £961bn) and it representative of 13,314,512 mortgages (interestingly, the UK’s mortgage market is the largest in Europe in terms of amount lent per year and the total value of outstanding loans). Uncertainty causes banks to stop lending – look what happened in the credit crunch and that seriously affects property prices.

Roll the clock back to 2007, and nobody had heard of the term ‘credit crunch’, but now the expression has entered our everyday language.  It took a few months throughout the autumn of 2007, before the crunch started to hit the Aylesbury property market, but in late 2007, and for the following year and half, Aylesbury property values dropped each month like the notorious heavy lead balloon, meaning …

The credit crunch caused Aylesbury property values to drop by 19.6%

Under the sustained pressure of the Credit Crunch, the Bank of England realised that the UK economy was stalling in the early autumn of 2008. Loan book lending (sub-prime phenomenon) in the US and across the world was the trigger for this pressure. In a bid to stimulate the British economy there were six successive interest rates drops between October 2008 and March 2009; this resulted in interest rates falling from 5% to 0.5%!

Thankfully, after a period of stagnation, the Aylesbury property market started to recover slowly in 2011 as certainty returned to the economy as a whole and Aylesbury property values really took off in 2013 as the economy sped upwards. Thankfully, the ‘fire’ was taken out of the property market in Spring 2015 (otherwise we could have had another boom and bust scenario like we had in the 1960’s, 70’s and 80’s), with new mortgage lending rules. Throughout 2016, we saw a return to more realistic and stable medium term property price growth. Interestingly, property prices recovered in Aylesbury from the post Credit Crunch 2009 dip and are now 69.42% higher than they were in 2009.

Now, as we enter the summer of 2017, with the Conservatives having been re-elected on their slender majority, the Aylesbury property market has recouped its composure and in fact, there has been some aggressive competition among mortgage lenders, which has driven mortgage rates down to record lows. This is good news for Aylesbury homeowners and landlords, over the last few months a mortgage price war has broken out between lenders, with many slashing the rates on their deals to the lowest they have ever offered.  For example, last month, HSBC launched a 1.69% five-year fixed mortgage!

Interestingly, according to the Council of Mortgage Lenders, the level of mortgage lending had soared to an all-time high in the UK. 

In the Aylesbury postcodes of HP17 to HP22 if you added up everyone’s mortgage, it would total £2,621,296,368!

Since 1977, the average Bank of England interest rate has been 6.65%, making the current 323 year all time low rate of 0.25% very low indeed. Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.52% in the autumn of 2012 to the current 59.3%. If you haven’t fixed – maybe you should follow the majority?

In my modest opinion, especially if things do get a little rocky and uncertainty seeps back in the coming years (and nobody knows what will happen on that front), one thing I know is for certain, interest rates can only go one way from their 300 year ultra 0.25% low level ... and that is why I consider it important to highlight this to all the homeowners and landlords of Aylesbury. Maybe, just maybe, you might want to consider taking some advice from a qualified mortgage adviser? There are plenty of them in Aylesbury.

If you are in passing and have something you want to talk through, you are always welcome to pop in, the kettle will be on.

The Aylesbury Property Market and the Mysterious Politics of the General Election

As the dust starts to settle on the various unread General Election party manifestos, life goes back to normal as political rhetoric on social media is replaced with pictures of cats and people’s lunch.  All the political parties promised so much on the housing front in their manifestos, should they be elected at the General Election.  In hindsight, irrespective of which party, they seldom deliver on those promises.  

Housing has always been the Cinderella issue at General Elections.  Policing, NHS, Education, Tax and Pensions etc., are always headline grabbing stuff and always seem to go ‘to the ball’. However, housing, which affects all our lives, always seems to get left behind and forgotten.

Nonetheless, the way the politicians act on housing can have a fundamental effect on the wellbeing of UK plc and the nation as a whole.  

One policy that comes to mind is Margaret Thatcher’s Council House sell off in the 1980’s, when around 1.4m council houses went from public ownership to private ownership.  It was a great vote winner at the time (it helped her win three General Elections in a row) but it has meant the current generation of 20 somethings in Aylesbury (and elsewhere in the Country) don’t have that option of going into a council house.  This has been a huge contributing factor in the rise of the private renting and buy to let in Aylesbury over the last 15 years. 

 

Nevertheless, looking back to the start of the Millennium, Labour set the national target for new house building at 200,000 new homes a year (and at one point that increased to 240,000 under Gordon Brown for a couple of years).  In terms of what was actually built, the figures did rise in the mid Noughties from 186,000 properties built in 2004 to an impressive 224,000 in 2007 (the highest since the early 1980’s) as the economy grew.

Then the Credit Crunch hit.  It is interesting, that the 2010 Cameron/Clegg government did things a little differently.  The fallout of the Credit Crunch meant a lot less homes were built, so instead of tackling that head on, the coalition side-stepped the target of the number of new homes to build and offered a £400m fund to help kick start the housing market (a figure that was a drop in the ocean when you consider an average UK property was worth around £230,000 in 2010).  The number of new houses being completed dipped from 146,800 in 2011 to 135,500 the subsequent year.

So, one might ask exactly how many new homes do we need to build per year?  It is commonly accepted that not enough new properties are being built to meet the rising need for homes to live in.  A report by the Government in 2016, showed that on average 210,000 net additional households will be formed each year) up to 2039 (through increased birth rates, immigration, people living longer, lifestyle (i.e. divorce) and people living by themselves more than 30 years ago).  In 2016, only 140,600 homes were built ... simply not enough! 

Looking at the numbers locally in Aylesbury and the surrounding area we are not pulling our weight either when it comes to building new homes even though we are building more than we used to. In the 12 months up to the end of Q1 2017, 1,160 properties were built in the Aylesbury Vale District Council area.  Go back to 2007, that figure was 730, 10 years before that in 1997, 750 new homes and further back to 1988, 760 new homes were built.

Who knows if Teresa May’s Government will last the five years?  She will think she has bigger fish to fry with Brexit to get bogged down with housing issues.  But let me leave you with one final thought.

The conceivable rewards in providing a place to live for the public on a massive house building programme can be enormous, as previous Tory PM’s have found out.  Winston Churchill in 1951, asked his Minister for Housing (Harold Macmillan) if he could guarantee the construction of 300,000 new properties a year, he was notoriously told: “It is a gamble—it will make or mar your political career, but every humble home will bless your name if you succeed.”

Isn’t it interesting, that the Tories remained in power until 1964!  Mrs May will have to work out if she wants to be the heiress to Harold Macmillan or David Cameron?

Aylesbury’s 2,909 Mortgage Time-Bombs?

According to my research, of the 28,877 properties in Aylesbury, 13,469 of those properties have mortgages on them. 88.5% of those mortgaged properties are made up of owner-occupiers and the rest are buy to let landlords (with a mortgage).

… but this is the concerning part .. 2,909 of those Aylesbury mortgages are interest only. My research also shows that, each year between 2017 and 2022, 35 of those households with interest only mortgages will mature, and of those, 9 households a year will either have a shortfall or no way of paying the mortgage off. Now that might not sound a lot – but it is still someone’s home that is potentially at risk.

Theoretically this is an enormous problem for anyone in this situation as their home is at risk of repossession if they don’t have some means to repay these mortgages at the end of the term (the typical term being 25 to 35 years). Banks and Building Societies are under no obligation to lengthen the term of the mortgage and, when deciding whether they are prepared to do so or not, will look at it in the same way as someone coming to them for a new mortgage.

Back in the 1970’s and 1980’s, when endowment mortgages were all the rage, having an endowment meant you were taking out an interest only mortgage and then paying into an endowment policy which would pay the mortgage off (plus hopefully leave some profit) at the end of the 25/35-year term. There were advantages to that type of mortgage as the monthly repayments were lower than with a traditional capital repayment and interest mortgage. Only the interest, rather than any capital, is paid to the mortgage company - but the full debt must be cleared at the end of the 25/35-year term.

Historically plenty of Aylesbury homeowners bought an endowment policy to run alongside their interest only mortgage. However, because the endowment policy was a stock market linked investment plan and the stock market poorly performed between 1999 and 2003 (when the FTSE dropped 49.72%), the endowments of many of these homeowners didn’t cover the shortfall. Indeed, it left them significantly in debt!

Nonetheless, in the mid 2000’s, when the word endowment had become a dirty word, the banks still sold ‘interest only’ mortgages, but this time with no savings plan, endowment or investment product to pay the mortgage off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as property prices were on the rampage in an upwards direction!

Thankfully, the proportion of interest only mortgages sold started to decline after the Credit Crunch, as you can see looking at the graph below, from a peak of 43.81% of all mortgages to the current 8.71%.

Increasing the length of the mortgage to obtain more time to raise the money has gradually become more difficult since the introduction of stricter lending criteria in 2014, with many mature borrowers considered too old for a mortgage extension.

Aylesbury people who took out interest only mortgages years ago and don’t have a strategy to pay back the mortgage face a ticking time bomb. It would either be a choice of hastily scraping the money together to pay off their mortgage, selling their property or the possibility of repossession (which to be frank is a disturbing prospect).

I want to stress to all existing and future homeowners who use mortgages to go in to them with your eyes open. You must understand, whilst the banks and building societies could do more to help, you too have personal responsibility in understanding what you are signing yourself up to. It’s not just the monthly repayments, but the whole picture in the short and long term. Many of you reading my blog ask why I say these things. I want to share my thoughts and opinions on the real issues affecting the Aylesbury property market, warts and all. If you want fluffy clouds and rose tinted glasses articles – then my articles are not for you. However, if you want someone to tell you the real story about the Aylesbury property market, be it good, bad or indifferent, then maybe you should start reading my blog.

ian@mortimersaylesbury.co.uk

Aylesbury Baby Boomers vs. Aylesbury Millennials (Part 2)

Well last week’s article “The Unfairness of the Aylesbury Baby Boomer’s £4,187,830,000 windfall?” caused a stir. In it we looked at a young family member of mine who was arguing the case that Millennials (those born after 1985) were suffering on the back of the older generation in Aylesbury. They claimed the older generation had seen the benefit of the cumulative value of Aylesbury properties significantly increasing over the last 25/30 years (which I calculated at  £4.19bn since 1990). In addition many of the older generation (the baby boomers) had fantastic pensions, which meant the younger generation were priced out of the Aylesbury housing market.

I responded that there should be no surprise though that the older members of our society hold considerably more of our country’s wealth than the younger generation. This wealth is accrued and saved across someone’s lifetime, and reaches its peak about the time of retirement. If we are to comprehend differing wealth levels between generations we need to compare ‘apples with apples’. It is much more important to track the wealth held by different generations at the same age, i.e. what was ‘real’ wealth of the 30-something couple in the 1960’s compared to a 30-something couple say in the 1980’s or 2010’s?

Looking back over the last 120 years at various economic studies, this growth in wealth from one generation to the next (at the age range), only happened over a 30 year period of between 1960 and late 1980’s. Since the 1990’s, wealth has not improved across the generations, in the same age range.

 

 

So could it be all about these people saving? The fact is, in the last 10 years, UK households have saved on average 7.5% to 8% of the household income into savings accounts, compared to an average of 6% to 7% in the late 1960’s and 1970’s. The baby boomers haven’t been actively squirreling away their cash for the last 30 or 40 years in savings accounts to accumulate their wealth. Most of their gains have been passive, lucky bonuses gained on the back of things out of their control (unanticipated and massive property value rises or people living longer making final salary pensions more valuable) – it’s not their fault! 

 

 

...and herein lies the issue … it is assumed that these Millennials aren’t buying property in the same numbers like the older generation did in the past (because most of their wealth has come from house price inflation). The Millennials have often been described as ‘Generation Rent’, because they rent as opposed to buying property – because we are told they cant buy.  

However, when Aylesbury mortgage payments are measured against monthly income, home ownership is affordable by historic standards because mortgage rates are currently so low. As you can see, the ratio of average house price to average earnings in Aylesbury hasn’t vastly changed over the last decade … 

·         2008 average house price to average earnings of a single person in Aylesbury 8.97 to 1  

·         2017 average house price to average earnings of a single person in Aylesbury 9.87 to 1 

(i.e. in 2008, the average house price in Aylesbury was 8.97 times more than the average person’s salary in Aylesbury and this has only risen to 9.87 in 2017 – and all this off the property boom of the early 2010’s) 

95% first-time buyer mortgages were reintroduced in 2010. The average interest rate charged for those 95% FTB mortgages has slowly dropped from around 5.5% in 2009 to the current 4% rate. Back in the 1980’s/1990’s mortgage interest rates were between 8% and 10%, and one time in the early 1990’s, reached 15%! The main difference between the two periods was the absolute borrowing relative to income is greater now than in the 1980’s. They call this the ‘mortgage to joint household income ratio’. In the 1980’s the mortgage was between 1.8x to 2x joint income; today it is 3.4x to 3.6x salary. 

The simple fact is, in the majority of cases, it is still cheaper for a first-time buyer to buy a property with a 95% mortgage, than it is to rent it. The barrier for these Millennials, has to be finding the 5% mortgage deposit – instead of being able to afford monthly mortgage outgoings at the current 95% mortgage rates? 

 

Millennials make up 9,797 households in the Aylesbury Vale District Council area (or 14.11% of all households in the area).  However, behind the doom and gloom, surprisingly, 45% did save up the 5% deposit and do in fact own their own home (that surprised you didn’t it!) 

Nonetheless, the majority of Millennials in the area still do rent from a landlord (3,700 Millennial households to be exact). Yet, they have a choice. Buckle down and do what their parents did and go without the nice things in life for a couple of years (i.e. the holidays, out on the town two times a week, the annual upgraded mobile phones, the £100 a month Satellite packages) and save for a 5% mortgage deposit ... or live in a lovely rented house or apartment (because they are nowadays), without any maintenance bills and live a life with no intention of buying (because renting doesn’t have a stigma anymore like it did in the 1960’s/70’s (secretly hoping their parents don’t spend all their inheritance so they can buy a property later in life – like they do in central Europe). 

Neither decision is right or wrong – although it is still a choice. Until Millennials decide to change their choices – that is the reason why the country’s private rental sector will continue to grow for the next 30 years – meaning happy tenants and happy landlords.

 

The Unfairness of the Aylesbury Baby Boomer’s £4,187,830,000 Windfall? (Part 1)

Recently I was having a chat with one of my relatives at a big family get-together. The last time I had seen them their children were in their early teens. Now their children are all grown up, have partners, dogs and children. Wow – how time flies! 

So, I got talking over a glass of lemonade with them and a couple of their children, about the times of 15% interest rates and how the more mature members of our family had to endure the 3 day week, 20% inflation and the threat of nuclear annihilation in 4 minutes ... , foolishly, I said that with all the opportunities youngsters had to day, they had never had it so good!  

Trust one of their children to have gained some financial/economics qualifications before going to Law School, as they debated with me the genuine economic predicament of Millennials and how a combination of student debt, unemployment, global proliferation, EU migration and rising house values is reducing the salaries and outlook of masses of the UK’s younger generation, causing an unparalleled disparity of wealth between the generations. So of course I asked why that was? 

 

They said Millennials were paying the price for the UK’s most spectacular bookkeeping catastrophe to date (bigger than the Bank bailout after the Credit Crunch). Back in the 1950’s and 1960’s, nobody predicted us Brit’s would live as long as we do today, and in such abundant numbers. The OAP pensions that were promised in the past (be that Government State Pension or Company Final Salary Schemes) which appeared to be nothing fancy at the time, are now burdensomely over-lavish, and that is hurting the Millennials of today and will do so for years to come. 

Bringing it back to property, the young ‘soon to be’ lawyer, stated that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices over the 1970’s/80’s/90’s and 2000’s. Add to that their decent pensions, meaning cumulatively, their wealth has grown exponentially through no skill of their own.

 This disparity of wealth between the older and younger generations could have unparalleled consequences for the living standards of younger Millennials…. So – do we have a problem?? 

I can’t disagree with some of what the younger family member said, but there are always two sides to every story, so I thought I would do some homework... 

Since 1990, the average value of a property in Aylesbury has risen from £102,800 to its current level of £385,800. As there are a total of 14,798 homeowners aged over 50 in Aylesbury; that means there has been a £4.19bn windfall for those Aylesbury homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000’s.

I must admit that the growth in property values in the 1990’s and 2000’s certainly helped many of Aylesbury’s baby boomers. The figures do appear to put into reverse gear the perceived wisdom that each generation gets wealthier than the previous one  … and so with all this wealth, the figures do back up the youngsters argument that Millennials are being priced out of home ownership. 

Or do they? Are they?

In article 2, I will carry on this discussion where I will give you the Baby Boomer’s defence to the prosecution’s case!

The Aylesbury Property Market, The Beatles, Sweden and 50 year mortgages

50 years ago, in 1967, the first human heart transplant was performed by Dr Christian Barnard in South Africa. In the same year Sweden switched from driving on the left-hand side to the right-hand side of the road. The average value of an Aylesbury property was £5,111, interest rates were at 5.5% and The Beatles released their Sgt Peppers album ... but what has that to do with the Aylesbury property market today? Quite a lot ... so with my CD player turned up loud - let me explain!

I have been doing some research on the current attitude of Aylesbury first-time buyers.  First-time buyers are so important for both landlords and homeowners. If first-time buyers aren’t buying, they still need a roof over their heads, so they rent (good news for landlords). If they buy, demand for Aylesbury property goes up for starter homes and that enables other Aylesbury homeowners to move up the property ladder.  

First-time buyers are the life blood of the property market. They are, however the most susceptible to interest rate rises and the affordability of mortgages. With that in mind, let us see what is happening to them…

The average value of an Aylesbury property is currently standing at £385,763 and UK interest rates at 0.25%. As each year goes by, it appears the age of the everlasting mortgage has started to emerge, prompted by these first-time buyers, eager to get a foot on the housing ladder. I was reading a report a few days ago where some mortgage companies confessed that the battle to gain big returns from the property market has led to mortgages that will take considerably longer than the customary 25 years to pay off. 

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length and the ‘Bank of Mum and Dad’ have been helping with the deposit. Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid. So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s. After all life expectancy for a male then was exactly 69 years and today its 79 years and 5 months! 

Over the last ten years, Aylesbury property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans. If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan further still

However, some observers have said there are worries the mortgage companies are lending money over such a long term, they threaten leaving some first-time buyers with a generation of debt if the house price bubble bursts.  Interestingly, when I looked at what had happened to average property values in Aylesbury over the last 50 years, there have been bubbles. First-time buyers should take heart, since as a country we have always recovered from it a few years later.

What if interest rates rise? Well looking at historic UK interest rates, the current rate of 0.25% is at a 300-year low. Mortgages will never be cheaper. I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). If Aylesbury first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!

 

Before I go, a final thought for property buyers in Sweden, the land of Volvo and Abba. As Swedish property prices are so high, Swedish Regulators announced last year limits on the length of Swedish mortgage terms. They don’t bother with 50-year mortgages (On and On and On – Abba).  

No, our Volvo-loving Swedish friend’s average mortgage length is 140 years (this is not a typo). Although such mortgages have had their Waterloo (Abba), regulators have significantly reduced the maximum term of a Swedish mortgage to 105 years. Either way, that’s a lot of Money, Money, Money (Abba again – Sorry!)  to pay back! 

Now I will leave you in peace as I listen to the 1980’s Madness song ‘Our House’.