Local property market information for the serious investor

Category: Property market research

Youngsters unable to buy their first home in Cardiff – Are the Baby Boomers and Landlords to Blame?

Talk to many Cardiff 20 something’s, where home ownership has looked but a vague dream, many of them have been vexatious towards the Baby Boomer generation and their pushover ‘easy go lucky’ walk through life; jealous of their free university education with grants, their eye watering property windfalls, their golden final salary pensions and their free bus passes.

If you had bought a property in Cardiff for say £20,000 in first quarter of 1977, today it would be worth £253,628, a windfall increase of 1168.14%.

But to blame the 60 and 70 year olds of Cardiff for that sort of rise seems a little unfair, with the value of the homes rising like rocket, I don’t believe they can be censured or made liable for that. A few weeks ago, I discussed in my blog the number of people in the Cardiff area who have two or more spare bedrooms (meaning they are under-occupying the house). I see many mature members of Cardiff society, rattling around in large 4/5 bed houses where the kids have flown the nest years ago … but should they be blamed?

We are all just human, and the mature members of UK society have just reacted to the inducements of our property and tax system. The mature generations who joined the property market party in the 1970’s and 1980’s were able to take out huge mortgages, protected in the knowledge that inflation would corrode the real value of the mortgage, while wage gains would boost their ability to repay.

Neither do I directly blame the multitude of Cardiff buy to let landlords, buying up their 10th or 11th property to add to their buy to let empire. They too, are humbly reacting to the peculiar historic inducements of the UK property market.

So, who is to blame?

Well, hyperinflation in the 1970’s meant the real value of people’s mortgages was whipped out (as mentioned above). Margaret Thatcher and Nigel Lawson are also good people to blame with Maggie selling off millions of council houses and Nigel Lawson’s delayed ending of the MIRAS tax relief in 1987; meaning he too can get his share of indignation. The Blair/Brown combo doubled stamp duty in 1997 and again in 2000, which, as a tax on property transactions, precludes a more efficient distribution of the current housing stock. The Government has had plenty of opportunity to change the draconian stamp duty rules to incentivise those mature Cardiff house movers to downsize.

However, I have started to see over the last few years a change in Government policy towards housing. The new breed of Cardiff buy to let landlords that have come about since the Millennium, have had their wings clipped over the last couple of years, with the introduction of new tax rules (meaning it is slightly more difficult to make money out of property unless you have all the national information and Cardiff property trends to hand).

It’s easy to think the only reason that hundreds of first time buyers have been priced out of the Cardiff housing market is because of these landlords. Yet, I believe landlords have been undervalued with the Cardiff homes they provide for Cardiff people. With first time buyers struggling to save for a deposit, if it weren’t for those landlords buying up those homes over the last 10/15 years, we would have a bigger housing crisis than we have today. Since the global financial crisis of 2008/9, local councils have had to cut services, so certainly didn’t have enough money to build new homes … homes that were provided to Cardiff by these buy to let landlords.

One side of the argument is that 1,871 homes are being bought up by buy to let landlords each year in the Cardiff City Council area when otherwise they might have become available to other buyers, the other side of the argument is the current national average deposit is £51,800, which is, by far, the greatest barrier to those wanting to buy their first home. Those homes bought by local buy to let landlords are not left idle, as they equate to 13,096 of new homes for local people, most of whom who see renting as a better option because of the choice, the simplicity and the flexibility which renting brings.

In the 60’s/70’/80’s, the traditional thoughts that you were a failure unless you owned your own home have now all but disappeared, because if you ask many young people, they would probably say renting was the perfect option for them at certain times of their life.

 

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My thoughts on the future of the Cardiff Buy-To-Let Market

I was recently reading a report by the Home website which suggested that hordes of landlords are selling their buy-to-let investments due to increasing burdens on them in the buy-to-let market. Their findings suggest the number of new properties that came onto the market nationally (for sale) jumped by 11% across the UK as a result.

Those increasing burdens include new tax rules coming in over the next 3 to 4 years and the announcement that all self-managing landlords (i.e. landlords that don’t use a letting agent to look after their buy-to-let property) will soon need to register with a compulsory redress scheme to resolve tenant arguments and disputes; as Westminster wants to heighten standards in the Private Rented Sector.

Interestingly I was chatting with a self-managed landlord from Cyncoed, when I was out socially over the festive period, who didn’t realise the other recent legislations that have hit the Private Rented sector, including the ‘Right to Rent’ regulations which came in to operation last year. Landlords have to certify their tenants have the legal right to live in the UK. This includes checking and taking copies of their tenant’s passport or visa before the tenancy is signed. Of course, if you use a letting agent to manage your property, they will usually sort this for you (as they will with the redress scheme when that is implemented).

If you are a self-managed landlord though, the consequences are severe because if you let a property to a tenant who is living in the UK illegally, you will be fined up to £3,000. That same Cyncoed landlord popped into my offices in the New Year, and I checked all his paperwork and ensured he was on the right side of the law going forward – and I offer the same to any landlord in the Cardiff area if you want me to cast my eye over your buy to let matters (and at no cost – ok just bring in some chocolates for the girls in the office!)

But what of all these extra properties being dumped onto the market in Cardiff? When I looked at the records the number of properties on the market in Cardiff now, as opposed to a year ago, the numbers tell an interesting story …

 

  1st Jan 2017 1st Jan 2018  
Detached 543 547 1%
Semi 591 478 -19%
Terraced 509 419 -18%
Flat 788 882 12%
Plots +
Other
94 88 -6%
Total 2525 2414 -4%

Overall, Cardiff doesn’t match the national trend, with the number of properties on the market actually dropping by 4% in the last year.  It was particularly interesting to see the number of flats increase by 12%, yet the number of semis on the market drop by 19%.

However, speaking with my team and other property professionals in the city, the majority of that movement in the number of properties and the types of properties on the market isn’t down to landlords dumping their properties on the market. The whole property market has changed in the last 12 months, with the majority of the change in the number and type of properties for sale due to the owner-occupier market, not landlords (a subject I will write about soon in my Cardiff Property Market blog later this Spring?). You see, for the last ten years, each month there has always been a small number of Cardiff landlords who have been releasing their monies from their Cardiff buy to let properties – as is the nature of all investments!

Nationally, the number of rental properties coming on to the market to rent fell by 16% in Q4 2017 compared to Q4 2016 .. but that isn’t because there are 16% less rental properties to rent – it’s because tenants are staying in their rental properties longer meaning less are coming on the market to be RE-LET.

Nevertheless, some Cardiff landlords will want to release the equity held in their Cardiff buy to let properties in 2018. All I suggest is that you speak with your letting agent first, as putting a rental property on the open market often spooks the tenants to hand in their notice days after you put it on the market (because they don’t like the uncertainty and also believe they will become homeless!). This means you have an empty property, costing you money with no rent coming in.  However, some letting agents who specialise in portfolio management have select lists of landlords that will buy with sitting tenants in. If you have a portfolio in the Cardiff area and are considering selling some or all of them – drop me a line as I might have a portfolio landlord for you (with the peace of mind that you won’t have any rental voids).

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Increase in Interest Rates to cost Cardiff Bay Home Owners £489.39 a year

Cardiff Bay 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 Cardiff Bay mortgage is £195,757

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

In the CF10 postcode there are 1,347 homeowners with a mortgage, of which 579 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those CF10 homeowners with those variable rate mortgages is £113,278,990, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £1,526.36 per month and now its £1,567.14 per month … meaning

The interest rate rise will cost Cardiff Bay

homeowners on average an extra £489.39 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 Cardiff Bay housing market?

Well, if I’m being frank – not a great deal. The proportion of Cardiff Bay 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 Cardiff Bay people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Cardiff Bay people having to sell their Cardiff Bay 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 Cardiff Bay homeowners and Cardiff Bay buy to let landlords …

.. for every 1% increase in the Bank of England interest rate, it will cost the average Cardiff Bay homeowner on a variable rate mortgage £163.13 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 Cardiff Bay Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Cardiff Bay property market will always remain strong for both Cardiff Bay homeowners and Cardiff Bay landlords alike.

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Cardiff Bay Apartments are 17.1% more affordable than 10 years ago

My research shows that certain types of Cardiff Bay property are more affordable today than before the 2007 credit crunch.

Roll the clock back to 2007 just before the credit crunch hit which saw Cardiff Bay property values plummet like a lead balloon and the Cardiff Bay property market had reached a peak with the prices for Cardiff Bay property hitting the highest level they had ever reached.  Between 2008 and 2010, Cardiff Bay property values lay in the doldrums and only started to rise in 2011, albeit quite slowly to begin with.

Nevertheless, even though property values have now passed those 2007 peaks, my research indicates that Cardiff Bay property, especially flats/apartments, are now more affordable than they were before the 2008 credit crunch.

Back in 2007, the average value of a Cardiff Bay flat/apartment stood at £164,276 and today, it stands at £178,796, a rise of £14,520 or 8.8%.

However, between 2007 and today, we have experienced inflation (as measured by the Government’s Consumer Price Index) of 25.97% meaning that in real spending power terms Cardiff Bay apartments are 17.1% more affordable than in 2007. Looking at it another way, if the average Cardiff Bay apartment (valued at £164,276 in 2007) had risen by 25.97% inflation over those 10 years, today it would be worth £206,938 (instead of the current £178,796).

The point I’m trying to get across is that Cardiff Bay property is more affordable than many people think.  Cardiff Bay first time buyers can get on the ladder as 95% mortgages have been readily available to first-time buyers since 2010.

It really comes down to a choice and if Cardiff Bay first-time buyers can get over the hurdle of saving the 5% deposit for the mortgage on the property – they will be on to a winner, especially with these ultralow mortgage interest rates, a mortgage can be between 10% and 30% cheaper per month than the rental payments on the same house.

So why aren’t Cardiff Bay 20 somethings buying their own home?

Back in the 1960’s and 1970’s, renting was considered the poor man’s choice in Cardiff Bay (and the rest of the Country) a huge stigma was attached to renting. However, over the last 10 years as a country, we have done a complete U-turn in our attitude towards renting – meaning that many people find renting a better option and a lifestyle choice.

Saving the 5% deposit means going without many luxuries in life (such as holidays, every satellite movie and sports channel, socialising or the latest mobile phone – even if only in the short term) therefore instead of saving every last pound to put towards a mortgage deposit Cardiff Bay 20 somethings choose to rent.

There is no denying the simple fact that over the next 10 to 15 years, the people who choose to rent instead of buy in Cardiff Bay will continue to rise.

Therefore, everyone in Cardiff Bay has a responsibility to ensure that an adequate number of quality Cardiff Bay rental properties are safeguarded to meet those future demands. Interestingly, what I have noticed though over the last few years are the expectations of Cardiff Bay tenants on the finish and specification of their Cardiff Bay rental property.

I have perceived that in the past, what a tenant wanted from their Cardiff Bay rental property was moderately unassuming because renting a property was only a short-term choice to fill the gap before jumping on the property ladder. Before the millennium, wood chip wall paper and twenty-year-old kitchen and bathroom suites were considered the norm.

However, Cardiff Bay tenants’ expectations are becoming more discerning as each year goes by.  I have also noticed the length of time a tenant remains in their Cardiff Bay property is becoming longer (and this was backed up recently by stats from a Government Report), although I have noticed a tendency for many Cardiff Bay landlords not to keep the rental payments at the going market rates  – maybe a topic for a future article for my blog?

The bottom line is this … Cardiff Bay landlords will need to be more conscious of tenants needs and wants and consider their financial planning for future enhancements to their Cardiff Bay rental properties over the next five, ten and twenty years –  e.g. decorating, kitchen and bathroom suites etc etc ..

The present-day and future situation of the Cardiff Bay private rental property market is important, and I frequently liaise with Cardiff Bay buy-to-let investors looking to spread their Cardiff Bay rental-portfolios. I also enjoy meeting and working alongside Cardiff Bay first time landlords, to ensure they can navigate through the minefield of rental voids, the important balance of capital growth and yield and ensuring the property is returned back to you in the future in the best possible condition.

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Cardiff Home Owners Are Only Moving Every 15.5 Years

As I mentioned in a previous article, the average house price in Cardiff is 7.54 times the average annual Cardiff salary. This is higher than the last peak of 2008, when the ratio was 6.91. A number of City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Cardiff) property prices might drop like a stone. The point is – they haven’t.

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

 

The Total Number of Property Sales Per Annum in the

City of Cardiff Council Area Since 1995

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
4,233 5,299 6,343 5,464 6,562 6,489 7,708 8,826 8,309 7,953 6,177
                     
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
8,029 7,644 4,193 4,187 4,048 4,048 3,930 4,633 5,692 5,380 5,470

Even though we are not anywhere near the post credit crunch (2008 and 2009) low levels of property sales, the torpor of the Cardiff housing market following the 2016 Brexit vote has seen the number of property sales in Cardiff 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 Cardiff 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 Cardiff people moving home has slumped to once every 15.5 years.

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No. 16 Arabella Street

Here is number 16 on my top  20 streets in Cardiff, I am at Arabella St in Roath.

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Cardiff Buy-to-Let Return / Yields – 1.8% to 12.6% a year

The mind-set and tactics you employ to buy your first Cardiff buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in. The main difference is when purchasing your own property, you may well pay a little more to get the home you (and your family) want, and are less likely to compromise. When buying for your own use, it is only human nature you will want the best, so that quite often it is at the top end of your budget (because as my parents always used to tell me – you get what you pay for in this world!).

Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite. Inexpensive Cardiff properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property one basically takes the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.

This means, if one increases the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Cardiff buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.

To give you an idea of the sort of returns in Cardiff…

Cardiff Property type Average Price paid (last 12 months) in Cardiff Average Rent Achieved in last 12 months in Cardiff Lower End of Yield Range in Cardiff Average Yield in Cardiff Upper End of Yield range in Cardiff
Detached £375,706 £998 1.81% 3.19% 4.03%
Semi-Detached £235,789 £815 3.29% 4.15% 5.97%
Terraced £195,905 £1,583 8.46% 9.70% 12.61%
Flats £142,072 £632 3.96% 5.34% 6.29%

Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Cardiff area.

As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.

However, before everyone in Cardiff starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what Cardiff buy to let property to buy.  Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Cardiff landlords who are looking for capital growth, an altered investment strategy may be required.

In Cardiff, for example, over the last 20 years, this is how the average price paid for the four different types of Cardiff property have changed…

  • Cardiff Detached Properties have increased in value by 242.2%
  • Cardiff Semi-Detached Properties have increased in value by 253.8%
  • Cardiff Terraced Properties have increased in value by 258.2%
  • Cardiff Apartments have increased in value by 249.6%

It is very much a balancing act of yield, capital growth and void periods when buying in Cardiff. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat. What have you got to lose? 30 minutes and my tea making skills are legendary!

 

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No 17. Moorland Road

Here is number 17 on my countdown of the top 20 streets in Cardiff based on their turnover and popularity

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Cardiff’s New 3 Speed Property Market

“What’s happening to the Cardiff 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 Cardiff 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 area.

For ease, I have named them the …

  1. lower’ Cardiff Property Market.
  2. lower to middle’ Cardiff Property Market.
  3. ‘middle’ Cardiff Property Market.

The ‘lower’ and ‘lower to middle’ sectors of the Cardiff 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 Cardiff 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’ Cardiff 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’ Cardiff housing market – the bottom 10% (in terms of value) of properties sold
  2. lower to middle’ Cardiff housing market – lower Quartile (or lowest 25% in terms of value) of properties sold
  3. middle’ Cardiff housing market – which is the median in terms of value

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

City of Cardiff Council Property Market – Sold Prices Price Paid in 1995 Price Paid in 2017 Percentage Uplift

1995 – 2017

Lower (Bottom 10%) £29,725 £109,000 266.69%
Lower to Middle (Lower Quartile) £38,000 £137,000 260.53%
Middle (The Median) £55,499 £211,484 281.06%

 

You can quite clearly see that it is the ‘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 ‘lower to middle’ housing market. Therefore, interestingly, if we applied the best percentage uplift figure (i.e. from the ‘middle’ market percentage uplift), to the ‘lower to middle’ 1995 housing market figure, the 2017 figure of £137,000, would have been £144,803 instead.

Now, I have specifically not mentioned the upper reaches of the Cardiff 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 Cardiff’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 Cardiff property market – looking at the stats for the up-market Cardiff property market from Land Registry, only 14 properties in Cardiff (and a 3 mile radius around it) have sold for £1,250,000 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 Cardiff Property Market, but many Cardiff “micro-property markets”, you can spot trends and bag yourself some potential bargains. Even in this market, I have spotted a number of bargains over the last few months that I have shared in my Property Blog and to my landlord database, especially in the ‘lower’ and ‘lower/middle’ market.

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29.3% Drop in Cardiff Bay People Moving Home in the Last 10 Years

I was having a lazy Saturday morning, reading through the newspapers at my favourite coffee shop in Cardiff Bay.  I find the most interesting bits 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 Cardiff Bay!).  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 thistranslate to in pure numbers locally? 

In 2007, 7,642 properties sold in the Cardiff City Council area and last year, in 2016 only 5,400 properties sold – a drop of 29.34%.

Therefore, we have just over 2,240 less households moving in the Cardiff Bay 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 1,838 mortgaged households a year (fourth fifths of the figure of 2,240) in the Cardiff Bay 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 1,838 annual Cardiff Bay (and surrounding area) non-movers, based on that CML report –

  1. There are around 662 households a year that aren’t moving due to a fall in the number of mortgaged owner occupiers (e. demographics).
  2. I then estimate another 257 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 (e. lifestyle).
  3. Then, I estimate 110 households of our Cardiff Bay (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 (e. high house price growth).
  4. I believe there are 809 Cardiff Bay (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 (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 Cardiff Bay 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?

 

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