28.7% Drop in Rugby 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 Rugby.  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.  and Oothers feature articles about the severe lack of new homes being built (which is especially true in Rugby!).  A However, 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, although this has steadily recovered,  since then, 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 .  … Tbut the question is … why are there fewer house sales?

To answer that, we needhave to go back 40/50 years.  Inflation was high in the late 1960’s, 70’s and early 80’s.  To combat thisat, the Government raisedset interest rates to a high level in a bid high to try 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, thisat wasn’t all bad news sinceas the high inflation tends to eroded the mortgage debt in ‘real spending power terms’.  Consequently, as wages grew (to keep up with inflation), this allowed home ownersthem to get even biggeran even higher mortgages.  At the same time (whilst their mortgage debt was decreasing, ) and 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 exponentially, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect (of significant numbers everyone moving house) continued into the mid noughties (2004 to 2007), as Banks and Building Society’s slackened their lending criteria.  [You (who will probably can remember the 125% loan to value Northern Rock Mortgages that could be obtained with just a note from your Mum!!].  This mean that 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) (a 320+ year all time low), the the number of people moving would be booming – wouldn’t you ?  However, this has not been the case.  Less people are moving because:

with

(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

( and (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?), all these four points have come together to mean less people are moving … but by how many?

 In 2007, 2,620 properties sold in the Rugby District Council area and last year, in 2016 only 1,867 properties sold – a drop of 28.74%.

Therefore, we have just over 750 less households moving in the Rugby 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 617 mortgaged households a year (fourth fifths of the figure of 750) in the Rugby 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 abased on a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 617 annual Rugby (and surrounding area) non-movers, based on that CML report –

1.     There are around 222 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 86 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 37 households of our Rugby (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.     Finally, and the majority of people that would have moved (but can’t). I believe there are 272 Rugby (and surrounding area) mortgaged homeowners that are unable to move because of the financing of the new mortgage orkeeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

Undoubtedly,  whilst the first three points above (demographics, lifestyle and high price growth) there is something beyond the Government or Bank of England control.  However could there be some influence exerted to help, it is the fourth point where something could be done , as it is the people and households in that final 4th point (the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability?) that if Rugby 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.

And 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.

If you would like to read more interesting articles on the property market in Rugby please check out the Rugby Property Blog – http://www.rugbypropertyblog.wordpress.com

kindest regards

Iain Havell

Iain.havell@newman.uk.com

Decreasing Numbers of Younger Homeowners in Rugby

David Gray, 34-year-old father of two from Rugby, was out house hunting. It was a pleasant August Saturday afternoon, and our man cycles along on his bike. He cycles up a street of suburban semis, where he spots a few retired mature neighbours, chatting to each other over the garden fence. He leans his bicycle against a lamppost and launches softly into his property search.

Anyone on the road contemplating moving?” David asks, “I am not a landlord or developer, I’m just a Rugby bloke trying to get out of renting, buy a house, do it up and live in it with my wife and two children

The only way I will leave here is in a box”, answers an 80-something lady, wearing her fading Paisley patterned housecoat from the 1970’s.

I‘ve lived here since before you were born, its lovely up here .. we aren’t moving, are we Doris?” (as her neighbour sagely shook his head at his wife).

David, like many Rugby people born in the late 1970’s to the early 1990’s, is keen to get a slice of prime Rugby real estate. Yet people like David in Generation Y (or the Millennials as some people call them i.e. born between 1977 and 1994 and needing family housing now) are discovering, as each year passes by, they are becoming more neglected and ignored when it comes to moving up the property ladder.

Looking at the graph for the UK as whole …

 Over 75 percent of Brits aged 65 and above (the baby boomers) are owner- , the biggest share since records began and a proportional rise of over 48.3% since the early 1980’s. Looking at those Baby Boomers (the current 65+year olds)  .. and roll the clock back 36 years (to when they were in their 30’s and 40’s and two thirds (65.6%) of them owned their own home.

Whilst today, just under a half of 25 to 49 year olds (47.3%) own their own home.

However, the biggest drop has been in the 18 to 24-year old’s, where homeownership has dropped from a third (32%) in the 1980’s to less than one in ten (8.9%) today. Looking at the Rugby statistics, the numbers make even more interesting reading.

Government policy contributes to the generational stalemate. Stamp Duty rules prevent older Brits from moving as the price of land and planning rules make it harder to build affordable bungalows that are attractive to members of the older generation who want to move.

The average value of an acre of prime building land in the UK is between £750,000 and £800,000 per acre. Bungalows are the favoured option for the older generation, but the problem is bungalows take up too much land to make them profitable for new homes builders. The housing market is gridlocked with youngsters wanting to get on (then move up) the property ladder whilst the older generation, who want to move from their larger houses to smaller, more modern bungalows, can’t. The problem is – there simply aren’t enough bungalows being built and the high price of land, means they are prohibitive to build.

So, what is my point? Well, all I would say to the homeowners of Rugby is that one solution could be to start to talk to your local councillors, so they can mould the planners’ thoughts and the local authority thinking in setting land aside for bungalows instead of two up two down starter homes? That would free the impasse at the top of the property ladder (i.e. mature people living in big houses but unable to move anywhere), releasing the middle aged gridlocked people in the ladder to move up, thus releasing more existing starter homes for the younger generation.

… and to you David … the wandering new home searcher – if things are going to change, it will be years before they do .. so keep going out and spreading the word of your search for a new home for your family.

If you would like to read more interesting articles on the property market in Rugby please check out the Rugby Property Blog – http://www.rugbypropertyblog.wordpress.com

kindest regards

Iain Havell

Iain.havell@newman.uk.com