Welcome to the September 2018 edition of Property Trends – the monthly bulletin that focusses on property trends for residential property investors, landlords and tenants.
This month we look at 4 topics:
- UK house prices – are they set to go up or down?
- First time buyers are becoming older – what are the implications?
- The “A List” of property trends – which trends deserve your attention?
- The growth of co-living in the private rental sector – good or bad?
Don’t forget to let us know what you think of the trends covered each month. Are we identifying the right trends and giving them sufficient weight? Are there important trends we are not covering and should cover?
Please let us know your views using the “Leave a reply” form at the foot of this bulletin.
WHAT IS HAPPENING TO HOUSE PRICES?
The fall in house prices indicated by Nationwide’s data for August 2018 sent the doom-mongers into over-drive. Those figures pointed to a 0.5% fall in August leading to a decline in year on year growth to 2%
However, later figures from Halifax have indicated that in August prices actually grew, though by a tiny margin of 0.1%. Year on year prices rose by 3.7% (compared to 2% for Nationwide) making the average price of a house £229,958.
Halifax revealed that prices had increased 1.9% in the last 3 months compared to 1.2% in the previous quarter.
The Halifax data also showed that the number of first time buyers was increasing – with first time buyers (FTBs) above 150,000 for the third year in a row. Further, FTBs made up 51% of financed purchases compared to 38% 10 years ago.
In the first 6 months of 2018 FTBs increased some 3% to 175,500 compared to 171,200 in the same period in 2017 and a record low of 72,200 in 2009. The peak period for FTBs was in 2006 when the total was 190,900 – 8% more than the current total.
The overall picture for house prices seems a little confusing with the Nationwide and Halifax suggesting different trends.
The month fall reported by Nationwide represented the biggest month fall since August 2012. The Halifax figures indicated prices were rising at their fastest in almost a year.
The sensible conclusion is that it is far too early to know what the latest figures mean. We will need to see figures for several more months to establish if there is a clear pattern – up or down.
At the moment the safest conclusion is that prices in the country as a whole are fairly flat, but with prices in the North performing significantly better than in the South. London prices seem set to fall this year and probably next year too.
It seems clear that house prices have been modest and steady in the country as a whole for some two years now and we are unlikely to see significant nationwide uplift this year.
That is probably one of the factors which has helped the growth in FTBs identified by Halifax – and that is a trend which seems set to continue.
Rebel Property Coach
HOMEBUYERS GETTING OLDER
If you listen to the mainstream media and many politicians, you may get the impression that the phenomenon of homebuyers getting older is something new.
However, that has been a clear trend for decades now – with no sign of reversing.
According to research commissioned by Keepmoat Homes and reported in March this year in the Independent online, the average first time buyer in 1960 was just 23 years – 7 years older than today.
The reasons for this change is primarily to do with house price affordability. In 1960 the average deposit was £595, equivalent to just £12,738 today. It took slightly over two years to save that deposit.
Since the 1960s the amount of deposit needed and the age of buyers have both increased relentlessly – as is clear from the chart below.
The growth in age and deposit of first time buyers
There are a number of reasons for the changes including:
- Steep rises in house prices
- Failure of wage growth to keep pace with house price inflation
- Failure to build enough new homes to meet demand
- Trend for buyers to buy on their own
- Steep decline in married buyers – who are able to pool their resources.
By 2011+ the average first time buyer was taking over 5 years to save a deposit, compared to some 2 years in the 1960s.
According to the English Housing Survey published by the government in July 2018, the average age of first time buyers (FTBs) has increased from 30 to 32 in the 20 years to 2017.
Furthermore the data points to buyers getting even older in the future. The number of FTBs in the 25-54 age group increased from 11% to 20% of the total number of FTBs. In contrast, the number in the 16-24 age group dropped from 21% to 8%.
In the 20 years to 2017 the survey found that first time buyer households had fallen from 922,000 to 675,000. Therefore, it is not just a case of FTBs getting older; their numbers are declining sharply.
The typical deposit was found to be £48,831 but in London the total was almost double that at £94,088.
The percentage of joint buyers had increased from 66% to 74% – reflecting the need for buyers to pool their resources in the face of large house price increases.
These changes are a reflection not simply of the growth in house prices but also the pace of growth and the inability of wages to keep up.
The growth in older FTBs could lead to a number of developments including:
- FTBs having to take out mortgages which continue into their retirement
- Growth of longer mortgages and lifetime mortgages to take account of older FTBs
- Growth of insurance products linked to longer mortgages to take account of issues of ill-health or old age likely to afflict older FTBs.
All first time buyers need to re-adjust their expectations and practices to get on the housing ladder as early as possible. For instance, FTBs are increasingly turning to the “Bank of Mum & Dad”.
FTBs also need to take full advantage of various government initiatives such as stamp duty reductions for FTBs, Help to Buy ISAs, shared ownership and the Help to Buy equity loan scheme.
FTBs can accelerate the point at which they buy by considering joint ownership and “intergenerational mortgages”.
However the fundamental issue seems to be the shortage of houses in the parts of the country which most need them and the ongoing failure of government to fix the problem over decades.
Long term, it seems unlikely that government initiatives will reverse the trend – given its longevity, extent and direction.
The indications are that first time buyers will continue to get older – with would-be homeowners increasingly compelled to be tenants in the private rented sector, probably dominated by large corporate landlords operating the build-to-rent model currently in vogue with the government.
Rebel Property Coach
THE “A LIST” OF PROPERTY TRENDS: PART I
Property in its many guises seems to be going through a plethora of fundamental, important and far-reaching changes at the present time.
There are so many trends, the objective of this two part article is simply to list those that seem to be most noteworthy or immediate and to comment briefly on their apparent importance or likely ramifications.
In this part, 7 trends will be considered.
Although numbered, the trends are not in any order of importance.
1. Move away from home ownership to renting
According to the government’s English Housing Survey (EHS), 62.9% of households in England owned their homes in the financial year 2015-2016.
That was the lowest since 1985 and is reflective of a long-term trend following a peak of 71% in 2003.
As homeownership fell in 2015-16, the number of renters in private rental accommodation increased by 250,000. In the last decade renters have increased by 2 million or 77%.
The growth in renters will make them a bigger part of the electorate and politicians are already scrambling to court the tenant vote.
2. Growth in mortgage-free properties
According to data from EHS, in the last 10 years the number of English households owning their home outright without a mortgage has increased by 1.3 million.
This trend, coupled with the growth in renters, suggests a widening gap between those with large capital wealth or equity in their property and those unable to get on the property ladder at all – with no or limited prospects of acquiring capital wealth or equity.
This disconnect is a time bomb for societal cohesion and may present formidable challenges for politicians in the not too distant future.
3. New political champions for renters
As the number of renters grows, making them a larger section of the electorate, renters are finding that they have new political supporters.
That can be seen with the Conservative government showing itself to be unusually tenant friendly by bringing in landlord licensing and tighter control of HMOs as well as proposing three year tenancies and a ban on tenant’s fees charged by letting agents.
All the political parties seem keen to champion the causes of tenants – with an increasingly hard-line approach being taken against smaller individual landlords. Such hard line approach is not apparently being applied to large corporate landlords, who are being encouraged to press ahead with “build to rent”.
4. Reform of leasehold law
The government has made it known that it would like to stop:
- Houses being sold on a leasehold basis and
- Unfair ground rents which become exorbitant following periodic rent reviews.
New ground rents for flats could be limited to a peppercorn and if the government really wanted to be bold it could insist that new leases should be 999 years, what is commonly known as a “virtual freehold”.
The concept of leasehold land does not fit well with a modern quasi-egalitarian society, and there must be a slim chance that a government will, in the not too distant future, review the entire concept of “leasehold” with a view to truly radical change – even though that is certain to present some formidable legal hurdles.
5. Growth of shared or fractional ownership
We already have the device of shared ownership, where a buyer can buy 25% of a property and more at a later date – up to 100%.
As property values increase, even 25% may be beyond the average buyer and it seems likely that this percentage will fall and continue to do so over time.
Who knows, one day 1% ownership of a property may be considered significant.
The huge challenge for governments going forward is to determine who or what will own the lion’s share in a system of fractional ownership.
6. Longer mortgages
Traditionally mortgages were for 25 years. As house prices increase and become less affordable and people live longer, it makes commercial sense for lenders to offer much longer terms, say up to 75 years.
Indeed it may make sense for them to go further and offer mortgages for the lifetime of the borrower.
Such changes would put a financial burden on older people, fixing them with financial responsibility all the way to the grave.
New mortgage and insurance products will need to be developed to address the likely issues and problems.
7. Growth of intergenerational mortgages
It is reasonable to expect a big growth in “intergenerational mortgages” where lenders allow children to be helped by parents or grandparents onto the property ladder.
That can be done by lenders offering more mortgages which allow one or more of features such as: gifted deposits, mortgage guarantees, provision of extra mortgage security and joint applications.
Joint mortgages will tie generations together financially which may lead to a more cohesive society and an end to the sort of generational friction which is currently evident between baby boomers – who typically are wealthy homeowners – and millennials – who typically are finding it hard to get onto the property ladder.
Rebel Property Coach
CO-LIVING IS ON THE RISE
One of the many consequences of high house prices leading to escalating rents in many parts of the country is the rise of communal style accommodation or co-living.
It is most noticeable in London, the least affordable UK city of them all, and there is every reason to believe it will increasingly spread to other high rent cities in the UK.
Co-living comes in several forms but is basically a communal form of residential accommodation where renters have their own private room and share communal rooms such as a kitchen, bathroom or living room. Larger units may have additional shared facilities such as a garden, roof terrace, games room, laundry, gym, cinema or sauna.
Usually services or charges such as cleaning, gas, electricity, water, council tax and broadband are provided in the monthly inclusive “rent” – which makes for convenient budgeting.
The rent payable depends on a number of factors but typically seems to be in the £200-£300 per week range.
Tenants can be from any age group or background but it does seem that providers are looking to attract “young professionals” – people in their twenties or thirties – the group that is finding it most difficult to escape the rental trap and become homeowners.
More landlords are showing interest in co-living or commune-style housing. One of the biggest current providers is The Collective, whose co-living units include the Old Oak in Willesden NW London, which houses over 500 residents and is said to be the biggest co-living unit in the world.
Other major providers of co-living include Tipi and Essential Living.
Letting agents are starting to recognise the sector as a distinct part of the rental market and targeting tenants accordingly.
Smaller providers seem to be getting in on the act in growing numbers – particularly as there is the prospect of attractive rental returns, along with an opportunity to side-step the income tax increases which the government has imposed on non-corporate landlords.
There has been much debate among the old school chattering classes on whether the rise of co-living is a good thing or a bad thing and whether it is here to stay.
Such commentators often forget the fact that human beings have lived in communal societies for most of their existence and it is only in very recent times – since the last world war – that communal living, in its many forms, has come under serious threat – in some parts of the world.
Communes were a huge movement in the sixties and they have never gone away and remain a high-minded ideal for many people right across the world.
The latest move towards co-living has been driven largely by economic circumstances but there is also real ideal-led enthusiasm for the way of living – which appeals to many groups including: single people, hipsters, people moving from out of town and wanting an easy and convenient integration into their new surroundings and people who like the benefits of serviced accommodation.
There are concerns about the more authoritarian aspects of co-living – things like ubiquitous cameras, OTT rules and lack of privacy.
Complaints are often voiced about the size of private rooms.
Larger co-living units have the benefit of extensive services and facilities but face the challenge of managing large groups of people where issues are always abundant and conflict is often close at hand
Smaller units are likely to be a happier ship but may be lacking in quantity and quality of services and facilities.
It seems likely that the most successful units will strike a balance between the two extremes – not being too large, but also not being too small to have enough of the services and facilities which attract tenants.
Co-living is not cheap accommodation, but it is attractively priced considering the rent normally includes most non-food living costs such as bills, council tax and cleaning.
It is not without limitations, but there is no reason why it cannot be an important factor helping to solve the housing crisis in some parts of the country.
It’s popularity is likely to increase as traditional renting continues to become more expensive and unaffordable for people on average wages.
Subject to local planning officers co-operating to make more units available, it is a type of accommodation which seems set to have a very rosy future.
Rebel Property Coach
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DISCLAIMER: This bulletin, which is provided for information purposes only, is fully intended to be accurate but no representation as to its accuracy is intended. It does not provide legal or any other advice to be relied upon. All liability to all persons acting or not acting on anything in this bulletin is disclaimed. NOTE: Where you require advice to rely on in any matter, it is best practice to consult and retain a suitably qualified expert in the relevant field.