Ashford Property Market … the Rollercoaster of the Last Decade

Rollercoaster 1 (600x398)

 

Ah the 2010’s, the tens, the teens – What were we supposed to call the decade that has just gone? No matter what it was called, the last decade was a tough one, so does it really matter that we never really got around to giving it a name? Some might say, whatever one calls it, that period coming to an end is the best thing any teen (for people, too) can possibly do!

The last two decades have certainly been tumultuous. At least, for this new decade, we will later be able to say, things like “that style is so ’20s” and fellow humans will essentially know what you are talking about. If you come of age in this decade, you will be a ’20s child and we will discuss ’20s politics and ’20s style and all the things that hadn’t been created on the 31st December 2019; when two nameless decades ended and how finally there was something everyone in the UK could agree on: the name of the decade. Hey – it’s a start!

So, what has happened to the local Ashford property market in the last decade?

The average Ashford property has risen in value from £209,600 to £331,900 in the last 10 years

… meaning each Ashford homeowner has seen a profit of £235.19 per week for those last ten years. Rolling the clock back to the start of the last decade January 2010, and the economy (and housing market) were recovering from the Credit Crunch and the worldwide financial crisis. A decade on and things feel a little different. If you bought an Ashford home over the past 10 years, things have certainly changed.

Ashford property values rose 58.4% on average over the last decade

yet taking inflation into account, they only rose in real terms by 25.3 per cent.

Compare that to a 42.5% rise in the ‘80s, a 13.2% drop in the ‘90s and rise of 62.8% in the 2000s in real terms. So, in real terms after inflation, there has been less of a house price growth in Ashford in the past decade than the previous one.

 

On average, 1.12 million homes were sold each year last decade, although that was 26.4% less than the decade before (the noughties) when an average of 1.52 million properties were sold annually.

 

So, what are the underlying issues in the Ashford (and wider UK) property market when, in real terms, property is 25.3% more expensive than a decade ago?  Whilst the newspapers tell us both that first time buyers can’t get on the housing ladder and that the housing market is in gridlock – what is the problem? Well I am a firm believer in the adage that ‘bad news sells newspapers’ because the truth is something completely different as 32.7% of homes last year were bought by first time buyers compared with only 22.8% in 2009.

 

Yet, there are still issues; mainly a persistent lack of new homes being built which curtails the supply and choice of property; but stagnated wages, stiffer mortgage rules and homeowners not moving as much as previous generations are also contributing to the problem. In the UK, the number of homeowners who moved in 2019 was around 14% higher than in 2009, yet this was still just under 50% lower than the average for the noughties. It’s all up and down like a rollercoaster!

 

My thoughts for the future are based primarily on what will happen to interest rates. Throughout the last decade, the Bank of England base rate was 0.5% at the start and was cut to 0.25% in the Summer of 2016. Even with the increase to its current level of 0.75% in the Summer of 2019, it has made borrowing money on a mortgage extremely cheap.

 

Nonetheless, bank and mortgage rates will rise again eventually and I am concerned about the effect upon the housing market. Now it won’t be as bad as previous times when mortgage rates went up in the 1970’s and 1980’s (with mass repossessions) because the tougher mortgage rules introduced in April 2014 will have ensured borrowers were stress tested on their affordability if interest rates shot up.

 

Most borrowers have been stress tested on their affordability of mortgage rates up to 6% to 6.5%, which would obviously squeeze household disposable incomes yet should avoid people losing their homes due to repossession. Whilst I am not giving advice, just personal opinion: if you are one of the 29.3% of homeowners who is not on a fixed rate mortgage– maybe you should seriously consider doing so?

 

The 2020’s will be an interesting decade – and if you want to be kept up to date with what is happening in the Ashford (and the wider UK) housing market – follow me and this blog to read similar articles.

How Many Ashford Homeowners Have Paid Their Mortgage Off?

274 v1

The Government’s Annual Housing Survey is 50 years old this year.  It has taken a snap shot of the UK’s property market every year since 1969 and in the recently published report for 2018, it wasn’t a surprise that owner occupation is still the most predominant tenure, yet now more people own their home without a mortgage rather than having a mortgage as the number people buying their first home (more often than not with a mortgage) has declined since the Millennium.  The report also unsurprisingly shows homeowners (mortgaged and owned outright) are on average older than renters and, between the homeowners themselves, those who are mortgage-free are older than those with a mortgage.

Looking at the most recent of data for Ashford, I wanted to see how we compared to the national picture. Therefore, focusing on the main 4 tenures of owned outright, owned with a mortgage, social housing (i.e. Council Housing and Housing Association) and private rented, this is what I found out:

Capture

Looking at the stats, you can see that homeownership in the Ashford council area as a whole (both owned and owned with a mortgage combined) is lower in the 25 to 34 year old age range compared to 35 to 49 year olds, yet roll the clock back to the 1980s and the opposite was the case.

So how many local homeowners have paid off their
mortgage?

45.6% of Ashford homeowners are mortgage free, yet of the 10,275 households that are owned by 50 to 64 year olds in Ashford, 54.3% of those people still have a mortgage.

As most people bought their first house in their early to mid-20’s back in the 1980’s, this shows that a lot of Ashford people must have re-mortgaged in the past and extended their borrowings (otherwise they would have now paid that mortgage off).

The other thing that concerns me is the 6.4% of the Ashford homeowners over 75 years old that have a mortgage.

If you amalgamate the national historic ranges going back to 1977 (see graph below and note the age bands are slightly different to the recent local stats because they were carried out under different government departments), you will see the number of people who own a property with a mortgage has been dropping since the Millennium, yet nationally the number of people who own a property has remained roughly the same, even with the growth of the private rented sector.

image001

Industry reports suggest in the next ten years that number of retired mortgagees will increase, with nearly 1 in 5 homeowners will be still paying off a mortgage in retirement. One of the reasons behind that will be the legacy of interest-only loans and delayed first-time buying as we become more and more like Germany in our home-ownership model: where people naturally rent a home until their 50’s and then buy when they inherit money from their parents.

In the meantime, demand for Ashford rental properties will only continue to increase … so good news for Ashford Buy to Let landlords and, indirectly, Ashford’s homeowners as well!

30.7% of all Ashford Properties Were Bought Without a Mortgage in the Last 7 Years

For most Ashford people, a mortgage is the only viable way to buy a property. However, for some, especially Ashford homeowners who have paid off their mortgage or Ashford buy to let landlords, many have the option to pay exclusively with cash.

So, the question is, should you use all your cash, or could a mortgage be a more suitable option?

Well, looking at the numbers locally…

4,418 of the 14,412 property sales in the last 7 years in Ashford were made without a mortgage (30.7%)

Interesting when compared with the national average of 31.9% cash purchases over the last seven years. Next, I wanted to see that cash percentage figure split down by years. As you can see from the graph, this level of cash purchases vs mortgage purchases has remained reasonably constant over those seven years…

30.7% of All Ashford Properties were Bought Without a Mortgage in the Last 7 Years

If you are going to opt for a mortgage, the next question has to be whether you should fix the rate or have a variable rate mortgage. In the last Quarter, 90.57% of people that took out a mortgage, had a fixed rate mortgage at an average interest rate of 2.27%, although what did surprise me was only 65.79% of the £1.429 trillion of mortgages outstanding in the whole of the UK were on a fixed rate. The level of mortgage debt compared to the value of the home itself (referred to as the Loan to Value rate – LTV) was interesting, as 61.9% of people with a mortgage have a LTV of less than 75%. Although, one number that did jump out at me was only 4.33% of mortgages are 90% or higher LTV – meaning if we do have another property slump, the number of mortgagees in negative equity will be relatively small.

Next, looking at the actual number of properties sold, it can be clearly seen the number of house sales has dipped in 2018…

30.7% of All Ashford Properties were Bought Without a Mortgage in the Last 7 Years

So those are the numbers … let us have a look at the pros and cons of taking a mortgage, with specific focus on Ashford buy to let landlords.

Taking a mortgage helps a landlord increase their investment across more properties to maximise the return, rather than putting everything into one Ashford buy to let property. This will enable the landlord to have rent coming from other properties if there a void in one property in the portfolio. The flip side of the coin is that there is a mortgage to pay for, whether the property is let or not.

The other great motivation of taking a mortgage is that landlords can offset the mortgage interest against the rental income, although that will only be at the basic rate of tax by 2021 due the recent tax changes. Banks and Building Societies will typically want at least a 25% deposit (meaning Ashford landlords can only borrow up to 75%) and will assess the borrowing level based on the rental income covering the mortgage interest by a definite margin of 125%.

A lot will depend on what you, as a Ashford landlord, hope to attain from your buy to let investment and how relaxed you would feel in making the mortgage payments yourself when there is a void (interestingly, Direct Line calculated a few months ago that voids cost UK landlords around £3bn a year or an average of £1000 per property per year). You also have to consider that interest rates could also increase, which would eat into your profit … although that can be mitigated with fixing your interest rate (as discussed above).

So, with everything that is happening in the world, does it make sense to buy rental properties? Now we help many new and existing landlords work out their budgets, taking into account other costs such as agent’s fees, finance, maintenance and voids in tenancy.

The bottom line is, as a country, we aren’t building enough property, so demand will always outstrip supply in the medium to long term, meaning property values will keep rising in the medium to long term. That’s not to say property values might still fall back in the short term, as they did in 2009 Credit Crunch, the 1988 Dual MIRAS crash, the recession of the early 1980’s, the 1974 Oil Crisis, the early 1930’s Great Depression … yet every time they have bounced back with vigour. Therefore, it makes sense to focus on getting the best property that will have continuing appeal and strong tenant demand.

To conclude, buy to let should be tackled as a medium to long term investment … because the wisest landlords do not assess the success of their buy to let investment over just a few years but over decades!

Ashford’s 2,558 Mortgage Time-Bombs?

 

According to my research, of the 26,991 homes in Ashford, 11,841 of those properties are mortgaged. Of those mortgaged properties 87.3% are owner-occupied and the rest are buy to let investments owned by landlords… but,  this is the concerning part – 2,558 of those mortgages are interest only loans.

My research also shows that, between 2017 and 2022, 31 of those interest only mortgages will mature each year, with 8 having either a shortfall or no way of paying the mortgage off. Now that may not sound a lot, but each one is someone’s home potentially at risk.

Repossession by Lender

Anyone in such a situation faces an enormous problem as their home is at risk of repossession if they do not have some means to repay their mortgage at the end of the term (the typical term being 25 to 35 years). Lenders 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 anyone coming to them for a new loan.

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

Mortgage Shortfall

Historically plenty of Ashford homeowners bought an endowment policy to run alongside their interest only mortgage. However, the endowment policies were stock market linked investment plans and with the stock market’s poor performance 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 attached to pay the capital sum off at the end of the term. It was a case of ‘we’ll sort that nearer the time’ as, after all, 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%.

Extending the Term

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

Ashford people who took out interest only mortgages years ago and have no strategy to pay back the capital face a ticking time bomb. It would either be a choice of hastily scraping the money together to repay their mortgage, selling their property or facing the possibility of repossession (which to be frank is a very disturbing prospect). I would stress to existing and future homeowners needing mortgage finance to go into them with eyes open.

Whilst the banks and building societies could do more to help those in difficulty, buyers also have responsibility to ensure they fully understand what they are committing to. It’s not just the monthly mortgage repayments, but the whole picture in both the short and long term that must be considered.

Many reading my blog may ask why I say these things however I want to share my thoughts and opinions on the real issues affecting the Ashford property market, warts and all. If you want fluffy clouds and rose-tinted glasses – then my articles are perhaps not for you. However, if you want the real story about the local property market – good, bad or indifferent, then you may find reading my blog worthwhile.

For more thoughts on the Ashford Property Market – visit Ashford Property News here.

The Ashford Property Market, The Beatles, Sweden and the 50 year mortgage

 

50 years ago, in 1967, the first human heart transplant was performed in South Africa by Dr Christiaan Barnard. In the same year Sweden switched from driving on the left to the right-hand side of the road, the average value of an Ashford property was £4,209, interest rates were at 5.5%, and The Beatles released their famous album, Sergeant Pepper – but what the hell has all that to do with the Ashford property market today?? Quite a lot actually, so – with my CD Player turned up to 11 – let me explain, my friends!

I have been doing some research on the current attitude of Ashford 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 Ashford property goes up for starter homes and that enables other Ashford homeowners to move up the property ladder.

First-time buyers are the life blood of a 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 Ashford property is currently standing at £317,389 with 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.

Longer Term Loans

Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 or 35 years in length with the ‘Bank of Mum and Dad’ helping with the deposit (Beatles Sgt Pepper song – “With a Little Help from My Friends”). Now, some high street banks are offering mortgage terms of 40 years. This means first-time buyers could be paying until their mid-60’s – I can hear another great track from the same album “When I’m Sixty-Four” ringing in my ears! 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, Ashford property prices have continued to rise faster than wages, with first-time buyers tending to look for larger loans. If this trend continues, the only way monthly repayments can remain reasonable is by increasing the term of the loan.

However, some commentators have raised concerns that mortgage companies lending money over such a long term threatens 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 Ashford over the last 50 years, there have been bubbles. First-time buyers should take heart however since, as a country, the market has always recovered from it a few years later.

Interest Rates

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

Before I go, a final thought for property buyers in Sweden, the land of Volvo, Abba and Ikea. 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 and flat-pack-furniture loving Swedish friends’ average mortgage length is  a staggering 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 a mere 105 years. Either way, that’s a lot of Money, Money, Money (Sorry!) to pay back!

Now I will leave you in peace as I listen to the 1980’s Madness song ‘Our House’. My apologies to all Beatles and Abba fans in Ashford – a bit of light hearted fun albeit on a serious topic.

Taylors Residential Lettings Limited, Company no. 6002742, Regd Office: Suite 1, Invicta Business Centre, Monument Way, Ashford TN24 0HB