Mid Sussex Home Owners Are Only Moving Every 15 Years (Part 1)

As I mentioned in a previous article, the average house price in Mid Sussex is 12.46 times the average annual Mid Sussex salary. This is higher than the last peak of 2008, when the ratio was 9.98. A number of City commentators anticipated that in the ambiguity that trailed the Brexit vote, UK (and hence Mid Sussex) property prices might drop like a stone. The point is – they haven’t.

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

Even though we are not anywhere near the post credit crunch (2008 and 2009) low levels of property sales, the torpor of the Mid Sussex housing market following the 2016 Brexit vote has seen the number of property sales in Mid Sussex 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 Mid Sussex 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 Mid Sussex residents moving home has slumped to once every 15 years.

19.5% Drop in Mid Sussex 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 Burgess Hill.  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 Mid Sussex!).  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 householder’s 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 may remember the 125% loan to value Northern Rock Mortgages. 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? All these four points have come together to mean less people are moving, but by how many?

In 2007, 3,454 properties sold in the Mid Sussex District Council area and last year, in 2016 only 2,779 properties sold – a drop of 19.54%.

Therefore, we have just over 675 less households moving in the Mid Sussex 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 554 mortgaged households a year (fourth fifths of the figure of 675) in the Mid Sussex 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 554 annual Mid Sussex non-movers, based on that CML report.

1.       There are around 199 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 77 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 33 households of our Mid Sussex 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 244 Mid Sussex 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.

Whilst the first three points above (demographics, lifestyle and high price growth) 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?)

If Mid Sussex 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 like the 125% Northern Rock ones that were available in the mid 2000’s? Well we all know what happened with Northern Rock!