Last
Sunday morning I was reading the papers and came across an article in the
Financial Times. It was talking about the Government’s ambitious Housing Scheme
announced in the Autumn Budget and how it will address the lack of new homes
being to help the first time buyers market. Other touch points were how the
affordability of homes was getting further out of reach for many and how the
stringent mortgage rules brought in 3-4 years ago have added to the plight of
the aspirational home owner. My thoughts were then directed towards those
existing homeowners who can’t move and that they face the possibility of being
caught in a housing trap.
Back in
the early 2000’s, between a million and 1.3 million people moved each year in
England and Wales, peaking at 1,335,166 home-moves (i.e. house sales) in 2002.
However, the ‘credit crunch’ hit in 2008 and the number of house sales fell to
642,111 in 2009. Activity has increased steadily since albeit to a more
‘respectable 895,674 properties by 2017. This means there are around 440,000
fewer house sales (house-moves) each year compared to the turn of the
millennium. The question is why are there fewer house moves?
The
answer to this lies in history. From the late 1960’s to the early 1980’s the
Economy was marred by high inflation. Governments of the time raised interest
rates in response to curb inflation and get it under control. Higher interest
rates meant the householder’s monthly mortgage payments were higher, meaning
mortgages took a large proportion of the homeowner’s household budget. Although
it appeared homeowners had a millstone around their necks, high inflation
eroded mortgage debt, thus increasing their spending power in real terms. Wages
had increased significantly during this period to keep up with inflation
enabling home owners to obtain bigger mortgages. This allowed them to upgrade
from the two bedroom flat to the three bedroom semi and then onto the four
bedroom detached. Fundamentally, the erosion of mortgage debt meant higher
levels of equity could be relapsed enabling home owners to move up the ladder
quicker.
See the graph below that illustrates the
slowing trend over the past 10 years.
(Source- Office of National Statistics)
Moving
into the 1990’s and the Millennium, interest rates and inflation fell to all
time historic lows, meaning homeowners had even more equity to release. The
boom in UK house prices from the period 1997 to 2007 was astonishing. Banks and
building Societies slackened their lending criteria to a degree that is now
regarded as grossly irresponsible in today’s market place. The financial
markets were awash with money; the cruel irony was that homeowners were biting
off more than they could chew. This had a significant impact on the housing
market and the economy in the coming decade.
The
Bank of England only recently raised rates to though they are still at record
low levels in their 400 year history. Based on this, it would be a fair
assumption that the number of people moving would be at an all time high. In reality,
the opposite is true, below are the main factors.
(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 prices compared to wages
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, 12,584 properties sold in the London Borough of Enfield Council area and
last year, in 2017 only 6,127 properties sold – a drop of 51.3 %.
Therefore,
we have just over 6,450 less households moving in the Hampstead and surrounding
Council area each year. Now of that number, it is recognised throughout the
property industry that some 80% of these homeowners are encumbered. That means
there are around 5,160 mortgaged households a year (80% of that figure) in the
Hampstead and surrounding council area that would have moved a decade ago, but
wont this year.
A
recent report by the Council of Mortgage Lenders (CML) has shed some light on
this and I have broken this down into four categories.
So, of
those estimated 5,160 annual Hampstead (and surrounding area) non-movers, based
on that CML report –
1.
There are around 2,600 households a year that aren’t moving due to a fall in the
number of mortgaged owner occupiers (i.e. demographics).
2. Approximately 750 households a year are of
the older generation mortgaged owner occupiers. Older homeowners are less
inclined to move.
3. 500
households of Hampstead (and surrounding area) annual non-movers will mirror
the rising number of high equity owner occupiers. Now cash buyers.
4. The
remaining 810 or so mortgaged homeowners that are unable to move because of the
restrictive lending criteria introduced back in 2014 for those who need to
obtain larger mortgages – especially true in Hampstead where house prices are 5
times that of the London average.
In the main, reasons of lifestyle and
demographics are factors the Government and Bank of England have little
influence over. However, it’s the final category of people that could be
helped. If average values were lower, it would decrease each step of the
property ladder.
In
turn, this would enable the upgrading trends that we saw a generation ago,
where the affordability gap is narrowed and people can move to more desirable
homes and or areas.
Whilst
the criteria has changed for those requiring bigger loans has somewhat subdued
buyer activity, the past culture of banks and building societies has changed
the landscape for the foreseeable future.
