2015 is proving to be an interesting year so far with some areas looking like they are exceeding property price forecasts (which were 3% growth year on year) while others are seeing growth either grind to a halt or prices fall.
The London market, which has been the biggest driver behind property prices going up in the last few years, grew by 16% in 2014 – but this growth was mainly achieved in the first half of the year.
Since the summer, tighter rules on lending has meant it’s been tougher for buyers to borrow, so the number of buyers has slowed.
Perhaps more importantly, there is a real sense of a ‘culture change’ on the attitude to property price rises being a good thing. Many now think it’s not, and as such just aren’t getting into the ‘race’ to buy we saw in 2013/14 when prices started to rapidly recover from the falls experienced from 2007 to 2012.
From a rental perspective, the market information we hear often doesn’t reflect what’s really happening. This is mainly because there is a lot of effort at the moment to influence the next government’s policies by various housing groups and organisations. As such, they are often using whatever data they can find to persuade MPs that rents are ‘spiralling out of control’ and need to be restricted.
In reality, rents rise very little and, from one month to the next, are static. Official data from the Office on National Statics shows, over the last 10 years, on average rents have increased by just 2% a year, which is less than the general cost of living (inflation).
So what’s happening in Lincoln and who is winning and losing in our property market today?
Latest Land Registry data shows the average property price in Lincolnshire at the end of the year was £128,182. This means that versus the previous December in 2013, prices were +4% higher.
However, if you bought in 2007/8, the price of the average property in the area was £146,000 – so today, even though up year on year, over time a property is actually 12% less, seven years on!
The main winners in the Lincoln property market are those that bought either before 2004 when we saw 30% annual price rises, allowing existing homeowners to survive the falls we saw (up to 20%) during the credit crunch.
The next winners are those who bought after the crash, since 2009/10 when prices appear to have pretty much ‘bottomed out’. Since this time homeowners will have seen small rises of around 5% in the Lincoln area.
Unfortunately though, there are losers and that’s those who bought between 2005 and 2007/8. Homeowners who bought then will probably see the value of their home fall by around 12% – maybe more or less.
Although this isn’t a problem for many (50% typically own their property without a mortgage) for those who bought with a 5% or 10% deposit, may well mean being in negative equity.
For example, if you bought a property for £100,000 with a 5% deposit, your mortgage would be £95,000 with a property worth less: £88,000. So the level of negative equity is £95,000-£88,000 = -£7,000.
For the property to be worth more than this, owners need to see further rises of 8% for their property to be worth as much as the mortgage. At current rates, this would take a further two years.
In the rental market, there are winners and losers too. Most tenants who have rented since 2008 are definitely winners.
According to the Belvoir Lettings Index, rents in Lincoln are currently £618 per month, which is about 12% higher than they were seven years ago.
Considering that inflation during this time has risen by 21% however, it means rents are approximately £47 per month less than they would be if they had kept in line with general cost of living rises.
If tenants are winning, some landlords will be losing – in theory. Landlord rental income is effectively their ‘wages’ to buy goods and services, so if rents are not rising in line with inflation, then landlords, in real terms are earning less.
However, there are some cracking mortgage rates around just now which could help landlords reduce their costs, so they don’t lose out financially, and if this can be achieved, then actually renting is one of the few areas of ‘win win’ in the property market.
This column was first published in issue 18 of Lincolnshire Business magazine. Read the full issue here.