Last week’s article really caused a stir. In it we looked at a young family member of mine who was arguing the case that millennials (those born after 1985) were suffering on the back of the older generation in Rotherham.
My family member argued that the older generation had seen the benefit of the cumulative value of Rotherham properties significantly increasing over the last 25/30 years (I calculated as £2.09bn since 1990). In addition many of the older generation (the baby boomers) had fantastic pensions, which meant the younger generation were priced out of the Rotherham housing market.
Make sure you read that article here!
My rebuttal was that should be no surprise though that the older members of our society hold considerably more of our country’s wealth than the younger generation. This wealth is accrued and saved across someone’s life, and reaches it’s peak about the time of retirement. If we are to comprehend differing wealth levels between generations we need to compare ‘apples with apples’. It is much more important to track the wealth held by different generations at the same age – for example, what was ‘real’ wealth of the 30-something couple in the 1960s compared to a 30-something couple say in the 1980s or 2010s?
Looking back over the last 120 years at various economic studies, this growth in wealth from one generation to the next (at the age range), only happened over a 30 year period of between 1960 and late 1980s.
Since the 1990s, wealth has not improved across the generations, in the same age range.
So could it be all about a generation that has saved?
The fact is, in the last 10 years, UK households have saved on average 7.5% to 8% of the household income into savings accounts. Compare this to an average of 6% to 7% in the late 1960s and 1970s.
The baby boomers haven’t been actively squirreling away their cash for the last 30 or 40 years in savings accounts to accumulate their wealth. Most of their gains have been passive, lucky bonuses gained on the back of things out of their control (unanticipated and massive property value rises or people living longer making final salary pensions more valuable) – it’s not their fault!
…and herein lies the issue! It is assumed that these Millennials aren’t buying property in the same numbers like the older generation did in the past (because most of their wealth has come from house price inflation). The millennials have often been described as ‘Generation Rent’, because they rent as opposed to buying property! We are told they simply can’t buy.
Home ownership is an affordable option
However, when Rotherham mortgage payments are measured against monthly income, home ownership is affordable by historic standards because mortgage rates are currently so low. As you can see, the ratio of average house price to average earnings in Rotherham hasn’t vastly changed over the last decade:
- 2008 average house price to average earnings of a single person in Rotherham 5.42 to 1
- 2017 average house price to average earnings of a single person in Rotherham 5.39 to 1
(i.e. in 2008, the average house price in Rotherham was 5.42 times more than the average person’s salary in Rotherham and this has slightly dropped to 5.39 in 2017 – and all this off the property boom of the early 2010s)
95% first-time buyer mortgages
95% first-time buyer mortgages were reintroduced in 2010. The average interest rate charged for those 95% FTB mortgages has slowly dropped from around 5.5% in 2009 to the current 4% rate. Back in the 1980s/1990s mortgage interest rates were between 8% and 10%, and one time in the early 1990s, reached 15%!
The main difference between the two periods was the absolute borrowing relative to income is greater now than in the 1980s. They call this the ‘mortgage to joint household income ratio’. In the 1980s the mortgage was between 1.8x to 2x joint income; today it is 3.4x to 3.6x salary.
The simple fact is, in the majority of cases, it is still cheaper for a first-time buyer to buy a property with a 95% mortgage, than it is rent it. The barrier for these millennials has to be finding the 5% mortgage deposit.
43.2% of Rotherham millennials do own their own home
Millennials make up 17,194 households in our area (or 15.8% of all households). However, behind the doom and gloom, surprisingly, 43.2% did save up the 5% deposit and do in fact own their own home (that surprised you didn’t it!)
Nonetheless, the majority of millennials in the area do still rent from a landlord (5,692 households to be exact).
Yet, they have a choice.
Buckle down and do what their parents did and go without the nice things in life for a couple of years (i.e. the holidays, out on the town two times a week, the annual upgraded mobile phones, the £100 a month Satellite packages) and save for a 5% mortgage deposit… or live in a lovely rented house or apartment (because they are nowadays), without any maintenance bills and live a life with no intention of buying (secretly hoping their parents don’t spend all their inheritance so they can buy a property later in life). It’s much more similar to central Europe – renting doesn’t have a stigma anymore like it did in the 1960s/70s.
Neither decision is right or wrong – although it is still a choice. Until millennials decide to change their choices the country’s private rental sector will continue to grow for the next 30 years. The result? Happy tenants and happy landlords.
I hope you’ve enjoyed my insight into the Rotherham property market = feel free to follow me on Twitter or Facebook for all the latest property news in Rotherham, South Yorkshire and across the UK.
Recently I was having a chat with a second cousin at a big family get-together. The last time I saw them their children were in their early teens. Now their children are all grown up, have partners, dogs and children. Time flies!
Over a glass of lemonade I talked with my cousin and a couple of their children mentioning the times when interest rates were at 15%, there was a three day week, 20% inflation and the threat of nuclear annihilation! Foolishly, I said with all the opportunities that youngsters have today that they have never had it so good!
Trust one of my cousin’s children to have gained some financial/economics qualifications before attending law school. I received some pushback – they debated with me the genuine economic predicament faced by millenials and argued how a combination of student debt, unemployment, global proliferation, EU migration and rising house values is reducing the salaries and outlook of masses of the UK’s younger generation. They claimed that this has caused an unparalleled disparity of wealth between the generations.
So of course I asked why that was.
The argument: it’s millenials who are paying the price!
They said millennials were paying the price for the UK’s most spectacular bookkeeping catastrophe to date (bigger than the Bank bailout after the Credit Crunch).
Back in the 1950s and 1960s nobody predicted us Brit’s would live as long as we do today and in such abundant numbers. The OAP pensions that were promised in the past (be that Government State Pension or Company Final Salary Schemes) which appeared to be nothing fancy at the time, are now burdensomely over-lavish, and that is hurting the millennials of today and will do so for years to come.
Bringing it back to property, this ‘soon-to-be’ lawyer’s argument was that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices between the 1970s and early 2000s. Add to that their decent pensions, meaning cumulatively, their wealth has grown exponentially through no skill of their own.
This disparity of wealth between the older and younger generations could have unparalleled consequences for the living standards of younger millennials…
So, do we actually have a problem?
Well Rotherham Property Blog readers, you know that I like a challenge!
I can’t disagree with some of what the younger family member said, but there are always two sides to every story, so I thought I would do some homework on the matter.
Since 1990, the average value of a property in Rotherham has risen from £57,000 to its current level of £138,700. As there are a total of 25,626 homeowners aged over 50 in Rotherham – that means there has been a £2.09bn windfall for those Rotherham homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000s.
I must admit that the growth in property values in the 1990s and 2000s has certainly helped many of Rotherham’s baby boomers.
The figures do appear to put into reverse gear the perceived wisdom that each generation gets wealthier than the previous one… and so with all this wealth, the figures do back up the youngsters argument that millennials are being priced out of home ownership.
Or are they?
Are millennials being priced out of home ownership?
Next week I’ll post my next blog carrying on this discussion.
In the meantime, feel free to follow me on Twitter or Facebook for all the latest property news in Rotherham and South Yorkshire.
It is 2017 which means that it’s 50 years since Sweden switched from driving on the left-hand side to the right-hand side of the road and the Beatles released one of my favourite albums.
Yes, this year is the 50th anniversary of Sgt Pepper’s Lonely Hearts Club Band. Back in 1967 the average value of a Rotherham property was £1,840 and the UK’s interest rates were at 5.5%!
What can the Beatles tell us about the property market here in Rotherham…?!
Quite a lot actually… so with my music turned up loud let me explain!
The Current Attitudes of Rotherham First Time Buyers
I have been doing some research on the current attitude of Rotherham 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 (which is good news for landlords). If they buy, demand for Rotherham property goes up for starter homes and that enables other homeowners to move up the property ladder.
First-time buyers are the lifeblood of the 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 a Rotherham property is currently standing at £138,728 and 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.
Things aren’t “Getting Better”! Over the last few years, it has been commonplace for first-time buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’ have been helping with the deposit – unfortunately, the only way for many people to get on the housing ladder is “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-60s – perhaps the most apt Beatles song for these first-time-buyers is “When I’m Sixty-Four”!
So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970s. 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, Rotherham property prices have continued to rise more than wages, therefore, first-time buyers are looking for bigger loans. If this development continues, the only way repayments can remain reasonable is by increasing the term of the loan.
What if the housing price bubble bursts?
However, some are arguing that if mortgage companies lend over the long term, they threaten leaving some first-time buyers with a generation of debt stuck “Fixing a Hole” if the house price bubble bursts.
It’s not all bad news thankfully.
Interestingly, when I looked at what had happened to average property values in Rotherham over the last 50 years, there have been bubbles that have burst. Fortunately, first-time buyers can take heart because the UK has always recovered from it within a few years.
“She’s Leaving Home” may still be the song that our first-time-buyers get to sing.
What if interest rates rise?
The current rate of 0.25% is at a 300-year low. Mortgages will never be cheaper.
I would however, seriously consider fixing the rate to cushion any future potential interest rate rises (since they can only go in one direction when they do change). If Rotherham first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!
“I get the Beatles references, but what does this have to do with Sweden?”
Before I go, a final thought for property buyers in Sweden.
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.
No, our Volvo-loving Swedish friend’s average mortgage length is 140 years – this is not a typo, they really do go “On and On and On”! The new limits from regulators reduced the maximum term of a Swedish mortgage to 105 years – a significant decrease for the Swedes but still a massive mortgage length. You could say that that’s a lot of “Money, Money, Money” to pay back!
My apologies to all the Beatles and Abba fans in Rotherham – a bit of light hearted fun albeit on serious topic.
For discussion of many more serious topics (and light hearted fun), head over to my Facebook or Twitter pages and get all the latest information about the Rotherham property market directly to your news feed!
Over the last few months I’ve been predicting that the rate of rental inflation (i.e. how much rents are rising by) had been easing over the last year. At the same time, I made the claim that in some parts of the UK rents had actually dropped for the first time in over eight years.
Recent research is beginning to show that I was correct – but will this continue into the future?
First, let’s examine what’s been happening in Rotherham.
Rents for new tenancies here only grew by 0.8% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Rotherham you can see that there has been a lot of variation over the last few years:
- 2016 – Rental Inflation was 4.8%
- 2015 – Rental Inflation was 2.8%
- 2014 – Rental Inflation was -3.4%
The reason behind this change depends on which side of the demand/supply equation you are looking from.
The Tenant’s Perspective
On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent.
As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (statistic from Denton House).
The Landlord’s Perspective
On the supply side of the equation (from the landlords point of view) Brexit also creates uncertainty.
However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation.
A slight softening of Rotherham property prices has compounded this. Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.
The lead up to the General Election in May didn’t help – after all people don’t like doubt and uncertainty.
So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.
The Underlying Problem
So what about the future?
Whether we end up with a ‘hard’ or ‘soft’ Brexit in these negotiations with the EU the simple fact is, we aren’t building enough properties for us to live in. Both in Rotherham, Yorkshire and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics:
For the more visual readers here’s a bar chart I put together to show this data:
Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Rotherham (and wider afield) any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up!
The fact is that I see this as a short-term blip and rents will continue to grow in the coming years.
With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.
As always you can get in touch with me via Facebook, Twitter or sending a message through the blog. I’m happy to give any insights and advice I may have about buying, renting and letting.
Should you buy or rent a house? Buying your own home can be expensive but could save you money over the years. Renting a property through a letting agent or private landlord offers less autonomy to live by your own rules, with more flexibility if you need to move.
Yet there is third way that many people seem to forget and it plays a very important role in the housing of Rotherham people.
Collectively known as social housing, it is affordable housing, which is let by the council or a housing association to those considered to be in specific need for a rental price below those characteristic in the private rental market.
All you need to know about Rotherham’s social housing
In Rotherham there are…
- 12,034 social housing households – that’s 26.21% of all the households in Rotherham.
- 6,135 families in the Rotherham Metropolitan Borough Council area on their waiting list
The latter figure is similar to the early 1990s. However, the numbers peaked in 2012, when it stood at 27,103 families. This means that there’s actually been a drop of 77.3% in the last four years.
Nevertheless, this doesn’t necessarily mean that more families are being supplied with their own council house or housing association property.
Six years ago, Westminster gave local authorities the authority to limit entitlement for social housing, quite conspicuously dismissing those that did not have an association or link to the locality.
Interestingly, the rents in the social rented segment have also been growing at a faster rate than they have for private tenants. In our area, the average rent in 1998 for a council house/housing association property was £123.85 a month, whilst today its £323.96. That’s a rise of 162% in 19 years.
Unfortunately the stats for private renting only go back to 2005. For a fair comparison we’ll focus on the last 12 years. Over this time period, private rents have increased nationally by a net figure of 19.7%, whilst rents for social housing have increased by 59.1%. This is actually above inflation rates for the same period.
So what does this all mean for the homeowners, landlords and tenants of Rotherham?
Rents in the private rental sector in Rotherham will increase sharply during the next five years.
Even though the council house waiting list has decreased, the number of new council and housing association properties being built is at a 70 year low. The government crusade against buy-to-let landlords, together with the increased taxation and the banning of tenant fees to agents will restrict the supply of private rental property, which in turn, using simple supply and demand economics, will mean private rents will rise. As a result, I’d argue that buy-to-let investment is a good choice – irrespective of the increased fees and taxation laid at the door of landlords.
This will also meant that property values will remain strong and stable as the number of people moving to a new house (and selling their old property) will continue to remain restricted. As a result, thanks to limited supply and choice, buyers will have to pay decent money for any property they wish to buy.
All in all, there are interesting times ahead for the Rotherham property market!
Don’t miss out on all the action. I’ll be following every little bit of moment in the market here on the blog, as well as on Facebook or Twitter. Please drop me a message if you have any questions.
I received a very interesting letter the other day from a Rotherham resident who was retired and mortgage free. He stated how unaffordable Rotherham’s rising property prices were and that he worried how the younger generation would ever afford to buy.
He went on to ask if it was right for landlords to make money on the inability of others to buy property of their own. He wondered whether landlords are actually denying the younger generation the ability to buy their own home by buying buy-to-let properties.
Whilst doing my research for my many blog posts on the local property market in Rotherham, I know that a third of 25 to 30 year olds still live at home. It’s no wonder people are kicking out against buy-to-let landlords – they are the greedy bad people who are cashing in on a social woe! In fact, most people believe the high increases in Rotherham’s (and across the country) house prices are the very reason owning a home is outside the grasp of these younger would-be property owners.
However, the numbers tell a different story.
Average Age of First-Time-Buyers
Looking at the age of first time buyers since 1990, the statistics could be seen to pour cold water on the idea that younger people are being priced out of the housing market. In 1990, when data was first published, the average age of a first time buyer was 33, today it’s 31
Nevertheless, the average age doesn’t tell the whole story. In the early 1990’s, 26.7% of first-time buyers were under 25, while in the last five years just 14.9% were. In the early 1990’s, four out of ten first time buyers were 25 to 34 years of age and now its six out of ten first time buyers.
House Price-to-Earnings Ratio
There are also indications of how unaffordable housing is, the house price-to-earnings ratio has almost doubled for first-time buyers in the past 30 years.
In 1983, the average Rotherham home cost a first-time buyer (or buyers in the case of joint mortgages) the equivalent of 2.6 times their total annual earnings – today that has escalated to 3.7 times their income (although let’s not forget, it was at 4.6 times their income for Rotherham first-time-buyers in 2007).
Percentage of Wages
Again, those figures don’t tell the whole story.
Back in 1983, the mortgage payments as percentage of mean take home pay for a Rotherham first time buyer was 27.6%. In 1989, that had risen to 57.6%. However, today it’s 23.0%… no, that’s not a typo! It’s now only 23.0%!
So, to answer the gentleman’s questions about the younger generation being unable to afford a house it isn’t all to do with affordability, as the numbers show.
And what of the landlords?
Some say the government should sort the housing problem out themselves, but according to my calculations, £18bn a year would need to be spent for the next 20 or so years to meet current demand for households. That would be the equivalent of raising income tax by 4p in the pound. I don’t think UK tax payers would swallow that.
So, if the Government haven’t got the money… who else will house these people?
Private Sector Landlords! Thankfully they have taken up the slack over the last 15 years.
Some say there is a tendency to equate property ownership with national prosperity, but this isn’t necessarily the case.
The youngsters of Rotherham are buying houses, but buying later in life. Also, many Rotherham youngsters are actively choosing to rent for the long term, as it gives them flexibility – something society seems to crave more than ever.
As ever, I’m keen to hear your thoughts. Send me a Tweet or a Facebook message.
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