Looking at the newspapers with their doom and gloom headlines, you would think that the Crediton property market (and the British property market) would be on its knees.
Yet ring an estate agent for a viewing or free valuation, and if you can get an appointment within a week you are doing well!
British properties continue to sell in good numbers.
In July and August 2022, sales have been agreed on an average of 25,476 UK properties per week.
Interesting when compared to the averages of 27,351 sales agreed per week in 2021 and 26,382 sales agreed per week, year to date in 2022.
So why is the Crediton property market defying all expectations?
It is because there is an absolute shortage of properties to buy on the books of Crediton estate agents, meaning Crediton house prices are being kept buoyant (as demand exceeds supply).
Today, there are 29 properties available to buy in Crediton. Roll the clock back to October 2007, the month before the last house price crash, and it was 109.
That’s 73% fewer properties to buy today in Crediton than the month before the property crash.
Notwithstanding suggestions that the Bank of England’s higher interest rates would peter out British house price growth, the continued limited supply of properties coming onto the market has helped Crediton house prices climb.
Crediton house prices are 13.7% higher today than a year ago.
Nevertheless, there is evidence that the insane demand for property has started to ease, and supply is increasing, which means that the direction of the Crediton housing market will begin to change in the coming months.
This can be seen in several ways.
Back in January and February (2022), 8,094 UK properties per week were reducing their asking prices, whilst this July and August that had risen to an average of 13,115 UK properties per week. This is significant as some ‘optimistic’ homeowners who placed their properties on the market in the spring and early summer have had to reduce their ‘optimistic’ asking prices to attract buyers.
Also, the number of UK house sales falling through (i.e., when the sale is agreed yet the sale falls through before the legal paperwork is completed) is starting to creep upwards from an average of 5,558 properties a week in the spring of 2022 to 6,854 per week in July and August 2022.
Crediton house prices have risen over recent times; the latest figures are based on what was selling in the late winter/early spring of this year and subsequently completing the sale in the early summer.
The prices obtained by the estate agents on properties achieving a sale in Crediton today (i.e., in the autumn of 2022) are slightly lower than what was obtained nine months ago. This means the house statistics published in early spring 2023 will slightly reduce. Nothing to worry about – I want to give you a heads up and not to be concerned. The simple fact is…
We are returning to a more normal Crediton housing market this Autumn, compared to the crazy last 30 months since the end of lockdown one.
With UK inflation standing at 9.9%, this brings an interesting scenario for Crediton property values.
Reducing ‘real’ wages will hit first-time buyers and existing homeowners’ disposable income, while the same high inflation will make the Bank of England increase interest rates.
These things will significantly reduce homebuyers’ capacity to afford their mortgages as the fewer people who can take out a mortgage the fewer people will buy homes.
Today, the Bank of England raised it’s base rate half a percent to 2.25%, with forecasts suggesting it could end the year between 2.75% and 3%. Yet let us not forget the long-term average over the last 50 years has been between 7.1% and 7.2%, and many mature Crediton homeowners will remember Bank of England Base Rates of 17% in 1979, so these sorts of increases are still off a low base.
During these autumn months though, the lack of properties on the market and available to buy still support Crediton house prices. The newspapers compete for attention and use clickbait titles to generate more interest in the publications.
The simple fact is that unless something seismically happens in the world to change things materially, the Crediton and British property markets will continue to harden slowly and will face some different challenges compared to the last 30 months, but fundamentally Crediton house prices will remain broadly neutral over the next 12 to 18 months.
These are my thoughts – what are yours? Comment below – I’d love to hear from you!
“An apartment is over £100 grand and a flat under £100k!”, said my friend.
Joking aside, there is no difference, call it what you will, the humble apartment/flat has served Crediton well over the years. The average sale price of an apartment in the town in 2021 was £154,020, making it an excellent first-time buyer purchase and buy-to-let investment.
In this article, I want to look at the apartment/flat in Crediton and how it could solve the county’s housing crisis.
The word ‘Apartment’ derives from the French word ‘Appartement’, which comes from the Italian form of the word, ‘Appartamento’. The core of that Italian word ‘appartare’ means ‘to separate’, as in ‘separate a building’.
The word comes from Roman times when housing costs were so expensive within the city walls in Rome. Savvy property owners split (or separated) their houses into what we know as apartments or flats today.
The word flat is derived from the Old Scottish/Old English word ‘flet’. The flet is the interior of the home. Some also think the phrase stuck as most flats are on one floor, and so by definition, the accommodation is on the flat (i.e. no stairs inside).
The country has an enduring housing shortage. Not enough homes are being built, and even though the Government is aspiring to build 300,000 new homes annually to match demand and keep costs of housing affordable, less than 250,000 were built in 2019, the best rate in the last decade.
And that is why some say the simple solution to Britain’s housing problem is building more apartments/flats.
The British population has been growing by more than half a million every year, for the last twenty years. Yet just over 175,000 homes have been built annually. One solution is building more apartments – and on the face of it, the facts stack up as they are cheaper to heat, the views are often unique and they use less land. To look at what we do as a country with our apartments, it’s important to look at Europe to see how they live so that we can compare the percentages of flats/apartments lived in:
EU average 46.2%
The United Kingdom 14.8%
Quite a stark difference, isn’t it! Now let’s look at Crediton itself.
Of the 3,589 households in Crediton, 20.3% of them (729) are apartments/flats
Even though only 1.2% of the country has residential property built on it (and an additional 3.5% are gardens), building houses is low-density land use. Is it sustainable in the long term to continue to build that way in Britain, a country with a similar population to France yet having less than half its landmass? If we continue to build just over 5 in 6 new households as houses, surely sooner or later, the precious green belt around our towns and cities will have to go. And I know many of you will say use brownfield sites. Of course, there are brownfield sites, yet…
In the whole of the Mid Devon area, there are only 15 brownfield sites, totalling only 18.9 acres, which would only provide 267 houses – so not many!
The country needs a decent supply of homes for its growing and ageing population. Many of you will frown when it has been suggested, even if it’s for environmental reasons alone, most of these should be apartments/flats.
Don’t get me wrong, the love/hate relationship with the apartment/flat and the British is well-founded. Many apartments/flats in Britain are not suitable for happy family living. The high-rise ghetto council blocks built in the 1960s didn’t help with their poor communal areas, lack of maintenance and lifts that didn’t work.
Why do so many more Europeans live in apartments?
In mainland Europe, the apartments are larger. For example, in Germany, they are 974 sq ft; in Denmark, they are 1,452 sq. ft; in the UK, they are only 793 sq ft. Also, European apartment/flat owners have more storage areas, higher ceilings and better communal areas.
It is a vicious cycle. Poorly made small apartments make families side-step them, which makes new home builders construct apartments unsuitable for families, which means the situation worsens. This results in the British property market trying to expand our towns and cities outwards into the countryside with houses, rather than upwards into the sky.
I am not suggesting 20-storey high-rise tower blocks in Crediton for one second. Looking deeper into the information from Europe, most people live in low-rise three and four-storey purpose-built apartment blocks.
To begin with, these new apartments/flats need to be justly desirable for Crediton families and be seen as such by the local population. The building materials used, communal spaces, the building’s functionality, and design specifications must not only meet but exceed current building specs on houses, or planning permission should withhold.
Maybe the Government could incentivise builders to build apartments/flats instead of houses to improve the supply of quality apartments/flats with tax breaks?
Things will take decades to change, yet I thought it was appropriate to discuss the matter in such an environment as this.
Crediton property prices have increased by 23.2% over the last two years.
Crediton house prices have risen on the back of several things, including changes in how people see their homes and how they live and work (i.e., working from home), a lack of properties on the market and government tax incentives (the stamp duty holiday in 2020).
Yet, the tide could be beginning to turn as the number of houses coming on the market is increasing as supply is starting to catch up with demand – in Q1 2022, 389,811 properties came onto the market in the UK compared to 425,295 in Q2 2022. One would typically expect Q1 to be larger than Q2 in average years.
Yet some commentators are saying one thing that could stifle this growth is the cost-of-living crisis.
I wanted to delve deeper into what was happening in Crediton instead of reading headlines in the newspapers. Let me start with average incomes.
The average Crediton household income is £595.20 per week, compared to £577.30 in the Mid Devon region and £613.10 nationally.
Roll the clock back twenty years to 2002, and the average Crediton household income was £349.
I wanted to go into greater detail a few weeks ago; I stated that mortgage costs for first-time buyers were much lower today (as a percentage of household income) than in 1989 and 2007. Many of you commented on social media or sent me messages asking what happened to other household bills.
In 1989, 16% of people’s household income went on housing (rent or mortgage) compared to 17.5% in 2021.
Food represented 19% of people’s spending in 1989, compared to 14.4% in 2021.
Also, gas and electricity were 6% of household income in 1989 compared to 4.81% in 2021. (although that was before we saw the recent energy price hikes)
Interestingly, the UK household spent 15% of their monthly income on leisure activities in 2021, compared to 10% in 1989.
Household goods and services (i.e. household appliances, insurance etc.) have risen from 11% in 1989 to 14.9% in 2021.
Before I leave these stats, I had a peek at the 1957 stats (the earliest stats available), and in that year, food represented 33% of the household income and tobacco 6% (today, it’s 2.34%).
So, compared to 1989, the big-ticket items of housing, food and fuel combined have gone down from 41% to 36.7% of the household income, whilst leisure has increased from 10% to 15%.
The fuel element of household bills will rise to around 11% to 12% of household income, and I suspect the leisure budget will be hit the hardest to pay for that. We are seeing food inflation of around 10% to 15%, meaning that food will go from its current 14.4% of household income to around 16% to 17%.
It’s going to be tough, especially for those people in rented accommodation who may not earn near the average wage yet, as they have similar fixed costs for gas, electricity and food.
Next, let me look at the inflationary effects on housing costs. A rise in the base rate will, in theory, slow inflation by reducing consumer demand. In the short-term, this increase in the base rate will increase mortgage rates, thus adding fuel to the fire of the cost-of-living crisis by growing mortgage costs.
Those Crediton homeowners on tracker or variable rate mortgages will instantly increase their mortgage payments.
Encouragingly though, just under 17 out of 20 people are on fixed-rate mortgages, the majority on 5-year fixed rate deals, so their housing costs won’t go up significantly in the short-term.
This will alleviate some of the interest rate effects, making it more challenging and expensive for new borrowers like first-time buyers.
However, as I have explained in previous articles on the Crediton property market, many Crediton landlords have been sitting on their hands in the last couple of years as owner-occupiers have outbid each other in buying their next ‘forever home’. If there aren’t going to be so many Crediton first-time buyers, then I suspect we might see more Crediton landlords coming out of the woodwork and buying again.
This is especially true as investing in buy-to-let in inflationary times is an excellent hedge to protecting the buying power of your hard-earned savings (drop me a message if you want to read that article).
In conclusion, although the amalgamation of the Crediton house price rises in the last two years, the increasing interest rate rises, and the continuing cost-of-living crisis, there is no doubt the momentum in the Crediton housing market will be slower in the next 12 months compared to the last 24 months. Nevertheless, I anticipate Crediton house price growth will ease (and, in some months, be slightly negative). A better bellwether of the state of the Crediton property market is the number of people moving house (i.e., the transaction levels).
I expect transaction levels to be lower in the latter part of this year and the first half of 2023, yet they are most likely to stay close to the long-term average. The boom is over, yet it shouldn’t be a bust situation. What are your thoughts on this? Let me know.
The total value of homes owned by Baby Boomers in Crediton alone is £443,165,800 – and two-thirds of the Crediton Millennials are set to inherit all that in the next few decades!
Could this be the answer to the housing crisis?
Could Crediton Millennials live it up for the next few decades, safe in the knowledge they will get a huge lump sum to pay off their debts and buy a house with what is left?
Before I look at that, which set of people in Crediton exactly are the Crediton Millennials or Crediton Baby Boomers?
Come to that, who are Generation Z, the Silent Generation or Generation X?
All these are phrases used for the different groups of people in their various life stages of our society.
So, splitting the groups down:
Silent Generation: Born 1945 and before (77 years old and above)
Baby Boomers: Born 1946 to 1964 (58 years old to 76 years old)
Generation X: Born 1965 to 1980 (42 years old to 55 years old)
Millennials: Born 1981 to 1995 (27 years old to 41 years old)
Generation Z: Born after 1996 (everyone under 26 years old)
Using data from the Census, my research shows there are …
1,225 households in Crediton owned by Crediton Baby Boomers and they are worth a combined value of £443,165,800.
The generation that will inherit those Crediton properties will be the millennials.
There are 954 millennials in Crediton.
After looking at the local demographics, homeownership statistics and current life expectancy, around two-thirds of those Crediton Millennials have parents who own those 1,225 Crediton properties, meaning each is in line for an inheritance of £696,453.35.
Yet what about Crediton’s Silent Generation?
There are 1,248 homes in Crediton owned by the ‘Silent Generation’ and they are worth £451,486,464.
The issue for those who will inherit their parents’ homes is that there are far more Generation X people in Crediton than millennials.
Two thirds of the 1,397 Crediton Generation X will inherit £489,671.01 – still nothing to sniff at yet not as much as the millennials!
So, whilst the Crediton Millennials are less likely to own their own home compared to Generation X and so have done not as well in amassing their assets and savings, they are more likely to benefit from an inheritance boom in the years to come.
This is likely to be very comforting information for those Crediton Millennials, including some from humbler upbringings who historically would have been unlikely to receive an inheritance.
Nevertheless, inheritance is not the silver bullet that will get the millennials onto the Crediton housing ladder.
Nor will it deal with the increasing wealth inequalities in British society, as the inheritance they are likely to receive won’t be accessible when they are trying to buy their first Crediton home.
So before all you Crediton Millennials start running up your credit card bills, safe in the knowledge they will be paid for when your parents pass away in 20/30 years, over half of the females and around a third of men are going to have to pay for their nursing home fees.
Remarkably, I recently read 25% of people who must pay for their nursing home fees run out of money, and therefore have to rely on funding from the local authority
Therefore, if you are a Crediton Millennial, no inheritance will be left for you. It goes without saying, most Crediton parents want to give some inheritance to their children.
Yet if waiting until you pass away to help your children or even grandchildren with your legacy could be seen as too late, so what are the options?
One solution to help and fix the housing crisis in Crediton (and the UK as a whole) is if parents and grandparents, where they can, help financially with the deposit for a house whilst their children/grandchildren are in, say, their 20’s and early 30’s.
Buying a Crediton property is much cheaper than renting – I have shown it many times in these articles.
It’s not a case of not being able to afford the mortgage; the problem is raising the mortgage deposit (of 5% to 10%) for these Crediton Millennials.
Maybe families should be discussing the distribution of family wealth whilst everyone is alive (in the form of helping the family with house deposits) as opposed to waiting until the end, as it will make a massive difference to everyone in the short and long run.
And a final thought, your legacy will have a more significant impact, and you will be here to see it with your own eyes.
“Tell me what is happening to the Crediton property market”, asked the friend of a friend at a recent do I went to in Crediton (after finding out I was an agent in Crediton).
I always reply, “It depends if you are buying, selling or both”.
The Crediton property market is like a seesaw. For the last two years, it has been quite firmly in the realms of a 90% seller’s/10% buyer’s market.
However, unless you are a Crediton buy-to-let landlord, Crediton first-time buyer, or executors selling a deceased person’s estate, most home movers are both (i.e. they are both sellers and buyers).
So, what determines where we are on the seesaw of a seller’s market or a buyer’s market?
It comes down to simple supply and demand economics. i.e. the number of properties on the market versus the number of buyers in the market.
Like when someone sells goods or services, it’s the same with property. So, when we have a low supply of properties on the market and high demand for properties to move into (like we have had for the last two years since the end of lockdown one), house prices go up.
Crediton house prices are 17.6% higher than a year ago.
The other side of the coin was seen in the Credit Crunch years of 2008/9. Many people wanted to sell their houses in Crediton, yet the banks weren’t lending, so people couldn’t buy. This meant the supply of property on the market exceeded demand; hence Crediton house prices dropped by 16% to 19% in 18 months (depending on what type of property you were selling) as we had a 20% seller’s market / 80% buyer’s market.
Whilst demand and supply are the key driving force on the balance of the buyer/seller’s market seesaw, it is not the only influencer of the property market. The price band is also an essential determiner of house prices, albeit over the longer term.
To show this, initially, I will go back to 1995 to ascertain what has happened to average house prices over the long term in Crediton.
The average Crediton house price has risen from £65,433 in 1995 to £317,429 in 2021, a growth of 385.1%.
Interesting, when you compare that against the national figure of 407.2%. Also, looking at where our local authority stands against other areas, we are 192nd out of 331 local authorities in England & Wales for house price growth.
It’s called the property ladder for an excellent reason, and the health of the whole Crediton property market is very dependent on those bottom rungs of that ladder.
Therefore, looking at the data for our local authority, paying particular attention to the lower end (in terms of price), some intriguing data comes to light. It is crucial as the lower end of the property market (in terms of price) is a good bellwether for the whole Crediton property market.
So, I looked at the following …
Lower 10th Percentile of the Crediton housing market – i.e., the bottom 10% in terms of the value of properties sold – e.g., small apartments and ex-local authority properties in the less popular areas, which mainly attract buy-to-let landlords.
Lower Quartile of the Crediton housing market – i.e., the bottom 25% of Crediton property in terms of their value, e.g., first-time buyer homes and mid-market buy-to-let property.
… and if one looks at our figures for Crediton and the whole local authority, you can see the three parts (lowest 10% / lowest 25% and overall average) have performed quite differently.
The average value of a Crediton property sold in 1995 in the lower 10thpercentile (i.e., the bottom 10% of the Crediton property market) was £31,500, and in 2021, it was £162,500, a growth of 415.9% (compared to the national average of 428.4%).
The average value of a Crediton property sold in 1995 in the lower quartile (i.e., the bottom 25% of the Crediton property market) was £41,000, and in 2021, it was £205,000, a growth of 400% (compared to the national average of 417.7%).
Some of you might be asking yourself, what do all these different figures mean to Crediton homeowners, first-time buyers and landlords?
As the overall average is below the lower 10th percentile and lower quartile growth figures, the middle to upper market in Crediton has performed worse than the lower end in terms of house price growth since 1995.
The thought I am trying to get across to every Crediton homeowner/buy-to-let landlord is that there isn’t just ‘one’ Crediton property market.
There are markets within markets – almost like a fly’s eye. It is essential not to look at just the headlines but delve deeper when considering what is really happening and not to just look at the overall averages.
As we enter the height of the summer, the Crediton property market seesaw has started to change ever so slightly, changing from the 90% seller’s/10% buyer’s market we have had in the last two years to more of a 70% seller’s/30% buyer’s market.
With that in mind, if you can spot trends before anyone else is aware of them you could find yourself some potential Crediton property bargains.
Well, what a weekend that was. Street parties, gatherings in the park, the purple bunting, egg and cress sandwiches, union jack flags, cheese and pineapple on cocktail sticks, and let’s not forget the trifle – the Platinum Jubilee Party. And no decent party is worth its salt without a game or a quiz.
So, if you have post-Jubilee blues, let me ask you, how much was the average Crediton house worth in 1952?
To start with, let me look at what a property is worth today in Crediton.
The average price paid for a property in the Crediton areain the last 12 months was £302,900.
Now, let’s go back to 1952. Sir Winston Churchill was the Prime Minister, Newcastle won the FA Cup, London was covered in the Great Smog, free prescriptions on the NHS ended (it cost 1 shilling or 5p in new money), and King George IV, at the age of 56 passed away on the 6th February, meaning Princess Elizabeth became the Queen – as for housing …
The average price of a Crediton home in 1952 was £2,473.
This means Crediton house prices are 121 times higher since 1952.
Yet over the last 70 years, the country has been subjected to 4.5% per annum inflation.
The 1952 Crediton home is equivalent to £47,562 todaywhen adjusted for inflation.
This means Crediton house prices have increased by 504.8% in real terms since 1952.
So, does that mean house prices are more expensive today compared to 1952?
In 1952, the average annual male wage was £452, 8 shillings and 1 pence, meaning the average Crediton house was 5.47 times the average value of a wage. Today the average home is 8.85 times the average wage.
Yet let us not forget the average mortgage payment in 1952 was £11 per month. The average Brit earned £34 per month, meaning 32.3% of the household income was going on mortgage payments, whilst nationally today, according to the Nationwide, it stands at 28%.
It’s cheaper, in real terms, to buy a property in 2022 than in 1952.
And that’s the point, something things in ‘real terms’ (real terms being true spending power of the money after taking into account wages, costs and inflation) were more expensive and some cheaper 70 years ago. For example, in 1952, petrol was equivalent (in today’s inflation-adjusted prices) to £1.02 per litre, a pint of beer £2, half a dozen eggs £2.20, cheddar cheese £2.40 per 500g, a basic radio £430, a Hoover £530 and a 12-inch TV £1,600.
So back to property, the Queen’s reign has seen some amazing house price rises in the UK, yet that growth hasn’t always been in a constant upward direction, as we have had a couple of dips along the way.
We had a house price crash in 1990, when the average value of a Crediton property dropped from £74,427 to £61,640 in 1996, only for them to start rising again.
Crediton saw another house price crash between 2008 and 2009, and the average house price dropped from £222,642 to £189,805 in a year.
So, what else has changed about property and housing since the Queen came onto the throne?
In 1952, only 32% of people owned their own home, whilst 50% of people rented from a private landlord and 18% rented a council house.
By the time of the Silver Jubilee in 1977, 56% of people owned their own home, with 12% of people privately renting and 32% rented from the council.
Come the Golden Jubilee in 2002, 70% of people owned their own home, with 11% of people privately renting and 19% rented from the council.
Today, 63% of people own their own home, 20% of peopleprivately rent and 17% rent from the council.
So to conclude, as we look forward into the 21st century, I am sure the property market will be totally different again in 70 years.
I hope you enjoyed reading this article and do share it with your friends if you find it interesting.
P.S. for all you Rightmove fans, the average Crediton terraced home in 1952 was worth £1,846, and a semi in Crediton could be bought for, on average, £2,145.
According to some newspapers and pundits, the property market boom could soon be over with the increasing interest rates and inflation.
In this article, I share: ▶The 3 fundamental economic reasons why things are different to the last property market crash ▶The insider’s way to find out if there will be a property crash ▶and 4 reasons why buy-to-let landlords are coming back into the Crediton rental market to protect their wealth and hedge against inflation.
With inflation and the cost-of-living crisis, some say this could cause property values to drop, by between 10% and 20% in the next 12 to 18 months.
There can be no doubt that the current Crediton property market is very interesting.
At the time of writing, there are only 26 properties for sale in Crediton (the long-term 15-year average is between 75 and 85), meaning house prices have gone up considerably.
According to the Land Registry…
Crediton property prices have increased by 16.6% (or £43,300) in the last 12 months
So, as Robert Kiyosaki says, ‘the best way to predict the future is to look to the past’. I need to look at what caused the last property crash in 2008 and how that compares to today.
1. Increase in Interest Rates
One reason mentioned as a possible cause of a crash is the rise in the Bank of England interest rates affecting homeowners’ mortgages.
Higher mortgage rates mean homeowners will have to pay a lot more on their mortgage payments, leaving less for other household essentials. In 2007 (and the 1989 property crash), many Crediton people put their houses up for sale to downsize to try and reduce their mortgage payments.
Yet the newspapers fail to mention that 79% of British people with a mortgage have it on a fixed interest rate (at an average mortgage rate of 2.03%)
Also, just under 19 out of 20 (93.2%) of all UK house purchases in 2021 fixed their mortgage rate.
So, in the short to medium-term (two to five years), most homeowners won’t see a rise in mortgage payments for many years. Also, 27.8% of all UK house purchases were 100% cash (i.e. no mortgage).
Of the 932,577 house purchases registered since February 2021 in the UK, 259,205 were bought without a mortgage.
Yet some people say this will be a problem when all these homeowners come off their fixed rate. The mortgage lending rules changed in 2014, and every person taking out a mortgage would have been assessed at application as to whether they could afford their mortgage payments at mortgage rates of 5% to 6% rates, not the 2% to 3% they may well be paying now.
No pundit says the Bank of England interest rates will go above 2% with a worst-case scenario of 3%. If the Bank of England did raise interest rates to 3%, homeowners would only be paying 4.5% to 5.5% on their mortgages and thus well within the stress test range made at the time of their mortgage application.
This means the probability of a mass sell-off of Crediton properties or repossessions because of interest rate rises (both of which cause house prices to drop) is much lower.
2. House Price / Salary Ratio
Another reason being bandied about by some people for another house price crash is the ratio of average house prices compared to average wages.
The higher the ratio, the less affordable property is. In 2000, the UK average house price to average salary ratio was 5.30 (i.e. the average UK house was 5.3 times more than the average UK salary). At its peak just before the last property crash in 2008, the ratio reached 8.64.
The ratio now is 8.85, so some commentators are beginning to think we’re in line for another house price crash. However, I must disagree with them because mortgage rates are much lower today than in 2007. For example…
The average 5-year fixed-rate mortgage in 2007 was 6.19% (just before the property crash), yet today it’s only 1.79%.
So, whilst the house price/salary ratio is the same as the last property crash in 2008, mortgages today are proportionally 71.1% cheaper.
3. Banks Reckless Lending
Another reason for a property crash in 2008 was the reckless lending practices in the run-up to that crash.
The first example of reckless lending was self-certified mortgages. A self-certified mortgage is when the lender doesn’t require proof of income.
In 2007, 24.6% of new mortgages were self-certified mortgages
So, when the economy got a little sticky in 2008, the people that didn’t have the income they said they had to pay for their mortgages (because they were self-certified) promptly put their properties on the market.
The banks’ second aspect of reckless lending was how much they lent buyers to buy their homes. Today, banks want first-time buyers to have at least a 10% deposit and ideally more. There are 95% mortgages available now (meaning the first-time buyer only requires a 5% deposit), yet they are pretty challenging to obtain.
Back in 2005/6/7, Northern Rock was allowing first-time buyers to borrow 125% of the value of their home. Yes, first-time buyers got 25% cashback on their mortgage!
In 2007, 9.5% of all mortgages were 95%, and 6.1% of mortgages were 100% to 125%.
Meaning that nearly 1 in 6 mortgages (15.6%) taken out in 2007 had a 95% to 125% mortgage
When the value of a property goes below what is owed on the mortgage, this is called negative equity. A lot of Crediton homeowners with negative equity (or who were getting close to negative equity) in 2008 panicked because of the Credit Crunch and put their houses up for sale.
To give you an idea of what happened last year (2021) regarding mortgage lending, only 2.4% of mortgages were 95%, and 0.2% of mortgages were 100%. This is because the mortgage lending rules were tightened in 2014.
So why did Crediton house prices drop in 2008?
Well, in a nutshell, a lot more Crediton properties came onto the market at the same time in 2008, flooding the Crediton property market with properties to sell.
Meanwhile, mortgages became a lot harder to obtain (because it was the Credit Crunch), so we had reduced demand for Crediton property.
Prices will drop when we have an oversupply and reduced demand for something. Crediton property prices fell by between 16% and 19% (depending on the property type) between January 2008 and May 2008.
So, what were the numbers of properties for sale in Crediton during the last housing market crash?
There were 69 properties for sale on the market in Crediton in the summer of 2007 (just before the crash), whilst a year later, when the Credit Crunch hit, that had jumped to 212.
This vast jump in supply and the reduction in demand caused Crediton house prices to drop in 2008.
Compared with today, there are only 26 properties for sale in Crediton, whilst the long term 15-year average is between 75 and 85 properties for sale.
So, what is going to happen to the property market?
The Crediton house price explosion since we came out of Lockdown 1 has been caused by a shortage of Crediton homes for sale (as mentioned above) and increased demand from buyers (the opposite of 2008).
However, there are early signs the discrepancy of supply and demand for Crediton properties is starting to ease, yet this takes a while before it has any effect on the property market, so it will be some time before it takes effect.
This will mean buyer demand will ease off whilst the number of properties to buy (i.e. supply) increases. This should gradually bring the Crediton property market back in line with long-term levels, rather than the housing market crash.
My advice is to keep an eye on the number of properties for sale in Crediton at any one time and only start to worry if it goes beyond the long-term average mentioned above.
But before I go, I need to chat about what inflation and the cost of living will do to the Crediton property market.
How will inflation and cost of living affect the Crediton property market?
There is no doubt that cost-of-living increases will have a dampening effect on buyer demand. If people have less money, they won’t be able to afford such high mortgages. This will slow Crediton house price growth, especially with Crediton first-time buyers.
Yet, the reduction in first-time buyers is being balanced out by an increase in landlord’s buying, especially at the lower end of the market.
This, in turn, will stabilise the middle to upper Crediton property market. This means the values of such properties (mainly owner-occupiers) will see greater stability and a buyer for their home, should they wish to take the next step on the property ladder.
So why are more Crediton landlords looking to extend their buy-to-let portfolios, even in these economic circumstances?
I see new and existing buy-to-let Crediton landlords come back into the market to add rental properties to their portfolios. As the competition with first-time buyers is not so great, they’re not being outbid as much.
Yet, more importantly, residential property is a good hedge against inflation.
Firstly, in the medium term, property values tend to keep up with inflation.
Secondly, inflation benefits both landlords and existing homeowners, with the effect of inflation on mortgage debt. As Crediton house prices rise over time, it reduces the loan to value percentage of your mortgage debt and increases your equity. When the landlord/homeowner comes to re-mortgage in the future, they will receive a lower interest rate.
Thirdly, as the equity in your Crediton property increases, your fixed-rate mortgage payments stay the same.
Finally, inflation also helps Crediton buy-to-let landlords. This is because rents tend to increase with inflation. So as rents go up, your fixed-rate buy-to-let mortgage payments stay the same, creating the prospect of more significant profit from your buy-to-let investment.
Crediton needs 32 additional private rented properties per year to keep up with current and future demand from Crediton tenants.
Yet over the last 5 years, Crediton has lost 41 private rented homes.
What are the 5 reasons the supply of private rental properties in Crediton are falling? What does this mean for tenants and landlords in Crediton?
There has been a rise in demand for rental properties and an 8.9% fall in the number of Crediton private rented properties, which has caused Crediton rents to rise by 9.2% in the last year, a new all-time high.
The National Residential Landlords Association asked the respected economics think tank, Capital Economics, to carry out research on the UK rental market. It found that if the current trends in the property market in terms of growth of the population, Brits living longer, the lack of new homes building and the reduction in social housing (aka council housing) then demand for homes in the private rented sector needs to increase by 227,000 homes per year.
So, based on those numbers, Crediton needs to have an additional 32 private rented properties per year.
The problem is the number of private rented properties in Crediton has reduced from 774 in 2017 to 733 in 2021, a net loss of 41.
So, why has supply of private rented homes in Crediton reduced?
Section 24 Income Tax
Section 24 was introduced in 2017 to level the playing field on the taxation of property between homeowners and landlords. Section 24 stops landlords from offsetting their buy-to-let mortgage costs against the profits from their rental property. Interestingly, no other kind of UK business is affected by the Section 24 taxation. In other words, whatever other form of business you might be in, be it butcher, baker or candlestick maker, every other business can offset their finance costs against their profits, except buy-to-let.
The issue caused by Section 24 Tax is that some landlords ended up paying more income tax than they really made in profit after paying their buy-to-let mortgages. Meaning on the back of rising Crediton house prices in the last five years, some Crediton landlords have sold their buy-to-let investments.
3% More Stamp Duty for Landlords
When someone buys a property, they normally must pay a tax to the Government for the privilege. This tax is called Stamp Duty. Yet landlords must pay an additional 3% stamp duty supplement on top of that when they purchase a Crediton buy-to-let property. Evidence suggests some Crediton landlords have decided to hold off or scale back buying additional buy-to-let properties for their portfolio because of the thousands of extra pounds that landlords have to pay to buy the rental property.
Holiday and AirBnb Lets
Some Crediton landlords are converting their long-term rental properties into short-term furnished holiday and AirBnB properties. Whilst the hassle, stress and service levels are much higher, these types of properties do tend to make more money and aren’t as heavily taxed as normal lets. When properties convert to short-term lets, it removes another Crediton property out of the general supply chain of long-term rental properties.
Greater Legislation for Rental Properties
With more than 150 pieces of legalisation, and new laws being added each year, the burden on landlords is huge. On the horizon is the Renters Reform Bill which will remove the no fault evictions. Also, all rental properties with an Energy Performance Certificate (EPC) rating of below a ‘C’ will have to be improved (i.e. money spent on them) by the landlord. This could be more than £10,000 per property. Hence, why some Crediton landlords have been selling their rental properties with low EPC ratings in the last 18 months.
Accidental Landlords Selling Up
There are some Crediton landlords who are classed as ‘Accidental Landlords’. In 2008/9, with a slowing property market and house price values dropping in the order of 16% to 19%, (depending on the type of property) some Crediton homeowners decided to let their home out as opposed to selling it at a loss. Yet, with the price booms of the last 18 months, many decided to cash in on the higher property prices and sell – again taking another private rental property out of the system.
So, why is demand of private rented homes in Crediton increasing, even though more people own their home in Crediton than 5 years ago?
Even with better provision of affordable social housing and higher rates of owner occupation in Crediton (rising from 63.53% of homes in Crediton being owner occupied in 2017 to 65.86% in 2021), demand for private rental property continues to outstrip supply.
There are many reasons behind this including …
People are living longer, meaning not so many properties are coming back into the mix to be recycled for the younger generation.
Net migration to the UK has continued at just over a quarter of a million people a year since 2017, meaning we need an additional 115,000 households to house them alone.
For the last two years, one in six of the owners of properties that have been sold have moved in to rented accommodation instead of buying on because of the lack of properties to buy.
So, what is the outcome of the imbalance between supply and demand on Crediton rental properties?
Quite simply – Crediton rents have rocketed. They are 9.2% higher today than the spring of 2020 … and that’s on the back of rents being 10.1% higher in spring 2020, compared to spring 2019.
The severe shortage of housing in the private rented sector is pushing up rents in Crediton as demand continues to grow. Many Crediton people are finding it hard work to find appropriate accommodation at a reasonable rent, and with mounting numbers of tenants predicted to continue, this situation will only get worse unless more houses are built.
My heart goes out to those Crediton tenants struggling with the cost-of-living crisis only to then be hit by higher rents.
Yet, these higher rents are now enticing new landlords back into the Crediton buy-to-let market because of the higher returns.
With higher inflation, property investment has been seen in the past a safe harbour to invest one’s money in. With the bonus of rising yields (because of the increase in rents) together with the nervousness of the Bank of England to increase interest rates too much because of the issues in Eastern Europe, this could be the start of a second renaissance in the Crediton buy-to-let market.
If you have concerns about the issues in legislation and taxation, then the advantage of employing a letting agent, with the choice of property, what you pay for it and how it’s managed, will go a long way to mitigate them.
If you are considering getting into the Crediton buy-to-let market for the first time or expanding your property portfolio (whether you are a client of mine or not) please do not hesitate to give me a call and we can discuss these matters further.
The terraced house is one of the most familiar styles of home in Crediton (and the UK as a whole).
23.8% of Crediton people live in a terraced home, interestingwhen compared with the national average of 22.7%.
So, what is it about the humble terraced/townhouse us Brits love so much? In this article, I look at the history of the terraced house, how it relates to Crediton and what the future holds for terraced homes.
A terraced house is a property built as part of a continuous row of three (or more) properties in a similar and uniform style.
The reason the British call them ‘terraced houses’ and not ‘row houses’ came about because 18th century British architects borrowed the phrase ‘terrace’ from ‘terraced gardens’. Terraced gardens were known for their uniform nature (in looks, style and height etc.), so the architects decided to name them the same way as opposed to a ‘row house’. In fact, in most countries, they are called ‘row houses’.
The terraced house originated in the Low Countriesof Europe in the late 1500s.
Terraced houses were first built en-masse in the UK after the Great Fire of 1666 with the rebuilding of London.
They became fashionable for the landed gentry in the early Georgian era with chic and stylish terraces appearing in London’s Mayfair and Bath with its Queen Square (the forerunner of the famous Royal Crescent) and were sometimes built around a garden square.
However, it wasn’t until the early 1800s that the terraced house turned out to be the solution to the increasing population of the towns as more and more people were attracted to towns and cities for work.
The terraced house fell out of favour with the upper-middle classes in the late Victorian age (1870s onwards) as they wanted more privacy and space. They moved to live in detached houses or semi-detached villas, as the terrace house had started to become associated with the lower-middle and working classes.
With all these terraced houses being built, their quality of construction and design dropped as builders tried to squeeze more profit. The biggest issue was that most of the terraced houses built in the early to mid-Victorian age (1840s to 1870s) were made back-to-back with no rear garden, causing unsanitary conditions. Therefore, the Public Health Act of 1875 was introduced to regulate the building of terraced houses with design and standards.
These new building standards in the Act improved the terraced house’s ventilation and, more importantly, required the house to have a toilet (frequently built outside). To meet these new building standards, the designs of these new houses created the well-known landscape of ‘grid’ streets lined with two-storey terraces serviced by a pedestrian path between them, the name of which is a hotly debated topic. The various names for the pathway include alleyway/jitty/cut/ginnel/snicket/passageway/ten foot/five foot/witchel/lonnin/vennel.
As a Crediton resident, why not say what you call them in the comments?
As we entered the 20th century, the terrace house continued to be popular, albeit with some new architectural additions.
The advent of Arts and Craft architecture with stain glass windows, Tudor style cladding, ornate porches, and elaborate chimney stacks.
After the First World War and the introduction of the Housing and Town Planning Act 1919 (which made local councils build council houses), the Victorian terraced rapidly became associated with overcrowding and slums (especially those back-to-back terraced houses built before 1875). Many of the back-to-back terraced houses were knocked down between 1930 and 1960 in what is known as the slum clearances.
Private builders started building the iconic suburban semi-detached houses with more extensive gardens, and local authorities decided to build high-rise blocks after World War II. Yet after the partial collapse of Ronan Point in 1968, the popularity of high-rise tower blocks waned.
Since the early 1990s though, the terraced house has steadily come back into favour as building land prices have increased by 322%in the last 30 years.
Many private builders have started to build modern three-storey townhouses in rows of five to seven. This terraced ‘townhouse-style’ allows three and four bedrooms on a land footprint that would have usually only accommodated a smaller two-bed property.
So, let’s look at some interesting stats on Crediton terraced houses:
There are 831 terraced houses in Crediton (broken down as 570 privately owned terraced houses, 102 terraced council houses and 159 in the private rented sector).
19.1% of terraced houses in Crediton are in the private rented sector, which is equal to the national average of 19.1%.
The most expensive terraced house in Crediton ever sold was on Union Terrace, Crediton for £532,000 in 2016.
The cheapest Crediton terraced house sold in the last two years was on Kirton Drive, for £85,000.
Terraced houses in Crediton sell for an average of £196 per square foot.
I hope you found that thought-provoking?
So, why is the terraced house, be it a red brick Victorian house or a more modern three-storey townhouse, still popular today in Crediton?
They are typically well built, cheaper to maintain (especially the older terraced houses), comparatively spacious, and are in good locations. Many terraced houses have been improved and extended through the inventive use of rear gardens/yards and converted roof spaces; their unpretentious design remains adaptable enough for 21st century living; what isn’t there to like about them?
These are my thoughts; tell me your thoughts about the humble yet versatile Crediton terraced house.
In 1981, 26.1% of properties in Crediton (and the Mid Devon District as a whole) were council houses. Today, that figure stands at 8.7%, a proportional drop of 67%.
Why has the number of council houses dropped so much in those 40 years?
How has that changed the dynamics of the Crediton property market in those 40 years?
The ability of local authorities to build council houses came into law in July 1919 with the 1919 housing and Town Planning Act. It was one of the most important pieces of domestic legislature passed after WW1 and was the first time in the UK that a nationally public funded system of providing homes was made for the masses. It was paid for mostly by central government and provided by local authorities (councils) and public utility societies (which in later years became today’s housing associations).
Between 1919 and 1979, 6.94 million council houses were built.
Just over 1 million council houses were built between 1920 and 1939, whilst 5,804,150 council houses were built between 1946 and 1979. This is compared to 4,533,440 private homes and 260,910 housing association properties in the same time frame (’46 to ’79).
So, between 1946 and 1979, the council house was the dominate force of British housing. But that all changed in 1979!
Many people believe it was Margaret Thatcher who was the architect of allowing the sitting tenant of a council house to buy their home. Interestingly, council house tenants have been able to buy their council house from as early as the mid 1930s, albeit with little or no discount. Also, as late as 1977, the Labour Housing Minster published a Green Paper extolling the virtues of homeownership and council tenants being able to buy their home at a discount.
But after the General Election of 1979, the new Tory government drafted the Housing Act 1980, which gave the Right to Buy, which became law in the autumn of 1980. Then things really took off!
This new law established a right for most council tenants who had been in their home for three years or more to a discount. The discount started at 33% and increased by 1% for each extra year, up to a maximum of 50%. If the tenant sold the house within the first five years of ownership, a prorated repayment of their discount was required.
Between 1980 and 1989, 970,558 council housesnationally were sold at a discount.
Yet the issue was, when a council house was sold, it took that house out of the council’s portfolio for future generations. From the start, there were limitations on local authorities’ use of monies from the council house sales as most of it had to be given to central government in London, meaning only 390,560 new council houses were built between 1980 and 1989. Looking at the numbers locally …
in 1981, there were 5,449 council housesin Mid Devon, today it’s 2,843.
No wonder the country has a housing crisis … yet as my regular readers know – the devil is in the detail … and that devil is the humble housing association.
The Tory General Election Manifesto in 1979 had proposed the rights for both council house and housing association tenants to buy their own house under the Right to Buy scheme. The Conservatives argued housing associations, who obtained government funding, should be subject to the same Right to Buy proposals as councils. The Government won the vote in the Commons, yet lost the vote in the Lords, meaning housing association tenants could not buy their homes at a large discount.
At the time, there were only 400,000 housing association properties in the country, so the Government were not that worried. But the significance of housing associations developed in the 1980s and beyond as they were allowed to borrow money from the private sector.
Between 1949 and 1979, the average number of housing association properties built annually was 8,524. Since 1979 to today, it has been 25,062 per year (and 31,606 per year in the 2010s).
Also, the Government encouraged councils to transfer their remaining council houses to housing association schemes from 1986. The advantage to these ‘stock transfers’ was the Government allowed housing associations to access private funding to improve their existing properties and buy new ones (good news for existing tenants complaining that the local authority never upgraded their homes).
Moreover, the Tory Government liked stock transfers, as it allowed them to dismantle council housing from the inside. Interestingly, Labour expanded the ‘Stock Transfer’ process in 1997 and further reduced the eligibility for council tenants’ Right to Buy, meaning the number of council tenants exercising their Right to Buy declined considerably.
Meaning today, even though the provision of council housing has dropped like the proverbial
the number of housing association properties in Mid Devonhas increased from 362 in 1981 to 1,292.
So, how has this changed the dynamic of the Crediton property market in the last 40 years?
Would it surprise you to learn that the number of people who own their own Crediton home today is very similar to what it was 20 years ago before the property boom started? It’s just that even though we’ve had a large drop in the number of council houses and an increase in the number of housing association properties, the number of people owning their own home has remained relatively the same (in some areas of Crediton this has actually increased), the significant issue is the growth of the private rented sector.
It’s almost as if people who used to rent from the councilnow rent from a private landlord.
The question is, is it right for private individuals to make money from tenants who rent from them as opposed to the local authority? Or are private landlords providing better types, choices and quality of accommodation for these tenants, albeit at a higher rental rate than if they rented a council house?
I really do believe if it wasn’t for the growth of the buy-to-let landlord, which began in the early 2000s, we would have an even bigger housing crisis on our hands than the one we have currently.
Both local and central government have had their hands tied behind their backs since 2008 with a lack of funding, and it’s the humble private landlord who has stepped up and supplied in excess of 2.3million additional rental properties since 2001, housing nearly 5,520,000 Brits. These landlords have saved the day since the big council house sell off in the 1980s!