Leighton Buzzard homeowners will be among those affected by the latest rise in the Bank of England interest rates. The first increase in 10 years; they have just been raised from 0.25 percent to 0.5 per cent. This uplift comes as inflation hits a 51-month high of 2.9 per cent whilst the national unemployment rate is at an all-time low of 4.3 per cent.
Interestingly, the Governor of the Bank of England has indicated that the interest rate is likely to increase again over the next couple of years, but Mr Carney said mortgages and savings would not be affected in the short term. However, look at all the big banks and just about all of them have increased their standard variable mortgage rate..
The average Leighton Buzzard mortgage is £121,034
I have to ask by how much Leighton Buzzard homeowners (on variable rate or tracker mortgages) will see their repayments increase?
In the LU7 postcode there are 9,623 homeowners with a mortgage, of which 4,134 have a variable rate mortgage (the remaining have fixed rate mortgages). The total amount owed by those LU7 homeowners with those variable rate mortgages is £500,359,003, meaning the average monthly mortgage payment for those home owners on variable rate mortgages before the interest rate rise was £943.73 per month and now its £968.94 per month … meaning
The interest rate rise will cost Leighton Buzzard
homeowners on average an extra £302.58 per year
Whilst this is the first raise in interest rates in over 10 years, it must be noted it is at a significantly low level compared to figures in the 1970s and early 1990s. Many of my readers talk of interest rates at 17 per cent when Sir Geoffrey Howe increased them to try and combat the hyperinflation (from the fallout of the financial crisis that hit Britain in the 1970’s) and Norman Lamont in September 1992 with the infamous Black Wednesday crisis, when interest rates were raised from 10% to 15% in just one day.
So, what will this interest rate actually do to the Leighton Buzzard housing market?
Well, if I’m being frank – not a great deal. The proportion of Leighton Buzzard homeowners with variable rate mortgages (and thus directly affected by a Bank of England rate rise) will be smaller than in the past, in part because the vast majority of new mortgages in recent years were taken on fixed interest rates. The proportion of outstanding mortgages on variable rates has fallen to a record low of 42.3 per cent, down from a peak of 72.9 per cent in the autumn of 2011.
If more Leighton Buzzard people are protected from interest rate rises, because they are on a fixed rate mortgage, then there is less chance of those Leighton Buzzard people having to sell their Leighton Buzzard properties because they can’t afford the monthly repayments or even worse case scenario, have them repossessed.
However, and this will be of interest to both Leighton Buzzard homeowners and Leighton Buzzard buy to let landlords …
.. for every 1% increase in the Bank of England interest rate, it will cost the average Leighton Buzzard homeowner on a variable rate mortgage £100.86 per month
So, what next? Because UK inflation levels are at 2.9 per cent (the country’s highest rate since April 2012) and the Bank of England is tasked by HM Government to keep inflation at 2 per cent using various monetary tools (one of which is interest rates) – you can see why interest rate rises might be on the cards in the future as increasing interest rates tends to dampen inflation.
Now of course there is a certain amount of uncertainty with regard to Brexit and the negotiations thereof, but fundamentally the British economy is in decent shape. People will always need housing and as we aren’t building enough houses (as I have mentioned many times in the Leighton Buzzard Property Blog), we might see a slight dip in prices in the short term, but in the medium to long term, the Leighton Buzzard property market will always remain strong for both Leighton Buzzard homeowners and Leighton Buzzard landlords alike.
I recently read a report by the Yorkshire Building Society that 54% of the country has seen wages (salaries) rise faster than property prices in the last 10 years. The report said that in the Midlands and North, salaries had outperformed property prices since 2007, whilst in other parts of the UK, especially in the South, the opposite has happened and property prices have outperformed salaries quite noticeably.
As regular readers of my blog know, I always like to find out what has actually happened locally in Leighton Buzzard. To talk of North and South is not specific enough for me. Therefore, to start, I looked at what has happened to salaries locally since 2007. Looking at the Office of National Statistics (ONS) data for Central Bedfordshire Council, some interesting figures came out...
Salaries in Central Bedfordshire have risen by 8.79% since 2007 (although it’s been a bit of a rollercoaster ride to get there!) - interesting when you compare that with what has happened to salaries regionally (an increase of 14.11%) and nationally, an increase of 17.61%.
Next, I needed to find what had happened to property prices locally over the same time frame of 2007 and today. Net property values in Central Bedfordshire are 40.2% higher than they were in late 2007 (not forgetting they did dip in 2008 and 2009). Therefore...
Property values in the Leighton Buzzard area have increased at a higher rate than wages to the tune of 31.41% ... meaning, Leighton Buzzard is in line with the regional trend
All this is important, as the relationship between salaries and property values is the basis on how affordable property is to first (and second, third etc.) time buyers. It is also vitally relevant for Leighton Buzzard landlords as they need to be aware of this when making their buy-to-let plans for the future. If more Leighton Buzzard people are buying, then demand for Leighton Buzzard rental properties will drop (and vice versa).
As I have discussed in a few articles in my blog recently, this issue of ‘property-affordability’ is a great bellwether to the future direction of the Leighton Buzzard property market. Now of course, it isn’t as simple as comparing salaries and property prices, as that measurement disregards issues such as low mortgage rates and the diminishing proportion of disposable income that is spent on mortgage repayments.
On the face of it, the change between 2007 and 2017 in terms of the ‘property-affordability’ hasn’t been that great. However, look back another 10 years to 1997, and that tells a completely different story. Nationally, the affordability of property more than halved between 1997 and today. In 1997, house prices were on average 3.5 times workers’ annual wages, whereas in 2016 workers could typically expect to spend around 7.7 times annual wages on purchasing a home.
The issue of a lack of homeownership has its roots in the 1980’s and 1990’s. It’s quite hard as a tenant to pay your rent and save money for a deposit simultaneously, meaning for many Leighton Buzzard people, home ownership isn't a realistic goal. Earlier in the year, the Tories released proposals to combat the country’s 'broken' housing market, setting out plans to make renting more affordable, while increasing the security of rental deals and threatening to bring tougher legal action to cases involving bad landlords.
This is all great news for Leighton Buzzard tenants and decent law-abiding Leighton Buzzard landlords (and indirectly owner occupier homeowners). Whatever has happened to salaries or property prices in Leighton Buzzard in the last 10 (or 20) years ... the demand for decent high-quality rental property keeps growing. If you want a chat about where the Leighton Buzzard property market is going – please read my other blog posts on http://www.leightonbuzzardpropertyblog.com/blog or drop me note via email, like many Leighton Buzzard landlords are doing.
Moving to a bigger home is something Leighton Buzzard people with growing young families aspire to. Many people in two bedroom homes move to a three-bedroom home and some even make the jump to a four-bed home. Bigger homes, especially three-bed Leighton Buzzard homes are much in demand and it can be a costly move.
If you live in Leighton Buzzard in a two-bedroom property and wish to move to a four-bedroom house in Leighton Buzzard, you would need to spend an additional £216,766 (or £856.23 pm in mortgage payments (based on the UK Bank average standard variable rate)). However, going straight to a four bed from a two-bed home is quite rare as most people jump from a two to three-bedroom home, then later in life, from a three to four-bedroom home.
So, after being asked my thoughts on moving home in Leighton Buzzard by a friend recently, please find my analysis of the local property market and then some thoughts. To start with, let us see what the average property price is for a Leighton Buzzard property by the number of bedrooms it has.
I then decided to calculate what it would cost to make the jump upmarket from one bedroom to two bedrooms, two to three bedrooms etc, etc, both in actual money and in mortgage payments (using the current standard variable rate of UK Banks of 4.74% - so the mortgage cost could be higher or lower depending on the mortgage taken).
There are some interesting jumps in costs when moving upmarket as a Leighton Buzzard buyer. The cost of moving from one to two beds, and two to three beds is relatively reasonable, whilst the jump from three to four beds in Leighton Buzzard is quite high (and hence why some four bed properties are taking slightly longer to sell nowadays). On an aside, a lesson here for all my landlord property blog readers, you can quite clearly see why the larger 4 and 5 bed properties don’t offer the best returns for buy to let because the monthly finance costs and rents achieved don’t match up so well (i.e. A mortgage for a 4 bed home in Leighton Buzzard would cost you 49.92% compared to a 3 bed mortgage, but the jump in rent would be a lot less than that - although depending on your circumstances, 4 bed homes can offer other advantages to buy to let – pick up the phone if you want to know what they are in more detail).
So, coming back and looking at the stock of properties in Leighton Buzzard, this also makes interesting reading …
The most active purchasers are 20 something and 30 something home-owning parents with growing families. Many look to more modern developments for the perfect balance of access to decent primary schools, commutability and lifestyle. For landlords looking to buy within Leighton Buzzard, they face stiff competition from these 20/30 something families, making the three bedroom Leighton Buzzard home massively in demand, often attracting spirited offers and selling within weeks of listing. This mix of homebuyers and landlords is a pressure point in the Leighton Buzzard property market.
Yet, the cost of an additional bedroom can be too much for some Leighton Buzzard buyers. It is quite challenging moving home the first time, but to then find you are priced out on the next move up the ladder can be quite disconcerting, with families often having to move to a different part of town to get the bigger home they need.
Nevertheless, that’s the place many homeowners find themselves in with the cost of the additional bedroom being too much to bear. To those buying their home for the first time, all I suggest is they not only consider the mortgage payments and other costs of their first home, but also do their homework into their next rung up the Leighton Buzzard property ladder. Thinking about it now will keep you ahead of the game in the future; as your number of bedrooms, family property needs and lifestyle wants change.
..and Leighton Buzzard landlords – well these changes in the way people live also mean there are opportunities to be had in the Leighton Buzzard rental market. Many Leighton Buzzard landlords are starting to pick my brain on this, so if you don’t want to miss out – drop me a line.
Daniel Bourke is the owner of Belvoir Lettings Dunstable and in his previous career in Architecture he was an Associate in a leading London Architectural practice