Saturday, 5 June 2021

Your Great-Great Royal Tunbridge Wells Grandfather Would Only Have Paid £618 14s 9d for his Tunbridge Wells Home in 1871


Would it surprise you even more when I said the ratio of house prices to wages are still lower today when compared to 1871?  Yes, you read that correctly, as a proportion of average wages British house prices are 17.6% proportionally cheaper today than they were in 1871.


I wish to talk about the last 150 years of the British property market and later in the article, the Tunbridge Wells property market. I will also touch on why before the 1900s, buying a home in the area was considerably more expensive than today and why that has changed.


So, let’s look at some interesting stats to get us started:


  • In 1871, each house was occupied by an average of 5.33 people (i.e. for every 100 houses, 533 people lived in them), today that stands at 2.39 people per house 

  • In 1871, there were 4.5 million properties in the UK, today that stands at 27.9 million

  • In 1871, the weekly average wage was 13s 8½d (68p) and today £585.50

  • In 1871, only 20% of people owned their own home, in 2021it stands at 65%


I stated in the first part of the article it was more expensive to buy in the latter part of the 19th Century than today. It may only be of historical interest, but back in 1871, the ratio of average house prices to average wages was 10.5 to 1 (i.e. the average house was worth ten and half times the average person’s wage), whilst today it stands at 8.8 to 1. 


Interestingly, for the next 45 years, that ratio went on a downward trend relative to wages and only stopped falling after WW1, where the average house was worth only 2.2 times the average wage. This made houses more affordable and set the foundations for the home-owning passion we Brits have today.


So why did this happen, what can we learn from it and what does it mean for Tunbridge Wells homeowners and landlords? 


There were three significant drivers that made property a lot more affordable between 1871 and 1911: the Victorians built more property, made them smaller and people's wages rose significantly. 


  • In the 40 years between 1871 and 1911, the number of properties in the UK rose from 4.5 million to 8.9 million. To give you some perspective, there were 18 million properties in the UK in 1981. If the UK had grown by the same rate between 1981 and today that was experienced between 1871 and 1911, there would be 35.6 million households in the UK (and not the 27.9 million mentioned above).


  • In 1871, the average plot size of a property was 0.23 acres, yet by 1911, that was down to 0.06 acres (or a plot of 72ft by 40ft). This came about from building smaller types of property (i.e. a change away from larger Georgian detached houses towards the infamous rows of Victorian terraces), and a downshift in the average size of houses within each category.


  • The average value of property dropped by 26% between 1871 and 1911, whilst wages rose by 85% over the same time frame.


So, by 1911, the average Tunbridge Wells property had

dropped in value from £619 in 1871 to £459.

N.B. – you might have noticed I wrote £619 in a slightly different way in the title of the article. Up to 1971, a pound was split not into 100 pence but 240 pence. There were 12 pence in a shilling and 20 shillings (or 240 pence) in a pound. It was expressed in the form £sd and spoken as "pounds, shillings and pence". I dropped that into the title as it’s the 50th anniversary this year of when the UK decimalised its currency (younger readers – do google the story – it’s a fascinating topic).


So back to the property market, and at the end of WW1, four in five people still rented, virtually all from private landlords. Politicians were concerned about the poor living standards of people’s homes, and this led to the ‘homes fit for heroes’ 1919 Housing Act which delivered subsidies for local councils to build council houses. The average value of a property in Tunbridge Wells in 1922 was £722.


The 1930s - By 1930, the average value of a local property stood at £913. With the country building a third of a million houses per annum, interest rates fixed at 2% and hardly any planning regulations, supply of property was outstripping demand, so the average value of homes locally dropped ever so slightly in value to £843 by 1938.


The 1940s - With the bombing of many towns and cities and housebuilding stopped because of the war, this created a perfect storm to increase house prices after the war. By 1947, the average Tunbridge Wells home had risen in value to £2,821 because just as food was rationed during and after the war, so were building materials. Builders could spend no more than £350 on building materials for a new home (and that lasted until 1954).


The 1950s - The '50s were all about building council houses – a quarter of a million of them each year. By 1959, the average Tunbridge Wells house price had risen steadily to £3,914.


The 1960s - This decade saw even more houses being built in the UK, with an average of a third of a million houses a year being built. Our area is full of 1960s council houses and now even more owner-occupied housing, meaning by the end of the decade Britain had as many homeowners as renters. The average Tunbridge Wells house had risen in value to £7,177 by 1969.


The 1970s - We experienced the first boom and bust housing bubble in the early 1970s with house prices rising by over 30% a year in the early part of the decade (so the current 10% a year is child's play!) but prices dropped in 1974. They recovered quickly in the following years, not because of increased demand but due to hyperinflation, making the average Tunbridge Wells house price rise to £36,499 by 1980. 


The 1980s - This was the decade of council tenants being able to buy their own homes, although not many people know it was an idea from Labour. They decided against the idea, but it was seized upon by the Tories, who made it the cornerstone of their 1979 election manifesto. The property market helped improve the economy, and by 1988, Tunbridge Wells property values increased to £76,345 (only to drop by 32% a couple of years later).


The 1990s - The housing market crash of the early 1990s was painful for all, exacerbated by mortgage interest rates being raised to 15% on Black Wednesday (16 September 1992) and left there for 12 months. Unemployment went from 1.5m to 3m for the second time in ten years, and many of those homeowners who had taken out large mortgages in the late 1980’s housing boom could no longer afford the repayments because of the high interest rates, meaning repossessions went through the roof. The crash also made builders nervous, and they only built 150,000 houses on average a year in this decade. Yet, by the mid-1990s, things started to improve. So much so, the average Tunbridge Wells home was worth £143,116 by the turn of the millennium. 


The 2000s - The decade of cheap mortgages and the rise of Buy-to-Let, together with a severe drop in the number of new homes being built, contributed to the UK’s third big housing bubble since WW2. The average Tunbridge Wells house price more than doubled to £383,254 by 2008, before the Credit Crunch brought the boom to an end, and a year later (2009), the average Tunbridge Wells property had dropped to £340,405. 


The 2010s - The property market started to come back to life in the early 2010s with property values steadily rising throughout the decade, yet builders were only building around 135,000 new homes a year. It also might surprise you that by 2015/6, the number of homeowners was starting to rise quite significantly, meaning today, as we enter the 2020s decade, the average value of a Tunbridge Wells property now stands at £541,021.


So, now we are back to 2021. 


Yes, your Great-Great-Grandfather might have been able to buy their Tunbridge Wells house for a shade under £619 in 1871. Taking inflation into account since 1871, that same Tunbridge Wells house today would be £74,531.36, yet if his wages had increased by inflation at the same rate, the average wage today would be £81.91 per week, not the current £585.50 per week.


I appreciate there are plenty of other factors involved with this topic, such as the cost of renting, raising a deposit, changing lifestyles and the biggest point, the cost of borrowing money on a mortgage. 


All this begs the question, what does the future hold for the local property market? 


It's obvious since the mid-1980s, house prices have sustained a period of impressive growth (even withstanding a couple of property crashes). The Bank of England has gone on record to say that much of the rise in average house values, comparative to wages, between 1985 and now can be seen because of a sustained, dramatic, and consistently unexpected decline in real interest rates and additionally concludes that: ‘An unexpected and persistent increase in the medium-term real interest rates will generate a fall in real house prices.’


Cheap mortgages and a lack of building have created this situation. So as long as interest rates don’t go back to their long-term average of the 5% to 7% range or the Government decides to increase building new homes to half a million a year (from the current 240,000 per year) ... things will carry on as they are in the medium to long-term.


These are my thoughts. I would love to hear any stories of your family buying property in the late 19th Century or early 20thCentury and what they paid for it, together with the affordability of Tunbridge Wells property and the future of it.


Please do comment with your stories.



Sunday, 23 May 2021

Will the Royal Tunbridge Wells Property Market Continue to Boom?

 

All the signs are that the Royal Tunbridge Wells housing market is sat on good foundations, yet one key hazard could still scupper the market.


‘UK Property Prices Rising at Record Levels’ is the headline of many newspapers. In the last few weeks, the Halifax reported they had grown by 6.5% in the last 12 months, whilst the Nationwide said 7.1% and not to be outdone, the Government’s own Land Registry said 8.6%. Nothing new there then you might think, don’t UK house prices always increase?


Actually, they don’t, as many local homeowners will remember 2009, when they dropped by 19%. Also, some more mature resident homeowners will remember the early 1990’s where house prices dropped just over 40% over 4 years (after the 1989 property crash). So, the increase in UK house prices over the last 12 months has mystified all the forecasts made by most economists as…


House prices were forecast to drop during the pandemic because during the previous six UK recessions experienced since WW2, house prices have always fallen sharply in real terms.


Yet 2020 was different with house price growth increasing at its highest rate since 2014 as the substantial Government support programmes (including Bounce Back Loans, grants and furlough) has mollified the hit to household incomes. Add to that the pent-up demand from the Boris Bounce, all the people working from home wanting an extra room for an office and therefore needing to move, plus the stamp duty tax holiday, with the cherry on the cake of 0.1% Bank of England interest rates keeping borrowing affordable. This has meant…


Tunbridge Wells property values are 6.6% higher than a year ago.


Yet the affordability of property is a big issue going forward. By the time of the height of the last property boom in 2008, the national ratio of average property values to earnings had risen from 5.1 in 2000 to 8.8 (i.e. the average house price was 8.8 times the size of the UK’s average person’s annual earnings). We then had the property crash in the proceeding years, and the ratio dropped to around late six’s/early sevens. However, over the last few years, the ratio has been steadily rising and now with the recent growth in demand for property (the five reasons mentioned in the previous paragraph), the ratio has now smashed past nine. Looking locally…


The ratio of average property values to earnings in Tunbridge Wells as a comparison was 6.1 in 2000, rising to 9.9 in 2008, dropping to 8.3 the year later when the Credit Crunch hit, and now currently stands at 13.3.



So, are we heading for another house price crash? Maybe, maybe not - because the House Price to Earnings ratio only tells us part of the story. Another indicator of the property market is mortgage affordability, which measures the proportion of mortgage payments to average incomes. For all mortgage holders, in 2015, this stood at 24.13% and today it is only just above the national long-term average of 25%, demonstrating that property is still affordable. 


Yet, the life blood of the property market are first-time buyers. The long-term average percentage of income which goes on mortgage payments for first-time buyers is 33%. Just before the 1989 property market crash, this stood at 54%. Whilst just before the 2008 property crash, it reached 49%. Today, it stands at 31.7% (and the reason it’s so low even with record high property prices is low interest rates, because when mortgage interest rates are low, this permits people to afford larger mortgages, which enables them to bid up house prices).




So why aren’t more first-time buyers buying more homes? Well in fact they are buying more homes. At the turn of the Millennium, just over half of 25yo to 35yo were homeowners and by 2014, this had dropped to just a third, although since then it has increased to 41%. Now with the reintroduction of the Government backed 95% mortgages in April, this demand will continue further. 


Once furlough ends, unemployment will doubtless rise in the following 12 months, yet the economy is more than likely to be in a boom phase, so by the spring/summer of 2021, the unemployment rate should start to fall.


So, does everything look great for the Tunbridge Wells property market? 


Before you get the champagne out, there is a cloud on the horizon - the possibility of higher interest rates. 


Undoubtedly, for the next few years, interest rates will not go up (and if they do – it will only be nominally). However, down the line it may be a different tale. Interest rates are used to control a number of economic factors, one being the currency and secondly inflation. 


As many suggest, if we get an economic boom in the next 12 to 18 months, as we come out of lockdown, this will put upward pressure on the price of goods and services. Normally, when prices go up (inflation), to ensure that inflation doesn’t get out of control, interest rates are normally increased to dampen down the inflation.


So, will interest rates rise? Undoubtably they will. Local homeowners to Tunbridge Wells and buy-to-let landlords should seriously consider protecting themselves with fixed rate mortgages (yet 3 in 10 mortgagees are still on variable rate mortgages!). I believe we will see some inflation in the order of 3% to 5% in the coming 24 to 36 months, yet the interest rates won’t be enabled to bring it down. We had a similar case in the early 2010’s when we had a mis-match of demand and supply of goods, and inflation spiked to 5%, before returning back to its long term 2% average quite quickly thereafter. 


The Chancellor will also encourage some inflation to reduce the ‘real’ cost of the billions he has borrowed because of the pandemic, yet won’t want to see interest rates increase to take the cost of the borrowing upwards.


If you are considering moving home or buying/selling a buy-to-let property in Tunbridge Wells in the next 12 to 18 months, and want a chat about your options, don’t hesitate to drop me a line.


Finally, these are interesting times ahead – I would love your thoughts on this matter. Please do share them in the comments.










Friday, 16 April 2021

Almost 1 in 3 Royal Tunbridge Wells Properties Being Sold with No Chain

So is it a good idea to rent in between moving home, 

to be chain-free? 

 

Moving home is said to be the third most stressful thing you can do, so if you can do anything to reduce that stress, so much the better? When buying your next Tunbridge Wells home, being chain-free can certainly reduce your stress and offers many advantages over other buyers (and some disadvantages) 

 

So, what is a chain? A property chain is made when there is a line of home buyers and home sellers linked through their property transactions e.g. Tunbridge Wells first-time buyer purchases a property, the sellers of that property then buy another property, and those sellers then buy another property, so on and so forth. Each home sale and purchase are reliant upon the success of every property in the so called ‘chain’. This means if there is one hiccup on one of the properties, every sale and purchase along the whole chain would collapse. No wonder everyone is on tenterhooks when there is a long chain involved. 

 

Yet Tunbridge Wells buyers who sell their home before searching for a new Tunbridge Wells home considerably reduce their stress levels because they are not needing all the ducks to ‘line up in a row’ on the sale of their home in order to buy their new Tunbridge Wells home 

 

Being chain-free puts Tunbridge Wells home buyers in an enhanced position to negotiate with home sellers and they in turn may be more enthusiastic to accepting a lower offer. 

 

Sounds brilliant this chain-free life doesn’t it? Everyone is a chain-free buyer once … when they are a first-time buyer and if they are lucky enough to have an additional home to move into. The other option is selling your Tunbridge Wells home and moving into rented accommodation, but that will end up costing quite a few thousand pounds (in what many perceive as wasted money) together with the added cost of employing the services of home removers twice (with all the hassle that entails doubled!). However, that is what many Tunbridge Wells homeowners are doing.   

 

31.6% of all the properties on the market today in Tunbridge Wells are being sold without a chain. 

 

I can’t disagree, moving home twice in a short period will be stressful and rent could be perceived as ‘wasted money’, but I have to recommend you look at the bigger picture. It is one of the sturdiest sellers’ markets in a generation, meaning you should get top dollar for your Tunbridge Wells home, knowing that many buyers are keen to complete before the stamp duty holiday ends in the autumn. 

 

Then by waiting for the return of stamp duty and for the full roll out on the immunisation programme to give more Tunbridge Wells homeowners the peace of mind to place their Tunbridge Wells home on to the property market, for Tunbridge Wells house prices to cool and the number of properties for sale to increase. Then you could pounce in and buy, with more Tunbridge Wells homes to choose from and at more realistic asking prices. 

 

So, does the type of Tunbridge Wells property that is being sold make any difference?  

 

  • 31.6% of detached houses in Tunbridge Wells are being sold chain-free 
  • 32.9% of semi-detached houses in Tunbridge Wells are being sold chain-free 
  • 28.1% of town house/terraced Houses in Tunbridge Wells are being sold chain-free 
  • 33.6% of apartments/flats in Tunbridge Wells are being sold chain-free 
  • 31.4% of bungalows in Tunbridge Wells are being sold chain-free 

 

Of course, these aren’t all Tunbridge Wells homeowners going into rented accommodation hoping to bag a bargain next year. Many of the bungalows are being sold because their homeowner has either moved into sheltered accommodation or sadly passed on and there are Tunbridge Wells landlords selling their Tunbridge Wells buy-to-let rental investments. 

 

And don’t get me wrong, there are also risks involved with this type of home buying strategy. Moving into rented accommodation means you are out of the Tunbridge Wells property market. Property values could dip in the next 12 months, yet they still could continue to rise - you are taking a gamble on a dip in the market and it could go wrong.  

 

Like most things in life, it depends on your own personal circumstances, where you are in your life, your attitude to risk and your belief on what will (or wont) happen to property values in Tunbridge Wells in the next 12 to 18 months. 

 

If you would like a chat about your potential choices for your home move, then drop me a line.