Friday 25 August 2017

The Unfairness of the Royal Tunbridge Wells Baby Boomer’s £4,982,850,000 Windfall? (Part 1)


Recently I was having a chat with one of my second cousins at a big family get-together. The last time I had seen them their children were in their early teens. Now their children are all grown up, have partners, dogs and children. Wow – how time flies!

So, I got talking over a glass of lemonade with my 2nd cousins and a couple of their children, about the times of 15% interest rates and how the more mature members of our family had to endure the 3 day week, 20% inflation and the threat of nuclear annihilation in 4 minutes .. so, foolishly, I said what with all the opportunities youngsters had today, they had never had it so good!

Trust one of my cousin’s children to have gained some financial/economics qualifications before going to Law School, as they debated with me the genuine economic predicament of Millennials and 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, causing an unparalleled disparity of wealth between the generations. So of course I asked why that was?

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 1950’s and 1960’s, 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, the young 2nd cousin once removed ‘soon to be’ lawyer, stated that baby boomers born between 1945 and 1965 have been big recipients of the vast rising house prices over the 1970’s/80’s/90’s and 2000’s. 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 Houston Royal Tunbridge Wells – do we have a problem??

Well Royal Tunbridge Wells Property Blog readers, you know 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 Royal Tunbridge Wells has risen from £118,900 to its current level of £490,200. As there are a total of 13,420 homeowners aged over 50 in Royal Tunbridge Wells; that means there has been a £4.98bn windfall for those Royal Tunbridge Wells homeowners fortunate enough to own their own homes during the property boom of the 1990s and early 2000’s.

I must admit that the growth in property values in the 1990’s and 2000’s certainly helped many of Royal Tunbridge Wells’ 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 do they? Are they?


Next week, I will carry on this discussion where I will give the Baby Boomer’s defence to the prosecution’s case!

Friday 18 August 2017

The Royal Tunbridge Wells Property Market, The Beatles, Sweden and 50 year mortgages

50 years ago, in 1967, the first human heart transplant was performed by Dr Christian Barnard in South Africa. In the same year Sweden switched from driving on the left-hand side to the right-hand side of the road. The average value of a Royal Tunbridge Wells property was £6,501, interest rates were at 5.5% and The Beatles released one of my favourite albums – their Sgt Peppers album ... but what the hell has that to do with the Royal Tunbridge Wells property market today?? Quite a lot actually ... so with my CD Player turned up loud - let me explain my friends!

I have been doing some research on the current attitude of Royal Tunbridge Wells 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 (good news for landlords). If they buy, demand for Royal Tunbridge Wells property goes up for starter homes and that enables other Royal Tunbridge Wells 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 Royal Tunbridge Wells property is currently standing at £490,247 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.

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 (Beatles Sgt Pepper song - “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 60’s - I can hear that other great track from the same album "When I'm Sixty-Four" ringing in my ears! So, a 50-year mortgage does not seem as far-fetched now as it would have been back in the 1970’s. 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, Royal Tunbridge Wells 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.

However, some commenters have said there are worries the mortgage companies are lending money over such a long term, they threaten leaving some first-time buyers with a generation of debt if the house price bubble bursts.  Interestingly, when I looked at what had happened to average property values in Royal Tunbridge Wells over the last 50 years, there have been bubbles. First-time buyers should take heart, since as a county we have always recovered from it a few years later.


What if interest rates rise? Well looking at historic UK interest rates, 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 Royal Tunbridge Wells first-time buyers see buying a home as a long-term decision, based on the last 50 years, they should be just fine!



Before I go, a final thought for property buyers in Sweden, the land of Volvo and Abba. 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 (On and On and On – Abba).

No, our Volvo-loving Swedish friend’s average mortgage length is 140 years (this is not a typo). Although such mortgages have had their Waterloo (Abba), regulators have significantly reduced the maximum term of a Swedish mortgage to 105 years. Either way, that’s a lot of Money, Money, Money (Abba again – Sorry!)  to pay back!


Now I will leave you in peace as I listen to the 1980’s Madness song ‘Our House’. My apologies to all the Beatles and Abba fans in Royal Tunbridge Wells - a bit of light hearted fun albeit on serious topic.

Friday 11 August 2017

‘Royal Tunbridge Wells Buy-To-Let Predictions up to 2037

On several occasions over the last few months, in my Royal Tunbridge Wells Property Blog, I predicted that the rate of rental inflation (i.e. how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.

Rents in Royal Tunbridge Wells for new tenancies fell by 0.4% 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 Royal Tunbridge Wells, an interesting pattern emerges ..

·      2016 - Rental Inflation in Royal Tunbridge Wells was 5.1%
·      2015 - Rental Inflation in Royal Tunbridge Wells was 9.4%
·      2014 - Rental Inflation in Royal Tunbridge Wells was 3.2%

The reason behind this change depends on which side of the demand/supply equation you are looking from. 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 (Denton House).

On the supply side of the equation (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 Royal Tunbridge Wells’ 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.

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Royal Tunbridge Wells, the South East 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.

Population Estimates for Royal Tunbridge Wells Borough Council over the next 20 years
2016 (actual)
2021
2026
2031
2036
117,140
120,511
124,121
127,533
131,092

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Royal Tunbridge Wells, 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.