Neath property
prices have increased by 23.5% over the last two years.
Neath 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 land transaction tax 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 Neath instead of
reading headlines in the newspapers. Let me start with average incomes.
The average Neath household income is £589.60 per week, compared to £570.60
in Wales and £613.10 nationally.
Roll the clock back twenty years to 2002, and the average Neath
household income was £353.90.
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 Neath 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 Neath property market, many Neath
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 Neath first-time buyers, then I suspect we
might see more Neath 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 Neath 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 Neath housing market will be slower in the next
12 months compared to the last 24 months. Nevertheless, I anticipate Neath
house price growth will ease (and, in some months, be slightly negative). A
better bellwether of the state of the Neath 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.
