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22.2% Drop in Local People Moving Home in the Last 10 Years

Article Simon Jory 2017-09-26
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22.2% Drop in Local People Moving Home in the Last 10 Years

Back in the early 2000's, between 1m and 1.3m people moved each year in England and Wales, peaking at 1,349,306 home-moves (i.e. house sales) in 2002. However, the 'credit crunch' hit in 2008 and the number of house sales fell to 624,994 in 2009. Since then this has steadily recovered, albeit to a more 'respectable' 899,708 properties by 2016. This means there are around 450,000 fewer house sales each year compared to the Noughties. The question is ... why are there fewer house sales?

Number of house sales in England and Wales

To answer that, we need to go back 50 years.

Inflation was high in the late 1960's, 70's and early 80's. To combat this, the Government raised interest rates to a high level in a bid to lower inflation. Higher interest rates meant the householders monthly mortgage payments were higher, meaning mortgages took a large proportion of the homeowner's household budget. However, this wasn't all bad news since inflation tends to erode mortgage debt in 'real spending power terms'. Consequently, as wages grew (to keep up with inflation), this allowed home owners to get even bigger mortgages. At the same time their mortgage debt was decreasing, therefore allowing them to move up the property ladder quicker.

Roll the clock on to the late 1990's and the early noughties, and things changed. UK interest rates tumbled, as UK inflation dropped. Lower interest rates and low inflation, especially in the five years 2000 to 2005, meant we saw double digit growth in the value of UK property. This inevitably meant all the home owner's equity grew significantly, meaning people could continue to move up the property ladder (even without the effects of inflation).

This snowball effect of significant numbers moving home continued into the mid noughties (2004 to 2007), as Banks and Building Society's slackened their lending criteria. You will probably remember the 125% loan to value Northern Rock Mortgages. This meant home movers could borrow even more to move up the property ladder.

So, now it's 2017 and things have changed yet again!

You would think that with ultra-low interest rates the number of people moving would be booming – wouldn't you? However, this has not been the case. Less people are moving because:

  1. low wage growth of 1.1% per annum
  2. the tougher mortgage rules since 2014
  3. sporadic property price growth in the last few years
  4. high property values comparative to salaries

What does this translate to in pure numbers locally?

In 2007, 3,332 properties sold in the East Lindsey District Council area and last year, in 2016 only 2,591 properties sold – a drop of 22.24%.

Number of properties sold in East Lindsey District council

Therefore, we have just over 740 less households moving in the local area. Now of that number, it is recognised throughout the property industry around fourth fifths of them are homeowners with a mortgage. That means there are around 608 mortgaged households a year (fourth fifths of the figure of 740) in the Horncastle and surrounding council area that would have moved 10 years ago, but won't this year.

The reason they can't/won't move can be split down into different categories, explained in a recent report by the Council of Mortgage Lenders (CML). So, of those estimated 608 annual Horncastle (and surrounding area) non-movers, based on that CML report -

  1. There are around 220 households a year that aren't moving due to a fall in the number of mortgaged owner occupiers (i.e. demographics).
  2. I then estimate another 85 households a year are of the older generation mortgaged owner occupiers. As they are increasingly getting older, older people don't tend to move, regardless of what is happening to the property market (i.e. lifestyle).
  3. Then, I estimate 36 households of our Horncastle (and surrounding area) annual non-movers will mirror the rising number of high equity owner occupiers, who previously would have moved with a mortgage but now move as cash buyers (i.e. high house price growth).
  4. That leaves 267 mortgaged homeowners that are unable to move because of the financing of the new mortgage or keeping within the new rules of mortgage affordability that came into play in 2014 (i.e. mortgage).

The first three above are beyond the Government or Bank of England control. However, could there be some influence exerted to help the non-movers because of financing the new mortgage and keeping within the new rules of mortgage affordability? If property values were lower, this would decrease the size of each step up the property ladder. This would mean the opportunity cost of increasing their mortgage would reduce (i.e. opportunity cost = the step up in their mortgage payments between their existing and future new mortgage) and they would be able to move to more upmarket properties.

Then there are the mortgage rules, but before we all start demanding a relaxation in lending criteria for the banks, do we really want to return to free and easy mortgages such as the 125% Northern Rock footloose and fancy-free mortgage lending?

We all know what happened with Northern Rock.

Sources:

  1. Land Registry for your Councils Transaction Numbers
  2. CML Report – National Figures worked on your authority's numbers Report is called 'sMissing Movers: A Long-Term Decline in Housing Transactions?'s

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Simon Jory

Simon Jory

Simon has been in Estate Agency for over 32 years and is a Fellow of the National Association of Estate Agents. Having working in all kinds of changing market conditions he is well placed to advise on how best to sell your home.

Anne Pearce

Anne Pearce

Anne prides herself on working to the highest standards and believes everyone should receive the best possible customer service. With over 20 years' experience she will not miss and opportunity.

Dawn Bannister-Law

Dawn Bannister-Law

Prior to moving to Lincolnshire, Dawn was a valuer for more than 19 years in Bakewell in the Peak District. Dawn strongly believes buyers, sellers, landlords or tenants are all as important as each other

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