sales - Reside Bath

It may surprise many, but despite the significant rises in inflation over the last few years, buying a house in today’s market is more affordable as a percentage of take-home pay.

First, the average value of a typical first-time buyer’s home has surged by 318% since 1989 (35 years ago for those counting), reaching £314,000 in 2024. So, you would think the title of the blog sounds…well…wrong.

However, the headline price one pays for a home is not relevant when looking at affordability, to measure this we need to look at what the home costs each month out of someone’s salary.

Despite this significant increase in headline pricing of houses over the last 35 years, the monthly mortgage payments that a first-time buyer needs to make today are significantly lower as a proportion of their monthly take-home than in 1989.

According to data from the Nationwide Building Society, today’s first-time buyers in Bath spend 41.9% of their household take-home pay on mortgage payments. This is substantially lower than the 64% required in 1989. This was due to the Bank of England’s base rate being 14%, and base wage rates being lower than they are today comparatively. So we can see a representative 34% reduction in the financial burden that a mortgage payment has today on first-time buyers compared to 1989.

Now, 1989 was 35 years ago and many may argue that as such, it is an irrelevant comparison to today’s economy. However, if we compare the data from today to a closer time, 2007, we can see that even 17 years ago, first-time buyers had to allocate 51% of their household income to their monthly mortgage payments. 17.9% higher than today’s figures which continues to show the relative affordability of a home in Bath over the last few decades.

Now we have established that when comparing % of monthly income to mortgage payments, how has this reduction happened? Well, in real terms (after inflation) incomes have risen and interest rates are much lower. UK household incomes have grown in real terms by 25% in the last 35 years, while interest rates are at 5.25%.

Beyond this, Bath’s first-time buyer affordability is influenced by several factors beyond interest rates and income. One significant aspect is the overall change in the housing market dynamics, including government policies, the availability of mortgages and demographic shifts.

UK GOVERNMENT POLICIES AND MORTGAGE AVAILABILITY:

Government policies supporting first-time buyers, such as Help-to-Buy schemes and favourable mortgage products, have made homeownership more accessible. These policies often provide financial assistance or guarantee parts of the mortgage, reducing the initial financial barriers for first-time buyers. Moreover, the regular availability of competitive mortgage products with lower interest rates and longer repayment terms (35+ years) has eased the burden on first-time buyers.

DEMOGRAPHIC SHIFTS AND URBAN DEVELOPMENT IN BATH:

Demographic changes, including the growth in urban areas and improved infrastructure, have also contributed to the housing market’s evolution. With a strategic location and vastly improved transport links, Bath has become an attractive option for commuters and young families. This has increased demand for housing, driving development projects that cater to the needs of first-time buyers with affordable housing options.

RENT VS BUY IN BATH – ECONOMIC CONSIDERATION:

As rental prices continue to rise at a considerable rate, the economic advantage of buying over renting is becoming more pronounced. Renting often involves annual rent increases, which then in turn offers no financial long-term security. In contrast, buying a home with a fixed-rate mortgage does offer financial predictability in monthly payments and property value appreciation.

However, many people will counter these arguments by saying that first-time buyers need to find large deposits. The average first-time buyer deposit in 2023 was an eye-watering £53,000. However, do remember that this is an average. 95% mortgages with 5% deposits have been available for some time now, but these do come with considerably higher interest rates and require a strong credit rating. For example, a large deposit (25%) will get to a lower interest rate (at the time of writing, the best 95% mortgage/5% deposit was at 5.2%, versus a 75% mortgage/25% deposit mortgage at 4.24%), yet if one extends the number of years one has for the mortgage, then the monthly payments will come down. (Remember to take advice from someone qualified to advise you on this).

Another advantage is that homeowners build equity. This becomes a significant financial asset over time, whereas renters do not gain any form of ownership benefit despite monthly payments.

If we are talking about the long term rental option in life then do be aware that if you retire having not purchased a home then you can qualify for support from the government for rental payments. However, if you are the sole occupant then you may only qualify for a smaller rental property payment and thus have to move upon retirement.

FINAL THOUGHTS:

The Bath property market has seen a roller coaster shift in affordability for first-time buyers over the past 35 years. While property prices have increased substantially, the proportion of household income required for mortgage payments has decreased due to lower interest rates, real-term income growth, and supportive government policies. This improved affordability, combined with the rising cost of rent, makes buying a more attractive and financially sound option for many.

The economic landscape has changed significantly, favouring first-time buyers in ways that were impossible in 1989 or even 2007. As the market continues to evolve, first-time buyers in Bath can take advantage of the current conditions to secure their financial future through homeownership. The reduced financial burden and the potential for long-term gains make now a suitable time for those considering stepping onto the property ladder.

Traditionally, if you had not sold your Bath home by the first week in November, you would normally have to wait for the house sellers to return in the famous Boxing Day rush on the portals (Rightmove, Zoopla etc) to get potential buyers interested.

Yet matters have been different this year as the various lockdowns have caused a surge in house buying right up until when the Christmas edition of the Radio Times goes on sale.

So the question is… how will the Bath property market look in 2022?

The market over the last couple of years have been different in many ways. So much so, many Bath homeowners are presently deliberating over whether they should put their home on the market in January or wait until later in the summer.

Speaking to many Bath buyers, sellers and Bath buy-to-let landlords over the last couple of weeks in the run-up to Christmas, many were asking the very same question.

What is going to happen to Bath house prices in 2022?

Some people asking this question are buyers troubling themselves that they are about to buy their Bath home just before a potential property crash, yet others are homeowners wanting to know where the top of the market is before they sell. Even a handful of Bath landlords unable to either start buying or start selling some of their rental portfolio.

Therefore, let’s see what has happened in 2021 to make a better judgement of what should happen in 2022.

Nobody has a crystal ball that can tell what 2022 holds, however most property experts are not forecasting doom and gloom for the British property market.

Whilst the final numbers won’t be known until Easter 2022, it is estimated that in 2021 one in fifteen privately owned homes in the UK will have changed hands, making it the busiest year in the last 14 years.

1,350 properties have changed hands in the last year in Bath

Although that is only up to October 2021, so numbers will be much higher once all the final counts are in by March / April 2022.

The pandemic made many Bath families re-evaluate what they wanted from their home, with many wanting bigger rooms (and more of them). Many in the press dubbed this ‘the race for space’, meaning the property market was flooded with home buyers, most bringing forward the home move they had planned between now and 2025.

The issue was, there weren’t enough Bath properties on the market to satisfy every Bath buyer, meaning Bath house prices have unsurprisingly been driven up.

The average price of a home in Bath is £425,530

Although it is still premature to say what will happen in 2022, most property commentators seem assured that we are not heading towards a house price crash, mainly due to one reason.

There aren’t enough properties on the market in Bath. Simply supply and demands economics!

The property crash in 2008 was caused by everyone dumping their property on the market.

In January 2007, there were 867 properties for sale in Bath, one year later in January 2008, that had risen to 1,177 properties, whilst today, that stands at 316

And I can’t see that changing for 2022.

In 2007, mortgage interest rates were 6.5% to 7.5%, so when the economy started to falter, everyone looked to sell their homes to reduce their outgoings as unemployment rose by over 60% in just a couple of years. This time round most people have mortgage rates of around 2% to 2.5% and unemployment is dropping, meaning they don’t need to sell their home.

Of course, the stamp duty holiday came to an end months ago, and Bank of England base interest rates are expected to rise moderately in the coming year, yet not to the level they were in 2007 (5.75%).

Nonetheless, demand for Bath homes will still be there. I have even read some reports suggesting that more than 20% of British households are seriously thinking of moving between now and the summer of 2023, and this will support Bath house prices whilst demand continues to exceed supply.

Bath house prices will be 3.3% higher by the end of 2022

Another reason why I believe that will be the case is the return to home working. If, as a country, we will need to work from home each winter for the foreseeable future because of new variants, then this will cement the need for people wanting to move home for remote working.

It might be that Bath buyers are looking for a dedicated office at home or that they feel they now no longer need to be in large built-up areas that are near to their work.

This increase in Bath house prices is expected to entice even more sellers onto the market, which will steady Bath house prices slightly (as supply increases), yet I still believe there won’t be enough properties coming onto the market to satisfy the colossal demand.

What about the Bath rental market?

Rents tend to grow in line with tenants’ wages. So, with many people getting decent pay rises and not enough properties being built, many economists are suggesting rents will be 14% to 19% higher by 2027. Even with the house price growth, the numbers for rental investments still look rosy.

Is it the right time to buy your first property in Bath?

This rise in Bath house prices has had many people asking whether 2022 is the right time to buy their first home? Should they buy now before Bath prices rocket even further or delay in the hope that house prices come back down?

As with any important decision in life, this will mainly depend on your own personal life and your motives for wanting to move.

If the Bath home that you want to buy is on the market, available and you can afford the mortgage, then delaying could be detrimental. It’s like holding off for the ‘next generation TV’, it then coming out; then just as you are about to buy the TV, the next ‘next generation TV’ gets announced for six months’ time… and the cycle is constantly in motion – so you end up never buying a TV… just like you will never buy your own home!

Buying property is a long-term game

Sometimes you just have to make your decision, get something bought and start the journey of the next 25 to 35 years of living in your family home whilst paying off your mortgage.

The present low interest rates for first-time buyers means that there are some very low mortgage deals available for those with a decent deposit, making it a good time to buy or invest in a Bath property, especially if you fix the interest rate.

If your deposit is humbler, the Government’s 5% deposit mortgage guarantee scheme will still enable you to buy a property, albeit at a slightly higher interest rate.

Looking at the bigger picture, these are only my opinions. If inflation doesn’t get too out of hand and interest rates don’t go above 2% to 3%, it looks like Bath house prices will, for 2022 and a few years beyond, continue upwards albeit with a slower trajectory than 2020/21 and probably with a few short, sharp up and down spikes on the way.

The bottom line is, ensure that any Bath house move or buy-to-let investment that you intend to make is something that you can afford, allow for future rises in interest rates and make plans for as many eventualities as possible. Do that, and you should be just fine.

These are my opinions – what are yours?

Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.

Tag: sales

FIRST-TIME BUYER HOMES ARE 34% CHEAPER TODAY THAN 35 YEARS AGO –

What Will Happen to Bath House Prices in 2022?

Reside is an award-winning independent letting agent in Bath. Please get in touch if you would like to discuss any aspect of letting or managing your property; we would love to hear from you.