Will the cost-of-living crisis mark the end of the booming St Neots property market?
St Neots property prices have increased by 16.9% over the last two years...
The house prices have risen off 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 stamp duty 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 that the one thing that could stifle this growth is the cost-of-living crisis. Something that we’re all beginning to feel.
Let’s delve deeper into what’s happening in St Neots instead of reading headlines in the newspapers.
Let’s start with average incomes:
The average St Neots household income is £589.20 per week, compared to £628.60 in the East of England and £613.10 nationally.
Roll the clock back twenty years to 2002, and the average St Neots household income was £427.80.
Mortgage costs for first-time buyers are much lower today (as a percentage of household income) than in 1989 and 2007 and when it comes to 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 and 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.
As a comparison, looking at the earliest stats available, in 1957, food represented 33% of the household income and tobacco was at 6% (today, it's 2.34%).
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 we suspect that the leisure budget will be hit the hardest to pay for that. We are seeing an inflation in food items of around 10% to 15%, which means 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.
How does inflation affect 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, adding fuel to the fire of a cost-of-living crisis by growing mortgage costs.
Those St Neots homeowners on tracker or variable rate mortgages will instantly have an increase their mortgage payments.
Encouragingly though, just under 17 out of 20 people are on fixed-rate mortgages, the majority of which are 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, but will make it more challenging and expensive for new borrowers like first-time buyers. It’s possible though, that without so many first-time buyers, St Neots landlords may begin to start buying again as there will be less owner-occupiers trying to outbid each other for their forever home.
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.
In conclusion, because of the St Neots 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 St Neots housing market will be slower in the next 12 months compared to the last 24 months.
Probably, a better bellwether of the state of the St Neots property market is the number of people moving house (i.e. the transaction levels). We 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 may be over, yet it shouldn’t be a bust situation.