What will the stamp duty cuts & interest rate rises mean for Hayes homeowners & landlords?

Last weekthe Bank of England increased interest rates to 2.25% and they are expected to be 3.25% by early next year. This increase will make the monthly mortgage payments more expensive for first-time buyers, an issue dubbed by some as the ‘property affordability crunch.’

It will also damage the household budgets of homeowners coming off their fixed-rate mortgages in the next 12 months.

So how many homeowners are coming off their fixed rates in the next year?

Of the 7.97 million homeowners with a mortgage in the UK, 6.1 million of them are on a fixed-rate mortgage at an average rate of 2.04%. Industry statistics show around 1.3 million homeowners are coming off their fixed rate in the next 12 months.

The current crop of fixed-rate mortgage deals available today have already had the recent increase in the base rate ‘priced-in’ for weeks.

The cheapest 5-year fixed rate today for a 65% Loan to Value re-mortgage (i.e. you are borrowing 65% of the value of your home) is a mortgage rate of 3.8% with Royal Bank of Scotland (RBS).

So, what will be the difference in mortgage payments

between a 2.04% mortgage and a 3.8% mortgage?

Say an average Hayes first-time buyer bought their first home in November 2019 on a 25-year mortgage. They had a 3-year fixed-rate mortgage, and let’s assume they fixed it at 2.04% (as mentioned above), meaning their fixed-rate deal finishes next month. They have £260,000 outstanding on their mortgage, and their Hayes house is worth £400,000. They would have been paying £1,107 per month for the last three years (assuming they took out a 25-year repayment mortgage).

On the RBS deal above, they will have to start paying £1,548 per month from November when they come off their initial rate – a rise of £441 per month in mortgage payments. That’s quite a rise and potential blow to their household budgets.

Yet if they pushed back the repayment term from 22 years to, say, 35 years, that reduces the payment to £1,120 per month – something to consider if you are re-mortgaging in the coming 12 months.

What will the stamp duty changes mean for

Hayes property owners?

PM Liz Truss and Chancellor Kwasi Kwarteng believe that cutting stamp duty will support economic growth by encouraging more people to move home or jump onto the property ladder.

Stamp duty also has other harmful side effects as it decreases labour market elasticity and curtails people from selling up and buying elsewhere, where the jobs are.

Also, stamp duty makes mature homeowners stay put in their large homes rather than downsizing. This reduction in stamp duty will encourage those mature homeowners to move, thus freeing up their large family homes for the younger families that need them.

The Chancellor doubled the zero-rate stamp duty band from

£125,000 to £250,000, passing a stamp duty tax saving of up

to £2,500 for all English homebuyers.

Also, tax savings are even more significant for first-time buyers, particularly in areas with high house prices, such as London and the South East. They can save a maximum of £11,250 in stamp duty – with a new zero-rate band of £425,000, based on a higher £625,000 spend cap (i.e. the house they buy can’t be over £625,000 for them to qualify for the tax relief).

So, what effect will these stamp duty changes have on the Hayes property market? Looking at recent events in the local property market is the best place to start.

Of the 810 transactions in the Hayes area since June 2021,

116 were below £250,000. These would now be tax-free!

Unsurprisingly, most housing transactions in Hayes were above the £250,000 threshold, yet irrespective of that point, it’s a saving of up to £2,500 for all future Hayes homebuyers.

Anyone currently buying a house in Hayes and not yet completed on their purchase (completion is when you have paid the money for your home and collected the keys) will be in line to make this saving.

Hayes landlords purchasing buy-to-let properties will also save money with the stamp duty cut (but they will still be liable for their second home stamp duty levy of 3%).

Overall, this is a welcome move to help the Hayes property market.

Yet will the stamp duty threshold rise have the seismic effect that the Rishi Sunak stamp duty holiday did in 2021, where just under 40% more people moved home than the long-term 30-year average?

I am sure the stamp duty cut will somewhat offset the cost of rising mortgage rates mentioned in this article and cushion the blow to the property market.

A blow to what you might ask?

Well, many people judge the property market’s health by house prices.

The average value of a Hayes property stands at £405,954

and has risen 14.4% in the last five years. Not bad, eh?

But I believe there is a better way to judge the health of the local property market, and that is the number of people moving home (i.e. housing transactions).

You might be asking yourself why we should be more concerned about the number of property transactions and not the change in property values.

Many economists believe the number of property transactions is a far more accurate bellwether for the health and potency of the local housing market. A greater number of people moving home is better for the whole economy (i.e. what these changes are being made for) than a smaller number of transactions, whilst the same can’t be said for higher house prices. 

So what is going to happen to Hayes house prices?

I believe the growth in Hayes house prices achieved in

2021/22 is not sustainable into 2023.

In conjunction with the price cap on energy bills, the stamp duty change, the reversal of the rise in National Insurance and the drop in Income Tax will mitigate house price drops. Yet, I foresee a ‘slight’ realignment in the house prices being achieved in 2023, compared to 2022.

The more significant impact these changes will have is the number of people moving home in the next 12 months.

I have been forecasting a 15% to 20% year-on-year drop in Hayes property transactions in 2023. Following this stamp duty cut and the measures mentioned above, I believe it will be lower, yet around 5% lower.

To conclude, I predict we will have slightly lower house prices and fewer people moving home in Hayes, but not any way a crash that many thought was on the horizon.

Before I go though, let me share some thoughts on whether stamp duty is a fair tax.

Now, this is almost a topic for a standalone article itself. Some economists believe that removing stamp duty (which raised £14.1bn in tax in 2021) and replacing that lost income to the Exchequer by increasing council tax on more expensive properties would do a lot more than other intended tax cuts to boost economic growth.

According to some commentators, the way UK Government taxes housing is flawed. They suggest instead of taxing an infrequent property transaction particularly harshly (the average stamp duty bill is £10,600), the Government should tax living in a house more, especially those who live in the higher priced properties.

So let us see how viable that could be …

Even if council tax was frozen for bands A to D (the lower priced properties), and the uplift between the more expensive council tax bands was doubled on each step between band D and H (so a typical band E property owner would see their council tax rise from £2,473 to £3,628 per year and a typical band H see a rise of from £3,435 per year to £5,790 per year), such massive increases in council tax would be political suicide for the wealthy Tory voting homeowners and only raise £5.28bn – a long way from the £14.1bn currently raised.

Now, if the £14.1bn tax raise were spread evenly over all council tax bands, the average band D property would need to rise by £490 per year, and even a band A would increase by an extra £382 a year … something that again would be political suicide.

Yes, stamp duty is flawed. It’s just every other option has more significant flaws.

Anyway, these are just my thoughts. Tell me, people of Hayes, what are your thoughts on the Budget, the stamp duty changes or whether stamp duty is fit for purpose and what you would do if you were the Chancellor to bolster the British property market?

– these are the reasons they are not.

Looking at the newspapers with their doom and gloom headlines, you would think that the Hayes property market (and the British property market) would be on its knees.

Yet ring some Hayes estate agents for a viewing or free valuation, and if you can get an appointment within a week to ten days, you are doing well!

British properties continue to sell in good numbers.

In July and August 2022, sales have been agreed on an average of 25,476 UK properties per week.

Interesting when compared to the averages of 27,351 sales agreed per week in 2021 and 26,382 sales agreed per week, year to date in 2022.

So why is the Hayes property market defying all expectations?

It is because there is an absolute shortage of properties to buy on the books of Hayes estate agents, meaning Hayes house prices are being kept buoyant (as demand exceeds supply).

Today, there are 314 properties available to buy in Hayes (UB3). Roll the clock back to October 2007, the month before the last house price crash, and it was 561.

That’s 44% fewer properties to buy today in Hayes than the month before the property crash.

Notwithstanding suggestions that the Bank of England’s higher interest rates would peter out British house price growth, the continued limited supply of properties coming onto the market has helped Hayes house prices climb.

Hayes house prices are 11.4% higher today than a year ago.

Nevertheless, there is evidence that the insane demand for property has started to ease, and supply is increasing, which means that the direction of the Hayes housing market will begin to change in the coming months.

This can be seen in several ways.

Back in January and February (2022), 8,094 UK properties per week were reducing their asking prices, whilst this July and August that had risen to an average of 13,115 UK properties per week. This is significant as some ‘optimistic’ homeowners who placed their properties on the market in the spring and early summer have had to reduce their ‘optimistic’ asking prices to attract buyers.

Also, the number of UK house sales falling through (i.e., when the sale is agreed yet the sale falls through before the legal paperwork is completed) is starting to creep upwards from an average of 5,558 properties a week in the spring of 2022 to 6,854 per week in July and August 2022.

Hayes house prices have risen over recent times; the latest figures are based on what was selling in the late winter/early spring of this year and subsequently completing the sale in the early summer.

The prices obtained by the estate agents on properties achieving a sale in Hayes today (i.e., in the autumn of 2022) are slightly lower than what was obtained nine months ago. This means the house statistics published in early spring 2023 will slightly reduce. Nothing to worry about – I want to give you a heads up and not to be concerned. The simple fact is…

We are returning to a more normal Hayes housing market this Autumn, compared to the crazy last 30 months since the end of lockdown one.

With UK inflation standing at 9.9%, this brings an interesting scenario for Hayes property values.

Reducing ‘real’ wages will hit first-time buyers and existing homeowners’ disposable income, while the same high inflation will make the Bank of England increase interest rates.

These things will significantly reduce homebuyers’ capacity to afford their mortgages as the fewer people who can take out a mortgage the fewer people will buy homes.

The Bank of England base rate currently stands at 1.75%, yet forecasts suggest it could end the year between 2.75% and 3%. Yet let us not forget the long-term average over the last 50 years has been between 7.1% and 7.2%, and many mature Hayes homeowners will remember Bank of England Base Rates of 17% in 1979, so these sorts of increases are still off a low base.

During these autumn months though, the lack of properties on the market and available to buy still support Hayes house prices. The newspapers compete for attention and use clickbait titles to generate more interest in the publications.

The simple fact is that unless something seismically happens in the world to change things materially, the Hayes and British property markets will continue to harden slowly and will face some different challenges compared to the last 30 months, but fundamentally Hayes house prices will remain broadly neutral over the next 12 to 18 months.

These are my thoughts – what are yours?

With the cost-of-living crisis beginning to hit, the 20 and 30-somethings of Hayes urgently need the help and support of the Government to help them get on the property ladder.

For the last few weeks, we have listened to the debates and hustings of Liz and Rishi. Between them, they have told us how they are going to stop building on the green belt, slash taxes, outbid each other on the number of refugees they are going to deport and push back against WOKE culture wars, but what are they doing for the 20 to 30-somethings of Hayes?

Dubbed ‘Generation Rent’ by the press, desperate to get on the property ladder, this is an open goal for any candidate to obtain more votes to become the next Prime Minister.

Yet only 16% of the c.200,000 Tory membership is aged 18 to 34 whilst 47% of members are aged between 55 and 74.

Therefore, it’s not a surprise that neither Liz nor Rishi aren’t speaking daily about the cost of petrol for the daily commute, rising childcare fees or the lack of opportunities for first-time buyers to purchase their own properties.

(For balance, 16% of Labour’s members are 18 to 34, 20% for the Lib Dems and 16% for the SNP).

Everyone is feeling the effect on their household budgets with the rise in energy bills. Yet, it is the younger generation (i.e., Generation Rent) that are having to cope with the frenzy of rising energy costs the most.

Whilst increasing energy prices will affect all households across the country, younger (and less affluent) households are more prone to be disproportionately affected than those on the lowest incomes (i.e., Generation Rent).

In the financial year ending in 2020, the least well off 25% of households spent 5.59% on energy compared to 3.9% for the average UK household. With 2023 energy bills set to be triple those figures, energy bills for those in the lower quartile will rise to around 16.8% of their household budget.

And let’s look at the housing element of the ‘Generation Rent’ household budget.

The average rental of a Hayes property in the summer of 2020 was £1,320 PCM; by the summer of 2021, it was £1,348 PCM, and today, it is £1,531 PCM.

Overall, Hayes rents are 13.2% higher than a year ago and 15.9% higher than two years ago.

This is the fastest annual rate of rental growth since records began in 2006. This increase in rents isn’t standard. Before 2020, I would have expected to see this level of rent growth over a seven-to-ten-year period – not two years. Good news for Hayes landlords, yet not so for Hayes tenants.

Why have rents increased so much in Hayes?

It comes down to fewer rental properties and existing Hayes tenants not moving as much.

There are 250 fewer rental properties in Hayes than five years ago, leaving only 4,432 private rental properties in Hayes.

9 out of 10 rentals come onto the market because the existing tenant is moving. Yet, because there are fewer Hayes rental properties and the asking rents for those are much higher than their current home, many Hayes tenants are not moving, exasperating the issue even further.

Today, I looked on Rightmove, and there were only 77 properties available to rent. I would have expected that to be over double that pre-pandemic.

Neither candidate has been silent on the topic of homeownership for the young.

Rishi Sunak said he would stop building on the greenbelt. This, however, would not help Generation Rent massively.

Liz Truss has pledged to help more renters buy their first home by stating she will ensure tenant’s rental payments could be used as part of mortgage affordability assessments. This is important as the mortgage payments can be 10% to 20% lower than the rental payments.

Tied in with new relaxed mortgage affordability rules announced by the Bank of England in early August, this is undoubtedly a step in the right direction to help Generation Rent.

Truss also plans to scrap the red tape holding back housebuilding and give local populations more say on developments. However, when Boris Johnson suggested something similar a few years ago, the policy was quietly dropped after the Liberal Democrats used this against them resulting in the Tory’s resounding by-election defeat in 2021 in Chesham and Amersham.

So, by the end of the first week of September, we will know who the Prime Minister will be. Whoever gets the job has a gigantic task on their hands. I wish them luck and ask them not to forget the younger generation and their aspiration to be homeowners.

Hayes property prices have increased by 11.9% over the last two years.

Hayes 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 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 one thing that could stifle this growth is the cost-of-living crisis.

I wanted to delve deeper into what was happening in Hayes instead of reading headlines in the newspapers. Let me start with average incomes.

The average Hayes household income is £697.50 per week, compared to £728.40 in the London region and £613.10 nationally.

Roll the clock back twenty years to 2002, and the average Hayes household income was £451.10.

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 Hayes 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 Hayes property market, many Hayes 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 Hayes first-time buyers, then I suspect we might see more Hayes 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 Hayes 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 Hayes housing market will be slower in the next 12 months compared to the last 24 months. Nevertheless, I anticipate Hayes house price growth will ease (and, in some months, be slightly negative). A better bellwether of the state of the Hayes 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.

The total value of homes owned by Baby Boomers in Hayes alone is £1,874,868,184 – and two-thirds of the Hayes Millennials are set to inherit all that in the next few decades!

Could this be the answer to the housing crisis?

Could Hayes Millennials live it up for the next few decades, safe in the knowledge they will get a huge lump sum to pay off their debts and buy a house with what is left?

Before I look at that, which set of people in Hayes exactly are the Hayes Millennials or Hayes Baby Boomers?

Come to that, who are Generation Z, the Silent Generation or Generation X?

All these are phrases used for the different groups of people in their various life stages of our society.

So, splitting the groups down:

Silent Generation: Born 1945 and before (77 years old and above)

Baby Boomers: Born 1946 to 1964 (58 years old to 76 years old)

Generation X: Born 1965 to 1980 (42 years old to 55 years old)

Millennials: Born 1981 to 1995 (27 years old to 41 years old)

Generation Z: Born after 1996 (everyone under 26 years old)

Using data from the Census, my research shows there are …

4,508 households in Hayes owned by Hayes Baby Boomers and they are worth a combined value of £1,874,868,184.

The generation that will inherit those Hayes properties will be the millennials.

There are 8,037 millennials in Hayes.

After looking at the local demographics, homeownership statistics and current life expectancy, around two-thirds of those Hayes Millennials have parents who own those 4,508 Hayes properties, meaning each is in line for an inheritance of £349,744.53.

Yet what about Hayes’s Silent Generation?

There are 2,980 homes in Hayes owned by the ‘Silent Generation’ and they are worth £1,239,376,040.

The issue for those who will inherit their parents’ homes is that there are far more Generation X people in Hayes than millennials.

Each of the 11,569 Hayes Generation X will inherit £162,316.75 – still nothing to sniff at Two thirds not as much as the millennials!

So, whilst the Hayes Millennials are less likely to own their own home compared to Generation X and so have done not as well in amassing their assets and savings, they are more likely to benefit from an inheritance boom in the years to come.

This is likely to be very comforting information for those Hayes Millennials, including some from humbler upbringings who historically would have been unlikely to receive an inheritance.

Nevertheless, inheritance is not the silver bullet that will get the millennials onto the Hayes housing ladder.

Nor will it deal with the increasing wealth inequalities in British society, as the inheritance they are likely to receive won’t be accessible when they are trying to buy their first Hayes home.

So before all you Hayes Millennials start running up your credit card bills, safe in the knowledge they will be paid for when your parents pass away in 20/30 years, over half of the females and around a third of men are going to have to pay for their nursing home fees.

Remarkably, I recently read 25% of people who must pay for their nursing home fees run out of money, and therefore have to rely on funding from the local authority

Therefore, if you are a Hayes Millennial, no inheritance will be left for you. It goes without saying, most Hayes parents want to give some inheritance to their children.  

Yet if waiting until you pass away to help your children or even grandchildren with your legacy could be seen as too late, so what are the options?

One solution to help and fix the housing crisis in Hayes (and the UK as a whole) is if parents and grandparents, where they can, help financially with the deposit for a house whilst their children/grandchildren are in, say, their 20’s and early 30’s.

Buying a Hayes property is much cheaper than renting – I have shown it many times in these articles.

It’s not a case of not being able to afford the mortgage; the problem is raising the mortgage deposit (of 5% to 10%) for these Hayes Millennials.

Maybe families should be discussing the distribution of family wealth whilst everyone is alive (in the form of helping the family with house deposits) as opposed to waiting until the end, as it will make a massive difference to everyone in the short and long run.

And a final thought, your legacy will have a more significant impact, and you will be here to see it with your own eyes.

A win-win for everyone.