50 years ago, in 1967,
the first human heart transplant was performed by Dr Christian Barnard in South
Africa. In the same year, Sweden switched from driving on
the left-hand side to the right-hand side of the road.
The average value of an Oxford property was £6,730,
interest rates were at 5.5% and The Beatles released their Sgt Peppers album. But what the hell has that to do with the Oxford
property market today? Quite a lot actually - let me explain my friends!
I have been doing some
research on the current attitude of Oxford first-time buyers. First-time buyers are so important for both
landlords and homeowners. If first-time buyers aren’t buying, they still need a
roof over their heads, so they rent (good news for landlords). If they buy,
demand for Oxford property goes up for starter homes and that enables other Oxford
homeowners to move up the property ladder.
First-time
buyers are the lifeblood of the property market. They are, however the most
susceptible to interest rate rises and the affordability of mortgages. With
that in mind, let us see what is happening to them…
The average value of an Oxford
property is currently standing at £507,468 and UK interest rates at 0.25%. As
each year goes by, it appears the age of the everlasting mortgage has started
to emerge, prompted by these first-time buyers, eager to get a foot on the
housing ladder. I was reading a report a few days ago where some mortgage
companies confessed that the battle to gain big returns from the property
market has led to mortgages that will take considerably longer than the customary
25 years to pay off.
Over the last few years, it has been commonplace for first-time
buyer mortgages to be 30 and 35 years in length as the ‘Bank of Mum and Dad’
have been helping with the deposit. Now, some high street banks are offering
mortgage terms of 40 years. This means first-time buyers could be paying until
their mid-60’s. So, a 50-year mortgage
does not seem as far-fetched now as it would have been back in the 1970’s.
After all life expectancy for a male then was exactly 69 years and today its 79
years and 5 months!
Over the last ten years, Oxford
property prices have continued to rise more than wages, therefore, first-time
buyers are looking for bigger loans. If this development continues, the only
way repayments can remain reasonable is by increasing the term of the loan.
However, some commentators
have said they are worried the mortgage companies are lending money over such a
long term, because they threaten leaving some first-time buyers with a generation
of debt if the house price bubble bursts. Interestingly, when I looked at what had happened
to average property values in Oxford over the last 50 years, there have been
bubbles. First-time buyers should take heart, since as a county we have
always recovered from it a few years later.
What if interest rates rise?
Well looking at historic UK interest rates, the current rate of 0.25% is at a 300-year
low. Mortgages will never be cheaper. I would however, seriously consider
fixing the rate to cushion any future potential interest rate rises (since they
can only go in one direction when they do change). If Oxford first-time buyers
see buying a home as a long-term decision, based on the last 50 years, they
should feel very confident that their asset will increase in value over the
term of their loan!
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