The £2.1 billion mortgage debt in Derby

With the General Election long gone, B-Day now passed and the recent shenanigans and political goings on in Westminster recently a fading memory, the housing market, for the time being anyway, is showing a striking resilience spurred on by the on-going wide-ranging monetary policy by the Bank of England. With interest rates and unemployment low, UK plc is heading into 2020 in reasonable condition.

Additionally, despite the UK’s new homes industry improving its year on year new build figures – building 173,660 new homes this year to date – notably 8% more new homes than at the same time last year – there has been an unequal increase in demand for housing, especially in the most thriving areas of the Country.

With the ongoing discussion on whether the younger generation can afford to buy, it is true the average cost of a UK property in the early 1970’s was 3.8 times the average salary yet, nationally, it now stands at 8.4 times.

On the face of it that doesn’t look good in anyone’s books – yet that isn’t the full story because it doesn’t reflect inflation and interest rates when it comes to the cost of borrowing money in relation to a mortgage for property.

Remember 15% interest rates?

The current level of mortgage interest rates has not been seen for many generations, meaning there is a massive section of the Derby home-owning population who have no appreciation of the pandemonium that will eat into their household budgets should we ever return to the average historical cost of borrowing.  Interest rates jumped to 15% in 1992 and between 2003 and 2007 they were on average, 5%.

Now, once first-time buyers have jumped the hurdle of saving enough for a 5% deposit, which is hard with higher rents and many carrying loans of personal debt and unsecured loans, they have to tackle the issue of paying their mortgage repayments.

First-time buyers are currently spending an average one sixth of their salary on their mortgage, meaning mortgage arrears are at historical lows. However, on the other side of the coin, repossessions have started to grow, with 6,180 repossession orders made in the last quarter, a 55% jump from 2017, yet nowhere near the 2009 high of 29,145 in the first quarter of 2009.

Therefore, this week’s discussion on the Derby property market is on the current state 0f lending (mortgages and unsecured loans) and how it is affecting the Derby, and national, property market.

The current Mortgage Market

One vital measure of the property market and the economy is the mortgage market.

If all the mortgages were added up, according to Bank of England statistics, they would total £968.1bn; a massive amount when you consider the UK’s GDP is only £2,190.1bn.

Mortgages are important as uncertainty causes building societies and banks to curtail lending – remember what happened in the Credit Crunch – and that seriously affects property prices. Then we have unsecured personal loans; interestingly the average Brit owes £991.42 in unsecured loans, a total of £36.1bn.

Lifeblood lending

Lending is the lifeblood of our economy.

Go back to 2007, and the phrase ‘Credit Crunch’ hadn’t been invented, yet now the term has entered our everyday language. In the autumn of 2007 it took a couple months before the crunch began to affect the Derby property market, but in early 2008, and for the following year and half, Derby property values dropped month on month like a stone.

Mercifully, after a phase of sluggishness, in 2011 the Derby property market started to recover slowly as certitude returned to the economy as a whole and in 2013 Derby property values started to rise as the economy sped upwards.

Happily, the Bank of England recognised the start of another boom and bust cycle, so in Spring of 2015, new rules for mortgage lending were introduced and for the following few years we have seen a reappearance to more credible and steady medium-term property price growth.

Where are we now?

Derby Property Values are 29.5% higher since the Credit Crunch.

What of the other side of the coin in terms of excess lending in Derby? Since 1977, the average Bank of England interest rate has been 6.65%, making the current low rate of 0.75% very low indeed. Yet the issue isn’t the amount of lending, as much as the persons ability to pay. Therefore, whether a person’s mortgage is fixed or not is more important than the amount owed.

Thankfully, the proportion of borrowers fixing their mortgage rate has gone from 31.5% in the autumn of 2012 to the current 70.2%. If you haven’t fixed your mortgage – maybe you should follow the majority?

A word of warning…

The total cost of mortgages owed by people in Derby is £2,115,919,086 based on the DE1, DE3, DE21, DE22 and DE23 postcodes.

In my modest opinion, if things do get a little rocky and uncertainty seeps back in the coming years and, lets face it, nobody knows what will happen on that front, interest rates can only go one way from their current ultra low level of 0.75%…

That is why I consider it important to highlight this to all the homeowners and landlords of Derby. Maybe, just maybe, you might want to consider taking some advice from one of the many qualified mortgage advisors in Derby to mitigate the effect of any future interest rate rises?