Has property in Chichester ever been cheaper?

With property prices in Chichester hovering around all-time highs you may think that title is a major typo. However, as I explained to one of my landlord’s over lunch a couple of weeks ago, when you consider the record low interest rates (and thus mortgage rates), property is in fact remarkably cheap at the moment.

Consider 10 years ago, as house prices were in full ‘boom’ mode and the average property cost £275,917 in Chichester. With the average five year fixed mortgage rate at 5.73%, it would cost £1,318 per month to service the full purchase price of the average property using 100% finance.

A couple of years later, prices had slumped 17% to reach a low of £228,594 in March 2009. But, whilst the bank’s base rate was plummeting towards 0.5% in April 2009, five year fixed rate mortgages were still relatively high at 4.95%. This meant financing the whole property at this low point would cost £943 per month.

Fast forward to today and whilst prices in Chichester have risen 62% since their 2009 low, to reach an average of £370,091, five year fixed mortgage rates have more than halved - now averaging just 2.23%. This means if you could get a mortgage for the full purchase price today, it would only cost you £688 per month in interest - cheaper than at any time since March 2001.

However... herein lies the problem - you can’t get a mortgage to finance the full purchase price. And as house prices creep ever higher, the savings required to fund the deposit, stamp duty and other buying costs continue to rise further beyond many peoples reach. This, added to the increasing difficulty of meeting the bank’s lending criteria means buying a property in Chichester is ever more difficult. 

It seems the government has decided to cling to its policy of low interest rates to further fuel the property boom, rather than extinguishing it and removing some of the excesses from the market (and losing votes in the process).

Put it this way, would you rather owe £100,000 at 6% or £200,000 at 3%? Both will cost you £500 per month to service, but the latter puts a far greater debt around your neck.

And this is why I don’t see interest rates rising back to ‘normal’ levels for a long time. Far too many people have taken out higher and higher levels of mortgage debt at historically low interest rates. If rates were to increase, those people simply wouldn’t be able to cope and the whole deck of cards would come tumbling down.

By the way…many see ‘normal’ interest rates as 3-4%. Remember that when house prices increased just 4.3% in 2006 (they increased 7.4% in 2016) the bank base rate was 4.5%. The average interest rate in the UK between 1971 and 2017 was 7.8%, with the high of 17% coming in 1979 and the record low of 0.25% happening….now.

                                                                           

(This article was featured in the Chichester Observer's property section on 16th February 2017) 

Clive Janes, CRJ Lettings. 

www.crjlettings.co.uk

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