The Chancellor in the campaign
suggested property prices would drop by 18%. Using Treasury estimates, their
method of calculating this was tenuous at best, but focused around the abrupt
and hasty increase in UK interest rates, which in turn would raise the cost of
mortgages, and therefore lower demand for property, causing a drop in property
prices.… and I would say, yes .. that will probably happen.
British Property Values
British property values will
probably drop in the coming 12 to 18 months – but by 18% – I am sorry I find
that a little pessimistic and believe that figure was rhetoric to get
homeowners and landlords to vote in a particular way. But the UK property
market is quite a monster.
Since the last In/Out EU Referendum in June 1975, property values in
Britiain have risen by 1750.93%
(That isn’t a typo) and whilst
property prices did drop nationally by 18.7% between the peak of 2007 and
bottom of the market in 2009, when one compares property values today in the
country, compared to that all-time high of 2007, (the period before the financial
crisis of the Credit Crunch of 2008/9) .. they are still up 10.14% higher.
Another Credit Crunch?
And so, notwithstanding the
Credit Crunch, the worst global economic outlook since the 1930s and the
recession it brought us, a matter of a few years later, the Government were
panicking in 2012/3/4 that the housing market was a runaway train.
Now the same Credit Crunch doom-mongers and Sooth-Sayers that
predicted soup kitchens in 2008/9 are predicting Brexit meltdown. Bad news
sells newspapers. Stock markets may rise, stock markets may fall, yet the
British public continued to buy property in 2009/10 and beyond. Aspiring first
time buyers and buy to let landlords dusted themselves down, took a deep breath
and carried on buying… because us Brit’s love our Bricks and Mortar .. we need
a roof over our head.
However, as mentioned
previously, if the value of the pound drops, in the past UK Interest Rates have
risen to reverse that drop. However, whilst a cheaper pound will make your pint
of Sangria a little more expensive on your Spanish holiday this year and make
your brand new BMW pricer .. it will make British export cheaper! Which is
great for the economy.
Interest rates
… and what of interest rates?
Since 2009, interest rates have been at 0.5% and lots of people have become
accustomed to those sorts of levels. So what if interest rates rise .. end of
the world? Interest rates in the 1986/88 property boom were on average 9.25%,
the 1990’s they were on average around 6.5% and uber-boom years (when UK
property values were rising by 20% a year for three or four straight years
across the UK) .. 4.5%. Many of you reading this who are in their 50’s and
older will remember interest rates at 15%.
But I suspect interest rates won’t rise that much anyway, as Mark
Carney (Chief of the Bank Of England) knows, raising interest rates causes
deflation – which is the last thing the British economy needs at the moment. In
fact they have been printing money (aka Quantitative Easing) for the last few
years (which causes inflation) to the tune of £375bn a month. A bit of
inflation because the pound has slipped on the money markets (not too much mind
you) might be a good thing?
.. because whilst property
values might drop in the country, they will bounce back. It’s only a paper
loss.. because it only becomes real if you sell. And if you have to sell, again
as most people move up market when they sell, whilst your property might have
dropped by 5% or 10%, the one you want to buy would have dropped by the same 5%
to 10% .. and here is the best part – (and work your sums out) you would
actually be better off because the more expensive property you would be
purchasing would have come down in value (in actual pound notes) than the one
you are selling.
The British landlords of the
4.3m British buy to let properties have nothing to fear neither, nor do the
10.11m tenants living in their properties.
Buy to let is a long term
investment. I think there might even be some buy to let bargains in the coming
months as some people, irrespective of evidence, panic. Even if we pull up the
drawbridge at Dover and immigration stopped today, the British population will
still increase at a rate that will exceed the current property building level.
Britain is building 139,600 properties a year, but needs according to the
eminent ‘Barker Review of Housing Supply Report’, the country needs to build
about 250,000 properties a year to even stand still, and as the the birth rate
is increasing, the population is living longer and just under a quarter of all
UK households now are occupied by a single person demand is only going up
whilst supply is stifled. Greater demand than supply equals higher prices. That
is definitely a fact.
So, what will happen next?
Well, there are many challenges
ahead. The country has spoken and we are now in unchartered territory – but we
have been through a couple of World Wars, an Oil Crisis, Black Monday, Black
Wednesday, 15% interest rates and a Credit Crunch … and we survived!
And the value of British
property? It might have a short term wobble… but don’t panic because in the
long term -it’s safe as houses anyway.
Just my thoughts
No comments:
Post a Comment