I’m not sure it mattered which way one voted or felt about the outcome after waking last Friday morning, turning on the news with one eye open… one thing that overtly united us all was the double take and shock, but more covertly, regardless of the horror or elation, was the instant wave of unease or anxiety about what the future holds.
A major goal most of us crave is security and at the base of that pyramid is actually having a safe and secure place to live, therefore house prices and rental values play a major part in this.
Forget how many euros you can buy for the next holiday, the extra nuggets needed at the petrol pumps or banks telling us how many billions they’ve lost. “What does it mean to me, my family, my life plans” are possibly more poignant questions. Short/medium/long term – everyone thinks about the future and acts accordingly.
Cutting to the chase, I genuinely don’t think we are going to see a falling market in the short or medium term (1-4 years) There could be a dip between now and October but we’re already in a dip. Don’t listen to the media, early this month they reported “house prices have gone up” but as usual use the house price index on which to base their figures, these are properties which completed the previous month… yet sold possibly 3-6 months ago. What we have seen is an incredible increase in prices since mid-2013 to March-2016, It’s not that between 2008 – 2013 nobody wanted to buy a house, there was just little to no finance available to do so.
People move for many reasons… Schooling, retirement, lifestyle change, job relocation, pushed out by parents, sick of renting, nest egg… these needs certainly haven’t changed overnight… Let’s look at the reasons behind the two last price crashes.
In the early 90’s the government spiked interest rates to try and keep the pound strong against foreign currencies, an obtuse reaction that lost thousands of families their homes through repossession. Imagine if interest rates spiked to 15% today. Thankfully the ability to change interest rates was removed from politicians who today, finally admit they didn’t really know what they were doing at the time and acted like it was their game of roulette to lose.
In early 2008 major banks started to hold their hands up that they too, had made the same mistakes as Northern Rock a few months prior… institutions we’d grown up with, trusted and respected. Institutions the layman assumed could “never go bust, how could they?… surely they have all our money locked away in a safe… don’t they?” They were shown to be absurdly irresponsible and arguably criminal. Credit Crunch was an understatement, there was almost a blanket freeze on all borrowing/lending. A crutch most families, businesses and young people had foolishly become accustomed to because we’d been lead to believe “borrowing is good for the economy”.
In May 2008, a local Brighton paper produced a front page headline reporting “The Biggest House Price Crash in History”. Its publication (on the same day as the property supplement) instantly wiped out 50% of sales in Brighton & Hove overnight, however, it still took many months for list prices to start coming down. Finally, after months of people not having access to funds and vendors refusing to accept their prices were falling, the sellers started to concede. They realised that it was relative, people up sizing were ‘quids in’. There had been a massive dent in demand but there was still enough demand to keep the market mildly afloat for about a year. In the South East we are far more protected from these changes, more so in Brighton & Hove, it’s one of the most buoyant markets outside London and arguably one of the best places to live.
What we’ve seen in the first few days following Brexit from the fringes of South London to the Sussex coast are the same viewing levels and incoming enquiries as the preceding weekend, if not possibly a little higher. Agreeably the urgency seems to have come out of the market a little but that’s not since Friday, it’s been slowly winding down since March 2016 and a knock on effect of the London market starting to settle down towards the end of last year. There are more price reductions on Rightmove currently than new instructions. This does not mean prices are coming down, I think agents who’ve been used to over promising, are being caught short, much to the detriment of their vendors. Listen to the agents who talk the most sense, not the ones who spoon feed you the highest price without justification (1 comparable is not justification).
Mortgage applications being declined at underwriter stage seem to have risen leading into this referendum but hey, the big lenders were hardly going to publicly say “psssst guys, slow your lending down so we can balance the books in case of Brexit, especially for first time buyers as they only have a 5% deposit”, they just find excuses to say “computer says no”.
The Bank of England have said they have pledged £250 billion pounds of liquidity… quite a crazy sum, to process that sum, it’s about 1 million mortgages, on top of what the lenders are prepared to offer themselves… I think we’re okay for funding!
What about interest rates?… Don’t think they are going up for a while, infact the opposite could happen and if it does, they will stay lower for longer. We’ve heard the BoE talk about raising interest rates for a couple of years now, but they’ve been scratching their heads about how to go about it. It became even more difficult when inflation fell to 0%. If BoE increase interest rates, they increase government debt, with 0% inflation they can’t offset that. Look at Japan, 0% interest rates for over 10 years and haven’t yet worked out how to raise them.
What may the government do?… with the money markets extremely damaged and fragile, they will be desperate for “green shoots” and optimism, given that property prices contribute to our GDP figures (how we measure growth), they are going to want to show Europe and the world that we’re doing well (even if we are not). The quickest way of artificially inflating our GDP is a strong UK housing market. It’s important this stays strong right now so they may have to bring out new measures to fuel the market should it start to stagnate any further. Recent measures designed to slow the market down (second home stamp duty rises, buy-to-let tax relief changes) may have to be reneged on and what better way to do it than with a new Prime Minister at the helm blaming the U-turn on their predecessor’s bad choices.
The long and short; if Brexit does have an effect on the property market it’s already done so… the next few weeks will be people waiting to see what is happening, looking right, left and then right again. Oddly, most of our sales in the last few weeks have been at the higher end of the market, although sub £1million. I think if you decide you want to “wait and see” you may get caught out in the rain and only realise you’ve missed out on getting a good deal when you notice house prices creeping up. Unless you’re an estate agent it can take a couple of months to notice an upward shift in the market, this could mean you lose out. I wouldn’t wait and see, I suggest it’s pretty much business as normal, however right now, there are some fairly competitive deals to be had. Better than 2 months ago but that won’t and cannot last.
People didn’t stop growing up, having babies and net immigration has remained high. We had a massive housing shortage in 2007 when prices spiked but then we didn’t build any homes for 5 years. We didn’t solve the problem come 2013, we just invented new ways to finance the purchase and currently bank of Mum & Dad is classed as one of the top ten lenders. There is still a massive shortage of supply so don’t wait for a miracle. It’s going to take a radical change with the government’s attitude on how we build houses or a massive shift in public attitudes about owning your home V’s renting and that certainly isn’t going to happen overnight.
So, they are my thoughts. If you need any help or advice regarding your property, give me a call anytime on 01293 862 444, I’d be delighted to help.
All the best