As most of the polls suggested a Remain Vote, the Brexit result came as a surprise to most people, including the City. The Pound dropped 6% the morning after the announcement and the Remain camp are using words like “challenging times ahead”.
Now the vote has been made, what’s next for the 10,172 Pudsey homeowners especially the 5,826 of those with a mortgage?
During the campaign, the Chancellor suggested property prices would drop by 18%. The method of calculating this was arguably tenuous, but focused around the abrupt and hasty increase in UK interest rates, which in turn would raise the cost of mortgages; this would then create a lower demand for property that would cause the predicted drop in property prices. Pudsey property values will probably drop in the coming 12 to 18 months, but we feel 18% is overly pessimistic.
Another Credit Crunch? A few years after the Credit Crunch, the housing market began to bounce back so it’s not unreasonable to assume the same will happen post-Brexit. 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.
Interest Rates Following Brexit, if the value of the pound drops, it may mean Interest Rates will rise to counteract it. Whilst a cheaper pound will make your Sangria more expensive on your Spanish holiday this year, it will in turn make British export cheaper, which is good for the economy.
Since 2009, interest rates have been at 0.5% and lots of people have become accustomed to those sorts of levels. If interest rates do rise will it be the end of the world? Interest rates in the 1986/88 property boom were on average 9.25%, in the 1990’s they averaged around 6.5% and in the uber-boom years (when UK property values were rising by 20% a year for three or four straight years across the UK) it was 4.5%. Many of you reading this who are in their 50’s and older will remember interest rates at 15%.
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?
Whilst property values might drop in the country, they will bounce back. In the most part, it’s only a paper loss because it only becomes real if you sell. For the most part, people selling will be doing it to upgrade, so although their property value may have dropped by 5% or 10%, the one they want to buy would have dropped by the same. To look at it more optimistically, you could even actually be better off because the more expensive purchase property would have come down more in value (in actual pound notes) than the one you are selling.
The landlords of the 4,701 buy-to-let properties in Pudsey have nothing to fear, nor do the 11,612 tenants living in their properties.
Buy-to-let is a long term investment and there might well be some bargains to be had in the coming months amidst the financial uncertainty.
In terms of the market itself, the population is set to increase at a rate that will exceed the current property building level so there will be tangible demand. Britain is reportedly building 139,600 properties a year, but according to the eminent ‘Barker Review of Housing Supply Report’, it needs to build about 250,000 properties a year to even stand still. Add to this an increasing birth rate, popularity of single person homes and a predicted longer lifespan of the population – demand is only going to increase, while 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 your Pudsey property? It might have a short term wobble… but in the long term – it’s safe as houses.