Friday morning I watched the BBC news referendum results until 2.30am and then was awake at 4.30am, as David Dimbleby called the result for ‘Leave’. Not the result I was expecting, and I am not alone in that with even Mr Farage calling it for Remain to start with and calling foul over late registrations. After all, as most of the polls suggested a Remain Vote, it came as a surprise to most people, including the City. The Pound dropped 5%, the stock market fell 3.1% and MP’s from the Remain camp are using words like “tough times ahead”.
And now the vote has been counted… what next for the 64,009 Hillingdon home-owners especially those Hillingdon homeowners with a mortgage?
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 a sharp increase in UK interest rates, which in turn would increase mortgages interest and in turn decrease demand for property, causing a drop in property prices.
And do you know what, I would say that scenario is a sensible series of cause and consequence and so house prices are likely to fall. However there are voices that disagree with this assessment due to the fall in gilt yields and a looser monetary policy, making for lower fixed rates.
Hillingdon Property Values
Hillingdon property values will probably drop in the coming 6 to 18 months – but by 18%? I am probably not alone in finding that a little negative and believe that figure was arrived at to encourage homeowners and landlords to vote in a particular way.
The UK’s Property Market Growth
Since the last EU membership referendum in June 1975, property values in Hillingdon have increased by 2323.9% 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 2008/9) they are still up 10.1%. And that’s nationally not in Hillingdon where the rises in this time were we are 48.2% higher than the pre-crash height of January 2008.
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 worried in 2012/3/4 that the housing market was running away again.
Now the same Credit Crunch doom-merchants and column-inch sages 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. At the end of the day we all need a roof over our heads.
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 Vino Tinto a little more expensive on your Spanish holiday and make your brand new Audi a little more pricey it will make British exports cheaper! Which is good for the economy.
… 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 your mid 40’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 creating money (Quantitative Easing) for the last few years (which causes inflation) to the tune of £375bn.
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 recover. This is a paper loss.. because it only becomes real if you sell.
And there might be good reasons to sell, especally if they are positive. 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% you would actually be better off because the more expensive property you would be purchasing would have come down more in price than the one you are selling.
The Hillingdon landlords of the 48,470 Hillingdon properties have nothing to fear neither, nor do the tenants living in their properties.
As I have always said and will always say, Buy to let is a long term investment. Taking a positive approach 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 cease flights into Heathrow 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 Labour’s 2007 target based on the ‘Barker Review of Housing Supply Report’, the country needs to build about 240,000 properties a year to stand still, and as the number of births is steady 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 stutters. Greater demand than supply equals higher prices.
So, what will happen next?
Well, there are challenges ahead! The electrorate has spoken and we are now in uncharted territory – but, in living memory, we have been through a World War, an oil crisis, Black Monday, Black Wednesday, 15% interest rates, a banking crisis we are still here tell the tale!
And the value of your Hillingdon property? It might have a short term decrease but in the long term – it remains as safe as houses.