It’s
5.50am as I start to type this article and David Dimbleby has just announced
the UK will be leaving the EU as the final votes are counted.
As
most of the polls suggested a Remain Vote, it came as a surprise to most
people, including the City. The Pound has dropped 6% this morning after the
City Whiz kids got their predictions wrong and MP’s from the Remain camp are
using words like “challenging times ahead”.
..
and now the vote has been made, what next for the 33,481 Chichester homeowners,
especially the 13,271 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 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.
Chichester Property Values
Chichester
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 Chichester have
risen by 2089.7% (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 pricier, 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) more than the one you are selling.
The
Chichester buy to let landlords have nothing to fear either, nor do the 6,356
tenant households 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 Chichester 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’, about 250,000 properties a year to even stand still, and as 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 your Chichester property? It might have a short term wobble… but
in the long term - it’s safe as houses regardless.