As most polls suggested a Remain Vote, this came as a surprise to many 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 45,670 Guildford homeowners especially the 18,944 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.
Guildford Property Values
Guildford property values will probably drop in the coming 12 to 18 months – but by 18%? I am sorry but I find that a little pessimistic and believe that figure was rhetoric to get homeowners and landlords to vote in a particular way.
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| The iconic Guildhall clock |
But the UK property market is quite a monster. Since the last In/Out EU Referendum in June 1975, property values in Guildford have risen by 1894.7%. (This 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 1930's 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 and we do 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. 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 exports cheaper which is great for the economy.
And what of interest rates?
Since 2009, interest rates have been at 0.5% to which many people have become accustomed to. So what if interest rates were to rise? Would this be the end of the world?
Interest rates in the 1986/88 property boom were on average 9.25%; in the 1990’s they were on average around 6.5%; and during the 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, in your 50’s and older will no doubt remember interest rates at 15%.
However 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.
So while property values might drop in the country, they will bounce back. It’s only a paper loss. It only becomes real if you sell. And even if you do have to sell, again, as most people move up market when they sell, your property might have dropped by 5% or 10% but then the one you want to buy will also have dropped by the same 5% to 10%. This is the best part – 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.
For example, if you are selling a 3 bed house to upgrade to a four bed, in Guildford, the average asking price for a 3 bed is currently £538,589 and £814,264 for a 4 bed. If prices did fall by 10% then the new house would be £81,426 cheaper and while you might realise £53,858 less for the current property the overall transaction (excluding all sales and purchase costs) to upgrade would be £27,568 cheaper.
The landlords of the 8,522 Guildford buy to let properties also have nothing to fear and neither do the 21,766 tenants living in their properties.
Buy to let is a long term investment. However there may be some buy to let bargains in the coming months as some people, irrespective of evidence, decide to panic. Even if we did decide to 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 construction level.
Britain is building 139,600 properties a year, but 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.
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 to go 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, it would seem. The country has spoken and we are now in unchartered waters – but we have previously endured a couple of World Wars, an Oil Crisis, Black Monday, Black Wednesday, 15% interest rates and a Credit Crunch … and still we survived!
And the value of your Guildford property? It might have a short term wobble… but in the long term - it’s as safe as houses regardless.
