I purposely did not post this yesterday as I felt we were all a little Brexited out...
67.5% of Tower Hamlets voters voted to remain in the EU – What now for the 21109 Docklands landlords and homeowners?
It was 5.50am as I started to type this article and David Dimbleby had just announced the UK will be leaving the EU as the final votes were counted. As the polls suggested a Remain vote, it came as a surprise to most people, including the City. The Pound dropped 6% that morning after the City Whiz kids got their predictions wrong and MP’s from the Remain camp were using words like “challenging times ahead”.
So, now the vote has been made, what next for the 8542The Docklands homeowners especially the 5630 of those The Docklands homeowners with a mortgage?
The Chancellor 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. I would say, yes, that may well happen.
The Docklands Property Values
Docklands property values may dip 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.
Since the last In/Out EU Referendum in June 1975,
property values in The Docklands have risen by 3390.2%
That isn’t a typo! 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 to that all-time high of 2007, (the period before the financial crisis of the Credit Crunch of 2008/9) they are still 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 bricks and mortar.
If the value of the pound does drop, in the past ,UK interest rates have risen to reverse that drop. However, whilst a cheaper pound will make your jug of Sangria a little more expensive on your Spanish holiday this year and make your brand new BMW pricier, it will also make British export cheaper! Which is great for the economy.
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? 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 in the uber-boom years (when UK property values were rising by 20% a year for three or four straight years across the UK) they were at 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 Matt 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. 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) than the one you are selling!
The landlords of the 12567 The Docklands buy to let properties have nothing to fear neither, nor do the 27274tenants 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 Dover 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’ to build about 250,000 properties 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 Docklands property? It might have a short term wobble… but in the long-term I still believe it’s as safe as houses. My key message is simple; Don't Panic.
Feel free to email me for any advice you may need or any questions you may have by clicking HERE