And if it does ... who will be the winners and losers?
Those Warrington
people wanting property values to
drop would be those 30 or 40 something’s,
sitting on a sizeable amount of equity and hoping to trade up (because the percentage drop of your current ‘cheaper’
property will be much less than the same percentage drop of the more expensive
property – and trading up is all
about the difference). If you have children planning to buy their first
home or you are a 20 something wanting to buy your first home – you want them
to drop. Also, landlords looking to add to their portfolio will want to bag a
bargain (or two) and they would love a drop!
Yet, if
you have recently bought a Warrington property with a gigantic mortgage, you’ll
want Warrington property values to
rise. If you
are retired and are preparing to downsize, you will also want Warrington
property values to rise (because you will have more cash left over after the
move). Also, if you, a landlord looking to sell your portfolio or a Warrington
home owner, who has remortgaged to raise money for other projects (meaning you
have very little equity), you will want Warrington property values to rise to
enable you to put a bigger deposit down on the next purchase.
So, before I discuss my thoughts on the future, it’s
important to look at the past…
The last property crash, caused by the Global
Financial Crisis, was between Q3 2007 and Q3 2009 … when property values in Warrington
dropped 15.84%
...taking
an average property from £169,124 in September 2007 to £142,336 by September
2009 … and since then – property values have over the medium-term risen (as can
be seen on the graph).
So ... what is happening
now?
The simple fact is people in the UK are moving less (and
hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that
the problems in the British housing market are a lot greater than measly old Brexit!
There
is a direct link between how people feel about the property market (sentiment)
and the actual performance of the property market. However, the
question of whether people’s sentiment moves as a result of changes in the
property market, or whether changes in the property market drive sentiment is a
question that baffles most economists – you see if someone feels assured about
their financial situation (job, money etc.) and the future of property, they
are more likely to feel assured to spend their hard-earned earnings on property
and buy and if you think about it … vice versa. So, I believe Brexit isn’t the issue - it’s just the “go to” excuse people are
using. Humans don’t like uncertainty, and Brexit itself is causing uncertainty
– it is, after all, the great unknown.
So,
is it the flux of global politics? Politics are causing hesitation in the posh £5m+
markets of Mayfair and other high value Monopoly board pieces – but certainly
not in sleepy old Warrington (I don’t think Warrington is too high up on the
house buying list of all these Saudi Prince’s and Russian Oligarchs) ... no the
issues are much closer to home.
So, coming back to reality, one the
biggest driving factors in the current state of play in housing market has been
the part Buy To let landlords have
played in the last 15 years. Making money as buy to let landlord in these
golden years was as easy as falling off a log – but not anymore! Landlords had been getting off quite lightly when it
came to their tax position, but with Osborne changing the taxation rules on buy
to let ... things have become a little more difficult for landlords.
Landlords have been hit with a supplementary
rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers.
High rate taxpayers in the past have been able to offset the interest payments from
their buy to let mortgages against their self-assessment tax bills – at their
marginal rate. Between now and 2020 ... this is being reduced in small steps,
so they will only be able to claim back relief at the basic rate of tax. The bottom
line is that it will be much tougher for investors to make money on buy to let.
Tied in with this, the mortgage rules were changed a few years ago, meaning
it’s also become slightly tougher to obtain buy to let mortgages (although if
I’m being honest – they need too).
And what of Warrington first time buyers?
Well,
a few weeks ago in my blog on the Warrington Property Market, if you recall, I
mentioned that last year was the best year for over decade for first time
buyers. For the last 30 years, buy
to let investors have constantly had more purchasing power than first time
buyers, as they were older and more established, together with their tax
breaks. Yet, now as many amateur landlords are having second thoughts in
staying in buy to let, this has given first time buyers a chance to get on to
the property ladder.
What
will happen to Warrington property values? The simple fact is we don’t have the conditions that
caused the crash in 2007 (i.e. sub-prime
lending in the US, causing banks not to lend to each other, thus stalling the
global economy as a whole). Assuming everyone is sensible on the Brexit
negotiations, the biggest issue is interest rates. As long as interest rates remain comparatively
low (and don’t get me wrong – I think we could stand Bank of England base
interest rates at 1.5% to 2.5% and still be OK, then the thought of a massive property
market crash still looks improbable.
Yet
correspondingly, I cannot see Warrington property values rising quickly either.
The double-digit growth years in
property values between 1999 and 2004 are well gone. A lot of that growth was
caused by an explosion of buy to let landlords buying property to accommodate
the influx of EU migrants in those years.
Mark Carney at the Bank of England can’t make interest rates any lower,
so it’s difficult to envisage how credit conditions can get any easier!
Balance
of probabilities ... Warrington property values will hover either side of
inflation over the next five years, but if we did have another crash, what
exactly would that mean to Warrington homeowners - if they dropped by the same
percentage amount, as they did in the last crash?
If Warrington property prices dropped today by the same percentage as they did locally
in the Global Financial Crisis back in 2007/9 … we would only be returning to
the property values being achieved in March 2014 … and
nobody was complaining about those!
Therefore, looking at the number of people who have bought
homes in the area since March 2014, that would affect approximately
only 17% of local home owners and landlords ... and only a small percentage
would actually lose - because you only lose money if they decide to move (and come to think of it, some of those
sellers would fall into the category mentioned above that would relish a price
drop!). So, really not many people would lose out.
Interesting don’t you think?
Email me on manoj@hamletwarrington.co.uk or call on 01925 235338. If you are in the area, feel free to pop into the office – we are based on G5, Warrington Business Park, Long Lane, WA2 8TX. There is plenty of free parking and the kettle is always on.
Don't forget to visit the links below to view back dated deals and Warrington Property News.
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