A number of my landlords and property investors have been picking my brains on my thoughts of what Brexit will do to the Tameside property market. Up until now, I’ve remained tight lipped about my predictions and thoughts on the matter, particularly if March 2019 leads to a hard Brexit. As it is becoming overly clear however, this subject is certainly at the forefront of the minds of Tameside landlords, investors and homeowners. Therefore it feels as though the time has come to convert my thoughts into an unbiased written blog.
Following on from the weather, football and the copious articles about rail strikes, our obsession with the UK property market fails to be beaten by any other country. In the event that the national papers can’t source a front page story, typically the covers are splashed with something relating to our property market. As I’ve stated before on my blog, there are far better economic indexes and statistics to assess our economy by as well as the property market.
I’ve always believed that the number of property transactions is just as (if not, more) important than the actual state of the property market.
Worries that the Brexit referendum would lead to a fast crash in Tameside (and national) property values were unfounded, although the growth of property values in Tameside has somewhat slowed since the referendum in the summer of 2016.
Unlike other property markets in different towns, boroughs, cities etc, where less people sell and move whilst property values are rising at a slower rate in 2018 compared to the heady days of the first half of this decade (2010 to 2015), the Tameside property market is almost doing the complete opposite. So what exactly has happened in the last couple of years since the Brexit vote in Tameside?
Tameside House Prices have risen by 9% since the EU Referendum…
…and yes, in 2018 we are on track (and again this is projected) to finish on 3,501 property transactions (i.e. the number of people selling their home). This is yet another annual increase since the referendum.
So, it appears the EU vote hasn’t caused many major issues so far. However if there was a large economic jolt, that could be a different game; yet how likely is that?
The property market is mostly influenced by interest rates and salaries.
A hard Brexit would subdue wage growth to some degree, yet the level of the change will depend on the undetermined type of Brexit deal (or no deal). If trade barriers are imposed on a hard Brexit, imports will become more expensive, inflation will rise and growth will fall. Although at least we are not in the Euro, meaning this could be tempered by the exchange rate of the Pound against the Euro. In plain language, a hard Brexit will be worse for house prices than a deal.
So why did the Governor of the Bank of England suggest a disorderly hard Brexit would affect house prices by up to 35%?
I mean it was only nine years ago we went through the global financial crisis with the credit crunch. Nationally, in most locations including Tameside, property values dropped in value by 16% to 19% over an 18-month period. Look at the graph and if we had a similar percentage drop, it would only take us back to the property value levels we were achieving in 2014.
Also, let’s not forget that the Bank of England introduced some measures to ensure we didn’t have another bubble in any future property market. One of the biggest factors of the 2009 property crash was the level of irresponsible lending by the banks. The Bank of England Mortgage Market Review of 2014 forced Banks to lend on how much borrowers had left after regular expenditure, rather than on their income. Income multipliers that were eight or nine times income pre-credit crunch were significantly curtailed (meaning a bank could only offer a small number of residential mortgages above 4.5 times income), and that banks had to assess whether the borrower could afford the mortgage if interest rates at the time of lending rose by three percentage points over the first five years of the loan; meaning all the major possible stumbling blocks have been mostly weeded out of the system.
So, what next?
A lot of Tameside homeowners might wait until 2019 to move, meaning less choice for buyers, especially in the desirable areas of Tameside. For Tameside landlords, Tameside tenants are also likely to hang off moving until next year, although I suspect (as we had this on the run up to the 2015 General Election when it was thought Labour might get into Government), during the lull, there could be some Tameside buy-to-let bargains to be had from people having to move (Brexit or No Brexit) or the usual panic selling at times of uncertainty.
Brexit, No Brexit, Hard Brexit… in the whole scheme of things, it will be another footnote to history in a decade. We have survived the Oil Crisis, 20%+ Hyperinflation in the 1970’s, Mass Unemployment in the 1980’s, Interest Rates of 15% in 1990’s, the Global Financial Crash in 2009… whatever happens, happens.
People still need houses and a roof over their head. If property values drop, it is only a paper drop in value… because you lose when you actually sell. Long term, we aren’t building enough homes, and so, as I always say, property is a long game no matter what happens – the property market will always come good.
Growth in UK property values as well as in Tameside seems fated to slow over the next five to ten years, whatever sort of Brexit takes place.
As always, I’d love to know your thoughts and if you are a landlord, tenant, property investor or homeowner in Tameside with any questions regarding the Tameside property market, I am always more than happy to answer them over email, phone, or a brew and a biscuit in person.