As I type this article, the clock has not yet struck 6am. The final votes are being counted, and David Dimbleby, commentating on the televised coverage of the EU referendum, has just confirmed that the UK will leave the European Union. As most of the polls pointed towards a Remain Vote, it came as a surprise to most people, including the City that the UK will in fact now be leaving the EU. The Pound has dropped by 6% this morning, with the City having made incorrect predictions about the result and MP’s in the Remain camp uttering phrases such as “challenging times ahead.”
As the dust settles, what will be next for the 7064 East Dulwich homeowners, especially the 4652 of those with a mortgage? As the Brexit debate raged, George Osborne suggested that, in the event of a Brexit, property prices would drop by 18%. Their method of calculating such a decrease was tenuous at best. The Treasury estimated a sharp rise in UK interest rates. This, it was assumed, would in turn raise the cost of mortgages, and lower demand for property, causing a drop in property prices. That remains to be seen, once the dust has been allowed to settle over the next few weeks. However, with a two year time frame to finalise our exit I don’t expect much to change in the short-term.
In my opinion, there is a chance that East Dulwich property values will drop a little in the coming 12 to 18 months. However, I find the figure of 18% somewhat pessimistic. I believe that this figure was chosen as rhetoric, designed to persuade homeowners and landlords to vote to remain in the EU.
But the UK property market is a sizeable economic entity. Since the last In/Out EU Referendum in June 1975, property values in East Dulwich have risen by 3306.3%.
That isn’t a mistake. It should be noted that property prices did drop by 18.7% nationwide, between the 2007 high-point and the low-point of 2009. If you compare property values today in this country, compared to the peak of 2007, the period before the financial crisis of the Credit Crunch of 2008/9, they are still 10.14% higher.
Another Credit Crunch?
It is worth remembering that in 2012-14, the Government was panicking that the housing market was a runaway train. This was only a few years after the credit crunch – the most severe global recession since the 1930s. Now the same prophets of doom that forecast soup kitchens in 2008/9 are predicting a Brexit meltdown. As the saying goes, 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. In those difficult times, aspiring first-time buyers and buy-to-let landlords dusted themselves down, took a deep breath and carried on buying, because an Englishman’s home is his castle and because we all need a roof over our head.
If the value of the pound decreases, it is likely, as has happened in the past, that UK Interest Rates will rise to reverse that drop. While a cheaper pound may make your pint of Sangria a little more expensive on your Spanish holiday, it will make British exports cheaper! Which, in turn, is good for the economy.
What will become of interest rates? Since 2009, interest rates have remained at a stable, if very low, 0.5%. We have become used to these levels. So what if interest rates rise? Will this spell 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 boom years, when UK property values were rising by 20% a year, they were around 4.5%.
Some of you reading this article, who are aged over 50, may remember when interest rates were as high as 15%. I suspect that, in the immediate future, interest rates won’t rise that much. Mark Carney, the Governor of the Bank Of England, knows that raising interest rates will causes deflation – the last thing the British economy needs right now. In fact, the UK Treasury has been printing money for the last few years, in pursuance of a policy of Quantitative Easing – this causes monthly inflation to the sum of £375bn. Who knows, a bit of inflation because the pound has slipped on the money markets might be a good thing?
While 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. If you have to sell, then bear in mind that, as most people move up market when they sell, while your property might have dropped by 5 or 10%, the one you want to buy may have fallen by the same 5% to 10%. The best part is, you may be better off because the pricier property you would be purchasing might have decreased in cash value, when compared to the one you are selling.
3,410 East Dulwich buy to let properties have nothing to fear neither, nor do the 7,352 tenants living in their properties.
Buy to let is a long term investment. I predict that there might even be some buy-to-let bargains in the coming months. These will be as a result of some people panicking, irrespective of the evidence. Even if we were to pull up the drawbridge at Dover and stop immigration today, the UK population would still rise at a rate in excess of the current property building level. In the UK, we are currently building 139,600 properties a year. According to the eminent ‘Barker Review of Housing Supply Report’, the country needs to build about 250,000 properties a year to even meet the rise in population. On top of that, the birth rate is increasing and the general UK population is now living longer. Just under a quarter of all UK households are now occupied by a single person. This means that demand is only going one way – up, while supply is stifled. Demand outstripping supply results in higher prices. That is a fact.
So, what will happen next?
There are indeed challenges ahead – the country has spoken and we are now in unchartered territory. It is worth remembering, however, that as a country, the UK has been through two World Wars, Black Monday, Black Wednesday, an Oil crisis, 15% interest rates and a Credit Crunch, and we survived!
Finally, what of the value of your East Dulwich property? It might have a short-term wobble, but in the long term – it’s safe as houses regardless.