Thursday, 30 June 2016

Post EU referendum – will history repeat itself in the Penicuik property market?

A landlord of mine stopped me yesterday on the way back from getting my sandwich at Greggs (no time for lunch out in these turbulent times!) and said ‘You’re an Economist, now that this Brexit stuff has quietened down a bit what should I do with my properties?’.

Now I am an Economist by training (and an Accountant for my sins!) so that part was true but I had to set him straight on the other part – things have not quietened down post Brexit yet ..... I wish!

However, what I have seen over the last few days is interesting as to me it follows trends of previous bad times which is actually comforting in a way as it gives us some indications as to what might, and I stress might, happen in the future.

Some shares have fallen off a cliff .... but not all

 Over the past week:
  • New house builder shares have fallen off a huge cliff.  Examples are that Crest Nicholson shares are down 40.0% over the last week and Berkeley shares are down 27.9%.  Trading was temporarily suspended in shares in many of the house builders including Berkeley Group, Crest Nicholson, Barratt Development and Taylor Wimpey on Monday as they went into freefall
  • Estate agents shares have fallen off a slightly smaller cliff.  Examples are that Foxtons’ shares are down 38.1% over the last week and LSL (Your Move etc) are down 26.0%.
  • Sales and lettings portals have fallen of an even smaller cliff – Rightmove is down 18.6% over the last week and Zoopla 23.3%.
  • Lettings businesses have hardly been hit at all – Belvoir is down just 2.1% over the last week – which is bucking the market trend as the FTSE 250 (a good barometer of the UK market as a whole) is down 8.7% over the last week. 

These are similar trends to previous recessions where demand for house sales (new or second hand) have fallen sharply but, as a result, demand for rented properties has increased significantly.

Anicdotal evidence from house builders

I have a number of friends who hold senior mangement positions within house builders.  The mood music from them is two fold: firstly, that house builders themselves are effectively ‘pausing’ projects that have not started to see how things pan out over the next wee while and, secondly, that potential buyers are asking house builders for price reductions on properties for sale on existing sites.

Again, these are trends seen in previous recessions – pull up the draw bridge on new sites until things are more certain and actively try and sell stock on existing sites even if that means reducing prices.

Mortgage availability

The banks are going through the an even harder times than house builders.  There share price has absolutely tanked since the EU Referendum and shares in RBS and Barclays were also suspended on Monday as they went into freefall.  Now I am not saying that this is solely due to fears about the property sector (as they have other worries as well particularly the ability to trade in the EU after Britain leaves the EU) but fears about the property sector has impacted the banks’ share prices.

Given the uncertainty, experience from past recessions would suggest that mortgages availability may be reduced and mortgage criteria may be tightened thereby making it harder to get mortgage funding particularly on purchases with lower deposits.  In fact, I say the first example of this coming to pass yesterday when TSB tighted up its Buy to Let mortgage criteria.

Interest rates

This is a really interesting one.  Certain factors would suggest interest rates will go us eg Rating Agencies downgrading the UK’s credit rating, lower Sterling meaning higher prices which will create inflation which will need to be controlled.  However, other factors would suggest that interet rates will remain stable and would be reduced if they were not already at 0.5% which means that the Bank of England may need to ‘print money’ (Quantitive Easing) instead.

On balance, it is looking like interest rates are set to remain stable in the short term and there is a possibility of some printing of money. 

Lower growth or even recession

The turmoil caused by the EU Referendum vote in the UK and beyond will result in lower growth in the UK Economy or even recession.

Let’s keep perspective

Before the EU Referendum, George Osborne said that house prices may fall by 18%.  As I said in my blog on Monday, I think that house prices will fall but not by 18%.

To give this some context, the financial crash in 2007-08 did cause house prices to fall.  In Midlothian, the average house price fell from a peak of £164,653 in August 2007 to a low of £136,278 in February 2011 which is a fall of 17.2% and the financial crash of 2007-08 was huge, the biggest since the Great Depression of 1929. 

Pulling these factors together 

Based on the above trends, previous experience would suggest that we are likely to be entering a period of huge uncertainty with lower growth or even recession as well as tighter credit terms.  This will result in house prices falling as demand for houses is reduced but an increased demand for rented properties which provided people with much more flexibility.

In the last recession, the savvy (many said ‘brave’ at the time!), buy to let investors with cash or access to finance (which harder to come by) continued to buy properties as they could get them at competitive prices because demand for properties to buy was lower and they could rent them easily as demand for rented accommodation was high.  They then either sold the properties when the market picked up or held on to them as longer term buy to let investors.

Will history repeat itself in the Penicuik property market?

A few more interesting articles about the Penicuik property market:

Monday, 27 June 2016

Scotland votes remain, UK votes leave – what now for the 5,302 Penicuik landlords and homeowners?

It is interesting times at the moment for the Penicuik property market. 

As we all know by now, the United Kingdom & Northern Ireland overall voted narrowly to leave the EU but Penicuik in particular and Scotland in general voted overwhelmingly to remain in the UK and, as a result, the Scottish Government is talking about Scotland remaining in the EU via Indy Ref 2.

What next for the 5,302 Penicuik homeowners especially the 2,822 of those Penicuik homeowners with a mortgage?

There are two layers to this

The first layer is – What next for Penicuik homeowners if Scotland stays with the rest of the United Kingdom and leaves the EU?  With the second layer being – What next for Penicuik homeowners if Scotland stays in the EU and separates from the rest of the United Kingdom?

Taking the first layer first ...... Scotland leave the EU along with the rest of the United Kingdom

The Chancellor in the EU referendum 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.

Penicuik property values

I agree that Penicuik property values will probably drop in the coming 12 to 18 months – but by 18% – I am sorry I find that a little pessimistic and believe that figure was rhetoric to get homeowners and landlords to vote in a particular way.  But the UK property market is quite a monster.

Since the last In/Out EU Referendum in June 1975,
property values in Penicuik have risen by 1894.7%

(That 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 1930s and the recession it brought us, a matter of a few years later, the Government was 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 .... we 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. However, 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 export cheaper!  Which is great for the economy.

Interest rates

… and what of interest rates? 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 .... 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 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 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 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 and there is fresh talk of doing this again now. A bit of inflation because the pound has slipped on the money markets (not too much mind you) might be a good thing?

.... because 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 Penicuik landlords of the 530 Penicuik buy to let properties have nothing to fear neither, nor do the 1,272 tenants 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 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’, the country needs to build about 250,000 properties a year to even stand still, and 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.

Turning to the second layer first ...... Scotland stays in the EU and deparates from the rest of the United Kingdom

The first things to say about this is that there is even more uncertainty about this as the Scottish Government would need to ‘do a deal’ with the EU and the rest of the United Kingdoom and the Scottish people would need to agree to it through a referendum.

Therefore, in the short term the likelihood it that Penicuik homeowners will be impacted as if we were leaving the EU ie the first layer as discussed above.

However, if Scotland stays in the EU and departs from the rest of the United Kingdom then the fundementals that existed in the Scottish economy before the vote on Thursday may come to the fore again.  You may have forgotten what was happening before Thursday’s vote (I can’t believe I am saying that but it has been an temultous few days!) but the fairly strong economy, the increasing population, the desire for more people to live alone or in smaller numbers and the lack of house building were all pushing up house prices and rents.

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 Penicuik property? It might have a short term wobble… but in the long term – it’s safe as houses regardless.

A few more interesting articles about the Penicuik property market:Penicuik property – weirdest deal breakers

Friday, 24 June 2016

Vote Leave wins .... what should a Penicuik property market investor do?

So we now know the result of the EU Referendum,  It was a long, indeed a very long, Referendum campaign that seems to have been more focused on shoutings and fairly nasty so called debates rather than sensible arguments and discussions but we now have a result.

Penicuik voted to Remain in the EU by 62% to 38%, Scotland voted to Remain in the EU by 62% to 32% but the UK voted to Leave the EU by 52% to 48% thanks largely to voters in England and Wales who voted strongly to Leave

So what does this mean for investors in the Penicuik property market.

Simply put, it is not time to do anything dramatic but rather it time to pause for reflection.

Penicuik property in itself is not that affected by whether we are in the EU or not as most of the property laws as well many of the financial aspects of property, like mortgage rules and regulation, are set in Scotland or the UK.  However, Penicuik property is affected by the state of the UK and Scottish economies. 

The vote to Leave is will create short term uncertainty in the financial markets as well as in the political corridors of power which will have a short term negative impact on the UK and Scottish economies which will in turn have a short term negative impact on the Penicuik property market. 

On top of this, given that Scotland voted strongly for Remain in the EU but is being forced to Leave the EU by its English and Welsh cousins there is the possibility of Indy Ref 2 which will create more uncertainty.

So why do I not take action immediately I hear you say?

The simple answer is that property is a long term investment and a wee bit of patience is needed to see what the medium to longer term prospects will be for Scotland, for the Scottish economy in general and for the Penicuik property market in particular as the UK prepares to Leave the EU. 

After this pause for reflection, be ready to take strong, bold and decisive action as there will be opportunities in the Penicuik property market as a result of the UK voting to Leave the EU for the savvy and the brave .... change always creates opportunities for the savvy and th brave!

So, sit tight for a while to see how the land lies in the new brave new world, take on board advice from credible sources including the Penicuik Property Blog and then decide what to do with in the Penicuik property market. 

The Penicuik Property Blog ...... we have our finger on the Penicuik property pulse!

If you would like any advice on the Penicuik property market after the EU Referendum, feel free to pop into my office at 6 Bank Street, Penicuik, EH26 9BG, for a chat, give me a call on 01968 674601 or email me on

A few more interesting articles about the Penicuik property market:

Thursday, 23 June 2016

Referendum result impact on the Penicuik property market – watch this space

As we all know, today is polling day for the EU Referendum.  The wording on the ballot paper is in the picture above.

The result of the EU Referendum will be known by tomorrow morning and the Penicuik Property Blog will be commenting on the impact of this result on the Penicuik property market first thing tomorrow morning.

Watch this space for specific commentery on the EU Referendum result on the Penicuik property market.

The Penicuik Property Blog ...... we have our finger on the Penicuik property pulse!

A few more interesting articles about the Penicuik property market:

Penicuik property – weirdest deal breakers

Knowing what puts off potential property purchasers and tenants from buying or renting a property is fundemental to being successful at buy to let.  This was the advice I gave a landlord of mine from Loanhead the other day when I was viewing a potential buy to let property with him.  I went on to surprise him with some examples including patriotic flags and charity shops.  Let me explain further.

When it comes to buying a buy to let property you need to consider not only the big things but also the little things as well as both as really important.

I have banged on about the ‘big things’ before – particularly rental yields, capital growth and how easy it is to sell your property – so today I thought that I would focus more on the ‘little things’.  Whilst they are ‘little things’ they are fundemental to property buyers and renters taking a property to live in so they are actually really important.

Research undertaken by easyProperty asked 1,000 UK adults what things would put them off an otherwise suitable property they were viewing other than the condition the property itself.  There responses were fascinating.

Many of the people taking part in the survey indicated that they cared as much about the prospects of the surrounding area as they did about the property itself but the biggest ‘turn off’s’ were more intangible:
  • More than half of the people surveyed said that they would not take a property if the had a ‘bad vibe’ about it.  Time to get a feng shui person in!
  • Lots of people were put off by things that signified how affluent the area was.  One in four of people were put off by fast food shops nearby and a third of people by the presence of pound shops whereas only a few (6% of participants) were put off by vintage or boutique shops both of which are commonly thought of as being in ‘posh’ neighbourhoods.
  • And amazingly 18% lost interest in an otherwise suitable property if they disliked the people currently living in the property .... slightly irrational as these people would not be in the property after they bought or rented it!

Top property dealbreakers

Turn off
% who said the turn off could be a dealbreaker
Detecting a bad vibe
Lots of fast food shops nearby
Lots of pound shops nearby
Lots of pubs and restaurants nearby
Charity shops nearby
Patriotic flags on neighbouring properties
Disliking the current owners
Lots of religious buildings nearby
Smelly pets
Lots of vintage/boutique shops nearby
Source: easyProperty survey

Before they decide to buy or rent a property, most people try to picture themselves living in the property and in the area the property is in.  What is the neighbourhood like? Would we want to go for an evening stroll? Who are the neighbours, can we imagine inviting them over? How do the schools perform, can we see our kids enjoying it there?

When you are buying a property to rent out, it is really important that a landlord does the same as the people renting the property will be doing so so you need to ensure that your property is going to be attractive to them taking account of the above research.

It is really important to ensure that the little things are right with a property as well as the big things!

If you would like to talk to us about your potential investment criteria, please come into our office at 6 Bank Street, Penicuik for a chat, give me a call 01968 674601 or email me on

A few more interesting articles about the Penicuik Property Market:

Wednesday, 22 June 2016

Scope for price negotiation to improve 9% yield on this Penicuik BTL property

Today’s buy to let opportunity is a 3 bed, upper villa on John Street opposite the Bank of Scotland that is being sold by McEwan Fraser Legal.  John Street is the main drag into Penicuik.

There is plenty of accommodation including a decent sized lounge, a fitted kitchen, 3 double bedrooms, a bathroom with a shower, gardens and on street parking.  The property is in lettable condition and, by the looks of the photos, it has been rented out before. Structurally there are a couple of things I would point out: one the bedrooms is a ‘small’ double (have a look at the photos and you will see what I mean!) and the fact that is an upper villa may put off some people, particularly families with small kids. 

Doing the maths. The property is on the market with McEwan Fraser offers over £99,995 so let’s say it goes for £105,000.  Rent of £800 pcm is achievable on a property like this particularly with housing benefit tenants which gets you to a 9.1% yield.  On top of this, there may be scope for a negotiation on price as the property has been on the market for over a year.

We hope you find our posts useful.  If you would like some advice with your potential investment, please come and see us in our offices (6 Bank Street, Penicuik), call us (01968 674601) or email either of us (