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

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