“We have many armchair economists and even professional economists predicting Armageddon when it comes to the property market, yet the UK property market is essentially very sound. Don’t forget, in the lead-up to the 2016 referendum, the Chancellor himself, George Osborne, warned that if we voted to leave the EU two things would happen. Firstly, the UK property market would crash and property values would drop by 18% in the two years after the vote. Secondly, there would be an ‘economic shock’ to the country’s economy that would increase the cost of mortgages (through increased interest rates as there would be a run on the pound). Instead, UK GDP rose by £132 billion in the two years after the referendum and interest rates actually dropped locally.”
With regard to property values, he also says investors should be cautiously optimistic despite the inevitable short-term downturn.
“Lloyds have predicted an enormous 30% fall in property prices over the next 36 months whilst Savills have suggested a short dip of 5% during the summer, based on very low transactions numbers, with property prices bouncing back to be just over 15% higher in five years’ time.”
“This assumes that the UK’s economic downturn is short and sharp, and that no substantial gap opens up between supply and demand in the property market (i.e. everyone doesn’t dump their property on the market all at the same time),” Gray explains.
“Yet, the circumstances of the 2008/9 property crash were fundamentally different to today. Many ‘armchair economists’ assume there will be a re-run of the 2008/9 and 1988 property crashes in the coming 12 months in terms of house value falls.”
“Yet, unlike the last recession, this dip has not been led by previous years of strong property price growth like the other two crashes. House prices in many parts of the UK have been down in the last 12 months.”
Research by Yomdel suggests that thousands of estate and letting agents have reported that national activity is higher now, with the lockdown slowly being eased, than it was in the two-month period post-election coined as the ‘Boris Bounce’ (January and February 2020), when transactions surged.
The number of new buyer enquiries for the last two weeks is double (108.9% higher to be precise) the 2019 yearly rolling average, Gray says. New landlord enquiries, meanwhile, are 32.1% higher than the 2019 average and tenant enquiries are 150.1% higher than the 2019 average.
“These are all great signs and go against the doom-mongers,” Gray adds. “My best advice to all property buyers, be they second-time buyers, first time buyers, landlords, is that they should buy with a medium-term view of future property values, instead of an expectation of always looking to making a quick few pounds flipping a property (i.e. selling it quickly).”
He says we shouldn’t forget that mortgage interest rates are another important factor. “They are at a 325-year low, so borrowing money has never been so inexpensive. The best advice I can give is, don’t assume what you can or can’t borrow. Speak to a whole of market mortgage broker to see what is possible – not what your friend on Facebook tells you.”
Gray insists that, with the rollercoaster of the stock market in recent months, ‘investing one’s money into good old-fashioned bricks and mortar’ has started to seem like a very good idea again.
“Buying a property for investment means you have a tangible asset, something you can touch and feel (and understand),” he says. “The returns from investing in property come from both capital appreciation and income from the rent, and yes whilst property values can go up as well as down, successful buy-to-let landlords are inclined to take a long-term view on their property investments.”
He advises that before investors purchase, they should consider factors like the strength of their financial future, their credit score, the current state of the property market and, even more importantly, the state of the mortgage market.
“Interest rates are at record lows, meaning borrowing money is cheap money now, so it may be a good time to buy, as you will pay a reduced cost for the pleasure of borrowing money to buy that investment.”
What will happen to the UK property market?
“To be honest – nobody knows,” Gray admits. “What I do know is that swine flu in 2009 caused some volatility in the UK property market, but the market stabilised within months. Even in disaster scenarios such as the current one, property remains comparatively stable and will continue to be one of the best [areas] to invest in.”
He says we could see unemployment rise in the next six months (even though the furlough scheme has been extended until the autumn), but historically, house price falls are not caused by high unemployment.
“Yes, GDP will drop drastically because of lockdown, yet it could bounce back like it has in China. Yes, the number of property transactions will drop, yet that will only really affect the pockets of removal people, solicitors and estate agents, as well as the Chancellor of the Exchequer in lost stamp duty receipts.”
“Yes, there was £82 billion worth of property sales on ice during this lockdown (some of which might not complete), but it’s all ifs, buts and maybes.”
Gray believes that calamity changes things. With every predicament, humanity shifts to become more productive.
The national debt at the end of the Napoleonic Wars of 1815, Gray says, was in today’s money an eye-watering £4.42 trillion. Now, even with the eye-watering borrowing to fund the response to and recovery from Covid-19, it stands at £1,821.3 trillion.
“We have been here before and we came out stronger,” Gray states. “The Bank of England failed in 1825, yet we recovered stronger. The Great Depression of the 1930s cut the stock market by 90%, yet we recovered; WW2 took national debt to 200% of GDP like it had in the Napoleonic Wars in the early 1800s – yet we recovered. The oil crisis quadrupled oil prices in the 1970s – and we came back.”
The list goes on, he says, with hyper-inflation in the 1970s of 25%, mass unemployment in the 1980s, Black Monday in 1987, the Dot-com bubble in 2001 and the credit crunch in 2008/9.
“With every economic crisis, the long-term effects make people look at their decision-making differently,” Gray insists. “The simple fact is that for decades, demand for homes has outstripped supply – hence why property values have remained so robust.”
“People are living longer (71.1 years in 1960 and 81.1 years nowadays), the mass exodus of EU nationals has not taken place since Brexit and the birth rate has increased by 9.1% since the Millennium which means, since 2000, the country has needed at least 240,000 households per year to satisfy the demand.”
He concluded: “On average, we have only built 150,000 households a year, meaning we have had a shortfall of 90,000 households each year for 20 years, a true shortfall of 1.8m households. Until we start building anything over that 240,000 requirement, demand will always outstrip supply – and we all know what happens to prices when that happens!”