click this button to get back to the previous page
PROPERTY SPECIAL
Cold property
Yes, I think with the market at the moment that should really be the heading of my column for the foreseeable future. As I correctly forecasted in many previous columns both this year and last, the slump in the general market, and in the property market in particular, is going to be worse than anybody ever imagined. This month, even the national press appear to have caught up with the facts and now they all agree with me, even if the estate agents don’t; but more about those poor souls later.
I have been watching markets for some 40 years, and I have never known the press as bearish as it is now. I read the Daily Telegraph and Financial Times and urge you to do the same if you really want up-to-date, factual information, particularly the FT.
What the newspapers do not do is make forecasts, which I try to do. Being an amateur student of cycle theory, I have done pretty well… and certainly a lot better than the nation’s estate agents have. If you want to know what will happen in the property market, the last person you should ask is an estate agent.
For example, Savills, one of the major agents, forecast last autumn that the market would rise by five per cent. This spring they admitted they were wrong and now say they expect it to fall five per cent by Christmas. Agents follow the market and never lead it.
So how can you place any reliance on what they say in the future? I have long thought that the major determinant of future property prices is affordability. If people can afford to borrow the money, they will do so and have done since the Second World War, when buying homes became popular. (Before the war, most people in this country rented their homes. Letting is still very popular on the Continent, where rents are significantly lower than in Britain – Ed.)
Now the credit crunch has bitten savagely and very fast, and things will continue to worsen. The only thing that could save the situation is if the US and the UK central banks and governments all act in order to protect more widespread mortgage foreclosures. There is evidence that they are starting to do this in America but none at all that such an idea is even on the radar of our stupid government here in Britain (and normally he is so supportive of Gordon and Alistair – Ed).
I read that this month some one-third of all agreed sales are falling through because the buyers cannot obtain mortgages. This will worsen.
There are now no 100% mortgages available. You can now only get 90% mortgages, and I wonder how long they will last. The market cannot but fall sharply if mortgages are unavailable: think about it.
I could see this coming last autumn and changed my mortgage from a fixed rate to a base rate plus 0.27% tracker from one of the big four. This is fixed for life and I am very happy with that.
But this is not a time for moving mortgages or houses unless you really have to. Stick with the mortgage you have if it is reasonable.
However, there is some good news: it is reported that some 10% of estate agents offices have already closed.
And I did hear that they are now using estate agents rather than rats for laboratory experiments. Scientists say that they are more numerous, although not so friendly…
There has been comment in the press that following the change in capital gains tax from 40% to 18% occurring on 6th April this year there will be a glut of investors selling buy-to-let properties, which have gone down in price and are no longer profitable. We will have to wait and see if this is the case or not, but I do not think it will be significant and will probably only be short-lived. There are quite a large number of residential investors out there who will buy stock at between 25% and 50% lower than prices last year and also first-time buyers will now be able to get on the bottom rung of the housing ladder and thus start the next market rise. When you see this happening, you will know the bottom has been reached and the market will rise. Don’t worry, I will tell you when this point comes.
Another thing you can do to your advantage is to trade up. If you own a cheap property and wish to move to a larger more expensive one then now is the time when the market is down, and the reverse is also true: if you have a large expensive house, this is not the time to sell and buy a smaller one.
And just a small piece of investment advice: never, never, never invest any money in any funds, unit trusts, bonds or any ‘fund’ sold by anybody to look after your money. Always maintain control yourself. Get to understand the stock market, the property market, the baked beans market, whatever market you are in and invest directly yourself under your own control. We have seen in the last few months many of the big names in the fund markets being unable or unwilling to cash in the bonds on markets that have gone down, namely the property market, and are freezing requests and saying they will be in a position to repay the bonds albeit at a reduced rate in six to twelve months. Charming! This is a time for selling all bonds, unit trusts and either investing directly in shares you have chosen for a particular reason or keeping the money on deposit in cash. Use one of the big four banks for this purpose.
And now for this month’s forecast. Agents have been saying that London will be isolated from falls because of the strength of its market. I do not believe this to be the case. I believe the market in London will fall farther and faster than the market in the country outside because of the high levels at which it is now trading. The decline will be started by those in the finance industry who have been made redundant or are losing money, and all the influx of foreign buyers will not make up the difference.
So the bright spot on the horizon is that the price of expensive country houses in the South-East above £4 million has risen slightly in the first quarter of this year (Good news for all of us there, eh readers? Come along, Nicholas, keep it real – Ed.)
The other bright spot is that residential rents continue to edge upwards at 5–10% a year. (Thank you – Ed.)
So keep the hatches battened down and the chequebook to the back of the bureau. That way you will weather the storm.
And now for something completely different. Banks are tightening up on credit drastically. It is hard to obtain even business loans; however, as a service to my readers, I can inform you that one of my banks, one of the big four, has plenty of money available to lend for bankable business propositions. This is not domestic mortgage money but commercial money for business deals on standard banking terms. If you have a bankable proposition and wish me to make the necessary introduction, please ring me on 023 9263 1888 during business hours to run the idea past me and we will take it from there.
I thought I had better end on a cheerful note and so wanted to tell you about the chap who advertised a full set of encyclopaedias for sale, 30 volumes going cheap. Just married. No longer required. Wife knows everything.
(He’s here all week… Ed.)
Nicholas Pine