Solving the Property Puzzle

I hope this update finds you keeping safe and well? You will be glad to know I will not be covering anything relating to predictions when lockdown will end, or the vaccine roll out. Both of these are heavily reported upon right now, so I see now added value here.

Following on from my last update in 2020 I did touch on the prospect of a Brexit deal being secured and this as you know was the case.

The finer detail of this is still filtering out and one major area which is a little under reported right now is financial services. In the past it was possible to offer services and investments across Europe and currently this is closed to investment providers. This in some respects was expected and I do believe that a sensible deal will be struck.

Without doubt we are a world leader in financial services, and this will hinder Europe more than us with them wanting free access to our markets.

The trade deal only accounts for a very small part of our actual GDP and “services” as whole is really where the money is now made in the UK.

To assure you this does not impact us investors and if this changes, I will provide commentary on this under separate cover.

In the UK we have a high rate of property ownership with 65% of households in England being owner-occupiers. Housing is the biggest component of most household’s wealth and it’s a tangible asset we all can understand very easily.  We know what we paid for it and what it’s worth now and there’s no more magic than that.

It seems that with the stamp duty holiday the housing market gathered some real pace in 2020. This “holiday” will end on the 31/03/2021 and if the sale is not done by then, it will not get any extension.

A few updates back I mentioned that property was selling at a great pace, but I would want to see the actual sales complete not just sold boards going up. There now stands a very good chance that many of these sales that have been driven by the stamp duty holiday will not complete before the deadline and dare I say will not complete at all.

What 2020 has shown many businesses is that a remote life for workers is a happy life and their need to be in physical location to be productive has reduced. This then means the worker can place themselves in effect anywhere as long as they have an internet connection.

Large corporates endorsed this early on but as time has gone by, we can see now collaborative work and personal development is suffering.  Sitting at the dining room table will never replace the work environment for a person’s professional development.

With people being at home more it has made them think if their property is what they really want.

The two main indices for property values are the Halifax and Nationwide. Both have shown an upward average price for 2020 and their respective indexes are up 6% and 7.3%.

No matter which one we look at here this really is some jump in a terribly unstable year, with rising unemployment, the risk of further job losses and a worsening economic picture globally. 

So, what has driven house prices in these crazy times?

There are three main areas my view: 

Low interest rates and cheaper debt has opened the door for borrowers to take on more and make a jump. Borrowing more has not seen people paying much more with super low rates. If we look toward 5 year mortgage rates being circa 1.75% then we know that savings rates will remain low for the same period given mortgages are normally higher and linked to savings

This has allowed people the security to make a move when all other factors would say no in taking on more debt

Downsizing, but not necessary in value but actual size. We have seen a massive move with people wanting a more suitable property in a better location but paying more for this. The advantage here is paying no stamp duty so making a move a little more appealing

People leaving London and the M25 area. We all know that inside the M25 demands a greater house price if access to central London is a reasonable distance or time.

These workers have been told they may never return to an office and given this they are now free to run off to another part of the country.  We can see this here in the Midlands with London money driving prices higher. The problem here is that London money gives ample resources in other parts of the country and even overpaying they still feel they are getting a bargain.

The residential property market is starting to look a little stretched and demand will claim post March. This could mean a small step backwards to go forward once more after that and I would not be surprised to see a small bubble form in all this.

However, with low interest rates for some time yet, cheap debt will be here to stay even with fewer mortgage products on offer.  This might well just be enough to give the property market enough confidence to keep going.

A property of course is only worth what someone is willing to pay for it not what an estate agent says it’s worth.

As the pandemic does start to release its grip on us, business will start to call back the home worker and this might be sooner than later with a vaccine roll out (sorry I did say I wouldn’t mention vaccines) and that could also make the market stutter.

In a time of an economic contraction, rising unemployment, uncertainty on the high street and hospitality sector with house prices moving upwards, something here feels a little off.

I’m certainly not saying that there is an imminent housing market crash nor that we will see another positive year either but us Brits do love bricks and mortar with our home being our castle.

The property market is at a crossroads and we will know more post March in what turn this takes, I’m sure of this.

Finally, we are here for you be that just a social call or a personal update away from your normal review’s.

I cannot stress this enough right now and we will support you in any way in which you need it.

Please stay safe and I look forward to seeing you in due course.