The rise in the bank base rate by 0.25% last week takes the rate to highest level since 2009. This, along with the medias speculation we’re going to ‘crash out’ of the EU next March has led to a stream of phone calls and emails from both existing and potential clients seeking my thoughts on the property market for the rest of this year and early next.
The rise in the interest rate came as no surprise to me, although I didn’t think it was necessary. There had been the threat of a rate rise for some weeks previously, but I believed this was a ‘marketing exercise’ from the Bank of England, hoping the threat would keep businesses and the public wary of over-extending themselves. Recent data indicated a large proportion of the UK population is spending more than they’re earning, with the result being additional pressure on inflation.
The Institute of Chartered Accountants in England and Wales latest sentiment index fell, after three consecutive quarter rises. The service sector apparently is showing the least confidence. I’m sure the Institute collates its data earnestly, but if it has any parallels with the data collected and disseminated by the Royal Institution of Chartered Surveyors it may be out-of-date by the time it’s published. I’ll be interested to see the service sector attitude in the next quarter when the World Cup pub activity figures are factored-in. Certain areas of the country may be struggling but a walk around Leeds city centre early-doors on a Friday or a Sunday lunchtime doesn’t reflect a poor service economy in Leeds.
The Brexit fiasco is being blamed for all the ills in the finance world, yet I’m finding more of my contacts in this sector are negative not from what Brexit may or may not produce but more from the continuing fall-out in this sector post-recession. Buyers are having to jump through hoops to get finance, some of which are bordering ridiculous – having to declare what you spend on your Sky subscription, or having your hair done, each month in order to justify your affordability for a mortgage seems extreme.
Project Fear about leaving the EU told us the economy would fall apart the day after the Referendum, interest rates would sky rocket, unemployment would rise, there would be a sandwich drought, insulin shortages, scarcity of vegetables and the world would stop turning – ok, the latter is a little exaggeration on my part! But flippancy apart, the press would have had us believe Armageddon was waiting for us, yet we’ve seen none of this. Unemployment has fallen, inflation remains contained (despite the lousy pound – although this is good for imports), the economy continues to grow and apart from house prices falling in London nothing significant seems to have changed apart from the news headlines.
London property prices are suffering, but again (in my opinion) this is not so much from the Brexit threat but from taxation introduced by George Osborne before his departure into the world of journalism. Stamp Duty at 10% on property sales between £925,000 and £1.5m and at 12% over £1.5m is crippling the family home market in London and the Home Counties. Stamp Duty on a fairly average £950,000 semi in the outskirts of London now stands at £41,250. A decent townhouse at £1.3m will cost the buyer £73,750 in tax. One may take the view that if someone can afford a house at this price level they can afford the tax – but having a spare £73,750 in cash to spend on tax isn’t commonplace, even if you do have the affordability.
The sales market in Leeds hasn’t seen a downturn since the Referendum. Prices have continued to edge up – by quite a substantial amount in some areas (Meanwood, Kirkstall and Bramley). All agents are reporting a shortage of stock compared to pre-recession era, although this was the case pre-Referendum. The National Federation of Property Professionals reported last week average stock levels for agents across the country were up marginally from 37 to 39 per office. My office is, apparently, doing better than the national average with 65 on our books. This remains a far cry from the 125+ we had back in 2005 and 2006. Stamp Duty costs and cheap mortgage rates are encouraging people to extend rather than move, and more Equity Release schemes are discouraging older people from downsizing.
We are seeing a little less buyer activity in August, but this is traditional due to the holiday season. That said, our diaries remain pretty full, especially on the rental front where a shortage of rental property is emerging (rents are bound to rise). September and October are traditionally busy for us, and I see no reason this year won’t echo last few autumns. I am then forecasting a slight downturn in activity once we get past Christmas with the run-up to March 29th – Project Fear will no doubt gain traction again. Before all major economic announcements estate agents see a degree of reticence in both buyer and seller activity – Budgets included. I remain quietly confident however that the market in Leeds will pick up fairly quickly after March 29th.
Project Fear was wrong about the outcome of the Referendum vote and I suspect it will be the same next March, even if we do ‘crash out’ on World Trade Organisation terms. The economy in Leeds is robust, and although Brexit is bound to have losers, it will also have winners. David Simonds wrote in The Times on Monday that Michael Burrage, of Economists for Free Trade, calculated that between 1993 and 2015 the leading countries that exported to the EU on WTO terms grew their trade with the EU almost twice as fast as countries within the EU grew their trade with each other. This was much faster than the growth of UK exports into the single market. Simonds also determined that Britain currently exports to more than 100 countries on WTO terms, and has grown those exports three times as fast as exports to the rest of the EU since 1993. Half of the UK’s trade is already on WTO terms, including the US and China.
The latest poll by the Institute of Chartered Secretaries and Administrators found that 58 per cent of respondents stated that Brexit was not expected to have any impact on their company.
Peter Hargreaves made over £3b during his tenure at the financial services company he founded, Hargreaves Lansdown. At 71 years of age, he has a business pedigree it would be foolish to ignore. He professes that the three biggest economies in Europe outside Britain are huge exporters to the UK – that is Germany, France and Italy. He is confident that these three will demand free trade from with the UK if we crash out of the EU. He was somewhat disparaging by saying that “No-one on the Government’s Brexit Team has a clue” and “None have them have done a (commercial) deal”.
I wouldn’t know whether such a sentiment is appropriate or not, as I don’t know the parties concerned, but as someone who has been running a business for 35 years where each and every day centres around negotiations, on many different levels, I have been astounded by the openness of our Government officials and politicians in their enthusiasm to let the Press and the EU negotiators know the ‘needs and wants’ of the UK at a very early stage in the negotiations with the EU. Good negotiators know that a good deal has to involve both sides gaining something they want (the ‘win/win’ philosophy). To arrive at that point you need to have things you can compromise with. What do you have available to compromise with if you start the negotiations by disclosing your ‘bottom line’.
I’m not confident we will avoid ‘crashing out’ with the way negotiations are being conducted by this Government, but equally I’m pretty sure there’s no need to be over-anxious about the unknown. We’ll wake up on the 30th March 2019 and life will go on.