As the current market winds itself down for Christmas, the last few months have been interesting following the doomed mini-budget from the Liz Truss reign!
Since then, we have seen interest rate rises, yet another new Prime Minister and a full Autumn Statement from the new Treasurer. We have also seen several national headlines about ‘House Prices crashing’, recession, markets tumbling and out of control inflation.
On numerous occasions, we are asked about our thoughts and predictions, and what to do… Well, we don’t have a crystal ball, but we do have a lot of experience in dealing with market upsets, and as ever, throughout the time Burnett’s Estate Agents has existed, every few years there has been something to disrupt the property market!
In 2009, it was the banking crisis, followed by hung parliaments; then Brexit; further political turmoil with regards to changes in Prime Ministers; then in 2020 it was covid, and now we have general consternation!
First and foremost, the market has been steadily slowing, as it always tends to in the run up to Christmas. Days are shorter, the weather is far more inclement, and gardens look less vibrant, with sodden grass and little foliage. All agents prefer to sell houses when the gardens look amazing, along with the feel-good factor that comes with spring, longer days and better weather!
It has, though, still been a productive period. We still have sales that are keen to proceed with mortgage offers that precede the interest rate rises following the mini budget.
In relation to the interest rates, the 3% base rate from the Bank of England is still an incredibly cheap way to borrow money – far less than the 15% and more that was seen in the late 1980s and early 1990s. A key fact to remember is that the fifty-year average base rate has been 5%, so we’re still some way below that figure!
The truth is that for the last fourteen years, a base rate of 0.25% has spoiled us. Money has been cheap to borrow, and ever since covid, everyone has wanted a garden, so rural areas have become more and more popular, therefore prices have spiraled way beyond the increase in general wages.
In addition, on the subject of Interest Rates, whilst in the short term we may well see rates increase in order to combat inflation, in times of recession, interest rates tend to get slashed to help promote spending and ‘cash-flow’. It would seem to me that, if indeed we are heading into recession, interest rates will also be reduced accordingly in 2023.
So, when reading and digesting ‘House Prices Predicted to Crash’, please remember that newspapers are often peddling their own political agenda. When digesting the analysis, should the property prices drop by 10%, we simply revert to house prices recorded in 2021, and a reduction of 20% equates to prices in 2019/2020 in our local area.
This is, without doubt, a large amount of money for many of us in the local area, but in 2008 and 2009 when the banking crisis was upon us, the property market dropped by 19%, and then jumped back by 20% by the end of 2010. I feel that 2023 may well follow a similar pattern as we re-adjust to higher than 0.25% interest rates and increased costs of living.
I believe we will still get a period of ‘re-adjustment’, but any losses will be short lived, i.e., less than two years. We will have to face higher interest rates in the future, but that is not unexpected, or indeed, bad news for savings. We simply have to bear in mind that mortgages are still one of the cheapest forms of borrowing, and we are still way below the fifty year average!
