What I’m reading

Boom Bust by Fred Harrison is the book that popularised the concept of the 18-year property cycle. Personally, I’ve been a sceptic of the phenomenon. Not because I don’t believe in economic cycles, but because I’ve not seen conclusive evidence. So I’ve decided to find out for myself. More views on this are to come as I progress.

Resource of the week

I got recommended SearchLand by professional property developers at a networking event this week. So if you’re interested in a project, worth taking a look.

Quote

"Most big, deeply satisfying accomplishments in life take at least five years to achieve. This can include building a business, cultivating a loving relationship, writing a book, getting in the best shape of your life, raising a family, and more.  Five years is a long time. It is much slower than most of us would like. If you accept the reality of slow progress, you have every reason to take action today. If you resist the reality of slow progress, five years from now you'll simply be five years older and still looking for a shortcut."

James Clear

Thoughts

As the property market continues to cool off there are a lot of questions on what will happen next year in terms of prices. So I’ve decided to re-engage in property networking events to see what people are up on on the ground. Here are some highlights:

• The Office for Budget Responsibility predicts that house prices will drop 9% to pre covid levels.
• 5-year swap rates have come down from 5.5% to 3.8%, (in short a swap rate is when a financial institution creates an agreement to exchange their variable rate payments for a fixed rate with another - I’m making an in-depth video on this) suggesting that mortgage rates are likely to come down over this timeframe.
• More lenders are already coming back onto the market. The owner and director of Bond Finance believes that lenders will continue to return to the market through December and expects normality in Q1 next year in the mortgage markets.
• CGT allowance dropped from £12k to £6k
• Corporation Tax increase from 19% to 25% as profits increase
  

No big surprises here, the CGT and corporation tax changes are designed to be deflationary to bring the inflation rates back down. The OBR prediction reflects what a lot of people and the media feel about house prices going into 2023. To be fair, it’s one of the more conservative estimates, I’ve seen people say drops of up to 20%!

Having said this, the guy from Bond Finance disagrees with the OBR prediction for these reasons:

• The last crash was in the 2008 financial crisis where the issue was lenders running out of cash, now they have a lot of cash.
• Today, 90% of mortgages are residential.
• In 2008 60% of residential mortgages were variable
• Today 95% of residential mortgages are fixed rate
• 2008 50% of residential mortgages were interest only
• Now only 20% are interest only and clients need to earn over £100k
• 2008 50% residential mortgages were self certification or low checks
• Now fully affordability checks carried out with stress testing
  

So the housing market is much more robust currently than in 2008. The two primary things that drive property prices in the UK is demand and credit. It doesn’t seem either of those will drop off in the short term, on the contrary. So I tend to agree with BF that there won’t be such a dramatic fall next year.

Things seem a lot tougher on the BTL market where landlords (particularly in the SE) are very much being squeezed and many will struggle to achieve the rent required to pass stress tests meaning a lot will be forced to sell if they cannot get a product switch and we’ll see investors who stay in the market having to deploy more involved strategies such as HMOs.

Overally, I’d say if you’re interested in property, going to as many events as you can, is a no-brainer. There is no substitute to speaking to industry professionals and gets you thinking a lot. (This is coming from an introvert who used to hate networking!)

If you do decide to go there are a few things to look out for:

• Check the type of venue. If it’s a posh hotel, you’ll be listening to presentations for most of the evening. (This one I just went to was a 6:30pm start, we finished at 9:30pm and I’d say I squeezed about 15 minutes of networking in.
• Pub meets are more laid back.
• Watch out for people trying to sell you stuff.
• Always follow up with people you connect with.

Let me know if you have any thoughts, questions or feedback, just hit reply, I respond to all.

Have a good week!

Hans