Edge Newsletter #5 - State of the Property Market

What I’m Reading

Storyworthy is a delightful book I read where a multiple-time storytelling champion shares his strategies. What stood out was that contrary to popular belief, the best stories are not incredible, once in a lifetime events but ones that almost everyone can relate to. It’s the small moments like having breakfast with your family, or seeing the fun side when being caught in the rain while walking your dog.

Also, the idea the essence of every story is building up to a 5 second moment. Very fun read.

Resource of the Week

Sam Paar and Shaan Puri run the My First Million Podcast. They’re serial entrepreneurs, and Shaan is a director of Twitch. Every episode, they look at the latest trends and brainstorm business ideas. I find it informative to hear what’s currently hot and what’s not and their thought processes when dissecting opportunities.

Quote

If you shape your life according to nature, you will never be poor; if according to people's opinions, you will never be rich.

Seneca

Thoughts

After a three month delay for a property refinance in my portfolio, there’s finally some progress. Completion is due next week. This serves as another reminder for anyone looking to remortgage to be proactive with the legals and to get a decent solicitor.

I’ve just returned from Derby for some property viewings. The sales and rental market continues to be red hot. Everywhere. The agent shared that the market is behaving in a way he’s never seen more with people getting into bidding wars for rental properties.

It puts the property market in an interesting position. Rental demand is at record levels. Property prices are rising higher and higher, fueled by inflation and a long term shortage. Affordability continues to drop with the soaring cost of living. Landlords are exiting the market leading to a 7 year low, further reducing rental properties.

This begs the question are we due for a correction in the market or a crash?

To explore whether this is the case, let’s consider some metrics. From an equity perspective, we now have more restrictions than in 2007-2008. There are stricter affordability criteria in terms of multiples of earnings for residential properties and higher minimum equity for BTL investments (most standard being 25%).

Also, we must remember what the two biggest drivers of property prices are. That is, demand and credit. For the past 10+ years, the government has consistently missed their house building targets by around 100,000 homes every year, so there is a chronic undersupply.
On the credit front, the Bank of England has announced they’re planning to ease mortgage lending rules. More lenders are coming to the market as it heats up, and they want a piece of the action. Despite multiple base rate rises, mortgage rates have not budged much as competition keeps prices low. Even with the recent rises, the base rate is near historical lows meaning lending is still cheap.

So in the next 5 years, I don’t personally see a correction being due. However, many of these factors (easing of lending criteria, stretched affordability, inflated prices reducing yields) are all classic markers of a bubble. So in the medium to long term, it depends on how the government responds with monetary policies and regulations around the housing market on how the correction will look when it comes. Stay tuned for more updates.

As always, just hit reply for feedback, thoughts, questions. I read and respond to every single one.