Good news or not?

January 18, 2016 by Rob Kahl

Good news or not?

How much is your house now worth? Everyone seems to be talking about it, I even wrote about it in a previous article. Leigh on Sea is big news at the moment. According to the Daily Telegraph our area saw the 4th highest growth in the country last year, prices are soaring and the popularity of the area just seems to grow.

Being a local estate agent I am prepared to take my share of responsibility for this. I will shout from the rooftops the benefits of this area but I genuinely mean it as I live in the town, it is not just because I work here and am trying to line my own pocket. I personally see the popularity of the town and prices rises as a positive thing but there are a growing number of people that are not so sure.

People that have lived, worked and moved through housing crashes are increasingly nervous that the bubble is going to burst and that increases of 16% or more in a year are not sustainable.

Others that have children are obviously concerned for them to be able to take their first steps on to the property ladder. With prices for 2 bedroom flats in Leigh around £250,000 and the best mortgage rates around 80% loan to value. How many 20 somethings are in a position to save the 20% deposit required of £50,000! It is now extremely rare for me to sell a property to a first time buyer who is not getting some form of financial assistance from parents.

Other people that are looking to move in to the area for schooling or the commute or even thinking of retiring here from different areas are finding it increasingly difficult to find affordable properties compared to properties they are selling in different locations. But demand is still as strong if not stronger than it has ever been and as ever in Leigh there is not enough supply. There are never enough of the type of properties required and therefore people end up fighting over the few that do come on and inevitably these properties sell for what some may consider an over inflated asking price or even more.

But is this panic justified? Are these increases inevitable and going to just carry on or should we all take stock and see what happens over the next few months.

The same newspaper that talked about how house prices have risen so sharply in 2015 has recently written another article full of doom and gloom predicting a crash! These sort of thing always have to be taken with a large pinch of salt. Historically Leigh on Sea has always ridden out any problems in the housing market pretty well. Prices rarely drop although they may stabilise for a period while areas all around suffer more.

Some things they mention in the article do seem to make sense though and you can see why the predictions point in the direction of caution. They argue that properties should be treated like any other asset. The main difference is that the housing process takes a lot longer to react to any adjustments in the market as the housing buying and selling process takes so long the asset is not as liquid as others.

A similar asset that has suffered recently is oil. This is obviously traded on a daily basis and has dropped dramatically over the past year, price of a barrel has recently dropped to below $30 which we all like because of the cheaper petrol for our cars but affects a great deal of jobs and exports.

Another asset which takes a bit longer to react are shares. These are seeing a sharp decrease at the moment with the FTSE dropping around 1000 points in the last 10 months.

Treating the housing market as an asset makes sense when taken in to context like this and there are external factors that could have an effect on the market as a whole which shouldn’t be ignored.

The London market has always fuelled our areas price growth. People cashing in from huge price increases in the capital and coming out to a much quieter and safer area with a fabulous commute can reap the rewards. Overseas buyers seem to be the driving force behind London’s huge increases but this could change. A slowing in the growth in China has tightened things greatly and there are even sanctions now on Chinese nationals taking out large amounts of money from the country. The economy in Russia is suffering as well and the oligarchs that seem to be buying up great swathes of Chelsea & Kensington are having to tighten up their boot straps and reel in their extravagant spending.

Another factor which could have an impact is the imminent changes in the buy to let market. Our esteemed Chancellor seems to have it in for buy to let investors and has hit them with a triple whammy. A large increase in stamp duty for investment properties or second homes, the end of tax relief on mortgage interest payments and having to pay any capital gains tax after selling investment properties within 30 days rather than at the end of the financial year. Nobody really knows how the market is going to react but some predict that nationally it could see 200,000 investors deciding to come out of this market and sell up.

The last thing could be an increase in interest rates. We have all got used to interest rates being so low but is this due to change. In the USA rates have recently been doubled and they are predicted to rise by 300% by the end of the year. Any increase in interest rates for us could have a large impact as a great deal of us are now on variable rate mortgages linked with the Bank of England interest rate and there is record amounts of debt that the country seems to have taken on again.

This all sounds rather gloomy but as ever the housing market should be looked at over a much longer period than any other asset. If you are buying a property to live in for 10 years or more then over that sort of period house prices have always increased at around 5% a year. This seems to be a sustainable level and is still better than having cash in the bank earning you next to no interest. 

Also if you have found a property that you have fallen in love with and is in exactly the area you are after who cares of you are paying a little bit too much for. When is the next property like that going to become available, can you afford it and how long are you likely to live there? They are the questions you should be asking yourself not if you are paying £5,000 or £10,000 too much!

This article is by Rob Kahl at Scott & Stapleton.
Tel: 01702 471155

Read all of Rob's previous property articles here... http://www.leigh-on-sea.com/tag/listing/blog/property