Property Investment Prediction

There are not many times during the past 50 years where a prediction could be made with regard to property.

One event occurred in 1988 when the then Tory Government decided to abolish double MIRAS (Mortgage Interest Relief at Source)- This change meant that mortgages were more expensive by £80 pcm for couples (married or singles)-

This was announced on the 15th March 1988 the deadline was 31st August 1988 and fuelled property prices to rise by a staggering 33% in that 24-week period.

Now, because the market rise was artificial they then went on to lose this gain over the next 4 years.

If a lesson is to be learned it is this; if you force the market up it will bite you on the arse!

I believe it contributed to the recession of the 90's because at that time I was an agent and I felt the decline, business was down 50% at one stage. The wider implications have a knock on effect just like what happened in 2008, 20 years later, when lending came to an abrupt halt. You remember that don't you?

Less sales, less agents, less solicitors, less money for the Government and so on; then cut-backs and the rest is history.

So, we could predict 2 things in 1988:

Prices would rise quickly as there was a mad rush to get in before the deadline

Prices would fall back because the cost for a new mortgage would be higher and so

The wider economy would be affected.

The key is by how much and to what degree; that's the thing most people miss.

Now we have another with last March's budget announcement.

So what impact could this new Government housing scheme have on the market?

How much, and most important, what will the fallout be?

This was the Government announcement; that from Jan 2014 they will underwrite all mortgages up to £600k. This is not exclusive to FTB's or second timers. This is for the general property market.

It is to encourage lenders to lend at higher loan to value and give them confidence to lend generally. Banks will have to stick to normal lending criteria for income multiples but I suspect they will be a little more lenient on peoples' credit ratings and not as harsh as they have been.
Those with a poor credit rating will still be excluded I should imagine.

The idea is the Government will underwrite and take a hit if someone gets repossessed.

The whole point is to get more buyers back into the market because they (the Government) believe this will get the economy going. More buyers, more new houses, more new jobs, more VAT from fees and more stamp duty; I'm sure you get the picture.

It will make it cheaper to borrow as the Funding for Lending Scheme is still in place so mortgages will be cheaper, it will be cheaper than renting and there is huge pent up demand from buyers.

People still want to own property, just wait and see.

They are talking of underwriting up to 130bn quid's worth for 3 years.

This is going to fuel the property market which is great for your equity increase but absolutely useless to you as a landlord. Or so you may think!

The only reason lettings have boomed is because of a lack of mortgages.

We are going to witness the biggest property boom you have seen for years and it underpins everything I have been talking about in the last 12 months.

This will be the result of too much stimulus and will get the Tories re elected.

There will be so much money flushing through the system it will be a joke.

Also, it is on top of the Bank of England's £375 billion QE (printing more money) which adds to the feel good factor.

The feel good factor is when people feel wealthy when their houses go up in value and they start to spend more.

People won't want to let a property now, and why would they? Affordability will be in favour short term for buying. The lettings market will soften in the next 18 months because all self-respecting people in this country will want to own a property to give them security unless of course they are looking for short-term flexibility.

This market is artificial; it won't last long because rates will have to go up. That's when the shit will hit the fan and is at least 3-5 years away.

But everyone should take advantage of this great time ahead.

You will see it won't be able to miss it. I'm not talking a small percentage I'm talking 25-100% increase in a few years.

This will buck all trends in general economics, it won't make sense to the number crunchers as all the data will point to bad news while property increases.

But these are uncharted waters in which we have never been in 400 years. We can only look back at history for a bit of guidance, it won't help much.

1 guiding principle to remember is supply and demand; the demand will be insatiable and supply will not be able to keep up.

So that brings me back to my point...--

We should now be able to predict the market!

So we could predict 2 things in 2014-17-

Prices should rise quickly due to the mad rush to get in before the deadline in 3 years time

Prices should fall back when interest rates have to rise to stop the over heated property market and so

The wider economy will be affected.

The key is by how much and to what degree and that's the thing most people miss.

This will be sort of deadline driven because people won't want to miss out. The Government has stated 3 years and as values rise quickly there will be more pressure for buyers.