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Patrick's Property Politics

Pension ‘Professionals’ cause Property Problems

Friday 21st October 2022

By Patrick Bullick

It has certainly been a busy few weeks since King Kwasi Kwarteng announced his growth plans. That event seems like ancient history now. 

The bond markets reacted badly to the idea of ‘unfunded’ tax cuts and rising interest rates. Or was it the idea of an experiment in low tax in a G20 economy showing them all up?

The Bank of England had to step in to help the Pensions industry holding appallingly structured long-bond hedging positions, the dangers of which they had both been previously warned. How these institutions and their myriad of regulators can have missed that interest rates might go up sharply at some point, is beyond the common man?

The pound tanked temporarily against the dollar ably assisted by the Bank of England raising the base rate by only 0.5% rather than the expected 0.75%the day before Kwasi’s ill-fated announcement. A larger increase might have allowed Sterling to keep pace with the $ but the BoE were too lily-livered.  

The Pensions industry needs an overhaul and the Bank of England a shake-up - but that is a topic for another rant. 

There have been a few notable Central London Property trends since -

1. The big estate agency PR depts have been spinning how many US buyers they suddenly have.

I even had a young sales negotiator from a big firm gravely advising me that they were ‘overrun’ with American buyers.

 Yup. Like all those Chinese buyers you had a year ago?

 In reality, there is some truth in the real interest being show in Central London property from those holding dollars (or currencies keeping up with the dollar) anywhere in the world. Central London does look cheap, especially as prices have largely gone sideways since ‘Gordon’ Osborne’s absurd increase in Stamp Duty 2014 and critically, the introduction of CGT to non-resident owners in 2015.

If the Tory party can get their sh*t together, then we could see plenty of inward investment, and not just into property. 

2. The same cannot be said for the out-of-London and peripheral London properties which have risen in value between 30-50% in the last couple of years of Corona Chaos.

 These mortgage-dependent areas must surely take a hit with rising interest rates.

If a house has gone up from £1m to £1.5m since 2019, then it takes a 33% hit to be back at square one. I don’t see anyone predicting that. Perhaps they should!

As with every peak in the market, it is actually only those who have bought in the last two years who will have overpaid. Those who were about to buy but now can’t get a mortgage should thank their fairy godmothers for a lucky escape.

3. Apparently, there are approx. 7 million mortgage borrowers in the UK. Those who have their fixed rates coming to an end in the next 18 months will suffer a considerable hike in their mortgage interest payments. Muggins here included.

4. Most of our clients are long-term landlords and we have a feel for when they may (or mostly may not) want to sell. 

Recently, we have had multiple conversations with landlords of ours who are still running mortgages on properties in their own name. These private landlords are a dying breed because of the onerous tax changes which ‘Gordon’ Osborne - that bloody man again – brought in, not allowing private landlords to offset interest on their mortgages before tax. 

Those who have had a mortgage to pay after tax have been running close positions for some time. Now the increases in mortgage interest will mean landlords have to subsidise mortgages from other income. Clearly, not tenable and some of these landlords are now obliged to sell. 

‘Hurrah’ say the young journalists at the BBC and The Gruaniad. Yes people; but what are you going to do about your rising rents - or can you suddenly muster up a huge deposit to buy? 

The real long-term effect of higher interest rates mean a lack of supply of properties to rent, making the lives of our younger generations even harder. 

With higher yields this does still offer an opportunity to companies involved in buy to let or investors who are not carrying a mortgage. 

This is a good rental property which we are currently selling- though not for mortgage interest reasons in this case: https://www.stanleypropertylondon.co.uk/sale/167_britten-house-sw3

Whoever is Chancellor they MUST look at reversing the taxes on private landlords so as to increase the supply of rental properties. 

We have just learned that Rishi Sunak has been ‘selected’ as our next Prime Minister.

 Hopefully, he can steady the ship, work hard for the UK (not just the Tories) and stave off a Labour/SNP coalition. 

Just don’t forget we need growth too Rishi.

Time is running out for you to get that right……. 

PB

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