No Deal Brexit – The Prediction for Rugby House Prices

Roll the clock back to April 2020, and major financial economists and property market commenters were sounding the alarm. The very best-case scenario was a 5% drop in property values by the end of the year, and most were in the 10% to 15% range. They forewarned the Covid-19 stimulated recession would trim tens of thousands of pounds off the value of Rugby homes.

Yet the Rugby property market seemed not to get the memo on that, and now as we find ourselves at the end of 2020 and the worst of lockdown restrictions appear to be passed, vaccinations on the way and economy starting to grow, Rugby property prices seem to be doing quite well.

What happened to the Rugby house price crash that wasn’t?

Before I answer that, it reminded me of what the Treasury said in 2016 about a leave vote on the Brexit referendum. The considered opinion of the Treasury was house prices would drop by 18% if the country voted to leave the EU, so let us see what that would have done to Rugby house prices if that had taken place and then what exactly has happened in the last four and half years …

 Average Value
2016
Predicted Drop by
The Treasury because
of Brexit
Average Value
Today
Uplift in Value
in Last 4.5 Years
% Increase since
Brexit Vote
Rugby
Detached
£296,700£243,300£356,900£60,20021.3%
Rugby
Semi
£195,200£160,100£211,700£16,5007.5%
Rugby
Terraced / Town House
£145,700£119,500£170,200£24,50017.8%
Rugby
Apartments
£109,400£89,700£131,800£22,40019.5%

So why has the Rugby property market not matched the property pundits twice in the last five years or so?

Well for most of us, owning a property is about having somewhere to live rather than an investment (an Englishman’s home is his castle??). Nevertheless, once a homeowner is on the proverbial ‘property ladder’, it cannot be denied that it is eternally beneficial to know, as a homeowner, that you have made a healthy investment in your home and that the value will rise to alleviate the ache of trading up market — or down market when you retire.

Those Rugby homeowners who own detached homes would have made an average of £60,200 profit, a rise of 21.3% or a weekly profit of £231.54 — calculated between the price they would have paid in the summer of 2016 and the price they would sell for today. Looking at the weekly profit for all property types in Rugby since the Brexit vote …

  • Rugby detached homes weekly profit of £231.54 per week
  • Rugby semi-detached homes weekly profit of £63.46 per week
  • Rugby terraced homes/town houses weekly profit of £94.23 per week
  • Rugby apartments weekly profit of £86.15 per week

Whilst it is no surprise the property market boom was inspired by the Chancellor’s Stamp Duty holiday, this is not exclusively the Chancellor’s achievement. The three ‘D’s have been with us throughout 2020, Covid or no Covid (Debt, Divorce and Death), together with a huge shift in the way Rugby homeowners see their homes.  With us cooped up during the lockdown and working from our dining room tables, the want and need of Rugby people to have a home with an extra bedroom to work from, together with a garden has been one of the most challenging this year… hence the rise in demand.

So, what of 2021? It’s true that the country will have high unemployment, yet at the same time, we have ultra-low interest rates and for the last 20 years, on average we have only built 150,000 households per year as a nation, but needed 300,000 per year to keep up with immigration, people living longer and changes in the way households are made up (compared to the Millennium).

Many people can predict what will happen – yet none of us really know what will actually happen to the Rugby property market in 2021.

Covid was a black swan event and the fallout from that, I believe, has changed Rugby peoples’ lives and their lifestyles, especially how they see their home. Instead of making predictions, nothing can get away from property market fundamentals, which have driven price booms on the back of high demand for homes and low supply (i.e. properties coming onto the market) and price crashes on the back of over-supply and low demand. Only time will tell if, in 2021 the Rugby property market will see a flood of properties coming to the market because of debt or the demand for larger homes continues to rise unabated.

Please do let me know your thoughts on the matter.

Will the Rugby Property Market Crash in 2021?

…and the three reasons why it will not be the catastrophic scenario some are predicting

In the last few months, the Rugby (and UK) property market has resisted and flouted every economist’s prediction. With the economy a shadow of its former self, unemployment set to hit 11.9%, the Government on track to borrow nearly half a trillion pounds to pay for Coronavirus support packages etc., all of this has had no effect on Rugby homeowner’s enthusiasm or capability to want to move home. It highlights the influence of both the emotional impact of lockdown and the enticing appeal of saving thousands of pounds on your Stamp Duty Tax bill.

For the last few months, the Rugby property market has been akin to a surfer, riding an unexpectedly large wave. The question is, will the surfer crash down (i.e. the property market) into the rocks or will it calmly arrive at the beach unscathed? Well looking at house prices firstly…

UK house prices are 4.7% higher than they were 12 months ago according to the Land Registry, whilst in Rugby they are 5.2% higher

Looking at the data over the country, things overall are looking good for property prices. Yet it must be remembered the Land Registry data is on completed house sales and is always a couple of months behind, so this data is for house sales up to September that were agreed in the spring. Also, it does not take into account the prices being paid today on Rugby homes (as they will only show in statistics the Spring and Summer of 2021 when the sale completes).

Rugby house prices will inevitably ease in 2021

Anecdotal evidence over the last few months has suggested buyers are using their Stamp Duty savings on the price they are prepared to pay for the Rugby home of their dreams, so when the Stamp Duty holiday finishes in Spring 2021, we will see a reduction in the price Rugby properties sell for, as buyers will now have to hold back some of their cash to pay the Stamp Duty Tax.

Mortgage approvals at a 13 year high

A better statistic to judge the property market by are the number of mortgage approvals. As the vast majority of house buyers need a mortgage, that is another good place to look at the numbers as they are much more up to date than the Land Registry figures. The Bank of England recently stated 97,500 mortgages were approved last month, up from the long-term average of just over 65,400 per month. This was the highest number of mortgage approvals since September 2007, and a whole third higher than mortgage approvals in February 2020 when we had the Boris Bounce in the property market.

As a country, we are due to smash through 2019’s 524,000 total number of mortgage approvals this month, despite the fact that the property market was closed for nearly three months in the spring. It’s vital to remember, that mortgage approvals do not equate to people moving home, as many of you reading this can attest to … property sales do fall through.

I do have apprehensions that many Rugby people, buying and selling their Rugby homes and in a chain, may not be able to realise the move before the Stamp Duty rules change at the end of March 2021, as there is a massive backlog with mortgage lenders, local authorities’ and the searches, chartered surveyors surveying the property and solicitors with the legal work, all combining to slow down the house selling and buying machine.

If you are in chain at the moment, you must constantly be talking to all the parties involved and ensuring everything is focused on getting the sale complete by the end of March. You have a responsibility to get information requested back in hours, not weeks… because if you don’t, you might not get your Rugby home move through before the end of the stamp duty holiday, and without that discount, someone in your chain may pull out of the sale altogether and the chain will break. 

The number of people moving home in Rugby is anticipated to drop sharply after the Stamp Duty holiday ends at the end of March 2021

And that is probably going to be the biggest impact on the Rugby property market in 2021. Yes, there will be a slight readjustment in the prices paid after March 2021 (as mentioned above), yet a reduction in the number of people selling their Rugby home does not inevitably lead to a house price crash.

Yes, there will be a number of people who have to sell in 2021 because they have lost their jobs (i.e. ‘forced sales’). In the last two ‘Property Market Crashes’ of 1988 and 2008, there were a large number of forced sales in a short period of time (because business owners had to sell their home as their business had gone bankrupt because of the Credit Crunch, as well as people who had lost their job), increasing the supply of properties coming to the market in 1988 and 2008.

This in turn pushed Rugby house prices down as the property market was flooded with lots of property to sell in a short period of time. Yet this time, we have had the cushion/parachute of Bounce Back Loans, Furlough and Mortgage Holidays over the last 9 months.

Also, another important factor about the last property market crashes were the levels of interest rates and the amount borrowed.

Interest Rates are the key to the future of the Rugby property market

In 1988, mortgage interest rates were an eye watering 11.5% and 6% in 2008, meaning mortgages were much more expensive compared to the 0.1% rate we have today. Also, with 77.2% of mortgagees with fixed rate mortgages, and only 1 in 21 mortgages owing more than 90% of the value of their home (and 1 in 303 mortgagees owing more than 95% of the value of their home), negative equity should not be so much an issue like it was in 1988.

This means most Rugby homeowners are in a much better place to weather the storm of 2021, than they were in 1988 and 2008

I foresee many Rugby sellers will simply wait until activity in the Rugby property market picks up again before placing their property on to the market. This means fewer properties will be placed onto the market for sale in the later part of 2021, meaning Rugby house prices will tend to hold up. The people that will be affected by less properties coming onto the market will be estate agents, solicitors and home removals people.

I also believe there will be ‘interesting investment opportunities’ to be had for Rugby buy to let in the latter half of 2021 with the potential changes in Capital Gains Tax regulations, although those won’t go on the open market, so do keep your ear to the ground and build relationships with all the letting agents in Rugby so you get to hear of the property portfolios coming up for sale (as they tend to sell ‘off market’). Again, if that’s something that interests you – do drop me a line.

So, where is the Rugby property market heading in 2021?

Well, the Rugby property market (aka our “surfer”) has seen a house price growth of 55.6% since 2009 … and this has been fuelled on the back of…

  • Ultra-low interest rates mean money is cheap to borrow and so mortgage payments are low. With the Bank of England pumping £150bn into the economy in November with Quantitative Easing (QE) to add to the £725bn they have already spent on QE since 2009 – interest rates will continue to stay low for some time.
  • There has been an increased demand for housing with annual net migration of 214,400 since 2009 (meaning 96,700 additional households per year have been required since 2009 just to house those people – a total of 1,063,700 households).
  • The average age of death has risen by 2.1 years since 2008 in the UK. People living longer delays property from being released back onto the property ladder. For every extra year of life the average Brit lives, an extra 290,850 households are required in the UK.

None of these things have changed because of Covid.

As a country, we have only built on average 165,100 homes a year since 2009. Supply and demand shows that whilst we will probably have a turbulent choppy ride on the 2021 wave (because of the economy) our surfer (aka the property market), with long term demand for housing outstripping supply since the 1980’s, will continue to ride the wave (probably not as large as it has been in 2020) as the ultimate long-term outlook for the property market in Rugby looks good.

All this means demand for decent, private rented Rugby property will be good as long as the property ticks all the boxes of the tenants. If you are a Rugby landlord, whether you are a client of mine or not, feel free to drop me a line to pick my brain on the future of the buy to let market in Rugby.

Rugby Landlords and Second Homeowners Will Probably Save Money From The Proposed New Capital Gains Tax Changes

If the proposals were adopted in full, some Rugby landlords would pay £8,500 less Capital Gains Tax than they would currently

The government borrowed £394bn this financial year (April ‘20 to April ’21). This figure does not include the cost of the November lockdown and support measures, which means the final bill will probably be over half a trillion pounds. Ultimately, these billions will need to be paid back to cover the cost of Coronavirus.

The Office of Tax Simplification (OTS) published a report for tax reform and, as was predicted by many in the press, the Government Dept suggested the Chancellor contemplate readjusting current Capital Gains Taxation (CGT) rates with a person’s own Income Tax rates. This would mean increasing the rate of CGT for selling a buy to let property from 28% to 40% for high-rate taxpayers and 45% for additional rate taxpayers. To add salt to the wound, the OTS is suggesting cutting the £12,300 annual CGT allowance.

This has led to many Rugby buy to let landlords contacting me in the last few weeks, wondering if this is the time to exit the Rugby buy to let property market, especially as they have been hit by growing levels of rental legislation and higher taxes.

With tax bills about to go through the roof, is this the time to

leave the Rugby buy to let property market?

Yet, like all things, the devil is in the detail as Rugby 2nd homeowners and Rugby landlords may well finish up having lower CGT tax bills with these new taxation proposals, even though the CGT restructurings are being introduced to raise the much-needed cash for the Government. 

Apart from the suggested cut of the annual CGT allowance and increase in the CGT percentage rates, the OTS report also proposed reintroducing rebasing and indexation. In layman’s terms, the OTS are suggesting all gains made before 2000 would not be taxable (rebasing) and any capital gains would be calibrated to account for inflation.

So, what would that actually look like for a Rugby landlord? Let us assume we have a Rugby landlord who bought a Rugby buy to let property in 2000.

Under the current CGT rules 

  • The average value of a Rugby property in 2000 was £84,500
  • Today, that same Rugby property has increased in value to £242,500
  • Meaning a profit of £158,000
  • As our Rugby landlord is a high-rate taxpayer (earning £60,000 a year), their CGT bill would, after the annual allowance, be £40,796

Under the new proposed CGT rules

Under the new proposals, the CGT payable (assuming the CGT rate of 40% and a lower annual allowance of £5,000) the same Rugby landlord would only pay £32,382 – a saving of almost £8,500.

And the savings don’t stop there. Remember, under the new OTS proposals, all capital gains made before 2000 would also be tax-free.

However, let us not forget the responsibility of the OTS is to report on tax simplification opportunities, not to set Government taxation policy. None of us have a crystal ball on what Rishi Sunak will do with CGT on buy to let property or second homes. Although, as time has always taught us with investments, often the worse thing to do is to make impulsive decisions on what MAY happen. 

You have to remember, CGT only gets charged when you sell or transfer your investments, and most people use their rental investments to provide them with income. If you did sell up, the best 90-day building society accounts are obtaining 0.8% pa, the stock market is a rollercoaster (good luck with that) and Government 10-year bonds are paying a princely 0.324% pa… where else are you going to invest to get the income Rugby property investments provide? 

Property is an asset you can touch, feel and ultimately understand. Maybe, this is the time (if you haven’t already) to take portfolio advice on your Rugby buy to let investments? Many Rugby landlords do so, whether they use our agency, another Rugby agency or you manage your property yourself. The service is free of charge, we don’t need to meet face to face as we can do it over Zoom and it’s all without obligation. I promise to tell you what you need to hear – not what you want to hear … what do you have to lose?