Norman Bartholomew’s Property, Business And Life Blog

US Recession Kicks In

Continuing my theme of my commenting on the underlying property trends and market forces I read today in the Times Online that fears of a US recession have resulted in a huge drop for the FTSE 100, which has fallen to an 18 month low. There have been global repercussions as France, Germany, China and Japan felt the wrath of the US recession threat in their financial sectors and a staggering £77bn has been wiped off the UK stock market. One Daiwa Securities broker even stated that “Government ministers have begun to question the nation’s future status as an economic powerhouse”.

With the world’s stock exchanges plummeting, eyes have been firmly planted on President Bush and his proposed ‘stimulus package’ for the US economy, which is regarded as being unable to make the anticipated impact in light of recent events.This news confirms fears that the UK economy is set for more turmoil after the Credit Crunch and recent property slowdown. The UK sectors hardest hit by the FTSE fall are mining, retail and banking, with an added threat of some credit ratings being downgraded and a definite air of anxiety about what the future has in store.

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How Safe Is Your Bank?

In my quest to examine market forces I endeavour to read as many reports and articles as I can about current affairs. I was recently studying an article from The Times online newsdesk which was discussing the impact of the credit crisis and share price falls on our banks.

The article’s thread was exploring how major banks might be coming to regret recent decisions in view of developments in the financial sector, such as Royal Bank of Scotland (RBS) and its partners’ £53 billion takeover of Dutch Bank ABN Amro - the world’s largest financial services deal. This really soured the mood among bankers and RBS shares have plummeted since last August and £82 billion has been wiped off the combined market value of Britain’s banks in the same time frame.

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Short Sharp Housing Shock Might Be The Answer

As part of my research into current market forces I was reading The Times Online today and there was an article discussing the potential outcome of a significant fall in house prices and it got me thinking… Even if prices were to fall by 20 per cent, which sounds horrendous, this wouldn’t result in the dramatic change you might expect, but would simply bring price levels in line with how they were two years ago. This is known as a price correction and often happens after years of highly inflated growth such as we’ve been witnessing.

The aforementioned article was discussing the best way for such a decline to take place as with good government planning we can cushion the fall to avoid too severe an impact on the economy when the inevitable happens. This is something that hasn’t really been addressed in the media, although it is probably about time this changed as the market is turning sharply. I’m sure you’d agree that the majority of people would prefer a gentle slide down to the new lower level, rather than a sudden drop as this would be a huge shock and could lead to a collapse in consumer spending.

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Property Crash Cash

This blog is the content from our January Newsletter which I thought would be worthy of posting here.

I don’t know about you but I’ve spent weeks analysing property and media reports in an attempt to get my head around the ever-changing state of the market. It seems we’ve gone from Credit Crunch to Global Recession in the space of a few short weeks and although I don’t know what’s going to happen I do know one important thing and that is that the Market is in a state of confusion, here are the main underlying factors:

• Global Recession. Stock market crashes and panic interest rate cuts are indicators of recession fears.
• Credit crunch. Tighter lending criteria means investors now coming out fixed rate deals may struggle to secure another reasonable rate
• Diminishing value. RICS Surveyors now consistently downgrade property, with valuations often 10-15% lower than expected
• Record levels of repossessions. A large proportion of these are investment properties
• Fewer sales. The major lenders reported negative growth in the property market in September, October and November 2007
• More discounts. Developers need to sell their stock and are offering investment portfolios and new build developments at discounts of 20-25%. This was completely unheard of just six months ago
• Less demand. We’re already experiencing reduced levels of interest in property investment deals, even in highly attractive overseas opportunities within emerging markets
  

All this is creating a “Buyers’ Market”, so what will this mean for you?

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How To Beat Buy To Let Payments Shock

2007 witnessed the start of a change in the Buy To Let market, with interest rates rising and levels of investor interest starting to fall. This meant existing landlords had to seriously consider their options which prompted a glut of investment property to be put straight back on the market, driving prices down. Many investors, myself included, had previously signed up to deals with higher mortgage rates as they were acceptable in times when the market was rocketing skywards, but with the recent u-turn there are now monthly shortfalls to cover.

I recently read that the consultancy Capital Economics has downgraded its forecast from 3 per cent falls in 2008 and 2009 to a whopping 8 per cent, effectively wiping out its gains from the last 18 months. The looming Credit Crunch has also promoted an influx of landlords beating each other out of the way in their rush to sell on their investments before prices drop, when they could just sit tight and look for another reasonable rate when their deals come up for renewal. This hasty action is influenced by the ‘herd mentality’ brought about by the relentless onslaught of increasingly negative press, telling tales of how more naive investors have been duped out of their life’s savings. I am in no way disagreeing that this is the case, but these extreme cases are for the unfortunate few who didn’t know what they were letting themselves in for and bought many properties in the hope of creating more profit. More savvy investors know that property is ideally an investment for the long-term so it’s best not to panic and simply weather the storm if you can – there is a light at the end of the tunnel.

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Rental Market Set To Grow By 40% In Next 10 Years

I recently read that the UK property market will see a radical change in the next decade that will spark a rise in the rental sector’s market share by up to 40%. Martin & Co, one of the UK’s leading residential lettings companies recently announced its belief that the Buy To Let market has yet to really get going, citing a 3% increase in total housing stock over the last 15 years, from 9% to 12%.

We’ve already heard much in the press of this period being a ‘boom’ for Buy To Let and you may think that 3% over 15 years doesn’t really warrant that description, but if these figures are anything to go by, the next decade could realistically see this hitting the 20% mark.

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