In case you haven’t noticed, the UK is currently in the grip of a literal constitutional crisis. At the time of writing, the government has, for the first time in history, been found in contempt of parliament, It appears that the EU will have ultimate control over our borders indefinitely, and we may, or may not, be subjected to another referendum (yawn).
By the time this article is published, these issues may have been resolved, or the entire country may be on fire. No-one knows, and no-one can make a prediction with any degree of accuracy.
One man is good at making predictions however, and unlike our politicians, who are elected on the strength of how popular they are, how well they can convincingly pin a story, and just how good their party machine is at getting the idle proletariat to the polling stations, he doesn’t rely on popularity to retain his civil service position.
In 2011, Mark Carney was named by Reader’s Digest as the, “Most trusted Canadian.” His actions as Governor of the Bank of Canada, meant that the dominion managed to avoid the worst of the 2008 financial crisis, even as it ravaged the economic and property markets of the world. And his consistency in keeping interest rates low as the Governor of the Bank of England, means that buy to let investors have been able to make a living.
We’re saying that Mark Carney knows what’s going on and his opinions, unlike yours, ours, or those of the current prime minister (whoever that may be), are too competent to be dismissed.
And on November 29th, Mark Carney said that house prices will collapse by a third. We’re inclined to believe him as the absolute authority on this, but where does it leave the private rental sector?
To start with, there’s negative equity. If you have a largish mortgage on your properties, there’s a good chance you’ll owe more than than your assets are worth. In itself, that isn’t awful. After all, you’re in this for an income stream, not necessarily as a way of watching your capital grow along with the housing market. As long as the rent you receive covers the mortgage payments, you’ll be alright.
This might not, however, be the case. Most people rent because they simply can’t afford to buy. House prices are so high at the moment that a sizeable proportion of the population can never realistically own their own homes. The bottom rung of the property ladder is just too high for them to reach. But knocking 30% off everything will mean that more and more prospective homeowners will be able to buy, if not the home of their dreams, then at least something.
Potentially, this could mean less demand for rental properties, necessitating a lowering of rents across the board as landlords compete for tenants. Good news for tenants but a poor outlook for landlords, especially if the collapse in house prices is accompanied by interest rate hikes.
Will landlords quit the market if conditions look financially unfavourable? Hell yes. Look what happened in 2008. The rental sector was ravaged by market uncertainty, and Waterloo Walk, in Sunderland, provides the perfect exemplar of the consequences when the PRS landlords decide to cut their losses and run. It’s an understandable reaction to economic conditions, and being a landlord is a business after all.
For reference, the 2008 so-called crash resulted in a house price drop of around 16% – nowhere near the 30 plus percent Dr Carney is predicting for the UK. Can we remind you at this point that Dr Carney is not only Canada’s most trusted man, but also managed to steer the country through the 2008 crisis with only a 5% drop in house prices. He doesn’t have much hope that he’ll be able to pull that off here.
Are we looking at a sinking ship scenario? Frankly, we don’t know, but as property moguls, what happens next is up to you. Don’t let Waterloo walk become a model for the next housing crash.