Is the Rotherham property market heading for a crash? And if it does crash, who will be the winners and who will lose out?

There are various reasons people want prices to maintain at their current rate. Likewise, some would benefit from a drop. In this article we’ll be examining who could win and who could lose, as well as looking at what is currently going on in our area and what might happen in the future.

Who wants house prices to drop?

There are two broad camps who would possibly want house prices to drop. The first is obvious – those millennials wanting to buy their first home or perhaps a young married couple wanting to buy their first home before having children. Property prices dropping would help the first time buyer category.

The second category are the Rotherham people who are in their mid-30s to 40s and sitting on a sizeable amount of equity but are hoping to trade up. Why? Because the percentage drop on the current ‘cheaper’ property will be much less than the same percentage drop of the more expensive property. Trading up is all about the difference!

Finally, shrewd landlords looking to add to their portfolio will see a price drop as an opportunity to bag a bargain or two.

Who wants house prices to rise?

If you’ve recently bought a Rotherham property with a gigantic mortgage you will be hoping that property values continue to rise. If you are retired and preparing to downsize you will also want Rotherham property values to rise as this will leave you with more cash after the move.

Whilst some landlords looking to buy would relish a price drop, landlords looking to sell their portfolio will want to maximise what they can make while prices remain high. Rotherham home owners who have remortgaged to raise money for other projects (meaning you have very little equity), will want property values to continue to increase in order to enable you to put a bigger deposit down on the next purchase.

A brief look at the past

Before we consider the future, let’s take a look at the past. The last property crash was caused by the global financial crisis and happened between Q3 2007 and Q3 2009. Property values in Rotherham dropped by 13.26%. The average property in September 2007 was £135,375 but only £117,425 in September 2009.

Since then, property values have rise in the medium-term, as you can see below.

So … what is happening now?

The simple fact is people in the UK are moving less (and hence buying and selling less). Estate agents up and down the land are blaming “Brexit” for this but the reality is that the problems in the British housing market are a lot greater than old Brexit!

There is a direct link between how people feel about the property market and the actual performance of the property market. However, the question of whether people’s sentiment moves as a result of changes in the property market, or whether changes in the property market drive sentiment is a question that baffles most economists – you see if someone feels assured about their financial situation (job, money etc.) and the future of property, they are more likely to feel assured to spend their hard-earned earnings on property and buy (and if you think about it… vice versa.)

So, I believe Brexit isn’t the issue  – it’s just the “go to” excuse people are using.

Humans don’t like uncertainty, and Brexit itself is causing uncertainty – it is, after all, the great unknown.

So, is it the flux of global politics? Politics are causing hesitation in the posh £5m+ property markets of Mayfair and other high value Monopoly board pieces – but certainly not in a smaller place like Rotherham (because let’s face it, I don’t think Rotherham is too high up on the house buying list of rich foreigners).

Instead, the issues are much closer to home.

Changes to buy-to-let as an investment

One of the biggest driving factors in the current state of play in the housing market in our local area is been the part played by buy-to-let landlords in the last 15 years. Making money as a buy-to-let landlord used to be as easy as falling off a log – we’ve had some golden years! But not anymore! Landlords had been getting off quite lightly when it came to their tax position but now that taxation rules on buy-to-let have changed things have become a little more difficult.

What’s changed? Landlords have been hit with a supplementary rate of stamp duty, meaning they pay 3% more stamp duty than first time buyers. High rate taxpayers in the past have been able to offset the interest payments from their buy-to-let mortgages against their self-assessment tax bills (at their marginal rate) but this is being reduced in small steps – they will only be able to claim back relief at the basic rate of tax.

The bottom line is that it will be much tougher for investors to make money on buy-to-let. Tied in with this, the mortgage rules were changed a few years ago, meaning it’s also become slightly tougher to obtain buy-to-let mortgages (although if I’m being honest – they needed to do this).

I recently mentioned that last year was the best year for over decade for first time buyers. For the last 30 years, buy-to-let investors have constantly had more purchasing power than first time buyers, as they were older and more established and had tax breaks helped them out. However, with many amateur landlords reconsidering staying in buy-to-let, the door is open for first time buyers to get their first foot on the property ladder.

What will happen to the property values?

The simple fact is we don’t have the conditions that caused the crash in 2007. Back then sub-prime lending in the US caused banks to stop lending to each other and stalled the global economy as a whole. Assuming everyone is sensible with the Brexit negotiations, the biggest issue is possibly interest rates. As long as interest rates remain comparatively low (and don’t get me wrong – I think we could stand Bank of England base interest rates at 1.5% to 2.5% and still be OK), then the thought of a massive property market crash still looks improbable.

Yet correspondingly, I cannot see Rotherham property values rising quickly either.

The double-digit growth years in property values between 1999 and 2004 are well gone. A lot of that growth was caused by an explosion of buy-to-let landlords buying property to accommodate the influx of EU migrants during those years. Mark Carney at the Bank of England can’t make interest rates any lower, so it’s difficult to envisage how credit conditions can get any easier!

Balance of probabilities: Rotherham property values will hover either side of inflation over the next five years.

But if we did have another crash, what exactly would that mean to Rotherham homeowners?

If Rotherham property prices dropped today by the same percentage as they did locally 10 years ago… we would actually only be returning to the property values being achieved in April 2013… and nobody was complaining about those!

Therefore, about 17% of local home owners and landlords have bought homes in the area since April 2013 – that’s only a small percentage of people who would actually lose. After all, you only lose money if you decide to move. Many of these people may be people looking for a price drop so in reality, not many people are going to lose out.

Not much to worry about then! Interesting, don’t you think?

As ever, if you do need help or assistance in knowing what’s the right move for you, I’m on hand to help out. Please get in touch with me and I will be happy to offer advice.