Why are we Waiting? Are we Buffet in reverse?

As has been well-reported over the years, property prices have risen by approximately 1000% since Halifax started keeping count back in 1983. We have had two significant “crashes” since then, one in the late 80’s and another more recently due to the credit crunch (or the “global financial crisis” as our Politicians refer to it as now). More on those shortly.

We also know that we are pretty pathetic at building enough houses for our growing population. Until recently, we used to have a target of 300,000 new homes per year, but Michael Gove has said we are not allowed to call it a target anymore, (just like the Banks can’t have “sales targets”, right?) it’s now a “guideline” or “starting point”.

Of course, the real reason we’re not allowed to call it a target is actually that we have not managed to build 300,000 new homes in a single year since 1977. So, if the Government no longer has a target, then it can’t be missed. No more Bad News days - Hooray!

We probably ought to talk about why those 2 crashes happened. Until 1997, when the Bank of England was given control of interest rates, they were set by the Government and, as such, they could be used as a kind of electioneering tool. So, pre-election rates could be cut to buy some votes, even if there was some inflation looming. Things got really out of hand in the end and we had double-digit interest rates for quite a long time, people simply couldn’t afford their mortgages and sadly many lost their homes.

The credit crunch was a different issue altogether, the money all dried up making mortgages practically impossible to obtain for a while. New, stricter lending guidelines were implemented in 2014 and we have seen a more stable and compliant mortgage market ever since.

So, with these new stricter affordability rules, coupled with the Bank of England having control of the interest rates, one could say that the market has learned its lessons pretty well on the whole. We also know that even those people who bought at the two peaks that preceded the two crashes made a lot of money on their properties between then and now (as long as they could afford their mortgages of course).

Knowing what we know about successive Governments doing nothing to address the shortage of affordable homes crisis, why are we in a situation now with a very flat market and potential home movers playing “watch and wait”? Surely it’s almost always a good time to buy looking at the historical data? Property values will ebb and flow over a full mortgage term and so will interest rates.

Well, I think it’s that the majority of us behave a bit like Warren Buffet in reverse. We all wait for the market to be flying before we invest, even though we know we should really be buying during downturns. There are plenty of sellers who would accept lower offers on their homes at the moment, but buyers shy away because “interest rates might come down” (the Bank of England has said they won’t anytime soon) or “we just want to get Christmas out of the way”. There are also rumours of changes to Stamp Duty in the upcoming Autumn statement.

It all comes back to that old chestnut – Uncertainty.

Yes, we know the supply and demand problem is too big to be fixed for decades ahead and we also know deep down mortgages won’t get much cheaper. Add to this that we have witnessed for the last 40 years how resilient the property market is despite everything that has been thrown at it – but actually, tell you what, “shall we just wait and see instead?”.

By Malcolm Davidson
Managing Director at UK Moneyman Limited

Email – malcolm@ukmoneyman.com

Mobile – 07545043504

Published: 08 November 2023