What will the General Election do to 25,303 Crawley Homeowners?

In Crawley, of the 42,925 households, 9,464 homes are owned without a mortgage and 15,839 homes are owned by a mortgage. Many homeowners have made contact me with asking what the General Election will do the Crawley property market?  The best way to tell the future is to look at the past.

I have looked over the last five general elections and analysed in detail what happened to the property market on the lead up to and after each general election. Some very interesting information has come to light.

Of the last five general elections (1997, 2001, 2005, 2010 and 2015), the two elections that weren’t certain were the last two (2010 with the collation and 2015 with unexpected Tory majority). Therefore, I wanted to compare what happened in 1997, 2001 and 2005 when Tony Blair was guaranteed to be elected/re-elected versus the last knife edge uncertain votes of 2010 and 2015 ... in terms of the number of houses sold and the prices achieved.

Look at the first graph below comparing the number of properties sold and the dates of the general elections

It is clear, looking at the number of monthly transactions (the blue line), there is a certain rhythm or seasonality to the housing market. That rhythm/seasonality has never changed since 1995 (seasonality meaning the periodic fluctuations that occur regularly based on a season - i.e. you can see how the number of properties sold dips around Christmas, rises in Spring and Summer and drops again at the end of the year).

To remove that seasonality, I have introduced the red line. The red line is a 12 month ‘moving average’ trend line which enables us to look at the ‘de-seasonalised’ housing transaction numbers, whilst the yellow arrows denote the times of the general elections. It is clear to see that after the 1997, 2001 and 2005 elections, there was significant uplift in number of households sold, whilst in 2010 and 2015, there was slight drop in house transactions (i.e. number of properties sold).

Next, I wanted to consider what happened to property prices. In the graph below, I have used that same 12-month average, housing transactions numbers (in red) and yellow arrows for the dates of the general elections but this time compared that to what happened to property values (pink line).

It is quite clear none of the general elections had any effect on the property values.  Also, the timescales between the calling of the election and the date itself also means that any property buyer’s indecisiveness and indecision before the election will have less of an impact on the market.

So finally, what does this mean for the landlords of the 6,291 private rented properties in Crawley? Well, as I have discussed in previous articles (and just as relevant for homeowners as well) property value growth in Crawley will be more subdued in the coming few years for reasons other than the general election. The growth of rents has taken a slight hit in the last few months as there has been a slight over supply of rental property in Crawley, making it imperative that Crawley landlords are realistic with their market rents. But, in the long term, as the younger generation still choose to rent rather than buy ... the prospects, even with the changes in taxation, mean investing in buy-to-let still looks a good bet.

Hard Brexit could cause 2,000 properties to be dumped onto the Crawley Property market

So all cards up in the air! A general election will be on the books, but one thing is for sure ... whoever gets the job to deal with Brexit has a hard job on their hands.  As it currently stands, by not assuring the rights of EU citizens in the UK, Theresa May has not given peace of mind to our EU co-workers working and living in Crawley (and the rest of the UK). No.10 Downing Street’s point of view is that in promising the rights of EU citizens in the UK, it will postpone the same guarantee to the 1.5 million UK citizens living in the other nations of the EU.

Now Article 50 has been triggered, we have two years to make a deal with the EU; otherwise it will be a ‘hard Brexit’.  Now you might not think a hard Brexit will affect you in your home in Crawley ... but the truth could be very different.

Of the 105,859 people who are resident in the Crawley Borough Council area, 84,433 were born in the UK, 3,399 were born in EU countries from West Europe and 3,112 were born in EU countries from the former Soviet States in East Europe (the rest coming from other countries around the world).

The rights of these EU citizens living in the Crawley area are not guaranteed and may be part of the negotiation with Europe.  A lot of our EU next door neighbours in Crawley will have acquired rights relating to the right to live, to work, to own a business, to possess a property, the right to access health and education services and the right to remain in a UK after retirement… yet those acquired rights are up for negotiation in the next two years.

So, what would a hard Brexit do to the Crawley property market?

In the Crawley Borough area, 1,916 of the 3,399 Western European EU citizens own their own home and (so they would all need to be sold) and 2,128 of the 3,112 Eastern European EU citizens rent a property, so again all those rental properties would all come on the market at the same time.

Hard Brexit and mass EU Migration could result in c. 2,000 properties being dumped onto the housing market in a short period of time, meaning there would be a massive drop in Crawley property values and rents, causing negative equity for thousands of Crawley homeowners and some landlords would be out of pocket.

While there is no certainty as to what the future will hold, both UK expats in the EU and EU citizens in the UK rights will no longer be guaranteed and will be subject to bilateral renegotiation.

All we can ask is that the politicians are sensible with each other in the negotiations. A lot of the success of the Crawley (and UK) property market has been built on high levels of homeownership and more recently in the last 10/15 years, a growth of the rental sector with lots of demand from Eastern Europeans coming to Crawley (and the surrounding area) to get work and provide for their families. Many Crawley people have invested their life savings into buying a buy to let property.

Much will depend on what is politically realistic. Knee-jerk reactions and measures caused by a hard Brexit would not only likely cause major disruption or suffering to the 3 million EU citizens living in the UK, but also everyone who owns property in the UK.

Crawley rents rise by 22.6% since 2005

The Crawley Property Market is a very interesting animal and has been particularly fascinating over the last 12 years when we consider what has happened to Crawley rents and house prices.

There’s currently much talk of what will happen to the rental property market following Brexit. To judge that, I believe we must look what happened in the 2008/9 credit crunch (and what has happened since) to judge rationale and methodically, the possible ramifications for long-term investors in the Crawley property market. You see, an important, yet overlooked measure is the performance of rental income vs house prices (i.e. the resultant yields over time). In Crawley (as for the rest of Great Britain), notwithstanding a slight drop in 2008 and 2009, property rentals have been gradually increasing.

The income from rentals has been progressively increasing over the last 12 years. Today, they are 22.6% higher than they were at the beginning of 2005. In fact, over the last five years, the average growth has been 2.4% per annum. From a landlord’s point of view, increase in average rental income is not to be sneered at. However, the observant readers will be noting that we are ignoring an important factor – our friend inflation.

Turn the clock back to 2005, and we have a property being rented for say £900 a month and that is still being rented at £900 a month today, in Spring of 2017. While the landlord is not getting any less income, this £900 is no longer worth as much. Let me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in line with inflation (which has been 38.5% since 2005), so our holiday would cost today £1,246 (£900 + 38.5% inflation = £1,246). Therefore, the landlord could no longer afford the same holiday, even though having the same amount in pound notes from their rental property.

This means when we compare rents in Crawley to inflation since 2005, Crawley landlords are worse off today, when they receive their monthly rental income, than they were in 2005 by 15.9% in real terms (rents increased by 22.6% since 2005, less the 38.5% inflation since 2005 – net affect 15.9% drop) 

However, rental income is not the only way to generate money from property as property values can increase. Although in the short term, cash flows are diminishing, many Crawley landlords may be content to accept that for a colossal increase in capital value.

Property values in Crawley have risen by 63.2% since 2005

This equates to a reasonably salubrious 5.27% per annum increase over the last 12 years. Even more interesting that this includes the 2008/9 property crash, this will make those Crawley landlords and investors feel a little better about the information regarding rents after inflation.

Moving forward, the prospects of making easy money on buy to let in Crawley have diminished, when compared to 2005. Last decade, making money from buy to let was as easy as falling off a log – but not anymore.

It would be true to say, my rental income verses property prices study does lead to noteworthy thoughts. I am often asked to look at my landlord’s rental portfolios, to ascertain the spread of their investment across their multiple properties. It’s all about judging whether what you have will meet your needs of the investment in the future. It’s the balance of capital growth and yield whilst diversifying this risk.

If you are investing in the Crawley property market, do your homework and do it well. While some yields may look attractive, there are properties in many areas that do not have the solid rudiments in place to sustain them. If you are looking for capital growth, you might be surprised where the hidden gems really are. Take advice, even ask your agent for a portfolio analysis like I offer my landlords. The clear majority of agents in Crawley will be able to give a detailed analysis of past and anticipated investment opportunity (especially the awful effect of inflation) on your portfolio. However, if they can’t help – well, you know where I am, the kettle is on!