The pound is going through a turbulent time at the moment and has fallen to its lowest level against the dollar since 1985 losing some 18% of its value since June. What has this got to do with the property market? Apart from getting less Euros’ and Dollars when going on holiday it may have no impact on me I hear you say. Well think again – it affects us all. The UK is a large trading nation and we rely heavily on imported goods including oil and gas to sustain our economy. As the value of the pound falls, the costs of these goods and commodities rises. Rising costs leads to inflation and that in turn affects the value of your home with upward pressure on property prices.
But if we look a little deeper, the relationship between the value of the pound and property is more complex. There has been a huge surge in new build homes recently (112% increase in new build starts since 2009) but as the pound falls the cost of building new homes rises. This will squeeze profit margins on builders and may slow down building. Developers will have to better manage their portfolios to balance supply and demand and enable them to pass on those increased costs by raising house prices.
Another effect of a falling pound is on foreign investors. We are seeing a surge in interest from overseas investors looking to buy property which they perceive to be at a knock down price compared to 12 months ago.
Falling exchange rates also make our exports more attractive and should lead to a growth in this sector. The increased prosperity and employment this brings will fuel more demand for property leading to further upward pressure on house prices.
It seems likely given the above arguments that house prices will continue on what is becoming a meteoric rise for the foreseeable future – good news for home owners but not such good news for those trying to get on the property ladder.
I would however issue a word of caution; all is not rosy in the garden. The low exchange rate and the likely consequence of rising inflation, coupled by rising wages fuelled by a shortage of skilled labour and increasing exports may force the bank of England to increase interest rates. This is not new and has been expected for a couple of years now but the predicted level of increase was small may be just 1-1.5%. The events outlined above however could require a much larger increase in interest rates in order to reverse these changes. That could have untold consequences for the housing market which is so heavily geared to lending both for home owners and investors.
When will this happen? Probably not until the middle of next year when the government declares their hand on Brexit. This leaves a short window of opportunity for those looking to sell and cash in on their property investment.
If you need an honest, professional valuation of your home call me now on 01373 473782 or 01225 684301 or try our instant online valuation tool (http://valuation.house-hut.com/).