A handful of local landlords have been asking me what would happen if we had another property crash like we did in 2011?
The NI property crash in 2011 caused property prices in the ABC Council area to drop by an average of 13.3% in a period of 16 months.
With all the political turmoil in Parliament at the moment, a number of people asked what a no-deal Brexit would do to the property market and if there would be a crash as a result. I have discussed in a previous article on the chances of that (slim but always a possibility)… but assuming it happens, it is my opinion the outcome of a no-deal Brexit would be no worse than the country’s 2011 credit crunch property crash, the 1974 property crash, 1951 property crash… I could go on. The NI economy would bounce back from the shock of a no-deal Brexit with lower property values and a continued low interest rate environment (together with an additional round of Quantitative Easing) and that would mean we would see a similar bounce back as savvy buyers saw it as a fantastic buying opportunity.
So, let me explain the reasons I believe this…
Many said after the Brexit vote in June 2016, we were due a property crash – but we all know what happened afterwards.
Initially, let’s see what would happen if we did have a crash, how quickly it would bounce back and then finally discuss how the chances of a crash are actually quite minimal.
Therefore, to start, I have initially split down the types of property in the ABC Council area (Detached / Semi etc.) and in the red column put the average value of that property type in 2011. Next in the orange column what those average values are today in 2019.
- Average Value 2011
- Average Value 2019
- Assumed Value 2020
- Assumed Value 2027
Now, assuming we had a property crash like we did in 2011, when average property values dropped in the local area by 13.3%, I applied a similar drop to the current 2019 local figures (i.e. the green column) to see what would happen to property values by the middle 2020.
…and finally, what would subsequently happen to those same property prices if we had a repeat of the 2011 to 2019 property market bounce back.
Of course, these are all assumptions and we can’t factor in such things as China going pop on all its debt … yet either way, the chance of such a crash coming from internal NI/UK factors are much slimmer than in the other four property crashes we have experienced in the last 80 years. Why, you might ask?
The seven reasons I believe are these …
- The new Bank of England mortgage rules on lending in 2014 to stop reckless lending that fuelled that last crash.
- Low inflation.
- Low mortgage rates (the average fixed rate mortgage is currently 2.26% and the variable rate mortgage of 3.07%).
- Wage rises are forecast to continue to outgrow inflation.
- Unemployment figures dropping to 3% (down from 7.3% in 2011).
- The high percentage of all NI mortgages being on a fixed rate.
- And notwithstanding the distractions of Brexit over the last few years, it cannot be denied that the NI economy has slowly and steadily been heading in the right direction for a number of years, built on some decent foundations of a steady housing market (unlike the 1988 and 2011 crashes when the housing market got overheated very quickly on the run up to the crashes).
So as the circumstances are much different to the last two crashes, the chances of a crash are much slimmer. Yet if we do have a crash, for the very same 7 reasons above why the chances of a crash are unlikely, those 7 reasons would definitely contribute to making the ensuing recession neither too long nor substantial in scale.
If you would like to pick my brains on the local property market – pop in for a coffee or drop me a line on social media or email – firstname.lastname@example.org. I look forward to hearing from you.