This Week in Property: The Latest News (23rd July 2021)
Take a look at what our CEO Gill Fielding has to say about this week’s property news…
I see that the Northern Ireland agreement made during the Brexit negotiations is still under threat and there’s rumours that Britain are just going to break it. Now I don’t know much about that frankly and don’t want to get embroiled in a political argument but it does remind me of what happens if you don’t get a win win solution when you’re negotiating any deal – whether that be Brexit or a price or a contract or any piece of business. It’s always the best solution to negotiate a solution that works for both sides because on the occasions that one side gets a much better deal, the ‘losing’ party eventually starts to feel resentful. Then they start mucking about with the agreement and missing or delaying delivery and then the relationship deteriorates and eventually they all end up in court with all the associated costs of that. Even if it doesn’t escalate to that level, the ‘losing’ party in the deal are unlikely to deal with you again so you’ve lost some opportunity.
All that pain could have been avoided if they negotiated a ‘fair’ deal in the first place so if you’re one of those people who likes to squeeze the last penny out of every deal or to get one over on the other party – I suspect that’s going to come back and bite you in the backside at some stage. And to go back to the Brexit deal what the Brexit minister, Lord Frost has said is that the Northern Ireland part of the agreement is ‘unfair and unsustainable’ – and that will only end in tears.
Simple property maths
We’ve all seen how property prices have risen during the pandemic and it’s a simple maths issue of demand and supply. If demand rises and supply is constant or falling then prices will rise. We know now that demand has risen during the pandemic and supply hasn’t increased and in fact many would be sellers have resisted putting their properties on the market over the last year which has actually contributed to the reduction in supply, although I suspect that will start to change now. I often quote this simple economic maths and I’m amazed when people are surprised by a rise in prices when all they need to do is to check the demand and supply.
So accurate is this as a measure and a prediction that you can see it reflected in the breakdown of the property rise and over the different types of property. Rightmove have just issued their monthly figures to show that the market has moved up overall by 0.7% in June but within that there are variations: They say that in the first half of this year, 140,000 more sales were agreed and there were 85,000 fewer new listings than the long-term average. Rightmove estimated that there was a shortfall of 225,000 homes for sale to meet demand. In addition, homes with four bedrooms and more are facing the biggest imbalance of supply and demand, with a 39 per cent surge in sales and 15 per cent fall in numbers coming to market compared with 2019, fuelling an average price rise of 6.7 per cent in the last six months.
Homes with two bedrooms and fewer had an unchanged number of new sellers in the first half and sales grew by a slightly smaller 26 per cent, resulting in a smaller average price rise of 3.4 per cent. That’s amazing maths! In turns out that property price movements aren’t a mystical process but a simple maths formula of demand and supply – for the exact property you’re looking at. People overcomplicate the market with all kinds of (mainly political) theories but this one has stood me in good stead in over 40 years as a property investor – I like maths!
Bob a Job
I’ve just read that the scouts are starting a money merit badge – how amazing is that! At a time when virtually no financial education is given to children and at a time when they need it most it’s the dear old Scouts that have stepped up to provide some basic skills like how to budget for a camping trip. A 2020 survey by consultants, Censuswide, of 1,001 parents with children aged between five and twenty, found that more than half of UK children aged six to ten said they didn’t understand money and this can only have been made worse by the pandemic. Nor does it get any better as children get older and many adults – young and old – still lack basic financial skills and knowledge. Financial education is a desperate need in the UK and it shouldn’t be left to organisations like the scouts to try to fil the gap but I’m delighted that they are. What a great initiative and what a great reason to join the scouts!
What’s a pound worth?
What exactly is money worth? If we take this issue at face value it would seem blindingly obvious to all that money is what it says – a pound is a pound and a fiver is worth five times that. But that would ignore the purchasing power of a pound – which diminishes over time. We all know that what we can buy with our money gets less as time passes and as prices rise. £100 of shopping today will cost us about £103 next year and that’s because of inflation – or price rises. The level of inflation constantly changes so we can’t tell exactly how much less we will be able to buy but at the moment inflation is running at about 2.5% so our £100 will now buy only £97.50 worth of goods or shopping. We can counteract this constant reduction in monetary value by savings and investments where we put our money to one side to earn more with it – but again that’s not clear cut and a report in the Times this weekend suggests that you could save £10,000 and end up £243 worse off because inflation is increasing at a faster rate than your savings as savings rates are approximately 0.1%!
It’s obvious that as long as the inflation rate is bigger than the savings rate then we can buy less with each pound as time passes. Savings interest may increase our money but if inflation is higher then it erodes the purchasing power of each pound by more than the interest gained. It’s a nightmare! And the only way to make sure that every pound you have is still worth at least a pound in a years time is to get to grips with investing of some kind as property, shares and businesses will all grow by much more than inflation if done right. We all need educating as to how much our money erodes in value as time passes and at the same time we all need educating about investments so we know how to beat that and make sure that our money is worth what it says it is.
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