Property Crumble

Okay, it is beginning – the beginning of the end of the bankers honeymoon.

Since Lehman, Governments have bent over backwards to keep banks in business, but now the rules for the recovery are being laid down – banks will need to hold more cash (ie your and my deposits or government bonds) and depend less on each other for interbank lending.

The UK rules will be brought in sometime next year and probably followed by other G20 nations – allowing for an anemic recovery to proceed it – but this will slowly turn the credit tap off.

It will raise the interest you and I earn on deposit and raise the cost of 3 to 5 year fixed mortgages. This will draw savers money into bank deposits and away from stock markets and property whilst raising the cost of property at the same time (without actually raising base rates).

This change is overdue, but will have the same effect, slowly subsiding property prices. Better to sell your property, bank the money on 6 month of 60 day notice deposits so you can take advantage of the rising deposit rates to come.

The pay freeze announced by the current Labour Government will reduce after tax disposable income for over half the working force of the UK. This is because such a large part of the UK workforce is now employed by the Government or a Government organisation.

And, ultimately, property and mortgages are always paid out of post tax disposable income – for which this latest action will be to slowly reduce – and propety prices will therefore have to follow, eventually.

As there is no wage crash, so there will be no accompaning property price crash, just a slow and soft deflation.

Property prices won’t crash but they won’t boom either. Instead they will slowly crumble but with occaisional sunny spells.

The ex Property Secrets team, lay out their forecast for what will happen to property in the developed western markets… and what strategies investors and lenders should consider adopting to minimise their risk.