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Why Everything You’ve Read About the UK Property Market Is Wrong

One man ignores the false predictions and incorrect indicators to define the truth.

“According to press and economists, Brexit, stamp duty and the [2016 and 2017 general] elections have caused a crash in the property market. But those reports are wrong.”

You may not be surprised to learn that these words were spoken by the author of The Insider’s Guide To Acquiring £1m-£100m Property In London. Jeremy McGivern runs a very successful residential property consultancy focusing on prime central London property. By his count, he has been inside more than 22,000 flats and houses in the UK capital’s most sought-after, centrally located postcodes. He offers his clients £1,000 if they don’t like any of the places he shows them: in more than a decade of running Mercury Homesearch, McGivern has never once paid out.

Given his CV, then, you might expect him to say things that are good for business. But McGivern’s take on the property market runs counter to the consensus because he looks beyond the hot takes, simple summations and rush to make a clickable headline.

“I’m by no means a perma-bull,” he says. “It’s true to say that property transactions are lower in Britain, but what people are extrapolating from that fact tends to be wrong. It is incredibly complex and people try to break it down into simple figures, but that’s misleading. At this stage of the cycle, people are still very fearful and the mainstream press reflects this. Likewise, the press reporting then becomes overly positive in the boom times, e.g. 2006 and 2007, which is actually when you want to be very cautious. No market, by the way, has ever crashed when the consensus has expected it to crash.

“The simple view is that prices are coming down, therefore the property market is in crisis, but in reality it is transaction numbers that have plummeted”. Yes, it’s not good news for estate agents, because they thrive on transactions rather than higher house prices. But why are there less transactions?

“If you look at the market, prices have fallen almost entirely due to stamp duty increases, which are hugely punitive, especially if you’re buying a second home as an investment as you’re paying the extra 3% on top of what is already high stamp duty. It’s a classic example of: transaction costs go up, transactions stall as buyers are more cautious, prices go down a bit. However, what has not been reported are the sheer number of sellers who are simply withdrawing their properties from the market or not accepting offers, i.e. there are very few forced sellers.

‘People say the market is crashing. That is patently not the case. Others will say, “Fine, but it’s indicative of a future crash.’ Again, no”

“And yet people will say the market is crashing. That is patently not the case. Others will say, ‘Fine, but it’s indicative of a future crash.’ Again, no. I called the 2008 crash back in 2005 because there is a very clear cycle in the London & UK property market which has been reliable as clockwork for over 400 years. There will be another crash, because we – ‘we’ as in human beings – keep making the same mistakes. But in my opinion prices will be considerably higher before the next crash just as prices had risen significantly between 1990 and the last crash (the same is true for every other previous cycle).”

McGivern’s insight comes from his micro- and macro-analyses of UK and London housebuying. “People look at the property market as this one great mass when in fact it’s highly complex. In London, there are several markets within Knightsbridge, let alone London as a whole.”

James Thomson of Investec Private Bank recognizes that the insight provided by experts like McGivern, and others, is a vital resource for potential housebuyers. “It is imperative for clients to undertake due diligence and know the area well in which they are investing,” Thomson says. “The property market in the UK is so very multi-layered with varied opinions and viewpoints concentrating on different geographies, price bands and market forces.

“The million-pound plus London property market has a unique set of forces which differentiate it from the wider UK market. In the latter, we are seeing a significant variance in geography, with strong emerging markets growing and more established areas flattening. However, there always remains demand for quality assets in proximity to key services such as transport and schools.”

Looking beyond his central London patch to that wider market, McGivern sees change but not disaster. “At the lower end of the market, fewer transactions are partly to do with affordability, without doubt. But changes to mortgage rules have also meant, for many people, it’s harder to borrow money. Again, people who see this will tell you that this is indicative of a crash. I would argue that it is a correction, as no market goes up in a straight line, but a crash absolutely not. We are so far away from a 1990 scenario or a 2008 scenario,” he says, referring to the two previous UK house price crashes. “It’s not even comparable.”

One of the classic indicators of a housing market crash is just plain wrong, according to McGivern. “The bears’ great argument is that if the house-price-to-earnings ratio goes above 10, then the market will crash. UBS came out with a note on this on 2015. They are right, but also wrong. When there have been big crashes, the ratio was above 10. But what they either failed to spot or decided not to tell anybody, is that there are far more examples of the ratio being above 10 and the market not paying the slightest bit of notice. For example, in 2002, the house-price-to-earnings ratio in Bromley, in Kent, was 10.73. The market didn’t crash. It didn’t stall: it went up massively for five years. So that indicator alone is poor.

Of course, there is Brexit. It is being blamed for housing market fluctuations, with doom predicted for the post-Brexit period. McGivern has a counter-argument here, too.

“You just have to look to historical examples,” he says, “of world-changing events and what happened to house prices. After World War II, we had the collapse of the British Empire. If you told someone in 1947 that their house would be worth considerably more in 1960, they would have looked at you as if you were an idiot. The UK was no longer a powerhouse with the Empire disappearing; yet prices continued to rise higher. In the 1970s, the UK was the sick man of Europe, under prolonged, sustained IRA attacks throughout that time. No effect on the property cycle. In 2000, we had the dotcom crash and the events of 9/11. Again the property cycle continued as it always has.

What about the old adage that the London property market is totally reliant on the stock market and banks? “On December 31, 1999, the FTSE was about 7,000; today it’s close to 7,500. So it has gone up about 8%. The property market in that time has gone up over 250%. There is only a correlation between the FTSE and property prices when there is a land price crash which causes a property price crash which cause banks to go insolvent, like in 2008 and 1990.”

“In January 2016, the FTSE was about 5,800. If you had asked anyone then where the FTSE would be today, if we voted for Brexit, that Trump would be president, Jeremy Corbyn would be Labour leader and Teresa May would call another election and make a mess of it, they would have said 4,000. Yet it’s pushing 7,500. People are very, very bad at predicting things.

“Likewise the mainstream pundits and economists simply do not understand the property market and their models are misleading at best. This is why their predictions have always been and continue to be woefully misleading – hence the Queen’s question to an audience of economists at the London School of Economics in 2009: ‘Why did nobody see this coming?’ Well, a few of us did.”