Credit Crunch

This week's comments come from Tom Entwistle, he's the editor and all round nice guy at Landlordzone. Though Tom may wish to reconsider his views, as they are a little gloomy, if not plain miserable (See my post entitled 'Great Ways To Be Miserable') in the current market. It's not all that bad just yet is it....? At least not yet here in Moray !

However, as I write this, mid-June 2008, things look pretty gloomy.The credit crunch is putting the banks under extreme pressure (we still don’t know the full story) leading to a contracting property market because of a severe tightening of lending criteria and the end of cheap money.

Savills last week revised their forecast that residential property values could fall by 9%, to as much as 25%, by the end of 2009.This in turn is severely affecting the construction industry which is seeing builders halting new development plans and even mothballing some current developments.

Rising redundancies in related industries will inevitably have knock-on effects to the economy as a whole, which is already feeling the effects of rising inflation and in particular higher commodity prices and quite dramatic fuel price rises.

Households are also feeling the effects of rising food and fuel prices and therefore retailers’ profits will be hit, inevitably affecting commercial rents and tenancies.The whole scenario looks set to lead to a full blown recession (the first we’ve seen in the UK for 18 years—so much for Gordon’s “the end of boom and bust”) unless moves by government and the Bank of England have their desired effect—so far there’s little evidence of this.

Fortunately for landlords residential rents and demand for renting is holding up very well, though the situation could deteriorate quickly if mass redundancies result. Established landlords with sizeable chunks of equity in their properties will inevitably ride out the storm and many will take advantage of distressed selling and falling values to add to their portfolios, ready for the up-turn—but things can get worse yet!

Additionally, an overall shortage of UK housing should help shore up the market in many locations, especially as new development will slow down or stop.The ones most likely to suffer are those overstretched newbie property investors, and in particular those owning new-build urban flats whose values are badly affected due to oversupply and poor tenant demand in some locations.

You didn’t need to be the Sage of Omaha or even those illustrious property education “experts” running overpriced property courses to see this coming a long time ago.For what some have paid for these courses you could have gleaned more wisdom buying 3 or 4 good investment books and spending a luxurious two weeks of study in one of the best hotels in the Caribbean!

For all those responsible for fleecing and then leading naive and unsuspecting investors into a living hell, to now say: “we were taken by surprise by the credit crunch”, is nothing short of scandalous in my view.

Batten down the hatches ! Stock up on Ringtons and butteries, keep smiling and hopefully things won't seem all that bad.

Until next time,

Mr Jackson.