2015 is the new 1998
At an Investec Private Banking event with the theme ‘Prime London property prices & the recent tax implications’, he acknowledged that now is a terrible time to buy in Prime London in many ways, but he still predicted further price hikes in the years ahead.
McGivern said: “I don’t expect the market to go up massively over the next three or four years – it will be steady across the country.
“In seven or eight years there will be another massive boom.”
He added: “The cycle has just unfolded as expected as it always has done.
“Banks are still very restricted in what they can lend and house prices bear no relation to earnings whatsoever, but that’s exactly what people were saying in 1998.
“It is no different this time and that is why I think there is huge potential for price rises.”
He compared the conditions of today to 1998: today changing non-dom rules announced in the budget will make it less attractive for international buyers by 2017; landlords paying higher rate tax will see mortgage interest tax relief cracked down upon from 2017 to 2020; and there are economic instabilities around the world, as Greece and China has dominated news pages over the summer.
But similarly in 1998 McGivern said the Asian economies were crashing and Long-Term Credit Management went under, while it was thought that the financial system could come to a juddering halt.
McGivern said: “I believe we are much closer to 1998 than 2008 in the current cycle. After every crash people say the market is too high.
“It’s pretty clear that now is a dreadful time to buy property in London, but there are also big differences between now and 2008.
“Over the last 18 months has there been a mad frenzy? Have people been buying property in the belief that if they didn’t buy they won’t get on the housing ladder. No.
“In 2007 just as in every previous cycle London and the UK went berserk. If you had a lower ground floor flat riddled with damp, main road, trucks whizzing down the window you could sell it for a 10 to 15% premium. That has not been happening.”
This year transaction levels in Prime London have plummeted by as much as 30%, but McGivern said this is normal in an election year.
He claimed that lending will loosen up despite tighter regulation coming from the Financial Conduct Authority compared to pre-credit crunch regulator the Financial Services Authority, while he pointed out that the government has a vested interest in ensuring house prices continue to rise because the majority of voters are homeowners.
McGivern said: “The lending restrictions we are seeing at the moment will be relaxed. This is already happening in America which suffered a far worse crash than we did.
“They have come up with new ways to judge people’s credit scores. We’ve seen that over here with the effective sacking of [outgoing FCA chief executive] Martin Wheatley because he was too harsh on the banks – with ‘shoot first ask questions later’.
“George Osborne has openly said he wants a more inclusive and co-operative atmosphere to work with the banks. This won’t happen overnight but lending will be relaxed as it is in every single cycle.”
New forms of lending like peer-to-peer will help more people borrow, he claimed, while the growth of companies like Airbnb will allow people to generate more income from their properties which will in turn lead to higher prices.
Investment will be attracted by a reduction in corporation tax from 20% to 18% in 2020, which will mean the UK has second lowest rate in Western Europe barring Ireland.
McGivern was still on hand to warn property investors: when people start talking about price rises being inevitable they should sell their assets.
He added: “The real problems began in 2006 because that’s when popular opinion changed – ‘it is different this time’.
“There was a new paradigm and obviously when you hear the words ‘new paradigm’ you run for the exit.
“There and hundreds and thousands sitting on the sidelines at the moment and they think the market is going to crash. It’s very hard for it to crash when so many people are out of it.
“It’s when you hear ‘it’s a new paradigm; property is always going up’, that’s when it’s time to sell up.”