17:52 Wednesday 1st May 2013
Drive
BBC Radio Cambridgeshire
[C]HRIS MANN: There’s a warning this evening that the meteoric rise of Cambridge house prices is unsustainable. and will cause ruin when they come crashing down. David Furlow founder of cambridgehouseprices.co.uk said there’s a Cambridge delusion, in which people have been conditioned to assume house prices will only go up. I put this theory to leading local estate agent Chris Carey of Bidwells. (TAPE)
CHRIS CAREY: Well to be honest, this is no surprise that we have concerns raised, because Cambridge as ever tends to buck the trend, the UK housing trend. I’ve been in Cambridge all my life, and I’ve been in property over thirty years, and over the last few decades this has arisen quite regularly. I certainly remember the late ’80s boom, which quite frankly was certainly unsustainable. And of course most of us who were around at that time remember the long recession from ’89 through to the mid-90s. So this isn’t a recent phenomenon.
CHRIS MANN: So, is there a chance that these prices will come crashing down, the bubble will burst and everyone will be ruined?
CHRIS CAREY: Well clearly there are no guarantees in life. However, I think if we compare what happened in the last crash to what happened in the last few years, it’s quite an interesting analysis. I think back in ’87 and ’88 we had house prices rising in this area, and in many areas across the country to an unsustainable rate. 30-35% springs to mind as the annual inflation rate. And also one thing that really brought the market tumbling down at that time is something called MIRAS. Mortgage Interest Relief At Source. It encouraged quite a lot of people to buy property, particularly when the Chancellor at that time decided to abolish it, but gave people four months to charge in and inflate properties.
CHRIS MANN: I remember it well. (THEY LAUGH)
CHRIS CAREY: Well I personally bought in ’87, so I remember the house price tumbling two years later. But the difference then was we were on interest rates of 8%, which in today’s market looks horrendously high. Actually in those days, because double digit interest rates were quite common for the decade before, seemed OK. And everybody bought in very high percentage mortgages. Northern Rock in those days were doing 125% loan to value …
CHRIS MANN: Goodness me.
CHRIS CAREY: .. which is staggering. And of course when all of a sudden the MIRAS disappeared, and then this huge number of buyers that piled into the market over a short period filtered out, we found that interest rates, and this is all to do with the ERM if you remember at the time, we found that interest rates went from 8% to 15% in little over a year.
CHRIS MANN: What could change here? As you said interest rates. Perhaps if there was more money available that might change things. But also the building of new houses, which is being proposed on quite a large scale around Cambridge, the basic law of supply and demand, that could affect the price in quite a big way.
CHRIS CAREY: And it always does. The law of supply and demand is really what governs house prices, and governs the value of any commodity. And I think that Cambridge has grown so substantially. Certainly over the last decade we’ve seen the population jump by 10%, which in Cambridge terms is quite substantial. And the demographic research is predicting that Cambridge will continue on that upward trend by 24% to 2013, which is a huge increase in population.
CHRIS MANN: I know your job at Bidwells is to buy and sell. But right now the advice might be don’t buy, don’t get into the market now, certainly not in the Cambridge area, because chances are prices are going to come down. There will be an adjustment.
CHRIS CAREY: Well I think we’ve got to understand well where is the market now. Clearly the reckless lending that we saw in years gone by that helped to inflate house prices is not there. We’ve pretty much gone the opposite direction, so that most banks don’t want to lend, and certainly don’t want to lend on anything that’s a risk, particularly quite frankly because interest rates are so low. So we start from a position of very low interest rates. We also start off with a much lower level of loan to value, and the important ingredient there is when people are borrowing, as they did before, up to almost the value of the property, 100% mortgages and more, with interest rates that were low but jumped up dramatically, I think across Europe and across the world we’re very much in a low interest environment, so the risk that associated with the drop in the market then, I honestly don’t see that are there now. The one thing that for most of us that have been around Cambridge for a long time, it has always been a difficult place to buy property in, If I go back twenty five years, it was still expensive. And that’s before the huge increase that we’ve seen in world leading companies coming into Cambridge, whether it’s ARM, Microsoft, Autonomy, now AstraZeneca. So actually I have to say, in terms of the growth of the commercial sector, the expansion of Addenbrookes, Cambridge is still an incredibly attractive place, or otherwise quite frankly investors would not come into it. One thing I have to say that does concern me, well should concern most of us in the industry, is that it has meant that first-time buyers haven’t been able to buy, and they’re now the renters that would have otherwise been buying a few years ago. And the concern with that is that we do need people to take steps up the ladder. And if all we’re selling to are investors, obviously that’s going to be an issue for the future.
CHRIS MANN: Chris Carey from Bidwells, thank you so much for joining us.
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