EU referendum, brexit and the aftermath

Sumo asked: Can rents go down?

My 1965 edition of Megarry and Wade's 'Law of Real Property' states that '....rents are, in the long term, typically 10% per annum of the capital value'*.

That was then, but although much has changed I'm sure that rental value will always be linked to capital value, so yes, rents may well fall.

I've often thought about that 10% rule, and it seems to me that this is what has happened:

In 1965 (and earlier) the property market was pretty stable, with price increases more or less limited to general inflation. Mortgage lenders were cautious - for example they were reluctant to lend on anything slightly unconventional or take a woman's income into account. A suburban three bedroom house was around the £5,000 mark, a basic home about half that. Then in the early 70's came the 'Barber Boom' when caution was thrown to the wind and prices rocketed. By 1973 the most basic two up two down was £10,000, but the oil crisis in late '73 brought everything to a full .

Since then we've had violent cycles of property speculation because, it seems, many people want to play the housing market as a casino.

Because of the expectation of profit on capital, landlords have been prepared to take much less than that 10%: they were expecting to make a capital gain and, in any case, the tenants have been stretched to find 3% of the absurdly high prices being paid.

If we really have brexit all bets will be off. There may be no expectation of capital appreciation and if sterling gets into real trouble we can expect to see higher interest rates, which may screw the buy to let merchants.

It seems very unlikely to me that the recent London property boom can go on now. Whether rents actually fall in nominal terms will depend on how much inflation we have. Some one above suggests putting spare cash under the mattress - probably a good idea, but make sure your money isn't in sterling.

*I'm quoting M&W from memory, so I may not be completely accurate but I am certain the 10% figure is correct.