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Sledgehead

Big Rents : The Bane Of Business

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I've been struck by the plight of two seemingly disparate companies.

One is a care home provider - the largest in Britain. We're told an ageing population means we'll need more care homes. The other is a well known sports chain. It caters for people at the opposite end of the demographic with a product targetted at activity, rather than being sedentary.

Besides being so apparently different, these two do have a couple of things in common.

1 ) They were once both darlings of the stockmarket;

2 ) they now face breaking their banking their banking covenants and going bust.

I've stuck their charts below to highlight their vertiginous fall from grace.

So just what could have caused this problem? Well, this being the HousePriceCrash forum, I suppose you've already guessed. While both companies appear to operate totally different businesses in totally different markets, they have one crucial thing in common: they both chose to rent their business assets (property) rather than own them.

Since that crucial decision JJB sporst has suffered a stagnation in profits. Its banking facilities have not accomodated this, and so it's found its rents have become unaffordable. Landlords have been slow to sympathise. Souther Cross has suffered cuts to its revenue from local authorities, keen to reduce their budgets under austerity measures. Again, the landlords from whom it leases its homes appear blind to the new realities of the market place and instead look to the firms creditors to take the hit. Southern Cross' ceo ain't convinced they should. As he put it :

“On March 14 we announced our rent obligations had become unsustainable and we planned to seek concessions

from our landlords.... I believe it is in the interests of landlords to reach an equitable solution with us to help stabilise

our business and create the conditions for new investment in our homes....Our plan is to seek to renegotiate the terms

of our leases by July of this year. " - Stourbridge News - Monday 21st March 2011

It's all very reminiscent of the kind of denial we se in the housing market.

Perhaps these landlords hope Osborne's new planning regs will allow them to kick out their current tennants and flog the portfolio to some BTL developer? Good luck with that one.

onerous rental agreements.JPG

post-141-0-06559400-1300703484_thumb.jpg

Edited by Sledgehead

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I've been struck by the plight of two seemingly disparate companies.

One is a care home provider - the largest in Britain. We're told an ageing population means we'll need more care homes. The other is a well known sports chain. It caters for people at the opposite end of the demographic with a product targetted at activity, rather than being sedentary.

Besides being so apparently different, these two do have a couple of things in common.

1 ) They were once both darlings of the stockmarket;

2 ) they now face breaking their banking their banking covenants and going bust.

I've stuck their charts below to highlight their vertiginous fall from grace.

So just what could have caused this problem? Well, this being the HousePriceCrash forum, I suppose you've already guessed. While both companies appear to operate totally different businesses in totally different markets, they have one crucial thing in common: they both chose to rent their business assets (property) rather than own them.

Since that crucial decision JJB sporst has suffered a stagnation in profits. Its banking facilities have not accomodated this, and so it's found its rents have become unaffordable. Landlords have been slow to sympathise. Souther Cross has suffered cuts to its revenue from local authorities, keen to reduce their budgets under austerity measures. Again, the landlords from whom it leases its homes appear blind to the new realities of the market place and instead look to the firms creditors to take the hit.

It's all very reminiscent of the kind of denial we se in the housing market.

Perhaps these landlords hope Osborne's new planning regs will allow them to kick out their current tennants and flog the portfolio to some BTL developer? Good luck with that one.

Nothing to do with loading the companies up with debt and taking fat Salaries at the same time i suppose, can only be the rents

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Nothing to do with loading the companies up with debt and taking fat Salaries at the same time i suppose, can only be the rents

Debt is of course an issue. Indeed it's an issue for the Landlords too. Plenty of leverage and fat salaries there also. But you can't deny where the finger is being pointed. Both JJB and Southern Cross are quite clear they need their landlords to be more accomadative.

“On March 14 we announced our rent obligations had become unsustainable and we planned to seek concessions

from our landlords.... I believe it is in the interests of landlords to reach an equitable solution with us to help stabilise

our business and create the conditions for new investment in our homes....Our plan is to seek to renegotiate the terms

of our leases by July of this year. " - Stourbridge News - Monday 21st March 2011

Edited by Sledgehead

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Debt is of course an issue. Indeed it's an issue for the Landlords too. Plenty of leverage and fat salaries there also. But you can't deny where the finger is being pointed. Both JJB and Southern Cross are quite clear they need their landlords to be more accomadative.

Both JJB and Southern Cross say its not our fault weve extracted all profits in salary, its their fault, honest guv

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I've been struck by the plight of two seemingly disparate companies.

One is a care home provider - the largest in Britain. We're told an ageing population means we'll need more care homes. The other is a well known sports chain. It caters for people at the opposite end of the demographic with a product targetted at activity, rather than being sedentary.

Both those companies have their problems. Southern Cross is implicated in far too many gross-neglect-of-the-elderly stories, while JJB was AIUI only ever really a vanity exercise for some celebrity.

Besides being so apparently different, these two do have a couple of things in common.

1 ) They were once both darlings of the stockmarket;

2 ) they now face breaking their banking their banking covenants and going bust.

I've stuck their charts below to highlight their vertiginous fall from grace.

You could've added HMV there for extra weight ...

Oh damn, you mention the names, so I guess I lose my brownie points :blink:

Perhaps these landlords hope Osborne's new planning regs will allow them to kick out their current tennants and flog the portfolio to some BTL developer? Good luck with that one.

Retail is excluded, and care homes are sufficiently close to residential that planning permission to convert was probably never a big deal in the first place.

If this story has legs, the biggest likely corporate beneficiaries I can see are the most evil of the pubcos. The ones whose business model is to lease out pubs to wannabe-landlords to live the dream that turns into a nightmare.

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Something has got to give. But what?

Isn't that what we have been saying about UK house prices?

That's why I brought it up. Clearly the landlords negotiated rental yields on boom prices. That boom has gone. Now either landlords need to subsidise their tennats, or creditors do. This can be explicitly done (by negotiating rents or debt rescheduling) or done by default (landlord loses his rents, creditors their income).

Or are you implying government will somehow intervene. Apparently the issue of Southern Cross was raised in the House and Davey said he'd look into it:

Last week Coventry MP Jim Cunningham raised the Southern Cross crisis during Prime Minister’s Questions

this week and David Cameron has promised to look into the situation. - Stourbridge News

In case you're wondering why he'd get involved, this operator houses 31,000 elderly peeps. :o Too big to fail? :angry:

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Both those companies have their problems. Southern Cross is implicated in far too many gross-neglect-of-the-elderly stories, while JJB was AIUI only ever really a vanity exercise for some celebrity.

You could've added HMV there for extra weight ...

Oh damn, you mention the names, so I guess I lose my brownie points :blink:

You've gotta be kidding. I'm well impressed! :) And yes, HMV is another. I left them out cos I find it hard to blame their predicament on anything other than being in a terminally declining market.

Retail is excluded, and care homes are sufficiently close to residential that planning permission to convert was probably never a big deal in the first place.

Yeah, I realise that. - just being facetious.

If this story has legs, the biggest likely corporate beneficiaries I can see are the most evil of the pubcos.

The ones whose business model is to lease out pubs to wannabe-landlords to live the dream that turns into a nightmare.

Hey, they're just facilitating the dream! :D

Surely however, these too are live-aboves, so pp would presumably have been fairly easy to get, no?

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I've been struck by the plight of two seemingly disparate companies.

One is a care home provider - the largest in Britain. We're told an ageing population means we'll need more care homes. The other is a well known sports chain. It caters for people at the opposite end of the demographic with a product targetted at activity, rather than being sedentary.

Besides being so apparently different, these two do have a couple of things in common.

1 ) They were once both darlings of the stockmarket;

2 ) they now face breaking their banking their banking covenants and going bust.

I've stuck their charts below to highlight their vertiginous fall from grace.

So just what could have caused this problem? Well, this being the HousePriceCrash forum, I suppose you've already guessed. While both companies appear to operate totally different businesses in totally different markets, they have one crucial thing in common: they both chose to rent their business assets (property) rather than own them.

Since that crucial decision JJB sporst has suffered a stagnation in profits. Its banking facilities have not accomodated this, and so it's found its rents have become unaffordable. Landlords have been slow to sympathise. Souther Cross has suffered cuts to its revenue from local authorities, keen to reduce their budgets under austerity measures. Again, the landlords from whom it leases its homes appear blind to the new realities of the market place and instead look to the firms creditors to take the hit. Southern Cross' ceo ain't convinced they should. As he put it :

“On March 14 we announced our rent obligations had become unsustainable and we planned to seek concessions

from our landlords.... I believe it is in the interests of landlords to reach an equitable solution with us to help stabilise

our business and create the conditions for new investment in our homes....Our plan is to seek to renegotiate the terms

of our leases by July of this year. " - Stourbridge News - Monday 21st March 2011

It's all very reminiscent of the kind of denial we se in the housing market.

Perhaps these landlords hope Osborne's new planning regs will allow them to kick out their current tennants and flog the portfolio to some BTL developer? Good luck with that one.

This is a problem that affects every company and is a major problem for at least 50% of all companies especially smaller ones.

Although on a much smaller scale I have at least the same problem. It is the business rates that for me is the one too many costs. At around 50% actual cost of new tenancies and around 40% of those tied to old tenancies it is a killer.

There has been 4 companies who have gone bust/entered into CVAs over the last few weeks who are now bad debts to me. The reason, unaffordable leases/rates entered into when, although extortionate, figures added up. My lease ends within the next 12 months so I may be able to hang on but those with several years left, who are frantically trying to sublet part or all, should give up now as they will have to in the end with much heartache.

The commercial market is becoming saturated very quickly now with more to lets and even the once rare freehold! For any business it is always better to rent than buy as capital is everything but purchasing a property is much safer and much cheaper and easier to carry out than entering into a lease agreement even if it is a mega short 3 yearer. As commercial property prices have been in a bubble even bigger than the residential only the out and out bulls bought.

But do I feel sorry for the commercial landlord? In some ways I do with some of the red tape and hoops they have to jump through as well as the very low returns on capital they were gambling on higher and higher demand which in turn would give higher and higher rents. But these are also the people that tie companies up like kippers with upwardly only rent reviews and delapidation clauses that take several visits to your solicitor to understand together with restrictions that make it barely possible to trade.

If I can end my lease with less than £10,000 on delapidations and £5,000 in legal fees I should probably feel chuffed, but somehow I don't.

What do I do then? Downsizing is not an option, I have looked at this closely. Moving to other, cheaper, parts of UK, still have to pay high rates and key personell will/wont move. Move abroad? this really is a great option for many companies but I feel I havn't the energy or drive especially without key people, and where to?

Worse thing is from the outside things look OK. I am working 7 days a week and we are just too busy. You need to be in business at this time to understand this. Why be a busy fool?

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I've been struck by the plight of two seemingly disparate companies.

One is a care home provider - the largest in Britain. We're told an ageing population means we'll need more care homes. The other is a well known sports chain. It caters for people at the opposite end of the demographic with a product targetted at activity, rather than being sedentary.

Besides being so apparently different, these two do have a couple of things in common.

1 ) They were once both darlings of the stockmarket;

2 ) they now face breaking their banking their banking covenants and going bust.

I've stuck their charts below to highlight their vertiginous fall from grace.

So just what could have caused this problem? Well, this being the HousePriceCrash forum, I suppose you've already guessed. While both companies appear to operate totally different businesses in totally different markets, they have one crucial thing in common: they both chose to rent their business assets (property) rather than own them.

Don't be silly.

Find me a national retail chain that owns its shops. Just one will do. I wager that you can't find one!

tim

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they have one crucial thing in common: they both chose to rent their business assets (property) rather than own them.

Whilst I agree that they were rent-forever losers, isn't it considered bad form to mention that sort of thing on this board?

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Commercial landlords are generally a bunch of unproductive twerps wildly deluded about how much their property is worth and how much anyone is going to want to rent it off them at all in the coming decades.

However, rent is only part of the problem as to why businesses seem to be becoming less viable. If you slashed rents everywhere by 25% tomorrow, apart from the fact the banks would probably all fall over again, you'd most likely find it would only prove to be of temporary assistance to businesses.

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Don't be silly.

Find me a national retail chain that owns its shops. Just one will do. I wager that you can't find one!

tim

why am I being silly? Why should I want to find such a chain? My point was they both entered into tenancies that hav eproven too onerous. I never suggested they buy, merely that they should perhaps have not been quite so accomodative of LL demands. We say the same here about house buyers who paid the full price in 2007.

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Whilst I agree that they were rent-forever losers,...

hardly. they believed in their business and felt theat their capital was better employed in that than in property. their mistake was accepting landlords views on rental yields based on bubble commercial prop prices.

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If this story has legs, the biggest likely corporate beneficiaries I can see are the most evil of the pubcos. The ones whose business model is to lease out pubs to wannabe-landlords to live the dream that turns into a nightmare.

unless they too are saddled with £4 billion of debt like, well, at least one of them. I would not risk a punt myself

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This is a problem that affects every company and is a major problem for at least 50% of all companies especially smaller ones.

Although on a much smaller scale I have at least the same problem. It is the business rates that for me is the one too many costs. At around 50% actual cost of new tenancies and around 40% of those tied to old tenancies it is a killer.

There has been 4 companies who have gone bust/entered into CVAs over the last few weeks who are now bad debts to me. The reason, unaffordable leases/rates entered into when, although extortionate, figures added up. My lease ends within the next 12 months so I may be able to hang on but those with several years left, who are frantically trying to sublet part or all, should give up now as they will have to in the end with much heartache.

The commercial market is becoming saturated very quickly now with more to lets and even the once rare freehold! For any business it is always better to rent than buy as capital is everything but purchasing a property is much safer and much cheaper and easier to carry out than entering into a lease agreement even if it is a mega short 3 yearer. As commercial property prices have been in a bubble even bigger than the residential only the out and out bulls bought.

But do I feel sorry for the commercial landlord? In some ways I do with some of the red tape and hoops they have to jump through as well as the very low returns on capital they were gambling on higher and higher demand which in turn would give higher and higher rents. But these are also the people that tie companies up like kippers with upwardly only rent reviews and delapidation clauses that take several visits to your solicitor to understand together with restrictions that make it barely possible to trade.

If I can end my lease with less than £10,000 on delapidations and £5,000 in legal fees I should probably feel chuffed, but somehow I don't.

What do I do then? Downsizing is not an option, I have looked at this closely. Moving to other, cheaper, parts of UK, still have to pay high rates and key personell will/wont move. Move abroad? this really is a great option for many companies but I feel I havn't the energy or drive especially without key people, and where to?

Worse thing is from the outside things look OK. I am working 7 days a week and we are just too busy. You need to be in business at this time to understand this. Why be a busy fool?

So much depends on whether your business is scalable, tied to a locaiity, public facing, likely to need to respond to changes in working practice.

Mine is: No, Yes, Yes, Yes; and so it was a no-brainer to own my premises. A private company wanted to buy me out and lease back 4 years ago, I said no way Jose. I need to retain 100% control and not dance to anyone else's beat. What I have sacrified in possible capital gains I have gained in control of revenue

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hardly. they believed in their business and felt theat their capital was better employed in that than in property. their mistake was accepting landlords views on rental yields based on bubble commercial prop prices.

Not quite how it works but don't want to type out a big exposition on rent reviews on commercial leases. Your rent is very much determined by what other over-leveraged idiots are prepared to pay. Typically the over-leveraged idiots will eventually go pop whilst you're left with the legacy of the ludicrous lease terms they agreed. Not unusual for them to then continue trading rent-free post-administration.

To those mentioning freeholds this has simply not been an option in modern times as the best pitches are generally within shopping centre/retail park schemes these days where the freehold purchase option isn't there in any case.

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Don't be silly.

Find me a national retail chain that owns its shops. Just one will do. I wager that you can't find one!

tim

Whilst no longer a national retail chain, Safeway owned the freehold on a large number of their stores.

According to this, the property estate of Morrisons is around 90% freehold.

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I've been struck by the plight of two seemingly disparate companies.

One is a care home provider - the largest in Britain. We're told an ageing population means we'll need more care homes. The other is a well known sports chain. It caters for people at the opposite end of the demographic with a product targetted at activity, rather than being sedentary.

Besides being so apparently different, these two do have a couple of things in common.

1 ) They were once both darlings of the stockmarket;

2 ) they now face breaking their banking their banking covenants and going bust.

I've stuck their charts below to highlight their vertiginous fall from grace.

So just what could have caused this problem? Well, this being the HousePriceCrash forum, I suppose you've already guessed. While both companies appear to operate totally different businesses in totally different markets, they have one crucial thing in common: they both chose to rent their business assets (property) rather than own them.

Since that crucial decision JJB sporst has suffered a stagnation in profits. Its banking facilities have not accomodated this, and so it's found its rents have become unaffordable. Landlords have been slow to sympathise. Souther Cross has suffered cuts to its revenue from local authorities, keen to reduce their budgets under austerity measures. Again, the landlords from whom it leases its homes appear blind to the new realities of the market place and instead look to the firms creditors to take the hit. Southern Cross' ceo ain't convinced they should. As he put it :

"On March 14 we announced our rent obligations had become unsustainable and we planned to seek concessions

from our landlords.... I believe it is in the interests of landlords to reach an equitable solution with us to help stabilise

our business and create the conditions for new investment in our homes....Our plan is to seek to renegotiate the terms

of our leases by July of this year. " - Stourbridge News - Monday 21st March 2011

It's all very reminiscent of the kind of denial we se in the housing market.

Perhaps these landlords hope Osborne's new planning regs will allow them to kick out their current tennants and flog the portfolio to some BTL developer? Good luck with that one.

I can't speak for these two but it's clear to me that rents make a huge difference to the viability of retail companies in general. Since moving to Toronto, where business rents are much lower than in London and much of the UK, I've been struck by how much quieter a lots of shops and restaurants are. Anywhere in the UK that isn't packed out most of the time seems to go bust whereas here lots of successful places seem to manage fine at 50% capacity. Staff costs, property taxes and raw materials aren't any lower so that only really leaves rent.

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Guest eight

Commercial landlords are generally a bunch of unproductive twerps wildly deluded about how much their property is worth and how much anyone is going to want to rent it off them at all in the coming decades.

However, rent is only part of the problem as to why businesses seem to be becoming less viable. If you slashed rents everywhere by 25% tomorrow, apart from the fact the banks would probably all fall over again, you'd most likely find it would only prove to be of temporary assistance to businesses.

Let me get this right, are you saying that being in business per se just isn't viable in 21st century Britain?

Not saying I disagree mind..... just wondered what your reasoning was.

eight

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Not quite how it works but don't want to type out a big exposition on rent reviews on commercial leases. Your rent is very much determined by what other over-leveraged idiots are prepared to pay. Typically the over-leveraged idiots will eventually go pop whilst you're left with the legacy of the ludicrous lease terms they agreed. Not unusual for them to then continue trading rent-free post-administration.

+1000.

Jusst the same happened in the rest of the economy and residential housing. It is no wonder so many businesses have failed to compete with foreign competition - they have been totally undermined by their cost base, removing their ability to raise finance, invest and grow.

The monetary authrorities solution to this is to artificially prop up that cost base.

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This is a problem that affects every company and is a major problem for at least 50% of all companies especially smaller ones.

Although on a much smaller scale I have at least the same problem. It is the business rates that for me is the one too many costs. At around 50% actual cost of new tenancies and around 40% of those tied to old tenancies it is a killer.

There has been 4 companies who have gone bust/entered into CVAs over the last few weeks who are now bad debts to me. The reason, unaffordable leases/rates entered into when, although extortionate, figures added up. My lease ends within the next 12 months so I may be able to hang on but those with several years left, who are frantically trying to sublet part or all, should give up now as they will have to in the end with much heartache.

The commercial market is becoming saturated very quickly now with more to lets and even the once rare freehold! For any business it is always better to rent than buy as capital is everything but purchasing a property is much safer and much cheaper and easier to carry out than entering into a lease agreement even if it is a mega short 3 yearer. As commercial property prices have been in a bubble even bigger than the residential only the out and out bulls bought.

But do I feel sorry for the commercial landlord? In some ways I do with some of the red tape and hoops they have to jump through as well as the very low returns on capital they were gambling on higher and higher demand which in turn would give higher and higher rents. But these are also the people that tie companies up like kippers with upwardly only rent reviews and delapidation clauses that take several visits to your solicitor to understand together with restrictions that make it barely possible to trade.

If I can end my lease with less than £10,000 on delapidations and £5,000 in legal fees I should probably feel chuffed, but somehow I don't.

What do I do then? Downsizing is not an option, I have looked at this closely. Moving to other, cheaper, parts of UK, still have to pay high rates and key personell will/wont move. Move abroad? this really is a great option for many companies but I feel I havn't the energy or drive especially without key people, and where to?

Worse thing is from the outside things look OK. I am working 7 days a week and we are just too busy. You need to be in business at this time to understand this. Why be a busy fool?

I'm just not seeing the advantage in renting?

Commercial tenancies are usually underwritten with some kind of personal guarantee....if you are unable to service your rent payments the landlord can & will proceed to ransack your personal finances. It's also worth considering the implications of upward only rent reviews & full liability for repairs & insurances.... these mean that as a tenant you are responsible for the building in the same way as owner occupier would be... except you're paying to maintain an asset you don't own.

The biggest issue with money is the monthly cost.... renting would make sense if it was much cheaper than paying a mortgage.. it isn't. In fact rent payments are typically much higher than the mortgage costs on the same building.

Renting is more expensive, forces you to accept freehold liabilities and eliminates the option of selling the building or renting it off if your business turns pear shaped.

Renting a commercial building means getting into the business "bed" with a fat, lazy and very greedy business partner.. someone who does absolutely no work but who demands a hefty pound of your flesh every month. Add the fact that commercial landlords are, virtually to a man, some of the most unpleasant, greedy people you'll ever meet and renting starts to look even more unattractive.

If you have a viable business and the opportunity to purchase your building I'd advise you to grab the opportunity with both hands... you won't regret it. Pay your monthly property cost but get a fixed "finishing line" and a tangible asset in return.... what's not to like? Interestingly I had a chat with my RBS bank manager the other day and was surprised to learn that under no circumstances will they provide mortgage funding for anyone who does not plan to run their own business from the premises. If you're looking to do a spot of commercial buy-to-let empire building then funding is going to be difficult & expensive.. this means less competition if you are looking to buy as a simple business owner.

Edited by sun n sea

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Not quite how it works but don't want to type out a big exposition on rent reviews on commercial leases. Your rent is very much determined by what other over-leveraged idiots are prepared to pay.

They aren't always idiots. A very large amount of very easy money was made creating costs for UK producers in this (similar) way. The externality of property is a very damaging incentive problem

Edited by Stars

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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