We’ve taken the Queen’s advice to heart, and had a period of quiet reflection here at My Property Consultant’s HQ since June’s surprise European Union (EU) referendum result. Like everyone else we’ve been feeling a bit mushroom-like recently – frustratingly in the dark about what lies ahead.
Slowly but surely though, we’re starting to see some rational thought filtering through as we’re forced to wake up to the reality of the situation. Of course, with every change of this magnitude, there are going to be winners and losers. So here are my thoughts on the opportunities and challenges facing buy-to-let investors and why – on reflection – we have every reason to remain cheerful:
1. Interest rates are likely to be lower for longer
On 30 June, Bank of England Governor Mark Carney suggested that UK rates could be cut further from their historically low level of 0.5%, which is good news for borrowers. The reality is that central banks will be forced to proceed with extreme caution, and interest rates are likely to remain low for the foreseeable future.
2. Uncertainty favours a buyers’ market
If there’s one thing we do know, it’s that there’s going to be a lot of uncertainty for the next few months and years. Such uncertainty will almost certainly drive down house prices, which is a good thing for the buy-to-let investor, assuming you buy into the notion that the market will recover.
3. A weaker currency attracts foreign investment
It’s likely that sterling will remain weak for the foreseeable future as it bears the brunt of the economic uncertainty. This should make investment in the UK increasingly attractive for global foreign investors. I use the word global deliberately here, as investors from around the world currently benefit from investment in the UK, not just those within Europe. There’s nothing to suggest that they won’t be able to continue to do so.
Threats, and why they may not be as threatening as we think
1. Supply and demand
The London property market is supported by a lack of supply in the face of a large demand. Until we know the impact on UK-based business, it will be hard to determine if there will be a significant shift in this dynamic.
In reality though, it would have to be a cataclysmic shift to tip the balance towards too much supply. Let’s not forget that the London property market was facing a crisis. A recent article published by Bloomberg claimed that London needs one million new homes in the next decade to meet demand, in contrast to a meagre 21,350 new homes built in Greater London in the year to September 2015.
2. A shortage of lending
As we saw in the wake of the credit crunch, lending could become an issue as banks suffer in the wake of the vote. However, both the Chancellor and the Bank of England have stated that they will support the economy in every way they can, and keeping lending fluid will presumably be high on their list of priorities.
3. Government spending cuts
There’s the possibility that we could experience cuts in government spending, resulting in the postponement, or even cancellation, of important infrastructure improvements. On the other hand though, it’s very common for governments to increase spending in times of economic uncertainty as it’s their way of creating jobs.
I’m not going to pretend that everything in the garden is rosy, as clearly we face some very tough times ahead. But in a low-interest rate environment, and at a time where good returns on other investments are hard to find, perhaps the property market is not such a bad place to be after all.
Great article. I see it as business as usual for property investors. Even after the dust has settle if house prices drop, people still need homes and will be looking to rent instead, satuating the rental market. Money is still cheap to borrow.
Thanks. Now is a good time to buy property as interest rates are due to fall and stay low until 2020. Prices are also softening. Combined with a weaker currency, we could see an influx of overseas investment.
The property market will stand the test of time.it always does. If investors focus on yield then they will win and get a return. The alternative is to buy in a regeneration area.
Investing in property is a long game. If people take a long term view, then there will be price increases, which is mainly fuelled by the shortage of new supply of housing. (Brexit will not change this).