It was Academy Award winning screenwriter William Goldman (Butch Cassidy and the Sundance Kid, All the President’s Men) who coined the aphorism ‘Nobody knows anything.’ He may have been talking about the vagaries of spotting the next big box office success, but it’s a motto which has since been seized upon by commentators tasked with analysing virtually every walk of life. The earthquakes which have been ripping through the UK political landscape since the June 23rd Brexit vote, for instance, mean that anyone foolish enough to make predictions of what’s going to happen next would be safest sticking to those three little words: Nobody. Knows. Anything. Perhaps with a ‘yet’ in brackets afterwards.
It certainly isn’t difficult to find evidence to back up the proposition that the Brexit vote has had a detrimental effect upon the wider UK economy. Surveys released in the last week or so picked up a drop in either activity or confidence across a range of sectors. The Society of Motor Manufacturers and Traders (SMMT) contrasted a fairly upbeat run up to the referendum with a collapse in confidence since, with members feeling negative about growth, jobs and investment going forward. The British Retail Consortium, meanwhile, reported that jobs were already being shed in the run up to the referendum, whilst the body representing chartered surveyors, RICS, claimed that uncertainty had led to investments being delayed.
All of the above helps to explain the decision taken by the Bank of England today (05/08/2016) to cut interest rates to a historic low point of 0.25%, a move which was just part of a raft of measures aimed at kick-starting a moribund economy.
Which brings us to the crucial point; uncertainty of the kind outlined above can cause problems but it also offers opportunities to those able to spot and take advantage of them. The cut in interest rates is a case in point, in that there are two ways of looking at it. The first is to do what many have done, which is take it as a clear signal that the economy is suffering serious problems and therefore belts have to be tightened, the second is to take on board that the Bank of England feels the economy needs boosting and get on with helping them to do so.
This is particularly true of anyone involved in the buy to let sector, whether you’re a landlord or a letting agent. The drop in base rates may merely be a temporary consequence of the Brexit vote – and some would say a panic response to a couple of months figures – but it’s a move which, even against a backdrop of historically low rates for an unusually long period of time, offers a boon to existing landlords. Those who purchased their property using a tracker mortgage will now benefit from the 0.25% cut in interest rates and see their ongoing mortgage payments drop, a saving which comes on board in the midst of other changes which make buy to let more attractive than ever. Our old friend uncertainty has, according to both anecdotal evidence and official statistics, led many people to hesitate before completing property purchases. The fact that this uncertainty isn’t going to end any time soon means that this ‘hesitation’ is likely to harden into a switch away from purchasing and toward renting, a switch which is likely to last for the two years plus of Brexit negotiations and counting. With a new report from think tank The Resolution Foundation highlighting a drop in home ownership in the UK – falling from 71% of households in April 2003 to 64% in February 2016 (the lowest level since 1986), the demand for rental property is high and likely to rise further, fantastic news for anyone on the supply side of the equation.
The move away from home ownership is, of course, driven by many factors besides Brexit – lack of supply and the uncoupling of wages and property prices being the most powerful drivers – but Brexit may well prove to be the catalyst for the social and attitudinal change required to make this shift permanent. Another factor which may well help to drive this shift is the downgrading of the concept of saving. With interest rates scraping along the bottom of the graph and negative rates a genuine possibility, the days of banking savings and enjoying income generated by interest are long gone. Given that, more and more people with money to invest are likely to opt for buying property; mortgages are more affordable than ever and, in uncertain times, the fact that the demand for homes is unlikely to start falling in even the longer term makes property as safe an investment as it is possible to imagine. Even the ‘bad news’ of an economic squeeze can impact positively here, given that the government is likely to, at the very least, downgrade its pledge to build a million new homes by 2020. The final piece of this highly advantageous jigsaw is the drop in the value of the pound. Whilst deeply annoying if you happen to be heading overseas for this year’s summer holiday, the weakness of the pound does make investing in the UK, and in UK property, an even more attractive proposition, throwing a little more petrol onto an already impressively blazing fire of opportunity.
None of this, it should be noted, is necessarily going to last. The Autumn Statement from new chancellor Philip Hammond may well signal a major shift in fiscal policy and the gradual emergence of a Brexit negotiating position will surely help to clear away some of the uncertainty. What can be fairly claimed, however, is that today’s interest rate cut – the first in seven years – underlines a set of circumstances within which the buy to let sector, right here and right now, is a vibrant place to be.