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What will today’s interest rate hold mean for the UK’s property sector?
July 14, 2016Article by Ray Withers
What does today’s interest rate hold mean for the UK’s property sector?
It’s certainly an exciting time to be a property professional in the UK. In my 12 years at the helm of Property Frontiers I’m not sure I recall a more interesting set of circumstances in terms of potential impact on the property sector.
Just this week, we’ve got a new Prime Minister and an extensive Cabinet reshuffle, as well as a great deal of excitement over what turned out to be a hold in interest rates. And all that hot on the heels of the ongoing impact that the historic Brexit vote of 23 June is having on the UK property market. It’s been a busy few weeks, to say the least!
Welcome, Prime Minister
Theresa May’s appointment as David Cameron’s replacement is great news for the UK. What the country needs right now is stability and the more certainty we can achieve, the better. Property markets are sensitive to uncertainty, so Theresa May now resident at Number 10 so quickly is definitely preferable to a long, drawn out leadership contest. The appointment is already having a positive impact on economic sentiment. Indeed, we’ve already seen the pound regain some of its strength against the dollar since the news of Ms May’s appointment.
Interest rate hold – the effect on the property market
The news that the Bank of England held interest rates at 0.5% today is also good for the property sector as it signals confidence in the UK’s economy. Rather than a knee-jerk reaction to the recent political decisions and changes, the Bank of England seems content that the economy is on the right track and that no changes to interest rates are therefore needed at this time.
This is good news too for buy-to-let investors, as it provides further certainty and stability within the economy, which is positive for the property market as a whole.
Swapping bonds for property
Today’s interest rate hold means that property remains highly attractive to investors when compared with other asset classes. For example, both bonds and savings are struggling to compete with the yields that buy-to-let property can provide, so many investors have sought to release cash from them in order to put it into something more profitable in recent years. This is a pattern that we can reasonably expect to continue in light of today’s news that interest rates will be held at 0.5%.
Of course, much of this applies only to UK investors, but there are also investors from overseas who will be encouraged to put their money into UK property as a result of the continuing level of confidence in the economy as a whole and the low mortgage rates available to those borrowing from abroad in sterling. All told, it’s an exciting time to be involved in UK property right now!