BoE rate hike could boost property investing
The Bank of England’s latest base rate hike to 2.25 per cent is set to make life difficult for many borrowers, but could also present opportunities for property investors.
The announcement today marks the seventh consecutive rate rise in the UK, with the central bank’s ratesetters voting to tighten policy at every meeting since December.
However, interest rates remain historically low, according to James Forrester, managing director of Barrows and Forrester, and the property market is continuing to go “from strength to strength”.
Therefore, although the current cost-of-living crisis may result in some pulling away from the property market, Forrester believes it remains one of the “smartest and safest investments” people can make, despite the increasing cost of repaying a mortgage.
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For Jatin Ondhia, chief executive and co-founder of Shojin Property Partners, agility and diversification will be key to navigating the current climate.
“Investors must have the foresight to evaluate their strategies against the complex dynamics at play and consider which assets are likely to offer the best shelter,” he said.
The new chancellor Kwasi Kwarteng is set to announce a mini-budget tomorrow, with many expecting a cut to stamp duty.
If it does go ahead, Ondhia believes real estate could prove particularly popular with investors.
“Against the current backdrop, it should be expected that many investors will look to balance traditional and alternative investments,” he said.
“Bricks and mortar always attracts significant demand from domestic and international investors, but I would predict this demand will rise notably if tax incentives are introduced.”
In light of rising inflation and interest rates, investors have already started turning to real estate, which has historically performed well in an inflationary environment compared to traditional stocks and bonds.
New research from Time Investments found that wealth managers and financial advisers expect to increase or retail their allocations to property over the next six months.
A survey of 200 advisers shows that 33 per cent planned to increase their exposure with 32 per cent planning to retain their current allocation.
Roger Skeldon, co-manager of the Time: Property Long Income & Growth fund, said: “The economic outlook means there is likely to be further volatility in the markets, but the fundamentals of the underlying sectors we have exposure to remains strong, and long term rental growth is anticipated across the majority of these.”
Paresh Raja, chief executive of specialist lender Market Financial Solutions, also pointed out that the property market is being pulled in two different directions.
While the interest rate rise is impacting prospective buyers along with existing mortgage customers, there is also a clear push from government to fuel “a lucrative, buoyant property market”, he said.
“We saw it with the stamp duty holiday during the pandemic – when backed into a corner, the Conservative government is keen to err on being pro-property,” he continued. “It will be fascinating to watch how rising interest rates and high inflation play off against the touted stamp duty cut. I suspect, as recent years have shown, the property market will continue to thrive in the face of significant demand and limited supply.”
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