I had an interesting chat with landlord from Anslow who owns a few properties in the town and local area. He popped his head into my office as his wife was shopping in the area, commenting that talking about Burton property was a lot more interesting than clothes shopping!
We had never spoken before as he uses another agent in the town to manage his properties, yet after reading my blog on the Burton property market for a few months, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the local market.
Well it’s been a few weeks now since interest rates were cut to 0.25% by the Bank of England. One of the reasons for the cut was that the bank believed that Brexit could lead to a materially lower path of growth for the UK, especially for the manufacturing and construction industries. You see, for the country as a whole, the manufacturing and construction industries are still performing well below the pre credit crunch levels of 2008/09, so the British economy remains highly susceptible to an economic shock. This is especially important in Burton because, even though we have had a number of local success stories in manufacturing and construction, a large number of people are employed in these sectors. In the area, of the 34,478 people who have a job, 5,841 are in the manufacturing industry and 2,475 in Construction meaning:
16.9% of Burton workers are employed in the Manufacturing sector and 7.2% are in Construction.
The other sector of the economy the Bank is worried about, and an equally important one to the Burton economy, is the Financial Services industry. Financial Services in the area employ 472 people, making up 1.4% of the Burton working population.
Together with a cut in interest rates, the Bank also announced an increase in the quantity of money via a new program of Quantitative Easing to buy £70bn of Government and Private bonds. Now that won’t do much to the local property market directly, but another measure also included in the recent announcement was £100bn of new funding to banks. This extra £100bn will help the High St banks pass on the base rate cut to people and businesses, meaning the banks will have lots of cheap money to lend for mortgages… which will have a huge effect on the Burton property, as that £100bn would be enough to buy half a million homes in the UK!
It will take until early in the New Year to find out the real direction of the property market and the effects of Brexit on the economy as a whole, the subsequent recent interest rate cuts and the availability of cheap mortgages. However, something bigger than Brexit and interest rates is the inherent under supply of housing; something I have spoken about many times in my blog and the specific effect in Burton. The severe under supply means that property prices are likely to increase further in the medium to long term, even if there is a dip in the short term. This only confirms what every homeowner and landlord has known for decades… investing in property is a long term project and as an investment vehicle, it will continue to outstrip other forms of investment due to the high demand for a roof over people’s heads and the low supply of new properties being built.
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