Assetz® News - Inflated hopes, inflated fears

Inflated hopes, inflated fears

15th July 2008 |

Those hoping to see the property market bounce back from its falls in transactions and price may have blanched at the latest inflation figures, with the inevitable fear that rising prices might prompt the Bank of England's monetary policy committee (MPC) to put up the base rate.

Office for National Statistics figures for the consumer prices index (CPI) inflation certainly cannot have made for pleasant reading for Mervyn King and his colleagues, jumping another 0.5 per cent last month to reach 3.8 per cent. Food and non-alcoholic drinks, petrol, domestic utility bills and even camcorders and digital cameras all pushed the figure closer to the four per cent level Mr King said last month it was likely to reach.

Responding to the news, Nicholas Leeming, the director of property portal propertyfinder.com made a plea for the MPC not to respond with a rate rise, claiming that the slowing of the economy will soon bring inflation down. He said: "It is essential for the health of the economy that the Bank continues to use a light touch to tackle inflation and does not increase base rates, otherwise it risks sacrificing the economy at the altar of short term inflation."

However, Mr Leeming may be preaching to the converted, for this week MPC member Kate Barker told the Times she feared just such a situation coming about. She told the paper: "The mistake we could make … and we are all worried about this, is of holding policy too tight and the economy weakening more than is necessary to get inflation back on target."

For those investing in property, this could be timely enough, with some believing that a recovery is not far off. A survey of estate agents by Abbey found that 61 per cent believe the trend for property prices to decline will be over in a year, with half of these suggesting the trend could change in six months or sooner.

Yet even without an upturn, it appears that buy to let investors are making the most of things. Today's Royal Institution of Chartered Surveyors (Rics) figures for June showed that the balance of those reporting a fall in prices over a rise was 88 per cent and the balance reporting a fall in enquiries over a rise was 35 per cent. The only positive aspect of these figures is that they are an improvement on May.
However, the average number of transactions recorded was at an all time low of 15.3 per surveyor.

Yet at the same time, Rics also noted that many surveyors had seen how some investors are using the situation to drive favourable bargains, picking up low-priced property and capitalising on rising rents. As spokesman Jeremy Leaf noted: "Would-be buyers are negotiating from a position of strength. Even in a weak market there are always opportunities for investors and buyers to profit and some are starting to circle for bargains."

So while some anticipate a recovery and others hope the MPC will not stifle one, canny investors are showing that there are ways to invest successfully even in the present market.