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Property investment changing for the better as rates stay low?

3rd June 2009 | back to article listings BACK    print this article PRINT

"The more things change, the more they stay the same", goes the old French saying. For those analysing the property market, nothing could seem further from the truth, so much has the landscape altered since 2007.

One area where there has been significant change is that of interest rates. The Bank of England's base rate was held at five per cent for the majority of last year, with David Blanchflower the one voice in the wilderness arguing that the perceived threat of inflation was illusory and that the real peril was that of a recession. That ended dramatically in October with a 0.5 per cent cut as governments and central banks raced to act as the world banking system teetered on the brink of meltdown. What followed was a period of rate slashing to record low levels, until the base rate stood at 0.5 per cent.

This change, of course, had immediate effects for those whose mortgage costs plunged, notably those on tracker rates. It may also have a longer-term effect of boosting borrowing and investment, both among property investors and across the economy as a whole. But now the rate is just about as low as it can practically go, a new phase of no change appears to have emerged.

A trio of economists quizzed by Adfero prior to tomorrow's Monetary Policy Committee (MPC) meeting said as much. Not only will tomorrow bring no change, they said, but so will the foreseeable future. Vicky Redwood of Capital Economics commented of the next rise: "I think that probably won't be for at least another year or maybe even 18 months." Similarly, Arek Ohanissian from the centre for economic and business research said the next change will be in 2010. The economists noted that quantitative easing is likely to be more the focus of MPC policy moves in the meantime.

Such a situation may reassure investors that their borrowing costs will not increase any time soon. That in itself could provide impetus to the property market, even allowing for the possible limits to recovery continuing and lagging economic factors like unemployment may impose.

The result, according to estate agency Prickett & Ellis, is that conditions in the market are starting to change. This was the synopsis of director at the firm Nigel Ellis, who said: "The public perception is that interest rates are as low as they are going to get, that house prices [have] therefore fallen as low as they are going to get, so they are going to buy now but there isn't enough on the market. So the balance between supply and demand is switching slightly."

Such a situation, of course, could help stimulate more supply as those discouraged from selling put their homes back on the market. But if the mood is one that sees the property market recovering, this could in turn fuel extra buying. Now may indeed be a very good time to buy, for investors and seekers of homes alike.

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