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Insight & Opinion

Why low interest rates mean property investment is a favourable option

Author: Staff

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There has been an air of uncertainty around everything that evenly remotely resembles finance – be it savings, investments, business and the economy – ever since the UK voted to exit the EU at the end of June this year. Property investment, banking and other sectors have gone under the microscope and been subject to many forecasts and predictions from experts across the world.

But a little over a month on, how does the market in general look at the moment?

For one thing, we’ve generally not seen the doom and gloom that was predicted – at least not yet – and some sectors have even come out of the first month of uncertainty with a distinct air of strength, showing that they have the resilience and long-term stability to withstand the turbulence that such an earth shattering referendum result was always going to bring about.

One such sector has been the property market, where we’ve seen levels of demand and general sentiment towards the sector help it remain in a position of real strength. In the buy-to-let sector, for example, even after the referendum, stock levels have remained high, tenants continue to look to rent, and prices have climbed year-on-year, according to HomeLet, by 2.3 per cent to hit £779 per calendar month on average.

This continued strength suggests that property could be not only one of the sectors that weathers the storm best, especially when considering the sort of negative forecasts we saw in the months ahead of Brexit, but also that it remains a fantastic investment prospect at present. This is especially true when we hold it up against one of the most popular assets at time of uncertainty – cash savings.

Since the election, the economy has had something of a torrid time in the UK. The pound had the most dramatic fall in nearly four decades, businesses panicked and predictions for drops in employment levels and slower GDP growth were commonplace.

Property Investment Weathers Storm

Property investment weathers storm

What this sort of economic activity will normally bring about for investors is the classic ‘wait and see approach’, wherein they will keep hold of their money rather than invest it, putting their cash into savings accounts to weather the storm and waiting to see what assets to invest in at the other end of the turbulent time.

However, at the moment, this practice is one that could work against potential investors. Those who invest in real estate at the moment are clearly still seeing their property investment work for them at present. Rents are up by nearly 2.5 per cent, even since the referendum, and property prices are expected to still climb by around five per cent this year as a whole, according to S&P Global Ratings, showing that capital gains are still a real possibility. And that’s without mentioning the real potential in the student accommodation market, which is about to come alive again in the next few weeks. With returns of up to nine per cent and a growing demand yet again from both domestic and overseas students, the property market is not only one of the most lucrative around, but also one of the most resilient to the Brexit effect.

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And when we hold this up against cash savings and the economy, it’s clear why property can represent a really strong opportunity at the moment. In the last week, the Bank of England has announced that it is dropping the base interest rate again to a low of 0.25 per cent to help boost the economy. For savers, this is bad news, because it means that as we move through this uncertain period, their money will be less likely to work for them, and savings accounts will offer very little in the way of return.

While a wait and see approach can often be seen as the most traditional and safest way to operate throughout periods of economic instability, what’s clear at the moment in the UK is that there’s a real chance for those with an eye for property investment to back a sector that has really shown how stable it can be over the last month, helping them to get through the stormy weather.

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