Sunday, 16 October 2016

What will the 0.25% Interest Rate do to the Grantham Property Market?

I had an interesting chat with a Manthorpe landlord who owns a few properties in the town. He popped his head in to my office as his wife was shopping in the area (and let’s be honest talking about the Grantham Property Market is a lot more interesting than clothes shopping!). We had never spoken before (because he uses another agent in the town to manage his Grantham properties) yet after reading my blog on the Grantham Property Market for awhile, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Grantham property market and I would also like to share these thoughts with you……

Well it’s been a few weeks now since interest rates were cut to 0.25% by the Bank of England as the Bank believed 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 Grantham, 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 Grantham, of the 20,683 people who have a job, 2,885 are in the manufacturing industry and 1,515 in Construction meaning

13.9% of Grantham workers are employed in the Manufacturing
sector and 7.3% of Grantham workers are in Construction

The other sector of the economy the Bank is worried about, and an equally important one to the Grantham economy, is the Financial Services industry. Financial Services in Grantham employ 493 people, making up 2.4% of the Grantham working population.

Together with a cut in interest rates, the Bank also announced an increase in the quantity of money via a new programme of Quantitative Easing to buy £70bn of Government and Private bonds. Now that won’t do much to the Grantham 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 Grantham property market (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 Grantham 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 undersupply of housing (something I have spoken about many times in my blog and the specific affect on Grantham). The severe undersupply means that Grantham 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.