The Election Is Coming

Should Investors Run Away Or Celebrate?

In the next couple of months the shape of the political map will be decided, and with it the future of this country for at least the next four years. Going into this election we face the huge legacy of the property crash, the banking crisis and a world recession. Our Government has spent billions of taxpayer's money (our money) and borrowed hugely to help our financial institutions out of an enormous hole of their own making. In the process they have almost bankrupted the country.

Now we are going to have to swallow nasty medicine - a combination of tax rises and public spending cuts that we haven't suffered in living memory. The difference between the political parties is primarily how fast and how deep they will cut, and how fast and how high they will raise taxes. Whoever comes in it's not likely to be an easy ride.

If the economy was booming then the additional borrowing could be repaid from tax receipts, but with a jittery economy that has recently emerged from recession that's not going to happen. That's before we factor in the possibility of a double dip and another period of possibly prolonged recession.

And property investors? What does this mean for them? Should they sit on the sidelines and wait, or dive in either before or after the election? Let's look at the primary drivers for investment, and the temporary distractions which distort the true picture.

Supply and Demand

I keep banging on about this, but the long term prognosis for the UK remains one of a supply shortage, accompanied by a structural shift to smaller housing units over the next 50 years. This picture gets distorted - as it has over the last couple of years - by short term government intervention and other economic factors like the credit crunch. But if you investment longer term, UK property remains a firm 'buy'!

Interest Rates

After a year of the lowest BOE rate since records began some 300 years ago, you might be thinking that the next move is up. That's a sound assumption, but the uncertainty is the timing. There are inflationary pressures which in normal circumstances would mean the Monetary Committee signalling time for a rate rise, but now the economy is weak and a recovery far from certain. It's quite possible that we will bump along the bottom for quite a while yet.

That's good news for investors. In fact as competition comes back into the mortgage market we are already seeing some more competitive products and rate reductions! Even if bank rate does notch up another 0.5% we may see the rates we pay at worst not rising, and at best modestly falling a little more.

If you are waiting for lower interest rates - probably a bad idea. We are either at, or close to, the bottom on rates.

Property Prices

I wish I was a crystal ball reader. We have a wide spectrum of opinion that is probably more diverse than at any time I can remember. We have forecasters predicting a double dip and another 10-20% fall. And we have optimists predicting a sustained but slow recovery. My personal view is that we are in for a longish (read 1-2 year) period of sideways movement with little cumulative change either up or down. Certainly, not enough movement to make the decision to stay out of the market or conversely jump in to the market.

All this leads us to... what to do next!

Rod's View

My personal view is that the macro-economic indicators don't give a clear steer, and the country is suffering from huge uncertainty about the future. In the circumstances, people who want to sell - whether they are distressed sellers, developers or regular sellers, are going to find it difficult!

And that means... superb buying opportunities for savvy investors willing to jump in when others hold back. I've always been a bit of a contrarian, betting against the herd, and here's an example where I think it's exactly the right strategy. There will be superb opportunities to invest in bargain properties over the coming months  - say from now to a few months after the election. Don't miss out.

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Live with Abundance

Rod Thomas FCA

Posted in UK Property News

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