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In the December 2009 Issue of Property Investor News
Editor's Introduction
The Bank of England’s official base rate at the beginning of 2008 was at 5.5% but it is now only 0.5%! This is a fact which any investor-landlord will be very well aware of as they look back over the last 12 months to assess just how and why their own portfolio has performed and ponder just how they can successfully adapt to the changing market conditions for the year ahead.
The key question: What will happen to UK base rates in 2010 and just how might buy-to-let lenders respond to the increasing demand for residential mortgages if the current upturn in sentiment continues through until spring? Do these rising values in what has been a thinly stocked residential sales market have any real foundations - particularly outside of the South East of England - or will a potentially lethal cocktail of rising unemployment, post-election tax increases and rising base rates - perhaps from next autumn - put paid to the recent UK housing market recovery?
The recent pre-budget report (PBR) from Chancellor Darling should have left no one under any illusions as to the scale of the fast rising public sector debt burden and like it or not UK tax payers will have to accept the consequences once the 2010 election is over.
As I have observed more than once in this column, many residential investor-landlords currently have healthy rental cash flows, but this should not be taken for granted and stormier waters may well lie ahead as personal disposable income levels are reduced by the Government's clear need to substantially raise taxes and bring national debt levels as a percentage of GDP firmly downwards in the medium term. If the newly elected government do not act accordingly by next summer, then the credit rating agencies will swiftly downgrade the quality of UK sovereign debt and investors will then demand a higher price for buying gilts which will then lead on to higher bank base rates which will certainly impact onto the currently fragile recovery from recession.
So the current residential sales upturn could well be a good time to rid yourself of any individual units in your portfolio which are more likely to underperform and which would release cash to either re-invest into better quality stock, increase your marketing budget for deals or simply to reduce your overall borrowing LTV's, perhaps to more pragmatic levels thereby reducing forward investment risk.
Whatever you may decide to do in these more uncertain times, may I take this opportunity to wish all readers of PIN and their families a joyful Xmas and of course here's to a happy, healthy and prosperous 2010.
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