I had an interesting chat with a Wainscott landlord who owns a few properties in the area. He popped his head in to my office as his wife was shopping in the area (and let’s be honest talking about the Medway property market is a lot more interesting than clothes shopping!). We had never spoken before (because he uses another agent in the area to manage his Medway properties). However, after reading my blog on the Medway Property Market for the last few months, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Medway property market. I would like to share these thoughts with you now.
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 Medway, 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 Rochester, of the 30,136 people who have a job, 2,249 are in the manufacturing industry and 3,364 in Construction meaning;
7.5% of Rochester workers are employed in the Manufacturing
sector and 11.2% of Rochester workers are in Construction
The other sector of the economy the Bank is worried about, and an equally important one to the Medway economy, is the Financial Services industry. Financial Services in Rochester employ 1,419 people, making up 4.7% of the Rochester 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 Medway 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 Street banks pass on the base rate cut to people and businesses, meaning the banks will have lots of cheap money to lend for mortgages. This could have a huge effect on the Medway 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 Medway 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 it’s specific affect on Medway). The severe undersupply means that Medway 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.
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Thanks for reading.