April 28th, 2015. Ben Lloyd
Who Will Benefit from UK Property Hikes?
Whenever there are significant changes to the economy, one group will benefit while another will struggle. Our current economy is still weak from the recession and interest rates are at an all-time low, causing housing debt to skyrocket.
With the recent announcement of property hikes around the UK – 2.6% in the first quarter of 2015 – it is worth looking at who will benefit from the rise of house prices.
Pure Commercial Finance take a look at the numbers and put together a generalisation of the people who are likely to see a benefit from this increase, they are:
The older generation who already own property will see their equity drastically increase as a result of this hike. For those who bought into real estate 20 or more years ago, this will expand the already inflated profit that the asset has made over the timespan of their ownership. In many cases this can provide the funds required for a comfortable retirement or to provide their next of kin with a healthy inheritance.
Unlike investment real estate, regular home owners will significantly benefit from this increase. This is something that will explicitly benefit those who own their home outright, but has the potential to benefit individuals who are currently mortgaged on the property.
Price hikes are always said to benefit the wealthy and in this case it’s true. People with money are likely to have it invested in real estate, among other place, in which case they will see huge profits as a result of these hikes.
The other benefit from this is that despite the increases, wealthy individuals will still be able purchase desirable real estate. As the property market is not settled, chances are the prices will continue to rise for a considerable amount of time yet.
As the price of property increases, so too do interest rates. This isn’t great news for your average borrower, but it is welcome news for lenders. The current interest rates have been stagnant now for several years at the lowest possible rates; this has allowed borrowers and investors to greatly benefit from low rates but hasn’t provided the profit that the banks require. By being able to increase their interest rates, banks will make a greater profit on every deal they make allowing them to reinvest the money and provide better offers to their customers.
It isn’t all rosy for banks, however. There are many calls to bring in further cuts to interest rates in order to try and help the economy. The worry here is that it could cause the housing bubble to inflate even further, potentially leading to another crash. One suggestion to combat issues caused by this hike is to lend based on a floor assessment rate of 2 percentage points above the standard variable rate. This will ensure that lenders only provide funding to individuals who would be able to afford repayments even if the interest rates increased suddenly.
Naturally, anyone who has money invested in real estate will experience a significant increase in their profits. Some areas of the UK have seen large increases in property prices so far in 2015, with continued growth predicted to occur nationwide. One of the biggest benefits to this price hike is that investors will be able to see their projects growing much quicker than they initially expected them to.
Due to this shift in the property market, there is likely to be a huge increase in foreign property investors looking to take on projects in the UK. This in turn should help strengthen the UK economy and further inflate prices as the demand continues to increase.
People looking to become property investors, those with a strong financial backing, need to try and get into the game now. By starting off small now, you could see huge capital gains in a relatively short space of time compared to the market two or three years ago. While initial costs may be increased, these hikes are a continued development that investors of all stages will benefit from.
Want to get tailored finance deals that suit you down to the ground or perhaps you’re looking for amortgage for your property portfolio? Talk to Pure Commercial Finance today; as an independent broker we scour the entire market to find a deal that is perfect for your needs. Call us today on 02920 766 565 to find out exactly what we can do for you.
Article By Ben Lloyd
April 28th, 2015
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben