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UK properties

The UK's unique position as to demand for property in an incredibly densely populated landscape actually has the effect of giving some assurance to property investment over time, but as any investor understands, the timing of decisions is crucial to survive the slings and arrows of the markets.With the US reducing interest rates to avoid recession, it was inevitable that long term interest rates across the global financial markets reduce to their lows, as the cost of being deprived of money into the future was not as onerous as when interest in the short term were high, and a really significant sacrifice was being made to invest in long term instruments like treasury bonds. Of course with this kind of flattening yield curve, and the fact of other investments such as property promising to hold their value and offer a reasonable return, many investors stood firm with their UK property, as it was surprisingly robust compared to other property markets. A large amount of UK property buyers were mortgaging to invest under the proverbial buy-to-rent mortgage, as they felt that further capital gains were probable. The fact that the Bank of England had cut rates in 2005 also supported the premise that funding was easier, and so the property market was seemingly a viable proposition.

To the property investor this made perfect sense at the time.Another factor pertinent to the UK property market was the price of the British Pound. The currency had experienced weakness due to the string of Current Account deficits, and the fact that the UK had an insatiable thirst for imports. Of course this led to a slight lack of faith in the Pound, and also threatened inflation as the price of goods and services escalated merely due to the devaluation in the currency.

It was really a case of the chicken or the egg, because the Bank of England had already dropped rates in 2005, and if the property market turned, together with the doubts regarding the widening Current Account deficit and the weakening currency, the Bank of England may not have been able to drop rates further to stimulate the economy and stave of recession, for fear of obliterating the value of the Pound. Indeed the conundrum to be faced in this event was worsening inflation due to investments rejecting low yields and selling the Pound, thus weakening the currency which would lead to a rise in inflation, and the futility of dropping rates further in order to stimulate the economy and the property market.

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