Thursday, 22 September 2016

0.25% interest rate cut – what will it do for the Penicuik Property Market?

I had an interesting chat with a Valleyfield landlord who owns a few properties in the town. He popped his head in to my office as his wife was shopping at the Friday market, we had not spoken before (because he uses another agent to manage his Penicuik properties) yet after reading my blog on the Penicuik Property Market for a while, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Penicuik property market and I would also like to share these thoughts with you …

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 Financial Services and Construction industries. You see for the country as a whole, the Financial Services 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 Penicuik because, even though we have had a number of local success stories in Financial Services and Construction, a large number of people are employed in these sectors. In Penicuik, of the 8,028 people who have a job, 602 are in the Financial Services industry and 594 in Construction meaning …

7.5% of Penicuik workers are employed in the Financial Services sector and 7.4% of Penicuik workers are in Construction

The other sector of the economy the Bank is worried about, and an equally important one to the Penicuik economy, is the Manufacturing industry. Manufacturing in Penicuik employs 409 people, making up 5.1% of the Penicuik 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 Penicuik 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… which will have a huge effect on the Penicuik 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 Penicuik 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 the specific affect on Penicuik). The severe undersupply means that Penicuik 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. 

A few more interesting articles about the Penicuik property market:

1 comment:

  1. Great market research about property management. Thanks for sharing this post.

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