What will the 0.25% Interest Rate do to the Falmouth Property Market?

 

I had an interesting chat with a landlord from Maenporth who owns a few properties in town. He popped his head in to my office as his wife was shopping in the area (and let’s be honest talking about the Falmouth Property Market is a lot more interesting than clothes shopping!). We had never spoken before (because he uses another agent in the town to manage his Falmouth properties) yet after reading our blog on the Falmouth Property Market, the landlord wanted to know my thoughts on how low interest rate would affect the long term Falmouth property market. I thought I would share these thoughts with you……

 

It has been three months since interest rates were cut to 0.25% by the Bank of England. 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. As a consequence the British economy remains highly susceptible to an 'economic shock'. This is particularly important in Falmouth, 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 Falmouth, of the 9,988 people who have a job, 964 are in the manufacturing industry and 639 in Construction meaning (see note 1 below) 

 

 

9.7% of Falmouth workers are employed in Manufacturing

 

and 6.4% of Falmouth workers are in Construction

 

The other sector of the economy the Bank is worried about, and an equally important one to the Falmouth economy, is the Financial Services Industry. Financial Services in Falmouth employ 170 people, making up 1.7% of the Falmouth 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. That is unlikely to do much to the Falmouth 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 St banks pass on the base rate cut to people and businesses, meaning in theory the banks will have lots of cheap money to lend for mortgages. This relaxation on lending on the other hand could have a dramatic effect on the Falmouth property market. One hundred billion pounds is enough to buy half a million homes in the UK! (See note 2 below)

 

It will take until early in the New Year to find out the real direction of the Falmouth property market and the effects of Brexit on the economy as a whole. However, something bigger than Brexit and interest rates is the inherent undersupply of housing (something we have spoken about in our blog and the specific affect on Falmouth). The severe undersupply means that Falmouth 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.

 

 

 

Reference Note

1.     Numbers relating to the people working are based on the 2011 census statistics.

2.     Half million houses is £100bn divided by the average value of a UK property at £260,000 and assuming a £200k mortgage