I had an interesting chat with a Trinity landlord who owns a few properties in the town. He popped his head in to my office as his wife was shopping, we had not spoken before (because he uses another agent to manage his Edinburgh properties) yet after reading my blog on the Edinburgh Property Market for a while, the landlord wanted to know my thoughts on how the recent interest rate cut would affect the Edinburgh 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 Edinburgh 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 Edinburgh, of the 227,978 people who have a job, 25,306 are in the Financial Services industry and 10,715 in Construction meaning …
11.1% of Edinburgh workers are employed in the Financial Services sector and 4.7% of Edinburgh workers are in Construction
The other sector of the economy the Bank is worried about, and an equally important one to the Edinburgh economy, is the Manufacturing industry. Manufacturing in Edinburgh employs 7,979 people, making up 3.5% of the Edinburgh 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 Edinburgh 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 Edinburgh 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 Edinburgh 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 Edinburgh). The severe undersupply means that Edinburgh 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 propeties being built.
A few more interesting articles about the Edinburgh property market:
- 274% increase in 20 years in Edinburgh – interesting, very interesting http://bit.ly/2cqRvLU
- Edinburgh Buy to Let sees returns of 9.3% in the last year http://bit.ly/2cf5W36
- To buy or sell in the Edinburgh property market? That is the question http://bit.ly/2cBuKHb
- Values of Edinburgh flats smash through the £285/sq ft barrier http://bit.ly/2coIaXx
- Post Brexit property disaster - more like a ‘soft landing’ so far Nationwide claims http://bit.ly/2bW4zYB
- Capital growth AND rental yields are higher outside Edinburgh! Time for an investment re-think? http://bit.ly/2bi6g1n