Our readers are always keen to hear the current views and musings of experienced landlords. This week we are delighted to relay the thoughts of David Lawrenson. Perhaps best known in the industry as the founder of property consultancy LettingFocus.com and the author of “Successful Property Letting” – one of the UK’s highest selling books on buy to let – David also manages a portfolio located in the S E London / North Kent area.
Here are his thoughts on why the financial crash and the events of 2020-2022 helped property buyers and landlords.
Why the financial crash and the ‘Plandemic’ was good for property buyers and landlords
“… The central bank base rate sets the rate on which mortgages are based. Well sort of. It’s a bit more complicated than that, involving competition between lenders, appetite for risk, the type and size of loan and something called swap rates, among other factors.
But to keep it simple, over time there is a correlation between the central bank base rate and the interest rates charged on loans, mortgages as well as the interest rate paid out on savings.
At the beginning of 2008, the Bank of England base rate was 5.5% – historically a typically normal rate.
But in October 2008, when the financial crash happened, the BoE base rate was marked down to less than 1% and remained that way until the middle of 2022, reaching a low of 0.25% for much of 2020 and 2021.
These are the lowest rates that the Bank of England base rate has ever been at – and their history dates back to 1694!
Many Marxists would say these desperate measures show that the capitalist system is broken – and this sort of thing just proves it. Many people of other political persuasions agree. History will tell in good time.
But the crashing of lending rates was a massive boon to house prices. People could suddenly take out larger loans and “afford them”, though only as long as the interest rates stayed low. House prices and all real asset prices boomed, albeit after an initial and short stock market shock which lasted only until March 2009.
They were the people on fixed incomes and savers who depended on bank interest.
So, since the 2008 crash, anyone who was already in property benefitted from fast rising house prices and rock bottom interest rates. The inflation of house prices quickly eroded the size of borrowers’ loans in real terms and the pay out on those loans in interest payments fell markedly too. Double whammy!
Come 2020 and what I call the “Plandemic” – base rates were ratcheted lower still to 0.25% – to further prop up the financial system with illusory cash. Even happier days for those already in property. Triple whammy!
Now, in 2023, the impact of all this new money, the effect of paying people to stay home and do nothing for a year or so, (except be scared perhaps), has all come home to roost, with higher (normal) inflation rates and much increased base rates arriving to help drive down that inflation. Bank of England base rates are at 4.50% cent at the time of writing and expected to hit 5.00% in due course.
Some might ask how it took 14 years of money printing by central banks before inflation inevitably took off?
Well, that is a good question.
Perhaps the answer lies in the Far East, where cheap labour led to a huge boom in production of every sort of consumer goods (and many industrial goods) that could be imagined. Thus, this extra supply was able to soak up all the new money that the West was issuing and the resultant demand that created.
But sometimes trains hit the buffers. And now the train of the economy certainly has.
But those who invested in property have had a very good run indeed – and low interest rates and rising house prices caused by the economic policies since 2008/9 right up to 2022, have been nothing to complain about and, I believe, make up for the increased regulation and taxes landlords now face…”
For further information on David Lawrenson & Letting Focus click here: Home – Letting Focus
The Next Property Investor Show will take place on 6th and 7th October 2023 at London ExCel