The primary benefit of low interest rates is their stimulative effect on economic activity. By reducing interest rates, the Bank of England helps encourage business spending on goods, which also helps the economy’s long-term performance. As a result, this helps household expenditures on homes; property sales are generally higher when mortgage rates are lower. The outlook is interest rates are expected to remain low.
A second benefit of low interest rates is improving the banks’ capacity to lend and at lower rates. This benefits property developers to part-finance profitable projects.
Shortage of new builds
The number of new homes is far short of the 300,000 target set by the government. There is still a large shortage of properties in the United Kingdom and this trend is likely to continue despite Brexit. There had been fears that Brexit will result in an exodus of large number of EU nationals working in the United Kingdom. However, government plans to grant EU nationals’ permanent status has only exasperated the shortage issue of new build developments.
In addition, the demand for housing will carry on increasing which will continue to push up the price of property for the foreseeable future.
According to the Office of National Statistics there will be an annual shortfall of housing in the UK of over 100,000 properties each year for the next decade. If current trends continue, this equates to a shortfall of 1 million housing by 2025.
Financing for reputable developers
In 2015, landlords purchased 120,000 houses using buy-to-let finance, but the Council of Mortgage Lenders expects this to fall below 80,000 in 2018. Harder lending criteria are slowly tipping the balance in favour of homebuyers rather than property investors.
Reputable property developers however with a successful and profitable development record, obtain financing at favourable rates to part-finance buy-to-let projects such as a House with Multiple Occupation - HMO. The tougher lending criteria lead to opportunities for well financed developers or those able to obtain financing.
Stamp duty cut sustains developers
Stamp Duty Land Tax (SDLT) is a tax on properties or a piece of land bought in England and Northern Ireland that costs more than £125,000. This tax applies to all freehold and leasehold properties.
The government help-to-buy scheme for first-time buyers was given another £10 bn increase until 2021, which has resulted in increasing the price of new build developments.
Political and economic stability
Economic growth, peace, good governance and adherence to the rule of law are the foundations of political stability. Despite the forthcoming withdrawal from the EU, the United Kingdom remains an economic power with great political and cultural influence around the world.
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