The Mermaid puts on her Witches Hat
This section is a ‘seriously light-hearted’ look at the market. Listening to hundreds of hours of speakers and spending even more hundreds of hours networking – I have the privilege of hearing, discussing and debating the current economic climate. The events since 2007 are certainly new but not so unprecedented… read below to find out my take on the coming year.
Its nearly the end of March, and the Chancellor’s budget is looming, what does the future hold? I stand by my previous predictations below …. here’s an update ……
Plan wisely we are in for a bumpy ride! With the election looming – it is hard to predict how the market will react. In all honesty it doesn’t really matter who wins – we are stuffed (being polite there). Why? Because we have to start paying back the debt we are in – sooner or later.
If the Conservatives get in to power then they may well act more swiftly to start reducing the outstanding budget deficit. Having said that the election is in May and the House of Commons Summer Recess is only weeks away, in reality how much can be accomplished before September remains to be seen. I think there is little doubt that taxes will rise – they have to …. And that there will be cuts in public sector jobs, one approach to generate money for the Treasury the other to save money. What will this mean, things will cost more, inflation will start to climb and with that the risk of interest rate rises. It also means areas of the country that have large government facility, also at a micro-level in local Councils we wills tart to see redundancies and therefore rising unemployment. That of course brings the risk of mortgage defaults and repossessions. Is that sounding like its all doom and gloom?
If Labour get in I think things will be worse, why ? because where the Conservatives can (and will) take drastic measures to reduce the debt …. Labour will not be prepared to admit their mistakes. I think they will take a slower more cautious approach – which will be in effect more painful as the debt technically increases in real terms. We will still suffer from inflation, businesses will go to the wall as financing is stifled by over cautious banks and increasing rates, that will take many to the wall.
Hold on a mo! You said rates wouldn’t rise before ……I still hold that to be true. I don’t believe (in my opinion) that rates will rise by that much, certainly not all the way back to 5% of old. Lenders currently have such high margins (ie the difference between a base rate of 0.5% and their current loan charges of 4-5%) and high arrangement fees that they are laughing.
The people who will suffer are businesses and home owners who are hanging on by their fingernails. People who if rates change by just 0.5% on a £200k debt, meaning an additional £100+ a month in expenses !! ….!! … Just look at what has happened over the last year, unemployment has not reached expectations – why/ did the pundits get is wrong? – unlikely! What I believe has happened is that businesses have used a combination of pay freezes, low or no pay rises, no or limited overtime and a system of not replacing every vacancy to reduce their labour over heads – notably the highest expense most businesses face.
The impact on the average family is a real time loss of earnings as salaries are frozen, an actual loss of income as overtime is reduced or frozen (in my household alone our income through combined salaries has dropped £2-400 per month plus salary freezes !). This has been mitigated by a reduction and temporary freeze in mortgage payments.
The end result is that the cost cutting will only help business for so long … before they have to actually cut staff. The mortgage rate is only going to hold for so long before it rises even 1% The combination of no overtime, no pay rise, increased mortgage payments and then rises in taxes (petrol, alcohol, cigarettes, VAT?, income tax ??, National Insurance? Road Tax??, capital gains? Inheritance? Even Council Taxes !!!) will have a dramatic effect on family budgets. Add this happy (read irony here) news to a potential slow down or fall in the property market by the end of the summer at the latest and these families will also be in either negative equity or on the brink.
As a family – review your budgets – make cost savings now, know your expenses and know your income. Balance these figures and get yourself back in the black, start building a small nest egg to help you through the bleak winter ahead. On top of that get entrepreneurial – start a part time business to bring in extra income – something like Utility Warehouse that both saves the customer and rewards the affiliate!
As a property investor - review your income and expenses, analyse your assets and liabilities. Review and monitor your rentals versus voids. Monitor and manage your maintenance budgets. Get creative – identify ways to use other people’s money to buy or control income generating assets. Read Rich Dad Poor Dad, Read the Conspiracy of the Rich – the 8 new rules of money. Book to see Robert Kiyosaki, increase your financial IQ.
Let’s see how things progress after the Election – interesting times for sure
Here is to our continued wealth, success and investing
What does 2010 have in store for us ? More doom and gloom or more opportunities ….
Here in mid November (14th to be precise) its easy to start waxing on about 2010 … the answer to the question depends on the action you take …. are you going to be seizing opportunities or waiting for your boss to make you redundant or the bank to repossess you ?
I will assume that if you are reading this site that you are either interested in property investment or entrepreneurial or both, so with that in mind I will get down to the nuts and bolts that will affect us all in the new year.
The Economic Environment – repossessions, unemployment, and consumer confidence
Unemployment will still rise, with that repossessions are more likely and consumer confidence will be affected. Repossessions have currently not been as bad as predicted and that, in part, is because any lender (read ‘business’ here) would realise that selling an asset (read ‘house’) below peak value does not make good business sense.
As soon as the housing market starts to pick up lenders will start to repossess mortgagees that are behind with their repayments and they will start to sell these properties. These will help the lenders recapitalise their books. This will provide an opportunity for the professional investor.
The Financial Environment – Base Rate and availability of funds .
The general opinion, within the circles that know, is that the Base Rate is unlikely to go up much before the end of 2010. Apart from any governmental influence caused by pre and post election politics, the Bank of England will have been pleased to see that inflation rose by 1.5% in October. There are so many people that can only afford to pay their mortgage because the interests are low.
While the Base Rate is neither there for the benefit of homeowners – nor under the direct control of the politicians, I would argue that both of those factors influence decisions enormously. Why … because if the Bank of England Base Rate rises then more homeowners will default, more repossessions, over supply and depression in the housing market will have an impact on the rate of inflation and so on.
The key message here is what are you going to do to maximise your income and business growth in the coming year? You need to understand your business strategy, your approach towards risk, and using the combination of all that information what is your financing strategy, what mortgage products?
What are your thoughts on the market and the coming year? Do you think we are heading for the ‘Dead Cat Bounce’?
House Prices to weaken again in the New Year state Savills
An article by the FT.com on 6th November 2009 predicts that house prices will fall again in the New Year. This will be in part, due to the continued weaken economy and also the demand in the market. While lending has been challenging over the last nine months, property demand has been boosted by a significant number of cash rich investors. As these cash investors start to run out and in the absence of big city bonuses that leaves the market reliant on those buying with mortgages and foreign investors. This will have an impact and according to Savills the market will fail again next year. So watch this space.