Interest Rates Slashed

In this I'm going to talk all about the fact that the major mortgage companies are slashing their interest rates. What exactly does this mean for you as a property investor and as a homeowner?

it's probably better news for you as a homeowner because many of the headlines are actually talking about repayment mortgages that are not relevant to us as property investors. Also, many of the low rates that we're seeing below 4% are only available if you're getting a 50 or 60% loan to value mortgage. As a property investor, we typically might want to get as high as 75%. So as investors, actually we are seeing rates have come down as well, and the average two year fixed mortgage is probably less than 6% now, which is good news. However, there is a hidden factor that most people are not aware about. When you see the low headline rate or the lower headline rates, you think that's fantastic news. But what many of the mortgage companies are doing is increasing their arrangement fee to make sure they still make lots of money from people who are taking out Buy to Let mortgages right now.

Typically in the past you might have paid one to maybe even 3% arrangement fee, which was seen as quite a high arrangement fee. Right now, some lenders are charging five and even 7% as arrangement fees. These are added to the loan, which obviously you don't have to pay for it now, but you're going to be paying interest on that for the length of the loan as well. So that is pretty expensive. But I guess you've got to put it into the context of what this is enabling you to do. If it means you can acquire a property that's going to give you cashflow now and have long-term equity growth, that extra five or 7%, although it kind of stings right now, actually it's going to pale into insignificance when that property doubles in the next 10 or 15 years. So really, it's all about understanding the value rather than the cost of things.

What Are The Major Lenders Doing Right Now?

Mortgage companies are profiteering right now. They're making lots and lots of money. The reason everyone is bringing their rates down is there's a wide expectation that the Bank of England will lower their base rates because inflation is coming down. That's the premise on which they're making these decisions.

However, I feel that everyone has missed something. I feel that because of the problems we're having at the Red Sea, whether the freight and cargo ships are being attacked, it means the cost of shipping has gone up massively two and a half, if not even three times.

What this means is this will have a direct impact on any goods that are imported to Europe and the UK from China.

Normally, they go through the Red Sea and the Suez Canal. Now the freighters are going round South Africa. That takes about an extra nine days.

There's an extra 4,000 kilometers, and it costs about an extra 800,000 pounds per trip.

So this cost is being put onto all the people that are bringing goods into the UK and Europe. This means costs of goods are going to go up.

"Typically in the past you might have paid one to maybe even 3% arrangement fee, which was seen as quite a high arrangement fee."

A friend of mine imports baby goods such as high chairs and seats for babies. He says he's going to have to put his prices up 20% just to cover the increased cost of shipping. So if you think about that, that's going to happen in the next month or two. So I don't think we're going to see inflation go down. I think we're going to see inflation spike up.

Now, it might take a month or two for that to come through, but if inflation goes up, I can't see the Bank of England lowering their interest rates very soon.

Property Price Prediction

The 1st of February is the next date where the Bank of England monetary policies sit together to decide what they're going to do. Many people think rates might come down and they might well do, but I don't think they will. In fact, I think we're probably going to see interest rates stay where they are, probably for the first half of 2024. I did expect in Q2 to see rates to come down, but with this new inflation that's going to hit the market, I think it's probably going to have to wait longer for that. So what does that mean for property prices?

Well, we've seen in the last couple of months of 2023, we saw a little bit of a jump up in property prices, the average prices. But I think that was skewed because some larger properties were coming to the market and they were selling. So I think the average situation is prices are going to come down. And in fact, in a recent article by Halifax who are the biggest mortgage lender, I think they're predicting property prices will come down by about 4% in 2024. And I think that's probably a reasonable estimate with everything that's happening. So what does this mean for you and your property investing? Well, personally, I'm looking to refinance some properties right now while we're seeing this slight decrease in interest rates because I think that might be short-lived. I think rates might go up again in the next couple of months. I'm doing refinances right now.

Golden Rules of Property Investing

Also this year, 2024 is probably going to be one of my biggest property acquisition years. I say acquisition because I mean buying as well as controlling property on purchase. These options. I've got a very big project I'm doing, and I've got some very big goals for this year. So I'm going to be buying a lot of property, and I think this is such a good time to buy. I always say it's always a good time to buy property as long as you know what you're doing. It doesn't matter what's happening in the market, but I really mean, right now, in 2024, particularly this first six months, when there is uncertainty, when I think we're going to see property prices still come down, there's a huge opportunity.

There's always a little bit of a boost in property prices in the spring because people think, right, I'm going to sell my property. A lot of people think about moving, so that often happens in springtime, but it's going to be interesting to see what happens with relatively high interest rates still for first time buyers, for movers, and also for property investors. I don't think everyone's going to be as keen to move right now because it's going to cost them a lot of money even though rates are apparently coming down. So we're going to have to wait to see.

"I always say it's always a good time to buy property as long as you know what you're doing."

My overall message from this blog is, if you know what you're doing, do your due diligence, do your research. If you're following the five golden rules, particularly number two, three, and four. Number two is you buy in an area with strong rental demand, and there's really good demand in the UK right now. Number three is we always buy for cash flow. It must make us cash flow every single month. And number four is that we're buying for the long term. If you're following those three rules in particular of the five golden rules, then I think you're going to be okay. If you're buying right now in 2024, taking advantage of the fact that there is not much competition, most investors are sitting by the sides waiting to see what happens. So I think if you get out there and take action, you're going to do really well.