As is the case with many sectors of the UK economy, since 2008 the property market has experienced, at best, mixed fortunes. The number of people buying properties outright or with standard mortgages has fallen thanks in no small part to sky-high prices, while those looking to make money from selling homes and office space are left wondering whether they can make profit at all.
At the moment, buying property simply to sell on for a higher price is one of the riskiest things that any business owner could do. The property sector isn’t a seller’s market right now, as resale values for homes and commercial properties aren’t what they were during the housing boom which ground to a halt towards the end of the last decade.
Letting to the rescue?
Banks and building societies who are struggling to sell mortgage products to either businesses or homeowners may have found that while demand for buying property is at a pretty low level, the opposite can be said for renting. As many small firms and house-hunters don’t have the means to even pay a deposit for a mortgage, renting a property is the only option they can afford.
The surge in demand for rental properties has given many property investors large and small a lifeline in the form of a buy-to-let mortgage boom. Banks, unsurprisingly, are among those most likely to benefit from a rise in demand for buy-to-let mortgages, not least because many people looking to become business owners find that being a landlord can be lucrative.
The demand for rental properties, whether commercial or residential, has provided aspiring landlords with a good reason to get into business. On the face of it, buy-to-let mortgages are offering people an opportunity to become a landlord without having to spend too much money on deposits or monthly payments, especially with the Bank of England base interest rate so low.
There are questions over whether the surge in demand for buy-to-let mortgages can be sustained. The main one could depend on whether houses, offices, warehouses and other types of property become more affordable if the UK economy is to grow faster than it is at present. Also, a rise in the base interest rate may render mortgages in general to be more expensive.
Finishing what it started?
Prior to the downturn which started back in 2008, there were fears that the banking and property sectors would combine to cause a crisis, but few experts predicted that such a crisis would last as long as it has. Many blame overheating in the housing market, while the government’s bailout of many banks including RBS and HBOS hadn’t helped.
Ever since the housing boom began in the early 1990’s, prices for property have risen massively to a point where mortgages were only affordable through low interest rates. Many people who didn’t have the means to pay for mortgages helped to leave banks offering cheap credit in a difficult situation, as they couldn’t get all their money back.
This led to the bailout of many of the UK’s major banks, which in turn affected confidence from the markets, while it helped to force the current coalition government to implement austerity measures. Basically, the recessionary climate which began five years ago and still hangs over the country like a dark cloud was partly down to an overheated property market and cheap credit.
Fortunately, the boom in buy-to-let mortgages may provide a little short to medium-term joy. Banks, building societies and other lenders are likely to gain from the demand for such products, while landlords who have buy-to-let mortgages approved can, assuming they market their new properties correctly, can expect to get regular income from renting it out to residents or businesses.
Walking a tightrope
Having only narrowly avoided a ‘triple-dip’ recession, the UK economy has been in limbo since the climate as we know it today first became apparent. Although the economy is growing again, it’s at a pretty sluggish rate and isn’t nearly enough to make up for the losses incurred throughout that period, and recent forecasts make for further grim reading.
The UK economy over 2013 is forecast to grow by 0.8% this year, which is higher than the initial 0.7% but still pretty disappointing. The predictions for 2014 aren’t too good either, with growth expected to be in the region of 1.5%. Although any growth is seen as good, especially in light of events in the past few years, it’s still not sufficient enough for many peoples’ liking.
Income provided by buy-to-let properties can help to keep landlords ticking over, and at a time when property prices seem to be stubbornly high, becoming a landlord seems to make good business sense. A spokesperson from Totally Money commented:
“It’s no surprise that buy-to-let is booming. Low interest rates are here to stay for at least a couple more years, meaning mortgage payments will stay low while savers suffer – the average savings yield is an abysmal 1.09%.
“With rental yields soaring upwards of 6% in parts of the country, it seems that buy-to-let is starting to look like a smart investment. If you have the capital then the rewards are very attractive – there are few other investments that come with an expectation of inflation-busting income as well as capital appreciation”, they added.
The housing market is likely to pick up slightly in the near future. According to the Nationwide, house prices rose on average by 0.4% in May, which hints that after some turbulence, the market is about to pick up, while prices are expected to remain high, making it difficult for first-time buyers.
For the housing market to see any sustained growth, a wider rise in living standards is needed. Many people looking to buy rather than rent find that, with low interest rates, it’s hard for them to save money necessary to afford to pay for a deposit, which puts lenders in an awkward position.
Not company earnings, not data but vaccines now steering investor sentiment
By Marc Jones and Dhara Ranasinghe
LONDON (Reuters) – Forget economic data releases and corporate trading statements — vaccine rollout progress is what fund managers and analysts are watching to gauge which markets may recover quickest from the COVID-19 devastation and to guide their investment decisions.
Consensus is for world economic growth to rebound this year above 5%, while Refinitiv I/B/E/S forecasts that 2021 earnings will expand 38% and 21% in Europe and the United States respectively.
Yet those projections and investment themes hinge almost entirely on how quickly inoculation campaigns progress; new COVID-19 strains and fresh lockdown extensions make official data releases and company profit-loss statements hopelessly out of date for anyone who uses them to guide investment decisions.
“The vaccine race remains the major wild card here. It will shape the outlook and perceptions of global growth leadership in 2021,” said Mark McCormick, head of currency strategy at TD Securities.
“While vaccines could reinforce a more synchronized recovery in the second half (2021), the early numbers reinforce the shifting fundamental between the United States, euro zone and others.”
The question is which country will be first to vaccinate 60%-70% of its population — the threshold generally seen as conferring herd immunity, where factories, bars and hotels can safely reopen. Delays could necessitate more stimulus from governments and central banks.
Patchy vaccine progress has forced some to push back initial estimates of when herd immunity could be reached. Deutsche Bank says late autumn is now more realistic than summer, though it expects the northern hemisphere spring to be a turning point, with 20%-25% of people vaccinated and restrictions slowly being lifted.
But race winners are already becoming evident, above all Israel, where a speedy immunisation campaign has brought a torrent of investment into its markets and pushed the shekel to quarter-century highs.
(Graphic: Vaccinations per 100 people by country, https://fingfx.thomsonreuters.com/gfx/mkt/azgvolalapd/Pasted%20image%201611247476583.png)
SHOT IN THE ARM
Others such as South Africa and Brazil, slower to get off the ground, have been punished by markets.
Britain’s pound meanwhile is at eight-month highs versus the euro which analysts attribute partly to better vaccination prospects; about 5 million people have had their first shot with numbers doubling in the past week.
Shamik Dhar, chief economist at BNY Mellon Investment Management expects double-digit GDP bouncebacks in Britain and the United States but noted sluggish euro zone progress.
“It is harder in the euro zone, the outlook is a bit more cloudy there as it looks like it will take longer to get herd immunity (due to slower vaccine programmes),” he added.
The euro bloc currently lags the likes of Britain and Israel in terms of per capita coverage, leading Germany to extend a hard lockdown until Feb. 14, while France and Netherlands are moving to impose night-time curfews.
Jack Allen-Reynolds, senior European economist at Capital Economics, said the slow vaccine progress and lockdowns had led him to revise down his euro zone 2021 GDP forecasts by a whole percentage point to 4%.
“We assume GDP gets back to pre-pandemic levels around 2022…the general story is that we think the euro zone will recover more slowly than US and UK.”
The United States, which started vaccinating its population last month, is also ahead of most other major economies with its vaccination rollout running at a rate of about 5 per 100.
Deutsche said at current rates 70 million Americans would have been immunised around April, the threshold for protecting the most vulnerable.
Some such as Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management, highlight risks to the vaccine trade, noting that markets appear to have more or less priced normality being restored, leaving room for disappointment.
Broadly though the view is that eventually consumers will channel pent-up savings into travel, shopping and entertainment, against a backdrop of abundant stimulus. In the meantime, investors are just trying to capture market moves when lockdowns are eased, said Hans Peterson global head of asset allocation at SEB Investment Management.
“All (market) moves depend now on the lower pace of infections,” Peterson said. “If that reverts, we have to go back to investing in the FAANGS (U.S. tech stocks) for good or for bad.”
(GRAPHIC: Renewed surge in COVID-19 across Europe – https://fingfx.thomsonreuters.com/gfx/mkt/xegvbejqwpq/COVID2101.PNG)
(Reporting by Dhara Ranasinghe and Marc Jones; Additional reporting by Karin Strohecker; Writing by Sujata Rao; Editing by Hugh Lawson)
BlackRock to add bitcoin as eligible investment to two funds
By David Randall
(Reuters) – BlackRock Inc, the world’s largest asset manager, is adding bitcoin futures as an eligible investment to two funds, a company filing showed.
The company said it could use bitcoin derivatives for its funds BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund Inc.
The funds will invest only in cash-settled bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission, the company said in a filing to the Securities and Exchange Commission on Wednesday.
A BlackRock representative declined to comment beyond the filings when contacted by Reuters.
Earlier this month, Bitcoin, the world’s most popular cryptocurrency, hit a record high of $40,000, rallying more than 900% from a low in March and having only just breached $20,000 in mid-December.
Bitcoin tumbled 10.6% in midday U.S. trading Thursday.
Other U.S.-based asset managers will likely follow BlackRock’s lead and add exposure to bitcoin in some form to their go-anywhere or macro strategies as the cryptocurrency market becomes more liquid and developed, said Todd Rosenbluth, director of mutual fund research at CFRA.
“It’s easy to see how strong the performance has been of late and look at a historical asset allocation strategy that would have included a slice of crypto and how returns would have been enhanced as a result,” he said. “Large institutional investors are going to be able to tap into the futures market in a way that a retail investor could not do.”
There is currently no U.S.-based exchange-traded fund that owns bitcoin, limiting the ability of most fund managers to own the cryptocurrency in their portfolios.
BlackRock Chief Executive Officer Larry Fink had said at the Council of Foreign Relations in December that bitcoin is seeing giant moves every day and could possibly evolve into a global market. (https://bit.ly/2XXFHrB)
(Reporting by David Randall; Additional reporting by Radhika Anilkumar and Bhargav Acharya in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker)
Bitcoin slumps 10% as pullback from record continues
LONDON (Reuters) – Bitcoin slumped 10% on Thursday to a 10-day low of $31,977 as the world’s most popular cryptocurrency continued to retreat from the $42,000 record high hit on Jan. 8.
The pullback came amid growing concerns that bitcoin is one of a number of financial bubbles threatening the overall stability of global markets.
Fears that U.S. President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed, traders said.
(Reporting by Julien Ponthus; editing by Tom Wilson)
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